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Brazil

Executive Summary

Brazil is the second largest economy in the Western Hemisphere behind the United States, and the twelfth largest economy in the world (in nominal terms) according to the World Bank. The United Nations Conference on Trade and Development (UNCTAD) named Brazil the seventh largest destination for global foreign direct investment (FDI) flows in 2021 with inflows of $58 billion, an increase of 133percent in comparison to 2020 but still below pre-pandemic levels (in 2019, inflows totaled $65.8 billion). In recent years, Brazil has received more than half of South America’s total amount of incoming FDI, and the United States is a major foreign investor in Brazil. According to Brazilian Central Bank (BCB) measurements, U.S. stock was 24 percent ($123.9 billion) of all FDI in Brazil as of the end of 2020, the largest single-country stock by ultimate beneficial owner (UBO), while International Monetary Fund (IMF) measurements assessed the United States had the second largest single-country stock of FDI by UBO, representing 18.7 percent of all FDI in Brazil ($105 billion) and second only to the Netherlands’ 19.9 percent ($112.5 billion). The Government of Brazil (GoB) prioritized attracting private investment in its infrastructure and energy sectors during 2018 and 2019. The COVID-19 pandemic in 2020 delayed planned privatization efforts and despite government efforts to resume in 2021, economic and political conditions hampered the process.

The Brazilian economy resumed growth in 2017, ending the deepest and longest recession in Brazil’s modern history. However, after three years of modest recovery, Brazil entered a recession following the onset of the global coronavirus pandemic in 2020. The country’s Gross Domestic Product (GDP) increased 4.6 percent in 2021, in comparison to a 4.1 percent contraction in 2020. As of February 2022, analysts had forecasted 0.3 percent 2022 GDP growth. The unemployment rate was 11.1 percent at the end of 2021, with over one-quarter of the labor force unemployed or underutilized. The nominal budget deficit stood at 4.4 percent of GDP ($72.4 billion) in 2021, and is projected to rise to 6.8 percent by the end of 2022 according to Brazilian government estimates. Brazil’s debt-to-GDP ratio reached 89.4 percent in 2020 and fell to around 82 percent by the end of 2021. The National Treasury projections show the debt-to-GDP ratio rising to 86.7 percent by the end of 2022, while the Independent Financial Institution (IFI) of Brazil’s Senate projects an 84.8 percent debt-to-GDP ratio. The BCB increased its target for the benchmark Selic interest rate from 2 percent at the end of 2020 to 9.25 percent at the end of 2021, and 11.75 percent in March 2022. The BCB’s Monetary Committee (COPOM) anticipates raising the Selic rate to 12.25 percent before the end of 2022.

President Bolsonaro took office on January 1, 2019, and in that same year signed a much-needed pension system reform into law and made additional economic reforms a top priority. Bolsonaro and his economic team outlined an agenda of further reforms to simplify Brazil’s complex tax system and complicated code of labor laws in the country, but the legislative agenda in 2020 was largely consumed by the government’s response to the COVID-19 pandemic. In 2021, the Brazilian government passed a major forex regulatory framework and strengthened the Central Bank’s autonomy in executing its mandate. The government also passed a variety of new regulatory frameworks in transportation and energy sectors, including a major reform of the natural gas market. In addition, the government passed a law seeking to improve the ease of doing business as well as advance the privatization of its major state-owned enterprise Electrobras.

Brazil’s official investment promotion strategy prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors. Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are foreign investment restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors. The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property.

Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 57 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $70,742 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $7,850 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

3. Legal Regime

9. Corruption

Brazil has laws, regulations, and penalties to combat corruption, but enforcement activities against corruption are inconsistent. Several bills to revise the country’s regulation of the lobbying/government relations industry have been pending before Congress for years. Bribery is illegal, and a bribe by a Brazilian-based company to a foreign government official can result in criminal penalties for individuals and administrative penalties for companies, including fines and potential disqualification from government contracts. A company cannot deduct a bribe to a foreign official from its taxes. While federal government authorities generally investigate allegations of corruption, there are inconsistencies in the level of enforcement among individual states. Corruption is problematic in business dealings with some authorities, particularly at the municipal level. U.S. companies operating in Brazil are subject to the U.S. Foreign Corrupt Practices Act (FCPA).

Brazil signed the UN Convention against Corruption in 2003 and ratified it in 2005. Brazil is a signatory to the OECD Anti-Bribery Convention and a participating member of the OECD Working Group on Bribery. It was one of the founders, along with the United States, of the intergovernmental Open Government Partnership, which seeks to help governments increase transparency.

In 1996, Brazil signed the Inter-American Convention Against Corruption (IACAC), developed within the Organization of American States (OAS). It was incorporated in Brazil by Legislative Decree 152 and went into force in 2002.

In 2020, Brazil ranked 96th out of 180 countries in Transparency International’s Corruption Perceptions Index. The full report can be found at: https://www.transparency.org/en/cpi/2021 

From 2014-2021, the complex federal criminal investigation known as Operação Lava Jato (Operation Carwash) investigated and prosecuted a complex web of public sector corruption, contract fraud, money laundering, and tax evasion stemming from systematic overcharging for government contracts, particularly at parastatal oil company Petrobras. The investigation led to the arrests and convictions of Petrobras executives, oil industry suppliers, executives from Brazil’s largest construction companies, money launderers, former politicians, and political party operators. Appeals of convictions and sentences continue to work their way through the Brazilian court system. On December 25, 2019, Brazilian President Jair Bolsonaro signed a packet of anti-crime legislation into law, which included several anti-corruption measures. The new measures include regulation of immunity agreements – information provided by a subject in exchange for reduced sentence – which were widely used during Operation Carwash. The legislation also strengthens Brazil’s whistleblower mechanisms, permitting anonymous information about crimes against the public administration and related offenses. Operation Carwash was dissolved in February 2021. In March 2021, the OECD established a working group to monitor anticorruption efforts in Brazil.

In December 2016, Brazilian construction conglomerate Odebrecht and its chemical manufacturing arm Braskem agreed to pay the largest FCPA penalty in U.S. history and plead guilty to charges filed in the United States, Brazil, and Switzerland that alleged the companies paid hundreds of millions of dollars in bribes to government officials around the world. The U.S. Department of Justice case stemmed directly from the Lava Jato investigation and focused on violations of the anti-bribery provisions of the FCPA. Details on the case can be found at: https://www.justice.gov/opa/pr/odebrecht-and-braskem-plead-guilty-and-agree-pay-least-35-billion-global-penalties-resolve  

In January 2018, Petrobras settled a class-action lawsuit with investors in U.S. federal court for $3 billion, which was one of the largest securities class action settlements in U.S. history. The investors alleged that Petrobras officials accepted bribes and made decisions that had a negative impact on Petrobras’ share value. In September 2018, the U.S. Department of Justice announced that Petrobras would pay a fine of $853.2 million to settle charges that former executives and directors violated the FCPA through fraudulent accounting used to conceal bribe payments from investors and regulators.

In October 2020, Brazilian meatpacking and animal protein company JBS reached two settlements in the United States to pay fines to settle charges of corruption. The company is part of the J&F Group, which was also a part of the settlements. The group agreed to pay over $155 million in fines for violations of U.S. laws due to misconduct by J&F and failure to maintain accounting records by JBS. Lava Jato investigations also resulted in the arrest of several JBS executives who also signed plea bargains in the 2020 settlements.

Resources to Report Corruption

Secretaria de Cooperação Internacional – Ministério Público Federal

SAF Sul Quadra 04 Conjunto C Bloco “B” Sala 509/512

pgr-internacional@mpf.mp.br 
stpc.dpc@cgu.gov.br 
https://www.gov.br/cgu/pt-br/anticorrupcao 

Transparência BrasilR. Bela Cintra, 409; Sao Paulo, Brasil+55 (11) 3259-6986http://www.transparencia.org.br/contato

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