Brazil Needs Outward FDI Policy, Businesses Argue

by Mike Godfrey, Tax-News.com, Washington

30 April 2008

A survey of Brazilian multinationals released on Tuesday alleges that the great majority of the companies surveyed feel that their government does not have a policy on outward foreign direct investment (OFDI) for their country.

At the same time, they reportedly feel that such a policy is important, and that a number of instruments are needed to give it concrete expression.

The survey was undertaken by Fundacao Dom Cabral (FDC), a center for executive and company development, in collaboration with the Columbia University Program on International Investment (CPII), over the past three months.

The results were released this week in New York, at the opening of the Five Diamonds International Conference Cycle, entitled "Thinking Outward: Global Players From Emerging Markets", co-organized by CPII, FDC, Indian School of Business, Skolkovo School of Management (Russia), and Fudan University (China).

The firms surveyed were among the top Brazilian multinationals.

Outward FDI from Brazil has risen sharply in recent years, reaching USD27bn in 2006, USD10bn more than inward FDI.

Brazilian firms go abroad for a number of reasons, according to the survey. Chief among these are: access to markets through a local presence, increased competitiveness, access to technology, increased scale of production, and the ability to jump over tariff barriers.

Carlos Arruda, Director of International Relations with FDC, commented that:

"Like their competitors from developed and other developing countries, Brazilian firms invest abroad to maintain or increase their international competitiveness in a globalizing world economy. For some of them, it may well be: internationalize or die."

However, in so doing, Brazilian firms receive virtually no support from their government, the poll argued.

In fact, 20 of 25 firms surveyed suggested that the government does not have a policy toward OFDI. At the same time, they acknowledged that the government has made progress in this respect during the past five years, especially as far as the recognition of the need for a policy is concerned.

This is all the more important, as all developed countries, and a number of emerging markets, have a policy on OFDI, and a range of instruments to implement it effectively.

More specifically, the great majority of corporate executives participating in the survey would reportedly like to see the government put in place a number of concrete policy instruments and implement them effectively.

Most important among these are: the conclusion of double taxation agreements, provision of fiscal incentives for OFDI: tax incentives, tax deductions, etc; conclusion of bilateral and regional treaties to protect investment abroad; providing insurance against political risk; and conclusion of bilateral and regional treaties to liberalize investment conditions in host countries.

The relaxation of foreign exchange controls for FDI came last, the survey compilers noted with interest, reflecting the government's present exchange rate policy, as well as the ability of firms to raise capital abroad.

Thus, Brazilian multinationals see a clear need for the introduction of a number of policy instruments to support their OFDI drive. They also think that the effectiveness of the government in using the existing instruments can be improved considerably.

Concluding, Karl P. Sauvant, Executive Director with CPII noted that:

"This is a wake up call for the Government of Brazil to emulate best practices of other countries, in the interest of the international competitiveness of the country's firms."

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