A recent article at Brazilian newspaper Folha talked about the slowing pace of long-term investments made in Brazil by Europeans.
According to the article, businessmen in the euro zone have brought $8.4 billion to the country between January and April – 42% less than the same period in 2011, which was an exceptional year for foreign investment.
Despite the setback, direct investment by the Europeans this year is the second highest in ten years, which still shows their confidence in Brazil.
Last year, Brazil was the third main destination for EU direct investment, behind only the U.S. and Switzerland, snapping up 9% of the amount invested outside the block (except tax havens), according to data released this week.
Brazil is the fifth largest recipient of investment and should become the fourth by 2013, according to the UN.
For the economist Antonio Correa de Lacerda, from Sobeet (Brazilian Society for the Study of Transnational Corporations and Economic Globalization), the numbers show that the global turmoil has a “dubious effect” on the Brazilian economy.
Despite the crisis putting a “foot on the brake” on investments all over the world, Brazil stands out as one of the few growing economies, albeit at a weaker pace, alongside China.
“The little that the Europeans invest will not be in Europe. Where will it be? China has too much investment. All that remains is Brazil,” said Lacerda.
In Spain, investment dropped 84% from January to April. It must be remembered, however, that 2011 was well above average because of the Telefonica transaction involving Vivo.
For Lacerda, other factors explain the reduction in European investment: the above average performance in 2011 and the change in the level of interest rates and the exchange rate of the real this year, which reduces the gains of the investor.
“Many companies took the opportunity to anticipate the inflows and apply this capital. Afterwards, interest rates fell and the currency devalued. ”
To the chief economist of Telefonica, Luis Afonso Lima, the government could adopt incentives for foreign companies to bring money to compensate for the low investment rate -19% of GDP in 2011.
He says that Brazil will need more foreign investment in the coming years to offset the low national savings.
Although not bringing in much capital, the European headquarters are taking less money out of Brazil in the form of profits and dividends.
The remittance of dividends fell 34% to $3.5 billion, comparing the first four months of 2012 with those of 2011.
Among the explanations are the lower profits and margins in Brazil and the need to reinvest earnings in the country, besides the unfavorable moment for the repatriation of capital due to the fall of the real – with the Brazilian currency devalued, the company gets fewer euros.