Brazil has won a significant victory in the global investment stakes with the award of two key investment ratings that are expected to open the way for a flood of foreign investments.
Global credit rating agencies Fitch Ratings and Standard & Poor’s awarded Brazil a second investment grade rating, which means that the country is now considered a safe investment destination after years of boom-bust economic cycles.
The awards indicate a greater degree of economic and political stability that should give foreign investors more confidence in the country, according to both agencies.
Fitch sovereign group managing director David Riley said Brazil’s reduction of foreign debt in recent years was the critical factor in awarding the investment grade. “The government in particular has reduced its foreign currency debt, which has in turn significantly reduced the volatility of Brazil’s economy. We are more confident now that Brazil can grow without going through boom-bust cycles and keep inflation relatively moderate,” he added.
The improved risk rating will also benefit Brazilian multinationals with international expansion plans by reducing the cost of financing and improving their ability to raise funds to invest abroad.
Brazil’s new investment status will further compound the country’s position as Latin America’s top investment destination. A study in May by the Economic Commission for Latin America and the Caribbean found that Brazil was the leading FDI recipient country in Latin America with a $34.6bn share of a total $106bn of incoming investment in 2007.
The World Association of Investment Promotion Agencies president and Brazil investment agency head Alessandro Teixeira said the record levels of investment demonstrated that Brazil was finally realising its potential as an investment destination. “We can offer a strong internal market, with consistent industrial, technology and export promotion policies,” he said. “Investment is not the end but only the beginning of the FDI cycle; a recipient country must be able to absorb the investment with a skilled workforce and good governance.”
Although the services sector received the majority of Brazil’s FDI in 2007 – supported by a young, educated workforce – the country is a strong exporter of commodities and, unlike other emerging economies such as China, is not reliant on imports. Major multinational investors include BP, which recently announced a $560m joint-venture investment that includes the construction of two ethanol refineries to produce ethanol from sugar cane.