What's Next for Brazil?
Tomorrow’s Global Business, our ongoing series with the Financial Times, headed to Brazil for our recent thought leadership forum, Powering Brazil’s Future Growth, held in São Paulo.
The Finance Minister of Brazil and senior executives from Petrobras, BTG Pactual, Braskem, and Morgan Stanley joined us as featured speakers. They shared their insights on how new market-oriented policies are steering the economy toward sustainable growth and creating opportunities for international and local investors, though challenges remain. Our speakers identified several critical trends to follow in 2017 and beyond:
Top Trends to Follow
- Brazil appears to be at a turning point, with macroeconomic reforms underway to boost productivity, reduce bureaucracy, and create a more market-friendly economy.
- A number of significant microeconomic reforms—including labor, pension, tax, and infrastructure concession reforms—have also been proposed.
- Powered by these reforms, the Brazilian stock market has been on a strong upswing over the past year, capital markets transactions have resumed, and the M&A environment has improved. There is optimism among business leaders that this surge will keep up momentum through 2017, provided the reforms continue to progress.
- Transparency has increased significantly in post-Lava Jato Brazil. Together with the macroeconomic reforms, this is making the country more attractive to foreign investors, including private equity funds.
- Privatizations in key sectors such as airports, roads, water and sewage, energy, and infrastructure are creating new opportunities for foreign investors; increased flexibility in the rules covering oil and gas and other sectors is also providing entry points for more foreign participants.
- The government's lifting of the restriction on foreign ownership of land should likewise lead to a wave of investment by foreign companies looking to expand their operational borders.
- The added “Brazil cost” of doing business in the country and the difficulty of starting and winding down businesses in Brazil are still barriers for foreign companies. However, the reforms underway have the potential to address these issues.
- With an election coming up in late 2018, there is concern about whether the next government will continue Brazil's agenda of fiscal and productivity reforms, which could spur steady growth well into the next decade.
Market Outlook 2017
Roberta Bassegio, chair of our São Paulo office, discusses the outlook for increased foreign investment in Brazil.
Special Report: Alternative Finance
Our ongoing thought leadership series with the Financial Times includes a series of special reports published by the FT on issues critical to companies pursuing growth in the global marketplace. The latest report takes a closer look at recent developments in alternative finance.
Read FT’s special report
Spotlight on Growth in Brazil: Q&A with Roberta Bassegio
What is the critical “missing piece” needed for growth? Roberta Bassegio, chair of our São Paulo office, discusses the trends shaping investment opportunities in Brazil, as well as the top issues we will explore in our exclusive forum.
What trend or development will have the biggest impact on our international clients doing business in Brazil in the year ahead?
As the Brazilian economy starts to recover, opportunities continue to grow in areas such as M&A and restructurings, and we expect a small but discernible comeback for international financing and debt and capital markets. The government has announced key policy changes to boost foreign investment, removing certain restrictions on foreign capital in the health, aviation, and agribusiness sectors. It has also issued more flexible rules for the oil and gas industry, where Petrobras is no longer the exclusive operator for the pre-salt reserves and onerous local-content requirements were reduced by half for the next E&P bidding rounds. Revised concession rules for the energy and infrastructure sectors and the large privatization program in place are also expected to drive international interest in Brazil.
What development do you think will be the biggest driver of growth in Brazil? Is there one particular “missing piece” that would be the catalyst for growth?
With inflation under control (annual inflation is forecast at 4.5% for 2017) and interest rates on a downward trajectory (the SELIC rate is now at 12.25% and the Central Bank signals that it could get to 9.5% by the end of the year), it is now important that the government succeeds in approving unpopular reforms to rebalance its accounts and foster sustainable growth. Approving those measures would also reduce political turbulence and enable the government to move forward with its plans to resume its infrastructure investment program and privatization agenda which, in addition to the federally-controlled companies, now includes several state-controlled companies and a state-controlled bank.
Making those plans a reality still depends on resolving significant issues with the previous concessions, namely with airports and roads (where financial difficulties and construction delays resulted in claims to restore the economic and financial balance of the concessions), and the reevaluation of such contracts could set the regulatory precedent needed to give comfort to future investments in the area. When it comes to attracting foreign capital into certain of the energy and infrastructure sectors, a key challenge for the government is to find solutions to address the currency exchange rate risk that arises from foreign currency investments (whether capital or debt) where the investment’s revenue is generated in reais.
How would you describe our firm’s practice in Brazil and the services our lawyers in São Paulo offer clients?
From our São Paulo office, we advise both local and international clients on the foreign law aspects of a variety of cross-border matters. Following the trends arising from political and economic developments, over the past year we have been active on M&A transactions, debt restructurings, and compliance and investigations work. Many of these transactions and representations involve other Paul Hastings teams in various offices around the globe – lawyers from our D.C. office, for instance, represented Brazilian company Braskem in the largest FCPA case in history, and our arbitration, M&A, capital markets, and energy teams in New York, Houston, and elsewhere regularly assist Brazilian investors and financial institutions abroad.
We are also involved in local project finance matters in the energy and infrastructure sectors, as well as with other structured finance matters, and debt and capital markets. Of particular note, we represented the borrower and its Brazilian and U.S. sponsors on OPIC’s significant loan to Açu Petróleo, one of the only very long-term, U.S.dollar-denominated infrastructure loans consummated over the past year. We expect to see more opportunities in these areas as the country rebounds.
How can Paul Hastings help clients address the current challenges they face in Brazil?
With over 1,100 lawyers in 21 offices around the globe to draw upon, Paul Hastings and our São Paulo office are poised to help our clients achieve their aims. We bring to bear top-tier, integrated, teams covering virtually all aspects of the transactional, disputes, and regulatory/investigative realms. Our Latin America practice includes more than 30 lawyers dedicated to Brazil and the region. Many of them are native or fluent Portuguese transactors. These resources position us to help our clients with their critical legal and business needs across Latin America, and in Brazil in particular.