Chinese investors eye Brazilian infrastructure. Photo: JorgeWoll.

Brazil is still struggling to recover from its worst recession on record, the full effects of which will only become clear several years down the line. The currency has devalued significantly, and despite a recent rally, the Real has slipped 16 percent against the U.S. Dollar in the last year. A weaker Real causes all sorts of problems at home, not least provoking the ire of consumers who have seen their hard-earned salaries become worth less and less as the years go on.

Another knock-on effect of this, however, has been that it has become a lot cheaper for foreign companies to invest in Brazil. Data from business intelligence tool Transaction Track Record shows that almost 400 Brazilian companies have been acquired by foreigners in the last five years alone.

Almost BRL 133 billion (USD 36 billion) has been spent over this period to buy equity in Brazilian businesses, a trend which has increased even more rapidly in the last year. 2017 saw 108 transactions involving foreign capital, as opposed to 75 in 2016.

Most of this foreign capital comes from the U.S., China, and France; the trio combined for over 30 percent of acquisitions since 2014. The U.S. is the clear leader though, being involved in 75 transactions over the last five years. The Chinese and the French have participated in 23 and 22, respectively.

Brazil For Sale: foreign companies snapping up Brazilian assets

Chinese companies eyeing Brazilian assets in infrastructure

Notable has been China’s particularly significant push on investing in Brazilian infrastructure, spending billions on assets of state-owned electricity distributors Cesp (São Paulo) and Cemig (Minas Gerais). Chinese company SPIC is also in the process of acquiring a controlling stake in the Santo Antônio hydroelectric dam on the Madeira River, the fifth-largest damn of its kind in Brazil, which in May announced it was close to bankruptcy.

Jair Bolsonaro, the frontrunner in the presidential elections and likely to become the country’s next head of state, has been particularly critical of China’s investment spree, signaling that he will look to reduce the country’s influence under his administration. In several interviews, Mr. Bolsonaro has repeated that “China isn’t spending in Brazil, it is buying Brazil.”

Brazil For Sale: foreign companies snapping up Brazilian assets

Speaking to the Brazilian press, head of the Brazil-China Chamber of Commerce and Industry, Charles Tang, claimed that Jair Bolsonaro should “give medals” to Chinese investors, as he believes they are helping the country greatly during its period of economic crisis.

“If Mr. Bolsonaro takes over as president of Brazil, he’ll see that China’s involvement in the Brazilian economy is extremely beneficial for Brazil and highly risky for China,” he explained. “China is investing risk capital in an economy in crisis, in a country which is unfriendly towards business.” Since 2016, Chinese companies have invested at least USD 23.9 billion in Brazil.

Today, foreign capital accounts for 70 percent of private sector investment in infrastructure in Brazil. This also comes at a time when public spending on infrastructure is worryingly low. According to the Institute of Applied Economic Research, the total public and private investment in infrastructure this year should correspond to 1.7 percent of GDP. In order to properly modernize the sector, 4.15 percent of GDP would need to be invested, for the next 20 years.

The trend doesn’t show any signs of slowing down, either. This year is likely to see the completion of M&A transactions involving Brazilian giants Embraer and Braskem. The former, the country’s leading aerospace conglomerate, has agreed on a deal with American planemaker Boeing to concede a controlling stake in its commercial aircraft branch, a new joint venture worth USD 4.75 billion, of which Boeing would control 80 percent. The Brazilian government does have veto rights on the deal, however, and its consummation will depend on the country’s next president.

Braskem, on the other hand, is set to be taken over by Dutch-based chemicals company LyondellBasell. The current controlling shareholder in the Brazilian petrochemical firm is Odebrecht, which has been forced to sell off assets to repay debts after its involvement in the Operation Car Wash corruption scandal. Odebrecht is also involved in the sale of the Santo Antônio hydroelectric dam to the Chinese, as it was part of the consortium responsible for its construction, and is now looking to get rid of its stake.

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MoneyOct 25, 2018

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BY The Brazilian Report

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