By Mario Osava
RIO DE JANEIRO, Aug 22 2003 (IPS)

Foreign direct investment (FDI) in Brazil plunged this year, accentuating a trend that has already led many foreign-owned firms to return to the hands of national capital, and which may even reverse several privatisations of public enterprises.

Brazil received 3.5 billion dollars in FDI in the first half of this year, 63 percent less than in the same period in 2002.

Based on that figure, the Brazilian Association of Studies on Transnational Companies and Economic Globalisation (SOBEET) projects that the total inflow of FDI will amount to no more than eight billion dollars this year, compared to 16.6 billion last year.

But last year’s total was far lower than the figures for 1999 and 2000, when privatisations drew more than 30 billion dollars a year in FDI to Brazil.

The main causes of the drop in FDI are the failure to define clear rules and regulations for the expansion of the country’s infrastructure, especially in the energy sector, and the frustration of expectations of the profitability of some sectors, SOBEET economist Fernando Ribeiro told IPS.

The shrinking of the inflow of what many see as ”the right kind” of foreign capital, because it is not speculative like financial investment, was also reflected in the realm of mergers and acquisitions, which boomed around the world in the 1990s, and led to many companies falling into foreign hands in Brazil.

But the ebbing of interest among transnational corporations in the past year and a half led national capital to regain control over 37 companies, according to a study by PriceWaterhouseCoopers (PWC), the world’s largest professional services firm.

The tendency became even more marked in the first six months of this year, when eight businesses became nationally-owned once again.

The biggest such transaction was the purchase of the Brazilian branch of Banco Bilbao Vizcaya (BBV), a Spanish bank, by Bradesco, Brazil’s largest private financial entity.

BBV thus stopped operating in Brazil, where it had set up shop in 1998 by acquiring a bankrupt local bank, Excel Económico, which required an investment of 1.8 billion dollars to get it back on its feet.

The banking sector is a good indicator of the changes that have been occurring. In the 1990s, the acquisition of small and large banks served as the port of access for foreign banks like Spain’s Santander and BBV, ABN Amro from the Netherlands, and Britain’s HSBC.

The share of the financial sector in the hands of foreign interests grew from 8.9 percent in 1995 to 27.4 percent in late 2001, according to the local consultancy Austin Asis.

But even before BBV pulled out, that share had already fallen five percent, as several smaller banks were sold back to national owners, and investment dropped.

The return of businesses to Brazilian ownership has been the result not only of the economic crises that have shaken the country in recent years, but also of the global economic slowdown, and the internal troubles and new strategies of transnational corporations, PWC director of mergers and acquisitions in Brazil, Fabio Niccheri, told IPS.

The devaluation of the real, Brazil’s local currency, in early 1999 also played a role, because the value of earnings in dollars was abruptly cut at least in half, he pointed out.

Financial scandals in several major corporations, especially in the United States, and economic stagnation in rich countries accompanied by a drop in the value of shares has forced transnational corporations ”to seek alternatives to refinance and reduce their level of debt,” he added.

Niccheri said the sale of branch offices in countries like Brazil has been seen as one solution, because transnationals ”prefer to stay in the United States and Europe, and to pull out of markets on the periphery and smaller markets.”

However, that phenomenon does not represent ”a lack of interest” in Brazil on the part of foreign capital, Niccheri clarified, adding that many sales of companies have been a result of restructuring by transnational corporations, which as part of their new strategies have decided to concentrate their business interests in a narrower range of products and brand-names.

One example of that was the decision by Italy’s dairy products company Parmalat to sell off its subsidiary in southern Brazil, Chocolates Neugebauer, as part of an aim to focus mainly on dairy products and biscuits.

The U.S. Philip Morris’s Kraft Foods reached a similar decision when it sold its Pilar pasta and biscuit business in Brazil in 2001. However, on Aug. 14 it inaugurated an industrial complex comprised of three food factories in Curitiba, the capital of the southern state of Parana.

Niccheri also noted that the sharp drop in FDI in Brazil has largely been due to a halt in the privatisation of public enterprises, which drew in major flows of capital, mainly in the 1990s.

Several large Brazilian public companies that were sold off to transnational corporations in the last decade are now facing difficulties paying off their debts, and may once again become nationally-owned.

The energy sector, especially, has not only felt the impact of stagnation, devaluation and other economic woes plaguing the country, but has also suffered the effects of the severe energy crisis that led to rationing between June 2001 and February 2002.

Since then, energy consumption in Brazil has remained low.

The biggest problem in that respect is faced by Eletropaulo, the company that distributes electricity in the southern state of Sao Paulo, which was purchased by AES, a U.S. firm, with a loan from Brazil’s National Bank for Economic and Social Development (BNDES).

AES argues that due to the accumulated losses, it cannot pay its 1.2 billion dollar debt to the BNDES, a state bank, which fell due last February.

The company, which has been affected by scandals in the United States, had also purchased part of the Minas Gerais Electric Plants (CEMIG), another privatised state enterprise, thus assuming an additional 700 million dollars in debt to the BNDES.

These transactions and others amounted to ”strange privatisations, financed with money from the government itself,” which it is now unable to recover, the president of BNDES, Carlos Lessa, told IPS.

Since it has the option of seizing shares in the companies as a guarantee on the loans, the BNDES may take over the bank and power company and push for their re-privatisation, offering the shares to pension and investment funds, said Lessa.

Another cause for concern are Brazil’s telephone companies, almost all of which were purchased by foreign capital in privatisation processes that got under way in 1998. Most of the nearly five billion dollar debt that the utilities owe the BNDES falls due next year.

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