2023 US Investment Climate Statements (Part V): Brazil remains an attractive business destination, but concerns about government spending loom  

This is the fifth in a series of five articles examining the US Department of State’s latest report on investment prospects for Argentina, Mexico, Colombia, Spain, and Brazil
 

The second-largest economy in the Western Hemisphere behind the United States, and the twelfth-largest economy in the world in nominal terms continues to attract stakeholders, according to the latest 2023 Investment Climate Statements report from the US Bureau of Economic and Business Affairs.

"In recent years, Brazil has received more than half of South America’s FDI inflows, and the United States is a major foreign investor in the country", says the report.
The US Department of State mentions that "analysts foresee more favorable conditions with the Lula administration to complete tax reform, although they remain skeptical of the Government of Brazil’s (GOB) ability to pass reforms that would reduce the country’s primary deficit".

According to the report, it is expected that the new fiscal framework presented by President Luiz Inácio Lula da Silva, who took office on January 1, "will be less stringent than existing rules since previous PT administrations have prioritized government spending".

There are other expected economic changes: "The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property. The new administration has stated support for public-private partnerships and concessions instead of privatizations.", adds the report.

Among the factors hampering investment in the country, the US Department of State highlights labor costs, low domestic productivity, and ongoing political uncertainties, arguing: "Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil".

Additionally, the war in Ukraine had an impact on Brazil’s economy. The nation’s dependence on fertilizers from Russia and Belarus, which caused agricultural production concerns, and the hike in international energy prices, have both contributed to local inflation.