Historically, FDI flows have not contributed greatly to GDP or to overall investment in the Brazilian economy. In recent years (1996-1998) there has been a significant change. It is estimated that in 1998 the ratio of FDI to GDP will reach 2.5% and that of FDI to gross fixed capital formation (GFCF) will be about 13%. These ratios are at record levels for the Brazilian economy in the recent past. They are largely due to privatizations, which accounted for 28% of Brazil's total FDI inflows in 1996 and 1998. Although the privatizations process will continue in 1999-2000 with banks owned by the states, new telecommunications concessions, oil companies (Petrobras) and others (including the privatization of the Banco do Brasil, Latin America's biggest bank), this exceptional upward trend in the FDI/GDP and FDI/GFCF ratios is likely to end at some point in the near future.
During the period 1996-1998 (or 1996-1999) Brazil may be repeating the Argentine experience of the early 1990s, when privatizations accounted for more than half of that country's FDI inflows. The unusual growth of FDI in the Brazilian economy during the 1996-1998 period is therefore more likely to be of a short-term nature rather than a sustainable trend. When it is true that these transferred assets will require large amounts of resources for modernization and expansion, the bulk of the inflows will be payments in connection with the privatization process, which will dwindle with time.
The FDI benefits for Brazil generally come in three different forms:.
First, foreign corporate presence invariably leads to improved trade linkages -- among regions as well as internationally. Where policies in the past aimed at using foreign investors as a tool for import substitution or boosting exports, it is increasingly recognised that foreign corporate presence tends to boost both imports and exports by giving the host location better access to the investors' global networks.
