Doing Business In Brazil

Continuing our series on operating under foreign jurisdictions, Gustavo Scheffer da Silveira and Raid Abu-Manneh explain how to make the most of opportunities in Brazil's infrastructure sector

Last year was an important one for the Brazilian economy, with a stock market all-time high and falls in inflation and interest rates. The "country risk" has been significantly lowered. This increased trust in Brazil's economy is reflected by growth in foreign direct investment (FDI), which rose 26% to US$75bn in 2019, from US$60bn the year before, bringing Brazil up from ninth to fourth among global FDI destinations - after the US, China, and Singapore.

This expansion of FDI came in the wake of privatisations such as the sale of Petrobras subsidiary Transportadora Associada de Gás to a foreign private group for US$8.7bn. National regulatory agencies, for instance on civil aviation (ANAC) and on petroleum, natural gas and biofuel (ANP), have also played a role in promoting foreign investment by concluding several concession contracts for airports and oil fields (including production sharing agreements).

All this has put an end to a retraction cycle in the infrastructure sector that lasted from 2014 to 2018, when the sectoral GDP shrank by about 30%. For 2020 the growth forecast is close to 3%. For the years ahead, expected growth is even higher, mainly due to concessions and public-private partnerships (PPP). There may be great opportunities to be had in Brazil, in particular in infrastructure.

Infrastructure procurement

Infrastructure procurement in Brazil was traditionally governed by two laws: (i) Law No. 8,666 of 1993, establishing the rules for public bidding and public contracts, and (ii) Law No. 8,987 of 1995, governing public concession contracts. However, in light of the state's inability to finance large projects by itself, more recently PPP started to have a more prominent role (Law No. 11,079 of 2004). To this end, the federal government created the Investment Partnership Program (PPI), Law No. 13,334 of 2016, also with the purpose of expanding and strengthening interaction between the state and the private sector.

Public contracts provide for the so-called clauses exorbitantes

Brazilian administrative law is largely influenced by the French model of administrative contracts, which accepts the existence of public prerogatives, placing the public administration in a position of superiority in relation to the private party. Accordingly...