Flat growth, heavy public spending and a corruption scandal at state-owned energy giant Petrobras have dented Brazil’s appeal to international investors, but Joaquim Levy, the country’s finance minister, is working to turn its fortunes around.

Brazil recorded flat economic growth in 2014 and is set to repeat such a performance in 2015. Inflation surpassed 8% in March, and indicators such as fiscal deficit, trade balance and public debt as a percentage of gross domestic product (GDP) have all worsened – in some cases to record levels of weakness. 

Brazil's current account and fiscal deficits combined now exceed 10% of GDP – the largest collective deficit in 15 years, according to analysts. The country's finance minister, Joaquim Levy, plans to reverse the trend, through reverting to a fiscal surplus this year, and reinvigorating international interest in the country.

In the pipeline

Indeed, the finance minister’s visit to London in May was aimed at reassuring investors that efforts will continue to tighten public financing, and that a sizeable infrastructure projects pipeline is in the making, with deals steadily reaching the market. To demonstrate this, Mr Levy pointed to the recently re-tendered concession to maintain the Rio-Niterói bridge in Rio de Janeiro, which also requires the construction of new infrastructure and an investment of 1.5bn reais ($499m). The preferred bidder for the re-tender is Brazilian intermodal logistic company EcoRodovias, and financing is expected to comprise a substantial loan by Brazil’s development bank, BNDES, as well as other credit facilities from commercial banks, according to data provider Dealogic.

Mr Levy stresses that private sector investors and capital markets, in particular, will be key to the delivery of infrastructure deals in the future. “The objective of the government is to put together a concession [pipeline], as well as talking to investors. [Creating a solid deals pipeline gives] a good picture of how Brazil will look, how higher investment will help us reduce [trade] costs, improve logistics and our competitiveness,” he says.

“At the beginning of the year, there were three main risks in the minds of investors: what would happen on the fiscal side and to the country rating; what would happen to [state-owned energy company] Petrobras; and fears over energy supply in Brazil. It’s very clear that these risks have receded.”

Mr Levy points to Royal Dutch Shell’s recent £55bn ($86.3m) acquisition of BG Group, a UK-based oil company with substantial operations in Brazil, including a partnership with Petrobras in some of the country's vast pre-salt oilfields. The scandals that had engulfed Petrobras – which has been embroiled in a massive corruption case relating to alleged bribes – seem not to have deterred Shell, which will now become the largest foreign-owned group in Brazil. Concerns over the Petrobras affair still loom large, however, and although they are more optimistic in the longer term, analysts have mixed opinions over Brazil’s short-term outlook.

Give it time

Another area of concern, which Mr Levy is keen to tackle, is competitiveness. According to the World Bank’s annual Doing Business report, Brazil scores poorly on the global stage, particularly when it comes to taxation. Out of the 189 countries benchmarked by the report, Brazil has repeatedly ranked as the country demanding the longest time spent preparing, filing and paying tax: 2600 hours per year in the 2014 research. Second in the infamous ranking is Bolivia, with 1025 hours, less than half its larger neighbour’s.

Although suspicious about such statistics, Mr Levy recognises that much still has to be done in the area. “[According to the] Doing Business statistics, for the past few years we’ve spent [about] 3000 hours filing tax returns, [while] the second country has spent about half of that, and 100 other countries spend 10% of that or less. As an engineer, I find that an outlier such as this, year after year, when so many things have happened in Brazil, including tax simplifications, is somewhat intriguing.

"But, independently from the precision of this number, I think that we have to [improve] taxation, and we’re already committed to doing that when it comes to the federal VAT.”

Mr Levy also points to the work done with individual states to create a system by which VAT is owed where products and services are consumed, rather than where they are produced, which would help create a more level playing field for investors, as well as address some of the regional imbalances in the country, particularly in the poorer north-east.

“We may face an [economic] slowdown and we’ve been very straight about that: we do believe that there still are a couple of quarters before the economy starts to go back to growth. But Brazil has tremendous potential: we’re a very large economy – the seventh largest in the world – with a good demography," says Mr Levy.

Aside from the large, young consumer pool, Mr Levy is particularly optimistic about the country’s well-educated labour force: “If you look at Brazil 10 years ago, and compare it with now, we’ve doubled the number of college students, we have more than 6 million people [in higher education,] more than in the UK," he says.

"Investors have to look at the [business] environment, feel confident about what [the government is] doing, what we’re delivering. [Once they’ve looked into our recent work] I’m confident they will react positively.”

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