World Bank Document

Box 9.1
Direct foreign investment in Brazil
Brazil has received more direct foreign investment than 45 percent of the local sales of manufactured goods were
any other developing country. At the end of 1983, the by foreign-controlled companies. They seem to have
stock of direct foreign investment in Brazil totaled almost accounted for roughly the same proportion of exports of
$22.3 billion. This is a big amount, even allowing for the manufactures.
large size of Brazil compared with other developing
countries. In the next largest recipient, Mexico, the stock
was only half that size. Over the past decade, flows of Box figure 9.1A Capital flows to Brazil, 19743
direct investment to Brazil have been consistently positive
and have risen every year except for 1980 and 1983. Billions of dollars
About two-thirds of this investment was new inflows, 12
with the rest coming from reinvested earnings. While the
rate of growth of direct investment has been much
Long-termcapitalflows
slower than other forms of foreign capital, it has also 8
been much less erratic (see Box figure 9.1A). 8 A
For foreign investors, Brazil's attractions include a
large and growing local market and policies that generally
encourage foreign investment. Most foreign invest- 4
ments are not restricted, though a few-such as the Direct foreign investment
production and marketing of minicomputers and micro- /
computers-are dosely controlled and increasingly 0 ,, ,
restricted to Brazilian-owned firms.
The United States is the largest single source of foreign
Short-term capital flows
investment in Brazil, with about one-third of the stock of 4
assets; its share has recently been rising. Germany is
second with about 13 percent, followed by Japan with 9 1974 1976 1978 1980 1982
percent.
Note Longterm flows include direct foreign mvestment
Nearly 75 percent of direct investment in Brazil is in
manufacturing, and these foreign manufacturers have a Source: IMF Balance of Payments Yearbook 1978; IMF Balance of Payments
big weight in the whole economy. The UN Centre for Statistics 1984.
Transnational Corporations estimates that in 1977 nearly
The United States' investment is largely in Latin loans. Returns required by private investors are
America, while Japan's investment goes mainly to estimated to have been much higher than those on
its Asian neighbors. Similarly, much of the United bank loans.
Kingdom's investment goes to Commonwealth At the same time, many developing countries
nations, and France has focused on countries with increased restrictions on direct investment, reducpast
colonial ties, mainly in Africa.
ing the range of industries in which foreigners
Direct investment is also concentrated in a few could invest and raising local ownership requireeconomic
sectors. Figure 9.2 shows that invest- ments. Some policymakers in developing counment
by U.K. and German firms in particular has tries questioned the contribution that direct investbeen
mainly in manufacturing; while U.S. and Jap- ment could make to economic development.
anese investment, although more evenly spread The reasons for their skepticism have always
over the major economic sectors, has a bias toward started with political opposition to letting national
manufacturing and the primary industries. And resources be controlled from abroad. In addition,
within manufacturing, direct investment has been critics charge that multinational companies use
mainly in transportation equipment, chemicals, inappropriate technologies and that their centraland
machinery (which includes electronics).
ized management structures prevent the development
of local initiative. They also say that multina-
Causes of stagnation
The near stagnation of direct investment in the
1970s reflected the increased availability of bank
lending and the low real interest rates on bank
tionals often fund themselves in the local capital
market, crowding out potential domestic borrowers.
Finally, they suggest that direct investors use
transfer prices, royalty and interest payments,
management fees, and other means to avoid price
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