Brazil: South America’s Largest Recipient Of BRI Infrastructure Financing & Projects

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China has invested over US$66 billion into Brazilian infrastructure

By Chris Devonshire-Ellis

In the wake of the United States ‘Build Back Better World’ infrastructure act now not having funds to invest elsewhere than in the United States, countries that have so far not signed up to China’s Belt And Road Initiative but are in need of development capital are increasingly turning to China for finance and development.

Brazil is one such country – not officially a BRI member country but in essence one of the largest recipients of Chinese infrastructure funding in South America. Those ties appear to be getting stronger.

Brazil, as the largest economy in Latin America, has a solid foundation and great potential for cooperation with China, and therefore has every reason to be an important player in the Belt and Road Initiative (BRI), Chinese Ambassador to Brazil Yang Wanming said last week.

Politicians, business leaders and diplomats from both countries took part in the recent virtual 4th Seminar Brazil-China Dialogue “Belt and Road & Brazil: Rules and Coordination” organized by the Center for Brazil-China Studies of the School of Law of the Getulio Vargas Foundation in Rio de Janeiro, which discussed a wide range of topics on Sino-Brazilian relations, such as 5G technology, and new investment and financing within the BRI framework.

In his opening remarks, Yang said China’s robust economic recovery and opening of its market will open up new spaces for cooperation under the BRI. He added China not only provided COVID-19 vaccines for Brazil, but also helped it become the first Latin American country to produce vaccines.

“By making good use of the mechanisms of bilateral dialogue, we can strengthen bilateral cooperation for economic recovery in essential sectors, such as infrastructure, energy and mining, agriculture, trade, and science and technology,” Yang said.

Eduardo Paes, mayor of Rio de Janeiro, said his city wants to be the Brazilian and South American capital of China’s BRI, while highlighting the complementarity between the Chinese initiative and the needs of Brazil’s second largest city.

Both the BRI and Rio de Janeiro have “an agenda of innovation, sustainability and concern for the environment,” said Paes, adding “there are a lot of opportunities in infrastructure, new energies and technology.”

Brazil is the main destination for Chinese investments in South America, receiving US$66.1 billion, equivalent to 47% of the total amount invested, in the decade up to 2020. The China-Brazil Business Council (CEBC) has been tracking this and has released a breakdown of these investments in their September 2021 report available here. (Portuguese, use the Google translate function if required for other languages)

The report shows that Chinese companies made large investments in the electricity sector (48% of the total) followed by oil extraction (28%), and mining (7%). When analyzing investments by the number of projects, not by value, although the electricity sector is still on top of the ranking, with 31% of the total, the manufacturing sector takes second place, with 28%, followed by information technology and agriculture with 7% each, and financial services, with 6%.

The distribution of Chinese companies’ investments across all regions of Brazil is noteworthy, with confirmed projects in 23 of 27 states. However, São Paulo state in the North-East attracted close to 30% of the total volume of projects.

While bilateral trade volumes have been subject to some fluctuations during Covid, and problems within the Brazilian economy, Chinese investments in Brazil have tended to be longer-term projects with sustainable development impact. The development of Brazilian infrastructure projects has created employment, in a nation where 16.2 million are classified as poor. 4.8 million are classified as having zero income. That has made Chinese investment in Brazil’s interior, some of the most impoverished parts of the country a welcome addition in modernizing infrastructure, stimulating the local economies and creating connectivity between industries.

However, the current President Bolsonaro is pro-US and has attracted a lot of what has to be said is exploitative investment from US mining and logging companies. This is increasingly being viewed as “selling the national silver” and politically he now faces huge national opposition. Nevertheless, in order for Brazil to maximize its gains from attracting Chinese projects, it is fundamental that the Brazilian government and its private sector fully understand China not only as an investor capable of contributing large volumes of capital, but also as a technological power. There is plenty of potential to go beyond well-established sectors, with cooperation, on ports, transportation, and logistics, as well as in IT. Brazil may not be a member of the Belt and Road Initiative today, but it could very well take that step under a new President due to be elected next year. With the United States apparently focused on its own infrastructure rebuild, a closer relationship with China seems almost certain to continue Brazil’s integration into the Belt and Road Initiative.

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Silk Road Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Asia, and assists foreign investors into the region. For strategic advisory and business intelligence issues please contact the firm at silkroad@dezshira.com or visit www.dezshira.com

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