Multinational companies in the Brazilian economy

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By FERNANDO NOGUEIRA DA COSTA*

In the ranking of the largest technology companies in Brazil, almost all of them have foreign origins

The total position of Direct Investment in the Country (IDP) was US$901,4 billion in 2021, made up of US$659,3 billion in equity participation and US$242,1 billion in intercompany operations. According to the 2022 Direct Investment Report of the Central Bank of Brazil, in 2021, resident companies operating in financial services, including investment funds, accounted for 20,5% (US$135,1 billion) of the IDP position – Equity participation (US$659,3 billion), followed by companies belonging to the trade sector (8,5%) and oil and natural gas extraction (7,6%). These data allow for a structuralist approach to the contemporary Brazilian economy, integrated into the globalized economy, although distant from the global value chains of the rich north.

In the opposite direction, just under a third (32,4%) of the amount invested abroad by residents (FDI position of US$431,9 billion) is invested in companies operating as vehicles for acquiring financial assets. Next are financial services and ancillary activities. Is Brazil integrated into global “financialization” and/or is it showing capital flight?

In 2021, gross inflows in IDP – Share in capital, excluding reinvested profits, remained widespread, highlighting the sectors of motor vehicles, trailers and bodies (9,7% of gross flow), food products (9,5%), commerce except vehicles (9,4%), agriculture, livestock and mineral extraction (9%). In the Brazilian reality, there is a lot of diversification, with information technology services (6,85) and financial services (6,3%) also standing out.

Regarding gross IDP transactions – intercompany operations, companies operating in the coke, petroleum derivatives and biofuels manufacturing sector, and oil and natural gas extraction stood out, both in terms of income and amortization. Deduction: Brazil became an oil exporter!

This is because Advance Export Payment (PAE) operations, in which the company residing in Brazil first receives payment and subsequently exports the merchandise, account for a significant portion of IDP transactions – Intercompany Operations. In 2021, of the US$77,1 billion amortized, US$29,2 billion (38%) of intercompany credit operations were paid in merchandise, not in currency.

Regarding the profitability of IDP – Capital Participation –, this varied between sectors of the economy in 2021. However, all highlighted sectors – metallurgy (23,2% of the total), financial services (9,3%), commerce (7,5 .5,7%), beverages (4,6%), extraction of oil and natural gas (8,7%) – made profits, including those related to the production and trade of vehicles (XNUMX%), without positive results in the seven previous years.

According to the ANFAVEA Charter, the production of all vehicles in 2023 reached 2,37 million, of which 481 thousand (20%) were exported. 2,1 million of them were licensed – and 2,3 million if you add the imported ones. Considering only passenger cars, these numbers were, respectively, 1,825 million, 386,4 thousand, and 1,577 million. Around 165 thousand imported cars were licensed.

Practically, all international brands compete for the Brazilian market: Audi, BMW, Mini, Caoa (Hyundai and Chery), Subaru, FCA (Chrysler, Dodge, Fiat, Jeep), Ford, General Motors, Honda, Mitsubishi, Suzuki, Jaguar, Land Rover, Mercedes-Benz, Nissan, Peugeot, Citroën, Renault, Toyota, Lexus, Volkswagen. These foreign companies, active in Brazil's automobile industry, contribute to the country's economy by generating around 100 jobs and boosting the production and sales of vehicles in the domestic and export markets.

In Brazil, over the last decades of external opening, there have been denationalization processes in several sectors of economic activity, in which foreign companies acquired significant participation or control of previously Brazilian companies, including through privatization. Some examples:

(i) Telecommunications Sector: foreign companies, such as Telefónica (Spain) and Telecom Italia (Italy), acquired stakes in fixed and mobile telephone operators in Brazil. (ii) Energy Sector: Foreign companies, including Shell (Netherlands/United Kingdom) and BP (United Kingdom), have participation in several stages of the energy sector value chain, including oil and gas exploration and production. (iii) Banking Sector: foreign banks, such as Santander (Spain) and HSBC (United Kingdom), acquired Brazilian banks, but the latter withdrew.

(iv) Food and Beverage Sector: multinationals such as Nestlé (Switzerland), Unilever (Netherlands/United Kingdom) and Coca-Cola (USA) have operations in Brazil with the production and distribution of food, beverages and consumer products. (v) Mining Sector: Vale (formerly Vale do Rio Doce) denationalized, taking Brazil's mining industry with it, with activities in iron ore, nickel, copper and other minerals. (vii) Aviation Sector: foreign airlines, such as American Airlines (USA), Delta Air Lines (USA) and Lufthansa (Germany), dominate the Brazilian aviation market for international flights, in the locations there are Azul, Gol, Latam.

These are just a few examples of the sectors in which there have been denationalization processes in the Brazilian economy, with foreign companies assuming a dominant role. These foreign acquisitions and investments bring benefits, such as access to new technologies and markets, but they also put economic sovereignty and competition in the local market at risk.

It is interesting to highlight: also among the largest exporters of Brazilian agribusiness are foreign companies. Cargill, one of the largest agribusiness companies in the world, with origins in the United States, operates in Brazil, in the grain sector, such as soybeans and corn, as well as other agricultural commodities.

Bunge is another agribusiness giant with origins in the United States. In Brazil, it operates in the production, processing and marketing of grains, vegetable oils and agricultural products. ADM (Archer Daniels Midland) is the leading global American grain and agricultural products processing company. In Brazil, it explores the production and export of soybeans, corn and other agricultural products.

The Louis Dreyfus Company is one of the largest commodities agricultural companies in the world, headquartered in the Netherlands. In Brazil, it operates in the marketing and export of grains, vegetable oils and sugar.

Among the multinational companies operating in the Brazilian economy, Nestlé stands out, for example, one of the largest food and beverage companies in the world, with operations in processed foods, dairy products, coffee, chocolates and beverages. Another dominant player is Unilever, with a presence in Brazil in categories such as food, personal care and cleaning products.

Shell is also present, one of the largest energy companies in the world, operating in segments such as oil and gas exploration and production, refining and marketing of petroleum products. It competes with Petrobras, the largest energy company in Brazil and one of the largest in the world in the oil and gas sector, involved in all stages of the production chain, from exploration and production to fuel distribution.

The pharmaceutical industry in Brazil is not completely denationalized. But the presence of multinational companies is dominant in the Brazilian pharmaceutical market, both in terms of local production and imports of medicines. These companies bring advanced technology, expertise in research and development, and access to a variety of pharmaceutical products.

As exporters of commodities, in addition to agriculture, Petrobras (oil and gas) and Vale (mining) stand out. They are multinationals of Brazilian origin, as is Ambev with a global presence through several beverage brands.

Os big five banks – Itaú, Bradesco, BTG and Banco do Brasil – resist denationalization. Among them, the only foreigner is Santander. Caixa is not a public company, because 100% of its shares belong to the National Treasury.

The Brazilian economy is very concentrated in “value companies” and has few local technology companies. Some tech companies went public, but they are still relatively small, with the exception of WEG, a producer of different types of industrialized products for customers around the world, such as engines, paints and varnishes, among others. Founded in 1961 in Santa Catarina, WEG is one of the largest publicly traded companies in Brazil, with a presence in more than 135 countries.

In the ranking of the largest technology companies in Brazil, almost all of them have foreign origins. In the telephone market, there is the duopoly of Vivo and Claro. In the production of hardware e companies, IBM Brasil, HP Brasil and Oracle Brasil stand out. In electronic retail, Amazon and Mercado Livre dominate.

*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Brazil of banks (EDUSP). [https://amzn.to/3r9xVNh]


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