Foreign direct investment in mining projects in Brazil has been a long lasting trend in the past decades. However, when it comes to research and exploration compared to major producers like Canada and Australia, or even neighbors Chile and Peru, Brazil still has a long way to go.
Amidst the efforts to expand mining activity in the country, president Jair Bolsonaro presented a bill in February 2020 to allow commercial mining on protected indigenous lands, and recently unveiled the proposed Mining and Development Program (PDM) with goals for the sector in the period 2020-2023.
The proposed bill, which is now under the appreciation of the National Congress, defines specific conditions for the research and exploration of mineral resources and hydrocarbons, such as oil and natural gas, and the use of the hydroelectric potential of rivers for electric power generation. According to the bill such activities will require the prior approval of the Congress.
On the other hand, the Mining and Development Program (PDM) aims at turning Brazil´s mineral potential into wealth for the sustainable development of the country, taking into account its socioeconomic and environmental imperatives. For such purpose, the program lists several actions, including those aimed at the generation, processing and dissemination of data on mining in all phases of the mining activity, and the stimulation of new mining enterprises.
Brazil is the fifth largest country in the world in terms of territory and its soil is rich in all sorts of minerals. Brazil is one of the main mineral exporters in the world, and currently the mining activity accounts for almost 7% of Brazil’s GDP.
Although Brazil has a great variety of mineral resources, its main resource is iron ore. The iron ore produced in the country is of the highest quality, and, as a consequence, Brazil has become the third largest iron ore producer globally. In 2015, iron ore was responsible for 60% of the total value within the mineral industry. Brazil is also the largest producer of niobium, the second largest producer of manganese, the third largest producer of bauxite and the eleventh largest producer of gold. Other important minerals are copper, nickel, phosphate, coal and potash.
The State of Pará is currently the second largest producer of ore in the country, second only to Minas Gerais, and includes Carajás, the largest open-pit iron ore mine in the world.
According to Companhia de Pesquisa de Recursos Minerais – CPRM (the Geological Survey of Brazil), the state-owned company linked to the Ministry of Mines and Energy that is responsible for the production and divulgation of geoscientific knowledge, only 26% of the country’s territory is mapped for exploration.
The country has today 58,000 areas ready for public offer but without geological research. And the excess of bureaucracy in the licensing process contributes to hinder new investments in mining. The definitive solution for such problems is within the primary concerns of the government.
To stimulate economic activity and the mining sector the Brazilian government will make available previously protected areas, covering an area bigger than Denmark of which 30% will open up for mining activities. In addition, the government plans to will increase royalties on various mineral resources. This will certainly create opportunities for foreign investors that would be willing to do business in Brazil.
It is a fact that the Brazilian economy has suffered from an economic recession over the last years, mainly due to corruption, political instability and a drop in commodity prices. However, due to ongoing economic reforms and the rise of commodity prices, the economy is recovering again causing rapid growth in the mining industry.
Currently, the main investing countries in Brazil are the Netherlands, the United States, Germany, Spain, the Bahamas, Luxembourg, the United Kingdom, Canada, France and Chile. Investments are mainly oriented towards oil and gas extraction, the automotive industry, mining, financial services, commerce, electricity, paper production, storage and transportation, and the food industry.
Brazil’s attractiveness for foreign investment is due to several factors: a domestic market of nearly 210 million inhabitants, the availability of easily exploitable raw materials, a diversified economy that is less vulnerable to international crises, and a strategic geographic position that allows easy access to other South American countries. On the downside, however, foreign investment is inhibited because of some negative factors including cumbersome and complex taxation, bureaucratic delays and heavy and rigid labor legislation.
But the government is gradually implementing reforms that will positively change this situation. As an example, the government has introduced electronic certificates of origin which reduced the time required for import documentary compliance, facilitating and simplifying the whole process. The country is currently in the process of implementing several infrastructure projects that will modernize its national highway system, the railroad network, and its main ports and airports. The number of days needed to create a company in Brazil has now dropped from 79.5 days down to the regional average of 30 days.
Brazil is also one of the leading steel producers of the world. The local steel industry uses the latest technologies in steel production. Due to easy availability of iron ore and low set-up costs, many companies are shifting their base from European countries to Brazil. Approximate 43% of the steel produced in Brazil is exported. The majority of exports go to China.
The factors that are advantageous for investors to set up in the steel industry in Brazil are:
- Abundance of raw material such as iron ore, and non-renewable energy such as charcoal and coke, that is required for steel production.
- Labor in Brazil is cheap in comparison to OECD (Organization for Economic Co-operation and Development) countries.
- Availability of advanced technology in steel production.
In addition, the sound fiscal policies implemented by Brazil’s government are playing an important role in attracting foreign direct investments in the mining sector.
In short, this is an auspicious time for new investments in mining projects in Brazil. With the devaluation of the Real vis-à-vis the US Dollar and the European currencies even more attractive such investments have become. And that is why Brazil is waiting with open arms for the substantial increase of foreign direct investments in the coming years.