Census of Foreign Capitals in Brazil - 2000 base-year - results - reports
Census of Foreign Capitals - 2000 base-year - reports
The nineties were the stage of a distinctive moment experienced by
the world economy, when distances and barriers were overcome towards greater
international insertion. Brazil, an important actor in the world scene,
participated actively in this process and became one of the main destinies of
foreign capitals. The definite thrust in this trend happened in 1995, base-year
of the first Foreign Capital Census. The second Census brings now consolidated
data for the year 2000, which enables to assess the performance and impacts of
the figures in this important period of the Brazilian economy.
The
Central Bank of Brazil, pursuant to Law no. 4,131/62, is responsible for
preparing the Foreign Capitals Census, an effort that surely adds transparency
and quality of information to other statistics already regularly surveyed,
recorded and publicized by this institution. The continuous and periodical
process of surveying foreign capitals in Brazil confers, therefore, greater
consistency and volume to the set of country data, being an important
instrument of reference for the better conduction of global and sectoral
policies.
The
board of directors is pleased in presenting to the public the results of the
second Foreign Capitals Census, which relied on the participation and
engagement of informants as the fundamental pillars for the support and
consistency of the work. We are especially grateful for the earnestness
dedicated to supplying the information requested, while praising the assistance
and competence of the staff in charge of conducting the Census.
From 1995 on, Brazil established its position as an important
receiver of foreign direct investments in the nineties, rising from fifth to
second in the rank of emerging countries, with an estimated inflow of
US$ 97 billion in the period, second only to China.
Since
1996, foreign direct investments became the main category of foreign
investments in Brazil (portfolio, derivatives and other investments), though
some funds had been channeled to mergers and acquisitions, following the trend
prevailing in developed countries.
This
performance may be ascribed to the economic stabilization attained after the
Real Plan and to structural reforms that, heavily reliant on privatizations,
made possible for foreign capitals to invest in sectors previously under state
monopoly, such as telecommunication and energy, and contributed towards
reducing the taxation levied on such capitals. Besides, the consolidation of
Mercosul prompted the entry of new corporations and increased the productive
capacity of the ones already established in Brazil.
The
enactment of Constitutional Amendment no. 8, of 08/15/1995, eliminating state
monopoly on telecommunication services; Law no. 9,472, of 07/16/1997,
regulating the commissioning of such services; and Law 9,491, of 09/09/1997, removing
the limits for foreign capital sharing in privatized corporations were the
hallmarks of these new times. These laws and regulations represent important
changes in the legal background that contributed towards channeling a large
volume of foreign direct investment to the Brazilian privatization program.
It
shall be stressed that the flow of direct foreign capitals channeled to
privatizations totaled US$29.6 billion between 1996 and 2000, which is
equivalent to less that a third of total net foreign direct investment over
this period of time (US$112.6 billion). Taking the value invested in
privatizations out from this total flow, one sees that the remaining balance of
foreign direct investments, US$83 billion, in addition to being expressive,
increased between 1996 and 2000, with sustained inflow of capitals after the
completion of the privatizations program. In 2000, there was a net inflow of
US$30.5 billion in foreign direct investments to Brazil, of which less than
US$7.1 billion to the privatization program.
After
five years have elapsed since the first Foreign Capitals Census of the country
was published, with data referred to 1995, the fresh figures evidence, as
expected, a decisive reintegration and reinsertion of Brazil into the
international market of capitals as a point of attraction of investments.
Below
we introduce the results of the Foreign Capitals Census for the base-period
2000, as well as a description of its main methodological aspects.
The
population included in the Census comprised institutions that received foreign
direct investments and those that benefited from foreign credits,
notwithstanding the currency and registration of the operation with the
Department of Foreign Capitals and Exchange (Decec) of the Central Bank of
Brazil (Bacen), under Law no. 4,131/62, as well as those exhibiting indirect
foreign share in their capital. However, to avoid overcharging the information
system with a volume of little representative data and statistics, one reduced
the universe under survey while maintaining the characteristics of a census. In
this sense, regarding institutions that received foreign capitals, giving the
information was mandatory for those corporations with a direct or indirect
share of non-residents in their authorized capital, on 12.31.2000, of at least
10% of stocks of quotas with a right to vote or 20% of direct or indirect share
in total capital.
This
restriction is consistent with the definition of the International Monetary
Fund (IMF) for foreign direct investments, which recommends the inclusion of
institutions in which the investor, resident in another economy, holds 10% or
more of the voting capital, or its equivalent (IMF 1993, P.86)1.
The IMF emphasizes that the relation established between the investor and the
invested institution shall be of long-term and imply a significant degree of
influence of the former over the latter2,
which was assumed to be implicit in a share in excess of 20% of total capital.
However,
although the IMF takes as foreign direct investments not only the initial
transaction that established the relationship between the investor and the
investment-receiving institution, but also the subsequent transactions among
them with linked institutions, such as intercompany loans, this criterion was
not followed by Bacen before September 2001, and is not made clear in the
Census. Still, the proportion of funds transacted as intercompany credits may
be obtained among the information gathered and was mentioned in the texts
below.
Any
information supplied by debtor entities to non-residents, which should also
inform the Census, is not included in the statistics shown in this work.
There
is one possible source of distortions in the comparative analysis of the two
periods studied. In the Census based on the year 2000, financial institutions
also sent their data, in view of practical issues and details unavailable in
Cadif (Financial Institutions File) systems. In the 1995 Census, these
institutions had been released from giving information, which were extracted
directly from the systems mentioned above.
The
following persons and entities were released from giving information to the
Census:
(a) natural persons;
(b) direct administration bodies of the Federal Government, States, Federal District and Municipalities;
(c) managers of portfolios, funds and programs regulated by Resolutions no. 1,289, of March 20, 1987 (Annexes III and V); 1,968, of September 30, 1992 (investments in securities in the context of Mercosul); 2,247, of February 08, 1996 (Mutual Funds of Investment in Emerging Corporations); 2,248, of February 08, 1996 (Real Estate Investment Funds); and Law no. 8,031, of April 12, 1990 (Privatization Mutual Funds);
(d) representatives of foreign investors in foreign investments under Resolution no. 2,689, of January 26, 2000 (investment of non-resident in financial and capital markets);
(e) juristic persons debtors of transfers of foreign credits granted by institutions headquartered in the country;
(f) non-profitable organizations maintained by contributions of non-residents;
(g) institutions receiving foreign investments and/or debtors of foreign credits that selected to be taxed by presumed profits and do not prepare balance sheet under Brazilian corporations law.
(b) direct administration bodies of the Federal Government, States, Federal District and Municipalities;
(c) managers of portfolios, funds and programs regulated by Resolutions no. 1,289, of March 20, 1987 (Annexes III and V); 1,968, of September 30, 1992 (investments in securities in the context of Mercosul); 2,247, of February 08, 1996 (Mutual Funds of Investment in Emerging Corporations); 2,248, of February 08, 1996 (Real Estate Investment Funds); and Law no. 8,031, of April 12, 1990 (Privatization Mutual Funds);
(d) representatives of foreign investors in foreign investments under Resolution no. 2,689, of January 26, 2000 (investment of non-resident in financial and capital markets);
(e) juristic persons debtors of transfers of foreign credits granted by institutions headquartered in the country;
(f) non-profitable organizations maintained by contributions of non-residents;
(g) institutions receiving foreign investments and/or debtors of foreign credits that selected to be taxed by presumed profits and do not prepare balance sheet under Brazilian corporations law.
Regarding
the concept of non-resident, it comprises entities with their domicile or
headquarters abroad, including multilateral, government and private entities,
as well as those holding more than one country of nationality, headquarters or
domicile, even when Brazil is one of such countries.
Insofar
as the indirect share of non-residents in institutions operating within the
country is concerned, it was determined that such share would be measured by
the ownership of stocks or quotas of the authorized capital, in the proportion
considered in direct investment, by entities headquartered within Brazil, the
ownership of which included non-resident persons or resident persons that had a
non-resident share in their authorized capital. With this criterion, one pursued
to reach the final productive segment to where foreign capital is channeled,
even though such investment is received in Brazil through holdings.
Data
collection relied on availability, on the Internet page of the Central Bank of
Brazil, of an application program by which information on balance sheet, income
statement, volume of imports and exports, besides the number of employees and
activity branches of the informant could be given. Other information collected
included a specification of capital composition, direct shares held in other
ventures and distribution of fixed assets by units of the Federation and
abroad, as the case may be. Any individual information given by institutions
was taken as being strictly confidential.
The
breakdown of institutions by branch of activity was made by the surveyed
individuals, based on the National Classification of Economic Activities
(CNAE), used also by the Brazilian Institute of Geography and Statistics
(IBGE), taking into account the main activities developed. CNAE was published
in the Federal Official Gazette on 12/26/1994 and is the result of a work
coordinated by IBGE with the contribution of several public and private
institutions involved with data and information on economic agents.
The
statistics shown in different tables result from aggregation of information
given by 11,404 private institutions featuring an either direct or indirect
foreign share in their respective authorized capitals, including, in this last
case, claims held in the country in subsidiaries or branches of institutions
headquartered abroad. However, they do not include indirect foreign investments
of second or higher degree.
In
order to minimize the risk of double counting when consolidating the
statistics, values corresponding to the share of the institution in other
institutions within Brazil were deducted from net equity (PL) and investments
in fixed assets. Therefore, regarding foreign capitals, one deducted the value
of indirect first-degree investments made in the country. Then, for
holding-type informers, the data shown do not include amounts related to
controlled/associated institutions. The procedure could be used for
institutions giving information to the Census only and fail to included those
foreign shares below the lower value required to participate in the survey.
The
tables display data corresponding to 11,404 institutions that have a foreign
share above 10% of their voting capitals or above 20% of their total authorized
capitals and the results corresponding to institutions headquartered in Brazil
controlled by non-residents, so understood, for the purpose of this work, as
that institutions of which above 50% of the voting capital is held by
non-residents. The total number of institutions under this category mentioned
in the tables as institutions with a majority foreign share is 9,712.
Table
1 contains a consolidation of data given by the 11,404 institutions mentioned
above, corresponding to consolidated accounting information of a hypothetical
and gigantic economic group representing the general dimension of foreign
capitals in Brazil. One attempted to eliminate all reciprocal entries, such as
debts and credits and investments and capital sharing among institutions of a
same group when consolidating accounting data of actual economic groups.
However, in the data shown, one was able to discount, as already mentioned, the
double-count in shares and net equity (PL) by diminishing the value of fixed
assets and PL from controlling institutions, whenever such institutions are headquartered
in Brazil.
The
distribution by economic activity displays the same variables, considering 55
different sectors, using the first two digits of IBGE economic activity
classification table. In case of institutions with multiple activities, the
activity generating the higher percentage of real sales was considered.
The
distributions by geographic region and unit of the federation display items of
the balance sheet, income statements, international trade and average
employment, consolidated by state and region of the country, based on the
location of the fixed assets of the informant, which may have productive plants
and employees in different states of the federation.
The
monetary figures expressed in the census tables and schedules are not updated,
keeping their respective 1995 and 2000 current values. Except notice to the
contrary, monetary figures in the census tables and schedules are expressed in
thousands (Brazilian Reals or United States Dollars) and may contain, for
rounding-up reasons, small adding-up differences between items and their
respective totals.
The
Census figures stress the Brazilian paramount performance as a point of
attraction of foreign capitals during the second half of the nineties,
deepening the process of internationalizing the country’s economy. Greater
economic stability and permanent process of structural reforms, including the
approved breaking of state monopolies, clearly reflected in increased flow of
capitals to Brazil. The economic structure of the country became undeniably
stronger and more sophisticated. Access to managerial and technological
innovations established the basis for a quantitative and sustained leap forward
by the Brazilian entrepreneurial profile, entailing employment generation and
increasing the potential for growth.
The
first indication in the Census that stresses the higher degree of foreign
capital share in Brazil is the number of forms received by the Central Bank:
11,404 informants with a foreign share in excess of 10% of voting capital or
20% of total authorized capital. There was, thus, a relevant increase of 80.4%
as against the 6,322 informants of the previous Census that took 1995 as
base-year. This increase, caused by both establishment of new corporations and
acquisition of previously existing ones, together with fresh capital sharing
in those already recording some foreign ownership in 1995, was the main
thrust behind the substantial changes
recorded in the figures surveyed.
According
to information gathered, total paid-in capital of informants reached R$351.7
billion, represented an unprecedented nominal increase of 319.7% against the
R$83.8 billion of 1995. Even taking the devaluation of the Real in this period
into account, the figures still translate a strong impact, reaching over twice
the figures of the previous census (from US$86.2 billion, in 1995, to US$179.8
billion, in 2002, calculated based on the exchange rate in effect at the end of
each period). It shall be noticed that in 1995 residents held the larger share
of paid-in capital, corresponding to 51.5% of the total. Conversely, in 2000,
the largest share came to be that of non-residents, 57.3% of the total,
revealing the trend of foreign investors to share the capital of Brazilian
corporations in a majority position.
On
this issue, taking into consideration just the figures related to the 9,712
informants where the share of foreign capitals is in a position of majority
(over 50%), we reach the figure of R$263.4 billion of paid-in capital, of which
70.3% (R$185.0 billion) are held by non-residents.
Seen
from the viewpoint of total assets of entities featuring foreign share, the
consolidated results of the survey reveal another prominent result in its total
value: R$ 914.1 billion, contrasted to the R$280.4 billion of 1995. Converted
by the end-of-period exchange rate, US$467.4 billion and US$280.4 billion,
respectively. Also important is the growth of total assets of entities with a
majority share of foreign capital, which from the R$158.8 billion of 1995, corresponding
to 58.3% of the total, came to R$641.6 billion, or 70.2%. Indeed, in the first
census these entities counted 4,902 in a universe of 6,322 (77.5%), coming to
be 9,712 of 11,404 (85.2%).
In the
2001 Census, the volume reached by total assets of informants deserves mention,
which was distributed as follows:
| Total assets | R$14.1 billion | 100.0% |
|---|---|---|
| Current assets | R$405.5 billion | 44.4% |
| Long-term assets | R$152.0 billion | 16.6% |
| Fixed assets | R$356.6 billion | 39.0% |
Out of
Current Assets, R$156.2 billion represent credits to other corporations
(includes R$24.0 of credits against controlled/associated corporations),
besides R$127.1 billion in securities and financial investments and R$46.3
billion in inventories.
Regarding
long-term assets, there are records of R$67.8 billion of receivables (of which
R$34.4 billion from corporations belonging to the same group, being R$25.4
billion in Brazil), R$46.7 billion in securities and financial investments and
R$37.5 billion in other receivable assets.
Fixed
assets, in turn, exhibits R$236.7 billion in properties, R$18.2 in other
investments, R$36.7 billion in deferred assets and R$64.9 billion in
investments in other corporations. It is worth noticing that the investments
correspond to those made in corporations released from giving information to
the census, that is to say, those non-resident and those with foreign share not
exceeding 10% of voting capital or 20% of total capital. According to the
methodology used, values invested by holding corporations included in the
census in other informant corporations are excluded from the final consolidated
figures to avoid double counting.
We
shall contrast these figures with total indebtedness – current and
long-term liabilities – of the 11,404 informants, which reached R$656.9
billion, representing 71.9% of total assets (R$914.1 billion). Out of total
indebtedness, R$399.2 billion (60.6%) relate to short-term debts and other
liabilities and R$257.7 billion to long-term debts and other liabilities. As
against the 1995 data, there was an increase in total indebtedness (current and
long-term liabilities) of informants with foreign share, both in the ratio
current and long-term liabilities/total assets, that came to 71.9% in 2000,
from 61.4% in 1995, and in absolute value, to R$656.9 billion in 2000, from
R$167.3 billion in 1995. Converting the figures to United States Dollar by the
end-of-period exchange rates, one realizes that current and long-term
liabilities increased to US$335.9 billion in 2000, from US$172.0 billion in 1995.
However,
there are facts that deserve a closer analysis. Taking strictly operations with
residents only, total indebtedness reaches R$293.6 billion (without considering
the so-called other liabilities), of which R$62.3 billion are debts with
associated or controlled corporations. This indebtedness would diminish to
R$231.3 billion in case, in an accounting consolidation, the domestic debt with
associated/controlled corporations were deducted from the indebtedness, with
the corresponding decrease in receivables entered in the equivalent asset
accounts. This way, total indebtedness of informants would fall from the
R$6456.9 billion to R$594.6 billion, or US$304.1 billion (converted to United
States Dollars at the exchange rate effective at the end of 2000), with the
ratio liabilities/total assets diminishing from 71.9% to
65.0% — slightly above the 61.4% measured in 1995, as mentioned
before.
It
shall also be stressed that indebtedness figures deserve careful scrutiny when
one looks at the country’s foreign accounts. Indeed, R$161.6 billion (24.6%) of
total indebtedness were borrowed from parent, controlled and associated
corporations, of which R$99.3 billion from corporations headquartered abroad.
Part of this amount (except suppliers’ credits and bank loans) was therefore
included as “intercompany loans” and considered, for balance of payment
purposes, as foreign direct investments.
According
to information given to the census, the 11.404 informants with foreign capital
share owed to non-residents a total of R$208.2 billion, or US$106.5 billion
(converted into United States Dollars at the end of 2002 exchange rate), which
corresponds to 45.1% of the total balance of the Brazilian foreign debt
(US$236.2 billion). However, from this figure, US$50.8 billion were owed to
non-resident creditors, either controlled or associated corporations, a good
part of which shall be considered as foreign investment, under the new criteria
used in the 2001 balance of payments, as mentioned in the previous paragraph.
Therefore, a more correct reading of the census focusing on foreign accounts
would require that some weights be accordingly applied, resulting in more
expressive final values for investment and smaller figures for indebtedness.
Some
valuable information may be additionally obtained from the consolidated income
statement of institutions with foreign capital share. A gross operating revenue
of R$509.9 billion and net operating revenue of R$423.8 billion were recorded,
corresponding to 46.9% and 39.0%, respectively, of the GDP measured at the end
of 2000 (R$1,086.7 billion, according to IBGE data). By deducting from net
operating revenue the cost of products sold and services rendered (R$292.2
billion), one reaches a gross operating result of R$131.6 billion. However, the
institutions analyzed perform sales to each other along the productive chain
and their aggregate real sales cannot be taken as a value to be added to GDP.
Regarding
dividends, informants with foreign capital share paid a total of R$12.1 billion
in 2000, of which R$6.0 billion to non-residents. Converting this sum into
United States Dollars at the average dollar of 2000 (R$/US$1.8287), remittances
under this item totaled US$2.2 billion, in tune with the outflow in that year
as recorded by the balance of payments. On the other hand, the 11,404 census
informants recorded receipt of dividends amounting to R$6.9 billion in 2000, of
which R$458 million from non-residents, equivalent to US$250 million.
One of
the clear benefits brought by the economic growth triggered by foreign
investments is the increased tax collection, which may be corroborated by
information given to the census. Taxes paid by the aggregate of institutions
with foreign capital share reached R$85.7 billion, of which R$67.1 billion in
taxes on goods and services (federal
VAT (IPI), state VAT (ICMS), Import Tax (II), etc.), R$6.0 billion in income
and contribution taxes and R$12.6 in other tax expenses.
Among
the positive statistics disclosed by the census, one clearly cannot forget the
importance of foreign capital corporations to the development of the Brazilian
foreign trade. According to the census data, such corporations generated a
surplus of US$1.7 billion in their actual trade balance in 2000, recording
US$33.2 billion in exports and US$31.5 billion in imports, equivalent to shares
of 60.4% in total exports and 56.6% in total imports of that year.
Comparing
this trade behavior with the one recorded in 1995, one notices that there was a
decrease in the trade balance surplus, which came from US$2.3 billion to US$1.7
billion, in line with the economic environment prevailing at that respective
moments in time.
There
was a relative increase in the volume of foreign trade of corporations that
received foreign investment, with their share on the overall total of exports
increased to the already mentioned 60.4% in 2000, from 46.9% in 1995, an
increase realized practically on sales to controlled and associated
corporations. The share of imports increased to 56.6%, from 38.6%, also
reflecting commercial relations with controlled and associated corporations.
The increase in export and import shares to associated corporations against
exports and imports of informants to the Census came to 63.3%, from 42%, for
exports, and to 57.8%, from 44%, for imports.
Intercompany
foreign trade, the balance of foreign purchases and sales made with controlled
and associated corporations, similarly to 1995, generated a surplus. In 2000,
this balance reached US$2.8 billion, resulting from exports of US$21.0 billion
and imports of US$18.2 billion – a figure well above the US$549
million of 1995, resulting from exports of US$9.1 billion and imports of US$8.5
billion.
An
important feature of the census figures relates to the distribution of data
according to economic activities (Schedule 1). Broken down by assets, the most
important is the tertiary sector, with R$632.6 billion out of the R$914.1
billion assets, amounting to 69.2% of the total. The secondary sector, with
R$264.8 billion (19.1%) was second in importance, while the third in rank was
the primary sector, with the remaining R$15.7 billion.
Graph 1, showing the distribution of assets of corporations with foreign capital
share, illustrates the comments made above. This preponderance of the tertiary
sector is less prominent when net equity is considered, where this sector’s share drops to 58.9% (Schedule 1 and
Graph 2). However, a change of positions is noticed when considering net
operating revenues, when the secondary sector records the largest share, R$229.3
billion of total R$423.8 billion, 54.1%.
The
main reason for this difference is the financial intermediation sector
(disregarding insurances and pension funds), which recorded assets amounting to
R$301.8 billion in 2000, or 47.7% of the R$632.6 billion recorded in the
tertiary sector, and 33.0% of total assets belonging to the 11,404 informants
with foreign capital share. Despite the fact that the financial intermediation
sector does record a hefty volume of assets, its net operating revenue is
reduced as against the total of the tertiary sector, accounting for just 17.0%
of the income earned. In the aggregate of these three sectors, the share of
financial intermediation revenues reaches 7.5% of the total.
In
special, regarding the regional distribution of institutions that benefited
from foreign capitals (Schedules 1 and 2), there is an indication of strong
concentration in the Southeastern region, which in 2000 answered for 86.7% of
total capital paid-in by non-residents and for 79.0% of total employees
informed. Compared to the 1995 picture, one may say that the concentration kept
about the same, since in that year 88.0% of the capital paid-in by non-resident and 80.0% of employees were located
in the Southeastern region. São Paulo keeps being the state recording the
largest figures for capital share by non-residents and employees (66.0% and
63.0%).
It is
worth noticing that this degree of concentration is calculated based on
consolidation according to the location of most part of the corporation’s
property. Branches and employees located in other states or regions are
accounted for in the statistics of the region recording the largest part of the
corporation’s property.
Schedule 4 displays some of the main statistics for 1995 and 2000 base-years, in their relative and absolute values.
1 Paragraph
362 of the Balance of Payments Manual, 5th ed. International Monetary Fund. The
cut made in the Foreign Capitals Census is also in line with the
recommendations of the Organization for Economic Cooperation and Development
(OECD), which admits the level of 10% as characterizing foreign direct
investment, in addition to notions such as power to control, influence in the
management and durable economic relations, converging significantly to the IMF
definition. (Organization for Economic Cooperation and
Development – OECD, OECD Benchmark Definition of Foreign Direct
Investment, 3rd. ed., 1996).
2 Paragraph
359 of the Balance of Payments Manual, 5th. ed. International Monetary Fund,
1993.