1. Commodity Stabilization.-As a signatory of the International Coffee Agreement, Brazil has been highly responsible in reducing coffee production and readjusting export quotas to help maintain relative stability in world markets. Brazil has reduced its average productive capacity from around 37 million bags in the early 1960's to about 22 million bags in 1971. Although Brazil has greatly reduced its dependence on coffee, it recognizes its responsibility to prevent serious economic disruption in smaller countries with less diversified exports. What is the situation in Brazil with respect to U.S. and other private foreign investment? How much and in what fields?

Brazil is one of the leading recipients of foreign investment in Latin America. U.S. investment in Brazil ranks seventh worldwide. In recent years Brazil has had the highest rate of increase in annual expenditures for plant and equipment by foreign affiliates of U.S. corporations. By 1967, annual expenditures on these items in Brazil, through new investment and reinvestment, were larger than in any other country in Latin America, increasing to 35% of the regional total by 1969.

There is no up-to-date, reliable compilation of foreign investment in Brazil. Estimates vary widely, ranging from $3.2 billion to $4.6 billion by the end of 1969. (The Embassy is inclined toward the lower end of this range.) At that point, total U.S. investment was about $1.6 billion. Thus, depending on which estimate of total foreign investment is chosen, the U.S. share would vary be tween one-third and one-half.

The Central Bank is registering past foreign investment and so far has accounted for $1.7 billion. Five countries, the United States (48%), West Germany (10%), Canada (10%), the United Kingdom (6%) and Switzerland (6%), account for 80% of total registered foreign investment (including reinvestment) in Brazil up to December 31, 1969. Since only about half of total foreign investment has been registered, these percentages may not be an accurate indicator for the total.

The sectors which have received the greatest share of foreign investment are the automobile industry (vehicles and vehicle parts) with 15.5%; electrical equipment 9.8%; petroleum products 8.3%; basic chemical products 8.3%; food products 6.9%, rubber products 5.8%; and energy 5.5%.

U.S. investment in Brazil is heavily concentrated in manufacturing (70%) and distributed fairly evenly among a number of subsectors.

Most other foreign investors in Brazil have concentrated their holdings in one or a few subsectors of the economy. Thus Canada has 55.3% of its total investment in Brazil concentrated in the electrical energy sector, Germany has 69% in the vehicle and parts sectors, England has 39% in petroleum products, Belgium has 78.2% in chemical products, and Holland has 85% in electrical equipment. In contrast, the sector with the greatest concentration of U.S. investment, the automobile industry, accounts for only 12.6% of total U.S. investment. The explanation for the greater diversification of U.S. investment in Brazil is that total investment of other countries in Brazil is small relative to U.S. investment (which has nearly five times more investment than the next largest investor), and one large investment in a particular sector such as Light for Canada, or Volkswagen for Germany, constitutes a predominant share of total investment by that country in Brazil.

The primary sector, consisting principally of agriculture, employs 46.7% of the active labor force, produces 18.0% of GNP, and receives only 0.4% of total foreign investment. The secondary sector (Industry) which employs 13.6% of the labor force and produces 31.4% of GNP accounts for 87.7% of foreign investment. The tertiary sector (services) accounts for 11.9% of foreign investment, while employing 39.7% of the labor force, and producing 50.6% of GNP. Within the secondary sector, manufacturing industries absorb the major share of foreign investment (81.2%). As would be expected, given the relative comparative advantage of foreign firms, investment tends to be concentrated in those subsectors where there is greater opportunity to apply advanced technology.

Within the major industrial subsectors, the automobile sector has grown the fastest (average annual rate of growth of 28.3% throughout the fifties and most of the sixties). It is this sector in which foreign investment has been most highly concentrated.

What is the attitude of the Brazilian Government, business community and public toward private foreign investment?

While varying degrees of economic nationalism and antiforeign investment sentiment may prevail in Brazil, foreign investments are generally welcomed and even encouraged via special fiscal incentives and government support where they contribute to Brazil's priority objectives of export promotion and technological modernization.

While local business interests may prefer to avoid foreign competition and preserve Brazilian market potentials for themselves, pragmatic governmental leaders realize that local capital and know-how are not sufficient to insure Brazil's growth targets in many economic sectors. However, the GOB does attempt to strengthen the competitive position of local investors via various economic and fiscal privileges.

Among the public, there is a growing appreciation of the many benefits of foreign investments, especially in creating much-needed job opportunities and in conserving and expanding Brazil's foreign exchange reserve. Such appreciation and understanding, coupled with demonstrated success of the country's economic leadership, outweight any hostile nationalistic or left-leaning elements. The current economic boom in Brazil has lessened opposition to and fear of foreign competion. Three years ago, "denationalization of industry, i.e., dominance of foreign investment, was a major political issue; today it is almost completely dormant.

What is the current rate of writing investment guarantees?

The insurance coverage (by type of coverage) since the beginning of the guarantee program in 1965 and running through to the end of the first quarter of 1971 is as follows:

1 Not number of actual projects covered, which is much less due to multiple counting; e.g., in the 1st quarter of 1971 only 1 project was involved.

1st quarter only.

The rate for the four years 1967-70 was relatively constant. Only one company has been insured in 1971, but the time period may be too short to indicate a trend.

The specific guarantees issued in the last year are detailed below.

STATUS OF OUTSTANDING GUARANTIES ISSUED, LATIN AMERICA, SCHEDULE III

For the past 10 years please provide a “balance sheet” indicating for each year the amount invested by U.S. business and their profit remittances. What is the net effect of this 10-year investment period on the U.S. balance of payments?

Source: U.S. Department of Commerce, Survey of Current Business. 1970 data not readily available.

The direct effect on the U.S. Balance of Payments during the 1960's has been slightly positive. While U.S. direct investment in Brazil increased by $680 million (71%) during this period, most of the increase (91%) was financed by reinvested earnings. During the 1960's income remitted to the U.S. from Brazil exceeded the net capital outflow from the U.S. every year but three. During the early to mid-1960's, deteriorating economic conditions (and an unfavorable overall climate for foreign investment during the Goulart administration) caused the net direct capital outflow to Brazil to decline, reaching a low of minus $36 million in 1964. During this same period remitted income to the U.S. declined as profits fell (the return on U.S. investment in 1963 reached a low of 5.7% as compared to an 8.3% average for the decade) and administrative obstacles to remittance of income developed under the Goulart regime.

In addition to the direct investment effects, remittances to the U.S. for sales of patents, trademarks, and technical services have had an important positive effect on the U.S. Balance of Payments averaging about $30-$35 million annually during the sixties.

What is the current "average" return on foreign investment in Brazil?

The following table provides data for U.S. investment. No data were available for other foreign investment.

TOTAL EARNINGS AND REMITTANCES TO THE UNITED STATES AS A PERCENTAGE OF TOTAL U.S. DIRECT INVESTMENT IN BRAZIL

Source: Survey of Current Business, Department of Commerce 1970 data not readily available.

What is the total number of AID and AID related personnel now in Brazil? How many are contract personnel? How many are local hire?

1 Does not include 9 U.S. direct hire and 10 local hire employees of the Area Auditor General's office which is not under the authority of the USAID Mission.

Please describe the major technical assistance projects currently underway in Brazil!

The annual A.I.D. presentation to Congress-now being compiled for the House Foreign Affairs Committee contains a current and complete description of our activities. The attached 12 narrative statements and financial summary describe our continuing major programs. Omitted are terminating projects whose funding runs out in FY '71.

The total technical assistance program to Brazil as shown in the Congressional Presentation is as follows:

Fiscal year 1970

Fiscal year 1971_

Fiscal year 1972_.

Thousands of dollars 12, 364 10,830 10, 325