Brazil makes a smart move to attract and retain foreign investment

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Governments around the world are increasingly devising strategies to attract foreign direct investment (FDI) by creating a more efficient, predictable and "investment-friendly" business climate. These improvements make it easier for investors to establish operations, conduct their day-to-day businesses, and expand their investments.

Brazil has taken the lead in the area of investment facilitation, having submitted a draft proposal for a World Trade Organization framework for investment facilitation in 2018. In April, the country also took an important unilateral step to facilitate and retain FDI within its own borders: it established a single government institution—the office of the Direct Investments Ombudsman—to facilitate interactions between foreign investors and all other Brazilian government agencies. It’s the type of innovation that other developing countries should consider replicating, at least in part.

The Port of Salvador in All Saints Bay, Bahia, handles both cargo and cruise ships. Photo: Mariana Ceratti / World Bank

The Ombudsman’s office has two main functions. First, it provides information to potential and existing investors about legal and regulatory procedures to enter and operate in Brazil. Second, it ensures a coherent and efficient government response to investors’ grievances. It addresses investor inquiries as well as grievances.

In announcing the launch of the Direct Investment Ombudsman, Brazil’s new government signaled a change in policy direction. The Ombudsman’s office initially was intended to be available only for investors from countries with a Cooperation and Facilitation investment Agreement (CFIA) with Brazil. The new government, however, decided to make it available to all investors, regardless of their nationality.

At its inception, the new institution still has some challenges to overcome. The network of focal points across government agencies, which is core for the functioning of the Ombudsman, is to be strengthened at the subnational level. Additionally, the model does not provide for international investor-state dispute settlement should the grievance remain unresolved. Nevertheless, the impact of the Ombudsman’s office is potentially large: it covers 100% of the FDI flowing into Brazil, up from just 3.1% under the CFIA-only plan. It also sends an unmistakable message about Brazil’s desire to improve the investment climate for all investors.

The World Bank Group has been supporting Brazil’s Ministry of Economy in its efforts to strengthen the Ombudsman. Through a technical-assistance project grounded in analytical work, stakeholders’ consultations, and international experience, the World Bank is advising on improvements to the design and implementation of the Ombudsman’s office and its grievance and redress mechanisms,

In recent years, the World Bank advised several countries on such mechanisms—with notable results. In Bosnia and Herzegovina, for example, the Collaborative Network for Investment helped the country retain $10 million in investment value from 2013 to 2016. In Mongolia, the Investment Protection Council in retained an investment project totaling $3 million in its first year of operation. In Colombia, the Ministry of Trade helped investors to resolve their grievances while reporting investment retention totaling $200 million. Even in conflict affected countries like Iraq, the subnational investment promotion agency in the province of Basra was able to facilitate investments in the amount of $500 million while addressing investors’ grievances.

Developing an institutional mechanism such as Ombudsman’s office is complex, especially in a large economy with a federal system of government. Going forward, the main priorities will involve strengthening collaboration among public agencies at the national and state levels, establishing a set of rules of operation to ensure transparency and predictability, designing a monitoring and evaluation framework to measure impact, and building the capacity of relevant government agencies.

It’s impossible to overstate the importance of a strong mechanism to address investors’ grievances. In developing countries, almost half of new investment arrives in the form of reinvested earnings of multinational subsidiaries.  Moreover, data from the World Bank’s Global Investor Survey indicate that 32 per cent of the investments lost globally is attributable to risks encountered by the investor— burdensome bureaucracy, lack of transparency, and sudden changes in laws.

In short, Brazil is embracing a promising instrument to improve the country’s business environment and attract and retain FDI. And it is doing so with broad coverage and no discrimination. It is time to focus on deepening its implementation to ensure that this reform results in greater and better investment—particularly in the less-developed regions of the country.

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