2020 - bcb.gov.br

Direct Investment Report2020

Reproduction only permitted if the source is stated as follows: Direct Investment Report, 2020.

Occasional discrepancies between constituent figures and totals as well as percentage changes are due to rounding effects. There are no references to sources in tables and figures originated in the Banco Central do Brasil.

Public Attendance Services – Department of Citizen Affairs (Deati)Address: Banco Central do BrasilDepartamento de Atendimento Institucional (Deati)SBS – Quadra 3 – Bloco B – Edifício Sede – 2º subsolo70074-900 Brasília – DF – BrazilContact Us: http://www.bcb.gov.br/?CONTACTUS <http://www.bcb.gov.br/?ATENDIMENTO>

* This translated report represents the best effort from the Banco Central do Brasil to provide an English version of its Direct Investment Report. In case of any inconsistency, the original version in Portuguese prevails.

Contents

Introduction, 6

1 Overview of Direct Investment, 81.1 Overview of direct investment liabilities, 8

1.1.1 Positions and transactions, 81.1.2 Breakdown of changes in direct investment equity liabilities

position, 11Box: Issuances of subsidiaries/affiliates of Brazilian enterprises in the international market, 12

1.2 Overview of direct investment assets, 141.2.1 Positions and transactions, 141.2.2 Breakdown of changes in direct investment equity assets position, 15Box: Postponement of the deadline for reporting to the Brazilian Capitals Abroad Survey due to the pandemic, 16

2 Direct Investment Income, 182.1 Evolution of direct investment income, 18Box: Improvements in the collection of earnings data in the Brazilian Foreign Capitals Survey (Censo), 202.2 Profitability of direct investment positions, 21Box: Direct investment earnings estimates for the Balance of Payments, 22

3 Partner Economies, 243.1 Positions, 243.2 Transactions – Equity, 283.3. Transactions – Reinvested and distributed earnings, 29Box: Results to identify Special Purpose Entities in the Censo and CBE, 30

4 Industry Breakdowns, 314.1 Positions, 314.2 Transactions – Equity and intercompany debt, 324.3 Profitability, 34Box: Final destination of direct investment assets, 35

5 Activities of Resident Direct Investment Enterprises, 375.1 Foreign trade, 375.2 Revenue, workforce, payroll, and R&D, 38

Annex I: Direct investment methodology, 42Direct investment definition, 42Asset/liability principle x directional principle, 43Special Purpose Entities, 45Pass-through and round-tripping, 46Direct investment income, 46Breakdown of changes in direct investment position, 47

Annex II: Sources for direct investment compilation, 49Brazilian Foreign Capitals Survey (Censo), 49Brazilian Capitals Abroad Survey, 52Electronic Declaratory Registry – Financial Operations Registry, 54International Transactions Reporting System (Sistema Câmbio), 55

FiguresFigure 1 – Direct investment liabilities position, 8Figure 2 – Direct investment liabilities – 12-month rolling total net inflows, 9Figure 3 – Composition of 12-month accumulated net flows of direct investment liabilities, 9Figure 4 – Equity direct investment liabilities, excluding reinvested earnings – Gross inflows according to transaction value ranges, 10Figure 5 – Direct investment liabilities flows – Intercompany debt, 10Figure 6 – Breakdown of changes in direct investment equity liabilities position, 11Figure 7 – Securities issued by Brazilian subsidiaries/affiliates in the international market – Position, 12Figure 8 – Maturity of securities issued by subsidiaries/affiliates abroad of Brazilian enterprises by year-end 2019, 13Figure 9 – Overall direct investment assets position, 14Figure 10 – Net flows of direct investment assets – 12-month accumulated, 14Figure 11 – Breakdown of net flows of direct investment assets, 15Figure 12 – Breakdown of changes in direct investment equity assets position, 15Figure 13 – Daily monitoring of reporting to the CBE in 2019, 17Figure 14 – Direct investment liabilities income breakdown, 19Figure 15 – Direct investment assets income breakdown, 19Figure 16 – New Censo Survey form for the collection of accounting information, 20Figure 17 – Profitability of the direct investment equity liabilities position, 21Figure 18 – Profitability of direct investment equity assets position, 21Figure 19 – Comparison between estimated and actual direct investment earnings, 23Figure 20 – Direct investment position in Brazil by region – Immediate investor, 24

Figure 21 – Direct investment position in Brazil by partner economies – Immediate investor – Europe, 25Figure 22 – Direct investment position in Brazil by partner economies – Immediate investor – North America, 26Figure 23 – Direct investment equity in Brazil – Immediate investor vs. ultimate controlling parent for selected economies, 27Figure 24 – Direct investment assets position by region and country – Immediate host economy, 27Figure 25 – Direct investment equity liabilities inflows, excluding reinvested earnings – Breakdown by immediate partner economy – Selected countries, 28Figure 26 – Gross outflows of direct investment equity assets, excluding reinvested earnings – Breakdown by immediate host economy – Selected countries, 28Figure 27 – Reinvested and distributed earnings – Immediate investor criterion, 29Figure 28 – Direct investment equity liabilities position by industry, 31Figure 29 – Direct investment equity assets position by industry, 32Figure 30 – Direct investment equity liabilities, excluding reinvested earnings – Gross inflows by industry, 32Figure 31 – Direct investment intercompany debt liabilities transactions – Breakdown by industry, 33Figure 32 – Gross outflows of direct investment equity assets, excluding reinvested earnings – Breakdown by industry, 33Figure 33 – Return on direct investment equity liabilities position – Selected industries, 34Figure 34 - Instructions in the Respondent’s Manual for reporting foreign controlled enterprises, 36Figure 35 – Share of resident direct investment enterprises in the foreign trade in goods, 37Figure 36 – Trade balance – resident direct investment enterprises by industry, 38Figure 37 – Gross revenue of resident DI enterprises, 39Figure 38 – Workforce of resident direct investment enterprises, 39Figure 39 – Payroll of resident direct investment enterprises, 40Figure 40 – R&D expenditures and gross revenue, 40Figure 41 – Workforce in R&D, 41Figure 43 – Sample Censo (annual) – Number of respondents, 51Figure 44 – Direct investment equity liabilities positions – Sample Censo and complementary databases and estimations, 51Figure 45 – Population (annual) and sample (quarterly) CBE – Main features, 52Figure 46 – Sample CBE – Number of respondents and total foreign assets position, 53Figure 47 – RERCT – Impact on the number of respondents and in the DI assets position, 53Figure 48 – Quarterly direct investment assets position (annual average) – Reported vs. estimated, 54

2020 | Direct Investment Report6

Introduction

The Direct Investment Report (RID) presents statistical analyses of flows and positions of direct investment assets and liabilities in 2019. The focus of the publication is the participation in the equity of enterprises, the main component of Brazil’s direct investment, both for assets and liabilities. The RID also addresses intercompany debt transactions and income flows associated with direct investment.

Direct investment is the most important investment category in the economic and financial relationship of Brazil with the rest of the world. At the end of 2019, direct investment liabilities reached US$874.0 billion, and, as in previous years, accounted for approximately half of the Brazilian total external liabilities. Net inflows of direct investment liabilities are positive and systematically less volatile than portfolio investments and other investments (loans and trade credits and advances, among others) throughout the historical series. Direct investment assets reached US$416.6 billion at the end of 2019, equivalent to 47% of total foreign assets. Thus, it accounted for the largest amount of foreign assets, even higher than the international reserves position (US$356.9 billion).

Brazilian direct investment statistics are compiled in accordance with the 6th edition of the International Monetary Fund’s (IMF) Balance of Payments and International Investment Position Manual (BPM6) and the 4th edition of the OECD Benchmark Definition of Foreign Direct Investment (BD4). According to international methodological standards, a direct investment relationship is formed when an investor in one economy holds voting power equal to or greater than 10% in a company or investment fund of another economy.1 Under these conditions, the direct investor participates effectively in the company’s strategic and managerial decisions, generally maintaining long-term interest in the invested enterprise.

This report has the following structure: Introduction; Chapter 1: Overview of direct investment in 2019, covering and integrating positions and transactions, and boxes on intercompany debt, issuances of subsidiaries abroad and lengthening of the deadline for declarations of Brazilian Capitals Abroad Survey (CBE) in the context of the pandemic; Chapter 2: Evolution of direct investment income transactions and implicit profitability rates of direct investment positions, and boxes on Brazilian Foreign Capitals Survey (Censo) improvements and estimates of direct investment profitability when Censo and CBE data are not available; Chapter 3: Breakdown of investment positions by regions and partner economies, and boxes on identification of Special Purpose Entities (SPEs) from Censo and CBE and distribution of direct investment assets position according to the ultimate investor country; Chapter 4: Distribution of transactions and positions by economic activity sector of direct

1 See paragraphs 6.8 to 6.14 of the IMF BPM6 Balance of Payments and International Investment Position Manual (BPM6) , and paragraphs 11 and 12 of OECD BD4 Benchmark Definition of Foreign Direct Investment.

http://www.oecd.org/daf/inv/investmentstatisticsandanalysis/40193734.pdf


https://www.imf.org/external/pubs/ft/bop/2007/pdf/BPM6.pdf



investment enterprises and a box on the economic activity sector and ultimate country for direct investment enterprises abroad; Chapter 5: Activities of resident direct investment enterprises, with data on foreign trade, wages, employment and research and development; Methodological Annex I, showing basic concepts of direct investment, in addition to a discussion on the criteria of asset/liability and directional principle, residence and nationality, SPEs and round-tripping; Methodological Annex II, presenting data sources and means of collection to compile the direct investment.


1 Overview of Direct Investment

1.1 Overview of direct investment liabilities

Overall direct investment liabilities position increased 18.4% in 2019 compared with 2018, mainly impacted by price variation (US$87.8 billion). Net inflows reached US$69.2 billion.

1.1.1 Positions and transactions

Overall direct investment liabilities position reached US$874.0 billion in 2019 – the highest value in the historical series, composed of US$623.3 billion in equity and US$250.7 billion in intercompany debt. As shown in Figure 1, the position in 2019 increased US$136.1 billion compared with 2018.

Figure 1 – Direct investment liabilities position

12/9/2020 Figura 1 - Posição total de IDP

1/1

0

100

200

300

400

500

600

700

800

900

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

587.2 589.6 603.5 550.6 518.1362.5

481.0 539.9 499.3623.3

95.1 105.9 127.7 174.1 207.8

205.7

222.3227.8

238.6

250.7682.3

874.0

568.2

767.8 737.9725.9731.2 724.8695.5 703.3

Equity Intercompany debt DI Liabilities

US$ billion

Direct investment liabilities net inflows totaled US$69.2 billion in 2019, equivalent to 3.76% of GDP, similar to the average of recent years (Figure 2). Compared with


2018, overall direct investment liabilities inflows decreased by US$9.0 billion, reflecting an expansion of US$6.3 billion in net equity inflows and a decline of US$15.3 billion in net intercompany debt inflows.

Figure 2 – Direct investment liabilities – 12-month rolling total net inflows

Net equity inflows, including reinvested earnings, went from US$57.3 billion in 2018 to US$63.6 in 2019. These inflows corresponded to 92.0% of the overall direct investment liabilities flows. Net intercompany debt inflows totaled US$5.5 billion in 2019 compared with US$20.8 billion in 2018. Figure 3 shows the evolution of the components of direct investment liabilities flows.

Figure 3 – Composition of 12-month accumulated net flows of direct investment liabilities

Gross equity inflows, excluding reinvested earnings, totaled US$49.0 billion in 2019, compared with the US$46.2 billion observed in 2018. The distribution by transaction value ranges reveals that this increase was concentrated in operations worth more than US$1 billion (Figure 4). Operations worth more than US$100 million accounted for 58% of the gross inflows.

11/27/2020 Figura 2 - IDP

1/1

0

10

20

30

40

50

60

70

80

90

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2015 2016 2017 2018 2019

US$ billion (left) % GDP (right)

% GDPUS$ billion

dec 2017 dec 2018 dec 2019dec 2016dec 2015


Figure 4 – Equity direct investment liabilities, excluding reinvested earnings – Gross inflows according to transaction value ranges

The decrease of US$15.3 billion in net intercompany debt inflows, when comparing 2019 with 2018, was mostly due to credits granted by affiliated companies abroad to headquarters in Brazil (reverse investment). These credits fell by US$14.0 billion, reaching US$3.6 billion. Figure 5 shows these transactions.

Figure 5 – Direct investment liabilities flows – Intercompany debt

1/7/2021 Figura 4.1

1/1

46.2US$ billion

2018

7%

18%

28%10%

13%

8%

16%

1/7/2021 Figura 4.2

1/1

19%

16%

23%

9%

12%

7%

13%

49.0US$ billion

2019

Above US$1 billion

Between US$500 million and US$1 billion

Between US$100 million and US$500 million




Inferior or equal to US$10 million

11/27/2020 Figura 5.1

1/1

0

20

40

60

80

100

2015 2016 2017 2018 2019

22.9

5.5

25.4

4.9

20.8

Credits Amortization Net

TotalUS$ billion

11/27/2020 Figura 5.2

1/1

0

5

10

15

20

25

30

35

40

45

2015 2016 2017 2018 2019

7.5

1.90.93.2

4.7

0

10

20

30

40

50

2015 2016 2017 2018 2019

15.3

3.6

20.8

4.0

17.6

US$ billionUS$ billion

Subsidiaries abroad to headquarters in Brazil(reverse investment)

Headquarters abroad to subsidiaries in Brazil and between fellow enterprises


1.1.2 Breakdown of changes in direct investment equity liabilities position

Changes in direct investment liabilities position from one period to another – as well as other investments – arise from: (i) transactions; (ii) exchange rate and price changes; and (iii) other changes (see Methodological Annex).

Between 2017 and 2018, the direct investment liabilities equity position dropped by 7.5% to US$499.3 billion. Despite the positive contribution of transactions (US$57.3 billion), they were offset by the negative effects of exchange rate movements (US$82.1 billion – the accumulated exchange devaluation reached 15% in the period), price movements (US$10.7 billion), and other changes (US$5.1 billion). From 2018 to 2019, the direct investment equity liabilities position increased to US$623.3 billion (24.8%) as shown in Figure 6. This increase was due to price and transactions changes (US$87.8 billion and US$63.6 billion, respectively). Exchange rate movements and other changes had negative effects, from US$20.6 billion and US$6.7 billion, respectively.

Figure 6 – Breakdown of changes in direct investment equity liabilities position11/28/2020 Figura 6 – Decomposição das variações das posições de IDP – Participação no capital

1/1

250

300

350

400

450

500

550

600

650

2017 Transactions Otheradjustments

Prices Exchangerate

variations

2018 Prices Transactions Otheradjustments

Exchangerate

variations

2019

539.9

57.3

-5.1 -10.7

-82.1499.3

87.8

63.6-6.7

-20.6623.3

US$ billion


Issuances of subsidiaries/affiliates of Brazilian enterprises in the international market

In the Brazilian economy, intercompany debt positions and transactions are often originated by issuances in the international market of non-resident enterprises that are part of a multinational group headquartered in Brazil. The issuance does not directly generate a liability for Brazil as the issuer is a non-resident enterprise. However, the use of issuance proceeds to grant credit to headquarters in Brazil would give rise to a transaction between a non-resident issuer and a resident and an external liability in the form of intercompany debt.

In a previous study, published in the March 2015 Inflation Report, the percentage of securities issuance receipts onlent to headquarters in Brazil was estimated in 78.6%, for a sample of non-resident non-financial enterprises between 2007 and 2014. This box updates the estimates for 2015-2019.

An international data provider2 reported that the liability position in securities issued abroad by affiliate or subsidiaries of Brazilian financial and non-financial enterprises totaled US$146.6 billion in 2019, according to Figure 7. The position of financial affiliates or subsidiaries fluctuated around US$40 billion; the position of non-financial affiliates or subsidiaries ranged from US$80 billion to US$120 billion, ending 2019 at US$103.4 billion.

Figure 7 – Securities issued by Brazilian subsidiaries/affiliates in the international market – Position

The affiliates’ liabilities position indicated that the maturity of approximately 60% of the securities was over 5 years, as shown in Figure 8:

2 Bloomberg

11/30/2020 Figura 7 - Estoque de Títulos de Subsidiárias de Empresas e de Bancos Brasileiros Emitidos no Exterior

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60

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120

140

160

180

2015 2016 2017 2018 2019

Non-financial Financial

US$ billion


Figure 8 – Maturity of securities issued by subsidiaries/affiliates abroad of Brazilian enterprises by year-end 2019

The internalization of issuance proceeds by affiliated or subsidiaries is recorded in the Balance of Payments and in the external debt as intercompany debt only for non-financial enterprises and specific cases of financial enterprises, according to standard methodology.3

From 2015 to 2019, the gross value issued by subsidiaries reached US$97.4 billion. In order to estimate the internalization of issuance proceeds of subsidiaries abroad, in the form of intercompany debt transactions, 37 operations carried out by eight economic groups headquartered in Brazil were selected, covering 73.8% of the issuance proceeds of subsidiaries or affiliates. The issuances were compared with intercompany debt transactions. Considering an up to 12 months mismatch, it was possible to infer that 79.7% of issuance proceeds were onlent to the headquarters in Brazil. The transfer percentage was very close to the 78.6% estimated for 2007-2014.

The issuance of debt securities through subsidiaries abroad remains a relevant source of financing for Brazilian multinational groups. Evidence indicates that most of the funding has been earmarked to the country as non-resident subsidiary loans to resident headquarters.

3 Paragraph 6.28 of the BPM6 defines that most financial enterprises (depositary institutions, investment funds, and other financial assistants except insurance enterprises and pension funds) do not have a strong enough connection for intra-group credit to be classified as direct investment.

12/1/2020 Figura 8 - Vencimentos dos títulos emitidos por subsidiárias de matrizes brasileiras no exterior na po

1/1

0%

10%

20%

30%

40%

50%

60%

< 1 year between 1 and 2years

between 2 and 3years



longer than 5years

5.4% 6.4%10.6% 9.1% 8.8%

59.6%

Percentage (%)


1.2 Overview of direct investment assets

Overall direct investment assets position increased 8.9% in 2019 compared with 2018. The net inflows added up US$22.8 billion.

1.2.1 Positions and transactions

The overall direct investment assets position reached US$416.6 billion in 2019, of which US$385.0 billion in equity and US$31.5 billion in intercompany debt. The overall position increased US$34 billion in 2019 compared with 2018. Similarly to direct investment liabilities, direct investment assets in 2019 reached their highest value in the historical series (Figure 9).

Figure 9 – Overall direct investment assets position

Net outflows of direct investment assets totaled US$22.8 billion in 2019, a sharp increase compared with the US$2.0 billion registered in 2018. Figure 10 shows the recent evolution of direct investment assets transactions accumulated in 12 months.

Figure 10 – Net flows of direct investment assets – 12-month accumulated

12/9/2020 Figura 9 – Posição total de IDE

1/1

0

50

100

150

200

250

300

350

400

450

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

171.8 196.5251.8 278.3

310.0 299.1 315.0358.4 345.7

385.0

24.4 24.227.9

29.3 36.731.5

191.3

416.6

334.4 323.3

387.7 382.4

270.9

343.0

206.2

300.8

Equity Intercompany debt DI Assets

US$ billion

11/27/2020 Fig. 8 - IDE 12 meses

1/1

US$ billion

0

5

10

15

20

25

30

35

40

2015 2016 2017 2018 2019


Equity flows, excluding reinvested earnings, added up US$9.7 billion in 2019 and once again contributed for expanding the overall direct investment assets position, following net divestments of US$5.0 billion in 2018. Reinvested earnings increased from US$2.7 billion in 2018 to US$11.1 billion in 2019. Net outflows of intercompany debt accounted for US$2.0 billion of direct investment assets position in 2019. Flows of direct investment assets are illustrated in Figure 11.

Figure 11 – Breakdown of net flows of direct investment assets

1.2.2 Breakdown of changes in direct investment equity assets position

Similar as with direct investment liabilities position, changes in direct investment assets position are explained by transactions, exchange rate and price changes, and other changes. Figure 12 shows the breakdown of changes in direct investment equity assets position from 2017 to 2019. From 2017 to 2018, direct investment equity assets position fell from US$358.4 billion to US$345.7 billion (3.5%), and all components contributed to the decrease. From 2018 to 2019, the direct investment equity assets position rose by 11.4% to US$385.0 billion. While transactions registered in the balance of payments reached US$20.8 billion, the other changes in volume added up US$18.9 billion.

Figure 12 – Breakdown of changes in direct investment equity assets position

12/9/2020 Figura 9

1/1

US$ billion

-10

0

10

20

30

40

2015 2016 2017 2018 2019

9.4 9.710.1

-5.0

5.6

-5.4

22.1

15.6

2.7

4.9

4.3

3.1

33.9

21.3

14.7

Equity — Excl. reinv. earni. Equity — Reinv. earnings Intercompany debt DI Assets

2.0

12/1/2020 Figura 10 – Decomposição das variações das posições de IDE – Participação no capital

1/1

280

300

320

340

360

380

2017Price

s

Transactio

ns

Other adjustments

Exchange rate va

riations2018

Transactio

ns

Other adjustments

Prices

Exchange rate va

riations2019

358.4-0.4 -2.3

-4.6-5.5

345.7

20.8

18.91.9

-2.3 385.0

US$ billion


Postponement of the deadline for reporting to the Brazilian Capitals Abroad Survey due to the pandemic

The Banco Central do Brasil (BCB) extended the deadline for reporting to the Brazilian Capitals Abroad Survey (CBE) for reference year 2019 due to the COVID-19 pandemic. The postponement of the deadline in almost two months met the expressive number of respondents’ requests (residents) who faced difficulties in obtaining information on their assets abroad in a timely manner. In several countries, a quarantine was into force due to the sanitary crisis with temporary closures of banking and non-banking corporations.

The CBE – which is the source for the compilation of the foreign assets position, earnings and transactions settled directly through accounts abroad – has regular reporting deadlines defined according to the Circular 3,624/2013. The Circular 3,995/2020, of March 24, 2020, exceptionally modified the deadline for reporting to the CBE for reference date December 31st, 2019 from April 5 to June 1st, 2020. The deadline of the quarterly report for reference data March 31, 2020 was also postponed from June 15th to July 15th, 2020.

The increased CBE reporting period ensured the adequate scope and quality of the Survey. Despite the pos.tponed reporting deadline there was no delay in providing statistics to the International Monetary Fund (IMF), as observed with the Coordinated Portfolio Investment Survey (CPIS). The CPIS collects bilateral positions of portfolio investments and is a reporting requirement of the G-20 Data Gaps Initiative. Reporting these statistics is mandatory for countries that subscribe to the Special Data Dissemination Standard Plus (SDDS Plus), the highest statistical standard of IMF. The release of CBE results, however, was postponed for about a month and occurred on August 25th, 2020.

The daily monitoring of reported data was especially relevant due to the risk of poor coverage during the pandemic context. The team compiling the data paid special attention to the respondents that reported the highest volumes of assets abroad. The objective was to act preventively, contacting the respondents (by phone, sending e-mails, and interacting on social media) to alert them about the risks of reporting delays, which would hinder the coverage of the survey and the quality of the statistics.

The concentration of submissions close to the reporting deadline was observed, as in the previous years. Figure 13 shows the lines relative to the value and quantity of respondents in 2018 and 2019. The adjusted sequence considers the number of days left until the reporting deadline, facilitating the comparison for surveys ended on different dates. The increased deadline was successful in preserving the coverage of the survey, with the number of respondents and reported value for 2019 exceeding those for 2018.


Figure 13 – Daily monitoring of reporting to the CBE in 20191/7/2021 Figura 11.a – Monitoramento diário das entregas de declarações CBE ano-base 2019

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US$ billion

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100

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Mar 2020 Apr 2020 May 2020 Jun 20201

502502

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537

169

290

9

125

64.4 64.464.4 64.4 64.4

502

Reference date 2018 Reference date 2019 Reference date 2018 (adjusted)12/1/2020 Figura 11.b – Monitoramento diário das entregas de declarações CBE ano-base 2019

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Mar 2020 Apr 2020 May 2020 Jun 2020

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6262 62

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Quantity of respondents - 2018 Quantity of respondents - 2019 Quantity of respondents - 2018 (adjusted)

Thousand


2 Direct Investment Income

In 2019, expenses of direct investment income increased 18.2%, reaching their highest value since 2011.

2.1 Evolution of direct investment income

The breakdown of direct investment liabilities income by component (reinvested and distributed earnings, and interest on intercompany debt) for 2010 to 2019 is shown in Figure 14. Direct investment liabilities income grew for the fourth consecutive year, reaching US$54.0 billion in 2019.

Reinvested and distributed earnings accounted for most of direct investment liabilities income in all years from 2010 to 2019. Reinvested earnings showed a volatile behavior, including negative values4 between 2013 and 2015, with 2011 presenting the largest amount, US$31.2 billion.

Since 2017, interest on intercompany debt began to include exporters’ expenses settled directly abroad, increasing the magnitude of this component. The 2019 result, US$10.2 billion (18% of total direct investment liabilities income), is roughly double the US$4 billion to US$5 billion range seen in the first half of the decade.

4 Total earnings are the sum of reinvested and distributed earnings over a given period. Therefore, negative reinvested earnings imply the distribution of earnings (dividends) in excess of the total earnings, in a given period. Such earnings from previous periods had been capitalized and their distribution in the current period implies defunding the enterprise.


Figure 14 – Direct investment liabilities income breakdown

The breakdown of direct investment assets income by component for the period 2010-2019 appears in Figure 15. The increase in total earnings in 2019 compared with 2018 is explained mainly by the reinvested earnings component, which increased fourfold, from US$2.7 billion to US$11.1 billion. Distributed earnings (dividends) doubled to US$4.9 billion in 2019. Interest on intercompany debt represent a small fraction of direct investment assets income, reflecting the low weight of this component in the total direct investment assets position (see Figure 9). In 2019, direct investment assets interest income totaled US$139 million.

Figure 15 – Direct investment assets income breakdown

12/9/2020 Figura 12 - Composição da renda de IDP

1/1

US$ billion

-10

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

28.8 31.2

17.2

-5.3 -7.6

4.310.0

16.320.8

33.8 27.2

26.0

24.2 22.816.4

19.6

19.0

20.0

23.1

4.0

4.4 4.0

5.1

6.4

12.4

9.4

10.2

65.4

54.1

13.9

23.3

28.0

41.546.4

30.4

45.7

62.4

Reinvested earnings Distributed earnings Intercompany debt interest Total

12/9/2020 Figura 13 – Composição da renda de IDE

1/1

-10

-5

0

5

10

15

20

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

9.711.5

-2.3

5.7

-5.4

4.9

15.6

2.7

11.1

1.8

4.6

1.4

1.4 2.9

3.0

1.7

2.1

4.9

10.8

16.117.3

-2.4

4.8

7.4

2.5

13.6

2.5

7.9

Reinvested earnings Distributed earnings Intercompany debt interest Total

US$ billion


Improvements in the collection of earnings data in the Brazilian Foreign Capitals Survey (Censo)

Starting with reference-year 2019, the Censo was modified to better cover earnings expenses (both reinvestments and distributions), following more closely the COPC concept and the time of recording, according to the international methodological standard. The three fields added to the survey use accounting language to identify in the DI enterprises’ income statement components related to: a) extraordinary operations; b) revaluation of assets and liabilities (mainly impairment); and c) exchange rate variation.

The field previously called distributed earnings, a methodological terminology, was broken down into two new equivalent fields from Brazilian accounting terminology: dividends and interest on equity. In addition, new date fields (months of the year) now allow the identification of the distribution of earnings at the ex-dividend moment, that is, when the earnings to be distributed are declared payable and excluded from the prices of the traded shares.

Figure 16 – New Censo Survey form for the collection of accounting information

The new form for earnings distribution contributes to greater accuracy in compiling earnings on a monthly basis in the Balance of Payments. Data collected in the Censo showed a high concentration of earnings distribution in December, a fact already expected and consistent with exchange settlement data.


2.2 Profitability of direct investment positions

Direct investment liabilities average profitability5 between 2010 and 2019 stood around 6.3%. The highest rate was observed in 2010, 10.7%, and the lowest, in 2015, 2.4%. Figure 17 shows the profitability rate evolution, reaching 7.0% in 2019.

Figure 17 – Profitability of the direct investment equity liabilities position

Direct investment equity assets posted an average profitability of 3.5% between 2010 and 2019, lower than that of direct investment liabilities. The highest direct investment assets profitability rate was observed in 2011, 6.9%, and the lowest, in 2015, -0.9%.6 Figure 18 shows the direct investment equity assets position and respective profitability rates.

Figure 18 – Profitability of direct investment equity assets position

5 In this Report, the implied annual profitability of the direct investment position is defined as the ratio between the earnings in a given year and the direct investment equity position at the end of that year.6 Negative profitability means the occurrence of aggregate loss.

12/2/2020 Figura 15 – Lucratividade da posição de IDP na forma de participação no capital

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3%

4%

5%

6%

7%

8%

9%

10%

11%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

10.7%

7.0%

2.4%3.4%

7.3%

4.6%

7.2%

5.4%

9.9%

5.0%

Equity position (left) Return

US$ billion

12/9/2020 Figura 16 – Lucratividade da posição de IDE – Participação no capital

1/1

US$ billion

0

50

100

150

200

250

300

350

400

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

6.3%

4.2%

6.9%

-0.9%

4.9%

1.0%1.4%

2.6%

0.8%

2.5%

Equity position Return


Direct investment earnings estimates for the Balance of Payments

The compilation of direct investment earnings has as definitive sources the CBE and the Censo. The CBE (since 2012) and the Censo (since 2010) are the sources for the compilation of direct investment earnings statistics, composed of reinvested and distributed earnings of the Balance of Payments.

Data collected in the Censo and CBE are compiled in accordance with international methodology. However, they are not yet accurate as to the monthly frequency and do not have the four-week timeliness that is typical of the Balance of Payments statistics released by the BCB. CBE validated annual data are included in the balance of payments in July of the following year, and the validated and expanded7 Censo data, in November.

Monthly estimates are made until definitive data become available. Direct investment earnings credits are estimated according to values of the previous year, which are collected in the quarterly CBE and indicators of international economy. Direct investment earnings debits are estimated based on results of previous years, quarterly information collected in the Economic and Financial Statement (DEF) of the Electronic Declaratory Registry – Foreign Direct Investment (RDE-IED) system, profitability data of publicly traded companies, and on monthly information from the Accounting Plan of National Financial System Institutions (Cosif), such as the Central Bank Economic Activity Index – Brazil (IBC-Br) and other domestic sectoral indicators. For both credit and debit of dividends the source is the foreign exchange settlements (Sistema Cambio).

Accordingly, in July, earnings credits from the previous year and estimates for the first half of the current year are revised. In November, estimates of earnings debits are replaced by definitive data of the previous year, and earnings debits of the current year are re-estimated.

Figure 19 compares the total credits and debits of DI earnings initially estimated for 2019 with their final values, obtained after collection, validation and extrapolation of the data from the CBE and Censo Surveys.

7 The Populational Censo encompasses the universe of direct investment enterprises in Brazil, while the annual Sample Censo selects large enterprises. In the Sample Censo, both position and earnings encompass companies that did not respond to the survey.


Figure 19 – Comparison between estimated and actual direct investment earnings

12/9/2020 Figura 17 – Comparação entre lucros de investimento direto estimados e definitivos

1/1

US$ billion

0

10

20

30

40

50

Estimated Final

25.120.8

18.723.1

43.8 43.9

Reinvested earnings Distributed earnings Total

0

10

20

30

40

50

Estimated Final

14.711.1

2.24.9

16.9 15.9

DI Liabilities

DI Assets


3 Partner Economies

3.1 Positions

Europe is the main investing region in Brazil; the Caribbean and Europe are the main immediate host regions.

According to the immediate investor criterion, in 2019 Europe remained the region with the highest direct investment position in Brazil, 67.8% of the total US$874.0 billion (Figure 20). This represents a slight increase compared with the 66.1% of the US$737.9 billion registered in 2018. North America has the second highest direct investment position, with 17.6% of the total.

Figure 20 – Direct investment position in Brazil by region – Immediate investor

12/2/2020 Figura 18 – Posição de IDP por regiões investidoras – Critério de investidor imediato – 2019

1/1

(67.9%)

874.0US$ billion

593

154

56

42

29

EuropeNorth AmericaCaribbeanAsiaOther

Total DI Liabilities

(17.6%)

(6.4%)

(3.3%)

(4.8%)

12/2/2020 Figura 18.3 – Posição de IDP ICIA

1/1

(76.9%)

250.7US$ billion

DI Liabilities – Debt

(8.8%)

(8.7%)

(1.8%)

(3.7%)

193

22

22

9

5

EuropeCaribbeanNorth AmericaAsiaOther

12/2/2020 Figura 18.2 – Posição de IDP PCAP

1/1

(64.3%)

623.3US$ billion

401

132

34

33

25

EuropeNorth AmericaCaribbeanAsiaOther

(21.1%)

(5.4%)

(3.9%)

(5.2%)

DI Liabilities – Equity


As shown in Figure 21, besides the Netherlands (42.4%), stand out in Europe direct investment liabilities positions held by Luxembourg and Spain’s immediate investors, equivalent to 13.3% and 13.2%, (respectively) of the Europe’s total (US$593.3 billion). France, Switzerland and United Kingdom are the other main European immediate investors.

Figure 21 – Direct investment position in Brazil by partner economies – Immediate investor – Europe

The direct investment liabilities position of North America immediate investors totaled US$153.7 billion, of which 80.9% came from the United States (Figure 22).

11/28/2020 Figura 19 – Posição de IDP por países investidores – Investidor imediato – Europa

1/1

593.3US$ billion

Total DI Liabilities – Europe

Netherlands 42.4%

Other 13.6%

Luxembourg 13.3%

Spain 13.2%

France 6.5%

Switzerland 6.4%

UK 4.6%

Total DI Liabilities – Europe

11/28/2020 Figura 19.2 – Posição de IDP PCAP – Europa

1/1

400.5US$ billion

DI Liabilities – Europe – Equity

France 7.7%

Switzerland 4.0%

UK 4.8%

Other 13.5%

Netherlands 37.4%

Luxembourg 13.5%

Spain 19.0%

11/28/2020 Figura 19.3 – Posição de IDP ICIA – Europa

1/1

192.8US$ billion

DI Liabilities – Europe – Debt

France 3.9%

Luxembourg 12.8%

Netherlands 52.8%

Other 13.8%

Spain 1.2%

Switzerland 11.4%

UK 4.1%


Figure 22 – Direct investment position in Brazil by partner economies – Immediate investor – North America

11/28/2020 Figura 20 – Posição de IDP por países investidores – Investidor imediato – América do Norte

1/1

US$ billion153.7

Total DI Liabilities – North America

USA 80.9%

Canada 11.9%

Other 7.2%

The listing of direct investment equity liabilities positions indicates that some economies hold significantly higher positions when compiled by the immediate investor criterion rather than by the ultimate controlling parent criterion.8 It is the case of the Netherlands and Luxembourg. These economies shelter intermediate enterprises through which direct investments are passed from ultimate investor countries to destination countries.

Other countries hold higher direct investment equity positions in Brazil according to the ultimate investor partner economy criterion, such as the United States, Spain, Belgium, France and China. These are economies of residence of enterprises that channel their investments by means of intermediate economies.

When comparing direct investment liabilities positions by immediate and ultimate investor criteria, the Netherlands present the most significant discrepancy: as an immediate investor, its position is US$149.8 billion; and under the ultimate investor

8 Over the last decades, one may observe the ascendancy of transnational corporations made up of complex organizational schemes with control and influence over several enterprises. As a result, international methodology for foreign sector statistics has developed two concepts in order to identify the country originating the direct investment: the immediate investor country and the ultimate controlling country. The immediate investor country is the country of domicile of the non-resident enterprise that invested directly in its Brazilian subsidiary. The ultimate investor country is that of residence of the investor that holds the effective control and economic interest in the invested enterprise in Brazil. Thus, the ultimate controller is identified based on the following analysis: starting on the direct investment hosting enterprise, one follows up the chain of controlling relationships until the non-resident enterprise with no further controlling group is found.

11/28/2020 Figura 20.2 – Posição de IDP PCAP – América do Norte

1/1

US$ billion131.8

DI Liabilities – Equity – North America

USA 82.6%

Canada 10.4%

Other 6.9%

11/28/2020 Figura 20.3 – Posição de IDP ICIA – América do Norte

1/1

DI Liabilities – Debt – North America

USA 70.2%

Canada 20.8%

Other 9.0%

US$ billion21.9


criterion, US$25.3 billion (Figure 23). Belgium shows the largest discrepancy in the opposite way: a position of US$5.5 billion by the immediate investor rises to US$41.0 billion under the ultimate investor criterion.

Figure 23 – Direct investment equity in Brazil – Immediate investor vs. ultimate controlling parent for selected economies

Direct investment assets position reached US$416.6 billion in 2019. By the immediate host economy criterion, the highest positions are in the Caribbean and European regions, 47.0% and 37.7% of the total, respectively (Figure 24). In the Caribbean, the Cayman Islands (44.2%) and the British Virgin Islands (29.8%) are the major destinations. In Europe, the most significant partner economies are the Netherlands (55.9%) and Luxembourg (16.0%).

Figure 24 – Direct investment assets position by region and country – Immediate host economy

12/1/2020 Figura 21 – Posições de IDP na forma de participação no capital – Comparação investidor imediato e controlador final para países selecionados

1/1

USA

Spain

France

Belgium

ChinaNetherlandsJapanUK

US$ billion

Immediate Ultimate

41

28

76

79109

145

31

41

1922

150

2519

22

12/2/2020 Figura 22.1 – Posição de IDE por regiões e países investidores – Critério de investidor imediato

1/1

US$ billion416.6

Total DI Assets(47.0%)

(37.7%)(6.7%)

(3.8%)

(4.8%)

196

15728

20

16

CaribbeanEuropeNorth AmericaSouth AmericaOther

11/28/2020 Figura 22.2 – Caribe

1/1

195.9US$ billion

Other 3.7%

Bahamas 22.2%

British Virgin Islands 29.8%

Cayman Islands 44.2%

Total DI Assets – Caribbean

1/1

156.9US$ billion

UK 3.9%Spain 4.9%

Austria 8.7%

Other 10.6%

Luxembourg 16.0%

Netherlands5 5.9%

Total DI Assets – Europe


3.2 Transactions – Equity

By the immediate investor criterion, as in previous years, direct investment equity liabilities flows, except reinvested earnings, mainly originated from the United States and the Netherlands. As shown in Figure 25, inflows of direct investments equity liabilities from Chile, United Kingdom, Norway, Cayman Islands, France and Japan also increased in 2019.

Figure 25 – Direct investment equity liabilities inflows, excluding reinvested earnings – Breakdown by immediate partner economy – Selected countries

Direct investment assets flows were mainly directed to tax havens and low taxation countries (Figure 26). Particularly notable were the increased outflows of direct investment assets to Colombia and the Bahamas, as opposed to lower outflows to the United Stated and Netherlands.

Figure 26 – Gross outflows of direct investment equity assets, excluding reinvested earnings – Breakdown by immediate host economy – Selected countries

12/1/2020 Figura 23 - IDP Exclusive Luc. Reinv.

1/1

0

2

4

6

8

10

USA Netherlands CaymanIslands

Spain France Luxembourg Germany Bahamas British VirginIslands

7.3

9.2

1.9

3.4

1.3

2.4

3.8

2.6

1.4

10.3

6.2

2.9 2.9 2.92.6

1.4

0.5 0.5

2018 2019

US$ billion

12/1/2020 Figura 24 - IDE - Exclusive Luc. Reinv.

1/1

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

CaymanIslands

USA Bahamas Luxembourg Argentina British VirginIslands

Netherlands Austria France

2.8

3.6

0.5

1.1 1.2

0.7

2.1

0.2

0.4

2.7

1.9

1.7

1.0

0.8

0.6

0.30.2

0.0

2018 2019

US$ billion


3.3. Transactions – Reinvested and distributed earnings

In absolute values, as shown in Figure 27, both reinvested and distributed earnings to non-residents were mainly carried out by direct investors from the Netherlands, the United States, and Spain.

Figure 27 – Reinvested and distributed earnings – Immediate investor criterion12/9/2020 Figura 25 – Lucros reinvestidos e distribuídos (dividendos) – Critério investidor imediato

1/1

US$ billion

0

2

4

6

8

10

Netherlands USA Spain Luxembourg JerseyIslands

France Switzerland Germany Chile UK Canada British VirginIslands

4.1 4.0 3.9

2.5

1.2 1.0 0.6 0.7 0.7

5.35.1

3.0

0.5

1.80.6 0.6

0.8 1.0 0.40.8

9.4

0.9

1.6

3.0

1.1

7.0

1.71.4

1.1

9.0

1.91.4

Distributed earnings Reinvested earnings Total earnings


Results to identify Special Purpose Entities in the Censo and CBE

Special Purpose Entities (SPEs), usually utilized for channeling resources among different countries, impose challenges for interpreting direct investment statistics. Brazil participated in the Task Force on Special Purpose Entities,9 coordinated by the International Monetary Fund (IMF), aimed to develop strategies to capture, in the foreign sector statistics, the transactions and positions specific to SPEs.10 A model contemplating only resident SPEs has been developed for measuring these statistics, to be published in 2022 for the reference year 2021. The identification of SPEs and non SPEs increases the analytical value of direct investment statistics.

The task force assessed that developing a standardized definition of SPEs is relevant in order to compare statistics from different countries. Thus, the task force suggested defining SPEs11 as institutional entities with zero to five employees, with little or no physical presence and little or no real activity in the economy where they are constituted. SPEs should be directly or indirectly controlled by non-residents. By establishing SPEs in specific jurisdictions, owners seek to: (i) ensure access to sophisticated capital markets or financial services; (ii) isolate financial risks; and/or (iii) reduce regulatory and tax burdens; and/or (iv) safeguard the confidentiality of transactions. SPEs deal almost entirely with non-residents, and much of their balance sheet consists of cross-border assets and liabilities.

The decision tree has been implemented in the Brazilian context through the Censo and CBE surveys, which asked about i) the number of employees and ii) whether the company transacts almost exclusively with non-residents or if large part of its balance sheet is composed of assets and liabilities against non-residents.

Preliminary results for the Censo 2019, still under validation, indicate 43 direct investment enterprises resident in Brazil, corresponding to US$2.6 billion (only 0.4% of the total equity participation position), classified as SPEs. As expected, resident SPEs are not relevant for channeling resources (pass-through) through Brazil. In turn, preliminary CBE results indicate that non-resident SPEs account for US$170.4 billion, equivalent to 54.9% of the total direct investment assets equity. After data validation, the identification of resident SPEs enterprises will allow to explore the breakdown of the Balance of Payments statistics.

9 The final report of this task force is available at: https://www.imf.org/external/pubs/ft/bop/2018/pdf/18-03.pdf.10 Special Purpose Entities (SPEs) are not the same as Specific Purpose Entities, as provided for by Brazilian law. The latter are conceptual entities usually created to isolate financial risk from their activity. These entities are, in general, restricted and time-bound. The SPEs are characterized for statistical purposes, regardless of their legal format. 11 https://www.imf.org/external/pubs/ft/bop/2018/pdf/18-03.pdf.

https://www.imf.org/external/pubs/ft/bop/2018/pdf/18-03.pdf




4 Industry Breakdowns

4.1 Positions

One-fifth of the direct investment liabilities position is invested in financial services. One third of the direct investment assets position is invested in companies set up for acquiring financial assets.

In 2019, resident companies operating in financial and auxiliary services, including investment funds, accounted for 19.8% (US$116.5 billion) of the equity direct investment liabilities position, followed by the trade sector (9.8%) and electricity and beverages companies (7.9% each), as shown in Figure 28.

Figure 28 – Direct investment equity liabilities position by industry

Almost one-third (31.6%) of the equity direct investment assets position is associated with companies set up for the acquisition of financial assets, as shown in Figure 29. They are followed by companies operating in financial and auxiliary services (18.9%).

11/28/2020 Figura 26 – Posição de IDP – Participação no capital – distribuição por setor de atividade econômica residente

1/1

623.3US$ billion

Other 34.7%

Financial and auxiliary services 19.8%

Trade 9.8%

Electricity 7.9%

Beverages 7.9%

Oil and gas extraction 7.2%

Telecommunications 4.7%

Foodstuff 4.3% 3.7%Metallurgy


Figure 29 – Direct investment equity assets position by industry

4.2 Transactions – Equity and intercompany debt

In 2019, highlights were gross inflows of equity direct investment liabilities, excluding reinvested earnings, in the oil and natural gas industry, accounting for 20.2% of the total, according to Figure 30.

Figure 30 – Direct investment equity liabilities, excluding reinvested earnings – Gross inflows by industry

With regard to debt direct investment liabilities in 2019, the industries of coke, oil derivatives and biofuels, mining, and agriculture and livestock registered significant amounts in both credits and amortizations. The vehicles industry registered significant inflows, whereas the financial services sector was an important contributor to gross amortizations. Figure 31 shows the intercompany debt transactions by industry, regarding direct investment liabilities.

12/1/2020 Figura 27 – Posição de IDE – Participação no capital – distribuição por setor de atividade econômica não residente

1/1

385.0US$ billion

31.6%

Other 20.3%18.9%

Holdings 11.6%


Metallic minerals extraction 6.7%Enterprises set up for the acquisition of financial assets

Financial and auxiliary services

12/1/2020 Figura 28 - IDP PCAP por setor

1/1

6.6%

10.2%

7.2%


Other manufacturing 15.2%

Other services 21.1%

8.7%

Transportation 5.8%5.1%

Agriculture, mineral extraction and related

Electricity, gas and other utilities

Financial services

Trade, excluding vehicles

Vehicles

49.0US$ billion


Figure 31 – Direct investment intercompany debt liabilities transactions – Breakdown by industry

The gross outflow of direct investment equity assets, excluding reinvested earnings, reached US$14.2 billion in 2019. Financial services enterprises were the target of most of those flows, according to Figure 32.

Figure 32 – Gross outflows of direct investment equity assets, excluding reinvested earnings – Breakdown by industry

Credits received

Amortization

12/1/2020 Figura 30 - IDE - PCAP exc. Luc Reinv - Por setor

1/1

Trade, excluding vehicles 20.9%

Other services 27.8%

Other manufacturing 12.9%

Metallurgy 2.9%

Financial services 27.9%

Chemical products 0.6%

Agriculture and mineral extraction 7.0%

14.2US$ billion


4.3 Profitability

Return on direct investment equity liabilities was uneven among Brazilian economic sectors in 2019, as shown by Figure 33. It also reveals sharp differences in the return profile among industries. From 2010 to 2019 the beverages and the financial services sectors were consistently profitable; trade, oil and gas extraction, metallurgy, and telecommunications registered periods of profits and losses; and the automotive industry registered profits from 2010 to 2014 and losses as of 2015.

Figure 33 – Return on direct investment equity liabilities position – Selected industries

12/2/2020 Figura 31 – Lucratividade das posições de IDP – Participação no capital – Setores selecionados

1/1-30% -20% -10% 0% 10% 20% 30%

Beverages

Financial services

Metallurgy

Oil and gas extraction

Telecommunications

Trade

Vehicles

5.9%

13.6%

-2.4%

1.4%

4.7%

5.3%

-0.1%

2010201120122013201420152016201720182019


Final destination of direct investment assets

The complexity of the corporate structures of multinational enterprises, largely due to international competition in terms of tax and legal incentives, poses challenges to the compilation of direct investment statistics and makes their analysis less intuitive. Brazil has advanced on the compilation of direct investment liabilities by country of the ultimate investor, but, like other countries, measuring direct investment assets by country of ultimate destination12 and by predominant industry are remaining challenges.

In the discussions of the Working Group on International Investments Statistics (WGIIS), organized by the OECD and in which Brazil participates, compilers from different countries listed four ways to measure the position of direct investment abroad by the criterion of country of final destination, including industry :

• tracking the transmission of influence in the control chain;• measuring the direct and indirect position of the ultimate investor in

enterprises abroad;• identifying the first operating enterprise; and• identifying the last enterprise in the control chain.

Based on international experiences and in an attempt to better capture country and final industry of direct investment assets, the 2019 reference-year CBE introduced changes in questions related to this topic. Enterprises controlled by the directly invested enterprises abroad were, prior to the 2019 base year edition, identified when they were at the end of the control chain. As of the 2019 edition, the survey started to request the identification of the controlled enterprises that: i) have de facto operational activities; and ii) are in the first link of each organizational branch of the control chain.

Considering the following example, extracted from the CBE Respondent’s Manual, reference year 2019 (Figure 34), enterprises “A”, “B2” and “B3”, which fulfill the requirements “i” and “ii” mentioned above, would indicate final country and industry.

12 The compilation of direct investment according to the country of the ultimate controller, in the case of liabilities, and the country of the final destination, for assets, is another way of identifying funds in transit (pass-through), in addition to the separate statistics of Special Purpose Entities (SPE).


Figure 34 – Instructions in the Respondent’s Manual for reporting foreign controlled enterprises

The first operating enterprise in the control chain could better identify relevant locations and activities of the multinational group, although there may be other operating units along the control chain abroad. Moreover, a question put in such manner relieves the burden on respondents and compilers, as it does not require mapping the entire organizational chart of the group abroad.

However, preliminary results of this change in the CBE survey did not demonstrate a significant gain in the identification of the final destination of direct investment abroad in relation to previous results. Despite the change in relation to the previous editions when the CBE question considered the last enterprise in the chain of control, the main problem persists since the 2017 Direct Investment Report: the position of direct investment assets by country of immediate destination shows amounts much higher than those that make up the breakdown by country and final industry. Along the control chain abroad, there are portfolio investment enterprises, which end up diluting direct investment in the immediate enterprise.

A2 B2 B3

BA

A1b

Fund

B1

Respondent

70% 55%

15%60%

25%85%

65% 80%

55%

15%

A2a

90%

Enterprise does not belong to the control chain of the enterprise or fund abroad. It must not be declared.

Enterprise belongs to the control chain of the enterprise or fund abroad but does not actually carry out de factooperational activities (eg, holding). It must not be declared.

Enterprise belongs to the control chain of the enterprise or fund abroad and it is the first in its control chain branch to have de facto operational activities. It must be declared.

Voting Power>= 10%

Voting Power> 50%

Brazil

Abroad

BrazilorAbroad

A1a

Enterprise belongs to the control chain of the enterprise or fund abroad, it has de facto operational activities, but it is not in the first link of each organizational branch of the control chain. It must not be declared.

B3a

A1


5 Activities of Resident Direct Investment Enterprises

5.1 Foreign trade

Resident direct investment enterprises accounted for almost half of the Brazilian foreign trade in 2019.

Resident direct investment enterprises13 accounted for a significant share of the Brazilian foreign trade in 2019.14 As shown in Figure 35, exports of goods carried out by those enterprises reached 46% and 47% of the total, respectively. Brazilian exports reached US$225.8 billion in 2019, of which US$104 billion related to resident direct investment enterprises. In turn, imports reached US$185.3 billion, of which US$87 billion related to resident direct investment enterprises.

Figure 35 – Share of resident direct investment enterprises in the foreign trade in goods

Exports Imports

13 Related to Direct Investment Liabilities, as collected in Censo. 14 The resident DI enterprises’ share in the foreign trade of goods combined data effectively collected by the Censo with estimates. In the Censo 2019, 1,671 enterprises declared exports worth US$100 billion (44% of total exports) and imports worth US$82 billion (44% of total imports). The list of resident DI enterprises comes from the 2019 Sample survey, combined with expansion from the last Populational Censo. Censo was elaborated from the Population Censo (compulsory for all enterprises with foreign capital participation), while imports and exports have been estimated based on the financial flows of exchange contracts (export revenues and import expenses effected from Brazil).


As shown in Figure 36, resident direct investment enterprises of foodstuff, agriculture, and oil and gas extraction generated a trade surplus of US$43.8 billion in 2019. Meanwhile, resident direct investment enterprises of vehicles and auto parts; electronics and chemical products generated a trade deficit of US$29.1 billion.

Figure 36 – Trade balance – resident direct investment enterprises by industry

12/1/2020 Figura 34 – Saldo comercial – Empresas de IDP por setor de atividade econômica

1/1-15 -10 -5 0 5 10 15 20

Foodstuff

Agriculture

Oil and gas extraction

Electronics

Vehicles and auto parts

Chemical products

17.9

15.5

10.4

-8.0

-9.9

-11.2

US$ billion

5.2 Revenue, workforce, payroll, and R&D

Enterprises of the vehicles and auto parts sector were responsible for most of the resources allocated, in absolute terms, in R&D workforce and expenses in 2019

In addition to data on the foreign trade carried out by resident direct investment enterprises, the Censo collects data related to other activity fields of multinational groups,15 useful for evaluating their impact on the domestic economy. This evaluation may support the elaboration of public policies targeted at the attraction of foreign investment and research on globalization.16

The 2019 Censo increased the number of variables related to the economic activity of resident direct investment enterprises, including, for the first time, payroll expenses with Research and Development (R&D). Figure 37 compares the annual (gross) revenue with total payroll expenses (payroll expenses) and the workforce, according to the economic activity sector of the resident direct investment enterprise.

15 Unlike foreign trade indicators, variables in this section only refer to the sample values collected in the 2019 survey, with no expansion.16 OECD collects and releases information on the activities of multinational corporations: https://www.oecd.org/sti/ind/amne.htm.

https://www.oecd.org/sti/ind/amne.htm

https://www.oecd.org/sti/ind/amne.htm


Figure 37 – Gross revenue of resident DI enterprises

The workforce by economic activity sector, measured according to the position on September 30th of each base-year with the aim of smoothing seasonal factors in the year-end, is shown in Figure 38.

Figure 38 – Workforce of resident direct investment enterprises

Figure 39 highlights the average wages (expense by worker) and absolute values, according to the economic activity sector. Payroll expenses include wage expenses and labor charges during the period.

12/1/2020 Figura 35 – Receita bruta das empresas de IDP

1/1

Annual gross revenue (US$) to payroll expenses ratio (US$) Annual gross revenue per employee (US$ million / employee)

US$ million

0

10

20

30

40

50

60

Telec

ommun

icatio

ns

Agricu

lture

Insura

nce

Electric

ity

Oil and

gas

extra

ction

59.0

44.341.3

35.031.6

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Oil and

gas

extra

ction

Inform

ation

servi

ces

Insura

nce

Electric

ity

Advert

ising a

nd

market

resea

rch

1.9 1.8

1.2 1.2 1.2

12/1/2020 Figura 36 – Quantidade de empregados das empresas de IDP

1/1

-10

-5

0

Tobaccoproducts

Metallurgy Miscellaneous Office services Transport

-1.2-2.3

-3.3

-7.2

-10.9

0

2

4

6

8

10

Trade Foodstuff Pharmaceuticalproducts

Machines andequipment

Rubber andplastic

products

9.6

6.56.1 5.9

4.9

0

50

100

150

200

250

Trade

Foodstuff

Vehicles

Financial and auxiliary services

Telecommunications

2018 2019

Workforce by year Positive change in employees from 2018 to 2019

Negative change in employees from 2018 to 2019

thousandthousand

thousand

products


Figure 39 – Payroll of resident direct investment enterprises

Figure 40 shows the resident direct investment enterprises’ expenses with R&D – expenses with researches with technical-scientific nature with the purpose of implementing or improving goods or services – as a proportion of the revenues (gross), and in absolute terms, according to the economic activity sector.

Figure 40 – R&D expenditures and gross revenue

Figure 41 shows the sectoral range for the expenses of resident direct investment enterprises in R&D regarding the workforce, as well as the absolute amount of jobs.

Annual payroll expenses (US$ billion)Payroll expenses by worker (US$ thousand/worker)

12/1/2020 Figura 38 – Gastos com P&D e receita bruta

1/1

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

Electronics Electricmaterials

Scientificand

technicalactivities

Oil and gasextraction

Vehicles IT

1.7%

1.3%1.2%

0.8% 0.8% 0.7%

R&D to gross revenues ratio

0

100

200

300

400

500

600

Vehicles Electronics Chemicals Electricity Metallurgy

545.6

304.0

208.9

162.2143.8

R&D expenditures (US$ million)


Figure 41 – Workforce in R&D

12/1/2020 Figura 39 – Emprego em P&D

1/1

0%

10%

20%

30%

40%

50%

Scientificresearch anddevelopment

Informationservices

Vehicles IT Electronics

46.0%

12.1%

5.2% 4.6% 4.5%

0

1

2

3

4

5

6

7

8

9

Vehicles Trade Chemicals Financial andauxiliaryservices

IT

8.7

5.0

2.41.8 1.6

R&D workforce to total workforce ratio Total R&D workforce

thousand


Annex I: Direct investment methodology

Brazil’s direct investment statistics are compiled in accordance with the most recent international methodological guidelines, established in the 6th edition of the IMF Balance of Payments and International Investment Position Manual (BPM6) and the 4th edition of the OECD Benchmark Definition of Foreign Direct Investment (BD4). The first manual deals with the general methodology for compiling external sector statistics while the latter is specific and covers more dimensions of direct investment statistics. This annex presents the main concepts developed in BPM6 and BD4, which are harmonized and complementary manuals that form the methodological framework for the compilation and dissemination of direct investment statistics presented in this report and in other BCB publications.

Direct investment definition

A direct investment relationship exists when an investor in one economy holds 10% or more of voting equity of an enterprise or investment fund in another economy.17 The direct investor is considered to have a long-term interest in the direct investment enterprise and a significant degree of influence (or control, in the case of a share greater than 50%) in its management. The motivation of the direct investor differs from that of the portfolio investor, as the latter does not seek to exert influence on the management of the invested enterprise.

The direct investment relationship may occur in an immediate way, when the direct investor holds voting power equal to or greater than 10% in the invested enterprise, or indirectly, when, for example, an enterprise holds a subsidiary in another economy which in turn holds 10% or more voting power in a third enterprise. Although the first enterprise does not directly hold a share in the equity of the third enterprise, it exerts influence or indirect control. Therefore, direct investment relationships may be passed through a chain of ownership. There is also a direct investment relationship between enterprises that have a common direct investor but do not exercise control or influence over each other. They are called fellow enterprises. These three forms of direct investment relationships (immediate, indirect and between fellows) represent the most general cases of relationships between enterprises belonging to the same economic group.

17 See paragraphs 6.8 to 6.14 of the IMF BPM6 , and paragraphs 11 and 12 of OECD BD4.




Direct investment transactions and positions are subdivided into two components: equity and intercompany debt. Equity includes voting power equity, which defines the existence of a direct investment relationship and occasional non-voting shares. In the case of liabilities, the equity component refers to non-resident investment in shares of enterprises resident in Brazil. In the case of assets it refers to Brazilian residents’ investments in enterprises residing abroad. In both cases, equity transactions include capitalization and decapitalization operations, in which the direct investor increases or reduces equity on the direct investment enterprise, such as those of mergers and acquisitions, in which the direct investor buys or sells pre-existing shares in an invested enterprise.

Intercompany debt transactions are transactions of credits granted between enterprises of the same economic group. In general these are loans, but they can also be trade credits, securities and other instruments. In the case of liabilities, intercompany debt refers to credits granted by non-residents to enterprises resident in Brazil and, in the case of assets, credits granted by residents in Brazil to non-resident enterprises. Naturally, if the enterprises involved do not belong to the same economic group, the operation will not be considered intercompany debt, being classified in other investment categories.

The activities of the direct investment enterprise may be funded by other companies of the multinational group, but also by third parties. For example, a direct investment enterprise plans to build a plant by pooling resources via: i) capital injection by the parent company; ii) loan received from another subsidiary of the group, resident in another economy; iii) loan from a nonresident bank; iv) loan from a resident bank; v) issuance of securities in the domestic market, to be acquired by resident investors. Of the total value of the plant construction project, the capital contribution and the loan from the subsidiary, when they occur, will be recorded in the balance of payments as inflow of equity and intercompany debt, making up the direct investment. The loan from the bank abroad, when it occurs, will be a balance of payments transaction registered in the functional category other investments, and not direct investment. The funds obtained in the domestic market, from banks, and the issuance of securities purchased by local investors, are not balance of payments transactions because both parties are residents. Thus, the total value of the investment made by a direct investment enterprise does not necessarily correspond to the flow of direct investment to be observed in the balance of payments.

Asset/liability principle x directional principle

The direct investment statistics published by the BCB, including those of this Direct Investment Report, comply with the asset/liability principle recommended by BPM618. However, transaction statistics according to the directional principle are also published as a memo item.

18 The presentation of direct investment statistics according to the directional principle was a recommendation of BPM5, while the asset/liability principle became standard in the BPM6 (see paragraphs 6.42 and 6.43 of BPM6. The directional principle is shown as a supplementary presentation). BD4 recommends the presentation of statistics in both concepts (see paragraph 147 of BD4).




Under the asset/liability principle of direct investment all assets are presented in one component, direct investment assets, while all liabilities are presented in another component, direct investment liabilities. This separation is independent of the direction of influence, that is, whether it is the investor who takes or grants credit, or whether it is the invested enterprise who takes or grants credit.

Direct investment assets therefore comprise the following external assets:

• equity of a resident direct investor in a non-resident direct investment enterprise;

• intercompany lending by a resident direct investor to a non-resident direct investment enterprise;

• intercompany lending by a resident direct investment enterprise to a non-resident direct investor (reverse investment, direction contrary to influence).

Similarly, direct investment liabilities comprise the following foreign liabilities:

• equity of a non-resident direct investor in a resident direct investment enterprise;

• intercompany lending by a non-resident direct investor to a resident direct investment enterprise;

• intercompany lending by a non-resident direct investment enterprise to a resident direct investor (reverse investment, direction contrary to influence).

In the directional principle, transactions and positions are allocated according to the direction of influence, always from the direct investor to the direct investment enterprise. The treatment given to reverse liabilities and reverse assets, respectively “asset-reducing liabilities” and “liability-reducing assets”, causes Brazilian direct investments abroad and foreign direct investments to tend to be smaller than their corresponding direct investment assets and direct investment liabilities, in which assets and liabilities are presented grossly. However, for net direct investment (Brazilian direct investments abroad minus foreign direct investments and direct investment assets minus direct investment liabilities) the two concepts show identical results.

The classification of intercompany debt transactions between fellow enterprises considers the residence of their ultimate controlling parent. If the controller resides in Brazil, the classification is Brazilian direct investment abroad, if it resides abroad, it is foreign direct investment.

The Brazilian direct investment abroad component comprises transactions and positions in which the direction of influence is from Brazil to abroad, including assets but also reverse liabilities:

• equity of a resident direct investor in a non-resident direct investment enterprise;

• intercompany lending by a resident direct investor to a non-resident direct investment enterprise;


• intercompany lending by a non-resident direct investment enterprise to a resident direct investor (reverse investment, direction contrary to influence).

The foreign direct investment component comprises transactions and positions in which the direction of influence is from abroad to Brazil, including liabilities but also reverse assets. Foreign direct investment includes:

• equity of a non-resident direct investor in a resident direct investment enterprise;

• intercompany lending by a non-resident direct investor to a resident direct investment enterprise;

• intercompany lending by a resident direct investment enterprise to a non-resident direct investor (reverse investment, direction contrary to influence). It is a liability-reducing asset.

Special Purpose Entities

Special Purpose Entities (SPEs)19 are financial vehicles commonly used for channeling investments, including direct investments, between countries. Its growing utilization poses challenges for interpreting foreign sector statistics. This is a cutting-edge methodological subject, and its approach in the BPM620 was extended in 2018 by the Task Force on Special Purpose Entities,21 coordinated by the IMF with the participation of Brazil. The task force defined SPEs as institutional entities with zero to five employees, little or no physical presence, and little or no real activity in the economy where they are constituted. SPEs should be directly or indirectly controlled by non-residents. SPEs deal almost entirely with non-residents, and much of their balance sheet consists of cross-border assets and liabilities.

By establishing SPEs in specific jurisdictions, owners seek to: (i) ensure access to sophisticated capital markets or financial services; (ii) isolate financial risks; and/or (iii) reduce regulatory and tax burdens; and/or (iv) safeguard the confidentiality of transactions.

According to the task-force, some specific functions of the SPEs are:22 raising funds, often in the open markets, and remitting these funds to other enterprises of the same economic group; operating as a holding of enterprise participation, with no active management; operating as holding of other financial and non-financial assets; holding the ownership of fixed assets leased to third parties; concentrating intangible assets and intellectual property of the same economic group, and the receipt of royalties related to them; keeping and managing the assets of individuals and households.

Pass-through and round-tripping

19 SPEs are not the same as Specific Purpose Entities, as provided for by Brazilian law. The latter are conceptual entities usually created to isolate financial risk from their activity. These entities are, in general, restricted and time-bound. The SPEs are so characterized for statistical purposes, regardless of their legal format. 20 See paragraphs 4.50 to 4.52 of the BPM6.21 The final report of this task force is available at: https://www.imf.org/external/pubs/ft/bop/2018/pdf/18-03.pdf 22 Not every enterprise that carries out these functions are necessarily SPEs, but only those that comply with the general definition of SPEs.




“Pass-through funds” or “funds in transit”23 are funds that pass through an enterprise resident in an economy to an affiliate in another economy. Thus, these funds do not stay in the economy of that enterprise, which is often a SPE. Funds in transit may can be in the form of equity capital or intercompany debt, comprising direct investment positions and transactions. These funds, due to their nature, make it difficult to identify the origin and final destination of investment and have little or any influence on the economy they pass through.

Round-tripping24 is a particular case of pass-through, which occurs when the ultimate host economy and the ultimate investing economy are the same. One example is when an enterprise resident in Brazil invests in an enterprise in a third country that, in turn, invests in an enterprise resident in Brazil. In fact, a round-tripping operation may involve several intermediate enterprises in many countries.

Direct investment income

Income associated with direct investment is composed of earnings and interests. Equity participation generates earnings, while intercompany lending generates interest. Direct investment income is registered in the primary income account,25 being a component of the current account in the Balance of Payments.

Direct investment earnings can be distributed to the direct investor or retained by the direct investment enterprise. Given the significant degree of influence of the direct investor on the management of the enterprise, one assumes that it participates on the decision of maintaining the earnings in the invested enterprise instead of distributing them. Reinvested earnings are offset by the increase in equity participation; it is registered in the current account and offset in the financial account of the Balance of Payments.

Direct investment earnings are registered in the Balance of Payments according to the proportion of the direct investor’s participation in the direct investment enterprise. For example, if the direct investor’s participation is 70% (and the remaining 30% belongs to residents) this percentage is applied to the earnings of the direct investment enterprise to calculate the share of the direct investor.

Reinvested earnings can be positive, when total earnings are larger than distributed earnings, or, less often, negative, when the amount distributed is larger than total earnings obtained in the period. The latter may be a case of negative total earnings, i.e., loss. The distribution of values larger than total earnings is possible by distributing reserve earnings accumulated in previous periods. Whereas positive reinvested earnings imply expansion in equity participation, negative reinvested earnings are offset by the reduction in equity participation.

Direct investment income receipts (credits in the balance of payments) represent the income associated with direct investment asset positions (direct investment of residents abroad) and comprise:

23 See paragraphs 6.33 to 6.34 of the BPM6.24 See paragraph 6.46 of the BPM6.25 For the definition of primary income, see paragraph 11.3 of BPM6.





• earnings distributed to resident direct investors due to equity participation in non-resident direct investment enterprises;

• reinvested earnings of resident direct investors in non-resident direct investment enterprises, offset by the expansion of direct investment equity assets in the financial account. Should reinvested earnings be negative, they are registered as negative receipts offset by the reduction of direct investment equity; and

• interest on intercompany debt transactions on credit granted by a resident to non-resident entities belong of the same economic group.

Expenses on direct investment income (debits in the Balance of Payments) represent the income associated with direct investment liabilities positions (direct investments of residents) and comprise:

• distributed earnings to non-resident direct investors on their equity participation in resident enterprises;

• reinvested earnings of non-resident direct investors in resident direct investment enterprises, offset by the expansion of direct investment equity liabilities. If they are negative, they are registered as negative expenses offset by a reduction of direct investment equity liabilities;

• interest from intercompany debt transactions on credit granted by a non-resident to resident entities of the same economic group.

In the Balance of Payments, reinvested earnings do not include capital losses and gains derived from exchange rate variations, re-evaluation of fixed assets, variations in the prices of financial assets, writing-off of debts, among other non-operational events.26

Breakdown of changes in direct investment position

In external sector statistics, transactions27 are exchange of economic value between two institutional units resident in different economies. Transactions are recorded in the Balance of Payments, unlike the other flows (changes by exchange rate and by prices) and other changes in volume.

Changes in exchange rates correspond to variations in positions resulting from fluctuations in the exchange rate between the US dollar (US$) and other currencies. The position value varies as the exchange rates change because, in direct investment liabilities, enterprises that host direct investment in Brazil have their balance sheets expressed in BRL, meaning that fluctuations in the nominal exchange rate affect their US$-expressed value. In direct investment assets, assets denominated in currencies other than US$are subject to exchange rate changes.

Market prices changes (preferred criterion for valuation of positions) result from changes in the share prices of enterprises listed in stock exchanges or from enterprises that present market value different from their book value due to the valuation method used (e.g. net present value, recent trading value of shares, or expert valuation).

26 See paragraphs 11.44 from BPM6 and 208 from BD427 In Brazilian external accounts, the US dollar is the unit of measurement.


Finally, the other changes by volume are calculated residually, taking into account reclassifications (e.g. from portfolio investments to direct investments, when the 10% of voting power threshold is exceeded by subsequent investments of the same investor) and also capturing discrepancies between statistical sources used to measure positions, transactions, and changes by exchange rate and by prices.


Annex II: Sources for direct investment compilation

Brazilian Foreign Capitals Survey (Censo)

The main data source for the compilation of direct investment liabilities statistics – positions and earnings – presented in this report is the Brazilian Foreign Capitals Survey (Censo).

The Censo legal basis is Law 4,131, of September 3rd, 1962. The first edition of Censo was released in 1996, with data for reference year 1995. Its main objective is to measure direct investment liabilities positions, although information on other external liabilities are collected in the survey. In the Populational (quinquennial) editions 1995, 2000, and 2005 the following entities were required to report: i) enterprises receiving external credits; and ii) enterprises receiving direct or indirect foreign investments, with direct or indirect shares or quotas with voting rights held by non-residents of at least 10% , or at least 20% of the total capital.

From 2011, the Censo frequency was increased to annual, with differences in coverage of samples from the corporate population, when compared to the Populational Censo. The Populational Censo, for base years ending in five and zero, remains mandatory for all enterprises in which a non-resident shareholder participates in its capital, while the Sample Censo covers a subset of these respondents (basically large enterprises).

The Populational Censo and the Sample Censo were changed in 2011, with methodological and operational modifications, including: i) the introduction of market value as a preferential criterion for measuring the value of the resident direct investment enterprise, aligned with the international methodology. When the market value cannot be assessed, book value is the next valuation criterion for the enterprise; ii) identification of both the immediate investors and the ultimate controllers; and iii) consolidation of responses by economic group resident in Brazil, providing rationalization of the surveys, lower compliance costs and reduction of the number of respondents.


The Populational Censo must be reported by:

• corporations resident in Brazil with non-resident shareholders in any amount on December 31st (reference date);

• investment funds, through its management, with non-resident shareholders on December 31st; and

• corporations headquartered in Brazil with a total outstanding balance of short-term trade credits and advances (up to 360 days) granted by non- residents equal to or greater than US$1 million on December 31st.

The number of respondents to the Populational Censo is expressive and has been increasing over the years (Figure 42). In 1995 – first edition of the survey – there were 6,322 respondents. In the following edition, in 2000, the number of respondents grew by 80% to 11,404. In 2005, the number of respondents increased 54%, to 17,605. In 2010, when the survey was revamped to allow enterprises that control economic groups in Brazil to respond to the questionnaire by consolidating information from their subsidiaries, the number of respondents decreased slightly to 16,844. In 2015, however, a further increase of 16% was observed, and the number of respondents totaled 19,537.

Figure 42 – Population Censo (quinquennial) – Number of respondents

The Sample Censo must be reported by:

• corporations headquartered in Brazil with non-resident shareholders – in any amount – and with book value equal to or greater than US$100 million on December 31st of the reference year;

• investment funds, through its administrators, with non-resident shareholders and book value equal to or greater than US$100 million on December 31st of the reference year; and

• corporations resident in Brazil with a total outstanding balance of short-term trade credits and advances (up to 360 days) granted by nonresidents equal to or greater than US$10 million on December 31st of the reference year.

12/1/2020 Figura 40 – Evolução do número de declarantes – Censos quinquenais

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5

10

15

20

25

1995 2000 2005 2010 2015

6.3

19.517.6 16.8

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Number of respondents(thousand)


Figure 43 shows the number of respondents to the Sample Censo. The largest number of respondents was in 2011, when 3,210 enterprises participated in the survey. From that year on, the number of respondents declined until 2014, recovered in 2016, and reached 2,462 enterprises in 2019.

Figure 43 – Sample Censo (annual) – Number of respondents

Despite recording less than 20% of the total of the Populational Censo respondents, the Sample Censo collects over 80% of the direct investment equity liabilities positions, due to the concentration of investments. Experience shows that the Sample Censo is quite efficient for producing direct investment liabilities statistics, obtaining good coverage with a small number of respondents.

For the reference year 2019, as shown in Figure 44, 87% of direct investment equity liabilities positions were collected through the Sample Censo. The remaining 13% was collected from transactions registered in exchange contracts, parity adjustments and declarations from previous Censo editions. It is worth noting that the direct investment liabilities data obtained through Censo surveys are validated through multiple consistency checks. Eventual discrepancies in the reported information are double-checked with the reporting enterprises and corrected, if necessary.

Figure 44 – Direct investment equity liabilities positions – Sample Censo and complementary databases and estimations

12/1/2020 Figura 41 – Evolução do número de declarantes – Censos anuais

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2.42.1

1.9

2.92.5

2.4 2.5

Number of respondents (thousand)

12/2/2020 Figura 42 – Posições de IDP – Participação no capital – Censo anual e bases de dados complementares e estimativas

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60%

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2011 2012 2013 2014 2016 2017 2018 2019

89% 87% 84% 82% 83% 85% 84% 87%

11% 13% 16% 18% 17% 15% 16% 13%

Sample Censo Complementary databases and estimations

Share (%)


Brazilian Capitals Abroad Survey

The data source for compiling the statistics of direct investment assets positions and earnings presented in this report is the Brazilian Capitals Abroad Survey (CBE) Survey.

The legal basis of the CBE goes back to Decree-Law 1,060 of October 21st, 1969, which determined the National Monetary Council (CMN) to define the form, limits, and other conditions to submit to BCB the assets and values held abroad. Afterwards, CMN issued Resolution 139, on February 18th, 1970, stipulating that the CBE reporting, as mentioned in the Decree-Law, should be filed at the Finance Ministry, which would issue complementary instructions on the matter. However, the form, limits, and other conditions for filing the statement were not established in that ruling. Only upon issuance of CMN Resolution 2,337 on November 28th, 1996 was it established that the reporting of information and earnings on Brazilian investment abroad should be filed at the BCB. Provisional Measure 2,224 of September 4th, 2001 established fines, in legal terms, concerning the filing of reports in response to the CBE.

Since 2002 (2001 reference year), the CBE survey has been conducted annually by the BCB to measure foreign assets held by residents of Brazil on December 31st of each year. The reporting was mandatory for resident households and corporations with assets abroad, at the end of each reference year, equal to or greater than US$100 thousand.28

CBE frequency became quarterly from 2011, with the addition of reference dates of March 31st, June 30th and September 30th. The quarterly CBE is mandatory for resident households and corporations with assets abroad equal to or greater than US$100 million.

Figure 45 – Population (annual) and sample (quarterly) CBE – Main features

The number of CBE respondents increased from around 15,000, in 2007, to 65,500 in 2019. During that period, the assets position abroad, of all kinds except international reserves, increased from US$197 billion to US$529 billion (Figure 46).

28 The mandatory floor for the annual reporting of the CBE survey was increased from US$100 thousand to US$1 million, considering all assets and values held abroad, in accordance with Resolution 4,841 of July 30th, 2020, which entered into force on September 1st, 2020.

12/1/2020 Figura 43

1/1

Survey Start (year) Reference dates Mandatory reporting thresholds (total assets abroad)

Sample CBEPopulational CBE

20112001

March 31, June 30 and September 30December 31

US$100 millionUS$100 thousand


Figure 46 – Sample CBE – Number of respondents and total foreign assets position

The number of CBE respondents changed to a new plateau in 2014, due to the implementation of the Brazilian Special Regime for Exchange and Tax Regularization (RERCT), which promoted the regularization of Brazilian residents’ previously undeclared foreign assets. Implemented in two stages, the RERCT accounted for approximately 22 thousand CBE additional respondents, and an increase of US$54 billion in the foreign assets position. The first stage of the RERCT, effective from the 2014 reference year position, resulted in more than 96% of the total value of legalized assets.

Figure 47 – RERCT – Impact on the number of respondents and in the DI assets position

The number of quarterly CBE respondents is significantly lower than of the Sample CBE respondents, given the difference between mandatory reporting thresholds of US$100 million and US$100 thousand, respectively. The average number of quarterly respondents exceeded 500 between 2015 and 2019, less than 1% of the population of respondents.29 However, in an efficient way and with lower compliance cost, the quarterly CBE captured at least 70% of the total direct

29 Nearly 100 investors resident in Brazil respond to the quarterly CBE even when they have an amount of assets abroad lower than US$100 million, and therefore, not being required to provide information.

12/1/2020 Figura 44 – CBE Anual – número de declarantes e posição de ativos externos

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

15,2

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30,6

20,1

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16,9

26,5

57,8 63,5

16,1

21,7

55,2

60,3

Assets (left) Respondents (thousand)

US$ billion

12/1/2020 Figura 45 – Impacto da primeira fase do RERCT na quantidade de declarantes e na posição de IDE

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2013 2014

301.0 281.0

54.0

DI Assets RERCT

US$ billionNumber of respondents (thousand)


investment assets position in the same period. Quarterly CBE non-respondent investors’ direct investment assets positions are estimated from the Populational CBE (annual).

Figure 48 – Quarterly direct investment assets position (annual average) – Reported vs. estimated

Electronic Declaratory Registry – Financial Operations Registry

Direct investment intercompany debt liabilities are sourced from the Electronic Declaratory Registration – Financial Operations Registration Module (RDE-ROF) system. This system stores individualized information on financial transactions between resident debtors and non-resident creditors. The resident debtors are responsible for providing information and filling out registers, which cover most debt instruments.

Each register receives an individual identifier and contains detailed information on the operations, such as: i) type of financial instrument (loan, securities, long- term imports financing, among others); ii) principal amount and basic payment characteristics, such as grace period, frequency and number of installments; iii) interest payment basic characteristics, such as grace period, frequency, number of installments and interest rate; iv) amortization schedule; (v) information on the existence or otherwise of ancillary charges, such as fees and commissions; vi) denominated currency; and vii) identification of all transaction parts and detailed classification of creditors, debtors and guarantors.

The RDE-ROF system also requires payments and modifications to be informed and accrued in the original agreement, registering all transactions carried out through the International Transactions Reporting System (ITRS) or international transfers in BRL performed by automatic linkage between systems. Transactions abroad not settled in Brazil, reported by the debtor, must also be informed.

12/2/2020 Figura 46 – Posições trimestrais do IDE (média anual) – Declarado x estimado

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60%

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100%

2011 2012 2013 2014 2015 2016 2017 2018 2019

84% 86% 83% 81%74% 73% 74% 75% 70%

16% 14% 17% 19%26% 27% 26% 25% 30%

Reported Estimated

Share (%)


The existence of the RDE-ROF identifier is necessary for settlements of exchange contracts for which registration is registers are required, and all information is immediately available to statistical compilers.

International Transactions Reporting System (Sistema Câmbio)

The main source for the compilation of the Balance of Payments transactions, including direct investment, is the International Transactions Reporting System (Sistema Câmbio). Through this system, financial institutions authorized to operate in the foreign exchange market electronically inform the BCB of their foreign exchange operations. The contracts registered in the system, which reflect transactions between residents and non-residents, contain information required for Balance of Payments compilation. The foreign exchange system is commonly known in other countries by the acronym ITRS (International Transactions Reporting System).

Foreign exchange codes identify direct investment transactions in the form of equity and distinguish direct investment liabilities from direct investment assets. The compilation of direct investment transactions in the form of intercompany debt, including the differentiation between operations from parent to subsidiary, fellow enterprises, and subsidiary to parent (reverse investment) requires data sources other than the foreign exchange transactions.

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