Brazil falling short on renewables investment

Dirty energy threat to green Brazil

Brazil is a leading producer of biofuels Brazil boasts of being one of the world’s “greenest” energy suppliers, but recent policy initiatives could jeopardise its desire to be a big player in future climate change discussions. “In the 1970s, Brazil’s energy production was dominated by two sources, wood and oil,” says Maurício Tolmasquim, president of Brazil’s Energy Research Company (EPE). As its economy has expanded, so has its demand for energy, but even now, 46% of Brazil’s energy production is from renewable sources. This compares with the global average of only 13%, making Brazil one of the greenest countries in the world. BBC Brasil has been back to its home country as part of a series looking at where the fast-growing Bric economies (Brazil, Russia, India and China) will be in 2020. But despite a proud record as a green energy producer, it found that Brazil’s environmental credentials are under threat. Hydro-electric power Much of Brazil’s energy comes from hydro-electric plants, but the licensing of these is notoriously difficult. The result is a push towards thermoelectric plants, which are easier to get permission to build. “We are being forced to accept more expensive and less environmentally sound plants,” argues Maurício Tolmasquin. Still, fossil fuel’s share of Brazil’s energy production is small, accounting for only 10% of the total. But the new thermoelectric plants should take that share up to nearly 17%. Some experts say they worry about the strategy. They believe that Brazil is giving out the wrong signals. Brazilian domestic energy consumption is predicted to grow by 3.3% a year on average until 2030, according to a report by Ernst & Young and the economic research institute Fundacao Getulio Vargas (FGV). Yet its energy production is due to rise by 4.2% a year over the same period. This means that Brazil is set to become one of the major world energy exporters by 2020 if it keeps building power stations and fulfils its potential as a major biofuel producer. Booming biofuels Advocates of Brazil’s energy strategy point with pride to its biofuel production. They are quick to highlight the differences between Brazil’s sugar cane ethanol and the corn-based ethanol produced in the United States. Biofuels are a more environmentally friendly fuel for many Brazilians While the latter is also an important food, sugar cane is generally considered a more efficient and less power-hungry alternative. However, Brazilian ethanol is still far from being a global commodity, even though the Ernst and Young report foresees a “gradual reduction” in international trade barriers, such as import tariffs. There are also expectations that within the next decade, so-called second-generation Brazilian ethanol could become a reality. Instead of being extracted from sugar cane itself, it would use by-products currently discarded, such as sugar cane’s fibrous residue and harvest leftovers. The Brazilian government forecasts a 150% growth in ethanol production until 2020. However, ethanol’s world market share is still small, with some estimates putting ethanol consumption at only 1% of that of oil. Oil rush Compared to the other Bric countries (Russia, India and China), only the Russians have gas and oil reserves large enough to make them liquid fuel exporters. Recent discoveries of massive underwater oil reserves in an area stretching some 800km along the south-eastern coast of Brazil has raised the possibility that Brazil could also be a big oil exporter. However, there are also huge technical difficulties to overcome before the oil can be tapped. The reserves are buried some 7km underneath the sea bed – which makes its exploration very expensive. Some figures put the initial investment for exploration at about $1 trillion, so oil would need to be priced at about $40 (£27) a barrel to make it viable. You only need to look at the prices of oil and coal to see that their long-term use will be questionable Carlos Nobre But with exploration and production costs falling, Brazil seems set to receive a huge economic boost as it heads toward 2020. Lost opportunity Carlos Nobre, from Brazil’s National Institute for Spatial Research (Inpe), says “a great chance” of making Brazil “the cleanest” country in the world could be lost. He says that Brazil’s strategies for solar, wind and biomass power are poor when compared to developed countries. “Clean countries will be granted great credibility in the future. They will be leading the world. And Brazil has the potential to do that,” he says. Despite its investment in biofuels, Mr Nobre believes that plans for new thermoelectric plants reflect “very short-term” thinking by the Brazilian government. “You only need to look at the prices of oil and coal to see that their long-term use will be questionable.” Mr Nobre says that Brazil runs the risk of falling behind technologically by not investing in alternative energy. “If all countries are walking in the same direction and we’re not, we’re risking Brazil’s technological future,” he says. Compiled by the BBC Brazilian Service team as part of their series on the Bric countries (Brazil, Russia, India and China). i If you want to invest in Argentina, Uruguay, Chile or Brazil contact us at: felipegonzalezvergara@gmail.com

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Uruguay taxes

The Uruguayan Tax System is based in the application of indirect taxes, representing in l998, 55.8% ( VAT) of the tax raising, and 21.5% of the Specific Internal Tax (IMESI). On the other side, direct taxes raising Income and Patrimony is less significant regarding the total raisings.

Value Added Tax (IVA)

Internal circulation of goods and services and imports are subject to IVA, whose basic tax is 23% and there is a minimum 14% tax for staple items and medicines, as well as a certain amount of services which are tax exonerated.

Income Tax

This tax is placed on Industry and Commerce incomes (IRIC) and it is 30% of the incomes from Uruguayan sources coming from lucrative activities done by any enterprise. IRIC taxes industrial, commercial and similar incomes and IRA (Impuesto a las Rentas Agropecuarias) taxes the incomes from farming activities. Personal Income Tax does not exist.

Wealth Tax (IP)

The assets in the country are taxed –some debts deducted-, at the end of the annual economic exercise, with 1.5% for industrial, commercial and farming activities, 2.8% for banks and financial commerce, and 2% for the rest of legal entities.

The IP liquidated by industrial, commerce including financial activities, can be compensated with up to a 50% with the IRIC.

The tax liquidated by farming activities can drop up to a 50% with the amount generated in the same exercise by concept of IVA and IMEBA according to the farming tax the contributor has chosen .

Natural Persons tax IP with progressive taxes from 0.7% to 3%, for an exceeding of a non taxable minimum of approximately U$ 80.000.- Which is twice for assets.

Sales Specific Tax

The IMESI taxes the first sale of some products: drinks, tobacco, fuel, cosmetics, vehicles, with variable taxes depending on the product.

Source: Portal Uruguayo (Uruguayan Portal), Uruguay XXI, Investment and Export Promotions

REAL ESTATE PATRIMONIAL TRANSFER TAX

 

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Uruguay Investment regime

Government Policy

The Government promotes  investment in general, and keeps a favorable policy towards foreign investment. The general regime is totally open and does not make any discrimination at all between local and foreign investors from tributary point of view. Foreign investor has the same incentives as local ones. Previous authorization is not required for foreign investments.

Investment Prospects:

Foreign investors can develop any kind of activity with the same conditions as the local ones. In some sectors of specially government regulated activities, the foreign investor can develop activities under the regime of concession of public work. Nevertheless, there is an exception for foreign investment access, which regards to broadcasting and television stations operation: the ownership of the enterprises demanding these services is restricted to Uruguayan citizens only.

Kinds of Companies:

The foreign investor can operate in the country, setting up an Uruguayan partnership company -which is the most frequently used in this country- in which the investor can have the 100% of the share capital. The investor can also operate through the setting up of a limited liability company or other kinds of personal companies integrated by foreign physical or juridical persons (legal status). In the same way, the foreign investor can choose to operate in the country through a foreign company, partnership, opening a branch in Uruguay.

Investment incentives:

According to the regulations currently in force, oriented to the creation of new working sources, setting up high technology industries and improve exportations, are available, so much for local investors, as for foreign ones. The most generic incentives refer to tax exemption in investments.

Financing:

Company branches or local companies, can be financed either with local banks, or with foreign loans, or with the head office or with share holders.

Foreign exchange market, capital repatriation and utilities :

There are no limitations either to profit transfer or capital repatriation, for which Government authorization is not needed. Foreign exchange market is free, and there not exist any limitation for foreign money market, so the investments can be done in any foreign money.

Protection of foreign investments:

Uruguay has traditionally given security to the foreign investor, because of the effective currency of the rights and for economic stability. Besides, it is a member of investors protective international organizations, such as MIGA, International Center of Settlement of Differences Regarding Inversions, (the World Bank is the seat of this Center). Moreover, there is no limitation at all to contract foreign staff.

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Information on Uruguay, its Economy and its Geographical Situation

The highest level of literacy, culture and communications in South America.

Uruguay has the highest index level of Latin America (97%), the highest High School schooling rate –50% over the continental average-, and the highest indicators regarding culture and communications: newspapers, TV receptors, and telephone lines every 1000 inhabitants.

It has been traditionally distinguished for the high cultural level of its people and the quality of its labor, which is the main national assets. The average schooling of occupied workers in the private sector raises to 8.9 years, and 30% of them have a level of technical or university education.

According to “The World Resources Institute”

One of the highest availabilities of fertile soil per-capita in the world.

Uruguay has 4.7 has. of productive soil for each inhabitant dedicated to pastures or agriculture: 6 more times than the world average. The rate of its territory dedicated to natural production is the highest in the world: 85%

The economic potential of its 15millon hectares of fertile soil, is multiplied by considering the wealth of its natural resources. It has exceptionally suitable areas for agriculture, cattle breeding and timber. The former ones have positioned Uruguay as a privileged supplier of food, leather and wool for decades. Timber lands, a recent activity, raises at the rate of one of the most important outputs per hectare of the world.

According to CEPAL (United Nations for Developing Latin America Economic Commission)

The most homogeneous society in Latin America.

“Uruguay continuous to be a remarkable exception in the region as for its low level of inequality as for its persistent tendency to the income decentralization  which began in the last decade”.  Uruguay has the more equitable wealth distribution in Latin America, and it is the only country in the continent that has actually reduced poverty levels for the last 15 years. Between 1990 and 1994, urban poverty has descended from a 12% -which is quite low in Latin American context- to a 6%.  It is the country that allocates the highest percentage of its resources to welfare spending regarding the Gross Domestic Product, 23.6%. Its wealth distribution has repeatedly been compared that of countries like Denmark, by the present President of BID (Inter American Development Bank).

According to the Inter American Development Bank (BID)

For the last 15 years, the greater economic growth in the MERCOSUR.

Uruguay is the MERCOSUR country whose economy records the greater economic growth in the last decade, increasing its GDP to an annual average of 3.8%.

In the commercial field, it’s been one of the first economies that evolved towards an open international commerce with no restrictions for export/import. Today its opening-up rate is 43%, measured as the rate between import plus export of consumer goods and public services and the GDP. In the financial area, Uruguay is the most important regional financial center supported by a policy of total freedom of capital flow kept for over 25 years and its strict respect to bank secret which is guaranteed by law.

According to Moody’s, IBCA, Duff and Phelps

The safest economy in the MERCOSUR.

Uruguay has been unanimously declared risk free country by the most important international qualifiers, reaching top place among the MERCOSUR countries, and being among the first three safer economies in Latin America.

These qualifications are the consequence of its economic policy continuity and consistency, its long tradition of commercial and financial freedom, its juridical system reliability and independence –which does not discriminate between local and foreign investors- its good economic performance and the structural changes introduced into its economy. The international bond markets have supported these qualifications by giving Uruguay more advantages than to other countries of the region.

Source: Republic of Uruguay Presidency

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Invest in Uruguay

Why Investment in Uruguay Provides an Excellent Opportunity for Overseas Investing

Uruguay, according to the words of its president, “is a reliable country” that “respects contracts and investments.”

Since the government accepted the program of tax austerity imposed by the IMF in the 1990s, the economic results have been good, reaching an index of annual growth of approximately 5%, which has inspired more and more foreigners to invest in Uruguay.

The country is a member of MERCOSUR as well as the Latin-American Association of Integration (ALADI) and the American Bank of Development. Its main commercial associates are Spain, Argentina, Brazil, Germany, and the U.S.

Invest in Uruguay for its Reliability

With a stable economy and a strong commitment toward outside investment, Uruguay offers a great deal of reliability.

The monetary currency is the Uruguayan peso. After the large Argentinean devaluation in 2002, Uruguay had a gradual devaluation of its currency. Although the U.S. dollar weakened with respect to the Uruguayan peso in 2005, you will find the general cost of living to be about 30% to 40% cheaper than that in the U.S.

You should also be aware that, since the 1970s, the successive governments have applied open politics along with liberalization of the financial system. This has resulted in specific measures that have modified the physiognomy of the banking and financial systems over a short period of time.

The absence of controls on currency exchange operations, the absolute liberty for capital movement (entrance and exit), confidentiality with respect to banking, as well as the implementation of fixed interest rates are the main characteristics of the Uruguayan financial sector.

Uruguay has been granted the qualification of “investment grade,” as dispensed by recognized companies, such as the British IBCA and the American Duff & Phelps. This demarcation indicates that Uruguay is considered a country free of risk for investment. It ranks as one of the top three countries in Latin America for its ability to pay its external debt

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