This is a best prospect industry sector for this country. Includes a market overview and trade data.
Last Published: 8/10/2017

Overview
Brazil has experienced significant growth in the Architecture, Construction, and Engineering (ACE) sectors over the past several years, garnering global attention due to the FIFA World Cup in 2014 and the Rio Olympics in 2016.
 
During the past two years, Brazil’s once thriving economy has faltered and its status as a favorite of international investors within the BRIC countries has diminished considerably. The 2014-2016 recession in Brazil was largely due to a complex mix of political and economic factors, resulting in a 3.6 percent contraction of GDP in 2016. However, analysts are hoping for a slow recovery starting this year, encouraged by the expectation of lower inflation and interest rates.
 
In order to boost the economy, one of the first measures adopted by President Temer was to make it clear to the global community that the new Brazilian Government will welcome the participation of the private sector in public infrastructure projects. In 2016, President Temer launched the Investment Partnership Program (PPI) also known as “Projeto Crescer”.  The program envisions investments in roads, railways, airports and ports, with an additional investment of US$29 billion from 2019 onward. It also includes measures to reduce bureaucracy, to simplify the contracting process, and to encourage innovation and access to new markets.
 
Still, in a country of over 200 million people spread over 27 states, there are numerous opportunities waiting to be explored by those eager to embrace new challenges and partner with creative and entrepreneurial Brazilians. With respect to the ACE sectors, green and sustainable businesses are gaining more attention, as well as legacy opportunities in several cities, such as large infrastructure projects (transportation, healthcare, education, etc.) – all of which will be discussed in further detail ahead.
 
Projeto Crescer (Project Growth)
 
Projeto Crescer was promulgated though Provisional Measure No. 727 of May 2016 (MP 727/2016), Law No. 13.334 of September 2016 which codified MP 727/2016, and Provisional Measure No. 752 of November 2016 (MP 752/2016) which established guidelines for partnership contracts under Law No. 13.334. Projeto Crescer is led by Minister Moreira Franco, and is reshaping the format of public concessions in Brazil. In essence, Projeto Crescer’s ultimate goal is to facilitate business opportunities and help Brazil return to economic growth.
 
In September 2016, the GOB announced 34 initial projects and privatizations under Projeto Crescer. The announcement included projects related to, airports, power generation and distribution companies, railways, one lottery company, mining, oil and gas bid rounds, ports and water treatment companies.
 
The project is based on ten guidelines that will ensure that concessions occur with a "spirit of competition" between business owners, as well as transparency and predictability on the part of the government. Regulatory agencies will also play an effective role, and notices will only be issued after public debate and endorsement by the Court of Audit of the Union (TCU). In addition, all edicts will be published in Portuguese and English.
 
Notable among the new rules, it was determined that deadlines between the launch of an announcement and the receipt of proposals will be more than 100 days. This change will allow investors more time to prepare to participate in the bids. Lastly, only projects with proven environmental feasibility will go to the concession.
 
The full list of PPI projects under Projeto Crescer is located here

Leading Sub-Sectors

  • Urban Planning
  • Airport Design
  • Real Estate: new or retrofit
  • Industrial: new or retrofitted plants
  • Hospitality (new hotels, retrofit of existing hotels, transformation of residential buildings into hotels)
  • Health Sectors (new hospitals and upgrades to existing hospitals)
  • Education
  • HVAC
  • Furniture design
  • Drywall technologies
  • Lighting (residential, commercial, industrial, urban)
  • Sports venue design and equipment
  • Building Information Modeling (BIM) process
  • Landscaping 

Opportunities

The integration of big cities with the rest of the country is limited by troublesome and inadequate transportation systems. In their 2015-2016 report, the World Economic Forum ranks Brazil 74 of 138 countries for the quality of its infrastructure. Overall, Brazil’s operational success is still constrained by infrastructure inefficiencies, as there are bottlenecks in every sector hampering the development of industry.
 
Opportunities in the ACE sectors can be found in areas such as urban planning, real estate, airports, ports, highways, pavement, hospitality, and hospitals, including master plans and executive projects.
 
These projects must contain sustainable or “green” content, according to LEED, AQUA and other certification programs. According to the U.S Green Building Council, Brazil ranks fifth in LEED registrations worldwide in 2016, with 7.4 million square meters of certified buildings, trailing only the United States, China, Canada and India.
 
U.S. ACE firms should be aware of the administrative and regulatory differences among each of the Brazilian states. In addition, though construction in major cities such as São Paulo and Rio de Janeiro is recovering, the high number of ACE firms already operating in these areas may make it difficult for smaller firms to enter the market. Other states, such as Pernambuco and Ceará (in the north and northeast regions of the country) may offer better opportunities in industrial, residential, hospitality, health, education, and other subsectors.
 
Establishing a Presence in Brazil
 
The U.S. Commercial Service recommends that U.S. firms, with no physical presence in Brazil, partner with Brazilian firms before bidding directly on projects.
 
In the architectural sector, the overall experience for registration and licensing has shown that foreign architectural firms with international awards or a specialized niche have been the most successful at attracting partnerships with Brazilian architectural firms. Having a local office with the necessary licensing to do design work in Brazil is very advantageous as well, due to the hefty taxes levied by Brazil for importing services, including architectural services.
 
To justify these costs, Brazilian clients prefer to work with firms that have certain expertise that is normally not available from a local competitive architectural firm. This option works for U.S. firms looking to do business in Brazil over the long term, as starting a business in Brazil and obtaining the necessary approvals to do architectural work in the country is not a short-term process.
 
An alternative for U.S. firms that do not yet have a presence in Brazil, is to partner with a local firm that is licensed to provide architectural or engineering services in Brazil. As with most services imported to Brazil, the Brazilian architectural firm using the design services will have to pay additional tax of up to 40 percent of the price of those services rendered, for the portion of the design work that the foreign firm will produce. This is not unusual even with projects where a U.S. firm’s experience in a certain area is not easily available in Brazil.
 
Established ACE firms have been successful by considering joint-ventures or mergers with Brazilian entities. This option works well for ACE firms who are looking to expand in Brazil over the long term and have plenty of patience.
 
In summary, a foreign ACE firm can complete projects in Brazil through:
 

  1. The establishment of a local office in Brazil, with legal registration at the Brazilian Architecture and Urban Planning Institute (CAU), which will allow the firm to design and execute projects; or
  2. By partnering with a local architect or architectural firm. The local firm or architect should be legally registered with CAU and understand the total costs levied on the service imported, including the portion of the design work that is done by the U.S. architectural firm; or
  3. Finding a partner with whom the foreign firm can merge, or transform it into a local subsidiary, or establish a joint-venture partnership. 
  4. Despite aggressive competition and bureaucratic hurdles in ACE, many U.S. firms have been competing and winning projects. One of the most notable success stories is with the Los Angeles based firm AECOM, which won the bid to design the Olympic Park, the heart of the 2016 Olympic and Paralympic Games. Another is with U.S. firm Hanse Golf Course Design, which won the bid to design the new golf course used during the 2016 Olympic Games. Also, New York-based firm Diller & Scoffidio is designing the Museum of Image and Sound in the popular Copacabana area of Rio de Janeiro. 

Legal Requirements
 
The general rule is that any foreign company can be a partner, investor or shareholder in a Brazilian company, making the Brazilian company a subsidiary of the foreign entity. The Brazilian company will then be fully governed by Brazilian law and will have the same rights and responsibilities as any other Brazilian company.
 
Opening a branch of a foreign company in Brazil is slightly more complicated. This requires a specific authorization from the Brazilian Ministry of Development, Industry, and Foreign Trade. A foreign company that wishes to install a local branch in Brazil will have to send a formal request to the Brazilian Ministry of Development, Industry and Foreign Trade, where the National Department of Trade Registration, known as DNRC, will evaluate the request. 
 
In order to form a limited partnership in Brazil it is necessary to have at least two partners. The general rule is that both partners in the company can be foreign and they can either be individuals or legal entities.
 
It is important to emphasize that all companies formed in Brazil need a unique address. A regular virtual address is not accepted as a fiscal address. For operations where there are several companies registered at the same office address it is common to specify which room each company is registered to, as this makes each address unique for fiscal purposes.
 
Conclusions and Recommendations
Brazil has a large and diversified economy that offers U.S. companies many opportunities to export their goods and services. Brazilians are aware that in order for their country to continue to grow, they must invest in infrastructure, particularly in transportation and logistics.
 
With the current political and economic issues facing the federal government and some of the largest Brazilian engineering firms, the U.S. Commercial Service recommends partnerships with smaller firms that are willing to discuss business opportunities with U.S. firms. But, with the current strength of the dollar versus the Brazilian real, this might just be the right time for U.S. investors and companies to consider working in Brazil.
 
Although there is strong competition from local firms, opportunities exist for U.S. suppliers of construction products and services that offer new products and technologies in very niche areas. American ACE firms with a niche expertise are welcome to do business in Brazil, provided they understand the procedures for being able to work in Brazil. In addition, many of Brazil’s infrastructure procurement requirements are setup to ensure that bidders have the necessary experience to complete large-scale projects. Therefore, many Brazilian ACE firms seek partnerships with foreign firms that have a niche expertise which can add additional levels of capability to their portfolios in order to enhance their bids.
 
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Brazil Design and Construction Trade Development and Promotion