New rules for foreign investment in Brazilian government biddings

Brazil’s Government Bids open to Foreign Companies a Market of up to R$ 50 billion

Permission to participate takes effect in May and reaches purchases from the federal government, states and municipalities

The process of opening government purchases to foreign companies will not only benefit the federal government. According to the Management Secretariat of the Ministry of Economy, which is conducting this process under the guidance of President Jair Bolsonaro and Minister Paulo Guedes, Brazilian states and municipalities will also be able to buy supplies or contract services from foreign companies in their next tenders. Therefore, a market of more than R$ 50 billion will be opened to suppliers and service providers from outside the country.

Management Secretary at the Ministry of Economy, Cristiano Heckert recalled that foreigners will be able to participate in Brazilian public procurement processes as of May 11, when the new version of the Unified Supplier Registration System (Sicaf) will start operating. And he explained that this possibility will be extended to all federative entities because it will be available in any electronic auction or differentiated contracting regime (RDC) that is carried out through the ComprasNet website, which tends to be increasingly used by states and municipalities.

“The electronic bidding decree says that, as of June, all municipalities will have to execute the resources they receive from the Federal Government through electronic bidding. For this, they can use their own systems or they can use our system. We are offering it ComprasNet free of charge. And the municipalities that use ComprasNet can also be supplied by foreigners”, explained Heckert.

Today, 300 municipalities already use ComprasNet. But that number tends to grow exponentially this year. After all, only 665 cities are already obliged to use the electronic auction in order to commit the funds received from the Federal Government. By June, however, there will be more than 5,000. And most of these municipalities should prefer to use the federal government system, which is free and open to foreigners, than to invest in the development of their own trading system.

Therefore, everything indicates that foreigners will have a large market to unveil in Brazil in the coming months. The federal government alone handles around R$ 50 billion a year in public purchases – a demand that, today, is met by 350 thousand Brazilian suppliers. In addition, most of the transfers that the Union makes to the municipalities will also be added – transfers that also revolve in the billions.

Data from the Open Transfers Panel of +Brasil Platform indicate that, in 2018 alone, municipalities received R$ 6.2 billion of the R$ 10.6 billion that were transferred by the Federal Government. And this data is below reality, as the Platform Brazil only accounted for nine of the 30 modalities of existing federal transfers, which, in all, distributed R$ 380 billion among municipalities, states and other public administration bodies.

Impact

The opening of the public procurement market to foreigners frightens a large part of the national business community. After all, today, they are practically the only ones benefited by this demand of more than R$ 50 billion annually. For the federal government, however, it can bring a number of benefits. Among them, reducing costs, improving quality and even expanding compliance with public tenders.

When Minister Paulo Guedes announced the Brazilian entry into the World Trade Organization (WTO) Public Procurement Agreement (GPA), he argued that bringing foreigners into this market can reduce fraud and corruption in public procurement, seen in recent years through the interference of contractors in large Brazilian public works. In addition, increased competition is expected to reduce prices and increase the quality of what is contracted by the government.

That is why the process of opening government procurement, which is an important part of GPA, but will be anticipated by almost two years by the update of the Sicaf that starts to run in May, will be valid for all types of government purchases. “It is valid for the purchase of goods, services and infrastructure works, see that the bidding is done electronically,” said Heckert.

Change for suppliers

The Management Secretary of the Ministry of Economy, Cristiano Heckert, admits, in turn, that the purchase of prompt delivery services should be the first affected by this possibility. The pharmaceutical industry, which sold R$ 12.9 billion in medicines to the government in 2019, according to Associação Contas Abertas, for example, may be impacted. “It has a greater advantage for the goods of prompt delivery because the supplier can bid from anywhere in the world and come here only to deliver the product. In the provision of services or construction of works, foreign companies that win the bids will have to set up a structure in Brazil, whether by subcontracting or representation, to deliver what was hired”, explained Heckert.

Even so, the secretary sees a favorable future for the participation of foreigners in this sector of services and works. Is that the new system of Sicaf facilitates and reduces the cost of entry of foreigners in the bidding process, ensuring that they will only need to make a large investment when they are sure that they won the contest. In addition, it was in carrying out public works that 81% of the R$ 6.2 billion that the Federal Government transferred to the municipalities in 2018 were used.

Today, foreign companies need to have a representation in Brazil and present a sworn translation of all documents required by the event to compete for public tenders. With the new Sicaf system, however, this will only be required if the company is the winner of the auction.

“We removed the restrictions that limited the participation of foreigners. As of May, they will then be able to bid from anywhere in the world and will only need to come to Brazil when signing the contract, “said the secretary. He also prepares the translation of the trading system to further facilitate this foreign participation in government procurement and highlights: “Neither the Constitution nor the Public Bidding Law prevents foreigners from participating in this market”.

The secretary guarantees, in turn, that certain safeguards must be adopted in the new bidding system to protect part of the local business community. Micro and Small Enterprises, for example, will continue to have their guaranteed market share – a portion that, by the way, is not small. According to the Union’s supplier system, Micro and Small Enterprises correspond to 60% of the approximately 7,100 companies that provided some type of service to the federal government in 2019. Therefore, they served approximately R$ 2.8 billion of federal purchases last year.

Private sector

The rest of the productive sector, which is responsible for larger contracts, still asks, however, for other guarantees. Among them, the requirement that foreigners comply with the same quality norms and standards to which Brazilian industries are subject to; hiring local labor in the case of providing services or carrying out works; and reciprocity, that is, the opportunity for Brazilian companies to also participate in the trading sessions of countries that will benefit from the new system. This last request, at least, must be fulfilled by the WTO Public Procurement Agreement, which was announced at the beginning of the year by Minister Paulo Guedes and should enter into force in 2022.

Sought, the National Confederation of Municipalities (CNM) did not reveal the exact impact that this measure can have for municipal tenders, but said that it sees the novelty with good eyes. “CNM considers the measure positive because it understands that it represents a simplification in the documentation process, a reduction in bureaucracy and an increase in transparency and increased efficiency. Instead of requiring all foreign suppliers to translate all documents through a sworn translation, with the measure, the foreigner who wins the process will open his documents and must present the sworn translation”, said, in a note, the Confederation.