After Oil Industry Shift, Brazil Seeks to Open Up Defense

  • France’s Thales says sees opportunity in proposed bill
  • Navy docks in Rio de Janeiro eyed as potential fdi target

Brazil’s government is preparing a bill to ease restrictions on foreign ownership in its defense industry to help attract technology and cash.

The bill is expected to be approved by Congress within the next year, Brazil’s secretary for defense products, Flavio Basilio, told Bloomberg News. Under current legislation only so-called strategic companies with a majority of Brazilian capital can bid for major government defense contracts.

The proposal is the latest push by President Michel Temer’s administration to open Latin America’s largest economy to more private and foreign capital as a means to kick-start growth and overcome budget constraints amid a deep recession. Congress has approved a similar bill in recent weeks to open the oil industry and the government plans to ease restrictions on foreign stakes in aviation and land ownership.

Candidates for overseas capital include the Navy docks in Rio de Janeiro, which could be used to build and export ships, according to Admiral Antonio Carlos Soares Guerreiro. An emailed statement from the defense ministry said that one of the projects under consideration for the docks is a new Tamandare class corvette. The U.S. and France are interested in using the Alcantara rocket base in northeastern Brazil, Basilio said.

Other companies also stand to benefit. Aerospace and electronics producer Thales SA said a new law would allow it to bid for major government contracts and boost its investment in Brazil, according to the company’s Vice-president for Latin America Ruben Lazo.

Brazil’s defense spending received a significant boost following the discovery of massive pre-salt oil deposits off the coast of Rio de Janeiro in 2007. Foreign companies were encouraged to bid for government contracts, but only in partnership with local companies.

In 2014 the Brazilian government signed a $5.4bn deal with Swedish company Saab AB to purchase 36 Gripen fighters, with a varying degree of local content. The first plane is expected to be delivered in 2019.

But defense spending has been cut amid Brazil’s deepest recession on record. Odebrecht Defesa e Tecnologia, the defense arm of the construction company, lost some government funding for the nuclear submarine it is building in partnership with the French company DCNS.

In its statement, the defense ministry said that four new conventional and one nuclear submarine will be operational from 2018. There are also plans to build five new patrol boats, five frigates and a logistics-support ship, it said.

    Before it's here, it's on the Bloomberg Terminal.