Last week, Foxconn and the Brazilian government confirmed that the company will build iPad assembly facilities as announced in April and that production will start in December. This will be the first production of iPads outside of China. Foxconn, which will also produce iPhones in Brazil, plans to invest $12 billion over the next several years in Brazil, possibly including system assembly, touch panel production, LCD module assembly, and LCD fabs.
Brazil is moving into technology manufacturing through government policies such as tax breaks, subsidies, and if necessary, direct financial support, similar to the approach China has taken.
The convenient location of Brazil relative to the United States, the growing South American markets, and plentiful labor resources attracted Foxconn to Brazil, but the Brazilian government policies, including import duties, are the strongest reason. The Brazilian government is providing the following incentives:
- Tax reductions/exemptions: In May, Brazilian president Dilma Rousseff signed a provisional exemption for the social security taxes (9.25%) and industrial production tax (15%-3%).
- Special industrial zone, with infrastructure such as logistics centers, warehouses, and building for assembly lines
- Export priority
- Local investors supported by the government
- Special benefits in logistics
- Financial support (syndicated loans or low interest rate funding) from Brazilian governmental bank consortiums (which could be most important for investors)
The expected locations for the facilities Foxconn include Manaus (mobile phone spare parts and assembly), Jundiai (iPad, iPhone, monitors, TVs, and desktop PCs), and an undecided third location for touch panel production.
The plan for Brazil government is to bring big projects like Foxconn to stimulate employment, to increase the abilities of the workforce, and to add to local technology business. Foxconn is currently the biggest company to work with the Brazilian government, but other companies are in discussions as well.Based on the experience in China, assembly lines are just the first step. The Brazilian government is targeting big investments like semiconductors, TFT LCD, and touch panel production. GDP and exports will be increased through these investments, and as the business grows, the increased tax receipts may be sufficient to cover the cost of the subsidies.
However, such investments are big enough for investors to need to leverage risk, and given the difficult financial situation that panel makers face, financial backing in Brazil might be the most important factor for establishing TFT LCD or touch panel fabs there. Brazil might also learn from China about how to finance such projects, directly and indirectly. Eventually, we may see a government joint venture with panel makers to build LCD fabs in Brazil, like in China. It would not be a surprise to see an advanced generation TFT LCD fab in Brazil someday supplying panels needed for the Americas.