How Brazil can boost its datacenter investment attractiveness

Brasscom, the Brazilian association of information and communication technology companies, represents almost 90 sector companies, having among its founding members giants in the tech sector such as Microsoft, IBM and Totvs.

The entity is now actively engaged in discussions with the government over a specific policy to remove bottlenecks and increase investments in datacenters in Brazil, critical at a time when several countries are positioning themselves to receive massive AI investments.

In this interview, Brasscom's president Affonso Nina shares his views on the subject, talks about an upcoming datacenter plan and claims that the country is lagging behind in the global race.

BNamericas: Brasscom is directly engaged in discussions with the government about a policy for datacenters. How are these discussions going?

Nina: We're happy to see this topic now bubbling up in the government. We've been talking about the importance of datacenters for Brazil for a long time.

The opportunity arose with this new government as soon as they took office [in January 2023]. When I also took office here at Brasscom, I had a meeting about datacenters with them. But then the government was just arriving, the team was taking shape, so the subject was still very preliminary.

Since then, this has become very important on our agenda, both with companies and with the government. And the topic has evolved a lot, especially in the second half of last year. Now, at the beginning of this year, we are very engaged with several government interlocutors on the subject.

BNamericas: Who are these interlocutors?

Nina: MDIC [development, industry and commerce ministry], the finance ministry, MCTI [science and technology ministry], even chief of staff ministry because there is an aspect of formalizing measures that needs to go through them as well.

And the communications ministry itself as well.

BNamericas: In terms of costs, there is a discussion at the finance ministry about bringing forward the effects of the tax reform for the investments in datacenters, instead of creating a differentiated and specific tax regime for datacenters.

Nina: The tax burden is one of the most important aspects, for sure, but there are several others which we have also discussed.

There is indeed this discussion that the tax reform itself will bring relief regarding federal taxes for the datacenter chain, especially in terms of investment, starting in 2027. There is also a debate about whether, in addition to these effects, there should be some form of special regime or if there is no need to.

Regardless of the format, what we advocate is that timing is important. In other words, Brazil needs immediate actions that must be communicated quickly to the world. What are the paths that Brazil is offering or will offer? And these paths need to be made viable quickly.

A special tax regime depends on the law and has a longer debate time. So, without prejudice to a path like this, which may take a little longer, we need actions that effectively make this investment traction grow in the short term.

BNamericas: Which ones, for example?

Nina: As I already said, anticipating, as much as possible, what the tax reform itself has already stipulated for capital investments.

The second is to have equipment import processes that are more transparent and more agile. The process as a whole can and should be more streamlined, more optimized, both at the time of making an import and having access to the instruments that already exist for this, as well as at the time of receiving this equipment in Brazil.

Today, it takes much longer here in Brazil than in many other countries to carry out an import process like this.

Furthermore, we talk a lot about imports, but at the same time we also need to foster Brazil's capacity to produce key products locally.

We're not going to produce everything, 100%. But we need to be able to produce domestically at a competitive cost what is possible to do locally and position Brazil as a competitor in the export of some components or products in this chain.

BNamericas: There is an expectation in the industry for the use of the export processing zones, or ZPEs, as a lever for this.

Nina: Yes, but not just ZPEs. We need to have a broader vision. We understand that this discussion is not just about datacenters but about a much longer chain that does encompass datacenters.

From engineering and construction, generators and cooling, the processing layer, the inputs for all of this to work, such as energy and telecommunications. Then, it is also about how Brazil benefits from this in the rest of the ecosystem.

The entire ecosystem of digital solutions development benefits first when you start to have cheaper datacenters here in Brazil. From the small startup developing AI solutions to the large company that uses a datacenter to run its [management software] ERP.

An executive from a large company recently told me that he runs his ERP in Colombia because it's cheaper there than here. Today, doing processing in Brazil is more expensive.

We have data obtained from the central bank that shows that the balance of exports and imports, the trade balance of IT processing services, is increasingly in deficit. This deficit has grown a lot in the last three years, more than doubling.

BNamericas: How much is this deficit?

Nina: We're talking about a deficit of more than US$6.6bn and US$6.7bn in 2024 between imports and exports of processing services.

What does this mean? That we're importing these services from abroad, because here in Brazil it's more expensive and there's a lack of installed capacity.

We need to reverse this. We have to stop importing these services, which are increasingly strategic today, to produce locally what is consumed locally and then also be able to start exporting.

Training the artificial intelligence model, for example, is something that can be done from one country to another. Exported. You can also do cloud services from one country to another.

BNamericas: It's interesting that this deficit is growing – and somewhat counterintuitive, since Brazil has seen increasing investments, year after year, in the construction of hyperscale datacenters and in the announcement of cloud regions by large companies.

Nina: It's a process that obviously takes time. It takes a reasonable amount of time between the announcement of the investment in this datacenter and the datacenter being fully occupied.

Brazil is a reference when it comes to agriculture, but it's not a reference when it comes to digital transformation. Despite being a regional leader, Latin America doesn't reach 10% of the global IT market, and Brazil currently has around 4% of the IT market.

We do have the chance to increase this much more and put Brazil back in the game.

BNamericas: There's a lot of talk about that there is a window of opportunity that the country needs to take advantage of quickly, in the area of AI, for example. In your view, is this window mainly due to the race for AI out there or are there other factors, for example, a potential change in government in the next two years?

Nina: It is because of this race. Brazil is already behind. We've been telling the government that we need to announce that Brazil has a plan to attract these investments for the long term. This plan is expected to come out in the first quarter and that is already the limit for Brazil not to fall further behind in this race. Because other countries are moving. Every day there is news about countries announcing their investments in the field.

Brazil has an opportunity and some competitive and comparative advantages that we may also end up losing as assets.

Such as having a clean energy matrix, the telecommunications capacity to meet this demand and our geographic position, which allows us to serve both the United States and Europe and obviously Latin America and Africa, as a hub for reaching the East.

This window is important because of the global race. If Brazil pushes [back the announcement] to the second half of the year, we will really fall behind. Using Formula 1 language, we have already lost pole position, and if we make a mistake, we will soon have to start from the pits.

BNamericas: Brasscom was also at the forefront of the Brasil Digital 2030+ plan.

Nina: Yes, but they are different things. Complementary, but different. The Brasil Digital plan is much broader. It has six pillars, one of which is infrastructure for digital transformation, which includes datacenters, connectivity, energy, etc.

Brazil Digital is a proposal for a strategic plan for digital technologies for Brazil in the coming years. The work was developed under the leadership of the technology committee of the economic and social development council. 

Oliver Wyman was hired to conduct an initial study, based on the experience they had in similar studies with governments in other countries. This plan is moving forward. In December, the president created an interministerial committee for digital transformation, which is one of the things the plan advocates. 

In the case of the datacenter plan, the three main points are: the tax burden, both on infrastructure equipment and processing equipment – improving the entire process of access to energy and demonstrating that Brazil does indeed have enough energy to continue growing datacenters. Here, this is not a bottleneck. The third aspect is the business and regulatory environment. That is, being able to attract players in the chain. Not just datacenter players, but also those who will use the datacenters.

In this sense, we have the bill to regulate artificial intelligence, which we believe, although it has improved and evolved significantly in the senate, still has points that can be improved in the lower house regarding the country's competitiveness.

BNamericas: What are your projections for the growth of the sector?

Nina: Last year, datacenter energy consumption should have been 600-800MW, which represents 1.3% of energy consumption in Brazil. The global average is 1.5%.

Of course, when it comes to energy, you always have to be planning for the long term, both generation and transmission, but Brazil currently has the capacity to continue growing and meeting this demand in the future with well-designed planning.

The expectation is that this consumption will grow, but getting to reach 2% of energy in Brazil, 3% at most. This is important because many people say that datacenters will consume a lot of energy and impact the grid. This is not true.

We have the capacity to grow datacenters using clean, renewable energy and without generating the level of pollution that other industries generate.