Brazil is vying to capture a substantial share of the global data centre market, as Rio de Janeiro launches an ambitious $65bn artificial intelligence hub and the federal government mulls significant tax relief measures for the sector.

The Rio AI City project, announced last week through a memorandum of understanding between the city and key federal institutions including the National Bank for Economic and Social Development (BNDES), aims to establish a 3-gigawatt data centre capacity by 2032. The facility will be located in Barra da Tijuca, leveraging what Mayor Eduardo Paes described as favourable regulatory and fiscal conditions.

"We have the support of the BNDES, clean energy, a robust infrastructure of underground cables and fiber optics, and most valuable of all: human capital," Paes stated during the signing ceremony at the BNDES headquarters.

The announcement follows revelations that Brazil could attract demand for data centres worth 10 gigawatts over the next decade, according to Igor Marchesini, special adviser to the Ministry of Finance. Speaking at the Energy Summit 2025 in late June, Marchesini pointed to Brazil's competitive advantages, particularly its clean energy matrix, which he argued sets the country apart from competitors facing infrastructure constraints, Estadao reported.

"Here we have something that only Brazil has: the matrix is clean, we won't even increase the electricity bill or increase pollution," Marchesini noted, contrasting Brazil's position with regions such as Ireland and Virginia where data centre expansion has faced public resistance over energy consumption concerns.

Brazil's renewable energy credentials are already well-established, having surpassed its target of reaching 84% renewable electricity by 2030 ahead of schedule. The country's ten-year Energy Expansion Plan projects solar capacity reaching 47 gigawatts and wind capacity hitting 31 gigawatts by 2030, according to the Energy Research Office's 2022 framework.

The government's optimism is underpinned by forthcoming tax incentives. A provisional measure offering 52% tax relief for data centres has been finalised and awaits transmission from the Civil House to Congress.

The tax relief forms part of a broader strategy to encourage data centre development in Brazil's Northeast region, where surplus energy capacity could help reduce regional inequalities whilst capitalising on growing global demand. Marchesini noted that many regions worldwide face seven-year waiting lists for data centre connections, presenting Brazil with a significant opportunity.

Supporting this infrastructure push, the BNDES announced plans for a dedicated fund targeting data centre and artificial intelligence projects, with initial investments ranging from $90mn to $180mn. Nelson Barbosa, Director of Planning and Institutional Relations at the BNDES, indicated the fund could eventually reach $450mn to $900mn when private investments are included.

"We are going to create a cooperation model for the BNDES that can be replicated in other cities and states," Barbosa stated, emphasising the bank's commitment to supporting small and medium-sized enterprises within the sector.

The development bank has already committed $306mn to the sector since 2023, including $180mn across nine hardware-related transactions and $126mn in equity funds expected to leverage an additional $414mn in private capital.

However, industry voices have warned against regulatory overreach. Alessandro Lombardi, president of Elea Data Centers, which plans to install 1.5 gigawatts of capacity over six to seven years, cautioned that excessive regulation could deter investment, as reported by Estadao. His company has opened its first 10-megawatt facility in Rio de Janeiro and is constructing an 80-megawatt centre slated for 2026 delivery.

"But if [Brazil] overdoes it with regulation, it won't attract investors. There are three bills under consideration; there should be just one, to make things clearer. There needs to be user-friendly regulation," Lombardi stated, though he expressed optimism about recent progress.

Meanwhile, the broader regulatory landscape for artificial intelligence remains in development. Minister of Science, Technology, and Innovation Luciana Santos highlighted the Brazilian Artificial Intelligence Plan, which calls for $4.14bn in investments through 2028 and has 31% of proposed actions completed or underway.

"We are committed to using artificial intelligence to serve a growth project with social justice and equity," Santos stated. "Mastering AI is a crucial matter of national sovereignty in the face of changing global geopolitics."

The convergence of Brazil's clean energy edge, government support, and skyrocketing global demand for data centre capacity presents a once-in-a-generation opportunity for the country to emerge as a regional technology hub. But success will depend on balancing regulatory clarity with investor-friendly policies, whilst maintaining the environmental advantages that set Brazil apart from competitors facing infrastructure constraints.