SAO PAULO/BRASILIA - For tech companies in Brazil, the government's decision to target their operations in response to US spying is about as smart as sending an angry email in the heat of an argument.
President Dilma Rousseff's plan to force Internet companies to store user data inside the country will not fix Brazil's security concerns and could instead send costs soaring and hurt future investments in a key emerging market for companies like Google, Facebook and Twitter, industry executives and analysts say.
"It could end up having the opposite effect to what is intended, and scare away companies that want to do business in Brazil," said Ronaldo Lemos, a professor at Rio de Janeiro State University who has helped draft Internet legislation in Brazil.
Rousseff was outraged after documents leaked by former US intelligence contractor Edward Snowden showed the National Security Agency (NSA) spied on ordinary Brazilians, the country's biggest company Petrobras and even her own communications.
In response, the left-leaning president helped put together legislation that would require big Internet companies to house locally gathered data on servers inside Brazil. Otherwise, they will be barred from doing business in one of the world's fastest growing markets for technology and social media.
The bill has not yet been made public, and the number of companies in the government's sight is unclear.
However, Alessandro Molon, a congressman with Rousseff's Workers Party who is leading efforts to get the legislation approved in the lower house, recently said the number of companies affected could be counted "with two hands."
In what was interpreted by the industry as another sign of hostility, the communications minister, Paulo Bernando, recently suggested tech companies were not paying enough taxes.
An industry source, speaking on condition of anonymity due to the sensitivity of the subject, said many companies are still waiting to see the fine print of the legislation, and how it is implemented, before deciding whether to go ahead with investment plans, and some might even consider pulling the plug on Brazil.
"It's a terrible idea," said the source. "And even if the government knows it, they feel they need to press ahead and send a strong political signal."
Even if data were to be kept in Brazilian data centers, it would still be replicated in servers abroad, experts say. Having entire databases in one single country would make the information more vulnerable to cyber attacks.