Market Analysis Brazil

OriginBusiness Engineering
Market Analysis Brazil

2010 | © Origin Business Engineering B.V. 2
Origin
Index
1. Introduction
2. Brazil Culture and Doing Business
3. Brazil and its Macroeconomic Situation

Origin
Chapter 1 - IntroductionI

Origin
Outline
» Brazil and Its Culture
Culture, Politics, Economy, Social Issues, Technology;
» Doing Business in Brazil
Competitiveness
Staring a business
» Macroeconomic situation

Origin
Chapter 2 – Brazil culture and doing
business
II

Origin
Brazil- Culture and Language
» Primary Attribute: Brazil is not like the rest of Spanish‐Speaking Latin
America, and they are proud of it.
» Brazilian culture is diverse in nature. An ethnic and cultural mixing of
Indians, Portuguese and Africans.
Italian, German, Spanish and Japanese immigrants settled Brazil and created a
multicultural and multiethnic society.
Brazil was a colony of Portugal for over 3 centuries. The Portuguese arrived
during this period (nearly 1 million) and brought their culture.
Brazil is a member of The Community of Portuguese Language Countries
(CPLP).

Origin
Brazil culture, language and religion
» The native inhabitants had strong contact with colonists.
» Many exterminated, while others mixed with the Portuguese.
» Brazil holds Amerindian influences in its culture, food and language (Brazilian Portuguese has
hundreds of words of Indian origin, mainly from the Tupi‐Guarani).
» Brazil has the largest Catholic population in the world.
Many other beliefs have been incorporated into the Brazilian Catholicism:
• Spiritism,
• Buddhism,
• Hinduism,
• Ayahuasca,
• Judaism as well as religious syncretism, such as
• Candomblé,
• Umbanda,
• Macumba, which mix Catholicism with African tribal religions.

Origin
Politics – President Lula
» Lula’s second presidency was a step towards democratic consolidation;
» Orthodox expenditure policies permitted an increased emphasis on anti‐poverty
initiatives;
» It boosted Lula’s popularity, despite scandals that emerged in 2005;
» For his second term, Lula announced an economic program that would accelerate GDP
growth through increased Government investment.
» Earns lot of respect from business arena in Brazil;
» Original Petrobras director;
» Has supported with success the monetary policy set in by former president Henrique
Cardoso who was able to tame the hyperinflation that has a big influence on the
country in the 1990’s;
» Currently Mr. Henrique Mereilles is heading the Central Bank of Brazil and has so far
supported and sustained the anti inflationary policy of this predecessor;

Origin

Origin
Politics- Lula
» Lula’s second presidency was a step towards democratic consolidation.
» Orthodox expenditure policies permitted an increased emphasis on anti‐poverty
initiatives.
» It boosted Lula’s popularity, despite scandals that emerged in 2005.
» For his second term, Lula announced an economic program that would accelerate
GDP growth through increased Government investment.
» “Growth Acceleration Plan” (January 2006) included investment projects and two
long term fiscal norms that will influence more than a third of federal expenditure.
» The norms are:
Increase minimum wage (2008‐2011). Proposal already became Law.
Limit annual increases in spending on federal government personnel. Not surprisingly
this proposal is struggling to pass congress.
• Federal Government Personnel controls the institutions of Brazilian Government.  Their
multiple benefits are stipulated in the Brazilian Constitution.

Origin
Politics- Party System
» The party system is weak in this electoral system, which forms a single constituency within each
state, then votes on hundreds of candidates.
Congressional representatives show greater loyalty to interest groups.
Discipline is weak for members of Political Parties.
The highly fragmented legislature makes it difficult for any party to secure a majority.
Fragile coalitions are the norm.
Individual politicians exert great influence, and switching party allegiances is common.
» The Partido dos Trabalhadores embraces views from traditional socialist to
pro‐market Social‐democrat, like Lula.
» His views are not universally accepted within the PT.
» The Partido do Movimento Democrático Brasileiro has been an important
factor in all legislatures since the return to democracy.
» It has lent its support to both Cardoso and Lula, receiving concessions in
return. The party’s size and internal divisions produce unstable coalitions.
» Its bargaining power increased after a majority of the party granted official
support to Lula in 2006.

Origin
Economy: The Real
» In 1994 Brazil adopted a fixed exchange rate to manage inflation.
» Effective in ending hyperinflation, also affected competitiveness.
» Now Targeted Inflation Rate is used to manage inflation.
» The Real is “free” to move with the market.
» Since Lula’s presidency, the Real’s nominal exchange rate has been
volatile.
Currently the exchange rate is at R1.75:US$1, compared to R4:US$1 during
the 2002 presidential elections.
The appreciation of the Real has made a lot of other Brazilian products more
expensive and less competitive in international markets.

Origin
Economy: Bovespa
» The Bolsa de Valores de São Paulo (Bovespa) stock market outstanding
growth in recent years.
» Largest stock exchange in Latin America reaching a record level of US$723
billion in 2006.
» The Bovespa index broke records in 2007, as international credit rating
agencies put Brazil at one notch below investment grade.
As a result of abundant liquidity in global stock markets and business
confidence, number of IPOs rose from zero in 2002 and 2003, 26 in 2006 and 30
in the first half of 2007.
Foreign investors account for 35.5% of all investment in stock market in 2006, up
from 32.8% in 2005.

Origin
Economy: The Banking Sector
» Brazil’s banking sector is solid, diversified, and well regulated.
» At the end of 2006, the banking sector had total assets of
US$875 billion and employed around 425,000 people.
» Average return on equity for 2006 stood at 23% for the
second consecutive year.
» During 2006, total credits increased 21%.
» Lula’s government is trying the increase credit amounts for
micro‐credits by means of his Growth Acceleration National
Program.

Origin
Economy: Production and Employment
» In 2007 and through to October of 2008, the Gross Domestic Product has
grown 4,7% and 5,2%.
Somewhat inferior to the growth experienced in the region.
» Consumption is primary type of expenditure, 80% of the GDP.
» Brazil’s Balance of Trade is positive, representing 26% of the GDP for
2006. This percentage has dropped since 2004 (29%GDP). Explained by
the increase in Consumption, creating demand on imports.
» The open unemployment rate in 2006 was 10%.
» Commerce and the Industrial and Service Sectors accounted for 520,000
new jobs.

Origin
Labor Laws- CLT
» “The Brazilian worker is a worker surrounded by laws on all
sides but dead from hunger. So many laws! But we lack one
to keep him from dying of hunger.—Minas Gerais trade
union leader from the 1950s (French, 2004)”.
The rights and duties of employers and employees in Brazil are set out in
the “Consolidation of Brazilian Labor Laws – CLT”, issued in 1943.
This system of labor and social security laws was "quite elaborate and
advanced for an underdeveloped country which was just beginning to
industrialize"—indeed, Brazil's system was considered "one of the most
advanced in the whole world."

Origin
Labor Laws: Benefits
» Compulsory benefits add 60% to 80% in salary:
Employers contribute 8.5% of wages to deferred‐salary account at the Length of Service Guarantee Fund
(FGTS).
Employers contribute 20% of employee’s wages to the National Institute for Social Security (INSS), the
country’s public pension system, as well as a maximum of 8.8% on other social security taxes.
The INSS coverage includes medical and hospital assistance; sick pay after 15 days of absence, at 70% of
salary; maternity benefits of up to one month’s minimum wage; and retirement pay.
» Paid vacations of 30 calendar days are granted after a full year of service.
» Employees are granted full sick pay for the first 15 days of a documented illness.
Female employees receive mandatory maternity leave of four months and male employees
receive paternity leave of five days.
A mandatory bonus of one month’s pay (called the 13th salary) must be 50%‐paid until
November of each year. The remaining balance is traditionally paid at year‐end.
» A transport subsidy for workers is mandatory for all employers.
Companies must provide their employees with transport to and from work or subsidize their
mass‐transit expenses by paying all such costs exceeding 6% of an employee’s gross salary.
» Companies must pay into a national subsidized savings program for workers (PIS),
administered by the national savings‐bank system.
Such payments are deductible for purposes of corporate income tax and the social
contribution on net profit.

Origin
Social Issues: Distribution of Wealth and Industry
» Brazil’s population is unevenly distributed across the regions.
» The wealthiest region, encompassing the states of São Paulo, Rio de
Janeiro, Minas Gerais and Espírito Santo, accounts for over one‐half of
Brazil’s GDP.
» Manufacturing is concentrated in the state of São Paulo.
Fourteen cities have a population of over 1 million citizens.
Although income inequality is a problem, increases in the minimum wage
have had a significant effect in distribution of wealth.

Origin
Crime
» The level of crime in Brazil’s major cities is high.
» Deficiencies in the security forces underpin concerns about
the ability to contain the problem.
Sporadic clashes between security forces and armed gangs spread
panic among the population.
A 3,000‐strong federal security force has been deployed in Rio de
Janeiro since January 2007.
Organized criminal groups are involved in robbing cargo from
shipments, concentrating in São Paulo and Rio de Janeiro states.

Origin
Social Issues: The Environment
» Brazil is a world leader in renewable energy, namely hydroelectricity and
ethanol. Nonetheless, rapid urbanization has contributed to high levels of
pollution in major cities.
» The Amazon forest and Brazil’s temperate forests are under threat from
the expansion of forestry, farming and mining.
» Over the last 30 years of the 20th century one seventh of the Amazon’s
forested area was lost.
» The rate of deforestation has declined in Brazil in recent years.

Origin
Social Issues: Labor Unions
» The power of Labor Unions has declined with economic liberalization and
deregulation.
» They maintain influence in the government and resist labor reform.
Businesses argue that Brazil’s employment protection hampers employment
creation.
» The two main organizations : Central Única dos Trabalhadores (CUT) and
Força Sindical.
» The Movimento dos Sem Terra for short (MST, the Landless Workers’
Movement) has emerged as a new political force.
It has close ties with the PT, but has criticized Lula’s government for its slow push
in land reform.
» Businesses have a relatively powerful voice in politics.
» Business organizations have worked alongside the PT government on
reducing tax and administrative procedures.
» They have objected to the government’s tight monetary policy and called for
a reduction in the corporate tax.

Origin
Social Issues: Education
» Until the 20th century, Brazil was an underdeveloped nation with economic activity based on the
primary sector, possessing an unskilled workforce.
» With post‐war expansion, government focused on strengthening Brazil's University, while neglecting
primary and secondary education.
» Today, Brazil struggles to improve public education.
» Despite its shortcomings, Brazil has progressed substantially in the last two decades.
» School enrollment for children (7‐14) rose from 80.9% in 1980 to 96.4% in 2000.
» In the same time period, 15‐17 age enrollment rose from 49.7% to 83%. Literacy rates went up from 75%
to 86.4%.
» As of 2002:
Literacy rates for people aged 15 or older is 88.2%
6.2 years of formal education, on average. (Compare with 12 years in the U.S., 11 in South Korea and 8 in
Argentina)
8.4 years for white people, 6.1 years for black people
» As of 2006:
The nation invests 4.3% of GDP on Education ‐ the federal government aims to increase gradually this
number to 7%.

Origin
Technology: Transportation
» Brazil’s transportation infrastructure is below the curve:
Only 12.5% of existing roads are paved.
Even though roads are the most common means of transportation.
Rail or waterway transportation is underdeveloped, even though it is
significantly cheaper.
Airline deregulations have brought price reductions in Air Cargo and
now more than 150 cities have direct access; it is still comparatively
expensive.

Origin
Technology: Communication and Energy
» Privatizations in the 1990s attracted major private investment into
telecommunications sector;
» Mobile‐phone penetration overtook fixed lines in 2003;
» Since 1975 Brazil has used multiple sources of fuel for its transportation:
petroleum, ethanol, and liquid gas;
» Diversification was a result of high petroleum prices, and it is unique in
the region;
» The share of gas in the energy grid has increased to over 9%.
Lula’s government has tried to reduce dependency on Bolivia’s gas and has
announced plans to set up at least two plants in Brazil.

Origin
Doing Business in Brazil
» Opening a new corporation in Brazil takes 18 different procedures and last 152 days
on average;
» In the Doing Business Report 2008, which appraises 182 different countries, Brazil
ranked 172 in ease of opening a new company;
India was 181
» Environmental licensing: No predictability to when the environmental license will be
issued, or what the cost of environmental compensation will be;
» Brazil is one of the few countries in the world that taxes investment.
Historic figures ‐ starting a business 2006 2007 2008
Macroeconomic stability [rank worldwide] 122 122
Procedures [number] 17 17 18
Duration [days] 152 152 152
Cost [% GNI per capita] 10.1 9.9 10.4
Paid in Min. Capital [% GNI per capita] 0 0 0

Origin
Brazil’s competitiveness
Assessed by the GCI 2008–2009
Pillar Rank
Macroeconomic stability 122
Goods market efficiency 101
Labor market efficiency 91
Institutions 91
Health and primary education 79
Infrastructure 78
Financial market sophistication 64
Higher education and training 58
Technological readiness 56
Innovation 43
Business sophistication 35
Market size 10

Origin
Starting a business in Brazil - Summary
No Procedure Time to complete Cost to complete
1 Check company name with State Commercial
Registry Office
1 day (1 hour) R$ 9
2 Pay registration fees 1 day See following
procedures
3 Register with Commercial Board of the state
where the main office is located. Obtain ID
number ‐ NIRE
1 day R$59.06 registration +
$100 expediting fee)
4 Register for federal and state tax (Secretaria da
Receita Federal do Ministerio da Fazenda –
SRF/MF), obtain the CNP J number, which also
registers employees with the National Institute of
Social Security (Instituto Nacional da Seguridade
Social – INSS)
About 1 month
(including inspection
visit)
No charge
This table summarizes the procedures and costs associated with setting up a business in Brazil

Origin
Starting a Business in Brazil - Summary
5 Confirm INSS enrollment 1 day simultaneous
with previous
enrollment
No charge
6 Receive state tax inspection 1 day (sim with
previous procedure)
No charge
7 Get the authorization to print receipts/invoices
from Secretaria da Fazenda Estadual
5 days No charge
8 Register with the Municipal Taxpayers’ Registry
(Secretaria de Financas e Desenvolvimento
Economico) of the City of Sao Paulo
5 days No charge
9 Pay TFE to the Municipal Taxpayers’ Registry 1 day (sim with
procedure 5
R$ 300 (may vary for
type of company)
10 Get authorisation to print receipts/invoices from
the Secretaria de Financas e Desenvolvimento
Economico
1 day No charge
11 Order receipts/invoices (notas fiscais) with CNPJ
numbers from authorized printing companies
3 days R$ 600

Origin
Starting a Business in Brazil - Summary
12 Obtain Fire Brigade Licence from state Procedure 11‐13 take
120 days
No charge
13 Inspection from fire brigade Included in previous No charge
14 Apply with the Municipality for an operations
permit (alvara de Funcionamento)
Included in previous No charge
15 Register the employees in the social integration
program (Programa de Integracao Social, PIS)
1 day, sim with proc 13 No charge
16 Open a FGTS (special fund for unemployment)
account in bank
1 day sim with proc 13 No charge
17 Notify the Ministry of Labor (“Cadastro Geral de
empregados e desempregados” – CEGED)
1 day sim with proc 13 No charge
18 Registration with the Patronal Union and with
Employees Union
5 days, sim with proc
13
Annual fee to be paid
depending on Union

Origin
Doing Business in Brazil: Establishing a Legal
Entity
» Foreign investors may organize as a Corporation, a limited liability company
or other kinds of companies provided by the Civil Code.
A Corporation must deposit 10% of its capital in a bank. It must allocate 5% of
its annual profits to a legal reserve until the reserve reaches 20% of the capital
stock.
The directors must be Brazilian residents and the shareholders, if they are not
residents, must have legal representatives in Brazil.

Origin
Doing Business in Brazil: Corporate Law
» Other regulations:
Bank Accounts: Brazilian resident companies and individuals are not allowed
to maintain Brazilian bank accounts denominated in a foreign currency.
They may maintain these accounts in banks abroad if the funds are declared
on the individual’s income tax return.

Origin
Foreign Investments
» Investments: There are no restriction regarding investments. The
repatriation of share capital is not restricted if the investor registers the
investment with the Brazilian Central Bank (BACEN).
» A foreign investor’s capital gain on a sale to a local resident is the excess of
the sale price over the foreign capital registered at BACEN.
» Repatriated funds in excess of the amount of foreign capital registered
with the BACEN are subject to the 15% withholding tax.
» The Brazilian Central Bank registers all investments.
The registration process of foreign investments, whether in the form of capital
or loan, is relatively simple and straightforward.
The main advantage of securing registration of the foreign investment is to
acquire the right to remit dividends abroad, as well as to repatriate the FRC.

Origin
Funding and Profits
» FIRCE (Foreign Capital Control and Registration) – a department of the
BACEN ‐ is responsible for the registration of foreign capital. The following
transactions are subject to registration:
Direct investments;
Loans in cash or in assets;
Repatriation of capital and remittances of profits or capital gains abroad;
Remittances abroad of loan interest and repayments of loan principal;
Royalties and technical assistance contracts;
Any operation involving transfers of earnings abroad;
Reinvestment of profits;

Origin
Competitiveness: Taxes
» Municipal, State and Federal Government collect taxes, and have no
hierarchy.
Municipalities, States and the Federal Government will battle for the right to
tax transactions.
» Brazil’s tax structure affects its competitiveness.
» The average ratio of investment to GDP in Brazil has been even lower than
previously estimated (16.4% in 2000‐06 against 17‐19%).
» Other factors contributing to the high business costs, known as “Custo
Brasil”, are a burdensome tax regime, restrictive labor laws, a costly and
slow judicial system.

Origin
Public organizations dealing with private
investments in Brazil
The Brazilian Agency for the Promotion of Exports and Investment
(APEX) was created in1997 and operated as a special department of
the Brazilian Support Service to Micro and Small Enterprises (SEBRAE )
until 2003, when it was renamed APEXBrasil and began to act as an
autonomous agency working in association with the Ministry of
Development, Industry and Foreign Trade. Under its new status,
APEX‐Brasil took on the role of coordinating and implementing trade
promotion policies endorsed by the federal government. Its main
function is promoting the insertion of national companies into the
world market, diversifying and raising exports, consolidating existing
markets, and opening up new ones.
The Brazilian Agency for Industrial Development (ABDI), created in
2004, operated as part of the Ministry of Development with the
mission of promoting the implementation of the Ministry’s industrial
policy, in accordance with external trade and science and technology
policies.
The Brazilian Chamber of External Commerce (CAMEX) belongs to the
structure of the Government Council. It is in charge of the
formulation, adoption, implementation, and coordination of policies
and activities related to external trade of goods and services,
including tourism. Among its functions are the coordination of the
organizations related to external trade; the regulation of certification
of companies for the practice of external trade; the classification of
products and rules of origin of goods; the formulation of directives on
tariffs; and directives for bilateral and multilateral negotiations, for
bad practices in external trade, and for export financing.
The Secretariat of the Federal Revenues (SRF), subordinate to the
Ministry of Finance, is responsible for administering federal taxes. At
the same time, it assists the executive branch of the government in
formulating Brazilian tax policy and is responsible for preventing and
combating tax evasion, contraband, smuggling, counterfeiting, and
trade fraud, along with other international trade‐related illicit acts.
The SRF is also in charge of managing and executing customs
administration, inspection, and control.The Brazilian Development Bank (BNDES) was established with the
goal of supporting projects that contribute to the development of the
country. Since its creation in 1952, the Bank has financed important
public and private works in industry, agriculture, public transport, and
infrastructure. It also contributes
to the strengthening of the capital structure of private companies and
the development of financial markets.
The Secretariat of Agriculture Defense (SDAA), part of the Ministry of
Agriculture, coordinates the country’s system of agricultural defense,
including its international agricultural surveillance program.

Origin
Public organizations dealing with private
investments in Brazil (2)
The Administrative Council of Economic Defense (CADE) is the
antitrust agency within the Ministry of Justice. It has the role of
orienting, auditing, and investigating, as well as preventing abusive
behavior by a firm dominating a market and anti‐competitive
practices that tend to lead to such a dominant position.
The Brazilian Institute of Environment and Renewable Resources
(IBAMA), a federal agency that is within the Ministry of Environment,
is responsible for implementing the national environment policy,
including the control and investigation of the use of natural resources
and the licensing for investment that might have an environment
impact.
There are other regulatory agencies for specific sectors— such as
ANATEL for telecommunications, ANA
for water and sanitation, ANEEL for utilities, ANP for oil and gas, ANTT
for road and train transports, and ANVISA for sanitary surveillance.
The Ministry of Development, Industry and External Trade (MDIC) is
responsible for different aspects of industry, trade, and services
promotion such as intellectual property and technology transfer,
measures, norms and industrial quality, as well as external trade
policies. MDIC also takes care of regulating external trade and
implementing programs and safeguard mechanisms in the area,
participating in international negotiations, and supporting small and
medium enterprises and activities of the registry of commerce. This is
done through the Secretariats of External Trade, Industrial
Development, Commerce and Services and Industrial Technology.
INPI, discussed above, is responsible for the registry of brands, patents,
and contracts of technology transfers and company franchising, as well
as the registry of software, industrial design, and geographic
indications.
The National Institute of Metrology, Normalization and Industrial
Quality (INMETRO) acts as the Executive Secretariat of the National
Council of Metrology, Normalization and Industrial Quality, and is
responsible for enforcing the technical and legal rules related to
measurement of industrial processes. It is also in charge of
harmonizing measurements with international patterns and of
accreditation activities for laboratories of calibration and
organizations of certification, inspection, and training necessary for
the development of the infrastructure of technological services in the
country.

Origin
Chapter 3 – Macroeconomic SituationIII

Origin
Brazil key indicators
Population (millions), 2008........................................................................... 194.2
GDP (US$ billions), 2007............................................................................... 1,313.6
GDP (PPP) per capita (int'l $), 2007.............................................................. 9,703.2
GDP (PPP) as share (%) of world total, 2007................................................ 2.8
Current account balance (% GDP), 2007 ..................................................... 0.1
Foreign reserves (months of imports), 2008 ............................................... 10.6
Unemployment (% labor force), 2008 ......................................................... 7.9
Human Development Index, 2006................................................................ 0.81

Origin
Global Competitiveness Index

Origin
The most problematic factors for doing business

Origin
Brazil's current performance is poor against competitiveness
indexes
Brazil's rank (out of total)
Institution Index 2005 2006 2007 2008
Relative
performance
World Economic Forum Global Competitiveness Index 65 (117) 66 (122) 72 (131) 64 (134) ‐
IMD Quality of Life Index 39 (111) n/a n/a n/a =
World Bank
Overall Competitiveness
Ranking
42 (51) 44 (53) 49 (55) 43 (55) ‐
Economist Intelligence
Unit
Ease of Doing Business Index n/a n/a 122 (178) 125 (181) ‐
Heritage Index of Economic Freedom 63 (155) 69 (157) 97 (157) 97 (157) ‐
Transparency
International
Corruption Perception Index 62 (158) 70 (163) 72 (179) 80 (180) =
United Nations
Development
Programme
Human Development Index 70 (177) n/a n/a n/a =
Mastercard
Worldwide Centers of
Commerce Index
n/a n/a 48 (63) 56 (75) ‐
Source: World Economic Forum; World Bank; Economist Intelligence Unit; IMD; Heritage Foundation, Transparency International; United
Nations Development Programme; Mastercard; Organisation for Economic Co‐operation and Development; McKinsey analysis.
There is a + sign if the most recent ranking is in the top 20 percent, = if it is between 20 percent and 45 percent, and – if it is below 45
percent (Brazil ranks in the 45th percentile in GDP per capita among countries in the GCI 2008–2009).

Disclaimer
Copyright of all published material including photographs, drawings and images in this document remains vested in
Origin Business Engineering and third party contributors as appropriate. Accordingly, neither the whole nor any part of
this document shall be reproduced in any form nor used in any manner without express prior permission and applicable
acknowledgements. No trademark, copyright or other notice shall be altered or removed from any reproduction.
2010 | © Origin Business Engineering B.V.
Origin

Market Analysis Brazil

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (20)

Destaque

Destaque (20)

Semelhante a Market Analysis Brazil

Semelhante a Market Analysis Brazil (20)

Market Analysis Brazil