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Brazil: Paradise for Foreign Investors Except for Red Tape, Bad Infrastructure and Labor Laws

Bureaucracy is one of the barriers to doing business in Brazil Bureaucracy is one of the barriers to doing business in Brazil

Despite the recent stagnation in its economy, largely as a result of the decline in commodity exports, Brazil is a nation which presents many opportunities for aspiring international businesses.

While many barriers still exist, the possibility for cross-country interaction with companies in the United States reveals a Brazilian nation at the forefront of business potential. As the Bolsonaro administration seeks rapprochement with the US, new opportunities are on the horizon.

With the world’s fifth largest population, a growing middle class and substantial consumer market, Brazil offers foreign investors a myriad of investment opportunities.

So too, as a member of Mercosur, Brazil offers the possibility of doing business with nations such as Argentina, Paraguay and Uruguay. Through Power of Attorney, it’s possible to do business without being formally present in Brazil.

But doing business in Brazil cannot be altogether perceived as easy. Ranked 125 out of 190 countries for bureaucratic and tax complexity, Brazil’s efforts at protecting local businesses encounter many local rules and regulations.

On the average, it takes 101.5 days to register a business in São Paulo, and 90 days to open a business. Brazil also maintains complex labor laws and a significant tax burden, which can hamper any attempt to stimulate investment.

While foreign companies can also coordinate with local companies, significant barriers remain in terms of foreign direct investment.

Furthermore, there is the pressing issue of infrastructure. Though better than most countries in Latin America, Brazil’s lack of adequate roads and railways presents a potential obstacle. Brazil ranks 107 out of 144 in infrastructure accessibility, according to the World Economic Forum.

The recent Car Wash scandal at Petrobras and presence of organized crime underscore the endemic corruption in both political and economic systems, which can also stifle the business process.

Brazil ranks 76 in Transparency International’s corruption index in 2016, making the opportunity for opening businesses a thorny one for foreign investors. And street crime is a pressing issue for anyone looking to start a business.

Credit risks, taxes, infrastructure, export and import barriers present additional challenges to doing business, and technology debt and unemployment reveal potential complications as well. Export can take up to 13 days to leave the country, and as such highlight Brazil’s significant bureaucratic inefficiency.

But Brazil does indeed promote foreign participation in business, while simultaneously addressing the issues of technological advancement. Hosting the 2016 Olympics proved a fertile ground for investment, and big data, surveillance, and risk assessment rank as potential opportunities for the future.

Companies such as Embraer, Bradesco, BR Malls and BRF, GM, Boeing, and General Motors have also demonstrated interest in joint Brazilian-United States business negotiation and policy.

As highlighted by ABVCAP, a private equity and venture capital association, agribusiness, in particular, represents a key sector in Brazil. With access to technology, equipment and service, there are additional opportunities in electricity, commerce, financial services, mining and oil and gas.

And there are definite options for foreign investor seeking to do business in e-commerce. Brazilians spend a great deal of time on-line, and lead the world at 32-38 hours per month, representing a significant potential market. Brazil also maintains a visa program by which investors can travel around the country and obtain Brazilian citizenship after four years.

While BNDES, the national investment bank, provides funding in the form of long term funds and share holding, investors must consider fiscal and tax obligations, and environmental policy.

Apex-Brazil Brazilian Trade and Investment Promotion Agency is the organization tasked with investor decision making, and contact between businesses and government connects over 60 fund managers in Brazil with more than 250 global institutional investors.

Less technically, etiquette plays a significant role for Americans doing business in Brazil. While Americans may be described as more mechanical and interested in process, Brazilians can be considered more emotional and personal relationship oriented, focused on “jeitinho” and getting around laws.

Friendliness is a key factor in negotiation, indicative of the Latin culture that Brazil epitomizes. Patience is important in direct contact with partners, and small talk is an important part of the negotiating process.

It may also take several trips to formalize business relations, as speed in protocol is considered counterproductive. Brazilian businesses are structured hierarchically, and decisions are made by highest ranking individuals.

Although many of the aforementioned barriers still exist, there is cause for optimism. In 2018, Brazil rose from 125 to 109 in the ease of doing business, largely as a result of reforms made to its credit system.

High taxes, credit markets, and trade barriers have been key impediments, but could contribute to enhanced efficiency if properly addressed. Reform of the banking system also is necessary, and could potentially reduce state intervention in credit allocation.

Ultimately, doing business in Brazil reveals the significant potential for business profitability, economic coordination, and goodwill with American companies.

The expansion of trade horizons demonstrates the potential for such an enhanced and mutually beneficial bilateral relationship. Surely, doing business in Brazil reveals the opportunity for promoting transnational profitability for both nations.

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