Business in Brazil

There is a lot of talk on the right about Brazil’s movement to the left.  Lots of people are using words like Bolivar, Chavez, Cuba and Morales thus making the inference that Brazil is becoming some kind of socialist or populist republic.  The basis for this seems to be Dilma’s penchant for ad hoc interventionism.  Certainly, her actions in the electrical and oil based energy sectors have been called into question.  Only this week, she allowed Petrobras a slight increase in the price of gas and diesel.  It does not appear enough to balance the books or even help cash flow at the oil company.  With the continued drought it is also clear that electricity rates will have go up.  Oil based resources have been picking up the power generation slack as hydro capacity falls.

On the other hand, even as Brazil’s economy continues in low gear, barely moving forward, we have to remember that it is still a $2-plus trillion dollar machine ranking in size as the 7th largest in terms of GNP.  So lots of businesses continue to be viable and productive in spite of the slow growth mode of the economy.  Moreover, FDI continues to flow in at around $60 billion per year and this has been consistent over Dilma’s presidency.  Corporate money in spite of the slow growth and leftist lean still sees potential due to the expansion of Brazil’s middle class as well as the continued growth in income at the top of the pyramid.

Doing business in Brazil has always been complicated.  I remember back in the 50’s and 60’s when the Bank of Brazil controlled investments and remittances through CACEX.  It was less transparent and at least as bureaucratic then as it is now. Brazil has not lagged in computerization of public services.  Today, one can go on the Central Bank’s website and track fairly transparently the flows of capital and the procedures are explained in English and Portuguese for foreign investors.  Brazil is a big participant in international wire transactions with billions of dollars negotiated on a daily basis.  Most of the flow goes through Brazil’s Central Bank but a portion goes through the “doleiros”.  It is interesting  to watch news sites such as Folha de Sao Paulo produce pictographs of how funds move.

The biggest mystery in doing business in Brazil continues to be imports from foreign countries.  There is no end to the complaints about goods being tied up in customs.  Still, with trade turnover around $450 billion per year, hundreds of thousands of containers come into the country each year and the vast majority of these are released from customs within a few days and without inspection.  As in the US, the new guys usually get flagged.  Moreover, as the system is highly automated the mismatches in foreign and domestic paperwork create hassles.  Wrong classification, i.e. incorrectly converting HTS number to NCM numbers, errors in weights and quantities, incomplete or incorrect written identification of goods not matching the classification are all good reason for fines, inspection and delayed releases.  Certainly true as well is the existence of some opportunistic inspectors and agents who may be looking for a problem in need of resolution.

Once in Brazil, companies setting up in the major cities are finding it much easier to get started.  The commercial registries (juntas comerciais) are promising to do their part within days.  Often public agencies tied to city hall or the state may be slower.  Some areas that often stand out are timely inspection by the fire service or the environmental authorities that want to make sure your waste water and products are correctly collected and treated.

Overall, Brazil is much too large and complex, too modern (internet access) and too politically diverse to succumb to the type of domination that Chavez established in Venezuela.  Brazil even shies away from the Argentine route and is not likely to accept the same manipulations that Christina Kirchner has used there.

Business in Brazil is complicated.  The tax structure is a labyrinth  and one must count on the permanent advice of your accountant whose role is to follow the ever-changing structure.  Likewise, the legal system lacks transparency and if you wind up in court, the final resolution of the case may take years or even decades.  This, of course, does not  typically favor businesses with strangers or high levels of complex arrangements, but still these deals do happen with lawyers accompanying the process.

While Brazil remains a complicated place and ranks poorly in the classifications of ease of doing business, the fact is that the market is full of opportunity and competition in many sectors is weak or almost non-existent and large profits result.  Talk to people who have success in the market and, while, they may be unlikely to confess how well they are doing, the fact is that many are doing better than ever.

Members of the PT actually tend to see this as a paradox of the recent elections.

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