The news from Brazil is not for the weak-kneed or dreamers wanting to start an exotic endeavor. The downgrade to junk status by S&P is likely to be followed by a similar move by Fitch and Moodys. Brazil seems to be reverting to 1980 when inflation was totally out of control and even the Selecao could not quite deliver. Still, there were the beaches, the vacations (state mandated 30 days) and 13 months of salary for 11 months of work. Moreover the country somehow managed before the 2008 upgrade to investment quality.
People are asking what is going on in Brazil. They want to know if the country is still viable for business. My answer is almost always another question: What is your value added proposition that makes you unique and successful here and can we figure out if that will work in Brazil?
Of course, I will alert clients and friends to difficulties of setting up in Brazil starting with the ever changing and rolling tax increases, the complexities of the bureaucracy, the mysterious workings of customs, the high interest rates, the corrosive inflation, the paternalistic labor code and courts, the environmental rules (even if or maybe just because you are in a big city), the profit remittance requirements, the exchange rates risks and the complexity of hedging, plus a myriad of other complications. For example, while Brazilians are familiar with “certidoes negativas” (proof that you don’t owe to a certain agency), foreigners will be taken aback at how many of these pesky little documents can come up when setting up or operating a business. And, of course, if you want to get married, you need a certificate saying that you are single. Brazilians, like others, may engage in adultery but we certainly want to make sure that bigamy is off the table, at least formally.
On the positive side, Brazil has an immense economy, one that has expanded and with many new consumers who joined the market over the past decade or so. In the long term, sometimes the very long term, Brazil can be an excellent value proposition for foreign investment. Beyond that there is just the warm and fuzzy good will, the openness and the sophistication that Brazilians typically display.
The basic issue that needs to be kept in mind is: Can your business stand on its own in a down economy and also thrive and expand when things are good? Does your business have a unique selling proposition so that it can stand out and rise above the competition? There are so many areas of need in Brazil that even in an environment that threatens to take the country in the direction of the lost decade (1980’s) if you have a plan, a product and the right level of commitment, Brazil is an outstanding place. The market is there and profits are high. Almost all Fortune 500 companies are present because of this. The market is open to new ideas, new people and products. Moreover, just maybe a majority of Brazilians would rather have a state sinecure rather than engage in risk taking as entrepreneurs. Consequently, vast market areas are open to enterprising investors. Of course, coming in from the outside you need to learn the business culture and figure out how to operate in this complex environment.
Typically, foreigners are enchanted by Brazil because they feel empowered, see resources, recognize opportunities and have the perception that potential exceeds risk. After time, this enchantment may be tempered by the Brazilian “reality” and the Brazilian cost of doing business but economic and even social entrepreneurship when rightly done can certainly still prevail. Brazil may be navigating toward some hard rocks but at least we can look up to Corcovado and the Christ Redeemer statue for hope and endurance.