Top challenges of doing business in Brazil

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Brazil has been one of the most exciting growth stories of the past decade, and the football World Cup and Olympics are likely to mark the country on the map as a prominent global investment destination. However, the Latin American powerhouse is regarded as being among the most challenging places in the world to do business, which is why having local expertise in the country will ultimately improve the success rates of your overseas venture.

Recent estimates have suggested that hosting the World Cup and the Olympics in Brazil could be worth $3.5 billion and $5 billion to the economy respectively. Consumer confidence is also at an all time high in the country, with 40 million Brazilians escaping poverty over the last ten years, boosting the middle class bracket in the country. What’s more, strong manufacturing growth, a young population and an abundance of resources has got international investors rather excited about the country’s prospects.

Another reason to be excited about the Brazilian economy is that - after several quarters of disappointing growth levels - there is an air of optimism about future growth levels. If the economy picks up soon, many global investors will see it as a catalyst to move in their operations and thus boost foreign direct investment (FDI). But doing business in Brazil is notoriously complicated, and there are several things organisations should consider before making the leap.

Developing nation
Brazil is still considered a developing nation, and although that is often interpreted as a precursor for ‘high growth levels’, it also means that several areas of the economy remain underdeveloped. The consumer base, regulatory environment and sphere of investment are not as mature as those of developed nations, and considerations must be made to that effect.

The reform of the laws and regulations for opening and running a business in Brazil has not adapted at the rate with which the economy has grown, presenting many hurdles to overseas corporations.
Brazil ranked 126th out of 183 countries in the World Bank’s latest annual global report which evaluates the ease of starting a business, dealing with construction permits, registering property, and paying taxes. On average, it takes 13 procedures and 119 days of work to start a business in Brazil, and construction permits demand an average 17 procedures and 469 days to finally get authorised.

Brazil has become somewhat notorious for the levels of corruption among its politicians and senior business people. However, a recent report by The Economist suggests that the country is finally ready to clean up its act, estimating that in 2013 more corruption will result in appropriate custodial sentencing, thus prompting a petering out effect.

Brazil’s economic boom has pushed prices up in the country, and from a financial perspective, doing business isn’t as cheap as you might think. The currency has moved closer to parity with many of its leading peers and commodities have shot up in price. The country’s stock market is also stuck in a rut, which makes investment a little trickier.

Taxation in Brazil can be an unpredictable beast, with many native firms already battling the authorities over huge sums of disputed tax revenue. A recent article in The Economist noted that “tax disputes are as Brazilian as string bikinis or samba,” outlining many of the high profile cases currently passing through the legal system.

Preference for local companies
Brazil’s diverse and varied economy means that many companies moving into the country choose to do so in partnership with local companies. This makes the transition less disruptive for consumers, as well as giving the company essential insight on the local economy.

Ex Brazilian footballer Pele recently launched a full scale attack on the government for the lack of infrastructural developments that have taken place in the run up to the 2014 World Cup and the 2016 Olympics. However, the government has woken up to the urgent need to improve the country’s infrastructure, auctioning road, railway and airport concessions as well as cutting financial transaction tax on several major projects.

Brazil has been hampered by a lack of technology during its development, however - there are concerted efforts to improve the country’s infrastructure. Indeed, many technology start-ups have grabbed the headlines of late, and large corporations have also pledged a commitment to the economy; Microsoft is investing $100 million in Rio de Janeiro over the next four years.

Local labour force
Unions have a lot of influence in Brazil, and although their achievements have led to a more developed labour market, businesses should be aware of how they operate. It is easy to fall prey to Brazil’s labour laws, which are set out in 900 articles and are difficult to navigate. Non-compliance can lead to fines and a soured reputation.

Export and import barriers
Businesses can often be confronted with complications when exporting and importing goods. Most imported goods are held in port for some time while the correct procedures take place and the average cost per container is rather steep. Exports can expect similar treatment, taking an average of 13 days just to leave Brazilian territory.

TMF Group
We have the local knowledge to help you navigate these minefields. Whether you want to set up in Brazil or just want to streamline your Brazilian operations, talk to us.