Doing business in Brazil—What you need to know
The Brazilian government has launched initiatives to achieve fiscal sustainability and liberalize one of the most closed emerging-market economies. The efforts have strengthened the country’s competitiveness and provided a better environment for private sector development. This has resulted in tremendous interest from companies that have long sought to expand into Latin America’s largest economy and access it’s more than 200 million consumers.
But Boeing’s deal for one of Brazil’s most successful companies, a shining example of privatization, has stirred opposition ahead of October’s presidential election. Left-leaning candidates have vowed to reverse the deal and unions are calling on the government to veto the transaction.
Government intervention to kill or restructure the deal would further harm Brazil’s business reputation, already reeling from public corruption scandals, a huge budget deficit and weak economic growth. It could stunt some of the reforms that have been implemented in recent years to encourage business development and foreign investment.
Still, for companies looking to invest in South America, Brazil remains a top destination, home to about half of the region’s population and wealth. The United States is one of the largest exporters to Brazil, and one of the leading sources of direct investment in the country.
Doing business in Brazil, however, requires an intimate knowledge of the country’s bureaucracy, which is among the most complex in the world. In fact, the nation ranked 125th out of 190 countries in The World Bank’s latest report evaluating the ease of doing business globally. The rankings are based on 10 topics, including trading across borders, registering property, getting credit, paying taxes and enforcing contracts.
The poor ranking is in large part due to Brazil’s history of protecting local businesses and employees, which created a lot of local rules and regulations. The median time it takes to register a firm in Sao Paulo, the largest city in the country, is 101.5 days, more than three times the median for the Latin American region.
Doing business requires not only opening a local legal entity, but also registering it at relevant public authorities. The maze of administrative burdens is highlighted in this report, which ranks Brazil as the seventh most complex location out of 84 countries for complying with business regulations.
Brazil’s tax environment is one of the primary reasons behind its complexity. More than 90 taxes, duties and social contributions are levied by various federal, state and municipal authorities.
The Brazilian government has moved to simplify the reporting of employment and tax-related information for private employers through a new digital bookkeeping system called eSocial. Employers had to start using the system this year, and the jury is still out on whether it will make reporting more efficient.
The nation has also implemented several business reforms in the last three years that have it made easier to do business, including creating online portals to register for business licenses and passing a new law that encourages parties to settle business disputes with mediation instead of going to court.
Brazil is enhancing its electronic information systems to boost trade. Its system to monitor imports and facilitate customs clearance has reduced paperwork and eased border compliance.
One of the biggest challenges to investors interested in Brazil has been its extensive labor laws, which are known for their lack of flexibility and heavy tax burden. New laws allow companies to hire freelance workers, make it easier to terminate employees and ended compulsory union contributions. The labor reforms are expected to reduce costs for employers and increase productivity.
The country also has tried to address its reputation of corruption. A criminal investigation into bribery and public corruption, known as Operation Car Wash, has led to charges against more than 200 people and a 12-year prison sentence for former president Luiz Inacio Lula da Silva.
With Brazil starting to come out of its deepest recession in decades, companies and consumers have renewed optimism about the future. General Motors, for instance, is investing $1.4 billion at three plants in Brazil, where it plans to unveil new cars next year. Auto sales in Brazil are expected to hit 2.9 million units in 2019, up from 2.05 million in 2016.
GM, Boeing and other companies are moving forward, despite the political uncertainty ahead of the October elections. To succeed in Brazil, though, businesses must do their homework and navigate the complexities of an emerging-market economy. A good first step to gaining a baseline understanding of a country like Brazil is accessing a number of reputable, free resources, like this country profile library, which is available for businesses to take the first step towards informed and successful expansion.
Nelson Blanco is TMF Group‘s vice president of global sales. Located in Sao Paulo, Brazil, Nelson has more than 20 years of experience as director for multinational and national enterprises in the LATAM market. Nelson holds an MBA from Babson College and Siemens Management School, with a specialization in manufacturing business at CEAI Fund.