Brazil tops list of growing economies
As the fifth largest country in the world, with the fifth largest population in the world, Brazilian officials have estimated the country will have the fifth largest economy in the world by 2026, just 16 years in the future. Although recent reports have indicated Brazil’s economy slowing slightly in the wake of the global financial crisis, Brazil is a country that seems to be on the radar of many companies. Ford recently announced plans to invest over $200 million in Brazil, on top of the $2.2 billion announced last year.
Other entities are taking notice as well, as evidenced by Brazil’s win as host to the 2016 Summer Olympics in Rio de Janeiro and being the lead representative in the popular BRIC study, naming the four potentially largest emerging markets, joined by trade powerhouses Russia, India and China.
The size and growth of the $1 trillion annual Brazilian economy is demonstrated through important economic indicators: a relatively low inflation rate of 3.23% a year; a trade surplus of $42 billion; and an exchange rate of 2.14 Brazilian Reales to the dollar. Brazil has an enormous and well-developed agricultural, mining, manufacturing, and service sectors, large labor pool, and historically low interest rates. Brazil’s GDP far outweighs that of any other Latin American country, competing with some of the most productive economies in the world.
Bureaucratic Nightmare for U.S. Companies?
Despite these apparent economic boom times, the current business climate in Brazil presents some significant challenges for U.S. companies.
First on this list would be the Brazilian tax system, which is among the most complex and burdensome in the world. The tax system’s administrative complexity and high rates are a recognized burden to foreign investment in Brazil. There are three types of taxes that American businesses people should be concerned with when considering investment in Brazil: corporate income, “consumption” and property.
Another obstacle to doing business in Brazil is the bureaucratic red tape involved in forming a business. Incorporating in Brazil requires an average of 152 days using government agencies. As such, some resources recommend that a “shell” corporation be purchased by buying out shareholders of an existing Brazilian company.
U.S.-Brazilian Trade Relations a Nightmare for U.S. investment?
In 2002 the Government of Brazil alleged in a World Trade Organization (WTO) arbitration panel that the subsidies provided to the cotton industry by the U.S. government was what made them one of the most successful producers of this commodity. The panel ruled in favor of Brazil which allowed the country to retaliate with tariffs on U.S. products.
The list of products for increased tariffs was substantial. Cotton products would see the highest increase of 100% tariff. Brazil, and other emerging markets, may feel that they are unable to see these issues resolved due to the economic strength in countries like the U.S. Brazil found a way to dramatically impact the negotiations by threatening to break patent agreements on U.S. products. For example, pharmaceutical patents and other licensing agreements would no longer be protected in Brazil.
In early April, both countries announced that they would start working on negotiations that would benefit both countries. In a statement, U.S. Trade Representative Ron Kirk and U.S. Agriculture Secretary Tom Vilsack said negotiators are aiming to agree by June on a process for settling the cotton dispute.
In 2002 the Government of Brazil alleged in a World Trade Organization (WTO) arbitration panel that the subsidies provided to the cotton industry by the U.S. government was what made them one of the most successful producers of this commodity. The panel ruled in favor of Brazil which allowed the country to retaliate with tariffs on U.S. products.
The list of products for increased tariffs was substantial. Cotton products would see the highest increase of 100% tariff. Brazil, and other emerging markets, may feel that they are unable to see these issues resolved due to the economic strength in countries like the U.S. Brazil found a way to dramatically impact the negotiations by threatening to break patent agreements on U.S. products. For example, pharmaceutical patents and other licensing agreements would no longer be protected in Brazil.
In early April, both countries announced that they would start working on negotiations that would benefit both countries. In a statement, U.S. Trade Representative Ron Kirk and U.S. Agriculture Secretary Tom Vilsack said negotiators are aiming to agree by June on a process for settling the cotton dispute.
Your business needs to get in front of the fifth largest population in the world, so what can you do to protect your interests in this complex country?
The Dallas Regional Chamber’s International Business Council presents the next installment of “Navigating Global Risk” Series, with a look at Brazil, and its business risk and opportunities. The series, launched in 2009, offers educational programming for companies seeking to conduct business overseas that would like to analyze and mitigate the potential risks. This practical program, led by local experts in legal, financial and corporate experience, will give participants the background and tools needed to spot the issues early, develop workable risk management processes and implement effective trade programs with Brazil.
Expert speakers will walk the audience through some of the key legal, tax, financial, cultural and other obstacles that may step into the path for success in Brazil; and offer suggestions for overcoming these obstacles. The program will be held Thursday, May 6, 2010 at the Cityplace Conference Center from 7:30 – 10:00 AM.
Speakers will include:
John Cohn, Partner, Thompson & Knight, LLP
Scott Schwind, Partner, Thompson & Knight, LLP
Anne Crews, Executive Vice President, Government Affairs, Mary Kay, Inc.
Dr. Sherry Dean, Executive Dean of the College of Humanities, Richland College
Jeffrey Hill, Vice President, Beck do Brasil (The Beck Group)
Brian Dill, Principal, Grant Thornton
To learn more about the “Navigating Global Risk” series or to register for the Brazil seminar, please visit www.dallaschamber.org/global or contact Kelle Marsalis at (214) 712-1901 or kmarsalis@dallaschamber.org.
The Dallas Regional Chamber’s International Business Council (IBC) is committed to developing trade and investment opportunities for North Texas businesses. The IBC’s Trade Development Committee provides information and education to Dallas area businesses on trade issues. For more information on upcoming events, please visit www.dallaschamber.org/global.
