Brazil is one of the BRIC (Brazil, Russia, India and China) fast-developing economies – and one which has interested smart investors for some time.
According to UK Trade & Investment (UKTI), 400 of the world’s 500 largest companies operate in Brazil, including many UK businesses, such as Rolls Royce, BG Group, Shell, BP, JCB, Rexam and Experian.
Goldman Sachs says it has the potential to be one of the world’s most dominant economies by 2050. With a GDP of $2.5-trillion it is one rank above the UK in the International Monetary Fund’s global income league table.
So it’s little wonder it attracts so much attention from exporters who send a wide range of goods, says UKTI, including machinery, vehicles, pharmaceuticals, chemicals, plastics and beverages. It adds that there is potential for flourishing business in transport, sport, health, energy, education, aerospace and automotive.
But what about businesses and companies looking to establish a presence in Brazil?
There are opportunities and challenges, as one valve manufacturer discovered. After selling indirectly into Brazil for 10 years, KOSO Kent Introl began its own direct sales to capitalise on the country’s rapidly growing offshore oil and gas industry.
“One major factor in Brazil is the demand for local content in certain projects,” says Mark Harris, area business manager for Brazil on Chamber International. “A supplier has to achieve up to 75% local manufacture using local labour.”
But that might leave the impression that Brazil is erecting protective barriers to inward investors. Not so, says Ernst & Young in its report Doing Business in Brazil.
“The Brazilian government is making efforts to improve the climate for foreign investment as it seeks to develop a more market-oriented economy,” it says. “Import barriers have been reduced and many state-owned enterprises have been privatised.”
Brazil allows 100 percent foreign ownership of Brazilian companies, says Brazil – Land of the Future. However, it adds: “Managers must be residents of Brazil. If not, they can obtain a permanent visa for expatriate managers, but this means paying in a minimum of US$200,000.”
“The biggest hurdle – finding a permanent resident willing to hold power of attorney for foreign owners – will remain,” says The Economist.
When you do recruit, Brazilian law requires employers to contribute to social security and the employees’ severance and pension plan system.
Some employers try to get around this by listing workers as independent contractors. However this can result in the company being liable for unpaid social security so it is therefore important for foreign owners to carefully monitor their subsidiary’s compliance with Brazilian employment laws.