Starting a Business in Brazil - Essay Example

BRAZIL One of the great accomplishments of the globalization process that began to speed up in the 1990s is the development a number of second tier, successful economies in the developing world. These are generally called the BRIC countries—Brazil, Russia, India, and China. While China and India have been the subject of much discussion in economic circles in the last few years, Brazil has been a bit under the radar. This is a shame because Brazil has an extremely dynamic and prosperous economy and is rapidly increasing in importance. It is worthy of study. It is especially worthy of study if you intend to open up a business there to get in on the ground floor. For the purposes of this essay, I intend to open up a logging business in Brazil. I will need to present a lot of information about the Brazilian economy and the logging industry in order to feel comfortable that my investment in Brazil will return dividends, be sustainable, and jump through the various legal and regulatory hoops. Brazil is by far the largest country in South America, both in geographical size and in population. It is nearly half of all of South America, with very diverse physical characteristics, and a population of nearly 200 million. It is a democracy, but it is a young democracy, with institutions that are still developing and are still slightly vulnerable. The main language is Portuguese (not Spanish) and there are colonial ties to Portugal. The population is very diverse, with native people mixed with African people, mixed with European peoples. The political system is similar to that in the United States. The President is elected and is head of government and head of state and appoints his cabinet. The current President Luiz Inácio Lula da Silva is a leftist, but he is also friendly to business. He has so far overseen a great deal of economic growth in the new millennium and also additional labour and environmental protections. The legal system in Brazil is based on civil law. The system is not very efficient and this is something to take into account when starting a business in Brazil. It can take years to resolve suits and enforce contracts. The tax system is also very difficult to navigate. According to one study it takes the typical Brazilian company 2,600 hours a year to comply with the tax code.1 These are important disincentives to investing in Brazil. I will have to spend extra money to find good accountants and lawyers to help me out. Starting a business is not always easy in Brazil, even if it is getting easier. A recent report by the World Bank called “Doing Business in Brazil,” has this to say about the differences between different cities: The report said complying with business regulations is easiest in Brasilia, followed by Manaus, while the city of Fortaleza was "most onerous" in following such regulations. In another category, the report said São Paulo ranked first in Brazil for the ease of enforcing a contract, requiring about 18 months.  In contrast, enforcing a contract takes more than four years in the city of Campo Grande, according to the report. The report also studied how the Brazilian cities compare with other cities globally on the ease of starting a business.  Belo Horizonte is the Brazilian city with the fastest time to start a business, ranking 30th worldwide in this category, the report said.2 It is clear that there is a great deal of variation and inconsistency in different parts of Brazil. It will therefore be important for me to base my business in a region with a good business climate where I can expect to get a speedy reply to my requests for licenses, property registration, and where contracts will be properly enforced. Part of my strategy will be to do a lot of research to find out what city is best for business and has the speediest resolution standards: that’s the one I intend to set up shop in. Because Brazil is home to the Amazon and a great deal of forest, the logging industry is very important to the country. Brazilians love the Amazon and it will be important for my logging country to respect their feelings and do business in a sustainable and environmentally friendly way. Environmentalism is increasingly important in Brazil. In the recent words of their President: Brazil’s ethanol and biodiesel programmes are a benchmark for alternative and renewable fuel sources. Partnerships are being established with developing countries seeking to follow Brazil’s achievements—a 675m-tonne reduction of greenhouse-gas emissions, a million new jobs and a drastic reduction in dependence on imported fossil fuels coming from a dangerously small number of producer countries. All of this has been accomplished without compromising food security, which, on the contrary, has benefited from rising agricultural output.3 Indeed, almost 80 per cent of Brazil’s energy needs are met with renewable energy. This emphasis and culture of environmentalism will be an important one to respect. I don’t want to be seen as the ugly foreigner whose mills and trucks are polluting beautiful Brazil. Indeed, as a foreigner I may be held to an even higher standard. It will be important to live up to this. A further important consideration is how Brazil is weathering the current global economic crisis. This might not be the best time to invest in developing countries: many of their institutions are not as robust as those in the United States or United Kingdom and may be even more vulnerable to crisis. At first it appeared Brazil would not be badly affected by the crisis and President Lula seemed to suggest it would not reach Brazil’s border. However, this past October problems began to occur. By November, The Economist newspaper was reporting that: Figures from the central bank show that credit lines to finance trade, normally considered low-risk, are running at about half the level of mid-September. There are reports that farmers are finding it hard to find credit to buy fertilisers and pesticides, which could affect next year’s harvest. Furthermore, consumer credit is becoming scarcer as banks anticipate a rise in bad loans. The monthly payments demanded for everything from cars to football boots are rising. The government is no longer saying that Brazil will be untouched by the rich world’s recession.4 Since then things have gotten even worse. In a country with a mediocre business climate, these new economic problems may be enough to turn me off completely from moving my logging business to Brazil. I will have to continue to closely monitor the situation via the Internet and pay attention to how Brazil continues to deal with the crisis before making up mind. Brazil is a tempting but somewhat difficult country to bring my business to. It has lots of permanent pluses and several temporary minuses. It is a country with loads of potential, but potential which will probably be better explored about five years from now. Works consulted Green, Eric. “Brazil Reforming Business Climate.” America.gov. July 31, 2006. http://www.america.gov/st/washfile-english/2006/July/200607311718471xeneerg0.3501093.html Lula da Silva, Luiz Inácio. “Putting the B in BRIC.” The Economist. November 8, 2008. http://www.economist.com/theworldin/displaystory.cfm?story_id=12494572 The Economist. “Lula’s Last Lap.” January 8, 2009. http://www.economist.com/world/americas/displaystory.cfm?story_id=12891019&CFID=40887215&CFTOKEN=40130005 The Economist. “The Credit Crisis Reaches Brazil Inc.” November 6, 2008. http://www.economist.com/world/americas/displaystory.cfm?story_id=12562273 Read More