Political Risk in Brazil for Short-Term - Case Study Example

Assessment Political Risk in Brazil for Short-Term   Assessment Political Risk in Brazil for Short-Term Government Brazil is a developing country whose rate of development is increasing yearly. The country needs to harmonize the public and the private sector to enhance the rate of development. Brazil is a democratic country where the president is elected through a popular vote. The National Congress that consists the Federal Senate and the Chamber of Deputies runs the legislative branch. Universal suffrage is compulsory for persons aged between 18 and 70 years. However, it is voluntary for citizens aged between 16 and 18 and over 70. All these facts show the extent of awareness of Brazilian government about the common destiny between different society components, and the importance of involving every stakeholder. Different factions are involved through electing a leader of their choice who they can trust. In January 2011, Dilma Rousseff was elected as President on the Workers’ Party ticket for a four-year term. The government maintains a good working relation with other parties in order to pass laws, implement projects and keep work in private and public sector going. One of the crucial situations that president Rousseff had to deal with was the protests about difficult living conditions that face Brazilians. Brazilians camped in the streets in expectation of an announcement regarding their pleas from the government. On June 24, the president met Brazil’s 27 state governors and 26 state capital mayors. After the meeting, she laid out new reforms to respond to protestor’s demands that include fiscal responsibility, inflation control, stronger corruption prevention measures. The president also outlined major reforms in public health, education, transportation, and politics. The announcement culminated in a partial constituent assembly that would consider modifications to Brazil’s constitution. Because of the tough decisions that the President took, people voted her in for a second term, even though her public rating had dropped due to the protests. The investments in healthcare, public transport and education should be the main elements in the budget that will support wages and social benefits. In addition, the measures will reduce inflation and thus reduce the cost of living. However, the real impact of political reforms may not be seen in the short term. Political Stability The promise of political stability in Brazil seems not reassuring for business. The changing nature of Brazil’s political landscape is hurting business. According to World Bank report on political stability in the world, the average stability index of Brazil between periods of 1966 to 2013 was – 0.12 points. The value was highest in 2002 with a value of 0.29 and was lowest in 2007 with – 0.38 points. According to this measurement, an index of -2.5 is considered as weak, and 2.5 is considered as strong. Many MNCs are allured to invest in BRIC countries (Brazil, Russia, India and China) because of the common similarities between these countries. Even though Brazil is not stable the way it is expected to be, it is still one of the most engaging places for investors. Brazil has similar trade prospects to New Zealand, where businesses enjoy a higher degree of political stability. As mentioned above, there are many obstacles facing Brazil. The country has a lot to work on in terms of ethics and regulation. The solutions cannot be found within one year and thus it is a long term objective that will bring Brazil back to the world arena. Foreign corporations that came to Brazil crumble, and face a high likelihood of going out of business because of environmental challenges like complex taxation system, crime, and corruption. These conditions are not enabling for multinational businesses. Legal regulations According to the index of economic freedom 2014, Brazil has managed to improve the economy through regulations. This index is a component of the law that include regulatory efficiency, limited government, and open markets. The recently published score is 56.9, making the country rank at number 114 in 2014, with 0.8 points lower when compared to 2013. This is due to reasons such as the decline in labor freedom, monetary freedom, fiscal freedom, and trade freedom. Brazil’s position fell to number 20 out of 29 nations in South and Central America. The position is also below the world average. The statistics are important since understanding the past is the best way to predict and deal with the future. The dysfunction of the rule of law caused corruption and sparked nationwide protests in 2011. The people complained about poor public services and low level of political and institutional effectiveness. The government was too big, and taxation systems were performing poorly. The current income tax rate for individuals is 27.5% and 34% for corporations. The GDP is steady at 39.1% of the domestic economy, and the public debt is 69% of the GDP. Regulatory efficiency remains poor in Brazil because of restrictions on investment. An example is that migrants wait for 400 days before getting the necessary permits to work in Brazil. Government regulation does not only limit foreign activities, but tariffs are high. The average tariff is 7.9%, which is quite high when compared with other Latin America countries. Views towards Foreigners Investing in Brazil for the short term may not be beneficial unless there are real benefits to the Brazilians. What is reassuring in Brazil is that people are enamored on hosting foreigners and enjoy accommodating multinational cultures. The reason behind the trend is that they might have to travel abroad for work, education, looking for treatment or even for vacation. Brazilians are all over, being the third biggest population on earth. The situation makes them more flexible and friendly as long as their principles are respected. If a corporation needs to gain customers trust, it should establish and build channels to link the headquarters with the customer base. Like any human being, Brazilians like to be appreciated and respected, and they are afraid of MNCs using them as toys to reach corporate objectives. Therefore, the corporation must prioritize several things. First, hire local people. Hiring people locally to serve the domestic market will help a lot to build trust and create a mental image that the corporation is sensitive of employees, not just profit being motivated. Its corporate responsibilities to the host country are to train the workers, and afford them the support they need to do the job. They should also attempt to improve the social welfare of the society. Normally, corporations have advanced technology and equipment that may induce unfair competition with local firms that do not have the technologies. This is unacceptable in Brazil. Brazilians embrace multinational culture, and they are proud of it. However, people understand that the main goal of MNCs is expansion and increase profit. Brazilian companies would act if they feel that their domestic market is threatened. The inability of multinational corporations to acknowledge that they are in competition with local firms is a serious threat that sends local businesses into bankruptcy. Crime and Violence The rampant violent crimes, corruption, and poverty in Latin America are significant issues that affect Brazil’s growth and development. The factors are affecting the country in three ways; slowing economic development, undermining the strength and credibility of democracy and key democratic institutions. These factors also erode that social capital that is a core ingredient for political stability and economic development. The economic crisis of 2008 greatly affected low and middle-income countries. In 2008, 535,000 people died worldwide. About 95% of these deaths occurred in Latin America and Africa. Studies show that if the average income per person was a factor that determines the level of crime, Brazil would have the highest rate of violence and crime (US$ 11,500 per capita in 2011). In Brazil, 12.5% of these deaths were caused by violence with the youth being the major perpetrators. Further, Brazil’s population was growing faster than any other American country. In 2012, the Ministerio de Justiça reported that 515,000 individuals were incarcerated in Brazil in 20111 (270 per 100,000 population). The numbers make Brazil have the fourth largest population of convicted persons in the world after the United States, China and Russia (International Centre for Prison Studies, 2012). In 2013, the United Nations Office on Drugs and Crime released a report “Global Study on Homicide.” The report examined peacetime murder statistics from all over the world and outlined that 13 of the top 20 nations are Latin American. Brazil was among the countries with the highest murder rates in the world. The report exposed important issues and was very surprising that the jury is highly likely to discard criminal cases in Latin American than anywhere else in the world. The most probable reason is that organized gangs may have penetrated the justice system of the country, thus making it unreliable. This viewpoint is supported by a development report of the United Nations Development Program. The report asserts that Latin America does not have full control the justice system and youths, who comprise 30% of the population engage in gang activities. The federal government launched a Safer Brazil program in early 2014 to counter the rising crime and violence in Brazil.The objective of this program is to reach poor Northeast states where the rate of crime is high. The government took the initiative to accomplish three objectives; better investigation of violent deaths, more extensive patrolling, and gun control. There is no consensus among experts on the causes of crime and how to mitigate the situation. Some argue that the crimes have developed and became more complex and ambiguous, and its solution would not base on the 2007 plan where the government made extensive investments in fighting organized crimes. The investments amounted to R1.1billion. Other parties believe that The Pact for Life in 2007, recognized by United Nations, can work in the current situation. However, this program may be efficient in the long run and needs time and effort to obtain results. The government can invest for short term to ascertain whether it will work or not. References Brazil Political stability - data, chart | TheGlobalEconomy.com. (n.d.). Retrieved November 9, 2014, from http://www.theglobaleconomy.com/Brazil/wb_political_stability/ Brazil Political stability - data, chart | TheGlobalEconomy.com. (2013). Retrieved from http://www.theglobaleconomy.com/Brazil/wb_political_stability/ Brazil: Risk Assessment >> globalEDGE: Your source for Global Business Knowledge. (2014). Retrieved November 9, 2014, from http://globaledge.msu.edu/countries/brazil/risk Landmann F., & Si D. (2010). International: how to Succeed at Entering the Brazilian market. Retrieved from http://www.franklynn.com/img/c/f181443/internationalhow-to-succeed-at-entering-the-brazilian-market.pdf Murray, J., Ricardo, D., & Kahnc T. (2013). Crime and violence in Brazil: Systematic review of time trends, prevalence rates and risk factors. National Institutes of Health. Retrieved from http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3763365/#bb0435 Organized Crime, Gangs Make Latin America Most Violent Region - NBC News. (2014, April). Retrieved from http://www.nbcnews.com/news/world/organized-crime-gangs-make-latin-america-most-violent-region-n83026 United Nations Office on Drugs and Crime. (2011). GLOBAL STUDY ON HOMICIDE. UNODC, 8-30. Retrieved from http://www.unodc.org/documents/data-and-analysis/statistics/Homicide/Globa_study_on_homicide_2011_web.pdf Wejsa S., & Salles V. (2013, August). An Assessment of the Brazilian Government’s Response to the Protests | Americas Quarterly. Retrieved from http://www.americasquarterly.org/content/assessment-brazilian-governments-response-protests Read More