When the international context started to be more positive, Brazil was not evolving with the same strength which caused the country went into recession earlier in 2014. Consequently, the economic environment shows doing business in Brazil is not the most convenient, but if its medium and long term potential is analyzed, trade perspectives change.
1.Doing Business in Brazil: Economic situation
According to the IFM, Brazil, which has a large development potential and a favored position regarding nature reserves, is the ninth world economy. However, even if the country has experienced an outstanding growth in 2011, its economy showed exhaustion signs progressively falling into a great economic crisis that causes the country’s recession since 2014.
This exhaustion was linked to the prices stagnation of raw materials to be exported, of the domestic consumption (caused by the household indebtedness) and of the low cost of the investments. This environment caused in 2015 the Brazilian economy plunged even more into the recession and budget problems simultaneously got worse. The president’s popularity, Dilma Rouseff, was damaged, there were attempts for budgetary adjustment and for inflation control which majorly failed and two credit rating agencies downgraded Brazil’s sovereign credit classification, and as a consequence, the country lost its coveted investment grade creditworthiness. The tax deficit therefore soared and reached more than 9% of the nation’s GPD and the public debt was about 70% of GPD.
Nevertheless, according to Brazilian government’s forecast (included in the project of the Budgetary Directives Law of 2017) the goal is the Brazilian economy recovers just in 2017 when a GPD growth at 1% is expected. Also, the government consider the gross debt will close 2016 at 71.9% of GPD. This figure will increase to 72.5% in 2017 and it will only fall from 2018 onwards which ends the year at 71.3%. However, these forecasts are more positive than those conducted by the financial market, the Central Bank and by the International Monetary Fund (IFM) which do not augur the same future to Brazil.
Despite these problems, Brazil still has several efficient multinationals, a food processing industry, many currency reserves and a powerful Development Bank.
There are some trade policies to take into account if you are thinking about doing business in Brazil. In accordance with the World Bank report, even if Brazil have promoted a significant trade openness since 2000, this country, with an average tariff rate of 13.5%,is still the most protectionist of Latin America and the Caribbean.
But the most characteristic feature of Brazil’s foreign trade policy carried out during the last year is the active geographical diversification looking for new trade partners. This is how China has gained as trade partner in recent years, even unseating in 2012 USA as main market. Since 2000, the trade volume between these two countries has multiplied by 10, mainly in the agricultural and raw material production areas.
3.Sales distribution structure
To start doing business in Brazil it is advisable to consider two aspects. On the one hand, knowing that it is better to operate through an agent or a supplier. On the other hand, knowing that distribution channels are different depending on the type of product commercialized.
When distributing capital goods, small machines are available in specialized stores, while big companies have their own dealer network which are their own point of sale where technical assistance is also offered.
In the distribution of goods wholesale and retail sale proceed. The supplier is the main sales channel between the industry and the small and medium-size supermarkets. Its action is essential due to the Brazil’s great geographical extension which makes impossible for the industry to serve all the regions. This is why it is preferable that the supplier has self-capacity and autonomy to recruit local agents.
The main business centers, as well as the areas with the higher consumption rate, are located in southeast Brazil, where the most economically developed and with the higher capita incomes States belong to. These countries are: Sao Paulo, Rio de Janeiro and Minas Gerais.
4.Funding sources for business opportunities
Brazil is beneficiary of international financial institutions such as the World Bank, the Inter-American Bank and the Andean Development Corporation. In addition, Brazil is shareholder of the Latin America Development Bank, consequently, it borrows many loans that help finance the public and the private sector.
Moreover, as local funding, there are six development banks: the National Bank for Economic and Social Development (BNDES), the Banco do Nordeste (BNB), the Banco da Amazonia, the Banco do Brasil (BB), la Caixa federal, Banco Regional de Desenvolvimiento do Extremo (BRDE). It is the BNDES the one which finances industrial and infrastructure projects, specially supporting investments in the agricultural, commercial and services sector, as well as those of the small and medium-size companies. Also, this institution counts on a subsidiary in London aiming at developing resources of private corporate funds.
The other local development banks pursue the financing of priority sectors such as the touristic, IT, telecommunication and the export ones, contributing to the development of the country and to the new products manufacturing.
5.Main economic sector
Brazil’s economy is relatively diversified. But there are some areas that have more weight for doing business in Brazil. It is a major agricultural power and the first coffee and sugar cane producer. It counts on the biggest volume of commercial livestock worldwide. It has the biggest rainforest in the world in the Amazon basin, Brazil is therefore the forth-largest exporter of wood.
It is also a major industrial country and its mineral exploitation positions it as the second largest exporter of iron, as one of the main producers of aluminum, as the third largest country generating hydraulic energy (after China and Russia) and as an important petroleum producer, this country could even short-term provide for itself.
Finally, Brazil is becoming more dominant in the textile, aeronautics, pharmaceutic, automotive, steel and chemical sectors and during the last years it has boosted services production within the aeronautics and telecommunications field.
6.Bilateral relationship with Spain
Relationship Spain-Brazil rests on two pillars: the strong investor presence of Spanish companies in Brazil and the interest of Brazilian people for the Spanish language and culture.
Bilateral goods trade is concentrated in five sectors: raw materials, food, energy products, semi-manufactured products and capital goods. According to the available data at the beginning of 2016, Spanish exports to Brazil went down by 21.66% compared to 2015. Imports from Brazil involve a 1.45% of the whole Spanish imports. However, despite presenting a worse quality and update, services commerce between both countries, being Brazil the Spanish eighth client and the eleventh service supplier.
On the other hand, regarding the flow investment, Spain is the third foreign direct investor, after Netherlands and USA. According to the available data in earlier 2016, the Spanish gross investment in Brazil was 77.6M€ and 96M€ of Brazilian investment in Spain. We can mention some of the main investment operations of Spanish companies in Brazil such as BANCO SANTANDER, TELEFONICA-VIVO, MAPFRE, ABENGOA, ACCIONA, IBERDROLA, ENDESA, among other data regarding to doing business in Brazil included on ICEX’s web.