The Emerging Market in Brazil - dummies

The Emerging Market in Brazil

By Ann C. Logue

Brazil is on its way to growing out of its emerging market status and becoming one of the richest and most developed countries on earth. Brazil’s vital statistics:

  • Type of government: Federal republic

  • Major industries: Aircraft, cement, chemicals, iron ore, lumber, motor vehicles and parts, other machinery and equipment, shoes, steel, textiles, tin

  • Currency: Real

  • English-language newspaper: Brazil Post

The pros of doing business in Brazil

Brazil’s human, mineral, and agricultural resources are on par with those of the United States and Canada, and it has a few great opportunities to take advantage of in order to continue the growth it’s been experiencing over the past 20 years:

  • Energy: A triple threat, energy-wise:

    • Oil and natural gas reserves are enough to make the country self-sufficient, with some left over for export. However some of the recent oil finds are offshore and in deep water, so developing them is in the future.

    • Should biofuels become feasible, Brazil’s rich farmland will make it a leading ethanol producer.

    • Solar and wind power opportunities abound with Brazil’s sunny clime and the winds that come off its 7,491 kilometers of coastline.

  • Fresh water: Brazil has more fresh water than any other nation on earth. Climate change will make water even scarcer, which will make Brazil more attractive for residents and investors alike.

  • A changing business climate: Because of high taxes and decades of problems with government interference, a lot of Brazilian businesses operate off the books. The World Bank ranks Brazil 129 out of 183 economies for ease of doing business, and with the prevalent logistical burdens, many businesses find it easier to be underground.

    The Brazilian government is trying to simplify its business licensing processes to make it easier for companies to become legitimate. If it succeeds, strong small companies will grow, which will help the Brazilian economy overall.

  • World-class sporting events: Brazil is host for the 2014 World Cup and 2016 Olympics, which should spur new infrastructure construction and attract international investors. Although some Olympic host countries have been mired in debt for decades afterward, these sporting events will certainly attract global attention to the country.

Risks of doing business in Brazil

As amazing as the potential is for Brazil, plenty of issues could hold the country back:

  • Crime: In 2007, 25.2 out of every 100,000 Brazilians were victims of murder or attempted murder. This is one of the highest rates in the world; the United States had 5.6 murders or attempts per 100,000 the same year. Brazil also has high rates of kidnapping, rape, and theft.

    Much of the crime is related to the illegal drug trade. The off-the-books culture comes into play, too. And the deep divisions between rich and poor means that resentment sometimes crops up in the form of crime.

    The Brazilian government is keenly aware that crime will frighten off foreign visitors and has made reducing crime a key priority.

  • Poor infrastructure: Most of Brazil’s roads are unpaved, and many towns in the interior are accessible only by riverboat or by foot, limiting people’s access to markets. One reason that Vale, the Brazilian mining company, had to create transit systems to get materials from the mines to its customers — now Vale provides railway and logistical products.

  • Stewardship of the land: It’s not always clear who owns what land in Brazil, especially in the jungles. One result is squatting and poaching. Loggers to come into a jungle area, clear-cut the trees, sell the lumber, and disappear. The remaining land has thin soil that can be farmed for just a few years. The loss of jungle contributes to climate change and destroys part of Brazil’s natural heritage.

    It’s also not unusual for the people who actually own the land, or who think they do, to take on the loggers, farmers, and ranchers whom they believe to be poaching. This contributes to Brazil’s reputation for violence and high rates of crime.