Doing Business in Brazil: The Road Ahead

Abstract

Corporate Brazil had a unique moment in its history. The healthier economic conditions, strong position in certain industries, and stability were the key behind its success. Growth prospects for the domestic and multinationals were bright in such areas as infrastructure, basic materials, consumer goods and retail, and banking. Brazil's economy was mainly export-oriented. The GDP was measured to be $1.8 trillion in terms of purchasing power parity, which made the economy the tenth in the world and the third in America. The strong and continuous appreciation of Real generated more than $9000 nominal per capita GDP in 2007. The industrial sector accounted for three fifths of the South America's industrial output. The scientific and technological development in Brazil attracted around $ 20 billion foreign direct investment (FDI) since 2001, compared to only US$ 2 billion per year in the 1990s. The agricultural sector was also remarkably dynamic. The agricultural sector with the mining sector supported trade surpluses that help the country to pay its external debt. However, Brazil's volatile economic history suggests grounds for caution. The most important obstacle is Brazil's huge informal economy that deforms competition by putting efficient, law-abiding companies at a disadvantage. Secondly, macroeconomic instability - reflected in the high cost of capital - followed by regulations (such as rigid labor laws) that limit productivity is the next important barrier. The case discusses Brazil's business environment from a macro economic perspective. The case also analyses the challenges for the smooth functioning of the domestic and multinational business houses.