Brazil

Originally published: Nov-17-2004

Government

Federal Republic with executive, legislative and judicial branches; 26 states and one federal district.

Legal System

Based on Roman codes; has not accepted compulsory International Court of Justice jurisdiction.

Economy

Currency: real (BRL)

Real per US dollar: 2.7785 (11/16/04), 3.0771 (2003), 2.9208 (2002), 2.3577 (2001), 1.8301 (2000), 1.8147 (1999)

Economic Indicators

(e) estimate (f) forecast

Leading Markets (2003): US 22.4%, China 6.9%, Germany 5.1%, Netherlands 4.4%, Mexico 4.2%, Argentina 4.1% (2003 est.)

Leading Suppliers (2003): US 21.4%, Argentina 11%, Germany 8.7%, China 4.1% (2003 est.)

Leading Exports: transport equipment, iron ore, soybeans, footwear, coffee, autos

Leading Imports: machinery, electrical and transport equipment, chemical products, oil

Top Industries: textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, other machinery and equipment

General Economic Situation

Brazil’s economy far exceeds that of other South American countries due to its large and well-developed agricultural, mining, manufacturing and service sectors. From 2001-2003 real wages fell and Brazil’s economy grew an average of only 1.1% per year as the country absorbed a series of economic shocks. That Brazil was able to absorb these shocks and emerge from a 2003 recession without financial collapse is a tribute to the resiliency of the Brazilian economy along with the economic program put in place by former President Cardoso, and strengthened by President Lula Da Silva. 2004 sees the economy recovering with an estimated real GDP growth rate in 2004 of 3.4%.

Although economic management is good, important vulnerabilities remain. The government’s domestic debt increased steadily from 1994-2003, straining finances, while foreign debt was large in relation to Brazil’s export base. As well, Brazil is challenged with maintaining strong economic growth over time in order to generate employment and make the debt burden more manageable.

Business Climate

Brazil is the largest country in Latin America, the 5^th largest country in the world and ranked the ninth largest market within the world economy, making it a prime destination for many business investors.

Despite liberalization in the 1990s, the complexities of the Brazilian business environment still create substantial challenges. Doing business in Brazil requires intimate knowledge of the local environment, including both the apparent and hidden costs of doing business (referred to as the "Custo Brasil"). Exporting companies face an average weighted tariff of 11.1 percent, a difficult customs system, a heavy and unpredictable tax burden, and a cumbersome legal system.

Nevertheless, many companies find that the opportunities outweigh the risks. Brazil has a large manufacturing base that is focused on becoming more globally competitive and needs cutting-edge tools, machinery, and technology to be successful. The country has an upper class and upper-middle class of 30-40 million consumers who are interested in top-end products, as well as a large middle and lower-middle class that is eager to purchase clothing, cosmetics, food, music, and movies. Moreover, Brazil can serve as a platform to access consumers in other MERCOSUL countries-Argentina, Uruguay, and Paraguay.

Credit and Collections

• Collection Experience: Fair-Good
• Exchange Delays: 3- months
• Preferred Credit Terms: Confirmed Letter of Credit
• Minimum Credit Terms: Sight Draft

Risk Assessment

Country Risk Rating: B - An unsteady political and economic environment is likely to affect further an already poor payment record.

Prudent fiscal and monetary policies and robust exports have permitted improvement in the country’s financial situation despite the 2003 recession. The outlook for 2004 and 2005 appears brighter but is still dependent on the attitude of the financial market. Interest rate increases in the United States could make it more difficult for Brazil to cover its external financing requirements. Higher oil prices could fuel inflation. Further out, excessive public sector debt has been limiting the government’s maneuverability.

Sources for further information on doing business in Brazil

Brazilian Embassy in Washington, DC: Offers several extensive guides (PDF format) on doing business in Brazil including a guide for the foreign investor, guide to company formation and legal guide.

Brazil Trade Net of the Brazilian Ministry of External Relations: Trade portal providing information on thousands of Brazilian companies as well as trade offers.

Doing Business in Brazil: 2007 Country Commercial Guide, US Department of Commerce

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Bangladesh. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources.

Economic Indicators: Variety of sources including the CIA World Factbook, COFACE Country Ratings, Economist Country Briefings, Federation of International Trade Associations (FITA) Country Profiles.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," December 2007.

Historical Exchange Rates: OANDA.com The Currency Site.