Country Analysis Brazil

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Country Analysis

Brazil

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AHMEDABAD MANAGEMENT ASSOCIATION

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CONTENT

IntroductionBrazil annual report: Economic IndicatorGovernment and PoliticsForeign RelationsStates and MunicipalityGeographyClimateComponent and EnergyTransportDemographyMain Drivers for Doing business in BrazilMani Challenges of Doing Business in BrazilSummary of Indicator- Doing business in BrazilList of ProcedurePESTLEPolitical

Political system Change in government Lula administration focus area Law

Economic Economy of Brazil Industrial output Key industries FDI

Sociological Culture Language General attitude Personal appearance

Technological Technology research Information technology R & D Technology policy of Brazil Brazilian industry and Technology

Legal Legal system of Brazil Municipality Court and justice

Environment National The Future

Introduction

Brazil is the largest and most powerful country in South America and has become one of the world's most attractive emerging markets in recent years.  Brazil accounts for almost half of South America's total population and landmass and has established itself as the dominant power in South America.  Moreover, Brazil's rapid economic diversification is allowing it to transform itself into a modern economy, playing a key role in a variety of industries.

Brazil accounts for three fifths of the South American economy’s industrial production and integrates various economic groups, such as Mercosur, G-22 and the Cairns Group. The country’s scientific and technological development, together with a dynamic and diversified industrial sector, is attractive to foreign enterprise: direct investment was in the region of US$ 20 billion /year on average, compared to US$ 2 billion/year last decade.

Brazil is a founding member of the United Nations, the G20, Mercosul and the Union of South American Nations, and is one of the BRIC Countries. Brazil is also home to a diversity of wildlife, natural environments, and extensive natural resources in a variety of protected habitats.

Industry and technology are shining stars of Brazil’s economy. The nation’s industrial sector accounts for one-third of GDP, and includes steel, petrochemicals, computers, aircraft, and consumer durables. Its technological sector encompasses submarines, aircraft, and space research, including involvement in construction of the International Space Station. It is also a leader in ethanol production and research into deep-water oil, the source of 73% of its reserves. And Brazil’s automotive industry is enjoying a boom period, as access to credit, economic stability, and lowered interest rates have increased consumer confidence and boosted car sales in Brazil to the highest levels in the country’s history.

The World Bank classifies Brazil as a lower- middle-income country. However, the economy is large and diverse, and exports are geographically well spread. There have been profound changes and durable reform in the past 10-15 years — the end of hyperinflation, economic liberalization, improved public finances, and a successful transition from a fixed to a floting exchange rate. This has been reflected in increased domestic savings and exports of goods and services.

Nonetheless, annual average economic growth in the past 10 years was modest, as the economy suffered a series of crises related to poor public debt dynamics in the context of a historical tendency to periodic debt default. The most recent crisis was in 2002, and it was ended by the incoming government’s tight fscal and monetary measures, consistent meeting of International Monetary Fund targets, and market-friendly structural reforms. Instability has remained at bay despite political scandal and elections.

Brazil trades regularly with over one hundred nations, with 74% of exports represented by manufactured or semi manufactured goods. Its main partners are: the EEC (representing 26% of the balance), the US (24%), Mercosur and Latin America (21%) and Asia (12%). One of the most dynamic sectors in this trade scenery is the so-called “agrobusiness” sector, which for two decades has kept Brazil amongst the most highly productive countries in areas related to the rural sector.

The owner of a sophisticated technological sector, Brazil develops projects that range from submarines to aircraft and is involved in space research: the country possesses a LaunchingCenter for Light Vehicles and was the only country in the Southern Hemisphere to integrate theteam responsible for the construction of the International Space Station-the ISS. A pioneer in the field of deep water oil research, from where 73% of its reserves are extracted, Brazil was the first capitalist country to bring together the ten largest car assembly companies inside its national territory.

Brazil is weathering the current global economic crisis better than most other Latin American countries.  Thanks to the recent development of a large middle class, together with the expansion of the country's natural resource-based industries, Brazil has managed to avoid falling into a deep recession in recent years, unlike nearly all of its Latin American neighbors.  Moreover, the rapid expansion of the country's oil industry will help to boost Brazilian economic growth over the near-term. 

Brazil annual report: key economic indicator

BRAZIL Annual Report

2005 2006 2007 2008 2009

GDPNominal GDP (US$ bn)

881.8 1,089.0 1,333.6 1,575.2 1,473.1

Real GDP growth (%)

3.1 3.9 5.6 5.1 0.0

Expenditure on GDP (% real change)Private consumption 4.5 5.2 6.3 5.4 2.5Government consumption

2.3 2.6 4.7 5.6 2.7

Gross fixed investment

3.6 9.8 13.4 13.7 -10.0

Exports of goods & services

9.4 5.0 6.8 -0.7 -9.9

Imports of goods & services

10.4 18.1 19.6 17.8 -9.8

Origin of GDP (% real change)Agriculture 0.3 4.5 5.9 5.8 -2.5Industry 2.1 2.3 4.7 4.3 -7.0Services 3.7 4.2 5.4 4.8 2.8Population and incomePopulation (m) 184.2 186.8 189.3 191.9 194.4GDP per head (US$ at PPP)

8,606 9,108 9,764 10,340 10,330

Recorded unemployment (av; %)

9.8 10.0 9.3 7.9 8.4

Prices and financial indicatorsExchange rate R:US$ (end-period)

2.34 2.14 1.77 2.34 1.99

Consumer prices (end-period; %)

5.7 3.1 4.5 5.9 4.1

Producer prices (av; %)

5.6 0.8 5.6 13.7 -2.0

Stock of money M1 13.1 20.4 33.6 -4.1 7.2

(% change)StockofmoneyM2(% change)

19.5 18.9 18.6 17.3 12.5

Lending interest rate (av; %)

55.4 50.8 43.7 47.3 45.0

Current account (US$ m)Trade balance 44,703 46,457 40,032 24,836 22,823Goods: exports fob 118,309 137,808 160,649 197,943 158,851Goods: imports fob -73,606 -91,351 -120,618 -173,107 -136,028Services balance -8,309 -9,641 -13,219 -16,690 -12,715Income balance -25,968 -27,480 -29,291 -40,610 -30,116Current transfers balance

3,558 4,306 4,029 4,224 4,051

Current-account balance

13,985 13,643 1,551 -28,192 -15,957

External debt (US$ m)International reserves (US$ m)Total international reserves

53,799 85,839 180,334 193,784 210,123

Source: IMF, International FinancialStatistics.

Government and politics

The Brazilian Federation is the "indissoluble union" of three distinct political entities: the States, the Municipalities and the Federal District. The Union, the states and the Federal District, and the municipalities, are the "spheres of government". The Federation is set on five fundamental principles: sovereignty, citizenship, dignity of human beings, the social values of labour and freedom of enterprise, and political pluralism. The classic tripartite branches of government (executive, legislative, and judicial under the checks and balances system), is formally established by the Constitution. The executive and legislative are organized independently in all three spheres of government, while the judiciary is organized only at the federal and state/Federal District spheres.

Together with several smaller parties, four political parties stand out: Workers' Party (PT), Brazilian Social Democracy Party (PSDB), Brazilian Democratic Movement Party (PMDB), and Democrats (DEM). Almost all governmental and administrative functions are exercised by authorities and agencies affiliated to the Executive.

The form of government is that of a democratic republic, with a presidential system. The president is both head of state and head of government of the Union and is elected for a four-year term, with the possibility of re-election for a second successive term. The current president is Luís Inácio Lula da Silva who was elected on October 27, 2002, and re-elected on October 29, 2006. The President appoints the Ministers of State, who assist in government. Legislative houses in each political entity are the main source of law in Brazil. The National Congress is the Federation's\ bicameral legislature, consisting of the Chamber of Deputies and the Federal Senate. Judiciary authorities exercise jurisdictional duties almost exclusively.

Foreign relations

Brazil has traditionally been a leader in the inter-American community and played an important role in collective security efforts, as well as in economic cooperation in the Western Hemisphere. Brazil supported the Allies in both World Wars. During World War II, its expeditionary force in Italy played a key role in the Allied victory at Monte Castello. It is a member of the Organization of American States (OAS) and a party to the Inter-American Treaty of Reciprocal Assistance (Rio Treaty). Recently, Brazil has given high priority to expanding relations with its South American neighbors and is a founding member of the Latin American Integration Association (ALADI), the Union of South American Nations (UNASUL) created in June 2004, and Mercosul, a customs union between Argentina, Uruguay, Paraguay, and Brazil, with Chile, Bolivia, Peru, Colombia, and Ecuador as associate members; Venezuela's full membership is pending.

Brazil is a charter member of the United Nations and participates in its specialized agencies. It has contributed troops to UN peacekeeping efforts in the Middle East, the former Belgian Congo, Cyprus, Mozambique, Angola, East Timor, and most recently Haiti. Brazil is currently leading the UN peacekeeping force in Haiti. Brazil served as a non-permanent member of the UN Security Council from 2004-2005. Prior to this, it had been a member of the UN Security Council eight times. Brazil is lobbying for a permanent position on the Counci

As Brazil's domestic economy has grown and diversified, the country has become increasingly involved in international economic and trade policy discussions. For example, Brazil has been a leader of the G-20 group of nations and in 2009 became a creditor country to the International Monetary Fund (IMF). The U.S., Western Europe, and Japan are primary markets for Brazilian exports and sources of foreign lending and investment. China is a growing market for Brazilian exports. Brazil also has bolstered its commitment to nonproliferation through ratification of the nuclear Non-Proliferation Treaty (NPT), signing a full-scale nuclear safeguard agreement with the International Atomic Energy Agency (IAEA), acceding to the Treaty of Tlatelolco, and joining the Missile Technology Control Regime (MTCR) and the Nuclear Suppliers Group.

States and municipalities

Brazil is a federation composed of twenty-six States, one federal district (which contains the capital city, Brasília) and municipalities. States have autonomous administrations, collect their own taxes and receive a share of taxes collected by the Federal government. They have a governor and a unicameral legislative body elected directly by their voters. They also have independent Courts of Law for common justice. Despite this, states have much less autonomy to create their own laws than in the United States. For example, criminal and civil laws can only be voted by the federal bicameral Congress and are uniform throughout the country.

The states and the federal district may be grouped into regions: Northern, Northeast, Central- West, Southeast and Southern. The Brazilian regions are merely geographical, not political or administrative divisions, and they do not have any specific form of government. Although defined by law, Brazilian regions are useful mainly for statistical purposes, and also to define the application of federal funds in development projects.

Municipalities, as the states, have autonomous administrations, collect their own taxes and receive a share of taxes collected by the Union and state government. Each has a mayor and an elected legislative body, but no separate Court of Law. Indeed, a Court of Law organized by the state can encompass many municipalities in a single justice administrative division called comarca (county).

Geography

Brazil occupies a large area along the eastern coast of South America and includes much of the continent's interior, sharing land borders with Uruguay to the south; Argentina and Paraguay to the southwest; Bolivia and Peru to the west; Colombia to the northwest; and Venezuela, Suriname, Guyana and the French overseas department of French Guiana to the north. It shares a border with every country in South America except for Ecuador and Chile. It also encompasses a number of oceanic archipelagos, such as Fernando de Noronha, Rocas Atoll,

Saint Peter and Paul Rocks, and Trindade and Martim Vaz. Its size, relief, climate, and natural resources make Brazil geographically diverse.

Brazil is the fifth largest country in the world, after Russia, Canada, China and the United States, and third largest in the Americas.

Climate

The climate of Brazil comprises a wide range of weather conditions across a large area and varied topography, but most of the country is tropical. According to the Köppen system, Brazil hosts five major climatic subtypes: equatorial, tropical, semiarid, highland tropical, temperate, and subtropical. The different climatic conditions produce environments ranging from equatorial rainforests in the north and semiarid deserts in the northeast, to temperate coniferous forests in the south and tropical savannas in central Brazil. Many regions have starkly different microclimates.

Components and energy

Brazil's economy is diverse, encompassing agriculture, industry, and many services. The recent economic strength has been due in part to a global boom in commodities prices with exports from beef to soybeans soaring. Agriculture and allied sectors like forestry, logging and fishing accounted for 5.1% of the gross domestic product in 2007, a performance that puts agribusiness in a position of distinction in terms of Brazil's trade balance, in spite of trade barriers and subsidizing policies adopted by the developed countries.

The industry - from automobiles, steel and petrochemicals to computers, aircraft, and consumerdurables - accounted for 30.8% of the gross domestic product. Industry, which is often technologically advanced, is highly concentrated in metropolitan São Paulo, Rio de Janeiro, Campinas, Porto Alegre, and Belo Horizonte.

Brazil is the world's tenth largest energy consumer with much of its energy coming from renewable sources, particularly hydroelectricity and ethanol; nonrenewable energy is mainly produced from oil and natural gas. A global power in agriculture and natural resources, Brazil experienced tremendous economic growth over the past three decades. It is expected to become a major oil producer and exporter, having recently made huge oil discoveries. The governmental agencies responsible for the energy policy are the Ministry of Mines and Energy, the National Council for Energy Policy, the National Agency of Petroleum, Natural Gas and Biofuels, and the National Agency of Electricity.

Transport

Brazil has a large and diverse transport network. Roads are the primary carriers of freight and passenger traffic. The road system totaled 1.98 million km (1.23 million mi) in 2002. The

total of paved roads increased from 35,496 km (22,056 mi) in 1967 to 184,140 km (114,425 mi) in 2002.

There are about 2,500 airports in Brazil, including landing fields: the second largest number in the world, after the United States. São Paulo-Guarulhos International Airport, near São Paulo, is the largest and busiest airport, handling the vast majority of popular and commercial traffic of the country and connecting the city with virtually all major cities across the world.

Coastal shipping links widely separated parts of the country. Bolivia and Paraguay have been given free ports at Santos. Of the 36 deep-water ports, Santos, Itajaí, Rio Grande, Paranaguá, Rio de Janeiro, Sepetiba, Vitória, Suape, Manaus and São Francisco do Sul.

Demographics

The population of Brazil as recorded by the 2008 PNAD was approximately 190 million [193] (22.31 inhabitants per square kilometer), with a ratio of men to women. of 0.95:1and 83.75% of the population defined as urban. The population is heavily concentrated in the Southeastern (79.8 million inhabitants) and Northeastern (53.5 million inhabitants) regions, while the two most extensive regions, the Center-West and the North, which together make up 64.12% of the Brazilian territory, have a total of only 29.1 million inhabitants.

Population increased significantly between 1940 and 1970, due to a decline in the mortality rate, even though the birth rate underwent a slight decline. In the 1940s the annual population growth rate was 2.4%, rising to 3.0% in the 1950s and remaining at 2.9% in the 1960s, as life expectancy rose from 44 to 54 years and to 72.6 years in 2007. It has been steadily falling since the 1960s, from 3.04% per year between 1950-1960 to 1.05% in 2008 and is expected to fall to a negative value of –0.29% by 2050 thus completing the demographic transition.

In 2008, the illiteracy rate was 11.48% and among the youth (ages 15–19) 1.74%. It was highest (20.30%) in the Northeast, which had a large proportion of rural poor. Illiteracy was high (24.18%) among the rural population and lower (9.05%) among the urban population. In 2006 nearly 50,000 people were murdered in Brasil. “O DIA Online - Rio no mapa da morte!” More than 500.000 people have been killed by firearms in Brazil between 1979 and 2003, according to the UN report.

The largest metropolitan areas in Brazil are São Paulo, Rio de Janeiro, and Belo Horizonte — all in the Southeastern Region — with 19.5, 11.5, and 5.1 million inhabitants respectively. Almost all of the state capitals are the largest cities in their states, except for Vitória, the capital of Espírito Santo, and Florianópolis, the capital of Santa Catarina. There are also non-capital metropolitan areas in the states of São Paulo (Campinas, Santos and the Paraíba Valley), Minas Gerais (Steel Valley), Rio Grande do Sul (Sinos Valley), and Santa Catarina (Itajaí Valley).

São Paulo is the largest city in Brazil and the world's 7th largest metropolitan area. The city is the capital of the state of São Paulo, the most populous Brazilian state. It is also the richest city in Brazil. The name of the city honors Saint Paul. São Paulo exerts strong regional influence in commerce and finance as well as arts and entertainment. São Paulo is considered an Alpha World City.

Main drivers for doing business in Brazil

Brazil has the 10th largest economy and a population of 185 million.

Many local companies are undervalued and in need of restructuring, capital and technology

Growth potential and consumer market

Broad industrial base and infrastructure, and a diversified economy

Creativity and flexibility of labor force, coupled with its competitive cost basis

Abundant agricultural, mineral and energy resources and potential

Established transportation networks (railways, highways, ports) and distribution channels in most industrialized areas

Privatization in late stages and follow-on transactions still in development

Inflation under control in the last 10 years

Increasing globalization and international trade, with Government policies favoring exports

Foreign investors are eligible for most available fiscal incentives

Goodwill generally tax deductible

New regulations favoring minority shareholders

Improvement in local capital and debt markets

Main Challenges of doing Deals in Brazil

Complex tax and employee related regulatory environment, with high taxes and social charges on payroll, sales and income

Multiple taxes with fast changing legislation affecting business plans and increasing risks of contingencies

Economic environment still considered volatile as compared to more stable economies

Fast-changing business conditions

Lack of local financing coupled with high real interest rates

Quality of historical financial information affected by fluctuations in exchange rates and GAAP differences

Complex transfer pricing and foreign capital registration rules

Difficulties in reorganizing companies quickly, including high costs for employee terminations

Important cultural peculiarities, including a different perception of the due diligence process

Sometimes the “know-who” is more important than the know-how in the local market

Considerable bureaucratic rules and regulations for certain businesses and industries

High demand for investments in the distribution channels and infrastructure

Semi-skilled and unskilled labor in certain developing areas

Social extremes with unequal distribution of wealth - a significant portion of the population not participating in the consumer market

Summary of Indicators – Brazil

Starting a Business Procedures (number) 16

Time (days) 120

Cost (% of income per capita) 6.9

Min. capital (% of income per capita)

0.0

Dealing with Construction Permits Procedures (number) 18

Time (days) 411

Cost (% of income per capita) 50.6

Employing Workers Difficulty of hiring index (0-100) 78

Rigidity of hours index (0-100) 60

Difficulty of redundancy index (0-10)

0

Rigidity of employment index (0-100)

46

Redundancy costs (weeks of salary) 46

Registering Property Procedures (number) 14

Time (days) 42

Cost (% of property value) 2.7

Getting Credit Strength of legal rights index (0-10)

3

Depth of credit information index (0-6)

5

Public registry coverage (% of adults)

23.7

Private bureau coverage (% of adults)

59.2

Protecting Investors Extent of disclosure index (0-10) 6

Extent of director liability index (0-10)

7

Ease of shareholder suits index (0-10)

3

Strength of investor protection index (0-10)

5.3

Paying Taxes Payments (number per year) 10

Time (hours per year) 2600

Profit tax (%) 15.7

Labor tax and contributions (%) 46.9

Other taxes (%) 6.6

Total tax rate (% profit) 69.2

Trading Across Borders

Documents to export (number)

8

Time to export (days) 12

Cost to export (US$ per container) 1540

Documents to import (number)

7

Time to import (days) 16

Cost to import (US$ per container) 1440

Enforcing Contracts

Procedures (number)

45

Time (days) 616

Cost (% of claim) 16.5

Closing a Business

Recovery rate (cents on the dollar)

17.1

Time (years) 4.0

Cost (% of estate) 12

List of procedure 1. Check company name with State Commercial Registry Office

2. Pay registration fees

3. Register with the commercial board of the state where the main office is located

and obtain identification number

4. Register for federal and state tax, obtain the CNPJ number, which also registers

employees with the national institute of social security.

5. Confirm Taxpayer Enrollment

6. Receive state tax inspection

7. Get the authorization to print receipts/invoices from the Secretaria da Fazenda

Estadual

8. Register with the municipap Taxpayers’ Registry

9. Pay TFE to the Municipal Taxpayers’ Registry

10. Apply to the municipality for an operation permit

11. Register the employees in the social integration program

12. Open a special fund for unemployment account in the bank

13. Notify the ministry of Labor

14. Registration with the Patronal union and with the employee union

PESTLE Analysis

PESTLE analysis is a useful tool for understanding the “big picture” of the environment, in which you are operating, and the opportunities and threats that lie within it. By understanding the environment in which you operate (external to your company or department), you can take advantage of the opportunities and minimize the threats.

Specifically the PEST or PESTLE analysis is a useful tool for understanding risks associated with market growth or decline, and as such the position, potential and direction for a business or organization.

The PESTLE Analysis is often used as a generic 'orientation' tool, finding out where an organization or product is in the context of what is happening outsides that will at some point effect what is happening inside an organization.

A PESTLE analysis is a business measurement tool, looking at factors external to the organization. It is often used within a strategic SWOT analysis (Strengths, Weaknesses, Opportunities and Threats analysis).

The PESTLE subject should be a clear definition of the market being addressed, which might be from any of the following standpoints:

A company looking at its market A product looking at its market A brand in relation to its market A local business unit or function in a business A strategic option, such as entering a new market or launching a new product A potential acquisition A potential partnership An investment opportunity

Political- The current and potential influences from political pressures

Political System

Federal Republic similar to United States

The federal republic has three independent branches independent branches: executive legislative and judicial.

The President heads the executive branch. Under the President are a number of executive departments, the heads of which are appointed and are known collectively as the cabinet. Unlike those in many parliamentary democracies, its members need not be members of the legislative. Besides the executive departments, there are a number of independent agencies many of which are regulatory.

Legislative power is exerted by Congress consisting of a Senate and house of Representatives. There are 81 senators, three from each state and the federal District of Brasila. The total membership of the House is 513, the number of representatives from each state depending on its population. Voting is compulsory at the age of 18 but 16 and 17 year-olds, 70 years or older and illiterate can opt to vote.

The judicial branch consists of a system of federal, state and local courts throughout the country, headed by the Federal Supreme Court.

Change in Government.

Brazil has presidential election scheduled for October 2010. During election years, fiscal spending tends to increase as incumbents attempt to create temporary prosperity. As indicated above, increase in fiscal spending are consistent with the appropriate financial policy and should not adversely affect the economy.

The two term president, Luiz Inácio of the leftest Partido do Trablhadores (PT) party has adopted a conservative economic policy that has allowed Brazil to continue its growth run for his two terms. While the global economic downturn hit Brazil at the turn of the year, the economy has shown clear signs of recovery over 2009, bolstering the incumbent. The leading centrist opposition party Partio da Social Democracia Brasiliera (PSDB) will run a close challenge that some experts predict will result in a runoff election. The PSDB also supports a conservative economic policy. The elections should not pose a significant shift in government economic policy.

Lula Administration Focus Areas Social: Agriculture Reform, Hunger, Cities, Racial (quotas) – public service /

universities/ courts

Finance: Inflation, Trade Balance, Tax interest rates, Economical growth, No privatizations

External Relations – consolidate Brazil as #1 in LTA: Mercosul - Europe, Mercosul – FTAA

Environment: NGO’s (more room) Infrastructure: Regional Integration

Law

Brazilian law is based on Roman-Germanic traditions and civil law concepts prevail over common law practice. Most of Brazilian law is codified, although non-codified statutes also represent a substantial part, playing a complementary role. Court decisions set out interpretive guidelines; however, they are seldom binding on other specific cases. Doctrinal works and the works of academic jurists have strong influence in law creation and in law cases.

Economic- The local, national and world economy impact

Economy of Brazil

Brazil is the largest national economy in Latin America, the world's tenth largest economy at market exchange rates and the ninth largest in purchasing power parity (PPP), according to the International Monetary Fund and the World Bank. Its GDP (PPP) per capita is $10,200, putting Brazil in the 64th position according to World Bank data. It has large and developed agricultural, mining, manufacturing and service sectors, as well as a large labor pool.

Brazilian exports are booming, creating a new generation of tycoons. Major export products include aircraft, electrical equipment, automobiles, ethanol, textiles, footwear, iron ore, steel, coffee, orange juice, soybeans and corned beef. The country has been expanding its presence in international financial and commodities markets, and is one of a group of four emerging economies called the BRIC countries.

Brazil pegged its currency, the real, to the U.S. dollar in 1994. However, after the East Asian financial crisis, the Russian default in 1998 and the series of adverse financial events that followed it, the Central Bank of Brazil temporarily changed its monetary policy to a managed-float scheme while undergoing a currency crisis, until definitively changing the exchange regime to free-float in January 1999.

Industrial output

The annualized rate of growth in industrial output fell from 6.8% in September 2008 to 3.1% in December. In December, industrial output fell by 12.4% month-on-month and by 14.5% compared with December 2007. By sectors, the auto sector (accounting for 5% of GDP) was one of the worst performers, falling 59.1% year-on-year. In January 2009, however, the vehicle industry saw a near doubling of output compared to December 2008. While in 2007 Brazil obtained a current account surplus of $1.55 billion (0.12% of GDP), in 2008 it registered its first current account deficit in six years, due to a lower trade surplus and increased profit repatriations by foreign firms.

Brazil received an International Monetary Fund rescue package in mid-2002 of $30.4 billion, then a record sum. Brazil's central bank paid back the IMF loan in 2005, although it was not due to be repaid until 2006. One of the issues the Central Bank of Brazil recently dealt with was an excess of speculative short-term capital inflows to the country, which may have contributed to a fall in the value of the U.S. dollar against the real during that period. Nonetheless, foreign direct investment (FDI), related to long-term, less speculative investment in production, is estimated to be $193.8 billion for 2007. Inflation monitoring and control currently plays a major part in the Central bank's role of setting out short-term interest rates as a monetary policy measure.

Key industries

Key industries are textiles, shoes, chemicals, aviation, cement, agriculture, motor vehicles and parts, other machinery and equipment. Major export products include aircraft, coffee, vehicles, soybean, iron ore, orange juice, steel, textiles, footwear and electrical equipment.

FDI

Brazil is generally open to and encourages foreign investment. Brazil is the largest recipient of foreign direct investment (FDI) in Latin America, and the United States is traditionally the number one foreign investor in Brazil. Since domestic savings is not sufficient to sustain long-term high growth rates, Brazil must continue to attract FDI. In order to attract increasing levels of FDI, many business groups and international organizations have highlighted the need for Brazil to improve its regulatory environment for investments and to simplify the tax code. Brazil does not have a bilateral tax or investment treaty with the United States. Legislation promoting public-private partnerships, a key effort to attract private investment to infrastructure, was passed in 2004. In 2007, the Government of Brazil initiated an ambitious infrastructure development program, known as the Growth Acceleration Program (PAC), to address the country’s significant road, rail, energy supply, and other infrastructure needs.

Sociological- The ways in which changes in society affect business

Brazil’s inequality levels remains among the highest in the world. Millions of people still live in poverty; social exclusion is quantitatively and qualitatively pronounced and structurally ingrained. But during the last several years, poverty reduction and income distribution indicators have dramatically improved. The full poverty rate fell from 34% of the population in 1995 to 25.6% in 2006.

Brazil still shows one of the worst values of income distribution worldwide. About 45% of the national wealth is concentrated in the upper 10% of the income pyramid, while the lower 20% control just over 2.4% of the wealth. Brazil exhibits a medium level of development according to key indicators, but national mean values mask the great disparities between the relatively developed southern and southeastern regions, where conditions resemble those in industrialized countries to some extent, and the socioeconomically disadvantaged northern and northeastern regions.

Culture

The core culture of Brazil is derived from Portuguese culture, because of its strong colonial ties with the Portuguese empire. Among other influences, the Portuguese introduced the Portuguese language, Roman Catholicism and colonial architectural styles. The culture was, however, also strongly influenced by African, indigenous and non-Portuguese European cultures and traditions. Some aspects of Brazilian culture were influenced by the contributions of Italian, German and other European immigrants who arrived in large numbers in the South and Southeast of Brazil. The indigenous Amerindians influenced Brazil's language and cuisine; and the Africans influenced language, cuisine, music, dance and religion.

Brazilian cuisine varies greatly by region, reflecting the country's mix of native and immigrant populations. This has created a national cuisine marked by the preservation of regional differences. Examples are “feijoada”, considered the country's national dish; and regional foods such as vatapá, moqueca, polenta and acarajé. Brazil has a variety of candies such as brigadeiros ("brigadiers") and beijinhos ("kissies"). The national beverage is coffee and cachaça is Brazil's native liquor. Cachaça is distilled from sugar cane and is the main ingredient in the national cocktail, Caipirinha.

Brazilian art has developed since the 16th century into different styles that range from Baroque (the dominant style in Brazil until the early 19th century) to Romanticism, Modernism, Expressionism, Cubism, Surrealism and Abstractionism. Brazilian cinema dates back to the birth of the medium in the late 19th century and has gained a new level of international acclaim in recent years.

Language

The official language of Brazil is Portuguese which is spoken by almost all of the population and is virtually the only language used in newspapers, radio, television, and for business and administrative purposes. The exception to this is in the municipality of São Gabriel da Cachoeira where Nheengatu, an indigenous language of South America, has been granted co-

official status with Portuguese. Brazil is the only Portuguese-speaking nation in the Americas, making the language an important part of Brazilian national identity and giving it a national culture distinct from those of its Spanish-speaking neighbors.

Brazilian Portuguese has had its own development, influenced by the Amerindian and African languages. As a result, the language is somewhat different, mostly in phonology, from the language of Portugal and other Portuguese-speaking countries. These differences are comparable to those between American and British English.

In 2008, the Community of Portuguese Language Countries (CPLP), which included representatives from all countries with Portuguese as the official language, reached an agreement on the reform of Portuguese into one international language, as opposed to two diverged dialects of the same language. All CPLP countries were given from 2009 until 2014 to adjust to the necessary changes.

General Attitude

Brazilians are warm, fun-loving, and free-spirited. They are also outgoing and enjoy being around others. At the same time, they are hardworking. Brazilians are proud of their country's natural resources and diverse culture. One point of pride is the “Brazilian way”—their ability to find creative ways around seemingly insurmountable problems. Brazilians often are opinionated and will argue for their convictions with vigor. In spite of economic difficulties, most Brazilians are hopeful about their country's future.

Personal Appearance

In general, Brazilians are fashionable and like to dress according to the latest styles. People in urban areas like to wear brand-name clothing. People in the warmest and most humid regions dress more casually, and colors are lighter and brighter year-round. In rural regions, more traditional clothing is common, especially among the native peoples.

Technological- How new and emerging technology affects business?

Brazil is a leader in science and technology in South America and in some fields a global leader, such as biofuels, agricultural research, deep-sea oil production, and remote sensing. U.S. Government, private sector, and academic researchers have extensive ties with Brazilian counterparts, and the extent of bilateral scientific and technological cooperation is expanding. The Brazilian Government seeks to develop an environment that is more supportive of innovation, taking scientific advances from the laboratory to the marketplace.

Technological Research

Technological research in Brazil is largely carried out in public universities and research institutes. But more than 73% of funding for basic research still comes from government sources. Some of Brazil's most notable technological hubs are the Oswaldo Cruz Institute, the Butantan Institute, the Air Force's Aerospace Technical Center, the Brazilian Agricultural Research Corporation and the INPE. The Brazilian Space Agency has the most advanced space program in Latin America, with significant capabilities in launch vehicles, launch sites and satellite manufacturing.

Information Technology

The Brazilian IT market is the largest in Latin America and spending on IT products and services is forecast to pass US$25bn in 2010 and US$30bn by 2012. BMI has downwardly revised its five-year forecast, due to the economic situation, but IT spending is still expected to increase to remain in positive territory in 2009, and to grow at a CAGR of 12% over the forecast period. This makes Brazil's one of the fastest growing global markets. The overall outlook remains constructive for growth in IT spending, with an expanding economy lifting millions into a middle class for whom computers are no longer beyond reach.  Brazil’s IT services market is expected to continue to grow strongly in 2010, with total spending of around US$9.4bn as the economy continues to bounce back from recession. For a developing market, the percentage of Brazil IT market revenues generated by services is high at around 38%, which corresponds more to developed market levels. 

R & D

Most of Brazil's research and development activities take place in its main public universities. Brazil, in particular, is an interesting country to consider, as scientific growth is in the beginning stages and offers tremendous future potential.

Brazil’s GDP declined in 2009 by 0.7%, with an equal drop in its R&D investment for that year. Its GDP and R&D are both expected to increase in 2010 by about 3.5%, to $2,048 billion and $18.637 billion respectively, from its 2009 levels. Brazil’s R&D as a share of its GDP is about 0.91%.

Brazil’s share of the world’s 7.1 million researchers increased from 1.2% in 2002 to 1.7% in 2007. According to UNESCO, Brazil has about 625 researchers for every million citizens of Brazil.

So Brazil has great potential in growing the number of scientific papers its researchers publish, but is starting from a relatively low base.

Technology policy in Brazil: Old approaches to a new situation

In 1990, the government has radically changed the framework conditions for industrial development. Acknowledging that the import substitution model had run into a dead end, it opted for a policy of gradually opening the market to foreign competitors, thus creating an environment that requires international competitiveness and thereby forces companies to attain international levels of quality and efficiency. This has been accompanied by a number of technology and industrial policy programmes. However, they were either not implemented, or only after long delays, or have had little impact so far because the recession inhibited private sector investments. Even the Quality and Productivity Program that has pursued an innovative approach (mainly trying to build a consciousness for quality issues inside firms) and got a lot of publicity in Brazil apparently has only had a limited impact.

Brazilian policy makers and researchers tend to explain the limited effect of technology policy initiatives with the economic crisis and the low investment propensity of companies.

Brazilian industry and technology

Brazil got off to a late start in its process of industrialization, which began in the 1930s. Despite the accelerated pace of growth witnessed up until 1980, the level of development in the country still falls way below the levels reached by developed countries.  Industry, which directs itself essentially to attending the demands of the internal market, is made up of a steady stream of embodied and disembodied external technology flows. Even so, Brazilian industry has been making considerable efforts in technology directed towards, in most cases, adapting the flow of external knowledge to its local context. These efforts have also been brought on by local technological demands that the external flow of technology has been unable to meet. Up until now, rare have been the cases of sectors in which firms generate flows of new knowledge in order to gain dynamic competitive advantages.

Legal- How local, national and world legislation affects business

The Brazilian legal system

It is based on Civil Law tradition. The Federal Constitution, in force since October 5 th, 1988, is the supreme rule of the country and is the characterized by its rigid written form. The Constitution organizes the country as a Federative Republic, formed by the indissoluble union of the states and municipalities and of the Federal District. The 26 federate states have powers to adopt their own Constitutions and laws; their autonomy, however, is limited by the principles established in the Federal Constitution.

Municipalities

It enjoy restricted autonomy as their legislation must follow the dictates of the Constitution of the state to which they belong, and consequently to those of the Federal Constitution itself. As for the Federal District, it blends functions of federate states and of municipalities, and its equivalent to a constitution, named Organic Law, must also obey the terms of the Federal Constitution.

The powers of the Union, as defined within the Constitution, are the Executive, the Legislative and the Judiciary, which are independent and harmonious amongst them. The head of the Executive is the President of the Republic, which is both the Chief of State and the Head of Government and is directly elected by the citizens. The Legislative, embedded in the form of National Congress and consists of two houses: The Chamber of Deputies (lower house) and the Federal Senate (upper house), both constituted by representatives who are elected by the citizens. The Judicial powers are vested upon the Federal Supreme Court, the Superior Court of Justice, the Regional Federal Courts and Federal Judges. There are also specialized courts to deal with electoral, labor and military disputes.

The Judiciary is organized into federal and state branches. Municipalities do not have their own justice systems, and must, therefore, resort to state or federal justice systems, depending on the nature of the case. The judicial system consists of several courts. The apex is the Federal Supreme Court and is the guardian of the Constitution. Among other duties, it has exclusive jurisdiction to: (i) declare federal or state laws unconstitutional; (ii) order extradition requests from foreign States; and (iii) rule over cases decided in sole instance courts, where the challenged decision may violate the Constitution.

Court and justice

The Superior Court of Justice is responsible for upholding federal legislation and treaties. The five Regional Federal Courts, have constitutional jurisdiction on cases involving appeals

towards the decision ruled by federal judges, and are also responsible for cases of national interest and crimes foreseen in international pacts, among other duties. The jurisdiction of the Federal Judges include: being responsible for hearing most disputes in which one of the parties is the Union (State); ruling on lawsuits between a foreign State or international organization and a municipality or a person residing in Brazil; and judging cases based on treaties or international agreements of the Union against a foreign State or international body.  

State-level justice in Brazil consists of state courts and judges. The states of Brazil organize their own judicial systems, with court jurisdiction defined in each state constitution, observing that their legal scope is limited by those that do not concern the federal judicial ordainment.

Environmental- The local, national and world environmental issues

Brazil holds about one-third of the world's remaining rainforests, including a majority of the Amazon rainforest. Due to the vastness of the Amazon rainforest, Brazil's average loss of 34,660 square kilometers of primary forest per year between 2000 and 2005 represents only about 0.8 percent of its forest cover. Nevertheless, deforestation in Brazil is one of the most important global environmental issues today. Research led by the Woods Hole Research Center and the Carnegie Institution's Department of Global Ecology found that each year the amount of forest degraded is roughly equivalent to the amount of forest cleared. The finding is trouble to ecologists because degraded forest has lower levels of biodiversity and is more likely to be cleared in the future. Further, degraded forest is more susceptible to fires.

A large portion of deforestation in Brazil can be attributed to land clearing for pastureland by commercial and speculative interests, misguided government policies, inappropriate World Bank projects, and commercial exploitation of forest resources. For effective action it is imperative that these issues be addressed. Focusing solely on the promotion of sustainable use by local people would neglect the most important forces behind deforestation in Brazil.

Brazilian deforestation is strongly correlated to the economic health of the country: the decline in deforestation from 1988-1991 nicely matched the economic slowdown during the same period, while the rocketing rate of deforestation from 1993-1998 paralleled Brazil's period of rapid economic growth. During lean times, ranchers and developers do not have the cash to rapidly expand their pasturelands and operations, while the government lacks funds to sponsor highways and colonization programs and grant tax breaks and subsidies to forest exploiters.

A relatively small percentage of large landowners clear vast sections of the Amazon for cattle pastureland. Large tracts of forest are cleared and sometimes planted with African savanna grasses for cattle feeding. In many cases, especially during periods of high inflation, land is simply cleared for investment purposes. When pastureland prices exceed forest land prices (a condition made possible by tax incentives that favor pastureland over natural forest), forest clearing is a good hedge against inflation. 

Road construction in the Amazon leads to deforestation. Roads provide access to logging and mining sites while opening forest frontier land to exploitation by poor landless farmers.

The Future

It seems likely that deforestation will continue in the Brazil Amazon for the foreseeable future.

This author personally expects at least half the Amazon to be converted for agriculture or otherwise degraded by 2050. While this is discouraging, there is hope that improved agricultural techniques—perhaps based on research into how pre-Colombian societies managed these forests—could maybe increase productivity on already affected areas and reduce the need for further forest clearing.

It is important to recognize that Brazil is a sovereign state with its own rights to develop its economy. How it chooses to do so will likely be influenced by economic factors which may include how western countries value the services (especially climate moderation and biodiversity preservation) provided by forests. If Western countries begin to place greater value on these services, then the protection of Brazil's rainforests can likely be "purchased" via the open market. While right now the environment for such a scenario is not favorable, this author believes it will become more so in the next few years. Scientists will play an important role in disseminating the value of these forests to policymakers and the media.