PESTLE Analysis: Brazil

BRAZILGroup work

Outline

1. Introduction

2. Basics

3. PESTLE

1. Politics, Economy

2. Social, Technology

3. Legal, Environment

4. Future Development

5. Conclusion

1

BASICSColleague 1

Basics: Introduction

Source: McKinsey Global Institute (2014). Connecting Brazil to the

world: A path to inclusive growth.

3

Basics: History of Imports in Brazil

• Nowadays Brazil is open to international market,

but it has not always been like that. During the

Brazilian Dictatorship, the country passed through

a period of opening market and through a period

of almost complete closure.

Let’s take a look at the brief history and phases

of imports in Brazil

4

Basics: The Opening Phase (1964 - 1974)

• The Brazilian military coup occurred in 1964. The new

government main priority was to reverse the high inflation rate

to reduce the public deficit. The first years of military

dictatorship embrace foreign investments and loans in order to

expand the Brazilian economy. Imports were allowed in the

country, because the national production was not developed

enough and neither had all the products necessary to supply

the domestic demand

• The regime projected the first PND, the National Development

Program, which established an equilibrium between the private

sector and public sector. Between 1969 and 1973 economic

growth in Brazil reached exceptional levels. This period

became known as the "Economic Miracle”.

5

Basics: The Closure Phase (1974 -1979)

• Due to the first oil crisis in 1973, Brazil’s government launched the second

PND in 1974, in order to help the Brazilian economy. The new program

established the development of Brazilian national industry, the

maintenance of the first PND, new foreign loans, search for new export

markets and the attempt to substitute imports.

• The national alcohol program also known as “Pró Alcool” was launched in

1975, with the purposes of substituting fuel derived from oil. The use of

biofuels produced in Brazil diminished the Brazilian dependence on

imported oil.

• The Petrobrás discovery of new oil fields in Rio de Janeiro, and the

government authorization to explore it, pushed even more the closure of

the military regime to foreign imports. In 1976 the import of automobiles to

Brazil was prohibited by the government.

6

Basics: The Lost Decade

•The international context in the end 70s and the beginning

of the 80s was extremely unfavourable for Brazil. The

exorbitant oil prices in the global market, promoted by the

second oil crisis, in 1979, increased the Brazilian oil

import prices as well and, in consequence, the inflation

raised too.

• João Figueiredo's government (1979 to 1985) introduced

import restrictions and price controls. The foreign and

domestic investments declined significantly, compromising

the pace of progress of the economy compared to

previous levels.

7

Basics: The End of Dictatorship

• In 1985, Figueiredo's government was deposed and the

democratic period of Brazil politics began. In 1988 there

were already moves to open the Brazilian market. The

most luxurious cars came first, since the import tax rate of

85% was unfavorable for cheaper models, which would

not be able to compete with nationals automobiles prices.

•Accumulated inflation remained in 1782.90% in 1989,

year in which 760,000 cars were in Brazilian market. It

was only in 1990 that car imports were finally allowed,

which has initiated the Brazilian market opening process

to imports.

8

Basics: The End of Dictatorship

• The Real Plan, launched in 1994 in order to stabilize the national

currency, promoted a policy of a valued Brazilian Real against the

American dollar. This allowed great momentum in imports. From

1995 to 2000, the imports resulted on a deficit of USD 24.1 billion

in the Brazilian trade balance, against a surplus of USD 60.4

billion, from 1990 to 1994.

• Brazil needed, from 1995 to 2000, new foreign loans and

investments, to cover the trade balance deficit. The external

dependency was always increasing and this situation only

reverted due to the pressure of the international market. The

adjustment in the Real value in 1999 and in 2002 invigorated

exports. In 2000, according to the World Trade Organization,

Brazil participated in world trade, with 0.9% of imports.

9

Basics: Imports

• Imports in Recent years

In 2010 the total value of imports in Brazil was USD 187.7 billion. The main

products were machinery, electrical and transport equipment, chemical

products, oil, automotive parts and electronics. The import partners were

mostly the US (16.12% of total imports), China (12.61%), Argentina (8.77%),

Germany (7.65%) and Japan (4.3%).

• From 1959 until 2013, Brazil imports averaged USD 3402.64 million reaching

an all time high of USD 22262.66 million in August of 2011 and a record low

of USD 67 million in March of 1965.

• Raw materials and intermediate goods (45% of total exports), capital goods

(22%), consumption durables (10%), oil (6%) and motor vehicles (4%) are the

Brazilian main import products. While the main import partners are: China

(15%), United States (14.6%) and Argentina (7%), and other countries such

as Netherlands, Japan, Germany and India.

10

PESTLE:

POLITICAL AND ECONOMICAL

Colleague 2

PESTLE: Politics

• Federal Government of Brazil

• Democratic Republic

• Executive – Legislative –and Judicial

Dilma Rousseff

Head of State and Head of

Government of Brazil

(Since 1 January 2011)

Michel Temer

Vice President of Brazil

• Executives:

12

PESTLE: Politics

• Legislative:

Bicameral ( 2-chambered ) of National Congress:

Upper House

• 26 states

• 81 seats

• 8 years

Federal Senate Chamber of Deputies

Lower House

• 513 deputies

• 4 years

13

PESTLE: Politics• Legal System: Civil Law – by Portuguese

• Independence day: 7 September 1822

• Pollitical Parties: • Brazilian Democatric Movement Party (PMDB) – 20 seats in Federal Senate – 78 seats in

Chamber of Deputies

• Worker’s Party (PT) – 12 seats in Federal Senate – 86 seats in Chamber of Deputies

• Progressive Party (PP)

• Brazilian Social Democracy Party (PSDB)

• Democratic Labour Party (PDT)

• Brazilian Labour Party (PTB)

• Democrats (DEM)

• Party of the Republic ( PR)

• Brazilian Socialist Party (PSB)

• Socialist People’s Party (PPS)

• Communist Party of Brazul (PCdoB)

• Green Party (PV)

• Brazilian Republican Party (PRB)

• Party of National Mobilization (PMN)

• Progressive Republican Party (PRP)

• Social Liberal Party (PSL)

• Social Democratic Party (PSD)

• Etc.

14

PESTLE: Politics

15

PESTLE: Economical

World rank in terms of GDP

Population in the world

Land in the South America

16

PESTLE: Economical

• Brazil Agriculture:

17

PESTLE: Economical

Top Exports list :

• 1. Iron Ore

• 2. Oil Seeds

• 3. Mineral fuel and

Oil

• 4. Poultry Meat

• 5. Machinery

Top Import list:

• 1. Petroleum Oil

• 2. Motor Vehicles

• 3. Vehicle Accessories

and Parts

• 4. Medicines

• 5. Fertilizers

18

PESTLE: Economical

Source: Statista

19

PESTLE: Economical

Source: Statista

20

PESTLE: Economical

Source: Statista

21

PESTLE: Economical

Source: Heritage.org

22

PESTLE: Economical

23

PESTLE:

SOCIAL AND TECHNOLOGICAL

Colleague 3

• Brasil is the largest country in South America and fifth largest country in the world.

• Official Language: Portuguese

• Population: 202 656 000 people

• Urban distribution: Brasil’s major urban areas are:

• Sao Paulo: 19.924 mp

• Rio de Janeiro: 11.96 mp

• Belo Horizonte: 5.487 mp

• Porto Alegre: 3.933 mp

• Recife: 3.733 mp

25

mp = million people

PESTLE: Social

• Age and sex distribution in Brasil:

26

PESTLE: Social

PESTLE: Social

• 20% of the population lives under the poverty line,

however middle class in Brazil is growing.

• Despite of their actual rank (95th) in the world in GDP,

Brazil is the world’s seventh-largest economy.

• They still have to create better-quality jobs and raise

purchasing power by lowering price in consumer goods.

27

• Brasil is a world leader in petroleum exploration in deep water, also leads researches on 1st and 2nd generation biofuels. 80% of the vehicles sold in Brazil are equipped with biofuel motors.

• Brazilian automation system is the most advanced in the world according to the World Bank and IMF (International Monetary Fund).

• Brazilian telecommunications system and digital TV are amongst the most advanced in the world.

• Another technological advance are their voting machines for Elections, this machines allows 140 million people to vote and so Brazilian elector can know the results in a brief time.

28

PESTLE: Technological

PESTLE: Technological

• Brasil expends between 1.16 and 1.21% from their GDP

in Research and Development.

• A great number of startups have recently developed inthe

country. Also a lot of technological IT providers stand in

the country as: Stefanini, TIVIT, Sambatech, Apdata,

Inmetrics, Stone Age, Dclick, among others startups and

national companies.

• Is expected that these companies increase their revenues

and expore foreign markets.

29

PESTLE:

LEGAL AND ENVIRONMENTAL

Colleague 4

PESTLE: Legal

• Civil Code

• Most common types of companies:

- The Corporation (S.A.)

- Limit Liability Quotas Company (Ltda.)

• Companies are treated as separate legal personalities

• Creditors are generally not able to seize partner assets to

pay off debts

• Registration on foreign investment in media, finance,

insurance and public health

31

PESTLE: Legal

• Legislation varies across states thus increases complexity

and compliance costs

• Although senate suggested tax reform, 33% of GDP is tax

• It takes 120 days to open a business

32

PESTLE: Environmental

• Environmental policies to stop deforestation and emission

• Compelled industries to initiate eco-friendly combustion

technique

• According to Kyoto Protocol Brazil is one of the largest

emitters of greenhouse gases.

33

FUTURE DEVELOPMENTAnton Wischnewski

Future Challenges

1. Productivity growth

2. Tax burden ("Brazil Cost”)

3. Integration into global markets

4. Focus on key commodities

5. Expand infrastructure

35

Future Challenges: Income Growth

36

Future Challenges: Poverty

37

Future Challenges: Tariffs

38

Future Challenges: Taxes (Brazil Cost)

• Need to lower the “Brazil cost” (Tax)

Regulatory burden:

• Brazil ranks 116th out of 189 countries in terms of its regulatory burden.

Taxation category

• Brazil ranks 159th in the world.

Note: Time per year needed to prepare and declare taxes

• Brazil 2,600 hours (almost 4 months) / each year

• China: 318 h (13 days)

• Indonesia: 259 h (11 days)

39

Future Challenges: Global Integration

40

Future Challenges: Infrastructure

• Brazil’s investment in

Overall infrastructure:

• 1970: 5.4% of GDP

• 2000: 2.1% of GDP

Transportation infrastructure:

• 1970: 2% of GDP

• 2000: 0.5% of GDP

• Now: 1.5% of GDP (Global average = 3.8%)

41

Future Potential

1. Economic growth

2. Deeper integration into global markets

3. Emerging Middle Class

4. Young work force

5. BRICS Bank

42

43

Future Potential: BRICS Bank

Source: The BRICS Post (2014). India follows Russia, ratifies $100 bn BRICS Bank. URL:

http://thebricspost.com/india-follows-russia-ratifies-100-bn-brics-bank/#.VPgyFbPF8_N

Future Potential: BRICS Bank

• Established: July 2014

• Goal:The BRICS Bank launched last year will fund infrastructure projects in Brazil, Russia, India, China and South Africa, and challenge the dominance of the Western-led World Bank and the IMF.

• Requirements:The bank’s creation will have to be ratified by the parliaments of the individual BRICS countries.

• Start-up capital: $50 billion / each (expanded to $100 billion)

• Currency: n/a (not $US Dollar)

• Start period: end of 2015 (expected)

44

Future Potential: BRICS Bank

Ratification

• Russia: ratified (February 2015)

• India: ratified (February 2015)

• Brazil: not ratified

• China: not ratified

• South Afrika: not ratified

45

THANK YOU!Group work

References

• McKinsey Global Institute (2014). Brazil’s path to inclusive

growth. URL:

http://www.mckinsey.com/insights/south_america/brazils_

path_to_inclusive_growth

• The Economist (2013). Has Brazil blown it? URL:

http://www.economist.com/news/leaders/21586833-

stagnant-economy-bloated-state-and-mass-protests-

mean-dilma-rousseff-must-change-course-has

47