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  • 1. BRAZIL – Country Analysis Report 1COUNTRY ANALYSIS REPORT BRAZIL AKANKSHA TIKKU ANUJ JINDAL ARPIT AGRAWAL ABHIJIT SINGH AMANDEEP SINGH CHACKO JACOB November 2009
  • 2. BRAZIL – Country Analysis Report 2INTRODUCTION………………………………… 3ABOUT THE REPORT…….....…………………….. 5EVALUATING the BASIC REQUIREMENTS ………... ….. 6 HEALHCARE & EDUCATION …………….. … 6 Healthcare………………………… … 7 Education ……………………… …… .9 LAND & LABOUR MARKETS ………………….... 12 Land ……………………………..……... 12 Labor ………………………………..….. 13 MACROECONOMIC STABILITY………............................ 16 Currency regulation…………………..……. 16 Taxation & Government revenue…………..…. 18EVALUATING the EFFICIENCY ENHANCERS…..……..… 21 REMOVING BARRIERS TO BUSINESS…….……...… 21 FINANCIAL MARKETS………………………........ 25 Stock markets…………………..…………. 25 Corporate Governance …………..…………....30 INSURANCE SECTOR ………………………….. 33 REGULATORY FRAMEWORK/INSTITUTIONS . . .. ...….35 Competition Law ……………………...…….35EVALUATING the TECHNOLOGICAL READINESS……...…..37 TECHNOLOGY ……………………………….…37 INTELLECTUAL PROPERTY RIGHTS ………………39CONCLUSION & RECOMMENDATIONS ……………… 43References ………………………………………..44 November 2009
  • 3. BRAZIL – Country Analysis Report 3INTRODUCTIONDisplaying an impressive GDP of US$1,314 billion andwith a population of 194 million in 2007, Brazil is the10th largest economy and the 5th most populouscountry in the world, as well as the largest market inLatin America and the Caribbean.The presence of rich natural resources and a fairlysophisticated industrial base provides the countrywith competitive advantages. These factors havealso made Brazil the leading foreign directinvestment (FDI) recipient in Latin America, with a US$35 billion inflow in 2007The achievements and uniqueness of Brazil can be summarized in the table below – November 2009
  • 4. BRAZIL – Country Analysis Report 4The above remarkable achievements and competitive strengths are not fully reflected to date in Brazil’sperformance in terms of economic growth rates, enhanced competitiveness, and better living conditions for itscitizens. Indeed, the country has registered average annual growth rates of 3.9 percent for the 2003–07 period,rather poor when compared with 10.8 percent, 8.6 percent, and 7.3 percent, respectively, of fellow BRICcountries China, India, and Russia.Likewise, Brazil’s evolution in the Global Competitiveness Index (GCI) rankings over the 2005–08 period has beenfairly erratic, with the country placing in middling positions year after year (64th out of 134 countries in thelatest computation in 2008–2009).Last but not least, Brazil’s income distribution remains among the most unequal in the world, pointing to the factthat the country’s immense potential has not yet translated into increased prosperity for all Brazilians.For all its negatives, Brazil is the first Latin American country to emerge from recession—and one of the earliestamong the G-20 countries to have done so —following a 1.9% quarter-on-quarter expansion in economic activityin the April-to-June period’2009. Whereas the global environment remains difficult and the export sectortherefore continues to struggle, the strength of domestic demand has propelled the economy to the start of arecoveryBrazil as a nation has its own strengths & weaknesses. The weaknesses in certain areas are so grave that if notcorrected soon, the country couldn’t possibly sustain itself in the globalised world. November 2009
  • 5. BRAZIL – Country Analysis Report 5ABOUT THE REPORTThe report aims to evaluate Brazil’s standing as an investment destination by studying the country’s progress inevery sphere. The evaluation is in three stages – in the first stage, the country’s progress in the basic “Basicrequirements” such as healthcare, education etc is evaluated, in the second stage, the country’s progress in“Efficiency enhancers” such as financial markets, regulatory institutions etc is evaluated & in the third, thecountry’s “technological readiness” is evaluated.The stages of evaluation are depicted in the table below – BASIC REQUIREMENTS Health & Education Land & Labor market efficiency Macroeconomic stability Currency regulation Taxation & government revenue EFFICIENCY ENHANCERS TECHNOLOGICAL READINESS Removing administrative barriers to business Technology level Financial market maturity Intellectual Property Rights Stock markets Corporate governance Insurance sector maturity Regulatory framework/Institutions Competition LawThe evaluation of Brazil in each of these areas is done in the continuing pages. November 2009
  • 6. BRAZIL – Country Analysis Report 6 EVALUATING the BASIC REQUIREMENTS HEALHCARE & EDUCATIONA healthy and literate work force is a basic requirement for national productivity and competitiveness. Workerswho are ill tend to be less productive, adding significant costs to businesses. At the same time, basic educationincreases workers’ efficiency and enables them to get training for, and adapt to, more advanced productionprocesses and techniques. Historical evidence supports the key role of basic education and health as a keyenabler of competitiveness. Also many studies highlight the importance of the quality of basic education, on topof enrollment rates. HEALTHCAREIn Brazil there exists a two-tiered system of healthcare. Those with sufficient means, or whose employers providehealth coverage, have access to a private system of healthcare that provides quality treatment on demand. Therest of the population relies on a system of public clinics and hospitals called the SUS (Sistema Único de Saúde).The Brazilian Government’s healthcare reforms of the nineties and its long-term commitment to improve thehealthcare situation in the country, has benefited the country and the healthcare industry.In recent decades the country has experienced significant shifts in its socio-demographic profile which can besummarized as follows: • Urbanization and metropolization • Significant increase in life expectancy (66 in 1991 to 72 years in 2004), and decrease in infant mortality rate. • Aging population (by 2010, 9.7% of the population will be over the age of 60 years). November 2009
  • 7. BRAZIL – Country Analysis Report 7Impact of Health conditions on Earnings in BrazilHealth conditions have causedlosses for individuals through the US BRAZIL INDIAthree earnings channels: lowerprobability of participating in Life Expectancy (years) 78 72 63the labor force, obtaining lowerhourly wages, and working fewer Infant Mortality Rate (per 100 live 7.0 19.0 57.0weekly hours. The reduction in [Type a quote from the document or the summary of an interesting point.probability of participation in You can position the text boxthe labor force due to poor anywhere in the document. Use thehealth is in the interval between Text Box Tools tab to change the5.68% and 12.58% and the formatting of the pull quote text box.]reduction of hourly wages varies births)in an interval ranging from 0.58%to 13%. With respect to GDP, Government expenditure on health 19.1 7.2 3.4this results in earnings losses of as percentage of total1.47% to 4.7%. expenditure.(Source - PNAD/1998). Government expenditure on health 45.8 47.9 19.6These statistics show the as percentage of total expenditurerelevance of health conditions in on healthdetermining the Brazilian workerearnings and reiterates the need Health System Performance rank 37 125 112for giving close attention to (/ 191 countries) (2000)health conditions in Brazil forany business. As for laborsupply, health status impacts Comparison of Health parameters & government spending ofsectorial choice and the decision Brazil with US & Indiato work which again is animportant factor to be considered by any business firm. November 2009
  • 8. BRAZIL – Country Analysis Report 8ConclusionAlthough the HDI health for Brazil is 0.76, as compared to a world average of 0.71, but it is facing a lot ofchallenges like: • Unfair financing of health system (people have to make high out of pocket costs) • Disproportional regional distribution of health services and human resources with overrepresentation in wealthy states (South and Southeast Brazil) • Aging population which will put more demand on the healthcare system.For all this it is essential to ensure an adequate flow of resources. Public spending in Brazil today – 3.4% of thecountry’s GDP – is less than half the amount allocated by other countries with universal access systems.Moreover, the Brazilian public healthcare system is characterized by long waiting times and questionable quality.Hence, the government needs to invest more in healthcare in order to make the environment conducive forbusiness opportunities. November 2009
  • 9. BRAZIL – Country Analysis Report 9 EDUCATION:The 1988 Brazilian Constitution states that "education" is "a right for all, a duty of the State and of the family,and is to be promoted with the collaboration of society, with the objective of fully developing integraldevelopment of the human personality and his/her participation in the work towards common welfare.Education in Brazil is regulated by the Federal Government, through the Ministry of Education, which defines theguiding principles for the organization of educational programs.Local governments are responsible for establishing state and educational programs following the guidelines andusing the funding supplied by the Federal Government. Brazilian children must attend school a minimum of 9years.Structure of educationThe medium of instruction is Portuguese.In Brazil education system is structured into 4 categories:- 1. Pre-School Education: It is for age below 6 years. The main aim is to develop cognitive and social skills. 2. Fundamental Education: It is for age between 6 to 14 years. The main aim is to increase the literacy. 3. Secondary Education: Minimum duration is of 3years.It aims to Increase the level of competence and skills. 4. Higher Education: They are 4 year courses. It is specialization in specific courses. MACROECONOMIC OVERVIEW • Literacy (Total Population): 88.6 % • Primary Enrollment: 94.4 % • Public expenditure per student as % of GDP per capita Primary school, 2004 12.8 % Secondary school, 2004 11.5 %Although Brazil has achieved almost universal net primary enrollment (94.4 percent), the quality of primaryeducation seems to be an area in particular need of improvement. A quality higher education and training systemis an essential precondition for a well-functioning economy, since it provides the national production system withan adequate pool of qualified human resources able to adapt to the changing needs of the latter. This isespecially the case for economies such as Brazil, which increasingly derive their competitiveness from moreadvanced production processes requiring well-qualified and trained workers. November 2009
  • 10. BRAZIL – Country Analysis Report 10Unfortunately, Brazil has been somewhat late in providing access to basic education for all school-age children.In the 1960s, access to schooling for Brazilian children was similar to most countries in Asia; by 1990, the countryhad still a long way to go. It was only in 1997 that the target of putting every child in school was established. Asa result, 10 percent of Brazil’s adults are considered illiterate and 74 percent are functionally illiterate (they areable to write their names but unable to read a book)—a total of 84 percent of the adult population of the countryis at a serious disadvantage. Moreover, only 65 percent of enrolled children finish primary school, and only 42percent of enrolled children finish secondary school. The mean years of schooling of the adult population is 7.4;it is important to note that one additional year of schooling in the country has the power to improve workers’income by around 10 percent. There is visible growth in this area over previous years, but the speed of thechange is low. Unfortunately, there is still a long way to go.Brazil has performed poorly in the OECD’s programme for International Student Assessment (PISA) test givenevery three years to 15-year-old students in 57 countries to assess their scholastic capabilities in reading as wellas their mathematic and scientific literacy. Brazil has participated since 2000 and has consistently been amongthe worst performers in all three tests given since then.As a large middle-income country, Brazil still has several underdeveloped regions. Its educational system isaccordingly plagued by many deficiencies and racial and regional disparitiesThe nation invests 4.3% of GDP on Education - the federal government aims to increase gradually this number to7% in the years to come.EDUCATION PROGRAMSEducation Policy followed by the government to improve educational and economic structure are:- The Ministry of Education and Sports does not establish nationwide educational programs. For fundamental education, the Federal Educational Council determines which subjects shall be compulsory for the national common core, defining their objectives and scope. The Federal Council at each State and of the Federal District lists the subjects contained in the diversified part of school curricula, for the area under its jurisdiction. For higher education courses, the Federal Educational Council determines the minimum curriculum for each course, but not the programs.CHALLENGES • Brazil has a public university system and technical schools that meet international standards and a basic, K-12 education system that is among the world’s worst. November 2009
  • 11. BRAZIL – Country Analysis Report 11 • Universities and technical schools are federally based and receive federal funds. The elementary and secondary schools are run by the municipal and state governments and can only count upon local funding. • But the K-12 system needs to be a national concern, and it must be able to reply upon three national standards: Each governing official’s responsibility towards education; The minimum conditions for each school. Resources from the federal government. LAND & LABOUR MARKETS LandThe factors of size, relief, climate, and natural resources make Brazil geographically diverse. Planners divide thecountry into five macro-regions: (1) North, (2) Northeast, (3) Southeast, (4) South, and (5) Center-West. TheNorth includes most of the Amazon Basin and covers 45 percent of the national territory, but only 7 percent ofthe population lives there. The Northeast is the eastward bulge of the country. Much of the population of theNortheast lives in poverty. The mainly upland area of the Southeast is the demographic and economic core of thenation. The Southeast contains only 11 percent of Brazil’s land, but 43 percent of the population lives there. TheSouth is the smallest region. It is distinct because of its temperate climate. The Center-West is a landlocked,thinly populated region that includes Brasília, the national capital. Amazon basin contains world’s largest riverand the world’s largest tropical rain forest.Land Reforms in BrazilLand reform consists of government-initiated or government-backed real estate property redistribution, generallyof agricultural land. In the 1930s, Getúlio Vargas failed to fulfill on a Promised Land reform. Later reforms wereplanned in the govt. of José Sarney but all in vain. In conclusion, this dramatic situation of poverty will not beovercome by any kind of market mechanism, much less through a credit line to buy a piece of land. It is crucialthat the struggle for a broad agrarian reform be strengthened, to invert the political balance of forces and thedynamic of social exclusion, making true social development into a viable pathway.Real Estate SectorLast 25 years in Real estate were stagnant because of high interest rates, lack of financing, high inflation andslow economic growth. Since the 1994 economic recovery plan (Plano Real) and macroeconomic reforms andsound fiscal management, purchasing power has increased and in turn investments in real estate sector. Recordnumber of tourism inflows has also improved the real estate sector. Foreigners can purchase land and property in November 2009
  • 12. BRAZIL – Country Analysis Report 12Brazil in their own names on a 100 percent freehold basis. Mortgage finance options are still less in Brazil. Keyproperty markets are Rio de Janeiro , Sao Paulo and north eastern Brazil. It is relatively easy for foreigners tobuy land and property in Brazil, as they generally enjoy the same rights as Brazilian nationals, even if they arenon-residents. However, foreigners must first obtain a Catastro de Pessoa Fisica (CPF) number before they canbuy property.Brazil is biggest exporter of coffee, soybeans, beef, sugar cane, ethanol and frozen chickens. Brazil contains awealth of mineral and plant resources that have not yet been fully explored. It possesses some of the world’slargest deposits of iron ore and contains rich deposits of many other minerals, including gold and copper. Brazil’sfossil fuel resources are modest, but this limitation is offset by the considerable hydroelectric potential of thenation’s many rivers. Although Brazil is an important producer of tropical crops, areas of highly fertile land arelimited, and only a small proportion of the land is actually under cultivation. There is substantial livestockranching, and the forests are important sources of timber, rubber, and palm oil. So if we compare it to othercountries like India and US, we can say that the available land under cultivation is very fertile and an investorcan gain a lot by investing in agriculture in Brazil. Low inflation, together with falling interest rates and astronger currency have improved consumer purchasing power and together are creating a much more positiveenvironment for investments in the real estate sector. In addition, record numbers of tourism inflows havehelped improve the image of Brazil not only as a prime leisure destination but also as a serious country to invest,committed to fiscal responsibility, democratic principles and rule of law. LaborFlexible labor markets, which ensure that the labor force is allocated to its most efficient use, is a criticalcompetitiveness enhancer for all economies. This is more so for countries competing mainly on high value addedgoods in markets that, because of their dynamism, require continuous adjustments to their national productionsystems, and therefore the ability to move workers to the most dynamic sector at any time. Further, well-functioning labor markets can play a central role in poverty reduction and in fostering social equity. This isparticularly meaningful for countries such as Brazil, characterized by a highly unequal income distribution andwidespread povertyBrazil is a racially diverse and multiracial country. Intermarriage among different ethnic groups has been part ofthe countrys history, and most Brazilians can trace their origin to European, Amerindian, and African ancestors.The Brazilian Institute of Geography and Statistics (IBGE) classifies the Brazilian population in fivecategories: white, black, pardo (brown), yellow, and Indigenous, based on skin color as given by the individualbeing interviewed in the census.As per Global Competitiveness Index, Brazil has been ranked at 80 in terms of labor market efficiency.Unemployment rate is 7.9 % in 2008 as per EuroMonitor. In 2007, 43 % of the labor was women. Child labor (5–14 November 2009
  • 13. BRAZIL – Country Analysis Report 13years) for 1999–2007 is 6 %. Minimum wage is 465 Brazil Real’s or 201 US $ per month. The Brazilian nationalminimum wage is adjusted annually. Millions of Brazilians live on the minimum salary. Most businesses areconducted between the hours of 8am and 6pm and the average working business week is 42 hours. Employees areentitled to a weekly rest of at least 24 hours. All employees are entitled to up to 30 days holiday after a full yearof work with the same employer. Service sector employed 66 % of the workforce in 2007. Population estimate for2009 is 191 Millions and Labor force is 134.6 million (2009 estimate).Labor organizations - The government first granted legal recognition to labor organizations in 1907. In 1931President Getúlio Vargas created a government-supervised trade union structure. Strikes were forbidden, butlabor courts assessed workers’ grievances. The Vargas government also instituted social legislation that wasadvanced for its time, regulating hours of work and establishing a minimum wage, worker training, and healthcare. By 1944 there were 800 unions, with over 500,000 members. During the 1950s labor became more militant,and there was pressure for a central labor organization and moves to unionize rural labor. Following the 1964military coup, the government purged the leadership of unions and placed many unions under direct governmentcontrol. However, continued union activism at the factory level and strikes organized by workers were factors inending the military regime. Unions reemerged following the return of civilian rule in 1985, and central labororganizations were legalized. During the 1990s the number of unions grew into the thousands and includedfactory and rural workers, employers, and professionals. In addition to umbrella organizations such as the CentralUnion of Workers and the General Confederation of Workers, both formed in 1983, there are unions for specificindustries, such as metal workers, and for sectors of the economy, such as commerce, transport, and education.Given below is a comparison of Brazil based on labor related parameters. Note that the highest rank is 133. Allthe analysis is based on the Global Competitiveness Report 2009. Ranked 87 in terms of Cooperation in Ranked at 110 in terms of Flexibility labor-employer Relations determination Rank Rank 100 120 80 100 80 60 60 110 40 87 60 40 20 40 20 44 53 26 14 0 0 US India China Brazil US India China Brazil November 2009
  • 14. BRAZIL – Country Analysis Report 14 Unemployment rate (%of economically Ranked at 68 in terms of Firing costs active population) is 7.9 for the year 2008 10 Rank 8 120 100 6 80 9.3 4 7.9 60 109 5.8 40 85 2 4 68 20 1 0 0 US Brazil India China US Brazil India ChinaTaking into account all the above discussions, it can be said that the people of Brazil are of varied culture and ofvaried ethnic origin. Million of them normally live on the minimum wages. The governments’ rules and policiesare such that sufficient rest and leisure time is mandatorily to be given to all the working class in a week. So aperson can easily come and enjoy working here. As per data, a person gets paid more than a similar person inIndia but less than a person in U.S. For example, a person with 5-9 years of work experience is paid around 44000USD in Brazil, 11000 USD in India and 73000 USD in US. So as compared to India, the wages are higher in Brazil.Unemployment rate in Brazil is also lower than that in India but higher than that in US. So we can make anassumption that the people in Brazil are more prosperous than the people in India but less prosperous than thepeople in US. Also to protect the interests of the labor, there are several labor unions formed in Brazil. November 2009
  • 15. BRAZIL – Country Analysis Report 15 MACROECONOMIC STABILITY CURRENCY REGULATIONSince 1994, the Brazilian currency has been the Real (plural: Reais), symbol is R$. Because of the very highinflation rates which Brazil had in the 1980s and early 1990s, the country had to change currency several times:Brazilians were used to dealing with Cruzeiros until 1986; that year, an economic plan cut three zeros from thebills and changed the currency to Cruzado; a few years later, another three zeros were dropped, and Brazilianswere introduced to the Cruzados Novos ("new cruzados"). In 1990, the Cruzados Novos were retired, and theCruzeiros were back; in 1993, the Cruzeiros lost another three zeros and were turned into Cruzeiros Reais.In 1994, after the deployment of a new monetary plan, the new currency, called Real, came to life.Since 1994, inflation has been maintained at civilized levels (2003, consumer prices rose by about 8%; in 2005,the inflation target is around 6%), and the Brazilian citizens had the chance, for the first time in a long period, toget accustomed to a stable currency.There are bills of R$1, R$2, R$5, R$10, R$20, R$50 and R$100.Coins exist in values of 1 cent (R$0.01), 5 cents, 10 cents, 25 cents, 50 cents and 1 Real. Coins vary in size andcolor.CURRENCY MARKETDifferently from most countries, Brazilians are not used to seeing foreigner currency bills; even the Americandollar and the euro have limited course; traveller checks are also restricted (usually, foreigners must exchangethe currency before paying their bills, in Reais). Brazilians have no authorization to have bank accounts in dollar;Brazilian firms (including hotels) must provide invoices and receipts in Reais.Currency exchange businesses exist in all major cities. "Casas de Cambio" are establishments that deal only withcurrencies; a few branches of a few banks also trade currencies, but not at an advantageous rate to thecustomer.Brazilian banks have developed an efficient Information Technology infrastructure; holders of major credit cardscan use Brazilian ATMs to access their accounts and withdraw cash (other transactions are limited). • 1 Brazil real = 0.58309 U.S. dollars. • Official reserve assets $ 221,628.70 • Foreign currency reserves (in convertible foreign currencies) $211,366.28. • The currency suffered a gradual depreciation until late 2002,as many Brazilians fearing another default or a resumption of heterodox economic policies purchased tangible assets as an inflation hedge or just simply took their money out of the country. November 2009
  • 16. BRAZIL – Country Analysis Report 16 At its worst point in October 2002, the Real actually reached its historic low of almost R$4 per US$1.• Through orthodox macroeconomic policies (including inflation-targeting, primary fiscal surplus and floating exchange rate, as well as continued payments of the public debt) the real has been getting stronger and stronger against the dollar and, since the beginning of 2005, most other world currencies as well. In the year of 2007, in spite of the various attempts of the Brazilian Banco Central (Central Bank) to keep real low, it has grown stronger against the dollar. In May 2007, the real became worth more than 50 U.S. cents for the first time in recent years.CURRENCY REGULATORY BODY The Central Bank of Brazil is the agency responsible for: a. Managing the day-today control over foreign capital flow in and out of Brazil (risk capital and loans under any form). b. Setting forth the administrative rules and regulations for registering investments. c. Monitoring foreign currency remittances. d. Allowing repatriation of funds. FEATURES Resilience to Shocks, No Dollarization, but Struggling to Promote Growth. The financial system in Brazil has evolved to a system with smaller o presence of public banks and larger participation of foreign banks, less o directed credit, and well capitalized banks. Restructuring the financial system and currency:- Program of Incentives for Restructuring and Strengthening the National Financial System (PROER) Program of Incentives for the Reduction of the State Role in the Banking Activity (PROES) Program for the Strengthening of the Federal Financial Institutions (PROEF) Estimate of fiscal cost of banking restructuring in Brazil Increasing the presence of foreign banks. FOREIGN INVESTMENT• The investments into and repatriation of foreign capital from Brazil are subject to various federal laws and regulations. November 2009
  • 17. BRAZIL – Country Analysis Report 17 • Foreign capital must be registered through an electronic system, which is part of the Central Bank Information System (Sistema de Informações do Banco Central– SISBACEN). • All foreign investments must be registered with the Central Bank of Brazil. • The foreign purchaser will be entitled to register capital in the same amount as the registration previously held by the selling company, once again regardless of the price paid for the investment abroad. TAXATION & GOVERNMENT REVENUETHE BRAZILIAN TAX SYSTEMBasic Aspects of the Brazilian EconomyBrazil is the fifth largest country in the world and the largest in the southern hemisphere, with 8.514 million km2of contiguous area. Brazil has borders with every South American country, except Chile and Ecuador. It has over15.7 thousand kilometers of land borders and approximately 7.3 thousand kilometers of coastline (AtlanticOcean).Taxes and Taxing PowersIn Brazil, the main directives for taxation are provided by the Federal Constitution, which establishes the generalprinciples of taxation, the limitations on the power to tax, tax competence across levels of government as wellas tax revenue sharing provisions.Thus, the National Tax System is instituted by the Constitution itself, which establishes that the Union, theStates, the Federal District and the Municipalities may collect taxes. The administrative-political autonomy,which is an essential characteristic of our federative system, confers to each level of government the possibilityof instituting taxes, fees (due to its police power or to the use of public services) and improvement charges (dueto public works). With respect to social contributions, most of them may only be established by the FederalGovernment. November 2009
  • 18. BRAZIL – Country Analysis Report 18 According to the Brazilian Constitution, the tax competence of taxing powers is as follows: TAX ADMINISTRATION Brazil is characterized by having a number of institutions whose functions are typical of tax administration, reflecting the federative structure of the country. At the Union level, the Federal Revenue Service (SRF) is responsible for all taxes assigned to Union and for the more relevant Social Security contributions, with the exception of those on the payroll and on self-employment. In Brazil, the National Social Security Institute – INSS, an autarchy under the jurisdiction of the Ministry of Welfare and Social Assistance, is in charge of administering social contributions levied on payroll and on self- employment. Brazilian taxation System Vs Indian taxation SystemPaying Taxes Doing Business 2008 Doing Business 2009 Doing Business 2010Country India Brazil India Brazil India BrazilRank ------ -------- 171 146 169 150Total tax rate(%Profit) 71.5 68.8 69 69.2 64.7 69.2Payments(number per year) 59 10 59 10 59 10Time(hours per year) 271 2600 271 2600 271 2600 November 2009
  • 19. BRAZIL – Country Analysis Report 19General Methodology:Three indicators are constructed: Number of tax payments, which takes into account the method of payment, the frequency of payments and the number of agencies involved. Time, which measures the number of hours per year necessary to prepare and file tax returns and to pay the corporate income tax, value added tax, sales tax or goods and service tax and labor taxes and mandatory contributions. Total tax rate, which measures the amount of taxes and mandatory contributions payable by the company during the second year of operation. This amount, expressed as a percentage of commercial profit, is the sum of all the different taxes payable after accounting for various deductions and exemptions. November 2009
  • 20. BRAZIL – Country Analysis Report 20 EVALUATING the EFFICIENCY ENHANCERS REMOVING ADMINISTRATIVE BARRIERS TO BUSINESS Economy Ranking – Ease of doing BusinessBrazil is ranked 129 out of 183 Economies. Singapore is at the top ranked Economy in Ease of doing businesswhereas India ranked 133. Comparison Of Brazil Economy with India on various features of doing Business Major Steps of Doing Business Brazil Rank India Rank Ease of Doing Business 129 133 Starting a Business 126 169 Dealing with Construction Permits 113 175 Employing Workers 138 104 Registering Property 120 93 Getting Credit 87 30 Protecting Investors 73 41 Paying Taxes 150 169 Trading Across Borders 100 94 Enforcing Contracts 100 182 Closing a Business 131 138 November 2009
  • 21. BRAZIL – Country Analysis Report 21According to below given Indicators, the Ranking of Economy has been assigned Summary Of Indicators Major steps of Doing Business Indicators Brazil India Procedures (number) 16 13 Time (days) 120 30 Starting a Business Cost (% of income per capita) 6.9 66.1 Min. capital (% of income per capita) 0 210.9 Procedures (number) 18 37 Dealing with Construction Permits Time (days) 411 195 Cost (% of income per capita) 50.6 2394.9 Difficulty of hiring index (0-100) 78 0 Rigidity of hours index (0-100) 60 20 Employing Workers Difficulty of redundancy index (0-10) 0 70 Rigidity of employment index (0-100) 46 30 Redundancy costs (weeks of salary) 46 56 Procedures (number) 14 5 Registering Property Time (days) 42 44 Cost (% of property value) 2.7 7.4 Strength of legal rights index (0-10) 3 8 Depth of credit information index (0-6) 5 4 Getting Credit Public registry coverage (% of adults) 23.7 0 Private bureau coverage (% of adults) 59.2 10.2 Extent of disclosure index (0-10) 6 7 Extent of director liability index (0-10) 7 4 Protecting Investors Ease of shareholder suits index (0-10) 3 7 Strength of investor protection index (0-10) 5.3 6 Payments (number per year) 10 59 Time (hours per year) 2600 271 Profit tax (%) 15.7 25.1 Paying Taxes Labor tax and contributions (%) 46.9 18.2 Other taxes (%) 6.6 21.4 Total tax rate (% profit) 69.2 64.7 Documents to export (number) 8 8 Trading Across Borders Time to export (days) 12 17 November 2009
  • 22. BRAZIL – Country Analysis Report 22 Cost to export (US$ per container) 1540 945 Documents to import (number) 7 9 Time to import (days) 16 20 Cost to import (US$ per container) 1440 960 Enforcing Contracts Procedures (number) 45 46 Time (days) 616 1420 Cost (% of claim) 16.5 39.6 Recovery rate (cents on the dollar) 17.1 15.1Closing a Business Time (years) 4 7 Cost (% of estate) 12 9 November 2009
  • 23. BRAZIL – Country Analysis Report 23Economies are number on the numbers and impact of reforms, Doing Business selects the economies thatreformed in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank inease of Doing Business from the previous year. The larger the improvement, the higher the ranking as a reformer.in Brazil: Brazil eased the process of starting a Business by removing the requirement to obtain a fire brigadelicense and inspection before obtaining a n operational license from a municipality.In India: In India procedures under the 2002 securitization Act have become more effective, easing the processand reducing the time required to close a business.Brazil is not an ideal place for investors to invest within business as it ranked 129 out of 183 Economies in ease ofdoing business. According to the above facts and figures, the administrative barriers in business are Business Regulation: As it is time consuming, they change frequently without advance information to the business community; and interpretations of regulations are inconsistent. Regulatory compliance consumes on average 7.6 percent of management’s time in Brazilian firms. This is extremely high compared to the regional average of 4.1 percent Labour law: The Brazilian labor law tends to be generous to employees .Firing an employee will almost inevitable and lead to a lawsuit seeking back pay for overtime, alleging failure to pay equal remuneration for equal work, etc. Most cases take about four to five years to wind their way through the Labor Court system until final resolution. Site development is also complicated: The entire permit and approval process for construction projects is very complex in Brazil. Location and building permits are required before the construction process can begin and an operation permit is required before a building can be occupied. Each site development permit involves a multiparty and multilayer approval process that can take months or even years to complete. Following the acquisition of the land, an investor needs to obtain several construction licenses, including an approval permit (design visa), construction permit, completion certificate, occupation permit etc. On average, the complete process takes more than 30 weeks in Brazil which is much greater than any average regional time which is 22 weeks Land Acquisition in Brazil has one of the worst procedure within Brazil for investors as Brazil land acquisition system is partly based on Portuguese administration and with the change in Portuguese administration system, directly make an impact on Land acquisition system of Brazil Significant administrative capacity differences among municipalities: Many of the smaller municipalities do not have the capacity to deal with large investments although they encourage them November 2009
  • 24. BRAZIL – Country Analysis Report 24 through incentives but still it act as a barriers within Brazil economy which hurdle investors to make large investment in business within Brazil Economy. FINANCIAL MARKETSEfficient financial system is an important feature of any competitive economy—more so for countries at higherstages of development. Cross-country analyses tend to find that financial depth predicts future economic growth,physical capital accumulation, and improvements in economic efficiency, even after controlling for initial incomelevels, education, and a variety of policy indicators. Some studies even suggest that developing deep andefficient financial systems is not only correlated with a healthy economy, but can also reduce poverty andincome inequality. Development of the financial system contributes to economic growth by reducing the costs ofacquiring and processing information, helping investors diversify risks, and reducing monitoring costs. As aconsequence, it improves resource allocation.STOCK MARKETSCorporate financing through the stock market has enjoyed substantial growth over the past several years, thanksnotably to efforts to encourage a culture of equity financing through regulatory changes, including measures toprotect the interests of minority shareholders. The Novo Mercado is a prime example. Brazil’s main stockexchange, Bovespa, is the largest in Latin America for its market capitalization, which has grown significantly asa percentage of GDP November 2009
  • 25. BRAZIL – Country Analysis Report 25BM&F Bovespa Stock Exchange and CVM, the securities market regulatorFounded on August 23, 1890, the "Bolsa de Valores de São Paulo" (Bovespa) has had a long history of servicesprovided to the stock market and the Brazilian economy.Through self-regulation, Bovespa operates under the supervision of the "Comissão de Valores Mobiliários" (CVM orCommission of Movable Assets in English), analogous to the American SEC. Since the 1960s, it has constantlyevolved with the help of technology such as the introduction of computer-based systems, mobile phones and theinternet. In 1972, Bovespa was the first Brazilian stock market to implement an automated system for thedissemination of information on-line and in real time, through an ample network of computer terminals.BM&F BOVESPA Securities, Commodities and Futures Exchange were created in 2008 with the integrationbetween the Brazilian Mercantile & Futures Exchange (BM&F) and the São Paulo Stock Exchange (Bovespa).Following are few of the peculiar features of BM&F BovespaMultiple Listing SegmentsA company can decide to get listed on Bovespa. Companies can be listed at Level 1, Level 2 or Novo Mercado.The goal is to create alternatives for those companies with preferred stocks in their capital stock but are willingto become more transparent and a provide more guarantees to their investors.Accordingly, BOVESPA has established a set of listing rules with transparency requirements and good corporategovernance practices designed for companies, senior management and controlling stockholders. Theserequirements are considered important for valuation of stock and other securities issued by the company. Theserules have been defined as “Differentiated Corporate Governance Practices”.Compliance with these Practices distinguishes the Company as Level 1 or Level 2 or Novo Mercado, dependingupon the degree of commitment assumed by the company.Level 1: - requires additional practice of share liquidity and disclosure.Level 2: - requires additional practice on the rights of shareholders and board of directors.Novo Mercado: - publicly-held companies listed on Novo Mercado have the following additional obligations: • Public share offerings have to use mechanisms to favor capital dispersion and broader retail access. • Maintenance of a minimum free float, equivalent to 25% of the capital. • Same conditions provided to majority shareholders in the disposal of the Company’s Control will have to be extended to all shareholders (Tag Along). November 2009
  • 26. BRAZIL – Country Analysis Report 26 • Establishment of a two-year unified mandate for the entire Board of Directors, which must have five members at least, of which at least 20% (twenty percent) shall be Independent Members. • Improvements in quarterly reports, such as the requirement of consolidated financial statements and special audit revision. • Obligation to hold a tender offer by the economic value criteria, in case of delisting or cancellation of registration as publicly-held company. • Compliance with disclosure rules in trades involving securities issued by the company in the name of controlling shareholders.Some of these obligations must be approved at the General Shareholders Meetings and included in the corporatebylaws.Advantages of multiple listing segmentsThe three listing segments of Bovespa offer two way advantages.Investor’s perspective: - An investor looking to invest in companies listed on Bovespa gets a clear indication ofthe level of corporate governance practices a particular company is following and can choose the company toinvest in accordingly.Company’s perspective: - A domestic or foreign company looking to get listed on Bovespa gets to choose thelevel of transparency and corporate governance it wants to follow. But companies which choose to followstringent rules of Novo Mercado find it easier to raise public money because these rules increase shareholdersrights and enhance the quality of information commonly disclosed by companies. Additionally, the MarketArbitration Panel for conflict resolution between investors and companies offer investors a safer, faster andspecialized alternative.It has been observed that increasing number of companies are getting listed on Novo Mercado which in turn hasattracted lot of foreign and domestic investment. This fact is validated by the two graphs shown below: -This graph shows that the number of companies listed on Novo Mercado has been increasing constantly whichshows that companies are accepting higher levels of corporate governance rules of Novo Mercado. In the year2001 the 14% of the total trading by value involved the companies listed on Novo Mercado and this increased to66% till June 2008. November 2009
  • 27. BRAZIL – Country Analysis Report 27Of the 111 companies that have had an Initial Public Offering in the last 5 years: 79 companies listed at the Novo Mercado (71% of the number of IPO companies in the period) 15 companies listed at the Level 2 8 companies listed at the Level 1The figure below shows that the international investment has been on a constant rise in Bovespa, with tradingvalue of international investors being 22% in the year 2000 and 37.2% in the year 2008. November 2009
  • 28. BRAZIL – Country Analysis Report 28Self Listed ExchangeBovespa is one of the few exchanges to be listed on itself. This raises the level of trust and confidence in theinvestors and listed companies since the exchange also follows the same levels of corporate governance practicesand disclosures that it expects the listed companies to follow. Also broker fees paid to the exchange are passedon to investors this atomizes the cost and as investors are a diversified and loose group, there is no outcry tolower fees.Non-Resident InvestmentsCVM, the stock market regulator has issued instruction 325/2000 to include the option of simplified registrationand full tax exemption for investments in equities. The major aspects are as follows:- • Non – resident investors may invest in the same products available to local investors. They may also invest in CVM regulated investment funds with free transit from equity- related to fixed income investments and vice versa observing the differences of tax treatment. • Both institutional and individual investors may invest in Brazil. • Non – resident investors must appoint a representative that will be responsible for the provision of information and filings with the central bank and the CVM.Competition and threatsOne of the key selling points for Bovespa has been the lack of competition from other exchanges. With highbarriers to entry and the rapid establishment of Bovespa as the premier exchange in the region, competition ismainly locked out. All the companies that have carried out a dual listing in New York have had very specificreasons, such as wanting to give investors direct peer comparisons.Although there are potential threats in the form of other physical exchanges or electronics ones, but Brazilianlegislation has erected some tricky hurdles for that business model. They include identification of the finalbeneficiary of a trade and the imperative that transactions involving either an institutional investor or financialintermediary use a regulated market for transactions. That means a new competitor would need to create anorganized market.The combination of a better-run, more liquid home market in Bovespa and the Sarbanes-Oxley Act (SOX) and thecosts associated for listing in the exchanges like NYSE has prompted many Brazilian companies to stay at home.Challenges and recommendationsThere are some red flags in the wider IPO market in Brazil. Recently, a number of IPOs have traded down in theimmediate aftermarket. And while corporate governance standards are good, some companies respect the letterrather than the spirit of the law. For instance Giant ethanol producer Cosan moved its listing to Bermuda to November 2009
  • 29. BRAZIL – Country Analysis Report 29enable the owner to keep control of the company with a 10% stake. That contributed to a collapse in the shareprice.CVM, BOVESPA, IBGC and firms listed on the Novo Mercado have been major champions and drivers of change.The challenge for Brazilian government now is to “mainstream” corporate governance reform beyond this limitedgroup of insiders and make it an integral part of the investment climate agenda.CORPORATE GOVERNANCEIn the last decade there have been changes in the organizational environment in Brazil. These changes includethe revival of capital market, the emergence of companies with dispersed and diffuse capital, mergers andacquisitions of large companies, business setbacks of veterans and newcomers and the global economic crisis.These set of factors have brought to light some weaknesses of the organizations and their systems of governance,highlighting the need for actual adoption of good corporate governance practices. Fortunately for investors andthe companies the Brazilian government has reacted promptly to enforce corporate governance rules to makesure that companies imbibe a culture of transparency and disclosure. There are three key bodies that play asignificant role in the development of corporate governance practices in Brazil- IBGC, the stock market regulatorCVM and the stock exchange Bovespa.Role of IBGCThe Brazilian Institute of Corporate Governance (IBGC) founded on November 27, 1995, has been since itsinception issuing Code of Best Practices.The first version essentially focused on the Board of Directors like other code in US and UK. The subjectsincluded in the first code were missions, functions of board of directors, number of directors in the board,qualifications, term of office, age limit, remuneration of directors, transparency and disclosures in terms ofShares held by directors, CEO evaluation and minutes of meeting of all the board meets.The second version in addition to the first version specified new chapters on Ownership - shareholders and/orpartners, management – CEO and Officers, Independent Auditors, the Fiscal Council/Supervisory Board,Ethics/Conflicts of interest.In the third version Corporate Responsibility became a fourth basic principle, along with transparency, fairness,and accountability. New items were included to describe the Family Council, free-float, length of mandate ofauditors, and non-audit services. November 2009
  • 30. BRAZIL – Country Analysis Report 30Code of Best Practices – Fourth VersionThe fourth version is based on the basic principles of • Transparency • Equity • Accountability • Corporate ResponsibilityShareholder’s RightsThe shareholders enjoy the following rights under the fourth version of code of best practices:- • Enhanced voting rights given by the fourth version of code of best practices has link between voting rights and equity favors the alignment of interest between all members. • to participate in corporate profits • to participate in the assets of the corporation in the event of liquidation • to supervise the management of corporate business • first refusal in the subscription of shares, convertible founder shares, convertible debentures, and subscription warrants • withdraw from the corporation (appraisal rights)Role of CVM and BovespaThe stock markets regulator, CVM and Bovespa, the São Paulo stock exchange, have established separate listingsegments to enhance corporate governance practices beyond the corporate law. The commitments undertakenby companies listed in Level 1 include improved disclosure, procedures for the wide distribution of shares inpublic offerings, and a free float of at least 25 per cent of the share capital.Level 2 commitments additionally include: a single one-year term for the entire board of directors; tag-alongrights for minority shareholders at 100 per cent and 70 per cent of the price paid to the controlling shareholders(for common and preferred shares, respectively); restricted voting rights in certain fundamental decisions or anymatters that may involve conflicts of interest.In addition to the above requirements, companies listed in the Novo Mercado segment must issue voting sharesexclusively.The creation of special listing segments has made a business case for good corporate governance. Increasingnumber of companies are getting listed on Novo Mercado which is the most stringent of all the three levels oflisting in terms of rules of corporate governance. On the other hand the proportion of companies listed on level 1 November 2009
  • 31. BRAZIL – Country Analysis Report 31and level 2 has been on a decline which shows that companies are accepting voluntarily higher levels ofcorporate governance practices.Key Issues Investor Protection The legislative changes of 2001/02 instituted “tag along” rights for all voting shareholders, however holders of non-voting stock are still not protected in the case of change of control. This permits companies to exclude non-voting shareholders from important benefits, including during changes of control. Disclosure The Corporation Law dealing with reporting requirements, including accounting standards and audit rules is outdated. Brazilian GAAP is less demanding than US GAAP or IFRS in terms of disclosure of related- party transactions. Firms often only report on RPTs in general terms without details except the value of the transaction. Enforcement Although there are key governing bodies like IBGC, CVM and Bovespa, firms listed on the Novo Mercado have been majorly the ones who are following the corporate governance practices.Recommendations Mainstreaming Corporate Governance Policymakers should fortify the bylaws of large listed State Owned Enterprises so that they could migrate to the corporate governance segments, providing listed firms with a model to emulate. Promoting effective boards Policymakers should periodically assess the corporate governance conditions in the country, to determine the need and appropriateness for fully-independent audit committees as part of the board of directors, per international standards. Strengthening shareholder’s rights Tag-along rights for PN shares are suggested by good international practice as one of the main instruments for minority investor protection. The introduction of proxy voting by mail will increase minority investor participation in corporate governance. November 2009
  • 32. BRAZIL – Country Analysis Report 32 INSURANCE SECTORBrazil is by far the largest insurance market in Latin America, representing more than 40% of the gross writtenpremiums in the region. Brazil also has the largest population in South America, the 10th largest economy in theworld by GDP and a low insurance penetration rate. These factors indicate that, despite the relatively impressivesize of the Brazilian insurance market, it still has tremendous growth potential, estimated by some to be thethird best in the world behind China and India. Not surprisingly, therefore, although the growth of the insurancemarket has slowed in 2009 with the global economic crisis, industry growth is widely expected to break doubledigits in both 2008 and 2009.SNAPSHOT OF THE BRAZILIAN INSURANCE INDUSTRY November 2009
  • 33. BRAZIL – Country Analysis Report 33SIGNIFICANCE OF INSURANCE FROM BUSINESS POINT OF VIEW Safety against risks Source of credit Promotes foreign trade Aid to small businesses Provides business stability Promotes research & innovationREGULATORY BODY & THE NEED FOR IT [Excessive or too little control – Perils]CNSP - The National Council of Private Insurance - is the system’s deliberative body and it is responsible for thesettlement of the Brazilian Government policies’ guidelines and directives for insurance and capitalizationcompanies and open private pension entities in Brazil.The Superintendence of Private Insurance (SUSEP), an autarchy linked to Ministry of Finance, is the executivebody of the politics delineated by the CNSP and is also the insurance commissioner, responsible for thesupervision and control of the insurance, open private pension funds and capitalization markets in Brazil.NEED FOR REGULATION OF THE INSURANCE SECTORToo little control of the industry will lead – Cut throat competition – Cut throat competition is not of the interest of the industry since acute competition may sometimes lead to insolvency of insurance companies 7 thereby policy holders may face serious consequences. More attention towards profitable schemes /policies – Private insurance companies will develop & introduce only those schemes which involve minimum risk burden & that are more profitable for them. They would overlook the interests of common people especially women & handicapped who are prone to more risks.RECENT REFORMSOn January 15, 2007, Brazil published Complementary Law 126, eliminating the previous state monopoly onreinsurance, which had been in place since 1939. Previously the domain of the government controlled BrazilianInstitute of Reinsurance (IRB), the regulation of co-insurance, reinsurance and retrocession transactions. November 2009
  • 34. BRAZIL – Country Analysis Report 34This change in law created a rapid influx of reinsurers, who are expected to bring: Significant new capital Technical expertise Product innovation Reinsurance support for undeveloped and underdeveloped lines of business. REGULATORY FRAMEWORK/INSTITUTIONSCOMPETITION LAWAs trade Liberalization progresses and the state is gradually withdrawing from the expanded role it has assumedearlier. It is against this background of Liberalization Competition law assumes great importance.Competition laws known more popularly as (Antitrust laws in the United States) are important for thepreservation of economic freedom and our free-enterprise system.What does Competition Law prohibit?Competition law prohibits the deliberate exploitation of a dominant market position by a firm. Generally anyagreement, arrangement or understanding between enterprises that has the effect of substantially lessening orlimiting access to market is prohibited by Competition law. This prohibition applies not only to writtenagreements but also to oral and informal agreements.Anti-competitive offensesThese agreements include agreements between competitors to fix prices or the terms and conditions of credit and sales, to allocate customers or territories; Not to deal with any person or persons ("group boycotts"), and, in certain circumstances, to sell one product conditioned on an agreement by the buyer to purchase a second, distinct product ("tying"). Resale price maintenance Collusive tendering etc November 2009
  • 35. BRAZIL – Country Analysis Report 35Brazilian Competition Policy System (BCPS) consists of three bodies: (1) CADE, the Administrative Council for Economic Defense, an autonomous agency which has dispositive adjudicative authority in BCPS cases; (2) SDE, the Economic Law Office in the Ministry of Justice, which has the principal investigative role; and (3) SEAE, the Secretariat for Economic Monitoring in the Ministry of Finance, which also has investigative authority but is primarily responsible for providing economic analysis in BCPS proceedings.Brazilian competition law prohibits companies – to limit, restrain or in any way injure open competition or free enterprise; to control a relevant market of a certain product or service; to increase profits on a discretionary basis; to abuse one’s market control. to make horizontal and vertical agreements and unilateral abuses of market power etcStrengths of the BCPS include - a strong institutional dedication to high standards of integrity, autonomy, sound policy, fair procedure; an excellent leadership cadre & a supportive business community.Weaknesses of the BCPS include – a counter-productive institutional structure Staff that is neither sufficient in size nor compensated adequately to retain qualified employees over the long term. The consequences of inadequate staff include poor institutional memory, inefficiency, and delay. Also, some statutory provisions relating to merger notification and to the leniency program interfere with efficient and effective law enforcement, and the unfamiliarity of the courts with competition law is yet another source of difficulty. November 2009
  • 36. BRAZIL – Country Analysis Report 36 EVALUATING the TECHNOLOGICAL READINESSAccess to cutting-edge technology becomes increasingly important for firms and countries in sustaining theircompetitiveness as they progress to the efficiency-driven stage of development and cannot continue to relyexclusively on cheap factors of production as main competitive advantages. At this stage, what really matters isthe availability of technology within the country, regardless of its origin: the capacity to generate knowledgedomestically becomes a key driver of competitiveness only for economies near to the technological frontier, inthe third and most advanced stage of development.As countries move up the development path and reach the most advanced stage of development, the capacity toproduce unique and innovative products and services and to incorporate sophisticated production processesbecomes increasingly critical for sustaining national competitiveness. Brazil has not reached yet the innovation-driven stage, and the innovation and sophistication factors currently account for a relatively minor part of itscompetitiveness.TECHNOLOGYBrazilian science and technology have achieved a significant position in the international arena in the lastdecades. Brazil has today a well developed organization of science and technology. Basic research is largelycarried out in public universities and research centers and institutes, and some in private institutions,particularly in non-profit non-governmental organizations. Thanks to governmental regulations and incentives,however, since the 1990s it has been growing in the private universities and companies, as well. Accordingly,more than 90% of funding for basic research comes from governmental sources.Applied research, technology and engineering is also largely carried out in the university and research centerssystem, contrary-wise to more developed countries such as the United States, South Korea, Germany, Japan, etc.The reasons for these are many, but the main ones are: • Few Brazilian private companies are competitive or rich enough to have their own R&D&I, they usually develop products by outsourcing from other companies, usually foreign ones; • The high-technology private sector in Brazil is dominated by large multinational companies, which usually have their R&D&I centers overseas, and, with a few exceptions, do not invest in their Brazilian branches.However, there is a significant trend reversing this now. Companies such as Motorola, Samsung, Nokia and IBMhave established large R&D&I centers in Brazil, starting with IBM, which had established an IBM Research Centerin Brazil since the 1970s. One of the incentive factors for this, besides the relatively lower cost and highsophistication and skills of Brazilian technical manpower, has been the so-called Informatics Law, which exemptsfrom certain taxes up to 5% of the gross revenue of high technology manufacturing companies in the fields of November 2009
  • 37. BRAZIL – Country Analysis Report 37telecommunications, computers, digital electronics, etc. The Law has attracted annually more than 1,5 billiondollars of investment in Brazilian R&D&I. Multinational companies have also discovered that some products andtechnologies designed and developed by Brazilians have a nice competitivity and are appreciated by othercountries, such as automobiles, aircraft, software, fiber optics, electric appliances, and so on.Brazils IT industry has achieved some remarkable feats, particularly in the area of software. In 2002, Brazilstaged the worlds first 100% electronic election with over 90% of results in within 2 hours. The system isparticularly suited to a country with relatively high illiteracy rates since it flashes up a photograph of thecandidate before a vote is confirmed. Citizens could download a desktop module that relayed the votes to theirhomes in real-time faster than the news networks could get them out. In 2005, President Luiz Inácio Lula da Silvalaunched a "peoples computer" to foster digital inclusion, with government finance available and a fixedminimum configuration. Having rejected the Microsoft operating system (Windows XP Starter Edition), it is beingshipped with a Brazilian-configured Linux system offering basic functions such as word processing and internetbrowsing. Plans to make cheap internet access available have not yet come to fruition.Brazil is the 5th Largest Computer Market in the World. Brazil is Latin America’s largest telecom market. It isworld’s leading producer of hydroelectric power. Brazil leads Latin American software revenues. As per GlobalCompetitiveness Index 2009, Brazil has been ranked 46 in terms of Technological Readiness. It develops projectsranging from submarines to aircrafts to space research. Brazil also possesses a satellite launching center and wasthe only country in the Southern Hemisphere to integrate the team responsible for the construction of the ISS. Itis known as pioneer in ethanol production. Almost 73% of funding for basic research comes from government. Ithas an operational Synchrotron Laboratory; a research facility on physics, chemistry, material science and lifesciences, only 3 countries in Latin America has such a facility. The total adult literacy rate (%), 2000–2007 is 91 %as per UNICEF. Uranium is enriched at the Resende Nuclear Fuel Factory to fuel the countrys energy demands.Countrys first nuclear submarine will soon be launched. The government also plans to build 17 more nuclearplants by the year 2020.Given below is a comparison of Brazil based on technology parameters. Note that the highest rank is 133. All theanalysis is based on the Global Competitiveness Report 2009. Rank Rank 50 50 40 40 30 30 46 20 41 20 35 34 10 25 10 23 2 1 0 0 US India China Brazil US China Brazil India Ranked 41 in terms of Scientific research Ranked at 34 in terms of R&D investment institutions November 2009
  • 38. BRAZIL – Country Analysis Report 38 Rank 80 70 70 60 60 50 50 40 40 68 30 60 30 60 20 36 20 10 10 4 5 4 13 0 0 India US China Brazil US China Brazil India Ranked 60 on the levels of Government Ranked 34 in terms of Scientists & procurement of advanced technology Engineers productsTaking into account all the above discussions, it can be said about Brazil that it is technologically sufficientcountry. There are lots of universities for higher education, both public as well as private, research anddevelopment institutes and scientific societies. There is a long list of important Brazilian scientists andtechnologists. So one can easily take advantage of the technological advancements in Brazil and hence makeprofits after investing here.INTELLECTUAL PROPERTY RIGHTSThe two IPR governing bodies in Brazil are: INPI (Instituto Nacional Da Propriedade Industrial), responsible forregistration of trademarks, patenting, the registration of computer software, industrial designs and geographicalindications, according to the Industrial Property Law and The National Council for Combating Piracy andIntellectual Property Crimes.Brazil belongs to following principal international IPR organizations and agreements: • Berne Convention (copyright) – since 1922 • Paris Convention (priority rights) – since 1884 • Patent Cooperation Treaty (patents) – since 1978 • WTO/TRIPS (IPR in general) – since 1995As a member of the World Trade Organization, Brazil has IPR laws whose effect is in line with the ‘minimumstandards’ laid down by TRIPS. Consequently there are, in theory, few major differences between Brazil’s lawsand those of other developed countries, although there are plenty of differences in detail. November 2009
  • 39. BRAZIL – Country Analysis Report 39Some of the differences include: • Unlike in the US, the employee (not the employer) owns the copyright to works that he or she creates within a business. • Brazil’s patent law operates under the ‘first to file’ principle: if two or more applicants file for patents for identical items, the one whose application was filed first prevails. This is different from practice in the US, where ‘first to invent’ is the critical test. • Utility models, sometimes referred to as ‘minor patents’, are available in Brazil as in many countries including France, Italy and China. Invention patents give protection for a maximum of twenty years, while utility models are valid for fifteen.Comparison of Patent applications granted and filed by patent office and country of origin Country of Origin Filed Granted Granted/Filed Brazil 1,049 395 0.38 India 3882 1025 0.26 United States of America 1,68,553 146065 0.87US have the highest ratio of number of patents granted to the number of patents filed while Brazil has a ratiohigher than India but less than that of US. This is indicative of the stricter IPR laws in Brazil as compared to theUS.Time and cost comparison Country Maximum Cost Time to Register Initial Term (in $) typical period, from filing date (years) from filing date (years) Brazil 20 383 5-8 US 4 326 1-2Source: WIPO Statistics Database, June 2009 November 2009
  • 40. BRAZIL – Country Analysis Report 40Brazil has made great strides in recent years to overhaul and replace its IPR laws. It has also set upofficial/private partnership organizations at national level, such as (in 2005) the National Council for CombatingPiracy and Intellectual Property Crimes. However, serious deficiencies remain in the enforcement of the law andthe sheer volume of IPR abuse.Some of the major causes for concern include: • Backlog in the processing of applications of all types by the Patent and Trademark Office, which are currently taking six to seven years to be resolved. • In the south of the country, the shipment of counterfeit and pirated goods is a massive problem - there is a greater amount of income available to spend on luxury goods including counterfeits. • Not a member of Madrid protocol so the advantages of the Madrid Protocol (provides a unitary method of reciprocal trade mark registration for foreign companies) are not available in Brazil for foreign trade mark owners. • IP is portrayed by the Brazilian government as a foreign monopoly against the interests of Brazilian people. The government, at a political level, has often declared that, while it considers important the protection of IPRs, it does not consider this matter as a priority in terms of allocated budgetary resources. November 2009
  • 41. BRAZIL – Country Analysis Report 41Conclusion - A company’s intellectual property portfolio is its most valuable asset. So the business should befamiliar with the concepts of IP and understand how the IP rights owned by their business will be affected inoverseas markets. This knowledge can save the company a great deal of money through knowing what to look outfor and taking timely self-help avoidance measures.Brazil is Latin Americas largest country and economy. It is close to achieving an investment-grade rating, withthe potential to attract massive foreign direct investment. However the lack of protection for intellectualproperty in Brazil is a cause for concern for foreign companies wishing to do business there. In spite of the recentefforts by the Brazilian government to improve matters and bring the IPR environment into line withinternational norms, much has still to be done. November 2009
  • 42. BRAZIL – Country Analysis Report 42CONCLUSION & RECOMMENDATIONSBrazil as an investment destination for the short term is a “not favorable” option whereas if one is looking forlong term attractiveness of Brazil as an investment destination, then the answer would be “yes”.The decision favoring Brazil as a better investment destination in the future is based on the assumption that thegovernment would keep up with the present rate of reforms in each sector.To be fair, Brazil has the potential to become one of the most dynamic BRIC economies.The last two decades have been a period of important progress for the country in consolidating macroeconomicstability, liberalizing and opening the economy, and reducing income inequality, among other dimensions. Thishas put the economy on a sounder foundation in terms of sustainable, long-term growth.Nevertheless, a number of shortcomings continue to undermine national competitiveness. These include highlevels of government indebtedness, an overly rigid labor market, and poor educational standards coupled with anenduring inequitable income distribution. It is a tough call for Brazil’s institutions to tackle these shortcomings inthe present context of major external shocks on export demand and financing availability, along with fallingcommodity prices.The country would be in a better state if it were to work out to solve all these problems, especially the problemsit faces in the “Basic requirements” we have identified. It is also important for the government to develop moretools to measure the impact of each public policy.Last but not least, the attention given to basic education should be enhanced, with an emphasis on universalaccess to secondary school and a strong investment in technical education and scientific careers. Brazil needsmore engineers and more science teachers and researchers. Although improvements in healthcare provided tothe overall population have been achieved in the past few years, providing increased access remains a keychallenge in Brazilian healthcare. November 2009
  • 43. BRAZIL – Country Analysis Report 43References World Competitiveness Report’ 2009 –World Economic Forum EIU (Economist Intelligence Unit) database -Country Profile: Brazil. OECD database - Economic Survey of Brazil ‘2006. UNCTAD (United Nations Conference on Trade and Development) - World Investment Report 2008. World Bank database - Doing Business 2009 Euromonitor – Brazil ‘2006 The World Health Report 2000, WHO. Health Systems and Services Profile Brazil. PAHO and USAID. Intellectual Property Rights Primer for Brazil. [Hunter Rodwell Consulting, UK Trade and Investment]. Health status impacts on individual earnings in Brazil. [Luiz Fernando Alves and Mônica Viegas Andrade. 2002]. World Intellectual Property Indicators 2009 - WIPO. www.doingbusiness.org OECD ‘Policy Brief’-competition policy & Law in Brazil –Sept’08 “Brail – Insurance market snapshot” – Ms. Maria Elena [FENASEG- Sept’08] November 2009