Brazil

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Brazil

  1. 1. .Country Analysis Brazil 7
  2. 2. CONTENTIntroductionBrazil 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 LawEconomic Economy of Brazil Industrial output Key industries FDISociological Culture Language General attitude Personal appearance
  3. 3. Technological Technology research Information technology R&D Technology policy of Brazil Brazilian industry and TechnologyLegal Legal system of Brazil Municipality Court and justiceEnvironment National The Future
  4. 4. Introduction Brazil is the largest and most powerful country in South America and has become one ofthe worlds most attractive emerging markets in recent years. Brazil accounts for almost half ofSouth Americas total population and landmass and has established itself as the dominant powerin South America. Moreover, Brazils rapid economic diversification is allowing it to transformitself 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 productionand integrates various economic groups, such as Mercosur, G-22 and the Cairns Group. Thecountry’s scientific and technological development, together with a dynamic and diversifiedindustrial sector, is attractive to foreign enterprise: direct investment was in the region of US$ 20billion /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 ofSouthAmerican Nations, and is one of the BRIC Countries. Brazil is also home to a diversity ofwildlife, 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 industrialsector accounts forone-third of GDP, and includes steel, petrochemicals, computers, aircraft, andconsumer durables. Its technological sector encompasses submarines, aircraft, and spaceresearch, including involvement in construction of the International Space Station. It is also aleader 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, economicstability, and lowered interest rates have increased consumer confidence and boosted car sales inBrazil to the highest levels in the country’s history. The World Bank classifies Brazil as a lower- middle-income country. However, theeconomy is large and diverse, and exports are geographically well spread. There have beenprofound changes and durable reformin the past 10-15 years — the end of hyperinflation,economic liberalization, improved public finances, anda successful transition from a fixed to afloting exchange rate. This has been reflected in increased domesticsavings and exports of goodsand services. Nonetheless, annual average economic growth in the past 10 years was modest, as theeconomy suffered aseries of crises related to poor public debt dynamics in the context of ahistorical tendency to periodic debt default. The most recent crisis was in 2002, and it was endedby the incoming government’s tight fscal and monetary measures, consistent meeting ofInternational Monetary Fund targets, and market-friendly structural reforms. Instability hasremained at bay despite political scandal and elections. Brazil trades regularly with over one hundred nations, with 74% of exports representedby 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 themost dynamic sectors in this trade scenery is the so-called ―agrobusiness‖ sector, which for twodecades has kept Brazil amongst the most highly productive countries in areas related to the ruralsector.
  5. 5. The owner of a sophisticated technological sector, Brazil develops projects that rangefromsubmarines 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 thefield of deep water oil research, from where 73% of its reserves are extracted, Brazil was the firstcapitalist country to bring together the ten largest car assembly companies inside its nationalterritory. Brazil is weathering the current global economic crisis better than most other LatinAmerican countries. Thanks to the recent development of a large middle class, together with theexpansion of the countrys natural resource-based industries, Brazil has managed to avoid fallinginto a deep recession in recent years, unlike nearly all of its Latin Americanneighbors. Moreover, the rapid expansion of the countrys oil industry will help to boostBrazilian economic growth over the near-term.
  6. 6. Government and politics The Brazilian Federation is the "indissoluble union" of three distinct political entities: theStates, 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 fivefundamentalprinciples: sovereignty, citizenship, dignity of human beings, the social values oflabour andfreedom of enterprise, and political pluralism. The classic tripartite branches ofgovernment(executive, legislative, and judicial under the checks and balances system), isformally established by the Constitution. The executive and legislative are organizedindependently in all three spheres of government, while the judiciary is organized only at thefederal 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), andDemocrats (DEM). Almost all governmental and administrative functions areexercised byauthorities and agencies affiliated to the Executive. The form of government is that of a democratic republic, with a presidential system. Thepresident is both head of state and head of government of the Union and is elected for a four-yearterm, with the possibility of re-election for a second successive term. The current president isLuísInácio 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. Legislativehouses in each political entity are the main source of law in Brazil. The National Congress is theFederations bicameral legislature, consisting of the Chamber of Deputies and the FederalSenate. Judiciary authorities exercise jurisdictional duties almost exclusively.Foreign relations Brazil has traditionally been a leader in the inter-American community and played animportant role in collective security efforts, as well as in economic cooperation in the WesternHemisphere. Brazil supported the Allies in both World Wars. During World War II, itsexpeditionary force in Italy played a key role in the Allied victory at Monte Castello. It is amember of the Organization of American States (OAS) and a party to the Inter-American Treatyof Reciprocal Assistance (Rio Treaty). Recently, Brazil has given high priority to expandingrelations with its South American neighbors and is a founding member of the Latin AmericanIntegration Association (ALADI), the Union of South American Nations (UNASUL) created inJune 2004, and Mercosul, a customs union between Argentina, Uruguay, Paraguay, and Brazil,with Chile, Bolivia, Peru, Colombia, and Ecuador as associate members; Venezuelas fullmembership is pending. Brazil is a charter member of the United Nations and participates in its specializedagencies. It has contributed troops to UN peacekeeping efforts in the Middle East, the formerBelgian Congo, Cyprus, Mozambique, Angola, East Timor, and most recently Haiti. Brazil iscurrently leading the UN peacekeeping force in Haiti. Brazil served as a non-permanent memberof the UN Security Council from 2004-2005. Prior to this, it had been a member of the UNSecurity Council eight times. Brazil is lobbying for a permanent position on the Counci
  7. 7. As Brazils domestic economy has grown and diversified, the country has become increasinglyinvolved in international economic and trade policy discussions. For example, Brazil has been aleader of the G-20 group of nations and in 2009 became a creditor country to the InternationalMonetary Fund (IMF). The U.S., Western Europe, and Japan are primary markets for Brazilianexports and sources of foreign lending and investment. China is a growing market for Brazilianexports. Brazil also has bolstered its commitment to nonproliferation through ratification of thenuclear Non-Proliferation Treaty (NPT), signing a full-scale nuclear safeguard agreement withthe International Atomic Energy Agency (IAEA), acceding to the Treaty of Tlatelolco, andjoining the Missile Technology Control Regime (MTCR) and the Nuclear Suppliers Group.States and municipalitiesBrazil is a federation composed of twenty-six States, one federal district (which contains thecapital city, Brasília) and municipalities. States have autonomous administrations, collect theirown taxes and receive a share of taxes collected by the Federal government. They have agovernor and a unicameral legislative body elected directly by their voters. They also haveindependent Courts of Law for common justice. Despite this, states have much less autonomy tocreate their own laws than in the United States. For example, criminal and civil laws can only bevoted by the federal bicameral Congress and are uniform throughout the country.
  8. 8. 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 politicaloradministrative divisions, and they do not have any specific form of government. Althoughdefined by law, Brazilian regions are useful mainly for statistical purposes, and also to definetheapplication of federal funds in development projects. Municipalities, as the states, have autonomous administrations, collect their own taxesand receive a share of taxes collected by the Union and state government. Each has a mayor andan elected legislative body, but no separate Court of Law. Indeed, a Court of Law organized bythe state can encompass many municipalities in a single justice administrative division calledcomarca (county).GeographyBrazil occupies a large area along the eastern coast of South America and includes much ofthecontinents interior, sharing land borders with Uruguay to the south; Argentina and Paraguayto 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 aborder with every country in South America except for Ecuador and Chile. It also encompasses anumber of oceanic archipelagos, such as Fernando de Noronha, Rocas Atoll, Saint Peter and PaulRocks, and Trindade and MartimVaz. Its size, relief, climate, and natural resources make Brazilgeographically diverse. Brazil is the fifth largest country in the world, after Russia, Canada, China and the UnitedStates, and third largest in the Americas.ClimateThe climate of Brazil comprises a wide range of weather conditions across a large area andvaried topography, but most of the country is tropical. According to the Köppen system, Brazilhosts five major climatic subtypes: equatorial, tropical, semiarid, highland tropical, temperate,and subtropical. The different climatic conditions produce environments ranging fromequatorialrainforests in the north and semiarid deserts in the northeast, to temperate coniferousforests in the south and tropical savannas in central Brazil. Many regions have starkly differentmicroclimates.Components and energyBrazils economy is diverse, encompassing agriculture, industry, and many services. Therecenteconomic strength has been due in part to a global boom in commodities prices withexports from beef to soybeans soaring. Agriculture and allied sectors like forestry, logging andfishing accounted for 5.1% of the gross domestic product in 2007, a performance that putsagribusiness in a position of distinction in terms of Brazils trade balance, in spite of tradebarriers 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 isoftentechnologically advanced, is highly concentrated in metropolitan São Paulo, Rio deJaneiro,Campinas, Porto Alegre, and Belo Horizonte.
  9. 9. Brazil is the worlds tenth largest energy consumer with much of its energy coming fromrenewable sources, particularly hydroelectricity and ethanol; nonrenewable energy is mainlyproduced from oil and natural gas. A global power in agriculture and natural resources, Brazilexperienced tremendous economic growth over the past three decades. It is expected to become amajor oil producer and exporter, having recently made huge oil discoveries. The governmentalagencies responsible for the energy policy are the Ministry of Mines and Energy, the NationalCouncil for Energy Policy, the National Agency of Petroleum, Natural Gas and Biofuels, and theNational Agency of Electricity.TransportBrazil has a large and diverse transport network. Roads are the primary carriers of freightandpassenger traffic. The road system totaled 1.98 million km (1.23 million mi) in 2002. Thetotal ofpaved 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 inthe world, after the United States. São Paulo-Guarulhos International Airport, near São Paulo, isthe largest and busiest airport, handling the vast majority of popular and commercial traffic ofthe 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 havebeengiven 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.DemographicsThe 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 0.95:1and83.75% of the population defined as urban. The population is heavily concentrated in theSoutheastern (79.8 million inhabitants) and Northeastern (53.5 million inhabitants) regions,while the two mostextensive regions, the Center-West and the North, which together make up64.12% 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 mortalityrate,even though the birth rate underwent a slight decline. In the 1940s the annual populationgrowthrate was 2.4%, rising to 3.0% in the 1950s and remaining at 2.9% in the 1960s, as lifeexpectancy rose from 44 to 54 years and to 72.6 years in 2007. It has been steadily falling sincethe 1960s, from 3.04% per year between 1950-1960 to 1.05% in 2008 and is expected to fall to anegative 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 washighest(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 2006nearly 50,000 people were murdered in Brasil. ―O DIA Online - Rio no mapa da morte!‖Morethan 500.000 people have been killed by firearms in Brazil between 1979 and 2003,according tothe UN report.
  10. 10. The largest metropolitan areas in Brazil are São Paulo, Rio de Janeiro, and Belo Horizonte — allin the Southeastern Region — with 19.5, 11.5, and 5.1 million inhabitants respectively. Almostall of the state capitals are the largest cities in their states, except for Vitória, the capital ofEspírito Santo, and Florianópolis, the capital of Santa Catarina. There are also non-capitalmetropolitan areas in the states of São Paulo (Campinas, Santos and the Paraíba Valley), MinasGerais (Steel Valley), Rio Grande do Sul (Sinos Valley), and Santa Catarina (Itajaí Valley).São Paulo is the largest city in Brazil and the worlds 7th largest metropolitan area. The city isthe capital of the state of São Paulo, the most populous Brazilian state. It is also the richest cityin Brazil. The name of the city honors Saint Paul. São Paulo exerts strong regional influenceincommerce and finance as well as arts and entertainment. São Paulo is considered an AlphaWorld City.
  11. 11. InfrastructureRoads are the primary method of transportation in Brazil of both passengers and freight. With anestimated 21.31 million passenger cars and 5.5 million commercial vehicles in 1998, thehighway system is inadequate and poorly maintained. There are approximately 1.98 millionkilometres (1.23 million miles) of highways in Brazil, but only 184,140 kilometres (114,425miles) of these roads were paved in 1996. A study by the World Bank shows that in the early1990s 28 present of the countrys highways were in poor condition. Furthermore, the lack ofproper maintenance increased transportation costs in Brazil by nearly 15 present over the sameperiod. The government implemented road construction plans in order to integrate theindustrialized south with the less developed northeaster and northern areas. This integrationenabled agricultural producers to move goods to ports located in the coastal areas forexportation. The railway system in Brazil is very limited. There are only 27,882 kilometres(17,326 miles) of tracks in Brazil (excluding urban commuter lines) and this number is in declineas track falls out of service.In contrast, Brazils air transportation is well developed with 48 main airports, 21 of which areinternational. In 1998 about 31 million passengers used Brazilian airlines, traveling a total of27.39 million kilometres (17.02 million miles). The total weight of airline freight was equal to602.74 million metric tons and Brazilian airlines carried freight over 2.2 billion kilometres (1.36billion miles). At São Paulo and Galeão International Airport at Rio de Janeiro are the mostimportant and active international airports of Brazil.Hydroelectric plants generate most of Brazils electrical power, responsible for 91 present of thetotal production. Secondary sources include fossil fuels and nuclear energy. Only statecompanies are allowed to supply electrical power to the population, producing a total of 316.927billion kilowatt-hours (kWh) of electricity inCommunicationsCountry Newspape Radio TV Cable Mobil Fax Personal Interne Interne rs s Sets subscribe e Machine Compute t Hosts t Users a rs a Phone sa rs a b b sa 1996 1997 199 1998 1998 1998 1998 1999 1999 8Brazil 40 444 316 16.3 47 3.1 30.1 18.45 3,500United 215 2,146 847 244.3 256 78.4 458.6 1,508.7 74,100States 7Argentin 123 681 289 163.1 78 2.0 44.3 27.85 900aColombi 46 581 217 16.7 49 4.8 27.9 7.51 664aa Data are from International Telecommunication Union, World Telecommunication DevelopmentReport 1999 and are per 1,000 people.b Data are from the Internet Software Consortium ( http://www.isc.org ) and are per 10,000 people.SOURCE: World Bank. World Development Indicators 2000.
  12. 12. 1998. Domestic production falls 20 billion kWh short of domestic need, causing Brazil to importelectricity from neighboring countries such as Paraguay. Power supply is reliable most of thetime, and shortages and blackouts are infrequent in urban areas.Telecommunications services are well developed. Privatized in 1999, telephone service isprovided by a number of privately held foreign capital companies. The country hasapproximately 19 million main lines in use (1997 est.) and 8 million mobile cellular phones inuse (1998 est.). There are 138 television broadcast stations (1997) that are sent to 316 televisionsets per 1,000 people (1998). Computer access is still limited, evidenced by the number ofpersonal computers (30.1) and Internet hosts (1.84) per 1,000 people recorded in 1998.
  13. 13. 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 marketsMain 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
  14. 14. Complex transfer pricing and foreign capital registration rulesDifficulties in reorganizing companies quickly, including high costs for employeeterminationsImportant cultural peculiarities, including a different perception of the due diligenceprocessSometimes the ―know-who‖ is more important than the know-how in the local marketConsiderable bureaucratic rules and regulations for certain businesses and industriesHigh demand for investments in the distribution channels and infrastructureSemi-skilled and unskilled labor in certain developing areasSocial extremes with unequal distribution of wealth - a significant portion of thepopulation not participating in the consumer market
  15. 15. Summary of Indicators – BrazilStarting a Business Procedures (number) 16 Time (days) 120 Cost (% of income per capita) 6.9 Min. capital (% of income per 0.0Dealing with Construction Permits capita) Procedures (number) 18 Time (days) 411 Cost (% of income per capita) 50.6Employing Workers Difficulty of hiring index (0-100) 78 Rigidity of hours index (0-100) 60 Difficulty of redundancy index (0- 0 10) Rigidity of employment index (0- 46 100) Redundancy costs (weeks of 46 salary)Registering Property Procedures (number) 14 Time (days) 42 Cost (% of property value) 2.7Getting Credit Strength of legal rights index (0- 3 10) Depth of credit information index 5 (0-6) Public registry coverage (% of 23.7 adults) Private bureau coverage (% of 59.2 adults)Protecting Investors Extent of disclosure index (0-10) 6 Extent of director liability index 7 (0-10) Ease of shareholder suits index (0- 3 10)
  16. 16. Strength of investor protection 5.3 index (0-10) 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) 69.2Trading Across Documents to export 8Borders (number) Time to export (days) 12 Cost to export (US$ per container) 1540 Documents to import 7 (number) Time to import (days) 16 Cost to import (US$ per container) 1440Enforcing Procedures 45Contracts (number) Time (days) 616 Cost (% of claim) 16.5Closing a Recovery rate (cents on 17.1Business the dollar) Time (years) 4.0 Cost (% of estate) 12
  17. 17. List of procedure1. Check company name with State Commercial Registry Office2. Pay registration fees3. Register with the commercial board of the state where the main office is located and obtain identification number4. Register for federal and state tax, obtain the CNPJ number, which also registers employees with the national institute of social security.5. Confirm Taxpayer Enrollment6. Receive state tax inspection7. Get the authorization to print receipts/invoices from the Secretaria da FazendaEstadual8. Register with the municipap Taxpayers’ Registry9. Pay TFE to the Municipal Taxpayers’ Registry10. Apply to the municipality for an operation permit11. Register the employees in the social integration program12. Open a special fund for unemployment account in the bank13. Notify the ministry of Labor14. Registration with the Patronal union and with the employee union
  18. 18. PESTLEAnalysisPESTLE analysis is a useful tool for understanding the ―big picture‖ of the environment, inwhich you are operating, and the opportunities andthreats that lie within it. By understanding theenvironment in which youoperate (external to your company or department), you can takeadvantageof the opportunities and minimize the threats.Specifically the PEST or PESTLE analysis is a useful tool forunderstanding risks associated withmarket growth or decline, and as suchthe position, potential and direction for a business ororganization.The PESTLE Analysis is often used as a generic orientation tool, finding out where anorganization or product is in the context of what is happening outsides that will at some pointeffect what is happening inside an organization.A PESTLE analysis is a business measurement tool, looking at factorsexternal to theorganization. It is often used within a strategic SWOTanalysis (Strengths, Weaknesses,Opportunities and Threats analysis).The PESTLE subject should be a clear definition of the market beingaddressed, which might befrom 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
  19. 19. Political- The current and potential influences from political pressuresPolitical SystemFederal Republic similar to United StatesThe federal republic has three independent branches independent branches: executive legislativeand judicial.The President heads the executive branch. Under the President are a number of executivedepartments, the heads of which are appointed and are known collectively as the cabinet. Unlikethose 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 whichare 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 totalmembership of the House is 513, the number of representatives from each state depending on itspopulation. Voting is compulsory at the age of 18 but 16 and 17 year-olds, 70 years or olderand 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 GovernmentBrazil has presidential election scheduled for October 2010. During election years,fiscalspending tends to increase as incumbents attempt to create temporary prosperity.Asindicated above, increase in fiscal spending are consistent with the appropriate financialpolicyand should not adversely affect the economy.The two term president, LuizInácio of the leftestPartido do Trablhadores (PT) party has adopteda conservative economic policy that has allowed Brazil to continue its growthrun for his twoterms. While the global economic downturn hit Brazil at the turn of theyear, the economy hasshown clear signs of recovery over 2009, bolstering theincumbent. The leading centristopposition party Partio da Social DemocraciaBrasiliera(PSDB) will run a close challenge thatsome experts predict will result in a runoffelection. The PSDB also supports a conservativeeconomic policy. The elections shouldnot pose a significant shift in government economicpolicy.
  20. 20. 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 IntegrationLawBrazilian law is based on Roman-Germanic traditions and civil law concepts prevail overcommon law practice. Most of Brazilian law is codified, although non-codified statutes alsorepresent a substantial part, playing a complementary role. Court decisions set out interpretiveguidelines; however, they are seldom binding on other specific cases. Doctrinal works and theworks of academic jurists have strong influence in law creation and in law cases.
  21. 21. Economic- The local, national and world economy impactEconomy of Brazil Brazil is the largest national economy in Latin America, the worlds tenth largesteconomy atmarket exchange rates and the ninth largest in purchasing power parity (PPP),according to theInternational Monetary Fund and the World Bank. Its GDP (PPP) per capita is$10,200, puttingBrazil in the 64th position according to World Bank data. It has large anddeveloped 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 productsinclude aircraft, electrical equipment, automobiles, ethanol, textiles, footwear, iron ore, steel,coffee, orange juice, soybeans and corned beef. The country has been expanding its presence ininternational financial and commodities markets, and is one of a group of four emergingeconomies called the BRIC countries.Brazil pegged its currency, the real, to the U.S. dollar in 1994. However, after the EastAsianfinancial crisis, the Russian default in 1998 and the series of adverse financial events thatfollowed 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 regimeto free-float in January 1999.Industrial outputThe annualized rate of growth in industrial output fell from 6.8% in September 2008 to 3.1% inDecember. 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 oneof the worst performers, falling 59.1% year-on-year. In January 2009, however, the vehicleindustry saw a near doubling of output compared to December 2008. While in 2007 Brazilobtained a current account surplus of $1.55 billion (0.12% of GDP), in 2008 it registered its firstcurrent account deficit in six years, due to a lower trade surplus and increased profit repatriationsby foreign firms. Brazil received an International Monetary Fund rescue package in mid-2002 of $30.4billion, then a record sum. Brazils central bank paid back the IMF loan in 2005, although it wasnot due to be repaid until 2006. One of the issues the Central Bank of Brazil recently dealt withwas an excess of speculative short-term capital inflows to the country, which may havecontributed 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 inproduction, is estimated to be $193.8 billion for 2007. Inflation monitoring and control currentlyplays a major part in the Central banks role of setting out short-term interest rates as a monetarypolicy measure.
  22. 22. Key industries Key industries are textiles, shoes, chemicals, aviation, cement, agriculture,motor vehiclesand 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 largestrecipient of foreign direct investment (FDI) in Latin America, and the United States istraditionally the number one foreign investor in Brazil. Since domestic savings is not sufficientto sustain long-term high growth rates, Brazil must continue to attract FDI. In order to attractincreasing levels of FDI, many business groups and international organizations have highlightedthe need for Brazil to improve its regulatory environment for investments and to simplify the taxcode. Brazil does not have a bilateral tax or investment treaty with the United States. Legislationpromoting 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 infrastructuredevelopment program, known as the Growth Acceleration Program (PAC), to address thecountry’s significant road, rail, energy supply, and other infrastructure needs.
  23. 23. Sociological- The ways in which changes in society affect business Brazil’s inequality levels remains among the highest in the world. Millions of people stilllive in poverty; social exclusion is quantitatively and qualitatively pronounced and structurallyingrained. But during the last several years, poverty reduction and income distribution indicatorshave dramatically improved. The full poverty rate fell from 34% of the population in 1995 to25.6% 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 lower20% control just over 2.4% of the wealth. Brazil exhibits a medium level of developmentaccording to key indicators, but national mean values mask the great disparities between therelatively developed southern and southeastern regions, where conditions resemble those inindustrialized countries to some extent, and the socioeconomically disadvantaged northern andnortheastern regions.CultureThe core culture of Brazil is derived from Portuguese culture, because of its strong colonial tieswith the Portuguese empire. Among other influences, the Portuguese introduced the Portugueselanguage, Roman Catholicism and colonial architectural styles. The culture was, however, alsostrongly influenced by African, indigenous and non-Portuguese European cultures and traditions.Some aspects of Brazilian culture were influenced by the contributions of Italian, German andother European immigrants who arrived in large numbers in the South and Southeast of Brazil.The indigenous Amerindians influenced Brazils language and cuisine; and the Africansinfluenced language, cuisine, music, dance and religion.Brazilian cuisine varies greatly by region, reflecting the countrys mix of native and immigrantpopulations. This has created a national cuisine marked by the preservation of regionaldifferences. Examples are ―feijoada‖, considered the countrys national dish; and regional foodssuch 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 Brazilsnative liquor. Cachaça is distilled from sugar cane and is the main ingredient in the nationalcocktail, 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 birthof the medium in the late 19th century and has gained a new level of international acclaim inrecent years.LanguageThe official language of Brazil is Portuguese which is spoken by almost all of the population andis virtually the only language used in newspapers, radio, television, and for business andadministrative purposes. The exception to this is in the municipality of São Gabriel da Cachoeirawhere Nheengatu, an indigenous language of South America, has been granted co-official statuswith Portuguese. Brazil is the only Portuguese-speaking nation in the Americas, making the
  24. 24. language an important part of Brazilian national identity and giving it a national culture distinctfrom those of its Spanish-speaking neighbors. Brazilian Portuguese has had its own development, influenced by the Amerindian andAfrican languages. As a result, the language is somewhat different, mostly in phonology, fromthe language of Portugal and other Portuguese-speaking countries. These differences arecomparable to those between American and British English. In 2008, the Community of Portuguese Language Countries (CPLP), which includedrepresentatives from all countries with Portuguese as the official language, reached an agreementon the reform of Portuguese into one international language, as opposed to two diverged dialectsof the same language. All CPLP countries were given from 2009 until 2014 to adjust to thenecessary changes.General Attitude Brazilians are warm, fun-loving, and free-spirited. They are also outgoing and enjoybeing around others. At the same time, they are hardworking. Brazilians are proud of theircountrys natural resources and diverse culture. One point of pride is the ―Brazilian way‖—theirability to find creative ways around seemingly insurmountable problems. Brazilians often areopinionated and will argue for their convictions with vigor. In spite of economic difficulties,most Brazilians are hopeful about their countrys 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 humidregions dress more casually, and colors are lighter and brighter year-round. In rural regions,more traditional clothing is common, especially among the native peoples.
  25. 25. Technological- How new and emerging technology affects business? Brazil is a leader in science and technology in South America and in some fields a globalleader, such as biofuels, agricultural research, deep-sea oil production, and remote sensing. U.S.Government, private sector, and academic researchers have extensive ties with Braziliancounterparts, and the extent of bilateral scientific and technological cooperation is expanding.The Brazilian Government seeks to develop an environment that is more supportive ofinnovation, taking scientific advances from the laboratory to the marketplace.Technological Research Technological research in Brazil is largely carried out in public universities and researchinstitutes. But more than 73% of funding for basic research still comes from governmentsources. Some of Brazils most notable technological hubs are the Oswaldo Cruz Institute,theButantan Institute, the Air Forces Aerospace Technical Center, the Brazilian AgriculturalResearch Corporation and the INPE. The Brazilian Space Agency has the most advanced spaceprogram in Latin America, with significant capabilities in launch vehicles, launch sites andsatellite manufacturing.Information Technology The Brazilian IT market is the largest in Latin America and spending on IT products andservices is forecast to pass US$25bn in 2010 and US$30bn by 2012. BMI has downwardlyrevised its five-year forecast, due to the economic situation, but IT spending is still expected toincrease to remain in positive territory in 2009, and to grow at a CAGR of 12% over the forecastperiod. This makes Brazils one of the fastest growing global markets. The overall outlookremains constructive for growth in IT spending, with an expanding economy lifting millions intoa middle class for whom computers are no longer beyond reach. Brazil’s IT services market isexpected to continue to grow strongly in 2010, with total spending of around US$9.4bn as theeconomy continues to bounce back from recession. For a developing market, the percentage ofBrazil IT market revenues generated by services is high at around 38%, which corresponds moreto developed market levels.R&DMost of Brazils 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 beginningstages 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 about0.91%.Brazil’s share of the world’s 7.1 million researchers increased from 1.2% in 2002 to 1.7% in2007. According to UNESCO, Brazil has about 625 researchers for every million citizens ofBrazil.
  26. 26. 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 situationIn 1990, the government has radically changed the framework conditions for industrialdevelopment. Acknowledging that the import substitution model had run into a dead end, it optedfor a policy of gradually opening the market to foreign competitors, thus creating an environmentthat requires international competitiveness and thereby forces companies to attain internationallevels of quality and efficiency. This has been accompanied by a number of technology andindustrial policy programmes. However, they were either not implemented, or only after longdelays, 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 (mainlytrying to build a consciousness for quality issues inside firms) and got a lot of publicity in Brazilapparently has only had a limited impact. Brazilian policy makers and researchers tend to explain the limited effect of technologypolicy initiatives with the economic crisis and the low investment propensity of companies.Brazilian industry and technologyBrazil got off to a late start in its process of industrialization, which began in the 1930s. Despitethe accelerated pace of growth witnessed up until 1980, the level of development in the countrystill falls way below the levels reached by developed countries. Industry, which directs itselfessentially to attending the demands of the internal market, is made up of a steady stream ofembodied and disembodied external technology flows. Even so, Brazilian industry has beenmaking considerable efforts in technology directed towards, in most cases, adapting the flow ofexternal knowledge to its local context. These efforts have also been brought on by localtechnological demands that the external flow of technology has been unable to meet. Up untilnow, rare have been the cases of sectors in which firms generate flows of new knowledge inorder to gain dynamic competitive advantages.
  27. 27. 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. TheConstitution organizes the country as a Federative Republic, formed by the indissoluble union ofthe states and municipalities and of the Federal District. The 26 federate states have powers toadopt their own Constitutions and laws; their autonomy, however, is limited by the principlesestablished in the Federal Constitution.Municipalities It enjoy restricted autonomy as their legislation must follow the dictates of theConstitution of the state to which they belong, and consequently to those of the FederalConstitution itself. As for the Federal District, it blends functions of federate states and ofmunicipalities, and its equivalent to a constitution, named Organic Law, must also obey theterms of the Federal Constitution. The powers of the Union, as defined within the Constitution, are the Executive, theLegislative and the Judiciary, which are independent and harmonious amongst them. The head ofthe Executive is the President of the Republic, which is both the Chief of State and the Head ofGovernment and is directly elected by the citizens. The Legislative, embedded in the form ofNational Congress and consists of two houses: The Chamber of Deputies (lower house) and theFederal 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 withelectoral, labor and military disputes. The Judiciary is organized into federal and state branches. Municipalities do not havetheir 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 isthe Federal Supreme Court and is the guardian of the Constitution. Among other duties, it hasexclusive jurisdiction to: (i) declare federal or state laws unconstitutional; (ii) order extraditionrequests from foreign States; and (iii) rule over cases decided in sole instance courts, where thechallenged 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 appealstowards the decision ruled by federal judges, and are also responsible for cases of nationalinterest and crimes foreseen in international pacts, among other duties. The jurisdiction of theFederal Judges include: being responsible for hearing most disputes in which one of the parties isthe Union (State); ruling on lawsuits between a foreign State or international organization and a
  28. 28. municipality or a person residing in Brazil; and judging cases based on treaties or internationalagreements of the Union against a foreign State or international body. State-level justice in Brazil consists of state courts and judges. The states of Brazilorganize 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 judicialordainment.
  29. 29. Environmental- The local, national and world environmental issues Brazil holds about one-third of the worlds remaining rainforests, including a majority ofthe Amazon rainforest. Due to the vastness of the Amazon rainforest, Brazils average loss of34,660 square kilometers of primary forest per year between 2000 and 2005 represents onlyabout 0.8 percent of its forest cover. Nevertheless, deforestation in Brazil is one of the mostimportant global environmental issues today. Research led by the Woods Hole Research Centerand the Carnegie Institutions Department of Global Ecology found that each year the amount offorest degraded is roughly equivalent to the amount of forest cleared. The finding is trouble toecologists because degraded forest has lower levels of biodiversity and is more likely to becleared in the future. Further, degraded forest is more susceptible to fires. A large portion of deforestation in Brazil can be attributed to land clearing forpastureland by commercial and speculative interests, misguided government policies,inappropriate World Bank projects, and commercial exploitation of forest resources. Foreffective action it is imperative that these issues be addressed. Focusing solely on the promotionof sustainable use by local people would neglect the most important forces behind deforestationin Brazil. Brazilian deforestation is strongly correlated to the economic health of the country: thedecline in deforestation from 1988-1991 nicely matched the economic slowdown during thesame period, while the rocketing rate of deforestation from 1993-1998 paralleled Brazils periodof rapid economic growth. During lean times, ranchers and developers do not have the cash torapidly expand their pasturelands and operations, while the government lacks funds to sponsorhighways 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 forcattle pastureland. Large tracts of forest are cleared and sometimes planted with African savannagrasses for cattle feeding. In many cases, especially during periods of high inflation, land issimply cleared for investment purposes. When pastureland prices exceed forest land prices (acondition made possible by tax incentives that favor pastureland over natural forest), forestclearing is a good hedge against inflation. Road construction in the Amazon leads to deforestation. Roads provide access to loggingand mining sites while opening forest frontier land to exploitation by poor landless farmers.The FutureIt 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 orotherwise degraded by 2050. While this is discouraging, there is hope that improved agriculturaltechniques—perhaps based on research into how pre-Colombian societies managed theseforests—could maybe increase productivity on already affected areas and reduce the need forfurther forest clearing.
  30. 30. It is important to recognize that Brazil is a sovereign state with its own rights to developits economy. How it chooses to do so will likely be influenced by economic factors which mayinclude how western countries value the services (especially climate moderation and biodiversitypreservation) provided by forests. If Western countries begin to place greater value on theseservices, then the protection of Brazils 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 willbecome more so in the next few years. Scientists will play an important role in disseminating thevalue of these forests to policymakers and the media.

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