1. 24 / CA MAGAZINE / ICAS.COM / JULY 2015
EMERGING ECONOMIES
STEPPINGOUTOF
THESHADOWS
Andrew Sawers finds out about the highs and lows of
doing business in India, Indonesia, Brazil and Mexico
HAT’S THE reality of
living and working in
emerging markets? Does it
match up to the headlines?
What’s the key to establishing a successful
business? And aregovernments and domestic
companies dealing with the usual problems of
regulation and corruption properly? We asked
finance professionals in India, Indonesia, Brazil
and Mexico for their views.
LIFE AT THE COALFACE
We are well used to seeing significant GDP
growth figures for emerging market economies.
But do those headline-grabbing numbers reflect
the reality on the ground?
India saw GDP growth of 7.5 per cent year
on year in the first quarter of 2015, but Rajiv
Sasha Raichand, finance director of Brookfield
Multiplex in Mumbai, says that the reality
is “very sector-specific”. E-commerce and
“e-tailing” (online retailing) are seeing massive
growth. “Companies are investing heavily,
valuations are at a record high and investor
interest is at its peak,” he says. On the back
of this, the logistics and warehousing market
has picked up. But there is significant over-
capacity in residential real estate while at
W
Born and schooled in Rio de Janeiro until
the age of 13, Ivan Clark CA attended
Fettes College in Edinburgh, then
University of Stirling where he studied
accounting, business law and economics,
joining Deloitte Haskins & Sells in 1978.
Four years later he returned to Rio where
he joined Price Waterhouse. He worked
in a number of places in Brazil including
Belo Horizonte, and had a four-year
placement in the US.
“Living in a place like Brazil is quite
an experience,” he says. “It’s a learning
experience that you would never gain in
a developed market – we see that all the
time. We bring in people on secondment
programmes from the UK or Holland
or wherever. They will be experienced
accountants, but as soon as they step
off the boat, so to speak, they are very
green. They don’t get
the language, they
don’t understand
the culture. But
by the time they
leave two or three
years later they are
top professionals,
extremely sharp, and
they are reintroduced
into their home
markets with
an incredible
amount of
experience.”
IVAN CLARK
LEAD CAPITAL MARKETS
PARTNER, BRAZIL, PWC,
SAO PAULO, BRAZIL
“Living in a place
like Brazil is quite
an experience”

2. JULY 2015 / CA MAGAZINE / ICAS.COM / 25
the same time there is a shortage of good
commercial real estate. “People have places to
live but they have no place to work,” Raichand
says. Heavy engineering and mining have been
affected by cheap imports from China and the
closure of a number of minesbecause of recent
corruption scandals.
Indonesia was one of the Asian tigers,
growing at 8 per cent a year when Alastair
Mcleod arrived to join KPMG in 1997 but the
Asian financial crisis put paid to that. “It’s
survived on its domestic economy and it’s
consistently been growing at 5-6 per cent over
the last few years,” says Mcleod, who is now
director and CFO at coal mining group PT
Bayan Resources Tbk in Jakarta. “Activity and
interest is coming back into Indonesia. During
the [Asian] financial crisis the rich got richer,
the poor got poorer and the middle class just
disappeared. Now, the middle class is growing,
and their expectations are primarily the same
as yours and mine – they want a home for
themselves, they want better education, they
want to be able to afford white goods, buy a car,
have air conditioning or whatever.”
Brazil has enjoyed economic fame as one
of the BRIC nations (Brazil, Russia, India and
China), as well as being the centre of attention
for the World Cup and the 2016 Olympics.
But as Ivan Clark, lead capital markets
partner, Brazil, with PricewaterhouseCoopers
in Sao Paulo, says: “We’ve been very badly
hit by the drop in commodity prices. China
has slowed down its growth, so the prices
of iron ore and agri-business products have
dropped. And a very big part of our business
today is oil and gas: there, again, the price
of a barrel of oil has fallen. If you are living
and working in a fast-emerging country you
need to get used to the roller-coaster economy.
We had 10 great years and now we’re back in
the trough.”
“Activity and interest is
coming back into Indonesia.
The middle class is growing…
they want a home for
themselves, they want better
education, they want to be
able to afford white goods…”
Alastair Mcleod

3. JULY 2015 / CA MAGAZINE / ICAS.COM / 27
There have been a lot of adjustments and
a lot of challenges, but Clark says: “That makes
it extremely interesting for our young
accountants who are joining the firm and
providing assistance to companies that are
struggling to adjust their business to the new
cycle. It’s great experience.”
Mexico, according to Enrique Lorente
Ludlow, a partner at Woodhouse Lorente
Ludlow, a CMS Cameron McKenna affiliate
law firm in Mexico City, has a problem in that
“the macro numbers are fantastic – they have
been good for 10 years or so. But they have still
to impact the general population more widely.
We still have a lack of development in many
communities. There are a lot of big, very rich
companies and yet we need to develop in the
country a strong middle class. But in general
terms I hope we are moving in that direction.”
DOING BUSINESS
Think global, act local is a common mantra in
emerging markets.
India is an economy where it’s wise to work
through a joint venture, as Brookfield Multiplex
did when it partnered with Tata. “There is no
way we could have scaled up as significantly
as we have without having a local partner,”
Raichand says. “Someone who understands
how the Indian labour market works, who
understands the supply chain, who knows the
right vendors to go to.”
Raichand adds that “patience” and “taking a
long-term view” are essential: “No-one has come
to India, made a quick buck and left. By the time
you figure out how to do business you’ve already
spent about two years. To set up and stabilise
the operation takes another few years.” He says
his CA training helps him “appreciate issues and
problems from a commercial perspective rather
than [just] an accounting perspective”.
In Indonesia, as in many Asian countries,
so much has to be invested in the business
relationship. “Much more is done on a ‘trust’
basis – an ‘understanding’ basis,” says Mcleod.
“There are contracts put in place but if you
follow a contract with a customer to the nth
degree people think you’re being strange. With
long-term contracts people anticipate that there
are likely to be changes that will be negotiated
and therefore acceptable and that, yes you know
the contract may say this, but you’re not going to
enforce that, are you?”
Brazil is a difficult place to do business, says
Clark. “It’s complex and it’s high-risk, if you don’t
have the proper advice, the right consultants or
the right local business partners you can trust.
It’s not for the faint-hearted. Having said that,
it’s a market that provides a very generous rate
of return for those companies that are well
prepared, and that understand how to manage
those risks. You could very easily get into trouble
with legal, labour, tax issues – and that’s not a
route you want to go down.” Be wary of treating
Indian-born Rajiv Sasha Raichand
qualified as a CA with PwC in
London and later joined the UK arm
of the Canadian Brookfield group,
an asset management, property
and construction business. When
Brookfield decided to establish a
construction business in India, “I was
parachuted in,” Raichand says.
Though he had been to school in
India, Raichand had never worked
there. “I knew nothing about
construction but they really wanted
someone who understood the
commercial reality of the business and
also had a cultural affinity with India
to come here and help set things up.
I arrived here four years ago, sat in
a hotel room and basically we were
trying to build a business out of very,
very little.
“It was literally being a part of a
start-up where one had one’s fingers in
various pies and every day presented a
new challenge. Working in India, there
are plenty of those challenges.”
RAJIV SASHA
RAICHAND
FINANCE DIRECTOR,
BROOKFIELD MULTIPLEX,
MUMBAI, INDIA
“[In Mexico] the macro numbers are
fantastic… but they have still to impact the
general population more widely. We still have
a lack of development in many communities”
Enrique Lorente Ludlow
“I came here four
years ago, sat in
a hotel room and
basically we were
trying to build a
business out of
very, very little”
Samba School parade
float at the Carnival, Rio
de Janeiro, Brazil
LEANNEVORRIAS/SHUTTERSTOCK.COM

4. 28 / CA MAGAZINE / ICAS.COM / JULY 2015
EMERGING ECONOMIES
Brazil as a beachhead for Latin America: with the
language and culture being Portuguese rather
than Spanish, Brazil is “somewhat insular in
terms of focusing its business within its own
country,” Clark says.
Mexico is no more difficult a place in which to
set up a business than many others, says Ludlow.
The process is “a bit cumbersome”. He says it’s
generally advisable, but not necessary, to have
a joint venture partner: “It’s sound practice to
have local knowledge when you are investing in
a country – not just local knowledge from your
lawyers or advisers: you need local business
knowledge and local business access.”
REGULATION AND TAX
Governments are slowly recognising the burden
of bureaucracy and exploring ways to reduce it.
India, with its federal structure, has
particularly difficult regulatory and tax
requirements. “There are29 states in India and
each state has its own service tax and own local
tax,” says Raichand. “Then there’s the central tax.
Each state has its own compliance requirements
and its own forms. The first year I spent here was
just getting my head around the tax regime. One
of the best jobs in India right now is to be a tax
consultant because you are guaranteed to make
money.” Also, some of the labour laws go back to
the 19th century. It’s difficult, therefore, “trying
to work in a modern economy with modern
application of certain archaic rules”.
Indonesia has a regulatory regime that is
getting easier, “but it’s an immense long haul,”
says Mcleod. Tax is a nightmare: his company
applied for tax refunds that it was due, only
to learn that “actually asking for tax back
from the government is deemed ‘not nice’.
The request for a refund automatically triggers
a tax audit on every single tax – and that will
go on for years until you prove your case. We’re
only now getting the VAT back for 2007, 2008,
2009 and 2010.”
Brazil has 26 different states. “That makes
things somewhatcomplex particularly from a
tax perspective,” says Clark. “Each state has its
own VAT tax legislation.” The finance minister
said on a recent trip to the UK that the Brazilian
Government would try to simplify some of those
regulations. “Good luck to him, because that will
not be an easy task,” Clark says.
Mexico has 32 states but where they have their
own taxes their laws are almost “exact copies”
of each other, which helps, and there is only one
VAT regime nationwide. Bureaucracy is an issue,
however, and, for major projects where public-
private partnership (PPP) structures are being
used, the learning curve for government officials
and private sector employees is steep.
BRIBERY AND CORRUPTION
Corruption is a cancer that attacks businesses
and feeds off the livelihood of ordinary people. It
is common sadly, but slowly it is being eradicated
in many emerging markets.
India is waking up to the fact that foreign
investors, particularly those from the likes of
the US and Britain, must comply with their own
domestic anti-corruption legislation. Raichand
says that, before his company partnered with
Tata, it had been in negotiations with another
potential partner. These talks came to a halt at
the 11th hour: “Our partner refused to sign off
on an anti-bribery and corruption clause in our
joint-venture agreement and so we pulled out.
Talk about a steep learning curve: we assumed
our partner would have a similar work ethos and
a similar understanding of ethical standards –
but that wasn’t the case. It just goes to show that
making money wasn’t as important [for us]
as making money the right way and following
all the requirements.”
Things are changing, Raichand adds: “The
more local companies here in India interact with
foreign companies, the morethey realise that
there are certain systems and procedures and
policies that need to be followed.”
Indonesia, a fledgling democracy, has been
trying to deal with corruption, says Mcleod.
“But it’s still slightly ingrained, and it will be
generations before it’s completely solved.”
Dealing with it is “a continual education process”,
not least the challenge of trying to explain the
nuanced difference between, on the one hand,
a legitimate gratuity or payment for express or
fast-track service and, on the other hand, an
unacceptable bribe.
Mexico, says Ludlow, will more typically
see corruption when it comes to public sector
procurement, but not for the sorts of major
infrastructure or energy programmes in which
his firm has been involved as they are all open
tenders. Anti-money laundering regulations
targeting the drug cartels mean “it’s now almost
impossible to do any form of big transactions
in cash in Mexico. Everything has to be notified
and made via banking institutions so that helps
[counter] corruption.”
ANDREW SAWERS IS A FREELANCE
BUSINESS JOURNALIST
In 1997, Alastair Mcleod CA left the
UK firm Saffery Champness for
KPMG in Indonesia. “I was 30 and
single and thought, ‘Why not?’,”
Mcleod recalls. “A headhunting firm
called me and said I’d ticked a box
because I’d worked overseas.”
He was recruited as a technical
adviser to mining group PT Bayan
Resources in 2004, then helped
prepare the company for its 2008
IPO on the Jakarta stock exchange,
at which point he became chief
financial officer.
Mcleod says the Indonesian
language is quite easy to learn but
that, in any event, communication is
easy because so many Indonesians
are educated abroad. The challenge
can be in understanding the meaning
rather than the words: “Indonesians
are very accommodating. They
would be loath to say ‘no’ to you
and so they would try to say it in
35 polite ways. They’ll walk away
thinking they told you ‘no’
and you’ll walk away
thinking they said ‘yes’.”
ALASTAIR MCLEOD
DIRECTOR AND CFO, PT
BAYAN RESOURCES TBK,
JAKARTA, INDONESIA
“I was 30 and single and
thought, ‘Why not?’”
ad. The challenge
nding the meaning
rds: “Indonesians
odating. They
say ‘no’ to you
try to say it in
ey’ll walk away
you ‘no’
ay
‘yes’.”
Mumbai,
India