Brazil country analysis report [team 2]

BRAZIL – Country Analysis Report 1

COUNTRY ANALYSIS REPORT

BRAZIL
AKANKSHA TIKKU

ANUJ JINDAL

ARPIT AGRAWAL

ABHIJIT SINGH

AMANDEEP SINGH

CHACKO JACOB

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INTRODUCTION………………………………… 3
ABOUT THE REPORT…….....…………………….. 5

EVALUATING 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…………..…. 18

EVALUATING 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 ……………………...…….35

EVALUATING the TECHNOLOGICAL READINESS……...…..37
TECHNOLOGY ……………………………….…37
INTELLECTUAL PROPERTY RIGHTS ………………39

CONCLUSION & RECOMMENDATIONS ……………… 43
References ………………………………………..44

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INTRODUCTION
Displaying an impressive GDP of US$1,314 billion and
with a population of 194 million in 2007, Brazil is the
10th largest economy and the 5th most populous
country in the world, as well as the largest market in
Latin America and the Caribbean.

The presence of rich natural resources and a fairly
sophisticated industrial base provides the country
with competitive advantages. These factors have
also made Brazil the leading foreign direct
investment (FDI) recipient in Latin America, with a US$35 billion inflow in 2007

The achievements and uniqueness of Brazil can be summarized in the table below –

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The above remarkable achievements and competitive strengths are not fully reflected to date in Brazil’s
performance in terms of economic growth rates, enhanced competitiveness, and better living conditions for its
citizens. 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 BRIC
countries China, India, and Russia.

Likewise, Brazil’s evolution in the Global Competitiveness Index (GCI) rankings over the 2005–08 period has been
fairly erratic, with the country placing in middling positions year after year (64th out of 134 countries in the
latest computation in 2008–2009).

Last but not least, Brazil’s income distribution remains among the most unequal in the world, pointing to the fact
that 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 earliest
among the G-20 countries to have done so —following a 1.9% quarter-on-quarter expansion in economic activity
in the April-to-June period’2009. Whereas the global environment remains difficult and the export sector
therefore continues to struggle, the strength of domestic demand has propelled the economy to the start of a
recovery

Brazil as a nation has its own strengths & weaknesses. The weaknesses in certain areas are so grave that if not
corrected soon, the country couldn’t possibly sustain itself in the globalised world.

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ABOUT THE REPORT

The report aims to evaluate Brazil’s standing as an investment destination by studying the country’s progress in
every sphere. The evaluation is in three stages – in the first stage, the country’s progress in the basic “Basic
requirements” 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, the
country’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 Law

The evaluation of Brazil in each of these areas is done in the continuing pages.

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EVALUATING the BASIC REQUIREMENTS

HEALHCARE & EDUCATION

A healthy and literate work force is a basic requirement for national productivity and competitiveness. Workers
who are ill tend to be less productive, adding significant costs to businesses. At the same time, basic education
increases workers’ efficiency and enables them to get training for, and adapt to, more advanced production
processes and techniques. Historical evidence supports the key role of basic education and health as a key
enabler of competitiveness. Also many studies highlight the importance of the quality of basic education, on top
of enrollment rates.

HEALTHCARE

In Brazil there exists a two-tiered system of healthcare. Those with sufficient means, or whose employers provide
health coverage, have access to a private system of healthcare that provides quality treatment on demand. The
rest 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 the
healthcare 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 be
summarized 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).

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Impact of Health conditions on Earnings in Brazil

Health conditions have caused
losses for individuals through the US BRAZIL INDIA

three earnings channels: lower
probability of participating in Life Expectancy (years) 78 72 63
the labor force, obtaining lower
hourly wages, and working fewer Infant Mortality Rate (per 100 live 7.0 19.0 57.0
weekly hours. The reduction in [Type a quote from the document or
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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 3.4
this results in earnings losses of as percentage of total
1.47% to 4.7%. expenditure.
(Source - PNAD/1998).

Government expenditure on health 45.8 47.9 19.6
These statistics show the as percentage of total expenditure
relevance of health conditions in on health
determining the Brazilian worker
earnings and reiterates the need
Health System Performance rank 37 125 112
for giving close attention to
(/ 191 countries) (2000)
health conditions in Brazil for
any business. As for labor
supply, health status impacts Comparison of Health parameters & government spending of
sectorial choice and the decision Brazil with US & India
to work which again is an
important factor to be considered by any business firm.

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Conclusion

Although the HDI health for Brazil is 0.76, as compared to a world average of 0.71, but it is facing a lot of
challenges 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 the
country’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 for
business opportunities.

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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 integral
development 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 the
guiding principles for the organization of educational programs.
Local governments are responsible for establishing state and educational programs following the guidelines and
using the funding supplied by the Federal Government. Brazilian children must attend school a minimum of 9
years.

Structure of education

The 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 primary
education seems to be an area in particular need of improvement. A quality higher education and training system
is an essential precondition for a well-functioning economy, since it provides the national production system with
an adequate pool of qualified human resources able to adapt to the changing needs of the latter. This is
especially the case for economies such as Brazil, which increasingly derive their competitiveness from more
advanced production processes requiring well-qualified and trained workers.

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Unfortunately, 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 country
had still a long way to go. It was only in 1997 that the target of putting every child in school was established. As
a result, 10 percent of Brazil’s adults are considered illiterate and 74 percent are functionally illiterate (they are
able to write their names but unable to read a book)—a total of 84 percent of the adult population of the country
is at a serious disadvantage. Moreover, only 65 percent of enrolled children finish primary school, and only 42
percent 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 the
change 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 given
every three years to 15-year-old students in 57 countries to assess their scholastic capabilities in reading as well
as their mathematic and scientific literacy. Brazil has participated since 2000 and has consistently been among
the worst performers in all three tests given since then.

As a large middle-income country, Brazil still has several underdeveloped regions. Its educational system is
accordingly plagued by many deficiencies and racial and regional disparities

The nation invests 4.3% of GDP on Education - the federal government aims to increase gradually this number to
7% in the years to come.

EDUCATION PROGRAMS

Education 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.

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• 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

Land

The factors of size, relief, climate, and natural resources make Brazil geographically diverse. Planners divide the
country into five macro-regions: (1) North, (2) Northeast, (3) Southeast, (4) South, and (5) Center-West. The
North includes most of the Amazon Basin and covers 45 percent of the national territory, but only 7 percent of
the population lives there. The Northeast is the eastward bulge of the country. Much of the population of the
Northeast lives in poverty. The mainly upland area of the Southeast is the demographic and economic core of the
nation. The Southeast contains only 11 percent of Brazil’s land, but 43 percent of the population lives there. The
South 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 river
and the world’s largest tropical rain forest.

Land Reforms in Brazil

Land reform consists of government-initiated or government-backed real estate property redistribution, generally
of agricultural land. In the 1930s, Getúlio Vargas failed to fulfill on a Promised Land reform. Later reforms were
planned in the govt. of José Sarney but all in vain. In conclusion, this dramatic situation of poverty will not be
overcome by any kind of market mechanism, much less through a credit line to buy a piece of land. It is crucial
that the struggle for a broad agrarian reform be strengthened, to invert the political balance of forces and the
dynamic of social exclusion, making true social development into a viable pathway.

Real Estate Sector

Last 25 years in Real estate were stagnant because of high interest rates, lack of financing, high inflation and
slow economic growth. Since the 1994 economic recovery plan (Plano Real) and macroeconomic reforms and
sound fiscal management, purchasing power has increased and in turn investments in real estate sector. Record
number of tourism inflows has also improved the real estate sector. Foreigners can purchase land and property in

November 2009


Brazil in their own names on a 100 percent freehold basis. Mortgage finance options are still less in Brazil. Key
property markets are Rio de Janeiro , Sao Paulo and north eastern Brazil. It is relatively easy for foreigners to
buy land and property in Brazil, as they generally enjoy the same rights as Brazilian nationals, even if they are
non-residents. However, foreigners must first obtain a Catastro de Pessoa Fisica (CPF) number before they can
buy property.

Brazil is biggest exporter of coffee, soybeans, beef, sugar cane, ethanol and frozen chickens. Brazil contains a
wealth of mineral and plant resources that have not yet been fully explored. It possesses some of the world’s
largest deposits of iron ore and contains rich deposits of many other minerals, including gold and copper. Brazil’s
fossil fuel resources are modest, but this limitation is offset by the considerable hydroelectric potential of the
nation’s many rivers. Although Brazil is an important producer of tropical crops, areas of highly fertile land are
limited, and only a small proportion of the land is actually under cultivation. There is substantial livestock
ranching, and the forests are important sources of timber, rubber, and palm oil. So if we compare it to other
countries like India and US, we can say that the available land under cultivation is very fertile and an investor
can gain a lot by investing in agriculture in Brazil. Low inflation, together with falling interest rates and a
stronger currency have improved consumer purchasing power and together are creating a much more positive
environment for investments in the real estate sector. In addition, record numbers of tourism inflows have
helped 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.

Labor

Flexible labor markets, which ensure that the labor force is allocated to its most efficient use, is a critical
competitiveness enhancer for all economies. This is more so for countries competing mainly on high value added
goods in markets that, because of their dynamism, require continuous adjustments to their national production
systems, 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 is
particularly meaningful for countries such as Brazil, characterized by a highly unequal income distribution and
widespread poverty

Brazil is a racially diverse and multiracial country. Intermarriage among different ethnic groups has been part of
the country's 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 five
categories: white, black, pardo (brown), yellow, and Indigenous, based on skin color as given by the individual
being 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

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years) for 1999–2007 is 6 %. Minimum wage is 465 Brazil Real’s or 201 US $ per month. The Brazilian national
minimum wage is adjusted annually. Millions of Brazilians live on the minimum salary. Most businesses are
conducted between the hours of 8am and 6pm and the average working business week is 42 hours. Employees are
entitled to a weekly rest of at least 24 hours. All employees are entitled to up to 30 days' holiday after a full year
of work with the same employer. Service sector employed 66 % of the workforce in 2007. Population estimate for
2009 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 1931
President Getúlio Vargas created a government-supervised trade union structure. Strikes were forbidden, but
labor courts assessed workers’ grievances. The Vargas government also instituted social legislation that was
advanced for its time, regulating hours of work and establishing a minimum wage, worker training, and health
care. 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 1964
military coup, the government purged the leadership of unions and placed many unions under direct government
control. However, continued union activism at the factory level and strikes organized by workers were factors in
ending the military regime. Unions reemerged following the return of civilian rule in 1985, and central labor
organizations were legalized. During the 1990s the number of unions grew into the thousands and included
factory and rural workers, employers, and professionals. In addition to umbrella organizations such as the Central
Union of Workers and the General Confederation of Workers, both formed in 1983, there are unions for specific
industries, 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. All
the 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

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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 China

Taking into account all the above discussions, it can be said that the people of Brazil are of varied culture and of
varied ethnic origin. Million of them normally live on the minimum wages. The governments’ rules and policies
are such that sufficient rest and leisure time is mandatorily to be given to all the working class in a week. So a
person can easily come and enjoy working here. As per data, a person gets paid more than a similar person in
India but less than a person in U.S. For example, a person with 5-9 years of work experience is paid around 44000
USD 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 an
assumption that the people in Brazil are more prosperous than the people in India but less prosperous than the
people in US. Also to protect the interests of the labor, there are several labor unions formed in Brazil.

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MACROECONOMIC STABILITY

CURRENCY REGULATION

Since 1994, the Brazilian currency has been the Real (plural: Reais), symbol is R$. Because of the very high
inflation 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 the
bills and changed the currency to Cruzado; a few years later, another three zeros were dropped, and Brazilians
were introduced to the Cruzados Novos ("new cruzados"). In 1990, the Cruzados Novos were retired, and the
Cruzeiros 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, to
get 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 and
color.

CURRENCY MARKET

Differently from most countries, Brazilians are not used to seeing foreigner currency bills; even the American
dollar and the euro have limited course; traveller checks are also restricted (usually, foreigners must exchange
the 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 with
currencies; a few branches of a few banks also trade currencies, but not at an advantageous rate to the
customer.
Brazilian banks have developed an efficient Information Technology infrastructure; holders of major credit cards
can 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.
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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.

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• 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 REVENUE

THE BRAZILIAN TAX SYSTEM

Basic Aspects of the Brazilian Economy

Brazil is the fifth largest country in the world and the largest in the southern hemisphere, with 8.514 million km2
of contiguous area. Brazil has borders with every South American country, except Chile and Ecuador. It has over
15.7 thousand kilometers of land borders and approximately 7.3 thousand kilometers of coastline (Atlantic
Ocean).

Taxes and Taxing Powers

In Brazil, the main directives for taxation are provided by the Federal Constitution, which establishes the general
principles of taxation, the limitations on the power to tax, tax competence across levels of government as well
as tax revenue sharing provisions.

Thus, the National Tax System is instituted by the Constitution itself, which establishes that the Union, the
States, 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 possibility
of instituting taxes, fees (due to its police power or to the use of public services) and improvement charges (due
to public works). With respect to social contributions, most of them may only be established by the Federal
Government.

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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 System

Paying Taxes Doing Business 2008 Doing Business 2009 Doing Business 2010

Country India Brazil India Brazil India Brazil

Rank ------ -------- 171 146 169 150

Total tax rate(%Profit) 71.5 68.8 69 69.2 64.7 69.2

Payments(number per year) 59 10 59 10 59 10

Time(hours per year) 271 2600 271 2600 271 2600

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General 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.

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EVALUATING the EFFICIENCY ENHANCERS
REMOVING ADMINISTRATIVE BARRIERS TO BUSINESS

Economy Ranking – Ease of doing Business

Brazil is ranked 129 out of 183 Economies. Singapore is at the top ranked Economy in Ease of doing business
whereas 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

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According 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
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
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

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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 15.1
Closing a Business Time (years) 4 7
Cost (% of estate) 12 9

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Economies are number on the numbers and impact of reforms, Doing Business selects the economies that
reformed in 3 or more of the Doing Business topics. Second, it ranks these economies on the increase in rank in
ease 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 brigade
license 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 process
and 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 of
doing 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


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 MARKETS

Efficient financial system is an important feature of any competitive economy—more so for countries at higher
stages 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 income
levels, education, and a variety of policy indicators. Some studies even suggest that developing deep and
efficient financial systems is not only correlated with a healthy economy, but can also reduce poverty and
income inequality. Development of the financial system contributes to economic growth by reducing the costs of
acquiring and processing information, helping investors diversify risks, and reducing monitoring costs. As a
consequence, it improves resource allocation.

STOCK MARKETS
Corporate financing through the stock market has enjoyed substantial growth over the past several years, thanks
notably to efforts to encourage a culture of equity financing through regulatory changes, including measures to
protect the interests of minority shareholders. The Novo Mercado is a prime example. Brazil’s main stock
exchange, Bovespa, is the largest in Latin America for its market capitalization, which has grown significantly as
a percentage of GDP

November 2009


BM&F Bovespa Stock Exchange and CVM, the securities market regulator

Founded on August 23, 1890, the "Bolsa de Valores de São Paulo" (Bovespa) has had a long history of services
provided to the stock market and the Brazilian economy.

Through self-regulation, Bovespa operates under the supervision of the "Comissão de Valores Mobiliários" (CVM or
Commission of Movable Assets in English), analogous to the American SEC. Since the 1960s, it has constantly
evolved with the help of technology such as the introduction of computer-based systems, mobile phones and the
internet. In 1972, Bovespa was the first Brazilian stock market to implement an automated system for the
dissemination 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 integration
between the Brazilian Mercantile & Futures Exchange (BM&F) and the São Paulo Stock Exchange (Bovespa).

Following are few of the peculiar features of BM&F Bovespa

Multiple Listing Segments

A 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 willing
to 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 corporate
governance practices designed for companies, senior management and controlling stockholders. These
requirements are considered important for valuation of stock and other securities issued by the company. These
rules have been defined as “Differentiated Corporate Governance Practices”.

Compliance with these Practices distinguishes the Company as Level 1 or Level 2 or Novo Mercado, depending
upon 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


• 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 corporate
bylaws.

Advantages of multiple listing segments

The 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 of
the level of corporate governance practices a particular company is following and can choose the company to
invest in accordingly.

Company’s perspective: - A domestic or foreign company looking to get listed on Bovespa gets to choose the
level of transparency and corporate governance it wants to follow. But companies which choose to follow
stringent rules of Novo Mercado find it easier to raise public money because these rules increase shareholder's
rights and enhance the quality of information commonly disclosed by companies. Additionally, the Market
Arbitration Panel for conflict resolution between investors and companies offer investors a safer, faster and
specialized alternative.

It has been observed that increasing number of companies are getting listed on Novo Mercado which in turn has
attracted 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 which
shows that companies are accepting higher levels of corporate governance rules of Novo Mercado. In the year
2001 the 14% of the total trading by value involved the companies listed on Novo Mercado and this increased to
66% till June 2008.

November 2009


Of 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 1

The figure below shows that the international investment has been on a constant rise in Bovespa, with trading
value of international investors being 22% in the year 2000 and 37.2% in the year 2008.

November 2009


Self Listed Exchange

Bovespa is one of the few exchanges to be listed on itself. This raises the level of trust and confidence in the
investors and listed companies since the exchange also follows the same levels of corporate governance practices
and disclosures that it expects the listed companies to follow. Also broker fees paid to the exchange are passed
on to investors this atomizes the cost and as investors are a diversified and loose group, there is no outcry to
lower fees.

Non-Resident Investments

CVM, the stock market regulator has issued instruction 325/2000 to include the option of simplified registration
and 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 threats

One of the key selling points for Bovespa has been the lack of competition from other exchanges. With high
barriers to entry and the rapid establishment of Bovespa as the premier exchange in the region, competition is
mainly locked out. All the companies that have carried out a dual listing in New York have had very specific
reasons, 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 Brazilian
legislation has erected some tricky hurdles for that business model. They include identification of the final
beneficiary of a trade and the imperative that transactions involving either an institutional investor or financial
intermediary use a regulated market for transactions. That means a new competitor would need to create an
organized market.

The combination of a better-run, more liquid home market in Bovespa and the Sarbanes-Oxley Act (SOX) and the
costs associated for listing in the exchanges like NYSE has prompted many Brazilian companies to stay at home.

Challenges and recommendations
There are some red flags in the wider IPO market in Brazil. Recently, a number of IPOs have traded down in the
immediate aftermarket. And while corporate governance standards are good, some companies respect the letter
rather than the spirit of the law. For instance Giant ethanol producer Cosan moved its listing to Bermuda to

November 2009


enable the owner to keep control of the company with a 10% stake. That contributed to a collapse in the share
price.

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 limited
group of insiders and make it an integral part of the investment climate agenda.

CORPORATE GOVERNANCE

In the last decade there have been changes in the organizational environment in Brazil. These changes include
the revival of capital market, the emergence of companies with dispersed and diffuse capital, mergers and
acquisitions 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 and
the companies the Brazilian government has reacted promptly to enforce corporate governance rules to make
sure that companies imbibe a culture of transparency and disclosure. There are three key bodies that play a
significant role in the development of corporate governance practices in Brazil- IBGC, the stock market regulator
CVM and the stock exchange Bovespa.

Role of IBGC
The Brazilian Institute of Corporate Governance (IBGC) founded on November 27, 1995, has been since its
inception issuing Code of Best Practices.

The first version essentially focused on the Board of Directors like other code in US and UK. The subjects
included 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 of
Shares 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/or
partners, 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 of
auditors, and non-audit services.

November 2009


Code of Best Practices – Fourth Version
The fourth version is based on the basic principles of
• Transparency
• Equity
• Accountability
• Corporate Responsibility

Shareholder’s Rights
The 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 Bovespa

The stock markets regulator, CVM and Bovespa, the São Paulo stock exchange, have established separate listing
segments to enhance corporate governance practices beyond the corporate law. The commitments undertaken
by companies listed in Level 1 include improved disclosure, procedures for the wide distribution of shares in
public 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-along
rights 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 any
matters that may involve conflicts of interest.

In addition to the above requirements, companies listed in the Novo Mercado segment must issue voting shares
exclusively.

The creation of special listing segments has made a business case for good corporate governance. Increasing
number of companies are getting listed on Novo Mercado which is the most stringent of all the three levels of
listing in terms of rules of corporate governance. On the other hand the proportion of companies listed on level 1

November 2009


and level 2 has been on a decline which shows that companies are accepting voluntarily higher levels of
corporate 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


INSURANCE SECTOR

Brazil is by far the largest insurance market in Latin America, representing more than 40% of the gross written
premiums in the region. Brazil also has the largest population in South America, the 10th largest economy in the
world by GDP and a low insurance penetration rate. These factors indicate that, despite the relatively impressive
size of the Brazilian insurance market, it still has tremendous growth potential, estimated by some to be the
third best in the world behind China and India. Not surprisingly, therefore, although the growth of the insurance
market has slowed in 2009 with the global economic crisis, industry growth is widely expected to break double
digits in both 2008 and 2009.

SNAPSHOT OF THE BRAZILIAN INSURANCE INDUSTRY

November 2009


SIGNIFICANCE 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 & innovation

REGULATORY 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 the
settlement of the Brazilian Government policies’ guidelines and directives for insurance and capitalization
companies and open private pension entities in Brazil.

The Superintendence of Private Insurance (SUSEP), an autarchy linked to Ministry of Finance, is the executive
body of the politics delineated by the CNSP and is also the insurance commissioner, responsible for the
supervision and control of the insurance, open private pension funds and capitalization markets in Brazil.

NEED FOR REGULATION OF THE INSURANCE SECTOR
Too 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 REFORMS
On January 15, 2007, Brazil published Complementary Law 126, eliminating the previous state monopoly on
reinsurance, which had been in place since 1939. Previously the domain of the government controlled Brazilian
Institute of Reinsurance (IRB), the regulation of co-insurance, reinsurance and retrocession transactions.

November 2009


This 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/INSTITUTIONS

COMPETITION LAW

As trade Liberalization progresses and the state is gradually withdrawing from the expanded role it has assumed
earlier. 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 the
preservation 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 any
agreement, arrangement or understanding between enterprises that has the effect of substantially lessening or
limiting access to market is prohibited by Competition law. This prohibition applies not only to written
agreements but also to oral and informal agreements.

Anti-competitive offenses
These 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


Brazilian 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 etc

Strengths 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


EVALUATING the TECHNOLOGICAL READINESS
Access to cutting-edge technology becomes increasingly important for firms and countries in sustaining their
competitiveness as they progress to the efficiency-driven stage of development and cannot continue to rely
exclusively on cheap factors of production as main competitive advantages. At this stage, what really matters is
the availability of technology within the country, regardless of its origin: the capacity to generate knowledge
domestically becomes a key driver of competitiveness only for economies near to the technological frontier, in
the third and most advanced stage of development.

As countries move up the development path and reach the most advanced stage of development, the capacity to
produce unique and innovative products and services and to incorporate sophisticated production processes
becomes 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 its
competitiveness.

TECHNOLOGY

Brazilian science and technology have achieved a significant position in the international arena in the last
decades. Brazil has today a well developed organization of science and technology. Basic research is largely
carried 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 centers
system, 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 IBM
have established large R&D&I centers in Brazil, starting with IBM, which had established an IBM Research Center
in Brazil since the 1970s. One of the incentive factors for this, besides the relatively lower cost and high
sophistication and skills of Brazilian technical manpower, has been the so-called Informatics Law, which exempts
from certain taxes up to 5% of the gross revenue of high technology manufacturing companies in the fields of

November 2009


telecommunications, computers, digital electronics, etc. The Law has attracted annually more than 1,5 billion
dollars of investment in Brazilian R&D&I. Multinational companies have also discovered that some products and
technologies designed and developed by Brazilians have a nice competitivity and are appreciated by other
countries, such as automobiles, aircraft, software, fiber optics, electric appliances, and so on.

Brazil's IT industry has achieved some remarkable feats, particularly in the area of software. In 2002, Brazil
staged the world's first 100% electronic election with over 90% of results in within 2 hours. The system is
particularly suited to a country with relatively high illiteracy rates since it flashes up a photograph of the
candidate before a vote is confirmed. Citizens could download a desktop module that relayed the votes to their
homes in real-time faster than the news networks could get them out. In 2005, President Luiz Inácio Lula da Silva
launched a "people's computer" to foster digital inclusion, with government finance available and a fixed
minimum configuration. Having rejected the Microsoft operating system (Windows XP Starter Edition), it is being
shipped with a Brazilian-configured Linux system offering basic functions such as word processing and internet
browsing. 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 is
world’s leading producer of hydroelectric power. Brazil leads Latin American software revenues. As per Global
Competitiveness Index 2009, Brazil has been ranked 46 in terms of Technological Readiness. It develops projects
ranging from submarines to aircrafts to space research. Brazil also possesses a satellite launching center and was
the only country in the Southern Hemisphere to integrate the team responsible for the construction of the ISS. It
is known as pioneer in ethanol production. Almost 73% of funding for basic research comes from government. It
has an operational Synchrotron Laboratory; a research facility on physics, chemistry, material science and life
sciences, 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 country's energy demands.
Country's first nuclear submarine will soon be launched. The government also plans to build 17 more nuclear
plants by the year 2020.

Given below is a comparison of Brazil based on technology parameters. Note that the highest rank is 133. All the
analysis 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


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 products

Taking into account all the above discussions, it can be said about Brazil that it is technologically sufficient
country. There are lots of universities for higher education, both public as well as private, research and
development institutes and scientific societies. There is a long list of important Brazilian scientists and
technologists. So one can easily take advantage of the technological advancements in Brazil and hence make
profits after investing here.

INTELLECTUAL PROPERTY RIGHTS

The two IPR governing bodies in Brazil are: INPI (Instituto Nacional Da Propriedade Industrial), responsible for
registration of trademarks, patenting, the registration of computer software, industrial designs and geographical
indications, according to the Industrial Property Law and The National Council for Combating Piracy and
Intellectual 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 1995

As a member of the World Trade Organization, Brazil has IPR laws whose effect is in line with the ‘minimum
standards’ laid down by TRIPS. Consequently there are, in theory, few major differences between Brazil’s laws
and those of other developed countries, although there are plenty of differences in detail.

November 2009


Some 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 0.87

US have the highest ratio of number of patents granted to the number of patents filed while Brazil has a ratio
higher than India but less than that of US. This is indicative of the stricter IPR laws in Brazil as compared to the
US.

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 1-2

Source: WIPO Statistics Database, June 2009

November 2009


Brazil has made great strides in recent years to overhaul and replace its IPR laws. It has also set up
official/private partnership organizations at national level, such as (in 2005) the National Council for Combating
Piracy and Intellectual Property Crimes. However, serious deficiencies remain in the enforcement of the law and
the 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


Conclusion - A company’s intellectual property portfolio is its most valuable asset. So the business should be
familiar with the concepts of IP and understand how the IP rights owned by their business will be affected in
overseas markets. This knowledge can save the company a great deal of money through knowing what to look out
for and taking timely self-help avoidance measures.

Brazil is Latin America's largest country and economy. It is close to achieving an investment-grade rating, with
the potential to attract massive foreign direct investment. However the lack of protection for intellectual
property in Brazil is a cause for concern for foreign companies wishing to do business there. In spite of the recent
efforts by the Brazilian government to improve matters and bring the IPR environment into line with
international norms, much has still to be done.

November 2009


CONCLUSION & RECOMMENDATIONS

Brazil as an investment destination for the short term is a “not favorable” option whereas if one is looking for
long 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 the
government 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 macroeconomic
stability, liberalizing and opening the economy, and reducing income inequality, among other dimensions. This
has 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 high
levels of government indebtedness, an overly rigid labor market, and poor educational standards coupled with an
enduring inequitable income distribution. It is a tough call for Brazil’s institutions to tackle these shortcomings in
the present context of major external shocks on export demand and financing availability, along with falling
commodity prices.

The country would be in a better state if it were to work out to solve all these problems, especially the problems
it faces in the “Basic requirements” we have identified. It is also important for the government to develop more
tools 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 universal
access to secondary school and a strong investment in technical education and scientific careers. Brazil needs
more engineers and more science teachers and researchers. Although improvements in healthcare provided to
the overall population have been achieved in the past few years, providing increased access remains a key
challenge in Brazilian healthcare.

November 2009


References

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

Brazil country analysis report [team 2]

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