Brazil’s Political Factor in Business

Political factor in by ashraful islam Trade Policies in political factor brazil nuts economic write up has been influenced remarkably by overseas heap trends and policies. concomitant cycles of ex style booms in such commodities as sugar, gold and diamonds, rubber, and coffee compete major employments in brazilian discipline before World state of war II. In the 1930s, the collapse of coffee prices signaled a turn inward, resulting in a nascent industrialization. In succeeding decades, industrial development was fostered mensurablely by restrictive affair policies, making brazil-nut tree a relatively unlikable parsimony by the mid-1960s.Only in the archeozoic 1990s did brazil deport back significant liberalization of its cope policies, and even these reforms were modest by equality with those in a number of other Latin American nations. political relation interpellation in foreign carry on has a long history in brazil-nut tree, reaching back to the colonial p eriod when Portugal forbade brazilian trade with other nations. Fol woefuling independence in 1822, brazil opened its styles and expand its trade with other nations, particularly Britain. Extensive judicature regulation of trade continued, however, with tariffs providing all over half of the establishments revenue before World War I.Other forms of intervention in trade included the 1906 coffee price support plan, which was a sophisticated attempt to exploit Brazils monopolistic position in the creation coffee market. Before World War II, trade policies were used loosely as a source of revenue or as a response to specific groups such as the coffee producers, rather than as a means of achieving internal economic goals. In the early 1950s, Brazil began to use trade constitution in a such(prenominal) delibe ordinate way to promote industrialization. The forced reduction in Brazilian imports after(prenominal) 1929 had resulted in the first major industrial growth in Brazil, touch on in Sao Paulo.Heeding this app bent lesson, policy makers in the 1950s argued that measures that deliberately trim imports would stimu slow domestic production, thereby encouraging technological development and change magnitude employment in activities that were regarded as more(prenominal) modern than Brazils traditional unpolished and extractive activities. The steep rise in world oil prices that began in late 1973 soon ended Brazils move toward immenseer trade openness. The approximate proportion amongst imports and exports in the early 1970s became an unprecedented US$4. one thousand thousand deficit in 1974. Although record levels of out-of-door capital flows financed this deficit, Brazilian policy makers responded by restricting imports. In June 1974, import backing for many another(prenominal) products was suspended, art object tariff range on more than 900 items were set slightly overd. Over the year, restrictions were increased further, and in 197 5 the government required that imports be paid for in advance with deposits that did not earn interest or any correction for inflation. On the export side, further measures were taken to promote exports, especially for manufactures. notwithstanding these measures, Brazils trade balance remained in deficit for close to of the 1970s. The combination of tightened import controls, real depreciation, and the fall in domestic demand induced by the restrictive macroeconomic policies of the early 1980s resulted in a sharp adjustment in Brazils external accounts. The magnitude of the adjustment appears to feature surprised even many of its proponents, some(prenominal) in the Brazilian government and among creditors. After 1983 the massive trade surpluses averaged more than 3 percent of GDP, comp atomic number 18d with negative or negligible levels through most of the 1968-82 period.In 1984, as the full effects of the adjustment program were felt, exports were or so double imports, and Br azils trade surplus reached an unprecedented 6. 1 percent of GDP, far stupendous the comparable shares in other important economies such as lacquer (3. 5 percent of GDP) and West Germany (3. 8 percent). By 1984 it was clear that the undefeated external adjustment had a domestic price, as inflation quicken to more than 200 percent at annual place. Trade policy consequently began to be viewed as a potential instrument for inside stabilization, with some import liberalization viewed as a potential indorser to reduced inflation.In late 1984, a number of the direct controls on imports were disregard back, and the number of products on the negative list was reduced substantially. Import financing requirements were also relaxed through exemptions, and tariff surcharges were replaced by smaller additions to the legal tariff. On the administrative side, the Cacex policy of import restrictions for balance of payments purposes was reduced. Although import licenses were not abolished, t heir thanksgiving became a relatively routine operation, and by 1991 most licenses were being issued deep down five working days.The CTIC became primarily a reporting and registration agency, which had micro of the discretionary power formerly exercised by Cacex. The former CPA, which had been far overshadowed by Cacex, was replaced by an agency coequal with the CTIC, the Technical Coordinating Office for Tariffs (Coordenadoria Tecnica de TarifasCTT). With the pillowcase in emphasis in trade policy from discretionary administrative control to the automaticity of published tariffs, many of them limited by Brazils treaty commitments, the CTTs role in formulating import policy became significantly greater than the CPAs had been.Early in 1991, the Collor de Mello government announced a series of tariff reductions to be phased in over the 1991-94 period. These were among the most far-reaching and significant reductions in Brazilian trade protection in some(prenominal) decades. Earli er tariff reductions often had been largely cosmetic, only trim rates that were prohibitive to high levels that still barred many imports. The 1991 reforms went much further, and in many sectors reduced rates to about a trey of their level in the early 1980s.Equally important, the reforms reduced the wide variability or dispersion of tariff rates that were once characteristic of Brazilian trade policy. The overall trend in Brazilian trade policy is clear. By the mid-1990s, Brazil had become a much more open economy than it had been a decade earlier. priorities in terms of business support marketplace Overview The Federative Re commonplace of Brazil is Latin Americas biggest economy and is the fifth largest country in the world in terms of land mass and population with about 192 million people.Brazils economy, the 6th largest in the world, grew 2. 7% in 2011. gain slowed due to reduced demand for Brazilian exports in Europe and Asia, despite solid domestic demand and a growing m iddle class. During the one date(prenominal) decade, the country has maintained macroeconomic policies that controlled inflation and promoted economic growth. Inflation was at 6. 5% in 2011, and urban unemployment reached a historic low of 6. 0%. Interest rates, though high compared to the rest of the world, remained historically low at the Central banking concern benchmark rate of 8. 0% as of July 2012. In 2011, the U. S. as Brazils largest source of imports followed by China, Argentina, Germany, and siemens Korea. U. S. swap exports to Brazil in 2011 were US$42. 9 billion, and U. S. imports from Brazil were US$31. 3 billion. Market Challenges Brazil has a large and diversified economy that offers U. S. companies many opportunities to export their goods and work, and U. S. exports are increasing rapidly. Doing business in Brazil requires point knowledge of the local environment, including both the explicit as well as implicit costs of doing business (referred to as the Custo Brasil).Such costs are often related to distribution, government procedures, employee benefits, environmental laws, and a complex task structure. Logistics pose a particular challenge, given cornerstone limitations posed by nearly a decade of economic expansion. In addition to tariffs, U. S. companies give find a complex customs and legal system. Market Opportunities in that location are few, if any, sectors in Brazil that do not view as nice short term opportunities. Certain sectors of the Brazilian market have at a lower placego higher than average growth, such as air transportation, telecoms, oil and gas, and mining.Under the s phase of the Growth Acceleration Program (PAC II), the Government of Brazil go away spend R$955 billion (the equivalent of around US$470 billion) in development of the countrys energy generation and distribution system, roads, railroads, ports, and aerodromes as well as stadiums as it prepares for the World Cup in 2014 and the Olympics in 2016. Other promising areas for U. S. exports and localizement include agriculture, inelegant equipment, building and construction, aerospace and aviation, galvanic power, safety and security devices, environmental technologies, retail, and transportation.The Brazilian national oil association Petrobras expansion may represent the largest global business opportunity in the oil & gas sector until 2020. The offshore pre-salt oil deposits discovered in 2006 and 2007 are estimated to exceed 60 billion barrels in probable or recoverable reserves, and could place Brazil among the worlds extend ten oil-producing countries. Petrobras anticipates that it result invest $224 billion in exploration and development through 2015. Brazil is one of the largest IT markets at heart the emerging economies. IT end-user pass in Brazil is expected to grow to $134 billion in 2014.The largest share of spending pass on be on telecom equipment, representing 72% of the market, followed by IT services at 1 3. 3% and computing hardware at 11. 9%. In the days leading up to the 2016 Olympic Games in Rio de Janeiro, Brazil will host several international mega-events. In 2011, Brazil hosted the World armament Games and the Pan-American Maccabi Games and in 2012, Rio de Janeiro hosted the Rio+20 global environmental sustainability conference. In 2013, Brazil will host a papal visit and the World Youth day event as well as the soccer Confederations Cup.In 2014, twelve Brazilian cities will host the soccer World Cup. The Government of Brazil expects to invest $106 billion in the preparations for these events. These investments, which will include outlays for infrastructure, construction, transportation systems, port improvements, national security, and airport infrastructure upgrades, will present significant commercial opportunities for U. S. companies. or so of the major infrastructure upgrades will be carried out through Public-Private Partnerships under Brazils Growth Acceleration Pro gram. Market Entry StrategyBrazils business culture relies heavily on the development of strong personalised relationships. Companies need a local presence and must invest time in development relationships in Brazil. The U. S. Commercial Service encourages U. S. companies visiting Brazil to meet one-on-one with potential partners. One of the best ways for U. S. companies to move in the Brazilian market is by participating in local trade shows or using the U. S. Commercial Services Gold signalize Service (GKS), through which they can meet with pre-screened potential clients or partners.It is essential to work through a qualified representative or allocator when developing the Brazilian market. Some firms establish an office or conjunction venture in Brazil. Further discussion of these alternatives can be assemble in the Marketing Products & Services chapter. It is very difficult for U. S. companies to get conglomerate in public sector procurement without a local Brazilian part ner. Education of the workforce Despite being one of the worlds most inhabited countries, Brazil does not have a single university ranked in the top 100 internationally.Of its college graduates, 5 percent are engineers, far below the rates of countries such as China and South Korea, according to Brazilian businesses. Since Brazils schooling system is falling short, Vale, like several other Brazilian companies, has decided to build its own. For years, technical education was not the main focus on of the government, said Marco Dalpozzo, Vales global human resources director. Mining was not seen for the lead 20 years as a great opportunity or a vocational business opportunity for the country. So you have professions for which Vale had to effect their own entire system of education. Over the past few years, several Latin American countries have enjoyed soaring growth rates as they exported oil, minerals and agricultural products around the world. In Brazil, gross domestic product m ore than doubled, to $1. 3 trillion, in the five years ending in 2007, while inflation dropped to 3. 6 percent, a quarter of the 2003 level. Yet recent studies have shown that workers in Latin America have less education than those in East Asia and Eastern Europe and that the percentage of students enrolled in high school is far lower than in developed countries.In Colombia, one out of every(prenominal) 700,000 people receive PhDs, compared with one in 5,000 in developed countries, wrote Jeffrey M. Puryear and Tamara Ortega Goodspeed in a contribution to a book published this year call Can Latin America Compete? The regions limited number of scientists and locomote degree recipients weakens the regions competitiveness by limiting countries ability to use and mystify knowledge, and to carry out enquiry, they wrote.For younger students, Latin American countries have focus in recent years on building schools and expanding access to public education, rather than improving the qua lity of that education, said Emiliana Vegas, a senior education economist at the World Bank. Teachers pay raises are based on longevity rather than performance, and few parents are used to demanding more besotted trites. Most Latin American parents have less education than their kids. They relish their kids are already receiving an advantage they didnt get, said Vegas, who co-authored the book Raising disciple Learning in Latin America. In the most recent results of the brass section for Economic Cooperation and Developments triennial tests of 15-year-olds from 57 countries, the Latin American countries that participated, including Brazil, Argentina and Colombia, consistently scored near the bottom. Its not just that kids need to go to school, they need to condition in school, Vegas said. Brazil quality of port infrastructure Quality of port infrastructure, WEF (1=extremely underdeveloped to 7=well developed and efficient by international standards)Definition Quality of Port Infrastructure measures business executives perceptions of their countrys port facilities. The military rating ranges from 1 to 7, with a higher score indicating get around development of port infrastructure. character reference World Economic Forum, Global Competiveness Report Year abide by 2007 2. 63 2008 2. 52 2009 2. 65 2010 2. 94 2011 2. 70 Airports The Brazilian airport network has long been lamented as underdeveloped and poorly maintained. The network is shed blood almost exclusively by Infraero, an authority that reports to the country? s disaffirmation ministry.In operation for 37 years, Infraero has more than 28,000 employees and contractors assisting in the management of 67 airports passim the country. These airports handle 97 percent of all air traffic in the country, with more than 2 million takeoffs and landings and over 113 million passengers annually. 11 The fellowship? s charge is quite difficult, considering that the airports are spread across a countr y the size of the contiguous United States Roadways Like the United States, Brazil is heavily dependent on its road system for transportation. However, there is great disparity in the quality of these road networks.Despite constituting 68 percent of Brazil? s transport needs, only 12 percent of the country? s 1. 6 million kilometers of roads are paved. 20 The consequence of these infrastructure deficiencies is slower and more expensive transport costs can be up to 35 percent greater on unpaved roads. 21 This affects the booming agricultural sector greatly, as many of the goods are produced in remote locations with poor road conditions. Rail Brazil? s national rail network consists of approximately 28,000 kilometers of track, and most of it is operated by private concessionaires.These concessions have been utilized for 12 years, and the government is reviewing its concession model to make better use of the rail network. One of the main objectives of the changes is to put abandoned o r low-capacity stretches back into operation. 29 As part of the Ministry of Transport? s field of study Plan, Brazil will consolidate a new rail network, developing almost 12,000 additional kilometers of track. 30 These rail lines will serve areas of agricultural and mineral productivity and enable the increased transfer of cargo between transportation modes.Additionally, the rail lines will be implemented in intend corridors that are specifically designed to link production and consumption regions, as well as production and shipment areas (like ports). The MOT is also analyze the feasibility of a corridor that will link railways from Brazil, Paraguay, Argentina, Bolivia and Chile. Economic factors by ashraful islam preservation overview Characterized by large and well-developed agricultural, mining, manufacturing, and service sectors, Brazils economy outweighs that of all other South American countries, and Brazil is expanding its presence in world markets.Since 2003, Brazil h as steadily improved its macroeconomic stability, building up foreign reserves, and reducing its debt visibility by shifting its debt burden toward real denominated and domestically held instruments. In 2008, Brazil became a net external creditor and two ratings agencies awarded investment grade spatial relation to its debt. After strong growth in 2007 and 2008, the onset of the global monetary crisis hit Brazil in 2008. Brazil experienced two lodge of recession, as global demand for Brazils commodity-based exports dwindled and external credit dried up.However, Brazil was one of the first emerging markets to begin a recovery. In 2010, consumer and investor agency revived and GDP growth reached 7. 5%, the highest growth rate in the past 25 years. Rising inflation led the authorities to take measures to cool the economy these actions and the deteriorating international economic situation slowed growth to 2. 7% for 2011 as a whole, though forecasts for 2012 growth are somewhat hig her. Despite slower growth in 2011, Brazil overtook the United Kingdom as the worlds seventh largest economy in terms of GDP.Urban unemployment is at the historic low of 4. 7% (December 2011), and Brazils traditionally high level of income equality has declined for each of the last 12 years. Brazils high interest rates make it an attractive ending for foreign investors. Large capital inflows over the past several years have contributed to the appreciation of the currency, hurting the competitiveness of Brazilian manufacturing and leading the government to intervene in foreign exchanges markets and raise taxes on some foreign capital inflows.President Dilma ROUSSEFF has retained the previous administrations commitment to inflation targeting by the important bank, a floating exchange rate, and fiscal restraint. Brazil Interest wander The benchmark interest rate in Brazil was last report at 7. 25 percent. Historically, from 1999 until 2012, Brazil Interest Rate averaged 16 . 6 part reaching an all time high of 45. 00 Percent in walk of 1999 and a record low of 7. 25 Percent in October of 2012. In Brazil, interest rate decisions are taken by The Central Bank of Brazils Monetary Policy Committee (COPOM). The official interest rate is the peculiar(a) System of Clearance and Custody rate (SELIC) which is the overnight lending rate. This page includes a chart with historical data for Brazil Interest Rate. pic Brazil Income Taxes 2012 Last partial update, May 2012Individual Income Tax Brazils individual income tax rates for 2012 are progressive, from 7. 5% to 27. 5%. Personal annual tax rates 2012 (BRL) Income (BRL) % 1-18,799 - 18,799-28,174 7. 5 28,174-37,566 15 37,566-46,939 22. 5 over 46,939 27. 5 Note Nonresidents pay a flat 27. 5% tax on income earned in Brazil Corporate Tax Brazils combined corporate tax rate for 2012 is 34%. The tax consists of a basic tax of 15%. thither is also a surtax of 10% for annual income of over BRL 240,000, about $ 110,000. Additonal 9% are added for social contribution on net profits. with child(p) Gains Capital gains of companies are added to the regular income. Individuals Pay 15% tax on capital gains, dividend income from local companies is tax exempt. Residence A foreign caller is resident if incorporated in Brazil.An individual is resident when holding a permanent visa, or a temporary visa with an employment agreement, or even without an employment agreement, when staying in Brazil for more than 183 days within 12 months. Brazil Tax Deductions Losses are carried forward indefinitely. In future years only 30% of the current year nonexempt income can be set off against the loss. Depreciation is deducted using the groovy line method. Companies working in 2 shifts can claim cl% of the standard rates, while companies working in 3 shifts are empower to 200% of the standard rates. Companies involved in development of technical research can use accelerated depreciation for tax pu rpose. There is no company consolidation for tax purpose. Thin capitalisation rules relating to interest expenses are in effect in Brazil from 1. 1. 2010. Brazil Personal credit and Deductions For Brazilian residents, the first annual income of BRL 18,799 is tax exempt. There is a standard monthly deduction for each dependant. Education expenses are deductible, up to a limit. Deductions are also permitted for social security payments by an employee, payments to private Brazilian pension plans, up tp a limit, and for alimony payments.Deduction of Tax at Source In Brazil tax is deducted at source from the following payments to non residents Dividend- 0%. Interest- 15%/25%. Royalties- 15%. Services -15%/25%. Social credentials The contributions by the employer and the employee are subject to to ceiling defined by law. Employer 37. 3% of the gross salary, 28. 8% social security and 8. 5% for severance fund. Employee 7. 65%-11% of the gross salary. The employees payment, which is capp ed, is based on a contribution salary plank, provided by the government.