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More than just coffee

After a wobble in 2005, Brazil’s economy is growing strongly again. The
country’s real GDP growth is forecast as 3.2% this year and 3.4% in 2007.

That may not sound too exciting set against the high single-digit and even
double-digit growth of other “hotspot” economies, but FDs should remember that
Brazil already has a substantial economy – an estimated $634bn in 2006 – and
another 3% represents an awful lot of extra opportunity.

Matthew Albert, senior economist at D&B Country Risk Services and a
specialist in Latin America, offers two reasons why Brazil’s economic recovery
may continue.

“Interest rates are coming down faster than expected,” he says. “As a result,
the rebound in economic activity in the fourth quarter of 2005 was stronger than
anticipated. Industrial output was above expectation and we believe that’s a
signal that investment is going to rebound more strongly in the first couple of
quarters of 2006.”

The second reason for optimism is that China is increasingly eager to buy
Brazil’s abundant raw materials. Even if demand for Brazilian goods from Europe
and North America slows, China alone could keep the country’s economy growing.

Political and regulatory environment

The World Bank ranks Brazil as only 119th in the world for ease of doing
business. Bureaucracy can be stifling – federal and state governments don’t
always see eye to eye, making it difficult to know how regulations will be
interpreted in any given situation.

Although the undergrowth of bureaucracy is as thick as the rainforest, FDs
find themselves mostly tussling with five bodies.

The Central Bank (BACEN) handles exchange controls, foreign capital issues
and profit remittances. A Securities Commission (CVM) deals with the securities
market and listed companies. The Administrative Council for Economic Defence
(CADE) cracks down on monopolistic and unfair business practices. The National
Institute of Industrial Property (INPI) handles technology issues, including
technology transfer agreements. And the Foreign Trade Department (DECEX) – part
of the Bank of Brazil – controls import and export licences.

Depending on the nature of your business, you could also fall foul of the
Brazilian Environment and Renewable Natural Resources Institute (IBAMA), which
can suspend tax benefits, restrict credit and even close businesses that don’t
meet environmental criteria, although the fact that massive illegal logging
continues unabated suggests that much regulation is more honoured in the breach
than the observance.

Doing business there

Brazil bursts with possibilities. “There are lots of opportunities for
foreign companies to start a business in Brazil,” says PwC partner José Rezende.

Specific areas of opportunity include agribusiness (including alternative
energy sources such as ethanol and biodiesel), infrastructure and logistics.
Many companies need restructuring with more capital and new technology, so
Brazil could also be a happy hunting ground for private equity players.

Management/accountancy staff

Apart from an awful lot of coffee, there are two kinds of bean counters in
Brazil. The best of the brew are the contadores – graduates permitted
to do any and all accounting work, including auditing. The grounds are
técnicos de contabilidade – accounting technicians restricted in the
types of work they can undertake.

The profession is controlled by a federal accounting council formed of
members elected by regional councils. Accountants can’t practise until their
qualification has been recognised and registered by the local regional council.

More generally, there is a skilled workforce of professionals and managers,
many with international experience. But Rezende warns: “When starting a business
in Brazil, it’s advisable to hire a headhunter to identify key professionals.”

Making a success of business

The story goes that when Ford marketed its Pinto in Brazil, there were few
takers. It turned out that pinto is slang for “little willy” in
Brazilian Portuguese. The tale underlines the importance of being sensitive to
cultural differences.

Old Brazil hands advise allowing plenty of time to become acquainted with
your prospective partners before getting down to business. It’s polite to turn
up for meetings on time, but don’t be offended if people turn up an hour late.
And don’t speak Spanish – it infuriates the Portuguese-speaking Brazilians – or
wear green and yellow, the colours of Brazil’s flag.

“During negotiations, be prepared to discuss all aspects of the contract
simultaneously rather than sequentially,” advises Terri Morrison, author of the
business culture guide Kiss, Bow or Shake Hands.

Individuals also carry more weight than corporate entities in Brazil.
Morrison warns: “If you change your negotiating team, you may undermine the
entire contract. Brazilians value the person they do business with more than the
firm’s name.”

Case study: Grow with the flow

Matthew Armstrong is hoping to win orders worth £3m for his company Litre
Meter from Brazil’s state-owned oil giant Petrobas by 2008.

Armstrong, Litre Meter’s sales and marketing director, is already well on his
way to that figure with orders worth £233,000 and £190,000 for Litre Meter’s
specialised equipment, which measures the flow of chemicals injected into oil
pipelines to improve the flow of the crude.

Yet to get his company’s foot inside Petrobas’s door, Armstrong has had to
make half a dozen trips to Brazil and devote quality time with key managers.

“The Brazilians approach business in a different way to what we’re used to in
northern Europe,” says Armstrong. “I’m used to going into a company, giving a
presentation and answering technical questions. If they then believe in your
technical competence, they buy the equipment.

“In Brazil, I found that I had to spend social time with the people I was
selling to before we got round to the business. They wanted to know about me as
a person, my background and my family – very personal things. They have to know
you, and feel you are the right sort of person to do business with.”

But when the negotiating started, Armstrong discovered that Brazilians also
had a hard head for a deal. He met executives with a shrewd understanding of the
concept of knowledge transfer.

“They were very proactive in wanting to get their own engineers and local
companies involved in the whole supply chain process,” says Armstrong. “It’s
clear they want to become more self-sufficient. They have a specific clause in
the contract which states that 60%of the contract by value should be Brazilian.”

On the all-important question of payment, Armstrong has experienced no
problems. “We rarely have debts over 60 days and most of our customers pay
within 30 days,” he says.

Inflows and outflows

Exports $73.1bn

Transport equipment


Soyabeans, etc


Metal goods


Chemical products


Imports $50.7bn

Machines & electrical equip


Chemical products


Oil & derivatives


Transport equipment


Net foreign direct investment $15.0bn

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