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Brazil: “Pretty Girl” With Challenges

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Brazil remains a magnet for foreign companies despite major challenges like taxes, education and infrastructure.


BY CHRONICLE STAFF


Brazil’s taxes, education and infrastructure are major challenges for economic growth,  multinational and financial executives say.

 

“It is an expensive place to do business,” Michael McKenzie, managing director of treasury and securities services at JP Morgan said. The Sao Paulo-based McKenzie was speaking at the invitation-only LT CFO event in Miami organized by the Latin Trade Group today.

The high costs were driven by a combination of factors, including a high tax burden and bureaucracy costs, he said.


Roberto Palmaka, a Brazilian native who is senior finance director for
Latin America for US-based Microsoft, agrees. He also pointed to the complex tax, legal and labor system as one of the key growth inhibitors in Brazil.

  
Cheryl McDowell, vice president of finance and administration for 
the Americas at Oracle, also mentioned taxes as a major problem. “It’s still very difficult to do business in Brazil,” she said. “The tax is still very high.”

 

Brazil has Latin America’s worst tax climate, according to the Latin Tax Index from Latin Business Chronicle
 

The tax burden adds up.  “The benefit burden in Brazil is about double the [one in the] U.S.,” McKenzie said.

 

“The cost per head in Brazil is one of the highest in the world,” said Palmaka.

EDUCATION & INFRASTRUCTURE

 

McKenzie, Palmaka and other executives also mentioned education as a key challenge. The scarcity of well-skilled labor and low productivity limit potential growth, McKenzie pointed out. (See also Brazil: The Education Challenge).

 

Meanwhile infrastructure also remains a major problem, executives pointed out.  Brazil ends up in 7th place on the Latin Infrastructure Indexbut fared even worse on the transport subindex, where it ranked 13 out of 19 countries.

 

STILL ATTRACTIVE

Despite those challenges, through,
Brazil remains a major magnet for foreign investors due to its large economy and population and strong GDP growth.

Brazil has the world’s 8th-largest economy and fifth-largest population. JP Morgan expects the economy to expand by 7.5 percent this year.

Macroeconomic stability (including domestic demand), natural resources and political stability are key factors behind continued growth, McKenzie pointed out.

And that spells good news for companies selling to Brazilians such as Germany-based Volkswagen. It expects to see total car sales in Brazil grow from 3 million units last year to 4.4 million by 2018 and is investing 2.3 billion euros (US$3.1 billion) during the next four years to expand capacity in the South American country, said Oliver Harmann, chief financial officer of the VW Group Latin America.

 

Volkswagen is the second-largest car vendor in Brazil, holding a 23 percent market share. A key part behind the German company’s faith in Brazil is the economic stability and increasing wealth, he said.

Meanwhile, technology companies like Microsoft are also looking at metrics where
Brazil fares among the leaders worldwide. It now ranks third in online time spent per person and is expected to jump from sixth-largest PC market globally to fourth by 2013, Palmaka pointed out.

Alberto Bernal-Leon, head of research for Bulltick Capital Markets, likened
Brazil to the pretty girl at a party. For all her blemishes – getting too drunk, for example – she will remain attractive.

 

 © Copyright Latin Business Chronicle 

 

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