Brazil business climate is still challenging and needs to improve, experts say.
BY LATIN AMERICA ADVISOR
Although Brazil has been attracting record amounts of foreign direct investment (nearly $50 billion in FDI in 2010 alone, the third highest in the world), the South American nation has scored poorly in numerous "ease of doing business" rankings, with legal and regulatory issues cited among key difficulties there. Are these problems in Brazil as bad as the rankings suggest? Are things improving or getting worse? What specific steps should the government take to reform the legal and regulatory environment, and what role can businesses and civil society play in getting things on the right track?
Donna Hrinak is a member of the Inter-American Dialogue and vice president for global policy and government affairs at PepsiCo: Brazil has long bet that the size of its market would trump the difficulties of doing business there. To a considerable extent, that bet has paid off-especially in sectors, such as consumer goods, that benefit from the purchasing power of the expanding middle class. Nonetheless, the need to adjust ways of operating from the most efficient markets, to the too often cumbersome Brazilian requirements, has its consequences: few companies can function at their most optimal level; all have to allot both more people and more money to back-office tasks such as tax compliance; and because operating costs are higher, business units in Brazil are disadvantaged in corporate level debates over investment opportunities. There is some good news, particularly at the state and municipal levels, where officials have learned that tax incentives are not the only way to attract investment. Reducing red tape can be a competitive advantage and grow revenue for both government and industry. At all levels there is increased interest in learning about best practices from other markets. For example, on the regulatory side new vehicles for information exchange-such as between the U.S. Food & Drug Administration and Brazil's ANVISA-offer space to explore when bureaucratic procedures undercut sound science. What is still lacking is a sense of urgency. While things generally are getting better in Brazil, the competition isn't sitting still. To avoid loosing out as investment decisions are made-including by its own multinationals who have global options-Brazil needs to create conditions that will move the talk from, 'We have to be in Brazil because of its big domestic market' to 'We want to be in Brazil because it's a sound export platform, a source of skilled talent, and an overall great place to do business.'
Jack Devine and Amanda Mattingly of The Arkin Group: The World Bank downgraded Brazil in its 'Ease of Doing Business' rankings for 2011-from 124 to 127 out of 187 economies. According to the bank, Brazil saw some backsliding in areas such as taxes, access to credit and trading across borders. So despite continued positive growth rates (Brazil should grow at 4 percent this year) and significant FDI, Brazil has some work to do in improving its overall business climate. Legislative reforms are necessary, including a tax code overhaul which President Dilma Rousseff is currently trying to get through congress even amid a stalemate in her ruling coalition. Business leaders who have advocated for such changes to maintain Brazil's global competitive position should keep the heat on the politicians to ensure that Brazil continues attracting multinational corporations to operate and invest in Brazil. At the same time, business and civil society leaders should back legal and regulatory reforms that make it easier for Brazilians themselves to do business. Increasing access to credit, streamlining the steps necessary to start or close a business, making construction permitting processes more efficient-these are the kinds of changes that can positively affect the lives of ordinary Brazilians too and that can help to distribute more evenly the wealth and benefits of Brazil's recent macroeconomic gains. Overall, Brazil has done a lot over the last decade to make its economy more open and competitive and to include more of the Brazilian people in the nation's prosperity. With key reforms, Brazil should be able to stay on the right track.
Carol Incarnacao-Schirm, attorney at Diaz, Reus & Targ: The question should not be so much whether these problems are as bad as the rankings suggest, but rather whether the approach which Brazil has taken in 'doing business' is compatible with its new role as a global player. Brazil has had a unique trajectory and went from being the country of tomorrow, to being the country of today through a myriad of policies that not always are seen as that of a global leader. At the forefront of the country's agenda is infrastructure. In any case, arguably, things have improved, otherwise these issues would not be topics of discussion around the world. Because investments are likely to increase in years to come, regulatory reform is imminent. Brazil can no longer ignore failed regulatory policies in order to continue its rise as a global player. The president of Banco Itaú has highlighted in a recent article that the recently discovered deep oil fields, the housing market (as a large part of the population still lives in substandard housing), and the World Cup and the Olympic Games will lead investment opportunities in the next few years. But businesses intending to invest in Brazil will have to navigate the country's bureaucratic maze which requires fulfillment of legal and filing obligations that only a seasoned professional can provide in order to effectively respond to any unexpected procedural hurdles. Principally, the government still needs to address taxing and immigration regulations to allow the full potential of foreign investment opportunities to flow into the country and help Brazil meet its goals.
Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.