Challenges of the Brazilian business environment

One of the largest markets in the world, Brazil is one of the main destinations for investments in the world. It is a country of continental dimensions, with stable economic growth, a growing domestic market, and abundant natural resources.

With such expressive numbers, Brazil’s territorial and population vastness represent a market that cannot be ignored by companies seeking international expansion – even though its regulatory and fiscal complexity present themselves as important challenges. It is one of the most bureaucratic countries in the world, with a complex business environment and a tax-to-GDP ratio of 33.1%.

While Government support in the past decades may have lifted more than 30 million people out of poverty, economic inequality still remains an obstacle to sustained economic growth. The investments have generated controversy, especially around the real cost. Government budget deficits amount to 10% of economic output, up from 3% in 2013. This, in turn, affects business in Brazil.

Ater the Covid-19 pandemic, Brazilian consumer confidence is slowly increasing. Inflation, unemployment, personal income, and debt still loom around families. Looking at other countries, however, it is impossible not to feel optimistic about the near future. While there’s much to be done, investments in infrastructure are being steadily carried out. 

In 2021 alone, Bolsonaro administration hopes to end the fiscal year with over 100 Billion Reais of investments in infrastructure projects. On the bureaucratic front, the Government is carrying administrative reforms that have seen over 3 thousand laws revoked in the past three years.

A developing nation, still

Brazil continues to be considered a developing nation. While this is often interpreted as a precursor to high levels of growth, in reality it also means that several areas of the economy remain underdeveloped. Although we’ve seen progress in the recent past, the consumer base, the regulatory environment and investment spheres are not as mature as those in developed nations.

This also means that there are opportunities for companies willing to take on the challenge. 

Although Brazil is among the world’s top investment destinations and is formally a well-functioning business environment, corruption and bribery are still serious obstacles. The federal structure of the political system means that there is a wide range of regulatory agencies, which can lead to demands for bribes from public officials. In 2016, Brazil ranked 76th in Transparency International’s corruption perception index and organized crime is a major problem in some parts of the country. However, this is something the government is fighting hard for through a program called integrity.

Due to the pandemic, uUnemployment is approaching 14%. The recent labor reforms have seen the weakening of unions, and the rise of remote labor and individual entrepreneurship. Corruption and bribery are sadly still part of the brazilian business environment, although the landscape has changed significantly after Operação Lava Jato.

Still waiting on Tax Reforms

Brazil’s tax regime is one of the driving forces behind its complexity. In Brazil, more than 80 taxes, fees and contributions are levied, and all taxes are based on different governmental spheres of federal, state and municipal taxes. Much is being discussed in the Congress about the simplification of the taxation of the added value, but until now timid advances have been seen in the taxation of the income. We still await a real simplification of this scenario for the next two years.

Brazil represents over 210 million consumers, and is likely to be the world’s 5th largest consumer’s market in the world by 2023. Whereas it does present important challenges, it is also a land of opportunities. To access Brazil on another level, you can rely on Gescon.