Brazil - Market ChallengesBrazil - Market Challenges
Doing business in Brazil requires intimate knowledge of the local environment, including the direct and indirect costs of doing business in Brazil (referred to as “Custo Brasil”). The World Bank’s Doing Business 2019 report ranks Brazil 109 out of 190 countries in terms of ease of doing business, up from number 125 in 2018. The “Custo Brasil” includes increased costs due to:
- Distribution costs, government bureacracy, employee benefits, complex labor code, environmental laws, intellectual property laws, and a complex tax structure.
- High logistics costs given the lack of sufficient infrastructure. (Note: according to the World Economic Forum’s Global Competitiveness Index 2017-18 edition, Brazil ranks 73 out of 137 countries in the level of infrastructure development. See page 40 for opportunities in Brazil’s Infrastructure sector)
- High tariffs, a complex legal system and customs procedures present additional challenges in some sectors. * The US Commercial Service in Brazil (aka CS Brazil) can help U.S. companies determine sales potential and the imported cost of their goods.
The Government of Brazil (GOB) is the nation’s largest buyer of goods and services. Navigating the government procurement process, however, may prove challenging. Brazil is not a member of the World Trade Organization’s (WTO) Government Procurement Agreement (GPA), and offers “margins of preference” to domestic firms bidding on government contracts. As such, U.S. exporters may find themselves at a competitive disadvantage if they do not have a significant in-country presence, whether via established partnerships with Brazilian entities or some type of Brazilian subsidiary along with the endurance and financial resources to respond to legal challenges and bureaucratic issues. CS Brazil can help U.S. companies to find trusted local partners through our matchmaking and due diligence services.
Since 2014, the criminal investigation, “Operation Carwash” (Lava Jato), has uncovered a complex web of public sector corruption, contract fraud, money laundering and tax evasion stemming from systematic overcharging for government contracts. The ongoing investigation has led to the arrests of many executives, including executives from Brazil’s largest construction companies, money launderers, current and former politicians, and political party operatives. A growing compliance industry has also sprung up among Brazilian legal and accounting firms, as an increasing number of local companies take steps to become FCPA compliant.
Brazil has laws, regulations, and penalties to combat corruption, and the government is working to improve their effectiveness. Bribery is illegal and a bribe by a company to a foreign official can result in criminal penalties for individuals and administrative penalties, including fines and potential disqualification from government contracts, for companies.
Brazil Trade Development and Promotion