Starting a Business in Brazil

By in
270
Starting a Business in Brazil

Brazil is the fifth largest country geographically and representing the fifth largest market opportunity in the world, Brazil is a nation that offers an abundance of promise for those looking to do business there.

Economy of the Brazil

Brazil is the largest national economy in Latin America, the world’s ninth largest economy and the eighth largest in purchasing power parity (PPP) according to 2018 estimates. Brazil has a mixed economy with abundant natural resources.

Brazil has a developing mixed economy that is the ninth largest in the world by nominal Gross Domestic Product (GDP) and eighth largest by purchasing power parity in 2019. According to International Monetary Fund (IMF), Brazil’s 2019 nominal GDP was R$6.826 trillion or US$1.868 trillion. Brazil is the 73rd country in the world in GDP per capita, with a value of US$8,967 per inhabitant. The country has an estimated at $20.18 trillion worth of natural resources which includes vast amounts of gold, uranium, iron, and timber.

Brazil’s economy is the largest in Latin America

From 2000 to 2012, Brazil was one of the fastest-growing major economies in the world, with an average annual GDP growth rate of over 5%. Its GDP surpassed that of the United Kingdom in 2012, temporarily making Brazil the world’s sixth-largest economy. However, Brazil’s economic growth decelerated in 2013[31] and the country entered a recession in 2014. The economy started to recover in 2017, with a 1% growth in the first quarter followed by a 0.3% growth in second quarter compared to the same period of the previous year, and officially exited the recession. Brazil has remained stuck in the “middle income trap” and also faces high unemployment.

Brazil GDP
Brazil GDP

Brazil Economic Indicators

Brazil GDP Growth Rate

Brazil is the tenth largest economy in the world and the biggest in Latin America. The services sector is the most important and accounts for 63 percent to total GDP. The biggest segments within services are: government, defense, education and health (15 percent of total GDP); other services (15 percent); wholesale and retail trade (11 percent); real estate (8 percent); and financial services (7 percent). Also, industry contributes to 18 percent of GDP, with manufacturing (11 percent) and construction (4 percent) accounting for the largest share. The agriculture and livestock sector accounts for 5 percent of GDP. On the expenditure side, household consumption is the main component of GDP and accounts for 63 percent of its total use, followed by government expenditure (20 percent) and gross fixed capital formation (16 percent). Exports of goods and services account for 13 percent of GDP while imports account for 12 percent, adding 1 percent of total GDP.

Brazil Interest Rate

In Brazil, interest rate decisions are taken by The Central Bank of Brazil’s Monetary Policy Committee (COPOM). The official interest rate is the Special System of Clearance and Custody rate (SELIC) which is the overnight lending rate.

Brazil Inflation Rate

In Brazil, the inflation rate measures a broad rise or fall in prices that consumers pay for a standard basket of goods. The most important categories of the index are: Food and beverages (26 percent of the total weight); transport (18 percent); housing (15 percent); health care (12 percent); and personal expenses (11 percent). Also, clothing accounts for 6 percent; education for 5 percent; household goods for 4 percent; and communication for 4 percent. Data is collected in the Metropolitan Areas of São Paulo, Rio de Janeiro, Belo Horizonte, Porto Alegre, Belém, Fortaleza, Recife, Salvador and Curitiba and in the cities of Goiânia and Brasília.

Brazil Unemployment Rate

In France, the unemployment rate measures the number of people actively looking for a job as a percentage of the labour force.

Brazil Government Debt to GDP

Generally, Government debt as a percent of GDP is used by investors to measure a country ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields. Brazil recorded a government debt equivalent to 75.79 percent of the country’s Gross Domestic Product in 2019.

Brazil Balance of Trade

From 2001 to 2012 and 2015 to 2017 Brazil has reported trade surpluses, primarily due to high export of mining and agricultural products. In 2018, the biggest trade surpluses were reported with China, the Netherlands, Argentina, Chile, Iran and Spain while the largest trade deficits were recorded with Germany, South Korea, Russia, Switzerland Algeria and France.

Brazil Currency Real

The USDBRL spot exchange rate specifies how much one currency, the USD, is currently worth in terms of the other, the BRL.

Brazil Currency Real

Brazil Stock Market

The IBOVESPA is a major stock market index which tracks the performance of around 50 most liquid stocks traded on the Sao Paulo Stock Exchange in Brazil. It is a gross total return weighted index. The index has a base value of BRL 100 as of January 2, 1968. Since 1968, The Bovespa Index has been adjusted 11 times by a factor of 100 in 1983 and by factor of 10 in 1985, 1988, 1989, 1990, 1991, 1992, 1993, 1994, and 1997.

Brazil Stock Market

Brazil Ease of Doing Business

Brazil is ranked 124 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Brazil deteriorated to 124 in 2019 from 109 in 2018. The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operation stronger protections of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses.

Ease of Doing Business in Brazil
Source: World Bank
Brazil Bank Lending Rate

Bank Lending Rate in Brazil decreased to 38.01 percent in September from 39 percent in August of 2020.

In Brazil, the bank lending rate is the weighted average rate of interest charged on loans by commercial banks to private individuals and companies.

Brazil Bank Lending Rate
Source: Banco Central Do Brasil
Brazil Business Confidence

The Industrial Entrepreneur Confidence Index in Brazil increased to 61.8 in October of 2020 from 61.6 in the previous month. It was the highest reading since February, boosted by an improvement in the gauge measuring the current economic situation (51.9 from 49.5 in September) and the company’s current situation (58.5 from 57.3). However, expectations over the next six months regarding the country’s economic situation (60.6 from 61.2) and the company’s situation (66.4 from 67.1) deteriorated.

In Brazil, the Industrial Entrepreneur Confidence Index (ICEI) measures the current situation of businesses and its future prospects. The survey covers about 2,500 companies in construction, mining and manufacturing industries. The questionnaire is made by phone and focuses on: production trends in recent months, order books, export order books, stocks and production expectations. The indicator varies on a scale of 0 to 100 where 50 indicates neutrality, 0 indicates extreme lack of confidence and 100 extreme confidence.

Brazil Business Confidence
Source: Confederacao Nacional da Industria (CNI)
Brazil Consumer Confidence

Consumer confidence in Brazil came in at 42.8 in the third quarter of 2020, down from 47.3 in the last quarter of 2019. It was the lowest reading since the second quarter of 2018, amid the coronavirus crisis. Household’s assessment deteriorated regarding their financial situation (45.3 vs 49.0 in Q4 2019) and future personal income (44.5 vs 50.1). Also, consumers were more concerned about inflation (71.4 vs 63.4) and unemployment (65.1 vs 56.5). Meanwhile, household’s assessment about major purchases (54.4 vs 53.4) strengthened and debt situation is expected to improve slightly (50.7 vs 49.2). The CNI suspended its Q1 and Q2 reports due to the COVID-19 outbreak.

In Brazil, the National Index of Consumer Expectation (INEC) covers about 2,000 individuals randomly chosen in the streets of Brazilian cities. The questionnaire focuses on the consumer’s current financial situation and on expectations about inflation, unemployment, wages and major purchases for the next 6 months. The consumer confidence index is a diffusion index, ranging from 0 to 100 points. Values above 50 points indicates increasing confidence while values below 50 points indicates lack of confidence.

Brazil Consumer Confidence
Source: Confederacao Nacional da Industria (CNI)
Brazil Corruption Rank

Brazil is the 106 least corrupt nation out of 180 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International. The Corruption Perceptions Index ranks countries and territories based on how corrupt their public sector is perceived to be. A country or territory’s rank indicates its position relative to the other countries and territories in the index.

Brazil Corruption Rank
Source: Transparency International
Brazil Credit Rating

Standard & Poor’s credit rating for Brazil stands at BB- with stable outlook. Moody’s credit rating for Brazil was last set at Ba2 with stable outlook. Fitch’s credit rating for Brazil was last reported at BB- with negative outlook. DBRS’s credit rating for Brazil is BB (low) with stable outlook. In general, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Brazil thus having a big impact on the country’s borrowing costs. This page includes the government debt credit rating for Brazil as reported by major credit rating agencies.

Brazil Stock Exchange B3 S.A. - Brasil, Bolsa, Balcão
Brazil Stock Exchange B3 S.A. – Brasil, Bolsa, Balcão

Taxation in the Brazil

The taxation system in Brazil is complex, with over sixty forms of tax. Historically, tax rates were low and evasion and avoidance were widespread. The 1988 Constitution called for an enhanced role of the State in society, requiring increased tax revenue. In 1960, and again between 1998 and 2004, efforts were made to make the collection system more efficient. Tax revenue gradually increased from 13.8% of GDP in 1947 to 37.4% in 2005. Tax revenue has become quite high by international standards, but without realising commensurate social benefit. More than half the total tax is in the regressive form of taxes on consumption.

Corporate tax Personal income tax VAT or sales tax Social Security Rate for Companies
Social Security Rate for Employees
34% 0 – 27,5% 25% (highest rate)
17% (lowest rate)
28,8% 11%

How to Start a Business in Brazil

text here

Leave a reply

Your email address will not be published. Required fields are marked *