Find out the 10 reasons that prevent foreign investors to come to Brazil. According to our general manager, Graziano Messana, although Brazil is a country that attracts many investors, there are still points that can be improved to attract more foreign investment.
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Analysts say that Brazil is cheap, especially after the acquisition of the cosmetics division of Hypermarcas by Coty; however, the country still faces many obstacles to attract foreign investors
SÃO PAULO – The beginning of last week was marked by a kind of “euphoria” in the market after the buying of the cosmetics segment of Hypermarcas (HYPE3) by the French Coty. In the same week that the businessman Abilio Diniz said that “Brazil is cheap”, this acquisition indicated exactly that, showing that Brazilians investors are interested in investing in the country.
However, Brazil still faces many obstacles to attract foreign investors. Graziano Messana an Italian who moved to Brazil in 2006 and founded the consulting firm GM Venture is the one that stresses on this point. For the past 10 years, Messana has advised over 20 foreign companies to enter Brazil through acquisitions or by starting their own activities from scratch to ensure good management practices for foreign investors.
With all the advisory “know-how” for companies to enter Brazil, Messana said this country is a complex one. He points out what are the main obstacles for companies entering the country. Check out the ten points on which the government and other institutions should reflect (and change) to attract foreign investment:
- Tax complexity: the average annual workload required to calculate and pay the taxes in the world is 268 hours. However, in Brazil, the same statistic is ten times greater, or 2,600 hours per year. Thus, it is necessary to reduce the complexity of the tax burden to attract investments in the country.
- Bureaucracy complicates the starting of a business: Messana makes a comparison between Europe and Brazil to open business in the country. While in Europe, you start an enterprise in usually ten days, in Brazil you need 80 days to carry out the same procedure.
- No clear rules: “As the world becomes globalized and information is increasingly accessible, in Brazil to open a bank account of a company as foreign partner, if not well advised, it may take months”. Messana points out that there is no clear rules that distinguishes investors entering Brazil with companies resident in black-listed countries, “since only in this case a tighter control would be justified”. The Black List consists on the list of States that ignore the foreign tax authorities, not cooperating internationally for tax information Exchange.
- Protectionism: Brazil has a high degree of closing its economy with a very high tax burden on imports, not to mention the red tape at customs, says Messana. “This policy will destroy Brazil. That’s not how the country will provide protection for Brazilian companies. The world opens and other countries seek cooperation agreements. Brazil does the opposite”, he says.
- Labor claims: Messana says that “after soccer, the second national sport is called “labor claim”. This is a factor that generates a lot of concern to investors, since they would like to hire and create jobs, but are afraid.
- Notary Office: The manager says that often enough, the Notary office in Europe is used to make assumptions to regularly open businesses. “Here, this is done by the Trade Boards, and they don’t keep up”, he says. For a company to be “born”, it needs a certificate – this is the record of your company with the Trade Board.
- High cost of money: the high cost of money makes only a few businesses to withstand this high size of interest. However, there are alternatives, he says. Branches of foreign companies can
But the branches of foreign companies can benefit from very low interest giving European or American stand-by letters as guarantee, says Messana. They are letters of credit to guarantee payment to the beneficiary in the event of borrower default. “It seems that there are only Brazilian banks and Brazilian interest and several investors discouraged on it” he says.
- Currency hedges: Messana points out that the same is true for the main instruments used to hedge foreign exchange, which is a way for a company to defend itself amid the currency fluctuations. He states that “the traditional tools offered by Brazilian banks are unfeasible. Only those who know how to get around is able to find valid alternatives and attractive prices, but they are a minority”.
- There is no advertising: Messana points out that there are several incentives offered by states and/ or the local governments, but there is little advertising of it abroad. “What good is it to establish incentives if the information does not arrive in countries and companies with investment potential?” He asks.
- Finally, some advice: to Messana, the Federal and State Institutions should seek more circuits of Chamber of Commerce. Through these circuits other countries are easily achieved.