At a time of political and economic uncertainty, the Managing Director of Rödl & Partner Brazil, Philipp Klose- Morero, talks about the investment potential Brazil holds and the requisites for overcoming the difficulties presented by the market.
How do you assess the current economic situation in Brazil?
After the technical recession (decline in the world economy in two consecutive quarters) in 2014, Brazil is currently in a stagnation phase.
How would you describe the investment climate in Brazil? Which sectors offer the largest potential?
Despite the continuously difficult market environment, the investment climate is surprisingly stable. Currently, we assist multiple German medium-sized companies in setting their foothold into the Brazilian market and support a large number of business formations and acquisitions.
However, there are no signs for a clear trend in terms of any specific industry. As compared with the previous years, Brazil has become generally slightly more favorable to investors across all business sectors. In this process, it is in particular the exchange rate development which has played into the investors' hands.
What challenges do German companies face during their business ventures into Brazil?
Brazil remains a market for long-term and advanced investors.
Apart from the Byzantine bureaucracy, which has proved to be a real ordeal for German companies, the challenges include mostly a complex tax law as well as a labor law, which protects the interests of only one party – the employee. The resulting high personnel cost ratio in Brazil is becoming increasingly a real disadvantage for our clients doing business in Brazil.
Neither should the culture and language barrier be underestimated: the Brazilian culture is significantly more indirect compared to the German culture and the business language is mostly Portuguese.
What tips would you have for a German company venturing to Brazil?
You cannot operate your business in Brazil by "remote control": We recommend German companies that if they want to advance with and properly monitor the company's development, they should, as far as possible, regularly visit the site and/or post a company's representative to Brazil. In addition, it is important to understand the local language and culture.
You should not start and monitor your Brazilian business without a "sparring partner" with local knowledge. A good consulting firm in Brazil has the necessary contacts, particularly to authorities, on the one hand, and can provide comprehensive advice and support protecting you from numerous legal pitfalls, on the other. This can help you save a lot of time, nerves and money. In addition, having a good consultant may be crucial for the effective control of the Brazilian subsidiary (e.g. he can assume the function of a legal representative of the shareholders, which is required by law in Brazil, and/or conduct regular internal audits).
Conquering the Brazilian market shall be by means of a thoroughly prepared "marathon" and not a sprint race: you are able to achieve big success also in the more difficult Brazilian market, but for this you need first of all patience, a long-term strategy and a good consultant on site.
In your opinion, how will Brazil develop?
Much will depend on how the political situation develops. The left-wing labor party (PT) has already been in power for over 12 years. Despite all the solemn promises of improvement made by the President, Dilma Rousseff, and the still huge pressure of the growing Brazilian middle class, the business sector does not expect that the present government will, in the short and medium term, introduce any significant incentives or reforms to improve the investment climate and to alleviate the country's problems in other areas, such as education, infrastructure and security, in a sustainable manner.
Irrespective of the above, Brazil, with a population of almost 200 million and as a single area unified by a common legal system and language, remains an attractive market for investors. Brazil has a potential to achieve a real breakthrough in becoming the next land of opportunity. The question is only when it will (finally) come true. As I said before, doing business in Brazil requires patience and we shall wait in suspense to see how the situation will further develop there.Seizing Opportunities - Newsletter Brazil
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