Analysis

Business Structure in Brazil

An overview of the country based on three areas: administrative, economic performance and international credibility

Brazil's overview

Brazil is the fifth largest country in the world geographically with a predominantly tropical climate. It is the only Portuguese-speaking country in the Americas and the largest Portuguese-speaking country in the world, in addition to being one of the most multicultural and ethnically diverse nation on the planet.

Brazil’s Institutional

With the Atlantic Ocean to the east, Brazil has a 7,491 kilometer coastline. The country borders all the South American countries except for Ecuador and Chile.

Brazil is currently politically and administratively divided into 27 federative units, with 26 states and one federal district. The federative units are independent subnational entities (independent governing, legislative and tax entities) with own governments and constitutions that together form the Federative Republic of Brazil. The executive power is exercised by a governor elected every four years. The judiciary power is exercised by trial and appellate courts that handle general legal matters.

The Federal District has characteristics common to the states and municipalities. Unlike the states, it cannot be divided into municipalities. On the other hand, it can collect taxes as if it was a state as well as a municipality.

The municipalities are territorial units with legal identity and a certain level of administrative autonomy. They are the smallest independent units in the country. Each municipality has its own organic law that defines its political organization, which is however limited by the Federal Constitution. There are 5,565 municipalities throughout the national territory. The population in some municipalities is greater than that of several countries in the world (the city of São Paulo has close to 12,1 million inhabitants). Others have less than 1,000 inhabitants.

Demographics and main Brazilian states’ GDP

Brazil’s population is comprised of 207.660.929 inhabitants (IBGE Estimate - 2017). The country has been considerably urbanized (an increase of 23 million people living in urban centers). The population female is 51% and 49% are male. The administrative capital is Brasilia, and the official language is the Portuguese. The government system is the Presidentialism and the official currency is the Real (BRL).

The Brazilian ISO Code is BRA, and the country calling code is 55. The web country code is:.br; and the official website is www.brasil.gov.br. Brazil’s main financial center is the State of São Paulo. In 2017 the Brazilian Nominal GDP was US$ 2.055 trillion, a growth of 1% compared to 2016 and the first positive result after 2 years.

Below we present the 10 largest Brazilian states based on their GDP

Since the 1990’s with the State Reform and the creation of Fiscal Responsibility Law, Brazil has been concentrating its efforts on improving the level of transparency and responsibility of government actions and the efficiency of regulations in order to make them clearer and more coherent. Such actions are considered essential for maintaining a healthy business environment, in addition to being part of the foundations of the Brazilian democratic regime.

To expand the control over government spending, detailed and updated information on bids, signed contracts, budget spending and fund transfers made by federative units is available for consultation through Web portals, such as the Transparency Portal (“Portal da Transparência”) (www.portaltransparencia.gov.br), whose efficiency was recognized by the United Nations (UN) in 2008. Today, it provides more than one billion pieces of information involving federal funding of more than R$21.5 trillion.

The www.comprasnet.gov.br portal is another example of online control offered to the society. It allows direct consultation of bid notices, auctions held, electronic quotations and management reports on the progress of purchases and savings obtained through eBidding. The system, created in 2002, is also a management tool: it is designed to reduce government-purchasing costs and combat fraud and over-invoicing.

Brazilian economy in the world

In 2017 the Brazilian Nominal GDP was US$2.055 trillion, a growth of 1% compared to 2016 and the first positive result since 2014. These results compared to the global GDP growth lead Brazil to outperform Italy in terms of GDP in 2017, taking Brazil back to the 8th position (increase of one level) in terms of global economy.

However, the IMF (International Monetary Fund) expect that Brazil recover from this slowdown in its economy in the long term and reaches the 5th overall global position as the main economy in 2050.

This forecast is focused specifically on the Brazilian growth prospect, since the country appears as one of the main agricultural producers in the world and one of the main iron ore exporters (especially to China). Due to the better economic environment, resuming confidence and consumption, in addition to the structural reform agenda, the last report release made by the International Monetary Fund (IMF) reviewed projections for the growth of the Brazilian economy upwards. The international authority estimates a growth of 2.3% in 2018 and 2.3% in 2019 for Brazil's Gross Domestic Product (GDP).

Source: IMF, CIA World Factbook, US Geological Survey, ONU, FAO, IBGE, Bacen and EIU. 

Source: IMF, CIA World Factbook, US Geological Survey, UN, FAO, IBGE, Bacen and EIU. Last available data USDA 2018.

International Credibility

The success of the 1990’s economic reform and the realization of social policies in the 2000’s has attributed international credibility to the Brazilian economy. In April 2008, S&P upgraded Brazil from "speculative grade" to "investment grade" by increasing the BB+ rating to BBB-.

In May 2008, Fitch also raised the country to the "investment grade" category. This decision was also followed by Moody's in September 2009, the last of the three major international agencies to award this "good payer seal" to Brazil.

Currently, due to the high fiscal challenge, slow economic recovery and unpredictable results for the October´s elections, Brazil has been downgraded by the three agencies and their risk classification.

Despite the current low risk rating, the Ibovespa, the main index of the Brazilian stock exchange, reached in February 2018 the mark of 87 thousand points for the first time in history, with optimism supported by the positive outlook for the recovery of the economy.

This favorable environment was also reflected in the IPO market. 2017 end up with 10 new IPO’s, representing R$ 8 billions, the best result since 2010. In total, companies raised R$ 26.4 billion with primary offers on the stock market and the year counted 26 operations between IPO’s and Follow-Ons.

Institutional Improvement

Brazil has been concentrating its efforts on improving the level of transparency and responsibility of government actions and the efficiency of regulations in order to make them clearer and more coherent. Such actions are considered essential for maintaining a healthy business environment, in addition to being part of the foundations of the Brazilian democratic regime. To expand the control over government spending, detailed and updated information on bids, signed contracts, budget spending and fund transfers made by federative units is available for consultation through Web portals, such as the Transparency Portal (“Portal da Transparência”) (www.portaltransparencia.gov.br), whose efficiency was recognized by the United Nations (UN) in 2008. Today, it provides more than one billion pieces of information involving federal funding of more than R$7.3 trillion.
The www.comprasnet.gov.br portal is another example of online control offered to the society. It allows direct consultation of bid notices, auctions held, electronic quotations and management reports on the progress of purchases and savings obtained through eBidding. The system, created in 2002, is also a management tool: it is designed to reduce government-purchasing costs and combat fraud and over-invoicing.
 

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