An investment in Brazil will be a profitable move as long as funds are specifically applied to the rapidly growing sectors of the economy. These would include the energy, finance, banking, industrial, real estate, tourism, commodity, agricultural and service sectors.
Brazil boasts the 7th largest economy in the world by nominal GDP (Gross Domestic Product) and PPP (Purchasing Power Parity). The GDP stood at $2,503 USD trillion in 2013 and $2,309 USD trillion in PPP for the same year. Per capita nominal GDP in 2104 is estimated to be $10,773 USD ranking it 63rd in the world. GDP (PPP) per capita is $12,528 USD for 2014 giving it the 79th position in the world. Economic growth was estimated to be 2.3% in 2013.
The Brazilian economy is characterized by a somewhat inward looking economy and moderately free markets which explains why an investor needs to use care in looking for the right investment. A local partner would be best so it might be in your interest to spend time and effort in understanding how to do business in this vibrant economy. If time permits, an extended stay in Brazil would be most beneficial to the investor.
Brazil is the second largest economy in the Western Hemisphere and the largest in both South America and Latin America. Whereas in the second half of 20th century Argentina was seen as a major competitor, the Brazilian economy of recent has surged forward to allow the nation to become one of the major economic powers in the world.
In the future Brazil is expected to have one of the top 5 economies in the world. The country has been one of the fastest growing major economies in the world averaging an annual 5% growth in GDP in the past few years. Of course much of that future growth will need to be made with huge investments in productivity gains. The incredible expansion in the last decade was due more to the large increase in the number of people working rather than greater economic efficiencies.
The labor force now stands at 107 million and with unemployment at 6.2% there will definitely be a need for a greater focus on worker productivity in the years to come.
Brazil encompasses 8,515,787 km2 (3,287,597 sq mi) making it the 5th largest country in land area in the world. It is the largest country in both South America and Latin America.
The 2013 estimate of population stood at 201,032,714 making it the 5th largest in the world.
A major strength for Brazil is the abundance of natural resources.
Brazil is increasingly diversifying an economy that is thriving in agriculture, mining, manufacturing, and the service sector. The country is increasingly moving into the high tech arena. An example of this is that Brazil is the only Latin American country that has a semiconductor company with its own fabrication plant.
Brazil is the world’s 10th largest energy consumer with much of it coming from renewable sources particularly ethanol and hydroelectricity (88% of electrical needs come from hydro-power). The readily available supply of energy can be important to an investor looking to open a factory in Brazil.
It is important to note that the first ethanol powered car engine was produced here in 1978 and the first airplane engine powered by ethanol in 2005.
Major agricultural exports include coffee (the largest producer for the last 150 years), orange juice, corned beef and soybeans. Other products for export include steel, iron ore, ethanol, aircraft, electrical equipment, textiles, footwear and automobiles. It has become the fourth largest car market in the world.
In the value of exports Brazil ranks 23rd worldwide.
It’s major trading partners are China, The United States, Argentina, Netherlands, Japan, Germany and India,
Brazil is one of the countries in the group known as the BRIC. These are large countries with sizable growing economies which will have increasing influence in the world of the 21st century. In addition to Brazil they include Russia, India and China.
By 2008 Brazil already had more than $200 billion USD in foreign direct investment (FDI). From the early 1990’s to the present nearly $1 trillion USD of acquisitions and mergers have taken place which have involved Brazilian firms.
A major problem for Brazil has been corruption. It is estimated to cost the economy $41 billion USD annually. It is so prevalent at the local level that it is basically accepted unless it becomes well publicized. Nearly 70% of Brazilian firms list the issue as a major impediment to expanding business in the global market. The practice of payoffs and bribery is known in the international business community as the Brazil Cost. The practice also erodes the purchasing power in Brazil throughout the economy.
Tourism is of growing importance to the economy in Brazil. In 2010 alone over 5 million foreign arrived. It is the third most popular destination in Latin America after Mexico and Argentina. Brazil has over 2,500 airports nationwide second in the world only to the United States.
Investors inside of Brazil have been somewhat gloomy of late with major cost over runs involving government enterprises, higher inflation, continued perceived government interference, and weaker economic growth.
However for a foreign investor Brazil has more to offer than many other emerging markets. One thing that gives these investors more optimism is the beefed up state of Brazilian foreign reserves. It is also possible to take cheap money from the west where interest rates are at or near zero and invest them in Brazil. Higher interest rates in Brazil allows one to earn a rate of return of 12.75% annually. There is a rate of 6% annual inflation in Brazil but it is still a better rate of return then elsewhere.
The annual rate of return in comparison elsewhere is 5.1% in Mexico, 7.9% in South Africa, 8.95% in India and 11.1% in Turkey.
Low rates of interest in the advanced industrial countries and relatively high commodity prices allowed the Brazilian government to put off structural economic reforms. These changes will now have new impetus to be enacted as economic growth in Brazil slows somewhat. As global liquidity begins to become more scarce the Brazilians will need to enact policies that will encourage further business development and investment.
There has also been a major initiative by the government to spend over $500 billion USD on infrastructure development and upgrades in the transportation, energy and sanitation sectors of the economy.
An interesting dimension of the Brazilian economy is that more than 1 out of 4 in the working population are entrepreneurs. That so many citizens own businesses creates an environment that allows a sizable part of the population to work for small firms. It also gives foreign investors a wide variety of potential business partners. Brazil has the 3rd highest absolute number of entrepreneurs in the world.
A unique feature of Brazil is that it is the largest Portuguese speaking country in the world and the only one in the Americas. However, many Brazilians speak either Spanish or English and often both.
To encourage business expansion and foreign investment the government of Brazil has given a level of high support for such activity and has made attempts to remove obstacles. Getting building permits and licenses for example, have been made relatively easy.
If you are considering an entry in the Brazilian marketplace in addition to having a local partner, make sure that you have the right legal, accounting and banking expertise in place as well. You will also need to understand tax implications and the currency restrictions with the Brazilian real.