Doing Business in Brazil
Brazil is the largest economy in Latin America
The 8th largest economy in the world
After years with a protectionist economy it is opening for foreign competition
Government commitment to privatization and lower tariffs
Stable Democratic government
Huge potential growth especially in the consumer market
Gateway to Mercosul
Almost 90% of the 162 million people in Brazil live along the coastal regions and most are concentrated in the
Southeast. Therefore, most of the Brazilian market is distributed in the same way. Brazil has an urban
population of 80% with most urban areas located along the coast.
The state of São Paulo is probably the most recognized business center in Brazil with around 36.2% of the
country's industrial production. The city of São Paulo is one of the largest metropolitan areas in the world and
accounts for half of the GDP of the state and 18% of the nation. While the city of São Paulo is highly recognized
by the rest of the world, the rest of the state, called the "interior" is often ignored. The interior of São Paulo is a
very rich industrial and agricultural region. The interior accounts for 15% of national consumption and is
responsible for 25% of the nation's industrial production.
Rio de Janeiro
Probably the most famous city in Brazil is Rio de Janeiro. Rio is the second largest city in Brazil, more famous
for tourism than for international business. However, Rio is not only for tourists. The city has a vibrant business
district and many of the benefits from being the former nation's capital up to 1960, like the National Library. Rio
de Janeiro is home to many of Brazil's largest and most important companies and many multi-national
corporations have their corporate headquarters located in Rio.
Belo Horizonte is Brazil's third largest city, the capital of the state of Minas Gerais, and one of the fastest growing
business centers in the nation. Belo Horizonte is most famous for being the center of a region with rich mineral
deposits, representing the state of Minas Gerais which accounts for half of Brazil's mineral production. Precious
minerals such as diamonds and gold are still found in the region. Belo Horizonte is also a strong manufacturing
center which includes steel products, automobiles and textiles, as well as an agricultural distribution and
processing center for the region.
Curitiba, is the capital of the state of Paraná, located in the south of Brazil. The city has a rich colonization history
which includes a large number of German and Italian immigrants. The city has received international attention
for its creative and efficient city planning. Curitiba is also one of Brazil's centers of high technology, particularly in
the area of information technology. The city recently inaugurated an industrial center called the Software Park,
which brings together both technology-based firms and high value added service firms.
Other cities which are increasingly important and should not be overlooked include, Florianópolis and Joinvile,
also centers of high technology, located in the state of Santa Catarina, Porto Alegre in the state of Rio Grande do
Sul, Campinas in the state of São Paulo, and of course Brazil's capital, Brasília.
Brazilians are very friendly people, social interaction is very important. Generally, Brazilian business people like
to meet more than once, and they like to get to know one another before doing business. They like to converse
over long lunches, and usually drinks are allowed. Brazilians like to take their time when it comes to closing
deals, so don't expect business deals to be rushed.
Suits are common in the work place, especially for executives. However in the Northeast and North, since it is
always hot, suits are less common. Business hours are normally from 8:30 AM to 12:00PM, lunch periods
usually are from 12 to 2PM and the day ends, between 5 to 6 PM, from Monday through Friday.
from 9 AM to 7PM from Monday through Friday and 9 AM to 1 PM on Saturdays, stores are usually closed on
Sundays. Shopping Centers open from 10AM to 10PM from Monday-Saturday.
January 1 New Years *
Carnaval Five days leading to ash Wednesday
April 21 Tiradentes
May 1 Labor Day
September 7 Independence Day
October 12 N.Sa. Aparecida
November 2 Memorial Day *
November 15 Proclamation of the Republic
December 25 Christmas *
* most restaurants are closed
Aside from these, there are also religious holidays with varied dates.
Eastern Brazil: Rio/ Salvador/ São Paulo/ Brasilia/ Recife/ Belém/ are 3 hours behind GMT, one hour ahead of
Central Brazil: Mato Grosso and Mato Grosso do Sul/ Manaus/ Campo Grande are 4 hours behind GMT.
Far West Brazil: Acre/ Western edge of the Amazon are 5 hours behind GMT.
Brazil goes on Day light savings Time in October until February, however some states do not observe it.
The Brazilian government requires all visitors except citizens of the European Community (excluding France)
and most Latin American nations. U.S. and Canadian citizens are required to get visas from Brazilian
Consulates in the U.S. and Canada. Requirements include a valid passport, a letter from an employer for
business visas, stating reasons for the visit and guaranteeing financial support of the employee, passport-size
photo and a round-trip airline ticket.
3 Basic Concepts on Doing Business in Brazil
First of all, I would like to comment on three often heard business related phrases that might not be familiar to
non-Brazilians: "custo Brasil", "Brazil grows at night" and "caixa 2". These are terms that one encounters
constantly in commercial and financial dealings. While they may not be proper, legal, or even factual, they
express the art and science of doing business in Brazil.
Broadly defined, this is the extra cost of doing business in Brazil, above and beyond that which would be normal
if it weren't for corruption, government inefficiency, legal and bureaucratic complications, excessive taxation, and
sub-standard infrastructure. The concept is vague, but very real. The term "custo Brasil" means the cost of doing
business in Brazil. This varies widely according to the sector and geographic area. An example of this is the cost
of handling containers in Brazilian ports, which is double that of the US or Europe. In a trip to Brazil, I constantly
heard farmers complain that they could compete with Argentina, US and Europe because of the "Brazil cost",
even though they could grow their crops at very competitive prices. By the time the farmers had met all
regulations, paid off tax inspectors, shipped soybeans to the ports, they were much more expensive than the
same product from other countries.
Brasil grows at night
"Brasil cresce de noite." This is a well-known truth. No matter what the government does to hold back the
people, Brasil will get by and grow, even if at night. The idea here is that during the day, the government
machinery stifles economic growth, but when the bureacrats sleep, real progress occurs. This is also the idea
behind the concept of "jeitinho", in which a person always finds "a little way" around rules and regulations. While
this is a solution to some of the difficulties inherant to the "custo Brasil", it is also part of the problem.
I have never ever seen a business (or any organization, or even some people) that didn't have a "caixa 2".
Translated, caixa 2 means "Cash Account Number 2" . It is all money or assets that are kept off the books and
official records. This, of course, keeps it away from the greedy eyes of the tax authorities.
Three Big Problems:
When talking about Business in Brazil, three things come to mind; government, inflation, special interests.
Somewhat like the USA, Brazil is a capitalist market driven economy….. Well, almost and maybe. The
differences are as vivid as the similarities. A quick work about each:
In Brazil the role of government is much more intrusive than in US. This is not only a matter of taxation, but also
in legal organization and in the regulatory role. In small and medium businesses, this aspect is less evident. In
large scale foreign investment situations, a close personal official relationship is fundamental. Lobbying by
large corporations and trade groups is even more aggressive than in US. Government contracts are often
awarded according to relationships and connections rather than pure technical or financial merit. This is a result
of the paternalistic, nepotistic culture that has existed for hundreds of years. Examples of this are the Minister of
Finance, Chico Lopes, who was putting public money in his private pocket, or Fernando Collor, the ex-President,
who wanted a cut of everything. All in all, I think slowly things are improving. Many State Enterprises have been
sold off and regulations have been liberalized. There is hope, but great problems still exist. The biggest problem
is the public deficit, a structural situation that cannot be fixed without grave social and political consequences. As
in all other economic plans instituted since 1964, the Real Plan is doomed to failure unless this problem is
For most of the latter half of the 20th century, inflation has been a way of life for the Brazilian. Basically this was a
tax imposed on the poor, allowing government to spend freely. It has been for more than four decades a primary
source of public sector financing. Tax revenues were indexed to inflation but many government expenditures
were not. Salaries were frozen, basic goods were only chilled down a bit. Government spending far exceeded
income, so inflation worked as a mechanism to hide the sins of the federal government. With the introduction of
the new currency and Economic Plan, the Real, these problems were exposed. Social security expenditures far
exceeded income, tax transfers from federal government to States and municipalities were excessive, public
sector payrolls were bloated and salaries alone absorbed 80, 90 and even beyond 100% of revenues. The
Brazilian government is proposing now is a new agenda to "put the country on a safe path to fiscal solvency."
Quoting from a government document: "This encompasses both structural and institutional reforms, which will
change the quality of fiscal management and fiscal results, a new approach to the budget process, strict
regulation on fiscal responsibility and a Plan of Action for 1999-2001 covering mainly the Federal government
budget but also action at local level and putting special emphasis on the need for a rational management of the
social security accounts." Well, we will see. Like Saint Thomas, I will believe it when I see it. But thangs are
better. There is an awareness of the problem and the need to fix it is Brazil is going to exist as a modern society.
That there are strong Special Interest groups in Brazil is not a surprise. They are everywhere in the world. The
problem in Brazil is that the middle class and the tax payers do not effective challenge the controlling interests.
Now a quick look at the main special interest groups:
Government itself, mainly elected officials, public employees and state corporations
Large financials interests, including banks, communications conglomerates and agricultural landholders. The
large industrial groups such as FIESP, and traditional manufacturing interests are lost a great deal of influence
in the last 10 years.
Political parties, that favor social programs without accountability or any corresponding source of revenue.
These groups, mainly but not exclusively from the left, stand in the way of any rational reforms that could begin to
fix some of the structural problems.
These three groups work closely together to insure that the status-quo is maintained. It may seem to be a
contradiction, but both the right and left side of political spectrum have joined hands to exploit the poor and
middle class through regulation, inflation, monopolistic practices, costly yet inefficient public services, excess
taxation, top heavy self-serving bureaucracy and lax criminal law enforcement,
The present government says that its main objective is to achieve a steady and substantial reduction of our
enormous ills, injustices, and social imbalances, and to do it in an efficient, mature, and responsible manner.
All the politics in the world, and all the good intentions will not by themselves solve Brazil's problems. Howver,
much is being done. Some recent concrete steps taken are:
Trade Liberalization: the comprehensive trade deregulation program launched in 1990 resulted in the virtual
elimination of non-tariff barriers to imports;
Privatization: since privatization began, 32 companies have been turned over to private owners;
Productivity: companies have tended to focus their priorities on overcoming inefficiencies through quality and
productivity programs, with a resulting upturn in productivity of 27% over the past 3 years in the industrial sector
Foreign Debt: negotiations with lenders have come to a successful conclusion and Brazil now has a
comfortable and unprecedented level of international reserves, a record US$ 40.8 billion;
Stabilization: introduction of a new stabilization plan (the Real Plan) dramatically trimmed inflation rates and the
prospects are for sustained stability.
The balance of results accomplished by the Real stabilization program is encouraging. However, unless
government has the political will to control expenditures (most of all the lush pensions for public and state
employees), there is little hope of major change, and Brazil will continue to be a good place to live and invest,
instead of a great place.
Brazil and its politicians are aware of this. By its own statements, the federal agenda for change is far-reaching
and varied, and relies heavily on interdependent actions. It involves reform of the State, of tax and social security
systems, and of labor relations; extension of privatization actions including elimination of constitutionally
established monopolies and removal of all restrictions to private undertakings. In short, this agenda entails a
massive move toward institutional modernization as the key mission entrusted to government. The problem is,
of course, that the same people who must guide and implement these changes are those who most benefit by
Despachante is the term used in Brazil to refer to the person MIDDLEMAN or facilitator of business transactions.
This is the insider who will be able to help out at any given moment. The terms of the facilitator are simple, he
wants your friendship and he wants it now. To North Americans, this instant intimacy can seem like assault and
battery by abra‡o. Another important aspect to the friendship is the lavish giving and taking. Whether it is of
money, favors ("jeito") or gifts, it is a way of life that North Americans often have a difficult time not getting into.
The trick is to do it with grace and genuine regard for your new "old friends".
March 29th, 2013