Brazil the Economy of Brazil Is One Essay

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Brazil

The economy of Brazil is one of the most attractive and promising market in the world. In recent times, Brazil's strong currency, the Real, has hit higher against the U.S. dollar; the inflation rate is under control and the standard of millions of Brazilians is also improving rapidly. The largest stock exchange of Brazil which is located in Sao Paulo showed best performance last year and looking at these impressive achievements of Brazil, it was awarded with the "investment grade" status. The growing population and increasing consumer demand makes Brazil an ideal place for the foreign investors to enter, make investments, penetrate in the markets and take benefit from this opportunity.

Introduction

Brazil, the fifth largest country of the world, is also the largest country (PriceWaterHouseCoopers 13) of South America in terms of area as well as population. Having a wide area of 8.5 million square; it has borders with Argentina, Colombia, Bolivia, Guyana, French Guiana, Peru, Paraguay, Uruguay and Venezuela (KPMG Report 07). It is officially known as "Federal Republic of Brazil" and its capital is Brasilia.

The unique culture of Brazil is the result of various diverse populations living in the country. Brazil is a Portuguese colony since 16th century after getting discovered by the Europeans. It became independent in 1822 and after that its population has exponentially increased due to people from different parts of the world coming and settling here. By tradition, Brazil is an agricultural country and is famous for its agricultural products; soya beans, oil, oranges, sugar, coffee and beef. Its industry and service sectors are also doing well and have played an important role in fueling its economy in the last century. These include electricity, Iron, Foot wear and Ethanol industries.

The improving economy of Brazil also opened its doors for the foreign markets and investors during the last decade. This gave an opportunity to the international businesses to work with the fifth largest country of the world and the largest economy of Latin America (KPMG Report 01). However, due to diverse economy and very unique culture, it is not only exciting but also challenging to do business and make relations with Brazilian business industry. In order to do a successful business, it becomes very essential to understand the Brazilian culture and its etiquettes.

Population, Language and Religion

The recent statistics show that the population of the country is around 199 million which is composed of different ethnic groups[footnoteRef:1]. According to the Brazilian Institute of Geography and Statistics (2008), there are around 47% whites in the country, 43% mixed populations and 7% blacks & others like Asians, Arabs, Japanese and Amerindians[footnoteRef:2]. [1: Central Intelligence Agency, Fact Book, 2012, https://www.cia.gov/library/publications/the-world-factbook/geos/br.html] [2: IBGE's 2008 PNAD (National Research by Sample of Dwellings)]

Language is one of the strongest elements of Brazil's national unity. Portuguese language is spoken nearly by the whole population. The only exceptions are some members of Amerindian groups and pockets of immigrants, primarily from Japan and South Korea, who have not yet learned Portuguese.

Brazil is an official catholic country and therefore majority (74%) of Brazilians are Roman Catholics and 15% are Protestant (RLN 01)[footnoteRef:3]. The remaining minorities practice different religions as the constitution of Brazil allow practicing any religion of the world. [3: RLN Regional Language Network East Midlands]

Around 80% of the Brazilian population live in the urban areas and very few live in the other territories. Sao Paulo and Rio de Janeiro are the most populated places of the urban area having populations of 18 and 10 million. More than 50% of the Brazilians have come from the other regions of the world and have settled here as first, second or third generations. This is the reason that the culture of Brazil is so much diverse and unique.

Currency

The currency of Brazil is "Real" (R$, plural = Reais). 1 Real is divided into 100 units called centavos. The official exchange rate floats freely but the fore trading is limited only to the authorized dealers.

Living Standards

There is a significant income gap between the rich and poor people of Brazil. The living standard of majority of the population of Brazil is low and the minority lives a very high standard life. There is very little percentage of people who have home ownership while the remaining working class suffers from the problem of shortage of housing.

Government

Brazil is a federal republic having the Federal District and twenty six states (OSEC 04). Each of the Brazilian state has a separate governor, state legislature and constitution.

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These twenty six states are further divided into municipal communities which have different districts. The Federal Government is leaded by the president which is elected through voting after every four years. Legislative powers belong to the National Congress, which consists of a Chamber of Deputies and the Federal Senate.

Trade and Industry

The South and Southeast regions of Brazil are the developed regions; therefore most of the industrial as well as commercial activities take place there. The North and Northeast on the other side are the underdeveloped regions and low in industrial and commercial activity.

The government has taken several measures to minimize the social tensions that arise due to this inequality in the economic development of the regions. One from which is the allocation of a considerable number of resources to these underdeveloped northern and northeastern regions. However, unfortunately these measures have not brought any fruitful results than expected and the inequality between the regions remains there.

Economy and Fiscal policy

Brazil is considered as the leader in producing minerals and foods. It is also high developed in other sector and industries; that include wood pulp, aerospace, aluminum, steel, textiles and chemicals. The government of Brazil is emphasizing on the business operations of both government as well as private sectors towards the economic growth and industrialization. For achieving this goal, government has designed protective measures for the domestic industries and also monetary policies in order to keep a check on the inflation and balance the foreign exchange.

Government Attitude to Foreign Investment

The government of Brazil looks forward to develop a market oriented economy and therefore it has considerable taken steps to improve the climate of the foreign investment. For instance, it has reduced the import barriers and has also privatized many companies. Tax reforms have also been suggested but the approval is still pending. Government is working with the aim of simplifying the current tax system, especially the VAT (Value added taxes) (Ernst and Terco 09).

Tax System

The tax system of Brazil is quite complex and enforces several taxes that are charged at the federal, state and municipal levels. Therefore, foreign investors should consult the advisors before planning the investments in Brazil. As stated above, the government of Brazil is working hard to reduce the taxes that are associated with the bureaucracy, in order to facilitate foreign investors. These efforts have improved the public administration in recent years but bureaucratic procedures still remain a hindrance for making the international business efficient in Brazil (Ernst and Terco 08).

Investment and Attractive Business Environment

History shows that Brazil has strong economic growth. During 1970s, the gross domestic product (GDP) grew around 8% annually. In 1980s the annual growth came down to 3% due to the inflation and debt issues. In order to control these issues, the government initialed economic stabilization plans in same era. The most recent plans from these were the introduction of new currency (the Real) plan. This plan helped in reducing the hyperinflation and annual inflation rate to 6% to 8%. As a result, Brazil remained politically and economically stable after the deep recession of 1990 (Ernst and Terco 11).

The nominal gross domestic product of Brazil is the eighth largest across the world and the largest in Latin America. The growth rate of 2011 shows around 2.7% increase with a GDP of U.S.$ $2.294 trillion[footnoteRef:4]. The inflation rate is also at moderate level of 6.6 per annum and short-term interest rates are 11% per annum, which keep inflation under control. [4: Central Intelligence Agency 2011 https://www.cia.gov/library/publications/the-world-factbook/geos/br.html]

As stated above, in order to develop a market economy, the Brazilian government is shrinking the import barriers and making many state owned companies privatized. The Real Plan has also helped and created ideal conditions for the rapid growth of foreign investment. A significant amount of monetary funds have also flowed into the country.

Foreign Ownership of Real Estate

Foreigners have permission to own property in Brazil. However, there are some restrictions in case of rural real estate. The resident foreigners or the companies that are owned by the resident foreigners are not allowed acquisition of rural real estate which is located to border of the country (Ernst and Terco 07).

Foreign Ownership of Business

There are few restrictions and limitations that are imposed on the foreign ownership of Brazilian enterprises in certain sectors; that include news media, communication and transportation. However, the government of recent years has made some.....

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