Business in Brazil - an introduction -

June 1, 2011

Recent Significant Developments

Standard & Poor's nudged Brazil closer on May 23 to a higher credit rating, a move that reflects a resilient economy at a time some countries in Europe are suffering downgrades. Brazil was raised to investment grade in 2008 by all three credit rating agencies.
Brazil's GDP rose by 4.2% year-on-year in the first quarter of 2011. The figure marks a slowdown from the 6.3% growth rate Brazil posted in the accumulated 12 months ending on the third month this year.

Brazil replaced Italy as the worlds seventh-largest economy last year. The domestic consumption, supported by high demand for commodities, continue to set the stage for high economic growth.
Brazil is by far the biggest Internet retail market in Latin America, accounting for 70 percent of all regional sales. The country also enjoys the highest per capita spend online in the region at $42.

Contents

Brazils Significance Key Economic Indicators Foreign Trade Internet Usage Doing Business in Brazil Political & Business Environment

Contents

Brazils Significance Key Economic Indicators Foreign Trade Internet Usage Doing Business in Brazil Political & Business Environment

Brazil is an economic powerhouse and is quickly surpassing some European countries

Rank 1 2 3 4 Country U.S.A. China Japan Germany GDP 2010 US$ bn 14,658 5,878 5,459 3,316 2011 GDP Growth Est. 2.8% 9.6% 1.4% 2.5%

Rank
1

Country
U.S.A.

GDP 2010 PPP US$ bn

14,658

Per Capita PPP US$

47,284

Rank per capita PPP

7

2
3 4 5 6 7 8 9

China
Japan India Germany Russia U.K. Brazil France

10,086
4,310 4,060 2,940 2,223 2,173 2,172 2,145

7,519
33,805 3,339 36,033 15,837 34,920 11,239 34,077

94
25 126 20 52 22 71 24

5
6 7

France
U.K. Brazil

2,583
2,247 2,090

1.6%
1.7% 4.5%

8
9 10 11 12

Italy
Canada India Russia Spain

2,055
1,574 1,538 1,465 1,410

1.1%
2.8% 8.2% 4.8% 0.8%

10
11 12 13 14

Italy
Mexico Korea Spain Canada

1,774
1,567 1,459 1,369 1,330

29,392
14,430 29,836 29,742 39,057

29
59 26 27 13

13
14 15

Australia
Mexico Korea

1,236
1,039 1,007

3.0%
4.6% 4.5%

15

Indonesia

1,030

4,394

120

Source: IMF (International Monetary Fund)

Brazils size provides it with natural resources and a large consumption base
Rank 1 2 3 4 Country Russia Canada U.S.A. China Area km (million) 17.1 10.0 9.8 9.6 Rank 1 2 3 4 Country China India U.S.A. Indonesia Population (million) 1,341 1,216 310 234

5
6 7

Brazil
Australia India

8.5
7.7 3.3

5
6 7

Brazil
Pakistan Bangladesh

193
167 164

8
9 10 11 12

Argentina
Kazakhstan Sudan Algeria Congo

2.8
2.7 2.5 2.4 2.3

8
9 10 11 12

Nigeria
Russia Japan Mexico Philippines

156
140 127 109 94

13
14 15

Greenland
Saudi Arabia Mexico

2.2
2.1 2.0

13
14 15

Vietnam
Ethiopia Germany

88
85 82

Sources: IMF (2010 pop.) and CIA

Brazil is on par with China and USA on Brazils Significance three power-driving attributes
Countries with area > 7 million km
Russia

Mexico

Countries with population > 100 million

Bangladesh

Australia
Brazil USA China Canada Japan France Germany United Kingdom Italy Spain India

Pakistan
Indonesia Nigeria

Countries with GDP > US$ 1.5 trillion

Contents

Brazils Significance Key Economic Indicators Foreign Trade Internet Usage Doing Business in Brazil Political & Business Environment

Brazils GDP is resilient and sustainable with a long term expected growth of 4.2%
7,000 6,000 6.0% 5,000 4,000 3,000 2,000 1,000 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% GDP (R$ bn, current prices) GDP (US$ bn) GDP (US$ bn; PPP) GDP Growth % (right scale) 8.0% 7.0%

-1.0%
0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -2.0%

actual

forecast

Source: IMF

Inflation is under pressure, despite a strong and consistent monetary policy

Consumer Price Inflation %
7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%

Current Account Balance - % of GDP

2.0% 1.0%

0.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 -1.0% -2.0%

actual

forecast

actual

forecast

-3.0% -4.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Key Interest Rate %

20 18 16 14 12 10 8

Exchange Rate R$ per US$

2.50

2.00

6
4

actual

forecast
1.50

actual
2006 2007 2008 2009 2010 2011

forecast
2012 2013 2014 2015

Sources: IMF, Banco Central do Brasil.

Sound economic policies are attracting FDI and shielding the country from intl crisis
Foreign Direct Investment
50 45 40 35 30 25 20 15 10 5 0
350 300 250

International Reserves

US$ billions

US$ billions

Total Services

200 150 100 50

Manufacturing Agriculture

2007

2008

2009

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Origin of FDI 2009 Netherlands USA Spain Germany France

Source: CIA, Banco Central do Brasil.

% of total 19 16 11 8 7

Contribution to GDP - 2010

Agriculture 6%

Industry 26%

Services 68%

Contents

Brazils Significance Key Economic Indicators Foreign Trade Internet Usage Doing Business in Brazil Political & Business Environment

Brazil has been achieving trade surpluses despite a strong valuation of the Real (R$)
Balance of Trade
250

200
FOB (US$ bn)

150

Exports of goods
100
50 0 2006 2007 2008 2009 2010

Imports of goods

Source: Ministrio do Desenvolvimento, Indstria e Comrcio Exterior

The economy is diversified, with manufacturing playing a key role in exports

Leading Markets 2010 % of total Leading Suppliers 2010 % of total

China
USA Argentina Netherlands Major Exports 2010

15.3
9.6 9.2 5.1 % of total

USA
China Argentina Germany Major Imports 2010

15.0
14.1 7.9 6.9 % of total

Primary products
Manufactured products Semi-manufactured products Special Operations

44.6
39.4 14.0 2.1

Intermediate products & raw materials

Capital goods Consumer goods Fuels & lubricants

46.2
22.6 17.3 14.0

Source: Secretaria de Comrcio Exterior, MDIC

Brazil is a net importer of services, having bought US$3 bn in information services in 2009
Imports of Other Services - 2009

Trade in Services - 2009

50 45 40 35

Communications, $166

Construction, $4

Other services Travel

Personal, cultural and recreational services, $958

Government services n.i.e., $2,899

Insurance, $1,815

Financial services, $1,612

Transport

Computer and information, $2,795

US$ billions

30 25 20 15 10 5 Other business services, $15,348 Royalties and licence fees, $2,512

Exports

Imports

In 2009 Brazil imported a total of US$12 billion in Information & Communication Technology goods, representing 9.4% of total imports
Source: UNCTAD

Brazil is a net exporter of Creative Services, with strengths in R&D and technical services
Trade in Creative Services - 2009
$7 $6

Audiovisual and related services

$5

US$ billions

$4

Personal, cultural, and recreational services Architectural, engineering and other technical services Research and development

$3

$2

$1

Advertising, market research and public opinion polling

$-

Exports

Imports

In 2009 Brazil exported a total of US$5.6 billion in architectural, engineering and other technical services, representing 3% of total exports
Source: UNCTAD

Contents

Brazils Significance Key Economic Indicators Foreign Trade Internet Usage Doing Business in Brazil Political & Business Environment

Internet access at the household doubled in the 3 years to 2009, to 27%

% of homes with:
TV Radio Cellular Phone Fixed Line Phone Desktop Satellite Dish
20% 17% 14% 24% 20% 28%

Computer & Internet Penetration

36% 27%

Cellular w/ Internet
Game Console Paid TV Laptop 0% 20% 40% 60% 80% 100%

2006

2007

2008

2009

Households with Computer

Households with Internet

Source: CETIC.br

Access from Lan Houses is a popular form of internet access in Brazil

Place of Internet Access Home
Work

% of All Internet Users 48%

22%

Activities Performed on the Internet

Communication & social

% of All Internet Users

90%

Leisure
Online searches for information and services

86%
89%

School
Other persons home Free public access Paid public access Cellular phone Other

14%
26% 4% 45% 3% 1%

Training & education

Financial services

72%
14%

Source: CETIC.br

Brazil has the 5th largest number of internet users, with 4% of the world total

Country USA

Internet Users (millions) 239.2

% Penetration 77.3%

Brazil Russia
India China

72.0 59.7
81.0 420.0

36.2% 42.8%
6.9% 31.6%

Source: Internet World Stats

The number of .br domains has doubled in the past 3 years in Brazil
Brazil Rank
1

World Rank
30

Site
Google Brasil

Address
google.com.br

2
3 4 5 6 7 8 9

1
2 3 82 89 8 105 5

Google
Facebook YouTube Universo Online Orkut Brasil Windows Live Globo Blogger.com

google.com
Thousands

Number of .br domains

3,000 2,500

facebook.com youtube.com uol.com.br orkut.com.br live.com globo.com blogspot.com

2,000
1,500 1,000 500 -

10
11 12 13 14 15

4
93 201 9 11 315

Yahoo!
Orkut Terra Twitter MSN iG

yahoo.com
orkut.com terra.com.br twitter.com msn.com ig.com.br

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

Sources: Alexa, CETIC.br

Top growing country for Facebook in May was Brazil, with growth of more than 11%
Top Growing Countries in May 2011 on Facebook

Source: Socialbakers

Contents

Brazils Significance Key Economic Indicators Foreign Trade Internet Usage Doing Business in Brazil Political & Business Environment

Doing Business in Brazil

Portuguese is the language spoken in Brazil (not Spanish!)

Relationships and face-to-face contacts are very important Taxation laws and fiscal issues are complex and change frequently Labor laws and social costs are burdensome and favor the employee The business culture is sophisticated and westernized Laws and contracts are respected and enforced

Source: Enosis Global

The South-East region has most of Brazils Brazilsdriven Significance wealth creation, by So Paulo state

A
8% 28% 5% 13% 45%

B
A: North

E
C D
So Paulo

56%
42% 18%

B: North-East C: South-East D: South E: Center-West

11%
14% 7% Population

17%
9% GDP

7% 19% Area

Source: IBGE -2010

Contents

Brazils Significance Key Economic Indicators Foreign Trade Internet Usage Doing Business in Brazil Political & Business Environment

Brazils government structure is very similar to the Unites States

Official name: Federative Republic of Brazil.

Form of state: Federative republic.

The executive: The president, who is elected for a term of four years, chooses a cabinet, which s/he heads . Head of state: Elected president, who controls the budget.
National legislature: Bicameral national Congress: 81-seat Senate (the upper house) with representatives of 26 states, plus the federal district of Brasilia; 513-member directly elected Chamber of Deputies (the lower house). The 26 states and the district of Brasilia each has a legislature. Legal system: Each state has its own judicial system; the country has a system of courts for dealing with disputes between states and matters outside the jurisdiction of state courts.

Source: EIU

Despite a strong democracy, businesses suffer from a burdensome tax system

National government: Dilma Rousseff is Brazils first female President, having succeeded in January 2011 the very popular Luiz Incio Lula da Silva.
National elections: Municipal elections every four years, with the next due in October 2012; presidential, congressional and state elections every four years, with the next due on October 2014. A consolidated democracy has led to peaceful transitions and continuity of sound macroeconomic policies.

Business Environment: Modest improvements, mainly driven by the consolidation of macroeconomic stability and better domestic financing conditions, will keep the countrys position broadly stable in the global and regional rankings. But the tax system will remain complex and burdensome, the pension system will weigh on public-sector finances and vested interests will continue to distort productivity gains.

Source: EIU

Contact information

James P. Locke CEO Enosis Global LLC +1-302-766-7926 jlocke@enosisglobal.com