Why Brazil Is A BRIC Wall For International Entrepreneurs

by Michael Park

Brazil has been recognized as a country with great potential for decades. As the most populated and economically developed country in Latin America, Brazil is the powerhouse of the continent. Brazil is well-established as a member of the BRIC economies, with an enormous population of 200 million, great GDP and a huge labor force. With such promising statistics, we must question why there are so many entrepreneurial failures in Brazil.

Rigorous start-up procedure

Brazil ranks as the 65th most difficult country to do business in, making it one of the most difficult countries in which to be an entrepreneur in Latin America. One of the factors attributed to this title is the difficulty of starting a business. A business start-up in Brazil will take four months to complete, whereas in neighboring countries such as Colombia, it may take just under a fortnight. Time is of the utmost importance in business start-ups, and the absurd amount of time coupled with the troublesome procedure is a major impediment for many potential entrepreneurs.

Other factors that are difficult to deal with in business include insolvency, getting investment protection and credit, and enforcing contracts.

Unfriendly to trade

Despite Brazil being such a large global economy, it still has poor trade links with other key global economies. Most of its limited trade agreements stay within Latin America even though its most popular exports are to countries such as China and the United States. With rising commodity prices, Brazil’s competitive edge begins to fall against other exporters with more extensive trade agreements and cheaper prices. This edge continues to diminish with a drop in demand for Brazil’s exports due to the strong value of its currency

Less than 5% of the population speak English

In all cases, it can be pretty difficult to conduct business if there are communication issues and if you don't speak Portuguese, there is bound to be a central problem when interacting with Brazilian businesses. The English Proficiency Index ranks Brazil as having "Very low" proficiency, at 46th place out of 54,  far behind the other BRIC countries.  According to the IPOBE, a mere 4.94% of the country speaks English. This means that, in order to get involved in long term ventures, it is essential to learn the native language and delve into the native culture.

Poor economic growth

Brazil’s growth has greatly stunted since 2010, when it was at a promising 7.5%. Currently Brazil faces the lowest economic growth rates of the four BRIC economies at a disappointing 0.6% as of May this year. Consumer spending only grew by a mere 0.1%, the lowest since 2011. Brazil’s setback is due to poor economic performance in countries it exports to, causing a fall in demand and weakening of the balance of payments.

Corruption and rioting

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Recently, Brazil has been popular in the press because of corruption. Frequent rioting and civil unrest has been the bane of stability, with public uproar stemming from the World Cup spending and much more. Problems such as the lack of funding for education and healthcare continue to bring about chaos. Many protests are ongoing, such as the employee strikes to combat poor public services and working conditions.

Obscure tax structure

According to the World Bank, Brazil ranks among the worst in terms of countries' tax structures for business. Brazil bears a shocking 69.3% total tax on profit, which is 47% greater than the average country in Latin America. The procedure to pay taxes takes 2,600 hours, over seven times as long as the average in Latin America. The tax is greatly unappealing for any business, and, ultimately, the amount of time required makes business too troublesome for a lot of people.

Unfavorable business etiquette

One of the aspects of business culture in Brazil is a relaxed time scheme. Time flexibility can be beneficial in most cases, but, according to Communicaid, meetings can be cancelled or delayed without any advance notice. This can really affect your schedule and plans, even making certain get-togethers impossible, especially if there are time constraints on your business trip.

Poor infrastructure

One of the major roadblocks to economic growth in Brazil is the poor quality of the infrastructure. According to the World Economic Forum, Brazil ranks at 70th out of 144 countries for infrastructure quality, making it the least developed of the BRIC economies. Additionally, an "inadequate supply of infrastructure" was the second most problematic factor of doing business in Brazil according to the Global Competitiveness Report. Poor infrastructure can create many problems in production and transport, which can greatly diminish a business’s productivity.

Inflexible labor market

Despite having the sixth largest labor force in the world, Brazil is faced with a lack of flexibility in the labor market. Factors such as low education levels and strict labor laws have resulted in shortages of labor in many increasingly important sectors, such as finance, engineering and life sciences. Many employers depend on imported labor for the necessary skills, which usually winds up being more expensive.

Poor distribution of income

It’s rather shocking that just over 20% of the Brazilian population live below the poverty line when the country is the eighth largest global economy. The top 10% of the population earn 40 percent of the country’s income, though, meaning the GDP is not that reliable as an indicator of the country’s overall financial condition.

Although this article highlights many impediments to success, Brazil, by no means, has a weak economy. Brazil still stands out as a Latin American powerhouse. This being acknowledged, however, the country still needs to resolve numerous problems before it can become a worthwhile partner for international entrepreneurs. Beware Brazil, neighboring countries such as Peru and Colombia are demonstrating strong growth as well as much more business-friendly demeanors.

Jibola Babatunde | Elite.

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