. | Country Analysis | Brazil | | . | [Pick the date] |

AHMEDABAD MANAGEMENT ASSOCIATION |
Submitted to Prepared by Dr.P.V.Desai Sagar Sakariya

CONTENT Introduction | | Brazil annual report: Economic Indicator | | Government and Politics | | Foreign Relations | | States and Municipality | | Geography | | Climate | | Component and Energy | | Transport | | Demography | | Main Drivers for Doing business in Brazil | | Mani Challenges of Doing Business in Brazil | | Summary of Indicator- Doing business in Brazil | | List of Procedure | | PESTLE | | Political * Political system * Change in government * Lula administration focus area * Law | | Economic * Economy of Brazil * Industrial output * Key industries * FDI | | Sociological * Culture * Language * General attitude * Personal appearance | | Technological * Technology research * Information technology * R & D * Technology policy of Brazil * Brazilian industry and Technology | | Legal * Legal system of Brazil * Municipality * Court and justice | | Environment * National * The Future | |

Introduction
Brazil is the largest and most powerful country in South America and has become one of the world's most attractive emerging markets in recent years. Brazil accounts for almost half of South America's total population and landmass and has established itself as the dominant power in South America. Moreover, Brazil's rapid economic diversification is allowing it to transform itself into a modern economy, playing a key role in a variety of industries.

Brazil accounts for three fifths of the South American economy’s industrial production and integrates various economic groups, such as Mercosur, G-22 and the Cairns Group. The country’s scientific and technological development, together with a dynamic and diversified industrial sector, is attractive to foreign enterprise: direct investment was in the region of US$ 20 billion /year on average, compared to US$ 2 billion/year last decade.

Brazil is a founding member of the United Nations, the G20, Mercosul and the Union of South American Nations, and is one of the BRIC Countries. Brazil is also home to a diversity of wildlife, natural environments, and extensive natural resources in a variety of protected habitats.

Industry and technology are shining stars of Brazil’s economy. The nation’s industrial sector accounts for one-third of GDP, and includes steel, petrochemicals, computers, aircraft, and consumer durables. Its technological sector encompasses submarines, aircraft, and space research, including involvement in construction of the International Space Station. It is also a leader in ethanol production and research into deep-water oil, the source of 73% of its reserves. And Brazil’s automotive industry is enjoying a boom period, as access to credit, economic stability, and lowered interest rates have increased consumer confidence and boosted car sales in Brazil to the highest levels in the country’s history.

The World Bank classifies Brazil as a lower- middle-income country. However, the economy is large and diverse, and exports are geographically well spread. There have been profound changes and durable reform in the past 10-15 years — the end of hyperinflation, economic liberalization, improved public finances, and a successful transition from a fixed to a floting exchange rate. This has been reflected in increased domestic savings and exports of goods and services.
Nonetheless, annual average economic growth in the past 10 years was modest, as the economy suffered a series of crises related to poor public debt dynamics in the context of a historical tendency to periodic debt default. The most recent crisis was in 2002, and it was ended by the incoming government’s tight fscal and monetary measures, consistent meeting of International Monetary Fund targets, and market-friendly structural reforms. Instability has remained at bay despite political scandal and elections.

Brazil trades regularly with over one hundred nations, with 74% of exports represented by manufactured or semi manufactured goods. Its main partners are: the EEC (representing 26% of the balance), the US (24%), Mercosur and Latin America (21%) and Asia (12%). One of the most dynamic sectors in this trade scenery is the so-called “agrobusiness” sector, which for two decades has kept Brazil amongst the most highly productive countries in areas related to the rural sector.

The owner of a sophisticated technological sector, Brazil develops projects that range from submarines to aircraft and is involved in space research: the country possesses a Launching
Center for Light Vehicles and was the only country in the Southern Hemisphere to integrate the team responsible for the construction of the International Space Station-the ISS. A pioneer in the field of deep water oil research, from where 73% of its reserves are extracted, Brazil was the first capitalist country to bring together the ten largest car assembly companies inside its national territory.

Brazil is weathering the current global economic crisis better than most other Latin American countries. Thanks to the recent development of a large middle class, together with the expansion of the country's natural resource-based industries, Brazil has managed to avoid falling into a deep recession in recent years, unlike nearly all of its Latin American neighbors. Moreover, the rapid expansion of the country's oil industry will help to boost Brazilian economic growth over the near-term.

Brazil annual report: key economic indicator

BRAZIL Annual Report | 2005 | 2006 | 2007 | 2008 | 2009 | GDP | | | | | | Nominal GDP (US$ bn) | 881.8 | 1,089.0 | 1,333.6 | 1,575.2 | 1,473.1 | Real GDP growth (%) | 3.1 | 3.9 | 5.6 | 5.1 | 0.0 | Expenditure on GDP (% real change) | | | | | | Private consumption | 4.5 | 5.2 | 6.3 | 5.4 | 2.5 | Government consumption | 2.3 | 2.6 | 4.7 | 5.6 | 2.7 | Gross fixed investment | 3.6 | 9.8 | 13.4 | 13.7 | -10.0 | Exports of goods & services | 9.4 | 5.0 | 6.8 | -0.7 | -9.9 | Imports of goods & services | 10.4 | 18.1 | 19.6 | 17.8 | -9.8 | Origin of GDP (% real change) | | | | | | Agriculture | 0.3 | 4.5 | 5.9 | 5.8 | -2.5 | Industry | 2.1 | 2.3 | 4.7 | 4.3 | -7.0 | Services | 3.7 | 4.2 | 5.4 | 4.8 | 2.8 | Population and income | | | | | | Population (m) | 184.2 | 186.8 | 189.3 | 191.9 | 194.4 | GDP per head (US$ at PPP) | 8,606 | 9,108 | 9,764 | 10,340 | 10,330 | Recorded unemployment (av; %) | 9.8 | 10.0 | 9.3 | 7.9 | 8.4 | Prices and financial indicators | | | | | | Exchange rate R:US$ (end-period) | 2.34 | 2.14 | 1.77 | 2.34 | 1.99 | Consumer prices (end-period; %) | 5.7 | 3.1 | 4.5 | 5.9 | 4.1 | Producer prices (av; %) | 5.6 | 0.8 | 5.6 | 13.7 | -2.0 | Stock of money M1 (% change) | 13.1 | 20.4 | 33.6 | -4.1 | 7.2 | StockofmoneyM2(% change) | 19.5 | 18.9 | 18.6 | 17.3 | 12.5 | Lending interest rate (av; %) | 55.4 | 50.8 | 43.7 | 47.3 | 45.0 | Current account (US$ m) | | | | | | Trade balance | 44,703 | 46,457 | 40,032 | 24,836 | 22,823 | Goods: exports fob | 118,309 | 137,808 | 160,649 | 197,943 | 158,851 | Goods: imports fob | -73,606 | -91,351 | -120,618 | -173,107 | -136,028 | Services balance | -8,309 | -9,641 | -13,219 | -16,690 | -12,715 | Income balance | -25,968 | -27,480 | -29,291 | -40,610 | -30,116 | Current transfers balance | 3,558 | 4,306 | 4,029 | 4,224 | 4,051 | Current-account balance | 13,985 | 13,643 | 1,551 | -28,192 | -15,957 | External debt (US$ m) | | | | | | International reserves (US$ m) | | | | | | Total international reserves | 53,799 | 85,839 | 180,334 | 193,784 | 210,123 | Source: IMF, International FinancialStatistics. | | | | | |

Government and politics

The Brazilian Federation is the "indissoluble union" of three distinct political entities: the States, the Municipalities and the Federal District. The Union, the states and the Federal District, and the municipalities, are the "spheres of government". The Federation is set on five fundamental principles: sovereignty, citizenship, dignity of human beings, the social values of labour and freedom of enterprise, and political pluralism. The classic tripartite branches of government (executive, legislative, and judicial under the checks and balances system), is formally established by the Constitution. The executive and legislative are organized independently in all three spheres of government, while the judiciary is organized only at the federal and state/Federal District spheres. Together with several smaller parties, four political parties stand out: Workers' Party (PT), Brazilian Social Democracy Party (PSDB), Brazilian Democratic Movement Party (PMDB), and Democrats (DEM). Almost all governmental and administrative functions are exercised by authorities and agencies affiliated to the Executive.

The form of government is that of a democratic republic, with a presidential system. The president is both head of state and head of government of the Union and is elected for a four-year term, with the possibility of re-election for a second successive term. The current president is Luís Inácio Lula da Silva who was elected on October 27, 2002, and re-elected on October 29, 2006. The President appoints the Ministers of State, who assist in government. Legislative houses in each political entity are the main source of law in Brazil. The National Congress is the Federation's\ bicameral legislature, consisting of the Chamber of Deputies and the Federal Senate. Judiciary authorities exercise jurisdictional duties almost exclusively.

Foreign relations

Brazil has traditionally been a leader in the inter-American community and played an important role in collective security efforts, as well as in economic cooperation in the Western Hemisphere. Brazil supported the Allies in both World Wars. During World War II, its expeditionary force in Italy played a key role in the Allied victory at Monte Castello. It is a member of the Organization of American States (OAS) and a party to the Inter-American Treaty of Reciprocal Assistance (Rio Treaty). Recently, Brazil has given high priority to expanding relations with its South American neighbors and is a founding member of the Latin American Integration Association (ALADI), the Union of South American Nations (UNASUL) created in June 2004, and Mercosul, a customs union between Argentina, Uruguay, Paraguay, and Brazil, with Chile, Bolivia, Peru, Colombia, and Ecuador as associate members; Venezuela's full membership is pending.

Brazil is a charter member of the United Nations and participates in its specialized agencies. It has contributed troops to UN peacekeeping efforts in the Middle East, the former Belgian Congo, Cyprus, Mozambique, Angola, East Timor, and most recently Haiti. Brazil is currently leading the UN peacekeeping force in Haiti. Brazil served as a non-permanent member of the UN Security Council from 2004-2005. Prior to this, it had been a member of the UN Security Council eight times. Brazil is lobbying for a permanent position on the Counci As Brazil's domestic economy has grown and diversified, the country has become increasingly involved in international economic and trade policy discussions. For example, Brazil has been a leader of the G-20 group of nations and in 2009 became a creditor country to the International Monetary Fund (IMF). The U.S., Western Europe, and Japan are primary markets for Brazilian exports and sources of foreign lending and investment. China is a growing market for Brazilian exports. Brazil also has bolstered its commitment to nonproliferation through ratification of the nuclear Non-Proliferation Treaty (NPT), signing a full-scale nuclear safeguard agreement with the International Atomic Energy Agency (IAEA), acceding to the Treaty of Tlatelolco, and joining the Missile Technology Control Regime (MTCR) and the Nuclear Suppliers Group.

States and municipalities

Brazil is a federation composed of twenty-six States, one federal district (which contains the capital city, Brasília) and municipalities. States have autonomous administrations, collect their own taxes and receive a share of taxes collected by the Federal government. They have a governor and a unicameral legislative body elected directly by their voters. They also have independent Courts of Law for common justice. Despite this, states have much less autonomy to create their own laws than in the United States. For example, criminal and civil laws can only be voted by the federal bicameral Congress and are uniform throughout the country.

The states and the federal district may be grouped into regions: Northern, Northeast, Central- West, Southeast and Southern. The Brazilian regions are merely geographical, not political or administrative divisions, and they do not have any specific form of government. Although defined by law, Brazilian regions are useful mainly for statistical purposes, and also to define the application of federal funds in development projects.

Municipalities, as the states, have autonomous administrations, collect their own taxes and receive a share of taxes collected by the Union and state government. Each has a mayor and an elected legislative body, but no separate Court of Law. Indeed, a Court of Law organized by the state can encompass many municipalities in a single justice administrative division called comarca (county).

Geography

Brazil occupies a large area along the eastern coast of South America and includes much of the continent's interior, sharing land borders with Uruguay to the south; Argentina and Paraguay to the southwest; Bolivia and Peru to the west; Colombia to the northwest; and Venezuela, Suriname, Guyana and the French overseas department of French Guiana to the north. It shares a border with every country in South America except for Ecuador and Chile. It also encompasses a number of oceanic archipelagos, such as Fernando de Noronha, Rocas Atoll, Saint Peter and Paul Rocks, and Trindade and Martim Vaz. Its size, relief, climate, and natural resources make Brazil geographically diverse.

Brazil is the fifth largest country in the world, after Russia, Canada, China and the United States, and third largest in the Americas.

Climate

The climate of Brazil comprises a wide range of weather conditions across a large area and varied topography, but most of the country is tropical. According to the Köppen system, Brazil hosts five major climatic subtypes: equatorial, tropical, semiarid, highland tropical, temperate, and subtropical. The different climatic conditions produce environments ranging from equatorial rainforests in the north and semiarid deserts in the northeast, to temperate coniferous forests in the south and tropical savannas in central Brazil. Many regions have starkly different microclimates.

Components and energy

Brazil's economy is diverse, encompassing agriculture, industry, and many services. The recent economic strength has been due in part to a global boom in commodities prices with exports from beef to soybeans soaring. Agriculture and allied sectors like forestry, logging and fishing accounted for 5.1% of the gross domestic product in 2007, a performance that puts agribusiness in a position of distinction in terms of Brazil's trade balance, in spite of trade barriers and subsidizing policies adopted by the developed countries.

The industry - from automobiles, steel and petrochemicals to computers, aircraft, and consumer durables - accounted for 30.8% of the gross domestic product. Industry, which is often technologically advanced, is highly concentrated in metropolitan São Paulo, Rio de Janeiro, Campinas, Porto Alegre, and Belo Horizonte.

Brazil is the world's tenth largest energy consumer with much of its energy coming from renewable sources, particularly hydroelectricity and ethanol; nonrenewable energy is mainly produced from oil and natural gas. A global power in agriculture and natural resources, Brazil experienced tremendous economic growth over the past three decades. It is expected to become a major oil producer and exporter, having recently made huge oil discoveries. The governmental agencies responsible for the energy policy are the Ministry of Mines and Energy, the National Council for Energy Policy, the National Agency of Petroleum, Natural Gas and Biofuels, and the National Agency of Electricity.

Transport

Brazil has a large and diverse transport network. Roads are the primary carriers of freight and passenger traffic. The road system totaled 1.98 million km (1.23 million mi) in 2002. The total of paved roads increased from 35,496 km (22,056 mi) in 1967 to 184,140 km (114,425 mi) in 2002.

There are about 2,500 airports in Brazil, including landing fields: the second largest number in the world, after the United States. São Paulo-Guarulhos International Airport, near São Paulo, is the largest and busiest airport, handling the vast majority of popular and commercial traffic of the country and connecting the city with virtually all major cities across the world.

Coastal shipping links widely separated parts of the country. Bolivia and Paraguay have been given free ports at Santos. Of the 36 deep-water ports, Santos, Itajaí, Rio Grande, Paranaguá, Rio de Janeiro, Sepetiba, Vitória, Suape, Manaus and São Francisco do Sul.

Demographics

The population of Brazil as recorded by the 2008 PNAD was approximately 190 million [193] (22.31 inhabitants per square kilometer), with a ratio of men to women. of 0.95:1and 83.75% of the population defined as urban. The population is heavily concentrated in the Southeastern (79.8 million inhabitants) and Northeastern (53.5 million inhabitants) regions, while the two most extensive regions, the Center-West and the North, which together make up 64.12% of the Brazilian territory, have a total of only 29.1 million inhabitants.

Population increased significantly between 1940 and 1970, due to a decline in the mortality rate, even though the birth rate underwent a slight decline. In the 1940s the annual population growth rate was 2.4%, rising to 3.0% in the 1950s and remaining at 2.9% in the 1960s, as life expectancy rose from 44 to 54 years and to 72.6 years in 2007. It has been steadily falling since the 1960s, from 3.04% per year between 1950-1960 to 1.05% in 2008 and is expected to fall to a negative value of –0.29% by 2050 thus completing the demographic transition.

In 2008, the illiteracy rate was 11.48% and among the youth (ages 15–19) 1.74%. It was highest (20.30%) in the Northeast, which had a large proportion of rural poor. Illiteracy was high (24.18%) among the rural population and lower (9.05%) among the urban population. In 2006 nearly 50,000 people were murdered in Brasil. “O DIA Online - Rio no mapa da morte!” More than 500.000 people have been killed by firearms in Brazil between 1979 and 2003, according to the UN report.

The largest metropolitan areas in Brazil are São Paulo, Rio de Janeiro, and Belo Horizonte — all in the Southeastern Region — with 19.5, 11.5, and 5.1 million inhabitants respectively. Almost all of the state capitals are the largest cities in their states, except for Vitória, the capital of Espírito Santo, and Florianópolis, the capital of Santa Catarina. There are also non-capital metropolitan areas in the states of São Paulo (Campinas, Santos and the Paraíba Valley), Minas Gerais (Steel Valley), Rio Grande do Sul (Sinos Valley), and Santa Catarina (Itajaí Valley).

São Paulo is the largest city in Brazil and the world's 7th largest metropolitan area. The city is the capital of the state of São Paulo, the most populous Brazilian state. It is also the richest city in Brazil. The name of the city honors Saint Paul. São Paulo exerts strong regional influence in commerce and finance as well as arts and entertainment. São Paulo is considered an Alpha World City.

Main drivers for doing business in Brazil * Brazil has the 10th largest economy and a population of 185 million.

* Many local companies are undervalued and in need of restructuring, capital and technology * Growth potential and consumer market * Broad industrial base and infrastructure, and a diversified economy * Creativity and flexibility of labor force, coupled with its competitive cost basis * Abundant agricultural, mineral and energy resources and potential * Established transportation networks (railways, highways, ports) and distribution channels in most industrialized areas * Privatization in late stages and follow-on transactions still in development * Inflation under control in the last 10 years * Increasing globalization and international trade, with Government policies favoring exports * Foreign investors are eligible for most available fiscal incentives * Goodwill generally tax deductible * New regulations favoring minority shareholders * Improvement in local capital and debt markets
Main Challenges of doing Deals in Brazil * Complex tax and employee related regulatory environment, with high taxes and social charges on payroll, sales and income * Multiple taxes with fast changing legislation affecting business plans and increasing risks of contingencies * Economic environment still considered volatile as compared to more stable economies * Fast-changing business conditions * Lack of local financing coupled with high real interest rates * Quality of historical financial information affected by fluctuations in exchange rates and GAAP differences * Complex transfer pricing and foreign capital registration rules * Difficulties in reorganizing companies quickly, including high costs for employee terminations * Important cultural peculiarities, including a different perception of the due diligence process * Sometimes the “know-who” is more important than the know-how in the local market * Considerable bureaucratic rules and regulations for certain businesses and industries * High demand for investments in the distribution channels and infrastructure * Semi-skilled and unskilled labor in certain developing areas * Social extremes with unequal distribution of wealth - a significant portion of the population not participating in the consumer market

Summary of Indicators – Brazil

Starting a Business | Procedures (number) | 16 | | Time (days) | 120 | | Cost (% of income per capita) | 6.9 | | Min. capital (% of income per capita) | 0.0 | Dealing with Construction Permits | Procedures (number) | 18 | | Time (days) | 411 | | Cost (% of income per capita) | 50.6 | Employing Workers | Difficulty of hiring index (0-100) | 78 | | Rigidity of hours index (0-100) | 60 | | Difficulty of redundancy index (0-10) | 0 | | Rigidity of employment index (0-100) | 46 | | Redundancy costs (weeks of salary) | 46 | Registering Property | Procedures (number) | 14 | | Time (days) | 42 | | Cost (% of property value) | 2.7 | Getting Credit | Strength of legal rights index (0-10) | 3 | | Depth of credit information index (0-6) | 5 | | Public registry coverage (% of adults) | 23.7 | | Private bureau coverage (% of adults) | 59.2 | Protecting Investors | Extent of disclosure index (0-10) | 6 | | Extent of director liability index (0-10) | 7 | | Ease of shareholder suits index (0-10) | 3 | | Strength of investor protection index (0-10) | 5.3 | Paying Taxes | Payments (number per year) | 10 | | Time (hours per year) | 2600 | | Profit tax (%) | 15.7 | | Labor tax and contributions (%) | 46.9 | | Other taxes (%) | 6.6 | | Total tax rate (% profit) | 69.2 |

Trading Across Borders | Documents to export (number) | 8 | Time to export (days) | 12 | Cost to export (US$ per container) | 1540 | Documents to import (number) | 7 | Time to import (days) | 16 | Cost to import (US$ per container) | 1440 | Enforcing Contracts | Procedures (number) | 45 | Time (days) | 616 | Cost (% of claim) | 16.5 | Closing a Business | Recovery rate (cents on the dollar) | 17.1 | Time (years) | 4.0 | Cost (% of estate) | 12 |

List of procedure 1. Check company name with State Commercial Registry Office 2. Pay registration fees 3. Register with the commercial board of the state where the main office is located and obtain identification number 4. Register for federal and state tax, obtain the CNPJ number, which also registers employees with the national institute of social security. 5. Confirm Taxpayer Enrollment 6. Receive state tax inspection 7. Get the authorization to print receipts/invoices from the Secretaria da Fazenda Estadual 8. Register with the municipap Taxpayers’ Registry 9. Pay TFE to the Municipal Taxpayers’ Registry 10. Apply to the municipality for an operation permit 11. Register the employees in the social integration program 12. Open a special fund for unemployment account in the bank 13. Notify the ministry of Labor 14. Registration with the Patronal union and with the employee union