As one Brazilian trade expert said, ``Brazil is the land of the future—and may well always be.''
Brazil has undergone turbulent times, from military dictatorships in the '70s to hyperinflation of almost 1,000 percent in the late '80s to stable growth for much of the '90s. Brazilians know what instability is like, and they have been struggling to prevent a return to the uncertainty of the past.
Many of the changes made to reform the economy recently are incredibly dramatic, but some critical changes have not been made, and these are causing Brazil's present difficult situation.
Brazil has entered into important trade agreements, yet only now is implementing intellectual property laws to international standards. It does not have a tax treaty with many countries, including the United States. Many laws have been changed to allow foreign investment. Yet there are significant restrictions on the movement of foreign capital and credit, and there is a high corporate tax rate of 33 percent.
Brazil has incredibly tough labor laws. These have resulted in labor disputes at foreign firms that have invested in Brazil. According to one plastics source, the average cost for skilled labor in the chemical industry is twice that of comparable compensation in Argentina and Mexico.
In petroleum-based industries, other problems abound. Most of the refineries are inland. With Third World transportation, the cost of moving goods to export is often prohibitive. Many components and materials need to be imported — at a high dollar cost.
Brazil's interest rates are so high that no one can afford to buy capital goods on credit — cars, machinery and appliances, for example. This may cause a stagnation that can turn the current correction into a drawn-out recession.
But Brazil is too big to ignore if Latin America is part of your international strategy. Brazil has talented technical people and vast natural resources. And with the devaluation, the cost of doing business has dropped significantly.
Like anywhere, companies looking to take advantage of new markets need to find the best partners possible, and that is through developing personal relationships. You can't go to Dunn & Bradstreet to determine the stability of your partner. You need to see their operations and their personalities.
Understanding the incentives for foreign investors — and there are quite a few — requires the involvement of trade, law, accounting and other Brazil specialists. The U.S. Department of Commerce Export Assistance Center offers what is called ``gold key'' service that can be of great help in identifying potential partners and distributors. The Brazilian government also has a trade and investment agency attached to its embassy in Washington.
Levey is an international trade consultant in Cleveland.