16 May 2011
2.6 Challenges Facing Exporters
Difficulties in Doing Business
Brazil is considered by the World Bank as the worst country to do business among the BRIC economies, and is ranked 122nd out of 178 countries, behind third-world countries such as Ethiopia and Tonga. Companies interested in trading with and investing in Brazil therefore must identify clearly the potential risks and challenges so as to ensure a fruitful penetration.
Red Tape and Corruption
Like many emerging markets in the world, Brazil is not immune from red tape and corruption. In response to administrative problems, the Brazilian government has taken some steps in cutting red tape and corruption. Nonetheless, these steps are still considered insufficient for the time being. Customs corruption, which results in clearance delays and unreasonable confiscation, has also been widely covered by the media and complained about by importers.
Cumbersome Customs Clearance
The entire import process in Brazil is computerised through the system, SISCOMEX, which simplifies the import procedures by reducing the amount of paperwork and information required by customs. However, customs clearance in Brazil is still not as efficient and fast as one might expect. Many importers have encountered difficulties in customs clearance especially when importing from China. The widespread under-invoicing issues have prompted the Brazilian customs to pay “extra” attention to Chinese imports. Whenever there is any discrepancy found between the shipment and the details specified in the import licences, importers will be required to apply for a new import licence. New product catalogues, price lists and revised documents will have to be submitted again, and the whole process has to be restarted. On some occasions, importers have had to wait more than six months before they can collect their goods from customs. Moreover, the frequency of strikes at customs and ports is also dreadful. According to Logistics Studies Center (CEL), the number of strike days involving customs workers, inspectors and truck drivers totalled 156 days in 2006, resulting in a loss of US$116 million.
Brazil is the only country in Latin America whose official language is not Spanish, but Portuguese. In fact, most people on the streets in Brazil speak only Portuguese. The situation is somewhat better when it comes to business, yet it is not uncommon to find Brazilian businesspeople, especially those who hold senior positions, not to use English in business meetings. New-to-the-market people may find it frustrating when they realise that they cannot even go shopping without their interpreters.
Tyranny of Distance
As mentioned, it takes on average 30 days for cargos exported from Hong Kong or the Chinese mainland to arrive in Brazil. Logistics control and management may therefore pose an overwhelming burden on small and medium-sized companies. In addition, comprehensive export financing and insurance can be difficult and expensive to obtain as the shipping time and distance are long, perhaps giving rise to cash flow problems.
High Taxes for Repatriating Profits
As commented by some experienced companies in Brazil, “the door for investment in Brazil is widely opened, yet the door for profits repatriation is rather narrow, if not completely closed”. Foreign companies interested in investing in Brazil may find it difficult to repatriate money earned from investments in Brazil. They need to pay prohibitively high taxes to do so, since the Brazilian government regards Hong Kong as a tax haven. In fact, even within Brazil, the taxes a local national has to pay for transmitting money from one state to another is also considered high.
Violence and Crime
Armed robbery, kidnapping and murders are rampant in Latin America. It is estimated that Brazil has one of the highest murder rates in the world, and Rio de Janeiro is regarded as one of the world’s most violent cities. Income inequality and poverty have been considered the main reasons for the problems of violence and crime. Although the problem of income inequality has improved in recent years as reflected by the declining Gini coefficient from 0.59 in 2001 to 0.57 in 2005, the richest 10% of the Brazilian population earns 51 times more than does the poorest 10%.