Vistra Insights

Marcelo Borgheti knows why companies expand into Brazil

Brazil has long attracted foreign investors. With a population of over 200 million, it has the largest economy in Latin America and the eighth largest in the world. For over a decade, Brazil has been part of the so-called BRICS bloc of countries, along with Russia, India, China and South Africa. These economies are expected by many to outpace developed countries over the next thirty years and play an increasingly prominent role in the global economy.

Brazil has, however, endured a difficult decade. It continues to recover from a 2015-2016 recession that resulted in a nearly 7 percent contraction of its economy. That economy has grown slowly and steadily since then, but suffered a setback last month with predictions that it again shrank during the first quarter of 2019.

Despite these headwinds, there is cause for optimism. Right-wing President Jair Bolsonaro is intent on implementing tax and other reforms to attract investment and address longstanding corruption. In January’s World Economic Forum in Switzerland, he told a group of business leaders that his economic team would, by the end of his term, “position Brazil in the ranking of the 50 best countries in the world to do business.”

There’s evidence the government’s efforts are working. According to the World Bank’s Doing Business 2019 report, the country recorded the largest improvements in Latin America and the Caribbean in ease of doing business. According to the report, the improvements are a direct result of Brazil’s “effort to strengthen its business environment” with reforms like electronic registration for companies.

Marcelo Borgheti has witnessed the effects of these reforms first hand, and he’s able to put them in context like few others can. For thirty years, he has helped multinational companies expand into and operate in Brazil.

Based in Sao Paulo, Marcelo is Vistra’s Brazil Managing Director. Prior to joining Vistra, he was a partner at Arthur Andersen in the U.S. and Brazil, and was CEO of his own business consulting firm. A Brazilian citizen, he holds a bachelor’s degree and a master’s degree in economics.

Have you noticed an increased interest from multinationals looking to expand into Brazil as a result of the government’s recent efforts to make the country more business-friendly?

We have seen an increase, yes, and not only in multinationals coming to Brazil for the first time, but also an increase in existing companies expanding within the country. It’s clear that at least some of this activity is a result of the government’s efforts.

Can you give an example of a recent reform that’s having a positive effect on attracting foreign investors?

One important change is that U.S. citizens can electronically apply for a Brazilian visa, which of course makes the process of getting to Brazil a lot easier and more appealing. In the past, if you were a U.S. citizen you had to go to a Brazilian consulate in person.

What are some of the top reasons your clients expand into Brazil?

Brazilian assets are attractive now, in part because of the strength of the U.S. dollar against the real. This makes acquiring companies in Brazil favorable.

On a more general level, investors are attracted to Brazil’s large economy and welcoming culture, which are powerful inducements. The country also boasts an educated, diverse workforce that is highly appealing to investors. I do think, even after recent economic challenges, that Brazil is still regarded by many foreign investors not only as a promising expansion target but as a market they have to be in.

What are some of the top benefits and challenges companies face when they expand into Brazil?

I’ve already mentioned some of the benefits, including the country’s large market, educated and diverse workforce, and large economy.

Brazil does remain a complex tax jurisdiction, however, and it takes time and effort to comply with local requirements. I truly don’t think this should put off investors, though. We regard Brazil’s tax and accounting requirements as a great opportunity to provide a good service to our clients. We know what it takes to operate efficiently and compliantly here, and we want to make it easier for foreign companies to run their businesses in Brazil, acquire local companies or establish startups.

Is there any area of compliance in Brazil that has significantly changed in recent years?

I'd say that anti-money laundering and UBO [i.e., laws that require businesses to report on their ultimate beneficial owners] requirements are the most important. They’ve changed the perception of how to do business in Brazil, and what it takes to establish and run compliant operations here.

Know-your-customer [KYC] laws are also increasingly strict, as are Brazilian Central Bank requirements. It’s never been particularly easy for a foreign business to open a bank account in Brazil, and KYC laws are not making the process any easier or quicker. Knowing how long the process takes and what it takes are critical to setting accurate budgets, timelines and expectations. We recommend doing business with a Brazilian bank when you do expand.

Do your clients tend to send expats or hire locals when expanding to Brazil?

That’s changed over the last 10 years or so. Companies tend to hire locals now because these employees understand local business requirements and practices, and of course they know local cultural behaviors.

Where do your clients typically expand in Brazil? Have you noticed changes in this area in recent years?

We have clients operating all over Brazil. In the past, most companies’ offices were located in Sao Paulo and Rio de Janeiro. Businesses are increasingly considering and setting up operations in other locations, mainly due to state tax incentives, quality-of-life and security concerns, and cost-of-living considerations. Low cost of living in particular can allow an employer to offer lower salaries in locations that are outside expensive traditional expansion targets like Sao Paulo.

Do you find that companies from certain countries more easily adapt to operating in Brazil, either for regulatory or cultural reasons?

I’d say no. Brazil itself is a blend of many cultures and tends to be welcoming.

We do attract many foreign investors from across Latin America, mainly due to Mercosul [also called Mercosur, the South American trading bloc with the four founding members Argentina, Brazil, Paraguay and Uruguay]. Our bilateral trade with Chile is on the rise, as is trade with Mexico. We have a substantial presence of European-headquartered multinational companies too.

That said, most of our volume comes from U.S.-based organizations. There are many reasons we attract U.S. companies, including our favorable time zone and Brazilians’ identification with U.S. culture.

Over the last three years, we’ve also seen a substantial increase in Chinese foreign investment.

The 11th annual BRICS Summit will be held in Brazil this year. How has being part of this group affected how Brazilians and others understand Brazil’s economy?

Brazil assumes the presidency of the BRICS this year, but we also have a new government that has indicated it wants greater alignment with the United States. So, how Brazil moves forward with regard to the other BRICS countries — in particular China and Russia — is certainly something to watch this year.

 

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