Doing Business in Brazil

Felipe Hsieh

Trade & Receivables Finance, UK

October 2012

Rio de Janeiro

Quick facts about Brazil

Brazil is Latin America’s largest economy ; among the 10 largest in the world (GDP in 2011: $2.5trn)

Brazil is the world’s fifth-largest country by geographical area, 8.5 million km2 and fifth most-populous country, with 190 million inhabitants

Brazil’s ‘investment grade’ economy is diverse and has large and developed agricultural, manufacturing, mining and services sectors

Agencies Notations

Moody's Baa2

S&P BBB

Fitch BBB

R&I BBB

North Region

Northeast Region

Central-west Region

Southeast Region

South Region

Source: Ministerio da Fazenda

The great transition

Brazil’s growth story from 1995-2011: from short boom-and-bust cycles in the 1990s to more-sustained growth more recently

The performance of the economy in the last 15 years can be divided into two main periods: Fernando Henrique Cardoso administration (1995 – 2002) and second, the Lula administration (2003 – 2010).

Brazil GDP growth

(%, annual)

Source: IBGE, HSBC

Growth, consumption and social mobility

A structural shift in Brazil’s demographics

- Strong job market

- Government income distribution programs

- Relatively stable inflation

Brazil: Distribution of Economic Classes

(millions of people)

Source: Ministry of Finance

• Demographics and increasing household income are positive drivers for the next two decades

• Middle Class is growing as poverty is reducing

• Per capita GDP is expected to more than double by 2030

Social Mobility impacting around 40m individuals over the next 4 years

%

Retail sales and industrial production - contrasting picture

Consumption has been a compelling story in Brazil in the last few years

The intensive migration of lower income Brazilians to the middle-income segments brought to the market 40 million potential consumers that have access to credit

While retail sales have expanded more or less continuously since 2008, industrial production has been stagnant since 2Q2010

Demand-led growth; competitiveness still a challenge

Gap between demand and supply (Jul 2008 = 100)

Source: IBGE

% of Household

Source: PNAD

Household ownership of durable goods

Key Challenges

• Infrastructure deficiencies

• Complex Taxation System

• Slow legal framework

• Corruption

Source: MDIC

Trade – Facts & Figures

EXPORT

IMPORT

BALANCE

Brazilian Foreign Trade

US

$ B

illio

ns

55

198

153

56

173

128

-0.7

25.0 25.3

-50

0

50

100

150

2002

000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Exports are almost three times larger compared to ten years ago

European Union USA

China

Latin AmericaOthers

22% 10%13%

21%34%

US$ 15.6 bi

US$ 20.2 bi

US$ 31.2 biUS$ 52.0 bi

US$ 34.0 bi European Union USA

China

Latin AmericaOthers

US$ 29.2 Bi US$ 20.0 Bi

US$ 15.9 Bi

US$ 22.2 BiUS$ 40.2 Bi

23% 16%

13%

17%31%

EXPORTS (2009)China represents now 13% of Brazilian exports against 2%

in 2000

IMPORTS (2009)China represents now 13% of Brazil’s imports against 2.2%

in 2000

Source: MDIC

Trade – Facts & Figures

Exports*: Brazil’s Rank and Market-Share

Soy BeanPoultry

Beef

Pork

SugarOrange Juice

Coffee

1st 1st 1st 1st

1st 2nd 4th

32% 86% 45% 30%

39% 39% 12%

* Data from 2009

Corn

2nd13%

Trade – Facts & Figures

UK – Brazil Trade

0

50

100

150

200

250

300

Year

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Exports Imports

Trade between Brazil and UK grew by 4 TIMES over the last 10 years

Goods and services sold by UK institutions to Brazil grew by same rate

Source: MDIC

UK – Brazil Trade

Source: MDIC

MAIN PRODUCTS SOLD TO BRAZIL MAIN PRODUCT BOUGHT FROM

Fuel Products Iron ore

Cars Soybean Grains & Byproducts

Chemicals Meat & Byproducts

Carbon Fibres Gold Bars

Whiskey Minerals

Pharmaceutical Goods Sugar

Medical Equipments Paper Fibre

Mechanical Parts Orange Juice

Heavy Machinery Aircrafts

Enriched Uranium Coffee

Trading with Brazil

Moderate tariffs, especially on import taxes

Import license required for certain products

Free Ports, Zones

Since 1990 Brazil has made substantial progress in reducing border trade barriers (tariffs, import licensing, etc.)

Common Import Taxes:

- Import Duty - Industrialised Product Tax (‘IPI’) - Merchandise and Service Circulation Tax (‘ICMS’)

Business etiquette and culture…

Establishing personal relationships is essential to conducting business

Most of companies have English-speakers, however using interpreters for 1st meeting can be a good idea….

DO NOT attempt to do business during CARNIVAL!

Like South-Europeans Brazilian use a lot of body language and contact

NorthBranches: 60ATMs: 257Mini-branches: 108

North NortheastBranches: 47ATMs: 351Mini-branches: 124

Middle-WestBranches: 103ATMs: 501Mini-branches: 142

SoutheastBranches: 445ATMs: 2,654Mini-branches: 675

SouthBranches: 242ATMs: 1,522Mini-branches: 523

Middle West

Northeast

Southeast

South

Key Figures

Established: 1997Branches: 897Employees: 25,000Customers: 5 millionATMs: 5,285

HSBC in Brazil

Trade Finance

Payments & Cash-Mgmt

Global Markets

Corporate Banking

Retail Banking

Key Contacts

l British Embassy, Brasília (Distrito Federal) press.brasilia@fco.gov.uk

l British Consulate-General, São Paulo uktibrazil@fco.gov.uk

l UK Trade & Investment - Enquiry Service enquiries@ukti.gsi.gov.uk

l Export Finance Programme (Programa de Financiamento às Exportações—Proex) http://www.bb.com.br/.

l Brazilian Association of Listed Companies (Associação Brasileira das Companhias Abertas— Abrasca

http://www.abrasca.org.br (Portuguese only).

l Brazilian Export Credit Insurer (Seguradora Brasileira de Crédito à Exportação—SBCE)

http://www.sbce.com.br/ us/index.asp

l Brazilian Foreign Trade Association (Associação de Comércio Exterior do Brasil—AEB),

http://www.aeb.org.br/home.htm (Portuguese only).

l Ministry of Development, Industry and Commerce (Ministério do Desenvolvimento Indústria e Comércio

Exterior—MDIC) http://www.mdic.gov.br/ (Portuguese only).

l São Paulo State Federation of Industry (Federação das Indústrias do Estado de São Paulo—FIESP),

http://www.fiesp.com.br

Q & A

EN

Q54

844

17

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