An added benefit of increasing exports is that expanding globally creates an uplift in employment, with evidence showing that establishing an overseas presence produces, on average, an additional 3.5 jobs back in the UK. But any business wishing to win business abroad needs to look towards the markets with the most potential, which is why Brazil presents such great opportunity, thanks to its size, demographics and planned infrastructure improvements.
Brazil is the fifth largest country in the world and the third largest in the Americas after the US and Canada. It is in the eastern part of South America and at 8,547,403 km is slightly smaller than the USA. It’s the fifth most populated country in the world with 203 million residents who generally tend to be younger than in other, more urbanised countries. In the most recent EIU business environment rankings Brazil ranked thirty-eighth in the world for ease of doing business and third in Latin America just behind Chile and Mexico.
Brazil is very much a country that is too big to ignore and high value opportunities for UK companies have been identified across a range of sectors including integrated logistics infrastructure, sports infrastructure, oil and gas, marine and healthcare.
Additionally there are some real opportunities for investment in infrastructure projects to prepare the country for the World Cup in 2014 and the Olympics in 2016. Chris Chapman, joint Managing Director of My Business FD, says: “Already we are seeing our clients take advantage of the opportunities in Brazil. Armadillo LED, who are typical of Britain’s SME sector that is now driving our recovery, have been commissioned to provide lighting solutions to certain landmark sites and projects in and around Rio de Janeiro, with several other exciting Brazilian projects in the pipeline.”
According to figures from HSBC, the infrastructure investment opportunities alone are immense with nearly 20,000 km of rail and road network being planned as well as undergrounds in 10 cities, two new airports and new rail systems in 23 cities. Chapman points out that these plans are a real investment opportunity for UK SMEs. He says: “Figures from the Department of Business, Innovation and Skills show that nearly a fifth of UK businesses working in the construction industry are SMEs. While these figures do cover a number of micro businesses there are a significant number of larger SMEs in this sector who are well set up to take advantage of Brazil’s infrastructure opportunities.”
While Brazil presents plenty of opportunities, some caution does need to be taken when considering this marketplace. The EIU identified that the heavy tax regime and existing infrastructure as a bottleneck that will prevent the region improving as quickly as it might otherwise do.
However, the federal government has made significant improvements in the economic stability of the country and have put in place some key tax reforms. It is clear that while Brazil suffered a boom and bust cycle from the 1960’s right through to the 1980’s the economy has now steadied. Brazil has weathered the recent economic crisis well emerging as a country that demonstrates real macroeconomic stability and the EIU forecasts that Brazil is likely to improve slightly
“While I see the real challenges for UK businesses investing in Brazil being around getting a handle on the tax regime and the regulatory framework, the bottom line is that things are improving in the region. Although Brazil’s tax burden is still more onerous than the UK, recent reforms to the transfer pricing rules, to taxes levied on financial transactions and a planned increase in the corporation tax threshold bode well for the future”, explains Chapman.
“Regulatory and tax aspects aside, we have to remember that there are huge cultural differences between the UK and Latin America. We’ve already learned that nothing happens quickly in Brazil and what we here would constitute a ‘deal’ is nothing more than a reason to have another chat in a month’s time. That can be frustrating but you have to play the long game and invest time in a new territory and have belief that the rewards will come,” Chapman explains.
While Brazil’s infrastructure challenges combined with the imminent staging of two major global sporting events is driving a focus on construction projects, the real interest that the country holds for UK SMEs is the wide range of diversified opportunities. The size of the opportunity presented by the rise of the Brazilian professional class allied to the sheer number of consumers cannot be underestimated.
The relative youth of Brazil’s population offers a real opportunity to technology SMEs who can provide cutting edge mobile applications tailored for this market. Chapman is clear that he sees Brazil as a long-term opportunity for his clients. He says: “This is a story that will run and run. We tend to work with fairly ambitious companies who are at the more innovative end of product development and these are absolutely the type of companies that will be getting a significant revenue uplift from opportunities in emerging economies such as Brazil. I really believe that the region will see more of our clients entering into their market and that can only be good for the UK economy as a whole.”
Chris Chapman
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