Latin America: a rising force in business

After years in the wilderness, Latin America and particularly Brazil is coming into its own as a relocation destination. Alison Semple takes a look at what the region has to offer.

After years in the wilderness, Latin America and particularly Brazil is coming into its own as a relocation destination. Alison Semple takes a look at what the region has to offer.As a place to do business, Latin America has struggled with a reputation for being shackled by protectionist economies and poor infrastructure; for having an industrial, commodity-based economy that`s slow to move into more high-tech sectors; for supporting an oversized public sector; and, above all, perhaps, for a volatility that has led in the past to swings between boom and near collapse. But, to investors, it is clear that Latin America has much to offer, and in a worldwide volatile economy, the region and particularly Brazil is a rising force.Top investment destinationBrazil underlined its position as Latin America`s top investment destination in 2007, with a leap of almost 84 per cent in foreign direct investment (FDI) on the previous year. It received 30 per cent of Latin America`s FDI that year $35billion followed by Mexico and Chile. Brazil boasts the world`s sixth-largest economy, with a population of 190 million, and has seen remarkable growth in recent years. GDP growth reached 5.3 per cent in 2007, exports have doubled in the last four years, and imports have increased at the same rate.For Brazil`s smaller neighbours, it`s a different picture. Last year, the United Nations Conference on Trade and Development (UNCTAD) reported that some Latin American countries are receiving hardly any foreign investment notably Bolivia, El Salvador and Nicaragua. But in Brazil and the other big South American economies, investors have been attracted by the potentially huge market, strategically close to the USA, with governments committed to making reforms and accelerating growth. In Brazil in particular, there has been an increase in productivity in recent years, and key reforms to regulations on the movement of capital, which have helped promote an environment of free trade and competition.The effects of the current global financial crisis have been felt, though. Suffering from recent falls in commodity prices and weaker global demand particularly from the US Brazil has also seen a fall in investment and the value of the Real. Some say the downturn could last into 2010, with GDP growth for this year down to half the 2008 levels.Andrea Elliott, senior counsel at Pro-Link Global, a US-based global corporate immigration firm, says that, while companies in a range of sectors are still sending staff to Brazil, there has been a fall in the number of long-term assignments. `We are seeing companies related to oil and gas moving people into Brazil, as well as large-scale electronics manufacturers and engineering companies. We also see commercial dive operations working in Brazil regularly. But what we have seen is that our multinational corporate clients are using the Technical Visa category, which was created to allow for shorter-term assignments of 90 or 180 days. Traditionally, we were seeing two- to three-year assignments, but that has dropped off with the current economic climate. The cost of a long-term assignment is being scrutinised more closely, and our clients are opting for shorter trips using technical work visas, in lieu of the longer-term work visas. This is resulting in considerable cost savings to the multinationals.`Ana Gazarian, CEO of Employee Mobility Solutions, one of Latin America`s leading immigration and relocation firms, says that her company has seen no noticeable drop in the number of visa requests coming through. And she notes that her company is also seeing a lot of business going into Venezuela while there has been a slight fall in movement into Argentina. But she does acknowledge a shift in trends. `What we are seeing is a significant level of repatriation from all countries. Companies are choosing to retain only key and technical staff in local offices.`
Whatever the current economic climate, the fact remains that this is a huge emerging market, and one that many companies want to be part of. International organisations will continue to make important investments in Brazil and hold a prominent place in many sectors. The country offers an economically active population of 92 million 36 per cent of Latin America`s total population including 16 million people with higher education in technical-scientific activities, and six million registered students in technical and higher education (2006).

A different sort of stayBut while Brazil`s success in attracting business looks set to continue, getting a new business up and running can be a complex process. With a large centralised bureaucracy, firms need to be aware that paperwork can be time-consuming and confusing. `A lot of executives find the processes involved in setting up in Brazil very stressful not least because everything is done in Portuguese,` says Andrea Massoud, founder of Living in Brazil, which offers a range of services to companies locating in Brazil. `If you want to register with the police, get an ID card or a driver`s licence, all the forms are only available in Portuguese. And be aware that Brazilians like to be helpful so much so that they would really rather say maybe,` or even yes`, where what they actually mean is a definite no`. The other thing you have to remember is that things may take time. The clerks here don`t have deadlines on your paperwork you can`t pay an extra fee and expect express service.`So, companies should expect it to take around three weeks to incorporate their business stretching to between 60 and 90 days if both state and federal authorities are involved, according to Andrea Massoud. While a work permit can take 30 to 45 days to be approved, it can take longer 40 to 50 days for legal status to be granted. Sending money overseas can also be an issue. While the flow of foreign capital has been liberalised in Brazil, certification still has to be acquired through the country`s central bank, and taxes also are applied.Most importantly of all, perhaps, for businesses locating in Brazil, the country`s longstanding labour laws need to be taken into consideration. Dismissal is barely allowed, and staff who are asked to leave are entitled to hefty pension settlements. Labour costs are generally high, with compulsory benefits amounting to between 50 and 80 per cent of base salary. A statutory 13th-month bonus is also standard, as are vacation bonuses of one-third of salary. Other standard benefits include transport subsidies, life insurance, dental care, luncheon vouchers, company car and phones, medical services, childcare services, gym facilities, and fuel vouchers.On top of all this, Brazil has one of the most complicated tax systems in the world. A medium-sized company operating in Brazil will have to make 11 different tax payments (compared to 34.8 elsewhere in the region), but the time spent on tax issues could amount to as much as 2,600 hours (compared with 393.5 for Latin America as a whole). The total tax rate amounts to 69.4 per cent of profit: substantially higher than the 48.6 per cent average for Latin America, and 45.3 per cent for the Organisation for Economic Co-operation and Development (source: IFC/World Bank Doing Business 2009). On the other hand, wage pressures in Brazil are not extreme held down by a relatively high unemployment rate of around nine per cent.In terms of quality of life, prices in Brazil have increased in recent years. Average prices in Sao Paulo are among the highest in South America, but still lower than New York, for instance. Scott Sullivan, EVP global sales and marketing at GMAC Global Relocation Services, says that, while it may be possible to live relatively cheaply, `the cost of living for the expected lifestyle of an expatriate is high,` and he points to hidden costs, such as the potentially high cost of import duties on household goods.Security can also be an issue for staff relocating to Brazil. `It`s just a question of making sure staff are properly prepared and aware of areas where they might run into problems,` says Andrea Massoud. `We work with many, many companies, and have never come up against anything more serious than a stolen wallet.Above all, says Andrea Massoud, Brazil is `a great country to live in.` Property prices are reasonable, accommodation is readily available, she says, and Brazil`s cities are extremely cosmopolitan, with good amenities. She points to the availability of bilingual and trilingual schools following a government decision five years ago to open up the education system to foreign investment, and notes that basic rates of income tax are at fairly low levels, between 20 and 27 per cent. And according to Ana Gazarian, the happy and relaxed atmosphere is what makes Brazil the place it is. `The Brazilian people like to help foreigners, and even though they may dance the samba` when doing business, the attraction of Brazil is that it`s such fun.

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