The promising future is NOW in Brazil

There used to be a saying that Brazil is the country of the future and carnival, and will always be… It appears that the future of the country has arrived.

The new middle class and “demographic bonus” drive growth

Over the past three years, 45 million Brazilians have moved into the middle class. According to the data from Brazilian Institute of Geography and Statistics (IBGE), in 2006 43% of families were part of the new middle-class. The forecast is that by 2020 this share will cover 68% of the population.

In addition to the rising middle class, Brazil has potential to grow 2.5% per year. This is a result of so called “demographic bonus” which is the current youth population that is expected to mature over the next 20 years. This rising consumer class is expected to be a driving force to the consumer markets. Furthermore, both public and private sectors in Brazil are aware that massive investments in infrastructure are needed in order to support this growth.

Brazilian economy has grown as the market is now more sophisticated and personal disposable income is higher and expected to grow at a rate of 1.5%.Social disparity has shrunk along the way as well.

Brazil is on the leading edge of going digital

The forecast is that by 2020, Brazil will surpass France, England and Italy to become the fifth largest market in the world. Today, Brazil is the eighth largest consumer market. According to KPMG´s global 2013 Digital Debate -survey, urban consumers in Brazil are one of the world’s most voracious users of digital media, powered by the rapid uptake of smart phones and tablets. Consumers in Brazil as well as in China lead all countries in accessing social networking, news and downloading music.

Oil and other natural resources make a difference

Brazil is a self-sufficient nation in terms of oil. The national oil company, Petrobras, is an important global player. The Brazilian legal framework provides foreign investors with incentives, including beneficial fiscal and concession terms. This, together with the pre-salt offshore discovery, has created excellent opportunities for international oil companies as well as related service contractors and suppliers. Brazil´s diverse economy is also characterized by well developed agricultural, mining, manufacturing and service sectors, which offer many investment opportunities in several segments.

What does it take to win in Brazil?

Given Brazil´s prominence on the international stage and strong underlying fundamentals, it is no surprise that many Finnish companies are considering to expand into the Brazilian market. Although few Finnish companies have successfully established in Brazil, and many are still contemplating to enter for other business reasons, the Brazilian commercial arena may still bring certain challenges due to increasingly competitive markets as well as government initiatives.

Based on my previous experiences assisting Finnish companies on their entry to Brazil, Brazilian tax and labor regulatory environment is one of the most complex ones. In addition, although Brazilian business culture is not significantly distant from other Western nations, bureaucratic rules as well as lack of transparency often bring challenges for companies considering acquisitions, a greenfield investment or restructuring.

As two major sport events (2014 FIFA World Cup and 2016 Summer Olympics) are likely to drive massive investments in infrastructure while the country regains its growth, the question of “what does it take to win?” has become more the key issue to many Finnish companies. As such, the Brazilian venture does require more research, planning including proper due diligence.

Kelly_Luostarinen_100x100 Kelly Luostarinen is a Director in Strategy Group and Head of Brazil Desk and China Practice.