Brazil stable enough to attract international business
Collins 13 (Stuart, former managing editor at Business Insurance, “Brazil’s Stable Politics, Economy Offset by Higher Taxes, Crime”, 6-23-2013, http://www.businessinsurance.com/article/99999999/NEWS040102/120309899#1)
International clients of brokers and insurers that are attracted to Brazil by its stable political and economic environment face levels of bureaucracy, taxes, crime and corruption that typically are far greater than in their home markets, experts say. Many companies come to Brazil because the business environment is more familiar than the other BRIC countries (Brazil, Russia, India and China), said Keith Martin, Rio de Janeiro-based director of international trade and investments with Aon Risk Solutions, a unit of Aon Corp. It also has a more stable public and private sector and a better-proven legal framework than some other BRIC countries, he said. However, it is not without issues, said Mr. Martin. Myriad complex tax rules, corruption and a slow legal process are hurdles to overcome, he said. The levels of bureaucracy and lack of transparency of rules make Brazil a difficult country to do business in, said Corina Monaghan, New York-based vp at Aon Risk Solutions' political risk practice. “The complexity of tax rules is a real shock for investors, and compliance is difficult because there is a lot of over-complication and rules that are not common in the U.S.,” she said. The huge opportunities for foreign companies in Brazil's growing economy have to be weighed up against the country's relatively high taxes and labor costs, said Carlos Caicedo, analyst and head of the Latin American team at London-based political risk consultancy Exclusive Analysis Ltd. “Foreign companies need to be aware of the high costs of labor and taxes in Brazil. The tax system is antiquated and has grown into a monster, with many layers of taxes,” he said. Labor laws are generous to workers and distort the labor market, said Mr. Caicedo. There is a large “informal” job market in Brazil because “favorable employee rights” discourage employment on a full-time basis, he said. The tort system, which is similar to that in Continental Europe, also is bureaucratic, marked by a large number of appeals and the slow processing of court documentation, said Mr. Martin. One of the main problems for foreign investors in Brazil is corruption in Brazilian government ministries, said Mr. Caicedo. Several companies have fallen foul of corruption; for example a tender process for building a metropolitan rail system in São Paulo was canceled after newspapers announced the winners six months before the closing date. The levels of political risk in Brazil are now far lower than a decade ago, said Ms. Monaghan. But, while Brazil is politically stable, there are differences in risk between its 27 states and 5,000 municipalities, she said. For example, Brazilian foreign exchange rules freely allow dividends and capital to be repatriated to investors outside the country, but some restrictions are imposed by certain states, and this is not always well understood, she said. Political risk in Brazil has changed a lot in the past decade, said James Thomas, Miami-based political risk and trade credit underwriting manager for Zurich North America. “Ten years ago, people were buying currency convertibility insurance, but this is rarely purchased today. The country now has low levels of political risk compared with its neighbors, and expropriation risk and political violence are not really an issue,” he said. However there is interest in political risk insurance for heavily regulated sectors like mining and power by virtue of their complexity, said Mr. Thomas. Despite little risk of political violence, there is concern among foreign companies with personal security and crime. Kidnap and ransom and high crime rates are problems in Brazil, said Thomaz Favaro, London-based security and political risk analyst in the Americas team at global risk consultancy Control Risks, a unit of Control Risks Group Holdings Ltd. “The security environment has failed to keep pace with gains in the economy,” he said. Crime has been reduced in major cities like Rio de Janeiro and São Paulo, but it has spread to smaller cities, and crime rates have risen in the north and northeast parts of the country and midsize cities, said Mr. Favaro. The bulk is petty crime and robbery, although theft is a particular problem. “Law enforcement on the road is poor, and it is easy for thieves to steal cargo, even on major highways,” he said.
No Brazil Stability
No Brazil stability – middle class protests
Padden 13 (journalist, Voice of America, “Brazil’s Protests Spark Concern Over World Cup, Political Stability” June 21, 2013, http://www.voanews.com/content/brazil-protests-world-cup/1686955.html)
In Brazil, anti-government demonstrations continue to growin numbers and intensity as one million protesters took to the streets in over 80 cities, some clashing violently with police. Concern about the safety of the upcoming World Cup games is growing and the government’s options to resolve the crisis are limited. The Brazilian government’s reversal of the transport fare hikes that sparked nationwide demonstrations has done little to appease the protesters. While the demonstrations have been mostly peaceful, there have been incidents of violence and vandalism in some cities. In central Rio de Janeiro, 300,000 people marched and police afterwards chased looters and dispersed people crowding into surrounding areas. The ongoing unrest is raising concerns about the political stability of the government led by President Dilma Rousseff and her Workers Party, known as the PT. There is also growing concern about Brazil’s ability to ensure safety and security at the international sporting events it will host - the 2014 World Cup and 2016 Olympics. Riordan Roett is director of the Latin American StudiesProgram at The Johns Hopkins School of Advanced International Studies. He says the protests are being fueled by a middle class which has grown to 40 million people, and business centers in the south of the country that resent being heavily taxed to pay for government handouts to the poor. “There has been a sense that the people who really run the country financially - the south and southeast - are getting the short end of the stick with lousy schools, terrible transportation, terrible medical care and a growing sense that Brasilia and the PT really don’t care about Sao Paulo, the south and the southeast of the country,” Roett said. Carl Meacham, the director of the Americas Program at the Center for Strategic and International Studies in Washington, says there is little the government can do in the short term to address the protesters’ demands. “The difficult thing is that in any democracy change is incremental. So it’s not like the government’s going to be able to have a solution for all of these problems from one day to the next,” Meacham said. Roett says the socialist-leaning government of President Rousseff may be unable or unwilling to cut programs for the poor to appease the middle class, and this issue will be at the center of the 2014 presidential election. “This provides a superb opening for the opposition after twelve years of PT government to come forward and say, ‘See we told you so. They don’t know how to govern. We are the opposition, we know do know how to govern. We did govern from 1994 to 2000s,’” Roett said. Meacham says the $26 billion the government is spending on the World Cup and the Olympics will continue to be a source of anger. He expects major demonstrations to take place during the games. “I think it’s very possible that these protests will be sort of a - not a sideshow, but they will definitely be part of the narrative of the World Cup,” Meacham said. Brazil's economic uncertainty is also limiting the government’s options. After nearly a decade-long economic boom, the country's economy grew less than one percent last year and the annual inflation rate has climbed to 6.5 percent.