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ACKNOWLEDGEMENT

The success and outcome of this assignment required a lot of guidance and assistance from many
people and we are extremely fortunate to have got this all along the completion of our assignment
work. Whatever we have done is only due to guidance and assistance and we would not forget to
thank them. We respect and thank Prof. V. Chandra for giving us an opportunity to do this
assignment.

We extend our gratitude to IMI New Delhi for giving us this opportunity. Last but not the least our
gratitude goes to all our friends and batch mates who directly or indirectly helped us to complete
this assignment report.

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INTRODUCTION - BRAZIL

Brazil is the most populous country in both South and Latin America and the world's fifth-largest
country by area and sixth-most populous country, with 8.5 million square kilometreand over 211
million inhabitants. Braslia is the capital, and Sao Paulo is the most populous city. The federation is
made up of the union of 26 states as well as the Federal District of Columbia. It is the largest and only
country in the Americas to have Portuguese as an official language. Due to nearly a century of mass
immigration from all over the world, it is also one of the most cosmopolitan and ethnically varied
nations also the most populated Roman Catholic-majority country.

The World Bank classifies Brazil as an upper-middle-income country. It is a newly industrialised

country in South America with the highest share of world wealth. It is classified as an advanced
emerging economy, with the world's twelfth largest nominal GDP and eighth largest PPP GDP. It has
been the world's top producer of coffee for the past 150 years, making it one of the world's major
breadbaskets. Brazil is a regional and intermediate power, as well as an emerging power. However,
there is still a lot of corruption, crime, and socioeconomic inequality in the country.

Brazil is a founding member of the UN, the G20, BRICS, Mercosul, the Organization of American
States, the Organization of Ibero-American States, and the Community of Portuguese-Speaking
Countries.

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A. INSTITUTIONS

Basis of Legal System

Brazil is a civil law democracy with Roman and Germanic roots. The Brazilian legal system is mostly
composed of codes, consolidations, and laws made by the legislative bodies of the federal states and
municipalities. Although passed legislation is the primary source of law, under Article 927 of the
Brazilian Procedural Code and Article 103-A of the Brazilian Constitution, certain judicial decisions
have binding effect (Constitution).
The 26 states, the Federal District, municipalities, and the Federal Union make up the Federative
Republic of Brazil.
The legislative bodies of all of the foregoing divisions of government share legislative competence
and authority.

What are the most common option for foreign companies establishing a business?

The following are the most typical choices for overseas companies:

● Establishment of a Brazilian subsidiary (such as an LLC or a corporation).

● Through foreign vehicles, direct investment in a Brazilian corporation is possible (when the
foreign company is not to perform activities in Brazil.)

The same general requirements apply to the incorporation and operation of Brazilian legal entities
with foreign people and legal entities as shareholders as they do to any domestic company.

A foreign corporation can also establish a branch in Brazil, although this requires prior government
approval. The Federal Government must provide this authorization (Article 1,134 Civil Code). All
revisions to the articles of association (AoA) must be approved by the Federal Government in
addition to the initial authorization (Article 1,139, Civil Code).

How can an overseas company trade directly?

Due to the difficulty of establishing a foreign company's branch in Brazil, the most typical choices for
establishing a commercial presence in Brazil are forming a Brazilian subsidiary or making a direct
investment.

Cooperation agreements, which entail the sharing of technology and know-how between
companies, are another option for foreign corporations. They are typically employed in larger and
more expensive investments, such as infrastructure and oil, and involve the sharing of technology
and know-how.

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To take effect in Brazil, any changes to the AoA of foreign corporations must be approved by the
Federal Government (Article 1,139, Civil Code). Other corporate acts that do not affect the company's
AoA can be informed to the DREI by email.

The local branch is required to publish its financial accounts in the local Official Gazette, and the
parent business must make its worldwide financial statements public.

What are the Formalities for setting up a partnership?

General Partnership:
In Brazil, this is the most basic sort of partnership. It is non-incorporated and is formed when two or
more people join a partnership and do not choose a corporate structure or register the company
with the appropriate authorities. In the eyes of third parties, the shareholders are jointly and
severally liable. Articles 986 to 990 of the Civil Code govern it.

Joint-Venture Partnership:
This is a non-incorporated partnership with two types of partners: ostensible partners, who manage
the partnership and conduct all of its operations in front of third parties; and ostensible partners,
who manage the partnership and conduct all of its operations in front of third parties.

Participating (or hidden) partners who make monetary contributions have a relationship with the
ostensible partner only and are not disclosed to third parties.

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B. INFRASTRUCTURE

Brazil's once-favorable track record on inclusive growth disguised major structural flaws long before
the country's present political and economic turmoil. One of the most significant of these was – and
continues to be – the infrastructure's quality and quantity. The well-documented issues surrounding
the development of infrastructure for the 2016 Rio Olympics epitomise the infrastructural constraints
that Brazil faces. The infrastructure problem, however, is much broader than this well-publicized
case, including transportation, energy, telecommunications, sanitation, and housing.

Infrastructure has risen to the top of Brazil's policy agenda. Authorities have been attempting to
orchestrate a step change in the scale and quality of infrastructure across a number of strategic
industries since 2007. The Growth Acceleration Program, which was implemented under the Lula and
Rousseff administrations, was a big step in this direction (or PAC, to use the Portuguese acronym).
Highways, trains, energy, air transportation, telecommunications, housing, water, and sanitation
would all see large increases in funding.

Importance of infrastructure to economic growth

Infrastructure investment in Brazil has become a policy priority. Infrastructural investment has a high
priority status due to the assumption that it is critical to enhancing growth performance. What is the
empirical support for this point of view? In the rest of this part, we'll look at the relationship between
growth and infrastructure investment in the Brazilian and global contexts.

One of the most difficult macroeconomic relationships to examine is the causal link between
infrastructure and economic growth. Economic growth fuels infrastructure investment, and the
infrastructure built as a result has an impact on economic growth. Because of the obvious
endogeneity between these two variables as a result of their simultaneity, the authors have used a
large variety of identification procedures to produce accurate results (Straub, 2008). Straub finds a
pretty robust correlation between infrastructure investment and output after reviewing a large
sample of the empirical literature (64 papers in total).

Amann, Baer, Trebat, and Villa Lora (2014) examine the sub-regional and national implications of
infrastructure spending on output in a more recent Brazil-focused analysis. The use of
satellite-derived brightness data as a proxy for GDP is a novel element of this study, with the goal of
avoiding the endogeneity difficulties that plague econometric evaluations of the
output-infrastructure link.

According to the findings, infrastructure spending has a beneficial impact on growth and per capita
growth. GDP and luminosity data show similar trends. The regional GDP growth rate would increase
by 0.11 percentage points per year if subnational authorities – the states – increased their spending
by one percentage point, while the GDP per capita growth rate would increase by 0.072 percentage

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points per year. When economic activity is measured by GDP, the impacts of infrastructure spending
on GDP are half.

Challenges

The World Economic Forum rankings (Global Competitiveness Report 2013–14) give an understanding
of the extent of the challenge in worldwide comparative terms. Brazil was ranked 114th overall in
these global rankings of infrastructure quality. Its roads were ranked 120th, its railroads were ranked
103rd, its ports were ranked 131st, its air transport was ranked 123rd, and its electrical supply was
ranked 76th. Examining data on a sector-by-sector basis can give you a better understanding of the
difficulties.

According to the World Bank's 2018-2019 Logistics Performance Index, Brazil's infrastructure ranks
56th out of 160 countries in terms of quality. Logistics costs account for around 12% of Brazil's GDP (5
percent more than the US), indicating inefficiency caused by poor transportation infrastructure.

According to the World Economic Forum's Global Competitiveness Index, Brazil ranks 108th out of
137 economies in terms of overall infrastructure quality, with levels that are inadequate and
frequently at capacity. These shortcomings are reflected in the country's high logistics costs, which
are estimated to be around 15% of GDP, compared to 8% -10% in OECD countries.

The lack of investment in recent years has hampered the coverage, quality, and capacity of Brazilian
infrastructure. According to internal IDB Group projections, this investment was 2.8 percent of GDP
between 2008 and 2015 and should reach at least 3.2 percent between 2019 and 2024. With this in
mind, we met with leaders from the private sector infrastructure industry in Brazil to examine the
major problems and potential.

Despite the significant role played by the private sector, which contributed more than half of overall
infrastructure spending between 2008 and 2014, it currently confronts challenges in obtaining
long-term funding. The impact of international banking regulations (Basel II), which require a high
capital component for long-term financing and thus limit commercial banks' appetite for assets of
this type, and the reduced participation of BNDES, which contributed about 80% of the funds to
finance infrastructure projects in the last decade, are among the reasons for these restrictions. The
major challenges faced by huge Brazilian construction businesses, which have been related to
corruption scandals like as Operation Lava Jato (also known as Operation Car Wash), have harmed
investor and financial sector confidence.

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C. FINANCIAL MARKETS

Brazil is among the ten largest economies in the world. It has a highly regulated and robust financial
system organised into 3 categories:

● Regulatory Institutions - Establish the guidelines for the financial system as a whole. One of
the primary regulatory institutions is the National Monetary Council (CMN) which is
responsible for formulating monetary, exchange rate and credit policies, and for regulating
capital markets. One of the roles of the CMN is to set the inflation target, which is one of the
instruments that guarantees the stability of the Brazilian currency, the Real.

● Supervisory Institutions - Implement the directives and supervise financial institutions and
focus on 2 institutions in particular, the Central Bank of Brazil (BCB) and the Brazilian
Securities and Exchange Commission (CVM). The central bank enters the monetary policy
defined by CMN and ensures that inflation remains within the target set by 4 instruments -
Basic interest rate, Compulsory deposit, Open market operations and Banking rediscount.
The central bank is also responsible for supervising the financial institutions such as banks
and credit unions. Both these institutions implement Brazil’s monetary policy and work to
ensure the stability of the financial system.
● Operators - Banks, exchanges, brokerage houses and credit unions

Brazil appeals to international investors for a variety of reasons, including a domestic market of
nearly 210 million people, the availability of easily exploitable raw materials, a diversified economy
that is less vulnerable to international crises, and a strategic geographic location that allows easy
access to other South American countries. However, due to several unfavourable characteristics such
as burdensome and complex taxation, bureaucratic delays, and heavy and rigid labour legislation,
investing in Brazil remains risky.

Trade protection, such as the imposition of tariffs, aids governments in fending off international
competition and making domestic goods more desirable to home consumers, with Brazil's regional
groups displaying some amount of protection. Because Brazil's economy has slowed in recent years,
trade liberalisation—opening up to more commerce with other countries—will be important to
reviving growth.

However, despite the pandemic, the Brazilian economy is recovering, which will have a significant
impact on the real estate market, which has lately returned to supply-demand equilibrium and will
become even more appealing in the future years. Several factors can be found that will make Brazil
an attractive investment destination in 2021: With extremely low interest rates (which are likely to
rise somewhat to contain inflation), strong yields, and a favourable currency exchange rate, 2021
appeared to be the best year to invest in Brazilian real estate.

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Both foreign investors and Brazilian buyers are currently in high demand. They're all eager to take
advantage of the current market conditions. Leverage is one of the reasons to invest in Brazil real
estate this year. Mortgage lending has never been cheaper because interest rates have never been
lower. Mortgage lending has never been cheaper because interest rates have never been lower. The
ability to borrow money at a lower cost has sparked a boom in interest in real estate in Brazil.
Another reason for overseas investors' interest in the Brazilian real estate market is the real's
depreciation and devaluation.

In 2014, the average cost of a square metre in Brazil was $3,040 USD. Six years later, in 2020, it costs
nearly half as much — US$1,344. Foreign investors might benefit twice as much as domestic
investors, according to analysts. They will benefit from the recovery of the Brazilian real against the
US dollar as well as natural property value appreciation. All these variables make Brazil a great
potential financial market for conducting or scaling a business.

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D. TECHNOLOGICAL PREPAREDNESS

The Technology Sector in Brazil has been contributing 5% of the overall GDP of the country.
Development in the tech region is negatively impacted due to ongoing political unrest over the past
few years in the country. But Brazil is investing in digitalization among various industries to attract
business and private sector companies in the country.

According to a recent study published by Swiss business school, International Institute for
Management Development (IMD), Brazil's capacity and readiness to adopt and explore digital
technologies for economic and social transformation has seen some improvements. This helped
Brazil in climbing 6 positions in World Digital Competitiveness Ranking (WDCR) in relation to 2019,
ranking 51st in a list of 63 countries.

Brazil has managed to move from near the bottom of the list due to its performance in terms of
scientific concentration, regulatory framework, capital and business agility. Various researchers also
noted that there has been a noticeable improvement in aspects such as research and development
and productivity.

Areas of improvement

Due to low availability of digital and technological skills, Brazil is unable to attract foreign
highly-skilled professionals for local companies and MNCs and training within private sector
employers is another biggest challenge.

The Association for the Promotion of Brazilian Software Excellence (Softex) predicts that the tech
industry in Brazil will create more than 1.3 million jobs, with about 48,000 vacancies that, if not filled
by 2020 will result in losses to local companies of $28 billion. Industries such as healthcare, IT and
Ecommerce gained focus for investment in technology startups by SoftBank with a funding of $ 5
Billion.

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E. INNOVATION

The Bloomberg Innovative Index 2021 gives Brazil the 46th place out of 131 countries for the 2nd
time in a row. It is one of the most resilient innovation economies in the world. In fact, for the year
that counted i.e. the pandemic, Brazil still didn't miss the mark. The number of unicorn start-ups have
gone up 157% from 2019 to 2021. It is home to 13,400 start-ups.

The innovation attracts investments into Brazil. Even when the global supply chains and various
industries were disrupted in the pandemic, Brazil rode the wave of digital transformation to
surpass the lows. It is not just the private sector but the Brazilian government earmarked 368 million
for the telecom sector to stimulate innovation especially related to 5G.

In fact, innovation in Brazil is spurred by sustainability which is the need of the hour since the country
was in the limelight for practices detrimental to the environment. It is a country with one of the
strictest environmental laws. The organisations have now started focusing and investing in
Environmental, Social and Governance (ESG) practices which is opening gates for further innovation
and business. One of its primary innovations is the alliance between the private players, citizens and
specialist organisations to achieve common goals like - protection of the Amazon Ecosystem,
Safeguarding the public and tuition-free education.

It has also been innovative in the banking and financial sector. Not the private players, but the
government changed the ballgame by introducing ‘Pix’ - electronic instant payment system which
became the market disruptor.

The Apex-Brazil has played a crucial role in bringing it to the position it is in today. It drove the
investment attraction programs for innovation which provided an impetus to the potential Brazil
held.
● ScaleUp in Brazil - A project to help start-ups setup operations in Brazil
● Corporate Venture - An event to attract corporations from around the world to learn more
about Brazil.
● TechMakers - A project to foster technological partnerships foreign and Brazilian companies.

With such a framework in place, doing business in Brazil can be challenging, competitive yet fruitful.
Expanding or doing business in Brazil can resonate with the concept of Heterarchy and networked
organisation where certain subsidiaries contribute to the goals of itself as well as the parent
company at large. The country and its operations can have immense potential if the host country
talent, infrastructure and systems is leveraged in favour.

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REFERENCES

“Brazil's innovation ecosystem holds strong on global index amid challenging year for many
countries.” PR Newswire, 8 March 2021,
https://www.prnewswire.com/news-releases/brazils-innovation-ecosystem-holds-strong-on-global-in
dex-amid-challenging-year-for-many-countries-301241903.html.

Boussidan, Solly. “Brazil: Sustainability And Innovation Spur Business.” Global Finance Magazine, 6
December 2021,
https://www.gfmag.com/magazine/december-2021/brazil-sustainability-innovation-spur-business

“How investments keep pouring into Brazil's ICT sector despite local and global woes.” BNamericas,
20 December 2021,
https://www.bnamericas.com/en/features/how-investments-keep-pouring-into-brazils-ict-sector-desp
ite-local-and-global-woes.

“Why invest in Brazil”

https://real-estate-brazil.com/why-invest-in-brazil/

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