Business BOOM in Brazil

Imports from Brazil to the UAE have nearly quadrupled in the last decade but a question mark looms over the nation’s investment grade

Football, carnivals and coffee have become synonymous with Brazil, Latin America’s largest economy and the world’s seventh biggest. But this vast nation of two million people has much more to offer.
As it prepares for the presidential elections, this year’s World Cup and the 2016 Olympics, Brazil has an eventful year ahead. Public funds of nearly $5.97 billion have been allocated for the World Cup’s stadiums and related infrastructure, while another $4.9 billion has been reserved for the Olympics in Rio. In addition, private investments are expected to generate funds towards improving airports, building hotels and enhancing the telecoms network.
Unlike London, where the transport network only required upgrades prior to the 2012 Olympics, the infrastructure in Rio de Janeiro needed massive improvements, including the construction of a new underground line and four bus rapid transit links, one of which is now operational.
Strong demand is also anticipated for services within the sports sector, such as hospitality support, software development and public relations. These developments represent lucrative opportunities across various industries, which explains why companies from across the globe are flocking to Brazil.
Last year alone Skyline Worldwide, a UK-based provider of serviced apartments, Dalet Digital Media, a French developer of media asset solutions, and German logistics group Dachser all opened offices in Rio. US-based Skim and Baker Botts have also followed suit.
While the Olympics is two years away, business relationships in Latin America take time to develop, mainly due to cultural differences and language barriers.
“The greatest challenge without any doubt is the language as English is not spoken widely, particularly outside Sao Paulo and Rio de Janeiro. Basic knowledge of Portuguese is of huge assistance,” says Cecilia Paetzelt, legal counsel at Dubai-based M/Advocates of Law and a former lawyer at Unibanco, Brazil’s largest private sector banking group.
“Investors should also make good tax planning as the taxation system is quite complex in Brazil,” she says. Those who overcome the initial hurdles, though, can benefit from incentives including foreign ownership and permanent residency.
“The most important incentive for foreign investors is the absence of a mandatory Brazilian partner while setting up a business in the country. Foreigners can own a legal entity in Brazil entirely.”
A permanent resident visa can also be obtained by an individual who invests a minimum of about $65,000 in a new or existing company while the remittance of currency that allows foreign investors to receive dividends or capital repatriation outside Brazil is free from withholding income tax.
Concerns have been mounting in recent months over Brazil’s hard-earned investment grade, with Barclays suggesting the country could lose this rating early next year if its fiscal deterioration continues. Standard & Poor’s, which upgraded Brazil’s credit rating in 2008, said it would wait until the presidential elections later this year before deciding whether to cut the country’s rating.
In an attempt to curb state spending, Brazil has been offering concessions on infrastructure, natural resources and transport. Last year, for example, the government auctioned off the giant Libra oilfield – believed to hold up to 12 billion barrels of crude – in the first auction for a pre-salt oilfield since 2008.
Oil, however, might not be Brazil’s biggest asset any longer since many wells that were drilled in the pre-salt area have come up dry. This is believed to have led to the bankruptcy of OGX, the country’s second biggest oil company after Petrobas, which itself is in heavy debt. In fact, the winning consortium of the Libra exploration rights was the sole bidder in the auction.
With speculations shadowing the oil sector, it might be wiser to focus on Brazil’s other assets, which range from food products and construction materials to medical and odontologic equipment.
Not only is Brazil the world’s largest producer of sugarcane and coffee, but it is a net exporter of cocoa, soybeans, orange juice and tobacco and a major producer of iron ore.
“These products are well known in the world for their high quality and good prices. We believe they can top UAE consumers’ preferences,” says Dr Michel Alaby, general secretary and chief executive of the Arab-Brazilian Chamber of Commerce.
The UAE already imports large volumes of goods like sugar, meat, cereal and coffee from Brazil with total imports nearly quadrupling over the past decade and sending import sales rocketing from $551 million in 2003 to $2.58 billion last year. Brazilian imports from the UAE have also increased in the same period from $18.78 million to $610 million.
“Many investment companies from Brazil and the UAE are creating interesting synergy and generating mutual jobs,” says Dr Alaby, who cites the opening of Brasil Food’s production plant in Abu Dhabi as one example. The Brazilian food producer owns the Sadia and Perdigao brands and has been marketing them in the Middle East for 26 years.
UAE investments in Brazil include Dubal’s joint venture with Brazilian mining giant Vale and DP World’s majority stake in Embraport, Brazil’s largest private multi-modal port terminal. Polyolefin producer Borealis, in which the Abu Dhabi government-owned International Petroleum Investment Company (IPIC) has a majority stake, also operates in Brazil through its joint venture with Braskem.
There have also been several visits between the two countries by dignitaries, including Brazilian vice president Michel Temer visiting the UAE last November and Sultan al Mansoori, the UAE’s Minister of Economy, taking a delegation of businessmen to Brazil.
With three daily flights connecting Brazil and the UAE and several weekly cargo flights, the economic and political ties between the two nations seem set to get stronger.