New export country series: Getting over the economic uncertainty of Brazil
8 min read
25 January 2016
With the seventh largest economy in the world, Brazil is an exciting market for UK businesses – as Mauricio Munguia, head of Latin America desk at Santander UK, explains.
Despite the negative press that Brazil has been receiving lately, the opportunities remain for foreign businesses. Here, I’ll look through some of the reasons why UK businesses should be considering Brazil as a market for export and some of the main challenges and obstacles that must be overcome.
So, why Brazil?
Firstly I think it’s important to mention the benefits of international trade and then more specifically about Brazil. We believe that for ambitious UK businesses, exporting should be a key consideration when defining growth strategy. Businesses that trade internationally are more resilient in times of economic instability due to the fact that they don’t have all their eggs in one basket. If one market is suffering, businesses can use their strength in other markets to weather the storm.
Another point is that internationally trading businesses tend to see faster rates of growth than those who remain in their domestic market. A study by UKTI also found that over three quarters of businesses operating internationally said that exporting had given them exposure to new ideas, so exporting can also help a business to develop in their home market, as well as overseas.
In terms of Brazil, there are many reasons why UK businesses should consider it as a market for export. Despite the current macroeconomic concerns, we need to remember that Brazil is still a major part of Latin American economic activity and by far the region’s largest market. Whilst GDP has dipped slightly in recent years, it is still over 2.5 times higher now than it was ten years ago.
Another reason is the sheer size of the population, with over 200m inhabitants, and an ever-increasing middle class, the opportunity for British products has never been higher. As a BRIC country, Brazil has the potential to become one of the most dominant economies in the world by 2050, so by getting into the market now, UK businesses can hope to capitalise on this. Brazil can also act as a gateway to the rest of South America, that’s another 200m potential customers for your business.
Any specific opportunities of note?
There are many areas of interest in Brazil, including machinery and vehicles, but one of the main areas of interest I’d like to point out is healthcare. As a percentage of GDP, Brazil is second only to the US in terms of private healthcare expenditure, and recent changes to legislation mean that foreign investors are now able to provide healthcare services. This is leading to the consolidation of hospitals and private providers. Healthcare is particularly interesting, as by 2050, it is expected that 50 per cent of Brazil’s population will be over the age of 45, leading to an increase in healthcare expenditure.
Main challenges for entering Brazil?
Each country comes with its own particularities and Brazil is no different. One of the recurring challenges that we hear from businesses is the complexities of the Brazilian tax system. The Brazilian tax system has three layers: federal, state and municipal – understanding this can prove difficult for foreign investors. Additionally, imports can face high rates of tax and multiple cascading taxes.
How these challenges can be overcome
As is the case when entering any new market, a business needs a network it can trust to ensure successful market entry. As we have seen, the tax system in Brazil is complicated and so it is very important to find an accountant with local expertise to help you in-country.
Santander has an International Desk Network which operates in 14 markets, including both the UK and Brazil. The desk’s multilingual teams provide expert local knowledge that can help to guide you through unfamiliar and sometimes complex local processes.
Another vital rule for exporting is to do as much research on your chosen market as possible, and a key consideration is to visit the market before you try and start trading there. This will give you the best opportunity to research the market and see what competition is out there.
Should the current economic situation not deter companies from exploring Brazil as a market for export?
There are many reasons why UK businesses should still look to Brazil as a market for export and these will depend heavily on the sectors in which they operate, and Santander recently partnered with UK Trade & Investment on their Trade Mission to Brazil.
One of the companies on the mission was Alexander Dennis, a market leader in the supply of efficient, low emission public transport buses. Alexander Dennis have an interest in Brazil due to its multi-million inhabitant cities which are suffering from high levels of traffic and pollution, and as city authorities in Brazil have confirmed that investments in transport infrastructure are one of their key priorities over the next few years, this is the right time for them to look at Brazil.
Gustavo Marqueta, group business development director at Alexander Dennis was one of the delegates who took part in the mission and he told us: “Despite the current economic situation, we are certain that Brazil’s economy will be back on the track of growth and prosperity over the next couple of years. At that point of time, we want to make sure that our brand is strong in the market so that we can secure sustainable business in the country”.
Whilst the headlines may seem gloomy, Brazil should not be ruled out as a market for export. The size of the opportunity will depend on the product or service that you offer and as always with exporting, research is key. For more information on exporting, visit the Santander Trade Portal and register for a 30 day trial.
Another business that has been there, done it, and got the t-shirt when it comes to Brazil is Huub – as we found out in our interview with the sporting goods company.