The Process for American Entrepreneurs to Open Businesses in Brazil

 

India, China, Indonesia, Russia, and Brazil are all natural candidates. Most analysts predict that the US economy will maintain its global leadership in the short term, owing to the Asian crisis and Europe's slow growth prospects. The US market should thus concentrate the majority of resources. The concentration of resources will continue as long as other opportunities do not arise elsewhere. Such opportunities are bound to arise in these large emerging economies, which may attract large sums of money (Mussi, 1997). In fact, the World Bank (1997) believes that the rapid growth and global integration of these five countries over the next quarter century will result in a dramatic increase in their role in the global economy, causing significant changes in global patterns of resource allocation, production, trade, and relative prices.

Because of the magnitudes involved in these projections, some analysts have considered a number of countries separately, each with large dimensions. 

Even in comparison to these other large economies, there are reasons to be optimistic about Brazil's economy. Forecasts for China, Singapore, and India are unclear, depending on how far the currency crisis in Hong Kong, Korea, Thailand, Malaysia, Singapore, and Japan spreads. Russia's GDP increased for the first time since 1989 in 1997, but the Asian crisis resulted in lower-than-expected growth rates, at least for the current year. Brazil has significant trade and current transaction deficits, as well as fiscal debt, indicating the need for more aggressive short-term adjustment efforts34. However, investment opportunities and the expected expansion of regional trade may play a positive role. greater reliance on mergers, acquisitions, alliances, and joint ventures as vehicles for international expansion; d) continued emphasis on developing countries; e) market access remains the most important motive for the choice of location; f) all corporate functions experiencing greater internationalization; g) increases in investment in infrastructure, distribution, non-financial services, and automobiles, all of which favor developing economies (and regional integrators).

⦁Although one of the most frequently emphasized positive aspects that distinguishes the Brazilian economy from other developing countries is that foreign direct investment pays for half of the current account deficit.

Final Remarks

Brazil has a long history of dealing with foreign investments. Domestic market size is an important factor in attracting investors. If there is also market protection against competing imports and liberal foreign investment legislation, the basic conditions are met to establish a large base of foreign-owned productive sectors, such as those found in Brazil.This is demonstrated historically by the investment cycles that occurred in the country in the second half of last century, at the beginning of this century, in the 1950s, in the 1970s, and more recently since 1992, initially in the form of portfolio investment but, following price stabilization and stimulation by the privatization program, with direct investment flows of unprecedented magnitude since 1994. The outlook is for a significant inflow of resources in the coming years, driven, among other things, by the privatization of new areas, the need to resume infrastructure investment, and, given that the majority of productive investment in recent years has been focused on modernizing productive plants, the need to increase productive capacity. Relatively low shares in global financial flows would also suggest an opportunity to increase the appeal of portfolio investment.

At the time of writing, there is room for cautious optimism about the coming years, but a number of caveats - most of which are related to the international situation - may dampen favorable expectations. This is not to say that foreign capital inflows can be assumed based solely on domestic conditions. The point to emphasize is that developing economies, such as Brazil, play a relatively passive role in the international distribution of resources, in the sense that access to such resources is heavily influenced by exogenous factors. Correct domestic policies can be beneficial, but they are rarely sufficient.This paper aimed to contribute to the assessment of the recent Brazilian situation by presenting basic data and domestic legislation related to foreign investment, as well as a systematic list of the major arguments underpinning positive and negative expectations for the coming years.

Latin America, and Brazil in particular, has an additional advantage in terms of attracting external capital, which is linked to opportunities for direct investment.

In terms of the Brazilian economy, the country is seen as remaining attractive to foreign investors due to: a) its domestic market size; b) indicators of decreased domestic consumption levels, implying the existence of opportunities to beexplored; c) it is one of the most recent countries to privatize its public enterprises; d) it provides high rates of return on capital 31. The economy has undergone structural changes, including privatization and increased investment in infrastructure such as telecommunications, energy, and railroads. The services sector now accounts for one-third of foreign direct investment, improving overall competitiveness. Tourism has also become a priority activity in the Northern and Northeastern states, creating new opportunities for investment.

In this context, the privatization program is critical: in 1998, Brazil will provide 80% of all Latin American opportunities generated by privatization programs, amounting to nearly $40 billion. Telecommunications will generate approximately $20 billion in investment, with a comparable amount coming from the sale of energy generation firms. Privatization will primarily attract investors unaffected by the Asian crisis (Europeans and Americans), whose resource costs have not changed and who are highly liquid. This raises the question of what foreign direct investment in Brazil will be like after the privatization cycle, i.e. after 1999. One estimate32 suggests that even after privatization, foreign investment is expected to exceed US$ 20 billion per year due to new investments by firms and new owners. Officials are generally more cautious. According to IPEA (1997), the rapid growth of international foreign investment flows - approximately 72% between 1990 and 1995 - and the prospects for maintaining such a rhythm in the coming years make a ratio of 1-1.5% of GDP possible. This amounts to approximately $8-12 billion per year. If global flows continue at the same rate as in the early 1990s33, Brazil's share would be around 2%-3%, consistent with the country's historical record.