AndrĂŠ Elali A
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A
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Aterro do Flamengo - Rio de Janeiro - Brazil
Research about Brazilian Economy
September, 2014 www.andreelali.com.br
A note from the Staff This research was prepared by AndrĂŠ Elali Advogados Law Firm in order to provide our international clients a general idea about Brazilian Economy in 2014. Considering that the Firm provides international legal advice, including investment advisory, for thousands of clients from Europe, Americas and Asia, this report aims to show the basis of Brazilian Economy along 2014 and the perspectives for the next government in 2015. To gain a better understanding of the current investments into Brazilian high-growth market, the content of this document includes information obtained at public records, articles and newspapers about the Brazilian Economy. We hope that you find these insights useful as you consider your path forward and pursue great opportunities in Brazilian market.
Staff behind this reserch André Elali andreelali@andreelali.com.br Main Partner. Lawyer - Master and Doctor of Laws. Adjunct Professor at UFRN's Law School. Vice-Coordinator of the Master Program in Constitutional Law - UFRN.
José Henrique Azeredo josehenrique@andreelali.com.br Partner. Lawyer and Civil Engineer - Specialist in Energy and Environmental Law. Head of M&A, Renewable Energy and Investments. Formal Member of Board at Center of Strategies in Natural Resources and Energy - CERNE.
Fernando Lucena Júnior fernandolucena@andreelali.com.br Partner. Lawyer - Master in Laws and Tax Specialist. Head of Real Estate International Department.
Luiz Felipe Monteiro Seixas felipemonteiro@andreelali.com.br Partner. Lawyer - Master of Laws and Oil & Gas Specialist. Professor of Taxation and Finance Law.
André Asfora andreasfora@andreelali.com.br Member of Real Estate International Department.
Stefânia Figueredo sfigueredo@andreelali.com.br Member of Real Estate International Department.
Table of Contents 5 5 7 8 8 8 10 10 14 14 14 14 15 16 17 18 18 18 23 24 The Brazilian Economy September 2014
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1. Brazilian Legal Basis Brazil is a Federation and according to Brazilian Federal Constitution the National Government, 27 States and over 5.000 Municipalities must cooperate to protect the legal rights and achieve the development under a vigorous democracy, with free multi-party elections and an independent Legislative and Judiciary system. Brazilian Constitution dedicates special attention to the economy, providing to the State and to all economic agents principles and general rules. In this field, we must notice as basis of the legal system (which maintains the economy) the principles of Freedom, Competition, Legal Protection of Private Property, Protection of the Consumer, the Environment and the Workers. Brazilian legal system protects the capitalism method of regulation but also protects civil and labor rights as a priority. Taxation in Brazil is very important for 3 (three) relevant purposes: i) maintain the State (finance); ii) distribution of income; iii) regulation of the market. Through the tax system, Brazil has been changing the previous structure of the system and is improving the market and lowing inequalities. We understand, by a technical overview, that the basis of the legal system can not be changed and this context protects any kind of business in the market. Any changes will not be able to be done regarding the Constitutional basis of the legal system.
2. Brazil and Economy - Why Brazil? Over the past years, Brazil´s economic policies led the country to a development cycle with economic growth and reduction in poverty and inequality. Its democratic government, stable financial system, robust domestic market and peaceful foreign relations position Brazil as one of the most attractive destinations for investments. Brazil has emerged as a strong and attractive global player with a high degree of economic diversification 5
The Brazilian Economy September 2014
and is currently the seventh largest economy in the world. The external sector of the Brazilian economy has enjoyed a comfortable position for several years. In the last year, Brazilian foreign trade registered US$ 481.8 billion in its flow, while the Central Bank of Brazil has currently over US$ 376 billion in international reserves. Opportunities in sectors like oil and natural gas, generation and transmission of electrical power, real estate, agribusiness as well as major sport events (the FIFA's World Cup of 2014 and the 2016 Olympic Games) help us to explain why Brazil is currently the fifth largest FDI recipient in the world (Source: UNCTAD). The new cycle of economic development results in an expanded market and increased social equality, an environment of institutional stability. Nearly 40 million Brazilians have been raised out from poverty during the last decade and the country has consolidated the largest SME formalization program in the world during the last five years, with over 4 million companies registered. Modern, efficient and competitive, the Brazilian agribusiness sector is a prosperous and profitable activity. The strength of Brazilian agribusiness is a result of scientific and technological development in modernizing farming and expanding the industry of agricultural machinery and equipment. The science and technology agenda encourages research in areas that are strategic for economic development, such as energy, aviation and agribusiness, as well as, IT and biotechnology. It has a privileged location in the east-central part of South America, where it borders almost all other South American countries, allowing companies to easily access Latin American and African markets. International Monetary Fund (IMF) - Financial System Stability Assessment (FSSA) and Financial Sector Assessment Program (FSAP) Reports. The documents contain an independent assessment of these organisms on the health and robustness of the National Financial System (SFN) and banking supervision in Brazil. The report evaluating the stability considers the Brazilian financial system is sound, well capitalized and The Brazilian Economy September 2014
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have high levels of liquidity and reserves against default. In large part, the recent expansion of credit in Brazil has resulted in significant social and macroeconomic changes in the country. Stress tests of the banking sector made by the IMF showed that SFN stand extreme shocks, including those coming from a more severe global recession. These results support the analysis of Financial Stability Reports (FSMs) produced by the Central Bank. In relation to the international financial crisis, the report highlights that the response of the authorities, including the use of networks of financial protection as the Credit Guarantee Fund, was quick and efficient. These timely responses, which involved the use of mattresses of liquidity in international currency and local currency allowed the country and crossed the SFN and the international financial crisis. In particular, the report points out that macroprudential measures adopted proved to be correct, useful for managing capital flows and improve its composition. The use of reserve and capital requirements for financial institutions worked well to mitigate risks in SFN. Since the last FSAP, conducted in 2002, significant institutional advances occurred. Considered strong, sophisticated and proactive, bank supervision was the object of a positive assessment in its evaluation report. The tools available to the Central Bank and its supervisory structure allowed the country to have excellent grades in terms of adaptation to international best practices, represented by the Basel Principles for effective supervision, standing among the G-20. In the evaluation of the IMF, the SFN is well prepared for the complex current global scenario and to assist the sustainable growth of the country.
3. Brazil: One of the Most Attractive Destinations Among the BRICS Markets Brazil's large and growing domestic market, diversified economy and political stability make the country one of the most attractive among emerging market investment destinations. A strong financial system and openness toward foreign investment are some of the country's principal strengths. However, the complex tax system and high tax burden, as well as weaknesses in public services, will continue to weigh on the 7
The Brazilian Economy September 2014
business environment. According to a survey provided from The Economist Intelligence Unit, in terms of cross-border activity originating in this market, Brazil ranked behind only China in the number of transactions valued at more than US$1 billion in the last five years. The vast majority of Brazil-based respondents predicted their companies will be increasing crossborder transactions over the next years, with 48% attributing the increase to changes in corporate growth strategies.
4. International Trade - Overview Foreign trade - opening up markets. In 2013, Brazilian foreign trade registered US$ 481.8 billion in its flow, an increase of 3.4% over the same period of 2012, when US$ 465.8 billion were traded. Exports reached US$ 242.2 billion, and imports were US$ 239.6 billion. In volume, Brazilian exports grew by 3.1 compared to January-December 2012, more than the figure predicted by the IMF to world exports in 2013. Regarding the destination markets, sales grew to Asia and Latin America and the Caribbean, mainly to Mercosur.
China increased by 11.6%, which keeps it as the major buyer of Brazilian products in 2013. The external sector of the Brazilian economy has enjoyed a comfortable position for several years. The Central Bank currently has over US$ 376 billion in international reserves, which can be used to address any turbulence in the financial markets. Investments from China Over the past four years, Chinese investments in the country were multiplied by 28, the meager $ 680 million in 2007 to $ 19 billion last year. It was the biggest slice of the cake foreign investment in the country, and will still grow. In two years, it is estimated that China will be responsible for pouring $ 50 billion almost a quarter of all foreign investments planned for Brazil. The responsible for this flood of money have a similar profile: they are giants (the state majority) who want The Brazilian Economy September 2014
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to geographically diversify the business through mergers and acquisitions outside China and traditional markets - a trend that scholars classify as the second phase of Chinese advance the world. Five years ago, 50% of Chinese overseas investments were allocated to five countries (United States, India, Singapore, Australia and the UK). Today, these same regions represent a share of only 20%. China opened up space for new markets. And Brazil is the list of favorites. There are several reasons for this sudden love for Brazil. The main thing is that with a crippled infrastructure and emerging market consumer, Brazil is a paradise of opportunities both for those who manufacture products and for those who invest in infrastructure. But if it were only that logic, so leave China, a country with vastly larger emerging middle class? Here comes the second reason: the relations between the two countries are already intense, the home of the $ 77.1 billion - China is our largest trading partner. The Brazil sells products that sustain China's growth, the grains of minerals. It is natural that Beijing wants to balance relations. Being here means taking a strategic space and try to control urgent resources to China. There is, finally, a third reason: Brazil is a field of perfect tests for these companies, toward the conquest of distant markets. We are the first post in the script conquest of the West. A sort of entrance exam for the United States and Europe.
FOREIGN DIRECT INVESTMENT (US$ BILLION) 70 60 50 40
64.5 13 20
64.0 12 20
65.3 11 20
66.7 10 20
48.5 09 20
25.9 08 20
45.1 07 20
34.5 06 20
18.8 05 20
15.5 95 19
18.1 04 20
10.1 03
16.5 20 02
20
22.5 01 20
32.8 00 20
28.5 99 19
28.9 98 19
19.0 97
96 19
19
95
0
19
10
4.4
20
10.8
30
Source: IBGE and Brazilian Central Bank. Produced by Ministry of Finance
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The Brazilian Economy September 2014
Foreign Direct Investment - Top Destination With a solid macroeconomic foundation, a steady-growing industry and a strong democracy, Brazil is currently one of the most attractive countries for foreign investors. With an amount of US$ 64 billion in foreign direct investment in 2013, the country was the fifth biggest FDI recipient in the world according to UNCTAD. It offers a safe and outstanding investment environment, with uncountable business opportunities. Foreign investors have security and legal permission to send profits to their home countries, and foreign capital is subject to the same legislation applied to domestic investments. In ten years Brazil received U$$177,32 billion of international investment.
How much the GM invests in Brazil The head of General Motors, Teresa Mary Barra announced in the last august 14th that the company will invest R$ 6.5 billion in activities in Brazil in the next five years. She said the amount will be invested in new products, improving current vehicles, new technologies and plant maintenance. t in the script conquest of the West. A sort of entrance exam for the United States and Europe.
“ We are announcing new
investment of R$ 6.5 billion for the next five years. We are in Brazil for almost 90 years, we recognize that there are challenges of medium and long term, but we will continue [here]
“
- Teresa Mary Barra (head of GM).
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FOREIGN DIRECT INVESTMENT, BY TRIENNIUM (US$ MILLION)
TRIENNIUMS FHC
TRIENNIUMS LULA
TRIENNIUM DILMA
$ 200.000 $ 190.000
181.241 2011 - 2013
$ 160.000
180.436
$ 170.000
2010 - 2012
$ 180.000
$ 150.000
141.115
$ 140.000 $ 130.000
98.465
$ 100.000
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The Brazilian Economy September 2014
2009 - 2011
2008 - 2010
2007 - 2009
2006 - 2008
52.034
68.473 2005 - 2007
2003 - 2005
2002 - 2004
1999 - 2001
1998 - 2000
$0
1997 - 1999
$ 10.000
1996 - 1998
$ 20.000
1995 - 1997
$ 30.000
2004 - 2006
43.356
49.191 2001 - 2003
44.880
71.827 2000 - 2002
$ 40.000
58.640
$ 50.000
34.190
$ 60.000
83.815
$ 70.000
76.427
$ 80.000
90.213
$ 90.000
105.592
$ 110.000
119.513
$ 120.000
ACCUMULATED TRANSACTIONS JANUARY-AUGUST 2013 INVESTMENT BY COUNTRY
29
USA
9
GERMANY
35% MEXICO
3
FRANCE
3
SPAIN
3 2 1
UK
1
JAPAN
1
IRELAND
1
NETHERLANDS
1
CHILE
1
BELGIUM
1
AUSTRALIA
1
ARGENTINA
1
17% 14%
INTERNET SERVICES
MEDIA
IT SERVICES
7% E-COMMERCE
7% TELECOM SERVICES
10% 10%
SOFTWARE
SWEDEN
IT HARDWARE & TELECOM
VENEZUELA
The Brazilian Economy September 2014
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2013 GDP GROWTH % YEAR
FRANCE 0,2
GERMANY 0,5
UK 1,7
CANADA 1,7
RUSSIA 1,5
ITALY -1,8
USA 1,9
MEXICO 1,2
CHINA 7,7 JAPAN 1,7
SPAIN -1,2
SOUTH KOREA 2,8
EGYPT 1,8 INDIA 5,3
TURKEY 3,8 SAUDI ARABIA 3,6 BRASIL 2,3
INDONESIA 5,3 AUSTRALIA 2,5
ARGENTINA
3,5
SOUTH AFRICA 1,8
< 2,0
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The Brazilian Economy September 2014
>= 2,0
SOURCE: IMF UPDATE WEO FROM JANUARY-2014
How much the BMW invests in Brazil Publishing an editorial of confidence in Brazil, BMW has invested 200 million euros in its first plant in the country to be inaugurated in October 2014. Headquartered in Araquari (in the state of Santa Catarina) the plant will have a production capacity of 32 000 cars / year, creating 1,300 jobs. Will produce the 1 Series, 3 Series, X1, X3 and MINI Countryman models.
5. International Reserves According to data released by the Central Bank, international reserves, in the case of liquidity concept, reached a value of $ 380.5 billion in June, representing an increase of $ 1.4 billion compared to the previous month. The revenue earnings on reserves reached the sum of $ 289 million. Variations in prices reduced the stock at $ 28 million, while the variations by parity caused a rise of $ 1 billion. In the case of cash concept, the stock of reserves reached $ 373.5 billion, an increase of $ 4.8 billion compared to the previous month.
6. Important Government Investments Minha Casa, Minha Vida (“My House, My Life” or “MCMV” - Social Housing Program) The Minha Casa Minha Vida (MCMV) is a government program that has transformed the dream of homeownership a reality for low-income Brazilian families. In general, the program takes place in partnership with states, municipalities, businesses and nonprofit organizations. The third phase of the program, which by the end of 2013 had 2.2 million housing units contracted, was launched last July. The goal of the Government is to hire 3 million properties in this third phase, with the expectation of signing over than 500,000 contracts by the end of 2014.
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Investments in the FIFA's World Cup 2014 - Infrastructure According to the official figures of the Brazilian Government, were spending 25.6 billion reais in the works for the tournament, between works of stadiums and infrastructure. 83.6% of this amount was invested by the Government. The remaining, amounting to 4.2 billion reais, were funded from the private sector. The majority of investments were designed to transport and airports. Together, the works of roads, public transportation and airports gives 60.1% of investments. 33.6% (R$8.6 billion) for ground transportation and 26.5% (R$6.8 billion) for air transport. The ports still amounted to 2.6% of total investments, while the telecommunications infrastructure received 1.4% of the investments. These are the expenses that will be a legacy after the tournament. The second largest expenditure was with the stadiums. 27.7% of the 25.6 million reais were invested in renovations and construction of 12 stadiums of the World, totaling 7.09 billion reais. Other 7.3% were used for public safety, while tourism received 0.8%. The table below shows the amount of resources spent for the renovation and expansion of the airports in each host-city. Note that the investments, in some cases, were distributed between the government and the private sector through the establishment of public-private partnerships (PPPs) and concessions.
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Airports
Public
Private
São Paulo André Franco Montoro Rio de Janeiro Antônio Carlos Jobim Belo Horizonte Tancredo Neves Brasília Juscelino Kubitscheck Curitiba Afonso Pena Porto Alegre Salgado Filho Manaus Brigadeiro Eduardo. Gomes Cuiabá Marechal Rondon Natal São Gonçalo. do Amarante Salvador Dep. Luís Ed. Magalhães Recife Gilberto Freyre Fortaleza Pinto Martins
R$ 665 million R$ 813 million R$ 508 million R$ 17 million R$ 84 million R$ 579 million R$ 394 million R$ 91 million R$ 174 million R$ 47 million R$ 18 million R$ 350 million
R$ 1,38 billion R$ 0,00 R$ 0,00 R$ 626 million R$ 0,00 R$ 0,00 R$ 0,00 R$ 0,00 R$ 618 million R$ 0,00 R$ 0,00 R$ 0,00
The Brazilian Economy September 2014
PAC 1 (2007-2010). Public investments have doubled between 2007 and 2010, from 1.62% of GDP in 2006 to 3.27% of GDP in the 12 months ending in October this year. One of the factors that contributed to the increase in investment was the expansion of credit with lower interest rates and higher payment deadlines. The creation of jobs continues to expand. The net balance of accumulated generating jobs during the PAC's record: 8.2 million. The October unemployment rate this year is the lowest in the time series of IBGE: 6.1%. The PAC was also essential to curb the impacts of the financial crisis that hit the international markets in 2008 and 2009 in Brazil, unlike most countries, the Federal Government has not reduced investments. Unlike the PAC, along with the strength of the internal market, was able to significantly minimize the impact of the international economic crisis.
â&#x20AC;&#x153; Until August 2013 we have 32 months from the start of the PAC 2, a
total of 48 months. This gives exactly 67% (of the time). PAC, despite a phase of project preparation and licensing, is already in a phase of 'cruising.' If we did a timeline, today we are exactly at the same point of execution than expected
â&#x20AC;&#x153;
- Minister Miriam Belchior, during the presentation of the balance sheet.
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Investments on the program will reach R $ 619 billion as of December 31, 2010. This value represents 94.1% from R $ 657.4 billion expected to be invested by the program during 2007-2010. Until October 31 this year, the amount invested reached R $ 559.6 billion, equivalent to 85.1% of the total planned The projects completed under the CAP will reach R $ 444 billion by December 2010 The figure represents 82% of ÂŁ 541.8 billion expected to be completed in 2007-2010. PAC 2 (2011-2014). The Growth Acceleration Program (PAC 2) arrives at the 8th swing with its equivalent to its deployment time (estimated for the completion of the second phase of the program time) running: 67%. The overall implementation of the CAP 2 to August 31, 2013 was R$ 665 billion in investments in logistics, social and urban infrastructure, which represents 67.2% predicted for the period between the years 2011 and 2014. The program concluded shares worth R$ 448.1 billion, equivalent to 69% of the shares expected to be closed until 2014. This result is 25.6% higher compared to the latest balance sheet when the volume of shares was completed R$388.7 billion. The amount paid with funds from the Federal Budget, until October 14, 2013, totaled R$34.9 billion, an increase of 17.5% over the same period of 2012 and the committed values also increased from R$33.9 billion in 2012 to R$38.1 billion in 2013, an increase of 12.4%. The Growth Acceleration Program 2 (PAC 2) invested R$557.4 billion in logistics infrastructure, social and urban until April this year. This corresponds to 56.3% of the total planned until 2014. In terms of action were completed 54.9% of what was expected by 2014, which corresponds to R$388.7 billion, up 18.4% higher than in the last balance (R$328.2 billion). On the last swing PAC 2 earlier this year, the government reported that 47.8% of R $ 1 trillion in planned investments for 2011-2014 had already been made. The program resumption planning and execution of works of social infrastructure, urban, logistics and energy is divided into six areas: urbanization, water supply and electrification, housing, transport, energy and citizenship.
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The Brazilian Economy September 2014
7. Power Generation The Ten-Year Energy Expansion Plan The Ten-Year Energy Expansion Plan - PDE 2021 presents important signals to guide the actions and decisions related to the task of balancing projections of economic growth of the country and the required expansion of energy supply, thus ensuring energy security to society at adequate cost, fully reflecting technological options and environmental sustainability. In this PDE 2021 total estimated investment amounts to R$ 1.1 trillion, of which 24.4% shall be directed to the supply of electricity, 68.4% to O&G sector, and 7.2% to liquid biofuels sector. Accordingly, this amount represents the following physical expansion between 2011 and 2021: the installed capacity of power generation is expected to grow from 116.5 to 182.4 GW, oil production from 2.1 to 5.4 million barrel/day, the production of natural gas, from 65.9 to 190.9 million m³/day, and the production of ethanol from 22.9 to 68.2 million m³ Renewable Energy – Wind Power Brazil has an array of power generation predominantly from renewable sources, and the internal hydraulic generation accounts for approximately 65% of the supply. Adding imports, which are also mainly from renewable sources, it can be stated that more than 80% of electricity in Brazil is from renewable resources. Among the countries of South America, Brazil has emerged as the most promising for the development of wind energy market. The Brazilian wind is strong and with good regularity index, characteristics that place the country as one of the most favored investment in wind power in the world. Because of these natural conditions and the reverse auction system started in 2009 (in which projects with more competitive rate wins), Brazil is today able to offer the cheapest wind power in the world. It is estimated that at the end of 2014, with more than 150 wind farms, the country will have an installed wind power capacity of 7.4 GW, which would satisfy the residential demand of Natal and Fortaleza (two great capitals of the Northeast, for example) together. The Brazilian Economy September 2014
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Investments in clean energy in 2013
Installed Capacity in Brazil [GW] – All Sources (December 2013) (Source: Aneel/ABEEólica)
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The Brazilian Economy September 2014
Officially, the wind energy potential in the country is 143 GW (equivalent to over 10 Itaipu Hydroelectric), according to measurements already quite outdated. But technological advances of recent years, with uptake of wind around 100 meters high, which allows to estimate this potential could exceed 300 GW. In 2013 Brazil was one of the countries to show an increase in the attractiveness index for renewable energies (according to the annual 'attractiveness of renewable energy sources index by country', released by Ernst & Young), also accompanied by other developing nations such as China. The country was pushed up to the 12th place in 2013, up two positions from the previous year. According to the report, 2013 marked a good time to Brazil, which continues to gain a prominent place in the scenario global renewable energy. Over the next eight years, the Brazilian wind market should receive investments of US$19.5 billion (rate R$ 2.30 = US$ 1.00), according to projections made by the Energia Brasil Magazine based on data from Abee贸lica and the Decennial Energy Expansion Plan (PDE 2011), prepared by EPE (Brazilian Government's Energy Research Company). The estimate of the PDE, that goal planning in the Brazilian electric sector in the country, is that the installed wind capacity exceeding 15.5 GW at the end of that period. During last year, Brazil held five auctions of renewable energy, including the first solar-only auction in December, which approved six projects totalizing 123 megawatts (MW) at an average of $96 per megawatt-hour (MWh), attracting high levels of interest by foreign companies. This may pave the way for a solar boom, which until now was being overshadowed by the relatively low price of wind energy. The wind, moreover, continues to dominate the renewable energy projects in Brazil. In November 2013, the country approved 39 wind projects in the A-3 auction, totalizing 830 MW and secured a further 2.3GW in December's A-5 auction at an average price of just US$51/ MWh. In December, were also granted 1 GW of hydro and 160 MW of biomass. The A-5 auction had attracted a staggering 35GW of bids.
The Brazilian Economy September 2014
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Wind Power Capacity by State Total power capacity = in operation + under construction (in MW by state)
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The Brazilian Economy September 2014
MANUFACTURERS OF EQUIPMENT ALREADY INSTALLED IN BRAZIL VESTAS Ceará SUZLON Ceará WOBBEN WINDPOWER Ceará FUHRLANDER Ceará WOBBEN WINDPOWER Rio Grande do Norte IMPSA Pernambuco ALSTOM E GAMESA Bahia GE Bahia WOBBEN WINDPOWER São Paulo GE São Paulo WEG Santa Catarina IMPSA Rio Grande do Sul
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8. Negative Aspects Bureaucracy and Processes at the Public Sector Although all the improvements noticed during the last decades, Brazil still faces negative problems, specially regarding bureaucracy. Every year Brazil loses about R$ 46 billion due to bureaucratic processes that hamper the local social, economic and cultural development, according to the Federation of Industries of S達o Paulo (Fiesp). The study indicates that the Gross Domestic Product (GDP) per the country could grow 17% if they were made bureaucratic simplifications. The World Bank, through the Doing Business ranking, places Brazil in 126th level in the evaluation of the countries where you have more facility in the business environment. Another problem that needs to be solved is the low agility of processes within the public sector. New methods of Administration need to be used for the Public Sector. However, it is important to notice that recent laws have been improving the business environment as such: i) Public-Private-Partnerships; ii) Simple Tax Regime (Federal, State and Local taxes for midsize and small corporations; iii) Access to Credit Line at Public Banks; iv) Better control on Notaries and Courts.
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The Brazilian Economy September 2014
9. Conclusions We understand that Brazilian Economy keeps a very strong environment for international investments. The market continues to be one of the largest in the world and public policies have been improving the system, creating a better infrastructure and keeping the basis of the stability. The elections in October 2014 might not have any relevant impact on the basis of the Economy due to the legal system which is based on a very powerful Constitution. We might notice, however, that some changes at the public cost might help the National Government to control inflation, low the interest and improve investment in education and security. We keep the same interpretation that Brazil is under a process of development and will keep the cycle started in 1994. Central Bank recently announced measures to help Economy (R$ 25 billion), International Direct Investment is growing although the international crisis and Brazilian Status is improving every year. The control of inflation and public cost is subject to new measures by any of the candidates for President.
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