wbi - rsch - brazil and latin america 2013

Brazil and Latin America: relevant

economic, political and legal aspects an

organization needs to know

José Rubens V. Scharlack

Founding-Partner of Rodante & Scharlack Advogados

Legal Director of the Belgian-Luxembourgish-Brazilian Chamber of Commerce and Industry

in Brazil (BELGALUX)

Vice-President of the Tax Law Commission of the International Association of Young Lawyers

(AIJA)

Professor at FGV (2008) and FAAP (2010-2012)

Paradigm Shift

“2013 will be the year when we start to see how the world economy will look for the rest of the century. It will be the year when businesses recognize that, without doubt, global growth and commodity prices are now driven primarily by developments in Emerging Economies, like China, India and Brazil (which, together, will account for nearly half of world GDP growth in 2013), not the US and Europe.In 2013, expansion in the emerging markets will no longer be viewed as a speculative investment, but core to business growth.”

http://www.pwc.com.br/pt_BR/br/publicacoes/assets/doing-deals-13.pdf

This is a good time to invest in emerging markets, says UBS

Invest in shares and fasten your seat belts!

Invest in shares and fasten your seat belts!

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Latin America - Overview

•20 countries

•581.4 million people

•79% of urban population

•US$ 5.343 trillion of GDP

• Imported 25.5% of its GDP

in goods and services in

2012

Rise of the Middle Class“In the last decade, 43% of Latin Americans changed social classes between the mid-1990’s and the end of the 2000’s and most of this movement was upwards.”“The number of poor people in Latin America dropped from 44% (2003) to 27% (2011).”“For the first time in history, the number of people in the middle class (32%) surpassed the number of poor (27%).”“Cause: growth and social politics.”http://live.worldbank.org/rise-of-middle-class-latin-america-2013

Event held in 10/10/2013,

at the World Bank

Political Stability

• Protests in Brazil, Peru and Chile reflect demand for better public services and less corruption, not for changes in the political or economic systems.

• “In sum, when it comes to shock-absorption capacity vis-à-vis the souring of the external environment, pessimism does not seem warranted. Rather, a cautious optimism appears more appropriate, based on the obvious improvements in much of the region`s macro-financial immune system.”

http://www.worldbank.org/content/dam/Worldbank/document/LAC_Report_English_October_2013.pdf

Recent Countercyclical Monetary Policy

• “(…) the depreciations of LAC currencies should no longer be interpreted as a sign of financial distress and harbinger of a crisis. They should rather be seen, at least for the inflation targeting LAC countries, as a salutary part of a more efficient and employment-friendly process of macroeconomic adjustment to a downturn induced by adverse external developments.”

• “To be sure, inflation targeting LAC countries are, in some sense, the region`s backbone – they include at least Brazil, Chile, Colombia, Mexico and Peru, which jointly account for 70-80 percent of LAC`s population and GDP.”http://www.worldbank.org/content/dam/Worldbank/document/LAC_Report_English_October_2013.pdf

Latin America – Trade Evolution

(SAM includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay and Venezuela)


Latin America – Economic Growth


Latin America – Local Growth Residuals


Brazil - Overview

• Federative Republic of Brazil• Population: 194 million• 26 states and 1 federal district (Brasília)• 2012 GDP: US$ 2.3 trillion• Currency: Real (rate of US$ 1 to R$ 2.19 as at 10/31/2013)• Language: Portuguese• Presidential and state elections were last held in October 2010 (for a four year term)• Current president Mrs. Dilma Rousseff (Workers Party) is set to run for re-election in 2014, supported by former president Mr. Luiz Inácio Lula da Silva

Brazil – Facts and Figures

• Largest economy in Latin America, 7th largest in the world and expected to improve in the ranking over the next years;• GDP per capita of approximately US$ 12,000 (2012);• Largest population in Latin America and 5th largest in the world;• Approximately 70% of the population are concentrated in the southeast and northeast;• Country highly urbanized: only 14% of the population lives in rural areas;• Main ports: Tubarão, Itaqui, Santos, Itaguaí, São Sebastião, Paranaguá, Aratu, Rio Grande and Belém.

Brazil – Geography

• Main economic regions: São Paulo, Rio de Janeiro, Minas Gerais (southeast), Paraná and Rio Grande do Sul (south);• São Paulo is one of the fastest-growing cities in the world and the state that most receives foreign investment (http://www.saopauloglobal.sp.gov.br/eng-index.aspx);• 20 other metropolitan areas with more than 1 million people.

São Paulo (12 million people) Rio (7 million people)

Economic Policy

• In 2012: a shift from the traditional macroeconomic tripod (inflation targets, a floating exchange rate and fiscal responsibility) to the “New Economic Matrix” (low interest rates, a devalued exchange rate, more expansionary fiscal policy and industry specific incentives).• Countercyclical move in order to stimulate the economy in times of external adversity.• The benchmark interest rate (SELIC) was reduced from 12.50% to 7.25%, thus declining, in real terms (net of inflation), from 4.2% at the end of 2011 to 1.5% at the end of 2012.• Brazilian Central Bank is focusing more on growth than on inflation. The goal is no longer to steer inflation towards the target (4.5%), but preventing it from exceeding the ceiling (6.5%)

Economic Policy

• In 2012, among the fifteen most important currencies in the world, the Brazilian Real was the second most devaluated one (minus 10.8%), just behind the Japanese yen (minus 11.5%).• The current account deficit was US$ 54 billion (2.4% of the GDP), which could be financed by the FDI flow that amounted to US$ 65 billion.

•Tax incentives to specific industries: IPI (federal VAT) reduction on purchases of vehicles and household appliances; some payroll taxes were replaced by a new sales tax (to reduce production costs) in many industry sectors.

Environment for Investment

“Brazil has withstood the international economic crisis and emerged as a stronger and more attractive global player. A high degree of economic diversification, combined with a strong domestic consumer market and a broad selection of trading partners, further coupled with a well regulated financial system, have been key to successfully mitigating the worst effects of the crisis. The long period of domestic economic instability in Brazil has been overcome. Both politically and economically, Brazil is now a mature country and one of the most attractive markets in the world for foreign investment.”


World Events in 2014 and 2016

“As the World Cup and the Olympic Games are world events, the expected gains in terms of visibility for Brazil are huge. Therefore, these are considered great opportunities for the country to improve its international image. An increase of about 1 percent in Brazil`s GDP is expected in the year of each event.”


M&A Activity in Brazil


• In 2012, the leading sectors in growth were also leaders in deal volume: IT, Retail, Consumer Products (including Food/Agribusiness & Beverages, Healthcare and Cleaning products), Mining, Services (Healthcare, Education and general services) and Chemicals/Oil & Gas;• Foreign investors took part in 41% of all business deals, a record breaker.

Brazilian Legal System

• Civil Law Country;• Federal Constitution of 1988;• Civil and Criminal State Courts;• Specialized Federal and Labor Courts;• 3 High Courts: Superior Court of Labor (TST), Superior Court of Justice (STJ) and Supreme Federal Court (STF);

(Supreme Federal Court – STF)

• Arbitration Law of 1996;• Civil Code of 2003;• Special legislation for SME’s;• New Commercial Code under construction.

IP Protection

• Brazil has been one of the first countries in the world to sign international agreements for the protection of IP rights and one of the first members of WIPO.

• Copyrights: Berna Convention (1886), Rome Convention (1961), WIPO Treaties (1996), Phonograms Convention (1971), Satellites Convention (1974);

• Industrial Property: Paris Convention (1883), Madrid Agreement (1891), Hague Treaty (1925), Nice Agreement (1957), Lisbon Treaty (1958), Locarno Agreement (1968), Strasburg Agreement (1971), Vienna Agreement (1973), Budapest Treaty (1977), Patent Cooperation Treaty – PCT (1978), Trademark Law Treaty (1996) and the TRIPS Agreement.

Tax Scenario

• Heavily regulated, highly complex and frequently updated environment;• 3 levels of taxation: federal, state and municipal;• 3 Systems of federal taxation: Pretax Profit, Presumed Profit and Simples;• Import/Export taxation x free trade zones and special customs regimes;• Payments Offshore (TP, thin cap and tax haven rules);

• Harmonization with IAS and IFRS (RTT);• Progressive influence of IT;• Tax incentives for innovation, projects in infra-structure and others.

Rua Dr. Bacelar, 187, São Paulo / SP/ Brasil(55 11) 5083-3108www.rsch.com.br

E-mail: [email protected]: jose.scharlack

Twitter: @rschlaw

This presentation is also available at:www.direitoemvoga.com

Thank You

wbi - rsch - brazil and latin america 2013

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