Country risk reference rating: Level 6 (6/9)
Country Risk Outlook: Negative
◆Political Risk
◆Economic risks◆Business environment◆Policy suggestions
At present, Brazil’s political situation is relatively stable, but domestic GDP growth is weak, there is a large gap between investment in public welfare and the needs of the people, the gap between rich and poor is still relatively prominent, criminal activities are rampant, and the potential for economic development is insufficient. As the Brazilian economy continues to be sluggish, with high inflation and capital outflows caused by the withdrawal of the US dollar from QE3, the Brazilian government continues to sell US dollars to stabilize the foreign exchange market. At the same time, the Brazilian government also promulgated a constitutional amendment, which includes: allowing the government to levy a 1% tax on foreign exchange derivatives transactions with short-term futures U.S. dollar positions greater than 10 million U.S. dollars. Although the real is a freely floating currency, Brazil’s central bank has regularly introduced intervention policies to ensure a smooth floating of the real’s exchange rate. Currently, the real is freely convertible within Brazil, but not during overseas transactions.
◆Economic Risk
In recent years, Brazil’s economy has continued to be sluggish, and the problem of high inflation has not been solved, forcing the government’s economic policy to once again adjust to tightening. The economic situation is difficult to improve in the short term. According to statistics from the Brazilian Foreign Trade Secretariat, in 2013, the bilateral import and export volume of goods between Brazil and China was US$83.33 billion, an increase of 10.4%. Among them, Brazil’s exports to China were US$46.03 billion, an increase of 11.6%; Brazil’s imports from China were US$37.3 billion, an increase of 8.9%; Brazil’s surplus was US$8.72 billion, an increase of 25%. China is Brazil’s largest export destination and largest source of imports. In 2013, Brazil’s exports of textiles and raw materials, transportation equipment, chemical products, animal and vegetable oils and other products to China fell significantly, falling by 71.1%, 61%, 40.3% and 37.9% respectively. The main commodities imported by Brazil from China are mechanical and electrical products, chemical products, textiles and raw materials. In 2013, the total import volume was US$26.31 billion, accounting for 70.5% of Brazil’s total imports from China. China continues to maintain its advantage in the export of labor-intensive products, such as textiles and raw materials, furniture and toys, etc. Leather luggage and light industrial products respectively rank 3rd, 7th and 10th among the major categories of commodities imported by Brazil from China. The above-mentioned products are from India, Indonesia, Bangladesh, Italy, France, Argentina, Uruguay, Vietnam, and China. Hong Kong and others are Mainland China’s main competitors.
From the perspective of six aspects: macroeconomics, financial system, fiscal situation, international balance of payments, sovereign debt, and bilateral economic and trade, Brazil ranks first in South America’s economic aggregate, its GDP growth rate has been at a low level for a long time, and its domestic inflation rate is high. , an increase in fiscal deficit may lead to an increase in debt levels.
◆Business environment
Brazil’s tax system is mainly direct tax, supplemented by indirect tax, and the tax system is relatively complex. Foreign investors enjoy national treatment, but there are access restrictions in many industries. The government’s content on attracting foreign investment is included in the policies and plans for attracting private investment. Government departments are generally responsible for formulating foreign investment policies for various industries. The roads in Brazil’s federal highway network are aging and damaged, and road transportation is saturated. Investment in rail and waterways is cringeworthy. Coastal and inland shipping are backward, and public ports are not suitable for modern cargo transportation and logistics operations. These situations pose serious constraints to the development of the Brazilian economy, pose a direct threat to the competitiveness of Brazilian enterprises, and hinder the improvement of workers’ employment and wage levels.
Judging from the four indicators of tax system, investment convenience, infrastructure and administrative efficiency, in 2014, Brazil’s tax system was stable, investment convenience was relatively good, infrastructure was outdated, and administrative efficiency was low. All indicators were the same as those in 2013. Basically the same year-to-year. The risk outlook for Brazil’s business environment in 2014 is stable.
◆Policy suggestions
Brazil’s political risks mainly come from the uncertainty caused by the mutual balance and constraints between parties. Brazil has faced many economic problems such as low growth, high inflation, and fiscal imbalances in recent years, and the trend of currency depreciation has become increasingly serious. Brazil is rich in resources and has a relatively open investment environment, but the laws are complex, the procedures are long, and labor protections are strict. Brazil’s infrastructure is relatively weak. The output of resources depends on the current incomplete inland transportation system and port transportation that cannot cope with demand. This should be paid attention to during the investment process. In addition, Brazil is one of the countries with the most trade barriers in the world, and Chinese goods are also the main target of Brazil’s trade protection measures. In recent years, anti-dumping investigations against Chinese goods have been on the rise, and effective measures must be taken to properly respond.