Brazil ended the first quarter of 2021 with very mixed economic results, as timid signs of economic recovery collided with investor concerns caused by the instability of the political environment. Disputes between the federal government and the governments of the BFR states regarding the methods of combating the covid-19 pandemic and their intensity are not only leading to an increasing number of victims, but are also unsettling businessmen and domestic and foreign investors.
It is important for Brazil’s economic future to reassure foreign investors as soon as possible, as in 2020 the BFR received $3billion of these investments, which was a 50% decrease compared to 2019. Brazil can expect a return to economic growth in 2021. After a GDP decline of 4.3% in 2020, these analyst institutions expect GDP growth of 3.2% in 2021.
Private household consumption, which is an important indicator for exporters to Brazil, among others, should increase by 3.4% in 2021. This represents a substantial change compared to 2020, when household consumption fell by 5.8%.
According to the cited independent agencies, Brazilian exports should increase by 1.5% this year. However, what is more important from the point of view of Czech exporters is the estimate according to which BFR imports should grow by 7.4% this year. BFR exports in 2020 were buoyed by agriculture, while industry’s share of exports fell to its lowest level in 40 years. In 2021, the share of industry in GDP creation should increase by 3.1%. In terms of trade freedom, the situation in the BFR worsened further in 2021.
According to the prestigious Index of Economic Freedom 2021, the BFR has fallen to 143rd place in the world and is as low as 24th in terms of economic freedom within Latin America. The deterioration occurred mainly in the area of law enforceability, protection of property rights and transparency of the tax burden.
Post-covid-19 opportunities for foreign exporters
For Czech exporters, it must be emphasized that in the post-covid era, recommendations that were already useful before the pandemic will apply to an increased extent. In order to successfully export to the country, it is necessary for the company to have sufficient financial strength and to be able to finance, for example, several years of gradual penetration and establishment in the market.
It will be even more important to have the patience and sufficient funds to use quality local lawyers and tax advisors. And last but not least, the importance of a trusted local representative will continue to increase, as most of the necessary licenses are linked not to foreign export companies, but to local representatives.
Political developments in the BFR in 2021 are already heavily influenced by the 2022 general election, meaning the federal government and the president at its head will not want to risk actions that could be unpopular with voters, especially those in the lower income brackets.
As a result of this situation, it is impossible to realistically expect the promised reforms aimed at greater opening of the market and simplification of the complex system of customs and taxes. Thus, in 2021 and 2022, the BFR will most likely remain a market with a high tax burden, where it is impossible to establish yourself without long-term preparation and the services of local tax specialists.
Automotive
According to allcountrylist, Brazil is an automotive powerhouse. Global car companies operating in Brazil are already among the traditional customers of Czech supplier companies, however, the economic problems caused by the low competitiveness of the BFR and the high tax burden have manifested themselves in this sector as well. The most visible example was Ford’s decision to end all production in Brazil.
Civil aviation industry
In addition to the production of classic transport aircraft (Embraer), Brazil, with a population of two hundred million, has long been a large market for helicopters and ultralight aircraft. The strategic cooperation of Czech companies creates a positive reference for the application of other products of the Czech aviation industry in Brazil.
Water management and waste industry
There is a long-term accumulated deficit in the field of ecological waste disposal and water purification. Given the high competitiveness of the offer of Czech companies in this field, this can be an interesting opportunity. Due to the fact that the main customers are cities and municipalities, the timing of the offer depends on the recovery of their financial budgets after the pandemic.
Healthcare and pharmaceutical industry
It can be assumed that the psychological trauma of the covid-19 pandemic will increase BFR’s interest in the production of its own aids and equipment for the healthcare sector. Dependence on imports from China proved to be a fatal flaw during the pandemic. Therefore, in 2021 there will be an increased level of opportunities for Czech companies that will be able to offer production in the country, or at least cooperation and investment.
Agricultural and food industry
Everything indicates that agribusiness will emerge from the pandemic as the least damaged sector of the Brazilian economy. For Czech exporters, this is a motivation to strive for the export of technologies for agriculture. However, it must be emphasized that in this area there is very tough competition from the USA, Holland, Germany, etc. Only those who will be able to invest sufficient funds in promotion in the BFR and in ensuring quality long-term service and obtaining good local representatives will succeed.
