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Brazil: business environment an own goal?

Wednesday, July 16, 2014 - 03:14

Brazil is at the focal point of a bid by BRICS nations to get a bigger say in the shaping of world finance, with an announcement this week of a new development bank to fund infrastructure projects. But, as Ivor Bennett reports, doing business in Brazil can still be a challenge.

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Running a small business is tough in Brazil. This textile company used to employ 17 seamstresses. Now it has just five. SOUNDBITE (Portuguese) GISELA DANTAS FREIRE, ENTREPRENEUR, SAYING: "I invested in order to go to a bigger place when things were going well, but everything here changes very fast. I feel very sad, frustrated, but I have to continue, just keep on going, and dancing to the music." Gisela Dantas Freire started the business 10 years ago - supplying clothes to domestic retailers. But the country's rapid expansion has led to rising labour costs, with retailers sourcing cheaper suppliers overseas. SOUNDBITE (Portuguese) GISELA DANTAS FREIRE, ENTREPRENEUR, SAYING: "A product that comes from abroad at $8 with tax, we can't sell it for less than 16. So this is a big problem. There are companies today that are importing 80 percent from abroad. There is still space for us but we are not managing to compete, because costs are too high in comparison to what's coming from abroad." Brazil's economy is one of contrasts with the multinationals at the other end of the scale. One example is Louis Vuitton-owned cosmetic brand Sephora. From opening its first store here just two years ago, it now has 12, and expects Brazil to be among its top 10 markets by 2017. American Insurance firm AIG is another, forecasting its revenues in Brazil to rise by 40 percent this year. Renato Fragelli is the professor of economics at Rio de Janeiro's FGV university. SOUNDBITE (English) RENATO FRAGELLI, PROFESSOR OF ECONOMICS, FUNDACAO GETULIO VARGAS, SAYING: "Insurance is something the rich don't need and the poor can't pay for. It's the middle classes that have insurance. So in a country where the size of the middle class is increasing, this sector of the economy is going to increase much faster than the economy as a whole. A person who never had a car, now has a car, and this person is going to insure his car. And you have many examples like this." Much of Brazil's new middle class still live in favelas - the sprawling slums that cover the suburbs of cities like Rio de Janeiro. Although their consumption levels are soaring, it's not filtering through to the wider economy. GDP grew just 0.2 percent in the first quarter of this year, compared to 7.5 percent in 2010. SOUNDBITE (English) RENATO FRAGELLI, PROFESSOR OF ECONOMICS, FUNDACAO GETULIO VARGAS, SAYING: "What's keeping Brazil from growing is not demand, it's supply. We need more investments. So investments in infrastructure. You are in Brazil, you are probably seeing all these traffic jams, we have problems with transportation, airports, ports. So it's not a matter of lack of demand as you have in many European countries, it's quite the opposite." Brazil has tried to make the necessary reforms to encourage foreign investment. But progress is slow. Foreign investment was just over $60 billion at the end of April, little change from the highs of the past few years.

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Brazil: business environment an own goal?

Wednesday, July 16, 2014 - 03:14