Entry and other barriers
Entry barriers for businesses and investors wanting to conduct business must be identified to effectively screen and analyze the political and legal forces within Brazil. Entry barriers into Brazil include the devaluation of the REAL, government control of certain sectors of the economy such as the telecommunications and electrical energy sectors, and the lack of competition. Other barriers such as: unemployment, political violence and crime also exist.
In 1999 there was a devaluation of the REAL brought on by deficits in the budget, which created problems within the Mercosur and the trading block for Brazil. Brazil then introduced emergency taxes to cut the national debt, which exceeded 50% of the GDP. Brazil was then on its way to recovery repaying a $41 billion dollar IMF loan and the debt began to decrease. (CultureGrams, 2003) In 2001 however, Argentina defaulted on its international debt, which led investors to feel uncertain about Brazil’s economy. A new US backed IMF loan of $30 billion dollars came as a result in 2002. President Lula in 2003, facing issues such as poverty, inflation, and unemployment has had to pull money from the Brazils social security program. (Countrywatch.com, 2003) Each US dollar is worth 3 Brazilian REAL, and companies contemplating entry into Brazil may see this as a barrier. The entry strategy must focus long-range future profits as opposed to immediate profits.
The government still maintains control of certain business sectors within Brazil such as the telecommunications, petroleum, and electrical energy sectors, which may be an entry barrier. Currently there is a deregulation of the energy industry but there are still segments where state owned companies still maintain a strong presence and there is ...