Brazil is one of the rising economic powers within the BRIC nations, the others of which are Russia, India and China. The country has developed thanks to its successful strategy of combining economic growth with greater access to the consumer market by a larger portion of the population.
The challenging macroeconomic outlook in the world's major economies continues to place Brazil in a privileged position in terms of attracting foreign capital into strategic sectors of the country's economy. These circumstances, coupled with important legislative developments that took place earlier this year, have contributed to positive GDP growth and the advancement of the government's social agenda.
Important developments are taking place in Brazil this year. The country hosted the FIFA 2014 World Cup, and important improvements in the country's infrastructure were achieved (including airports and urban mobility, in addition to the major sports arenas built in 12 cities across the country). Despite initial difficulties, Brazil has demonstrated a great capacity to organise, plan and host a major sporting event. This is very encouraging for the forthcoming Olympic Games in Rio in 2016, where important infrastructure developments are taking place, such as the Project “Porto Maravilha”, which is revitalising the city's old port area and should make the area one of the most attractive for business, leisure and social coexistence.
The political agenda is rapidly changing in an attempt to provide immediate responses to the evolving social and economic environment, and the expected results of this new political agenda look very promising for both the general population and the domestic and international business community.
The Brazilian anti-corruption law (Law No. 12,846, 1 August 2013) entered into force in January and set forth a strict liability regime for entities and individuals involved in corruption practices. These include: (i) the offering of any undue advantage to a public official (including third parties related to such public official); (ii) acts of fraud in public bids or contracts with public entities; and (iii) the financing, funding or sponsoring of acts that are otherwise prohibited under the anti-corruption law.
The United Nations Convention on Contracts for the International Sale of Goods (CISG), ratified in the country in 2012, finally entered into force in April 2014. Brazil was one of the last major economies where the CISG was not fully effective. The CISG is applicable in 80 countries, covering roughly 80% of the world's international trade.
The Brazilian Congress approved Law 12,965/2014 (“Internet Act”) which established principles, rights and obligations for the use of the internet in Brazil. Among other aspects, the Internet Act assured the right to net neutrality, freedom of expression and the protection of privacy and personal data. Brazil is the fifth highest country in terms of internet usage (behind China, the USA, India and Japan) but more than half of the Brazilian population still lacks internet access. E-commerce has increased almost 30% in comparison with 2013 and over 52 million inhabitants use the internet for acquiring products and services.
There are more than 275 million cellphone lines in operation in the country, which represents 1.36 lines per inhabitant. Therefore, mobile payments have become an attractive market and the Brazilian central bank issued rules for enabling companies to operate mobile payment gateways in the country.
Despite the aforementioned legislative developments, Brazil and other Latin American countries still face a complex political and economic situation caused by lower growth in comparison to the recent past, excessive interference by certain governments in the private sector, and prevailing uncertainty in the global economy. Although the region has solid economic foundations that provide resilience in the face of drops in demand in the short term, the medium-term outlook is less favourable than in previous years.
Recently, the Brazilian Institute of Geography and Statistics reduced the expected growth of the Brazilian GDP. According to the latest studies, business investment fell 2.1% in the first quarter of 2014, the largest decline in two years. Brazil is also trying to control inflation, as it currently stands at the ceiling of the government’s target (6.5% a year). With respect to the country’s interest rate, the annual SELIC rate is over 10%, and there is no indication that this rate will significantly reduce in the near future.
Brazil has attempted to address this situation by providing incentives to certain sectors of the economy. The infrastructure sector has remained in the spotlight and Brazilian regulatory agencies are helping to foster strategic areas. For example, the Brazilian National Agency for Oil, Natural Gas and Biofuels (ANP) has published a draft resolution to promote natural gas transportation bid rounds.
A new mining code is expected to be voted in by Congress next year, which will bring significant business opportunities to this sector.
While the Brazilian Development Bank (BNDES) remains the primary source of long-term financing available in Brazil’s currency (the real), greater access to capital markets has provided a tremendous lift to the economy in the last five years, allowing Brazilian companies to raise enormous sums of capital. Continuous growth is expected in the coming years, driven by investments in infrastructure and public works, among other factors. Government initiatives such as the new ports law will foster competition in the sector, and new concessions are expected to attract over USD25 billion in investments by 2017. New public-private partnerships, new concessions in the transportation sector (railways and roadways), development programmes for Brazil's offshore pre-salt oil fields and continued investment in energy generation and renewables are all factors that are driving investment by both domestic and foreign players.
Furthermore, the number of mergers and acquisitions in Brazil remained substantial last year. As a new antitrust law introduced a pre-closing approval mechanism, the market was sceptical about the antitrust authorities' capacity to approve the deals in a timely manner. The average antitrust clearance period for an M&A dropped from nearly six months in 2011 to less than a month in 2012.
Labour reforms designed to loosen regulations and fiscal reforms that aim to simplify the tax regime and reduce the overall tax burden remain important factors spurring growth. Notwithstanding the fact that challenges remain, the outlook for investments in Brazil is favourable as a result of both economic progress and improvements to the country's regulatory framework.
Finally, Brazilian law firms are continually facing an important transition, as the country's leading firms are being subject to pressures that are driving changes in management, recruiting and compensation practices. As the country's elite firms are handling a growing variety of sophisticated engagements, many of their practices are growing and lateral hiring is no longer uncommon. Brazil's legal profession is expected to continue to grow in the coming years as a corollary of the country's development.