Consulado Geral da Suíça São Paulo

Swiss Business Hub Brazil

Firmenberatungstage

March, 2009
Brazil Overview
 Consulado Geral da Suíça São Paulo
Swiss Business Hub Brazil

1. An Overview

Brazil is the fifth largest country in the world. Its area of 8.5 million square kilometers is
equivalent to almost one-half of the entire South American continent. Brazil is divided in 5
geographical regions and shares border with 10 of the other South American nations
(Argentina, Bolivia, Colombia, French Guiana, Guiana, Paraguay, Peru, Surinam,
Uruguay and Venezuela).

Its economy is among the top 10 in the world and its population of 190 million people
corresponds to half of the South America’s total. Brazil’s population growth adds 1 million
customers every year;

The country represents the gateway to the Mercosur customs union, a bloc that includes
Argentina, Paraguay, Uruguay and recently acceded Venezuela, and has as well special
relationships with Chile and Bolivia. With the accession of Venezuela (not fully complete,
as formal congress ratification by Brazil and Paraguay is pending), the five countries
together form a common market of more than 265 million people and have a total GDP of
more than a trillion dollars.

Brazil has an enormous internal growth potential, a broad industrial base and
infrastructure and a diversified economy. Moreover, 465 of the Fortune 500 companies
are operating in the country, and large global corporations such as Unilever, Carrefour,
Fiat, VW, General Motors, Coca Cola, Ericsson, Avon, Herbalife, 3M, Nestlé, Xerox,
Accor, Unisys, Goodyear, Siemens and Telefonica have their top five worldwide
operations in Brazil.

Brazil's diverse industries range from automotive, machinery and equipment, steel,
cement, lumber, iron ore and petrochemicals to computers, aircrafts and consumer
durables. Most major car manufacturers have their production facilities established in
Brazil. Brazil has also a diverse and sophisticated services industry.

Brazilian Regions
 Consulado Geral da Suíça São Paulo
Swiss Business Hub Brazil

BRAZIL: HIGHLIGHTS

1st largest... 2nd largest...

producer of steel and ore;
producer of commercial jets;
producer of soy beans;
producer of sugarcane;
producer of resins;
producer of orange juice;
producer of coffee beans;

3rd largest... And also...

manufacturer of TVs; 5th producer of

producer of refreshments; machines and equipment
producer of commercial 6th producer of
airplanes; cosmetics
producer of hydroelectric (and 3rd largest market)
energy; 5th assembler of
vehicles

BRAZIL: CONSUMERS PROFILE

46 million
people =
Consumers in 1967: 14 million population of
Spain!
Consumers in 2007: 60 million

Consumers' profile - Social Classes in Brazil

E A
8% 5% B
More than
19% 100’000 people
74’000 supermarkets D
34% earning more
(Only 1‘000 in 1967) C
than R$
601 shopping centers 34% 50’000/month

Louis Vuitton‘s shop in SP is the 5th in revenue in the world.

Luxury market should grow in Brazil by 10% (2008)
 Consulado Geral da Suíça São Paulo
Swiss Business Hub Brazil

Current economic situation

Sources: Brazilian Central Bank, IBGE, FIPE, Agência Brasil, and Credit Suisse

The Brazilian current GDP growth cycle is the longest since the 1970s, with a 5.3%
growth in 2007, driven by a strong increase in domestic demand. The country’s
productivity is also in an increasing acceleration that reached 1.9% in 2007, and is
expected to continue growing, due to the greater investments and increased participation
of imports in the domestic market.

In the first semester of 2008, the scenario was one of continuing growth, in the same
range as 2007, again based on the expansion of domestic demand, although the main
challenges in maintaining that level of growth were to keep the inflation levels from the
government target of 4.5%. The expectation for the end of 2008 is a slight increase in
inflation to about 6.4%, due to the strong rise in food inflation, which almost doubled in
a year.

Anyhow, due to its rising financial stability and smaller Country Risk, Brazil obtained
investment grade by the agencies S&P and Fitch (BBB- with stable outlook) in April
and May 2008. This new condition means that Brazil has attained international respect
and recognition that it is a solvent country that can repay its debts, and reflects the
significant reductions in the country’s external vulnerability, credit risk, and fiscal area.

Although the financial crisis also affected Brazil with drastic stock market falls,
increases in inflation, and the Real’s devaluation, the Finance Minister Guido Mantega
affirmed the Senate committee that Brazil will not suffer a recession in 2009, although
he admitted that economic activity may slow. The fall in world demand may impact the
Brazilian economy primarily in its balance of payments, for it diminishes the prices of raw
materials and manufactures, generating an inevitable trade deficit.

“It is not a matter of despair, to say that the economy will not expand at all but it’s also
not a case of saying that we can maintain all of the plans we made before,” Mantega
said. According to Fajgenbaum, director of the IMF, “Brazil is well prepared for the
crisis… It is impressive how the country changed…Today Brazil has a stability that
facilitates the economic calculations, so this made it possible to take better decisions [to
control inflation].”

The global crisis also changed the expectations concerning the quotation of the US$
Dollar, that in August was estimated to end the year at 1.80 R$, but due to its explosive
appreciation, it is estimated to value 2.00 R$ at the end of 2008. The Brazilian balance
of trade is expected to end the year with a profit of approximately US$ 24 billions, and
the total FDIs to reach about US$ 34 billions.
 Consulado Geral da Suíça São Paulo
Swiss Business Hub Brazil

Economic Performance Indicators

2004 2005 2006 2007 2008e 2009e

GDP at current prices US$ billion 664 883 1067 1317 1758 1957
Estimated population Million 181 184 187 190 193 195
GDP per capita (current prices) US$ 3655 4792 5714 6932 9109 10036
Real GDP growth % p.a. 5.71 2.94 3.70 5.3 4.7 4.0
Unemployment – IBGE % of EAP 11.5 9.8 10.1 9.5 8.5 7.7
Inflation – IPCA index % p.a. 7.6 5.7 3.1 4.4 6.4 5.0
Interest rates – Selic (average) % p.a. 16.2 11.4 11.25 11.25 14.75 14.50
Exports US$ billion 96.7 118.5 137.8 160.6 201.0 216.6
Imports US$ billion 62.8 73.6 91.4 120.6 177.0 208.7
Trade balance surplus US$ billion 33.6 44.7 46.1 40.0 24.0 8.0
(exports – imports)
Foreign Investment – FDI US$ billion 18.1 15.1 18.8 34.6 34.0 32.0
Exchange rate (end of period) R$/US$ 2.66 2.34 2.14 1.77 2.00 -
Source used: Central Bank, IBGE, FIPE and PWC

Bilateral Economic Relations: Brazil and Switzerland

Representing about 35% of Switzerland’s volume of trade with the whole Latin America,
Brazil holds first place in terms of Swiss trading partners in the region. For Brazil,
Switzerland is the 19th most important business partner (3,361 US$ mi total trade).
The economic relations between the two countries are successful and lasting. More than
350 Swiss companies are currently established in Brazil employing approximately 92,700
people. Switzerland’s stock of FDI in Brazil has reached CHF 10.1 billion (end of
2006), with an astounding 51% increase from 2005, reaching 1.6% of Swiss total direct
investments abroad.

Switzerland exports to Brazil are mainly concentrated in the pharmaceutical and chemical
industries as well as machinery and medical equipment. Swiss exports to Brazil grew
66% between 2006 and 2007 (totaling 2.2 Bio US$), while imports from Brazil grew by
36% (totaling 1.15 Bio US$) having among the main imported products aluminum, paper
and pulp, agribusiness products and aircrafts.

Brazil has made a strong effort to increase the added value of its export products
replacing exports of raw material to industrialized products such as laminated and
polished granite, metallic pieces and car components, but the country continues to be
one of the world’s largest agribusiness players, helped by the fact it has 22% of the
world’s arable land.

Trade Balance
millions of CHF
Source: SS
2002 2003 2004 2005 2006 2007
Swiss Exports to Brazil 1,118 1,177 1,350 1,526 1,189 1,501
Swiss Imports from Brazil 561 409 437 672 752 783
Balance 557 768 913 854 437 718
Source: Seco
 Consulado Geral da Suíça São Paulo
Swiss Business Hub Brazil

Brazil – Switzerland Joint Commission

The official launching of the Joint Commission on Trade and Economic Relations
took place in October 29th, 2007, concerning topics such as Double Taxation, Investment
Promotion and Protection Agreements, Biopiracy, Ethanol, Customs Procedures and
Tariffs, Scientific and Technical Cooperation, Intellectual Property and Sanitary
Measures. The Joint Commission offers a unique opportunity to structure the bilateral
relations and to address issues of common interest in a systematic manner.

In August 14th, 2008, the Federal Councillor Micheline Calmy-Rey and Brazilian Foreign
Minister Celso Amorim signed a Memorandum of Understanding to strengthen the
partnership between Switzerland and Brazil, aiming to "deepen the political dialogue
between the two countries."

The aim of the agreement is to intensify cooperation in the area of nuclear

disarmament and non-proliferation, in science and research, in cooperation with third
countries and in the framework of the UN, for example in the promotion of human rights.

Political Situation

The 2006 general elections did not produce major changes in the division of political
power, despite the wave of scandals and political corruption that marked the last two
years. The winner, President Lula (PT/ Labour party) was re-elected in a second
round with 60.82% of the valid votes for another 4-year term (2007–2010).

President Lula has made economic growth and poverty alleviation top priorities. Export
promotion is a main component in plans to generate growth and reduce what is seen as
a vulnerability to international financial market crisis.

The recent political situation is of Lula’s high popularity, levelling at about 50%, due to
the high levels of employment, rise in income, and cost of living. As the government
focus to maintain the current economic growth cycle and to attempt to remove growth
constraints, manly in infrastructure – such as energy and transport – its popularity will
continue at a satisfying measure.

Local Cultural Aspects

Besides evaluating the market and the opportunities that can be explored, it is advisable
that Swiss companies take into consideration the following cultural aspects of doing
business in Brazil.

Generally speaking, Brazilians tend to:

 Consulado Geral da Suíça São Paulo
Swiss Business Hub Brazil

 Focus primarily on relationships. The personal contact is VERY important.

Networking is essential and knowledge of some basic words in Portuguese is
often appreciated;
 Favor concentration of authority. To shorten negotiation processes, the decision
maker should always be identified and respectfully approached;
 Place greater emphasis on human qualities. Investing time on relationships, and
building trust facilitates future contacts and business negotiations;
 Value diplomacy;
 Deal with conflict indirectly avoiding direct confrontation;
 Use a great deal of non-verbal communication. Some understanding of body
language is useful;
 Have a flexible view of time and deadlines. A delay of more than 30 minutes for
the start of social and some business events and appointments is usual.
Nevertheless, punctuality shows respect and interest by the interested partner;
 Use the “jeitinho” – Brazilian slang for a creative way around rules, obstacles and
procedures, to obtain what is being pursued.

Date: February 25th, 2009

Author: Camila Jerger

Author’s contact information:

camila.jerger@eda.admin.ch
Business Development Officer

swiss business hub brazil

c/o Consulate General of Switzerland
Av. Paulista, 1754 – 4° andar
01310-200, São Paulo – SP
tel. 55 11 3372-8207
fax. 55 11 3253-5716
www.osec.ch