Brazil-French Investments: Brazil, Key Investment Destination for French Companies

Interview with Louis Bazire, President of the French-Brazilian Chamber of Commerce

Nowadays, what is the role of the French-Brazilian Chamber of Commerce? How important is European presence in Brazil?

First of all, the Chamber of Commerce is basically a club of entrepreneurs linked to the French community; they can be French or Brazilian companies. We have 800 members in Brazil. The Chamber was founded in Rio de Janeiro in 1901, so it has more than 100 years of age. This proves that Brazil has been open to the foreign investment, I would say, since the beginning of the capitalist era. This is a good sign about the openness of the Brazilian economy. Of course, this club organizes events, meetings, commissions, etc. Last year, we organized a big forum on sustainable development and another one on innovation. Also, since we are part of the network of the French Chamber of Commerce in the world, we also give support to French companies trying to do business in Brazil.

Next, I can give you two figures. First of all, Europe is the first partner of Brazil in terms of investment. Actually, more than 40% of the foreign investment is of European origin. Secondly, French companies in Brazil represent approximately 400 000 jobs in the country. I could say the same thing about the Germans or the Italians. Indeed, it is quite a huge presence.

Your third mission is to help companies in order for them to do business in the country. According to the World Bank, Brazil is ranked 120th of 183 economies. Last year, it went down by six positions, so it has actually become worse in the ease of doing business. What is your perception about ease of doing business? What are the companies saying?

To begin, I would say that the presence of the French community in Brazil is quite ancient. All of the CAC 40 (The French Stock Exchange index) – 40 top and biggest companies – are present in Brazil. However, the people that seek for help for implementation to the Chamber of Commerce are more medium-sized companies because they are the ones who need us. Despite what you said in the question, we had 60% more companies coming to see us last year compared to the year before, so there must be something else in Brazil that attracts them to come here. For instance, it can be the potential of 200 million consumers and the fact that in the last ten years, 30 to 40 million citizens came out of poverty and had access to consumption, which created a strong dynamic of the Brazilian company.

Secondly, institutions are quite stable in Brazil. What’s more, there have not been any major issues with the recent political changes. This is very important for someone who invests. If you put together potential and predictability in the rules of the game, Brazil is very attractive to consider. Especially when you consider that major mature countries must digest their heavy public debt – hence will see their growth potential reduced.

Now, what you see here is sometimes showed as discrimination and protectionism but it is not exact. The problems pointed out in the study are the same for Brazilian controlled companies than it is of foreign owned Corporations. It is true, however, that there are complaints about heaviness, red tape, slow justice, and very complicated fiscal systems. But this is true for every company established in Brazil and we feel that there is a willingness of the government to tackle this issues but it takes time. It is not protectionism precisely because even Brazilian enterprises are complaining about it. It would be safe to say that it is due to a very strong bureaucratic mentality.

Some statistics say that the exploding commodities are putting pressure on the manufacturing industries in Brazil. The proportion of the GDP related to the industry and manufacturing actually went down by 2% last year. Is there still interest?

First of all, Brazil has a built-in industry. It is the fourth car producer in the world last year. There is no Brazilian brand, only international brands, and when a company comes to Brazil – from a country like China, perhaps –, it is to exploit or take advantage of the potential of the internal consumption in Brazil. So it is not like they are seeking cheap labour to re-export. At the end of the day, it doesn’t matter so much whether you are competitive in exports or not, as long as you exploit the internal potential.

The second point is that industries, with the boom of internal demand and the capacity for export, were not as big as we could think. Two years ago, car manufacturers were running free ships for the internal demand and when you are in that type of situation, you cannot produce to export. The imports did more harm in the labour-intensive industries, which were more politically sensitive, like textile, shoes, etc. This is not so much exports than cheap imports destroying the national industries, and being still somewhat like this. This is mainly focused on cheap imports with partners who are perhaps not to respect all the rules of the game as they would with exports. It is about the strong internal market that drives the economy.

Now, one of the main points that Brazil raises rightfully is about the over-appreciation of the Real, which comes basically from the fact that we are in what we call quantitative easing of money supply in the United States and Europe. A lot of floating money is then created and invested in Brazil because we have a high interest rate. The government has to prevent this money from coming in but still, it puts pressure on the Real which is thus over-shooted. This creates a gap that can be harmful and cause industries to complain.

Now, it’s true that during the second half of the year, the industrial output was flattish but you must remember that the year before, the growth rate of the country was about 7% while there was a phenomenon of overheating and menace on inflation that pushed the government and the Central Bank to pour cold water on the engine. We think that we are getting out of this race and Brazil will continue to grow at its usual rate of 4% or 5% a year. Brazil is quite a developed country already, so it is understandable how many companies are trying to do business here with a 4% growth rate.

In which sectors of the economy can foreign companies make the most money? Not only that, but more specifically, in which regions? Where is the potential? How can you help those companies?

Well, I have seen people implementing their services, doing partnerships in almost all the sectors. In my opinion, there is potential almost everywhere. What people need to understand is that Brazil already has its own production and its own investors. It has good services.

When you arrive in Brazil, the first question you need to ask yourself is this: “Where can I add value?” In technologies or by giving access to the one`s market through partnerships? Today, I think it is mostly the technologies and innovation. What Brazil is looking for is not to help build a car, but if you can bring those state-of-the-art cars to the country, there you have it. In terms of region, it makes sense to enter first in the South-East region – Sao Paulo or Rio de Janeiro. The GDP of Sao Paulo state is bigger than of Argentina. Also, the GDP of Rio de Janeiro state is bigger than of Chile. Consequently, the South-East region is best equipped in terms of infrastructure. Most of the international companies are there as well. The market proximity is also huge. There might be exceptions though. Perhaps in some segments like distribution, it might be clever to go to the North-East, but if you don’t know Brazil, Sao Paulo or Rio de Janeiro is probably what makes the most sense.

Often, when you arrive to Brazil, you may have options to invest in other emerging countries. You can be surprised by the numbers – I say 4% or 5% here in Brazil but in some Asian countries, it’s more than that. The GDP per capita in Brazil is significantly higher than it is in China or India, for example. It is probably easier, if you are an American or European and if you have such a mentality and such stability. I think you can have a longer view on the payback of your investments.

Next, it is true that it is not always easy to start a company and see it through, but what I see is that the people who stick to it are hardly ever disappointed. I see more members arriving in the Chamber than people who say: “I tried during three years, but then I gave up because I could not do it.” So, my perception is that if you have a good project and you stick to it, at the end of the day, after the two of three first years that may be a little tough, you will be rewarded. I do not see a lot of people going back to their country, which is a positive sign. So this is it. Stick to it.