HafeziCapital was hired by a European Energy Company specializing in green development to enter the Brazilian Energy market in 2011. The company engaged HafeziCapital to conduct a feasibility study of the Brazil economy and its energy market and possible growth forecast; as well as the best strategy to export the client’s business operations from the European Union to Brazil.  The primary focus on moving operations from the European Union to Brazil is the current economic conditions of the European market and the increasing growth of the Brazilian economy with possible growth into the rest of South America and the United States. Given the fact that business in Brazil and the European Union are different, the feasibility study had to look at various differences and account for them prior to the market entry. The following is a brief excerpt of HafeziCapital’s analysis and work conducted for the client in doing business in Brazil.

Our study included but was not limited to:

  1. The political, economic and business conditions of the host country and risk factors associated with the expansion.
  2. The local laws, regulations, and licensure requirements to set up business operations within the energy industry; as well as import and export regulations and tariffs.
  3. The cultural barriers between the European Union and South America.
  4. Possible entry barriers to foreign businesses into Brazil and solutions to these obstacles.
  5. International trade consulting and customs issues within Brazil
  6. International Banking Efficiencies Consulting
  7. Joint Venture Research
  8. The Brazilian economy as well as the energy market and current competition.
  9. Corporation structures
  10. Immigration requirements
  11. Climate of Business in Brasil

Feasibility Study – Business in Brazil

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A feasibility study of the Brazilian economy revealed that the country continues to enjoy accelerated economic growth with a 2011 Gross Domestic Product (GDP) of $2,556 billion (USD); which is expected to grow to $3,259 billion by 2015; an increase of over 27%.  The GDP growth is estimated to increase significantly in 2013 followed by an estimated 5% increase in 2014, boosted by fiscal spending ahead of the 2014 presidential election and the World Cup championship hosted in the country.  Furthermore, reports indicate that the forecasted growth will dampen GDP growth slightly to 4.4% in 2015 due to a possible post-electoral adjustment of the economy.

Our client’s involvement in the import and export of energy material required further analysis of the import & export condition of the market.  Our research revealed that growth of imports will outpace export, mainly due to the increasing demand for Brazil’s commodities.  Brazil’s exports of goods and services are expected to increase from $286 billion USD in 2011 to $365 billion in 2015, an increase of 27%.  Imports of goods and services have a higher increase of 63% from $324 billion USD in 2011 to $531 billion in 2015.

Brazil’s economy poses a low risk due to its current stability. The analysis suggests that the country is well placed to weather a euro zone debt crisis, given its huge reserves cushion and its strong financial sector.  Foreign direct investment is expected to increase from $55billion to 71.4billion between 2011 and 2016 an increase of 22%. Additionally, continued gradual improvements to regulatory agencies strengthen enforcement of competition policy. Some level of government bureaucracy still impairs efficiency but intellectual property rights are broadly respected.  Despite broad consensus on policy fundamentals, limited appetite for fiscal reforms will prevent a more rapid reduction of the public debt burden. As far as country risks, a diversified export base and a well-regulated financial system underpin the BBB rating (AAA equal to least risky and D equal to most risky), but the still-high public debt will continue to constrain GDP growth. Brazil is Latin America’s biggest economy and the world’s seventh-largest economy in US dollar terms. It is the world’s tenth-largest consumer of energy, according to statistical date world energy output and consumption. Brazil is one of the world’s biggest producers of hydropower and has significant reserves of oil and gas, which industry experts speculate will turn the country into a top ten oil exporter by 2025.  It is believed that by 2020 Brazil will be producing 5 million barrels per day, much of it from new offshore fields.

Further research revealed that Brazil had 12.6 billion barrels of proven oil reserves in 2009, the second-largest amount in South America after Venezuela and around 1% of the global total.  Brazil’s dominance in this field makes them a front-runner for investments in energy production and exploration within the BRIC countries. An analysis of the energy private sector revealed a number of companies which could become a competitor of the client.  A number of US-based corporations hold a significant stake in a number of local companies.  However, none of these corporations hold a monopoly on the green energy field. From this perspective doing business in Brazil looked promising given its growth prospects.

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The project resulted in a corporate strategy for market entry into Brazil as well as possible expansion to the rest of South America.  The analysis also framed how the company needed to structure its operations to do business in Brazil. Our strategy included short, medium, and long-term planning; with a complete assessment of all risks associated with the venture and best risk mitigation plans.  An incorporation strategy was also developed for optimal and profitable operations with a determined corporate structure and location of incorporation.  The client was advised on all the necessary licensure and regulatory requirements as well as customs duty planning and implementation. Consequently, an import strategy was developed to transfer goods from the country of origin to the host country, as well as an export strategy to transfer goods from the host country to South American countries within a five year period. International Banking systems were established and HafeziCapital worked with the client to minimize international taxes on repatriation of money and on foreign currency risks.

After establishing a corporate organizational structure for the company, HafeziCapital developed a human capital strategy which outlined the platform for expatriating executive management from Europe to Brazil and hiring a local workforce, following local labor regulation and immigration requirements.

Our client recommendation resulted from extensive analysis of the local market and economy as well as political and business conditions of the host country.  A competitor analysis in Brazil and neighboring countries were also performed to determine the demand for green energy within that market.  Our corporate strategy also included conditions for exit strategy and expandability into other markets within South and North America.

Our risk mitigation and management strategy identified areas where the client was undertaking above market risk and solutions for mitigating those risks.

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