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Investing in Brazil in 2024: opportunities and challenges

Brazil is a great country to invest in

Investing in Brazil is definitely a good choice. With great economic potential and countless opportunities, entrepreneurs who study the market and are connected to the latest innovation trends have a great competitive advantage.

The Brazilian economy is in a good recovery phase, after the slowdown caused by the COVID-19 pandemic.

In 2021, Brazil’s GDP grew by 4.6%, the highest growth in five years. However, growth slowed in 2022, reaching 1.6%. For 2023, the Ministry of Finance estimates that GDP will grow by 1.9%. This forecast is based on a number of factors, including the recovery of the world economy, the rise in commodity prices and the increase in Brazilian domestic demand.

We can say that the Brazilian economy is doing well and has good prospects in the short term.

Why investing in Brazil in 2024?

There are many reasons to invest in Brazil next year. Here are some of the main ones:

  • After two years of rising interest rates, 2024 looks set to be a period of greater stability for inflation and economic activity.

  • Rising commodity prices: Brazil is a major producer of commodities such as soybeans, corn, coffee and sugar. The rise in the prices of these commodities can be an opportunity for foreign investors to make gains.

  • Growth of the service sector: The service sector is the largest sector of the Brazilian economy, accounting for around 70% of GDP. The growth of this sector could be a favorable opportunity for foreign investors interested in the Brazilian economy.

  • The country must go through a tax reform, which is seen as a central point in an attempt to simplify taxes and establish the unification of federal, state and municipal taxes.

Investing in Brazil

Which sectors of the economy will be booming?

Agriculture: Brazil is a major producer of agricultural commodities such as soybeans, corn, coffee and sugar. The rise in the prices of these commodities should boost growth in the agricultural sector next year. Sustainable agricultural expansion is also a recurring theme that stimulates the productivity and competitiveness of Brazilian agricultural producers.

Services sector: The service sector is the largest sector of the Brazilian economy, acounting for around 70% of GDP. Accompanying the growth of this sector is also the demand for personalized services in the areas of health, tourism and education, for example.

Technology: The technology sector is booming in Brazil. The market is in high demand and very competitive. It is important to mention that although the Brazilian – and global – market needs professionals in this area, various public and private initiatives have created courses and fostered the development of software developers and other relevant professionals to the sector. Artificial intelligence and automation will also be on the rise and promise to boost the sector’s growth.

In addition to these sectors, others that may also show growth in 2024 are:

Industrial sector: This sector accounts for around 20% of Brazil’s GDP and attracts a lot of investment. It is also an important generator of jobs for the economy.

Infrastructure sector: Brazil is a country of continental dimensions and still has a long way to go. This sector always receives a lot of investment and directly helps to boost other ones, such as industry and tourism.

What are the most recommended types of investment when investing in Brazil?

Investments considered as conservative are more recommended in the coming years. You will find some examples below.

Fixed income

Fixed income is a safe option for investors looking for protection against inflation. In Brazil, public bonds, such as the IPCA+ Treasury, are a good option, as they tend to increase in value.

The allocation strategy in 2024 should continue with a significant part of the assets in Fixed Income, taking advantage of the profitability which is still quite high.

Fixed income rates are expected to be better than other investments, such as the stock market, for example.

Here is a list of some of the Fixed Income investments available in Brazil.

Tesouro Direto: Federal government program in partnership with the National Treasury

CDB: an issue issued by a bank to raise funds, in which the investor lends money to the bank and receives interest for it.

LCI and LCA: issued by financial institutions to finance specific sectors: real estate and agriculture.

Debentures: securities issued by companies to raise funds.

Fixed Income Funds: Investment funds that invest in fixed income assets.

Stock Market

The Brazilian stock market offers investment opportunities in companies listed on the “Bolsa de Valores”, known as B3. It showed growth in 2022 and greater volatility in 2023, especially after the presidential elections.

B3’s main benchmark index is the Ibovespa, which tracks the performance of the shares of the world’s most traded companies.

The outlook for the coming years is for lower growth, due to rising interest rates

Investment Funds

Investment funds bring together collective forms of investment, managed by a professional manager, in which several investors are included, each one of them with different amounts.

Funds can invest in different assets, such as shares, fixed-income securities, foreign exchange, multimarkets, among others. Diversification is important for risk mitigation.

In this modality, investors receive shares proportional to the amount they have invested in the fund.

Real Estate Investments

Investing in Brazil

This type of investment can include the direct purchase of real estate, real estate funds or investments in projects under construction.

Investing in Brazil in Real Estate is widespread and is also a good option for foreigners wishing to invest in the country.

What are the challenges of investing in Brazil?

Brazil has a major challenge that directly influences the economy: bureaucracy.

In the World Bank‘s ranking of 190 countries, Brazil ranks 125th and is the country where companies spend the most time calculating and paying taxes.

The report assesses the impact of bureaucratic laws and regulations on the functioning of companies. Among the items evaluated are the number of days spent opening a business, paying taxes, registering a property, obtaining credit, among others.

Bureaucracy is also directly linked to another problem faced by the Brazilian economy: a very complex tax system. A large company in Brazil needs a team 10 times larger to calculate taxes than an American company, for example.

These factors are relevant since the excess of taxes makes it difficult for entrepreneurs to work. In order to comply with all the tax legislation, most entrepreneurs need to rely on accounting consultants, to avoid problems even with the courts.

Another factor that hinders the Brazilian economy is the slowness and corruption that unfortunately affects society and slows down the pace of business.

Interest rates

Brazil has a high interest rate and this has a number of effects on the economy, including: an increase in the cost of credit, an increase in inflation, a negative impact on the stock market, among others.

The international scenario also brings some challenges due to rising interest rates and high inflation.

Another factor that directly influences the interest rate is the increase in public spending that occurred in 2023 and could bring volatility to the economy

US interest rate expectations and their impact on Brazil

Interest rates in the US are expected to be cut throughout 2024, but the movement will only begin in the second half of the year, when inflation is on a clearer path towards the 2% target set by the US Central Bank, the Fed.

Any postponement of this easing cycle could restrict Brazil’s ability to cut interest rates. On the other hand, if the cuts begin earlier, the Brazilian Central Bank may have more freedom and accelerate the Selic rate cut.

What kind of advice is important to invest in Brazil and start a business here?

If you’re planning to start a business in Brazil, it’s important to have expert advice. Despite the country’s growth prospects, it still has a very complex tax system that is difficult to apply.

In order to optimize your time and facilitate your business, it is recommended that you hire a specialized company to understand all the steps to be followed and to help you in the accounting and legal spheres, in particular.

This also makes it easier to find local partners to develop an effective business plan.

Operating in Brazil for around 15 years is Europartner, a company with a team made up of Europeans and Brazilians who understand the important details of Brazilian legislation in order to make your business grow healthily in the country.

No matter the size of your company, Europartner is ready to help you directly with investing in Brazil.

Multiply your company’s potential with Europartner’s services – while you do your best at your expertise, they will deal with  the financial, tax and accounting management of your business. It will save you huge time and effort.

If you intend to invest in Brazil, this is definitely a great start point.

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