BRAZIL
Region: The Americas
Edition: July 2008
The 'DB' risk indicator provides a comparative, cross-border assessment of the risk of doing business in a country and encapsulates the risk that country-wide factors pose to the predictability of export payments and investment returns over a two year time horizon. The 'DB' risk indicator is a composite index of four over-arching country risk categories: Political risk - internal and external security situation, policy competency and consistency, and other such factors that determine whether a country fosters an enabling business environment; Commercial risk - the sanctity of contract, judicial competence, regulatory transparency, degree of systemic corruption, and other such factors that determine whether the business environment facilitates the conduct of commercial transactions; External risk - the current account balance, capital flows, FX reserves, size of external debt and all such factors that determine whether a country can generate enough FX to meet its trade and foreign investment liabilities; Macroeconomic risk - the inflation rate, government balance, money supply growth and all such macroeconomic factors that determine whether a country is able to deliver sustainable economic growth to provide further expansion in business opportunities. The DB risk indicator is divided into seven bands, ranging from DB1 through DB7. Each band is subdivided into quartiles (a-d), with an 'a' designation representing slightly less risk than a 'b' designation and so on. Only the DB7 indicator is not divided into quartiles.
Trade Terms
The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country.
D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms.
Normal period of credit associated with transactions with companies in the stated country. Transfer Situation
The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports.
The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system. Trade & Commercial EnvironmentBrazil may pursue USD4bn in sanctions in retaliation to subsidies paid to US cotton farmers. A WTO panel will assess the Brazilian proposal to retaliate through sanctions on intellectual property and services (instead of goods). Elsewhere, in mid-June Brazil?s telecommunications agency (Anatel) approved regulatory changes to clear the way for Telemar to acquire Brasil Telecom, creating the country?s biggest phone company. This change is in line with President Luis (Lula) Inacio da Silva?s goal of building a national company strong enough to compete with international players. Meanwhile, in May FX holdings were USD197.9bn; we estimate that this is equivalent to around 7.8 months of import cover in Q3 2008.
Inflationary pressures have become the most important risk to the Brazilian economy. After CPI inflation rose by 5.6% in May, the highest rate since January 2006, the central bank decided to increase its benchmark interest rate by 50 basis points (bp) to 11.25% in June. By doing so, the central bank has increased its benchmark rate by 100bp since April. According to the bank?s survey of economists, CPI inflation is expected to reach 5.8% this year, above the 5.2% expected only a month ago and well above the official target (4.5% ? 2%). The government has declared that curbing inflation is one of the priorities in its policy agenda. President Luiz (Lula) Inacio da Silva affirmed that policy-makers will work to ensure that economic growth will not stoke inflation and consequently decrease consumer purchasing power. For their part, monetary authorities have admitted that after several quarters of strong economy growth, aggregate demand has outpaced supply and, as a consequence, monetary policy will be kept tight for the coming months. Moreover, we expect interest rates to increase further, perhaps rising above 14.0% by year-end. With the economy expanding at high rates (5.8% year on year, y/y, in Q1, the second fastest in four years), Finance Minister Guido Mantega affirmed that a slowdown would be desirable for medium-term growth prospects. Credit, rising incomes and public spending are helping Brazil to offset declining exports and, with its huge domestic market, the Brazilian economy has been almost insulated from the US economic slowdown. However, the combination of increasing inflation and higher interest rates has started to affect consumption: retail sales rose by the slowest y/y pace for seven months in April (8.7%). Moreover, the estimated credit expansion for 2008 (25%, excluding credit card loans), down from 40% in 2007, will contribute further to the slowdown of the economy. Despite the inflationary risks, the long-term outlook for the Brazilian economy is broadly positive. A key development has been the attainment of investment grade status for Brazil?s sovereign debt in early May from S&P, the international ratings agency. Investment grade status will offer Brazil?s public and private sectors the opportunity to access funds at a lower cost, which should help to boost economic growth by making large-scale investment projects more feasible. In addition, following recent discoveries of massive offshore oil reserves, Lula wants to transform Brazil into an exporter of refined petroleum products instead of crude oil; according to preliminary estimates, reserves may total 33bn barrels. Meanwhile, the national telecommunications agency has announced that it expects USD155bn of private investment in the industry by 2018, which is likely to be important for medium-term growth.
DEFINITIONS Minimum Terms: The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country. Recommended Terms: D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms. Usual Terms: Normal period of credit associated with transactions with companies in the stated country. Local Delays: The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports. F/X Bank Delays: The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system. C/A (current account) balance, % GDP: Part of the balance of payments that records a nation's exports and imports of goods and services, and income and transfer payments. DSR (debt service ratio), %: Annual interest and principal payments on a country's external debts as a percentage of exports of goods and services. Govt balance, % GDP: The balance of government expenditure and receipts. Real GDP growth, %: GDP adjusted for inflation. Inflation, %: The increase in prices over a given period.
GLOSSARY CiA Cash in Advance CLC Confirmed Letter of Credit CWP Claims Waiting Period FX Foreign Exchange LC Letter of Credit LT Long term MT Medium term OA Open Account SD Sight Draft ST Short term
? Copyright 2008 Dun & Bradstreet - Provided subject to the terms and conditions of your contract. D&B Country Risk Services For information relating to D&B?s Country Risk Services. UK Telephone: 01628 492700 Fax: 01628 492929 Email: CountryRisk@dnb.com USA Inquiry Telephone: 1-800 234-3867 ext 7002 Email: CountryRiskServices@dnb.com Rest of World Telephone: +44 1628 492700 Email: CountryRisk@dnb.com D&B Customer Services For all other information or queries relating to D&B products and services. UK Telephone: 0870 243 2344 (UK) / 1 890 923296 (IR) Email: CustomerHelp@dnb.com USA Telephone: 1-800 234-3867 Email: CustomerService@dnb.com Rest of World You can contact your local D&B Customer Services departments by clicking here.
Whilst D&B attempts to ensure that the information provided is accurate and complete, by reason of the immense quantity of detailed matter dealt with in compiling the information and the fact that some of the data are supplied from sources not controlled by D&B which cannot always be verified, including information provided direct from the subject of enquiry as well as the possibility of negligence and mistake, D&B does not guarantee the correctness or the effective delivery of the information and will not be held responsible for any errors therein or omissions therefrom. ? Dun & Bradstreet Inc., 2008.  | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
