Question

Brief down in at least 200 words of what do you personally think about the following country risk profile of Brazil. Include your personal views about the following country risk profile & explain with a proper justification whether a company should business with or in Brazil.

Economic Risk : Brazil is the world's eighth largest economy. The nation is trying its best at remaking itself after the downturn that happened five years prior, when the economy shrunk by nearly 7%. From that point forward, Brazil hasn't had the option to develop at a similar movement it was accustomed to, during the decade prior to the downturn. Nonetheless, things appear to be gazing upward monetarily in Brazil, yet the current recuperation is a moderate one. In 2019, the nation's GDP became 1.1%, against 1.3% in 2018, and it is relied upon to tumble to - 5.3% in 2020 because of the episode of the COVID-19 and get to 2.9% in 2021, as indicated by the refreshed IMF conjectures from fourteenth April 2020. In 2019, expansion rate was equivalent to 3.7% - same pattern in 2018 and is required to remain moderately steady, at 3.6% in 2020 and 3.3% in 2021 in spite of the COVID-19 pandemic. All things considered, costs have gone up by 25% since the downturn - and compensations haven't followed. Government obligation is at present 91.6%, and should increment in the following two years, to 93.9% in 2020 and 94.5% in 2021. The nation is as yet buried owing debtors, and the Brazilian president says the principal offender is the annuity framework, as he accepts individuals to resign soon with such a large number of advantages. Monetary solidification is the administration's fundamental goal, yet the Brazillian president's guarantee to diminish the irregularity to zero this year isn't achievable. The administration spending balance enlisted in 2019 a deficiency of 6.3% which is required to diminish in 2020 and 2021, coming to 6%. The joblessness rate in Brazil is still high, arriving at 11.9% in 2019, a little improvement contrasted with 12.3% of 2018.

Political Risk: President Jair Bolsonaro has been in power since the start of 2019. At first, him and his team's supportive business plans were very popular and he had the option to supervise the section of a pension reform bill. This bill was to spare the nation an expected USD 195 billion, as it raised the retirement age and contained other income sparing measures. Nonetheless, the pandemic has expanded focuses of contradiction between the president and the congress, bringing about an increased political conflict and diminishing the probability that Brazil will have the option to proceed on a more positive note. The administration had been focused on fiscal consolidation but, considering the pandemic, extra financial changes are far-fetched. The administration's monetary reaction to the pandemic is to expand the monetary shortage to over 9% of GDP. Corruption scandals and investigations is an on-going issue for the nation. Brazil is positioned to be 106 out of 180 nations in the latest Corruption Perceptions Index.

Geographical/ Environmental: Despite the fact that Brazilian courts are yet to issue decisions in activities identified with environmental change, Brazil has been progressively giving critical indications that climate change is a pattern that can't be overlooked. In 2010, the So Paulo State Public Prosecutor's Office recorded activities against the excess of 30 organizations looking for pay for GHG outflows. After ten years, none of the organizations were viewed as a risk, however one of those organizations, documented against KLM Royal Dutch Airlines, which lead to a forthcoming examination by the Superior Court of Justice. In 2019, IBAMA, which is what could be compared to the United States Environmental Protection Agency ("EPA"), filed a lawsuit against a steel organization and its investors looking for pay for climate damages brought about by the consuming of unlawful coal in the production of steel. In June 2020, opposition political groups documented claims against the Brazilian government because of its absence of activity regarding the Climate Fund and Amazon Fund, which has been prompting the suspension of the assets tasks, affecting ventures, exploration and exercises that try to moderate environmental change and that in any case could be profited by the funds reserve. Formal proceedings are required to be held soon by the Brazilian Supreme Court to examine these activities. The Brazilian Association of Environmental Public Prosecutors joined forces with the Institute for Climate and Society to advance an atmosphere suit capacitation course for investigators, for which will motivate the examining and adjusting techniques for battling environmental change in Brazil.

Answer 1

The term Country Risk profile of Brazil refers to its economical, political, geographical and environmental risk conditions that it pertains, some being permanent and others being temporary. In the long run all these country risks can affect its trade with other nations, specially in the form of investment (FDI) losses.

ECONOMIC RISKS

In the case of a developing country like Brazil, investing can be fruitful as it always posses a potential for growth and development. Being the eighth largest economy of the world, Brazil, is doing its best to get out of the economic risk trap, which happened because of the financial downturn it had faced in the past.

On the above the repurcussions of the pandemic (COVID-19) has shaken the world economy as a whole. It is a huge setback for a developing nation like Brazil, who was already having a tough time to bounce back to its normal economic condition and to meet out its annual growth rate targets.

The cost of production has risen as no government subsidies are being offered and thus increasing the prices. The country is still under debts and is unable to payback at the moment. Therefore, it is no more reliable for an investor to invest in an unstable and weak economy as Brazil has.

POLITICAL RISKS

Many a times a political agenda or strategy affects a country's credibility among its investors.The political unrest increased in Brazil due to the recent pandemic attack can affect foreign investment too.

Although, the President of Brazil tried hard to attract investors through various reforms and moderate measures. But all went in vain due to the pandemic strike which lead to financial crunch and gave the opposition a chance to create a situation of political unrest in the country. A country having an unfriendly political environment is not at all favouravle for outside investors.

GEOGRAPHICAL / ENVIRONMENTAL RISKS

The risks related to a country's geographical and environmental conditions can affect the efficiency and effcetiveness of its market both locally and internationally as well. The environmental threats like emmission of GHG (Greenhouse Gas) can affect the performance of a firm by creating financial risks and its standing in the international market.

The same is faced by companies investing in the market of Brazil, as lawsuits are filed on them by different environment protection agencies to pay the fine due to GHG emmissions. Inspite of this there are no proper measures taken by the government of Brazil to check the companies or evolve modern techniques to create a favourable climatic and atmospheric conditions for the foreign investors. Lagging behind on this ground too it will lose its existing or new investors in coming future.