Idea Transcript
Top-10 regulatory barriers to enter the Brazilian market Maritime by Holland, the Dutch maritime network organisation Rotterdam, November 2013
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Objectives and study approach Analysis Top-10 regulatory barriers Sector specific barriers Recommendations More information
Top-10 regulatory barriers to enter the Brazilian market
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Background Brazil is an interesting member of BRIC Trade and business with Brazil is difficult
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Approach Deskresearch / websearch Interviews in Brazil (Gistran) Interviews in Netherlands – Solutions for the Top-10 regulatory barriers and 3 sector specific barriers – Recommendations
Top-10 regulatory barriers to enter the Brazilian market
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Brazil has known a period with high growth due to: – stimulating internal consumption Since 2011 growth has fallen down: – Competitive power is weak, wages are relatively high – National industry is protected, leading to more rules and higher barriers instead of less – Taxe advantages (IPI) for threatened industries International experts: ‘Brazil should stimulate trade and attract FDI and should encourage more competition on the internal market’
Top-10 regulatory barriers to enter the Brazilian market
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Greater part of Top-10 is on operational level…… ……and is difficult to change (‘part of culture’), meaning: – Deal with the situation – Learn from eachother and from professionals – Information, tips & tricks are crucial At the same time, broadly felt needs are on a strategical and tactical level: – Need for an intergrated clusterapproach/-strategy – Need for a better co-operation on various levels
Top-10 regulatory barriers to enter the Brazilian market
Top-10 regulatory barriers to enter the Brazilian market
Explanation • Due to the slightest deviation from law and regulations huge administrative delay and consequently high storage costs arise. The local content requirement imposes restrictions on what can be imported. Difficulties arise when there is no (or only one) local supplier available and all guidelines with regard to local content should be met. For the import of individual parts problems arise with slow paperwork, changing legislation and local / regional differences. How the barriers works • Commercial imports must be registered in Brazil's Integrated Foreign Trade System (SISCOMEX), while importers must register in the Registry of Exporters and Importers (REI) maintained by the Secretariat of Foreign Trade (SECEX) at the Ministry of Development, Industry and Foreign Trade (MDIC). Both procedures may take 1,5-2 years! Solution • The solution is to make use of existing trading companies or co-operate with a Brazilian importer-distributor and/or to start with representation office. • One specific advise is to make use of the local shipper proposed by you Brazilian customer for the clearance of your exported goods, and to abandon the idea of arranging a more profitable deal for clearance by yourself. This will certainly fasten procedures. • In various publications and in the full report, useful information and tips & tricks can be found for instance in the publication ‘Kompas 2013-2014’ of Dutcham.
Top-10 regulatory barriers to enter the Brazilian market
Explanation • The provision of certain services may both government, state or local levied. Frequently unclear who to pay, with the result that sometimes too much / too little is paid. In case of transport between different states (each with its own tax regime), a Barreira fiscal creates an additional administrative burden similar to transport across How the barriers works • Different ICMS (VAT) implementation processes and tax levels generate fiscal barriers in states borders. There are no integrated fiscal systems (like in federal taxes) and each state has its own procedures and controls (some of them very sophisticated like in São Paulo, Minas Gerais e Rio de Janeiro states). Such complexity in normative and fiscal control of merchandize circulation generates red tape that is time consuming and facilitates corruption. Solution • The lack of stability of fiscal procedures (a continuous reformulation of normative structure in all levels of government) demands hiring tax specialists. This is a cost burden but decision not to hire can generate heavy fines and damages.
Top-10 regulatory barriers to enter the Brazilian market
Explanation • The process for obtaining visas is slow. Obtaining a permanent visa is very complex and temporary visas are increasingly limited valid (90 days in Brazil, then 90 days out). The number of visa applications at the Brazilian embassy is limited (5 per day). This causes problems in projects where several people are needed. How the barrier works • Following these developments, the National Immigration Council has come up with several resolutions for complying with these new situations for adapting the criteria for the granting of any type of visa and the terms on which visas may be granted. The result is a huge and inflexible barrier. • Visas can only be requested once the order has been given, which often means a delay at the very beginning of the project. The same problem appears when crew needs to be replaced. Solution • There maybe a possibility at diplomatic level to easen the visa procedures, when the Netherlands will doe the same for Brazilians which apply for a permit or visa. • One Dutch company coincidentally found a more pragmatic solution. The company tried to arrange a visa for one of its employees, but it took so long that the employee lost his patience and did not want to go anymore. One of his colleagues got married with a Brazilian woman and went instead. He obtained his permit within a week. The company has its own office now and from this Brazilian affiliate it seems to be a lot easier to obtain visas. • The publication ‘Kompas 2013-2014’ of Dutcham provides an extensive overview of all different types of visas and associated regulations.
Top-10 regulatory barriers to enter the Brazilian market
Explanation • It’s important to know what the local content requirement is at the beginning of an application. This is not always clearly understood. This creates risks that assignments might get lost to competitors. How the barrier works • Local content depends on the last step. Steel that is made in Brazil = 100% local content. If it is imported it is 0%. But, if the ore is imported and the steel is produced in Brazil, it is 100% local content. The quality of steel in the Brazilian market is inferior to the European quality. Strict adherence to the local content requirement at this point would mean that the final product is of an inferior quality. • Furthermore, local content percentages apply to the whole package including the activities of other parties ((sub)contractors) in the same bid. Another consequence of local content requirements is an excessive import duty of 40% on services. Solution • Local content percentages can be calculated and for instance be found on www.anp.gov.br Also other certification offices for local content can be found on this website • Local quality is often inferior. So, lowering the local content percentage in combination with including training of locals as part of the tender process would benefit the quality of the product and thus the customer and Dutch companies which are able to offer training to locals would befenit. • Dutch companies need a staff permanently dedicated and allocated in Brazil, not a person (even with high commercial and/or technical capacity) who stays for some weeks and then leave. Permanent staff of Holland Maritime House could assist in the complex procedures. • Contract a specialized company and/or a classifier organization in the local services market.
Top-10 regulatory barriers to enter the Brazilian market
Explanation • It is an intensive process for companies to be on the makerslist of Transpetro and Petrobras recorded. This is certainly the case for SMEs. The CRCC (Certificado de Registro de Classificação Cadastral) application process is often difficult and the costs are fairly high. How the barrier works • It’s a long and complex procedure in which over 100 in-depth detailed documents, information and certificates are required. In addition, an on site inspection is part of the procedure which will take much time. A minimum of 90-120 days is required. Solution • The most obvious solution to deal with CRCC difficulties is to install a Brazilian branch. Is time consuming and costly, but simplifies any future processes with Petrobras. The decision depends on the expected future business of the company with Petrobras. • Follow a step-by-step approach by Brazilian, specialised lawyers • Get support from a permanent staff at Holland Marine House (see barrier 4) • Masterclasses for knowledge diffusion amongst other seriously interested companies • In the full report and its Annexes more detailed information is provided about this barrier.
Top-10 regulatory barriers to enter the Brazilian market
Explanation •
Rules for obtaining a Brazilian flag are very difficult to work with which makes it difficult to work within Brazilian borders for shipowners and shippers. In addition, you have to deal with the local content requirements regarding crew. This is not desirable and often there is a lack of local expertise.
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Registration of ships: the flag is only for Brazilian companies and the ship must be registered at Maritime Property Register (Registro de Propriedade Marítima).There is an alternative register at Brazilian Especial Register (Registro Especial Brasileiro – REB), which is complementary to Maritime Property Register. There is a lack of high rank crew members (commanders and officers), hampering Brazilian flag for ships, even with REB registration. Positive market projections, if actually realised, will put even more pressure on demand for qualified people.
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REB is still rigid but more flexible: only the commander and chief engineer must be Brazilians; special work arrangements are allowed, aiming at more competition in the services market. Training new commanders and chief engineers (filling the lack) is a starting activity in public and private centers. Foreign (Dutch) co-operation is welcome, which may lead to a further flexibility in the labour market. In addition, adding training (of locals) requirements in tender procedures would lead to a better chance for Dutch companies which are able to offer training facilities.
Top-10 regulatory barriers to enter the Brazilian market
Explanation •
The uncertain economic outlook undermine the stability of the currency, with high hedging costs as a result. The local content requirement increases the proportion of local spending, a higher amount hedge and hedging costs as a result.
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How the barrier works •
Hedging costs are an exchange market result. It depends on currency volatility and is beyond company (foreign or Brazilian) control.
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Brazilian Central bank is doing an effective reduction in exchange volatility. It is a high level Brazilian economic decision, without external influence to obtain solutions. Private companies (Brazilian or foreign) are required to perform contracts in local currency. A clause of the contract may fix the amount of reais to the exchange rate on the date of payment.
Financial mechanisms are difficult to adjust, but a guarantee by - for instance - Atradius Dutch State Business will reduce risks and thus hedging costs.
Top-10 regulatory barriers to enter the Brazilian market
Explanation •
Contracts are interpreted flexible.
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In the Netherlands everything which is not formally forbidden is automatically allowed, while in Brazil things are not automatically allowed when they are not forbidden. One need to proof why something is or is not allowed. In addition, the interpretation of rules is further complicated by sometimes conflicting rules due to the various government levels.
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One should respect and accept Brazilian law and regulations. Finding a bypass will confront you with other regulations In case of the development of a JV, the starting point is a solid and detailed draft agreement made by both partners, covering their goals, mutual expectations and needs. In the ‘Kompas’ publication of Dutcham a list of 14 strategic points is presented in order to come to such a draft agreement. That is the starting point for the lawyer. Not sooner and not later. For the juridical translation make use of Brazilian lawyers.
Top-10 regulatory barriers to enter the Brazilian market
Explanation • IBAMA operates completely independent, but is very rigid. Obtaining a license is a lengthy process and once issued, there is little flexibility in implementation possible. How the barrier works • The Brazilian National Environmental Policy is executed at three different le-vels, public administration – federal, state and municipal. Coordinating and formulating the rules is the responsibility of the Ministry of the Environment. IBAMA is the government agency under jurisdiction of the Ministry of Environment, and is the agency responsible for executing the Brazilian Environmental Policy at the federal level. The environmental agency in a state or city is usually res-ponsible for environmental licenses. In Rio, for instance, the public agency IN-EA8 issues the environmental license process. Solution • It can take a long period to gain environmental permits (for instance in mining 4-5 years) and the level of uncertainty created by this, coming after significant time and money has been spent on exploration, represents the most significant risk when investing in Brazil. This significant risk should thus be taken into account when making an investment decision. • Including environmental requirements in the tender procedure may lead to a shortening of the total period for obtaining the permits. • Furthermore, the inclusion of higher environmental requirements in tender procedures will not only lead to more sustainable projects, but will also increase the chance of winning the tender by Dutch companies which are more environmentally oriented than their competitors.
Top-10 regulatory barriers to enter the Brazilian market
Explanation • No way of winning government projects without evidence that similar activities have been undertaken (in Brazil or abroad) How the barrier works • CREA (Regional Council of Engineering) Registration is necessary for bidding • CREA registration of a foreign atestado demands: – a document issued by the contractor detailing the specific work technical characteristics; – registration in an entity comparable to CREA in the country where the service has been undertaken; – registration of such document in Brazilian diplomatic authority in the contractor’s country of origin; – translation to Portuguese by a certified translator; – analysis by CREA Civil Engineering Chamber.
Top-10 regulatory barriers to enter the Brazilian market
Solution • Eliminating this barrier is not an easy task because only the Brazilian Congress can implement such modifications. Changes in CONFEA nº 444/2000 Resolution are, in theory, easier but CREA (and CONFEA) are very conservative entities with a bias to protect native professionals. Moreover, CREA is not likely to acknowledge that their own bureaucratic procedures are a form of protection. • After much time and effort, Boskalis gave up of normal process and adopted the following strategy: – bid in consortium with Brazilian companies that have the necessary atestados properly registered in CREA; – after completion of work, file and register in CREA its own Brazilian atestado; – upon having obtained the necessary atestados, compete alone in future bids, if so desired • A permanent staff at Holland Marine House (see barrier 4) may provide the necessary support for new companies entering the Brazilian market. • Furthermore, masterclasses will provide them with relevant information and tips & tricks.
Top-10 regulatory barriers to enter the Brazilian market
Explanation • There are plenty of Platform Supply Vessels (PSVs) locally, but only on long term charter for PETROBRAS. Resulting in forced import with extremely high prices. How the barrier works • Operation costs are high. Normative nº 72/2006 of National Immigration Council (Resolução Normativa nº 72/2006 do Conselho Nacional de Imigração – CNIg) makes a strong restriction to foreign offshore support vessels operations in long term charter (like in PETROBRAS contracts). The normative oblige Brazilian crew employment: 2/3 in more than 360 days contracts. • Due to a full employment market, a Brazilian crew is more expensive (and may be less qualified) than original crew of foreign ships. Also serious is the Brazilian rule for crew rotation (15 days work/ 15 days rest) against international practice of 30 days work/15 days rest. Each ship requires, at least, two complete crews.
Top-10 regulatory barriers to enter the Brazilian market
Solution • The two obstacles (Normative nº 72/2006 of National Immigration Council and the standard rotation of crews) result in higher operation costs, but are supported by a strong position of maritime syndicates (market and political positions). No alternatives are foreseen, unless: – There is an increase in training of maritime personnel, leading to a reduction in market pressure for crews. Maritime training is a good field to foreign cooperation, particularly in new maritime technologies. – There is a change in normative nº 72/2006 of National Immigration Council, allowing greater (or total) foreign crew participation. A Normative is not a Federal Law and can be changed in an easy way. Against changes, a strong maritime syndicate action is expected. In favor of the changes is Petrobras need for cost reductions, most needed in Pre-sal operations (300 km away from Brazilian coast).
Top-10 regulatory barriers to enter the Brazilian market
Explanation •
Local content requirements ensure that partially local production is realized. At the same time, knowledge and skills are not always sufficiently developed in Brazil. Qualified personnel is scarce.
How the barrier works •
Local content is a clear obligation in all government shipbuilding programs (PROMEF, PROFERAM) and even in private contracts that use financial resources of FMM and BNDES. To meet local content requirements there are two main problems with work force: quantity and technical capacity.
Top-10 regulatory barriers to enter the Brazilian market
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End the local content is very difficult. The government (the Labor Party is in power) is very sensitive to union claims. The strong demand for vessels in PRE-SAL may generate a bottleneck, forcing the government to reduce the percentage of local content, but not eliminating it. Foreign experience in technical training is certainly welcome. SENAI (the best Brazilian technical training organization) has a lot of international cooperation programs. In addition, adding training (of locals) requirements in tender procedures would diminish the gap on the labour market ánd would lead to a better chance for Dutch companies which are able to offer training facilities.
Top-10 regulatory barriers to enter the Brazilian market
Top-10 regulatory barriers to enter the Brazilian market
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Accept, respect and do not discuss Use Brazilian professionals Tips & tricks for trading and investing in Brazil: Kompas 2013-2014(Dutcham), included in Annexes of full report Masterclasses, learn from eachother and from professionals
Top-10 regulatory barriers to enter the Brazilian market
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Trade promotion and knowledge exchange with Brazil Knowlegde transfer and training Tightening procurement requirements on environment, safety and training of locals More influence in pre-bid stage Package deal for easening local content requirements
Top-10 regulatory barriers to enter the Brazilian market
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Integrated cluster strategy Aiming at creating win-wins, starting from the Dutch strenghts Broadly supported by ministries, industry organisations, knowledge institutions, companies Integration of trade support services – Brazil as pilot / showcase!
Top-10 regulatory barriers to enter the Brazilian market
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The Norwegian Government’s strategy for cooperation between Brazil and Norway: Private sector cooperation, trade and investment Climate and environmental issues, and sustainable development Global challenges Knowledge exchanges and social development
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O.a. strategic partnership with Petrobras, Statoil a.o. Agreement with CENPES (joint R&D) and advisory services for individual companies
Top-10 regulatory barriers to enter the Brazilian market
Box 1: Best start: Dutch-Brazilian Maritime Hotspot Event Rio de Janeiro – March/April 2014
knowledge transfer: interesting presentations by Dutch and Brazilians parties/experts
masterclasses: - learning from eachother experiences and from professionals (Br azilian law firms, etc. See Annex) - JV’s, cooperation - getting classified at Petrobras - how to deal with local content requirements - etc. - practical tips & tricks - matchmaking and networking
presentation of Dutch Maritime Cluster strategy and branding
signing of MoU for the development of a government’s strategy for cooperation between Netherlands and Brazil in the maritime sector
Target group: Dutch (SME) companies which are serious with doing bus iness in Brazil, Dutch companies experienced with doing business in Brazil. Brazilian companies interested in cooperating with Dutch companies. Businessmodel:
Sponsors: Dutch maritime companies already settled in Rio
Entrance fees
Government support
Top-10 regulatory barriers to enter the Brazilian market
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Panteia, Top-10 regulatory barriers to enter the Brazilian market, full report, October 2013. Panteia, Top-10 regulatory barriers to enter the Brazilian market, Annexes, October 2013. Separate bundle with the following Annexes: 1. Trade articles and statistics 2. Certificate of registration in Petrobras's database of validated suppliers and service providers (CRCC) 3. KOMPAS 2013-2014 4. How to export to Brazil 5. Doing business in Brazil 6. Norwegian Government's strategy for co-operation between Norway and Brazil
Top-10 regulatory barriers to enter the Brazilian market