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Worries about the economy don't drive foreign startups away from Brazil

The pandemic accelerated the Brazilian economy digitalization, opening up several investment opportunities


The recent return debate on fiscal rules has deepened the economic and political instability that has marked Brazil in the last years. Faced with the serious social crisis this country is going through, with high inflation and unemployment, the current government was forced to free up space in the budget to finance a new income distribution program.

The solution found was the Proposal for a Constitutional Amendment (PEC) of the “Precatórios”, which provides for the payment of installments of the Union’s judicial debts with individuals and legal entities. In addition to installment payments, the proposal (currently being processed in the Senate) aims to revise the so-called “spending cap”, a rule that limits the growth of public expenditure to inflation.

The PEC dos Precatórios has caught the attention of the market, which welcomes the spending cap and fears a wave of fiscal irresponsibility combined with the social crisis. The moment is delicate and inspires concern.

But there are a series of factors that lead economic agents to believe that Brazil is still a great investment destination, with advantages over other Latin American countries.

Beyond the crisis

Despite the instability and noise, analysts point out that Brazil has the tools to overcome the crisis. Since the 1990s, the country has shown a certain continuity of principles in economic policy, regardless of the position of different governments. Although there are many nuances that generate debates, we can say that this policy is still solid.

Brazilian democracy has also shown resilience. In recent months, after repositionings of the Presidency of the Republic in search of governability, the theme of an alleged threat to institutional rupture has been losing strength in public debate.

As Rodrigo Briozzo, from S&P Global, stated to BBC News Brasil, “if on the one hand the reforms are stuck due to the need for a large political consensus to change the Constitution, on the other the country has a consolidated democracy, a history of respecting the rules and we think that will not change so quickly.”

Stimulation of the economy and new opportunities

The covid-19 pandemic was certainly the main factor in the Brazilian economic instability. This same pandemic, however, opened a series of business opportunities, especially in the area of technology. A clear example of this is the contrast between the departure of large multinationals and the arrival of billions in investments by foreign startups.

The scenario points to the dynamization of the Brazilian market, not only with a greater variety of products and services, but also with a greater presence of technology in everyday life. The pandemic, after all, accelerated the digital inclusion of Brazilians by decades. Just to mention two examples, there are the population’s banking process (flawed in the past) and the rapid growth of electronic commerce.

In this context, political noises have taken a back seat to global startups that want to access a market of 200 million people. As Fernando Prado, of the Indian giant Byju’s, told Folha de S. Paulo, “Brazil is big enough to make up for any difficulties it may have.”

It is also worth noting that the Brazilian population is not only large, but lacking in quality services and quite open to innovation. In several areas, there is pent-up demand in the country, and any sign of economic recovery should quickly reward startups that decided to bet on Brazil.

Pryor Global offers advice to foreign startups wishing to establish themselves in Brazil. Our team has experienced professionals who know the economic scenario and Brazilian legislation. To learn more about the services offered, talk to one of our specialists.

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