Posted by & filed under Bankruptcy, Credit, International Business.

Dec 14, 2015

Brazil’s rise as one of the two or three most prolific emerging economies in the world at the beginning of the decade is nothing short of impressive. However, within five years it faltered despite being positioned as host of the World Cup 2014 and the Olympic Games in 2016. Brazil has always been a bit of a roller coaster: sinking right after a hot run and surprising when the business world seems ready to give up on it for a while.

Still, much potential exists there because of a growing middle class and deep natural resource holdings, among other factors. To wit, a 2015 poll of NACM members identified Brazil as one of the top five places where companies were extending the most credit. Doing business there, like anywhere, just requires the proper preparation. These are among factors that should be considered when opening new credit relationships in Brazil:

Relationships: Relationships are always important to the credit-debtor dynamic. But in Latin and South American markets, it is even more noticeable than other parts of the world. The social influence on transactions is absolutely critical in Brazil, so business travelers must remember the local customs. For instance, Brazilians are spontaneous conversationalists and will frequently interrupt; Go with the flow—don’t display impatience or frustration.

Volatility: The middle years of the decade were no friend to those who hate surprises, as most credit managers usualy resemble. Its once popular president, Dilma Rousseff, held on in her bid for a second term but was dogged by allegations of mismanagement and impropriety after the election, causing ongoing unrest with the working class she used to champion. In addition, the nation’s largest company (oil/energy titan Petrobras) went bankrupt, also amid allegations of mismanagement and impropriety. But this is no ordinary bankruptcy because, aside from just size, so many other companies in the country were tied in some way to Petrobras and many will feel the hurt from the company’s fall from grace for years to come.

Bankruptcy Law: Bankruptcy law in Brazil has always been considered debtor-friendly. In 2013, the pendulum shifted even more away from creditors’ favor, especially those based out of country. The process now calls for drastically elevated leniency for Brazilian-based companies struggling to pay debts. Those selling on open terms to a Brazilian firm that slips to insolvency can wait several years, even a couple of decades, until receiving even pennies on the dollar for what it owed. As such, due diligence and careful credit-granting consideration must be taken on new accounts.

Currency: The fluctuation of the Brazilian real has been pretty wild for aforementioned reasons, and inflation is an ever-present danger. Because of that, recouping the actual amount thought to be owed to businesses could be problematic once the currency is converted into the again-strong U.S. dollar. As investors have fled the euro and the Chinese yuan, they have moved back to the dollar, rendering it stronger than in some time. With the value of Brazil’s currency below where it has been for the better part of a decade, creditors/collectors need to adjust expectations and assumptions.

 

NACM National

 

Originally Posted in May 2015

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