Reference no: EM13796199

Brazil presents 4 major problems, which holds back the country for development:

1. Inflationary pressures- The central bank raised interest rate for a long period of time.

2. tax regime- Brazil presents very hard and bad tax regime. It is considered one of the countries which has high collection of taxes. To import and export that amount of taxes created by the government is outrageous, making trade difficult and very expensive.

3. Floating exchange rate of the Brazilian money- Valuing the real (money of Brazil) against the dollar automatically reduces the country's competitiveness against Asian. The fluctuating between Real and Dollars is not stable, the currency in Brazil against the dollar is always huge being $ 2.80 Real today, but sometimes the Brazilian currency can reach $4.00 for $1 dollar.

4. Labor -The Labor laws are very onerous, involving substantial costs to foreign companies and keeping a good part of the local business in the informal sector.

To manage FDI risks, investors interested in do business in Brazil, must pay close attention to the economy, currency exposure and political risks of the country. Investors should calculating profitability based on the explicit risk and capital cost. In order to have less risk, investors must hedge currency exposure, which in Brazil the fluctuation of the currency is extremely high. Hedging risk present a greater protection against market uncertainty. Investors who focus in Latin and south America countries for investments should carefully invest their money in countries which present less risk for business. In some countries as Costa Rica, the Government welcomes development and are interested in strongly make part of the globalization movement, modifying its economy policies in order to reach market development.