Experts: Brazil Equals Opportunity — With the Right Long-Term Plan

Brazil may have fallen off the investment map for many global brands, but South America’s largest economy still holds vast opportunity with the right plans to navigate bureaucracy, cultural challenges and complex market dynamics, experts said at an Atlanta investment seminar in October.

While its political situation is has stabilized a bit, Brazil has seen high inflation and devaluation of the real versus the dollar in recent years.

These same trends have forced many Brazilian firms to accelerate their international plans, at times aided Brazilian government organizations like ApexBrasil and SECOM, which help them gain a presence at global trade shows like so-called poultry show (IPPE) held in Atlanta each year.

Many are looking for outside sources of dollar-denominated capital, says Ron Slotin, who helps Brazilian firms raise funds through his firm, Brazil USA Capital.

“I’ve never seen more opportunities cross-border than what we have going on now,” Mr. Slotin said during an event organized by Connect Solutions with support from ApexBrasil, the Brazilian-American Chamber of Commerce Southeast and the World Trade Center Atlanta in a conference room at the Brazilian consulate in Atlanta last October.

The increased appetite for U.S. equity investment accompanies the focus on outward global growth, he said.

“They’re looking to raise capital through selling 5 to 50 percent equity in their company, which gives them money to operate in the U.S. and expand internationally elsewhere in the world,” Mr. Slotin said.

Georgia has been a beneficiary of the outbound trend, particularly in the southern part of the state where agribusiness firms like Forquimica and manufacturers like the Guidoni Group and CZM have increasingly established a presence.

Ron Durchfort, a global investor helping consumer brands enter Latin America through Alon Global, a consultancy, said the interest goes both ways, but patience in Brazil is key. A strategy that yields “hockey-stick growth” in the U.S. may not work in a country that is more fragmented in terms of distribution. Walmart’s 2018 exit from Brazil is a cautionary tale, he said.

When companies are struggling, it’s often “because you haven’t adapted to the local reality. That’s the biggest issue, and then people get discouraged,” Mr. Durchfort said. They then pull capital and deploy it in markets where they’re receiving more demonstrable short-term returns. It often takes two to three years in Brazil to start building traction, he said.

Mr. Slotin agreed, noting that market entry in Brazil requires a written plan and what he said were “realistic expectations” — along with a dose of adaptability.

“It always costs more and takes longer than what most of our clients think,” Mr. Slotin said, noting that there are ample opportunities for venture capital firms to invest in Brazil’s innovation ecosystem, with a vast pool of biotech, animal health and fintech companies.

For consumer brands, finding partners with a history of distributing products in your channel of choice, whether e-commerce or brick-and-mortar retail, is vital, Mr. Durchfort said.

“Track record is important for us. You can see a person’s history, how they act, how they treat their market, their consumers, their employees. And you want to try to find people where you can align values because it’s going to avoid some of the problems moving forward,” Mr. Durchfort said.

Partners can also come from unexpected places. When taking classic shoe brand Converse into the market, Mr. Durchfort approached a manufacturer making a pirated version and asked them to come “from the dark side to the light.” They did, and Converse helped the company improve processes while avoiding costly litigation.

Brazilian firms want to improve and will do so if given the right incentives.

“I’ve never found a partner that didn’t want to get better, but that’s the key: You need to want to evolve,” Mr. Durchfort said.

Maikon Luiz Izabel, director of Brazil operations with Drummond Advisors, said companies should be aware of the tax implications of setting up in Brazil, where both business and individual purchases are reported to the government. That makes filing easy at the end of the year — as long as you’ve had the right compliance measures set up throughout the period, he said. He reiterated the need to find the right partners in Brazil, especially due to differences and ongoing reforms in the legal and tax environment.

Solar firm Long Light Energy has invested some $35 million of its planned $80 million in Brazil, said CEO Rodrigo Barfield. Things are getting easier as more government debt becomes available to finance utility projects, Mr. Barfield said.

“There’s kind of a maturity that’s taking place in that Brazilian market right now, especially in the local capital markets,” he said, noting that China’s investment in solar panel capacity has paid off and for utility-scale projects in Brazil, helping keep costs of installation low.

“(China) made a bet on the future. It’s like Tesla betting on EVs and the rest of the (internal combustion engine) manufacturers saying ‘No, you know, we’ll stick with ICEs.’ You’re betting on horses instead of cars,” Mr. Barfield added.

The event also included a detailed virtual presentation by Gary Carrier, CEO of Plataforma Impact, which trains and deploys programmers in the favelas of Brazil on international software development projects.

Learn more about the “How to Invest in Brazil” event here.