Feasibility Study on Investment in Brazilian Paper and Pulp Industry

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IMG-6
Global Business Environment

Feasibility study for investment in the
Brazilian Paper and Pulp Industry

Report By:
Ashish Jindal (063011)
Avneesh Luthra (063012)
Aayush Singhal (063013)
Deepak Arora (063014)

Feasibility study for investment in the
Paper and Pulp industry in Brazil

An overview of Brazil
Brazil is the largest country in South America. It is the world’s fifth largest country, both by geographical area and by population, with over 192 million people. It is the only Portugese-speaking country in South America.

Brazil is the largest national economy in Latin America. It is the world’s sixth largest economy at market exchange rates and seventh largest in terms of purchasing power parity, as per the International Monetary Fund and the World Bank. Brazil has a mixed economy with abundant natural resources. The Brazilian economy has been predicted to become one of the five largest in the world in the decades to come. It has large and developed agricultural, mining, manufacturing and service sectors, as well as a large labour pool. Brazil’s current GDP is estimated to be $2.294 trillion and Per Capita GDP $11,769

The Paper and Pulp Industry in Brazil
Brazil is the largest producer of paper and pulp in South America. On the world stage, it is the 4th largest producer of pulp with a production of 13,315,000 tonnes and 9th largest producer of paper with 9,428,000 tonnes (2009). Brazil’s Pulp & Paper Production

Source: Bracelpa

Brazil is predominantly a tropical country. As a result, the soil and climate in most regions of Brazil are favourable to forest growth. The main geographical areas in the paper and pulp industry are the states of Sao Paulo, Parana and Santa Catarina.

Furthermore, eucalyptus trees in Brazil have short growing cycles (approximately 7 years), compared to 10-12 years in Chile and 25 years in the United States. Thus, production of wood in Brazil requires less time and a smaller growing area when compared to Europe and North America, resulting in higher yields.

Industry Overview- 222 companies spread in 539 municipalities, located in 18 states.- 2.2 million hectares of planted area for industrial use.- 2.9 million hectares of preserved forests- Total certified forest area: 2.0 million hectares- Exports 2010: US$ 6.8 billion- Trade Balance 2010: US$ 4.9 billion- Taxes: R$ 2.2 billion- Investments: US$ 12 billion in the last 10 years- Jobs: 115 thousand direct jobs (industry 68 thousand, forests 47 thousand) and 575 thousand indirect jobs.| Source: Bracelpa, March 2011

Macro Environmental Analysis

Political & Legal environment
The Foreign Direct Investment regime in Brazil has been fairly liberal and foreign capital is viewed with sympathy by the large majority of political currents and parties, who see it as a source of employment and modernization of the economy. The 1990s saw a host of path-breaking liberalisation reforms in the Brazilian economy. Certain investment policies were formulated in the 90s to attract more FDI in to the country. The Central Bank of Brazil simplified the registration procedure for FDI inflows. This led to a decline in the administrative costs associated with the entry of FDI inflows into Brazil. A series of constitutional amendments were enacted within 1995 and 1996, which helped remove constitutional distinction among national companies and foreign companies. In 2002 Investe Brazil was set up to promote investments in Brazil.

Despite a formally well functioning business environment, corruption and bribery are still serious obstacles to doing business in Brazil, especially in business dealings with the government. Multiple corruption scandals have emerged over the years, involving politicians and bureaucrats taking kickbacks from companies in exchange for awarding public contracts. The levels of bureaucracy and lack of transparency in rules make Brazil a difficult country to do business in....
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