PEST - Brazil
Political and Legal Forces in Brazil
As the country is handling a program for economic growth, investors can access the support of the government in both financial and advising aspects. One potential barrier for the Australian energy producer is the presence of state-level federations. These are association of industrial companies that cooperates to achieve operational success and also to lobby effectively to the government. MERCOSUL is supportive to direct investments in the country that even non-members such as Australian would be benefited. Although the general stance of the government is to favor investments, energy production is neither a labor-intensive industry nor produce agricultural products. As these two points are explicitly stipulated by the Brazilian Constitution and serve as the “passport” for investors, the Australian firm would find it hard to supersede Brazilian policy. In addition, the justice system in the country is cumbersome and slow which would make any efforts from the firm to lobby its position and services difficult and costly. In contrast, in consideration of the state and federal officials, a foreign firm can own the company 100%. The absence of government share of corporate power is an incentive to management. When the investors have ongoing operation, there is also a restriction of forming additional branches. This undertaking is also highly dependent on the decision of the President of Brazil. As the nature of energy production and transmission is retail, potential economies of scale will not be exploited by the firm. Finally, the government favors those investors that are able to uplift the local economy of poorer regions and the energy firm can is relevant to this feat. Country Comparison: Brazil and Australia
Economic and Financial Factors
One of the major similarities of the two economies is that they both have a free market framework. Also, they are known as leading countries that exports products and services. Brazil is more of an industrial exporter while Australian is services exporter. This difference can support the energy producer since Brazil has its institutions and embeddedness to provide assistance to industrial companies unlike the home country. However, Brazil is known for its hydroelectric power capabilities and at least 90% of the population uses it while its power generation using nuclear reactor is in near-future operations. Since 2002, Brazil’s inflation rate is decreasing but the inflation in Australian is lower and also more stable. The currency of Brazil which is real continued to gain strength due to intensive exporting activities of the country that resulted to currency inflows. But this is undermined by the large debt that the government is servicing. This forced the monetary authorities to increase the interest rates in order to afford payment of such debt. On the contrary, Australia adopted floating currency since 1980s that makes the Australian dollar full-deregulated. However, the country is currently facing current account deficit, real estate bubble and also the same problem of Brazil in huge external debt.
The common problem in the public infrastructure of Brazil is that its spending on this issue is decreasing since 1980s. The population continued to experience occasional brown-outs and also its power generating capacity confronts historical problem from 1960-1980 level of 10% growth to only 3% for today. This would serve as opportunity for the energy producer as long as it surpasses political and legal restrictions. In contrast, the electricity rationing in Australia is generally better than Brazil. Although there are rural problems, the current government has identified programs to mitigate the difficulty. Another issue is the ageing of the public infrastructure in Australia which may call the capabilities of the energy firms if ever government...
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