As this article indicates, a veritable “bonanza” is taking place in Brazil as a result of recent offshore oil discoveries by Petrobras: “The result is that every company and group is piling into the country to set up their shopfront to show their wares.” The booming demand for oilfield and related marine and construction services is driving both acquisition activities and redeployment of vessels and equipment to the country, presenting opportunities and challenges for the companies involved and their lenders.
Opportunities in Brazil are also being promoted through the Brazilian government’s Growth Acceleration Program (PAC, based on Portuguese spelling), under which the government announced in 2010 a $526 billion investment in infrastructure between 2011 and 2014, including opportunities for over $220 billion in foreign investments. Foreign companies yet established in Brazil are already seeing business growth as a result of the PAC.
But, companies considering opportunities in Brazil should be aware of and plan for the challenges ahead, which include:
- A complicated regulatory regime that can be difficult for foreign companies to navigate;
- A legal system that is based on the Napoleonic code rather than the common law system employed in the U.S. [other than Louisiana];
- A complex tax code which demands a significant investment of time and effort to ensure compliance and to plan for an exit that minimizes tax implications;
- An extensive and comprehensive labor code;
- An overloaded judicial system that does not rely on precedents, in which cases can languish for many years and there is little predictability as to outcome;
- Crime and security problems that impact the safety of employees, protection of company property and goods being delivered to customers;
- Government corruption that can create exposure for U.S. companies under the Foreign Corrupt Practices Act; and
- Domestic lender restrictions on relocation of collateral overseas.
It is important that companies conduct extensive due diligence to ascertain and address issues on the front end. Putting together a team of trustworthy local individuals and seeking counsel of U.S. and local attorneys are essential elements of this effort.