Brazil is located in South America, and is considered to be a part of the top 10 economies. The developing economy has supported the country to create a notable position in the global economy. However there are some factors that inhibit fast growth of the country. The PESTLE analysis of Brazil outlines these factors in the macro environment, which can affect country growth prospects.
Political Factors
Businesses struggle in regions that are marked by political turmoil and violence. Brazil has facing political instability over the years, resulting in uncertainty for the organizations. The protests that erupted after the shift in government happened as anti-democratic people gathered together. The mass protest in January 2023 turned the country’s political climate volatile.
As a result to the violent protests in Brasília, the military involvement was required to handle the matter and restore the political equilibrium. The attack on state institutions caused nationwide tension and the investors regarded the country as a high risk region for investment. Another factor that contributes to unfavorable political climate is polarization (Andrade, 2023).
From 1980 to 2012 Brazil has flourished due to stable political domain. However, from 2013 onwards the political climate altered and riots and protests became a part of the normal occurrences. This change in political environment had negatively affected business growth opportunities and also created a discouraging dynamics for investors.
Economic Factors
The economy of Brazil shows that the country has been struggling in maintaining a steady pace of economic development. The onset of pandemic and the weak policies of the government have further adversely impacted the economic environment. The GDP growth has been significantly slow, hinting at the underlying economic issues.
Brazil is a part of the trading group of BRIC, and during the pandemic the comparative analysis of these countries indicates that Brazil is lagging behind in terms of GDP ratio. Other countries have also faced pandemic and the consequent economic decline; however Brazil reported lowest GDP growth, averaging 0.3% in the past 10 years (The World Bank, 2022).
There has been some improvement in the GDP from 2020 to 2021. However, the country faces economic challenges arising out of high unemployment, inflation and poverty rates that make the economic progress slower. The limited trading on the international front and discouraging tax policies for businesses also slows economic progress (Martuscelli, 2023).
Social Factors
Brazil is a culturally diverse region with a population of more than 216.4 million people. The country has developed on the social front through increased urbanization and improving the life facilities for the population. Despite the positive developments, there are certain social issues that are holding it back from making rapid economic progress.
High crime rate is one of the major challenges for Brazil, as businesses have to deal with issues such as cargo stealing and extortion. A high rate of such crimes lowers the level of confidence of the businesses, which reduces the likelihood of potential investors making investment decisions (Almeida & Montes, 2020).
During COVID consumer behavior has shown altered buying patterns as a larger number of people spent their income on healthcare related items. A smaller ratio of spending was directed towards purchase of non health and luxury items such as clothing. Another change that was triggered by pandemic was a preference of online shopping over physically visiting the stores.
The online purchase trend has maintained the momentum even after the lockdown has ended, showing the long term changes made on consumer buying behavior. Pandemic has also affected the brand’s market share as customers responded to price difference and opted for lower price brands (Fernandes, et al., 2021).
Technological Factors
Brazil has invested in the development of its technological capability and has shown improvement in terms of technological advancement. Despite this growth, the country has not been able to fully utilize the growth potential offered by different technologies. Strengthening of the country in this sector can help its different sectors in growing and innovation.
The government has taken steps to use digital development to create a favorable business environment. An example of the increased focus on this domain is development of Brazilian Digital Transformation Strategy with the aim to use digital education and skills to boost organizational productivity and country’s economy (Mari, 2022).
Legal Factors
The legal environment in Brazil is facing challenges of high corruption and poor enforcement of laws. There are regulations that have been developed to facilitate businesses to operate smoothly, however the high corruption creates unwanted barriers to business growth. In spite of these challenges, the country is trying to develop a more robust legal framework.
There are laws related to employment, labor management and consumer rights. Moreover, there are regulations for the foreign employees working in the country. Improvements are required in legal framework to make it encouraging for entrepreneurs and start ups. Taxation is another problematic area that needs to be modified to create a favorable business environment (The World Bank, 2022).
Environmental Factors
Environmental changes have propelled the governments and environment protection agency to take the needed steps to lower the environmental damage. Some countries have been able to implement sustainable and green practices, while some other regions find it challenging to adhere to eco-friendly business requirements.
Brazil is included among those countries that are lagging behind in making significant improvements in the business operations in terms of environmental standards. The country is renowned for having the largest rainforests which are threatened due to deforestation and the high degree of emissions from the different industrial units.
According to The World Bank (2022), the government has not been able to develop a clear and comprehensive strategy to deal with the ongoing climate issues. There have been some guidelines for the businesses and the development of goals for reducing carbon emission. But there is an evident lack of strategy to achieve these targets.
Conclusion
Brazil has a challenging business environment due to the slow economic development and issues pertaining to economic and environmental factors. However, with the adoption of suitable policies and regulations, the negative impact of these factors can be curtailed.
References
Almeida, A. F. G., & Montes, G. C. (2020). Effects of crime and violence on business confidence: evidence from Rio de Janeiro. Journal of Economic Studies, 47(7), 1669-1688.
Andrade, V. (2023). Brazil Riots Sap Investor Sentiment After Rocky Start to Year. Bloomberg. Retrieved from: https://www.bloomberg.com/news/articles/2023-01-09/brazil-riots-sap-investor-sentiment-after-rocky-start-to-year#xj4y7vzkg
Fernandes, P., Frnacis, T., Hoefel, F., Lima, L., Pitten, G. H., & Zaroni, C. (2021). Survey: Brazilian consumer sentiment during the coronavirus crisis. McKinsey & Company. Retrieved from: https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/survey-brazilian-consumer-sentiment-during-the-coronavirus-crisis
Mari, A. (2022). Brazilian government amends digital strategy to include govtechs. ZD Net. Retrieved from: https://www.zdnet.com/article/brazilian-government-amends-digital-strategy-to-include-govtechs/
Martuscelli, P. N. (2023). What are the big economic challenges facing Lula’s government in Brazil? Economics Observatory. Retrieved from: https://www.economicsobservatory.com/what-are-the-big-economic-challenges-facing-lulas-government-in-brazil
The World Bank (2022). The World Bank In Brazil. Retrieved from: https://www.worldbank.org/en/country/brazil/overview