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Small and Medium-sized Enterprises in Brazil

Posted: Tue Dec 04, 2018 15:12
by Progresso
Authors: Petra Smits, Yashini Sagoenie, Hein Cuppen, October 2018

This article presents the main policies for Small and Medium-sized Enterprises in general and more specific in the area of innovation. Brazil has policies and programs on national, state and municipal level besides the initiatives from other (semi-)private organizations and institutions. There are several means of business support for Brazilian SMEs and financial stimulation such as grants or loans. Doing business in Brazil is not easy and a partnership with a local company can be beneficial to both parties involved.

Introduction: Small and Medium-sized Enterprises in Brazil

Instead of using the term Small and Medium-sized Enterprises, as is common in Europe, Brazil uses Small and Micro Enterprises (SMEs). The Brazilian SMEs are qualified solely by revenue, at a max of R$ 4,8 million/year (~€ 1,1m), considerably smaller than a micro enterprise by EU terms (€ 2 million, max 10 employees). Brazilian SMEs together represent 99% of all Brazilian businesses in absolute numbers, amounting to 27% of Brazil’s GDP (2011), and account for more than half of all formal employment in the country. SMEs benefit from a tax system (“Simples Nacional”) that unifies eight federal taxes into one monthly contribution lowering the burden on reporting obligations. Medium-sized companies do not receive special consideration and are
considered to be big companies.

SMEs are the strongest generator of jobs in the country, and their participation in Brazil’s GDP has been growing steadily from 21% in 1985, through 23,2% in 2001, to 27% in 2011. Their annual growth has also increased, from 0,14% to 0,4%/year. More than half (53%) of retail, 36,5% of services and 22,5% of industrial production is done by them. However, their activity is illustrative of Brazil’s contrasts between the national and the international economy. In 2016, only 1% of all exports were done by SMEs, and regardless of company size, most exports are commodities such as soy beans and iron ore. SMEs that want to engage in international trade could be interesting for Dutch companies looking for a point of entry in Brazil by means of a local partner. According to the World Bank’s “Ease of Doing Business” report (2018), doing business in Brazil is not easy.

Taxes and bureaucracy remain complex with high demands of both organizational and financial capacity. SMEs need to report to federal, state and municipal governments, apart from compulsory participation in unions and associations. Access to capital is restricted, mainly due to extensive documentation demands and high interest rates of, on average, 30,6% per year. Most SMEs are in need of skilled employees and management. Furthermore in Brazil, the entrepreneur is exposed to personal risk, because tax liabilities and labor related lawsuits are connected to the
person and fall outside of bankruptcy protection. Another challenge for SMEs is innovation. The Brazilian market is relatively closed compared to other countries2 implying that there is less competition, which may influence innovation.

In Brazil, the “Lei de Inovação” (Innovation Law) explains innovation as: “the concept of a new product or manufacturing process, together with the aggregation of new functionalities or characteristics of the product or process which imply incremental improvements and effective gains of quality or productivity, resulting in more competitiveness in the market.” The explanation of innovation is similar to that of Europe.

Full publication can be found at NL Enterprise Agency