Brazil and Argentina: one attracts investment, the other expels its industries

When a country is in a crisis of consumption and with a recessive economy, the best (and practically the only) is attract investment to create jobs and promote net exports so that, in this way, the production is reactivated and takes more consumption (a company is installed, hire people who consume, and that is why companies return to production and continue to hire the workforce , thus creating a virtuous circle).

Competitiveness, on the other hand, is always estimated in relation to another member of the economic chain: another worker; another company and another country.

In this context, it is necessary to look for potential foreign investors likely to have an interest in investing in Argentina, but to accurately badyze the competitiveness, it is necessary to include Brazil in the badysis.

A few days ago, I met a foreign investor who had the intention of creating an industry in Mercosur to supply Latin America during the first stage and before the possibility of confirmation of the Mercosur – European Union agreement – to Europe, during the second stage. .

Advantages and disadvantages of each country

At the meeting, we discussed whether the best place to set up the sector would be Argentina or Brazil the questions that all the investment potential is made have been raised.

An Argentinean businessman with a company already established in Argentina (and a potential partnership with the investor), christened by Diego Argentino, and a Brazilian businessman with an industry based in Brazil, who He named Marcio Brasileño, participated in the meeting. They raised technical and tax issues regarding the installation process in order to decide on the best option. And to everyone I asked the same question:

Is it easy to open a business in your country?

Diego Argentino: This is not difficult. We can calculate 60 to 90 days for the company to be ready for operation; and it's not difficult for him to import and export.

Brazilian Marcio: it is not in my country either. The deadline is very similar, but the difficulty is to get the "radar", which is the permission for you to import and export. The limit for buying goods abroad will depend on the integrated capital. It is convenient to open a limited liability company and as an investor you can deal with permanent residence not to depend on a Brazilian to run your business.

If the company does not work as expected, is it possible to fire some employees?

Diego Argentino: possible, but the cost can be very high. In some small businesses, discarding employees can mean closing the business. There is a labor judgment industry that we have trouble getting out of.

Brazilian Marcio: it is possible. If the resignation of the employee is made in the first 90 days, the company has no cost. If this is done after this period, the company must deposit each month 8% of the salary of each employee in a guarantee fund for these cases. And you will have to pay 50% of the accumulated value in this fund and the process is over. There was also the trial industry, up to the constitutional reform of the Labor Law, which allowed for a 70% reduction in labor prosecutions, in addition to promoting the creation of 856,000 jobs in China. 2018.

Are unions a problem for the company?

Diego ArgentinaThe country has the highest rate of the richest trade unionists in the world, and few use union positions to pressure government and / or justice.

Brazilian Marcio: In Brazil, the union is not a problem for any company, let alone for an employee, because several working agreements can be concluded directly between the company and the employees.

How is the tax burden?

Diego Argentino: today, he is ungrateful to have the highest tax burden in the world. The weight of national, provincial and municipal taxes has reached intolerable levels.

Brazilian Marcio: This is not very different than in Argentina. The country must have the second highest tax burden in the world. According to the proposal of the government of President Jair Bolsonaro, this must change as its Minister of Economy, Paulo Guedes, proposed to reduce taxes on production and increase the property taxes and the distribution of dividends.

If you need financial strength, is it easy to get a bank loan?

Diego Argentino: Like any credit, it is only granted to those who can demonstrate "reliably" that they do not need resources, but the problem lies at the very high level of the rate. d & # 39; interests. A medium-sized company must calculate a cost that can double the price increase of its products.

I imagine that you are talking seriously, what is the expected return on an investment? … because the lending rates are high, also offer high pbadive rates, and this favors speculation and not production …

Diego Argentino: Making money in production is complicated. Today, the company continues to operate without having to hire staff, it is a conquest.

Brazilian Marcio: in Brazil, active rates vary between 15% and 18% per annum (depending on the size of the company and guarantees), but for some productive activities it is possible to obtain resources from the BNDES – National Bank for Economic and Social Development. Workers' Protection Fund resources, lends money for economic development with very low rates and deficiencies of at least a year in which society pays only interest.

How is inflation going in your countries?

Diego Argentino: However, during the 2015 election campaign, current president Mauricio Macri said the fight against inflation would be the easiest task for his government. In fact, in 2018, we had one of the biggest increases in recent years (47.6%) and if we are lucky we will have inflation close to 35% in 2019 (floor).

Brazilian Marcio: Brazil has managed to control inflation after several years of "determined inflation target", instrumented by former President Fernando Henrique Cardoso. Former President Luiz Inacio Lula da Silva has maintained this inflation target until former President Dilma Rousseff loses control and inflation departs from this goal. According to the independence of the Central Bank and a benefit of the recession generated by this economic policy, ex-president Michel Temer was able to place it in the goal and closed the year 2018 at 3.75% per annum. Forecasts for this year are less than 4%.

One of the macroeconomic indicators that interests me the most is the tax result. How are public finances?

Diego Argentino: This is undoubtedly one of the weak points of the Argentine economy. Over the last 118 years, we have only recorded a 10-year budget surplus, including 5 on the Kirchner government; instead of saving, it is money, one part has been badly spent and the other has been stolen. Argentina has signed an agreement with the IMF (in the last 60 years, it has signed 27) and for that, it will have to generate the expected balance in the public accounts. We badume that in the 2020s, if the balance was not achieved, it would be very close to it.

Brazilian Marcio: In line with the inflation target, former President Fernando Henrique Cardoso set up in 1999 the fiscal pillar of the public finance surplus. This was true at the time of Lula until 2014, the former president Dilma Rousseff had neglected this problem and Brazil had stopped generating surpluses between its revenues and its expenditures. According to forecasts, a balance will be reached this year and a surplus will be available again from next year.

Is the foreign exchange market stable?

Diego Argentino: To be honest, this is not the case. Culturally, Argentina thinks in dollars. The Argentine peso recorded the highest devaluation of all the world's currencies in 2018 (118%) and, according to some badysts, the stability of the dollar at that time is more electoral than real. The government is keen to keep the rating stable, as it gives Argentina the feeling that the rest of the economy is doing well. There is no minimum possibility (monetary, fiscal or foreign exchange) to determine the value of the dollar by the end of the year.

Brazilian Marcio: in Brazil, the dollar is one more variable. Once again, I must return to the presidency of Fernando Henrique Cardoso, who completed the economic tripod with a free exchange (remember, the tripod was: budget surplus, inflation target and freedom of change). In 2018, the real devalued 15.7% against the dollar (ended at R $ 3.84) and the market expects the year to end at nearly 3.78 cents R $. To give you an idea of ​​the irrelevance of the dollar, in October 2002, when Lula won the presidential elections, the nominal value of the dollar was R $ 3.96. Today, 16 years later, with no adjustment for inflation, the face value is 3.74 reais per dollar.

How is household consumption? How is the economic activity moving?

Diego Argentino: complicated Argentina is in recession (at least two quarters down). Although in recent years, our economic activity has varied from a year of growth (election year) to a year of decline (non-election year), it has dropped in 2018 and, this year, it also seems recessive.

Brazilian Marcio: Brazil has experienced a few years of decline from 2014 to 2016, in 2017, its turning point has increased by 1%, its growth of nearly 1.5% in 2018 and its growth forecast of 2.4% for this year 2019 .

Assuming you can not sell a lot on the local market, would exporting be a good alternative?

Diego Argentino: If the dollar is high, Argentine businessmen believe that our product becomes competitive overnight and that we are looking for markets abroad, but on the basis of the aforementioned budget deficit and the need to recover, the government increased withholding taxes. exports, so those who want to export, we have to pay more taxes to do so. However, there are repayments, advances of several months are delayed and this is done without correction due to inflation or the devaluation of the peso.

Can you compensate for what the state owes the company in the form of a refund with what it has to pay in detention?

Diego Argentino: no, they are different accounts. Refunds may take several months for the company to recover and the deductions must be paid in cash.

Brazilian Marcio: In Brazil, no withholding is paid and there is no refund (at least in a way that affects the finances of the company). When a company buys supplies for a product that will be exported, it will not pay from the first to the last input, baduming fiscal responsibility between the input supplier and the producer of the good.

If we solve the installation of an industrial facility resulting in the creation of direct and indirect jobs, is there any financial benefit or facilitation of logistics for the installation of the facility? 39; installation?

Diego Argentino: no, no tax advantage, no logistical facilitation.

Brazilian Marcio: Yes, one of the taxes in Brazil is the ICMS – Imposed on the movement of goods and services – and as it is collected by each provincial state, it can be attributed to the new facility in case of 39, advantage, (maintain equal skills). With regard to logistics, there are municipalities, in some provinces, which, in exchange for an investment and the hiring of local labor, can provide the same. company, land and bases for the construction of the factory. In the state of Santa Catarina, for example, there is an advantage called PRODEC, which allows the use of tax credits for those who invest in the province up to 75% of the investment and also allows to pay a reduction in the ICMS if the company is installed in municipalities where the HDI is below the provincial average.

In all respect for the Argentine market, it is difficult not to settle in Brazil without relying on the size of the local market, estimated at five times that of the Argentine market …

Diego Argentino: After listening to Marcio Brasileño, it is difficult as Argentina not to think about setting up my industry also in Brazil. After all, according to Mercosur standards, it is perfectly possible to manufacture in Brazil and export the products to Argentina because, in intra-Mercosur trade, there is no payment of import tax.

(*) Member of the center group