Rio de Janeiro ● São Paulo ● Rio Grande do Sul

1. Professional & Financial Sectors in Brazil Rio de Janeiro ● São Paulo ● Rio Grande do Sul Phone: +55 11 3819 0265 / E-mail: britcham@britcham.com.br www.britcham.com.br BritchamBrasil

2. Professional & Financial Sectors - Considerations Brazil’s GDP 2015: R$5,904 trillion: approximately £1,180 trillion Professional & Financial Sectors probably are underrepresented: Insurance sector is currently 6% of GDP versus a more usual 10% of GDP. Same probably is true of other sectors such as Audit, Accounting and Consulting. This suggests that above average growth may be expected in these sectors as the economy develops in size, diversity and complexity Existing players Tend to be well structured and competent. Financial sector (Banking & Insurance) is highly concentrated in 5 players (4 Brazilian + Santander) Citibank and HSBC exiting the market. UK insurers exited the market, though UK brokers & Lloyds of London are very active. Professionals usually have foreign affiliations of some sort. Exceptions: Engineering & Legal New market entrants Will need differentiating characteristics to stand out and prosper.

3. Professional & Financial Sectors - Current Entry Barriers Markets & Activities with non tariff barriers Government work for consulting engineers: Market is currently restricted: The industry itself is pressing to raise restrictions as an answer to the recent corruption scandals which have implicated the major players, in large part due to the absence of competition. All Professionally regulated activities (Audit & Accounting, Legal, Health, Architects, Engineers etc.) Practises looking to export services to Brazil are subject only to same requirements as local practitioners. i.e. Membership required of Professional Associations (Law Society, Certified Accountants, Medical Society etc) But: In practice, local recognition of non-Brazilian qualifications is difficult to obtain. Note: Severe civil liability penalties may be applied for mal-practice: e.g. Olympic legacy mis-steps/ Samarco environmental disaster Financial services subject only to same rules as locally established entities In practice, this means compliance with Central Bank/ Insurance regulator’s requirements which UK companies should have no difficulty in meeting. No real impediment in this sector.

4. Professional & Financial Sectors - Current Entry Barriers Tariff barriers: Affect imported services only Not an issue for locally provided services Taxes on imported services are complex and exorbitant: Combined total generally approximates 45%. They can reach up to 50% (case of offshore Data Centers). Equivalent taxes on locally provided services: Combined total approximates 8% Building up local delivery capability is rewarded, though it is difficult for existing players to have all of the specialisations which the market requires.

5. Professional & Financial Sectors - Entry Strategy for Professionals Acquire or build up businesses Companies for consulting engineers: e.g. Mott MacDonald In country track record of the Company is sometimes a requirement for winning larger jobs. In this case, you would have to buy a target with relevant experience. Integrated Global Practices for Professionals: e.g. Baker & McKenzie Acquisitions of firms can be costly and uncertain. Best way in is to hire a rain maker as the country leader. Works as another office, which just happens to be in Brazil. Franchise arrangements with non integrated practices: e.g. Big 4 firms This is a representative firm arrangement under which the local firm pays a “royalty” for membership in exchange for receiving use of global names, methodologies, and has to comply with enforceable standards of service. There is no global profit sharing. Correspondent firms: Local firms which are hired for their specialist knowledge or practice on a project by project basis with no other commitments. The objective here is to keep your clients happy with good service. In all cases you will need local professional qualifications to operate: Non Brazilian specialists may operate as consultants but cannot take legal responsibility for work done. This may have mal practice implications.

6. Professional & Financial Sectors - Potential flexibility in the market Likely increase in the use of PPPs in public concessions: Should free up space for Government work by non-Brazilian firms, especially in the area of engineering/technical consulting. TiSA – Trade in Services Agreement Brazil has signalled its interest to enter the TiSA negotiations: But: It needs approval from its own Chamber of Foreign Trade; and It still has to demonstrate that it is “like minded” with the other 23 countries engaged in the negotiations. One of these 23 countries is the EU which currently represents 28 countries. Brazil probably will be accepted only after Phase 1 of the negotiations is complete, which may happen by November 2016 (so that President Obama may tick it off as another achievement before he leaves office.) Doubt: Will Brexit distract the EU negotiators from this treaty? All this will take time One encouraging sign: TiSA is based on the WTO's General Agreement on Trade in Services (GATS), which involves all WTO members (Brazil is a member).  The key provisions of the GATS – scope, definitions, market access, national treatment and exemptions – are also found in TiSA.

7. Professional & Financial Sectors - Opportunities in the Brazilian Market • Professional services should see increased demand from Government disposal of assets in the short to medium term: • Federal Government sees foreign investment in PPPs and Concessions as a means to kick start the economy. • Airports, toll roads, railroads, ports etc. • Privatisations by State Governments, especially in sanitation (this is a novelty in Brazilian privatisation as well as being a huge program, and specialist expertise is needed) • Privatisations by Federal Governments, especially in power sector. • Disposal of assets by Government controlled enterprises (especially Petrobras which has a US$14 billion disposal program underway). • Financial services opportunities: • The privatisation program should also benefit Financial Services • Few market entry opportunities exist in the banking sector due to the dominance of the major players: this is a sector which UK companies have exited. But it is a sector which is open to investment. • The Insurance sector has some specific opportunities: • IRB (Brazilian Reinsurance Institute) privatisation • CaixaSeguridade: Federal Savings Bank retail insurance operations: IPO planned • Private Equity funds are turning over investments in certain insurance operations: • Austral • Terra Brasis Opportunities are reported in Britcham Brazil’s weekly local Market News: check our site or subscribe to receive this brief newsletter via email: www.britcham.com.br

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