 | 2007 | 2006 |
Overall Score: | 65 | 59 |
Regional Ranking: | 2nd | 2nd |
Although Brazil leads the region in the development of a local VC/PE industry, the nation ranks 2nd in business environment. With Brazil’s powerhouse economy drawing the lion’s share of foreign VC/PE capital and strong private and public sector advocates pushing for remaining improvements, strong industry growth may be sustained, provided corruption concerns are addressed.
Strengths: Rapid expansion of fund formation under Instruction 391/03 of 2003 by the Securities Commission (CVM) proves the effectiveness of Brazil’s legal framework for VC/PE funds. Brazil continues to improve tax incentives for VC/PE activity; foreign institutional equity investments are now largely exempt from income and capital gains taxes, with domestic rates reduced. A bankruptcy law enacted in February 2005 seems positive, with partner liability generally unproblematic. And though the CVM has not published results of voluntary corporate governance compliance reporting, there is increased adherence to international standards. Of Brazil’s 33 IPOs since 2004, 23 were compliant with the strictest requirements of the Novo Mercado section of the Bovespa stock exchange.
Challenges: While IPOs are expanding rapidly due to growing market capitalization and reforms to capital market and corporate governance, the further development of Brazil’s capital markets and feasibility of exits are impacted by high capital costs and limited access to traditional financing sources such as banks and debt markets. Brazil’s intellectual property rights protection also remains poor.
| Score | Change |
| Overall score | 65 | ▲ 6 |
| Laws on VC/PE fund formation and operation | 3 | ▲ 1 |
| Tax treatment of VC/PE funds & investments | 3 | ▲ 1 |
| Protection of minority shareholder rights | 3 | |
| Restrictions on institutional investors investing in VC/PE | 3 | |
| Protection of intellectual property rights | 1 | |
| Bankruptcy procedures/creditors' rights/partner liability | 3 | ▲ 1 |
| Capital markets development and feasibility of exits | 2 | ▼ 1 |
| Registration/reserve requirements on inward investments | 3 | |
| Corporate governance requirements | 3 | ▲ 1 |
| Strength of the judicial system | 2 | |
| Perceived corruption | 1 | |
| Quality of local accounting/use of international standards | 3 | |
Indicators are scored from 0-4 where 4=best score.
Overall score ranges from 0-100 where 100=best score. |
