High Death Rate for Businesses in Brazil

Every year, 470,000 new businesses open in Brazil, but 43 percent
will close their doors before their third anniversary. The main
reason they do not survive is weak management skills
resulting in a shortage of working capital and other financial
problems, along with unsound or nonexistent market knowledge.

Stefan Barth

Half of all small businesses in Brazil close their doors in the first two years of operation. That, says Silvano Gianni, head of the Sebrae (Serviço Brasileiro de Apoio às Micro e Pequenas Empresas—Small Business Administration), is one of the highest business mortality rates in the world.

Sebrae just ran a survey of small business mortality and found that 32 percent of the people who open small businesses do not seek professional help for financial problems. And the survey also found that 90 percent of them are not active in trade associations or unions.

The survey showed that out of 1.3 million new businesses opened between 2000 and 2002, a total of 552,700 of them closed down before they were three years old, with the vast majority (49 percent) closing before they reached two years of operation. The remaining 772,600 generated 2.4 million jobs and investments totalling US$ 6.5 billion (19.8 billion reais).

The Sebrae survey reports that annually some 470,000 new businesses open in Brazil and that the main reason they do not survive is weak management skills resulting in a shortage of working capital and other financial problems, along with unsound or nonexistent market knowledge. Sebrae also blames red tape for many small business problems that lead to failure.

Gianni says the way to lower the small business mortality rate is to train the businessman. He reports that Sebrae will provide that training and open communications channels so they can keep up to date on modern management techniques and practices.

Partnerships

Minister of Development, Industry and Foreign Trade, Luiz Fernando Furlan, said that a strong economy depends on two things: partnerships and investments in knowledge.

Furlan made his comment at the 25^th Small Business Conference at the Ministry of Planning, Budget and Management. The principal topic of discussion at the conference was how to achieve digital inclusion in the small business sector where 25 percent of GDP is located and 70 percent of the jobs are.

At the moment the sector has 563 computerized centers. The goal is to set up partnerships that will permit a total of 5,600 of the centers to be operational by the end of 2006.

The July survey (the 152^nd) by the Getúlio Vargas Foundation's Brazilian Economic Institute (Ibre/FGV) of manufacturers (Indústria de Transformação) found that optimism with regard to growth in the near future was at 22 points, the highest since April 1995. The survey polled 945 businesses.

The business climate was considered good by 33 percent of the companies interviewed, compared to 11 percent that thought it was weak. The Ibre/FGV survey takes into consideration a series of factors, such as orders, profit margins and macroeconomic data (interest and exchange rates, for example).

The survey found that 18 percent of the businessmen interviewed said demand was strong, 73 percent said it was normal, and 9 percent said it was weak. A year ago, in July 2003, those numbers were 8 percent, 50 percent and 42 percent, respectively.

According to Aloísio Campelo, an FGV economist, the survey confirms a surge in domestic demand.

Microfinancing Accounts

Presidential Chief of Staff (Ministro da Casa Civil), José Dirceu, reports that over the last 17 months government banks (Banco do Brasil, Caixa Econômica Federal, Banco do Nordeste e Banco da Amazônia) have opened 3.2 million microfinancing accounts. Dirceu explained that microfinancing was a fundamental part of the government's effort to create more jobs.

Dirceu pointed out that during the Luiz Inácio Lula da Silva administration, one million microfinancing operations had taken place, resulting in the release of US$ 202.4 million (612.3 million reais) to small businesses.

Besides microfinancing, the government is also strengthening family farming. For the 2003/2004 harvest, US$ 1.4 billion (4.5 billion reais) had been released by June. And for the 2004/2005 harvest, the government has earmarked US$ 2.3 billion (7 billion reais) for family farming.

Dirceu reported that the government has also set up special programs for small farmers in the North and Northeast regions of the country, with low-interest loans (1 percent per year).

Industry Role

Brazilian industry wants to define its role in the country's economic growth. It also wants to ascertain its participation in the international market at present and what its position will be over the next ten years.

To define these goals and the means to attain them, the National Forum of Industry, created by the National Confederation of Industry (CNI), met recently in the capital of São Paulo.

The aim is to formulate a Strategic Map of Brazilian Industry, which will consolidate the goals and the strategies to achieve them.

"The map is the formulation of a medium and long-term strategy," explained the president of the CNI, Armando Monteiro Neto. "We are engaged in a task which has a horizon cast farther into the future and which utilizes tools and methods that will give it an important distinguishing feature: management of the strategic agenda itself," he added.

The management tool to which the president of the CNI refers is the "Balanced Scorecard," developed at Harvard University and used in strategic programs by private companies, governments, and organizations throughout the world.

The meeting was the first step in defining the Map, through a survey of trends, macro-objectives, and the conditions for their realization.

The economist José Roberto Mendonça de Barros presented the trajectory of Brazilian industry to demonstrate successful experiences that might be used to advantage, and Carl Dahlman, from the World Bank, conducted a panel on the current economic scene.

The results of the encounter will be debated by each of the entities that represent industry, after which they will submit proposals and suggestions. Two more meetings will be held to confirm the decisions, and the project is expected to be ready in December.

According to the president of the CNI, this is not the first attempt to determine a long-term agenda for industry, but what makes this one different already is its greater representativeness.

In addition to the CNI and Federations of Industry from all over the country, the National Forum of Industry comprises 32 national and sectorial associations, "which are engaged in this task."

Among the themes that were discussed, the president of the CNI highlighted what is in his judgment a crucial point: investment in "human capital."

"This involves a strategy that essentially concerns the question of education," Monteiro Neto explained.

He added that he is working on a broader concept of investment in human capital, "not just the training of workers, but training in management and research and development."

Stefan Barth works for Agência Brasil (AB), the official press agency of the Brazilian government. Comments are welcome at lia@radiobras.gov.br.

Translated from the Portuguese by Allen Bennett.