Brazil State-‐Level Business Operating Environment
A new index developed by the Economist Intelligence Unit for CLP
Findings and Methodology
Brazil: 2012 State-‐Level Business Environment Index
Executive summary
To gain a better understanding of the comparative business operating environments in Brazil’s 26 states plus the Distrito Federal (Federal District), the Economist Intelligence Unit (EIU) has constructed the second edition of the Brazil State-‐Level Business Environment Index. The goal of this Index is to spur debate on the factors that affect business operations. It is also intended to prompt improvements in policy and programmes that will create more productive state economies overall.
The Index provides a snapshot of the current business operating environment in each state at yearly intervals, starting in 2011 and updated this year with the latest data. It provides firms with insights into which states offer the most opportunities and which have the most drawbacks. For policymakers, the index highlights where each state is performing relatively well and where improvements need to be made. As most of the indicators are of a structural nature, by conducting the research over a multi-‐year period, the Index aims to show key, underlying trends.
• Similar to its performance last year, São Paulo has come out on top, with the best overall score for its business environment and continuing to outperform a group of five other southern and south-‐eastern states. The top six states generally score well across most of the eight categories in the Index. However, the tax system remains a weakness for even the top-‐ scoring states, which could also benefit from improvements in infrastructure.
• Although Brazil is gradually emerging from an economic slowdown, the overall outlook for the economy is clouded by what is likely to be a protracted period of tepid global growth. Hence, policymakers in states, particularly those with subpar performance in the rankings, should not hesitate to make improvements in the areas identified in this study as being of greatest concern, namely complex tax systems, insufficient infrastructure, inadequate quality of the bureaucracy, small pool of qualified human resources, prevailing corruption and lagging investment in innovation.
• The increased importance of climate change at the state level is evident in the growing number of states that have either enhanced or introduced new environmental legislation. The majority of states (17) saw their sustainability scores increase this year, with some expecting improvements in the coming years as new legislation is implemented and environmental practices continue to be updated.
Areas of strength
• Despite the cyclical slowdown, Brazil’s market opportunities remain a strong attraction for investors. States in the south and south-‐eastern regions continue to offer the largest consumer markets and highest average per capita incomes. While many states in the north and northeast continue to lag behind, better economic growth in recent years have put these states on the radar for investors seeking new frontiers in consumer markets, not least as some of these have large populations and considerable catch-‐up potential. At the same time, consumer markets in the centre-‐west states continue to be bolstered by the income generated by the expansion of agricultural exports.
• Brazil is experiencing a boom in foreign direct investment, with over US$64bn flowing into the country in the 12-‐month period to September 2012. A handful of states have created investment-‐promotion agencies, helping them attract a greater share of foreign investment. Other states can learn from these successes by channeling greater human and financial resources from their budgets into promotion activities. Judging by information from state budget laws used in this year’s research, it is clear that most states actively court investment through tax incentives, though the resources available differ widely from state to state.
• Despite shortcomings in corruption standards, Brazil is regarded by investors as having a stable political environment at the national level, putting it in a comfortable position in comparison to other members of the “BRICs”. This is shown in the impressive results by a majority of states for this indicator, with more than two-‐thirds enjoying a satisfactory or strong level of political stability. There are, however, cases of corruption weakening state governments, and these states clearly need to strengthen institutions and improve their systems of checks and balances.
Areas of weakness
• At the national level Brazil’s main areas of weakness are the heavy administrative burdens of the tax system, red tape, insufficient infrastructure and skills shortages. At the state level, judging by the high average number of tax-‐related decrees issued by each state, much still needs to be done to simplify and rationalise tax systems. One positive development is the introduction of one-‐stop shops in certain states, which help businesses cut down on registration time and reduce bureaucracy, which, nevertheless, remains a drag on the business environment.
• In August 2012, the federal government announced an ambitious infrastructure development plan (Plano Nacional de Logística Integrada, PNLI), providing opportunities for states to benefit from a much-‐needed logistics upgrade. This now puts the burden on state-‐level policymakers to actively participate in the design stage, ensuring development priorities for their states are incorporated into the federal planning process.
• State governments likewise have an opportunity to take advantage of the federal government’s new vocational training programme (Programa Nacional de Acesso ao Ensino Técnico e Emprego, Pronatec), which aims to increase gains in labour skills and productivity. Authorities can also work with educators to address the skills mismatch among new graduates and the needs of the private sector. Closer ties between the public sector and universities will also be needed to spur innovation in technical areas.
Noteworthy changes
score very poorly by international standards, highlighting an area requiring greater focus among government officials. Most states have experienced an increase in homicide rates over the past two years. While structural social causes need to be addressed, a coordinated and determined response by the state authorities is paramount to improving the security situation and, subsequently, the overall business environment, at the state level.
•
Most states have seen an improvement in the quality of telecommunications services, owing to increased high-‐speed internet-‐penetration rates. However, states in the northern region are still lagging, pointing to a growing digital divide that policymakers would do well to address.Category results
Political Environment
Well over half of Brazil’s states currently enjoy strong political stability, while seven (up from five last year) suffer from low or very low political stability. On the upside, the governor of Pará has strengthened his congressional position, boosting the state’s political stability score. Political stability deteriorated in Roraima, however, due to a weakening of the governor’s position when the regional electoral court (TRE) revoked his mandate for breaking electoral rules—although he remains in power, since the decision was suspended by the supreme state court (TSE). The scores for political stability in the Distrito Federal and Goiás deteriorated this year as well, owing to fall-‐out from the Cachoeira corruption scandal.
The Cachoeira corruption case has been much in the news, with police investigations unearthing a nationwide network of politicians and businessmen engaged in illegal activities. The case exposed the infiltration of political institutions by criminal elements in Goiás as well as neighbouring Distrito Federal, impairing their scores this year. The score for Amapá, where the federal police have also launched corruption investigations, has deteriorated as well. States with more developed checks and balances, such as those in the more economically developed south and southeast regions, tended to score better. The prison sentences currently being handed down by the Supreme Court in the landmark Mensalão corruption case should also act as a cautionary tale for politicians at the state level, while the introduction of the “ficha limpa” legislation (barring corrupt politicians from standing for office) should help mitigate rampant corruption moving forward. Much more still needs to be done, however.
Most states scored very poorly in the new public-‐security indicators (using the homicides rate for 2010 as a proxy). Homicide rates varied from 13 per 100,000 (in Santa Catarina) to 67 in Alagoas. The average homicide rate is 31—compared with a global average of 6.9 homicides—4.2 in the US and 1.3 in (non-‐ Eastern) Europe. The violence levels in the northeastern states are worryingly high, with the notable exception of Piauí—which has one of the lowest homicide rates in Brazil, thanks largely to the authorities’ co-‐ordinated and firm stance against violent crime, something that many states can learn from.
Economic Environment
As Brazil’s slowdown has been concentrated in manufacturing, states with a manufacturing base posted weaker growth rates while states where primary or tertiary sectors play more of a role fared better. Nevertheless, markets in all states expanded, supporting their market-‐size scores. Like last year, only São Paulo achieved the highest score for market size, though most states, with the exception of the
smallest states—Acre, Amapá and Roraima—offer attractive market opportunities, particularly as incomes continued to rise.
After the Distrito Federal, a group of three southern and southeastern states—Rio de Janeiro, São Paulo and Santa Catarina—maintain relatively high average income per head, while, similar to last year, northern and north-‐eastern states have the lowest average per capita incomes. The only state inside the southern and southeastern regions to score poorly is Minas Gerais—but with average annual income of R14,736 (close to the all-‐states average of R14,934), it appears poised to graduate to the next income bracket going forward.
Tax and Regulatory Regime
This year, assessment in this category took into consideration data from Thomson Reuters FISCOSoft, a tax and accounting information provider, which gives estimates of the average number of state tax decrees issued monthly in 2011. Only five states issued an average of 7.5 or fewer changes per month, and some issued 20 or more monthly changes throughout the year, notably Goiás, Mato Grosso, Minas Gerais, Rio de Janeiro, Rio Grande do Sul and São Paulo. While measuring the impact of each decree is beyond the scope of this research, the sheer numbers provide a snapshot of the difficulties businesses face in complying with new regulations.
The research also looks at the time it takes to open a business in each state, an important element of the bureaucratic regime that firms must navigate. The scores are unchanged from last year, but several states have made commendable efforts to streamline the process of opening a business by setting up “one-‐stop” online shops. These advances are likely to affect states’ performance for this indicator going forward.
Policy towards Foreign Investment
Despite the current economic slowdown, Brazil continues to enjoy a boom in foreign direct investment, with over US$64bn (2.75% of GDP) flowing into the country in the 12 months to September 2012. At the state level, Minas Gerais, Rio Grande do Sul, Rio de Janeiro and São Paulo are considered to have excellent investment-‐promotion agencies. Meanwhile, a handful of other states have been making efforts to improve their institutional capacity, such as Pernambuco and Ceará.
In this year’s research we incorporated information provided by state budget laws for 2012-‐14 (approved in 2011), which indicate tax levels for the next two years. However, this metric only provides a rough gauge of how states attract investments via tax breaks. And while state governments are legally obliged to provide information on tax breaks, they do not have to publish the actual amounts awarded in past budgets. All states offer at least some investment incentives, but, much like last year, three states—Minas Gerais, São Paulo and Rio de Janeiro—top the list, offering the greatest number of
Human Resources
Despite Brazil’s current slowdown, unemployment has fallen to historically low levels—5.4% in September 2012—and a tight labour market has revealed some skills shortages, particularly in technical and engineering fields. Overall, four states have very good human resources and receive high scores in this category—São Paulo, Rio de Janeiro, Minas Gerais and Paraná—while four states are close behind— Rio Grande do Sul, Santa Catarina, Distrito Federal and Espírito Santo. Several states improved in this category compared with last year’s results, including Paraná, Rio Grande do Sul (in both cases owing to a higher score in the labour-‐productivity indicator) and Espírito Santo (resulting from an increase in the number of graduates this year). However, the remaining 19 states were scored as either moderate or needing improvement, owing primarily to their poor performance across the indicators evaluating availability of skilled labour and the number of university graduates. In a move to address Brazil’s skills shortages, the federal government launched the Programa Nacional de Acesso ao Ensino Técnico e Emprego (Pronatec, the National Programme for Access to Technical Education and Employment), which aims to expand vocational and technological education and offers opportunities for individuals to upgrade their skills across all states.
Infrastructure
Although penetration rates of high-‐speed internet (greater than 2 megabytes per second) have improved in most states since last year, this was barely perceptible in some northern and north-‐eastern states, which fell further behind in their performance for this indicator. Overall, every state still has considerable room for improvement. With moderate telecoms infrastructure, the Distrito Federal has the highest high-‐speed internet-‐penetration rate in the country, followed by a group of six southern and south-‐eastern states. In addition to sufficient penetration, states need to be concerned about the quality of coverage. A recent assessment by the national telecoms regulator Anatel revealed the uneven quality of mobile communications. This, in turn, has exposed the bureaucratic obstacles that operators face in upgrading infrastructure to keep pace with rising demand. Following the recent auction of 4G licenses, it will be interesting to see which states provide the best framework for the roll-‐out of these technologies.
In terms of the quality of road networks, similar to last year’s findings, highways in 19 states are assessed as being of low or very low quality. However, more than 75% of highways in São Paulo are rated as either of good or very good quality, while Paraná, Rio de Janeiro and Rio Grande do Sul had at least 60% of their highways rated as being of good or very good quality. It is noteworthy that these states have pioneered road concessions. Hence the government’s announcement this year of a new wave of concessions for roads (and also for railways, ports and airports) as part of its ambitious, long-‐ term Plano Nacional de Logística Integrada (PNLI, the national integrated logistics plan) should have a positive impact on the quality of infrastructure in the coming years. In this year’s findings, the road-‐ quality scores for four states improved, while scores for six states decreased.
Innovation
Much like last year, only São Paulo and Rio de Janeiro receive the highest scores for their overall innovation environment. Some of their best results highlighted R&D infrastructure, private-‐sector R&D spending and number of patent requests. Increasing private R&D spending is a policy priority in several states. The state of Rio de Janeiro, for instance, has been pro-‐active in attracting private companies, and several firms have recently announced plans to set up R&D facilities there.
R&D spending as a share of GSP by state is fairly stable compared with the results in last year’s research (averaging 0.07% of GSP in 2010, the latest year for which data are available). In some states where R&D expenditure shares decreased, their innovation scores slipped. Despite the fact that Paraná was among those states with a lower score for this indicator, its public R&D spending (0.18%) is still the second highest in the country. São Paulo consolidated its lead in innovation, increasing its R&D-‐expenditure-‐to-‐ GSP ratio to 0.4%, which is well ahead of the field. Overall, state governments have some leeway to increase spending on R&D, mainly by offering incentives for innovation. There are a handful of states that already have an enabling framework for R&D incentives, but others lag behind. Those that are currently leading the way, and receive top marks for their innovation-‐incentive laws, include Minas Gerais, Rio de Janeiro, Rio Grande do Sul, Santa Catarina and São Paulo. In September 2012 Paraná implemented a state innovation law that is likely to boost the state’s score for this indicator in next year’s business-‐environment index, as it becomes fully operational. Moving forward, the Conselho Nacional de Secretários Estaduais para Assuntos de Ciência, Tecnologia e Inovação (Consecti, the National Council of State Secretaries for Matters of Science, Technology and Innovation) is set to play an important role in strengthening institutional co-‐ordination between states and boosting R&D incentives.
Sustainability
Several changes have been made over the last year in Brazil’s Environmental Legislation, which continues to be more than adequate in establishing legal foundations for the conservation, protection and monitoring of the environment. It likewise continues to provide guidelines for enforcing punitive actions against environmental misconduct; however, it has not yet fully addressed problems such as climate change and biodiversity. This is reflected in the environmental laws and decrees of all 27 states. The majority of the states address the main environmental themes using separate pieces of legislation.
In 2011, 17 states had legislation covering energy and/or climate change, which included clauses related to emission reductions and the use of renewable energies. The number of states with energy and/or climate change legislation increased to 21 in the 2012 index. This has been bolstered by the approval of two pieces of national legislation since 2009—the national policy on climate change (law no. 12,187) and the national fund for climate change (law no. 12,114)—as well as the creation of a new national climate secretariat in 2011.
Most states have a legal framework that allows the use of fiscal incentives for environmental protection, and some have taken the next steps in this direction. In 2010, for example, Acre approved legislation that created a system of incentives for good environmental practices, including instruments (such as carbon emission credits) designed to reduce emissions. Implementation remains inconsistent, however, as only a few states have actually used their legislative powers to generate positive environmental change. Whatever the current limitations, new legislation could help to set the agenda for real environmental change in the next couple of years.
Scoring Criteria and Categories
The Brazil State-‐Level Business Environment Index is a dynamic scoring model of 26 indicators across eight categories. The model measures the current state of the business operating environment across 26 states and the Distrito Federal. The overall score (0 – 100) for states in the index is a weighted average of the eight categories, where each is scored on a scale of 0 to 100, where 100=the most favorable business operating environment conditions. Each category is normalised and weighted based on sums of underlying indicators.
The eight categories of the index are: Political Environment (which comprises four indicators: Political Stability, Corruption, Bureaucracy and Security Conditions; Economic Environment (which comprises four indicators: Market Size, Market Growth, Average Per Capita Income and Income Disparity); Tax and Regulatory Regime (which comprises two indicators: Consistency of Tax System and Opening a Business); Policy towards Foreign Investment (which comprises two indicators: Incentives to Invest and Policy towards Foreign Capital); Human Resources (which comprises three indicators: Availability of Skilled Labour, Labour Productivity and University Graduates); Infrastructure (which comprises two indicators: Quality of the Telecom Network and Quality of the Road Network); Innovation (which comprises five indicators: Public R&D Expenditure, Private R&D Expenditure, Presence of R&D Infrastructure, Fiscal Incentives for R&D, and Patent Requests); and Sustainability (which comprises four indicators: State Environmental Plan/Strategy, Fiscal Incentives for Sustainability, Environmental Regulator and Quality of Environmental Legislation).
The categories and indicators are: 1
Political Environment
1.1 Political Stability 1.2 Corruption 1.3 Bureaucracy 1.4 Security Conditions 2
Economic Environment
2.1 Market Size 2.2 Market Growth
2.3 Average Per Capita Income 2.4 Income Disparity
3
Tax and Regulatory Regime
3.1 Consistency of Tax System 3.2 Opening a Business
4
Policy towards Foreign Investment
4.1 Incentives to Invest
4.2 Policy towards Foreign Capital 5
Human Resources
5.1 Availability of Skilled Labour 5.2 Labour Productivity
5.3 University Graduates 6
Infrastructure
6.2 Quality of the Road Network 7
Innovation
7.1 Public R&D Expenditure 7.2 Private R&D Expenditure 7.3 Presence of R&D Infrastructure 7.4 Fiscal Incentives for R&D 7.5 Patent Requests
8
Sustainability
8.1 State Environmental Plan/Strategy 8.2 Fiscal Incentives for Sustainability 8.3 Environmental Regulator
8.4 Quality of Environmental Legislation
Methodology
a. General
The Brazil State-‐Level Business Environment Index is comprised of categories that are related to the attractiveness of the business operating environment in each state.
To score the indicators for the Index, the research team gathered data from the following sources:
• Primary legal texts and legal reports • Academic and government publications
• Websites of governmental authorities, international organisations and non-‐governmental organisations
• Business organisations and business schools • Interviews with experts, as needed
• Local and international news media reports
b. Data Modeling
Data were collected across 26 indicators for each state. The indicators range from rankings across three (0,1,2) to five possible levels (0,4). Each indicator is constructed such that a higher value associates with a more favourable business operating environment. For example, for the Corruption indicator, a state with very high corruption is assigned a level of 0 whereas a state with very little corruption is assigned a value of 4.
The scoring scheme for each component of the Brazil State-‐Level Business Environment Index is listed below:
1
Political Environment
Rating 0-‐100 (100=best)
1.1 Political Stability Rating 0-‐3 (3=best)
1.2 Corruption Rating 0-‐4 (4=best)
1.3 Bureaucracy Rating 0-‐4 (4=best)
1.4 Security conditions Rating 0-‐4 (4=best) 2
Economic Environment
Rating 0-‐100 (100=best)
2.1 Market Size Rating 0-‐4 (4=best)
2.2 Market Growth Rating 0-‐4 (4=best)
2.3 Average Per Capita Income Rating 0-‐4 (4=best) 2.4 Income Disparity Rating 0-‐4 (4=best)
3
Tax and Regulatory Regime
Rating 0-‐100 (100=best)
3.1 Consistency of Tax System Rating 0-‐4 (4=best) 3.2 Opening a Business Rating 0-‐4 (4=best)
4
Policy towards Foreign Investment
Rating 0-‐100 (100=best)
4.1 Incentives to Invest Rating 0-‐4 (4=best) 4.2 Policy towards Foreign Capital Rating 0-‐3 (3=best)
5.1 Availability of Skilled Labour Rating 0-‐4 (4=best) 5.2 Labour Productivity Rating 0-‐4 (4=best) 5.3 University Graduates Rating 0-‐4 (4=best)
6
Infrastructure
Rating 0-‐100 (100=best)
6.1 Quality of the Telecom Network Rating 0-‐4 (4=best) 6.2 Quality of the Road Network Rating 0-‐4 (4=best)
7
Innovation
Rating 0-‐100 (100=best)
7.1 Public R&D Expenditure Rating 0-‐4 (4=best) 7.2 Private R&D Expenditure Rating 0-‐4 (4=best) 7.3 Presence of R&D Infrastructure Rating 0-‐4 (4=best) 7.4 Fiscal Incentives for R&D Rating 0-‐2 (2=best) 7.5 Patent Requests Rating 0-‐4 (4=best)
8
Sustainability
Rating 0-‐100 (100=best)
8.1 State Environmental Plan/Strategy Rating 0-‐4 (4=best) 8.2 Fiscal Incentives for Sustainability Rating 0-‐2 (2=best) 8.3 Environmental Regulator Rating 0-‐3 (3=best) 8.4 Quality of Environmental Legislation Rating 0-‐4 (4=best)
c. Calculating the Index
Modeling the indicators and categories in the index results in overall scores of 0-‐100 for each state, where 100 represents the most favorable business environment conditions and 0 the least favourable.
Category score = ∑ weighted individual indicators
Indicator scores are normalised on the basis of: x = (x -‐ Min(x)) / (Max(x) -‐ Min(x))
where Min(x) and Max(x) are, respectively, the lowest and highest values in the 27 states for any given indicator. The normalised value is then transformed to a 0-‐100 score to make it directly comparable with other indicators.
The overall score for each country is the weighted sum of the category scores, as determined by the weighting profile.
Indicator definitions and construction
1) Political Environment
This category comprises four indicators: Political Stability, Corruption, Bureaucracy and Security Conditions
Indicator
Indicator definitions and construction
Political Environment
1.1 Political Stability
This indicator looks at the level of political stability in terms of the ability of the state executive to advance legislation through the state legislature. Assessment is based on the following criteria: the level of public support for the state governor; number of seats that the governing party maintains in the state legislature; and the strength of political alliances.
Scoring:
3= Strong (governor enjoys a stable political environment)
2= Moderate (political environment is stable) 1= Low (governor does not have a strong majority and depends on alliances)
0= Very low (governor has no formal majority and has to make case-‐by-‐case agreements with other parties to pass legislation)
Scoring notes:
Pre-‐ and post-‐election political alliances have a significant impact on the overall level of political stability. Post-‐election, state
legislators oftentimes support the incumbent governor in an effort to promote their own political interests. State legislators joining a ruling alliance post-‐election are more likely to withdraw their support in the event that the governor suffers from waning popularity or when the governor’s term is drawing to an end (particularly in the event that the governor is unable to stand for re-‐election). 1.2 Corruption
This indicator looks at the pervasiveness of
corruption among public officials. The assessment considers the number of corruption investigations and systems in place to prevent corrupt practices.
Scoring:
4= Very low level of corruption 3= Low level of corruption 2= Moderate level of corruption 1= High level of corruption 0= Very high level of corruption
Scoring notes:
The EIU utilises academic and other sources in order to assess this indicator. One of the primary sources is a study entitled
“Government corruption in Brazil: Construction of indicators and analysis of corruption in Brazil’s states” (A corrupção governmental no Brasil: Construção de indicadores e análise da sua incidência relativa nos estados Brasileiros) by José Luis Serafini Boll, formerly of the Catholic University of Rio Grande do Sul. This study analyses a relatively small number of audits, which often take an extended period of time to complete, making annual comparisons in regards to the level of corruption difficult.
The EIU also incorporates analysis from a publication entitled “Integrity Systems in Brazilian states” (Sistemas de integridade nos estados Brasileiros) by Bruno Wilhelm Speck and Valeriano Mendes Ferreira (2011).
Systems in place to prevent corruption are also considered in the evaluation of this indicator. In those states where rigorous systems are in place to prevent and combat graft, perceptions of corruption tend to be as high as in those states with less rigorous systems in place. This reflects the fact that effective systems often lead to the discovery of corrupt practices, which tend to be heavily
4= Very high quality of the bureaucracy 3= High quality of the bureaucracy 2= Moderate quality of the bureaucracy 1= Low quality of the bureaucracy 0= Very low quality of the bureaucracy
Scoring notes:
A multifaceted approach is utilised to measure the quality of each state’s bureaucracy. Research focuses on management of state budgets, including spending on the provision of public goods and services. The EIU also looks at the quality of the provision of public goods over time and institutional development.
1.4 Security conditions
This indicator looks at whether violent crime is likely to pose a significant problem for business. Assessment is based on the number of homicides per 100,000 people.
Scoring:
4 = Fewer than 9.99 homicides per 100,000 people
3 = 10-‐19.99 homicides per 100,000 people 2 = 20-‐24.99 homicides per 100,000 people 1 = 25-‐34.99 homicides per 100,000 people 0 = 35 or more homicides per 100,000 people
Scoring notes:
Data on homicide rates was taken from the Instituto Sangari report “Mapa da violência 2012: Os novos padrões da violência homicida no Brasil” by Julio Jacobo Waiselfisz.
2) Economic Environment
This category comprises four indicators: Market size, Market growth, Average per Capita Income and Income Disparity
Indicator
Indicator definitions and construction
Economic Environment
2.1 Market Size
Economist Intelligence Unit estimates of Gross State Product for 2011.
Scoring:
4= Greater than R500bn 3= R150-‐499bn
2= R50-‐149bn 1= R15-‐49bn 0= Less than R15bn
Scoring notes:
Estimates are based on data from the Instituto Brasileiro de Geografia e Estatística (IBGE, the national statistics office) and Banco Central do Brasil (BCB, the central bank).
2.2 Market Growth
Economist Intelligence Unit estimates of annual average percentage change, year on year, of Gross State Product for 2010-‐11.
Scoring:
4= Greater than 5% growth 3= 4-‐4.99% 2= 3-‐3.99% 1= 2-‐2.99% 0= Less than 2%
Scoring notes:
Estimates are based on data from the Instituto Brasileiro de Geografia e Estatística (IBGE, the national statistics office) and Banco Central do Brasil (BCB, the central bank).
2.3 Average Per Capita Income
Annual average per capita income by state in 2011.
Scoring: 4=Greater than R21,000 3=R18,000-‐20,999 2=R15,000-‐17,999 1=R12,000-‐14,999 0=Less than R12,000
Scoring notes:
Data is taken from the Instituto Brasileiro de Geografia e Estatística (IBGE, the national
income distribution within a state. This is measured by a Gini coefficient, which is scored on a 0-‐1 scale, where zero indicates perfect equality in income distribution. The score is displayed as a percentage, where 1=100%. The higher the value of the Gini coefficient, the more income disparity there is in the state.
Scoring: 4= Less than 30 3= 30-‐39 2= 40-‐49 1= 50-‐59 0= Greater than 60
Scoring notes:
Data is taken from the 2011 Pesquisa
Nacional por Amostra de Domicílios (PNAD, a national household survey) by the Instituto Brasileiro de Geografia e Estatística (IBGE, the national statistics office). Scoring reflects the Gini index, which captures the distribution of monthly income from all jobs held by
individuals aged 10 years or older.
3) Tax and Regulatory Regime
This category is comprised of two indicators: Consistency of Tax System and Opening a Business
Indicator
Indicator definitions and construction
Tax and Regulatory Regime
3.1 Consistency of Tax System
This indicator assesses the consistency and stability of the local tax system. Research considers the complexity of the tax system and the volatility in the number tax norms issued by state.
Scoring:
4= Tax system is very stable and clear 3= Tax system is stable and clear
2= Tax system is somewhat stable and clear 1= Tax system is generally not stable and/or is complex
0= Tax system is very unstable and complex
According to the Instituto Brasileiro de Planejamento Tributário (Brazilian Institute of Tax Planning), six tax norms are published in Brazil per business hour, which is equivalent to 275,000 in the past 23 years (at federal, state and municipal levels). At the state level, it amounts to 85,517 over the course of the past 23 years. Owing to the complexity of the data, and the difficulty in obtaining reliable and up-‐to-‐date metrics, analysis is based on primary and secondary research. This research incorporates data from Thomson Reuters -‐ FISCOSoft on the number of state tax norms issued monthly. The EIU estimates the average monthly change in tax norms per year. The assessment also considers
fluctuations in tax income by state, based on ICMS revenue data as a percentage of GSP. 3.2 Opening a Business
This indicator looks at the average number of
days it takes to open a new business.
Scoring:
4= Fewer than 10 days to open a business 3= 10-‐14 days
2= 15-‐19 days 1= 20-‐29 days 0= 30 days or more
Scoring notes:
Assessment is based on data from each state’s Junta Comercial (JC, or Board of Trade, a business registry). Analysis also considers the results from a survey conducted by the Departamento Nacional de Registro do Comércio (DNRC, the national department for registering businesses). The survey was based on the World Bank criteria for opening a business, and covers the opening of
businesses at the JC and registry with the fire service and other associated organisations.
4.1 Incentives to Invest
This indicator looks at the number and scope of investment incentives. These incentives include tax breaks from the Imposto sobre Operações relativas à Circulação de Mercadorias e Serviços (ICMS, a state tax for goods and services) and financial assistance from state agencies.
Scoring:
4= Very large number of incentives offered and a high level of tax breaks and financial assistance
3= Large number of incentives offered across numerous industries; considerable tax breaks; and/or financial assistance 2= Numerous incentives that are broad in scope are offered across industries 1= Some incentives are offered 0= Very limited incentives are offered: incentives are limited in terms of industry or scope
Scoring notes:
Assessment looks at the legislative framework in each state, focusing on the key investment incentive laws. Analysis covers information on investment incentive legislation. States typically do not publish statistics on the value of investment incentives.
The EIU also incorporates analysis of pre-‐ announced tax breaks reported in 2012-‐14 state budget laws. The level of
development of each state and budgetary resources (that could potentially be used for spending on incentives) are also taken into consideration. State budget data are available from the federal Ministry of Finance.
4.2 Policy towards Foreign Capital
This indicator looks at state efforts to attract foreign investment. The assessment is based on institutional capacity. In
particular, this research focuses on whether states have a dedicated
agency within the state government with a similar remit.
Scoring:
3= Very encouraging to foreign investment 2= Encouraging to foreign investment 1= Some efforts to encourage foreign investment
0= Few efforts to encourage investment
Scoring notes:
This research focuses on whether states have a dedicated investment promotion agency (IPA), and the sophistication of the agency. A state that does not have a dedicated IPA, and instead allocates investment promotion responsibilities to other agencies or ministries does not receive the highest score. Assessment also looks at state agencies’ relationship with Apex, Brazil’s national trade and
investment promotion agency. Apex has worked with a number of state
governments and IPAs. Evaluation of sophistication of services is based on a review of available services and information on IPA websites.
5) Human Resources
This category is comprised of three indicators: Availability of Skilled Labour, Labour Productivity and University Graduates
Indicator
Indicator definitions and construction
Human Resources
5.1 Availability of Skilled Labour
This indicator looks at the availability of skilled labour. The assessment is based on data obtained from the Ministry of Labour and the Instituto de Pesquisa Econômica Aplicada (Institute for Applied Economic
0= Very limited availability
Scoring notes:
Scores are based on a number of state-‐level and national surveys. A nation-‐wide survey is conducted by the IPEA and looks at state and sector-‐level demand for qualified labour. The IPEA defines qualified labour as individuals with work experience in a specific sector, and/or individuals with “above average years of schooling”. As a result, individuals with technical or university degrees as well as those with at least 9-‐10 years of schooling are considered to be skilled for this research. State-‐level surveys include those undertaken by Fundacão Dom Cabral (FDC), the Confederação Nacional de Industrias (National Confederation of Industry). 5.2 Labour Productivity
This indicator estimates the average Gross
State Product produced by an employed adult by state.
Scoring: 4= Greater than R50,000 3= R40,000-‐49,999 2= R30,000-‐39,999 1= R20,000-‐29,999 0= Less than R20,000
Scoring notes:
Calculations utilise 2010 real GSP estimates for each state and data for employed individuals aged 10 or older taken from the 2010 Census by the Instituto Brasileiro de Geografia e Estatística (IBGE, the national statistics office).
5.3 University Graduates
This indicator looks at the total number of students graduating from public and private higher educational institutions (municipal, state and federal) per year by state.
Scoring:
4= 50,000 or more graduates 3= 30,000-‐49,999 graduates 2= 15,000-‐29,999 graduates
1= 5,000-‐14,999 graduates 0= Fewer than 5,000 graduates
Scoring notes:
Data is from the National Institute for Studies and Educational Surveys, a federal institution with links to the Ministry of Education, and reflects the total number of graduates from public and private federal-‐, state-‐ and municipal-‐governed institutions by state in 2010.
6) Infrastructure
This category is comprised of two indicators: Quality of the Telecom Network and Quality of the Road Network
Indicator
Indicator definitions and construction
Infrastructure
6.1 Quality of the Telecom Network
This indicator considers the state of development of mobile and fixed
broadband connections and the extent of the mobile telecommunications network in each state. Assessment covers mobile broadband subscriptions by state; the number of high-‐speed fixed-‐line broadband subscriptions (at least 2 Mbps); as well as the number of mobile phone radio transmitters (indicating mobile phone coverage capacity).
Scoring:
4= Very high quality 3= High quality 2= Moderate quality 1= Low quality 0= Very low quality
Scoring notes:
telecoms regulator).
6.2 Quality of the Road Network
This indicator looks at the quality of the highways in each state. The results are based on the findings of an annual survey undertaken by the Confederação Nacional do Transporte (CNT, National Transport Confederation).
Scoring:
4= Very high quality (at least 75% of roads are good or very good quality)
3= High quality (60-‐74.9% of roads are good or very good quality)
2= Moderate quality (45-‐59.9% of roads are good or very good quality)
1= Low quality (30-‐44.9% of roads are good or very good quality)
0= Very low quality (less than 30% of roads are good or very good quality)
Scoring notes:
Analysis is based on data from the Pesquisa de Rodovias (Highway Research) 2011 report produced by the Confederação Nacional do Transporte (CNT, National Transport Confederation). Creation of a scoring scheme by the Economist Intelligence Unit.
7) Innovation
This category is comprised of five indicators: Public R&D Expenditure, Private R&D Expenditure, Presence of R&D Infrastructure, Fiscal Incentives for R&D, and Patent Requests
Indicator
Indicator definitions and construction
Innovation
7.1 Public R&D Expenditure
This indicator looks at state investment in research and development (R&D) as a percentage of estimated Gross State Product in 2010.
Scoring: 4= Greater than 0.30% 3= 0.20-‐0.29% 2= 0.10-‐0.19% 1= 0.02-‐0.09% 0= Less than 0.02%
Scoring notes:
Public R&D expenditure figures are published by the Ministério da Ciência, Tecnologia e Inovação (MCT, the Ministry of Science, Technology and Innovation). The EIU uses a simple calculation—dividing state-‐level expenditure data by 2010 GSP estimates—to ascertain public R&D expenditure as a percentage of GSP. R&D spending excludes spending on scientific and technical activities related to R&D. 7.2 Private R&D Expenditure
This indicator looks at private sector
investment in research and development (R&D) as a percentage of Gross State Product in 2008.
Scoring: 4= Greater than 0.60% 3= 0.50-‐0.59% 2= 0.40-‐0.49% 1= 0.30-‐0.39% 0= Less than 0.30%
Scoring notes:
Private R&D expenditure figures are taken from the Brazilian Technological Innovation Survey (PINTEC). The EIU uses a simple calculation—dividing state-‐level expenditure data by 2008 GSP—to ascertain public R&D expenditure as a percentage of GSP. The 2008 GSP figures are produced by the Instituto Brasileiro de Geografia e Estatística (IBGE, the national statistics office). State-‐level private R&D data is only available for 14 states: Amazonas; Bahia; Ceará; Distrito Federal; Espírito Santo; Goiás; Minas Gerais; Pará; Paraná; Pernambuco; Rio de Janeiro; Rio Grande do Sul; Santa Catarina; and São
