A Bigger Brazil (IT) Plan

A Bigger Brazil IT Plan

A Bigger Brazil (IT) Plan

AFTER MONTHS OF PROMISES AND EXPECTATIONS, and amid economic pressures due to the value of the Real vs. the Dollar, President Dilma Rousseffintroduced yesterday in Brasília a series of measures designed to boost certain segments of Brazilian industry, including the software and IT services business.

The new program, Plano Brasil Maior, or Bigger Brazil Plan, proposes policies that could make Brazilian IT companies more cost-competitive globally, and could end up boosting exports of Brazilian software and services. It also indicates the possibility that innovation will be one of the priorities of the Dilma government.

Dilma made the announcement along with the minister of Sciences and Technology (MCT in the Portuguese initials), Aloízio Mercadante; the minister of Finances, Guido Mantega; and the minister of Development, Industry, and Overseas Commerce (MDIC), Fernando Pimentel — a clear demonstration that this is a government-wide policy and not an isolated effort.

One of the most important of the proposals cuts taxes on payrolls of sectors that require a high number of employees, like the clothing industry, shoe manufacturing, furniture — and the IT sector. The government lowered to zero the contribution of INSS, a tax to fund the social security program. INSS currently is estimated to be about 20% of the cost of production in those industries.

Antonio Rego Gil, president of Brasscom (Brazilian Association of Information Technology and Communication Companies), said in an interview with Computerworld that with implementation of the new plan, Brazilian IT firms will be more competitive in foreign and domestic markets because of lower employment costs.

Gil was directly involved in the negotiation of the terms of the plan in the past few days, and came back to São Paulo last night satisfied with the results. “This measure represents a turning point in the IT industry because it considers [some long-standing] demands of the companies, and shows that the government has given importance to the sector,” he said.

Djalma Petit, Business Development Director at Softex (Brazilian Association for Promoting the Software Export), who recently talked to Sourcing Brazil about the difficulties of software production in the country, was at the official announcement Tuesday morning. His summary: “The whole segment is very satisfied. Even though we do not know the details, the overall look is very positive,” Petit said.

Over the next few days the various players will become acquainted with the details of the package. Petit said there should be announcements soon regarding specific measures and incentives for the Brazilian software industry. The package of regulations includes measures that would lower taxation on exports, defend against foreign competitiveness, and offer ceasier access to credit lines.

With the new measures, instead of taxing the fixed costs of payroll, the government will require 2.5% of the revenues of the companies. That was one of the main priorities of the businesses that would be affected by the new policy.

According to information from Agência Brasil, the MDIC minister, Fernando Pimentel, calculates that the industries that would benefit from the plan would save about R$25 billion, or US$16.1 billion, by the end of 2012 because of the tax changes.

For Pimentel, the new program’s slogan, “Inovar para competir. Competir para crescer” — “Innovate to compete. Compete to grow”— should be followed by the statement “A developed country is a country that has an industry.”

Potential Boosts for R&D and Investment

High costs related to labor also make it harder for Brazilian companies to get loans, since these expenditures are fixed and just tend to grow on their balance sheets instead of declining with time. With lower taxation on payroll, it might became easier for these companies — young technology startups, for example — to get loans approved.

By 2014, it is expected that business investments in research and development will go from 0.59% of the national GDP to 0.90%. Industry will be able to count on credit availability from BNDES, the national bank for development, in the order of R$2 billion, or US$1.3 billion, just for the year 2011, with interest rates ranging between 4% and 5%.

Dilma’s announcement follows constant complaints by Brazilian industry, including the technology sector, about the difficulty of competing with imported goods at a time when the exchange rate is R$1.55 for every US$1.

The president emphasized that the government’s challenge is to address the problems of international competition without giving away important tax contributions to the Federation, Agência Brasil reported.

The components of the Plano Brasil Maior have to be implemented into law by passage through the House of Representatives and the Senate in Brasília. When that will happen is not clear, but the programs have been designated by Dilma and the ministers as “urgent.” Most of the goals are set for 2014, the last year of the current administration.

Some of the regulations could be presented as “medidas provisórias,” or provisional measures, written by the Executive and sent to the houses to be voted on immediately and take priority over other legislation. Opposition is not expected in the legislative houses; Dilma has a majority in both of them.

The next big step that would have deep positive impact on the Brazil IT industry is the approval of “Pronatec,” a major national plan to face one of the worst problems of the Brazilian market: the lack of qualified workforce. The project, which waits for the Senate’s approval and is expected to be voted on in August, has a proposal to train and qualify 4 million people by 2014.

The new policies were announced the same day data was disclosed showing that industrial production fell more than expected in June, down 1.6% from the previous month, according to Reuters.

Yesterday it was also announced that the MCT will change its official name and add an “I” at the end, for “Inovação.” Just a slight detail, but it reflects a lot on how Dilma and her colleagues recognize the importance of the “I” word.