5th day – Informal Economy

How to issue a bribe: arrange a meeting with a government official at a restaurant and discuss your commercial needs. Make sure you bring along a suitcase filled with cash. At the end of dinner, as the official is leaving, mention (casually): Hey… you forgot your suitcase.

The key way to advance your business in this country is through corruption: bribing government officials and bribing the police. You bribe the government to advance visible business needs, and you bribe the police to ensure your business is not abruptly shut down for not being registered.

Small businesses don’t have an incentive to be registered because taxes are prohibitively high; it’s cheaper to pay off the police for protection then pay taxes to the government. Moreover, firms cannot get registered when their goods are imported illegally from China. (Brazil has high import tariffs for manufactured goods from China in order to protect local factories and jobs).

If you’re not bribing government officials for concessions, then your business will lose out to a business that does engage freely in this practice. So, there is pressure to play the same dirty game.

Consequently, the majority of ‘very small businesses’ in Brazil are stuck in the informal economy because formalization is way too expensive and makes the business nonviable (especially in the beginning) given the low profit margins. The Lebanese shopkeeper said he gets his tech products illegally from Paraguay (originating in China) which is why he can’t register his store and needs to bribe the police to keep it running. From what I am told, though – this needs confirmation – many of these small unregistered businesses easily make a couple of million dollars a year. I’ll need to dig further into this.

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