[00:02] decades our country was seen as a great destination when it comes to here that companies wanted to invest, build, open their factories, hire employees, and expand their businesses.  [music] However, this scenario
[00:16] a quiet movement has begun to gain momentum.  Brazilian companies only to sell, thinking about the These are factories, jobs, and billions of
[00:29] cross the border in search of a more competitive environment.  And the symbolic destination of this movement is right here next to us, [music] main destinations for Brazilian entrepreneurs seeking lower costs,
[00:43] conditions for production.  And when we talk about this, we're only thinking about small businesses, okay?  Major Brazilian brands, such as Lupo, have already established operations in the country. There are others, such as Cacau Show, Balduco, and
[00:55] Aginomoto, that are also evaluating and studying investments there.  If we look at the year 2015, [in the music industry] we had around 40 Brazilian companies operating in Paraguay.  Today that number has already surpassed 200, representing a growth of
[01:07] approximately 400% in the space of a decade.  And that leaves the question, right? grew up here in Brazil choosing to cross the border?  What does Paraguay offer that Brazil has failed to offer?
[01:20] Is this movement just an isolated case, or is it the beginning of a larger flight of going to talk about in today's video.  And before we get into the subject, I want to ask to the channel if you always watch [music] videos, because
[01:32] in addition to supporting our work, it also helps YouTube deliver more of our content to people.  Well, when a company decides where to invest, build a factory, and consequently create jobs, it
[01:44] it considers the cost of production, the bureaucracy involved in operating, the most importantly, whether the environment in that country is favorable or difficult for those recent years in Brazil, it has begun to lose competitiveness in several of these
[01:59] we have an extremely complex tax system, a high tax burden, excessive bureaucracy, and a great deal of legal uncertainty. Things change all the time.  And these frequent changes in the rules
[02:12] create an environment that many companies come to dislike, leading them to seek alternatives outside the country.  And the result of this movement, which has become more their commercial operations here in Brazil, but move factories,
[02:26] production centers, and new investments to other places, and no country Paraguay, which is right next door.  My apologies to the Paraguayans who watch my channel.  I know there are some, but for a long time here in Brazil,
[02:39] calling something Paraguayan carried a negative connotation.  It was a way of saying that a product was of low quality, that it was counterfeit, that it was inferior.  And so, while many Brazilians were making fun of their
[02:51] a different path.  Behind the scenes, the country was reducing taxes, simplifying rules, and creating a more attractive environment for businesses and investors.  Now, the results of this change are beginning to appear more visibly.  The
[03:04] destinations for Brazilian entrepreneurs seeking a simpler, more And one of the main reasons behind this transformation lies precisely in the tax system.  While Brazil has built, in a not very
[03:17] proud way, one of the most complex tax systems in the world, simplified taxation and maintained relatively stable rules for years. The model became known as the triple 10. It combines three of the country's main tax rates
[03:31] .  It's 10% VAT, which is the value-added tax, equivalent to our CBSBS, 10% income tax for individuals and 10% income tax for companies.  Furthermore, labor costs are around
[03:44] 12%.  Now, if we compare that to Brazil, here a company can pay approximately 34% in taxes on profits.  In addition to taxes like PIS and Cofins, which are levied on revenue, you also have ICMS and ISS, and
[03:57] payroll expenses.  Hey Bruno, but there's a tax reform coming, things are going to change, right?  Well, just when people were getting more excited about the that will change things, with a simpler system that promises to reduce
[04:10] complexity in the long term, they started seeing news about uncertainty, lack of clarity in the reform, years of transition and adaptation, in addition to an estimated VAT of 28%, which is just an estimate.  We don't know the tax rate, and
[04:24] it could be higher, especially since the consumption tax rate here high, we look at it in the wrong way.  Because in countries that use VAT, what happens is when you buy a product, for example, makeup for
[04:37] your wife, which costs, let's put everything here in reais, right?  But if there was a 28% VAT on R$100, then the final price would be R$128, with that R$28 going directly to the government in this system they are creating.  But
[04:49] if I buy makeup today in Brazil for the same price of R$100, R$50 is for the taxes.  So, you see, the taxation would be 50 without tax plus 50 with tax, is 100%.  And then you go to
[05:02] when you look at them the right way, which averages much more than 28% .  So I wouldn't be surprised if, in fact, the VAT was even higher Paraguay offers a simple model
[05:15] decades, Brazil will still go through an adjustment, a new system, and will be like.  This shows that the difference lies not only in the amount of taxes, but While in Brazil a company needs to deal with frequent changes,
[05:31] evolving tax environment, in Paraguay the system remains simple and predictable.  For the entrepreneur who intends to invest millions of reais in a factory that will take years to generate a return, this predictability is
[05:44] worth almost as much as paying less tax.  But the comparative advantages example, income earned abroad is generally exempt from professionals who work remotely for foreign companies, such as
[05:57] programmers, designers, consultants, and paying taxes on the income they earn from abroad.  Furthermore, inheritances and donations.  Income derived from investment interest
[06:11] is also exempt when we talk about local investments.  And capital gains, in general, are taxed at a rate of 10%.  But beyond explains better than anything else I'm going to say here why
[06:23] crossing the border.  It's called maquila law.  It was created in 1997, inspired by the Mexican export model, and its purpose is to develop a attract companies, generate jobs, and transform the country into a
[06:38] international market.  The logic itself is quite simple.  Companies that produce in Paraguay for export can import machinery, equipment, and materials without paying tariffs to the Customs Office.  And then, after they
[06:50] manufacture their products, they pay a single tax of just 1% on the added value of the goods.  This is intended for export.  It's important to to every company.  The system was designed [music] specifically for
[07:03] we can understand that, in other words, the government forgoes collecting more from each company in order to attract factories, technology, and generate jobs and investments within the country.  And this is a strategy that seems to be
[07:16] working.  Today, approximately 64% of everything produced under the maquila system is destined for Brazil.  A company operating under this tax and labor burden close to 12%.  For comparison, in
[07:30] Brazil, depending on the sector, this cost can exceed 80%.  In practice, this completely changes the calculation, right?  Imagine a piece of clothing that costs produced in Paraguay, it could leave the factory [clearing throat] for
[07:42] approximately R$11.20.  In Brazil, this same item can cost around R$18 before it even arrives in stores.  Do you realize how big the difference is?  Products Brazilian workers in Brazilian factories, generating taxes for
[07:55] Brazil, are being produced on the other side of the border in our neighboring country to consumer market.  Furthermore, there's a strategic advantage that few people talk about, right?  Because unlike opening a factory in Asia and producing for
[08:07] Paraguay, it means remaining close to the Brazilian market within exporting to our country.  So you can see that the distances are short, the logistics remain very competitive, and companies are able to reduce costs
[08:20] consumer market.  And it's no coincidence that the numbers from the maquila law are impressive, because within the regime, the Brazilian presence is absolutely dominant.  Of the 248 foreign industries currently operating under the
[08:33] regime, 180 are Brazilian.  In other words, almost three out of four companies Brazil, such as Lupo, for example, which announced the installation of a sock factory in Paraguay.  Then you have the case of JBS, which expanded its operations in the
[08:47] poultry supply chain with the potential to generate thousands of jobs in the country.  Another company is that manufactures Nike and Adidas sneakers, and they also announced their presence in Paraguay.  And Brazilian Association of
[09:00] Brazilian manufacturers are evaluating operations there.  And it doesn't stop there, does it? Textile sector, food, auto parts, plastics, gases, as I mentioned, toys, industrial sector.  So, these are companies of
[09:12] independently arriving at the same conclusion.  For many of them, competitive than producing in Brazil. However, everything I've said here about the tax aspect is just one aspect of the story, because you're not
[09:26] single reason.  The decision always involves a combination of factors.  And besides the issue of taxation, two points weigh heavily in this choice: the cost of hiring workers and the price of energy, which is a
[09:39] basic input for everything we do.  So, starting with the workers just like with taxation, Paraguay also offers a simpler and less burdensome environment for those who preach. In Paraguay, additional labor costs
[09:52] amount to approximately 16.5% of the payroll.  In Brazil, the FGTS (Severance Indemnity Fund) and INSS (National Social Security Institute) alone already account for almost 28%.  This percentage can still increase mandatory charges.  This cost difference stems from a rather distinct labor mix
[10:08] Because in Brazil, employers have to deal with a series of obligations stipulated in the CLT (Consolidation of Labor Laws).  The worker is entitled to 30 days of paid vacation per year, in this case with an additional 1/3, the full 13th-month salary, FGTS (Brazilian severance fund),
[10:21] employment groups, contributions to PIS/PASEP (a Brazilian social welfare program), and charges destined for the Vacations, for example, follow a progressive logic, right?  They start out smaller and only reach 30 days after 10 years of work at the same company, without the
[10:35] Brazil.  The weekly work schedule is also different; while in Brazil the standard limit is 44 hours.  In Paraguay, it can reach 48 hours with more flexible overtime rules.  There are also changes regarding the 13th salary there.  His
[10:48] name is Diagnaldo.  The calculation is based on the amounts received during the year, divided by the number of months worked, without the application of any existing charges in Brazil, for example.  Another important point is that benefits that are
[11:00] mandatory here in Brazil, such as the transportation voucher, are optional there.  It will depend much more on the agreement between the company and the worker.  In the pension system, the logic also changes.  In Brazil, companies collect 20% of payroll through
[11:12] NSS.  In Paraguay, these values ​​are already incorporated into the IPS contribution, which pension system we have here in Brazil.  Therefore, as a consequence, hiring and retaining an employee tends to cost less for the company in
[11:24] a small difference when considering a single employee, but when you consider industries with 500, 1000, 5000 employees, the savings of a few hundred reais per month, when you multiply that by the number and think over the
[11:37] years, which is the time it takes for that factory to start generating a return, can millions of reais.  Furthermore, in an industrial sector where margins tend to be tighter, competition is global, and this
[11:49] difference can determine whether a factory continues operating or becomes doors.  And now the other point is also the energy that I mentioned earlier.  Thanks to the Taipu hydroelectric power plant, for those who don't remember,
[12:01] built in partnership between Brazil and Paraguay.  Paraguay has one of the most competitive energy rates in South America. While here in Brazil a Brazilian industry will pay on average around $12.3 per methion,
[12:16] this cost goes to... So it would be as if instead of you could supply three in Paraguay for the same cost. For sectors that are very intensive in energy consumption such as steelmaking, metallurgy, mining,
[12:30] working with the petrochemical industry, pulp and paper, this difference will savings over the years.  In some cases, the reduction in energy bills alone would be enough to justify opening a factory in Paraguay.
[12:44] And so, the results of this movement are already beginning to appear in Paraguayan lands.  If you're going to East City, this region might be the biggest decades, the city was known for its electronics and
[12:58] Iguaçu River to shop there and then return.  Today the image is already changing, because in addition to the still exists, things are cheaper there, the city is consolidating itself as an important industrial and business hub, attracting factories,
[13:11] distribution centers and foreign investment.  Looking at the numbers, we can see the speed of this movement. Between January and August of last year, attracted mainly by the maquila regime, grew by 527%,
[13:25] reaching a figure of approximately 240 million dollars.  This progress didn't just start now, right?  Since 2018, the accumulated volume of investments in the region has totaled approximately 765 million dollars,
[13:37] with almost half of that total invested in the last 20 months alone, accelerating and that the arrival of companies is happening with more force now.  And the impact also shows up in demographic data, right?  Because there are over
[13:50] 98,000 Brazilians living in the region. And that's very interesting because for quite some time Brazilians would cross the Friendship Bridge to buy return home.  even on the same day. Now, a growing number of people
[14:03] are crossing that same bridge, but it's to work, to start businesses, to you, the business owner impressed by this, think about moving your operations to you need to ask yourself.  Isn't there anything you can do within
[14:16] your business today to reduce costs, increase efficiency, and improve your n't just about seeking a more favorable external environment; that can be look inward, streamline processes, eliminate waste,
[14:29] new ways to grow.  And it was challenge that we here at Grupo Primo joined forces with G4 for the first time to create something unprecedented.  On August 11th,
[14:41] at 8 PM, my partner Thiago Negro, Thes Gomes, Bruno Nadon, Alfredo, and I will be together to show you a practical plan to next year.  To do this, we're going to talk about revenue generation, improving
[14:54] operational efficiency, your company culture, cost optimization, and everything else that brought you to this video, but applied to the day-to-day operations of a company in much greater depth.  If it makes sense to you, tap the link here or
[15:06] on the screen.  Okay, back to the video, right?  Finally, you have to realize the following.  While Brazil continues to debate tax reforms revenue—because that's always how the story ends in Brazil—Paraguay is
[15:18] reaping the rewards of a path it chose almost 30 years ago, a path that has been bearing fruit.  And perfect country, right?  There will be comments here saying: "Wow, Paraguay isn't a superpower."  No, definitely not.  It is a country that faces several challenges.
[15:32] They have a lot of poverty and social inequality, just like Brazil.  But for a company that needs to decide where to invest in the next 10 or 20 years, the increasingly clear on the other side of the border if you're an industry.  And
[15:45] for Brazil, because when a factory goes to Paraguay, we are losing knowledge, technology, and more opportunities that could be we have to ask ourselves how much longer Brazil can
[16:00] continue losing companies, jobs, and talent before seriously rethinking an extraordinary country to win this dispute with Brazil.  It was simply straightforward, with stable rules and predictability over longer periods.
[16:14] Three things that, unfortunately, Brazil is unable to offer today.  Or do you opinion here in the comments.  If this video made you think differently about the subscribe to the channel so you don't miss the next ones.  I'll leave it at that for now,
[16:27] miss the next ones.  I'll leave it at that for now, big hug and see you next time.