The difference between Argentina and Brazil

Juliana Mello

The Brazil Business

Updated

21 October 2012

What's the first thing that comes to your mind when you think of Brazil and Argentina? Well, they are both South American countries, right? But what else? In this article, we prepared an introduction to the history of these countries, their political and economic features, and their differences regarding business.

General comparison between Brazil and Argentina

A History of shared conflicts

Brazil and Argentina share the same historical origins as the rest of South America. The two countries were part of the 15th/16th century European expansionist plan towards the mysterious Atlantic sea.

While the current Brazilian territory was occupied by Portugal, the land that would become Argentina was colonized by Spain. Portugal and Spain led a more than 300-year’s dispute over territories in Latin America, what planted the seeds of disagreement in the region. The legendary strong rivalry between the Iberian countries still has reflections in the South American countries' relations, especially when it comes to our difficulties to integrate.

As the South American nations were being formed, they were inheriting this rivalry. Even after the political independence of Brazil and Argentina from Portugal and Spain – in 1822 and 1816, respectively – the countries continued their struggle for power in the Southern Cone, especially along the La Plata river Basin.

Speaking of which, the La Plata basin was the stage for several conflicts involving Brazil and Argentina during the 19th century. The navigation of its rivers was strategic from a political and economic point of view, and it was even used to justify bloody conflicts, which culminated with the Paraguay War (1864-1870), that involved Paraguay and Uruguay as well.

Cultural formation: differences and similarities

Brazil and Argentina are seen as “young” countries, packed with natural resources and with a population built from a variety of ethnicities.

The countries actually have a lot of similarities when it comes to their cultural and historic formation. It is interesting to highlight the particular vision both countries have towards labour, a legacy from the Portuguese and Spanish colonization.

While protestant countries exalted the hard work, the extremely catholic Iberian countries saw it as destined for slaves. The idleness, instead, was worshipped as a typical trace of royalty, and even after centuries, this thinking is still present in Brazilian and Argentinean societies, influencing the way people work.

The settlers who came to Brazil and Argentina were looking for a quick and effortless way to make money and then come back to their hometowns. The exploitation of natural resources (especially precious metals) and the monoculture plantation represented the economic model installed for the settlement, which reigned absolute until the industrialization process by the early 20th century.

In this plan, it was essential to enslave people. At first, the chosen ones were the indigenous native populations. After that, the Africans were captured and brought to America to work on the fields. In Argentina, the indigenous slave work prevailed, while in Brazil millions of Africans were brought to the country to work on sugar cane and coffee plantations.

After the slave labor became no longer compatible with the economic moment of the nations, and under the pretext of the abolition of slavery, those people were either exterminated or marginalized. The workforce that replaced indigenous and Africans, were Europeans and Asians immigrants, who mingled with the local population bringing new features to the countries’ cultures.

Despite being neighboring countries, Portugal and Spain had a very different vision on how to colonize America. Even though there was extermination and exploitation of native populations conducted by Portuguese settlers, they were quite tolerant with the indigenous and actually mingled with this population incorporating several aspects of it.

The Spanish, instead, came to America with the thinking of making here a new Europe out of nowhere. For them, it was necessary to “clean” the territories, killing and enslaving the natives and repealing their culture.

In Argentina, the immigration of Italians and Spanish people prevailed over other nationalities, while in Brazil, a great variety of nationalities composed several immigration waves. Among these nationalities were Italians, Germans, Spanish, Japanese, Lebanese, Syrians, Armenians, Chinese, Koreans, Polish among others.

Both in Argentina and Brazil the indigenous populations were practically exterminated or forced to runaway to other countries. Nowadays, it is difficult to see their descendants walking on the streets. As for Africans in Brazil, after the abolition of slavery, they were submitted to the worst jobs, and indecent living conditions. Excluded from society, they originated what we currently know as “favelas”, an amount of precarious shacks, located in marginalized urban areas.

Until today, the Brazilian society suffers with a masquerade prejudice against blacks. Ecstatically, the African descendants live in the worst conditions, have the poorest education and salaries. It's an object of discussion that the Brazilian society is still in debt with black people because of slavery. That's why several people defend racial quotas in tenders and universities for them, assured by law. A lot of these projects are currently in force in some Brazilian states.

Independence, Republic and industrialization

The independence process of Brazil and Argentina ran in a very different way. In the course of the 19th century, the American territories under Spanish control were politically divided in several countries, while Portugal's colony remained as one single nation, Brazil.

While the former Spanish territories conquered their independence at the expense of a lot of blood and fighting, Brazil got independent from Portugal in a peaceful, bloodless transference of power. The Portuguese royal family was already in the country since 1808, running away from Spain’s expansionism in Europe. The political events that succeeded the royal family’s coming to Brazil led to its independence in 1822.

Brazil was turned into a monarchy, first ruled by the Portuguese prince D. Pedro I, and followed by his son D. Pedro II. After its independence from Spain, Argentina was made a republic and dealt with several separatist movements and civil wars. Despite the crucial differences existent between the Brazilian territories, the monarchy managed to maintain the country unified. Aside from some isolated separatist movements in Bahia, Rio Grande do Sul, Maranhão and Rio de Janeiro there weren’t a lot of armed conflicts threatening the nation’s unity, just as it happened in Argentina.

Brazil would only become a Republic in 1889, after the militaries had contact with the republican ideals with Argentineans during the Paraguayan War. Again, the country’s political organization changed, but its economic and social model remained the same: the monoculture agro-exporter, centered on the wealthy land owners. Coffee was the number one product exported by Brazil at that moment, while Argentina was leading the meat and wheat exportation.

Brazil and Argentina started the process of industrialization after the First World War, as a solution to supply the internal demand for consumer goods that were imported from Europe and United States. During the Great Depression, the export products produced in Brazil and Argentina ran out of buyers, and the countries had to explore other economic activities.

By that time, Brazil was governed by Getúlio Vargas and Argentina by Juan Domingos Perón. Gifted with great charisma and popularity, Vargas and Perón had a lot in common. Both conducted long dictatorships in their countries, and are known for introducing several social reforms, especially in labor laws.

Aside from being great statesmen, Vargas and Perón contributed enormously to encourage the feeling of national identity among Brazilians and Argentineans. The leaders also planted the seeds of populism and valuation of the lower classes, so characteristic of Brazil’s and Argentina’s current administrations.

After the Second World War, the countries’ industries increased exponentially. During the 1950s and 1960s Brazil and Argentina experienced a great growth in their economies, but it didn't last long. During the 1970s and 1980s, both countries fell in debts, corruption and inflation.

From that moment, Brazil and Argentina followed different paths that would explain their currently very different economic situation. Both nations lived decades of military dictatorship that had different consequences for each country.

The Argentinean military dictatorship (1976-1983) was the bloodiest of Latin America. It's estimated that 30 thousand people were kidnapped and killed. By the end of this period, the country was razed economically and politically, counting with enormous external debts increased by the disastrous Falklands War with England. The following democratic presidents (Alfonsín, Menem and Duhalde) couldn’t handle the situation of economical and political instability and their administrations were taken by corruption, hyperinflation, social uprisings, retraction of industry, unemployment crisis and worsening of social inequality.

Argentina only started its recovery from 2003, when the country started to register an average growth of 8%. After Néstor Kirchner took the presidency, in 2005, a series of social programs were implemented and managed to diminish poverty and better distribute wealth. Also, during his administration, Argentina got rid of the IMF debts (an worldwide known default), and experienced a slow recuperation of its industry.

Currently, Argentina counts with a relatively low unemployment rate and a reduced poverty index. However, the country still deals with the stagnation of its industry and a low amount of foreign investments, despite of being one of the better ranked Latin America countries regarding social development, education and wealth distribution.

Brazil also passed through a disastrous moment after the end of military dictatorship, very similar to Argentina’s. However, during Itamar Franco’s administration (1991-1994) the country managed to end hyperinflation and concentrate efforts on attracting foreign investors, through a stabilization plan called Plano Real. Two decades from there, the economy gradually grew and stabilized, the country became one of the world's most attractive nations to invest, and improved its social levels.

Finally some business!

From now, we will discuss Brazil and Argentina's differences regarding business. We separated the subject in some interest topics for business people.

Business procedures, rules and taxation

In the ranking of Ease of Doing Business made by the World Bank in 2012, Brazil ranked the 126 position while Argentina occupied the 113 place. From that information you can assume that it’s easier to conduct a business in Argentina than it is in Brazil, which can be true in some aspects.

Brazil is one of the most bureaucratic and expensive developing countries when it comes to forming a company, for example. While in Argentina an entrepreneur takes 26 days to open a company, in Brazil it takes an average of 119 days and around 13 different procedures. Regarding costs, opening a business in Brazil can cost the double than in Argentina. In Brazil, the procedure costs on average BRL 2038, while in Argentina, BRL 1000.

However, Brazil has several laws, credit incentives and preferential regimes destined to small companies, while in Argentina business credit is almost nonexistent and small-business loans are extremely unusual. The entrepreneurs also deals with low limits and extremely high interest rates (up to 45%).

In Brazil, there’s a great preoccupation from public and private institutions to maintain the medium and small companies alive and existing legally, as they are responsible for the majority of formal jobs in the country and provide a great amount of money in taxes to the Government. Here, entrepreneurs find a friendly and supportive environment to develop, grow and invest while in Argentina there’s an omnipresent feeling of crisis. Of course, that doens't mean that Brazil is the paradise for entrepreneurism, just that laws and incentives are improving faster than in our neighboors.

Regarding taxation, both countries have equally high rates, and very low return of taxes in benefits to the population. In Brazil, the IRPJ (Corporate Income Tax), for example, is collected at a rate of 15%, plus a surtax of 10%. In Argentina, a similar tax charges a 30% rate over companies’ income.

Though in Argentina the income tax rate is higher, in Brazil the payroll taxes and costs are much higher than in Argentina. There, companies have to pay around 25% of its employees’ gross salary on taxes. In Brazil, this percentage can achieve up to 183% of the employees’ gross wages. Quite a difference.

Bureaucracy

The worldwide known Brazilian bureaucracy is one of the most significant factors that increase the so-called “Custo Brasil” (the cost of doing business in Brazil) and scares off investors. In the 2012 World Bank’s ranking regarding bureaucracy, out of 183 nations, Brazil occupied the 126 position and Argentina was ranked in 115.

Even though Argentina is better ranked when it comes to bureaucracy, both countries are actually equally bureaucratic. As a Brazilian that lived in Argentina for seven months, I could compare it. Here and there, queues are long, public services are slow, procedures are complicated, involving several places to go and meet several people that will request you lots and lots of paperwork.

Not to mention that both Brazilians and Argentineans have the tendency to take advantage of everything, what favors corruption acts on public and private institutions. If there really exists a “Brazilian way” as we discussed in another article here at The Brazil Business, there’s certainly an “Argentinean way”. The rules change constantly according to interests, aren't enforced uniformly, and are forever subject to breaking if a bribe is suggested.

An interesting thing is that Argentina and Brazil are very bureaucratic in their economic relations as well. Argentina is always creating barriers to the Brazilian products and Brazil is always imposing restrictions to Argentinean’s, even though the countries have a lot of cooperation agreements in force. Seems like the political efforts towards the integration of both nations work only on speeches and treaties as what we see in practice is two emerging nations seeking to grow alone and compete for the global market.

Openness to foreign capital and investments

According to experts, of all the foreign investments directed to Latin America, around 78% goes to Brazil, what shows a great attraction to foreign investors towards this country.

Argentina, on the other hand, shows great issues regarding the attraction of foreign investments. The difficulties regarding expatriation of dividends, barriers imposed to foreign capital, the excessive protectionist and restrictive economic policy continue to impose obstacles to foreign companies. Not to mention the extensive import bans and controls and reactionary monetary policy even towards its neighbours, what difficults even more the integration of Mercosul countries.

An example is the episode of expropriation of the oil company YPF, when the Argentinean government passed to take the profits that belonged to the Spanish company Repsol. The fact scared off foreign investments and strongly diminished the trust of companies worldwide in Argentina.