Brazil Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The territory of the Federative Republic of Brazil is subdivided into five regions (south, southeast, central west, northeast, and north) and 26 federal states as well as the federal district with its capital Brasília. Counting a population of 189.3 million people and a gross domestic product (GDP) of US$1,295 billion (or US$6,841 per capita), Brazil is the world’s fifth most populous country, the largest economy in Latin America, and the 10th largest worldwide in 2007.

After several years of double-digit growth rates in the early 1970s, Brazil’s economic development strategy based on import substitution came to an end in the early 1980s. It was followed by the “lost decade” and the default on foreign-currency denominated debt in 1987. Years of hyperinflation reached their peak in 1993. Starting in 1994 a successful stabilization program (Plano Real) introduced a new currency, the real (R$), which was initially pegged to the dollar and freely floated from 1999 onward. A milestone was achieved when Brazilian foreign-currency denominated debt became investment grade in 2008.

The Brazilian government has conceded operational autonomy to the Central Bank, which has been able to continue its orthodox and highly transparent macroeconomic policy even over the change of government in 2003 from a center right to a center left coalition. Having adopted an inflation target policy, the inflation rate dropped to less than 5 percent in 2006 and 2007. Decreasing foreign debt and rising foreign currency reserves reestablished credibility and permitted the country to become a net creditor in 2008.

Although GDP growth is modest (2003–07 the average was 3.8 percent), it is considerably higher than the long-term (1986–2007) average of 2.7 percent. Increasing domestic demand, one of the key drivers of GDP growth, can be traced back to several factors: (1) nominal interest rates, although the world’s highest, fell to 11.5 percent in 2008 after topping 26.5 percent in 2003; together with micro-finance programs, this decrease has fostered lending; (2) higher wages (minimum wage rose to R$415 [US$250] in March 2008), combined with low inflation and currency appreciation have increased purchasing power; (3) a large antipoverty program, bolsa família (“family fund”), which conditions payments to children’s school attendance and vaccination records, reaches one-fourth of the Brazilian population; (4) formal employment has risen by 15 percent between 2003 and 2007; (5) though a highly unequal country, income distribution has improved over the last decade (the Gini coefficient fell from 0.66 in 1996 to 0.56 in 2006).

Traditionally leading in primary products (iron ore, soy beans, meat, coffee), the economy has increasingly diversified. Brazil is today the world’s fourth largest commercial aircraft manufacturer (Embraer) and the sixth largest car producer, with an expected output in 2008 of over 3 million cars. General industrial production has increased since President Luiz Inácio Lula da Silva took office in 2003. Energy supply has been increasing and is mainly provided by hydro-, thermal, nuclear, and wind power with 76.4 percent, 21.4 percent, 2.0 percent, and 0.2 percent of total energy production, respectively, in 2008. In 2006 Brazil became self-sufficient in oil and in 2007–08, the oil company Petrobras discovered large offshore reserves raising prospects of becoming a future net oil exporter. Oil production was 1.9 million barrels per day in 2007.

Brazil’s overall investment rate is low compared to the other countries of BRIC (Brazil, Russia, India, and China) at 17.6 percent of GDP in 2007. However, a fresh investment cycle in new plants with emphasis on the petrochemical, mining, metal and steel, automobile, and agro-industries has been initiated. Investment in manufacturing by the National Social and Economic Development Bank (BNDES) more than doubled since 2003, reaching US$13 billion in 2007. FDI inflows topped US$34.5 billion in 2007 or 2.1 percent of GDP (2003–07 average). Moreover, a public-private partnership scheme has started operating. Portfolio inflows of US$48 billion in 2007 have also fueled the stock exchange BOVESPA. Mentioned factors have contributed to strengthening the economy despite a high corporate tax burden, educational deficits, crime, and inefficiencies in public administration.

Exports

After the real was floated in 1999, the trade balance produced surpluses from 2001 onward and exports increased from US$73 billion in 2003 to US$160.6 billion in 2007, while imports increased from US$48 billion in 2003 to US$120.6 billion in 2007. Hence, the Brazilian trade volume equals 21.5 percent of GDP in 2007. Exports are composed of 32 percent basic, 14 percent semi-manufactured, and 52 percent manufactured products. Brazil’s export markets are diversified, with the United States, China, and Argentina being the main foreign trade partners (accounting together for roughly one-third of Brazilian trade).

Compared to the 1990s, Brazil has reduced its foreign trade dependence from the Mercosur/Mercosul countries. An increase of commodity prices, attributed to rising demand in Asia, explains part of Brazil’s export growth. Brazilian outward investment stock reached US$108 billion in 2006 and is championed by multinationals such as CVRD, Petrobras, Gerdau, Embrae, and Votorantim. Being a medium-income

country, Brazil is increasingly becoming an off-shoring destination, due to competencies in the banking, telecommunications, and transportation industries, proximity to the United States, and economic and political stability. Thus, there are signs that Brazil has passed an inflection point in its recent economic and business performance.

Bibliography:

Arestis and A. Saad-Filho, eds., Political Economy of Brazil: Recent Economic Performance (Palgrave Macmillan, 2008);
Baer, Brazilian Economy: Growth and Development (Praeger,2001);
CentralBank, www.bacen.gov.br (cited March 2009);
V. Luna and H. S. Klein, Brazil since 1980 (Cambridge University Press, 2006);
Rodriguez, C. Dahlman, and J. Salmi, Knowledge and Innovation for Competitiveness in Brazil (World Bank Publications, 2008).

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