Going Global: Reforming Brazil’s “Economic Miracle”
By: Chelsea Mandrigues, Research Associate at the Council on Hemispheric Affairs
Thousands of security officials were present at the World Cup, but where is the economic security for investment coming from abroad?
Ominous speculation has cast itself over the cities of Brazil. Once thought to be the country whose “Economic Miracle” would never falter, it now would seem that the optimistic spirit of prosperity in such a robust society is becoming nothing more than a nostalgic memory. It is a lost conundrum that phenomenal growth is denied when the country has such rich labor and natural resources available. In order for long-term prosperity to become a feasible reality, government policies attracting foreign direct investment (FDI) would be a prime source for economic revival in the region.
By taking stress off of the economy and stimulating it in the long run, the government would be engaged to allocate its monetary resources elsewhere, including healthcare and education issues. FDI comes into play to help abate the misallocation of funds by allowing Brazilian private and public companies to create a decisive avenue in assessing the effectiveness of government spending. By addressing the issues of a faulty physical infrastructure, a lack of economic security, as well as an evasive tax system that hinders foreign investors, the government of Brazil has a much greater impact on creating the plausible initiative for long term change.
The History Behind a Cycle of Miracles
Brazil had experienced the controversial “Economic Miracle” during the authoritarian military regime of Emílio Garrastazu Médici from 1968-1973. Economic growth throughout the region was more than 10 percent a year, with its industrial sector particularly growing at the rapid rate of nearly 10 percent a year. [1] During the late 1980s, a number of countries throughout Latin America— following the principles of landing an orthodox attack on the matter—targeted inflation as a means of stabilizing volatile financial conditions. The region privatized their state-owned businesses in both the public and industrial sectors to engage in controlled liberalization to attack inflation. [2] This ideological attack also used interest rates to create opportunities for foreigners to invest in the growing economy, yet times have changed. [3] Under President Collor’s first year of office in 1990, most non-tariff barriers were eliminated and import tariffs had significantly decreased, igniting competition between domestically owned enterprises and multinational corporations.[4] During President Lula’s two-term presidency, 2003-2011, Brazil had been able to experience the global economy from a thriving economic foundation, reflecting earlier reforms of Collor and Cardoso, as well as the rise of China and its influence on the economy. At the beginning of the 21st century, the country had experienced an influx of FDI reaching a yearly average of $30 billion USD, a $28 billion USD increase from a decade earlier.[5] The Brazilian government at this time had created one of the most diversified markets in the global economy.
A Cycle Continues: The Current Socio-Economic Divide
Ranked as the world’s seventh largest economy, Brazil has been severely questioned by the international community —most notably by the United States—as it struggles to maintain its once previous title as the regional superpower within Latin America. The country has swayed in limbo between periods of economic growth and stagnation for decades. Brazil has once again captured the world’s attention by hosting internationally renowned events within a two-year period: the 2014 FIFA World Cup, the 2016 Summer Olympics, and the current BRICS Summit. With such prominent events taking place in Brazil, President Dilma Rousseff sits in the hot seat as the Brazilian elections near and the economy teeters.
Commodities
The narrow focus of revolving economic growth around a singular export can leave a country vulnerable to the woes of a global decrease in demand, proving to be detrimental to economic sustainability. Some of the top commodities harvested for export reflect Brazil’s turn towards industrialized goods, with a significant success rate in the industrial sector, proving to become prominent over time.
Primary hard commodities in Brazil consist of iron ore and crude petroleum, while soft commodities are associated with agricultural products, such as soybeans, coffee, and sugar. As worldwide manufacturing industries expand, the country becomes notable for its technological products, ranging from aircraft production to the components necessary in constructing automobiles. Notoriety is given to Brazil’s aircraft industry of Embraer and its success under government jurisdiction, which transformed “science and technology into engineering and industrial capability.” [10] Economic gain in Brazil is also exemplified in the country’s move towards technology and manufacturing, noting that the automobile manufacturing industry today is ranked seventh in the world, and rapid gains are now being made in biotechnology, deep-sea oil, and genetics research.[11] Although the country demonstrates resource utilization, the crumbling infrastructure within the country and ongoing inflation rates demand a requisite for FDI. It is deduced that the government ought to utilize these natural resources in other areas of the economy by engaging in dialogue from outside investors. Brazil has the resources to produce a well-rounded trade system and to attract foreign investors to expand its domestic market and global trade.
Contradictions in Foreign Direct Investment
Crucial decisions ought to be made by the government in terms of attracting FDI, especially when setbacks such as the recent misallocation of public expenditures surrounding the World Cup took place. The commodities mentioned are both natural resources and advancements in technology that can be utilized to stimulate the region’s economy. According to the United Nations Conference on Trade and Development’s 2014 World Investment Report, Brazil is fifth on a list of countries that host a global focus for FDI during 2012-2014, dropping it a tier lower from that of 2011.[12] Although the country proves to have the resources to attract FDI, it still hosts a series of stringent regulations and taxations that require reformation in order to maintain status as a country to invest in. [13]
In 2013, Brazil ranked 116 out of 189 in terms of the World Bank’s ease of doing business index, showing the complexity and hardships that foreign investors face in doing business throughout the region. [14] A foreign investor primarily wants to secure their investment, and if Brazil has the resources for FDI but not the economic stability, then it is significantly harder to ensure investment. FDI inflows to the country have decreased from $65.3 billion USD in 2012 to $64 billion USD in 2013. [15] Brazil’s Central Bank, Banco Central do Brasil, predicts an even lower estimate by the end of 2014, at a FDI inflow of about $63 billion USD.[16] In spite of past decreases and negative projections in FDI over the past several years, Brazil remains a strong competitor with its rich abundance of natural resources and prior history of success that persists with foreign investment.
Finding Cohesion
It often takes a fresh perspective of a country’s resource abundance to stimulate a stagnated or misguided economy. One successful sector of Brazil’s economy that appears to be drawing in FDI is the automobile industry, whereby Volkswagen, Toyota, and Renault are making plans to increase foreign production in Brazil, with Hyundai and Chevy looking to invest regionally. [17] The prominence of this is shrouded in the fact that the automotive production’s main end market is its internal domestic market, and import restrictions on the automobiles are forcing automakers to set up shop. [18] This locality of demand increases the regional productivity across Brazil by meeting technological demands of Brazilians, while perpetuating the country toward long-term economic growth. As long as the country stands its ground, investors will continue to be intrigued by the country’s productivity and maximum potential. In order for Brazil to sustain its current economic growth, it will have to focus on both FDI and domestic productivity to highlight innovative improvements, as these could be the keys to stimulating Brazil’s long lost miracle.
Against all Odds
Brazil has failed to create a sustainable foundation for its economy to blossom; however, that does not mean that economic revival is entirely impossible. Education, medical services, and jobs are unquestionably mandatory and are exemplified through protests to be crucial issues for the upcoming presidential elections. If the country pays heed to the warning signs of a negative reemergence of the cycle, the economy could persist and flourish.
Don’t count Brazil out of the global economy, but don’t count on it to be completely up to globalized standards, either. The government cannot continue to order inhabitants of the country to succumb to economic negligence in what was once a thriving economy. Both Brazilians and outsiders are quick to forget that the country’s very population sits on politicized quick sand that moves in a repetitive cycle of corruption, negligence, and economical reemergence. The country’s ties to its people are not frequently attached to terra firma, nor are they often the root of the peoples’ demands. While the country’s political economy denotes mere glimpses of success versus long-term economic consistency, FDI in localized firms is becoming the next big source for improvement, so long as reforms are made.
What Brazil needs is sufficient time and determination to sink out the rust, see the country through non-glare lenses, and have the courage of being neither a President Lula, afraid to condemn domestic corruption amidst economic prosperity, nor a President Rousseff, whose capability is within reach, but is not utilized to maximum potential. Across presidencies, it is recommended that the Brazilian economy focuses on its sustainability mechanisms to secure global investment security. Without significant economic reforms, Brazil will very well struggle to achieve such an economic legacy.
Please accept this article as a free contribution from COHA, but if re-posting, please afford authorial and institutional attribution. Exclusive rights can be negotiated. For additional news and analysis on Latin America, please go to: LatinNews.com and Rights Action.
References
[1] Brainard, Lael and Leonardo Martinez-Diaz, Brazil as an Economic Superpower: Understanding Brazil’s Changing Role in the Global Economy. Brookings Institution Press, 2009. 2.
[2] Amann, Edmund and Baer, Werner. “Brazil as an emerging economy: a new economic miracle?” Revista de Economia Política, 32(3). 2012. 412-423.
http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0101-31572012000300004&lng=en&tlng=en. 10.1590/S0101-31572012000300004.
[3] Ibid.
[4] Ibid.
[5] Amann, Edmund and Baer, Werner. “Brazil as an emerging economy: a new economic miracle?” Revista de Economia Política, 32(3). 2012. 412-423.
http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0101-31572012000300004&lng=en&tlng=en. 10.1590/S0101-31572012000300004.
[6] Jelmayer, Rogerio and Paul Kiernan, “Labor Strikes Roil Brazil ahead of World Cup.” Wall Street Journal. May 29, 2014.
http://online.wsj.com/articles/labr-strikes-roil-brazil-ahead-of-world-cup-1401398941.
[7] Mallén, Patricia. “Brazilian President Dilma Rousseff’s First Term Revisited: Economically, Nothing to be Proud of.” International Business Times. March 12, 2014. http://www.ibtimes.com/brazilian-president-dilma-rousseffs-first-term-revisited-economically-nothing-be-proud-1560790
[8] “Global Economic Prospects.” World Bank. 2014. http://www.worldbank.org/en/publication/global-economic-prospects/data?variable=NYGDPMKTPKDZ®ion=LAC.
[9] Ibid.
[10] “Tradition & Background.” Embraer. (Accessed July 8, 2014).
http://www.embraer.com/en-US/ConhecaEmbraer/tradicaohistoria/Pages/Home.aspx.
[11] Bergѐs, Ame. “Brazil: Economy.” Europa World Plus. London, Routledge. http://www.europaworld.com/entry/br.ec.
“Brazil’s future: Has Brazil blown it?” The Economist. September 28, 2013. http://www.economist.com/news/leaders/21586833-stagnant-economy-bloated-state-and-mass-protests-mean-dilma-rousseff-must-change-course-has.
[12] “World Investment Report 2014.” United Nations Conference on Trade and Development. June 24, 2014.
http://unctad.org/en/PublicationsLibrary/wir2014_en.pdf.
[13] Ibid.
[14] “Ease of doing Business Index.” World Bank. 2014. http://data.worldbank.org/indicator/IC.BUS.EASE.XQ.
[15] Alves, Lisa. “Foreign Direct Investments Down in Brazil: Daily.” The Rio Times. June 30, 2014. http://riotimesonline.com/brazil-news/rio-daily/foreign-direct-investments-down-in-brazil.
[15] “World Investment Report 2014.” United Nations Conference on Trade and Development. June 24, 2014.
http://unctad.org/en/PublicationsLibrary/wir2014_en.pdf.
[16] Araújo, Carlos. “Inflation Outlook.” Banco Central do Brasil. 63. March 2014. http://www.bcb.gov.br/pec/appron/apres/RI%201T14.pdf.
[17] Alves, Lisa. “Foreign Direct Investments Down in Brazil: Daily.” The Rio Times. June 30, 2014.
http://riotimesonline.com/brazil-news/rio-daily/foreign-direct-investments-down-in-brazil.
[18] “World Investment Report 2014.” United Nations Conference on Trade and Development. June 24, 2014.
http://unctad.org/en/PublicationsLibrary/wir2014_en.pdf.