Country Briefing - Brazil

7/27/2019 Country Briefing - Brazil

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CountryBriefing

Brazil

Stefano Lodi – 260397423BUSA 433 – Business Climate in Developing Countries

Professor Stapenhurst



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TableofContents

INTRODUCTION 3

HISTORYOFBRAZIL 3

POLITICALANALYSIS 4

ECONOMICANALYSIS 5

DOINGBUSINESS 7

FORECAST 8

APPENDIX 10

BIBLIOGRAPHY 15



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Introduction

Brazil,amajorplayerinLatinAmerica,isaveryvastcountrywitheverythingtosucceed.Lately,

ithasgottenalotofinternationalattention,asitwillbethehostofthe2014WorldCupandthe2016

Olympics.TheWorldBankclassifiesitasanupper-middle-incomeeconomy(TheWorldBank)andithas

greatlydevelopedinthepastyears.Brazilisabeautifulcountry,withanabundanceofnaturalresources

and territory. See Appendix1 for amap of the territory. Following are some key points to give an

overviewofthecountry.

Population 194,947,000 (2011)

GDP US$2.475 trillion (2011)

GDPPerCapita(PPP) $12,696 (2011)

GDPGrowthRate(2012) 1.8% (2011)

Language Portuguese

GovernmentType Federal Republic

History of Brazil

BrazilwasdiscoveredbyPortuguesesailorandexplorerPedroAlvaresCabralonApril22nd1500.

Fromthenonwards,a seriesofPortuguesearrivalswouldforevermarkthehistoryofBrazil.Overthe

yearsPortugueseexplorersexploredthecountryandacentralPortuguesegovernmentwasestablished

in1549.Atthattime,theorientalpartofBrazilwasownedbythePortuguesewhiletheoccidentalpart

bytheSpanishEmpire.ThePortugueserealizedtheimmensequantityofexportstheirnewlydiscovered

countryhad.TheystartedexportingPau-Brasil(timbertreein thepeafamily),sugarcane,andcocoa.

ThePortuguesestartedimportingaconsiderableamountofAfricanslavesintoBrazilandforcedthemto

workinBrazil’sexportsproduction.Eventually,thePortuguesemanagedtotaketheoccidentalpartof

BrazilownedbytheSpanishandfendoffFrenchandDutchinvasionattempts.TheIndependenceof

BrazilwasdeclaredonSeptember7th1822,afterwhichBrazilwasgovernedbyaseriesofempires.On

November 15th 1889,after a coup,MarshalDeodoroda Fonsecaput anendto empiricgovernment,



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declaredBrazilasaRepublicanddrafteditsfirstconstitution.The20thcenturywasmarkedbypolitical

turmoil inwhich Brazil saw many different forms of government: from a new Republic, tomilitary

dictatorshipstothecurrentFederalRepublic.

Political Analysis

Brazil is afederative republicwithapresidential system.Thepresidentis electedforaonce-

renewablefour-yearterm.ThePresidentholdstheexecutivepowerandisresponsiblefornamingthe

cabinetandplaysakeyroleintheappointmentofotherseniorofficials.Thelegislatureiscomposedofa

bi-cameralCongressof513seatsaswellasaSenateof81seats.Finally,thejudiciarysystemisvery

complex,withseverallayersofcourtsatboththefederalandstatelevel.TheBrazilianjudiciarysystem

isknowntobeamazeandsuffersfromlengthyproceduresandevencorruption.TheEIUDemocracy

Index classifiedBrazilas the45th democracy intheworld (outof 167), thusplacing it inthe“flawed

democracy”category(EconomistIntelligenceUnitCountryProfile).

Since2002,thePT(PartidoTrabalhistaorWorker’sParty)hasbeentheheadofthecoalition

government.ThispartyisleftwingandwasspearheadedbyLuizInácioLuladaSilvaormoresimply

“Lula”.Indeed,Lulawaselectedin2002andre-electedin2006.SeeAppendix2foralistoftheBrazilian

parties. Lula’s tenure was most known for its “Programa deAceleração deCrescimento”,or PAC, a

US$ 235 billion investment program designed to accelerate growth in Brazil. He is also known for

launchingeffectivesocialprogramstolowerthepovertyandinequalityinBrazil.Theseinitiativeslifted

millionsoutofpoverty(TheNewYorkTimes).Duringhis8-yeartenure,Lulareallyconqueredthehearts

ofBraziliansandleftofficewithanoutstanding80%favorabilityintheopinionpolls.

InJanuary2011,DilmaRousseff(alsofromthePT)waselectedwithapproximately56%ofthe

votes(TheEconomist,2010).DilmawasthefirstwomantoeverbeelectedinBrazil,whichwasquitea

groundbreaking event. This clearly marks a change in a political and social context that is rather

“machista”ordominatedbymales.DilmaisfollowingthelegacyofLula,strivingtokeepBrazilgrowing

andreducinginequality.However,herpartyhascomeunderattackin thepastyears.Indeed,already



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underLula,somecorruptionchargeswerelaidagainstseniorofficials,whichweresentencedtoprison.

Inthepasttwoyears,moreseniorofficialsbelongingtothePThavebeenunveiledinamajorcorruption

crackdown,whichhasbroughta verynegative lightto theparty(EconomistIntelligenceUnitCountry

Report).Furthermore,Dilmahastogetreadyforthe2014electionsandhastofacea sluggishgrowth

outlook.Clearly,Brazilianpoliticsstillhavemanychallengesahead.

Economic Analysis

Brazil’s economy outweighs the economies of all other South American countries. It is

characterizedbylargeandwell-developedagricultural,mining,manufacturing,andservicesectors(CIA

WorldFactbook).

2010markedayearofexceptionalgrowthforBrazil.Indeed,theGDPgrowthfor2010was7.5%

(SeeAppendix3foralistofBrazilianGDPindicatorssince1980),comparedtoaworldGDPincreaseofa

littleover4%(TheEconomistWorldGDP).Evenduringthe2008globalrecession,Brazildidnotsufferas

muchasotherregionsintheworld.Indeed,in2008theGDPgrewat5.2%whilein2009itshrunk0.3%.

2011was marked by a slowdown in the Brazilian economywith a 2.7%GDP growth. The Brazilian

CentralBankthusdeclaredaGDPofUS$2,475trillion(Brazil’sCentralBank).TheGDPpercapitahasalso

beenslightlyincreasingovertheyears.Froma6.5%growthin2010,toa1,8%growthin2011,GDPper

capitahasreachedUS$12,696in2011.

In2011,unemploymentstoodata6%rate,animprovementoverthe7%rateof2010.There

hasbeenacleardownwardpathintheunemploymentrateoverthelastdecade.Intheearly2000’s,

unemploymentstoodaround10%(IBGE).WhilethisisaverygoodsignfortheBrazilianeconomy,the

disparitiesamongregionsintermsofunemploymentremainblatant.Urbanandusuallymoredeveloped

areasinthesouthorsoutheasternpartofBrazil(suchasSaoPaulo,orevenRiodeJaneiro)possessan

unemployment rate that ismuch lower than the poorer NorthernorNortheastern part ofBrazil. In

termsofemployment,Brazilstillhasmanyhugeregionalchallengestoovercome.TheGINIindexstood

at54.69in2009,whichshowsthatincomeequalityisstillalongwayfrombeingperfect(Brazil–GINI



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index).Thisindexhasslowlygonedowninthepastdecadebutthereisstillalotofimprovementtobe

made.

The Main measure of inflation inBrazil is called the IPCA(Indice de Preçosao Consumidor

Amplo–Consumer’sPriceIndex).Brazil’scentralbankhasannouncedaninflationof5.84%forthe2012

year(Inflaçãohistoria).Thisratehasbeenonasomewhatconstantdownwardslope.In2003and2004,

itstoodaround7.5-9%(InflaçãoBrasil).TheCentralBank’stargetwasof4.5%witha2%leniencyon

both positiveand negative sides. The inflation rate thusmanaged tobe in the Central Bank’s goal.

However,theCentralBankreporteda4.8%riseinwages(comparedtoa6.50%inflationrate).Thishas

caused a rise in thecost of living,which hascreatedadditionalhardships forBrazilians in thelower

incomecategories.

Brazil’s tradebalancehasbeen positive over thepast years. In 2011,it recorded aUS$29.8

trillionpositivebalance,showingthatthecountryisverystrongintermsofexports.Thecurrentaccount

hashoweverbeenindeficitinthepastyears.Therewasadramaticsurgeinthedeficitfrom2009to

2010.TheCurrentAccountdeficitjumpedfromUS$24.3billiontoUS$47.4billion.Wecanobservesome

correlationbetween this deficit and theoutstandingGDPgrowth Brazil experienced. In 2010, Brazil

receivedmoreforeigninvestmentthanitinvestedabroad,whichaggravatedthesituationofitscurrent

account. In2011, thecurrentaccountdeficitcontinuedtowidenbutatamuchslowerrate,reaching

US$52.5billion.IntermsofGDPhowever,theCurrentAccountdeficitsawanimprovementfrom2010.

In2010,itrepresented2.2%whilein2011itimprovedto2.12%.

Brazil’sexternaldebtexperiencedasurgein2010and2011.ItincreasedfromUS$192.2Billion

in2009toUS$256.8Billionin2010.In2011,itgrewtoUS$298.2Billion(Brazil’sCentralBank).Therehas

beena30%increase inlong-termdebt from2010to2011(fromUS$199.5BilliontoUS$258.1Billion)

while theshort-termdebtdeclined (staying somewhatstable inthe2007-2011period). 85.8%ofthe

externaldebt iscomposedofUSdollars (Brazil’sCentralBank).Thelevelofexternaldebtamountsto

approximately30%ofGDP,whichisaratherhealthynumbercomparedtomanydevelopedWestern



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economies. The net international investment position (NIIP) has reached US$-735.3 Billion, a

considerable improvementfrom2010’sUS$-885.8Billion.Thischange isexplainedbyariseinBrazil’s

foreigninvestment(riseofUS$105Billion)pairedwithadeclineinforeigninvestment(US$45.3Billion)

(Brazil’sCentralBank).Thedeclineinforeigninvestmentcanbeexplainedbythesluggishrecoverythe

globaleconomyisexperiencing.

ItisrelevanttomentionthatBrazil’sdecadeofstronggrowthanddevelopmenthashadalotof

positive impacts. The middle class is growing at a faster rate, which should help tackle income

inequalities.Thegovernmenthastakenalotofmeasurestocurbdowncrimeinmajorurbanhubs.For

example,inRiodeJaneiro,thepolice(withthehelpofthearmy)haveembarkedona longjourneyof

cleaningupthecity’sfavelasfromthedrugtrade.Asaresult,ithasinvadedmajorfavelasinthecityand

installed policeheadquarters in the favelas.However, crime still remainshigh in urban areas and is

spreadingacrossruralareasaswell.TheUSgovernmentstatedthatthemurderrateinBrazilisfour

timeshigherthantheUSone(UnitedStatesTravel).Thehighlevelofcrimecanalsoposevariousrisksto

businesses.Onanothernote,Brazil’srapiddevelopmenthashelpedinsecuringthe2014WorldCupand

the2016Olympics.

Doing Business

DoingbusinessinBrazilcanstillbequitechallenging.TheagencyDoingBusinessrankeditatthe

130th place(out of185) for 2013.This iswell belowtheregionalaverage (forLatin Americaand the

Caribbean),which stands at97. Indeed,on mostindicators,Brazil does substantiallyworse than the

regionalaverage.Furthermore,from2005to2012,Brazilhasnotimprovedmuchintermsoftheeaseof

doing business (see Appendix 4) Here is a summary of different indicators (Doing Business) (see

appendix5forasnapshot):

• Startingabusiness(121strank):openingabusinessrepresentssomechallenges.Ithas13different

proceduresandusuallytakes119days



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• Dealingwithconstructionpermits(131strank):has17differentproceduresandtakes469daysto

complete.IttakesevenlongertodealwithconstructionpermitsinBrazilthanitdoesinIndia

• Gettingelectricity (60th rank): has six different proceduresand takesan averageof57 days.This

indicatorisquitegoodrelativelytoothercountriesinthesameregion

• Registeringproperty(109thrank):has14proceduresandtakesanaverageof34days

• Gettingcredit(104th rank):thestrengthoflegalrightsis giventhepoorrankof three,highlighting

thedifficultiesingettingcreditinBrazil

• Protectinginvestors(82ndrank):thestrengthofinvestorprotectionindexisof5.3(outof10)

• Payingtaxes(156thrank):thereare9paymentsperyearthattake2,600hours(peryear).Thisisa

huge number and shows how cumbersome the tax-paying process is in Brazil. For example,

Colombiahasthesameamountofpaymentsbutittakesonly203hours

• Trading across borders (123rd rank), enforcing contracts (116

th rank), resolving insolvency (143

rd

rank)

Theseindicatorsrarelygounderthe100thrank,whichhighlightsonceagainthatBrazilneedsa

lotofimprovementtofacilitatebusinessinthecountry.Themostaggravatingindicatoristhepayment

oftaxes,whichisconsideredtobeanightmare.

Intermsofcorruption,Brazilhasimprovedalotinthepastdecadebutstillhasworkahead.The

PresidentDilmaRousseffhasadoptedastrongstanceagainstgovernmentcorruption.Corruptioninthe

governmentstillremainsaproblemandhasmadequiteafewheadlinesinthepastyears.Furthermore,

70%ofBrazilianbusinessownersidentifycorruptionasamajorconstraintinthesector(Transparency

International).Corruptionisparticularlyprevalent indealingswith local levelgovernments,which the

federalsystemhasgrantedaconsiderableamountofdiscretionarypower.TransparencyInternational

gaveBrazila43/100scoreonitscorruptionperceptionsindex(TransparencyInternational).

Forecast



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The2013-2016isexpectedtobequiteeventfulforBrazil.In2013,Brazilisforecastedtogrowat

afasterrateandwillbethehostfortheConfederationscup.In2014,newPresidentialelectionswillbe

heldandBrazilwillbehostofthe2014WorldCup.In2016,BrazilwillbethehostfortheOlympics.All

these events arebound to attract record-high levels of tourism andwill attract foreign investment.

Followingisapoliticalandeconomicforecastforthenextthreeyears.

PresidentDilmaRousseff hasenjoyed record-highpopularity ratingsin herfirsttwoyears of

office,duetoherzerotolerancestanceoncorruptionaswellasensuringhistoricallylowunemployment

rates(EIUCountryReport).Rousseffisboundtobeaverygoodcandidateforthe2014electionsand

manyanalystspredictthatshewillbeBrazil’spresidentforasecondterm.However,Brazil’seconomic

growth hasbeen somewhatsluggish anddefinitely underwhelming. 2010was an incredible year for

Brazilanditwasexpectedtokeepgrowingatthatrate,butitdidnot.Thisisasignofweaknessthat

could be leveraged against Rousseff in the 2014 elections. The political atmosphere is predicted to

remainsomewhatstable,withfurthercorruptionenquiriesthatcoulddosomedamagetothePTand

consequentlyDilmaRousseff.

From2013to2016,Brazil’sGDPisexpectedtogrowatayearlyaverageof3.5-3.8%,anincrease

from2012’s1%growth,butstillconsiderableundersomeotherdevelopingeconomies’ratesofgrowth

(Chinaexpectedtogrow8.5%in2013forexample)(EIUCountryReport).Inflationisexpectedtoremain

around5.5%,which isover the4.5%centralbank target, butwithinthe2% bandwidth allowed(EIU

CountryReport).Thecurrent-accountdeficitisforecastedtoslightlyincreasetoanaverageof3.3%,due

toa highergrowthof imports compared toexports. TheCurrentAccount Deficitwill be financedby

foreigncapital.Overall,Brazilhasasolidforecastforthethreeyearsaheadandisinafairlygoodshape.



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Appendix

Appendix 1



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Appendix 2



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Appendix 3

From left to right: Year, GDP (2011 Real prices), Real variation, implicit deflator, GDP (current prices), population, GDP per capita (2011 prices), real variation, GDP per capita (current prices)



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Appendix 4



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Appendix 5



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http://www.indexmundi.com/facts/brazil/gini-index

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http://www.bc.gov.br/?BOLETIMANO

CIA.TheWorldFactbook.CIA.RetrievedFebruary10,2013,from

https://www.cia.gov/library/publications/the-world-factbook/geos/br.html

DoingBusiness.DoingBusinessinBrazil.DoingBusiness.RetrievedFebruary15,2013,from

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