Back in 2001 Goldman Sachs predicted that the economies that would come to dominate the world would be Brazil, Russia, India and China or BRIC as they have now come to be known. At the time Brazil seemed to be the odd one out and some economists wondered at its appropriateness. Famous for its political instability, football and carnivals there seemed little reasoning behind its inclusion.
Now the economists’ foresight at Goldman Sachs has been proved correct. While China is still leading the world out of recession Brazil is not far behind. Like everywhere else in the world Brazil didn’t escape the recession but it was one of the last in and one of the first out. Recently a huge oil reserve has been found in Brazil with experts predicting that its economic growth should pick up speed from the current annualised rate of 5% over the next few years.
Expert opinion differs on the exact timescale but all agree that sometime after 2014, which is earlier than Goldman Sachs predicted, Brazil is expected to become the world’s fifth largest economy, overtaking Britain and France. According to PwC a consultancy by 2025 São Paulo will be its fifth wealthiest city.
In many ways Brazil is more attractive to investors than the other BRICs as unlike Russia it exports more than oil and arms, treating foreign investors with respect. Unlike India it has no insurgents, no ethnic or religious conflicts or hostile neighbours and unlike china it is a democracy.
In the last year or so Brazil’s turn around has come to the attention of the world. Led by President Luiz Inácio Lula da Silva, a former trade union leader born in poverty, Brazil’s government has moved to eradicate the huge social and economical inequalities that have long been associated there. From an educational stand point the world has much to learn from Brazil, more even so than from China. When it comes to smart social policy and boosting consumption at home Brazil has finally made an entrance onto the world stage. This was marked recently when it was awarded the 2014 Football World Cup and the 2016 Olympics in Rio de Janeiro.
While Brazil gives the impression of sudden emergence its growth has actually been fairly steady when in 1990, having exhausted all other options it’s settled on a sensible set of economic policies. Inflation was tamed, and spendthrift local and federal governments were required by law to rein in their debts. The Central Bank was granted autonomy, charged with keeping inflation low and ensuring that banks eschew the adventurism that has damaged Britain and America. The economy was thrown open to foreign trade and investment, and many state industries were privatised.
These policies helped the growth of a band of new and ambitious Brazilian multinationals. Some of the state owned companies such as the oil company Petrobras and the aircraft maker Embraer are flourishing now as a result of being separated from government control. Others are setting the standard for a new generation of savvy entrepreneurs, battle hardened by the dark past.
This golden age in Brazil means there is foreign investment pouring in attracted by the stable government and falling poverty levels. Besides investment in oil other companies are zeroing in on Brazil’s other key resource – timber. With sensitivity high in regard to deforestation and its effect on climate change Brazil is keen to preserve its vast rainforest. Many solutions have been proposed to do this, however the most successful so far has been the implementation of forestry plantations. Investors can either buy forestry directly from a company or invest into forestry units. The units are leased; this allows smaller investors the opportunity to invest directly into forestry. When the trees are fully grown they are cut down and sold. At the end of this process more trees are planted in their stead thus creating a sustainable forest for the future. Responsible and reliable companies who specialise in this type of investment are: Cambium, Greenwood Management and Phanus Timber Fund.
Since early December the real has gained almost 50% against the dollar boosting Brazilian living standards by making imports cheaper but on the flip side of the coin this makes life harder for exporters. Last month the government imposed a tax on short term capital inflows. However that is unlikely to stop the currency’s appreciation, especially once the oil starts pumping.
Nevertheless, the country’s course seems to be set. Its take-off is all the more admirable because it has been achieved through reform and democratic consensus-building.
