Brazil finally gets it right

The largest country in South America has been falling short of its potential for a long time. Now, amidst a global slump, it’s finally starting to shine.

The economy is on track, resources are plentiful and they just won the 2016 Olympics Games (to go with the 2014 football World Cup).

Thanks to the prior guardianship of President Fernando Cardoso and now the current president, Luiz Inacio Lula de Silva, Brazil’s future is looking bright.

But it has taken a long time to get there – indeed ever since the Portuguese set foot on its shores (looking for India) in 1500.

Most recently, during the early 1990s, Brazil suffered painful economic and social conditions. Inflation – the rate at which prices increase – crippled the country at around 760% a year (most countries aim for 2%).

Government debt and interest rates were shockingly high and growth was low. Many of Brazil’s current problems of crime and poor healthcare and education were created or exacerbated during this period.

Then Cardoso came along. He changed the poorly performing Cruzeiro currency to the Real. He also brought government spending within its means and started getting rid of its debt.

He was followed by Lula de Silva who continued on the same responsible path. He has brought the cost of borrowing money down to a more reasonable rate, increased social spending and successfully guided the economy through the boom and already out of the recession.

He’s been helped by the growth of a number of key state-owned businesses – providing his government with much-needed cash – and a commodity boom (similar to Australia’s) on the back of Chinese demand.

And it’s these commodities, not just good leaders, that Brazil has been blessed with. Already self-sufficient in oil, they made a massive discovery off the coast in 2007 that will turn them into a major oil exporter in 10 years.

It is home to the world’s largest iron ore deposit (used to make steel). It also has an abundance of land – much of it so fertile that farmers get three harvests a year. So when the world needs more food, Brazil has 20 million spare hectares of good productive land, without having to destroy its forests.

To top it off, it is already the world’s leading exporter of coffee, sugar, chickens, beef and orange juice. So just as well it has the world’s largest reserves of fresh water – a jewel in itself.

This same water not only supplies Brazil’s people, agriculture and business, but also 80 percent of the country’s electricity – the highest of any big economy – produced from over 600 carbon-free hydro power stations. It’s a handy position to be in given the costs that will soon be placed on coal-based power.

Brazil also uses 25 percent ethanol fuel (from sugar cane) in all its cars. This renewable resource decreases its reliance on oil, is cheaper to run, and emits less carbon dioxide (though any related deforestation cancels this argument out).

So with all these solid foundations – good leadership, abundant natural resources and sound economic conditions – overseas investors are now pouring in.

Brazil’s foreign direct investment (arguably the best indicator of the country’s future prospects) was up 30% last year, even when the rest of the world was down 14%.

And the Brazilian people are feeling confident. The middle class has grown along with income equality. People are buying more clothes, more cars and more houses. Previously impoverished towns are becoming prosperous.

But Brazil still has its problems though. It has a large black market that competes with law-abiding businesses. Its roads and general infrastructure is poor. It has land rights and deforestation issues in the Amazon Basin. And there is still a lot of poverty and crime.

This doesn’t even touch on the inefficiencies of conducting regular business and justice in the country. Lula hopes he and his successors will be able to use the favourable economic conditions to improve all of these problems. But progress is often a lot slower than it should be.

But the pursuit of perfection shouldn’t overshadow progress. After all, Brazil is still developing. It is part of the BRIC group of countries – a popular name given to the most promising developing countries by Goldman Sachs investment bank: those being Brazil, Russia, India and China.

And promising it is. It is the fifth largest country in the world and has the fifth largest population (192m). And based on current trends it could be the fifth largest economy by the middle of the century.

Brazilians have a lot to celebrate on Copacabana beach. But they also have to concentrate on the future to ensure previous mistakes aren’t repeated, and the promising status quo is maintained.

By The Casual Truth

Photo – The famous Copacabana beach in Brazil’s second largest city Rio de Janeiro.