Brazil’s status in the Global Economy

In the next 5 years Brazil is set to play host to the World Cup, the Olympics and the Rio+20 Summit, and most importantly, of course, the 15th IACC. Just 30 years ago Brazil was under military rule and had its fair share of economic problems. The transition between these two phases and the way the evolution took place has been remarkable. We take a look at what has happened between now and then and how much or how little the BRICS label has had to do with the shift.

Few would have predicted 30 years ago that Brazil would be labelled one of the five most promising markets in the world or that it would play host to some of the world’s most well known and important events of the decade, such as the World Cup, Olympics, the Rio+20 summit and the 15th edition of the IACC. As Brazil gears up for these events, we look at the interesting journey from nation burdened by hyper inflation and crippling debt to prominent actor on the world stage.

Subject to twenty years of military rule up until 1985, Brazil’s economy was weak. After a return to democracy, a variety of plans were drawn up in an attempt to combat the country’s economic woes but all met with little success. It is generally believed that the change in Brazil’s economic fortune began with the implementation of Fernando Henrique Cardoso’s Real Plan in 1994, which consisted of the introduction of a new currency (the real); the deindexation of the economy; an initial freeze of public sector prices and the tightening of monetary policy. The result was a solution to the inflation problem that had plagued Brazil for years.

With the election of a new president, Luis Inacio Lula da Silva in 2002 and inflation under control, economic policy began to concentrate on investing in infrastructure with the Growth Acceleration Programme (PAC). The PAC (now with a follow up policy – the PAC2) was characterised by heavy investment in infrastructure, social issues and energy projects with the aims of reducing poverty and stimulating the economy. Of course neither the Real Plan nor the PAC were without their problems or critics but both have quite clearly played their parts in the evolution of Brazil as an emerging market.

A testament to the Brazilian economy’s new found robustness is how it has weathered the current global recession reasonably well, especially when compared to most developed nations. India and China are also generally thought to have been less affected by the crisis than other countries so is this an indication of shared characteristics that justify the BRICS exclusive grouping? Are there in fact any shared characteristics that make the BRICS countries elite or should investors look to other emerging economies as well?

In terms of the global recession, it is not only BRICS countries that have fared relatively well, nor have all of these countries escaped unscathed. Alongside Brazil, India and China, countries such as Australia, Poland and Canada have only experienced mild effects from the recession whereas BRICS countries Russia and South Africa have been less fortunate. This indicates that strength and unity of the BRICS grouping may be overrated by some. New acronym-laden groupings such as CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa), MAVINS (Mexico, Australia, Vietnam, Indonesia, Nigeria and South Africa) and even another originating from Goldman Sachs- MIKT (Mexico, Indonesia, Korea and Turkey) are popping up everywhere. The question is whether these are useful in identifying markets with similar properties or whether they are just superficial marketing techniques.

There are some clear similarities between the BRICS countries; all have huge populations, are rich in natural resources and have enormous growth potential but there are also many differences and disparities that make five very different economic environments. There is no doubt that being labeled a BRICS country has also contributed to Brazil’s new found prominence on the world stage but it is estimated that there are 150 emerging markets around the globe so the importance of such groupings can be questioned.

Brazil may be making its impact on the world stage thanks to a variety of factors but whether the prospects and challenges of the BRICS countries are any different to other emerging markets is a matter of great debate. We’re really keen to hear what you think; should we look to the BRICS for the future or should we place as much importance on other emerging markets? – have your say below!

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Categories: Accountable Corporate World


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