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Brazil presentation

This document provides an overview and comparison of the BRIC countries (Brazil, Russia, India, China). It discusses their GDP, growth rates, economic drivers, and level of deregulation. Specific details are given about Brazil's background, political economy under President Lula from 2002-2006, and recommendations to promote long-term economic growth. An update on Brazil's progress since 2006 under Presidents Lula and Rousseff is also provided.

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Robert Assuncao Dimitrios(James) Barlos Derek DeRosa Rossana Ferrara Jonathan Lee Jennifer Meekel
AGENDA •The BRIC • BRIC comparison • Brazil Background • Political Economy in Brazil: Lula 1st • Our Recommendations • Update: since 2006
BRIC: BRAZIL, RUSSIA, INDIA AND CHINA Acronym introduced in 2001 by Jim O’Neill (Goldman Sachs): •Biggest and fastest growing emerging markets • Global Capitalism • 40% of the world population • Potential Alliance • Combined GDP of $15.435 trillions
According to Goldman Sachs by 2050 the combined BRIC economies could eclipse the combined economies of the current richest countries in the world. The ten largest economies in the world in 2050, measured in GDP nominal (billions of USD)
BRIC COMPARISON: 2006 GDP 2682 3000 • Brazil: $948 Billion • Russia: $982 Billion 2500 • India: $909 Billion • China: $2682 Billion 2000 1500 948 982 909 1000 500 0 Brazil Russia India China
BRIC COMPARISON: GDP GROWTH (1990-2004) • Brazil: 2.5% 9.0% • Russia: -0.9% 9.0% • India: 5.7% 8.0% 5.7% • China: 9% 7.0% 6.0% 5.0% 4.0% 2.5% 3.0% 2.0% -0.9% 1.0% 0.0% -1.0% Brazil Russia India China
BRIC COMPARISON: GROWTH DRIVERS • Brazil: Agriculture, forestry & fisheries and the mining & manufacturing • Russia: Natural resources such as petroleum and natural gas • India: Services (mainly IT-related) • China: Gradual shift toward services, Mining & Manufacturing
BRIC COMPARISON: ECONOMIC DEREGULATION • Brazil: Privatization, Expansion of Trade, Opening of Markets • Russia: State owned enterprises local private enterprises and foreign enterprises • India: Private sector’s share in gross fixed capital formation expanding • China: Non-public enterprises share of mining & manufacturing and export sectors rising
BRIC COMPARISON: GINI COEFFICENT 0.5 • Brazil: 0.5 0.5 • Russia: 0.3 0.45 0.4 • India: 0.32 0.4 0.3 0.32 • China: 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 Brazil Russia India China
BRAZIL:BACKGROUND • 1500:Pedro Alvares Cabral reaches the coast A)Disease:Smallpox ,Malaria,Yellow fever B)Type of institutional setting • 1822:Prince Pedro constitutional monarchy • 1889:rebellion establishes republic • 1930:Revolution and dictatorship under Vargas • 1945:Return to democracy • 1964:Military coup • 1985:Return to democracy and the emergence of Lula • 1987:Constitutional Congress • 1989:Collor • 1992:Cardoso and the Real Plan
MODERN BRAZIL:STRUCTURE •Federal presidential constitutional republic •Mixed economy •Civil law •Property Rights and Corruption (Index less than 4) •Intellectual Property (The Two Faces of Intellectual Property in Brazil) •Determinants of Economic Development A)PPP B)GNI C)HDI
BRAZIL UNDER LULA • MACROECONOMIC STABILITY 2002-2006 A) Higher interest rates B) Improved corporate governance standards C) Budget Surplus D) Pension reform bill • TRADE 2002-2006 A) Creation of G-20 B) Strengthen of MERCOSUR C) FTAA negotiations D) Strong demand from China
LULA VS INEQUALITY • REDUCTION OF POVERTY A) Increase of minimum wage B) Noncontributory pension program C) Benefits for disabled D) School Grant
INEQUALITY PROS: • Crime reduction • Political, social, economic risk • Increased social mobility • Improved education CONS: • Growth • India and China OPINION: • Inequality focus important but not a priority • Too much risk
BRAZIL COST • Brazil Cost: Cost of the inefficiencies of Brazil’s economy • High Tax burden • Overvalued exchange rate • High interest rates • Red tape • Poor Infrastructure
EVALUATING LULA • GRADE: B+ Globally • Private consumption high • GDP up • Real GDP growth • Education quantity vs. quality • Wealth redistributed • Productivity remained the same even though minimum wage increased • Rating agencies: B+ BB
SWOT ANALYSIS
S Strengths •Only BRIC in the Americas •Favorable climate •Strong agriculture and mining •Population less than 1/5 of China and India •Fossil fuel independent •Democracy
W Weaknesses •Historically slower growing BRIC nation •Highest Gini coefficient of BRIC nations •Unequal land distribution •High crime rate areas •Democratic & bureaucratic inefficiencies (Brazil Cost) •Large public sector and high interest rates •Lack of education of the lower class
Opportunities O •Recently discovered oil reserves •Demand for exports; especially from China •Shift to a net-creditor •Attractiveness for FDI •Future educated Brazillians
T Threats •Organized crime •Potential political uprising or unrest •Fluctuating demand for commodities •Political corruption •Low social mobility •Least spent in primary and secondary education •Most spent on higher education
RECOMMENDATION Free market policies that invest in Brazil’s culture, people and natural resources, will foster long-run economic growth and the opportunity for every citizen to prosper. 1. Macroeconomic Stability 2. Education Development 3. Legal System Reform 4. Foreign Direct Investment 5. Innovation and Entrepreneurship
MACROECONOMIC STABILITY AVOID ECONOMIC SHOCKS BY ENACTING POLICIES THAT WILL MAINTAIN STABILITY AND CONTINUE GROWTH Fiscal Policy • Reduce Debt/GDP ratio. • Government investment, not government spending. • Lower corporate tax rates. Monetary Policy • Independent and powerful central bank. • Manage money supply and interest rates to target inflation. • Quick and efficient foreign exchange intervention to stabilize exchange rate.
EDUCATIONDEVELOPMENT AN EDUCATED POPULATION IS A MORE PRODUCTIVE POPULATION. • Invest in new education facilities. • Hire and train the very best educators and public school officials. • Update curriculum with the latest methods and technology to foster a better learning environment. • Teach financial literacy to encourage savings and investment at an early age.
LEGAL SYSTEM REFORM HIGH LEVELS OF CORRUPTION REDUCE FOREIGN DIRECT INVESTMENT, THE LEVEL OF INTERNATIONAL TRADE AND THE ECONOMIC GROWTH RATE. Reduce Violence, Crime and Corruption • Increase the police force to enforce the law and limit civil disorder. • Provide education and employment opportunities for less fortunate individuals. Protect Property Rights from Private and Public Action • Increase investor confidence by strictly enforcing and adhering to higher standards.
FOREIGN DIRECT INVESTMENT PROVIDES AN INFLOW OF FOREIGN CAPITAL, WHICH INCREASES THE TRANSFER OF SKILLS, TECHNOLOGY AND JOB OPPORTUNITIES. Improve Infrastructure • Roads, bridges, utilities and public services. Lower Barriers to Entry • Simplify the process to invest in Brazil. Provide Corporate Incentives • Lower corporate tax and income tax rates. • Develop a tax holiday program. Natural Resources • Protect Brazil’s precious assets.
INNOVATION & ENTREPRENEUSHIP THE GROWTH ENGINE FOR NEW PRODUCTS, BUSINESSES, MANAGEMENT PRACTICES AND MARKETS. Deregulation • Remove legal restrictions. • Simplify the process and ease of starting a business. Privatization • Reduce the amount of State Owned Enterprises. • Encourage competition among private businesses.
Marketing a Transition
UPDATE: Since 2006 Lula (second term 2006-2010) • Social Investment • Reversed stimulus measures in 2010 • Monetary tightening in 2010- 2011 • $11,000 PPP in 2010
UPDATE: Since 2006 DilmaRousseff (2011-Present) • Bus Rapid Transport project • My Home, My Life • Continual increase to minimum monthly wage • Privatization • Expectations of continued deregulation • Brazil above UK (6th largest economy) • Currently: $2.08 Trillion GDP and 4.7% unemployment
QUESTIONS?