Nuts about Brazil?

27/03/2008 | Channel: Business http://www.venturemagazine.co.uk

Gary Muddyman introduces Brazil – a country being observed with interest by world markets
Known for superb football, extreme waxing and rumba, Brazil is also a country growing in importance to businesses across the world - as one of the ‘BRIC’ countries, Brazil is increasingly being identified as a country of massive possibilities. General consensus is that the term BRIC (the combination of Brazil, Russia, India, and China) was first prominently used in a thesis of the Goldman Sachs investment bank. In broad terms, this paper argued that the economies of the BRICs are rapidly developing and by the year 2050 will eclipse most of the current richest countries of the world.

In reality, the use of this acronym often obscures a lesser role given to Brazil, and sometimes to Russia too. In reality Russia and Brazil are dwarfed by both China and India in 2050, and the rest of Asia combined are also much larger in terms of GDP than either Russia or Brazil. Nevertheless, Brazil is South America’s largest and most populous nation, taking up almost half of the continent’s landmass, and is currently the world’s eighth largest economy in terms of purchasing power and the 10th largest economy at market exchange rates.

Brazil borders every other South American country except Chile and Ecuador and is the world’s fifth largest country. It differs from the rest of the region by speaking Portuguese rather than Spanish, but is still the most influential country in the region. Brazil is a huge, diverse country offset for years by problems with political and economic uncertainty. There are recent signs; however, that real progress is being made. The country still has a massive diversity in wealth and its natural beauty is often balanced by the visible poverty of many of its citizens.

Politics
The form of government is Republican and democratic, and the system of government is presidential (federal). The president executes policy approved by the 513-seat Chamber of Deputies (the lower house) and the 81-seat Senate (the upper house). Constitutional review is handled by an independent judiciary. Although the president can resort to temporary decrees to push through legislation, the 1988 constitution gives Congress ample capacity to frustrate the executive. As a result, there are many political parties in Brazil and party discipline has traditionally been weak.

In January 2003, Luiz Inácio Lula da Silva, a former trade union leader and factory worker widely known by the name Lula, became Brazil’s first working-class president. As leader of Brazil’s only Socialist party, the Workers’ Party, Lula pledged to increase social services and improve the lot of the poor. However, he also recognised that a distinctly non-socialist program of fiscal austerity was needed to rescue the economy. The president’s first major legislative success was a plan to reform the country’s debt-ridden pension system, which operated under an annual $20 billion deficit. Civil servants staged massive strikes opposing this and other reforms. Although public debt and inflation remained a problem in 2004, Brazil’s economy showed signs of growth and unemployment was down. Polls in August 2004 demonstrated that the majority of Brazilians supported Lula’s tough economic reform efforts. In 2005, an unfolding bribery scandal weakened Lula’s administration and led to the resignation of several high government officials. Lula issued a televised apology in August, and promised to rid the country of corruption. Today there is a real need for political stability.

Lula, secured a second term in a landslide election victory in October 2006.

He promised to boost economic growth and to narrow the gap between rich and poor. In January 2007, Lula marked the start of his second term in office by announcing an ambitious investment programme.

Economy
The Brazilian economy is by far the largest in South America and is beginning to gain influence across the world. It has large agriculture, mining, manufacturing and service sectors. Brazil has a history of boom and bust economies. High inflation, unemployment and one of the world’s biggest foreign debts have had a negative effect on attempts for stability and growth. However, the Government began a series of economic reforms in the 1990s including privatisation and an opening of its markets to international trade. The IMFs rescue package of USD 30.4 billion granted in mid 2002 was paid back early by Brazil’s central bank in 2005 (one year in advance).

The Real suffered significant depreciation in 2000 and 2001 but has recovered due to the underlying robustness of the economy. The Government has targeted low inflation, tight fiscal controls and a managed floating exchange rate. This has bought good stability, including a recovery in export performance. The size of the government indebtedness still gives cause for concern, however, inflation has begun to come under control and investments in education, technology and infrastructure are beginning to bear fruit.

Its natural resources, particularly iron ore, are highly prized by major manufacturing nations, including China. Thanks to the development of offshore fields, Brazil has become self-sufficient in oil, ending decades of dependence on foreign producers.

Technology
The Brazilian Government has made great recent strides in developing and encouraging use of technology. Although still expensive, telecommunications in Brazil have developed significantly over the last ten years and in the major commercial centres, communications are readily available and reliable. Today, significant world players like Microsoft and Cisco and many others are evident and visible in Brazil.

Brazilian Information Technology mainly serves its internal market and is especially adept at supplying solutions to financial services, defense, CRM, eGovernment and healthcare.

Society
Brazil has one of the world’s widest distributions of wealth. There is a thriving middle class segment in Brazil, while many of its citizens live in poverty. The cities of Rio de Janeiro and Sao Paulo are littered with favelas (slums). However, there are definite signs of improvement. For instance, according to Fundação Getúlio Vargas, in 2006 the number of people living below the poverty line based on labour income was of 19.31 per cent of the population, a 33 per cent decrease from the previous years. Brazil has one of the most diverse cultures on the planet. Native Brazilians (Amerindian) now number 519,000 and the majority of the population is Portuguese, other European, African or mixed decent. There are also large Asian and Arabic populations. These groups are what give Brazil its unique flavour and diversity. Brazil’s AIDS program has become a model for other developing countries, having succeeded in stabilizing the rate of HIV infection and cutting the number of AIDS-related deaths. The program is controversial, however, it involves bypassing the big drugs firms to produce generic copycat AIDS medicines.

Doing business
Brazilians are known for their informality, good nature, and charm (simpatia), as well as their desire not to be thought unpleasant or boorish (chato). They place high value on warmth, spontaneity, and lack of pomp and ceremony. Brazilians are non-conformist and free-spirits, often distrusting of organisation and red-tape. This leads to periodic crack-downs which can lead to unpredictable business conditions. When conducting business in Brazil; remember the following few guidelines:

• Brazilians conduct business mainly through personal connections. There must also be an implicit understanding that the business relationship will be long-term.


• Make appointments of any kind at least two weeks in advance.


• Arriving at an office without an appointment is unacceptable in Brazilian business culture. This is especially true if the person you are there to see is a director of higher position.


• Avoid scheduling any appointments around ‘Carnaval’


• Poor punctuality is characteristic of Brazilian business culture. You will have to accept that waiting around for your Brazilian counterparts will be part of doing business here. Also, traffic in the main cities is chaotic and is often responsible for the delays.


• Dress is important although it is not vital to wear business suits.


• Remember to shake hands with everyone at the meeting, maintaining good eye contact.


• Brazilians do not rely on rules and regulations.


• Use local professional advice (finance and legal)

Prospects
Brazil is making great strides on the world stage and, continues to have the potential to become a real economic force. To achieve this potential, the country needs stability and must continue to develop the social, educational and fiscal policies it has started. The problems remain acute however poverty, debt and corruption still remain constant threats. During the Lula administration, Brazilian foreign trade has increased dramatically, changing from deficits to several surpluses since 2003. In 2004 the surplus reached $29 billion due to a substantial increase in global demand for commodities (especially from China). The general consensus is that trade surplus for 2008 will be between 35 billion and 40 billion. Out of consensus forecasts, such as those stated by Morgan Stanley and the FT for instance seem to point to a narrower surplus of about US$ 20 billion.

A great deal of this success depends on Lula and continuing the progress he has made and the support of the people he has enjoyed. On October 29, 2006, he was re-elected with more than 60 per cent of the votes, extending his position as President until January 1, 2011. As a result, many world markets will continue to keep their eye on Brazil for the coming years. Goldman Sachs predicts that over the next 50 years, Brazil’s GDP growth rate will average 3.6 per cent. The size of Brazil’s economy will overtake Italy’s by 2025; France’s by 2031; the UK and Germany’s by 2036.

KEY FACTS
Location: Eastern South America, bordering the Atlantic Ocean
Population: 183.9 million Major Language: Portuguese
Major Religions: Christian
Land Area: 3.3 million square miles Currency: Real
Capital City: Brasilia Internet Domain: .br
International Dialing Code: +55

More information can be found at http://www.conversisglobal.com