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Further Reading

Brazilian Economy

At the end of 2011 Brazil past Britain to become the world's sixth largetst economy. The London-based Center for Economics and Business Research (CEBR) reported that Brazil had overtaken Britain to rank sixth among top economic powers behind the United States, China, Japan, Germany and France. Brazil closed the year with a GDP of $2.5 trillion, behind fifth-place France with $2.8 trillion and ahead of Britain with $2.48 trillion. But Brazil trailed in per capita GDP with a mere $12,916, compared with $48,147 for the United States, $44,400 for France and $39,604 for Britain, according to International Monetary Fund data.

The Brazilian economy’s solid performance during the financial crisis and its strong and early recovery, including 2010 growth of 7.5%, contributed to the country’s transition from a regional to a global power. Expected to continue to grow in the 4% to 5% range, the economy is the world’s eighth-largest and is expected to rise to fifth within the next several years. During the administration of former President Lula, surging exports, economic growth and social programs helped lift tens of millions of Brazilians out of poverty. For the first time, a majority of Brazilians are now middle-class, and domestic consumption has become an important driver of Brazilian growth. President Dilma Rousseff, who took office on January 1, 2011, has indicated her intention to continue the former president’s economic policies, including sound fiscal management, inflation control, and a floating exchange rate.

Rising employment and strong domestic demand pushed inflation to nearly 6% in 2010, leading the central bank to boost interest rates and the Rousseff government to announce cuts in 2011 spending. The economic boom and high interest rates have attracted foreign currency inflows that have driven up the value of the currency (the real) by nearly 40% since the start of 2009. In an effort to limit the appreciation, the government has increased dollar reserves and capital controls.

Brazil is generally open to and encourages foreign investment. It is the largest recipient of foreign direct investment (FDI) in Latin America, and the United States is traditionally the top foreign investor in Brazil. Since domestic savings are not sufficient to sustain long-term high growth rates, Brazil must continue to attract FDI, especially as the government plans to invest billions of dollars in off-shore oil, nuclear power, and other infrastructure sectors over the next few years. The major international athletic competitions that Brazil will host every year until the 2016 Rio Olympics are also leading the government to invest in roads, airports, sports facilities, and other areas.

Despite progress in recent years, income distribution in Brazil remains grossly unequal, with 10 percent of the population holding over 50 percent of the nation's wealth. With a total population near 200 million, Brazil is also home to 50 percent of the people who live in extreme poverty in Latin America. President Rousseff made economic growth and poverty alleviation top priorities. Export promotion is a main component in plans to generate growth and reduce what is seen as a vulnerability to international financial market fluctuations. To increase exports, the government is seeking access to foreign markets through trade negotiations and increased export promotion as well as measures to promote exports.

Brazil has been a leading player in the World Trade Organization’s Doha Round negotiations and continues to seek to bring that effort to successful conclusion. To further increase its international profile (both economically and politically), the Rousseff administration is also seeking expanded trade ties with developing countries, as well as a strengthening of the Mercosul (Mercosur in Spanish) customs union with Uruguay, Paraguay, and Argentina. In 2008 Mercosul concluded a free trade arrangement with Israel, and another arrangement with Egypt was signed in 2010. Mercosul is pursuing free trade negotiations with Mexico and Canada and resumed trade negotiations with the EU. The trade bloc also plans to launch trilateral free trade negotiations with India and South Africa, building on partial trade liberalization agreements concluded with these countries in 2004. China has significantly increased its purchases of Brazilian soy, iron ore, and steel in recent years, becoming Brazil's principal export market and an important source of investment.

Agriculture is a major sector of the Brazilian economy, and is key for economic growth and foreign exchange. Agriculture accounts for about 6% of GDP (25% when including agribusiness) and 36% of Brazilian exports. Brazil enjoyed a positive agricultural trade balance of $55 billion in 2009. Brazil is the world's largest producer of sugarcane, coffee, tropical fruits, frozen concentrated orange juice (FCOJ), and has the world's largest commercial cattle herd (50% larger than that of the U.S.) at 170 million head. Brazil is also an important producer of soybeans (second to the United States), corn, cotton, cocoa, tobacco, and forest products. The remainder of agricultural output is in the livestock sector, mainly the production of beef and poultry (second to the United States), pork, milk, and seafood.

Brazil has one of the most advanced industrial sectors in Latin America. Accounting for roughly one-third of the GDP, Brazil's diverse industries include automobiles and parts, machinery and equipment, textiles, shoes, cement, computers, aircraft, and consumer durables. Brazil continues to be a major world supplier of commodities and natural resources, with significant operations in lumber, iron ore, tin, other minerals, and petrochemicals. Brazil has a diverse and sophisticated services industry as well, including developed telecommunications, banking, energy, commerce, and computing sectors. The financial sector is secure and provides local firms with a wide range of financial products, yet interest rates remain among the highest in the world. The largest financial firms are Brazilian (and the two largest banks are government-owned), but U.S. and other foreign firms have an important share of the market.

Government-initiated privatization after 1996 triggered a flood of investors in the telecom, energy, and transportation sectors. Privatization in the transportation sector has been particularly active over the last 20 years. Many antiquated and burdensome state management structures that operated in the sector were dismantled, though some still exist. The Brazilian railroad industry was privatized through concession contracts ranging from 30 to 60 years, and the ports sector is experiencing similar, albeit less expansive, privatization. In response to the dramatic deterioration in the national highway system, the federal government granted concessions for existing highways to private companies, which in turn promise to restore, maintain, and expand these highways in exchange for toll revenues generated. New opportunities are expected to arise with the opening of the Brazilian civil airports to private management and investment through a federal concession model, but the initiative faces obstacles due to questions surrounding sovereignty and opposition from airport unions. The United States and Brazil signed an Air Services Liberalization Agreement in 2008 that increased commercial air travel between the two countries. In 2010, they initialed an air transportation agreement and an air transportation memorandum of understanding that, when they are signed and enter into force, will continue and expand this process.

Like its supply of carbon-based fossil fuels, Brazil’s proven mineral resources are extensive. Large iron and manganese reserves are important sources of industrial raw materials and export earnings. Mining companies, most of them Brazilian, tend to prefer to explore the deposits of nickel, tin, chromite, bauxite, beryllium, copper, lead, tungsten, zinc, gold, and other minerals. High-quality, coking-grade coal required in the steel industry is in short supply.