Summary:Some outsiders think of Brazil as a volatile emerging-market economy led by a leftist president—Luiz Inácio Lula da Silva. However, investors who have dug beneath the surface have found a very different country that has changed dramatically over the last 10 to 15 years. President Cardoso implemented a number of reforms in the 1990s that pushed the country toward the future, and Lula has maintained the course. As a result, Brazil enjoyed impressive economic growth of 5.2 percent in 2004, and Goldman Sachs predicts that the country will become the world′s fifth largest in terms of GDP by 2050.
Brazil′s economic growth has been fostered by political, fiscal and monetary changes that have created a hospitable environment for investors. Democracy has been in place since 1985 and recent elections brought in a president who does not belong to the elite establishment—further proof that the democratic system is robust. Import tariffs have been reduced from 50 percent to 10 percent over the last 20 years, inflation has been tamed, and the fiscal surplus has grown to 5 percent of GDP, leaving the country much less vulnerable to external shocks.
Minister Luiz Fernando Furlan estimated that the 2005 trade surplus will be $36 billion with strong GDP growth (although somewhat below last year′s rate). Supporting the Minister′s position, John Welch stated that Brazil′s "economic recovery is robust despite higher world interest rates." In addition, the fundamentals are generally sound; Thomas "Mack" McLarty, III referred to Alcoa as one example of a major company that views its Brazilian plants as some of its most competitive.
Alexandre Bettamio provided a capital markets overview that showed a strengthening of the financial systems. A number of companies have been able to tap equity markets, largely due to improvements in corporate governance requirements. Trading volume reached record highs and is continuing to grow, with much of the activity coming from Brazilians. The credit market has returned to normal levels, and local debt markets are strong.
According to Nathalie Hoffman, Brazil has followed its economic success with a more assertive role in international affairs. The country has joined Germany, India, and Japan in bidding for permanent seats on an expanded UN Security Council. Brazil, in conjunction with India and China, is also leading a new group of developing countries—dubbed the G-20—in trade negotiations.
Brazil′s relationship with China is particularly significant, and recent moves have brought the two countries closer together. Trade between the countries has increased four-times in the past four to five years, and Brazil wishes to double this number again in the next four years. China has increased its investments in infrastructure and businesses in Brazil, and Asian investors have started to purchase Brazilian bonds. While Brazil is pushing forward on its attempts to sign a free trade agreement with the U.S., it has also turned towards a similar agreement with Europe that shows promise of being signed in the near term.
Brazil is a country poised for strong growth in the future. Successful fiscal and monetary reforms, the stability of a true democracy, increasing geopolitical presence, growing strategic relationships and strong investment at home, make Brazil a good opportunity for investors. As Minister Furlan stated, "Good news will be coming steadily from Brazil… wait and see."
