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Economic factors of brazil

Paper Type: Free Essay Subject: Economics
Wordcount: 2276 words Published: 1st Jan 2015

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Brazil, officially the Federative Republic of Brazil is the largest and most populous country in South America. It is the fifth largest country by geographical area and populous country in the world. The population of Brazil is about 190 million in 2010 (Figure 1). Brazil was a colony of Portugal from the landing of Pedro Álvares Cabral in 1500 until its independence in 1822. Brazil has been a republic since 1889.

In 2003, Brazil, Russia, India and China were combined as a group that called the BRIC. It is an acronym for the four biggest emerging-market countries. These are the leading “emerging markets” that are representing great investment potential.

There is overview of analysis Brazil recently and in the future. In the following, using PEST model to identify Brazil. In addition to the trade, investment, migration market and ideological factor also was used in its.

Economic Factors

Brazil has one of the world’s largest economies, with well-developed agricultural, mining, manufacturing and service sectors. There are huge natural resources and a large labor pools. According to the International Monetary Fund and the World Bank (2009), Brazil is the world’s 9th largest economy in purchasing power parity (PPP) and the 8th largest in GDP (Figure 3 & 4). With a GDP of $1.57 million, Brazil is South America’s leading economic power and a regional leader of today, and one of the first to begin an economic recovery after financial crisis. And according to World Bank data (2009) (Figure 5), its GDP is $10,514 per capital, which the ranking is the 75th in the world. However, it is above the average of the world standard. At the same time, the proportion of national deft in GDP is 47% which is much lower Japan and even United States (Figure 6). Those factors are reducing the damage from the Global financial crisis and stabilize the economy.

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Since 2003, Brazil has steadily improved macroeconomic stability, building up foreign reserves, reducing its debt profile, and committing to fiscal responsibility. In 2008, Brazil became a net external creditor and two ratings agencies awarded investment grade status to its debt. The global financial crisis hit Brazil in September 2008. Brazil’s currency and its stock market, Bovespa said that there is large change as foreign investors pulled resources out of Brazil. Brazil experienced two quarters of recession, as global demand for Brazil’s commodity product exports and external credit was declined. However, Brazil was one of the first emerging markets to begin recovery. Consumer, investor confidence and GDP growth returned to positive in the second quarter of 2009. The Central Bank expects growth of 5% for 2010.

Ideological

Political parties play an important role around the world. Nowadays, Brazil realized its democratic transition that called “third wave of democracy”. But the political parties and the party system have not been developed. Voting rate in recent elections at different levels is quite comparing to the developed countries.

In October of 2002, in recent party politics in Brazil that Worker’s Party has more powerful, with the election of Lula as the nation’s President. It opens Brazilian history and come up form elected president’s new of democracy in power of the low degree of society. By some scholar’s research, Brazil is the country with weak system of political. Laborer’s party is in power right since established more than 20 years. Thus, the trend of Brazil adopts democratization that mean give out sound needed in each the bottom of society.

Political Factors

Brazil has the highest tax-to-GDP rate in the Western Hemisphere, which is now 36%. However, Brazil’s government perform tax breaks on goods in 2009 (Brazil Country Report 2009), which help Brazil’s capital goods industry, including tax breaks with 70 items and subsidized loans to facilitate purchases and production of capital goods, with interest rate decrease 5.5%. Brazil’s government continued commitment to support the development of infrastructure. Brazilian National Social and Economic Development Bank (BNDES) (2009) said that the government expects to spend 55.7 billion to improve the railway system, and using bank loans from 2010 to 2013. Therefore, these policies can help to reduce transportation cost in export and import.

Migration Market

Brazilian population is mainly come from six groups, that including Portuguese, various other European and Asian emigration groups. From 1957 to 1960, there are about 5 million Europeans immigrated to Brazil whose come from Italy, Germany, Spain, Japan and Poland etc. According to Human Development Report 2009 (Figure 7 & 8), Brazil has an emigration rate of 0.5% which is less than 4.7% of Latin American and Caribbean. Besides, there are 686.3 thousand migrants which represent 0.4% of the total population.

Trade

Brazil is one of the major exporters of the world. Major export products include transportation equipment, textiles, iron ore, steel, coffee, sugar, soybeans and corned beef etc. Most traders are China, the United States, Argentina and Germany. The country has been expanding in international financial and commodities market. According to Brazil’s Ministry of Development, Industry & Commerce report, Brazil’s total exports more than doubled to US$118 billion from $58 billion for 2001. At the same time, imports into South America’ largest country grew 30% from $56 billion to $74 billion. Brazil is the world’s leading exporter of sugar, coffee, beef and orange juice with a population of almost 200 million.

However, CIA World Factbook implied that Brazil imported $171.3 billion of foreign goods in 2009 including automotive parts, electronics and transport products. The suppliers were USA (14.9%), China (11.6%) and Argentina (7.9%). Brazil shipped 197.9 billion in 2008. It is including coffee, iron, soybeans and transport equipment. Based on 2008 statistics, the largest export countries were USA (14.6%) and China (11.5%). Brazil is the world largest coffee exporter and producer that people call “Coffee Kingdom”. It exported US$72.7 million for coffee in 2009 which is increase 7% before the previous year (Daniel Workman 2010). Sugar cane and citrus production also is the top of the ranking of the world. Thus, it is no doubt that is a resource-rich country.

Investment

Brazil is one of the best to invest money buying properties of the world. Brazil has a large labor pools. There are included hills, mountains, plains, highlands, scrublands, savannas and a long coastal strip. For example, along the Atlantic coast there are more than 8,000 kilometers of beautiful beaches, palm trees and plantations. It can attract more investors that have more focus on Brazil.

Refer to Figure 9, Brazil has the first credit upgrade after 2008 finance crisis by Fitch Ratings. Also, global credit rating agency Fitch increased the Brazilian outlook from “stable” to “positive” rating. According to central bank of Brazil, there is a total amount of 28.89 billion U.S. dollars of foreign capital into Brazil at the end of 2009. Brazil investments choices by foreigners is the favorable property market conditions in the country. Therefore, Brazil offers some of the lowest property prices in the world. It is fair to say that the type of foreign direct investment Brazil is most likely to continue to develop around property in recent years until the FDI Brazil have exhausted the supply. Brazil’s business activity has also increased in profitability in recent years thus it help Brazil investments have more favorable to foreign direct investors. China’s direct investment in Brazil has risen in US$12 billion (Globo news 2010). It becomes the top of Brazil’s foreign investment country.

Moreover, the dollar parity against still appreciated form 2.2 to 1 in the first quarter of 2009 to 1.77 to 1. In order to maintain the Brazilian currency stability, the central bank kept to buy the U.S. dollars in the currency market. It is shown that the investment from foreign country is increasing.

Culture Factors

Brazil culture is a colorful culture that attracts lots of people to know and experience the core of exciting culture. Brazil culture is combined of several European, American and Asian culture. The mainly culture of Brazil is developed by Portuguese culture. Brazilian is easy to be happiness and enjoyment. They believe that short-term satisfaction is necessary. Based on the Happy Planet Index (HPI) 2.0 (Figure 10), Brazil’s life satisfaction is 7.6 that the ranking is 7th. It is above the average level of the world standard which is 5. Also, the highest ranking of Latin America country of HPI is Brazil, which is 9th out of 143.

By the way, there are some gender issues. Brazil’s democratic society is still battling against their gender differences. Brazil is a collectivistic society, but there is a high power distance in it. This feature of power distance is very common in South American countries, where a male dominated society.

Social Factors

There are two issues leaded to the social unstable for a long time ago. According to United Nations Development Programme (UNDP), Brazil’s inequality of income is ranking 3rd in the world. It is because the lack of infrastructure and services, low income and unstructured. It is signification social problem for expanding in the future.

Besides, there is high level of crime in Brazil that including rape, aggravated, larceny and etc. Illegal drug activity has increased in Brazil in recent years. The majority of these drugs related crimes which happen in the poorer cities. It affects the foreign countries investments and the economy of Brazil.

Nevertheless, according to Brazil Defence and Security Report Q3 2010, it shown that Brazil’s 0 to 24 ages is the largest population group in Figure 11, Brazil’s young population represents one of the largest job and consumer markets in the future. In the addition, Brazil will host 2016 Olympic Game and 2014 World Cup. It can boost lots of the foreign investment and development of infrastructure. Brazilian has the positive perceptive in the future. It will increase social stratification and social class structure will change into more complexity.

Opportunities

There are some opportunities for Brazil to have positive effect on its. The successful bid to host the 2016 Olympic Game in Rio de Janeiro provides a unique opportunity for Brazilian. Rio will become the first South American city to host the Olympic Games. It can attract huge of investment into variable sectors in the economy. There are there key areas that include Infrastructure, commodities and investment. For example, large-scale events have provided a venue for investment benefiting infrastructure related sectors like base materials, engineering and construction contractors. Other sectors are travel related sectors like hotel properties and services.

Moreover, the hosting of the 2014 World Cup, it will boost Brazil’s global stature and increase GDP about 3% to 4% in the coming years. These two world class event can help to increase about US$51.1 billion into Brazil and enhance 120,000 jobs per year until 2016. The large-scale event like Olympic Game will bring lots of benefits the Brazilian economy.

According to United Nations report (Figure 12), Brazil’s urban population is now more than 85%. As compare to developing countries and developed countries are 45% and 75%, Brazil’s urban population is high. The United Nations estimate that Brazilian urban population will reach 88.4% of total population in 2015. Therefore, the high degree of urbanization represents the strong growth potential of consumption.

Challenges

Brazil hosts the 2016 Olympic Game in Rio de Janeiro and 2014 World Cup, which provide a unique opportunity. However, it is also a large challenge for Brazil. Crime and security is a signification problem in Brazil. Shootouts and gunfights on subway and street are common. In the poor cities – favelas, crime and drugs are extension. Brazilian government should further concern about the security for Olympic in Rio.

Furthermore, the Brazilian tax system that is still too high. The high tax in Brazil would exist in short term unless the policy has changed. It will continually affect the interest of foreign investment

Conclusion

Brazil is one of the successful emerging markets in the world. The successful factor relied on the huge natural resources and a large labor. It is a unique advantage of the world than other emerging market like China. Also, one of the first has economic recovery after financial crisis, that can attract lots of developed countries to invest in its. Besides of the problems like high tax and high level of crime rate, government should make more effort in its.

Moreover, 2016 Olympic and 2014 World Cup will affect in the future for Brazil. It can say that it is a great opportunities and big challenges of Brazil. Therefore, Brazil should grasp these opportunities to become a powerful nation of the world.

 

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