ECONOMY
President Lula and his economic team have implemented prudent fiscal and monetary policies which have been credited with helping shield Brazil from the worst of the global financial crisis of 2008 and 2009. That said, Brazil's economy has not escaped the crisis unscathed. After posting growth rates of 5.7% in 2007 and 5.1% in 2008, Brazil’s GDP dropped 0.8% in the first quarter of 2009. Several steps have been taken by the government to minimize the impact of the crisis, including injecting more than U.S. $100 billion of additional liquidity into the local economy, providing tax cuts to manufacturers, and reducing Central Bank interest rates. Growth estimates for the second half of 2009 and 2010 are positive. Brazil is now a net creditor nation, and the current crisis notwithstanding, has in recent years experienced sustained growth, strong exports, healthy external accounts, moderate inflation, decreasing unemployment, and reductions in the debt-to-GDP ratio over the last several years. In early 2008, two major rating agencies upgraded Brazil to investment-grade sovereign debt rating.
However, significant vulnerabilities remain in the Brazilian economy. The total tax burden is high, income distribution remains skewed, and the private business community complains of burdensome regulation. The global financial crisis has hampered President Lula’s efforts to accelerate economic expansion.
Brazil is generally open to and encourages foreign investment. Brazil is the largest recipient of foreign direct investment (FDI) in Latin America, and the United States is traditionally the number one foreign investor in Brazil. Since domestic savings is not sufficient to sustain long-term high growth rates, Brazil must continue to attract FDI. In order to attract increasing levels of FDI, many business groups and international organizations have highlighted the need for Brazil to improve its regulatory environment for investments and to simplify the tax code. Brazil does not have a bilateral tax or investment treaty with the United States. Legislation promoting public-private partnerships, a key effort to attract private investment to infrastructure, was passed in 2004. In 2007, the Government of Brazil initiated an ambitious infrastructure development program, known as the Growth Acceleration Program (PAC), to address the country’s significant road, rail, energy supply, and other infrastructure needs. The program has been viewed by the government as a central component of its development strategy, which it believes has also served as a countercyclical factor in cushioning Brazil’s economy from the full effects of the world financial crisis. Critics of the program say that the program is cumbersome and weighted down with too many programs and too much bureaucracy, resulting in a program that some consider ineffective.
Trade Policy
President Lula has 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 gyrations. To increase exports, the government is seeking access to foreign markets through trade negotiations and increased export promotion as well as government financing for 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 Lula 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 2004, Mercosul concluded free trade agreements with Colombia, Ecuador, Venezuela, and Peru, adding to its existing agreements with Chile and Bolivia to establish a commercial base for the newly-launched South American Community of Nations. In 2008 Mercosul concluded a free trade arrangement with Israel. Mercosul is pursuing free trade negotiations with Mexico and Canada and has 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. In July 2006, Venezuela officially joined the Mercosul trade bloc; its full membership is pending ratification by the Brazilian congress. China has increased its importance as an export market for Brazilian soy, iron ore, and steel, becoming one of Brazil's principal trading partners and a potential source of investment.
Agriculture
Agriculture is a major sector of the Brazilian economy, and is key for economic growth and foreign exchange. Agriculture accounts for about 5.8% of GDP (25% when including agribusiness) and 36% of Brazilian exports. Brazil enjoyed a positive agricultural trade balance of $60 billion in 2008. 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 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.
Environment, Science, and Technology
About half of Brazil is covered in forests, and Brazil has the majority of the world's largest rain forest, the Amazon. In the last 30 years, migrations into the Amazon and the conversion of forest land, primarily for agricultural use, has reduced the Brazilian Amazon by almost 20%. In 2006, the government created the Brazilian Forest Service with the aim to manage in a sustainable manner the Amazon forest resources. Due to concerns over possible unauthorized taking and commercialization of genetic resources or traditional knowledge of indigenous communities (often referred to as "biopiracy"), Brazil has imposed substantial restrictions on foreign researchers collecting or studying biological materials. With the vast majority of the population living in urban areas, Brazil confronts a serious environmental challenge in providing potable water to its citizens and removing and treating their waste water.
Brazil is a leader in science and technology in South America and in some fields a global leader, such as biofuels, agricultural research, deep-sea oil production, and remote sensing. U.S. Government, private sector, and academic researchers have extensive ties with Brazilian counterparts, and the extent of bilateral scientific and technological cooperation is expanding. The Brazilian Government seeks to develop an environment that is more supportive of innovation, taking scientific advances from the laboratory to the marketplace.
Other Aspects
Brazil has one of the most advanced industrial sectors in Latin America. Accounting for one-third of 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 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 have been dismantled, though some of them still exist. The Brazilian railroad industry has been 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 has 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 significantly expanded air services between the two countries.
The Government of Brazil has undertaken an ambitious program to reduce dependence on imported oil. In the mid-1980s, imports accounted for more than 70% of Brazil's oil and derivatives needs; the net figure is now zero. Brazil announced in early 2008 the discovery of the Tupi and Carioca oil fields off the coast of Rio de Janeiro. The oil reserves in these fields are conservatively estimated at between 30 billion and 80 billion barrels, which would put Brazil in the top ten countries in the world by reserves. Output from the existing Campos Basin and the discovery of the new fields could make Brazil a significant oil exporter by 2015. Brazil is one of the world's leading producers of hydroelectric power. Of its total installed electricity-generation capacity of 90,000 megawatts, hydropower accounts for 66,000 megawatts (74%). Brazil is also the world’s largest biofuels exporter and sugar-based ethanol makes up over 50% of its vehicle fuel usage. Brazil and the United States, as the world’s largest biofuels producers, are working jointly through a 2007 memorandum of understanding to help make sustainable biofuels a global commodity.
Proven mineral resources are extensive. Large iron and manganese reserves are important sources of industrial raw materials and export earnings. Deposits of nickel, tin, chromite, bauxite, beryllium, copper, lead, tungsten, zinc, gold, and other minerals are exploited. High-quality, coking-grade coal required in the steel industry is in short supply.
Economy (2008)
GDP (official exchange rate): $1.573 trillion.
GDP (purchasing power parity): $1.977 trillion.
Annual real growth (2008): 5.1%.
Per capita GDP (official exchange rate): $8,300.
Per capita GDP (purchasing power parity): $9,700.
Natural resources: Iron ore, manganese, bauxite, nickel, uranium, gemstones, oil, wood, and aluminum. Brazil has 14% of the world's renewable fresh water.
Agriculture (5.8% of GDP): Products--coffee, soybeans, sugarcane, cocoa, rice, livestock, corn, oranges, cotton, wheat, and tobacco.
Industry (28.7% of GDP): Types--steel, commercial aircraft, chemicals, petrochemicals, footwear, machinery, motors, vehicles, auto parts, consumer durables, cement, and lumber.
Services (65.8% of GDP): Types--mail, telecommunications, banking, energy, commerce, and computing.
Trade: Trade balance (2008)--$24.8 billion surplus. Exports--$197.9 billion. Major markets--United States 14.0%, Argentina 8.9%, and China 8.3%. Imports--$173.1 billion. Major suppliers--United States 14.9%, China 11.6%, and Argentina 7.7%.
