Country Analysis of Brazil: 2007

Introduction

Brazil has rediscovered itself, and this rediscovery is being expressed in its people’s enthusiasm and their desire to mobilize to face the huge problems that lie ahead of us.

- Luiz Incio Lula da Silva, President of Federative Republic of Brazil

Since 1988, Brazil has been a democratic republic and very rich in natural resources. It has the 5th largest country populace in the world. The Brazilian labor force is 5th largest in the world and ranks 11th in the total of world Internet users. In 2003, Jim O’Neill, Managing Director & Head of Global Economic Research of Goldman Sachs included Brazil as one of four countries that make up the BRICs (Brazil, Russia, India and China). The BRICs were designated as the countries that could become a larger force in the world economic landscape by 2050.1 Unfortunately, Brazils GDP at purchasing-power parity growth rate has been flat against the other BRICs since the early 1980s.2 President Luiz Inácio Lula da Silva, now in his second term, has many challenges ahead to keep Brazil aligned for growth and stability, although he does not feel a sense of urgency against a backdrop of fierce competition.3

History and Timeline
Pedro Cabral led the colonization period of Brazil in 1500. There were around seven million native Indians upon the arrival of the Portuguese settlers. Today, there are fewer than 200,000 indigenous people that live mostly in the Amazon of Brazil.4 In the mid-16th century a large number of Africans were shipped in and brought into slavery to labor in the sugar trade. The settlers stayed on the coast and considered themselves Portuguese until a rebellion against the Dutch encroachment in 1630-1654 prompted the Brazilian nationalism.5 The population began to shift inward from the coast with the discovery of gold in 1695. During the invasion of Portugal by Napoleon in 1807, the prince regent Dom Joao moved into Brazil. In 1815, he declared Brazil as his empire only to return back to Europe in 1821 after tensions were calm, leaving his son, Dom Pedro I at the helm of Brazil. When King Joao attempted to return to Brazil a year later, Dom Pedro I made it clear that he was now in charge and declared Brazil’s independence.6 In the 19th century, coffee overtook sugar as Brazil’s main export product. The downfall of Dom Pedro I, lead to a military insurgency. Wealthy coffee leaders backed the military coups and ran the government until the worldwide depression decreased the demand for coffee.7 In 1989, a year after Brazil became a democratic republic, the citizens elected their first president, Fernando Collor de Mello. Mello’s corrupt behavior gave example of what a president should not do, and the peaceful removal of the president paved the way for more stable government policies.

Although Brazil has made great strides in becoming a democratic country, corruption still erodes the governmental structures that are now in place.

Political System & Policies
The Federative Republic of Brazil is lead by a president, who is elected for a term of four years. The president chooses a cabinet and also controls the budget for the country. The presidential, congressional and state elections are held every four years, with the next election occurring on October 3, 2010.8 Municipal elections are held every four years, with the next one to be held on October 2008. Of the 18 political parties represented in Congress, 4 of them account for 70% of the seats in the Chamber of Deputies. They are the Partido do Movimento Democratico Brasileiro (PMDB); Partido dos Trabalhadores (PT); Partido da Social Democracia Brasileira (PSDB); and Partido da Frente Liberal (PFL). (Exhibit 1)

There are 26 states in Brazil. Each state makes up a single constituency which is disputed by many candidates. There are loose rules governing party allegiances, so representatives show their loyalty to interest groups rather than to political parties or even policy. The political system is unstable due to the relative ease for which representatives are able to switch parties to further their career goals.9 With so many representatives focused on personal gain, it is difficult to reach consensus and build loyalty within a party to make massive reform changes.

Today, Brazil is benefiting in part from the economic reforms imposed by Mr. da Silva’s predecessor, Fernando Herique Cardoso as well as high world prices for its commodity exports and abundant global liquidity.10 Cardoso created an economic stabilization plan, which became known as the Real Plan, that created the launch of the new currency the Real. Cardoso deregulated the economy, opening it up to foreign capital. He also began to implement social polices in healthcare and primary educational reforms.11 Cardoso’s political reforms aimed at creating a more stable party system did not gain much ground. As Mr. da Silva continues the reform policies developed by Cardosa, Brazilians seem to be doing better than they have in decades, and that sentiment is expressed in the re-election of Mr. da Silva in 2006. Although the policies by Mr. da Silva and his new cabinet have been slow to evolve, the administration is responding with additional reform policies that aim to spur the average annual GDP growth to 5%.

Foreign Policies
Since the 1990s, Mr. da Silva has taken an active role in Brazilian diplomacy as well as developing sound relationships with other countries in Latin America since the 1990s. Brazil has been assertive in conflict resolutions and international trade negotiations within the Latin American region. Reaching out beyond its immediate sphere of influence, Brazil has also sought closer ties with other developing countries. For example, Mr. da Silva has visited around 50 developing counties, focusing on emerging markets in Africa, Asia, Eastern Europe and the Middle East. In addition, Brazil has assumed a leadership role in the new G22, a new group of developing countries fighting concessions to the Organization for Economic Co-operation and Development (OECD) on Singapore issues concerning government procurement, investment and competition.12

In July 2007, the European Union (EU) and Brazil held discussions in a summit to deepen political ties. The EU has held previous annual summits with Russia, India and China.13 The invitation as one of the EU’s strategic partners signals confirmation of Brazil’s strength in the global community.

Energy issues have also dominated Brazil’s foreign policy agenda. Mr. da Silva is interested in exporting Brazilian ethanol technology to the US, Europe and Asia. The world’s thirst for energy resources, during a time when global warming and energy preservation are leading headlines, has provided energy rich countries such as Brazil with a plethora of options during negotiations concerning the global economy.14 In July 2007, the European Union warned Brazil in a conference in Brussels, that the country must protect its farms and forests domestically if it seeks to export biofuels in the global community. EU Trade Commissioner Peter Mandelson stated that, “We can’t allow the switch to biofuels to become an environmentally unsustainable stampede in the developing world. Europeans won’t pay a premium for biofuels if the ethanol in their car is produced unsustainably by systematically burning fields after harvests. Or if it comes at the expense of rainforests.”15

Environmental problems, which include widespread pollution and deforestation in the Amazon region, attract international attention. The world’s largest tropical forest is in Amazonia. Covering an area of 3.3m sq km, it contains around 2m species, representing the greatest global concentration of biodiversity.16

The comments by Mandelson highlight some of the hurdles that Brazil faces as it expands into international biofuel trade. Mr. da Silva’s administration ensures that Brazil’s biofuels will conform to international standards through a national certification program. While the EU speaks to sustainability, Mr. da Silva demands lower trade barriers for biofuels and biodiesel. Mr. da Silva maintains that lower barriers would reduce global pollution from greenhouse bas emissions, strengthen energy supplies for rich countries and increase the incomes in poor countries.17

Mr. da Silva responded to Mandelson by stating that, “The solution is in encouraging the establishment of an international market for ethanol and for biodiesel.” “We cannot send out contradictory signals. The very governments who reiterate their commitment to sustainable development, to the reduction of greenhouse gases, cannot then turn around and create obstacles to turning biofuels into international commodities.”18

Both Hugo Chavez, president of Venezuela, and Fidal Castro, president of Cuba, see Brazil’s energy export strategy leading to a reduction in food security and increased poverty because of expansion domestically will be lifted.19 These sorts of energy related conflicts are common as Chavez and Castro have different opinions on how to facilitate international relations with the such countries like of the US and EU. While Mr. da Silva disagrees with the Chavez and Castro on some issues, he continues to support their efforts in other arenas. Hence, the support of Chavez for the cancellation of the broadcasting license of RCTV, Brazil’s leading opposition television station.20

Income Policies
The poorest one-fifth of Brazil’s 182 million people make up only 2.4% share of the national income. The majority of poor Brazilians live on less than US$2 a day and 8% live on less that US$1 a day. The income inequality in Brazil is second only to South Africa in recent world rankings.21 Unemployment growth in Brazil has been lackluster as reports show there were only 3.2% more employed people in April 2007 than the previous year. Some of the leading industries are construction, financial services and rents. Hiring in the general industry though has been below the population growth, showing signs of payroll reductions by labor-intensive industries.22

Employment growth in Brazil varies widely across different industries. The wide disparity ranges from about 8% in Refining to -13.5% in Tobacco. Signs of specialization in the Brazilian industry have led to job creation in oil and ethanol refining, metal industry and capital goods. In addition to tobacco, some of the sectors that have lagged are more labor intensive activities such as footwear, apparel and wood.

Social Policies
Many of the government’s social programs have not produced the impact that was estimated during the 2006 election campaign. The combination of a tight fiscal budget and general administration bureaucracy has stifled the social programs though cutbacks.23 The lack of social policies has continued to highlight the poverty and inequalities for many Brazilians. Brazil, along with South Africa, by indicators of inequality shows that it is the world’s most unequal country resulting in wide income disparities. For the vast majority of countries, the ratio of the top 20% of incomes to the lowest 20% is less than 10. In Brazil the ratio is 32. Moreover, the annual income of the poorer population represents just 11 days of income for the rich.24

Looking past the global figures, a closer view shows that the profile of the poorer population is sociologically highly noticeable. The North Eastern region of Brazil is home to 46% of the poor (and 63% of the destitute), though it only accounts for 30% of the total population. The poor are generally young (37% of the under-16 year-olds are poor), and black (who account for 46% of the population but as much as 65% of the poor). The poor are over-represented in agricultural (40% of the poor) and the informal sectors (57%), or among families with many inactive members (young children).25 These young black Brazilians suffer the most due to the lack of social policies by the government.

Mr. da Silva’s administration has two major programs, the Bolsa Familia and successive increases in the minimum wage, that have contributed to improvement in Brazil’s disparity in income distribution. The Bolsa Familia provides a monthly subsidy for the poorest Brazilian families. The monthly subsidies are made preferentially to women in each family. The program encourages the formation of human capital by conditioning transfers based on behaviors such as children’s school attendance, use of health cards, and other social services.26 The World Bank states: “In terms of numbers of beneficiaries, the Bolsa Familia Program is by far the largest conditional cash transfer in the developing world. Its systems for beneficiary selection, monitoring and evaluation, quality control, and scaling up have implications that extend well beyond Brazil.”27

Economic Systems
Fiscal Policies
Mr. da Silva’s fiscal discipline, in his first term, provided stabilization of inflation rates. The exchange rate will be maintained in his second term. The Programa de Aceleracao do Crescimento (PAC) will be the primary vehicle used to boost infrastructure investments.28 Mr. da Silva’s administration will need to develop policies that encourage private infrastructure investments by working diligently on eliminating regulatory bottlenecks and policy uncertainties.29 Brazil will need to create a coherent infrastructure strategy that includes reduced contract renegotiations, improved regulatory governance and the inclusion of the plan into existing budgetary processes for better private participation. In addition, the administration is looking to impose substantial ceilings on new public-section hiring and limits on minimum-wage adjustments.30

Housing income growth, rising corporate profitability and increased imports have enhanced fiscal revenue, balancing the deterioration in the social security deficit from the increases in the minimum wage. In the first quarter of 2007, the primary fiscal balance, (excluding interest payments) was 4.34% of GDP (an increase from 4.11% in the same period of 2006).

The government’s official target for the primary fiscal surplus in 2007 is 3.8%, although the World Bank estimated an average of 2.3% of GDP on the assumptions that interests will continue a gradual decline.31

Monetary Policies
Since the fourth quarter of 2005, monetary easing has decreased the Selic benchmark by 700 basis points, in 16 successive cuts, to 12% in June 2007. Monetary policy is firm despite these cuts as the Selic rate is almost 9% in real terms. Interest rate increases have put pressure on the currency to increase in real terms, making inflationary forecasts lower. The EIU reports: “This implies an average real rate of 8.2% in 2007 and 6% in 2008, which is still high by international standards, but relatively low for Brazil.”32

Annual consumer price inflation has softened over the past six months in 2007. A rise in soft commodity prices will continue to put rising pressure on food prices, but this will most likely be mitigated by disinflation in other goods and services. The strong Real will attract a growth of imports and reduce inflationary pressures.

Trade and Investment
When comparing Brazil to other emerging markets, it can still be considered a relatively closed economy. Many of the trade policies spearheaded by Mr Cardoso in the 1990s and an increase in export policies by Mr. da Silva have boosted growth in merchandise trade. Brazil held on to a trade deficit for years until external demand for goods, a stronger Real and relatively slow domestic demand swung Brazils external accounts around. In 2001, the trade balance finally tipped toward a surplus, and by 2005 it had grown to US$44.8 billion (5.6% of GDP).33

Mr. da Silva’s enthusiasm in trade diplomacy efforts have served as a platform yielding strong growth of export earnings. Asia, Africa, the Middle East and Eastern Europe have seen their export markets expand at a faster rate than Brazils. With more than 90% of the growth in sales going to Asia, the growth in exports to China has soared. Brazil had to strengthen its position as a supplier of soya beans and iron ore because of the rise in the Chinese market. Earnings from China rose from US$1 billion in 2000 to US$6.8 billion in 2005.34 Many countries have experienced trade imbalances with China as their labor-intensive workforce have made it more cost effective to outsource activities that were once done domestically. Some of the producers in Brazil have outsourced part of their production to China. Plant closings in the footwear industry have been rising with many small and medium-sized businesses who are unable to compete against the inexpensive Chinese imports.35 However, the China-Brazil relationship has fallen out of favor since the visit to Latin America by China’s president, Hu Jintao, in 2004. At that time, Mr. da Silva saw China as a strategic partner and trading with the country would more than double to US$20 billion in three years. In return China promised to invest US$10 billion in Brazil infrastructure projects, which has been very slow as of 2007. Both countries are to blame for the slow pace of investments. Brazil has yet to publish rules that would open up public-private investments in infrastructure and China thought it would build Brazilian railroads with Chinese labor in exchange for long-term contracts to buy commodities at fixed prices. The result has caused slow investments in Brazil and an increasingly fragile relationship. Currently China has been viewed more as a customer than a strategic partnership.36

Brazil’s share of primary products in overall earnings rose from 23% in 2000 to 30% in 2005. Strong international demand for soya and iron ore has assisted to the earnings growth, as well as the appetite for pork, beef and poultry.37 The US remains the largest producer of soybeans, but last year Brazil became the largest exporter. Both countries send over 10 million tons of soya products to China alone.38 (Exhibit 2)

Total exports of soya products rose from US$2.5bn to almost US$9bn over the period, while earnings from iron ore products increased from US$6.2bn to US$13.1bn, and beef, pork and poultry from US$1.5bn to US$6.9bn. In contrast, the share of manufactured goods in the total fell between 2000 and 2005, but their sales have accelerated since 2003. The automotive sector, which accounts for more than 20% of manufacturing exports, increased its exports from US$6.5bn in 2000 to US$15bn in 2005. This helped to lift the share of manufactures in export earnings slightly in 2005, while the expansion of primary products was curbed by a decline in the agricultural sector (which was hit by adverse climatic conditions and a weakening of soya prices).39

Brazil has been involved, along with many other countries, in the Doha Development Round (Doha) summits led by the World Trade Organization (WTO) since the initial meeting held in Doha, Qatar in November 2001. The Doha seeks to reduce trade barriers around the world and spur growth by permitting free trade. Most of the summits, held in varying parts of the world, have broken down over agriculture. In a recent meeting in Potsdam, Germany, the Europeans and Americans made progress at the summit, each conceding to headway in agriculture. The discussions went from agriculture to industry in which the ministers of Brazil, India, the United States, and the European Union failed again to narrow differences. In Potsdam, Brazilians held that the United States and European Union were seeking cuts of 50-60% in industrial tariffs in return for modest concessions. Both Americans and Europeans responded, saying they seek modest reductions in industrial tariffs of just a few percentage points overall. The countries are not arguing over tariffs, but tariff ceilings in which the gap between the tariffs and ceilings make up the difference. The angst over the water between the actual tariffs and tariff ceilings are major concerns for the developing nations because of the increasing fear of China. In Latin America, China exports face tariffs about 9% higher than average. Doha would reduce tariffs the higher they are. With the alleged dumping of products on the markets of major manufacturing rivals, Brazil is looking after its own interests.

In 2005 the World Bank said that a successful implementation of Doha could add as much as US$126 billion in real income gain and reduce extreme poverty by about 32 million by 2015.40 Developing countries like Brazil stand to gain the most from Doha if the round succeeds.

Multinational Corporations in Brazil
There is a clear emergence of multinational corporations growing rapidly across many developing countries such as India, China, South Africa, Russia, Mexico, and Brazil. In some sectors the global leaders are no longer from the developed countries, but from emerging countries.

For example, in 2006, the Indian-owned company Mittal took control of its European rival Arcelor and became the leader in the steel sector while the Mexican company Cemex is in the same league as Lafarge (French) and Holcim (Swiss). With the takeover of Canada-based company Inco, the Brazilian producer of minerals, CVRD, is now topping international rankings along with the Anglo-Australians BHP Billiton and Rio Tinto.41

Brazil has fared well against other emerging countries in its growth in the number of multinational corporations, exports and Foreign Direct Investment (FDI). Some of the largest Brazilian based exporters are foreign companies such as Volvo, General Motors, Cargill, Caterpillar, Fiat, Pirelli, Renault, Bosch and Volkswagen.42
Multinational Corporation Highlight: Cargill

Cargill is an international provider of food, agricultural and risk management products and services. With 153,000 employees in 66 countries, the company is committed to using its knowledge and experience to collaborate with customers to help them succeed. Cargill has had a presence in Brazil since 1965 where it has provided solutions geared to the agricultural, food, financial and industrial markets. The company has its main office in Sao Paulo and industrial plants, port terminals, warehouses, farms and branch offices throughout the country.43

Opportunities
As of 2005, Cargill was the 13th largest exporter as a percent of total sales in Brazil.44 The food sector in Latin America represents 53% of industry and agrobusiness representing 7%, in which both areas provide opportunities for vast growth. As others countries such as China become more dependent on Brazil for exporting goods from the food, agrobusiness and other sectors, Cargill is well positioned for growth opportunities.

Threats
The 2007 Political and Economic Risk Map created by Aon in conjunction with Lloyd’s points to Brazil as a medium-low risk country which is subject to significant supply chain vulnerabilities.45 For Cargill, and other multinationals, the threat of supply chain disruptions and bottlenecks in Brazil is immense. The road network in Brazil requires significant infrastructure investments as the transport links in Brazil still lag behind that of other middle-income countries.46 Organized criminal groups in Brazil are also involved in robbing cargo from lorries or trucks, with most of the incidents concentrated in Sao Paulo and Rio de Janerio.47 Many insurance companies no longer offer coverage for road cargo, although approximately 60% of freight is transported by road; by far the most important means of transport.

Brazilian Corporation Highlight: Embraer
In the aeronautics sector, Embraer a Brazilian enterprise, is one of the top airline manufacturers in the world. Embraer is the second most important Brazilian exporter. The company currently employs more than 21,000 people, with 87.7% based in Brazil, and contributes to the creation of more than 5,000 indirect jobs. With the emergence of the low-cost carrier airline companies, Embraer has made significant deals in its commercial and executive jet business.

Opportunities
Embraer, the world’s No. 4 commercial aircraft maker, is significantly increasing its ties with Asia. In 2006, the company signed a deal with the Chinese airline HNA Group for 100 jets valued at US$2.7billion, the largest deal to date in China. Embraer has significant opportunities for growth throughout the world as it increases its technical support network in other countries and building local talent to compete globally.

Threats
Competition from multinationals abroad have attracted investments in Brazil and generally are great for the economy. The presence of these multinationals though, poses a threat to local businesses as companies compete for top talent in the country. Companies such as Intel have invested heavily in the state of Minas Gerais’ technology infrastructure for instance, to build up a foundation in education. A more educated population in Brazil equates to increased opportunities for revenue growth for Intel. Many communities are highly developed with access to technology, but the poorer communities have few or virtually no access to technology. Through the Intel investment, 100% of Minas Gerais’ public schools are linked to the State Secretariat of Education. This example of a US multinational investing in the educational system in Brazil is again, great for the country but poses a threat to local businesses because they will be competing for the same technical resources.

Brazilian Entrepreneurship
Establishing the foundational structures for a thriving entrepreneurial spirit in a country has the potential to drastically improve economic performance and build a firm future socially for citizens. Looking through the lens of the framework for determining national performance suggests, intelligent risk-taking, innovation and entrepreneurship yield economic performance and social performance gains. (Exhibit 3) Brazil still remains an unrealized potential in terms of fostering entrepreneurship. Many Brazilians seek out entrepreneurial activities out of need because they lack other feasible alternatives in the labor market. Due to inflexible government regulations, supply chain inefficiencies, and a lack of infrastructure investments many business opportunities are lost.48

The Brazilian government realizes that the need for action is ever-present and has responded with programs for assisting small to medium-sized enterprises. The government now provides help with business planning, implementing less stringent regulations for new entrepreneurs, and encouraging more business financing opportunities.49 (Exhibit 4)

In May 2007, Draper Fisher Jurvetson (DFJ), a leading international high-technology venture capital firm, announced the opening of a Brazil-based affliliate in partnership with FIR Capital Partners. The DRF FIR Brazil Fund will initially start by providing access to US$40 million, with a focus on entrepreneurs with a strong vision of building global companies.

According to FIR Capital Partner Guilherme Emrich, “This marks the first time that a leading Silicon Valley venture capital firm has entered the Brazilian market.” 50

“We believe that the partnership with DFJ will significantly expand our resources to assist Brazilian companies in accessing capital and business networks in the global market. DFJ’s outstanding track record and extensive network will help us realize our vision of enhancing venture capital investing in Brazil”, added FIR Capital Partner, Marcus Regueira.51

As part of the agreement the two firms will launch a US$100 million fund, DFJ FIR Brazil Fund II, targeting offshore investors, which will invest in innovative Brazilian companies in high-growth industries.52 DFJ’s entrance into the Brazilian market is emblematic of the potential for growth and success from the previously implemented programs.

Black Market
The black market is the hidden side of the entrepreneurial activities in Brazil and can be attributed for some of the lack of GDP growth that Mr. da Silva is striving to improve. In central Rio de Janeiro, therein lies the Sahara; an array of local commerce vendors selling just about anything. The cost of doing business in Brazil, government bureaucracy and high taxes have caused many Brazilian companies to operate off the books. The black market trend is prevalent in construction, transport, retail and much of the service industry. According to Solange Srour, an economist with Mellon Global Investments in Rio de Janerio, the black market acts as a drag on investment. Legal businesses have to take on the enormous tax burden generated from the burgeoning black market which drives down the potential investment dollars for the economy.53

“Celio Goncavles sells handcloths and kitchen towels from a bicycle on streetcorners in the Sahara. He says he tried several times to get a small-business license from local authorities, but found it nearly impossible. ‘I’d rather operate legally and pay taxes,’ he says. ‘But it’s like the government actually prefers me to work this way.’”54

Mr. da Silva’s administration must continue to look for ways to leverage the entrepreneurial spirit in Brazil by offering programs that will assist in the reduction of the black market. These types of reforms have the potential to positively impact the GDP for the country.

Legal System
Brazilian law is based on Portuguese civil law and has grown through the creation of normative or legislation acts. In 1969, Arnold Wald reflected that, “the true legislative labyrinth created as a result of an inflation of statutes passed in recent years has turned the ruling Brazilian law into a patchwork, in which the mere legislative updating becomes a daily torture for a lawyer and a judge who are searching for the rules applicable to a specific subject, from among acts, supplementary acts, institutional acts, decree-laws, and other normative acts”. The effects of this system still exist today, although Brazil introduced a constitutional reform in 2004 enacting a Stare decisis or common law system called Súmula Vinculante.55

Economic Performance
In 1990, the rate of inflation in Brazil was almost 3,000%. The Real Plan successfully cut the inflation rate from around 2000% in 1994 to less than 10% by 1997. Although rising speculative pressures caused the Real currency to collapse in 1999, Brazil has made considerable progress in recent years in achieving macroeconomic stability and restructuring the economy.

Annual inflation fell to 5.7% by the end of 2005 and continued to decline in the first five months of 2006, ending July at 3.97%. Despite a few setbacks, the Real has done well since the 2002 electoral campaign.

A new GDP series back to 2000 and based on a revised methodology has resulted in substantial upward revisions to Brazilian GDP. Real GDP rose by 0.8% in January-March 2007, driven by domestic demand. Credit growth has stayed strong, as competition among banks has intensified. Apart from nondurables, industrial output was strong in the first quarter.56

From 2000 to 2005, Brazil’s GDP rose 32.3%, although the overall GDP growth rate in the same period was down 47.7%. The GNI per capita was flat from 2000 to 2005. Brazil also has the highest inequality of income distribution in Latin America with a Gini index of 56.7.
(Exhibit 10-13)

Social Performance
The Brazilian population had reached an estimated 176.9 million by 2004, up from 140 million in 1990. The rate of population growth has been on the decline due to the fall in the crude birth rate. Recent forecasts show that Brazil will reach 200 million in 2020, accounting for an annual population decline of around 0.7%.57

There is a wide disparity between male (67 years) and female (75 years) life expectancy. This stems from the high incidence of male deaths under the age of 60, reflecting mainly high levels of violent crime, including one of the highest murder rates in the world.58

In 2007, Brazil has an average life expectancy rate of 72.24 years, by-far the lowest when compared to other countries in Latin America. (Exhibit 6) Crime, drug-smuggling and civil unrest reside primarily in the poorer areas in the country which coincide with other indicators such as literacy and infant mortality. (Exhibit 7,8)

Cultural Traits
Brazil is a highly urbanized country with a multi-racial population. Historical successions of migrations from Europe and slave trafficking from Africa have resulted in large numbers from these ethnic groups. The mixing of these ethnic groups with each other and the indigenous Indians have resulted in a true melting pot society. A 2000 census shows a total Brazilian population of 169.9million, where 91.3million were of European origin, 10.5million were black and 65.6million of mixed race. In the same year there were around 750,000 Brazilian Asians and 750,000 indigenous Indians. In addition, the 2000 census reveals that 81.2% of the population was urban, up from 78.4% in 1996 and 75.6% in 1991. Cultural norms display that Brazilians are accustomed to contradictory ideals and actions from the government.

In the 1990s, many people ignore laws that are not enforced, or allege that doing the right thing would be fine but that they lack the condições (conditions). The aphorism that sums up a common attitude about doing one’s duty is, “Ninguém é de ferro ” (No one is made of iron). The relaxed attitude is reinforced by the fact that laws or norms are often seen as having been imposed from the outside, rather than being the result of a social contract established for the common good. Thus, Brazilians, who are known for pragmatism, have become adept at living with idealistic rules, on the one hand, and actual practices that are often quite divergent, on the other. They switch easily between different cultural codes ranging from “traditional” values, such as machismo and paternalism, to “modern” values and social norms that favor women and equality. 59

Christianity has been the main religion in Brazil since the 16th century. According to the IBGE 2000 census, a vast majority of Brazilians declare a religious affiliation with over 74% having been baptized as Roman Catholic (roughly 139 million). Another 28 million or 15.4% are Protestants, 7.4% atheists or without a religion and the remaining follow other religious beliefs. Brazil has the largest number of Roman Catholics on earth.60

Education
Education is by far the liberator of the poor, in Brazil as elsewhere in the world. The primary and secondary educational facilities are poorly funded and over crowed.61

Brazilians who have not completed their first four years of primary education are poor, as compared to 15% who have studied more than 8 years (and a mere 1.9% of those with 12 years of education). Income inequality thus reflects the insufficient investment which has been made in education, over a long period of time. To be sure, there has been some progress: the average number of years in education rose from 3.2 to 5.3 years, between 1976 and 1996. But even this latter average remains far behind levels found in comparable countries, which run between 9 and 11 years (Argentina, Chile, Mexico, Turkey etc.). Above all, education of the poorer children is especially neglected: their education levels are less than those observed for India, Zimbabwe, Tanzania or Uganda.62

The adult illiteracy rate has fallen over the past 20 years, but in relation to other countries in the region, Brazil is still the highest. (Exhibit 8 ) Wealthier Brazilian parents send their children to private schools to increase their chance of gaining entry into a university.63
Public Health
Brazil has made progress in human development over the past two decades with the advent of policy innovations in health financing, more emphasis on primary care, and the organization of the country-wide system, SUS or Unified Health System. Despite these advances, Brazil’s healthcare indicators compare poorly with other economies in Latin America. The average life expectancy is lower than Mexico, Argentia, Venezuela and Chile. The doctor/patient ratio in Brazil is low and has decreased over the past 15 years.

Brazil’s indicators hide wide healthcare inequalities between the country’s rich and poor and between the urban south and rural north. In the major urban centers the availability of physicians, including specialists, is good, but there is inequality of access between public and private sectors. Rural areas suffer from a shortage of doctors. There were 3.6 hospital beds per 1,000 of population in 2004, a similar ratio to that of the US, but their distribution and the quality of provision is patchy. Around 55% of total healthcare spending is accounted for by the private sector. This is a high percentage by regional and international standards: in OECD countries the government typically accounts for over 70% of healthcare spending. Overall, only around one-quarter of Brazil’s population is covered by a health insurance program.64

New programs have focused on shifting the emphasis from treatment to prevention. This system is shifting the way doctors are trained, as most of the country’s 250,000 doctors are specialists, rather than family physicians focused on preventive systems.

Conclusion
At the end of Mr. da Silva’s presidency in 2010, Brazil will have completed 16 years of stability as a democracy. Many analysts have noted that Brazil is growing too slow while changing the quality of life for its citizens. There are few analysts who have given credit to Brazil for the progress it has made in building a solid foundation for success as a relatively young democracy.

To achieve production growth rates of 5% or more Brazil should focus on several social and economic policies to achieve the highest level of impact. These programs should take the following actions:

Economic System

• Minimize and control the impact of the Black Market which accounts for an estimated 40% of GDP by the World Bank
• Stabilize exchange and interest rates to provide a platform for long-term investments
• Decrease barriers for entrepreneurship to spur innovation (Exhibit 9)

Political System

• Loosen productivity regulations
• Reduce bureaucracy in government and policies such as tax laws, labor laws, trade barriers, price controls and subsidies65

Legal System

• Continue to decrease the complexity in the legal system and enforce laws
• Increase infrastructure investments through private and public means

Culture

• Continue both education and social reforms

Mr. da Silva should lead Brazil’s government by taking the appropriate steps to socialize the agenda reforms throughout the administration to build consensus. Equally the major lobbyist and religious institutions must also be on one accord to speed the process of change throughout the country. Finally, the government should create a platform for fair competition in domestic sectors and enhance international competitiveness of the global economy to continue growth in the export business.66

References

1 “The BRICs Dream: Web Tour” – Goldman Sachs, http://www2.goldmansachs.com/insight/research/reports/report32.html, Accessed, July 1, 2007.

2 Penn World Table

3 “Lazy, hazy days for lucky Lula”, The Economist print edition, June 28, 2007.

4 “Brazil – History”, Geographica, http://www.geographia.com/brazil/brazihistory.htm, Accessed, July 1, 2007.

5 “History in brief”, Economist.com, http://www.economist.com/countries/Brazil/profile.cfm?folder=History%2 0in%20brief, Accessed June 30, 2007.

6 Ibid.

7 “Brazil – History”, Geographica, http://www.geographia.com/brazil/brazihistory.htm, Accessed, July 1, 2007.

8 “Country Briefings: Brazil – Political Structure”, Economist.com, http://www.economist.com/countries/Brazil/profile.cfm?folder=Profile%2 DPolitical%20Structure, Accessed July 5, 2007.

9 “Country Briefings: Brazil – Political Forces”, Economist.com, http://www.economist.com/countries/Brazil/profile.cfm?folder=Profile%2 DPolitical%20Forces, Accessed July 5, 2007.

10 “Lazy, hazy days for lucky Lula”, The Economist print edition, June 28, 2007.

11 “Country Profile 2006: Brazil”, The Economist Intelligence Unit, p. 5.

12 Ibid, pg 5.

13 “EU, Brazil hold first summit in effort to deepen political, trade ties”, International Herald Times, July 3, 2007, http://www.iht.com/articles/ap/2007/07/03/europe/EU-GEN-EU-Brazil.php.

14 “Country Report June 2007: Brazil”, The Economist Intelligence Unit, p. 19.

15 Jonathan Stearns, “EU Warns Brazil on Environmental Impact of Biofuels, Bloomberg.com, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax0gZo65okyo, Updated July 5, 2007, Accessed July 7, 2007.

16 “Country Profile 2006: Brazil”, The Economist Intelligence Unit, p. 20.

17 Jonathan Stearns, “EU Warns Brazil on Environmental Impact of Biofuels, Bloomberg.com, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax0gZo65okyo, Updated July 5, 2007, Accessed July 7, 2007.

18 Ibid.

19 “Country Report June 2007: Brazil”, The Economist Intelligence Unit, p. 19.

20 Ibid., p. 19.

21 “Brazil Country Brief”, The World Bank, http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/LACEXT/BRAZILEXTN/0  ,,menuPK:322351~pagePK:141132~piPK:141107~theSitePK:322341,00.html#Co untry_briefing, Accessed June 30, 2007.

22 “Country Report June 2007: Brazil”, The Economist Intelligence Unit, p. 26.

23 “Country Profile 2006: Brazil”, The Economist Intelligence Unit, p. 27.

24 “Poverty, Inequality and Social Policy in Brazil”, La Lettre Du CEPII, No 229, December 2003.

25 Ibid., p. 2.

26 Kathy Lindert, “Brazil: Bolsa Familia Program – Scaling-up Cash Transfers for the Poor”, MfDR Sourcebook, p. 67.

27 Ibid.

28 Ibid., p. 8.

29 “How to Revitalize Infrastructure Investments in Brazil: Public Policies for Better Private Participation”, The World Bank, January 10, 2007.

30 Ibid.

31 Ibid.

32 “Country Report June 2007: Brazil”, The Economist Intelligence Unit, p. 9.

33 “Country Profile 2006: Brazil”, The Economist Intelligence Unit, p. 40.

34 Ibid., p. 41.

35 Ibid., p. 41.

36 “Falling out of love”, The Economist, August 4, 2005.

37 “Country Profile 2006: Brazil”, The Economist Intelligence Unit, p. 41.

38 Alexei Barrionuevo, “To Fortify China, Soybean Harvest Grows in Brazil”, The New York Times, http://www.nytimes.com/2007/04/06/business/worldbusiness/06soy.html?ex =1334462400&en=705fc4ac338ff5b4&ei=5124&partner=permalink&exprod=perma link, Published April 6, 2007.

39 “Country Profile 2006: Brazil”, The Economist Intelligence Unit, p. 41.

40 En-Lai Yeoh, “APEC Trade Ministers Gather to Cairns to Try to Revive Doha”, Bloomberg.com, http://www.bloomberg.com/apps/news?pid=20601081&sid=aMtz0b.tHr0g&refer =australia, Accessed July 3, 2007.

41 “The emergence of Latin multinationals”, Deutsche Bank Research, March 7, 2007.

42 Ibid., p. 6.

43 Cargill company website.

44 “America Economia, 2006.

45 “AON Political Risk Map”, Market – LLOYD’S, Issue Two 2007, Insert.

46 “Country Profile 2006: Brazil”, The Economist Intelligence Unit, p. 21.

47 Ibid., p. 16.

48 “Government and Education Efforts to Further Entrepreneurship in Brazil”, National Dialogue on Entrepreneurship, http://www.publicforuminstitute.org/nde/sources/reports/Brazil-2005.pd f, Accessed July 8, 2007.

49 Ibid.

50 “Draper Fisher Jurvetson Launches Brazil-based Affiliate”, Draper Fisher Jurvetson, http://www.dfj.com/cgi-bin/artman/publish/article_190.shtml, May 9, 2007, Accessed July 10, 2007.

51 Ibid.

52 Ibid.

53 Paulo Prada, “Brazil’s economy still in the black market”, Public Radio: Marketplace, September 29, 2006, Accessed July 5, 2007.

54 Ibid.

55 Edilenice Passos, “Features – Doing Legal Research in Brazil 2002”, LLRX.com, Published on September 2, 2002, http://www.llrx.com/features/brazil2002.htm, Accessed on July 11, 2007.

56 “Country Report June 2007: Brazil”, The Economist Intelligence Unit, p. 3.

57 “Country Profile 2006: Brazil”, The Economist Intelligence Unit, p. 16.

58 Ibid.

59 “Brazil – Cultural Unity and Diversity”, US Library of Congress, http://countrystudies.us/brazil/37.htm, Accessed July 14, 2007.

60 “Religion in Brazil”, IBGE Censo 2000, http://www.ibge.gov.br/home/estatistica/populacao/censo2000/populacao/ religiao_Censo2000.pdf, Accessed on July 14, 2007.

61 Ibid., p. 18.

62 “Poverty, Inequality and Social Policy in Brazil”, La Lettre Du CEPII, No 229, December 2003. p. 2.

63 “Country Profile 2006: Brazil”, The Economist Intelligence Unit, p. 18.

64 Ibid.

65 The McKinsey Quarterly 2006 Number 2, p. 3.

66 Ibid.