The head of global economic research Jim O’ Neill in 2001 at Goldman Sachs, urged the acronym BRICs to mention Brazil, Russia, India and China as the Emerging Market Economies (EMEs). He mentioned that these countries will be leading the world economies for the next fifty years. After this, these terminologies were coined many authors, economists and journalists have used these terms and now they have become common.
At first it is critical to mention that there is no single definition for the emerging market economy. Usually these are the economies which are based on the rapid growth in terms of economy, enhanced foreign investment, stable and mature political setup. Obviously there are indicators for these areas like strong economy can be recognized by GDP, GDP per capita, foreign reserves and trade volumes. One more fact about such nations is that they grow on a rapid pace, which means that more profit for investment especially for foreign investors, therefore they keep coming into the country with their huge investments. This also provides a supporting hand to the country.
There are many questions that are addressing the common area that how and why Brazil is an emerging market and why does it has the first letter in BRIC. These questions will be answered in the following report, as the report below addresses the area by which it can be observed that how Brazil has become one of the most important emerging economies in the world. For the sake of discussion the overall economy of the country is discussed instead of selecting any one typical area for business. The following report will provide answers to the questions like why Brazil has never become developed nation, what are the challenges that are being faced by the emerging economy and how Brazil is there, where it presently is.
A Brief History:
The military regime was over in the year 1985, when the power was transferred to civilian government. This civilian government was not competent and eventually the country fall for high level of inflation and finally it defaulted on the basis of foreign debt. In 1989, the country had its first democratically elected president in thirty years. This government was much effective; it started with immediate policies to increase the revenue of country. They lowered the barriers for imports and many governments owned business were privatized. Although at that time Brazil was moving towards the right path, but the inflation had become the biggest problem. In the year 1994 the government which is said to be successor of last leader initiated a plan to remove the inflation from the country; the plan was called the Real Plan. This plan was written by the future president at that time. Before this plan was implemented, different governments had taken several steps to control the hyper inflation (Cavusgil, Knight, Riesenberger).
The Real Plan was very comprehensive and strict in nature. New currency was introduced, increases taxes, tighter monetary policies, low barriers for importers. These all resulted in prevention of Brazilian monopolies and oligopolies to raise the price. This plan reflected the first ever economic discipline in the Brazilian economy, from this the country started attracting foreign investments which also doubled the growth rate for the country. The country was than successful for providing better standard of living to people with lowest inflation rate in the country’s history which fell from 45% to less than 1% in just two years. In this era the country was led by Cardoso, followed by Collor. The country was doing well until the year 1999 when the real crisis arrived. The Real Plan of 1994 was good but it did not address the growing concerns for rising fiscal deficit.
The country again entered the crisis period, interest rates again raised. Industries were not producing, which resulted in decreased exports. The country was again suffering very badly, but the crisis could not cause a long lasting disturbance in the country as Cardoso’s macroeconomic policies were very effective and at the same time the public sector was earning very sound. By these sources Brazil had money to pay off its debts. In other words the policies developed by the government were very effective and the country was stretched out from the crisis. In 2002 the Cardoso was replaces by Luiz Inacio Lula da Silva.
After Lula taking over the state, the country displayed an amazing effort for and potential for economic development. Under the new supervision, the country experienced very liberal policies to attract the foreign investors, assert fiscal discipline and the country become more economical strong. Lula also made efforts to bring the people above the poverty line. Lula in the year 2008 had to face the financial crisis. It is to be observed that EMEs are able to handle the crisis in an effective manner as compared to developed nations (Daniels and Radebaugh, 2007).
How Brazil is able to be so dynamic?
There are basically four policies that had and that are still playing an important role in the development of Brazil. These policies aided the country to get out of the recent financial crisis better than the developed countries. The main policies are:
- To develop the economy, essential infrastructure should be developed.
- There should be proper measures to reduce the poverty and inequality so that every individual can contribute towards the economical development.
- To reduce the barriers and be open to the world.
- To reform the local and domestic institutions to promote efficiency.
It can be observed that Brazil spent its latest earning on the development of infrastructure, as they have already realized that developing the infrastructure will aid in attract the investment. Amongst the different plans the most important plan is the Growth Acceleration Plan, which was initiated by President Rousseff who is currently governing the country and was also the member of Lula’s cabinet (Morrison, 2006).
Under this plan there are thousands of projects across the country, out of which some are underdeveloped and some are developed. The program was started in the year 2007 and the initial worth was 4.2Billion dollars. The main motive of this program was to improve the infrastructure across the state to make it sure the economic development even in the neglected areas (Wild, Wild, Han, 2009).
Another important area for Brazil was to reduce the rate of poverty so that those individuals can also become the part of the growing economy. The government initiated several programs out which the most prominent and strongest was the family scholarship. Although this program was initiated with the aid of many international authoritative bodies, but this plan remain highly productive.
This program was very successful and helped the Brazil to raise the income from the grass root level, with the fact of providing 94% funds to poorest. By this the government made it sure that families were keeping their children in schools and also taking them to regular doctor checkups. By this the country managed to reduce the poverty level.
Increased Openness to the World:
The main economic development that the Brazil experienced was due to the implementation of policy in which it was made sure that every possible step will be taken in order to support the international trade. It can be observed that during the years of 1990s, Brazil lowered the tariffs and supported exports, in the mean while it was overhauling the total import system. And now the import system is cheaper and easier for other countries as well as for companies to bring their products in Brazil. The flow of international investment into Brazil was increased during the era of Cardoso in the year 1994, when Real Plan was implemented.
As the other factors have been improved, Brazil has made efforts to improve the efficiency of government institutes and make them more effective. This was necessary to avoid any mishaps within the country and also to support the international trade. The most important element that was considered was the judicial system and to encourage the investment. In different years the government has taken several steps to make it sure that the judicial system of the country remains intact and also ensured that the performance of the government institutes remained effective and efficient (Jim O’Neil, 2001).
What is Holding Brazil Back?
There are some significant reasons due to which Brazil is not yet there. Apart from the greatest hard work from the government and citizen still they lack in some areas. It can be observed that Brazil is an emerging economy, but if below weaknesses are reduced that surely it can be included in the developed nations. The main weaknesses are:
The biggest policy failure can be observed that the government is still spending too much money. Too much spending reflects high interest rates and also results in currency appreciations by which the exporter are hurt by increase the cost of goods that are produced locally. Leaders at different times have strived in order to reduce the government spending but still no successful measures can be observed. The second policy is related to the state is still depending upon the commodity exports like food and oil, to experience the growth. There is a chance of creating inflation.
The corruption is the other policy failure in the country. The Transparency International has listed Brazil as the 69th least corrupt country. Although cleaning the corrupt culture is very tough job, but still the government is making efforts to reduce the corruption.
Failures in the Legal Systems:
Brazil is still having some problems in the regulations and legal system of the country, which has made it difficult for the business entities to continue the operational activity in the region. There are other features which have resulted in high tax rates for the business entities, more risky environment and there are other additional costs for the conducting business in the region. It can also be observed that Brazil heavily depends upon the taxes to generate its revenue and continue the developmental projects. The country was ranked 152nd in the World Bank’s Doing Business (Porter 1985).
Other than this, as already mentioned the country has slow and inefficient judicial system, in which the there are huge case burdens. Moreover the rules related to other things are not properly defined. Like the property rights are not defined, similarly the regulatory bodies are not much competent and effective.
There are some external factors which has hurt the Brazil. Like Brazil has always criticized US policy for subsidizing the production of agricultural goods. By the US farmers are able to compete with those low cost Brazilian producers. To solve this issue, there has been much negotiation but still the problem is unsolved. On the other hand the China has become the biggest threat for the Brazil, as China has great potential for raw material and cheap labor. Although the China is biggest trading partner of Brazil, still it has become the largest competitor of Brazil (Brooks, and Weatherston and Wilkinson, 2004).
SWOT Analysis of Sugar-energy Sector:
- Brazilian market has evolved the sugar energy sector of the country by innovation and research.
- The country still can occupy huge and mature industry. In other words it has the ability to incorporate more investments in the similar regard.
- Intense communication has enabled the picture of green fuel.
- Industry has become the most prominent resources for the employment.
- The sector has contributed a lot toward the regional development and growth.
- The country is very strong with the regard to the industry; it has internal logistics and also ensures the presence of Petro bras.
- The most effective element is the presence of good technical professionals and availability of high professions (Neves, et al., 2010).
- Government is reluctant to invest in the research in the similar field.
- Moreover the cultural practice of burning has also created extra problems for the industry
- The laws related to labor are very strict.
- Brazil still has to make its way to develop the mechanism to predict the issues and then coordinate between the responsible.
- Due to lack of technological features the communication in the industry is still lacking.
- As already mentioned that government is striving to develop the infrastructure, still the lack of appropriate infrastructure is there.
- There is lack of educated labor in the country (Neves, et al., 2010).
- The main opportunity lies with the development of the market and soon it will experience internationalization with the advancements in the new projects. This development is to be occurring in the degraded areas.
- Many countries which tend to participate in the making of bio-fuels will gain tax incentives.
- The transportation will be charged from the ethanol (Neves, et al., 2010).
- The core threat is to that there is no safety stock; therefore the price can fluctuate very easily.
- The risk associated with regression and will also increase the tax on ethanol.
- The recent crisis may have also hurt the entire situation of the country; moreover the business sector is going down. So will be the market of Brazil.
- Intense change in the climate has also reduced the area for working
- The presence of poor infrastructure may also result in the new frontiers for agriculture (Neves, et al., 2010).
In order to develop the country, the most important element is the leading ability. And it can be observed that Brazil was lucky enough to have dedicated and sincere leaders for long. It can be observed that Brazil has experiences amazing growth in terms of economics and reduction in the poverty. These elements may be very minute in written but practically such elements can ruin state.
Apart from every effective step taken, still Brazil has to go long way to become a part of developed nations. For this the country has to work really hard, should work in strategically in order to make it sure that the country is moving towards the right path of development and growth.
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Neves, M.F, Trombin, V.G, Consoli, A.M, Nogueira, J.G.A; Julca Briceno, B.M., 2010, sugar energy sector: market analysis of Brazil, accessed on 22nd August 2011, available at: http://www.markestrat.org/up_arqs/pub_20101119111931_sugar-energysector.pdf