Future of the Brazilian economy

“Brazil is the country of the future, and always will be”, the words uttered by French president Charles de Gaulle epitomised Brazil’s economic rollercoaster and struggle to realise its potential. Latin America’s largest country was often seen as a land full of success but also failure, opportunities and barriers, chances and setbacks. What started with a few Portuguese sailors crossing the Atlantic grew into the sixth-largest country on earth, a leading voice on the Latin American continent, host to the worlds ‘green lungs’ of the Amazon Forest. However, great expectations always run at risk of being disappointed, and in the case of Brazil, the country is still chasing its American dream.

Background

In 2003, the US bank Goldman Sachs published the study ‘Dreaming with BRICS’, a term originally coined by its head of Asset Management Jim O’Neill. The countries Brazil, Russia, India, China and South Africa’ were acclaimed for leading a new financial charge to replace the established leading G7 nations, overtaking a weakened west. Brazil was acclaimed to arise as a new economic power in the southern hemisphere, overtaking the German economy by 2035. It was expected to act as a vital commodity and resource supply to the booming industries of China, India and Russia as well as building its own manufacturing sector in the Americas. It was supposed to lead the way for an entire continent that had too long been mired in corruption, crime and political violence.

Brazil had a large youthful population of around 200 million people with a median age of around 25 years old, an abundance of natural resources such as oil, platinum and iron ore, a solid manufacturing base with companies such as the third-largest aircraft producer in the world ‘Embraer’, a potent agricultural sector with companies such as JBS and Minerva making Brazil the largest beef exporter in the world and an attractive tourism basis of lush rainforests, picturesque beaches and cultural hubs such as the thriving metropolis Rio de Janeiro. Brazil had everything a country could want and seemed to follow its fellow emerging nations on the path of prosperity.

However, as the adage says, the higher they fly, the harder they fall. Brazil’s economy today could not fulfil the loft expectations cast upon it. GDP stands at 1.4 trillion, 400 billion less than Italy, a country of only 60 million inhabitants that is not exactly known for its economic prowess. But arguably worse is the fact that it stands 600 billion below Brazil’s peak GDP of 2 trillion in 2010. In reminiscence of Japan’s lost decade, not only did Brazil stagnate, but its economy declined by the entire economic value of Belgium.

The COVID 19 pandemic gave Brazil the rest. Brazil’s right-wing president Jair Bolsonaro wholeheartedly embraced Covid conspiracies, claiming at first that it was a media trick before refusing to get vaccinated, currently being under investigation by the Brazilian supreme court for stating that covid vaccines may increase the chance of developing AIDS. In a country of tightly packed favelas and poor health infrastructure, the virus spread like wildfire, killing 650 000 Brazilians, the second-highest death count in the world after the United States. GDP declined by 4.1 % when Brazil had not even yet recovered from the 2016 recession where its economy declined by 3.3%, followed by meagre growth rates which could not undo the damage. Why did Brazil fail to achieve the green golden future that it had promised for so long?

A promising beginning

During the 2000s, things seemed to be on track for Brazil. Its economy, powered by a commodities boom and the demand from an emergent China grew at solid growth rates between 4-6%. Brazil’s trade boomed, growing to a surplus of $ 30 billion in 2005. Brazil rapidly constructed the superport of ACU which would further integrate the country into global trade. Under its more left-leaning president Luiz Inácio Lula da Silva (known simply as Lula), Brazil created a vast array of programs for the poor such as the so-called ‘bolsa familia’ which reduced inequality in Brazil (one of the most unequal societies on the planet) by 20%.

Millions of Brazilians left poverty joined the middle class, emerging from the favelas with cash to burn on goods ranging from cars to electronics, creating a domestic consumer boom. Brazil only suffered minor damages from the global financial crisis through which it got relatively unscathed. Brazil’s economy was diversifying, reaching from agriculture through mining to manufacturing. Brazil seemed to be taking the path that would lead it into a bright future.

Problems

However, soon cracks started to appear behind the green façade. The global financial crisis cooled the worldwide demand for commodities, hurting the Brazilian economy which was dependent on exporting its natural resources to the world. Brazil remained an exceptionally difficult environment due to business in, with litigious unions, avalanches of bureaucracy and a plethora of regulations it only ranks 124th on the ease of doing business index, behind economic powerhouses like Tonga, Swaziland and Tajikistan.

However, the arguably worst problem plaguing the Brazilian economy is corruption. Brazil ranks 96th on the Corruption Perception Index, and corruption remains a large-scale issue, discouraging economic productivity and investment. The country’s biggest corruption scandal ‘Operation Car Wash’ broke in 2014 and illustrated how government officials had stolen $2.5 billion from Brazil’s largest company, semi- state-owned oil company Petrobras. The crisis engulfed President Lula, who for a man who once claimed that the financial crisis was ‘caused by the greed of blue- eyed bankers’ is still struggling to fight his innocence in the scandal after receiving convictions that were only recently overturned due to technicalities. Crime is rampant in Brazil, with a homicide rate of 23.6 homicides per 100,000 inhabitants (in comparison the UK’s homicide rate is 1.2) leading to around 60,000 murders a year, the highest in the world and more than double the amount of the United States and European Union put together.

Crime and corruption remain so insidious in Brazil that psychologists have written books about explaining to children that their father goes to jail. As the economy slowed down, millions of Brazilians fell into poverty, with education and social mobility standards remaining subpar.

Attempts to reform

Where was the Brazilian government in these times of need? What did it do to support its people and pave the way to the future? After Lula reached his term limit in 2010, he was succeeded by Dilma Rousseff, Brazil’s first female president. Her rule remained unpopular, mired in allegations of corruption and without meaningful reforms, instead, drawing anger for hosting major sporting events such as the 2014 World Cup and the sums of money that goes with these privileges instead of improving the quality of life. In 2018, voters had enough, and Jair Bolsonaro came to power, a radical long- term backbencher who had made headlines for his racist, sexist and authoritarian views.

He promised neoliberal economic reforms such as a reduction of bureaucracy and his pick for economic minister, the former economist and investor Paulo Guedes persuades many business leaders to give him their vote. Once in power, Bolsonaro’s presidency quickly turned dysfunctional, from an increase in crime to large scale deforestation in the Amazon causing international outrage. The only major economic reform was an effective remaking of the pension system, but Paulo Guedes has struggled to leave his mark on Bolsonaro’s presidency. When Brazil needed it most, its political elites failed their country.

A Brazilian proverb states ‘Nem tudo o que reluz é ouro.’, translating best to ‘not everything that glitters is gold’. Brazil’s economic rot has been ignored for too long, the country is in dire need of economic reform. Its bureaucratic machines need to be reduced and de- regulated to spur growth and investment, especially from overseas where pockets are deep. Crime and corruption need to be harshly combated to create a safe and secure business environment and improve the quality of life. Education needs to be improved to prepare Brazil’s population for the work of the future and increase economic growth, basic skills are no longer enough. The political system needs to be reformed (e.g., by introducing a 5% hurdle for a congress that is currently made up of 23 parties) to ensure smooth and efficient rule over the country. Only if Brazil fundamentally changes the way its economy and country is run can it embark on the future it has always promised.