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The emerging economies of Brazil, Russia, India and China, or BRIC bloc of countries, represent 40 percent of the world’s population and together, a growing economic force. Chris Devonshire-Ellis is traveling to the four BRIC nations to observe the impact these countries are having on one another, and the impact they are having on the world. In this final article he focuses on Brazil.

By Chris Devonshire-Ellis

Nov. 6 – Brazil is South America’s most influential country, the tenth largest economy in the world and one of the world’s biggest democracies. However, like some of its South American neighbors, it has a history of economic boom and bust and its development has been hampered by high inflation and foreign debt. However, a program of tax reforms, a stabilization of the currency, and the advent of the worlds two largest sporting competitions coming to Rio de Janeiro in the next few years seem set to give this oft neglected regional power a massive lift.

Brazil’s natural resources, particularly iron ore, are highly prized by major manufacturing nations, including China. Thanks to the development of offshore fields, the nation has become self-sufficient in oil, ending decades of dependence on foreign producers. Reforms in the 1990s, including privatizations and moves away from state involvement and corruption, have brought increased financial stability. The adoption of a policy framework combining inflation targeting, rules-based fiscal management and a flexible exchange rate, not dissimilar to that undertaken by India, has steadied the nation’s fiscal policy and also made it easier for the country to ride out the effects of the global financial and economic crisis, and an incipient recovery is getting under way. The policy responses to the crisis have been appropriate: measures were taken to enhance liquidity and prop up credit, the monetary stance began to be relaxed, and tax burdens on selected financial transactions and activities has been lifted, much as China has sought to do. The Brazilian banking sector is sound, and Brazilian households and its businesses have not suffered from the financial imbalances that have been at the core of financial distress in other parts of the world.

Signs are positive and Brazil has come out of recession after its economy grew in the April-to-June quarter. Its economy expanded by 1.9 percent in the third quarter of this year as opposed to the previous three months. As part of its US$77 billion fiscal stimulus plan, Brazil has poured money into large-scale public infrastructure projects, cut taxes on new cars and passed tax breaks on companies and individuals. The result, without the apparent bubble that China appears to be facing, means that Brazil’s recession was comparatively short, amounting to just two quarters of negative growth. On the other hand, inflation remains a worry, just as it does in India. Although the Brazilian government has said the pace of inflation has been slowing, giving a total of 4.4 percent for the past 12 months. The rate is below the central bank’s 2009 inflation target of 4.5 percent.

Where Brazil is most similar to its BRIC counterpart Russia and different from China and India is within its strategy of achieving energy independence from foreign oil. Brazil started its own ethanol program based on its rich sugar crop, and offshore oil exploration using deep-sea drilling methods. It’s achieved a remarkable degree of energy self-sufficiency, setting it apart from much of the rest of the world. This, and the underlying strength of Brazil in terms of its commodities, is likely to see the nation rise in strength to become the world’s fifth largest economy by 2015.

Much still needs to be done however in areas such as poverty alleviation, education and public housing, all of which are prey to an at times extreme criminal element highly involved in the drugs trade. Brazil’s income disparity between rich and poor is amongst the widest globally, and it has a serious problem with unemployment. Yet the currency is growing stronger, and its reserves are also increasing. With the world now beating a path to Brazil’s door – never has the Olympics been held in a city just two years after the World Cup Soccer finals – the country is poised to dance an investment and GDP growth samba that is expected to keep rhythm until long after the footballers and athletes have left.

This article was compiled with assistance of the Latin America members of The Leading Edge Alliance.

Comments are welcome

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The Russia BRIC: Low Taxes the Key to Investment Diversity
The China BRIC: Questions Ahead for Global Manufacturing’s Bride

Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates and lived in China for 21 years. He is now based in Mumbai.