2016-08-30 13:38:00 -0300
Brazil's economic advantages
In the past years, Brazil has consolidated its position as a strong and attractive global player with a high degree of economic diversification and is currently the seventh largest economy in the world. The country is a vigorous democracy, with free multiparty elections and strong institutions.
The economic development of the past years resulted in an expanded mass consumer market and increased social equality, an environment of institutional stability and increased social cohesion. Nearly 40 million Brazilians experienced significant improvements in their life conditions. In addition, Brazil has a large and fast growing consumer market, comprising 205 million people (IBGE).
Its democratic government, stable financial system and huge domestic market make Brazil a safe place for investment and gives it the strength to weather international crises. The increase of purchasing power and the investment opportunities in sectors like oil and natural gas, generation and transmission of electrical power, real estate and agribusiness places Brazil as an attractive choice on investment. The country is currently the sixth biggest FDI recipient in the world (UNCTAD).
It has a privileged location in the east-central part of South America, where it borders almost all other South American countries, allowing companies to easily access Latin American and African markets.
Modern, efficient and competitive, the Brazilian agribusiness sector is a prosperous, safe and profitable activity. The strength of Brazilian agribusiness is a result of scientific and technological development in modernizing farming and expanding the industry of agricultural machinery and equipment. The science and technology agenda encourages research in areas that are strategic for economic development, such as energy, aviation and agribusiness, as well as, IT and biotechnology.
Some of the Country’s main competitive advantages are:
· Leading regional economy
· Solid investment framework
· Huge domestic market
· Global player
· Innovative hotbed
· Major infrastructure projects
· Energy and Agricultural powerhouse
· Gateway to Latin America
· Biggest and most diversified science, technology and innovation system of Latin America
· One of the largest producers and exporters of agricultural products
· Competitive differential in the sector of aircraft building
· Competitive differential in the sector of oil exploration in depth water and large offshore oil fields.
The country is also actively working to face the challenges imposed by shocks that affected its economy in recent years, such as monitored prices, hydropower resources constraints, exchange rate, among others. The Brazilian economy is going through an extensive adjustment process, aiming to create the conditions for a new cycle of sustainable growth, while seeking to ensure the social achievements of recent years, with sharp reduction of poverty and inequality, factors of great importance to promote competitiveness gains.
Fiscal adjustment and fiscal reform will be the cornerstones of the current macroeconomic realignment, ensuring predictability and sustainability of the public sector accounts and debt dynamics, improving spending effectiveness and improving confidence conditions both in the investor and consumer side.
Additionally, changes in pension laws are to be addressed in the short- to medium-run.
Brazil is also working to improve its competitiveness and productivity, adopting measures to improve business conditions.
The external sector of the Brazilian economy has enjoyed a comfortable position for several years, and the current adjustment improved even more its sustainability. The accumulation of a robust cushion of international reserves allows companies and investors to cope with the external volatility with confidence. On top of that, the current adjustment of the Real currency value triggered the trade balance recovery and made Brazilian assets financially attractive when measured in US dollars. In 2015 there was a reduction of more than 40% in the current account deficit, while FDI remained robust, allowing it to finance the whole current account deficit.
The macroeconomic environment of last year proved to be challenging. The subdued economic growth imposed macroeconomic policy actions to absorb several shocks, in order to sustain investment and employment.
Between July of 2014 and January of 2016, the Real currency recorded a depreciation of around 82% compared to the US dollar and of around 38% considering the real effective exchange rate. The new exchange rate level makes Brazilian assets offers an excellent opportunity for investment, even more evident considering the strength of the Brazilian economy structure. As the macroeconomic adjustment takes hold, it is expected that the assets will become relatively more expensive than at the present time.
The adjustment in Brazilian external accounts has already shown a significant progression, and its effects should also deepen in the coming months. The external sector of the Brazilian economy has enjoyed a comfortable position for several years. The Central Bank currently has over US$ 369 billion in international reserves, which can be used to address any turbulence in the financial markets.
International Reserves (US$ billion)
In 2015, Brazilian foreign trade registered US$ 362.6 billion, above the average of the last two decades. Despite the effect of fall of exports prices on the value of Brazilian exports (-21.6%), the exports volume rose 8.3%. The trade surplus in 2015 was US$ 19.7 billion, the highest since 2011, and one of the main factors to explain the sharp decline of the current account deficit, from 4.3% of GDP in 2014 to 3.3% in 2015.
Trade Balance (US$ Billion)