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Brazil must look beyond BRICs

Brazil must look beyond BRICs

A country that's done its homework has wider options
Channelling long-term stable inward investment

by David Marsh

Wed 31 Oct 2012

As a result of the financial crisis, the world has turned on its head. Emerging market economies have become more stable during the last five years, while the industrialised countries on the whole have become less so.

The implications for a country like Brazil, an economic colossus with 190 million people and a GDP that will rival Germany’s in coming years, are striking.

In general, the country has followed sensible policies to stabilise debt, trade and the banking system over the past 15 years. So Brazil now has many more options than in the past, both politically and economically, to act as a world powerhouse mediating and interacting on a selective basis: north, south, east and west.

The Brazil, Russia, India, China grouping may still have some residual public relations relevance. But on the whole it’s a distraction. Too much government time is taken up orchestrating summit meetings devoid of real consequence where the subjects under discussion, whether in trade or finance, should be left to technocrats.

It’s time to bury the BRIC concept as a guide to meaningful analysis on who are (or will be) Brazil’s prime partners with the rest of the world. By looking further afield for cooperation and alliances, Brazil can do a lot better than the BRICs.

The impression I gained during a week of talks with finance, government and business representatives in Sao Paulo, Brasilia and Rio de Janeiro is of a country that knows its place: among the leading economic nations of the world. According to the International Monetary Fund, in 2013 and beyond, Brazil will overcome the growth downturn of the past 12-24 months and follow annual expansion of about 4%.

There’s still much to do to improve productivity and public services and to lower the government’s sometimes intrusive drag on business. Yet a lot is going on. The softening of the real in the past year from well-overvalued levels is a good thing. A discreet debate is starting in government ministries and the central bank on how to lower dependence on the dollar and harness stable long-term investment inflows into Brazil in the Brazilian currency. You’ve heard of the internationalisation of the renminbi; get ready for the internationalisation of the real.

The projected future growth rate is well below the heady pace of 7.5% seen in previous years, but for most ordinary Brazilians, as well as for foreign investors, modest yet steady expansion is better than boom and bust.

Speaking about prospects, you encounter in Brazil not arrogance or megalomania, but a sober sense of realities. Brazil has mineral and agricultural wealth embedded in a large people-rich continental economy that put the resources of most other countries (with the exception of the US) in the shade.

Whether in establishing political stability, defeating hyperinflation, restructuring debt or accomplishing fiscal reform, Brazil has succeeded heroically in the last 30 years in overcoming massive challenges and obstacles. With much of the rest of the world in a mess, that puts it in pole position.

To find the right partners, whether for major projects in the oil and gas sector, in industrial projects, in agriculture or in assembling and improving infrastructure (roads, ports, railways, airports), Brazil more or less has a free hand. The sums involved are enormous, and substantially exceed domestic savings resources. Petrobras, the state oil company, for example, has approved overall $240bn capital expenditure in the next five years.

Brazil’s best partners will not be from the BRICs, and not from the rest of Latin America, which can increase trade ties but can hardly accompany Brazil on international expansion.

Rather, the Brazilians should be looking for economic groupings from around the world with complementary skills, financial and technical capacities and geopolitical interests: reliable long-term pension funds and asset pools from northern Europe, Canada and the US, leading technology and engineering companies from Germany, Japan and Switzerland, sovereign wealth funds from Singapore, Malaysia and the Middle East, large family businesses from Turkey, and so on.

Brazil has done its homework to surmount many problems from the past. It now has to capture the future. Potential partners from around the world will be watching closely. And, if they can, joining up with Brazil for the journey ahead.

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