CASE #2 BRAZIL: LEADING THE BRICS?
PROFESSOR ROBERT A COSCARELLO
CHEN WANG ( CHERRY )
As of the date of the case and as explained in the case: is Brazil leading the BRICs? Please explain and defend your position. (We will discuss more recent data in class if time.)
From the case I can see that for the past decade, Brazil has experienced greater integration into the global economy which has been characterized by significant growth in economy and reinforcement of the country's weight in international trade negotiations. Brazil played an increasingly important leading role in the BRICs. However, Brazil was the underperformer of the BRICs in many areas. It faced significant obstacles to growth, including rising inflation, high interest rates, an appreciating exchange rate, poor infrastructure, excessive bureaucracy, and persistent crime. Overall, I think that Brazil plays a more and more important role on the international stage but is not leading the BRICs.
BRAZIL PLAYS A MORE AND MORE IMPORTANT ROLE ON THE INTERNATIONAL STAGE
STRONG ECONOMIC GROWTH
Brazil had sustained an average annual GDP growth of 4% since 2000. Between 2002 and 2009, inequality and poverty had declined significantly and more than 30 million Brazilians had advanced from lower income strata to the middle class.
Goldman Sachs expected the BRICs to be among the five largest economies in the world by 2030, forecasting a growth rate of more than 5% per year for Brazil.
INTENSIVE INTERNATIONAL TRADE AND FOREIGN INVESTMENT
In 1964, Brazil was opened to foreign direct investment an expansion in manufacturing and services generated GDP growth averaging more than 10% annually.
By 2008, Brazil was in the top 20 countries ranked by international trade.
After Brazil joined the WTO, over time, the number of Brazilian firms on a list of the world's 2,000 largest public companies grew from 13 in 2003 to 33 in 2010.
Foreign investors had transferred more than $30 billion in portfolio investment to Brazil in 2010 alone.
A MAJOR PLAYER IN MULTILATERAL TRADE NEGOTIATIONS
During numerous meetings of trade ministers from more than 140 countries, Brazil stood out as a leading voice of emerging markets.
President Lula led the creation of the WTO G-21, a block of developing countries that negotiated collectively at WTO meetings.
Brazil took a leading role in WTO negotiations and it also held important leadership positions in the Group of Twenty (G-20).
AN AGRICULTURAL POWERHOUSE
Brazil had become an agricultural powerhouse, ranked as the world leader in the production of six crops, ranging from sugarcane to dry beans, and among the top five producers of 32 other agricultural goods.
BRAZIL IS NOT LEADING THE BRICS.
UNFAVORABLE HISTORICAL FACTORS
Brazil became independent in 1822, which was the latest independent country among the BRICs.
Brazil had been in a climate of political unrest for a long time inundated with rebellions, individual dictatorship, and tensions between the landowners and slaveries.
THE GOVERNMENT'S DEVELOPMENT STRATEGY IMPOSED OBSTACLES ON ENTREPRENEURS
Under the Import substituting industrialization (ISI) development strategy, State-owned enterprises expanded but new businesses were pushed out of the formal economy.
Labor laws made it costly for companies to hire or fire workers
High interest rates and barriers to borrowing blocked market entry for entrepreneurial Brazilians.
Brazil had a long time relying on aggressive growth which fueled import consumption and to a large extent worsened Brazil's balance-of-payments, while government debt ballooned.
RED TAPE AND POOR INFRASTRUCTURE
Brazil's infrastructure is in terrible shape and the country isn't saving and investing enough. Red tape and poor infrastructure made it difficult for Brazilians to start companies.
LOW-QUALITY TRANSPORTATION SYSTEM
In 2011, Brazil still...
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