In 2001 head of worldwide economic research at Goldman Sachs, Jim O'Neill, created the acronym BRICs. It referred to Brazil; Russia, India, and China, countries which were new markets that he thought would lead the way for economic growth over the following 50 years. Since that time BRIC's has developed a extremely common acronym among journalists, lecturers and economic experts when talking about emerging market economies (EMEs). Alot of investors like the BRICS as the growth opportunity is high and great for fund managers looking for diversyfying their portfolios for investment vehices such as QROPS and SIPPS.
Brazil, the 1st letter of Brick is still not yet an absolutely developed country there is however not one thing that is an explanation why, the common problems Brazil face are policy disasters, unreasonable inequality and external factors.
The Brazilian government's biggest policy fail is overspending which contributes to high rates and costly borrowing coupled with Foreign Exchange appreciation that raises the cost of products produced domestically hurting exports. Brazil's dependency on commodity exports, principally oil and food, to drive growth is also a major policy fail as it creates inflationary pressure and currency appreciation. This appreciated currency has a knock on effect on other sectors of the economy mainly the producing sector pushing their costs too high and making them uncompetitive in the world market. This in turn creates more dependency on commodity exports and makes the country vulnerable to external market shocks.
Corruption is abundant in Brazil with Transparency International ranking them as the 69th least corrupt nation out of 178 measured in 2012. The roots of the corruption is a complex subject but in short it starts with a political system which allows more than 20 political parties. All parties are in a unceasing fight to procure finances from the govt. for roles, payrolls, welfare benefits and contracts which would help to steer the voting electorate during elections. Their system almost promotes corruption as this is often the easiest way to secure funds for your constituents when you have no voting power. Public officers must be stopped from directing money away from the rightful individuals or projects, something which may doubtless get even more troublesome with huge oil wealth looming.
It is more dangerous and more expensive for foreign backers to conduct business in Brazil due to its regulatory and legal framework. The taxation policy in Brazil hopelessly needs reform. Regarding ease of paying tax they were placed 152nd in the world by the World Bank due to their complicated tax code and 128th in the world for ease of launching a new business. The test World Bank used took 2600 man hours to align to Brazilian tax law, a huge cost for any company needing to conduct business in the nation. Rigorous labour laws which make it almost impossible to sack a worker also adds to the price of engaging in business here, even company bankruptcy or worker slackness aren't seen as an acceptable reason to terminate an employee.
The Brazilian judicial system permits an inordinate number of appeals on all cases, which will allow the executive to block the payment on any judgement indefinitely. It is thought that 90% of the cases being dealt with by the supreme court are cases which have just been decided but are being appealed, sometimes many thousands of times.
One of the most generally known issues holding Brazil back is inequality. Poverty is extensive in Brazil and it is believed that economic expansion is reduced by 1% with every 10% increase in poverty. This isn't new with the inequality often blamed on unfair land distribution and an awful education system. Dating back to colonial times the government saw hardly any need for education in areas populated by slaves and a light population of Continentals. When slavery ended in 1889 there was no education in those areas and this has not changed much since that point as the richer, whiter Brazilians have controlled politics and chose to invest more in the South of the country sometimes ignoring the native populations of the north, something which is also mirrored in towns across the nation.
There are outside factors which also affect Brazil's abilities to progress in world markets. Assistance by other governments, generally the US and Chinese permit their farmers to compete with better Brazilian farmers by lowering production costs and so reducing demand for produce from Brazil. China is Brazil's largest trading partner and its largest competitor. Serious demand by China for Iron ore and Soy beans has pushed prices high worldwide. If this demand should ever fall Brazil would get left having to sell at less than profitable prices. Additionally the Chinese central authorities practice of limiting its currency from appreciating keeps its value, artificially low. This makes Chinese goods less expensive to buy than Brazilian made products. Brazil looses clients due to this both at home and overseas. By placing an import duty on Chinese goods the Brazilian govt. has tried to ease the Problems on the domestic market but they cannot affect the competitors on the worldwide market.
Brazil still has a lot of work to do by reducing the restrictors it faces, fighting impoverishment with social spending and widening its economy before they become a fully developed economy though they warrant their place in the BRIC EME states.
Brazil, the 1st letter of Brick is still not yet an absolutely developed country there is however not one thing that is an explanation why, the common problems Brazil face are policy disasters, unreasonable inequality and external factors.
The Brazilian government's biggest policy fail is overspending which contributes to high rates and costly borrowing coupled with Foreign Exchange appreciation that raises the cost of products produced domestically hurting exports. Brazil's dependency on commodity exports, principally oil and food, to drive growth is also a major policy fail as it creates inflationary pressure and currency appreciation. This appreciated currency has a knock on effect on other sectors of the economy mainly the producing sector pushing their costs too high and making them uncompetitive in the world market. This in turn creates more dependency on commodity exports and makes the country vulnerable to external market shocks.
Corruption is abundant in Brazil with Transparency International ranking them as the 69th least corrupt nation out of 178 measured in 2012. The roots of the corruption is a complex subject but in short it starts with a political system which allows more than 20 political parties. All parties are in a unceasing fight to procure finances from the govt. for roles, payrolls, welfare benefits and contracts which would help to steer the voting electorate during elections. Their system almost promotes corruption as this is often the easiest way to secure funds for your constituents when you have no voting power. Public officers must be stopped from directing money away from the rightful individuals or projects, something which may doubtless get even more troublesome with huge oil wealth looming.
It is more dangerous and more expensive for foreign backers to conduct business in Brazil due to its regulatory and legal framework. The taxation policy in Brazil hopelessly needs reform. Regarding ease of paying tax they were placed 152nd in the world by the World Bank due to their complicated tax code and 128th in the world for ease of launching a new business. The test World Bank used took 2600 man hours to align to Brazilian tax law, a huge cost for any company needing to conduct business in the nation. Rigorous labour laws which make it almost impossible to sack a worker also adds to the price of engaging in business here, even company bankruptcy or worker slackness aren't seen as an acceptable reason to terminate an employee.
The Brazilian judicial system permits an inordinate number of appeals on all cases, which will allow the executive to block the payment on any judgement indefinitely. It is thought that 90% of the cases being dealt with by the supreme court are cases which have just been decided but are being appealed, sometimes many thousands of times.
One of the most generally known issues holding Brazil back is inequality. Poverty is extensive in Brazil and it is believed that economic expansion is reduced by 1% with every 10% increase in poverty. This isn't new with the inequality often blamed on unfair land distribution and an awful education system. Dating back to colonial times the government saw hardly any need for education in areas populated by slaves and a light population of Continentals. When slavery ended in 1889 there was no education in those areas and this has not changed much since that point as the richer, whiter Brazilians have controlled politics and chose to invest more in the South of the country sometimes ignoring the native populations of the north, something which is also mirrored in towns across the nation.
There are outside factors which also affect Brazil's abilities to progress in world markets. Assistance by other governments, generally the US and Chinese permit their farmers to compete with better Brazilian farmers by lowering production costs and so reducing demand for produce from Brazil. China is Brazil's largest trading partner and its largest competitor. Serious demand by China for Iron ore and Soy beans has pushed prices high worldwide. If this demand should ever fall Brazil would get left having to sell at less than profitable prices. Additionally the Chinese central authorities practice of limiting its currency from appreciating keeps its value, artificially low. This makes Chinese goods less expensive to buy than Brazilian made products. Brazil looses clients due to this both at home and overseas. By placing an import duty on Chinese goods the Brazilian govt. has tried to ease the Problems on the domestic market but they cannot affect the competitors on the worldwide market.
Brazil still has a lot of work to do by reducing the restrictors it faces, fighting impoverishment with social spending and widening its economy before they become a fully developed economy though they warrant their place in the BRIC EME states.
About the Author:
Possiblyt you are a fund manager or simply interested in the finacial markets, Joe W Davis offers his opinion of the equity markets and economic news from a technical and fundamental view. Other posts that may be of interest - discussing pensions, investing, financial planning and QROPS advice.
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