Back in 2001 head of worldwide economic research at Goldman Sachs, Jim O'Neill, came up with the acronym BRICs. It referred to Brazil; Russia, India, and China, countries which were new markets that he thought would point the way for fiscal growth over the next FIFTY years. Since that point BRIC's has turned into a very common acronym amongst news reporters lecturers and economists when describing 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 issues Brazil face are policy screw ups, excessive inequality and external factors.
The Brazilian government's largest policy fail is overspending which makes a contribution to high interest rates and costly borrowing joined with Foreign Exchange appreciation that raises the price of products produced domestically injuring exports. Brazil's need for commodity exports, mainly oil and food, to drive expansion is also a major policy fail as it creates inflationary pressure and currency appreciation. This appreciated currency has a tertiary effect on other sectors of the economy mainly the manufacturing sector pushing their prices too high and making them uncompetitive in the world market. This in turn creates more dependence on commodity exports and makes the country exposed to external market shocks.
Corruption is common in Brazil with Transparency International placing them as the 69th least corrupt nation out of 178 measured in 2012. The base of the corruption is a complicated subject but in short it begins with a political system which permits more than 20 political parties. All parties are in a constant scuffle to procure finances from the government for jobs, payrolls, welfare benefits and contracts which would help to steer the voting public during elections. Their system just about promotes corruption as this is typically the smart way to secure funds for your constituents when you have no voting power. Public officials must be stopped from moving cash away from the legitimate people or projects, something which will doubtless get even more difficult with enormous oil riches approaching.
It is more chancy and costlier for foreign backers to do business in Brazil due to its regulatory and legal framework. The tax system in Brazil hopelessly needs reform. In terms of ease of paying tax they were graded 152nd in the world by the World Bank due to their complicated tax code and 128th in the world for ease of beginning a brand new business. The test World Bank used took 2600 man hours to align to Brazilian tax law, a great cost for any company desiring to conduct business in the nation. Firm labour laws which make it virtually impossible to terminate a worker also adds to the cost of engaging in business here, even company bankruptcy or employee laziness are not seen as an adequate reason to sack a worker.
The Brazilian legal system allows an inordinate number of appeals on all cases, which will allow the government to obstruct the payment on any judgement indefinitely. It is estimated that 90% of the cases being handled by the high court are cases which have just been decided but are being appealed, sometimes thousands of times.
One of the most generally known issues holding Brazil back is inequality. Poorness is wide-reaching in Brazil and it's thought that business growth is reduced by 1% with each 10% increase in poverty. This isn't new with the inequality usually blamed on unfair land distribution and an awful education system. Going back to colonial times the government saw barely any need for education in areas populated by slaves and a light population of Continentals. When slavery ended in 1889 there wasn't any education in those areas and this hasn't really changed much since then as the richer, whiter Brazilians have dominated politics and chose to invest more in the South of the nation typically ignoring the native populations of the north, something which is also reflected in cities across the nation.
There are outside factors which also affect Brazil's abilities to progress in world markets. Aid by other central authorities, principally the US and Chinese permit their farmers to compete with more efficient Brazilian farmers by lowering production costs and so reducing demand for produce from Brazil. China is Brazil's largest trading partner and its biggest competitor. Heavy demand by China for Iron ore and Soy beans has pushed costs high globally. If this demand should ever fall Brazil would be left having to sell at less than profit-making prices. Additionally the Chinese governments practice of limiting its currency from appreciating keeps its worth, artificially low. This makes Chinese products less expensive to purchase than Brazilian manufactured products. Brazil looses customers due to this both domestically and abroad. By placing an import duty on Chinese goods the Brazilian government has attempted to ease the Problems on the local market but they cannot affect the rivals on the worldwide market.
Brazil still has lots of work to do by reducing the inhibitors it faces, fighting poverty with social spending and diversifying its economy before they become a totally developed economy although they do deserve 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 issues Brazil face are policy screw ups, excessive inequality and external factors.
The Brazilian government's largest policy fail is overspending which makes a contribution to high interest rates and costly borrowing joined with Foreign Exchange appreciation that raises the price of products produced domestically injuring exports. Brazil's need for commodity exports, mainly oil and food, to drive expansion is also a major policy fail as it creates inflationary pressure and currency appreciation. This appreciated currency has a tertiary effect on other sectors of the economy mainly the manufacturing sector pushing their prices too high and making them uncompetitive in the world market. This in turn creates more dependence on commodity exports and makes the country exposed to external market shocks.
Corruption is common in Brazil with Transparency International placing them as the 69th least corrupt nation out of 178 measured in 2012. The base of the corruption is a complicated subject but in short it begins with a political system which permits more than 20 political parties. All parties are in a constant scuffle to procure finances from the government for jobs, payrolls, welfare benefits and contracts which would help to steer the voting public during elections. Their system just about promotes corruption as this is typically the smart way to secure funds for your constituents when you have no voting power. Public officials must be stopped from moving cash away from the legitimate people or projects, something which will doubtless get even more difficult with enormous oil riches approaching.
It is more chancy and costlier for foreign backers to do business in Brazil due to its regulatory and legal framework. The tax system in Brazil hopelessly needs reform. In terms of ease of paying tax they were graded 152nd in the world by the World Bank due to their complicated tax code and 128th in the world for ease of beginning a brand new business. The test World Bank used took 2600 man hours to align to Brazilian tax law, a great cost for any company desiring to conduct business in the nation. Firm labour laws which make it virtually impossible to terminate a worker also adds to the cost of engaging in business here, even company bankruptcy or employee laziness are not seen as an adequate reason to sack a worker.
The Brazilian legal system allows an inordinate number of appeals on all cases, which will allow the government to obstruct the payment on any judgement indefinitely. It is estimated that 90% of the cases being handled by the high court are cases which have just been decided but are being appealed, sometimes thousands of times.
One of the most generally known issues holding Brazil back is inequality. Poorness is wide-reaching in Brazil and it's thought that business growth is reduced by 1% with each 10% increase in poverty. This isn't new with the inequality usually blamed on unfair land distribution and an awful education system. Going back to colonial times the government saw barely any need for education in areas populated by slaves and a light population of Continentals. When slavery ended in 1889 there wasn't any education in those areas and this hasn't really changed much since then as the richer, whiter Brazilians have dominated politics and chose to invest more in the South of the nation typically ignoring the native populations of the north, something which is also reflected in cities across the nation.
There are outside factors which also affect Brazil's abilities to progress in world markets. Aid by other central authorities, principally the US and Chinese permit their farmers to compete with more efficient Brazilian farmers by lowering production costs and so reducing demand for produce from Brazil. China is Brazil's largest trading partner and its biggest competitor. Heavy demand by China for Iron ore and Soy beans has pushed costs high globally. If this demand should ever fall Brazil would be left having to sell at less than profit-making prices. Additionally the Chinese governments practice of limiting its currency from appreciating keeps its worth, artificially low. This makes Chinese products less expensive to purchase than Brazilian manufactured products. Brazil looses customers due to this both domestically and abroad. By placing an import duty on Chinese goods the Brazilian government has attempted to ease the Problems on the local market but they cannot affect the rivals on the worldwide market.
Brazil still has lots of work to do by reducing the inhibitors it faces, fighting poverty with social spending and diversifying its economy before they become a totally developed economy although they do deserve their place in the BRIC EME states.
About the Author:
Maybet you are a fund manager or simply interested in the finacial markets, Joe W Davis offers his opinion of the broader markets and economic news from a technical and fundamental view. Other posts that may be of interest - discussing pensions, investing, financial planning and more.
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