Export Focus: Brazil

Brazilian Economy

Introduction

Our main assumptions for the Brazilian economy are optimistic, even considering the global uncertainties for the coming years. This is the result of the solid macro and institutional framework built in the last couple of decades and also of some key structural differences at this point (e.g. solid financial and housing markets and low external capital dependence).

Macro framework

There were relevant advances in the macroeconomic framework in the last couple of decades. In particular, by the end of the 90s, the country adopted an economic policy combining fiscal austerity, floating currency regime and a credible inflation target system, including a Central Bank with operational autonomy. In parallel, the government used the benign pre crisis years to dramatically reduce external vulnerabilities (i.e. the government has both increased international reserves and reduced external debt).

As a result, Brazil currently carries the Investment Grade status from the three main credit agencies, while interest rates are at lower levels and are expected to continue on a long term convergence path towards international standards. However, the current level is still high, both in absolute and relative terms.

Part of this improvement is showed in the table below:

Economy performance

We expect the maintenance of a solid economic growth in the next few years. First, Brazil is one of the key commodities suppliers, which is a positive advantage given the global need for these goods. Second, the country has one of the most attractive domestic consumer markets in the emerging world, given its large population and the economic and social progress already seen and expected for the coming decade, combining healthy GDP per capita growth and improving income distribution. Third, there is an impressive infrastructure need for the following years, not to mention those related to the Pre-Salt Oil Camps exploration and the hosting of the World Cup (2014) and the Olympic Games (2016).

Accordingly, our scenario incorporates a GDP growth around 4.5% in the foreseeable future, with unemployment rate gradually declining.

Demographics and Consumption

With 27 states, 184 million people and the fifth biggest territory in the world, it's undeniable that Brazil is a big country. Brazil's diverse population, meanwhile, reflects a history of immigration, colonization and slavery, as well as the indigenous culture.
Using data from a giant series collected by IBGE, based on monthly interviews with 150,000 people in the six main metropolitan regions, the Fundação Getulio Vargas, a business school, calculates that the share of people in social class C increased from 42% of the population in 2004 to 52% in 2008.

In Brazil that makes them middle-class, even though in richer places these income levels would not buy that description. They mostly have jobs in the formal economy, which also brings access to credit.

Remarkably, their numbers remained steady through the financial crisis. Perhaps more impressively, Brazil's recent progress seems to have been evenly shared. In a country famous for its skewed income this is a big achievement. Because of that, Brazil has one of the most attractive consumption market in a context of economic and social development better income distribution.

In contrast to G7, Brazilian aging population is not a threat, given a favorable demographic pattern.

Brazilian Policy

In 2001, economists at Goldman Sachs bracketed Brazil with Russia, India and China as the economies that would come to dominate the world. As a matter of fact, revealing the future of Brazil, we see an exciting, vibrant country with a growing middle class and immense natural resources. This situation was provided for a period of relevant reforms. The past two decades were very important for that, and the scenario consider political and economic elements.

The most important steps:

Since 1990:
Opening of the economy and privatizations.

1993-1994:
Mr Cardoso (centre right) becomes Finance Minister.
The "Real" plan (new currency and disindexation of the economy) is launched

1994-2002:
Mr Cardoso becomes president.
Financial system / Partial social security reform
New economical policy framework: floating exchange rate, inflation targeting, fiscal austerity
Fiscal Responsibility Law

2003-2009:
Mr Lula da Silva (left) becomes president
Maintenance of the economic policy framework reduces the political risk
Public sector social security reform Micro reforms: civil construction, credit market
Partial Judiciary Reform

2010:
Dilma Roussef (left) becomes president

The Central Bank – Banco Central do Brasil

The Banco Central do Brasil, created by Law no. 4,595 of December 31st, 1964, is an autonomous federal institution and part of the National Financial System.

The strategic planning of the Banco Central do Brasil aims to establish a focus to the institution's actions. It takes into account identified challenges and changes in the Bank's external and internal environment, as well as the guidelines issued by its senior management. The strategic planning is periodically reviewed and it starts by defining the strategic guidelines, which demands a collective effort of reflection from the institution's executives.

The strategic guidelines approved by the Board of the Banco Central do Brasil include the Bank's institutional mission, vision of the future, organizational values and strategic objectives. The strategic guidelines direct the conduction of the institution's macro processes, the definition of the projects that will ensure the feasibility of the intended strategy, the prioritization of the use of available resources. In addition, they promote improvements in management practices and incite the necessary changes in organizational culture.

The BM&FBovespa – an important Global Player

The BM&FBovespa is the largest stock and derivatives exchanges in Latin America and the 3rd largest listed exchange in the world.

Vibrant Capital Market:

1st largest public offering in the world - Petrobras(Sep/10)
1st largest capital raising market in the world (Oct/10)*
1st largest equities options market in the world (Oct/10)*
6th largest derivatives exchange in the world (Jan-Jun/10)**

Relevant Trading Depth:

1st most exchange traded options contract on individual equity in the world (2009)*
3rd most exchange traded currency futures contract in the world (Jan-Jun/10)**
3rd most exchange traded interest rate futures contract in the world (Jan-Jun/10)**

Source: * WFE and IOMA; ** FIA

Do you Know?

Brazil's most famous cocktail is the caipirinha. What is the key ingredient?

The key ingredient in a caipirinha is cachaça, a liquor made from fermented sugarcane. Cachaça comes in two varieties: white and gold. White cachaça is unaged and is usually cheaper; this is what is usually used to make caipirinhas (along with crushed ice, muddled limes and sugar). Gold cachaça is aged – often up to three years and sometimes up to 15 – in wooden barrels. This premium variety is meant to be drunk straight, like a fine tequila or scotch.
Brazil has a rich musical history. You might be familiar with samba and bossa nova, but do you know which type of music originating in the late 1960s was influenced by avant-garde poetry?

Tropicália (also known as Tropicalismo) was an art movement that is mostly known for the music it generated, although it also included theatre, visual arts and poetry. Influenced by the work of Brazilian avant-garde poets, the music is a blend of Brazilian, African and rock and roll rhythms. The music also had a political message, for which the musicians Caetano Veloso and Gilberto Gil were imprisoned by Brazil's military government (they were later exiled to London before returning to Brazil years later). Gil performed in London earlier this year as part of the Southbank Centre's Festival Brazil, sponsored by HSBC.

Two of Brazil's signature dishes are stews: one is meat-based and the other is fish-based. One is feijoada. What is the other one?

Feijoada, traditionally served on a Saturday, has many variations but is basically is a stew made of beans, pork and beef. Brought to Brazil by the Portuguese, it is also popular in other former Portuguese colonies, such as Angola. The other stew, moqueca, has been around for 300 years. The basic ingredients include fish, onions, garlic, tomatoes and cilantro – though again there are regional variations that reflect Brazil's cultural diversity. The Bahian version is influenced by African cuisine, while the one from Espírito Santo is influenced by indigenous Brazilian cuisine. One of the key ingredients of moqueca is dende oil, which is extracted from the pulp of a fruit from a type of palm tree grown in Africa and Brazil.

Brazil's contributions to the world also extend to the realm of art and design. Do you know which famous architect (now 102 years old) was instrumental in the design of the capital city of Brasília?

Fashion, film, fine art and literature….Brazil's influence is not just economic, but also cultural. In the world of design, the Campana Brothers' vibrant furniture is inspired by Brazilian street culture, while Sergio Rodrigues uses traditional materials such as leather, eucalyptus and wood from the Jacaranda tree for his iconic furniture. The capital city of Brasília, meanwhile, is one of the world's most intriguing examples of urban planning. A purpose-built city, Brasília was planned and developed in 1956 and – when seen from a bird's eye view – appears in the shape of an airplane or a butterfly. The government had moved the capital from Rio de Janeiro in order to populate the mid-western area of the country. Oscar Niemeyer, who also designed the United Nations' world headquarters in New York, was the principal architect on the project. Niemeyer, now 102 years old, lives in Rio de Janeiro and still takes commissions.