Brazil – The Lion Awakes
A mere five years ago Maria Sousa took out a small loan to buy a couple of
sewing machines. Today she has a staff of 25 and produces over 50,000 pairs of underwear every month.
Maria is not the smarty-pants you might think however as this is common among the growing
entrepreneurial Brazilians that are bringing wealth to cities such as Fortaleza. Although Maria gives
the credit to God for her new found wealth God is also blessing many other in Brazil in similar fashion.
Just like a sleeping lion Brazil is rising up as a major financial global entity as its economy expands at
the fastest rate in thirty years. This exponential growth is fuelling the expansion of middle class while,
at the same time producing an upper tier of ‘super rich’ inconceivable only a few years ago. Not only has
the lion arisen but it is now starting to roar. No longer the small voice at trade discussions but confident
negotiators when it comes to bargaining with the US on all material issues including the protection on
farmers. Like China and India time will prove the strength of the Brazilian hand but when it comes to oil,
agriculture, tourism and manufacturing they are looking really strong. Since he came to power in 2002
Luiz Inacio Lula da Silva has demonstrated great dexterity when it comes to financial matters unlike his
left wing contemporaries in Bolivia and Venezuela. His talented balance between recognition of the needs
of both the financial markets and social matters have transformed both rich and poor alike and must go
down in Brazilian history of one of the greatest political high wire performances in the world circus ever.
The gap between rich and poor has narrowed by an impressive 6% in the past 7 years while over the same
period the top 10% earners have enjoyed a generous 7% rise in real terms. Does that sound impressive
well how about the statement made by Marcelo Côrtes Neri, the director of the Center for Social Policies
at the Getulio Vargas Foundation in Rio de Janeiro that the bottom 10% have enjoyed a whopping 58%
increase.
The good news is that although Brazil is spending four times as much on social programs as it neighbouring
countries the growth looks here to stay. As the dark shadow of recession passes over the United States and
some of Europe as a result of the thunderstorm in the housing market, The sun in Brazil is shining bright.
With only 2% mortgage penetration there are little problems over credit. Add to this the high level of
interest and low level of inflation and you have a stable platform from which to escalate this impressive
financial performance. Industrial diversification, incredible potential in the agricultural field, loads of
unexploited natural resources including the latest oil discoveries will only add pride to the lions new found
strength. Some even predict that Brazil will be a global power among the main oil producers in the next
ten years...it’s just not fair.
However the lion does not need to hunt overseas for its kill as it has a 190 million pride in the den to
generate a domestic economy that looks prouder with every year that passes. One problem that may effect
this super growth is the galloping increase in the value of its currency. If this increase to the point where
manufactured goods are hard to sell overseas combined with a domestic demand for overseas products then
the falling exports and rising imports may cause an economic hiccup. Perhaps lower interest rates could
check this but with an economic growth of 5.4% last year the overall economic factors are outstanding.
Here are a few factors that will influence the way investors view Brazil:
• Petrobras: Announce that its Tupi field near Rio de Janeiro could hold up to eight billion barrels of oil. There
are other surrounding fields envisaged with similar volumes available for exploration drilling in future.
• An expected 3 million barrels a month by 2010.
• Investment of $40 billion by 2012
• High prices for minerals continue to help Brazil which is rich in these and other commodities.
• Last year saw a 19% increase in Brazilians who have more than $1 million in liquid funds.
• Fernando Henrique Cardoso has introduced social reforms which by its structure has encouraged growth
and financial stability
• Micro loans from banks also encourage business enterprise and Maria Sousa is a prime example of how
effective that has been in a booming economy.
• Program to outreach to 45 million poor with a budget of $5.6 billion
• Poverty line has dropped by 32% 2004-2006
• $15 billion in Northeast Brazil for social programs 2003-2006
• An interesting fact pointing towards the areas of future growth is in energy usage. Last year the northeast
used more energy than the south for the first time.
• 100 million credit cards issued, a 17 percent jump over last year.
Derek Keith