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invest ing and doing business in brazi l


InvestIng and doIng BusIness In BrazIl


Brazil is a large and colourful country with an interesting economic past. The past decade has seen great change for this country, with a forward-thinking president keen to address problems and make Brazil a better place to live for its people. Now, as Brazil embarks upon the new decade, with its economy on the up and a new president set to steer the country further through the recovery, the future holds great opportunity for Brazilian investment and export.


The Federative Republic of Brazil is the largest economy in Latin America, and the fifth-largest in the entire world. Spanning an area of 8.55 million square kilometres, it is a geographical giant which covers a significant portion of the South-American continent, and is home to a considerable population of 195.4 million people. Brazil’s history is one of economic boom and bust,


with high inflation levels and foreign debt stinting its development over the years. However, with a growing economy and a new President, the future looks set to be a lot brighter for this huge country in the coming months and years. This decade is set to be one of growth and


opportunity for Brazil, one the world’s biggest democracies. As well as playing host to the FIFA World Cup in 2014 and The Olympic Games in 2016, it was reported at the beginning of March that the country had overtaken Britain and France to become the fifth largest economy in the world, after an economic growth spurt of 7.5 per cent in 2010. According to the financial minister, Guido Mantega, this is the fastest rate of growth experienced by the country since the mid-1980s. This is welcome news for Brazilian investors,


exporters and residents alike, following the brief period of recession experienced by Brazil during the global economic crisis. The recession prompted an increase in the Government’s fiscal spending during 2009 and 2010, a plan which was intended to spur the economy on to recovery, apparently successfully, and has helped to lead the country to its new and improved ranking on the world economy chart. The 2010 growth is accredited to a powerful


combination of consumer credit, investment and the Government stimulus package. However, the economy did appear to be moderating during the final portion of the year due to slower economic growth. Looking to the year ahead, growth is expected to moderate further during 2011 to 4.5-5 per cent as the Government has downsized its planned budget for this year by R$50bn.


Brazil’s economic growth has also sparked a rise in inflation over the last year, with the level at 6.08 per cent in the 12 months to mid-February. In an effort to curb this rising rate of inflation, the Brazilian central bank raised interest rates by 50 basis points at the beginning of March. Brazil’s leap to five in the world economy rankings,


up from around eight previously, is a great start for the country’s new President, Dilma Roussef. The installation of Ms Roussef as leader marks a significant first for Brazil, as she is the first woman to be elected as president. As former chief of staff to the pervious President, Luiz Inacio Lula da Silva (Lula), Ms Roussef came to power in early 2011 claiming a representation of continuity with the Lula government, under which the majority of Brazilians saw their standard of living improve. During the 2010 budget, under Lula’s rule, the Government announced spending cuts in response to the financial crisis. However, a lack of spending restraint in previous years unfortunately resulted in continuous increases in tax burdens, general budget deficits and a deteriorating public debt to GDP ratio over the last two or three years. However, Lula rated highly in the popularity stakes with the Brazilian public. This was no doubt partly due to his pro-active efforts in reducing the impact of the global economic crisis on the country. His administration concentrated on its expansionary ‘growth acceleration’ programme of public investment (Programade Aceleraҫãodo Crescimento, or PAC). Lula was a staunch promoter of policies which strengthened the investment environment, encouraging government participation in the economy and actively promoting public-private partnerships, as opposed to privatisations, in order to attract private capital. During his two four terms as the Brazilian president,


Lula actioned many changes for the country such as a complete change to the pension system and a modest increase in the national minimum wage. Elected in 2002 under a promise to work for the good of the public and to boost growth and to narrow ➔


fi MONTHLY MARCH 2011


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