In 2001 head of worldwide economic research at Goldman Sachs, Jim O'Neill, invented the acronym BRICs. It referred to Brazil; Russia, India, and China, nations which were new markets that he thought would point the way for business growth over the next FIFTY years. Since that time BRIC's has turned into a common acronym among correspondents, academics and economists when talking about emerging market economies (EMEs). Many 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 first letter of Brick is still not yet a totally developed country there is however not one thing that's an explanation why, the general problems Brazil face are policy failures, disproportionate inequality and external factors.
The Brazilian government's biggest policy fail is overspending which makes a contribution to high interest rates and expensive borrowing joined with currency appreciation that raises the cost of products produced domestically injuring exports. Brazil's need for 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 follow-on effect on other sectors of the economy generally the producing sector pushing their costs too high and making them uncompetitive in the world market. This in turn creates more dependence on commodity exports and makes the country vulnerable to external market shocks.
Corruption is rife in Brazil with Transparency International placing them as the 69th least corrupt country out of 178 measured in 2012. The root of the corruption is a difficult subject but in short it starts with a political system which allows more than 20 political parties. All parties are in a constant scuffle to secure money from the government for roles, payrolls, welfare benefits and contracts which would help to persuade the voting populace during elections. Their system nearly promotes corruption as this is often the smart way to secure funds for your constituents when you have no voting power. Public officers must be stopped from moving cash away from the legitimate people or projects, something which should doubtless become more difficult with enormous oil riches looming.
It is more chancy and costlier for foreign investors to do business in Brazil due to its regulatory and legal system. The tax system in Brazil hopelessly wants reform. Re straightforwardness of paying tax they were placed 152nd in the world by the World Bank because of their complicated tax code and 128th in the world for ease of starting a 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 carry on business in the country. Firm labour laws which make it virtually impossible to sack a worker also adds to the price of engaging in business here, even company insolvency or employee slackness are not seen as an acceptable reason to fire a worker.
The Brazilian judicial system allows an inordinate number of appeals on all cases, which will allow the executive to obstruct the payment on any judgement indefinitely. It is reckoned that 90% of the cases being dealt with by the supreme court are cases which have already been decided but are being appealed, infrequently thousands of times.
One of the most generally known issues holding Brazil back is inequality. Poorness is wide-reaching in Brazil and it is estimated that economic expansion is reduced by 1% with every 10% increase in poorness. This is nothing new with the inequality generally blamed on unequal land distribution and an awful education system. All the way 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 finished in 1889 there wasn't any education in those areas and this hasn't really changed much since that time as the wealthier, whiter Brazilians have dominated politics and chose to invest more in the South of the country sometimes ignoring the native populations of the north, something which is also reflected in cities across the country.
There are outside factors which also have an effect on Brazil's capabilities to progress in world markets. Aid by other central authorities, primarily the US and Chinese allow their farmers to challenge more effective Brazilian farmers by lowering production costs and so reducing requirement for produce from Brazil. China is Brazil's biggest trading partner and its biggest rival. Serious demand by China for Iron ore and Soy beans has pushed costs high around the world. If this demand should ever fall Brazil would be left having to sell at less than profitable prices. In addition the Chinese governments practice of limiting its currency from gaining keeps its worth, artificially low. This makes Chinese goods cheaper to purchase than Brazilian made goods. Brazil looses clients due to this both domestically and away. By placing an import duty on Chinese products the Brazilian govt. has tried to ease the issues on the domestic market but they can't affect the competitors on the worldwide market.
Brazil still has a lot of work to do by lowering the inhibitors it faces, fighting poverty with social spending and diversifying its economy before they become an absolutely developed economy though they do deserve their place in the BRIC EME nations.
Brazil, the first letter of Brick is still not yet a totally developed country there is however not one thing that's an explanation why, the general problems Brazil face are policy failures, disproportionate inequality and external factors.
The Brazilian government's biggest policy fail is overspending which makes a contribution to high interest rates and expensive borrowing joined with currency appreciation that raises the cost of products produced domestically injuring exports. Brazil's need for 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 follow-on effect on other sectors of the economy generally the producing sector pushing their costs too high and making them uncompetitive in the world market. This in turn creates more dependence on commodity exports and makes the country vulnerable to external market shocks.
Corruption is rife in Brazil with Transparency International placing them as the 69th least corrupt country out of 178 measured in 2012. The root of the corruption is a difficult subject but in short it starts with a political system which allows more than 20 political parties. All parties are in a constant scuffle to secure money from the government for roles, payrolls, welfare benefits and contracts which would help to persuade the voting populace during elections. Their system nearly promotes corruption as this is often the smart way to secure funds for your constituents when you have no voting power. Public officers must be stopped from moving cash away from the legitimate people or projects, something which should doubtless become more difficult with enormous oil riches looming.
It is more chancy and costlier for foreign investors to do business in Brazil due to its regulatory and legal system. The tax system in Brazil hopelessly wants reform. Re straightforwardness of paying tax they were placed 152nd in the world by the World Bank because of their complicated tax code and 128th in the world for ease of starting a 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 carry on business in the country. Firm labour laws which make it virtually impossible to sack a worker also adds to the price of engaging in business here, even company insolvency or employee slackness are not seen as an acceptable reason to fire a worker.
The Brazilian judicial system allows an inordinate number of appeals on all cases, which will allow the executive to obstruct the payment on any judgement indefinitely. It is reckoned that 90% of the cases being dealt with by the supreme court are cases which have already been decided but are being appealed, infrequently thousands of times.
One of the most generally known issues holding Brazil back is inequality. Poorness is wide-reaching in Brazil and it is estimated that economic expansion is reduced by 1% with every 10% increase in poorness. This is nothing new with the inequality generally blamed on unequal land distribution and an awful education system. All the way 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 finished in 1889 there wasn't any education in those areas and this hasn't really changed much since that time as the wealthier, whiter Brazilians have dominated politics and chose to invest more in the South of the country sometimes ignoring the native populations of the north, something which is also reflected in cities across the country.
There are outside factors which also have an effect on Brazil's capabilities to progress in world markets. Aid by other central authorities, primarily the US and Chinese allow their farmers to challenge more effective Brazilian farmers by lowering production costs and so reducing requirement for produce from Brazil. China is Brazil's biggest trading partner and its biggest rival. Serious demand by China for Iron ore and Soy beans has pushed costs high around the world. If this demand should ever fall Brazil would be left having to sell at less than profitable prices. In addition the Chinese governments practice of limiting its currency from gaining keeps its worth, artificially low. This makes Chinese goods cheaper to purchase than Brazilian made goods. Brazil looses clients due to this both domestically and away. By placing an import duty on Chinese products the Brazilian govt. has tried to ease the issues on the domestic market but they can't affect the competitors on the worldwide market.
Brazil still has a lot of work to do by lowering the inhibitors it faces, fighting poverty with social spending and diversifying its economy before they become an absolutely developed economy though they do deserve their place in the BRIC EME nations.
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 much, much more.
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