Monthly Archives: December 2013

Fourteen predictions for Brazil in 2014

The clue is in the title (no, this is not BuzzFeed). If I am right on most of this, I will use my bragging rights until you’re sick of me. If not, well, I can always say Brazil is difficult to predict. Most of this is somehow in previous posts.

14 – Brazil will stall a free trade agreement between Mercosur and the European Union. It is election year here and in 2015 it will be Argentina’s turn. Venezuela isn’t very thrilled with the idea. Uruguay and Paraguay matter too little in trade terms to do anything on their own. So no need to rush, Brazilians will argue. Unless President Dilma Rousseff sees better terms, she will keep the conversation rolling and that will be it.

13 – Economic growth will be unimpressive, but jobs and income will still be fine. Brazilians don’t care too much about growth not being as fast as China’s. But they do care about creation of jobs and income. No signs of problems in these two. They are also pivotal to presidential elections, just like inflation, and little change can be expected in these areas next year.

12 – A lot of anger will come out at the 50th anniversary of the coup d’Etat. In Brazil people don’t usually say they are right-wingers — they would be too linked to the military dictatorship. Those who do that in 2014 will be very vocal. Leftists will counter with the same animosity. Brazilian social media will probably be very difficult on March 31st. That animosity can spill onto traditional politicians as well.

11 – Many tears because it will be 20 years since Formula One driver Ayrton Senna died. When he was Brazil’s top sportsman, the country was much poorer and challenging. Having one of our own winning at a hi-tech sport wasn’t exactly new, but his Brazilian pride is remembered to this day.

10 – Brazilian club football will be in a gigantic crisis. After a sports court decision changed the relegation results for the 2013 national championship, supporters will take that case to civil courts and clubs will have to invent another tournament to play. That will leave massive scars on Brazilian club football. Add that uncertainty to our currency losing value. The result is more players leaving for Europe or Asia.

9 – Brazil will go to the World Cup semifinals. But I really don’t know what to expect after that.

8 – The World Cup will be a success, which will shock Brazilians and foreigners. I’ve covered big sporting events before. There is always bitterness before they start. But journalists and politicians are the only ones who really worry that early. Most people just go, enjoy and come back. It won’t be as great as Germany 2006, but it will be better than South Africa 2010.

7 – There will be protests, but nothing like June 2013. The elements that made it all explode just won’t be there. And most people will be more interested in having fun, netting profits and getting international friends and lovers. Protesters will be largely politically disengaged people, like the black blocs, and organized groups that hate politically disengaged people, such as unions. If police or politicians give them a sparkle, however, demonstrations can be massive again.

6 – Once the World Cup is finished, Brazilians will be mad at the wasted opportunities. The biggest problem with our World Cup isn’t the money spent: it is the value Brazilians got for it. We spent more than Germany, but Germany didn’t have to build anything. We spent more than South Africa, but South Africa improved very little before the kick off. Brazil is closer to South Africa than Germany, but getting much less for the amounts spent. Few airports have been renovated, roads are still insufficient and services look just as poor as they were years ago. It could be a heads up or a defining failure.

5 – Rating agencies won’t downgrade Brazil. For now. The auctions to sell roads and the end of the creative accounting in Brazilian finance will make rating agencies give up for some time and keep Brazil on a watch list. If they downgrade Brazil and make billions of dollars leave the country in an election year, they will be seen as enemies as long as the ruling officials are in office — let’s not forget rating agencies are not that special since 2008.

4 – Most incumbents will win elections, except in Congress. No politician benefited from the protests. After order was reestablished, many of those who have a pen were seen as people who actually hear. By coopting the movement’s sympathizers (not the protesters themselves), governors and President Dilma Rousseff paved their way to reelection. After all, most people weren’t on the streets in June: they were at home watching. They will go to the polls and decide to carry on in October.

3 – Presidential hopefuls Aecio Neves and Eduardo Campos will play the 2018 game. Reelections are much easier than elections. The opposition knows it. That is why center-right Neves and center-left Campos will play chess in the Brazilian presidential elections. I believe Campos will force a second ballot, but Neves will go to the runoff with Rousseff — and lose. Campos will go for Rousseff because it is better to have her in office for four years than take a bet with Neves, who could stay for eight. Neves promises to change rules to he gets only one five-year-term, but that is hard to believe.

2 – Brazil will be more international. For the good and the bad. We have been self-absorbed for very long. 2014 is the year in which Brazil will look in the mirror more often. There will be crime, bad governance and bureaucracy which will give us fair criticism all over the world. We will also be victims of stereotypes and nasty headlines. But that too will be great for our maturity as a nation. In the end, visitors will have a more accurate sense of our complexity. We respect ourselves more.

1 – Everyone will be eager to see the Olympics in 2016. We know how to throw a party. And that is what the World Cup will be. The Olympics, though, are an even bigger event: more countries are interested and women also take a major role. At the end of 2014, Brazilians will see they can host a massive sporting event and they will also know what they have to improve. Rio-2016 will be the nation’s beacon for quite a long time. We will see whether we adapt and enjoy that opportunity or not.

As for now, Happy New Year to you all!

After 3 years of sluggish growth, Brazil needs to change its economy

By Fabio Gehrke *

Back in November 2009, Brazil was recovering rapidly from the financial crisis. In 2010, the country was already growing fast. Commodity prices were reacting to the Chinese speeding up, capital was flowing back and internal demand was the needed fuel to the economy. It looked like a dream come true. But now, after three years of sluggish growth, we can be sure something went wrong. And it needs urgent fixing.

In 2011 Brazil’s economic growth was below 3 percent, much less than other developing nations. In 2012, it barely reached one percent. This year it is likely to be at about 2,3%. Forecasts for next year: 2% growth.

Many are tempted by the idea that demand, both internal and external, are to blame for the Brazilian economy’s cooling. That is not the case. Data on imports of Brazil’s main economic partners show that external demand presented no significant decrease since 2011. And the steady growth of the national average wage, combined with a full-employment scenario, still demonstrate the strength of domestic demand.

So what is it?

The receding market share and the rise of foreign imported products show that the Brazilian economy lost competitiveness. The rise in commodity prices and the return of foreign investment made wages and domestic consumption more expensive. Real wages have risen above productivity gains and that increased the costs of production of the domestic industry. That makes the Brazilian economy depend more on the service sectors, which are naturally protected from foreign competition — real estate, for example.

The economic growth praised by The Economist in 2009 was based on the expansion of the national labor market, but that source dried out. Now, economic growth will have to go through productivity gains and/or capital increases. Brazil will have to overcome historical bottlenecks such as lack of infrastructure, poor labor quality, high tax burden and complexity, bureaucratic delays to thrive again.

To ensure sustained growth, Brazil will have to plan on the long term. Despite significant advances in macroeconomic stabilization (reductions in real interest rates and public debt), the “Brazil cost” will have to go so productivity and competitiveness gain track.

The modernization of roads, diffusion of railways, expansion of ports and airports are essential to bring Brazilian products to international markets less costly. It is necessary to attract private capital into long term financial markets. To simplify and unify indirect taxes is essential, since it would reduce costs with tax lawyers and accountants. Highly skilled workers are also essential to increase the productivity of domestic industry.

It is true the last four years have not been lost. Government investments were critical to reduce the housing deficit and expand the fight against poverty. The government’s infrastructural initiatives can still make an impact. But Brazil needs more. President Dilma Rousseff (or her successor) will have to bring more private capital.

* Fabio Gehrke is an external consultant at OECD (Organization for Economic Cooperation and Development).