Brazil in 2031

Brazil 2031

by Stephen E. Murphy, Senior Advisor, Latin America, Pacific NW Advisors, Seattle

in collaboration with Professors Eduardo Marques and Marlos Lima, Fundação Getulio Vargas, Rio de Janeiro.

In 1971, I had my first taste of Brazil as a young AIESEC trainee for BankBoston in São Paulo, with its hard working people, endless skyscrapers and boisterous growth. I decided to stay, eventually getting promoted to Rio, witnessing its fun loving cariocas and the ‘Brazilian Economic Miracle’, financed by international banks, multinationals and government enterprise. Brazil imported 62% of its oil, and so launched an energy independence program, emphasizing sugar-based ethanol, offshore drilling.

I returned in the 1980’s for Paramount Pictures, splitting time between Rio and São Paulo, battling video piratas, government regulations and zooming inflation- reaching over 40%p.a.as merchants changed prices daily. Growth and investment stagnated and Brazilian firms and governments renegotiated international debt during ‘the Lost Decade’ for Brazil and most of Latin America.

Early in the 1990’s, Brazil’s economy received shock treatment from a freeze on depositors’ accounts, cuts in government expenditures, and a constitutional crisis, eventually deposing a president. With the election of Fernando Henrique, however, growth was reborn, inflation tamed and the world took notice: was Brazil finally ‘breaking out’ during this era of ‘Economic Liberalism’?

Enter Lula in 2002, with firebrand rhetoric, international fear, the Real plummeting to R4:$1. Yet Savvy Lula names ex colleague Henrique Meirelles to lead the Central Bank, lowering inflation and increasing confidence. The world takes notice of the first country of ‘BRIC’, pouring in risk capital to finance growth and expanding government debt. Lula launches Bolsa Familia, a new welfare program paying stipends to poor families to keep their children in school. The domestic market takes off, and ‘Class C’ ‘working class’ rises from 35% to 50% of economy. With the rise in commodity prices, the Bovespa boom begins and international capital pours in. The Real appreciates to R1.70:$1! Foreign Exchange reserves rise to $300 billion. Unemployment drops to 5.3%, lowest in the industrial world.

Premises Brasil 2031:

  • World growth of 3%+p.a, with recurrent financial crises but no world war. The world struggles to adjust to a ‘multi-lateral’ world ‘disorder’, without pre-eminent U.S. leadership, and three competitive trading blocs.
  • BRIC growth of 5%p.a., with China leading, Brazil and India jockeying between 4-5%, with Russia growing somewhat less. New emerging markets of Colombia, Indonesia, Turkey and a united Korea lead the world’s growth parade.
  • Regional Trade: Brazil will find common cause with the United States in battling restrictive trade policies on agricultural merchandise. NAFTA and, Mercosur countries will cooperate. World pressure on China to devalue the renminbi will be modestly successful and Brazilian industry will survive, going further up the ‘value chain’ to more sophisticated, tech-heavy products
  • Political continuity: alternating between right-of-center and left-of-center governments; without a Hugo Chavez ‘type’.
  • ‘Transparency’ improves in Brazil, with Transparency International’s rating in 2010 dropping to the mid- 40s by 2031 (In 2010, Denmark was #1 as most transparent, Canada # 7, Chile #21, USA/Belgium #22, and Brazil #69 of 174 countries).
  • Inflation will stay stubbornly high, over 5% p.a. with still higher interest rates in the ‘teens, discouraging corporate debt.
  • Primary educational investment will expand, the degree to which providing the ‘wild card’ to higher, sustainable economic growth, enabling its ‘C’ or working class to expand to maybe 70% of the economy and increased worker productivity.
  • Income distribution will improve if education levels rise: from today’s 20% A-B class, to 70% C class, 10% D/E classes.
  • Consumer leverage will rise from 50% of GDP to 70% in 2031, increasing domestic consumption and attracting more international tourism.
  • Energy: The deep water (and costly) ‘Pre-Salt’ find offshore Rio will be successfully developed, making Brazil (and Canada) the largest exporters in the Americas. Its continued use of efficient sugar-cane ethanol and liquefied natural gas creates this exportable surplus, despite booming domestic demand. Hydroelectric energy maintains its 15% share.
  • Environment: More attention will be paid by its electorate, government officials and agri-business, a la Chile, for more sustainable policies to develop its hinterland and to limit devastation of the Amazon rain forest. Land-intensive ranching will be ‘outsourced’ to Paraguay, Bolivia and Argentina, as Brazil tries to more aggressively protect its rich watersheds, a fifth of world fresh water supply, from further environmental harm.
  • Information Technology: Brazil will rise from 8th I.T. destination to #5, with creative programmers developing the next ‘cloud’ in conjunction with I.T. multinationals, which opt for Brazil over China, as it protects more intellectual property.
  • Infrastructure investment takes off in this decade, with World Cup 2014 and Olympics 2016. Warren Buffet invests in Brazil’s railroads to bring soybeans and iron ore to expanding port facilities, including one on the Pacific.
  • Futebol: Brazil exports more ‘soccer’ coaches abroad than players, and its ‘beautiful game’ becomes world standard. U.S. Major League Soccer, Brazil’s national champions and European Soccer host a biennial worldwide ’round robin’.
  • Cinema: Brazil’s new socio-tropicalista directors like Sales, Padilla or Babenco will win a Hollywood Oscar.
  • Teddy Roosevelt’s descendant is discovered in the ‘River of Doubt’, named after the former president’s odyssey with Brazil’s Captain Rondon exploring this unknown tributary to Rio Sao Francisco, Amazonas, a century ago.
  • And yes there will be Carnaval in 2031: for Brazil’s 220 million people of all hues and ethnic mixtures, with its bossa nova beat, and a seductive tropical sun. Head South, young man and woman, learn Portuguese and enjoy the tropical ride of your life! As President Obama on his recent trip to Brasilia and Rio said: “Brazil is not only the country of the future, but also the country of the present”. So be adventurous and take up with o pais tropical in the decades to come!