Strategic analysis of Brazil

Table of Contents:

1. Introduction

2. Macroeconomic Tendencies in Latin America and in Brazil

3. Economic Structure in Brazil

4. Poverty Issue (economic and social aspect) and measuring methodologies
4.1 Economic Poverty Indicators (narrow, direct measures) Case of Brazil
4.2. Socio-Political Poverty Indicators (broad, indirect measures) Case of Brazil

5. Political Situation and Conclusions

Bibliography

List of Tables and Figures

FIGURE 1:

Galbraith J.K. Garcilazo E. (2004). World Bank Inequality D&S Gini Coefficients, 1950-1997 Measuring Inequality. On theory and technique. University of Texas Inequality Project, San Hose, Costa Rica. http://utip.gov.utexas.edu, http://utip.gov.utexas.edu/tutorials/Panview_1en.ppt

FIGURE 2:

World Bank website. (2005). Gini Index. http://www.worldbank.com

TABLE 1:

Szekely M., et al. (2000). Do we know how much poverty there is? Banco Interamericano de Desarollo (BID). Working Paper No. 437. www.iadb.org/res/publications/pubfiles/pubWP- 437.pdf

TABLE 2:

Szekely M., et al. (2000). Do we know how much poverty there is? Banco Interamericano de Desarollo (BID). Working Paper No. 437. www.iadb.org/res/publications/pubfiles/pubWP- 437.pdf

TABLE 3:

De Janvry A., Sadoulet E. (2000). Growth, Poverty, and Inequality in Latin America: A Casual Analysis, 1970-94. Review of Income and Wealth, Series 46, Number 3, University of California at Berkeley.

TABLE 4:

Justino P., Acharya A. (2003). Inequality in Latin America: Processes and Inputs. Poverty Research Unit at Sussex University. Working Paper No. 22, Brighton, http://www.sussex.ac.uk/Users/PRU

1. Introduction

Brazil is the biggest Latin American Nation with 177 million people. It is the one with most inequalities, but most would agree also with the biggest potential to become a continental leader and maybe a first reformist and innovator in the region. However no country can maintain sustainable development without diminishing economic and social problems. A main issue in most countries in Latin America, also in Brazil is poverty. Antipoverty efforts have increasing priority among socio-political objectives both internally (within governing bodies), as internationally within organizations involved in anti-poverty policies. As a consequence it has to be defined what is poverty, how to measure it?

Income/Consumption Method has the widest use measure economic aspect. The other methods focus on social inequalities like: access to social institutions, social security, differences in social legitimacy and status, inequalities of freedom and social and political participation. It seems targeting poverty issue through reforms, deregulation, FDI may give Brazil a chance for a fast paced growth. The question arises what is the current situation in the country? What other factors influence the lingering “status quo”?

Focus and Layout

A strategic analysis of the country Brazil is intended. Starting from macroeconomic tendencies, key economic factors will be discussed in comparison to the general development of these in the region. Presentation of economic structure is intended. Deriving from the above, discussion about poverty is intended. Here, both economic perspective (income inequality), as socio-political view is to be presented (socio-political inequality i.e. due to social exclusion and impossibility of certain populations to access key social services). Different poverty dimensions will be addressed.

This paper will present a framework of aspects that make the poverty in Brazil a lingering, persevering state. Last but not least the political assessment and future view on development of country will be shown.

2. Macroeconomic Tendencies

Latin America

GDP in Latin American countries amounts to $4.386,85 billion. The economies together grow at a moderate for developing country 2.5% per year. Average income per capita equals $8.340,00, which is not a dramatic number in the world scale, but definitely very low in comparison with developed countries. Latin America is a continent of inequality (GINI coefficient > 0.5). 36 % of the population lives below the poverty line. The foreign debt is relatively not too big and equals $708 billion. Investment in technology is insignificant.

Brazil

GDP in Brazil equals $1.568,00 billion, which is approximately 35% of the GDP in Latin America. The GDP growth is almost as average for the whole continent: 2.4%. GDP - per capita (PPP) equals $8,400. This is also congruent with numbers available for the continent. 50.6% of the GDP is composed of services, 39.4% industry and 10% agriculture. First conclusion here is that the country might be the “melting pot” of Latin America, and pretty well reflects the situation of other nations due to similar key economic factors. However if we look at labor force, that is 90.4 million people, we can observe that 66% are occupied in services, 14% in industry, and 20% in agriculture. This shows the structure and efficiency problems of the last sector, as it involves 20% of the population but comprises as little as 10% of GDP. Unemployment rate in Brazil is 9.9%, and according to official statistics 22% of the population lives below the “poverty line”. This seems is considerably lower than average, though there might be some bias due to several reasons. One of them is Gini index, which is 0.59 in Brazil. This indicates strong differences in the family income in the society. This also makes the official statistics relative or doubtful, as some very high income people can create certain bias. In 2005 Brazil finally had a relatively low inflation of 5.7% and a foreign debt of $211.4 billion which is less than 30% of the whole Latin America, but a quite high public debt of 50.2% of GDP. Only 19.8% of GDP were spent on investment in 2005. Brazil has a positive current account balance of $10.42 billion. Exports ($115.1 billion) are greater than imports ($78.02 billion). However very meaningful is the structure of this trade balance. Exported are rather little processed products like: iron ore, soybeans, coffee. More and more important role play however: footwear, transport equipment and autos. Imported are foremost: machinery, electrical and transport equipment, chemical products and oil. (CIA website, 2006)

3. Economic Structure in Brazil

Latin America

Brazil cannot be analyzed without picturing the economic structure of the whole continent, which is definitely dominated by monopolistic and oligopolistic markets. Very important role in Latin America plays the excessive supply of labor. It is very common that family local companies dominate domestic market. However the key players influencing economic situation of the Latin American panorama are not domestic firms. These are Multinational Companies. An important characteristic of the continent is a very unequal income distribution. 16% of the population in Latin America is poor with only a very little fraction of very rich people. Job market and career development situation are characterized by little or no connection between skills and reward or career advancement. Due to historical and cultural reasons investment in technology is neglected. Still a quite low level of FDI is to be observed. Governments and regimes act as major protectors of domestic firms. Investment in infrastructure is inadequate or insufficient.

[...]