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Economy of Brazil

Brazil has a moderate free market and export-oriented economy. Measured nominally, its gross domestic product surpasses a trillion dollars, the tenth in the world and the third in the Americas; measured by purchasing power parity, $1.9 trillion, making it the eighth largest economy in the world and the second largest in the Americas, after the United States.In Reais (brazilian currency), its GDP is estimated at R$2.6 trillion reais in 2007.

Overview

Its nominal per capita GDP has surpassed US$10,500 in 2008, due to the strong and continued appreciation of the real for the first time this decade. Its industrial sector accounts for three fifths of the Latin American economy's industrial production. The country’s scientific and technological development is argued to be attractive to foreign direct investment, which has averaged US$30 billion per year the last years, compared to only US$2 billion/year last decade, thus showing a remarkable growth. The agricultural sector, locally called the agronegócio sector, has also been remarkably dynamic: for two decades this sector has kept Brazil amongst the most highly productive countries in areas related to the rural sector. The agricultural sector and the mining sector also supported trade surpluses which allowed for massive currency gains (rebound) and external debt paydown.

Brazil is a member of diverse economic organizations, such as Mercosur, SACN, G8+5, G-20 and the Cairns Group. Its trade partners number in the hundreds, with 74% of exports mostly of manufactured or semimanufactured goods. Brazil's main trade partners are: the EEC (26% of trade), Mercosur and Latin America (25%), the United States (15.8%), and Asia (15%), Others (19.2%).

The owner of a sophisticated technological sector, Brazil develops projects that range from submarines to aircraft and is involved in space research: the country possesses a satellite launching center and was the only country in the Southern Hemisphere to integrate the team responsible for the construction of the International Space Station (ISS). It is also a pioneer in many fields, including ethanol production.

Brazil is also a pioneer in the fields of deep water oil research from where 73% of its reserves are extracted. According to government statistics, Brazil was the first capitalist country to bring together the ten largest car assembly companies inside its national territory.

History

When the Portuguese explorers arrived in the 15th century, the native tribes of current-day Brazil, totaling about 2.5 million people, had lived virtually unchanged since the Stone Age. From Portugal's colonisation of Brazil (1500-1822) until the late 1930s, the market elements of the Brazilian economy relied on the production of primary products for exports. Within the Portuguese Empire, Brazil was a colony subjected to an imperial mercantile policy, which had two main large-scale economic production cycles - sugar and gold. The economy of Brazil was heavily dependent on African slave labour until the late 19th century (about 3 million imported African slaves in total). Since then, Brazil experienced a period of strong economic and demographic growth accompanied by mass immigration from Europe (mainly from Portugal, Italy, Spain and Germany) until the 1930s. In the Americas, the United States, Argentina and Brazil (in descending order) were the countries that received most immigrants. In Brazil's case, statistics show that 4.5 million people emigrated to the country between 1882 and 1934.

Currently, with a population of 190 million and abundant natural resources, Brazil is one of the ten largest markets in the world, producing tons of steel, 26 million tons of cement, 3.5 million television sets, and 3 million refrigerators. In addition, about 70 million cubic meters of petroleum were being processed annually into fuels, lubricants, propane gas, and a wide range of petrochemicals. Furthermore, Brazil has at least 161,500 kilometers of paved roads and more than 63 million megawatts of installed electric power capacity.

Despite these figures, the economy cannot be considered developed. Although the economic changes since 1947 greatly raised the country's per capita income, in 1995 was still only US$4,630. Growth and structural change have not altered significantly Brazil's extremely unequal distribution of wealth, income, and opportunity. Despite impressive increments in economic growth and output, the number of poor has risen sharply. Most of the poor are concentrated in the rural areas of Brazil's Northeast Region, or in the country's large cities or metropolitan areas. The economic and political troubles of the 1980s and early 1990s have only complicated the task of correcting the country's development pattern.

Components of the economy

The service sector is the largest component of GDP at 66.8%, followed by the industrial sector at 29.7% (2007 est.). Agriculture represents 3.5% of GDP (2008 est.). Brazilian labor force is estimated at 100.77 million of which 10% is occupied in agriculture, 19% in the industry sector and 71% in the service sector.

Agriculture and food production

Agriculture production
Main products Coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus, beef
Agriculture growth rate 7.2% (2008)
Labor force 15% of total labor force
GDP of sector 3.5% of total GDP
A performance that puts agribusiness in a position of distinction in terms of Brazil’s trade balance, in spite of trade barriers and subsidizing policies adopted by the developed countries.

In the space of fifty five years (1950 to 2008), the population of Brazil grew by 51 million to approximately 187 million inhabitants, an increase of over 2% per year. In order to meet this demand, it was necessary to take the development of cattle and crop raising activities a step further. Since then, an authentic green revolution has taken place, allowing the country to create and expand a complex agribusiness sector. However, some of this is at the expense of the environment, including the Amazon.

The importance given to the rural producer takes place in the shape of the Agricultural and Cattle-raising Plan and through another specific program geared towards family agriculture (Pronaf), which guarantee financing for equipment and cultivation and encourage the use of new technology, as shown by the use of agricultural land zoning. With regards to family agriculture, over 800 thousand rural inhabitants are assisted by credit, research and extension programs. The special line of credit for women and young farmers is an innovation worth mentioning, providing an incentive towards the entrepreneurial spirit.

With The Land Reform Program, on the other hand, the country’s objective is to provide suitable living and working conditions for over one million families who live in areas allotted by the State, an initiative capable of generating two million jobs. Through partnerships, public policies and international partnerships, the government is working towards the guarantee of an infrastructure for the settlements, following the examples of schools and health outlets. The idea is that access to land represents just the first step towards the implementation of a quality land reform program.

Over 600,000 km² of land are divided into approximately five thousand areas of rural property; an agricultural area currently with three borders: the Central-western region (savanna), the Northern region (area of transition) and parts of the Northeastern region (semi-arid). At the forefront of grain crops, which produce over 110 million tonnes/year, is the soybean, yielding 50 million tonnes.

In the bovine cattle-raising sector, the “green ox”, which is raised in pastures, on a diet of hay and mineral salts, conquered markets in Asia, Europe and the Americas, particularly after the “mad cow disease” scare period. Brazil has the largest cattle herd in the world, with 198 million heads, responsible for exports surpassing the mark of US$ 1 billion/year.

A pioneer and leader in the manufacture of short-fiber timber cellulose, Brazil has also achieved positive results within the packaging sector, in which it is the fifth largest world producer. In the foreign markets, it answers for 25% of global exports of raw cane and refined sugar; it is the world leader in soybean exports and is responsible for 80% of the planet’s orange juice, and since 2003, has had the highest sales figures for beef and chicken, among the countries that deal in this sector.

Industry

Industrial production
Main industries Automobile industry, petrochemicals, cement and construction, aircraft, textiles, food and beverages, mining, consumer durables, tourism
Industrial growth rate 6.8% (2007)
Labor force 21% of total labor force
GDP of sector 29.7% of total GDP
Brazil has the second most advanced industrial sector in the Americas. Accounting for one-third of GDP, Brazil's diverse industries range from automobiles, steel and petrochemicals to computers, aircraft, and consumer durables. With increased economic stability provided by the Plano Real, Brazilian and multinational businesses have invested heavily in new equipment and technology, a large proportion of which has been purchased from U.S. firms.

Brazil has a diverse and sophisticated services industry as well. During the early 1990s, the banking sector accounted for as much as 16% of the GDP. Although undergoing a major overhaul, Brazil's financial services industry provides local businesses with a wide range of products and is attracting numerous new entrants, including U.S. financial firms. The São Paulo and Rio de Janeiro stock exchanges are undergoing a consolidation and the previously monopolistic reinsurance sector is being opened up to third party companies.

As of 31 December 2007, there were an estimated 21,304,000 broadband lines in Brazil.Over 75% of the broadband lines were via DSL and 10% via cable modems.

Proven mineral resources are extensive. Large iron and manganese reserves are important sources of industrial raw materials and export earnings. Deposits of nickel, tin, chromite, uranium, bauxite, beryllium, copper, lead, tungsten, zinc, gold, and other minerals are exploited. High-quality cooking-grade coal required in the steel industry is in short supply.

Largest companies

In 2008, 34 Brazilian companies were listed in the Forbes Global 2000 list - an annual ranking of the top 2000 public companies in the world by Forbes magazine. The 10 leading companies are:

World Rank Company Logo Industry Revenue
(billion $)
Profits
(billion $)
Assets
(billion $)
Market Value
(billion $)
21 Petrobras Oil & Gas Operations 87.52 11.04 129.98 236.67
49 Vale Mining 33.23 10.26 74.70 161.39
81 Banco Bradesco Banking 36.12 4.11 192.65 59.80
101 Banco do Brasil Banking 28.61 2.60 202.00 41.54
103 Banco Itaú Banking 28.97 2.05 167.06 28.22
203 Unibanco Banking 15.29 1.94 84.04 27.37
322 Eletrobrás Utilities 9.20 0.54 56.62 18.08
514 Usiminas Materials 5.82 1.18 8.63 19.14
519 Oi Telecommunications Services 7.90 0.61 12.36 11.69
606 Gerdau Materials 11.03 0.63 12.39 8.13

Energy

The Brazilian government has undertaken an ambitious program to reduce dependence on imported oil. Imports previously accounted for more than 70% of the country's oil needs but Brazil became energy independent in 2006. Brazil is one of the world's leading producers of hydroelectric power, with a current capacity of about 78,000 megawatts. Existing hydroelectric power provides 85% of the nation's electricity. Two large hydroelectric projects, the 15,600 megawatt Itaipu Dam on the Paraná River (the world's largest dam) and the Tucurui Dam in Pará in northern Brazil, are in operation. Brazil's first commercial nuclear reactor, Angra I, located near Rio de Janeiro, has been in operation for more than 10 years. Angra II was completed in 2002. An Angra III is almost completed, planned inauguration is 2008. The three reactors would have combined capacity of 5,000 megawatts when completed.

Economic status

Statistical Table
Inflation (IPCA)
2002 12.53%
2003 9.30%
2004 7.60%
2005 5.69%
2006 3.14%
2007 4.46%
2008 4.26%
Source:
Gross Fixed Capital Formation (% of GDP)
2001 19.47%
2002 18.32%
2003 17.78%
2004 19.58%
2005 19.93%
Source:
Average Exchange Rate (BRL for 1 USD)
2002 2.549
2003 3.020
2004 2.977
2005 2.825
2006 2.234
2007 1.976
2008 1.637
Source:

Sustainable growth

After having been discovered in 1500, it was only in 1808 that Brazil obtained a permit from the Portuguese colonial government to set up its first factories and manufacturers. It was a long road to reach the position of 8th largest economy in the world. If at the beginning the export list was basically raw and primitive goods, such as sugar, rubber and gold, today 84% of exports consists of manufactured and semi-manufactured products.

The period of great economic transformation and growth occurred between 1875 and 1975.

In the last decade, domestic production increased by 32.3% and agribusiness (agriculture and cattle-raising), which grew by 47% or 3.6% per year, was the most dynamic sector – even after having weathered international crises that demanded constant adjustments to the Brazilian economy.

Control and reform

Among measures recently adopted in order to balance the economy, Brazil carried out reforms to its Social security (state and retirement pensions) and Tax systems. These changes brought with them a noteworthy addition: a Law of Fiscal Responsibility which controls public expenditure by the Executive Branches at federal, state and municipal levels. At the same time, investments were made towards administration efficiency and policies were created to encourage exports, industry and trade, thus creating “windows of opportunity” for local and international investors and producers.

With these alterations in place, Brazil has reduced its vulnerability: it not imports the oil it consumes; it has halved its domestic debt through exchange rate-linked certificates and has seen exports grow, on average, by 20% a year. The exchange rate does not put pressure on the industrial sector or inflation – at 4% a year -, and does away with the possibility of a liquidity crisis. As a result, the country, after 12 years, has achieved a positive balance in the accounts which measure exports/imports, plus interest payments, services and overseas payment.

Consistent policies

Support for the productive sector has been simplified at all levels; active and independent, Congress and the Judiciary Branch carry out the evaluation of rules and regulations. Among the main measures taken to stimulate the economy are the reduction of up to 30% on Manufactured Products Tax (IPI), and the investment of R$ 4 billion on road cargo transportation fleets, thus improving distribution logistics. Further resources guarantee the propagation of business and information telecenters.

The Policy for Industry, Technology and Foreign Trade, at the forefront of this sector, for its part, invests R$ 18.5 billion in specific sectors, following the example of the software and semiconductor, pharmaceutical and medicine product, and capital goods sectors.

The above table indicates that in 2007, for example, the bottom 50% of the population earned only 19,07% of the total income while the richest 10% of the population earned 39.31% of the total national income. Inequality is a historic problem for Brazil, but has improved in recent years.

References

See also

External links

Further reading

  • Baer, Werner. The Brazilian Economy: Growth and Development. 5th. Westport, CT: Praeger Publishers, 2001

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