Another Brazil Essay, Research Paper
Brazil: National Context Geography Brazil occupies almost
one-half of the entire South America continent, and is the
fifth largest country in the world. It borders all Latin
American countries except Chile and Ecuador. The
9,170km coastline and the 50,000km navigable inland
waterways provide great potentials for water transportation
which has not been well developed. Brazil is topographically
relatively flat. 40% of the land is under the Amazon Rain
Forest. Most of the arable land is found in the South, but the
process of land development for agriculture is pushing into
the Central-West and the North as well. The climate is
mainly tropical and sub-tropical, and is particularly humid
and rainy in the Amazon region and along the coast.
Temperate climate is found in the south and on the higher
lands. The nation is free from earthquakes, hurricanes and
cyclones, but rainstorms, drought and frost occasionally
cause considerable damage. Demography and Social
Patterns Population is around 155 million and growing at
about 2% per year. It is concentrated in the southern states
of Minas Gerais, Sao Paulo, and Parana. Almost 60% of the
total population live on 20% of the land.(See Table 1) 80%
of the population is urban and 20% are rural dwellers. 55%
is under 20 years of age and less than 10% is over 60. The
average life expectancy is 63 years old. The majority of
Brazilians are of European or African descent. Besides the
original Portuguese settlers, other significant ethnic groups
include Africans, Germans, Italians, and Japanese. The
official language is Portuguese, but English is widely used in
the business community. The predominant religion is Roman
Catholicism. There is religious freedom, and religion is not a
source of social unrest. The general level of education
requires much improvement. About 75% of children above
ten years old are considered to be literate. Around 5% of
enrolled students go on to higher education. As a result,
most of the labor force are semiskilled or unskilled. There is
a shortage of managerial, supervisory, and technical
personnel. Living Standards The gross domestic
product(GDP) per capita in 1993 was about US$3,000 per
annum. There exists a wide income gap, with ‘1% of
population stinking rich, 20% stinking poor’. 10 million
families are roofless, while the 12 million homeless peasants
seek shelters in peasant squatters in the countryside where
land is so unequally distributed. Substantial funding are
needed for public housing, health care, schools, and
infrastructure. Other major social problems include violent
crime and corruption. Resources Brazil is rich in natural
resources. It has some of the largest iron ore deposits in the
world and is now one of the biggest gold producers. Other
metals and minerals are also mined on an increasing
scale.(See Table 2) The extensive river system provides
great hydroelectric potential, as evident in the Itaipu dam
project. Since the oil crisis in the 70s, Brazil embarked upon
the ProAlcohol program for alcohol fuel manufacture from
sugar cane to reduce the country’s reliance on foreign oil. As
for agriculture, Brazil is a major exporter of soybeans and
orange juice in addition to the traditional coffee and cocoa.
The fishing potential along the coastline is significant but has
not been fully exploited.(See Table 3) The natural scenery
and favorable climate also foster a prosperous tourist
industry. Political Climate and Forces Brazil remained a
Portuguese colony for more than 300 years until it became a
republic(Federative Republic of Brazil)in 1889. The latest
Constitution was promulgated in 1988, and it is still under
review. Brazil is composed of 27 states and the Federal
District of Brasilia, the capital city. The states are divided
into municipalities, which are further divided into districts.
The federal government consists of three branches: the
executive, the legislature, and the judiciary. The executive
branch is headed by the President under whom are several
executive departments and independent regulatory agencies.
The appointed heads of the executive departments form the
Cabinet. The legislative branch, the Congress is made up of
the elected Senate and the House of Representatives. The
judicial branch consists of a system of federal, state, and
local courts throughout the country, headed by the Supreme
Court. There are many political parties, but ideologies are
not well developed as a democratic system returned only in
1985. Parties normally represent specific economic groups
and interests within the country. After the industrialization
resulting in fierce inflation and foreign debt, Brazil went
through a period of military autocratic regime through 1964
to 1989, until the first popularly elected president since
1960, Fernado Collor de Mello. Although the chance of the
military having a coup is slim, they still remain a strong
political force. President Collor had significant support and
vowed on reform on the much needed economic policy. He
planned to lower tariffs, control inflation, promote free trade,
and reduce the over bloated public sector. However, he
resigned in 1992 for charges of corruption. His successor,
former vice-president Itamar Franco was seen as indecisive
in economic matters. He chose to make increasing growth as
his first priority instead of reducing inflation. Despite of a
already huge deficit, he tried to stimulate growth by
increasing government spending. The current president,
Fernardo Henrique Cardoso was Franco’s finance minister.
He pushed through a stabilization program which included
significant economic liberalization and income tax increase.
He managed to lower inflation and federal deficit by
introducing the Real Plan. Now, he is pushing the
Constitution review which vows to privatize state-run
monopolies and redistribute tax revenues. Luis Inacio Da
Silva(Lula), leader of the Workers Party(PT) was the
second runner-up in the two most recent presidential
elections. His socialist philosophy stresses social justice,
restraints on market capitalism, limits to integration with the
world economy, debt relief, and a larger state role. He
represents the left wing of the Brazilian politics which is
growing in importance. Meanwhile, pressed by the public
outcry for better public services, President Cardoso
announced that of his $500 billion planned spending for
1996-99, two-thirds would be embarked for social services
such as education and housing. However, Mr. Cardoso
disappointed western observers by allocating two-thirds of
the social spending to welfare payments. Since 71% of the
population is Roman Catholic, the Brazilian Church has
traditionally had great influence in the political scene. In
recent years, Vatican has strengthened controls over the
Church, making it more conservative. However, the Church
still remains a left-of-center social action wing which excises
influence on voting results. The Brazilian Church is closely
related to the poorer and express sympathies for the PT.
With the return of democratic election, the recent political
turmoil seems to be ended. However, President Cardoso
would still have to face an over represented Congress from
the poorer northern regions, and one who greatly hinders the
progress of the Constitution Amendments on behalf of their
protégés-local business and powerful. However, given the
first-year success of the real, President Cardoso should have
more power in advancing his economic reform. Economic
Growth Brazil is the tenth largest economy in the world. Its
economy grew considerably from the mid-1960s to the end
of the 1970s. However, during the 1980s, economic
performance faltered; macro-economic instability, high
inflation, and increased indebtedness characterized the
decade.(See Table 4) Under the recent economic reform,
growth has been restored and inflation has been
reduced.(See Table 5) The major challenges facing Brazil
now is to maintain growth and control inflation, . National
Values and Ideology People Brazil is a very mixed and
culturally diverse country. Brazilians are viewed as
passionate, open, and patriotic especially when it comes to
soccer in the eyes of the western world. Throughout various
stages of the history, such as the struggle for independence,
for the Republic, and the recent parade against violence in
Rio de Janeiro, , the ideas of liberation and optimism are
always there in the background. However, they are also
conservative especially when related to religion. Like other
cultures in the tropical, Brazilians are leisure oriented. The
working day is normally eight hours, Monday to Friday.
Besides statutory holidays, the annual Carnival causes a
standstill to all businesses Monday through Wednesday.
Recreation activities are mainly outdoors, taking advantage
of the tropical climate. Society Though under a democratic
system, the society is still highly stratified with a small group
of business elite and landowners controlling the direction of
major policies. The Congress is dominated by whites. A
century after the abolition of slavery, blacks lack adequate
political representation, education, and housing. The basic
unit of society differs among different regions. Individualism
dominates in the highly industrialized South where people
enjoy a greater social mobility. In the rural northern regions,
however, fazenda-traditional large agricultural producing unit
is the basic social system. It is characterized by the dualistic
system, with the landlords at the top and everyone else at the
bottom. In the traditional agriculture based society, powerful
fazendeiro tended to extend their power into the political
system in order to control government policies. This is why
the present government is facing large resistance on land
reform from the North. The hierarchical relationship is also
closely linked to clientelism in which superiors grant certain
favors to inferiors, thereby creating indebtedness and moral
obligations while securing a steady supply of labor or scarce
skills. While in urban contexts with high rates of
unemployment, job opportunities are provided in exchange
for loyalty and backing in elections. Such concept of
‘extended family’ is the foundation of human relationship in
Brazil. National Strategy Institutional Framework The
Executive holds much of the responsibility for formulating
and implementing trade and industrial policies. The present
government has eliminated and simplified many regulations
dealing with specific trade and tax concessions that used to
be complicated. The complex investment code has also been
simplified and liberalized, though a few constraints still
remain. The main economy agency is the Ministry of
Economy, Finance, and Planning(MEFP) headed by Pedro
Malan. Under it the principal business regulatory agencies
include: BACEN-Central Bank(monetary policy, foreign
exchange controls, control of foreign capitals and profit
remittances, regulation of banks and financial institutions),
CVM-Securities Commission(securities markets and listed
companies), CADE-Administrative Council for Economic
Defense(monopoly, cartel, antitrust monitoring),
INPI-National Institute of Industrial Property(technological
development), CDI-Industrial Development
Council(industrial development, granting of fiscal incentives),
and DECEX-Foreign Trade Department(foreign trade,
control of export and import licenses). In the formulation of
economic policies, the government maintains contacts with
the private sector which may contribute in the process
through participating in sectoral chambers and special
committees. Also, reviews of policies are sometimes
provided by research institute. Economic Policy and
Challenges Until the recent reforms, the economy was
subject to extensive regulation which inhibited the operations
of a competitive market economy. Since 1990, Brazil has
undertaken a major liberalization effort concentrating on
trade liberalization, deregulation, and privatization. The
current economy is basically one of free enterprise, but there
is still considerable state and semi-state participation in
various strategic sectors. The National Privatization Program
was enacted a few years ago to privatize many formerly
state-run enterprises, most notably the steel and
petro-chemical industries. In July 1995, the lower house of
Congress has accepted the Constitutional Amendments that
will open oil, mining, electric power, and telecoms to private
and foreign investment. One of the largest successes of the
recent reform is the real, Brazil’s latest currency. Introduced
to deindex prices and to lower inflation, the real and
accompanying measures have brought fierce growth and a
flood of new investment: 12 multinationals alone are planning
to spend $8 billion by 2000. Most significantly, inflation has
fallen, from 3000% in 1989 to 30% in 95. However, the
strength of the currency encouraged imports and Brazil is
facing a trade deficit: $3.2 billion in 1995. The government
responded by devaluation, import curbs, tariffs, and quotas
on car imports. Another problem is the coming back of
inflation. However, inflation seems to be built in the system
characterized by private greed, lack and mismanagement of
public finance and enterprise. Urgent reforms are needed in
the following: the rusty and unwieldy tax system collection
and distribution of tax revenues-empowerment of the federal
redistribution of public responsibilities between the federal
and the states reduction of foreign debt ending the
job-for-life security of public servants replace poorly run
state pension program with private project privatize and
monitor estado(state) banks, stop the chaotic and
unsupervised lending to the states open joint ventures or
private investment in the remaining state-run enterprises
remove restriction on foreign ownership General Trade
Pattern Natural resources and agriculture have been the
traditional mainstay of the Brazilian economy, backed up by
abundant human resources. This is mainly a result of the
colonial monarchy for which the infrastructure was built to
provide resources for the mother country’s industries. Since
the 1960s, however, emphasis has been shifted to industrial
development financed mainly by international loans. As a
result, exports today reflect a much more balanced mix of
commodities and manufactured goods.(See Table 6)
Following the debt crisis of 1982, the servicing of Brazil’s
foreign debt required the creation of large trade surpluses.
This was achieved by import contraction. Between 1982
and 1990 the value of imports fell from 7% to 4% of
GDP.(See Table 4) With the lowering of trade barriers, the
profile is changing. A free trade zone was also set up in
Manaus in the North to attract business to the Amazon.
Leading trading partners are the European Communities, the
United States, Japan, and Argentina. During the past
decade, the direction of exports has shifted towards the
United States and developing countries, particularly in East
Asia. The share of Latin American countries has declined
from 18% to around 12%, reflecting unstable economic
conditions in those markets.(See Table 7) Imports are also
mainly from the United States and Europe. Within Latin
America, MERCOSUL countries and Chile are the main
suppliers.(See Table 8) Brazil is a member of the Latin
American Integration Association(LAIA), and a founding
member of the General Agreement on Tariffs and
Trade(GATT). Special tariff preferences are granted to
imports from members of the LAIA and the Global System
of Trade Preferences among developing countries(GSTP). It
is also a member of the Southern Common
Market(MERCOSUL), an agreement among Brazil,
Argentina, Paraguay, and Uruguay aiming to gradually
eliminate all tariffs in 1995. There is also a Brazil-Argentina
bilateral agreement that would increase trade between the
two nations. The success of these regional agreements may
increase the chance of a future common external tariff.
Foreign Investment The Constitution establishes that foreign
investments should be in the national interest, and it is
welcome to the extent that it represents a long-term
commitment to the economic development. Areas
particularly favored by the local include development of
agriculture, technology, labour-intensive industries, and
manufacture of products that are currently imported and
those that will increase exports. Foreign investors may also
participate in the National Privatization Program by
converting Brazilian foreign debt securities, or by subscribing
to the privatization funds. Although there are no federal tax
incentives to attract foreign capital, many states and local
government offer tax concessions especially in the poorer
Northeast and Amazon regions. Except for the above tax
incentives, all corporations are subject to 26% corporation
income tax. There is a strong control over foreign currency
transaction which is monitored by the National Monetary
Council. All foreign currency loans have to be approved by
the Central Bank. When Brazil is short of foreign exchange,
the Central Bank centralizes all foreign currency repatriation
and remittance requests, and releases foreign currency when
it becomes available. Therefore delays occur, though the
Bank pay interest compensations. Foreign ownership is
restricted in certain industries viewed as strategically
important. These include communications, aviation, defense,
classified government contracts, coastal and freshwater
shipping, financial institutions, and privatized companies.
Other than these, foreign firms are generally allowed to have
100% ownership. Under the Constitution, national capital
companies may also receive temporary market protection or
benefits in activities considered to be important or national
development. There is limitation on rural land but no
restriction on ownership of urban land and buildings.
Security markets are available with the principal stock
exchanges in Sao Paulo and Rio de Janeiro. All public issues
of securities have to be registered with the Securities
Commission(CVM) The process of registration can be very
time-consuming. Banking and financing business are
regulated by the Central Bank. Major banks in the private
sector have been organized into financial conglomerates, and
are able to offer full range of financial services through
subsidiary and associated companies. A point to note is that
Brazil is not an international financial center and offshore
banking, trust, and financial services are not allowed.
Imports have been generally subject to high tariffs but are
starting to fall. The maximum import duty rate would be
reduced to 40% by the end of 1994, and the modal rate was
projected at 20%. Import procedures were also
deregulated. Besides the 26% corporate tax, a 15% tax is
also charged on dividends. Although a corporation can be
wholly foreign-owned, participation of local capital is
favored by authorities. The director of the corporation must
hold a permanent visa and be domiciled in Brazil, though
nationality is not a restriction. The labor force is
approximately 62 million, or 41% of the population. Women
comprise 35% of the total, and this percentage is projected
to increase. All employers, with few exceptions are required
to employ Brazilians in the proportion of at least two-thirds
of their total personnel as regards both number and total
remuneration. There is a minimum wage requirement and
labor unions have become more active especially after the
national two day strike in 1989. Patent and trademark laws
are available on a federal level. Environmental awareness has
increased due to international pressure, especially from the
US. This has restricted the exploitation of the tropical rain
forest. The infrastructure is underdeveloped. There has been
no major modernization or improvement of the
government-controlled railroad system, though there are
plans for some extensions. Hence road transport dominates,
but highways are not well maintained and construction of
new highways has been slow in recent years. The airline
network is well developed and mainly privately owned.
Urban transportation poses significant problems especially in
major cities. The postal system is well developed. The
telecommunication system has made significant progress, but
is now lack of further investment. Telexes and electronic mail
links are widely used by business and industry. Canadian
Firms in Brazil For Canadian businesses, Brazil offers great
opportunities for its vast consumer base, close proximity,
and its similarities in language and culture. With the current
government’s commitment on economic liberalization, the
investment climate is favorable. Interested firms should be
prepared to commit a medium to long term investment
subject to tight exchange control. Government policy may be
unstable. Precautions should be taken when dealing with
local government due to the cumbersome and corrupt
bureaucracy. Connections with the political scene is
advisable. Also, Brazil has much more primitive financial and
industrial base, and a much lower standard of labor
productivity. Employee training would be a substantial part
of investment. Canadian industries can take advantage of the
large labor base for labor intensive manufacturing processes
like textile and electronics. There is also large potential in the
agriculture, fisheries, and energy sectors. The huge
population, combined with those of the MERCOSUL
countries will form a gigantic consumer base for almost any
product. As inflation and foreign debt under control, Brazil
might fulfill the promises it gave in the 1970s as an economic
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