Some thoughts I had after a quic

1. Brazil has caught popular imagination
… is the country of the future really taking off ?

2. Brazil 2009 GDP
US$2,080,490 mil
Venezuela 6.3x smaller
Argentina 6.8x smaller
Colombia 9.0x smaller
How big is Brazil’s economy?
..Brazil is the big game in Latin America

3. ..and it’s all clustered in the southeast

4. Growth has finally reached emerging market rates.

5. 2nd largest FDI destination after China. Why?

6. Exports by company (2009, US$mil) Imports by company (2009, US$mil)
12,307 12,555
2,580
10,826
2,105 Alberto Pasqualini - REFAP
4,053 414
4,344 1320
2,770
967
1,873
1478
1,461
2,336 153
1,234 1,234
1,479 1,313 Source: Secretaria do Comercio Exterior
Brazil is mainly an extractive economy.
Petrobras (oil), Vale (iron ore) are among the companies that caught the emerging market commodity boom.

7. A little bit of economic history that matters…
It started with sugar, then coffee, then food…

8. Let’s spend it on building a new
capital in the desert. And airlift
every brick there.
7% annual avg
Make money from WWII 15 times in 40 years
8.7
4.3% annual avg
5.4 times in 40 years 7.4
2.7% annual avg
2 times in 30 years
6.2
6.0
4.4 4.3 4.6 4.5
3.4
2.7
1.7
1901-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-00 2001-10
Three lost decades … is there a second chance?

9. 1942 Real 1.000 Let’s start
1942 Cruzeiro CR1.00 Divide by 1000
1967 Cruzeiro Novo NCr1.00 Divide by 1000
1970 Cruzeiro Cr 1.00 No change
1986 Cruzado Cz 1.00 Divide by 1000
1989 Cruzado Novo NCz 1.00 Divide by 1000
1990 Cruzeiro Cr 1.00 No change
1993 Cruzeiro Real Cr 1.00 Divide by 1000
1994 Real R 1.00 Divide by 2750
So far, so good.
2,750,000,000,000,000% devaluation!
Stabilized in 1994 real plan.

10. Inflation is seared into living memory…
savings is low,
which leads to ‘bad’ balance sheets
… high external deficits, high public deficits, excessive dependence on
leverage to drive growth…

11. Industrial policy is inward looking…
And is shown up in tax, trade agreements,
manpower etc

12. 92% companies face difficulties in hiring.
81 % can’t find qualified professionals.
46 % can’t find technicians…. “Can’t find welders for building stadiums!”
80 % additional legal costs over salary benefits (13th salary, 30 days vacation + allowance..)
50 % retirement fund, vacation, 13th salary etc when firing
Hiring is hard, firing is also hard…

13. + services
+ tax 2-5%
domestic
state tax Ovs
7-33% remittce Social
10% Security
+
+ financial 7.6-3%
manufact transactn Others Profit
ured tax y% x% sharing Social
product
+ WH tax 1.65- contribut
x%
15-25% 0.65% on
income
+ 9-15%
surchage Export
10% duty Import
Corporate 0-30% duty
15% 0-35%
Start here
Tax is a real burden…

14. 80% R&D is publicly funded. Aspiration to achieve Korea’s 20-80 ratio.
Curious fact: ‘67 IMF-directed Korea came to Brazil to learn their modernisation pgm … chaebols anyone?
‘Self-reliance’ industrial policy during military rule funded
world class technology prowess in aviation, ag and energy.
These are legacy investments, who are the new ‘chaebols’?

15. 7%
65%
unemployment, hard to find qualified people.
expansion of domestic credit
7.2
50
years of schooling average.
22 % can’t read a page of text.
50
% functional illiteracy.
% employment is in the informal economy.
…leading to Bel-India
… a Europe elite class (Belgium) in an India economy

16. …but social transfers are creating a middle class, and as long as the
commodity boom continues, this new middle class will grow.

17. Why China grows … and Brazil doesn’t
Follow the TFP

18. What makes Brazil Brazil?
Or why is the Brazil story so hot?
… Oops, it’s inflation.. Hot money chasing 11% interest.

19. What does the future hold for Brazil?

20. Excitement over presalt findings that will vault Brazil
into major energy exporter (to emerging Asia) …

21. Source: PWC Future of World Trade 2030
… South-South (China) trade will boom….

22. 40 out of 81 anti-dumping measures taken by Brazil are against Chinese products.
Brazil’s energy and commodities sector loves China,
but the manufacturing sector is less enamored.
A wave of tariffs and talk of currency war is first reaction.
This will be an interesting relationship to follow.

23. Blackout along Paulista Ave, Sao Paulo and Latam’s financial center tests Brazil’s readiness for World Cup and Olympic Games.
Blackouts in the future

24. Paraisópolis, São Paulo, Brazil.
No mass job creation, no boom to fuel social transfers,
Europe-India schism lives on.

25. .. It might end up with debris of energy boom and
bust, a repeat of coffee’s 1930s boom and bust