Brazil, one of the BRIC countries and now the 6th largest country in the world, has officially arrived as a major competitor on the world economic stage, having overtaken the United Kingdom in terms of economic scale. Major contributors to its growth include the discovery of large reserves of oil off of its coast, strategic investment in banking, trade with China, and increasing use of credit and consumption. Although it was hit by the global economic crisis, slowing its growth from 7.5% in 2010 to 2.7% in 2011, it has done amazingly well in the face of major global economic problems.
This is not to say, however, that Brazil doesn’t have problems of its own. Its infrastructure is hugely lacking; not only is much of it in poor condition, there simply isn’t enough of it. Brazil is attempting to fix the problem beginning with roads and railway systems, but the work likely won’t begin for a few years and won’t be finished for several. Airports are a more urgent problem because the nation is hosting the 2014 World Cup and 2016 Olympics. Three of the most important government-owned airports have been leased to private companies to be run and developed—hopefully in time for the two major sports events Brazil will be hosting. Still, Brazil ranked 104th of around 118 nations in terms of infrastructure, and only 14% of its roads are paved. It will take decades to catch up to more developed nations.
Other problems have been introduced as the country became a global competitor. On such issue is the nation’s credit. It has doubled over the past few years and lately, many loans have defaulted. Even though credit has grown, it started at a tremendously low place, so total lending still makes up a relatively small part of the economy and the rising numbers of defaults aren’t yet a cause for panic as they were in the US a few years ago. Still, they are a cause for concern. If Brazil wants to maintain its spot near the head of the global economy, a credit crisis would be devastating. Luckily that doesn’t seem to be a likely problem: the labor market is still strong, unemployment is extremely low, and as long as that remains the case, most people shouldn’t have too much trouble paying back their debts. And bankers have resolved to lend money more carefully in the future.
Brazil’s relationship with China appears to have both its healthier aspects and its not-so-healthy ones. When Brazil really entered the world market, China was waiting to buy its exports of raw materials and commodities. Soya and iron ore are exported to China in return for industrial products (often made with Brazilian materials). This exchange both bolsters Brazil’s export economy and accounts for the decrease in Brazil’s industrial output. But since Brazil relies so heavily on China as a market for its exports, China is being closely watched; when demand for iron ore, soya, and various other products declines, Brazil may have to go elsewhere to find a market for its natural resources or try to increase its domestic industrial production.
One of Brazil’s greatest problems today is the monumental wealth gap, especially in its cities. This is not a new problem; the government has been trying to solve the problem for decades. But shanty towns are still prevalent, and are liberally interspersed with hugely wealthy neighborhoods. Brazil is one of the world’s most economically unequal countries, though the government is still working to reduce the inequality. Indeed, poverty has been halved over the past 20 years due to the government’s large welfare state. However, around 8.5% of the population lives on about $1.50 per day, and over 20% lives below the poverty line. Work to combat those high numbers may well be delayed due to the country’s other considerable, more urgent issues such as improvement of infrastructure and the immense commitment of hosting the World Cup and Olympics. Nevertheless, many think that Brazil would do well to push harder to lower the poverty rate.
Brazil is a strong country, and is predicted to grow even more in coming years. But with all this new growth come new wrinkles, some of which are very large, to be ironed out. Poor infrastructure, problems with credit, a questionable relationship with China, and a monumental wealth gap are only a few of the pressing issues the country faces. With good policy and economic decisions, Brazil might well live up to its full potential. Without them, Brazil’s economy could easily stall or even, some fear, collapse. In the United States’ and Europe’s current benighted situation, it would be in all of our good interest for Brazil to succeed in working through, instead of muddling through, its serious problems.