Brazil’s Economy is Booming But Facing New Issues

by elaubach

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.

Sources:

Brazil: No Longer ‘Country of the Future’

The Road Ahead: Investing in Brazil’s Future

Brazil Privatises Operations at Three Airports

Brazil country profile

Maxing Out: Credit in Brazil

The Road Forsaken: Investing in Brazil’s Future

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4 Responses to “Brazil’s Economy is Booming But Facing New Issues”

  1. Doo Hyun Nam says:

    The needs to refurbish Brazil’s several problems are inevitable to the development of the economy. Brazil’s economic scales overthrowing United Kingdom is yet a huge achievement for the country. However, is Brazil to be called a major competitor in World’s economic stage? As the post above had pointed out, Brazil’s infrastructures and credits are in a precarious position. As Brazil’s GDP and economy was boosted up to current world’s major competitions, the power of oil drilling sure marks its strength. However, with Brazil striving to develop, some of its parts are lagging behind. The roads and public systems are taking at least a decade to be fixed and slums of Brazil still remains a walking distance from luxurious apartments.

    With the World Cup and Olympics being hosted in Brazil in following years, the country must start is restoration at a rapid rate. Many view the Brazilian economy as effective and would soon lower the poverty rate, while some view Brazil as a country yet to reach World’s leading position. Though, Brazil has a high employment rate and a strong labor force behind to support changes that may be coming to improve their stance among other nations.

  2. jchoi15 says:

    It was really clear to me what the article was about and what problems Brazil had. It was very interesting to read your response because your topic was similar to my topic and it made me to think deeper about how China is also heavily depending on other countries for their economy. Although Brazil grew tremendously in economy, I think they are taking another step to make their country global and to reduce the gap between the wealth and poor. Trading with China bolstered the economy of Brazil and I thought that the economy of Brazil might go down or it wouldn’t have gone this far if they didn’t make a relationship with China.

    If Brazil works and find a better solution to solve the problem of wealth gap, their country might be in a much better shape. Although they worked for decades to solve the problem, I agreed with your opinion how they are concentrating too much on hosting the World Cup and Olympics. Since they are hosting the two big events, they have to spend so much money on it. However, if they instead spend their money to their citizens and give financial support to them, the situation might change.

  3. Jon Shen says:

    One paragraph in your writing really resonated with me, and in an interesting perspective too:

    “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.”

    I don’t think you might realize this, but the way you described the relationship between China and Brazil is very closely linked to what we have learned before in the very beginning – neocolonialism. The dependency you have portrayed Brazil to have on its “colonist” really shows how global economies are linked and heavily dependent on each other. In essence, combined with Foley’s previous idea that should the United States fall, China is dragged down along with it, should China go down, Brazil will fall along with it. This chain reaction is all the more reason for Brazil to boost its infrastructure and shift its focus from a producer of goods to a producer of lucrative ideas.

    ~Jon

  4. hdews15 says:

    Very well organize piece of writing. I like how you completely seperated the pros and cons of Brazils growth from one another, and the wrinkles analogy hit the nail on the head. However, I feel like Brazil and China are in a colonialistic relationship in which China is the rent country. If you know anything about what happened between Africa and Europe a while back, colonialism can lead to something quite like slavery.
    And regarding the employement rates of Brazil, I remember watching a video about the process of making cocaine (purely educational!), and as the guy making the cocaine went through the process, he talked about how he couldn’t get a job growing food crops because the pay wasn’t high enough to support oneself.

    All in all, a very well written blog post.

    -Harrison

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