Wednesday | March 4, 2015

Brazil brings economic opportunities

Published:Sunday | June 13, 2010
Morrison

Dennis Morrison, Contributor

IN WHAT is turning out to be the great irony of the economic landscape of the early 21st century, Brazil, the most debt-plagued country of the past 40 years, and China, which was ravaged by the Cultural Revolution in the 1960s, have returned to growth with a bang after the global recession, whereas Europe is threatened by a debt crisis. Unscathed by the financial meltdown and propelled by robust domestic consumption, both countries are being looked to as the catalyst for renewed expansion of the world economy.

In former times, this was a role normally played by the United States (US) and Europe, but the World Bank has been cautioning that, instead, Europe's debt problems could create hurdles in the way of a revival of international economic activity. The recovery in the US, which has been proceeding at a moderate pace, is also not expected to provide momentum for production in the rest of the world. By contrast, Brazil and China have racked up the strongest growth so far this year, with output levels increasing at just below double-digit rates.

China is already recognised as an emerging world economic superpower, recently replacing Japan in second position, overtaking Germany as the largest exporting nation, and amassing gargantuan foreign reserves. It is now a leader in a number of industries, from Jamaica's standpoint the most important being aluminium, and surpassed the US as the largest market for automobiles last year. As the world's most populist nation and at the pace at which it is investing, China is set to overtake the United States within a generation, and is likely to become the dominant growth pole in the world economy.

Economic powerhouse

Brazil, whose ascendancy has been less dramatic, ranks as the eighth-largest economy with the world's fifth-largest population of just under 200 million. Long regarded as a potential economic powerhouse because of its enormous reserves of natural resources and population size critical for a vibrant domestic market, Brazil has alternated between periods of rapid economic growth and stagnation. Under its import-substitution, industrialisation programme of 1945-1964, it established major capacity in a broad range of consumer and capital goods, but its economy was periodically, disrupted by bouts of spiralling inflation. Its political system, too, has been marked by military dictatorships interspersed with populist democratic upsurges.

The period since the mid-1980s has been one of increasing stability, both economically and politically, as the country has made the transition from military rule and broken the inflation cycle. But Brazil was still struggling with currency and debt crises and had to resort to IMF stabilisation loans into the 1990s. From the late 1990s, it has enjoyed unprecedented macroeconomic stability combined with accelerated growth running at over 5.0 per cent a year that have pushed the size of its economy to nearly US$1.6 trillion, or US$1,600 billion. With its diversified economic base, this South American country now has strong export capacity as well as competitive domestic production where primary goods make up only 11 per cent of total output and the industrial sectors account for nearly 50 per cent.

Its economic importance to our region is enormous, being second to the US, with highly developed mining, industrial, petro-chemical and agricultural sectors. It has made spectacular advances in the field of energy since the first oil shock of 1973 when, along with Jamaica, it was among the most heavily dependent on imported oil. Now it is a world leader in alternative energy technology, most notably for automobiles, is at the cutting edge of deep-sea oil and gas exploration, and has achieved energy self-sufficiency in less than three decades.

Prime target for diversification

The agricultural and energy sectors represent the areas that offer the best prospects for Jamaica's economic relationship with Brazil. Brazil's research and development capacity in agriculture is not only outstanding but is appropriate for Jamaica because of the strong base in tropical crops. In the field of energy, the possibilities in ethanol have been demonstrated. The country is, of course, a source for machinery and equipment, with development banks increasing focusing on financing export credit.

As the largest outbound market for tourists in South America and with an expanding economy, Brazil should be among Jamaica's prime targets under its diversification push. Already, the air service agreement has been signed and provides the basis for establishing air links - a vital first step for marketing Jamaica's tourism product in that country. The Spanish hotel brands operating here are well known in Brazil, and with their integrated systems should facilitate entry in that market.

Brazil, which used to be criticised for its extremes of wealth and poverty existing side by side, has made significant strides in the last 30 years, with its literacy rate rising to 90 per cent and life expectancy climbing to 72 years. Still, its income inequality level (Gini coefficient) is high and crime linked to urban poverty is a major problem for Rio de Janeiro and other large metropolitan centres. A strong sense of optimism characterises the mood of an increasing percentage of its younger generation who are benefiting from the fast-expanding opportunities for upward mobility in Brazil's buoyant economy.

A good guess would be that at least three out of every four Jamaicans support Brazil when World Cup time comes around. It is an emotional connection borne out of the common African roots, the powerful threads that run through our music, and the flair Brazilians bring to the game of football. Somehow, though, we are yet to transpose these links to the realm of trade and development.

Dennis E. Morrison is an economist and may be reached at columns@gleanerjm.com.