COUNTRY PROFILE OF BRAZIL

INTRODUCTION

Brazil is South America's most persuasive nation, a monetary monster and one of the world's
greatest popular governments. It is one of the climbing investment powers - generally known as BRIC
countries - together with Russia, India, China and South Africa. Over the past few years it has
endeavored real strides in its endeavors to raise millions out of neediness. The finding of real
seaward oil stores could drive the nation into the top association of oil-sending out countries.


HISTORY:
Brazil has very rich history. It was discovered by Portugal in 1500. After that in 1821,
Portuguese left Brazil. During 1964-1974, military ruled over Brazil. After that the man called
General Ernesto Geisel began liberalization process in 1974. Finally military had
surrendered all of its power in 1985. Fernando Collor de Mello was the first elected
president in 1990. But, in 1992 he was impeached for corruption. After 1990 Brazilians are
electing their president. Fernando Cardoso played important role in decreasing the inflation
rate. He also did so many good things like privatization of economy. Brazils big problem is
money. In 1998, Brazil received loan from the IMF to improve economy and stabilize their
currency Real. In 2002, Luiz Inacio Lula da Silva elected as president. He remained as
president for consecutive two terms till 2010. He tried to reduce unemployment rate and to
rise in per capita income of Brazil. Presently Dilma Roussef is president who is first woman
president.


GEOGRAPHY:
Area wise Brazil is the fifth largest country in world & it is largest country of Latin America.
Chile and Ecuador are neighbors of Brazil. Brazil is full of minerals like gold, copper iron ore
& natural resources. Because of rich natural resources and minerals, Brazil is one of world
leader for exporting raw materials. Brazils most of population (90%) lives in small land area
(10%). It export more with USA and Europe.
There are two parts of Brazil. The amazon basin in north and Brazilian highlands in south.
Amazon basin includes the worlds 2
nd
largest river which named Amazon River and
experiences humid & hot weather. Brazilian highlands consist of river valleys and mountains
that experience less humid weather.

ECONOMIC ENVIRONMENT:

Brazil has developed agricultural, service industry, mining and manufacturing sectors. Brazil's
economy is the strongest among the other South American countries, and over the time has
outgrown its presence in world markets. In the past decade the country has slowly improved upon
macroeconomic stability, has built up foreign reserves, shifted debt burden on real denominated
local held instruments and hence reduced its debt profile. It had shown strong growth in 2008,
where it became a net external creditor and was awarded the investment grade status to its debt by
two credit ratings companies. In 2008, when the global recession hit the world economy, Brazil
suffered for two quarters because global demand of Brazil's exported commodity dwindled and their
external credit dried up. Brazil showed the world by being one of the first emerging market country
to begin a recovery. In the year 2010, investor and consumer confidence was regained, it had GDP
growth of 7.5%. It is highest in last 25 years. The rising inflation was an alarming issue which led the
governments to take steps to control the economy; due to inflation and the downgraded worldwide
economic situation degraded the growth of the country to 2.7% and 1.3% in 2011 and 2012
respectively. Unemployment rate in recent past touched low levels. Income inequality in the country
also reduced. Brazil's has had high interest rates which made foreign investors attracted to the
country hence huge capital inflows has happened in the past few years which has contributed in
appreciation of the currency, this has hurt the Brazilian manufacturers in losing their competitive
advantage and then government had to intervene in foreign exchange markets by raising taxes on
few of foreign capital inflows. President Rousseff targeted inflation by floating exchange rate, the
central bank & fiscal restraint. With an effort to boost growth, her administration implemented a
somewhat more expansionary monetary policy which has failed to bring much growth in the
country.

Economic information:
Currency: Real
Population: 196.5 million
Status: Upper middle income country
Per capita income: 11091 USD

Important sectors:
Services- 67%
Industry/mining-28%
Agriculture- 5%

Import details
Total Import 238.8 billion $
USA 15.3%
China 14.6%
Argentina 7.4%
Germany 6.4%
South Korea 4.1%






Export details:
Total export 256 billion $
China 17%
USA 11.1%
Argentina 7.4%
Netherlands 6.2%
Japan 3.3%



Brazils main foreign exchange expenses
Intermediate Products 43%
Capital Goods 22%

Brazils main source of the Foreign Exchange
Manufacturing Products 51%
Primary Goods 44%

2010 2011 2012 2013 2014(Forecasted)
GDP (US $ 2,143,068 2,476,694 2,254,474 2,220,930 2,205,106
Million)
Real GDP
Growth (%)
7.5 2.7 0.9 2.5 2.6
GDP per
Capita(US $)
10,955 12,576 11,348 11,091 10,911
Inflation (%) 5.0 6.6 5.4 6.2 5.7


As we can see from the table above that country is going into the deflation the inflation is more than
the Real GDP growth rate so the value of the money is depreciating.
Some Productive activities in Brazil
Colonial Brazil The Portuguese metropolis used the
establishment of factories in the territory
from 1500 to 1822
End of the 19
th
Century Industrial

development begins in Brazil, with
coffee growers starting to invest part of their
profits to create factories of textiles,
footwear, and other manufacturing goods.
The decades of the 1930s and 1940s Industrialization gains strength during the
Getulio Vargas presidency, with protectionist
measures, infrastructure investment and
regulation of the labor market.
1956-1960 The president Jusecelino Kubitschek opens
the economy to foreign capital, attracting
multinational companies and establishes
measures to support local industry.
1962 Electrobras is created during the Joao
Goulart presidency, supporting the
generation and distribution of electric power
that significantly benefits some industrial
sectors.

1969 Embraer is created raising the global status
of Brazilian industry. Its first challenge was
line production of the Bandeirante Airplane

Head of the State/ Government President Dilma Rousseff (Workers Party)
Form of Government A broad coalition, Comprising the left-wing
Workers Party (PT) and the Centrist
Democratic Movement Party (PMDB)


Trajectory
1939 Brazilian industry benefits from the second
world war. With the fall in imports local
development accelerates.
1942 The Vale do Rio Doce company is founded.
By the end of the decade it would be
responsible for the 80% of the Brazilian iron
ore exports.
1946 The National Steel Company is created,
Significantly increase the steel production
which would support the development of
the several industrial segment in Brazil.
1952 The National Bank of Economic and Social
Development (BNDES) is created, Supporting
the financial of the industrial enterprises.
1953 Petrobras is created driving segment
connected to the production of the goods
derived from oil.
1975 The government creates the Pro Alcohol
program to reduce the dependency on oil
forcing industry to adapt some of its models
to the new fuel.
The Decade of the 1980s High inflation and successive failed economic
plans make Brazil unattractive. A decade
largely lost for industrial development.
The Decade of the 1990s The Real Plan is implemented and the
economic stability again makes Brazil
credible to foreign investors and
multinational companies.
The Decade of the 2000s The entry of less privileged classes into the
consumer market changes the country, while
international competition increases in
industry volume.
2011/2012 The Bigger Brazil Plan is launched, bringing
the new perspectives for a national industry
that are trying to Improve its
competitiveness.

In 2013 Brazil achieves higher growth but it is way below earlier expectation.
After the strong and the broad based economic upswing in the year 2010, which is driven by
the rebound in exports to the Asian countries, Investments and the buoyant customer
demand, Brazils economic situation has lost its flow its momentum, with the GDP growth of
0.9% in the year 2012. Which was due to the several factors, like export volumes decrease
especially to the Asian countries, as did the prices of commodity. Net investment in the
country fell and the domestic demand also shrank.
In the year 2013 GDP increased 1.9% on Q1, Q2 3.3%. For the year of 2013 the growth was
expected to be 2.5%. Brazilian labor market which remain robust with an unemployment
rate of 5.4% in September 2013. With everything the average income rises and which help
the domestic consumption to sustain. Inflation increase from 4.9% in July 2012 to 6.3% in
August 2013 and it again fell to 5.9% in the October. Which is still above the target rate set
by the central bank which is 4.5%.
Monetary Policy
Inflation has approached for 3 consecutive years at the rate of 6% yearly basis, which leaves
the monetary authority into a dilemma: that they have to either decrease the SELIC
benchmark interest rate (which is its overnight lending rate) through which they support
economic activity or they have to raise it to curb high consumer prices. The rumors of the
Tapering from the Federal Reserve in the middle of the 2013 has already creates the tension
in the investors to leave Brazil as a place for the short term investment that has until
recently profited from the higher interest rates.
To fight down the inflation they also have to tackle with the weakening the exchange rate.
The Central Bank of the Brazil has raised the SELIC se veral which is benchmark interest rates
from 7.25% in the month of April 2013 to 9.5% in the month of October 2013. This
tightening of the monetary situation has taken the toll on the business confidence of
investment growth and also consumer spending by the further weakens the current
situation of the business environment.
A Strong Banking Sector
The Banking sector in Brazil is comparatively very strong, which is capitalized and which is
liquid. The public sectors banks (The public sector bank in Brazil provides 49% of the total
loans) are known as the weak links in their financial system, and particularly the
development bank (BNDES) which lends the money at a subsidized interest rates and that
could become a major burden for the public sector accounts.


Really Expensive Fiscal Policy
The Brazilian Central Banks monetary strictness comes into the picture when these fiscal
policy is really expansionary. Investment are there to exploit the large amount of offshore
oilfields and the coming FIFA world Cup 2014 and The Olympics in 2016 is fuelling the public
sector spending. There is this budget deficit which is expected to increase to 3.1% of the
GDP in 2013 and 3.3% in 2014 which also takes the transfer to public banks (Specially
BNDES). And also the very high public debt (Which is 60% of the GDP) the government of
the Brazil should implement more public sector austerity to reduce that fiscal deficit and to
prevent the public sector debt from rising any further.
Energy Situation with the very high volume of oil Reserves
There are these large amount of offshore pre-salt oil reserves (That is located below the very
deep layers of rock and the salt off Brazils Coasts) which is estimated to be the 50 billion
barrels of oil. The more and more exploration of the resources could turn the Brazil in to one
of the large oil producers in the world. In the month of July 2011, the state controlled
producers of oil Petrobras announced the investment on the US$ 225 Billion to the increase
its daily output from the level of 2.6 Million Barrels to the levels of 4 Million Barrels in 2015
and 6.4 Million Barrels till 2020.
Foreign Debt
Level Reasonable, but rising fast since 2011:
(21 % of GDP and 158 % of exports of goods
and services in 2013)
Structure Short-term debt share has decreased to 8 %
of total foreign debt
Debt Service Ratio Rather high at 27 % in 2013, rising to around
40 % when short-term obligations are
included


Balance of Payment
Trade balance: Decreased surpluses
Current account: Increasing deficits in 2013 and 2014 (more
than 3 % of GDP)
Capital Account: Positive (based on FDI, portfolio capital)
Total Account: Large surpluses

The political system remains an obstacle to structural reforms
The weak party the discipline and the poor coalition of the loyalty in Brazils political system,
which is already mentioned, which will continue to hamper the decision making. This is most
important obstacle to the reforms which are urgently needed through which strengthen the
structure of the domestic economy in the long period (for example an overhaul of the
complex tax system which still deters investors) and the reduction of the fiscal deficit: both
the preconditions of long-term economic stability and the growth.
President Rousseff is currently facing presidential elections in the month of October 2014.
This is also another reason which comprehensive the reforms focused on curtailing the
public sector spending and cannot be expected. While President Rousseff approval rating
has improved, the candidates of the opposition are gaining the ground in the polls: specially
the Eduardo Campos, the charismatic leader of theses left-wing PSB and the governor of the
state of Pernambuco. Moreover, the former president Lula da Silva might consider running
again.

Continued growth, but some issues lie ahead
In the year 2014, the economy is estimated to grow between the 2.5 % and the 3 % and the
overall picture for Brazil remains a good. Given that the importance of the private
consumption for the economy, and the sustainability of the current consumption patterns is
a concern, as that levels of consumer debt has been risen from the 18 % to the 44 % of
disposable incomes during the past decade, with the cost of the credit typically is in the
range the 20 %-25 % and which is compounded by rising interest rates. Inflation will be fall in
2014 but which will still remain high at the more than 5.5 % - and which will remain that way
for a long time being because of wage/pension indexation, a tight labor market and
infrastructure bottlenecks. These will the potentially force of the monetary policy to remain
restrictive.
Brazils strong external economic position in the last 2 to 3 of years is about to weaken, as
there was high public debt burden and the rising current account deficits the weigh on the
countrys solvency in future years. The deficits which have so far been covered by the capital
inflows, Brazil is the vulnerable to changing investors sentiment, and was evident in the
middle of the 2013, when these rumors that the US Federal Reserve would have been end
its expansionary monetary policy which led to investors with withdrawing the short-term
capital from the Brazil. This put the pressure on the international reserves and exchange rate
of Brazil, with the Real (Currency of Brazil) depreciating by almost 10 % against the US$ by
the month of November, despite that intervention from the Central Bank of Brazil.
So the whole picture is despite some of the weakening, we are expecting Brazils liquidity
and the solvency to remain the sound in the short term, with the country which is still able
to cover up the large external financing needs for the major investment projects. Still in view
of the large amounts of involvement and the aspiring spending plans, the degree of the
caution is an advisable because there are already high public debt. The exports from Brazils
big offshore oil reserves will not be underpin to the external position until the 2nd half of
this decade.

General market trends:
Agriculture Fair
Automobile/Transport Fair
Chemical/Pharma Good
Construction Fair
Consumer Durables Fair
Electronics/ICT Fair
Financial service Good
Food Good
Machine/Engineering Good
Metals Fair
Paper Fair
Steel Fair
Service Fair
Textile - Poor


The speed of the economic growth in Brazil in 2012 and before encouraged the many
businesses to expand the sales through their investment or acquisition, which funded mainly
through the debt. In most of the cases, these profits earned have been proved inadequate to
the service debts or it were reinvested in the other assets in the form of property or the
unrelated ventures. Still the economic slowdown in the year 2012 left many of the
companies struggling to the service their debts, to be specific in the retail and the wholesale
sectors, and this has been continued into the year 2013. The Central Bank of the country
recent raising of interest rates which will put further pressure on the already highly indebted
companies.
The Real (Currency of Brazil) appreciation early in 2013 which lessened the competitiveness
of the certain sectors (for example chemicals sector, machinery sector), the leading to
increased imports which is to the expense of the domestic manufacturers. Still there is Real
that has depreciated since 2
nd
quarter, the export-oriented Brazils companies are
benefiting, on the other hand the businesses dependent on the imported goods or the
inputs priced in terms of US$ or the Euros are facing the higher costs.








The performance of some main sectors
Consumer Durables
Description Despite the governments efforts to
stimulate consumption in 2012, through tax
exemptions for white goods, furniture,
Construction materials and cars, production
of consumer durables decreased 3.5 % year-
on-year in 2012. However, sales of
White goods performed well, increasing
more than 10 % in the first half of 2013. Car
sales have also increased in 2013.
Strengths
The increase in average incomes due to
social programs and low unemployment.
Increasing availability of consumer credit.
The extension of a reduction in IPI (the tax
on industrial products) until December
2013.
Weaknesses:
The increased debt level of aspiring middle
class families and higher inflation hamper
consumer spending.

Chemicals
Description Brazil has a sizeable chemicals sector of
around 3000 companies, mainly specializing
in agrochemicals and cosmetics.
However, the trade deficit in chemicals
increased 19 % year-on-year in the period
from January to September 2013.
Imports increased 10 %, while exports
decreased 5 %, due to a combination of
weak international markets and the non
Competitiveness of Brazilian chemicals
businesses against international
competition.
Strengths
The chemicals sector is very dynamic and
provides inputs and products for all
segments of the economy.
Domestic demand continues to increase.
The hygiene & beauty segment has grown
by an average of 10 % a year over the past
decade.
Weaknesses:
The lack of competitiveness of the Brazilian
chemicals sector, due to high taxes and a
strong Real in 2012 and early 2013, has
increased imports to around 30 % of input.
A shortage of cheap raw materials, because
of the weakness of the Real, is an obstacle
to achieving economies of scale.

Electronics
Description Although turnover in the electronics industry
rose in 2012, domestic production fell 8 %
because of increased imports
Strengths
Higher average incomes due to social
programs and low unemployment
Lower interest rates in recent years and an
increase in the availability of credit have
changed consumers attitudes and
expectations. Consumers now have a taste
for more sophisticated and expensive
products resulting from fast improving
technologies
Weaknesses:
The increase in the indebtedness of newly
aspiring middle class families, coupled with
rising interest rates.
Lower exports to Argentina one of the
main markets for Brazilian electronics
producers - could have a major impact in
coming months.

Services

Description
This sector consists mainly (96 %) of small
companies, with a maximum of 19
employees, most of which are related to
telecommunication and IT services, civil
construction & engineering projects, legal
services, consultancy firms, and health care
services.
Strengths
The services sector has created many jobs
in the last ten years and has been
progressively increasing its share of GDP. In
2012 services accounted for 54 % of new
jobs created in Brazil.
With the FIFA World Cup in 2014 and
Olympic Games in 2016 services will enjoy
another upswing
Weaknesses:
The expansion of the services sector was
closely connected with the upswing in the
overall economy. Current lower growth
rates and high inflation are directly
impacting the sector

Why I choose Brazil:

Brazil is most popular and potential emerging economy of BRICS
Government is stable
Normal interest rate and currency meaning exchange rate
Industry turning around
Major exporter of Latin America
Optimism about future