adminBrazil is an emerging market economy and part of the Brics grouping, which can provide some lessons for Zimbabwe in modelling a robust economy which can deliver sustained growth.
Its economy is characterised by fast economic growth, increased foreign investment, and increased international political clout.
Fast growth is evidenced by strong economic data, as in rising gross domestic product, GDP per capita, trade volumes, and foreign reserves.
Brazil has the second biggest industrial sector in the Americas. Accounting for 28,5 percent of GDP, Brazil’s diverse industries range from automobiles, steel and petrochemicals to computers, aircraft, and consumer durables.
Brazilian and multinational businesses have been taking advantage of increased economic stability to invest heavily in new equipment and technology, a large proportion of which has been purchased from United States firms. Brazil has a diverse and sophisticated services industry as well.
Like Brazil, Zimbabwe needs to adopt sound macro-economic policies which help stabilise financial inflows and make foreign investors less concerned about the safety of their investments.
Sound macro-economic policies include privatisation of state-owned businesses, liberalisation (i.e. opening) of domestic banking systems and stock markets for easier access by foreigners, sound fiscal and monetary policies, and a reduction in external debt.
Fast growth and high rates of investment often lead to increased influence on a regional and international scale, which is what Zimbabwe aspires to.
Inequality among a country’s population hinders overall economic potential. If a whole segment of the population is not fully participating in the economy, the economy does not function at maximum capacity or efficiency. This is why laws such as Indigenisation and Economic Empowerment are relevant and necessary.
From 1965 to 1985 a military junta ruled Brazil. The regime followed import-substitution policies designed to foster industrialisation by protecting Brazilian industries from foreign competition.
No economy will function at its highest capacity if poor infrastructure — bad roads, insufficient sea ports, lack of technology —creates inefficiencies at the various stages of production.
Brazil has spent much of its new wealth improving infrastructure hoping that it will facilitate further economic growth.
The most important of such projects is the “Growth Acceleration Plan” (known by its Portuguese acronym PAC), authored by current President Dilma Rousseff while she was a member of President Lula’s cabinet.
The “Growth Acceleration Plan” is an umbrella term for thousands of infrastructure projects across the country. The programme started in 2007 with an initial US$4,2 billion investment.
The main goal is to improve the poor infrastructure that has created a pattern of social exclusion, and thereby expand economic potential in traditionally neglected areas.
The poor are more likely to live in areas with bad roads, poor public transportation, few available jobs, limited or no access to credit, and no mail or commercial delivery services.
These and other issues prevent the poor from fully participating in Brazil’s economy. PAC seeks to remedy this problem by building or rebuilding homes and roads, and improving sanitation, sewage, water, and electrical services in the poorest areas of Brazil’s cities.
To maximise the programme’s impact, the Brazilian government hires the people that live in those neighbourhoods to perform the work.
This simultaneously creates employment in the short term in areas where unemployment is disproportionately high, while making changes that should help spur long-term economic growth.
The main goals of PAC II are to increase the country’s energy production capacity, build two million new homes (to cut the estimated housing deficit to three million homes), and make infrastructure improvements for the 2014 World Cup and 2016 Olympics to be held in Brazil, including building a high-speed rail to connect Rio de Janeiro and São Paulo — Brazil’s two largest cities. Once completed, these projects will greatly expand Brazil’s economic potential for years to come.
One of Brazil’s most important policy goals has been to reduce poverty to increase participation in economic activities.
It has done so through its well-known “Bolsa Família” (“Family Scholarship”) programme. President Cardoso designed the programme (with technical and financial support from the World Bank) as a way to reduce poverty and break the cycle of poverty.
Through the programme, poor families receive money each month (about US$35) on condition that they keep their children in school and take them for regular health check-ups, with the hope being that those children will grow up to be healthy, educated workers capable of independently supporting themselves and their families. Eleven million families (approximately 46 million people) benefit from the programme.
The programme has raised income at the grass roots level, with 94 percent of the funds going to the poorest 40 percent of Brazilian society — most of whom had never benefited from social programs before.
It allows recipient families to consume more (studies show that most of the money is spent on food, school supplies, and clothes for children), which has created a “trickle up” effect, where Brazilians sellers benefit from having more customers, and producers benefit from selling larger quantities of their products.
It has given a large boost to rural economies and has increased the federal and state tax bases. From 2001 to 2008, the inequality gap shrank by 6 percent — the largest improvement in Latin America — and millions of people have been lifted out of poverty, proving that the program is working.
Brazil has further facilitated its economic ascension by opening itself to the world through enacting new international trade and foreign investment policies.
Since the mid-1990s, Brazil has lowered its import tariffs while modernising its overall import system (customs inspections, payments, etc.) making it cheaper and easier for foreign countries and companies to sell their products in Brazil.
Due to these changes, Brazil’s imports have steadily increased, helping to balance its current account surplus.
The amount of foreign direct investment flowing into Brazil has increased steadily since President Cardoso introduced the Real Plan in 1994, thanks in part to the high investment returns associated with fast growth and high interest rates. Some of Brazil’s other policies have played a role as well.
To begin with, there is no legislative difference between treatment of foreign and domestic investors—in other words, Brazil adheres to the national treatment standard.
Unlike many countries, Brazil sets no maximum or minimum level for foreign investments and allows foreign companies to fully remit profits abroad.
For better or for worse, to draw foreign investment, Brazil does not evaluate the potential effects of investments on the national economy or ensure that the country will somehow benefit before approving investments.
Foreign investment is further facilitated by improvements in Brazil’s capital markets.
In 2008, the São Paulo Stock Exchange merged with the mercantile and futures exchange to form the largest exchange in Latin America, and the fourth largest exchange in the world with market capital of US$1,167 trillion. Disclosure requirements for listing on this exchange are on par with markets around the world, giving investors confidence that they have all the relevant information available to them to make a prudent investment. All of these efforts have made it easier, safer, and more profitable for foreigners to invest in Brazil.
Institutional reform
As Brazil has grown, it has made a concerted effort to improve government institutions to make them more efficient for both Brazilians and foreign investors.
Most important among these reforms, at least as far as encouraging investment is concerned, has been reforming the judicial system.
A 2006 constitutional amendment mandated judicial reform and made judicial expeditiousness a constitutional guarantee—an important step for Brazil’s traditionally slow legal system.
In 2007, the country passed a new law that allows some decisions of the Federal Supreme Court (the highest constitutional court in Brazil) to have precedented value, meaning certain decisions will bind lower courts on the particular issue of a case whenever it arises in the future.
Though this is standard procedure in the “common law” countries like the Zimbabwe , US and UK, it is an uncommon practice in so-called “civil law” countries like Brazil.
It will prevent the courts from having to decide the same issue over and over again, making the entire system faster.
A fast, efficient judiciary is cheaper and more reliable for enforcing property and contract rights—two things with which foreign investors are deeply concerned.
In spite of its recent success, Brazil’s goal of becoming an advanced economy has not yet been met. It continues to diversify its economy, reduce regulatory and legal inhibitors to efficiency, and fight poverty through social spending and education.
President Rousseff must also find a way to balance the country’s budget without slowing growth. In spite of all these issues, Brazil is still capable of becoming an advanced economy, and certainly deserves its position among the BRIC countries.
Support for the productive sector has been simplified at all levels, active and independent, Congress and the Judiciary Branch carry out the evaluation of rules and regulations.
Among the main measures taken to stimulate the economy are the reduction of up to 30 percent on Manufactured Products Tax, and the investment of US$8 billion on road cargo transportation fleets, thus improving distribution logistics.
Further resources guarantee the propagation of business and information telecentres. While Zimbabwe’s Economy differs from that of Brazil in many areas there are some relevant areas where Zimbabwe can learn and adopt some of the policies followed by Brazil to build a strong Economy.
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