Brazil, a reliable partner and a sound economy

<a href="http://www.ie.edu/eng/sobreie/sobreie_expertos_detalle.asp?id_exp=352">Juan Carlos Martínez</a>. Professor. IE Business School

27 September 2007

The last five years have seen major advances in Brazil that have led to massive investment there by Spanish companies. Now all Spanish firms need to do is increase their exports to Brazil.

The official visit to Spain by the president of the Brazilian government, Luiz Inácio Lula da Silva, is an excellent opportunity to take a look at Brazil´s recent performance and to examine the present and future of bilateral relations. The appointment of Lula al Palacio de la Alvorada, almost 5 years ago inspired a great deal of mistrust in national and foreign investors. However, in a short period of time, the pragmatism with which he has dealt with the immense challenges facing the country and, above all, his decided commitment to reducing poverty by maintaining macroeconomic stability has earned him the respect and admiration of the international financial community. Only the corruption scandals that have affected his party, which have tarnished some of his most direct collaborators, have negatively affected his work. Even so, last year he was re-elected without too much difficulty.

The Brazilian economy has improved substantially during Lula’s term of office. In 2006, the growth rate reached 3.7% and, this year, it is expected to exceed 4.5%; however, these rates are still low in comparison with the country´s potential and needs. Some of its endemic imbalances have been put right, especially inflation, which, after years at rates close to double-digit figures, has been brought down to 3%. This reduction of prices has enabled a notable fall in interest rates, which had slowed down investment and growth. Even so, it is still higher than 11%. Furthermore, the commitment to fiscal stability through strict spending control is making it possible to reduce the public deficit to levels of around 2%. Abroad, the results are also notable; despite the appreciation of the Real, Brazil is obtaining a significant trade surplus from its dynamic exports, which has led it to reach more than $150,000 million in reserves.

Nevertheless Brazil is not satisfied with its status of emerging economy. Its size, its more than 180 million inhabitants and its unquestionable role as a regional power are its credentials for rearing its head on the international scenario, as can be seen in its desire to obtain a permanent seat on the UN Security Council. Furthermore, its excellent relations with the United States have not prevented it from designing its own route map in foreign policy. For example, collaborating when necessary with the Venezuela of President Chávez, with whom Lula keeps a calculated distance in spite of their alleged ideological affinity. Brazil is also very active in the scope of the World Trade Organisation, where, in conjunction with China and India, it leads the G-20, a group of developing nations in conflict with rich countries due to the subsidies the latter apply to their agricultural products. It also actively promotes the production and use of biofuels as an alternative to hydrocarbons.

Spain and Brazil currently enjoy excellent relations on institutional, political and economic levels. After Mexico, Brazil is Spain´s second-largest trade partner in Latin America, whereas, last year, Spain was Brazil´s 15th largest supplier, with a market share of just over 1.5% of the country’s total imports. In 2006, bilateral exchanges exceeded €3,200 million, with a negative balance for our country of just over €1,000 million. However, the negative aspect is not our deficit with Brazil, but rather the fact that our exports have remained at the same levels for the last 10 years, while the imports of Brazilian goods have doubled over the same period.

However, if the Spanish commercial presence on the Brazilian market is clearly insufficient, the same cannot be said of our participation as investors in its economy. With an accumulated investment since 1996 of over €30,000 million, Spain has become the second-largest investor in the country, after the United States. Large businesses such as Telefónica, Endesa, Iberdrola, Gas Natural and Repsol and financial entities such as Santander and Mapfre have operated on the Brazilian market for a long time, together with a healthy group of industrial companies and companies from the hotel industry, construction companies and the services sector.

One piece of good news is that these investments could be increased even further thanks to the opportunities arising from the Growth Acceleration Programme, an ambitious plan for the construction and modernisation of infrastructures valued at more than €180,000 million, which the Brazilian government intends to implement up to the year 2010 in order to revitalise economic growth, and for which Lula hopes to count on the participation of Spanish businesses. We must also remember the opportunities that arise for the cultural and publishing industries from the widespread teaching of Spanish in the Brazilian education system. In order to satisfy the heavy demand for studying our language, Instituto Cervantes is soon to have nine centres in the country, which makes Brazil the country with the highest number of centres.

Brazil has shown itself to be a reliable partner and its economy is becoming increasingly sound, which creates huge opportunities for which Spanish enterprises must be ready, not only through a second wave of investments, but also by increasing our meagre exports to a market that is becoming more and more attractive.

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