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1li-manager’s Journal o Management, Vol. No. 4 ln 9 March - May 2015
ARTICLE
INTRODUCTION
The BRIC represents a concept developed by Jim O'Neill
(2001) from Goldman Sachs, and included in a paper
titled “The World Needs Better Economic BRICs.” It referred
originally to a group of emerging economies composed
of the following countries: Brazil, Russia, India, and China,
with South Africa being added to the list in a re-evaluation
of the concept in December 2011. Those emerging
economies, according to the research performed by
Goldman-Sachs, would be wealthier than most of the
major economic powers at the turn of the 21st century by
2050 (Figure 1).
From 2000 to 2008, these countries increased their
economic output from 16 to 22% of the world's total
representing 40% of the global population, while
occupying over a quarter of Earth's land area.
* Research Chair, Center for Workplace Diversity Research, School of Advanced Studies, University of Phoenix.** Dean, Central Florida Campus & Research Fellow, Center for Workplace Diversity Research School of Advanced Studies, University of Phoenix.
ABSTRACT
This paper describes the current levels of economic growth in the Brazilian economy, one of the BRIC countries (Brazil,
Russia, India, and China), presenting a historic overview of the country's economic growth in the past years, as well as the
evolution of some macroeconomic indicators. Brazil's participation in international organizations forums, such as the
IMF and WTO, is included in this paper. The country's inflow and outflow Foreign Direct Investments (FDI) in recent years are
also discussed and examples are given to illustrate the current trend of investments in different markets, with an emphasis
on the USA and the State of Florida, in particular.
Keywords: Foreign Direct Investment, BRIC, Brazil, Florida, Emerging Economies, Multinational Companies.
CARLOS TASSO EIRA DE AQUINO *
By
ROBERT W. ROBERTSON **
BRAZIL: A BRIC'S ECONOMIC GROWTH, ANDITS RECENT FDI HISTORY IN FLORIDA
Figure 1. Goldman-Sachs Projections for2050. (Goldman-Sachs, 2007)
2 i-manager’s Journal o Management, Vol.n l l9 No. 4 March - May 2015
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During the 21st century, the BRICs have confirmed and
even anticipated the predictions of development, with a
formidable middle class growth, as well as a dramatic
increase in science and technology investments. Figure 2
shows some key indicators and statistics related to BRIC
countries:
This paper focuses on one of the BRICs - Brazil, the powerful
economic force of Latin America.
Brazil has an area of 8.51 million square kilometers,
covering 47% of the entire South America, with a
population in June 2012 that mounted to 193.946.886
inhabitants, representing the 5th largest country in world
as well as the 5th largest population. Half of its territory
encompasses the Amazon forest (3.6 million square
kilometers), the most important biodiversity preserve in the
entire planet. The country is also among the more
culturally and ethnically diversified countries in the entire
world, due to strong immigration movements since its
discovery in 1500.
One of the top 10 economies in the world, Brazil had in
2011 a GDP of more than US$ 2 trillion (BRL$ 4.143 trillion),
being the largest Latin-American economy, and playing
an important role in the international arena, both
regionally and globally. With a Human Development
Index (HDI) in 2011 of 0.718 – 84th in the world, Brazil is a
country of contrasts, holding the 12th position in the GINI
coefficient list that statistically measures the income
distribution of a nation's residents (0.513); in 2011, the
literacy rate of the population was 90.4%, meaning that
13 million (9.6% of population) people were still illiterate in
the country; functional illiteracy has reached 21.6% of the
population in that same year; in 2012, 16.2 million people
(8.5 percent of the population) still lived on less than R$70
per month, the threshold considered by the Brazilian
government as the extreme poverty line.
Among the reasons for the existence of such huge
contrasts are: the 400 years of slavery abolished in 1888 -
in which the black labor coming from Africa was only
exploited with no investment in human development; the
agricultural model with focus on exports that was
prioritized for many years; and the low priority given by the
Brazilian society and government to education.
Brazil was discovered by Portuguese navigators in 1500
and remained a colony to Portugal until 1815. In that year,
the king of Portugal moved to Brazil and created the
United Kingdom of Portugal and Brazil. In 1822, Brazil finally
proclaimed its independence from Portugal and, as a
sovereign country, established the Brazilian Empire. Sixty
seven years later, in 1889, the country became a
presidential republic, with the three powers (Executive,
Legislative, and Judiciary) working together to govern the
country.
An Historical Economic Overview
In the early 1970's, the Brazilian economy experienced a
two-digit growth per year that didn't seem to diminish as
years passed by. That was the pinnacle of a period known
as the “Economic Miracle”, under the auspices of a
military regime. The “miracle” was characterized by an
astounding number of infra-structure investments - such
as new highways, hydroelectric power plants, and new
communication networks – together with an industrial
“boom”, particularly in the sectors of oil, mineral
extraction, and automobiles.
Tired to be labeled as “the country of the future”, Brazil put
together a long-term developmental project to leave the
Third World. With a focus on economic self-sustainability,
and on the reduction and/ or substitution of imports, the
country decided to produce most of its needs in-house.
The military regime, in charge of governing the country,
injected large amounts of public money into the
economy to develop diverse industries, enlarged the size
and importance of government companies, and Figure 2. BRICs Economic Indicators (Global SHERPA, 2011)
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subsidized national businessmen, in order to create an
island of economic sustainability. The most important
companies to date in the Brazilian economy were
originally created or better structured by the government
in that period. Examples include Petrobras, Embraer, and
Vale, which later, in the 1990's, were privatized.
However, as the 1980's started, the economy stopped
growing, and the bill of all investments made in the 1970's
needed to be paid back. That bill generated unbelievably
high levels of inflation that reached 90% a month in some
years between 1981 and 1993. With the end of the military
regime and living in a democratic environment, with
elected presidents, Brazil spent those years using
economic shocks and other policies to fight the inflation,
and until that burden was not completely defeated, the
Brazilian economy experienced years of very low or no
growth at all.
At the end of the presidency of Itamar Franco (1992-
1995), the “Plano Real” was created and successfully
implemented by the Minister of the Treasure and future
president Fernando Henrique Cardoso (1995-2002). The
economic plan reduced dramatically the price rises and
stabilized the economy, with very low annual inflation
levels. At the same time, Brazil experienced a boom of
globalization in the domestic market, opening its frontiers
to the international capital and to global competition like
it never did before. This whole combination of factors
created the right environment for a sustainable
economic growth that permeated the Brazilian economy
at the turn of the century. Due to those positive economic
outcomes and potential for growth, Brazil was included in
a group of countries, the BRIC, that according to
Goldman Sachs (O'Neill, 2001) would portray the
economic powers of the future.
stIn the 21 century, the Brazilian economy experienced
three great economic years: 2007, 2008, and 2010. A
domestic social policy that included real increases on
minimum wage levels and provided the poor population
with social programs - to complement the budget of
families below and around the poverty line - caused a
sizeable increase in consumption and a better quality of
life to families that used to struggle on a daily basis to
survive. At the same time, the Brazilian government
implemented an economic policy that increased the
credit access to the low income portion of the Brazilian
population, increasing consumption and aggregated
demand. The multiplier effect was responsible for a real
increase in the number of jobs and in salaries, feeding
even further an increasing consumption trend. All those
efforts added millions of new Brazilians to the consumer
market, creating conditions for Brazil to mitigate the
effects of the world recession of 2009 on its domestic
economy. While the entire world was experiencing
sizeable reductions in their GDP's, the Brazilian index
remained stable in that year, and showed the best
performance of the past 35 years in 2010.
Between 2000 and 2008, taking advantage of the
increasing demand for commodities and their prices, the
country multiplied the value of its exports by four,
contributing to the increase of cambial reserves and,
therefore, leading the economy into a stable path. This
fact, together with the growth of the domestic market,
motivated international investors to make more direct
investment into the country, with an astonishing growth
(five times) between 2003 and 2007.
Brazil is nowadays an industrialized country full of natural
resources to exploit, with a growing economy that can
leverage an integral development of the country. In spite
of being the host for many industries (steel, automobile,
chemical, airplane, etc), the country still relies heavily on
the export of commodities as one of the main sources of
revenues. Brazil is the fourth largest exporter of agricultural
products in the entire world. Since the colonial period
(1500-1822), agriculture has always played a major role in
the Brazilian economy, with different crops leading the
exports along its history: sugar cane, coffee, wheat, and
soybeans more recently.
Starting in the 1970's, the Brazilian agricultural sector
experienced a leap of quality, and began using
mechanized farming, and producing other crops, such
as rice, corn, and soybean. Productivity was improved
and electric power became, for the first time in the
Brazilian history, a crucial “ingredient” of the agricultural
sector. In the 1980's, agriculture for export became the
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focus of the sector, leading to higher profitability for
producers, and allowing Brazil to consolidate its role as
one of the world's largest exporters of grains. Currently, the
Brazilian agricultural sector is structured as agribusinesses,
with a clear business focus on all stages of the production
chain. With this new approach, an even bigger growth is
being expected, since the country has access to state-of-
the art technology and has the qualified human
resources to deliver the products demanded by a
growing and increasingly demanding international
market.
1. Brazil and International Organizations
1.1 Brazil and the International Monetary Fund (IMF)
Close the end of the World War II, 44 allied countries sent
their representatives to a small town in New Hampshire,
Bretton Woods, in order to prepare strategies to target the
monetary future of the world. The Americans proposed
the creation of a fund that would help countries in trouble
with their balance of payments. This fund was named
International Monetary Fund and its main responsibility
from its creation has been to establish rules for
international monetary policies, as well as their
enforcement for international trade. Each country
member had to contribute funds, named quotas, to
compose a pool of monetary resources that could be lent
to members that would temporary be in troubled
situations. The amount of quotas contributed by each
country member has been directly proportional to the
total amount of money that can be borrowed by that
country, as well as to the number of votes that a given
country has had in terms of decision making. A country
that borrows funds from the IMF is subjected to a “recipe”
for improving its balance of payments. The IMF usually
makes “suggestions” regarding monetary policy,
government expenditures, exchange rates, and interest
rates. Those “suggestions” can impact the supply of
money circulating in the economy, as well as inflation
rates, affecting disposable income for consumption and
investments together with the real GDP. That is an issue to
be taken into account when doing business in countries
that are in this situation. (Aquino, 2013a)
Being one of the countries that founded the IMF in 1944,
Brazil has had a “roller-coaster” relationship along the
years with that international organization. During the
1980's, due to a crisis of the external debt and to a very
delicate status of its balance of payments, Brazil received
financial assistance and had to follow many economic
adjustment programs specified by the IMF. From that
point on, the relationship between Brazil and the IMF was
punctuated by further financial assistance and tentative
of rolling out the debt. In 1985, the IMF suspended
financial assistance since Brazil did not achieve some
goals included in an economic adjustment program. The
country declared a unilateral moratorium in 1987 and
suspended the payments to the IMF; it re-started paying its
duties (principal and interest) in 1994, when it regularized
its external credit. Finally, in 2005, Brazil paid back all funds
borrowed from the IMF, amounting to $15.5 billion, two
years before the deadline of December 2007. This mark in
the Brazilian economic history was only possible due to
the economic growth and financial stability achieved by
the country.
In 2009, for the first time in history, Brazil became an IMF
creditor, buying $10 billion in IMF bonds to help emerging
countries with financing difficulties due to the world
economic crisis. That amount was obtained from Brazilian
reserves in foreign currency, which totaled more than
$205 billion. (MercoPress, 2009)
1.2 Brazil and the World Trade Organization (WTO)
The World Trade Organization (WTO) replaced the GATT
(General Agreement on Tariffs and Trade) after the
Uruguay Round back in 1995. Its main purposes are (i)
facilitate reciprocal trade negotiations and (ii) enforce
trade agreements between or among member
countries. By monitoring the trade relationships among
countries, the WTO can have a great impact on business
done by companies in those locations. If a specific
country creates or increases barriers of entry (tariff and
non-tariff) for products and services that come from
abroad, the countries that feel harmed by those
government decisions can appeal in WTO. Those barriers
have been used by either emerging countries, as well as
by the top world economies. In those cases, WTO accept
i-manager’s Journal o Management, Vol.n l l9 No. 4 March - May 2015
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the complaint from the country that feels harmed by
those practices, and tries to mediate a compromise
between the affected countries for the benefit of
international trade. (Aquino, 2013a)
Along the years, Brazil has both filed complaints about
some trade tariffs and taxes imposed by other countries,
and acted as the respondent in other disputes. To date,
Brazil is by far the emerging economy that has more
frequently used the WTO for trade disputes, since it is only
behind the USA, EU, and Canada, in the number of WTO
cases. Another relevant information is that the country has
won most of the disputes in which was involved. Since the
WTO creation in 1995 until 2009 (WTO, 2009), 400 trade
disputes were filed with the organization, and Brazil was
involved in 38 of them, 24 as the complainant and 14 as
the respondent. The United States were involved in 201
disputes, followed by the European Union (148) and
Canada (48). Some of the relevant Dispute Settlements
(DS) filed at WTO and involving Brazil includes:
·Ds250 - US overtaxing orange juice from foreign
producers, such as Brazil, to avoid unfair competition
with products coming from the state of Florida and
California.
·In March 2002, Brazil complained to the WTO about
the “Equalizing Excise Tax” charged by Florida on the
orange juice concentrate imported from foreign
suppliers to protect local producers and eliminate
advantages offered by the imported items. Brazil, as
the biggest exporter claimed that the tax would be
reducing the competitive advantage of the Brazilian
juice in the American market.
·After many negotiation rounds between the Brazilian
and the US government (and the state of Florida
government as well), an agreement was achieved
and the tax was dropped. The two countries informed
the WTO that they had reached a mutually agreed
solution on 28 May 2004 (WTO, 2014)
·DS266 - Export subsidies provided by the European
Union for excess of production that cannot e
commercialized internally (C quota sugar) and re-
export subsidies for sugar originally manufactured at
former European colonies in Africa, Caribbean, and
the Pacific above WTO pre established limits
·The EU decided to implement such subsidies due to
the low competitiveness of the sugar based on beat,
which had much higher costs of production than the
sugar extracted from sugar cane. Brazil and other
countries formally complained about this policy and
requested the EU to drop those subsidies.
·WTO suggested a change in the EU sugar policies
regarding these subsidies and requested the
monitoring of sugar exports, giving the EU 12 months
to implement those changes. Filed in September
2002, the dispute was settled only on 8 June 2006
(WTO, 2014)
2. Brazil and the Evolution of Macroeconomic
Measurements
Brazil has shown in the past few years that the predictions
for 2050 made by Goldman Sachs in 2001 are about to
turn into reality. The country has been moving up the ranks
of the world's largest economies, with many
macroeconomic measurements confirming that.
Unemployment rates reached a record low in 2010, with
2.56 million new jobs created in Brazil that year. Levels of
poverty and income inequalities have been falling
consistently, as well, in the past years, with the government
taking care of implementing social programs and
providing wider credit access to improve the quality of life
of the population. On the down side, interest rates
continue to be among the highest in the entire world, and
inflation has climbed up a little when compared to the
levels of late 1990's. This section will discuss the evolution
o f B r a z i l r e g a r d i n g s o m e m a c r o e c o n o m i c
measurements, such as GDP, unemployment, inflation,
interest rates, and exchange rates. Table 1 summarizes
some economic indicators that seem to be relevant to
this analysis. (OECD, 2013)
2.1 Gross Domestic Product
In the first years of the 21st century, millions of new
Brazilians were added to the consumer market, which
spared the Brazilian economy from being deeply
affected by the world recession of 2009. While the entire
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ARTICLE
world was experiencing sizeable reductions in their Gross
Domestic Product (GDP), the Brazilian index remained
stable in that year, and showed the best performance of
the past 35 years in 2010 setting a new historic record,
7.5%. The record high growth was primarily generated in
the first three quarters as a consequence of the untapped
growth potential that emerged after the financial crisis. In
the three years before the financial crisis (2006-2008),
Brazil had an average GDP growth of 4.1%, becoming be
one of the world's top 10 biggest economy, and moving
Table 1. Macroeconomic Indicators - Brazil
Sectors 2000 2008 2009 2010 2011 2012
Supply and demand
GDP (in current BRL billion)
GDP (in current USD billion)
GDP (in current USD, PPP)
GDP growth rate (real, in percent)
Supply
Industry
Services
Demand
Private consumption
Public consumption
Gross fixed investment
Exports
Imports
Public finances (in per cent of GDP)
General government
Revenue
Expenditures1Gross debt
Consolidated public sector
Primary balance
Norminal balance
Balance of payments ( )in USD billion
Current account balance
In per cent of GDP
Trade balance
Exports
Imports
International reserves (gross)
EDI (net inflows)
Outstanding external debt
In per cent of GDP
Agriculture
Net debt
Exchange rate and prices
Exchange rate (BRL per USD, period)
CPI inflation (IPCA, in per cent, end-of-period)
Core inflation (in per cent, end-of-period)
GDP deflator (in per cent)
Labour market2Unemployment rate (in per cent)
1179.5
644.6
7.016.6
4.3
4.8
3.6
4.0
-0.2
5.0
12.9
10.8
32.5
29.3
.....
3.2
-3.4
-24.2
-3.8
-0.7
55.1
-55.8
33.0
32.8
236.2
36.6
2.7
45.5
1.8
6.0
3.9
6.2
.....
3032.2
1653.2
10405.2
5.2
4.1
4.9
5.7
3.2
13.6
0.5
15.4
36.7
38.6
57.4
3.4
-2.0
-28.2
-1.7
24.8
197.9
-173.1
193.8
45.1
198.3
12.0
6.3
38.5
1.8
5.9
6.1
8.3
7.9
3239.4
1622.0
10414.9
-0.3
-5.6
2.1
4.4
3.1
-6.7
-9.1
-7.6
35.6
38.8
60.9
2.0
-3.3
-24.3
-1.5
25.3
153.0
-127.7
238.5
25.9
198.2
12.2
-3.1
42.1
2.0
4.3
5.0
7.2
8.1
3770.1
2142.4
11180.3
7.5
10.4
5.5
6.9
4.2
21.3
11.5
35.8
36.8
39.6
53.4
2.7
-2.5
-47.3
-2.2
20.1
201.9
-181.8
288.6
48.5
256.8
12.0
6.3
39.1
1.8
5.9
6.1
8.2
6.7
4143.0
2474.1
11639.7
2.7
1.6
2.7
4.1
1.9
4.7
4.5
9.7
36.1
39.0
54.2
3.1
-2.6
-52.5
-2.1
29.8
256.0
-226.2
352.0
66.7
298.2
12.1
3.9
36.4
1.7
6.5
7.0
7.0
6.0
4402.5
2252.8
12.055
0.9
-0.8
1.7
3.1
3.2
-4.0
0.5
0.2
38.9
41.6
58.7
2.4
-2.5
-54.2
-2.4
19.4
242.6
-223.2
373.1
65.3
312.9
14.9
-2.3
35.2
2.0
5.8
5.6
5.3
5.5
1. In this table, gross debt does not include treasury bills on the central bank balance sheet not used under repurchase agreements, amounting to about 9% of GDP at the end of 2012.2. Monthly Employment survey (PME/IBGE), new methodology. Source: IBGE, Central Bank of Brazil, National Treasury, IMF.
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Great Britain, France, and Italy down in the rank. After that
peak in 2010, the Brazilian economy increased the GDP in
much more modest levels (2-4%), not being able to
repeat the 2010 growth.
In the Brazilian economy, the service sector has been the
most important contributor to the national GDP (69% of
the total in 2012). In that sector the most important
segments were: government, education and health
(17%); other services (16%); wholesale and retail trade
(13%); real estate (8%), and business and financial
services (7%). The industrial sector constituted 26% of the
GDP in 2012, and the largest segments within this sector
were: manufacturing (13%); construction (6%) and
mining (4%). Agriculture accounted for the remaining 5%
of Brazilian's GDP in that year.
Figure 3 shows the evolution of Brazil GDP growth for the
period of 2000-2014. Table 2 presents a compilation of
the GDP value and growth for the top world's 14
economies in 2010.
2.2 Consumption and Demand
While experiencing wider access to credit, and reduction
in unemployment, the Brazilian society has dramatically
increased the domestic consumption in the 21st century,
raising the demand for products and services in
comparison with previous years. Figure 4 presents an
evolution of the consumer spending in the country for the
period between 2000 and 2014. (Values are in Brazilian
Real – 1 USD = 2 BRL). Consumer spending in Brazil
averaged BRL 345,000 million between 1995 and 2013,
reaching an all time record high of BRL 765,000 million in
the third quarter of 2013 and a record low of BRL 100,000
Million in the first quarter of 1995.
In the 21st century, Brazil has also become the destination
of an increasing number of foreigners that have chosen
the country as their local of investments and tourism. With
the intensification of domestic business operations,
combined with an increase of the average family
revenue and low cost vacation offerings, Brazilians started
to fly more frequently, both for business and leisure. Only in
2010, 155 million air travelers were counted by Infraero,
the organization in control of Brazil's air traffic, representing
a growth of 20% compared to the previous year. Figure 5
shows the growth of the number of passengers in the
Figure 3. GDP Growth – Brazil (IBGE, 2014)
Table 2. National GDP -2010 – 14 Top World Economies (CIA, 2011)
Country GDP Real Growth
United States $ 15,040,000,000,000 1.1%
China $ 11,300,000,000,000 9.5%
India $ 4,463,000,000,000 7.8%
Japan $ 4,389,000,000,000 -0.5%
Germany $ 3,085,000,000,000 2.7%
Russia $ 2,273,000,000,000 4.3%
Brazil $ 2,284,000,000,000 7.5%
United Kingdom $ 2,250,000,000,000 1.5%
France $ 2,214,000,000,000 1.7%
Italy $ 1,826,000,000,000 0.6%
Mexico $ 1,657,000,000,000 3.8%
South Korea $ 1,554,000,000,000 3.9%
Spain $ 1,411,000,000,000 0.8%
Canada $ 1,389,000,000,000 3.1%
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country between 2004 and 2010.
2.3 Unemployment
The unemployment rate represents the percentage of the
workforce that is currently not employed. In Brazil, the end
of the 20th century was marked by a high level of
unemployment. The recovery of the economy and the
reduction of inflation represented positive marks
achieved by the “Plano Real”, an economic plan
successfully applied to stabilize the Brazilian economy in
mid 1990's. On the other side, however, some measures
used to contain the inflationary trend resulted in cuts of
government expenses and reduction in the creation of
new jobs. High unemployment during this period led to
much social unrest in Brazil. In a critical year, and
according to official figures, the unemployment rate for
the first six months of 1998 in Brazil was 7.8%, a record high.
Figure 4. Consumer Spending in Millions of BRL(Brazilian Real) – Brazil (IBGE, 2014)
Figure 5. Air passengers (in millions) and percentagegrowth – Brazil (Infraero, 2014; IBGE, 2012)
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But unions and other organizations not connected with the
government claimed that the real picture was much
worse, almost twice that figure.
The beginning of the 21st century brought a much brighter
situation to the labor domestic market in the country. After
2000, unemployment rates in Brazil stabilized with minor
fluctuations, and after 2010 unemployment rates have
dropped to levels around 5%. Only in 2010, 2.56 million
new jobs were created in the country. From 2001 until
2013, Brazil's unemployment rate averaged 8.8%,
reaching an all time high of 13.1% in April of 2004, and a
record low of 4.3% in December of 2013.
Figure 6 presents the evolution of unemployment rates in
Brazil during the 21st century, with Figure 7 showing
monthly unemployment rates for the past two years.
2.4 Interest Rates
Monetary policy is an instrument used by the Federal
Reserve (in the USA) and by Central Banks of different
countries to control the amount of money in the market
(money supply) and the level of interest rates in order to
influence aggregate demand. A cut in the interest rates or
the increase in the quantity of money available in the
market has the effect of raising the aggregate demand
and, therefore, the GDP. (Aquino, 2013b)
Figure 6. Unemployment Rate – 2001 -2014 – Brazil (IBGE, 2014)
Figure 7. Monthly Unemployment Rate – 2012 -2014 – Brazil (IBGE, 2014)
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In Brazil, the Banco Central do Brasil (BACEN) is the
organization in charge of defining the monetary policy. It
has acted quickly lowering the interest rates to help the
Brazilian economy to recover from the global financial
crisis of 2009. Figure 8 shows a historical evolution of
interested rates in Brazil. The benchmark interest rate in
Brazil was last recorded at 10.50 % in January 2014
(BACEN, 2014). From 1999 until 2014, Brazil Interest Rate
averaged 16.0 %, reaching an all time high of 45.0% in
March of 1999 and a record low of 7.3 % in October of
2012. The numbers shown in Figure 8 reflect the official
interest rate measured by Brazil's Central Bank, which is
named SELIC rate (the Special System of Clearance and
Custody rate), which is the overnight lending rate.
2.5 Inflation
Brazil experienced incredibly high inflation between 1981
and 1993, when the country faced levels that reached
90% a month in some years. With the end of the military
regime and living in a democratic environment, with
elected presidents, Brazil spent those years using
economic shocks and other policies to fight the inflation.
The first big step towards achieving that goal relied on
economic policies initially adopted in the government of
President Collor de Mello (1990-1992), that were
intensified during the presidency of Itamar Franco (1992-
1995), in which a new price stability plan – “Plano Real” –
was implemented (1994). After many others failed to
defeat inflation, this plan succeeded in controlling the
inflationary process, combining policies related to
international capital liquidity recovery with reduced
restrictions on capital and goods circulation. A
contractionary monetary policy was adopted by raising
interest rates. The goal was to not only avoid an economic
acceleration, but also attract capital flows and
accumulate international reserves necessary for
sustaining the plan. The government also decided to
control the exchange rate with the dollar by implemented
a policy that provoked the domestic currency
appreciation against the American currency. With that in
place, imports became cheaper and the domestic
products more expensive, which caused domestic
companies to stop rising their prices in order to maintain
their competitiveness and market share. On the down
side, balance of payments and economic growth were
both negatively affected, but the population was happy
with the temporary purchasing power gain for lower
income population.
Table 3 shows the main components of the consumer
price index that is used in Brazil to measure the inflation
rate.
In the 21st century inflation in Brazil has been kept in low
levels during the 21st century, as can be verified on Figure
9, although a peak occurred in 2003-2004, showing the
government the need to review the monetary policy.
2.6 Exchange Rates
The Brazilian currency in the 20th century was
characterized for constant devaluations against the
dollar, what made the Brazilian government change the
currency denomination many times (Figure 10). Originally
named Real (1500-1833), the Brazilian currency had
different denominations until finally return back to the
Figure 8. Brazil Interest rates 2000-2014 (BACEN, 2014)
Table 3. Components of Consumer Price Index (IPC)
Figure 9. Inflation Rates – Brazil (BACEN, 2014)
food, alcohol and tobacco (31%) transport (15%)
real estate (12%) health care (11%)
clothing (9%) communication (5%)
education (4%)
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11
ARTICLE
original name in 1994 due to stabilization plan
implemented during the presidency of Itamar Franco, in
1994. One of the pillars of this plan was to control the
exchange rate by implementing a policy that provoked
the domestic currency appreciation against the
American currency. Using a fixed rate for many years, the
Brazilian government had to move in the 21st century
towards a floating currency policy to accommodate the
needs of exporters and to revitalize the economy in 2003.
The current value of the Real varies around 2 to 2.5 dollars
in the past few years, with a decrease in the average value
to 2.39 for each US dollar in February from 2.41 in January
of 2014. Figure 11 presents the variation of the Real
exchange rate (against the dollar) in the 21st century.
Figure 11. Brazil's Real against USD – 2000-2014 (BACEN, 2014)
Figure 10. History of Brazilian Currency (BACEN, 2014)
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ARTICLES ARTICLE
12
3. Brazil and Foreign Direct Investment
Since the 1990's, emerging economies like the BRIC
countries, have increasingly attracted the attention of
investors, showing growing market participation in terms of
world trade and capital flows. They have become
important producer and consumer markets as well as
g reat f inanc ia l cente r s, w i th an inc reas ing
internationalization of domestic companies, via mergers
and acquisition or joint ventures.
Foreign Direct Investment (FDI) data from United Nations
Conference on Trade and Development (UNCTAD, 2013)
reveals a rising flow trend towards emerging economies in
the last decades (Table 4). The same trend can be
observed in terms of outflow FDI coming from those
economies. Those numbers show that domestic
companies located originally in the emerging
economies reallocated their capital around the world as
part of their strategy to arrange global or regional
production networks in order to capture the benefits from
different markets and, by being close to final customers,
be able to reduce costs in logistics and insurance.
It follows a discussion of the character of both inward and
outward movements of transnational corporations in
response to economic policy orientation in Brazil.
3.1 Inflow FDI
In recent years, the inflow FDI in Brazil can be divided into
two clearly distinguished cycles: the first one
characterized mostly by mergers and acquisitions,
particularly in the services sector of the economy; and a
second one driven by greenfield investments.
After the Brazilian government broke up its monopoly in
sectors such as electricity and telecommunications in
1995, an inflow of foreign capital ownership, transferred
via M&A, was destined basically to public services in the
country. The banking sector also went through a
restructuring process, with the government having also
decided to reduce its participation, what created a good
opportunity for international banks like HSBC, ABN-AMRO,
and Santander to acquire some domestic players and
consolidate their participation in the Brazilian market.
In this cycle, the participation of industry in FDI inflows
remained relatively low. The price stability and a
perspective of regional integration with the creation of
Mercosur, however, attracted foreign capital in some
specific industries, such as the automobile industry,
looking for exploring potential economies of scale and
scope in the production between Brazil and Argentina.
The second cycle, in the 21st century, has been
characterized by the importance recovery of the industry
sector in FDI inflows even though services sectors in
general have remained the main foreign investment
receiver. The recovery of economic growth also led
companies already established in Brazil to increase their
capacity and attend prospective demand. The boom in
commodity prices in this period also caused a rising
participation of primary sector in FDI inflows, mainly of oil,
gas and mining sectors.
Figure 12 presents an evolution of Inflow FDI in Brazil, from
1990 to 2010, while Table 5 shows the distribution of those
investments among the different sectors of the Brazilian
economy, from mid-1996 to 2009 (Borghi, 2013).
3.2 Outflow FDI
Brazilian outward expansion is a much more recent
phenomenon, with only a few exceptions happening
before the 21s century, after the economic openness in
the early 1990s. The need for consolidating their position in
the Brazilian market with the fiercer competitive
Table 4. Evolution of World FDI
Year Total World FDI (in USD billion) Emerging Economies Participation
Inflow Outflow Inflow FDI Outflow FDI
1980 54.1 51.6 13.8% 6.2%
2012 1,350 1,391 52.0% 30.6%
Figure 12. Inflow FDI in Brazil (BACEN, 2014)
0
5
10
15
20
25
30
35
40
45
50
1990
1991
1992
19
93
1994
1995
1996
1997
1998
1999
2000
2001
200
2
2003
2004
2005
2006
2007
2008
2009
2010
US$billion
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
%ofto
talworld
US$ billion % of total world
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ARTICLE
13
environment, made most Brazilian companies with
potential to become global to decide postponing their
internationalization plans. After that was achieved, most
of them opted for a regional ized model of
internationalization, concentrating their operations in
Latin America and quite often expanding their operations
abroad through acquisitions.
Brazilian outward FDI movement has been marked by
some particular features:
·Companies prioritized their investments above all in
Latin America or, more specifically, Mercosur, where
they have better market positions and could benefit
from a favorable trade and investment institutional
framework with partner countries.
·The favorite approach to internationalization have
been through M&A operations rather than greenfield
investments, although construction of new facilities
and joint venture partnerships were also observed
·It relies on a small, although increasing, number of
companies (Table 6), but only a few, such as
Petrobras, Vale, Gerdau, Votorantim and Odebrecht,
have shown a strong footprint in international venues.
Only the first three are among the top 100 non-
financial transnational corporations from developing
countries (UNCTAD, 2013).
This does not mean, however, the inexistence of other
leading companies able to compete and, especially as
a result of the world financial crisis, to consolidate abroad.
They have international presence, but are concentrated
in particular market niches, such as Embraer in the aircraft
industry, and Marcopolo (buses).
Finally, Brazilian companies operating abroad are more
concentrated in low-tech segments, expressed by the
predominance of resource-based companies, basic
input suppliers, construction enterprises and consumer
goods producers. Only a few companies are equipment
and component suppliers (most in automotive industry)
and systems assemblers which involve a higher
technological degree (e.g. Embraer and Marcopolo).
The sharp rise of Brazilian outward FDI movement in the
21st century can be explained by a combination of
interrelated international and domestic macroeconomic
conditions, and the boom in commodity prices. Given the
abundance of natural resources in the country and the
fact that many Brazilian large companies are resource-
based, they could register huge gains and consequently
intensify their consolidation process as global players.
4. Brazilians and Brazilian Companies in Florida
Economic development represents and important
objective within the State of Florida. There are two key
Table 5. Brazil Inflow FDI by Sector of the Economy
Sectors 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Agriculture, livestock and mining 1.4 3.0 0.6 1.5 2.2 7.1 3.4 11.5 5.3 10.2 6.1 14.8 29.6 14.7
Industry 22.7 13.3 11.9 25.4 17.0 33.3 40.2 34.9 52.8 29.8 39.3 36.1 31.9 39.2
Food and beverages 2.4 2.1 0.6 4.5 3.3 2.7 10.0 3.2 26.4 9.6 3.3 5.4 5.1 1.8
Chemical products 2.9 2.4 1.5 4.6 3.7 7.3 8.4 7.1 6.7 3.5 5.1 2.2 2.5 3.6
Metallurgy 0.4 0.0 0.5 0.4 0.8 2.0 0.7 2.7 4.0 1.4 7.7 13.9 11.4 12.4
Electrical, electronic andcommunication. equipments 1.3 2.2 1.8 5.4 2.5 7.2 5.4 4.0 2.6 2.9 2.5 1.6 1.1 2.2
Automotive 3.7 1.5 4.6 6.6 3.2 7.4 9.4 7.5 4.2 4.3 1.3 2.6 2.2 7.1
Others 11.9 5.1 2.9 3.8 3.5 6.6 6.4 10.4 8.9 7.9 19.4 10.4 9.7 12.0
Services 75.9 83.7 87.5 73.1 80.9 59.6 56.4 53.6 41.9 60.1 54.5 49.1 38.5 46.1
Utilities 21.2 23.2 9.5 10.8 9.9 6.9 8.2 5.0 5.8 7.3 10.5 1.8 2.1 3.2
Retail and wholesale trade 8.0 5.1 9.4 9.7 5.2 6.9 7.6 6.3 5.9 12.9 6.6 8.2 5.8 9.1
Financial intermediation 5.0 10.4 25.4 6.1 21.3 9.4 6.2 3.0 4.2 4.1 11.9 17.3 8.7 8.2
Post and telecomm. 8.0 5.4 11.0 29.4 36.5 19.6 22.3 21.8 14.7 8.8 5.5 0.9 1.0 1.0
Others 33.7 39.6 32.1 17.1 7.9 16.9 12.0 17.5 11.3 26.9 20.1 20.9 20.9 24.6
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total (US$ million) 7,665 15,311 23,271 27,572 29,876 21,042 18,778 12,902 20,265 21,522 22,231 33,705 43,886 30,444
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ARTICLE
14
public/ private partnerships with a mandate to promote
the State as a tourism destination and as a location for
business. These agencies are Visit Florida (n.d.) and
Enterprise Florida (n.d.). In particular, Enterprise Florida Inc.
(EFI) “is a public-private partnership between Florida's
business and government leaders and is the principal
Table 6. Brazilian Companies Operating Abroad in 2007
Company SectorSize (sales inUS$ million)
Firstexport
First plantabroad
Unitsabroad Countries (sequence)
Mode of entry(sequence)
Manufactured goods
Ambev Beverage 14,400 1979 1993 35 LA, USA, EU Acq, JV
Artecola Auto parts, shoes 120 - 2000 5 LA, USA, EU JV, Acq
Busscar Bus assembly 260 - 1999 9 LA Acq, JV
Braskem Chemicals - - 2006 2 LA JV
Camargo Correa Cement and engineering 4,000 - 2003 - LA Acq
Cinex Furniture 15 - 2002 2 LA GF
Citrosuco Beverage 312 - 1997 1 USA Acq
Coopinhal Coffee - - 2006 1 Russia JV
Coteminas Textile 550 1997 1997 11 USA JV, Acq
CSN Steel 5,500 1977 2001 9 USA, EU Acq
Cutrale Orange juice 1,000 - 1990 1 USA Acq
Duas Rodas Food - - 1997 3 LA GF
Duratex Construction materials 692 1957 1995 10 LA, EU Acq
Embraco Compressors 590 1980s 1994 6 EU, Asia Acq
Embraer Aircraft 3,906 1975 1979 3 China, EU JV, Acq, GF
Friboi Food 11,500 1997 2005 6 USA, LA, EU, ME Acq
Gerdau Steel 14,000 1980 1980 63 LA, USA, EU, India Acq, GF
Guerra Trucks 80 1993 2005 1 LA GF
H. Stern Jewelry 200 - 1955 80 LA, EU, ME GF, JV
Ipiranga Oil and gas 10,000 - 1995 4 LA JV, GF
Klabin Paper 1,500 1970s 1996 1 LA GF
Marcopolo Bus assembly 843 1961 1991 9 South Africa, LA, EU, China JV, GF, Acq
Metagal Auto parts - - 1996 1 LA -
Metalcorte Electric engines 180 - 2005 1 LA Acq
Metalfrio Refrigeration 300 - 2005 4 EU, USA Acq
Natura Cosmetics 1,600 - 1981 6 LA, EU GF
Oxiteno Chemicals 2,205 1990s 2003 6 LA Acq
Perdigão Food 3,000 1976 1990 4 ME, EU, LA JV, GF
Petrobrás Oil 79,120 - 1972 100 LA, Africa, USA Acq
Random Trucks 1,900 1973 1994 7 LA GF
Sabó Auto parts 170 1975 1992 9 LA, EU, USA Acq, GF
Sadia Food 4,100 1967 1991 10 EU, LA, ME, Japan JV, Acq
Santista Textile 365 1994 1995 8 LA, EU Acq, JV
Smar Industries solutions 80 1989 1988 7 LA, EU GF
Tigre Construction materials 850 - 1977 6 LA GF, Acq
Tramontina Tools and house supply 700 - 1986 10 USA, ME GF
Vale Mining 23,350 1949 1984 52 USA, EU, China Acq, GF
Votorantim Mining 1,750 - 2004 1 LA Acq
Votorantim Cement 11,500 1970 2001 29 Canada, USA Acq, JV
Weg Electric engines 1,500 1980s 1995 12 LA, EU, China Acq
IT and services
CI&T Business intelligence 150 - 2006 2 USA, EU GF
Andrade Gutierrez Engineering and construction 2,150 - 1980 11 LA GF, Acq
Atech IT 50 - 1997 1 USA GF
Datasul Business intelligence 95 1993 2001 4 LA GF
Ibope Telecommunication - - 1991 16 LA JV, GF
Odebrecht Engineering and construction 11,322 1979 1979 14 LA, Africa, EU Acq, GF
Politec Business intelligence 250 - - 2 USA, Japan GF, Acq
YKP Business intelligence 18 - - - LA JV
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ARTICLE
15
economic development organization for the state of
Florida. EFI's mission is to expand and diversify the state's
economy through job creation. In pursuit of its mission, EFI
works closely with a statewide network of economic
development partners and is funded both by the State of
Florida and by private-sector businesses” (Enterprise
Florida, n.d.).
Brazilians have been playing a crucial role in the Florida's
economic environments for the past years. Recognized
as the internal partner #1 of Florida, the country has
gathered the attention of both government and private
sector. In 2010, Florida's trade with the country topped
$14.4 billion. The current Florida's governor Rick Scott
organized a trade mission to Brazil in October 2011 to try to
increase the economic relationships between the two
partners. Mayor Bob Buckhorn from Tampa also went to
Brazil in late 2013 accompanied by a team of executives
from different industries, airport and port officials, with the
same intent: bring more Brazilian funds to Florida, either by
increasing the tourism or by having more Brazilian
investments in the sunshine state.
The state of Florida has non-stop flights to Sao Paulo,
Campinas, Rio de Janeiro, Manaus, and Brasilia on a daily
basis, and Tampa is working hard to get the same benefit.
In 2012, there were 123 weekly flights between Brazil and
Florida. The Port of Tampa has defined Brazil as a focus for
the current administration in its trading strategy.
According to the latest statistics, Brazilian tourists spent
$5.9 billion in the U.S. in 2010 in a tsunami of cash that's
shifting American immigration practices and boosting
economies in hard-hit parts of the U.S. that remain in the
doldrums (Barchfield, 2012). In the same year, only in the
state of Florida, Brazilian nationals spent 1.2 billion dollars
(Huettel, 2011), twice as much as the British (number 2 in
expenses not considering Canadians).
Real state has also been a target for Brazilian nationals
that have consistently purchased houses, condos, and
even hotels in the state of Florida. But not only in tourism
and real state the Brazilian footprint can be recognized in
the sunshine state. Companies like Cutrale, Odebrecht,
Gerdau, and Embraer, are recognized by the Floridian
population as reliable business players and job creators,
although most people don't even know they are Brazilian
multinational companies. The same happens with other
Brazilian corporations like InBev (Belgian Brazilian),
currently owner of Anhauser-Busch, and 3G Capital, the
private equity firm that bought Burger King in 2010 for $4
billion.
A snapshot of the main Brazilian FDI in Florida is described
as follows:
Cutrale Citrus Juices USA, Inc
·Headquartered in Auburndale, Florida.
·It is the largest orange juice processor in the United
States and the parent company, Sucocitrico Cutrale
LTDA, a Brazilian company, is one of the world's largest
growers and processors of oranges
Odebrecht USA
·Construction company
·Major role in public projects (more then $4 billion):
Metromover, American Airlines Arena, the Adrienne
Arsht Center for the Performing Arts, the North and
South Terminals at Miami International Airport.
·Odebrecht USA is part of a Brazilian conglomerate
that has become a global force and has diversified
far beyond const ruct ion wi th in terests in
petrochemicals, sugar, real estate development,
ethanol and bio-energy, power generation, water
and environmental engineering, oil and gas, plastics,
t ranspor tat ion/ log is t ics, and defense and
technology.
Gerdau USA, Inc
·Leading company in the production of long steel in
the Americas and one of the major suppliers of
specialty long steel in the world.
·Leader in mini-mill steel production and steel
recycling in North America, with an annual
manufacturing capacity of approximately 10 million
metric tons of mill finished steel products
·More than 45,000 employees, with an installed
capacity of more than 25 million metric tons of steel
and it is the largest recycler in Latin America, and
li-manager’s Journal o Management, Vol. No. 4 ln 9 March - May 2015
ARTICLE
16
around the world, it transforms millions of metric tons
of scrap into steel every year.
·Has a presence in 14 countries: Argentina, Brazil,
Canada, Chile, Colombia, Dominican Republic,
Guatemala, India, Mexico, Peru, Spain, U.S., Uruguay
and Venezuela.
Embraer Aircraft Holding, Inc
·A subsidiary of Embraer - Empresa Brasileira de
Aeronáutica, with facilities in Fort Lauderdale (FL),
Nashville (TN), and Melbourne (FL)
·Embraer is one of the world's main aircraft
manufacturers, with net revenues of $ 6.1 billion in
2012, and a large footprint in the regional jets market,
in which the main competitor is the Canadian
company Bombardier.
·The company was created in 1969 as a mixed-
capital model, until it was completely privatized in
1994.
Conclusion
Global trade is an increasingly important component of
the economy in any country. As a fast growth BRIC
economy, Brazil has an impressive record of economic
growth. Within the America's Brazil has developed close
social, cultural and economic ties with the State of Florida.
In many instances, these ties reflect business opportunities
and foreign direct investment projects and initiatives in
Florida. The relationship between Brazil and Florida has, in
part, been advanced by the State of Florida and it is
designed to be a “win-win” opportunity for both entities. In
that regard, it can serve as a model for similar partnerships
globally.
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ABOUT THE AUTHORS
D.
li-manager’s Journal o Management, Vol. No. 4 ln 9 March - May 2015