International Business in Brazil - Assignment Example

Key Factors that Have Enabled Brazil to Become a Rapidly Developing Economy By Foundation Business Name] [Department] 31 December 2014 Key Factors that Have Enabled Brazil to Become a Rapidly Developing Economy 1.0 Introduction Today, Brazil is considered as one of the world’s major emerging economies and has seen significant socio-economic changes in the recent past years. The country is mainly known for being a leading exporter in the world of minerals, steel, food products and aircrafts. This includes industrial production of cars, trucks as well as a broad range of other capital goods and consumer durable materials. Brazil has one of the most stable financial system especially after experiencing an extended period of hyperinflation and numerous failed attempts towards stabilisation (Baer 2001). Brazil has experienced massive socioeconomic transformation, and this can be dated back since the World War II. The country has seen growth from an economy that relied more on exportation of few primary products to the present day economy that is characterised by large and diversified industrial sector. The country has also transformed from a previously largely rural population to an increasingly urbanised state today. All these are clear illustrations that show the enormous strides that Brazil has taken towards its status among the fastest growing and emerging nations in the world. Brazil has an estimated population of about 200 million people which is a rapid growth from the 17.4 million in 1900. About 87 percent of the country’s population is urbanised compared to 30 percent in 1940. After going through several decades of industrialisation, Brazil presently produces more than 35 million tonnes of steel, 3 million vehicles, 66 million tonnes of corn and 60 million tonnes of cement among others annually. Other primary goods produced in the country include refrigerators and television sets. The country has a well-developed road network covering over 1.5 million kilometres well as a widespread supply of electricity (TWB 2014). The political system in Brazil involves the president being the supreme entity especially in matters concerning executing policies approved by the lower and upper houses. The Congress has a regulatory function towards decisions and actions taken by the executive. The two chambers (Chamber of Deputies and the Senate) have a role in creating legislation which are thereafter signed into law by the president. In matters of national economy, the Brazilian government has a pivotal role and influence in many aspects of the economy and its consequential growth. For example, the Government expenditures accounts for more than 40 percent of the country’s GDP. Technological advancements is an essential part in the economic development of a country. The advancements include changes of use in particular technologies to more efficient and innovative technologies. For example, in Brazil, a lot has changed in the technologies used in sectors such as agriculture and mining, and this has led to improved efficiency in the corresponding industry outputs. This paper will look to identify and evaluate the various factors that have enabled Brazil to become one of the rapidly developing economies (emerging economies) in the world. This will involve the description of various factors such as economic, political and technological factors. 2.0 Economic factors influencing the rapid economic growth in Brazil The economic growth of any country primarily relies on various factors and status of its economy. The growth is measured in terms of an increase or decrease in the country’s Gross Domestic Products (GDP). Usually, economic growth entails a long-term and stable economic growth, and this may, therefore, be determined based on the growth spanning a long period. Brazil, for example, has seen intermittent patterns of economic growth over the last about six decades. For example, between 1960 and 1980, Brazil’s economic performance was very impressive, with the real GDP growing at the rate of 7.5 percent. However, a debt crisis in 1982 crippled the performance, grounding the growth and leading to a deterioration and consequently a stagnation that lasted for about 20 years (Lipton 1993). However, all these have not hindered the country from becoming one of the world’s fastest developing nations. Today, Brazil has a GDP of 2246 billion dollars (Trading Economics 2014). Note. From Brazil- Economic Indicators, Trading Economics (Trading Economics 2014) The following are some of the economic factors that have led to the same. 2.1 Availability of numerous natural resources Brazil has a wide variety of natural resources especially the minerals and favourable climate for agricultural production. The mineral resources mainly consist of iron, manganese, copper, zinc, bauxite, lead, uranium, industrial diamonds, nickel and gemstones. Brazil also has a wide range of fuel sources ranging from oil, hydroelectric power and the lesser used firewood and charcoal (Maps of World 2014). Coal deposits have also recently been discovered in some parts of the country although most have been determined to be of low quality and thus may not be used for large-scale fuel production. The country’s hydroelectric potential is very high and is estimated at about 150,000 megawatts. In fact, Brazil currently relies on hydroelectric power more than any other source of electricity, accounting for over 75 percent of the country’s total energy consumption (Baer 2001, Lillis 2014). Note. From Hydropower Supplies more than Three-quarters of Brazil’s Electric Power, Energy Information Administration. June, 2014 (Lillis 2014) The readily available natural resources have been influential in providing raw materials for industrialisation and for attracting investors to Brazil. Also, the country has very conducive weather conditions in general in regard to rainfall and temperature thereby facilitating good agricultural production. The two factors have led to the growth of the countrys economy and consequently enabling Brazil to become an emerging economy over the last few years. 2.2 Interest rates Interest rates are major drivers of economic growth in a country, impacting the growth in several ways. High-interest rates, for example, can inhibit borrowing of finances by consumers which lowers their purchasing powers. Additionally, high interests can also deter investors and other individuals from investing in new capital or other expansion activities. On the other hand, lower interest rates drive growth, resulting in increased innovations and employment levels. In Brazil, the interest rates rose in the 1980s following a similar rise in the US, which affected the international capital market. The changes in the capital market forced Brazil to make adjustments to its economic front leading to a deterioration in the economic growth. However, later in the 1980s, the country adopted several rigorous measures that included indexation and freezing of prices. The measures were meant to bring monetary stabilisation to the country’s fiscal state including controlling the interest rates. These measures helped to improve Brazil’s economic output by the end of the 1980s. In combination with different factors such as lowered inflation, Brazil was able to attract more investment following better terms introduced by the measures (Purcell & Roett 1997). Today, the country has become a favourite destination for foreign investors. 3.0 Political factors that have been influential in making Brazil an emerging economy Politics play a big role in the economic growth a country and is a major determinant in making a country poor or wealthy. It is the governments responsibility to encourage good politics that are essential in creating a favourable climate for development of a country. Useful politics enhance improvements in areas of infrastructure development and creation of peaceful environments for investment purposes. Some of the political factors that have enabled Brazil to be one of the most rapid growing economies include provision of favourable trade laws and political stability among others. 3.1 Enactment of trade laws and other policies Following the widespread political and economic instability that hit Brazil in the 1980s, the Government provided a new constitution in 1988 (Meade 2010). This provided more democracy and stability to the country thereby attracting more investors and business. In 1990, the “neo-liberal” policy reforms created by the Washington Consensus created an avenue for economic growth through bringing the chronic hyperinflation to an end. This was especially reinforced by the then President Fernando Henrique Cardoso and later Luiz Inacio da Silva (Roberts 2012). The government also created a monetary policy that ensured predictability and permanency of the economic rules in Brazil. The policy encouraged inflow of foreign direct investments. This saw an increase in exports in the agriculture, petroleum and mining industries leading to increased growth of the country’s economy. It was during President Cardoso’s political term that various other policies were enacted such as one that allowed privatisation of most state-owned industries. This led to better management of the industries and consequently increased output and production. The policies also helped to better access to private credit, provided a more efficient regulatory regime and greater efficiency in processing bankruptcy. This led to enhanced stability and growth of country’s economy. 3.2 Political stability Political stability refers to the state where a country enjoys an economic atmosphere that is free from interruptions such as those caused by wars, ethnic tensions, tribalism among others. Brazil has had a relatively calm political environment in the last few decades, and this was further enhanced by the countrys adoption of a new constitution in 1988 (Almeida 2008). This has seen rapid growth in its economy due to investor and consumer confidence that the country provides. 4.0 Technological factors that have led to economic growth in Brazil The state of technological advancements in Brazil is illustrated by indicators such as the country with the fifth largest number of mobile phone and internet users in the world (OECD 2012). The country is also characterised by a largely tech-savvy consumer population with personal computers being one of the country’s most in-demand product. The country also has some of the most advanced technologies in areas of agriculture and mining. The following are some of the chief technological factors that have enabled Brazil to become one of the world’s fastest growing economies. 4.1 Education Brazil has highly invested in development of educational curriculums and centres that promote technological knowledge and advancements throughout the country. Some of the top courses that are taught in the institutions include Computer Science and other information technology related subjects. Researches in the field are highly encouraged leading to great innovations that have resulted in increased efficiency in areas of informational dissemination, communication and general infrastructure among other sectors. The country has been seen as the technology hub in the region with an estimation that nearly half of all information technology costs in Latin America can be attributed to Brazil (Dadashzadeh 2002). With the widespread growth of technological knowledge in Brazil, various investors and companies such as Google and Intel have boosted their investments in the country’s high-tech business industry thereby leading to enhanced economic growth. 4.2 Efficient production resulting from advancements in machinery used in farming and mining As earlier mentioned, Brazil has an abundance of natural resources especially the minerals and the productive land and good weather for agriculture (Hollander 2003). However, it is the technological advancement bit that has proved efficient in bringing the best of these resources in terms of their economic importance and ultimately the country’s growth. For example, the use of technology in farming has made Brazil the world’s largest sugar and orange juice producer while also making it a major exporter of tobacco, cattle meat and soy (Clay 2004). It was until 1970 that oil was discovered in large quantities in Brazil following advancements in exploration technology. By 2007, Brazil was considered self-sufficient for petroleum with over 11 billion barrels in its known reserves (Buckman 2014). It is, therefore, evident that technology played an enormous role in helping Brazil discover some of its natural resources that have consequently been pivotal in enhancing economic growth of the country. 4.3 Introduction of policies and laws that provide fiscal incentives for technological innovations and investment In 1991, Brazil enacted into law the Computer Tax Incentive Law that provided companies with an option of redirecting their income tax money towards their previously approved research and development projects and investments. The law is meant to attract investment by businesses dealing with computers and the information technology in general while also encouraging development of new software firms in the country (Dedrick et al. 2001). Additionally, Brazil enacted another law referred to as the Law of Goods in 2005. The law offers automatic tax incentives for all companies or individuals that conduct research and development in technological field in production of new goods and products or any manufacturing process (Roberts 2012). These laws have been phenomenal in enhancing technological advancements in Brazil, thereby leading to increased efficiency and production and ultimately economic growth. 5.0 Recommendations on strategies that Brazil should adopt to sustain economic growth From the discussion on factors that have led Brazil to becoming one of the emerging economies in the world, the paper will proceed to make recommendations that can help to sustain the economic growth. The paper has so far placed more emphasis on the positive factors that have been influential in enhancing economic growth in Brazil. However, there are other factors that certainly derails the growth and were they to be amended, the growth would probably be more and faster. Therefore, in this segment, the paper will highlight these factors, providing suggestions and recommendations on ways through which they can be amended. The paper will also make recommendations on ways to improve the already positive factors discussed earlier. 6.0 Economic factors Despite the increased availability of good infrastructure, abundance of natural resources and favourable interest rates for investors, Brazil still lags behind in areas of integrity and tax management and thus requires improvements. 6.1 Creation of a corruption-free industry Corruption is still considered one of the major impediment to investment in Brazil. It is common practice for high-profile government and industries officials to get involved in scandalous corruption cases, which illustrates the spread of the vice in the society. Some of the common corruption cases include lack of fairness in awarding of government tenders and also in lower courts. This leads to loss of trust especially in the country’s judicial system consequently numerous cases of injustices. Such cases are so prevalent in Brazil that most investors are cowed to procure business in the country (Joseph et al. 2010). It is, therefore, imperative that Brazils government acts to reduce and ultimately eradicate corruption in Brazil if it is to sustain the increase in economic growth. 6.2 Reduction of tax burdens on the population and businesses Despite Brazil’s current position as the world’s seventh biggest in the world and a positive economic growth, the country still faces significant challenges regarding taxation rates and other related regulations. For example, the country has a stipulated standard corporate tax of 15 percent, a 10 percent surtax and an additional 9 percent social contribution on all industrial net profits, summing up to a taxation rate of 34 percent. Other forms of exorbitant tax rates include personal income tax rate that can go up to 27.5 percent (Stein 2005, Roberts 2012). These and other tax burdens clearly call for a reconsideration by the government, with the principle attention required in reducing these figures to be more attractive to investors and other industries drivers. 6.3 Increased freedom and efficiency in doing business There are numerous barriers to efficient entrepreneurial activity in Brazil including large numbers of procedures, days and high costs that are associated with obtaining licences to conduct business in the country (Rangan et al. 2007). Despite improvements and formulation of strategies to enhance easiness of doing business initiated by the government in 2011, the reforms have still a way to go before they can be considered efficient. It is, therefore, the responsibility of the Brazilian government to ensure that investors find it easy to start and run their business in the country. 7.0 Political factors As earlier mentioned, Brazil has a relatively peaceful political environment and is thus a favourite destination for investors and other financiers. However, there are several areas that the country needs to improve on especially regarding the political intrusion into the judicial system. 7.1 Increased efficiency and effectiveness of the judicial system It is common to observe cases of political interference in the court systems and cases outcomes in Brazil. The judiciary is highly interfered with especially by senior government officials and other influential figures in the society (Transparency International 2007). Additionally, cases can be delayed on purpose in some instances while also this can be caused by the understaffing in the body. In other cases, the staff do not possess the necessary qualifications and training. In an oddity, some judgements made the Supreme Federal Tribunal may not necessarily bind on lower courts. The government, therefore, needs to create an independent atmosphere for all judiciary activities to enable partiality and justice in the body’s functions. There should also be a stipulated consistency as regards the decisions and judgements made by the various hierarchical courts in the country’s judiciary system. 8.0 Technological factors In regard to Brazil’s technological advancements, the country can be considered to be in the modest level and thus several improvements should be done. This is especially useful due to the rapidly, ever-changing environment in areas such as climatic change and innovations. There is need for increased capacity building and information research which can be created by providing platforms for innovation and education. It is necessary to note that only about 50 percent of workers in rural Brazil have up to four years of education (Birdsall & Sabot 1996). The government, therefore, is required to provide more information and education to this segment of its population. In the field of farming, new and improved methods of crop cultivation and livestock-keeping should be adopted to keep up with the growing demand while also observing sustainability. The plentiful minerals should also be mined and utilised sustainably, and thus more efficient technologies should be adopted to achieve this. The use of renewable and more environmental-friendly sources of energy such as hydro-electric power should be encouraged while modesty and caution observed in the use of other sources such as coal. 9.0 Conclusion Brazil is one of the emerging and rapidly growing economies in the world today. There are ample aspects leading to this, ranging from economic, political and technological factors. The major factors include the country’s wealth of natural resources, political stability and favourable laws and its advancements in the field of technology. However, there are several factors that are still unattended and thus the government needs to work on them to ensure that Brazil gains the most in its rise to economic stardom. Bibliography Almeida, J. (2008). Brazil in focus: economic, political and social issues. New York, Nova Science Publishers Baer, W. 2001. The Brazilian Economy Growth and Development. Santa Barbara, ABC-CLIO Birdsall, N., & Sabot, R. 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