BRAZIL Country Profile Dr. Mohsen SHATERZADEH March, 2008.

BRAZILCountry Profile

Dr. Mohsen SHATERZADEH

March, 2008

BRAZIL:Country Profile Dr. Mohsen SHAERZADEH, March, 2008

Brazil Map


Country information Country name: conventional long form: Federative Republic of Brazil

conventional short form: Brazil local long form: Republica Federativa do Brasil local short form: Brasil

ISO Country Code: BR Government type: Federal Republic (currently ruled by coalition)

Capital: name: Brasilia

time difference: UTC-3 (6.5 hours behind Tehran during Standard Time)daylight saving time: +1hr, begins third Sunday in October; ends third Sunday in February note: Brazil is divided into four time zones, including one for the Fernando de Noronha Islands

Major Cities: Sao Paulo (10.8 million), Rio de Janeiro (6.1 million), Belo Horizonte (2.4 million), Salvador (2.6 million), Fortaleza (2.3 million), Recife (1.5 million), Porto Alegre (1.4 million), Curitiba (1.7 million).

Administrative divisions: 26 states (estados, singular - estado) and 1 federal district* (distrito federal); Acre, Alagoas, Amapa, Amazonas, Bahia, Ceara, Distrito Federal*, Espirito Santo, Goias, Maranhao, Mato Grosso, Mato Grosso do Sul, Minas Gerais, Para, Paraiba, Parana, Pernambuco, Piaui, Rio de Janeiro, Rio Grande do Norte, Rio Grande do Sul, Rondonia, Roraima, Santa Catarina, Sao Paulo, Sergipe, Tocantins

Independence: 7 September 1822 (from Portugal) National holiday: Independence Day, 7 September (1822)


Country information

Statutory Holidays:

Holiday 2008- 2009 Affected : New Year's DayJAN 01JAN 01Ash Wednesday - ChristianFEB 06FEB 25Good Friday - ChristianMAR 21APR 10Easter - ChristianMAR 23APR 12Brazil - Tiradentes DayAPR 21APR 21May Day / Labor DayMAY 01MAY 01Corpus Christi - ChristianMAY 25JUN 14Brazil - Independence DaySEP 07SEP 07All Saints' Day - ChristianNOV 01NOV 01Limited closingAll Souls DayNOV 02NOV 02Brazil - Proclamation of the RepublicNOV 15NOV 15Feast of the Immaculate ConceptionDEC 08DEC 08Limited closingChristmas Eve - ChristianDEC 24DEC 24Limited closingChristmas - ChristianDEC 25DEC 25New Year's EveDEC 31DEC 31Limited closing

Constitution: 5 October 1988

Executive branch: chief of state: President Luiz Inacio LULA DA SILVA (since 1 January 2003); Vice President Jose

ALENCAR (since 1 January 2003); note - the president is both the chief of state and head of government head of government: President Luiz Inacio LULA DA SILVA (since 1 January 2003); Vice President Jose ALENCAR (since 1 January 2003) cabinet: Cabinet appointed by the president elections: president and vice president elected on the same ticket by popular vote for a single four-year term; election last held 1 October 2006 with runoff 29 October 2006 (next to be held 3 October 2010 and, if necessary, 31 October 2010) election results: Luiz Inacio LULA DA SILVA (PT) reelected president - 60.83%, Geraldo ALCKMIN (PSDB) 39.17%


Legislative branch Legislative branch: bicameral National Congress or Congresso Nacional consists of the Federal Senate or Senado

Federal (81 seats; 3 members from each state and federal district elected according to the principle of majority to serve eight-year terms; one-third and two-thirds elected every four years, alternately) and the Chamber of Deputies or Camara dos Deputados (513 seats; members are elected by proportional representation to serve four-year terms) elections: Federal Senate - last held 1 October 2006 for one-third of the Senate (next to be held in October 2010 for two-thirds of the Senate); Chamber of Deputies - last held 1 October 2006 (next to be held in October 2010)

Major Parties (seats in Chamber of Deputies/ Senate) • Partido dos Trabalhadores -PT (82/11) • Partido do Movimento Democratico Brasileiro - PMDB (89/15) • Partido da Social Democracia Brasileiro - PSDB (65/15) • Partido da Frente Liberal - PFL (65/18) States: Unicameral legislatures in each state (26) and Federal District

Judicial branch: Supreme Federal Tribunal or STF (11 ministers are appointed for life by the president and

confirmed by the Senate); Higher Tribunal of Justice; Regional Federal Tribunals (judges are appointed for life);

note - though appointed "for life," judges, like all federal employees, have a mandatory retirement age of 70

Legal system: based on Roman codes; has not accepted compulsory ICJ jurisdiction


Political parties Political parties: Workers' Party (PT-center-left) Liberal Front Party (PFL-right) Brazilian Democratic Movement Party (PMDB-center) Brazilian Social Democratic Party (PSDB-center-left) Progressive Party (PP-right) Brazilian Labor Party (PTB-center-right) Liberal Party (PL-center-right) Brazilian Socialist Party (PSB-left) Popular Socialist Party (PPS-left) Democratic Labor Party (PDT-left) Communist Party of Brazil (PCdoB-left) Socialism and Liberty Party (PSOL-left)

Political pressure groups and leaders: Landless Workers' Movement or MST; labor unions and federations; large farmers' associations; religious groups including evangelical Christian churches and the Catholic Church

Political Violence: The main source of violence in Brazil is criminal rather than political. Personal security is poor owing to an extremely high rate of criminal activity in major cities. Underpaid and corrupt elements of Brazil’s security forces have at times served to exacerbate the problem. The lack of security in Rio de Janeiro has prompted authorities to seek support from the Brazilian army.

The imbalance in land distribution leads to episodic violence in rural areas, specifically in the Amazon. Land invasions are common and mostly affect the agriculture sector, although the scope of land so targeted is broadening. Protests by groups of landless individuals have become more prevalent recently, and radical action by these groups that would affect infrastructure, albeit not on a large scale, is possible going forward.


General Political Environment

International organization participation: AfDB, BIS, CAN (associate), CPLP, CSN, FAO, G-15, G-24, G-77, IADB, IAEA, IBRD, ICAO, ICC, ICCt, ICRM, IDA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, IMSO, Interpol, IOC, IOM, IPU, ISO, ITSO, ITU, ITUC, LAES, LAIA, Mercosur, MIGA, MINURSO, MINUSTAH, NAM (observer), NSG, OAS, OPANAL, OPCW, PCA, RG, UN, UNCTAD, UNESCO, UNFICYP, UNHCR, UNIDO, Union Latina, UNITAR, UNMEE, UNMIL, UNMIS, UNMIT, UNOCI, UNWTO, UPU, WCL, WCO, WFTU, WHO, WIPO, WMO, WTO

Flag: General Political Environment Brazilian politics are characterized by a fractiousness that mirrors the country’s diverse socioeconomic make-up.

Relations are generally difficult between the executive and the legislature, as well as between federal and state governments. Political progress requires constant horse-trading that slows the passage of reforms, including those widely considered necessary for continued fiscal sustainability and to accelerate growth to a level that will move Brazil forward.

Populist president Luiz Inácio Lula da Silva (Lula) won a second term in October 2006 by defeating the pro-business candidate, Geraldo Alckmin, in the run-off elections. Lula’s political party, the Partido dos Trabalhadores (PT), again has a minority position in the legislature, and only secured 5 out of the 27 influential governor roles across the country. Lula has fashioned an 11-party coalition, and will depend on the continued support of the PMDB, the centrist party that won the most seats in both houses in the 2006 elections.

Policy continuity is forecast over the next four years, and Lula is expected to seek a balance between pragmatic economic policies and initiatives to address the country’s social ills. He will likely continue to depend on fiscal revenues and as a result maintain tax rates at their current high levels in order to fund new social initiatives, improve education, and expand on landmark social programs such as the bolsa familia.

This difficult balancing act coupled with inevitable legislative challenges may undermine his ability to meet expectations on all fronts. It is only in March 2007 that Lula finally managed to form a new cabinet, and he will need to act decisively to tackle some of the country’s structural weaknesses early in this mandate. The reception accorded to a fiscal reform package, which is scheduled to be tabled by September, will likely give a good indication of the strength of Lula’s coalition.

Rampant political corruption in Brazil came to the forefront of the pubic eye over the past year. Lula skillfully remained at arms length of the various corruption scandals that reached many of his close allies as well as his political party, the PT. Despite Lula’s success in shielding himself from the allegations, corruption will likely remain an issue of concern and could continue distract the government’s attention and drain resources. A direct accusation targeting the President could potentially lead to political instability.


Foreign Relations and Political Stability Press Freedom Survey: 39 – Partly Free

Status: Free (0-30) / Partly Free (31-60) / Not Free (61-100) freedomhouse.org

Control of Corruption Index: 2006 Score: -0.33

Status: (-2.5: Worst ; 2.5: Best) worldbank.org

Foreign Relations and Political Stability

Foreign Relations: Brazil has traditionally been a leader in the inter-American community and played an important role in collective security efforts, as well as in economic cooperation in the Western Hemisphere. Brazil supported the Allies in both World Wars. During World War II, its expeditionary force in Italy played a key role in the Allied victory at Monte Castello. It is a member of the Organization of American States (OAS) and a party to the Inter-American Treaty of Reciprocal Assistance (Rio Treaty). Recently, Brazil has given high priority to expanding relations with its South American neighbors and is a founding member of the Latin American Integration Association (ALADI), the Community of South American Nations (CASN) and Mercosul, a customs union including Argentina, Uruguay, Paraguay, Venezuela and Brazil, with Chile, Bolivia, Peru, Colombia, and Ecuador as associate members.


Foreign Relations and Political Stability

Along with Argentina, Chile, and the U.S., Brazil is one of the guarantors of the Peru-Ecuador peace process. Brazil is a charter member of the United Nations and participates in its specialized agencies. It has contributed troops to UN peacekeeping efforts in the Middle East, the former Belgian Congo, Cyprus, Mozambique, Angola, East Timor, and most recently Haiti. Brazil is currently leading the UN peacekeeping force in Haiti. Brazil served as a non-permanent member of the UN Security Council from 2004-2005. Prior to this, it had been a member of the UN Security Council eight times. Brazil is lobbying for a permanent position on the Council.

As Brazil's domestic economy has grown and diversified, the country has become increasingly involved in international economic and trade policy discussions. For example, Brazil has been a leader of the G-20 group of nations in the WTO Doha Round talks. The U.S., Western Europe, and Japan are primary markets for Brazilian exports and sources of foreign lending and investment. China is a growing market for Brazilian exports. Brazil also has bolstered its commitment to nonproliferation through ratification of the nuclear Non-Proliferation Treaty (NPT), signing a full-scale nuclear safeguard agreement with the International Atomic Energy Agency (IAEA), acceding to the Treaty of Tlatelolco, and joining the Missile Technology Control Regime (MTCR) and the Nuclear Suppliers Group.

Disputes - international: unruly region at convergence of Argentina-Brazil-Paraguay borders is locus of money laundering, smuggling, arms and illegal narcotics trafficking, and fundraising for extremist organizations; uncontested dispute with Uruguay over certain islands in the Quarai/Cuareim and Invernada boundary streams and the resulting tripoint with Argentina


Attitude to International Trade, Foreign Investment

Attitude to International Trade, Foreign Investment and Business People

Investment Environment: Lula has become a poster child for the moderate left in Latin America. Unlike other leftist leaders in the region, he has not promoted nationalist policies that would seriously weaken the investment environment. This said, Lula advocates for both government participation in the economy and respect for the contractual rights of investors.

Accordingly, he is actively promoting Public-Private Partnerships (PPP), not privatizations, to attract private capital. This approach functions as a moderate disincentive to investment. While there is ongoing and significant progress in the liberalization of the foreign exchange regime, there are a number of important residual controls. Foreign currency bank accounts (such as in USD) are not permitted in Brazil.

Regulatory agencies are weak and the bureaucracy is cumbersome. The judicial system has problems with corruption, is over-burdened and is beset by procedural uncertainty.


Government Policies Affecting Businesses

Government Policies Affecting Businesses

Taxation: Brazil has a poorly structured revenue system characterized by heavy tax burdens, a

narrow taxable base, complicated levies and widespread tax evasion. Companies, both foreign and domestic, employ tax professionals and devote considerable resources to managing their tax affairs. The corporate and indirect taxation systems are particularly complex, porous and unwieldy; the income tax system is considered to be relatively efficient, with a top rate of 27.5%.

Political Outlook: A mix between moderate nationalism and neo-liberal economic policies will likely be

the core of Lula’s policy program in his last term as President. If he is successful in achieving this juggling act, investors will feel more confident that politics and economics can be separately assessed paving the way towards a potential investment grade in the medium-term. Policy continuity may not necessarily provide the best solution to address Brazil’s weaknesses; however it has served to strike a balance between the interests of the country’s various stakeholders and it will likely continue to do so. All this said, there is a downside risk that Lula engages in excessive social spending to guarantee social legally.


Social Infrastructure Social Infrastructure Population: 190,010,647

note: Brazil conducted a census in August 2000, which reported a population of 169,799,170; that figure was about 3.3% lower than projections by the US Census Bureau, and is close to the implied underenumeration of 4.6% for the 1991 census; estimates for this country explicitly take into account the effects of excess mortality due to AIDS; this can result in lower life expectancy, higher infant mortality and death rates, lower population and growth rates, and changes in the distribution of population by age and sex than would otherwise be expected (July 2007 est.)

Age structure: 0-14 years: 25.3% (male 24,554,254/female 23,613,027)

15-64 years: 68.4% (male 64,437,140/female 65,523,447) 65 years and over: 6.3% (male 4,880,562/female 7,002,217) (2007 est.)

Median age: total: 28.6 years

male: 27.9 years female: 29.4 years (2007 est.)

Lowest of: 15 in Uganda & Gaza Strip Highest of: 40 or more in several European countries and Japan


Social Infrastructure

Population growth rate: 1.008% (2007 est.)

Birth rate: 16.3 births/1,000 population (2007 est.)

Death rate: 6.19 deaths/1,000 population (2007 est.)

Infant mortality rate: total: 27.62 deaths/1,000 live births

male: 31.27 deaths/1,000 live births female: 23.78 deaths/1,000 live births (2007 est.)

Life expectancy at birth: total population: 72.24 years

male: 68.3 years female: 76.38 years (2007 est.)

Nationality: noun: Brazilian(s)

adjective: Brazilian


Social Infrastructure

Ethnic groups: white 53.7%, mulatto (mixed white and black) 38.5%, black 6.2%, other (includes Japanese, Arab, Amerindian) 0.9%, unspecified 0.7% (2000 census)

Religions: Roman Catholic (nominal) 73.6%, Protestant 15.4%, Spiritualist 1.3%, Bantu/voodoo 0.3%, other 1.8%, unspecified 0.2%, none 7.4% (2000 census)

Languages: Portuguese (official), Spanish, English, French Literacy: definition: age 15 and over can read and write

total population: 88.6% male: 88.4% female: 88.8% (2004 est.)

Human Development Index (HDI): 0.792 - Medium in World Rank, Higher than World Average, Lower than Latin America Average(0.795).

High human development: .801 to 0.950 and higher Medium human development: 0.505 to 0.799 Low human development: 0.281 and lower to 0.499 World Average: 0.741


Economic Overview

Economy Economic Overview Characterized by large and well-developed agricultural, mining,

manufacturing, and service sectors, Brazil's economy outweighs that of all other South American countries and is expanding its presence in world markets. Having weathered 2001-03 financial turmoil, capital inflows are regaining strength and the currency has resumed appreciating.


Economic Structure

The appreciation has slowed export volume growth, but since 2004, Brazil's growth has yielded increases in employment and real wages. The resilience in the economy stems from commodity-driven current account surpluses, and sound macroeconomic policies that have bolstered international reserves to historically high levels, reduced public debt, and allowed a significant decline in real interest rates. A floating exchange rate, an inflation-targeting regime, and a tight fiscal policy are the three pillars of the economic program. From 2003 to 2007, Brazil ran record trade surpluses and recorded its first current account surpluses since 1992. Productivity gains coupled with high commodity prices contributed to the surge in exports. Brazil improved its debt profile in 2006 by shifting its debt burden toward real denominated and domestically held instruments. LULA DA SILVA restated his commitment to fiscal responsibility by maintaining the country's primary surplus during the 2006 election. Following his second inauguration, LULA DA SILVA announced a package of further economic reforms to reduce taxes and increase investment in infrastructure. The government's goal of achieving strong growth while reducing the debt burden is likely to create inflationary pressures.

Economic structure: Years of fiscal profligacy led to an economic crisis and the devaluation of the real in

1999. Recovery was fitful at first, but government austerity measures kept inflation on target and chipped away at the country's overwhelming national debt. In 2001 Brazil managed to avoid severe contagion from Argentina's collapse, but its financial wobbles continued.

http://www.economist.com/research/backgrounders/displaystory.cfm?story_id=182028





Economic Structure

Economic StructureBrazil: GDP, Inflation & Fiscal Balance

8.7

2.7

4.5

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GDP (% growth, real) Inflation (%, change year-end) Fiscal Balance (% of GDP)


Economic Structure In October 2002, with the country's finances teetering on the brink of disaster, a left-

wing candidate with little government experience, Luiz Inácio Lula da Silva, won the presidency (though only after promising to stick with orthodox economic policy). Mr da Silva's first year in office encouraged the markets and growth finally returned in 2004. In 2005 Brazil announced that it would repay early its IMF loans. But growth has been slow compared with other Latin American countries (though faster than thought) and the government's economic policy is overly timid. Broader reform is still sorely needed. The GDP had growing trend since 2003 from 1.2% to 4.5% in 2007. Inflation (CPI) dropped from 14.7% in 2003 to 3.7% in 2007. Although exports of goods increased, but its growth rate declined, on the other hand the rate of growth in imports of goods increased, leading to deficit in trade balance in all years. Current account rose in 2006, but dropped in 2007 and expected to further decline in 2008. Reserves (in terms of Months of imports) doubled in 2 years and Foreign-exchange reserves (excluding gold), jumped to more than three fold in 2007 compared to that of 2003. Total external debt dropped to 18% of GDP in 2007 from that of 2005 which was 37% of GDP, and will further drop according to estimates of EIU to 8.2% of GDP in 2008. More importantly the declining trend of Debt Service Ratio continues from 65 in 2005 to 20 in 2007 and according to EIU forecast will reach to below 20, which is in more of secure zone. The parity of Brazilian Real to USD has been appreciated 35% since 2003 compared to that of 2007. In sum, although there are still some disquieting issues, but the economy is by far healthier than 2003.

Policy issues: The Lula government has stuck to fiscal and monetary conservatism and improved the public debt ratios, while stepping up poverty-alleviation programs. But fiscal problems persist, preventing a steeper decline in interest rates. The public debt remains high at around 43% of GDP and social security expenditure is on an unsustainable path. The success of Lula’s plan to push annual average real GDP growth










Industrial Structure

to 5% (mainly through higher infrastructure investment) will depend on progress in pending microeconomic reforms. These include streamlining the complex tax system, strengthening the regulatory framework, improving the quality of social spending and tackling labor informality.

Industrial Structure: Agriculture is a major sector of the Brazilian economy, and is key for economic growth and foreign exchange. Agriculture accounts for 8% of GDP (30% when including agribusiness) and 40% of Brazilian exports. Brazil enjoyed a positive agricultural trade balance of $43 billion in 2006. Brazil is the world's largest producer of sugar cane, coffee, tropical fruits, frozen concentrated orange juice (FCOJ), and has the world's largest commercial cattle herd (50% larger than the U.S.) at 170 million head. Brazil is also an important producer of soybeans (second to the United States), corn, cotton, cocoa, tobacco, and forest products. The remainder of agricultural output is in the livestock sector, mainly the production of beef and poultry (second to the United States), pork, milk, and seafood.

Forests cover half of Brazil, with the largest rain forest in the world located in the Amazon Basin. Recent migrations into the Amazon and large-scale burning of forest areas have brought international attention. The government has reduced incentives for such activity and is implementing an ambitious environmental plan that includes an Environmental Crimes Law with serious penalties for infractions.

Brazil has one of the most advanced industrial sectors in Latin America. Accounting for one-third of GDP, Brazil's diverse industries range from automobiles and parts, other machinery and equipment, steel, textiles, shoes, cement, lumber, iron ore, tin, and petrochemicals, to computers, aircraft, and consumer durables. Most major automobile producers have established production facilities in Brazil.


Industrial Structure

Brazil has a diverse and sophisticated services industry as well. Mail and tele-communications are the largest, followed by banking, energy, commerce, and computing. During the 1990s, Brazil's financial services industry underwent a major overhaul and is relatively sound. The financial sector provides local firms a wide range of financial products. The largest financial firms are Brazilian (and the two largest banks are government-owned), but U.S. and other foreign firms have an important share of the market.

Privatization triggered a flood of investors after 1996. The yearly investment average in the telecom sector the 4 years prior to the start of privatization was R$5.8 billion, and the annual average for the four years following privatization was R$16.3 billion, nearly tripling. Investment in the electrical power sector increased from R$5.3 billion annually in the pre-privatization era to R$7.2 billion. U.S. companies provided a great deal of this influx of cash. After 2000, many of these investors suffered huge losses in the face of adverse regulatory decisions and especially the sharp depreciation of the Real. The energy sector was especially hard hit.

In 2001, Brazil experienced an electricity crisis due to inadequate rainfall for its hydroelectric system and insufficient new investment in the sector. Mandatory rationing and price hikes were sufficient to prevent blackouts. The rationing system officially ended on March 1, 2002. Lula’s then-Energy Minister unveiled an energy plan in July 2003, which left many vital details undefined and most investors dissatisfied.

The Government of Brazil has undertaken an ambitious program to reduce dependence on imported oil. In the mid-1980s, imports accounted for more than 70% of Brazil's oil and derivatives needs; the net figure is nearing zero. Brazil is expected to become a net exporter of oil in 2007 as output from the Campos Basin continues to increase. Brazil is one of the world's leading producers of hydroelectric power. Of its total installed electricity-generation capacity of 90,000 megawatts, hydropower accounts for 66,000 megawatts (74%).

Proven mineral resources are extensive. Large iron and manganese reserves are important sources of industrial raw materials and export earnings. Deposits of nickel, tin, chromite, bauxite, beryllium, copper, lead, tungsten, zinc, gold, and other minerals are exploited. High-quality, coking-grade coal required in the steel industry is in short supply.


Energy Market Background


Brazil is the 10th largest energy consumer in the world and the third largest in the Western Hemisphere, behind the United States and Canada. Total primary energy consumption in Brazil has increased significantly in recent years. In addition, Brazil has made great strides in increasing its total energy production, particularly oil, over the past decade. Increasing domestic oil production has been a long-term goal of the Brazilian government.

The largest share of Brazil’s total energy consumption comes from oil (48 percent, including ethanol), followed by hydroelectricity (35 percent) and natural gas (7 percent). The large share of hydroelectricity in Brazil’s energy mix represents the dependence of electricity generation on hydroelectric dams. Natural gas is currently a small share of total energy consumption, but attempts to diversify electricity generation from hydropower to gas-fired power plants should cause natural gas consumption to grow in coming years.



Total Energy Consumption (2004 E): 9.1 quadrillion BTUs* * The total energy consumption statistic includes petroleum, dry natural gas, coal, net

hydro, nuclear, geothermal, solar, wind, wood and waste electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes hydropower, solar, wind, tide, geothermal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.

Per Capita Energy Consumption (2004 est): 49.3 million BTUs Energy Intensity (2004 est-PPP): 6,279.2 BTUs per $2000-PPP** **GDP figures are based on OECD figures using purchasing power parity (PPP)

exchange rates. OIL AND GAS INDUSTRIES

Local Organization: Petrobras: national oil and gas company with partial government ownership

Major Foreign Energy Company Involvement: Royal Dutch Shell, Devon Major Domestic Refineries (capacity, bbl/d): Paulinia-Sao Paulo (350,000), Mataripe-

Bahia (293,700), Duque de Caxias-Rio de Janeiro (232,2000), Sao Jose dos Campos-Sao Paulo (241,500), Canoas-Rio Grande do Sul (180,900), Araucaria-Parana (180,900), Cubatao-Sao Paulo (162,900), Betim Minas Gerais (144,800)

Recoverable Coal Reserves (2004 E): 11,148 million short tons Coal Production (2004 E): 6.2 million short tons Coal Consumption (2004 E): 23.5 million short tons



Oil - production: 2.163 million bbl/day (2007 est.) Oil - consumption: 2.250 million bbl/day (2007 est.) Crude Oil Distillation: 1.908 million bbl/day (2007 est.) Oil - exports: 278,400 bbl/day (2005) Oil - imports: 674,500 bbl/day (2004) Oil - proved reserves: 11.24 billion bbl (1 January 2006 est.)



Natural gas - production: 9.37 billion cu m (2005 est.) Natural gas - consumption: 17.85 billion cu m (2005 est.) Natural gas - exports: 0 cu m (2005 est.) Natural gas - imports: 8.478 billion cu m (2005) Natural gas - proved reserves: 312.7 billion cu m (1 January

2006 est.)



Electric Generation Capacity: Electricity Installed Capacity (2004 E): 86.5

Gigawatts Electricity - production: 396.4 billion kWh (2005)

Electricity – consumption: 368.5 billion kWh (2005) Electricity - exports: 160 million kWh (2005) Electricity - imports: 39.2 billion kWh; note - supplied

by Paraguay (2005)


GDP Growth

GDP (% growth, real)

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GDP Growth

GDP Nominal: USD1,067.4 billion PPP: (purchasing power parity): $1.838 trillion (2007 est.) GDP (official exchange rate): $1.269 trillion (2007 est.) GDP - real growth rate: 4.9% (2007 est.) PPP - per capita (purchasing power parity): $9,700 (2007 est.) GDP - composition by sector: agriculture: 5.1% industry: 30.8% services: 64% (2007 est.) Unemployment rate: 9.8% (2007 est.) Labor force: 99.47 million (2007 est.) Labor force - by occupation: agriculture: 20%

industry: 14% services: 66% (2003 est.)

Population below poverty line: 31% (2005)Household income or consumption by percentage share:lowest 10%: 0.9%highest 10%: 44.8% (2004)Distribution of family income - Gini index: 56.7 (2005)

Inflation rate (CPI): 4.1% (2007 est.) Investment (gross fixed): 17.9% of GDP (2007 est.) Budget: revenues: $244 billion

expenditures: $219.9 billion (FY07 est.)


Inflation

Inflation (%, change year-end)

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3.9

5.1

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Products

Agriculture - products: coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus; beef

Industries: textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, other machinery and equipment

Industrial production growth rate: 4.5% (2007 est.)


Fiscal Balance

Fiscal Balance (% of GDP)

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Fiscal Balance Fiscal year: Calendar year Fiscal position: The government has maintained the nominal value for this year’s

primary surplus target (BRL91bn) in response to the new GDP series. This effectively lowers the primary surplus-to-GDP ratio from 3.75% to about 3.35%. Nevertheless, based on the new series, most private estimates still place the debt-to-GDP trajectory on a downward path through 2010, to below the 40% threshold.

Recent performance: The burning question is whether we’ll see the effects of the global turbulence seep into Brazil’s real economy. So far, however, there is no evidence of such contagion. Industrial production is running at a 2-year high, retail sales growth is at a 3-year peak, exports and imports are soaring, and wage growth has accelerated markedly. Strong regional integration, and healthy diversification of both trade partners and products, will further shelter the country from external volatility. While commodity prices should suffer from a US slowdown, the ones important to Brazilian exporters will likely not. Soft commodities, about a quarter of primary exports, are expected to benefit over the medium-term, as are iron ore prices. Meanwhile, foreign companies continue to invest in Brazil, with FDI estimated at US$25bn so far this year.

Brazil’s economy grew by 5.6% in the four quarters to Q2, more than double its long-run trend. EDC Economics expects above-trend growth to persist through the forecast horizon (2007-2008), as solid income growth, a generally supportive monetary environment, and a solid real continue to encourage domestic demand. Historically high energy and food prices are putting upward pressure on the consumer price index, but policy credibility will help keep inflation expectations in check.


Fiscal Balance

Monetary Policy: While inflation increased to 4.2% in August, it remains below the Central

Bank’s generous 4.5% target. Following the COPOM’s 25bps cut in September, we feel that the authorities may still have room for at least one more interest rate reduction this year, putting the Selic rate at around 11% by year-end (depending on how the current bout of global financial turbulence plays out).

The external sector: Investor concern over the potential effects of a widespread credit crunch on

Brazilian assets surged in August – with bond spreads up 90bps, the Bovespa down 53,323pts, and the real losing 8%. Brazil has typically been hit quite hard during episodes of widespread ‘flight to quality’. However, we believe that Brazil is now better-prepared to withstand the downside of this, and future global business cycles. The Lula administration has used the last few years of solid global demand, surging commodity prices and elevated liquidity to lower external indebtedness, smooth maturity profiles, and improve currency and interest rate dynamics. Foreign exchange reserves, at US$154bn, are five times what they were in 2000 The government continues to run a primary budget surplus, and the current account remains in positive territory despite the pick-up in import demand.


EDC Experience and Attitude

BRAZIL Collection Experience Usual Trading Terms: Full range of terms, with open account

predominant. Overall Experience: Fair. The high cost of local credit can lead to

payment delays, but mostly for smaller companies. Credit/Financial Issues: Recent strengthening of the currency and

robust export markets have eased short-term credit concerns.

EDC Experience and Attitude Short Term: Open without restrictions. Claims Experience: Claims declined in 2006 versus previous

year. Medium/Long Term: Open for private and public sector coverage. Political Risk Insurance: Open. Calling of Bonds Insurance: Low-Medium country risk.


Debt Service Ratio

Brazil: Debt Service Ratio

62.3

20.1

32.1

20.225.9

32.1

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

01-05 avg. 2006 2007 2008Year

Rati

o

Debt Service Ratio Averageline Trendline


Credit Agencies' Rating

Credit Agencies' Rating: Moody’s: Ba1 S&P: BB+ Fitch: BB+ Currency: Brazilian Real Currency (code): (BRL) Exchange Regime: Independent Floating Exchange rates: Reals per US dollar - 1.85 (2007 est.), 2.1761 (2006), 2.4344

(2005), 2.9251 (2004), 3.0771 (2003) Monday, February 25, 2008 1 Brazilian Real = 0.58582 US Dollar 1 US Dollar (USD) = 1.70700 Brazilian Real (BRL) Interbank rate +/- 0% This means:

You buy 1 Brazilian Real : 0.58582 US DollarYou sell 1 Brazilian Real : 0.58398 US Dollar You buy 1 US Dollar : 1.70700 Brazilian RealYou sell 1 US Dollar : 1.71240 Brazilian Real

Median price = 0.58398 / 0.58582 (bid/ask)Minimum price = 0.58398 / 0.58582 Maximum price = 0.58398 / 0.58582


Credit Agencies' Rating

1 BRL to USD (end of the year)

0.5263

0.4569

0.3704

0.4545

0.4762

0.4569

0.0000

0.1000

0.2000

0.3000

0.4000

0.5000

0.6000

01-05 avg. 2006 2007 2008Year

US

D

1 BRL to USD (end of the year) Averageline Trendline


FDI & Foreign Trade Market Spotlight: After taking a hit in mid-August, financial markets have climbed steadily back. At the time of writing,

JP Morgan’s Brazilian EMBI was back down 31bps on its close of August 16th, and the Bovespa was back up 49,592pts. The real also regained almost all its losses. On August 23rd Moody’s upgraded Brazil’s Local and Foreign Currency government bond rating to Ba1 (BB+ equivalent), and its country ceiling to Baa3 (BBB- equivalent).

Stock of direct foreign investment - at home: $214.3 billion (2006 est.)

Stock of direct foreign investment - abroad: $99.99 billion (2006 est.)

Market value of publicly traded shares: $711.1 billion (2006)

Main Source of Foreign Exchange (excl. FDI): Transport equipment

Economic aid - recipient: $191.9 million (2005)

Economic aid - donor: N/A

Foreign Trade: Strong external demand and a more active export policy have contributed to booming export earnings since 2003, leading the trade surplus to swell and transforming the current account from a deficit of 4.6% of GDP in 2001 to a surplus of 1.3% of GDP in 2006. Despite import value growth outpacing that of export earnings in 2007, the erosion of the trade surplus will be limited, owing to a favourable export/import ratio


Export , Import Balance

Brazil: Export, Import, Trade Balance & Current Account

16.5 16.5

7.05.7

24.125.0

15.0

10.8

-7.6 -8.0

1.30.5

-0.5

13.0

-12.0

-0.3

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

01-05 avg. 2006 2007 2008Year

Per

cen

tag

e C

han

ge

Exports (% growth) Imports (% growth) Trade Balance Current Account (% of GDP)

Exports Trendline Imports Trendline Trade Balance Trendline Current Account Trendline


Export , Import Balance

Exports: $159.2 billion F.O.B. (2007 est.) Exports - Commodities: transport equipment, iron ore,

soybeans, footwear, coffee, autos Exports - Partners: US 17.8%, Argentina 8.5%, China 6.1%,

Netherlands 4.2%, Germany 4.1% (2006) Imports: $115.6 billion F.O.B. (2007 est.) Imports - Commodities: machinery, electrical and transport

equipment, chemical products, oil, automotive parts, electronics Imports - Partners: US 16.2%, Argentina 8.8%, China 8.7%,

Germany 7.1%, Nigeria 4.3%, Japan 4.2% (2006) Largest Merchandise Trading Partner: United States,

Argentina Current account balance: $10.2 billion (2007 est.)


Export , Import

Exports Partners (2006)Total: 138bn

Germany; 5.6bn; 4%

Netherlands; 5.8bn; 4%

US ; 24.5bn; 18%

Argentina; 11.7bn; 9%

China; 8.4bn; 6%

Other; 81.6bn; 59%


Export , Import

Principal Exports 2006Total: 138bn

Transport Equipment & Parts;

20.1bn; 15%

Metallurgical Products; 15.1bn;

11%

Soybeans, Meal & Oils; 10.5bn; 8%

Chemical Products; 3.9bn;

3%

Other; 88bn; 63%


Export , Import

Principal Imports 2006Total: 91.5bn

Other; 27.9bn; 30%

Transport Equipment & Parts;

10.3bn; 11%

Chemical Products; 14.4bn;

16%

Oil & Derivatives; 15.2bn; 17%

Machinery & Electrical

Equipment; 23.6bn; 26%


Export , Import

Imports Partners (2006)Total: 91.5bn

Argentina; 8.1bn; 9%

China; 8.0bn; 9%

Germany; 6.5bn; 7%

Nigeria; 3.9bn; 4%

Japan; 3.8bn; 4%

Other; 45.6bn; 50%

US; 14.8bn; 16%

Netherlands; 0.8bn; 1%


Market Openness

Market Openness (Total Trade / GDP): 21.5%

(Highest: Singapore 278% Lowest Cuba: 0.21%)


Reserves in Terms of Months of Imports

Reserves in Terms of Months of Imports

5.6

6.6

10.3

8.3

10.6

8.3

0.0

2.0

4.0

6.0

8.0

10.0

12.0

01-05 avg. 2006 2007 2008Year

Mo

nth

s

Reserves in Terms of Months of Imports Averageline Trendline


External Debt

External Debt (% of GDP)

37.0

16.3

22.3

18.017.9

22.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

01-05 avg. 2006 2007 2008Year

Perc

en

tag

e

External Debt (% of GDP) Averageline Trendline


Industrial and Trade Agreements

Reserves of foreign exchange and gold: $178 billion (24 December 2007)

Public debt: 43.9% of GDP (2007 est.) Debt - external: $230.3 billion (30 June 2007)

Industrial and Trade Agreements: Mercosur (Full Member): is a Regional Trade Agreement (RTA) among Brazil, Argentina, Uruguay and

Paraguay, founded in 1991 and amended and updated in 1994 to create a strategic economic and commercial alliance as a way to strengthen trade relations among member nations. The bloc comprises a population of more than 263 million people, and the combined Gross Domestic Product of the full-member nations is in excess of 2.78 trillion dollars a year (PPP) according to IMF numbers, making Mercosur the fifth largest economy in the World. Its purpose is to promote free trade and the fluid movement of goods, people, and currency. Bolivia, Chile, Colombia, Ecuador and Peru currently have associate member status. Venezuela signed a membership agreement on 17 June 2006, but before becoming a full member its entry has to be ratified by the Paraguayan and the Brazilian parliaments. But with the newly inaugurated regional parliament, Parlasur, and the recent admission of Venezuela, Mercosur has turned into an increasingly political, rather than economic, bloc. Brazil and Paraguay are stalling Venezuela's admission process, while Uruguay is interested in pursuing a free trade agreement with the U.S. (joining to NAFAT by forming Free Trade Agreement of Americas FTAA), in full defiance of the Chavez/anti-U.S, and South American alliance rhetoric, but facing disagreement from other members. Hugo Chavez, Venezuela’s President, has threatened to withdraw from the bloc if members do not ratify its admission over the next three months. The development of Mercosur was arguably weakened by the collapse of the Argentine economy in 2001 and it has still seen internal conflicts over trade policy, between Brazil and Argentina, Argentina and Uruguay, Paraguay and Brazil, etc. In addition, many obstacles are to be addressed before the development of a common currency in Mercosur. Thus, strong political, some may say revolutionary, divergences among the members and the lack of harmonization of economic policies within Mercosur could jeopardize the bloc. That said, the fate of this bloc is uncertain. Will the new Parlasur prove effective at removing existing trade barriers, or will it create further polarization among members?

http://en.wikipedia.org/wiki/Brazil

http://en.wikipedia.org/wiki/Argentina

http://en.wikipedia.org/wiki/Uruguay

http://en.wikipedia.org/wiki/Paraguay

http://en.wikipedia.org/wiki/1991


http://en.wikipedia.org/wiki/List_of_countries_by_population_%282005%29

http://en.wikipedia.org/wiki/Gross_Domestic_Product

http://en.wikipedia.org/wiki/Purchasing_power_parity

http://en.wikipedia.org/wiki/International_Monetary_Fund

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29

http://en.wikipedia.org/wiki/Bolivia

http://en.wikipedia.org/wiki/Chile

http://en.wikipedia.org/wiki/Colombia

http://en.wikipedia.org/wiki/Ecuador

http://en.wikipedia.org/wiki/Peru

http://en.wikipedia.org/wiki/Venezuela

http://en.wikipedia.org/wiki/June_17




Andean Community of Nations CAN (Associate member): The original Andean Pact was founded in 1969 by Bolivia, Chile, Colombia, Ecuador and

Peru. In 1973, the pact gained its sixth member, Venezuela. In 1976, however, its membership was again reduced to five when Chile withdrew. Venezuela announced its withdrawal in 2006, reducing the Andean Community to four member states. Recently, with the new cooperation agreement with Mercosur, the Andean Community gained four new associate members: Argentina, Brazil, Paraguay and Uruguay. These four Mercosur members were granted associate membership by the Andean Council of Foreign Ministers meeting in an enlarged session with the Commission (of the Andean Community) on July 7, 2005. This moves reciprocates the actions of Mercosur which granted associate membership to all the Andean Community nations by virtue of the Economic Complementarity Agreements (Free Trade agreements) signed between the CAN and individual Mercosur members.

Union of South American Nations, Unasur/Unasul: is a fledgling supranational and intergovernmental union that will unite two existing free-trade

organizations – Mercosur and the Andean Community – as part of a continuing process of South American integration. It is modelled on the European Union, including a common currency, parliament, and passport. The Union's headquarters will be located in Quito, the capital of Ecuador, while the location of its bank, the Bank of the South (Banco del Sur), is still under discussion. It is expected that complete union like that of the EU should be possible by 2019. Full members are: Members of the Andean Community "CAN" (Bolivia, Colombia, Ecuador, Peru). Members of Mercosur (Argentina, Brazil, Paraguay, Uruguay, Venezuela). Other countries (Guyana, Surinam, Chile). Observer States (Mexico, Panama)

http://en.wikipedia.org/wiki/Mercosur

http://en.wikipedia.org/wiki/Quito



http://en.wikipedia.org/wiki/Andean_Community

http://en.wikipedia.org/wiki/Mercosur



The Latin American Integration Association; known as ALADI or, occasionally, by the English acronym LAIA is a Latin American trade integration association, based in Montevideo. Its main objective is the establishment of a common market, in pursuit of the economic and social development of the region. Its members are Argentina, Bolivia, Brazil, Cuba, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela. The ALADI promotes the creation of an area of economic preferences in the region, aiming at a Latin American common market, through three mechanisms:

Regional tariff preference granted to products originating in the member countries, based on the tariffs in force for third countries

Regional scope agreement, among member countries Partial scope agreements, between two or more countries of the area Either regional or partial scope agreements may cover tariff relief and trade promotion; economic

complementation; agricultural trade; financial, fiscal, customs and health cooperation; environmental conservation; scientific and technological cooperation; tourism promotion; technical standards and many other fields.

Risks to the Outlook Further progress on microeconomic reforms and rating upgrade A sharp reversal of the capital flow influx of the last two years Economic Outlook: Longer-term, we still have concerns regarding the country’s enduring legacy of

underinvestment. Recent industrial production figures exceed the sector’s sustainable growth rate, as suggested by rising levels of capacity utilization. In this regard, more needs to be done to improve the overall business climate. However, the country’s fractious political backdrop makes necessary microeconomic reforms difficult.

http://en.wikipedia.org/wiki/Latin_America

http://en.wikipedia.org/wiki/Montevideo

http://en.wikipedia.org/wiki/Argentina

http://en.wikipedia.org/wiki/Bolivia

http://en.wikipedia.org/wiki/Brazil

http://en.wikipedia.org/wiki/Cuba

http://en.wikipedia.org/wiki/Chile

http://en.wikipedia.org/wiki/Colombia


http://en.wikipedia.org/wiki/Mexico

http://en.wikipedia.org/wiki/Paraguay

http://en.wikipedia.org/wiki/Peru

http://en.wikipedia.org/wiki/Uruguay

http://en.wikipedia.org/wiki/Venezuela


Commercial Infrastructure Commercial Infrastructure Communication Telephones - main lines in use: 38.8 million (2006) Telephones - mobile cellular: 99.919 million (2006) Telephone system: general assessment: good working system; fixed-line connections have remained relatively stable in

recent years and stand at about 20 per 100 persons; mobile-cellular telephone density has risen to nearly 55 per 100 persons domestic: extensive microwave radio relay system and a domestic satellite system with 64 earth stations; mobile-cellular usage has more than tripled in the past 5 years international: country code - 55; landing point for a number of submarine cables that provide direct links to South and Central America, the Caribbean, the US, Africa, and Europe; satellite earth stations - 3 Intelsat (Atlantic Ocean), 1 Inmarsat (Atlantic Ocean region east), connected by microwave relay system to Mercosur Brazilsat B3 satellite earth station (2007)

Radio broadcast stations: AM 1,365, FM 296, shortwave 161 (of which 91 are collocated with AM stations) (1999)

Television broadcast stations: 138 (1997) Internet country code: .br Internet hosts: 8,265 (2007) Internet users: 42.6 million (2006) Transportation Railways: total: 29,295 km

broad gauge: 4,932 km 1.600-m gauge (939 km electrified) standard gauge: 194 km 1.440-m gauge narrow gauge: 23,773 km 1.000-m gauge (581 km electrified) dual gauge: 396 km 1.000 m and 1.600-m gauges (three rails) (78 km electrified) (2006


Commercial Infrastructure Roadways: Total: 1,751,868 km Paved: 96,353 km Unpaved: 1,655,515

km (2004) Waterways: 50,000 km (most in areas remote from industry and population) (2007) Ports and Terminals: Guaiba, Ilha Grande, Paranagua, Rio Grande, Santos, Sao

Sebastiao, Tubarao Merchant marine: total: 135 ships (1000 GRT or over) 2,020,182 GRT/3,039,015 DWT

by type: bulk carrier 20, cargo 21, carrier 1, chemical tanker 6, container 9, liquefied gas 12, passenger/cargo 12, petroleum tanker 47, roll on/roll off 7 foreign-owned: 16 (Chile 1, Denmark 2, Germany 7, Mexico 1, Norway 1, Spain 4) registered in other countries: 5 (Bahamas 1, Ghana 1, Liberia 3) (2007)

Airports: 4,263 (2007) Airports - with Airports - with paved runways: unpaved runways: total: 718 total: 3,545

over 3,047 m: 7 1,524 to 2,437 m: 832,438 to 3,047 m: 25 914 to 1,523 m: 1,5551,524 to 2,437 m: 167 under 914 m: 1,907 (2007) 914 to 1,523 m: 467 under 914 m: 52 (2007)

Heliports: 16 (2007) Pipelines: condensate/gas 244 km; gas 12,070 km; liquid petroleum gas 351 km; oil

5,214 km; refined products 4,410 km (2007)


Market & Infrastructure

Market

Most of opportunities are available in development of country's infrastructure and less in agriculture and agribusiness. The information belongs to 2004, and no further updates have been published thereafter. The government encourages Public-Private Partnership (PPP) scheme, which is based on the same law ratified in December 2004. Here are the total funds allocated to the projects.

HighwaysRailwaysPortsLength Km2165207216Total Cost USD m2,8891,250240

Meanwhile USD165 million has been allocated to irrigation of 1,117 hectares, USD1.23 for power generation and transmission, USD886 million for north gas pipelines.

Agribusiness is another sector with significant natural resources and potential growth. Brazil has 388 million hectares of fertile and highly productive agricultural land, of which 90 million hectares have not yet been explored. Production of Soybean Alcohol and Sugar, Coffee, Juices and Fruits, Forest Products, Cotton, Cocoa and development of Organic Agriculture are other fields to consider. Cattle breading and meet processing are further opportunities available, with side products such as leather and its articles. Tourism, accommodation and regional airlines are also encouraged. However, there are no figures available for required investment.

It is very hard to determine the market type, as it is combination of type 2 and 3


Market & Infrastructure

Market Type 2 - Relationship-based, relatively affluent economies:

Interpersonal communication skills, cultural sensitivity and linguistic fluency are critical for developing a business relationship with a local partner

Relationships typically need to be developed first at a senior staff level

Market Type 3 - IFI-funded economies: Developing or economies in transition Market development takes time Flexibility and being politically astute are


Physical Factors

Physical Factors

Location: Eastern South America, bordering the Atlantic Ocean Area: total: 8,511,965 sq km

land: 8,456,510 sq km water: 55,455 sq km note: includes Arquipelago de Fernando de Noronha, Atol das Rocas, Ilha da Trindade, Ilhas Martin Vaz, and Penedos de Sao Pedro e Sao Paulo

Land boundaries: total: 16,885 km

border countries: Argentina 1,261 km, Bolivia 3,423 km, Colombia 1,644 km, French Guiana 730.4 km, Guyana 1,606 km, Paraguay 1,365 km, Peru 2,995 km, Suriname 593 km, Uruguay 1,068 km, Venezuela 2,200 km

Coastline: 7,491 km Maritime claims: territorial sea: 12 nm

contiguous zone: 24 nm exclusive economic zone: 200 nm continental shelf: 200 nm or to edge of the continental margin

Climate: mostly tropical, but temperate in south Terrain: mostly flat to rolling lowlands in north; some plains, hills, mountains, and narrow coastal belt

Elevation extremes: lowest point: Atlantic Ocean 0 m

highest point: Pico da Neblina 3,014 m


Physical Factors

Natural resources: bauxite, gold, iron ore, manganese, nickel, phosphates, platinum, tin, uranium, petroleum, hydropower, timber

Natural hazards: recurring droughts in northeast; floods and occasional frost in south Land use: arable land: 6.93%

permanent crops: 0.89% other: 92.18% (2005)

Irrigated land: 29,200 sq km (2003)

Environment - current issues: deforestation in Amazon Basin destroys the habitat and endangers a multitude of plant and animal species indigenous to the area; there is a lucrative illegal wildlife trade; air and water pollution in Rio de Janeiro, Sao Paulo, and several other large cities; land degradation and water pollution caused by improper mining activities; wetland degradation; severe oil spills

Environment - international agreements: party to: Antarctic-Environmental Protocol, Antarctic-Marine Living Resources, Antarctic Seals,

Antarctic Treaty, Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Marine Dumping, Ozone Layer Protection, Ship Pollution,

Tropical Timber 83, Tropical Timber 94, Wetlands, Whaling signed, but not ratified: none of the selected agreements.

Geography - note: largest country in South America; shares common boundaries with every South American country except Chile and Ecuador


SWOT Analysis

SWOT Analysis

Strengths: Brazil's traditional leadership in "Inter-American community", assuming significant role in collective

security efforts and holding economic cooperation with Western bloc, exploiting its vast natural resources and a large labor pool, has made the country as South America's leading economic power and a regional leader. The country also participated in different peacekeeping missions around the world and is member of regional and international trade and security treaties and increased its involvement in international economic and trade policy discussions.

In contrary to other socialist leaders which prompt nationalist policies, the president advocates for both government participation in economy while honoring the contractual rights of investors. To attract private capital he is promoting Public-Private Partnerships (PPP) instead of privatizations, which is a mild deterrent to investment.

Due to sound economic policies, the country recovered from 2001-03 financial turmoil, capital inflows are regaining strength and the currency has resumed appreciating, employment and real wages has increased. Current account is in surplus, international reserves bolstered to historical high levels-five times what they where in 2000 ( Foreign exchange reserves), national debt is reduced and interest rates are declined. The debt service ratio which was well beyond the critical line (25-30) dropped from 62 to below 20. The GDP has grown over 3.5 fold in 4 years and inflation dropped to ¼ in the same period. Export of goods increased, but its growth rate dropped. ( Economic Structure). Moody's has upgraded Brazil's credit rating. The economy has grown and diversified, characterized by large and well-developed agricultural, mining, manufacturing and service sectors (Industrial Structure). Its economy outweighs that of all other South American countries and is expanding its presence in world markets. U.S., Western Europe and Japan are primary markets for Brazilian exports and source of foreign lending and investment. There have been significant progress in the liberalization of the foreign exchange


SWOT Analysis Weaknesses: The relation between executive and legislature as well as federal and state

governments are generally obscure, leading to constant horse-trading, which slows down reforms in all dimensions. On the other hand President Lula's policies to fund new social initiative and improvement of education and social programs will keep the tax rates at high level. The appreciation of currency slowed down export growth rate and increased the growth and volume of imports leading to deficit in trade balance. With all imposed reforms fiscal problems persists. The public debt is still high and social security expenditure is on an unsustainable path. Growth has been slow compared with other Latin American countries and the government's economic policy is overly timid. However, broader reform is still sorely needed. The market openness stands at 21.5% one of the lowest in the world. Brazil is partner and observer to few trade agreements. The largest is Mercosur, to which Brazil is full member. IMF reports that it's the fifth largest economic integration pact with total GDP of over USD2.78 trillion a year (PPP) and 263 million population. However this pact turned to a political rather than economic bloc (Mercosur), leading to circumstance which some pundits have doubt in its fate. Free Trade Agreement of Americas, (FTAA) which is extension of NAFTA to South America, has been drafted but been failed to form, facing disagreement of some Mercosur members. In general lack of economic and political harmonization are main barriers to the life of these agreements.




SWOT Analysis

Opportunities:

It should noted that posted opportunities are not current and belongs to 2004. While most are focused on infrastructure and they are quantified, but the sectoral opportunities are expressed only qualitative and actual terms, leaving investment potential blank.

Agribusiness is significant field and is encouraged. Another important sector is petroleum, having in mind that Brazil is the second largest producer of oil in South America ( Top 5 South American Oil Producers, 2006), with 1.9 million bbl/d of crude oil refining capacity spread amongst 13 refineries. OGJ reported that Brazil had 10.8 trillion cubic feet (Tcf) of proven natural gas reserves in 2007, however natural gas production has grown slowly in recent years, mainly due to a lack of domestic transportation capacity and low domestic prices. As such, both production and transportation of natural gas are further opportunities to reap.


SWOT Analysis

Threats: Due to highly unequal income distribution and underpaid, corrupt

elements of security forces the main source of violence in Brazil is criminal rather than political. Periodic violence in rural areas stems from imbalance in land distribution and land invasions which affect the agriculture sector. Furthermore, corruption at high levels is still disquieting and although the president has survived the allegations, further accusation could lead to political instability. The bureaucracy is cumbersome and regulatory agencies are weak. While Brazil has not accepted compulsory ICJ jurisdiction, corruption in an overloaded judicial system is a major problem plagued by procedural uncertainty. There are number of foreign exchange control policies, for example foreign currency bank accounts are prohibited. The tax system is complicated and poorly structured characterized by heavy tax burdens and widespread tax evasion. On the payment side the payment delays may occur due to high cost of local credit, and although non-payment items declined in 2006, but still persist. Calling of bonds insurance are in low-medium risk range.


Conclusion

Conclusion The key question is what opportunities are available for Iranian firms and what are challenges. Let's

review the later for resolution: It should be noted that the distance is a major deterrent, which will overload the cost of goods and

services with extended logistical expenses and operational challenges. To by pass foreign exchange controls to secure the repatriation of principal and profits for

investment. Unfriendly business environment which persists in the country. Complying with Public-Private Partnerships scheme, for investment, which may not be palatable for

private firms. Poor structured export policies and anti-export bias, which has led to poor export performance (high

tax burden on exports, high concentration of exports in a restricted number of products, scarce diversification of the destination markets, deficiency in the mechanisms of export financing, lack of political priority, low technological content, low investment in the consolidation of trademarks,absence of exporting culture in Brazil’s entrepreneurs, and low rate of investment in the economy. Posting outdated trade and investment data in Portuguese).

Weak structured trade agreements with uncertain fate. Low market openness with 21% rate. Non acceptance of ICJ ruling by government. High rate of criminal violence in urban and rural areas. Nevertheless, elevation of political relation may help to alleviate some of impediments. However, exporting products exclusive to Iran may be opportunity. Well seasoned Oil and Gas

industry may afford logistical expenses and assist Brazil's young oil and gas industry. The technical and engineering sector can participate in development of infrastructure. Iranian agribusinesses may have good fortune, if they shield themselves from land disputes by legal and commercial due diligence.


THANK YOU FOR YOUR ATTENTION

Dr. Mohsen SHATERZADEH

March 2008

BRAZIL Country Profile Dr. Mohsen SHATERZADEH March, 2008.

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Transcript of BRAZIL Country Profile Dr. Mohsen SHATERZADEH March, 2008.