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LATIN AMERICA: "Private Equity in Brazil" report

LATIN AMERICA: "Private Equity in Brazil" report. 20-page report by Ernst & Young.

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back to index backLATINtalk March,  2005

Let's Sell Brazil

Sometimes, life isn't fair.

Brazil has made almost unbelievable progress over the last decade, yet here we go again saying that everyone must try harder. We probably sound like the irascible sergeant-major, always shouting at his soldiers to do more push-ups. But the sad fact is that, just as Brazil has been striding forward, so have its competitors.

Just two years ago, Brazilian sovereign risk was sky-high and some myopic Jeremiahs warned of disaster. But Brazil has given the world a memorable example of democratic and economic maturity. Who would have thought that, half way through its first PT government, Brazil would merit an editorial in the Financial Times praising steadfast” economic policies that have held down inflation and reduced the public debt? President Lula, the FT said, has been an assiduous promoter of his country's exports to new markets. And he has pressed ahead with structural reforms.”

Couple that with economic growth around 5%, the record trade surplus of US$ 33 billion and Foreign Direct Investment up 60% to US$ 16 billion, and you might think Brazil could relax and wait for new investment to roll in. But we can't, because also in 2004, China's economy grew around 9%, attracting world-record FDI of over US$ 60 billion, and total foreign trade grew 30% to over US$ 1.1 trillion. And many other countries – not least India – turned in sparkling performances.

Investment planners remember those big numbers. It's hard to ignore 1.3 billion people, 9% growth”. So although the latest Unctad review of FDI prospects through 2007 showed Brazil as top choice in Latin America, it also showed the whole region placing well behind Asia and Eastern Europe. That's the tide against which Brazil must swim.

And it gets worse.

What was the reaction of China's Central Economic Working Conference to 2004 economic performance? Applause and smug complacency? No. The demand was for more reform, to make the country more attractive to foreign investment. Even though foreign investors have already established over 700 R&D centers there, mainly in electronics and communications, and high-tech exports grew 52% in 2004, China's 2005 plans call for tariff reduction, investment liberalization and more market-oriented economic policies. Some is a consequence of World Trade Organization membership. But the fact remains that China wants to become even more attractive for FDI.

And it's not just China. Unctad reported a record 82 countries making a total of 220 legal and regulatory changes in 2003 to improve their FDI regimes – up 50% on 2002.

All this is a sobering illustration of the hill Brazil has to climb, but it's no reason to throw in the towel. Far from it. Rather, it shows the need for more reform and more effort by both government and business to spread the word about just how good Brazil is today.

We believe Brazil has some enormous strengths that get overshadowed by the big numbers from Asia. And sometimes we sell ourselves timidly or badly, ashamed of problems rather than proud of success.

Let's talk about institutional stability. In a nutshell, Brazil has it, China doesn't. Of course, some would argue that nothing is more dependable than a dictatorship. But how stable can that remain, looking ahead, as China introduces the economic freedoms and individual liberties that are essential to successful free-market economies? We don't say it can't be done, but the jury is still out.

Brazil, on the other hand, is a genuine democracy with convincing institutions – a Central Bank that takes wise but unpopular decisions just before elections, and courts that challenge the government. Our financial institutions are modern, efficient and honest; our social institutions are vibrant.

Brazil still has much to do – infrastructure, education, bureaucracy, labor reform, tax reform, the list is well-known – but the truth is that we're building on very solid ground. That's the great message we must trumpet around the world.

Source: AMCHAM Update magazine - GAI

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