The Brazilian economy is a free-market, export-driven economy. With a GDP exceeding US$1 trillion (or US$1.8 trillion at purchasing power parity), Brazil is the ninth-largest economy in the world and the largest in Latin America, with a per capita GDP of over US$6,000 in 2007. Brazil's economy has been stable and resilient since the 2002 economic crisis, dubbed the "crisis of confidence." The government has facilitated foreign investment and supported domestic companies to export. In 2007, gross domestic product (GDP) exceeded expectations, placing Brazil alongside emerging economic giants Russia, India, and China.
Its History
The Brazilian economy is part of Brazilian history. Since its discovery, Brazil has relied on natural and mineral resources.
One of the first episodes of the Brazilian economy was the discovery and extraction of a redwood called pau-brazil, which was exported to Europe for use in paint. This marked the beginning of exploration of the Amazon and its beneficial herbs.
The second episode was the cultivation of sugarcane and the extraction of sugar from it to replace beets. However, its cultivation was slow due to labor shortages until the slave trade began, and slaves were used in agriculture and the construction of railways. Animal husbandry played a role in exploration and expansion of Brazilian lands.
In the sixteenth century, the explorers of the Bandirantes began their voyages in search of valuable minerals, most notably gold, copper, silver, precious stones, and diamonds. By the end of the seventeenth century, explorers had reached São Paulo and Minas Gerais, with the majority of the minerals being exported to Europe, and a portion being sold in the Brazilian market.
Coffee played a crucial role from the beginning of the 18th century to 1930. It was the most important export product and was brought to Brazil by Francisco de Melo Palheta in the 17th century, who brought the coffee plant from French Guiana.
In the middle of the 18th century, the sergueira tree was discovered, and rubber was extracted from the Amazon rainforest and used in European and North American factories. This is how the Brazilian natural rubber chain began.
The golden age began in the 1950s under President Getúlio Vargas, until the military took control of the government and the rule of Juscelino Kubitschek.
Investing in Brazil - Information about Brazil
- It has an area of 8.5 million square kilometers;
- It has a population of 170 million, and 90 million people work;
- It has a birth rate of 2.5 million;
- It is considered a gateway to Mercosul;
- It borders ten countries: Argentina, Bolivia, Colombia, Guyana, Paraguay, Peru, Suriname, Uruguay, and Venezuela;
- It is one of the ten largest economies in the world;
- It has the largest and most diversified industrial base in Latin America and the Caribbean;
- It is the largest producer of coffee, oranges, and sugarcane;
- It is one of the largest producers and exporters of raw and manufactured minerals in the world;
- It has reserves of iron ore, bauxite, manganese, tin, and gold;
- It is one of the world's most important food producers;
- It has a modern, competitive textile industry, with 30,000 businesses that reached $21 billion this year;
- It has a tourism infrastructure;
- It receives more than 5 million foreign tourists annually;
- The world's largest producer of regional aircraft;
- The third-largest producer of footwear and leather, a highly competitive industry;
- The world's third-largest producer of soft drinks;
- The fourth-largest producer of commercial aircraft;
- The fifth-largest rubber manufacturer;
- The sixth-largest cosmetics market, with annual sales of US$9 billion;
- The seventh-largest chemical industry;
- The eighth-largest producer of steel (27 million tons per year);
- The tenth-largest producer of automobiles (1.8 million cars per year).
- The second-largest cotton exporter in the world (11.25 million bales).
By the end of 2011, Brazil officially announced that it had become the sixth-largest economy in the world, surpassing the United Kingdom. According to statements by the Brazilian Finance Minister, his country achieved a growth rate of 2.7%, while the British economy grew by 0.8%. In fact, this achievement, which came one year into the term of current President Dilma Rousseff, was the fruit of the ambitious economic reform program that Brazil witnessed during the eight years of the rule of former President Luiz Inacio Lula da Silva, known as Lula. The country also witnessed a growth rate of more than 5% during Dilma Rousseff’s rule. In 2013, it was estimated at $2.246 trillion, while the per capita income reached $11,690 annually, and the poverty rate fell to 0.9% in 2012, compared to 1.11% in 2011.
Economic Development in Brazil
Stages of Economic Development
First, it is important to note the evolution of the political system in Brazil. Some consider 1964 to be the beginning of repressive military rule in Brazil, when the army seized complete control of the government. However, the military era actually began in 1930, when General Getúlio Vargas assumed power. After him, military governments succeeded one another, democracy and freedom declined, and arrests, economic crises, and civil wars spread throughout Brazil.
In the mid-1970s, General Ernesto Ghessé and later General João Baptista Figueiredo assumed the presidency until the mid-1980s. Both followed a gradual transition to civilian rule. This meant that Brazil witnessed a ten-year transition between two political systems: a repressive, authoritarian military regime and a democratic, institutionalized civilian one. Since 1985, civilian presidents have succeeded one another, the first of whom was José Sarney, and the last to date, the current president, Dilma Rousseff. Rousseff was a prominent detainee during the military regime and one of the most prominent leftist activists and activists of that period. However, from 1985 to 2012—a period of 27 years of democratic civilian rule following the end of the repressive military era—the name of President Lula da Silva rose to prominence. He served as president for eight years (2003–2010), during which the country made significant political and economic progress.
The 1970s
During this period, military governments adopted capitalist policies that defended the interests of businessmen and corporate owners, with no regard for the poor. They played a protective role in protecting the country from the threat of communism and a replication of the Cuban model, forming a strong alliance with national capitalism and the US administration. They also resorted to borrowing from abroad to implement their development projects, leaving behind massive economic debts that burdened future generations.
The 1980s
Like other developing countries, the country faced a debt crisis, particularly following the reckless borrowing policies pursued by military governments. The 1980s subsequently witnessed several attempts to control high inflation rates and a decline in growth rates.
The 1990s
During this period, the military had completely withdrawn from political life and completed the peaceful and gradual transfer of power to successive civilian governments. During the 1990s, civilian governments adopted capitalist economic policies, adopting open economic policies and market-oriented policies. Brazil was engulfed in a frenzy of privatization and economic liberalization, as was the case in many developing world countries that followed the directives of the International Monetary Fund and the World Bank. This led to progress in macroeconomic indicators, but this did not mean actual progress. In other words, the open economic policies inflicted heavy losses on local producers, leading to increased unemployment and a sharp decline in domestic production, which subsequently led to a decline in export rates, as well as an increase in poverty rates, which were already high. Thus, the experience of the 1990s in Brazil and many developing world countries demonstrated that macroeconomic stability does not necessarily mean real growth in the economy and production, nor does it mean progress in the level of individual income and the resolution of economic problems such as unemployment, high poverty levels, public debt, inflation, and others.
Cardoso's Attempts
Former President Cardoso (1995-2002) made numerous attempts to reform the Brazilian economy, developing the "Real Plan," which aimed to integrate the domestic economy into the global economy. His reform attempts tended toward adopting free-market policies and external borrowing, with external debt rising from $150 billion to $250 billion during his presidency. This debt inflation led to a crisis of lack of confidence in the Brazilian economy, both among international donors and domestic and foreign investors. Cardoso's policies also focused on issuing domestic debt securities with high interest rates, which encouraged investors to abandon productive investment in favor of purchasing government bonds, leading to a 900% increase in domestic debt. Thus, his attempts deviated from the path of increasing burdens on future generations, achieving no progress in production but rather progress in the financial sector, increasing debt, further complicating the crisis of confidence, and, of course, continuing the deteriorating economic conditions of the poor.
Economic Problems When Lula da Silva Came to Power
Economic Problems
Economic problems intensified, including the depreciation of the Brazilian real against the US dollar, inflation, and high levels of public debt, both external and domestic—as previously mentioned—which led to what was known as a crisis of confidence and weak growth rates. In addition, there was the severe shortage of electricity supply to vast areas of the country, which significantly hindered agricultural and industrial development projects and, consequently, growth rates.
Social Problems
Including, for example, the problem of school dropouts and the general deterioration of school conditions. Organized crime, particularly drug trafficking, was widespread, as was the case in most countries on the continent. In addition, there were problems of hunger, unemployment, extreme poverty, and extreme inequality between classes of society, which was clearly divided into two classes: the first was a very thin segment of the extremely wealthy, versus a large segment of the extremely poor, while the middle class was almost invisible in a stark display of economic inequality and a near-total lack of social justice.
Lula's Economic Development Program
Austerity Program
Brazil implemented an austerity program in accordance with an IMF plan to close the budget deficit and eliminate the crisis of confidence. The austerity program reduced the budget deficit and raised the country's credit rating, thus significantly contributing to eliminating the lack of confidence in the Brazilian economy. Consequently, Brazil received approximately $200 billion in direct investment from 2004 to 2011. In addition, approximately 1.5 million Brazilians were brought to Brazil in 2011, and approximately two million Brazilian immigrants returned to the country. These investments increased the country's production capacity, which meant creating new job opportunities and thus contributing to solving the poverty problem. After refusing to lend to Brazil in late 2002, the IMF now owes Brazil $14 billion, eight years after implementing Lula's economic program.
Changing Borrowing Policies
Credit facilities were provided, with interest rates reduced from 13.25% to 8.75%, facilitating lending for small investors. This facilitated the establishment of small businesses, created job opportunities, and increased production and growth, which generally contributed to solving the poverty problem. Figures indicate that half of the country's population saw their income increase by 68% over the past decade.
Expansion in Agriculture and Extraction of Oil and Minerals
In fact, Brazil possesses vast natural resources, including vast agricultural lands, rivers, abundant rainfall, and a climate that enables it to produce distinctive agricultural crops in global demand and unavailable in other countries, such as coffee and various fruits, as well as vast mineral and oil resources. Brazil relied on the export of these raw materials during the early years of Lula's rule, before the global crisis of 2008. This benefited from the high prices of raw materials in global markets, which in turn helped bridge the balance of payments deficit that the Brazilian economy was suffering from prior to 2003.
Industrial Expansion
Economic policies in this regard focused on two aspects of industry. The first is simple industries based on raw materials, such as metal mining, food processing, leather, and textiles. These industries already existed before, but they expanded as a result of the expansion of agriculture and oil discoveries, and subsequently the expansion of these industries and exports, as previously mentioned. The second aspect is advanced technology industries. The country has made significant strides in the last decade in the automotive and aircraft industries. One of the most prominent examples is Embraer, the third-largest commercial aircraft manufacturer after Airbus and Boeing, and the largest exporter in all of Brazil. Embraer aircraft represent 37% of the regional airline fleet in the United States. This company was established by the military regime in 1969, but remained a loss-making enterprise until it was privatized in 1994 under former President Cardoso. It then began to progress, but has achieved significant and distinguished success in recent years.
Tourism Promotion
Brazil, with its rare and stunning natural resources, including forests, beaches, and mountains, is well-positioned to attract large tourist groups. Recently, Brazil has witnessed remarkable growth in this field, creating a special type of tourism known as festival tourism. Brazil is a country with a very unique folk heritage of celebrating through mass festivals. It has successfully promoted this type of tourism, receiving 5 million tourists annually. This also contributes to revitalizing the economy and achieving further growth.
Social Assistance Program
After reviewing all the previous aspects of Lula's economic reform program, it remains to highlight the left-wing aspect of the economic reform plan, namely the section related to social assistance and raising income levels. At the heart of this aspect was the Brazilian aid policy known as Bolsa Família, a program that began in the mid-1990s, during the presidency of Cardoso, before Lula came to power. However, Lula continued to pursue this program, and he is credited with expanding the scope of benefits from this project and injecting greater energy and funding into it. Total spending on the program amounted to 0.5% of GDP, at an estimated cost of between $6 and $9 billion. The program provides financial assistance to poor families with the aim of raising their standard of living and improving their living conditions. Poor families are defined as those with an income of less than $28 per month. A family received an average of approximately $87 per month, equivalent to 40% of the country's minimum wage.
The program's achievements over the past decade have been impressive. The number of beneficiaries has reached approximately 11 million families, representing 64 million people, or approximately 33% of the Brazilian population. While Lula's programs have not completely eradicated poverty, they have moved millions of families from poverty into the "new middle class." According to the consumer research firm Setelim, more than 23 million people with incomes ranging from $457 to $753 per month have risen.
Overall, the Bolsa Familia program helped reduce the Gini index by 21%, while raising the minimum wage reduced it by 32%. The World Bank says that the income of the poorest 10% of the population increases by 9% annually, while the income of the richest classes increases by 2-4% annually, which means a gradual narrowing of the gap between the classes. Thus, the leftist Lula achieved social justice by raising the minimum wage and providing subsidies to poor families, not by adopting nationalization policies. In other words, he left the top of society and worked to improve the bottom of society.
Economic Blocs Program
Brazil, Russia, China, and India formed the BRICS group in 2009, and South Africa joined them in 2010. This group is a group of five countries with the largest economies among developing countries, with a combined GDP equivalent to that of the United States. This entity was founded on the premise that by 2050, the economies of these countries would rival those of the richest countries in the world. In any case, it constitutes one of the largest global markets and the fastest growing economies in the world.
