July 25, 2021

Brazil: The giant in question

Brazil: The giant in question

Today, photography in Brazil, the largest economy in Latin America and the second in the continent after the United States, can not be more negative. The years of recession, during the presidency of Dilma Rousseff, followed by a period of strong stagnation, have exploded unemployment (12.4%), with a severe public debt in growth (77.2% of GDP), and a deficit of public accounts on the rise.

The incompetence of politicians in the management of resources and galloping corruption have left the Brazilian State trapped in a serious fiscal crisis, with a lot of spending and low income, which translates into the precarization of the services provided to the population, mainly in matters of Health, Infrastructure and Transport.

The Government that leaves the polls will have to face an important amount of problems to be solved in the next years, among them the increase of the competitiveness of the country, as well as to accelerate the economic growth, after the Organization for the Coordination and the Development Economics will revise downwards its forecasts for the Latin American giant, so that now it will only be 1.2% in 2018, and 2.8 in 2019, although, as is logical, all that will depend a lot on who is elected new president and his economic team of government.

Brazil is a giant. Territorial, it is the fifth largest country in the world, after Russia, Canada, China and the United States, the third largest in America, with four different time zones, the most spectacular jungle still in part to be discovered, and the largest, longest river and immense of the planet. Population, because it reaches the figure of 209 million inhabitants, most of them concentrated on the coast, particularly in Sao Paulo and Rio de Janeiro, and also industrially in Santos, Curitiba, Campinas, Porto Alegre, Belo Horizonte, Recife and Fortaleza.

And economic, given that according to the IMF and the World Bank, it is the largest economy in Latin America, the ninth largest according to its nominal GDP and the eighth largest in terms of purchasing power parity, forming part of the group of the four emerging economies (along with Russia, India and China) with greater international projection. Some of its companies (Embraer, Petrobras, Hawaiian, Marcopolo or Globo), are of global dimension, and its large reserves of oil in deep waters and natural gas in the Santos Basin, make it an authentic power in the making, reason whereby Goldman Sachs ventures that in 2050 it will be the fourth most important economy on the planet. But Brazil still has a long way to go. The country is seen as a power in gestation from always. But the reality is that it has only 1.5 of global influence capacity, which is very scarce for its enormous dimension.

In addition, there are structural issues of real concern. The differences between the poor and the rich are very large, galloping corruption weighs down their growth, citizen insecurity drives away investment and bureaucratically is still today a real horror, with obstacles to individual and business initiative, poor agility of public administrations, a very good private health service but a lamentable public one, and lack of order in infrastructure, education and human development. In this scenario, the president who leaves the polls at the end of the electoral process that begins today, will have a huge amount of problems to face in the coming years, due to the great deficiencies of the country.

Where should I start? In terms of management, it is imponderable to increase the productivity of public administrations. Brazil is a very decentralized but extremely inefficient territory, and avoiding "borders" between its 26 different "states" is sometimes a task of titans. Rent a car in Sao Paulo to deliver it in the neighboring state of Rio becomes a nightmare that can only be paid by paying such astronomical amounts that, in the end, it is much better to go by bus. The Brazilian state is so huge that, at times, it seems monstrous. Lula gave the country a worldwide visibility that it lacked, it must be recognized, since its two legislatures were those of greater economic and social development: inflation was stabilized, the fiscal deficit and external debt were reduced, and conditions were created. for long-term policies to be implemented.

But at the time, Lula built an excessively heavy State, with more than 150 public companies not always exemplary in their way of working, not only because of corruption cases such as Petrobras, but also due to the fact that most Sometimes these are badly managed and directed firms, catering to particular interests, not profitable and closely linked to the objectives of each "state" unit or to the parties and leaders that govern those regions.

The Brazilian Administration, in the words of Claudio Frischtak, execonomist of the World Bank, is vitiated by patrimonialism (appropriation for private ends of public resources), clientelism and corporatism. It is a State too big and expensive, which absorbs 42% of GDP, but does not return to society what it asks for in education, health, transport, etc.

But the heaviness of the public structure is not just that. How many parties are represented today in the Parliament of Brasilia? Although it seems a lie, 35. And how many ministries does Brazil have? Saving moments and distances between some presidents and others, around 40. Are they really necessary? Clearly not, but as it is necessary to give satisfaction to all the formations that make up the complicated political gear of the country, in the end the number of 40 Ministries almost falls short, because there are always coalitions that, to support the government of the day, ask for one or several departments, and there is no choice but to give them if you want to govern.

It may seem an anecdote, and perhaps it is, but in any case it is a significant anecdote. How is the same thing that the other day in the debate between the candidates for president, aired Geraldo Alckmynd, governor of the populous State of Sao Paulo (44 million inhabitants). In Brazil there are currently 7,400 public works started but completely stopped, waiting for any administration, or one of the 40 ministries, to decide to refloat them. This is how works like the one of the Metro elevated to the Guarulhos International Airport are perpetuated, or that they simply stop because of corruption, the most obvious being that linked to the omnipresent works of the Odebrecht construction company.

The first need

Arrived here, what are the challenges of Brazil, its economy, and the new president? Economists say that the first need is to balance public accounts and solve the serious fiscal problem that the country is dragging. The adjustment that would have to be made would be equivalent to three or four points of the GDP, something that can be resolved by increasing taxes, as proposed by the "lulopetista" Haddad, or by reducing expenses, as the economic team of the extreme right-wing Bolsonaro proclaims. If the adjustment does not occur, the problem will be inflation.

The point is that in Brazil today there are many people who will spend more time receiving the benefits of retirement than contributing to social security. The centrist of Michel Temer tried to make this reform by increasing the retirement age until 65, but since he did not have a sufficient majority, he had to abandon the idea.

Another problem is the number of public officials and advisers, as well as their salaries, high for what Brazil can afford. To get an idea of ​​the nonsense, now for example, the new Brazilian president who leaves the polls will have at his disposal 24.6 thousand freely available positions in the total of the 26 federations of the country, which may be occupied by people who do not they are public servants, and it is usually a currency that the Government has at its disposal to negotiate with the parties that will back him in Parliament.

In terms of reforms, analysts cite as essential to increase the rate of productivity, lower costs and reduce bureaucracy for companies and individuals. A recent report by the World Bank places Brazil in 125th out of a total of 190 nations, the worst position by far of the four Bric countries. The average time to open a business in Brazil is 79.5 days, having to comply with 11 different procedures. In New Zealand, first in the ranking, you can open a company in half a day with a single procedure.

It is also essential to recover the investment in infrastructures, and especially to spend public money well. The project of the Angra 3 nuclear power plant is always used as an example: it began to be built in 1984, two years later it was paralyzed, the works were resumed in 2010 with Lula, and suspended again in 2015. 8 trillion reals have already been spent, the work is stopped and another 17 trillion more are needed to complete it. Who will do it? Will it be done some day?

Or the drama of housing. More than 11 million people live crowded in unhealthy and dangerous favelas, without paving or drains, which is considered completely normal. Or the problem of health, with endless waiting lists and a lack of shabby structure in many public hospitals. The overcrowding of prisons, or congestion in transit on motorways, which can be absolutely absurd in cities like Sao Paulo and Rio, but also in Curitiba or Belo Horizonte. Going from Guarulhos International Airport to Paulista Avenue can sometimes take between two and three hours, when in a normal situation, for example at dawn, it only takes 20 minutes. Hence the flourishing business of private helitaxis.

And what about energy? Brazil is the tenth largest energy consumer on the planet, and the third largest in America, with the advantage that it is a power in the production of hydroelectric renewable energy, and also in ethanol, a fuel that Brazilians use indistinctly in their vehicles alongside gasoline, and whose formula is being imported today by India and China. It also has the second largest reserve of crude oil in Latin America, something that at the moment has not served to improve the standard of living of Brazilians, but for corruption scandals like the one uncovered around Petrobras.

Depending on the places, oil has been a blessing or a curse for which countries. You just have to compare Venezuela with Norway to realize this. In Brazil, the Venezuelan nonsense has not been reached, but it is true that at the moment the money from black gold (and Santos' natural gas) is little seen in the improvement of the living conditions of citizens.

As regards Brazil's relationship with Spain, we must remember the importance that this approach has acquired in recent times. Not only by the strength of companies such as Santander and Telefónica, leading the banking and communications sectors of the country, but also by many others, small, medium and large (Iberdrola, Endesa, Repsol, Indra, etc.) that reached "The Brazilian gold" at the beginning of the period of the Spanish investment boom abroad, and particularly in Lantam. Brazil has been one of the countries that has absorbed a greater percentage of Spanish investment in Latin America, both at the beginning of the international expansion and in the years 2009 to 2011, characterized by a serious economic recession in Spain.

Brazil came to gobble up more than 60% of Spanish investment in Latin America in some moments, transforming itself during the period 1993-2000 and 2009-2011 into the main destination in that region. In fact, President Temer highlighted that fact during Rajoy's visit to Brasilia a year ago, and stressed that Spain is the second most important investor in Brazil, immediately after the United States. To fear, and with him the main candidates for the Presidency of Brazil, are perfectly aware of that situation, and every time they have an opportunity they demand a greater presence of Spanish companies in the Latin American giant.

A problem, not minor, is that in recent times, with the Brazilian recession of Dilma's time, many of our companies left Brazil, partly because of the recession, it is true, but also to a large extent because of the difficulties that the country at the entry into its territory of foreign companies, whether they are Spanish or from any other place.

Brazil is enormously protectionist, something that is clearly observed, for example, when one enters a shopping center, one of those that in Sao Paulo they call shopings. It is probably the place in the world where less globalization is seen in commerce, and where there are more native brands, the vast majority unknown to a European or Spanish. Something impossible to see in other Latin American countries, such as Peru, Chile or Colombia. That's what our companies know very well, and if not, they ask Inditex.


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