Brazil’s Economy Marching to Samba Beat

​Brazil’s economic future appears to be as impressive as the view from Francisco Itzaina’s high-rise office in downtown Rio de Janeiro.

Brazil’s Economy Marching to Samba Beat

The windows of the South American boss of engine-maker Rolls-Royce provide a panoramic vantage point over the city’s vast Guanabara Bay. With cargo ships, ferries and cruise liners plying their trade on the sea, and other skyscrapers rising in the foreground, it is a picturesque sight. The giant scale of everything is also indicative of Brazil’s growing economic might. “God blessed Brazil with huge amounts of natural resources,” says Mr Itzaina. “It is blessed with minerals and fresh water, and now we have just found huge reserves of oil and gas.Brazil is very well placed for the future.”

Domestic market Brazil, one of the so-called Bric nations together with Russia, India and China, has seen its economy soar in recent years, with growth far outpacing the US and western Europe. In 2010 the Brazilian economy expanded by 7.5%. While it slowed to expected growth of 3.5% in 2011, the government of President Dilma Rousseff says this was caused by external factors, primarily the financial crisis in the eurozone hitting the wider economy. Brazil’s economic growth last year was enough to see it overtake the UK as the world’s sixth-largest economy, according to economic research group the Centre for Economics and Business Research. What helps Brazil is that its vast domestic market - it has a population of 195 million - helps shield it from any global economic storms. This population may be dwarfed by China’s 1.3 billion, but on average, Brazilians have much higher purchasing power.

Mr Itzaina says: “Brazil’s exports account for between 13% and 14% of its economy, China is more like 40%. So while exports are obviously important for Brazil, and it wants to increase them, it is not dependant upon them. With substantial oil and gas reserves continuing to be discovered off Brazil’s coast in recent years, the country is now the world’s ninth largest oil producer, and the government wishes to ultimately enter the top five.

Transport boost In Rio, the public transport network, or lack of it, is the city’s most serious infrastructure problem. Francisco Itzaina says Brazil offers great opportunities for foreign firms. The city and its 6.1 million population has just one underground train line, when it could do with 10. As a result, traffic jams are a serious problem on the city’s roads, and getting about by bus or taxi can take an age. Thankfully, Rio’s municipal council is now working hard to improve the city’s public transport network ahead of Brazil hosting the 2014 World Cup, and Rio being home to the 2016 summer Olympics. Instead of digging new underground lines, the city is creating a Bus Rapid Transport (BRT) scheme with four new dedicated bus lines. To cover a total 150km (93 miles), the new bus routes will be inaccessible to cars, and cut journey times by more than three quarters. Pedro Paulo Teixeira, secretary for staff at Rio’s municipal council, says it is a far more cost effective project than building new underground lines. “We are investing 4bn reals ($2.2bn; £1.4bn) in BRT, which is 10% of the cost of building a new underground network of the same length,” he says. “It is also much quicker to build a BRT system, and we hope to open the first stages in July or August of next year. No other city in Latin America will have such a system.”

Taxing issue Back in Mr Itzaina’s Rolls-Royce office, he says one of Brazil’s main weaknesses is the country’s “extremely complicated tax system”. Many people living in Rio’s favelas do not wish to move elsewhere. With more than 60 different types of taxes, many are in place as effective import tariffs. When it comes to food and consumer goods, the level of VAT varies widely, from 17% for tomatoes, up to 50% for an iPod. Mr Itzaina adds: “Of course the tax system should be simplified and improved, but it hasn’t stopped companies from coming here. “Rolls-Royce has been in Brazil for more than 50 years, and it is a fantastic country, with tremendous opportunities for foreign firms. “Brazil is shaking off a reputation for corruption, but Rolls-Royce has never, ever had any involvement in that. “We are the best example that you do not need to be corrupt to prosper in this country.”

Extract taken from BBC News website Copy by Will Smale Business reporter, BBC News, Rio de Janeiro

Quarterly Report vertical - April 2019

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