Introduction
Brazil is a BRICS, emerging economy. Having achieved solid growth in over a decade (but showing signs of economic slowdown in 2014-2015), Brazil has pull and push factors as an international, investment hub. The country has one of world's largest middle class, a common pattern for BRICS block and positive factor for consumption and driving growth. Latin America's largest country, economically and geographically, Brazil has major natural and labor assets making investment a more viable option. Being a major commerce partner in BRICS and beyond, Brazil offers access to markets well beyond country's local and national markets. The expanding foreign partnerships offer, moreover, further edges to Brazil's viability as an international market. Significantly, Brazil's prerequisites for technology transfer in international joint ventures further enhance country's competitive capabilities. On a less positive note, Brazil faces significant medium- and long-range challenges. Mainly, Brazil has chronic income inequalities, heavy reliance on commodity (as opposed to manufactured) goods and geographical imbalances in social welfare. The decision of a possible (initial) market entry requires, accordingly, a closer analysis of Brazil's macroeconomic forces. Set in a regional and global context, Brazil is examined as a viable destination for international investors. Further, by analyzing country's competitive edges, both internally and externally, Brazil's potentials and challenges can be better understood for a more informed investment decision. This paper aims, hence, to explore macroeconomic forces shaping Brazil's market in order to decide whether a initial market entry is possible or not in current economic ecosystem.
Macroeconomic Overview
Brazil has sustained a solid net external creditor status since 2008 until 2014 ("South America: Brazil," n.d.), when a set of political complications, economic slowdown (due to country's overdependence on commodities) and austerity measures has reversed earlier growth patterns. The earlier growth pattern has been marked by expanding on foreign investment in manufacturing, energy and healthcare industries; promoting social welfare programs including, for example, Bolsa Familia and Brazil Science Mobility Program (and hence elevating millions out of poverty); and pledging voluntarily to reduce country's greenhouse emissions by 3601%-38.9% until 2020 ("Brazil: Overview," n.d.). Brazil is characterized by an economy centered on agricultural, mining, manufacturing and service sectors ("South America: Brazil"). This economic makeup represents, if anything, a challenge for Brazil. Being focused exclusively on commodities, Brazil's economic growth is liable to periodic shocks in international markets, shocks manifest in country's recent economic slowdown in response to global recession and decline in demand for commodities. Brazil's fiscal commitments can be shown in Figure 1 below.
Demographically, Brazil has a big, emerging, middle class ("South America: Brazil"). In a pattern similar to rising high-spending middle class in BRICS, Brazil's middle class is an asset for both internal and external investors. Having a growing disposable income, Brazil's middle class is apt to fuel a steady growth for local and international investors. The changing preferences of Brazil's middle class – geared into more globalized products and services – are another asset for international investors. This is particularly appealing – from an investment perspective – given Brazil's broad, international partnerships.
On flipside, Brazil's economic growth – Latin America's biggest ("South America: Brazil") – is marked by chronic, structural imbalances reflected, most notably, in income inequalities and uneven distribution of public – and, for that matter, private – infrastructure services. The gap between a more affluent South and a poverty-stricken North is, indeed, a major challenge for Brazil's economic, if not social, stability.
(World Bank, n.d.). Figure 1. Brazil: Commitments by fiscal year.
Overall, Brazil's economy has been one of fluctuating performance, particularly since 2014. As noted, Brazil, a resource-rich country, is overdependent on export commodities as a significant revenue-generating source. This overemphasis on market volatile revenue generators re-focuses attention on two major, macroeconomic components which, if adopted effectively, are apt to not only reverse Brazil's recent stagnation but also, more significantly, to sustain country's growth in long range namely, technology transfer and competitive edge (against rising global economic powers, particularly China).
Technology Transfer
In a pattern similar to rising economies (but at an accelerated pace), Brazil has witnessed a rapid adoption of industrial technologies as expansion in international partnerships has broadened (Dechezleprêtre, Glachant, & Ménière, 2009). The investment by foreign partners in Brazil has, in fact, accelerated country's pace in integrating advanced industrial technologies. This development, coupled by Brazil's recent efforts to "pre-require" integration of foreign technologies in local investments (South America: Brazil), is apt to transform Brazil from a largely commodity-oriented economy into one more manufacturing- and service-oriented.
The question of technology transfer should not be a capital-intensive one. Contrary to conventional technology transfer processes, technology migration from "core" to "margin" economies has become increasingly reliant on human capital as opposed to machinery. Given growing educational levels and professional skills in Brazil ("South America: Brazil"), coupled by more foreign investments, technology transfer should be an easier process. There remain, however, regulatory barriers, comparatively high market-entry costs (particularly in recent years due to a slowing economy) and corruption ("South America: Brazil") – all hindering a more rapid adoption of innovative technologies from both national and international investors. Technology transfer is, not least, particularly significant for Brazil in face of an international challenged posed by a growing , global, economic power: China.
Competitive Edge
As noted, Brazil is overdependent on resource-based exports. This overdependence has, in fact, negative impacts on country's competitive edge in numerous ways. First, by driving a significant share of national income from highly volatile exports, Brazil risks cyclic, often unpredictable, fluctuations in economic performance. (Needless to emphasize, recent slowdown in China's economy – and global economy accordingly – has been attributed to faltering demand on commodity goods.) Second, in failing to adopt – voluntarily or not – more advanced industrial technologies, Brazil risks losing competitiveness in global markets. Given Brazil's reliance on commodity exports, Brazil (and, for that matter, Latin America), compared to China, is liable to lose competitive edge in internal markets (Lall & Oikawa, 2007). Specifically, as China is shown to have a better competitive outlook on manufactured-goods dimensions (Lall & Oikawa), Brazil is more likely to suffer a steep decline in shares of international exports and hence paramount significance of high capabilities in industrial and manufacturing technologies.
On flipside, Brazil still has major assets in her natural resources both as primary components in more sophisticated, manufactured products or for different economic activities. The case for more advanced, manufactured products has been just made and cannot be overemphasized. There are, however, substantial potentials in Brazil's natural resources. Given country's vast forest expanses, investment in ecotourism activities can be significant for country's economic uplift in numerous ways. First, by adopting an environmentally-friendly approach to her economic growth, Brazil can further assert her pledge to reduce her carbon emissions and hence boost country's image in international community. The implications for international investors are broad including, most notably, a responsible corporate image and a macroeconomic growth ecosystem consistent to practices in more developed economies and responsible companies. Second, by offering up her vast natural resources for international investors, an additional (big) market of ecotourism can be developed, one which would both brand country's image internationally and drive sources of income for indigenous, historically marginalized groups.
Recommendations
Brazil has major investment opportunities but also (surmountable) challenges. The overdependence on commodity goods for economic growth can risk country's competitiveness in medium and long ranges. Investing in industrial technologies (comparatively expensive initially but declining over time) is a welcome in a country seeking more competitive edge in an increasingly cut-throat global economic ecosystem. The country's vast natural resources can be a major asset by investing in ecotourism activities. In so doing, country's "hinterland" is further exploited more sustainably for benefits for both country's indigenous populations and economy at large.
References
Brazil: Overview. (n.d.). The World Bank. Retrieved from http://www.worldbank.org/en/country/brazil/overview
Dechezleprêtre, Antoine, Glachant, M., & Ménière, Y. (2009). Technology transfer by CDM projects: A comparison of Brazil, China, India and Mexico. Energy Policy, 37(2), 703–711. ScienceDirect. doi: 10.1016/j.enpol.2008.10.007
Lall, S., Weiss, J., & Oikawa, H. (2007). China's Competitive Threat to Latin America: An Analysis for 1990–2002. Oxford Development Studies, 33(2), 163-194. Taylor & Francis Online. doi: 10.1080/13600810500137764
South America: Brazil. (n.d.). The World Fact Book. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/br.html
World Bank. (n.d.). Brazil: Commitments by fiscal year. Retrieved April 2, 2016 from http://www.worldbank.org/en/country/brazil/overview
