Brazil Keeps Booming and Booming

EWZ the most popular ETF that covers Brazil.

Brazil's next President, to be elected in November, will inherit a country "bursting with fruit", and one that will host the next soccer World Cup in 2014, and the 2016 Summer Olympics. Brazil also has huge new activity exploiting hugely vast reserves of oil off its shoreline close to Rio and Sao Paulo states.

The Independent in the U.K had a lengthy article on Brazil today. It says you cannot spend a day in Brazil without sensing the economic miracles happening there:

• Q1 growth touched 9%


• Helicopter pads atop the skyscrapers of Sao Paulo buzzing with air traffic - again


• Lula recently named the world's most influential leader, raising the country's profile on the world stage and lifting much of the population out of poverty.
  

Not all roses

Not everything in Brazil is beautiful: "Not the slums, or favelas, which ring cities like this one or Rio de Janeiro, or last Saturday's national glee when Argentina – neighbour and perennial rival – crashed out of the World Cup one day after the Brazilian squad's humiliating Dutch demise".


Oil and GDP Growth

"Rather than giving them pause, the crisis afflicting the deep-sea drilling industry in the Gulf of Mexico is if anything spurring Brazil to move more quickly to increase production. Oil revenues now stand at 12 per cent of the national GDP and may rise to as much as 20 per cent.

It is a country that has moved far beyond the clichés of its international brand – the contours of its tanned beach-goers and catwalk models. Brasilia is agonising about keeping control of its economic boom while the rest of us are squabbling about the respective benefits of deficit-slashing austerity versus stimulus spending. (President Lula apparently thought that debate sufficiently boring that he did not show up to the recent G20 summit in Canada citing flooding in north-eastern Brazil.) The chatter, at this party and elsewhere, risks running away with itself. "They get a little bit carried away," a correspondent for a foreign news agency whispers, citing Brazilian diplomats telling him that China is investing in Brazil so feverishly because it sees it overtaking the United States soon as its most important export market. Come now.

Look hard enough and you will find sensible people in Brazil willing to identify those things that are not going so well, like the failure to invest in infrastructure (Sao Paulo's international airport is grittier than a Greyhound bus stop), Brazil's inability to upgrade school-age education and the still utterly byzantine ways of its bureaucracy and taxation system. Steve Jobs recently rejected a plea from the city government in Rio de Janeiro to open an Apple shop there. He shot back that the "super-crazy" tax system in Brazil "makes it very unattractive to invest in the country" and that "many high-tech companies feel that way". In all the pro-Brazil hoopla, this rude rebuff by Jobs registered with no one except a few attentive bloggers.

That Brazil is on the move, threatening to leave its similarly aspiring neighbours like Argentina and Mexico in the dust, is no longer in dispute, however. China has been in the know for years, but that is because it long ago turned to Brazil for so many of its desperately needed raw materials – everything from soy to iron ore to lumber. Now others are starting to pay attention. If Brazil, the B in the so-called BRIC group of fast-emerging nations (the others are Russia, India and China), is indeed on a path towards eventually joining the ranks of the developed nations, no one wants to be caught by surprise.

Thus the awful international airport in Sao Paulo is fit to burst only in part because Brazilians are discovering that having a relentless rising currency – the real – is a marvellous thing when travelling abroad. Adding to the traffic are the foreign businessmen and investors galloping into town, chequebooks at the ready, to find out what is going on and how they can share in the suddenly exploding pie.

Telling also are the beginnings of a reverse of the trend where young, privileged Brazilians assumed they would go abroad for university and quite likely their careers. It's the route that Julio Vasconcellos, now 29, followed. But having been in the US for 10 years, most recently in Silicon Valley in California, he talked to a friend over the New Year about a possible internet start-up in Brazil. They dreamed up peixeurbano.com – urban fish – where consumers learn about retail bargains. On a Wednesday in March, he tells me, he arrived in Rio de Janeiro – more specifically in the hip Botafogo district – and by the Thursday the site was up. He employs 40 people and is interviewing for 30 more positions.

"I just felt it was the right time to come back," he said. "You are starting to see people who are more open-minded and with a more international focus looking at Brazil as an opportunity and making bets on it in the same way people in the 1990s made bets on China." The horizon in internet development may be particularly wide and rich. "Every day I have a meeting with a different partner and five different ideas come to my head that would be huge business in Brazil that nobody is doing anything about. You can't do that in Silicon Valley."

While Brazil remains, according to the World Bank, one the worst countries for the gap between the rich and poor, the income divide has begun to close in the nearly eight years of President Lula. True the favelas, running with sewage, guns and drugs, remain a feature of the urban landscape, especially in Rio de Janeiro where more than just cosmetic surgery will be required before the 2016 Games. But the number living in poverty has fallen during his two terms from about 50 million to 30 million. Studies meanwhile point to slightly more than half of all Brazilians now belonging to a socio-economic group broadly described as lower middle class. They will not visit Gucci in Mr Jereissati's malls, but they will go to the less flashy retailers like C&A or Topshop when it makes its debut in Brazil next year.

Brazil has been lucky, both finding its reserves of oil and in its partnership with China, which has helped considerably to drag it into greater prosperity. (Were China to trip, Brazil may fall hard.) President Lula also inherited an economy that, after the catastrophe of hyper-inflation in the early 1990s, had already been transformed by the policies of his predecessor, Fernando Henrique Cardoso. But, even his detractors agree that despite his past as a leftist union organiser, he has shown an unexpectedly steady hand guiding the economy and that his welfare policies have been crucial in ensuring that Brazil's rising tide has lifted most, if not all, boats.
That is not to say Brazil is set for good. Some economists worry of bubble conditions forming and warn especially about gushing capital flows into the country and the ceaseless upward movement of the currency. It's not just that dinners in Sao Paulo now cost as much or more than in Manhattan. The supercharging of the real also threatens to stunt any move in Brazil away from a commodities economy to a manufacturing one because as an exporter it is becoming ever less competitive."