China 4 - 0 Brazil

When Brazil was competitive

I know that I am exagerating when I say that Brazil is only competitive in football (soccer) - even though they have recently lost a friendly against Germany. 

However, after this loss they decided to cancel all "classics" (games against top teams) and only play against teams such as Ghana, Guinea and others. A recent game against Argentina in the Roca Cup ended 0-0 - the rematch will be at the end of this month.

Unfortunately this reaction is very exemplary for a Brazilian behavior style. Recently, imported cars have been flooding into the country - especially Hyundai has been very succesful and is even in the process of building a huge plant. On the lower end, the Chinese companies JAC and Chery have entered the country with a bang and riding on a weak USD, opening dealerships and advertising heavily - both are also planning on building plants. And on the upper end, Jaguar, BMW (also planning a plant), Audi, and even Mini have been extremely succesful catering to the wealthy. What was the reaction of the government?: Slap on (even) more taxes on imported cars (i.e. outside of Mercosul) and cars with less than 65% local content (local producers have 45 day grace period). This will raise the average price of most cars not qualifying for exemption by 25% or more, thus killing off the efforts of many of the new emergents. This will not help the Brazilian car industry which already sells expensive and mediocre cars - ask a Brazilian for his opinion the best that is locally produced and he will, without a blink of the eye tell you: Omega!

Where was I? Competitiveness: The World Economic Forum has released their latest competitiveness index and, surprise surprise, Brazil did not showcase well. And this is not related to the companies itself - although there are also weakness there. Brazil finished overall in 53rd place (of 142), better by 5 positions since the last time and on par with India (56th), but way behind China (26th). What drags down Brazil are

"[...] the lagging quality of its overall infrastructure (104th) despite its Growth Acceleration Programme (PAC), its macroeconomic imbalances (115th), the poor overall quality of its educational system (115th), the rigidities in its labor market (121st), and insufficient progress to boost competition (132nd) are areas of increasing concern."

Brazil is saved by market size (10th) - but even business environment (31st), financial markets (40th), technological adoption (44th) and innovation (47) are only midfield.

So overall, Brazil has improved but still is far from being a future leader and if we look very closely, indicators under strong governmental influence perform much poorer than those which are driven by the private sector... Drive on the local roads, fly into any airport, try to hire somebody with an intermediate level of English-speaking skills (or try to fire them later!) and you will know why.

Well, at least Brazil is still better than Argentina in competitiveness. Argentina is currently ranked 85th.

BTW, the top 10 this year were Switzerland, Singapore, Sweden, Finland, United States, Germany, Netherlands, Denmark, Japan, and United Kingdom.

BRIC(S) - Why South Africa?

I don't get it. Brazil, Russia, India and China all make sense from any perspective (and were coined in the original Goldman Sachs acronym). But South Africa? South Africa is not in the top GDP nations now and will not be in 2050. South Africa has no important industry to mention, no significant impact on geopolitics and does not fit in any major KPI. Even Jim O'Neill, who "invented" the BRIC doesn't see why this makes sense.

Therefore I see only two reasons why South Africa is now in the club, and not Mexico, Turkey or Indonesia (in my humble opinion far more suitable for the group).

1. The BRIC(S) need a foothold in Africa... or China wants to ensure that it's major target for foreign direct investments is covered by a strategic partner. (That is what O'Neill also believes) But if we are talking geopolitics Indonesia, Mexico and Turkey make at least as much sense.

2. BRICS sounds much better than BRICI, BRICT or BRIMC.

But I will not get sidetracked any further... back to Brazil.

Brazil, to be or not to be.

What I like about the Pearson Publishers, is that they actually manage to have clear, critical and sometimes even contradicting opinions if you look at their two flagship publications, the FT and The Economist.

If we look at a recent The Economist article first, called "Four Reasons to Believe in Brazil", from July, the outlook is outright positive. The highlights are commodities and the global commodity hunger, the second oil (actually also a commodity, but the focus here is on self-subsistency and strategic importance in an increasingly energy-hungry world), demography (i.e. a major amount of people joining the work force and slower birth rates kicking in meaning infrastructure is set for the kids there and more people there to pay for it), and urbanisation, where wages usually are higher and access to education, infrastructure, etc. are much better.

Mr. Wolf from the FT takes on a much more pessimistic view in his June article "Why Brazil must try harder". Commodities also plays a significant role here, but with a highlight that while exports in Brazil have increased, the share of manufactured goods still remains low. This is similar to what I recently heard from a presentation of the Trade Ministry at the São Paulo Chamber of Business. The share of commodities in exports has actually increased. All of this still leaves Brazil at a lower development level, as industry development is not significantly challenged if all you have to do is dig out the stuff and ship it to China.

Most interesting, however, is Mr. Wolf's comparison of Brazil to two other BRICs, China and India. Brazil has lower ratios of trade, savings, exchange-rate ratios and population, and lower growth, meaning that while Brazil may have gained in the world, it has fallen behind China and India in world power over the past decades.

I believe it is exagerated to say, that this means that Brazil will not be of any significance in the future, but Mr. Wolf does have a point - especially if we consider the massive infrastructure needs the country has and the low level of savings, there is something Brazil must do, to catch up.

Brazil takes off

WHEN, back in 2001, economists at Goldman Sachs bracketed Brazil with Russia, India and China as the economies that would come to dominate the world, there was much sniping about the B in the BRIC acronym. Brazil?

Read more of this excellent and very balanced special, here.