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Brazil: an economic superpowerIvan Van de Cloot
Chief Economist Itinera Institute
Independent “Think-tank” Based on facts and figures- international comparisonsLong term
“ To show, to defend and to build roads for policy reform towards sustained economic growth and
social protection, for Belgium and its regions.
”
Summary
1. Economic and social progress
2. A sustainable economy?
3. The future
Since 2003 some 20m Brazilians have emerged from poverty and joined the market economy.
Source : The Economist, Lula’s Legacy, Sept 30th 2010
Social protection delivers lower poverty
Population increasingly urban
Source : The Economist, Lula’s Legacy, Sept 30th 2010
% Urban Population
84,36
30
40
50
60
70
80
90
1950 1960 1970 1980 1991 2000 2010
Growth at the bottom
Source : Centre for Social Policies, Rise of the New Middle Class
Analfabetism dropping
% of Analfabetism for persons > 10 years old
6
8
10
12
14
16
18
1992 1995 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source : IBGE, Pesquisa Nacional por Amostra de Domicílios 1992, 1995, 2001-2009
Life expectancy at birth, male
Source : Worldbank
Summary
1. Economic and social progress
2. A sustainable economy
3. The future
Age pyramid which is much younger than Europe’s
Ageing in advanced economies took three times as long as it will in Brazil
Vital for democracy: middle class
Source : Centre for Social Policies, Rise of the New Middle Class
Financial stability? 1. How to cope with massive capital inflows?=direct investment but also portfolio investment2. Abundant global liquidity3. Improvement in regulatory quality & financial market deepening4. Subsidised credit by national develeopment bank (BNDES)5. Household debt is climbing=for now asset price bubble remains contained
Exchange rate appreciation 1. Massive capital inflows =but also positive productivity differential with trading partners2. Oil production or Dutch disease3. Studies estimate overvaluation at 3- 20%4. Policy: tax on capital inflows (IOF) to discourage speculative bubble =FDI versus portfolio investment5. Accumulation of international reserves=costly policy
Investment rate to be boosted by Plano Brasil Maior 2014
Source : World Bank
Reforms for Brazil and Belgium
1. Simplification of the tax system=Fragmentation, complexity and changing provisions 2. Increase public saving in order to fund investment
Potential to open Brazilian market more
High level of tariff protection =non-agricultural goods at 14.1%Product market regulation, preferential treatment domestic
Net debt as % of GDP
0
10
20
30
40
50
60
70
80
90
100
110
120
130
Brazil China Russia Peru Indonesia G7
%
2000 2010 2013e
Source: National sources, World Bank, OECD, IMF, UBS as at December 2010
Emerging countries= not over-indebted
A lot of reserves
And steep climbing reserves
Source: Thomson Reuters Datastream
01 02 03 04 05 06 07 08 09 10 110
200
400
600
800
1000
1200
0
200
400
600
800
1000
1200
CLAIMS ON PRIVATE SECTOR : BrazilBANKING INSTS.: RESERVES : BrazilBANKING INSTS.: FOREIGN ASSETS : BrazilFOREIGN EXCHANGE RESERVES : Brazil
Total reserves incl gold (mio USD)
Source : Worldbank, 2011
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
EM Developed
Annual GDP growth
Emerging countries suffered but recovered
Growth would be sustained in coming years
Summary
1. Economic and Social progress
2. A sustainable economy?
3. The future
Proven oil reserves
Source : ANP Agência Nacional do Petróleo, Gás Natural e Biocombustíveis , Annual Report 2011
Oil as manna from heaven?
Source: Thomson Reuters Datastream
Crude Oil Production Brazil
2002 2003 2004 2005 2006 2007 2008 2009 2010 20111200
1400
1600
1800
2000
2200
0
20
40
60
80
100
120
140
160
CRUDE OIL PRODUCTION - Peak Production of 2180.08 Barrels / Day on Dec 10U$/BBL (RH Scale) - High Price of U$145.61 / Barrel on 7/11/2008
Real opportunities: but challenging to exploit
Source : The Economist, Nov 5th 2011
• The Lula well is deeper than BP’s Macondo
Untapped reserves (grey areas)
Growing number of multinationals
Source: Thomson Reuters Datastream
BRAZIL EQUITY MARKET
2007 2008 2009 2010 20110
50
100
150
200
250
300
350
0
50
100
150
200
250
300
350
BRAZIL BOVESPA (E)EMBRAER ON (E)PETROBRAS PN (E)VALE PNA (E)AMBEV PN (E)
Labour Force 15-64 y
0
500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
E
2015
E
2020
E
2025
E
2030
E
2035
E
2040
E
mill
ions
Emerging Developed
Source: United Nations, as at December 2010
Favorable demographics
Source: IMF IFS, Central Bank Data, BIS, Bank of America Merrill Lynch Global Research estimates. Note: Most data from end 2009 and also includes some estimates from BofA ML Global Res.
34%
21%
63% 72
%
13%
16%
19%
44%
15%
21%
4% 0%16
%
5% 2%
15% 33
%
5% 11%
0%
14%
4% 12%
1%
17%
2% 3%
21%
2% 10%
3%
18%
8% 3%29
%
1%
25% 43
%11
%
0%
25%
50%
75%
100%
Ger
man
y
Japa
nU
K
US
A
Bul
garia
Cro
atia
Cze
ch
Est
onia
Hun
gary
Isra
el
Kaz
akhs
tan
Nig
eria
Pol
and
Rom
ania
Rus
sia
Slo
vaki
a
S A
frica
Turk
ey
Ukr
aine
Egy
pt
Kuw
ait
Om
an
Qat
ar
Sau
di
UA
E
Arg
entin
a
Bra
zil
Chi
le
Col
ombi
a
Mex
ico
Per
u
Chi
na
Indi
a
Indo
nesi
aM
alay
sia
Phi
lippi
nes
S K
orea
Taiw
an
Thai
land
Mortgage penetration as % GDP
A lot of growth potential
Cars per 1000 people Job creation
0
100
200
300
400
500
600
India China Mexico EasternEurope
South Korea USA Japan WesternEurope
Cars per 1000 People
-500.000
0
500.000
1.000.000
1.500.000
2.000.000
2.500.000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Ann
ual n
et jo
b cr
eatio
n
Source: Ministry of Labor, Brazil; data as of 19 January 2011. Morgan Stanley, Haver as of 28 October 2010
Source: Credit Suisse, Datastream, March 2010
A lot of potential for domestic consumption
Huge investments planned (Programa de acelaracao do crescimento)
Private sector involvement
Potential output growth
The plant bottle
22.5% of the bottle’s PET is plant- based, made from brazilian ethanolCoca Cola aims to sell by end 2011more than 5 billion bottles in 20countries
FEB- P.A. De Smedt
44.18
50.72
51.26 51.1049.69
31.98
15.57
28.07
17.3416.3920.62
32.41
38.81
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
55.0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Países membros do G7
Países membros do E7
SHARE OF G-7 AND E-7 (PPP) IN THE GLOBAL GDP
G7 countries
E7 countries
Questions