The Petistas are once again in power in Brazil with the first female president in national history. Dilma Rousseff will officially begin her presidency as Head of State and Government of the Federative Republic of Brazil on January 1st 2011. Dilma will take office at the presidential palace, inheriting an economy worse than it was four years ago when Lula's second term began. The biggest challenge for Dilma Rousseff will be to ensure the development of the country with a special importance placed upon health and education.

The recent success of the nation is evident with crucial reductions in poverty rates, the growth of the economy during the financial crisis, the international success of winning the 2014 World Cup and 2016 Olympic bids, and the significant international presence of the President who has the highest popularity ratings in the history of Brazil, Luiz Inacio Lula da Silva.

Brazil is the fifth largest country both in area and in population with 192 million inhabitants. It is a federal republic with 26 states and the Federal District. Sao Paulo is Brazil’s largest city, accounting for 56% of gross domestic product and holding the highest number of executive jobs in Brazil. The Brazilian market, one of the most coveted in the world, currently has a middle class far larger than a few years ago, helping significantly with consumption growth in the country. The President of the Central Bank of Brazil, Henrique Meirelles, has secured 4.5% inflation for 2010. In addition, unemployment rates are very low, achieving 6.8% by the end of the year.

The capacity for Brazil to generate natural resources and its strong economic expansion are changing the sources of investment. China is replacing the traditional investors. The United Nations estimated that for 2010 multinational investments will reach US$ 1.2 tr. Brazilian investments in foreign markets are growing at very high levels in sectors such as power, metallurgy, construction and services. Multinational companies are taking these growths to historic levels.

The strongest sectors of the Brazilian economy are agriculture, automotive, civil construction, consumer goods, energy, and telecommunications.

Agriculture

The agriculture sector contributes 26% to domestic product with an export volume of over 40%. The continued growth of productivity at an average of 3.5% per year demonstrates an impressive performance especially in the segments of grain. Sugarcane and cotton were the major highlights of the last 10 years in terms of growth. Sugarcane, one of the most important products in Brazil with a key role in ethanol production, allocated 55% of its production to this market. Without doubt, the agricultural industry has had a boom in recent years and today Brazil is considered a strong competitor in world trade and the competitiveness of Brazilian farmers ensures prosperity for the future.

Automotive

The resumption of the Brazilian economy shows a positive year in 2010. The growth of the automotive industry has been supported with reforms of taxes made by the government of Lula and the end of the reduction on IPI (Imposto sobre Produtos Industrializados / Tax on Industrialised Products) on January 1st 2011 is being reflected in increased sales. The second half of 2010 is demonstrating a return to pre-recession production levels. The National Federation of Automotive Distribution (Fenabrave) is expected to generate close to 250,000 jobs. The number of executive jobs created in the Brazilian automotive industry is also likely to match the increased production. The policies of investment in technology and its developments, as well as the training of local staff are essential to maintain a strong automotive industry in Brazil.

Civil Construction

Civil Construction is also one of the main sectors of economic activity in Brazil with a contribution of 16% of GDP. The public and private investments for the coming years 2011-2014 of $ 526 billion in the PAC 2 program (Programa de Aceleração do Crescimento / Growth Acceleration Program) assume a total of R$ 958.9 billion with a large part of it (R$ 278.2 billion) dedicated to the civil construction sector in a program called ‘My House, My Life’, which aims to reduce homelessness, stimulate the sector and generate employment. In addition, the sporting events scheduled for the coming years will add a positive influence on the growth of civil construction. As a result of these economic consequences there will be more than three million new jobs that will be created in the construction sector.

Consumer goods

The ‘C’ class in Brazil has grown remarkably, a medium-low social class that could mean a boost to consumption for the coming years. Credit is becoming more available with lower interest rates and more purchasing power with higher wages. But this improvement of higher income matched with a high valued Real (Brazilian currency) can have some dangers with the imports of consumer goods products and offer a threat to the industries operating in the country.

Energy

The energy sector will receive investments of R $ 465 billion in the next four years to secure adequate supplies of clean, renewable energy and meet the increased demand for consumption. Oil and gas are the energies that will receive the most investment, followed by electric.

Telecommunications

The telecommunications sector has experienced many changes since the moment it began opening the market to foreign firms and privatization of enterprises. Four groups focus more than 80% of the market mainly in the fixed telephony and mobile communication segments. Right now the growth is very important and fast. Broadband with greater availability of ADSL technology is one of the fastest growing markets in the world and in the coming year’s Brazilian citizens with access to the Internet will grow dramatically. Investment in cellular networks and 3G networks will increase and in five years the number of phones has the potential to grow over 50% and reach a figure of 150 million.

The question that arises in this scenario is to which degree will Brazil be able to sustain a good performance with all these predictions.

BlueSteps Executive Guest Writer

Jose-Pedro Martinez
Senior-Level Executive, expert in Automotive, Ceramic and Emerging Economies.

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