Invest or not to Invest

After the US and China, Brazil has been a favorite target for foreign investment.  Over the past years, the country has been receiving around 60 billion a year in FDI (foreign direct investment).  These funds prove important in supporting the government’s cash flow, reserves and balance of payments.  Brazil is currently running a trade deficit and the investment dollars make a difference.  More important, the ongoing flow of capital into the country validates the atmosphere of optimism and expectations of positive growth in the country of 200 million people.  Certainly, there are many, many investment opportunities and capital for in Brazil. In spite of difficulties, many investors are well rewarded as the consumer market grows both at the top and, in the middle, with the entry of new players into the market.  The role of consumption in the overall economy is approaching that of the US or around 70% of the GDP.

Nevertheless, the last couple of years have been challenging and perhaps some of the assumptions are changing.  The Economist provided its own self-fulfilling prophecy.  The magazine placed Brazil on the cover with Christ on Corcovado flying to the capiton “Brazil takes Off” in 2009.  Now the curse of being on the cover kicks in and the magazine shows Christ flying out of control and heading for a crash landing.  The new caption is that “Brazil blows it”.

Brazilians, like newspaper sellers, love a good story and such stories almost always involve narratives that tend to exaggerate the extremes.  So Brazil growing at 7.5% in 2009 was great and having grown only 0.9% in 2012 is the opposite extreme.  Over the 50 years that I have been working in Brazil, the country has gone from democracy to dictatorship and back to democracy.  The electorate has grown from less than 30 million to over 100 million.  People rapidly moved to the cities and the country is now 85 percent urban with a mass consumer culture.  TV, radio and sports have pretty standardized language and culture across a geographic expanse comparable to the USA.   Brazilian agriculture leads in numerous areas as the country has become self sufficient in food and a major supplier to the world.

The challenge is to improve the political framework and make the politicians more accountable.  Of course, this is a challenge that we see everywhere as we sit through the government shut down in the United States.

Brazil attracts and repels.  If you are in business, would you neglect a growing market of 200 million consumers?  Will you put up with the obstacles and lack of clarity?  Do your homework and then make the call.

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