Brazil - Economic Growth and Development

This study note covers aspects of growth and development in Brazil

Background on Brazil

• Brazil is an upper middle income country in South America with a population of 195 million people
• Gross National Income (GNI) per capita in 2010 was $9,390 – this was well above the upper middle income average of $5,884 – can Brazil (one of the BRIC countries) escape the middle-income trap?
• Brazil has one of the highest rates of urbanisation in the world with 87% of the total population living in urban areas compared to a 57% average for upper middle nations
• Life expectancy at birth is 73 years, 91% of the population aged 15 and over is literate
• Brazil hosted the 2014 soccer World Cup and the 2016 Olympic Games – both events have required a huge rise in investment spending to boost Brazilian infrastructure and tourist facilities
• Brazil's main trading partners are China (15%), the USA (10% of exports) and Argentina (9%)
• Brazilian transnational corporations are becoming increasingly prominent in the world economy. In 2011, Petrobas was ranked 5^th in the world by market capitalisation
• Agriculture contributed heavily to Brazilian growth – the value of output in Brazil's agricultural industry, nearly quadrupled between 1996 and 2006, and the country is now one of the world's largest net exporters of grain, soybeans, beef, oil and iron ore.
• Brazil is the world's biggest exporter of chicken, orange juice, coffee and sugar! It runs a trade surplus in farm output with China and India.
• Brazil's agriculture sector is one of the world's biggest users of GM technologies
• The country runs a current account deficit, largely because Brazil is a heavy importer of consumer goods especially from China and the United States

Progress in improving human development in Brazil

Since the mid-1990s, social progress has been steady, with a fall in extreme poverty and income and wealth inequality. Brazil has been one of the few fast-growing countries to have seen the Gini coefficient decline in the last fifteen years. That said the scale of inequality in Brazil is enormous.

Despite progress, the poorest 10% of the Brazilian population take a tiny share of national income

Structural change in the Brazilian economy

During the last twenty years, the share of GDP from agriculture has fallen from 8.1% in 1990 to 5.8% in 2010. Manufacturing has just 16% of Brazilian GDP.

Brazil has been called by some economists a “commodity country" vulnerable to the effects of a natural resource curse, but now Brazil is attempting to build competitive advantage in high value-added manufacturing, tourism and other service industries.

Brazil's future progress is constrained by a number of weaknesses including high taxes, a tendency towards import protectionism, weak infrastructure, corruption, crime, and dominant monopolies. In Rio, the public transport network is the city's most serious infrastructure problem. The city and its 6.1 million populations have just one underground train line.

Poverty Reduction Policies in Brazil

The Brazilian government has invested heavily in anti-poverty programmes over the last ten to fifteen years and has lauded as an example of a country where a well-designed combination of policies can have a significant effect. The percentage of the Brazilian population in extreme poverty has fallen from 23% in 1993 to 8.3% in 2009, and Brazil has achieved its own Millennium Development Goal to cut back extreme poverty in 2015 to ¼ of the level experienced in 1990 – this target was achieved in 2007.

Much remains to be done for despite sustained economic growth, Brazil remains a highly unequal country and sixteen million people continue to experience extreme poverty living below the $1.25 per day UN benchmark. That said Brazil has seen their Gini coefficient fall by 9% between 2011 and 2009.

The poverty-reduction programme has been built around focusing on:

• 1.Increasing the percentage of adults in formal work
• 2.Raising school enrolment rates
• 3.Raising incomes for people in work (targeting the working poor)
• 4.Boosting the non-labour income of Brazil's poorest through an ambitious income transfer scheme known as Bolsa Familia

Bolsa Familia – conditional cash benefits targeting the poorest families

Bolsa Familia is an income transfer (or Family Benefit) programme established in 2003 which in 2011 reached more than a quarter of Brazil's 190 million population. It provides small conditional cash transfers to families, the payments are conditional on families sending their children to school, completing immunization schemes and attending post-natal care services. Total benefits amount to slightly more than 0.4 per cent of Brazil's GDP and slightly less than 0.7 per cent of household income. This is a key point; the benefits paid are small which makes them less open to fraud. In addition to cash, in-kind benefits such as nutritional supplements can supplied.

Bolsa Familia targets poorer families, provides transfer payments for older people and has been extended to paying rural pensions. This programme is an example of targeting cash transfers to those in greatest need, but linking payments to families engaging with educational and other social policies. Mexico is another country that has used conditional cash transfers. Chile and Columbia have used this strategy too.

Tackling Poverty: Productive Inclusion of the Poor

A third key part of the poverty-reduction policy in Brazil is to invest in education and training to build up human capital. Secondly to offer guaranteed minimum working conditions for people who work in formal labour markets. The government also provides subsidies to certain groups, for example subsidies to rural farmers to encourage production and exporting their surplus production to Brazilian urban areas.

Lifting educational outcomes is crucial to this long term anti-poverty strategy and some progress is being made. Illiteracy rates within young people aged 15-24 has fallen from 7.1% in 1995 to 1.9% in 2009. Attendance rates for children aged 6-14 years have grown from 88.7% in 1995 to 97.6% in 2009, and 85.2% of youths aged 15-17 remain in education. 62% of children complete primary education, 44% finishes their secondary schooling and 10% get through tertiary courses

According to the World Bank

“Between 2001 and 2009, the income growth rate of the poorest 10% of the population was 7% per year, while that of the richest 10% was 1.7%. This helped decrease income inequality (measured by the Gini index) to reach a 50-year low of 0.519 in 2011."

Ultimately the success of poverty-reduction programmes depends on an economy continuing to grow and create enough new jobs to meet the demands and expectations of an expanding labour force. Fears that cash transfers might create disincentives for people to look for work appear to be unfounded, indeed there is some evidence that the Brazilian benefit programme has boosted self-employment.

The Brazilian President Dilma Rousseff has launched a plan to eliminate dire poverty in Brazil within four years by lifting more than 16 million people from conditions of “misery. Bolsa Familia is being extended – cash transfers will be increased to poor rural farmers who benefit from government food purchases and payments of up to 2,400 reais every six months to improve their productivity.

A separate Bolsa Verde (Green Stipend) program will hand out 300 reais every three months to families who help to preserve forests where they live – an example of using conditional cash transfers to address the critical environmental and economic issue of deforestation.

The 2013 Protests in Brazil

In June and July 2013 Brazil was rocked by protests by hundreds of thousands of people. Some of the protests were organised by trade unions lobbying for improved working conditions and better public services. Others demonstrated against transport fare rises, the soaring cost of staging the 2014 World Cup and endemic corruption.

The protests took place against a weakening economic background for Brazil.

In recent times, the economic growth rate has slowed; their currency has depreciated against the US dollar contributing to a surge in food and fuel prices which hits the poorest communities hardest.

The protests, some of which turned violent, are a reminder that development (even in one of the much feted BRIC countries) is not an inevitable process. And social and political challenges have to be met when the expectations and aspirations of millions of people come under threat from high inflation and a slowing economy.