WITH the 2014 FIFA World Cup upon us, the eyes of the world are on Brazil, the world’s fifth-largest country and the economic powerhouse of South America.
The tournament – which sees England play Uruguay tonight – has been played out against a backdrop of social unrest in many host cities, including São Paulo and Rio de Janeiro.
With GDP growth slowing to an estimated 2.5 per cent in 2013, from a high of 7.5 per cent in 2010, is all well in the region’s most populous country? Should UK businesses be looking to it to a greater extent as a trading partner?
Brazil is one of the BRIC economies, a group comprising of Brazil, Russia, India and China which were identified in 2001 by Goldman Sachs economist Jim O’Neill as having high growth potential.
However, since then, all four countries have experienced speed bumps on the road to fulfilling their economic potential – and Brazil is no exception.
Although it is abundant in natural resources, business in Brazil is caught in a mire of red tape, which leads to many smaller businesses choosing to remain in the informal economy. Tariff barriers are still high, meaning that for UK exporters looking to sell products in Brazil, competing on price with domestic producers is problematic. Inequality in the country is also high – although is not broadly dissimilar to many other countries in South America – and transporting goods around the country can be a challenge, given the difficult geography involved and the poor infrastructure outside many of the major cities.
Despite these obstacles, Brazil is still an attractive destination for Foreign Direct Investment (FDI), and was ranked in the top 15 countries globally for FDI inflows in 2013. Brazilian businesses have also expanded overseas in recent years.
Although there are challenges for UK exporters, there are also many opportunities. Brazil is a middle income country that has a growing middle class who have an appetite for international brands. British products are frequently looked upon favourably by Brazilian consumers, and for exporters who can successfully navigate the challenges, the rewards can be significant.
A key thing to note is that Brazil is a vast country and the stereotype of a laid-back, beach-loving culture is not accurate across the whole country.
Although many Brazilian business people do speak English, it isn’t widely spoken outside of the larger cities, and UK businesses need to think about how to address the language barrier when doing their initial market research.
As with many middle income countries, there are social problems within Brazil, exemplified by the recent protests. Despite this, Brazil has hugely reduced the number of families living in poverty over the past decade, helped significantly by an increase in the lowest wage levels and the Bolsa Familia which is a payment made to the poorest families on the condition that their children stay in school and get regular medical check-ups.
Despite this, according to the Economist, there is evidence that the programme has been more successful at reducing rural, rather than urban poverty, which helps to explain why large cities such as São Paulo and Rio de Janeiro have been the focal point for protests.
Although the previous president, Luiz Inácio Lula da Silva of the Workers’ Party (Partido dos Trabalhadores, a centre-left party) enjoyed huge popular support, the current president, Dilma Rousseff, who was Lula’s preferred candidate to replace him, has not enjoyed the same levels of support since taking office in 2011, and her approval ratings have fallen significantly over the past year. She faces a presidential election in October 2014, and although opinion polls put her as the current favourite, the perceived success or failure of the World Cup is likely to have an impact on her re-election chances.
However, British companies thinking of exporting to Brazil should note that the country has been a democracy for almost 30 years, and provides a relatively stable political environment. In recent years accusations of corruption and graft have brought down several senior figures in Brazilian politics and led to some high profile imprisonments, which is a positive step, demonstrating a commitment to weeding out the worst of the problem.
Although Brazil has a variety of socio-economic problems, it is a large, stable democracy with an emerging middle class, which is still experiencing growth. While there are challenges ahead, and challenges for UK businesses looking to work in the country, with careful research prior to entering the market, Brazil should still be an attractive prospect as a trading partner for the UK, and is only likely to increase in importance over the coming years.
Natalie Wilmot is a lecturer in international business at Sheffield Hallam University.