By J. Chandler
IDN-InDepth NewsAnalysis
TORONTO (IDN) – In run-up to the presidential elections next October in Brazil, in which Luiz Inacio Lula da Silva is out of the contest due to constitutional law that allows presidents to run only two terms in a row, a new report praises achievements of South America’s largest country, but also cautions.
The report by UK-based Maplecroft risk analysts says: "Rising inward investments, trade agreements with China and new laws giving Brazil a larger stake in offshore oil and gas fields are all contributing to a positive economic outlook for the country. However, environmental and security risks still need to be carefully navigated by investors."
The report points out that Brazil has been relatively cushioned from the global financial crisis due to more stringent reserve requirements on its banking sector and fiscal stimuli. For this reason, after a brief recession in 2008-2009, the GDP (Gross Domestic Product) growth is expected to return to pre-crisis levels during 2010.
Growth forecasts were revised upwards through 2009 and the International Monetary Fund’s World Economic Outlook in 2009 predicted that the GDP will return to 3.5 percent growth in 2010.
Brazil’s medium to long term outlook is promising. But Maplecroft’s country report underlines a need for careful, broad-based risk intelligence to mitigate operational and strategic risks to investors.
The report points out that Brazil’s international trade relations remain complicated with the U.S. due to unresolved import and export tariff disputes. In February 2010, Brazil announced trade sanctions against selected U.S. imports following a ruling by the World Trade Organization (WTO). According to the ruling, U.S. subsidies to its cotton farmers were discriminatory.
"Brazil has since shown its ability to move in new directions by signing a four-year (2010-2014) Joint Action Plan with China. This broadens bilateral ties still further across many sectors, including industry and agriculture, beyond those already covered by cooperation in strategic sectors such as mining and energy."
Brazil-China Joint Action Plan was signed on the sidelines of the second annual BRIC (Brazil, Russia, India, China) Summit, outlining joint initiatives in industry, science and technology, agriculture, culture, education and statistics for the period from 2010 to 2014.
Currently, trade between the two countries is asymmetric. Brazil exports almost exclusively minerals and agricultural products, and imports Chinese manufactured goods. The Joint Action Plan seeks to correct the imbalances.
Maplecroft’s report says that the new oil laws raise some concerns that the state may be intent on taking large stakes across all key economic sectors. However in the next breath it points out that the risks of this appear to be limited even though there is an upcoming election.
It adds: "President Luiz Inacio Lula da Silva and his preferred successor, the centre-leftist Workers Party candidate Dilma Roussef, are generally seen as safe economic hands, along with the main opposition candidate Josè Serra. The decision by Brazilian legislators to pass an oil production-sharing bill does however signal that Brazil is better-placed to set investment terms and to develop its own resources — if it does not like the terms on offer from outsiders,"
The report notes that Brazil’s commitment to biofuels appears to be unaffected by the state’s intention to raise oil as well as bio-ethanol production and exports. Milling group Copersucar, one of Brazil’s largest sugarcane groups, expects its associated mills to crush 105 million tonnes of cane this 2010-11 season, up by 25 percent from the previous season."
"However, agribusinesses may need to consider the impacts of recently proposed changes to the Forestry Code, which NGOs fear will lead to renewed Amazon deforestation and Cerrado savannah clearance for soy, sugar and other extensive farming," the report states.
Recent academic research and NGO reports already link land-use change for agriculture, notably for biofuels, to such trends. Such claims, along with background concerns over labour conditions on farms, are largely rejected by the Brazilian government. However, the report notes, both issues remain areas of real and potential concern that cannot be ignored especially in view of prospective biofuel markets such as the EU.
Security also remains an issue, with potential risks to staff and assets. Brazil is rated high risk in both Maplecroft’s Human Security Risk Index and Kidnapping Risk Index and the latest country report states that these security risks are compounded by rampant corruption in police and militia groups.
Dr Matthew Bunce, Senior Country Analyst at Maplecroft says: "Brazil’s meteoric emergence as a new economic powerhouse will continue to help the world pull out of recession in 2010-11 but several operational and strategic milestones still lie ahead for investors. These include trade disputes and oil sector investment terms, but also environmental and labour risks in agribusiness. A planned approach to navigating risks will help investors benefit from Brazil’s demonstrated openness to foreign direct investment."
The report not only provides in-depth analysis, but also features innovative sub-national maps illustrating political, societal and environmental risks, as well as stakeholder viewpoints and key events recently. Comprehensive risk analysis is broken down into individual chapters focusing on: government and geopolitics, macroeconomics, emerging powers, energy security, business integrity and corruption, societal and human rights issues, security and climate change and the environment.
Such reports are available for all countries, issues and sectors. (IDN-InDepthNews/23.07.2010)
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