Brazil, representing over 44% of Latin America’s GDP, played a major role in inserting the region within the most important destinations of foreign direct investment (FDI) and portfolio investments, especially in a scenario of an increasing search for growth, quality and yield.
The country with one of the largest bases of soft and hard commodities overtook the UK as the world’s sixth largest economy in 2011. Its strong consumption base – household above 60% and government close to 20% – has been amplified by a reduction in poverty and inequalities through formal job creation.
In addition, an increase in access to credit, sequential increases in minimum wages and the expansion of social programs, have all been very important drivers of growth over recent years.
After some years of relatively stable productivity gains (1995 to 2003 – high interest rates, four international crises and a local energy shortage in 2001), the economy gained traction with an increasing amount of labour and capital employed in the economy.
In order to experience another cycle of rising competitiveness out of the consumption related sectors, we believe Brazil should consider taking steps to increase investments/savings, which have averaged around 17% over the past decade, especially on the government front via fiscal reform by reducing the tax burden on corporate profits, address the infrastructure bottlenecks and significantly reduce bureaucracy.
President Dilma, started to deal with these issues while awarding concessions for three airports in February, approving the reform of the public sector retirement system initiating the rationalisation of the ICMS (VAT) on imports across different states and changing the remuneration of savings accounts.