Brazil as an Emerging Market Research Paper

 Brazil as an Emerging Market

  • This presentation discusses Brazil; the leading emerging market going by the Business Perspectives for Emerging Markets 2012-2017 Report.
  • Emerging markets refer to nations such as Brazil, India, China, Turkey and Mexico, which as compared to developed economies, are undergoing rapid modernization, industrialization and economic growth.

In most cases, a growing middle class and young people characterize majority of the growing markets. Even though emerging markets are usually characterized by low cost manufacturing bases and attractive markets, they, also, happen to signify a high risk business environment, evolving legal systems, and inadequate commercial infrastructure. However, despite, these drawbacks, Cohn (2012) contends that emerging markets have been on the front line of producing global challengers. These are top companies that the world market is largely recognizing for becoming the main contenders.

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Overview of the Nation -Brief History

  • Official discovery of Brazil happened in 1500 when Pedro Alvas Cabral, a Portuguese diplomat landed in Porto Seguro while on his way to India with a fleet.
  • Tupinamba Indians are the people whom the first colonizers of Brazil met.
  • Brazil became independent 1822, 22nd September (Cohn, 2012).
  • The Lucrative trade that involved pau-brasil (the red wood) was the first point of contact between the Indians and the Portuguese traders.

The Portuguese agenda while entering Brazil entailed two things: monopolizing the lucrative trade of pau-brasil and establishing permanent settlements. However, pau-brasil ­later became less desirable when the Portuguese developed to move further into the forested inlands. Dom Jao VI ruled Brazil for a while, but returned to Portugal following the fall of Napoleon (Guillen, 2012). This prompted him to leave Brazil in the hands of his young son Pedro I and who has his ideas. Pedro I announced Brazil’s independence 22nd Sept, 1822.

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Geography

  • The nation of Brazil covers almost half of South America, neighboring the Atlantic Ocean.
  • The nation covers a total surface area of 8,514,215 KM2 of which 8,456,510 km2 is covered by land while 55,455km2 is covered by water (Guillen, 2012).
  • The government of Brazil has the states of the nation into five main statistical and geographic units known as the major Regions(Grandes Regioes): South (Sul), Southeast (Sudeste), Central-West (Centro-Oeste), Northeast (Nordeste), and North (Norte).

The Northeast has almost one-fifth of the nation’s land area and more one-fourth of the nation’s population. This is the region that experiences the nation’s hottest and driest conditions. The Southeast region has the highest concentration of agricultural and industrial production in the nation (Guillen, 2012). The South stretches beyond the Tropic of Capricorn and includes states such as Rio Grande do sul, Santa Catarina and Parana. The Central-West one-fourth of the nation and comprises of vast wetlands, semiarid highlands, and forested valleys.

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People and Society

  • The population of Brazil is a mixture of African, European, and Native American peoples. These are the people that have intermingled over a long time to establish a society that has considerable ethnic complexity.
  • Brazil has a population of roughly 205 million people.
  • In terms of government, Brazil runs under the constitution that was amended in 1988 (Cohn, 2012).
  • The president is both the head of state and government and is elected by popular vote for a four year term.

A lot of urbanization has been experienced in the past years characterized by people moving to urban centers to seek for employment in the expanding industries of the cities.

In regard to government, there is a bicameral legislature that comprises of an upper Federal Senate and a lower Chamber of Deputies (Guillen, 2012). It is worth noting that there are 81 senators who are elected for 8 years while the 513 deputies are elected for four years.

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Economy and Military

  • Brazil has a GDP of 2.25 trillion dollars.
  • Its economic freedom score is 56.6, which makes its economy the 118th freest in the 2015 index (Guillen, 2012).
  • Brazil has emerged as a powerful player in the South American region following its growing economy and expanding military.

Brazil ranked in the 21st position out of the 29 nations in the South and Central/Caribbean region whereby its overall score is less than the world average (Guillen, 2012). Diminished growth expectations and deteriorating international environment have had negative impacts on the economy. More consistent and broad-based reforms will be essential in order to guarantee long-term economic development. Brazil’s military has been seen in significant peacekeeping missions in hardship areas like Congo, and Haiti.

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Detailed Analysis of Brazil

  • Liquidity of debt – the Brazilian domestic government bond market has been experiencing rapid expansions from the mid-1990s and so far has become the largest in Latin America.
  • Equity Markets- the stock market in Brazil reached an all-time high of 73516 Index points in 2008 May, but recorded a low of 0 Index points in Jan 1972. Between 1972 and 2015 the Brazilian stock market averaged at 15677.62 Index points (Cohn, 2012).
  • In terms of some of market exchange, Brazil had Brazilian Mercantile & Futures Exchange (BM&F), which was formerly, the Latin America’s largest derivatives exchange.

The demand for public debt in Brazil, has always had close association with high liquidity. Starting from 2003, the government’s main focus of the debt management policy has been on reducing long-term financing costs, and, at the same time, seeing that risks are maintained at manageable levels. BM&F Bovespa, which is the current exchange, was established in 2008 following the merger between Bovespa Holding SA and BM&F (Cohn, 2012). Currency futures, options, and interest rate dominate trading in the Brazilian market exchange. In regard to the regulatory body, the Brazilian financial systems and capital markets are monitored and regulated by the Brazilian Central Bank, National Monetary Council, and the Brazilian Securities and Exchanges Commission (Serkin, 2015). The collaboration of these three regulatory bodies give details of Brazil as an emerging market.

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Techniques that were used to classify Brazil as an emerging market

  • The first technique was the observed rising economic connections with China.
  • The second technique is the observed social policies of president Luiz Inacio Lula da Silva, which saw more than 30 million consumers enter the middle class in the last five years.
  • The third technique was observed in the projection of investment rate, which was likely to hit 21.5% of GDP within a short time of less than five years (Serkin, 2015).

The rising economic connections with China was demonstrated by a trade increase to $36 billion in 2010 (Serkin, 2015). This made Brazil become an attractive investment destination to most investors. These new consumers came with various demands ranging from communication devices to new homes.

Three factors favoring investment in Brazil

  • The first factor is macroeconomic stability
  • The second factor is Huge domestic market
  • The third factor is secure investment framework

The first factor is macroeconomic stability – it is worth noting that Brazil falls second after China among the global emerging markets (Serkin, 2015). The inclusive growth and macroeconomic stability have enabled Brazil to survive the global economic crisis.

The second factor is Huge domestic market – Brazil a population of 205 inhabitants, and this makes it one of the largest consumer markets in the world. In fact, in regard to domestic market, the nation has a desirable ranking in the world market for healthcare and beauty products, medical equipment, TVs, mobile phones and PCs (Serkin, 2015).

The third factor is secure investment framework – Brazil is ranks among the most preferred destinations and largest FDI recipients in Latin America. Multinational corporations operating in the region have seen their profits grow more than 5.5 times over a given period of eight t nine years.

Conclusion

  • This presentation discussed Brazil; the leading emerging market going by the Business Perspectives for Emerging Markets 2012-2017 Report.
  • Even though emerging markets are usually characterized by low cost manufacturing bases and attractive markets, they, also, happen to signify a high risk business environment, evolving legal systems, and inadequate commercial infrastructure.
  • In regard to the regulatory body, the Brazilian financial systems and capital markets are monitored and regulated by the Brazilian Central Bank, National Monetary Council, and the Brazilian Securities and Exchanges Commission (Serkin, 2015).
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