Glass Half Full

Jun 1, 2013

Graziano Messana comments on the economic scenario of Brazil today and explains why in Brazil we can look like a glass half full and not half empty. If you are interested in doing business in Brazil, see the article below for prospects that can cheer you up.

See the complete guide for Italian investors, here.

I have lived in Brazil for over seven years and several conditions changed based on the Country’s economic scenario. This area cannot be analyzed without taking the global economy into account. The circumstances of the last few years, which are unlikely to be repeated simultaneously, are: convergence of poor and rich economies; China’s exponential growth; high commodity prices; and, as the frosting on the cake, a favourable global scenario.

This will likely not be the scenario in the upcoming years. By observing the current status of my dear Europe (unemployment, social unbalance and Euro tensions), the direction China is headed may become unsustainable in the future, with the increasing unbalance and indebtedness issues in the U.S.

WHAT ABOUT BRAZIL?

 Most press venues address the issues of the former dormant giant focused on the new pay scale issue – which accumulated a US$ 6 billion deficit in the first quarter –, or on the old problem regarding lack of infrastructure, which due to recent difficulties in soy yield, resulted in the delay and cancellation of shipments to China. I am more of a glass-full type of person.

There are several interesting subjects that I consider very promising. All one needs to do is take a look at the forces that affect the economy. The job market, segment development, and consumer behaviour, for example, are also current subjects that clearly affect the economy in the future. As for the job market, a recent development was the Domestic Workers’ Act, which steers Brazil into a new reality within this segment.

The country is still very far behind Europe, Japan and the U.S. – most development segments in the world, where this activity is already comparable to any other type of employment.

In Brazil, the establishment of families with high purchasing power is easily followed by hiring a team of domestic workers, ranging from maids, cooks, nannies, etc. As the children grow older, parents hire chauffeurs, and so forth. In a very different scenario from traditional countries (based on available statistical data), emerging countries have now prioritized the use of this workforce.

Under the Domestic Workers’ Act, all of these categories will be gradually distributed into regulated professions, which will truly be beneficial for Brazil, whose job market currently presents a healthy demand. Therefore, the country adapts to processes that took place in Europe several years ago, including behavioural changes in higher-class families.

Still pertaining to this scenario, I have carefully read a survey regarding job expectancy recently sent to me by my friend Riccardo Barberis, CEO of Manpower Brasil, analyzing the segments that indicate positive hiring rates.

I compared employment rates with the Brazilian economy and several different segments, as well as analyzing the current global scenario, which was facilitated because this survey is published in Brazil, Europe, Asia and the Americas. I noticed that Brazilian net employment expectations range over 30%, which is extremely promising when compared to other countries.

This means that Brazil is hiring, regardless of segment.

CONSUMER MARKET

 Much has been said about the income increase and rise of the Brazilian middle class. Class E stepped up to D, Class D rose to C, and the lower portion of the pyramid fattened.

Millions of people bought new refrigerators, TVs, washing machines, etc.; durable and tangible products. The fastest-growing industry is the services segment: last year alone, it generated over 630 thousand jobs. The tourism segment also grew: the increased general population income boosted the number of tourists, which are now much more demanding due to their newly-acquired financial status. The laundry segment increased. The 5àSec company, for example, plans to open 50 new stores in the near future, added to the 430 current locations.

The services industry’s performance caught my eye, once again, in an interview granted by the president of the Central Bank of Brazil (BC), Alexandre Tombini, stating that without this segment’s expansion in the last decade, the unemployment rate would have been 7% instead of the 5.5% recorded in 2012.

According to BC data, external resources that entered the country to implement production processes in different economy segments prioritized the services segment, in the first quarter. The segment accounted for 45% of the total, while the industry absorbed 35%, and the rest was distributed amongst agriculture, oil and other segments In the last four years, during a quarter of international turbulence, the services segment’s GDP grew 11.6%, while Brazil’s general growth rate was 9.3%.

This data paves an optimistic and positive road for Brazil – which doesn’t necessarily translate into growth, as several discussions focus only on the GDP. Growth is not merely a percentage and, even while closely watching the GDP, we must keep our eyes open.

 CONSIDERATIONS

 I always try my best to keep up with the workshops and interviews of Antônio Delfim Netto, who, at the young age of 85, is always extremely vigorous, competent and playful. He believes we will never experience a 7%-8% growth again, but he also believes Brazil does not need such amazing growth rates, since the population grows by less than 1%, and growth rates ranging 4% would already be magnificent.

During a debate between Netto and the professor of International Political Economy at Harvard, Dani Rodrik, they discussed an increasingly “normal” Brazil. Yes, normal!

For those looking from abroad, or foreigners who became part of the country in recent years, such as myself, “normal” is a very good compliment based on the current global context.

 According to Rodrik, the global scenario has changed significantly, and now is the time to be “careful”: “a growth rate of 3% or 4% is perfectly practicable for Brazil.”

With its solid democratic institutions, the country is extremely resilient. “But Brazil must not get too greedy; it must be careful, fiscally secure, in order to handle external shocks that are likely to come.”

 I mentioned the debate between Rodrik and Delfim Netto because I agree with this perspective, rooting for an increasingly “normal” Brazil where the glass is always half full.

 

* Economist and managing director of the business consultancy company GM Venture, Graziano Messana has extensive experience in start-up, M&A processes (mergers and acquisitions) and general management, operating as a strategic partner of foreign companies interested in investing in Brazil.


Original article in Portuguese. 

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