Focus On - Brazil: light at the end of the tunnel?
Brazil is experiencing an intense crisis; it is more important than ever now to understand what scenarios it presents for companies already in the country and for those beginning to explore the Latin American markets.
Recent history offers little room for optimism. The country was awarded the 2014 World Cup and the 2016 Olympic Games, but it has not been able to transform the economic boom of 2010, driven by commodities, into sustainable growth. In 2015 the country entered a recession, with GDP losing almost 4%, and 2016 promises to be another difficult year. The first signs of recovery are expected in 2017.
Along with the adverse economic situation, there is the problem of corruption, with the "Lava Jato" inquest into Brazilian giants Petrobras and Odebrecht and, on the institutional front, the impeachment of President Rousseff that led to her removal and the appointment of her V.P. Temer to succeed her.
Companies must distinguish, however, between the strategies to adopt in approaching the country in the short and in the medium-long term. The country has many strengths. Brazil has a fair level of diversification in its economic structure, ample availability of natural resources, higher per capita income than other emerging countries, and a solid financial system, but also an adequate level of currency reserves and a limited ratio of foreign debt to GDP that shields it from possible external shocks.
While it is true that the problems facing the country in recent years have caused an inevitable decline of confidence on the part of families and businesses, with an impact on our exports, which declined by 17.4% in 2015, SACE projections for 2017-19 suggest some light at the end of the tunnel, with a 3% average annual growth rate in Italian exports.
This recovery will be driven by capital machinery (used in the food, textile and clothing sectors, packaging and the processing of metals, glass, plastics, and natural stone), transport vehicles, textiles and apparel and chemical-pharmaceutical products.
Beware, however, of a few structural weaknesses for those seeking to operate in the country: a shortage of qualified manpower, a low level of productivity, an inadequate education system, excessive protectionist policies, and legal uncertainty in economic matters.
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