Growing pains for Brazil?

Having ridden out the 2009 global recession relatively unscathed, Brazil is now facing tough internal issues, as one of the most promising of the emerging markets comes to terms with a rising middle class, the need for economic and social reforms and infrastructure that has not kept pace.

Recent demonstrations, mostly from the middle class, show the mounting frustrations for reforms such as improvements in education, transportation and health services. A telling quote is from a university student in Brazil, “Brazil is currently living through a generalized collapse of its infrastructure. We have problems with ports, airports, public transportation, health, education. We’re a poor country and the level of taxation is very high.”

Indeed, despite the relatively low unemployment rate and high wages, Brazil is struggling with many issues that seem to have tarnished this country’s shining star as one of the leading countries to emerge from the aftermath of the 2009 global recession.

As host to the upcoming soccer World Cup in 2014 and to the Olympics in 2016, the country has been scrambling to prepare and improve infrastructure – airports, roads, transportation etc. This focus is to prove to the world that Brazil is a country that deserves to be on the international stage. However, this has also prompted public outcries that the country is neglecting social reforms as well as increasing concerns of persistent corruption.

Meanwhile, infrastructure to support its international trade continues to suffer.  Ports remain clogged as bumper crops of soybeans and wheat struggle to arrive at the ports. As a means to clear up some of the blockage, a new ordinance that prohibits trucks from parking at the Santos port at night appears to have caused more harm than good. Recently, trucks were backed up as much as 31 miles to deliver record soybean crops to the port.

Other measures have been recently approved by the government to improve efficiencies and to attract investments to ports. As one of its major exports, Brazil’s agricultural commodities have been hampered by not only port delays, but also by increases in transportation costs caused by a shortage of trucks. According to Maersk, ship wait times at the ports, which soared to longer than two months this season, are mostly due to difficulty getting bulk commodities to port, not to actual port capacity.

Due to very little investment in the country’s rail and waterways, Brazil is overwhelmingly reliant on trucks for transport. According to one observer, “2013 is shaping up to be a very difficult year for agribusiness logistics in Brazil. Three factors have combined to drive transport costs for major commodities, such as soybeans, sugar, and corn higher. The first factor is new legislation impacting the number of hours that truck drivers are permitted to drive per day. The second is increases in the price of diesel fuel. The third factor relates to bumper crops and the expectations of large export shipments for soybeans, sugar, and corn.”

Brazil is faced with numerous issues that it must resolve in order to compete effectively on the international level. Like other emerging markets, its middle class is growing and flexing its voice and although the government has made some concessions to address concerns, demonstrations continue. How successfully these concessions are implemented will be of interest internally as well as to outside markets. Lastly, it is also concerning that the government’s response towards trade, in particular, seems to be typical of those in the past – industrial subsidies and trade barriers to protect jobs. As a result, Brazil’s formerly shining star may remain dim for some time.

This content originally appeared in Ti’s Americas newsletter. To add this free newsletter to your subscription, please click here.