Brazil:leading the Brics? (HBS Case) Case Study

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First of all, it would allow Brazil to access markets that are geographically much closer, with large populations and a medium to upper level income. This would mean that Brazil could serve these markets with manufactured products of good quality that would bring a higher added value than primary products.

At the same time, regional and bilateral agreement could be seen as an intermediary step that would help Brazilian producers become more trained and better adapted before aiming for the global market. The Brazilian economy and Brazilian companies are not yet able to fully compete with all foreign companies on all foreign markets. Starting lower, at a regional level, could make them more adaptable and better prepared.

There is another element that should be included in this analysis and in the argumentation. Brazil's economy has performed well in the past decade and Lula's government was very involved in promoting policies that would lead to a macroeconomic equilibrium, however, Brazil's economy is likely still fragile and its involvement at an unsustainable level in global competition could potentially harm the country's approach towards increasing living standards and, particularly, towards ensuring the needed macroeconomic stability.

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With that in mind, while still involved in world markets and participating in global exchanges, regional and bilateral trade agreements would give it a useful period of adaptation to the rigors of free trade and to potential challenges.

Appendices

There are several macroeconomic elements that are still worrisome in Brazil's economy. For one, as shown in Exhibit 7, the average lending interest rate in 2010 was 42.0%, about 14 times bigger than the one in the U.S. And 4 times bigger than other countries in BRIC such as Russia or India. This means that businesses find it more difficult to borrow money and finance their operations, making them less competitive on the open, global market.

Appendix 1 -- Interest rates (money market and lending) Brazil vs. others

Appendix 2 -- Ease of doing business: Brazil still ranks very low

Appendix 3 -- subsidies for cotton: Brazil vs. U.S.

Chart2

89

4

Ease of doing business

Ease of doing business (rank)

Sheet1

Brazil Russia India China United States

Lending interest rate 42.00% 11.50% 12.40% 2.30% 3.30%

Money market interest rate 9.90% 6.50% 6.30% 2.30% 0.30%

Ease of doing.....

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