As President Obama travels to Brazil, many profiles on that South American nation will lump it in with the so-called “BRIC” countries – “Brazil, Russia, India, and China”. That moniker was conceived as compliment, associating Brazil with dynamic and booming economies.
Today, Brazil deserves to be considered on its own terms, as a much more secure destination for capital, a healthy multi-ethnic democracy, and a neighbor whose leaders may be prepared to set aside the zero-sum formulas of the past and seek a genuine partnership with the United States. On that basis, deft and sustained engagement by President Obama can push our political and economic relations into a higher orbit.
Why does Brazil compare favorably to its BRIC brothers? India is a democracy that is a high-tech powerhouse. China is a giant with a voracious appetite for raw materials, fossil fuels, and consumer goods but it makes no pretense of political openness. Russia is counting too heavily on petroleum exports, is hardly democratic, and is a risky destination for foreign investment. On the other hand, Brazil has strong democratic institutions and has elected a third president committed to responsible macroeconomic policies. Indeed, Brazil’s programs to give the poorest of its people the tools to share in economic growth has provided a stout defense of democratic populism at a time when populist winds are blowing elsewhere in the region.
As a result, Brazil is proving to be much more attractive to foreign capital than the others. It is a substantially lower-risk, while being at least as interesting from a growth and development perspective. We predict that international capital markets will begin to differentiate Brazil from the other BRIC markets and allocate much more investment to ripe opportunities in that South American economy. In short, they will begin to see that Brazil deserves to be its own “vertical,” in a category of its own.
Risk and growth perceptions across nations can be quite dramatically different depending on where the observer is located. In the 1980’s and 1990’s, Brazil and Argentina were often considered the same from the perspective of an outside investor. Situations arising in one of them affected the other and vice-versa. It took Argentina’s debt default in 2001 for the world finally to realize the magnitude of the difference in risk between Brazil and Argentina. Today, Brazil is one of the leading global emerging markets and Argentina is in a lesser category, a so-called frontier market. It is merely a matter of time before that similar separation will happen to Brazil vis-à-vis China, India, and Russia.
Brazil’s democracy is flourishing and stable. Voting is mandatory for persons 16 years of age or older. There are multiple political parties, from across the political spectrum. Presidents (and officials on the federal and state level) are elected by direct popular vote, after vigorous, open campaigns.
Recently Brazil elected its first woman president – Dilma Roussef, a 62-year old economist, twice divorced and a cancer survivor. Each vote – registered on state-of-the-art touch-screen ballot – counts the same, regardless of whether it is cast in cosmopolitan São Paulo or the Amazon region. The election results were available in real-time and finalized in a few hours. That’s not something you will see in most countries, least of all China or Russia.
Moreover, Brazil has freedom of press, freedom of religion, freedom of Internet access and usage. According to the International Budget Partnership, Brazil scores a 74 in transparency of public finances (close to the United States at 82). China is one of the lowest-scoring countries at 14. The difference could not be any clearer.
Unlike India, Brazil has few internal divisions or infighting among ethnic groups. By comparison, Brazil is “boring” in all the right ways: one language, one culture, spread across an immense territory sharing borders with 10 friendly neighbors. India has more than 14 different official languages. Brazil does not have nuclear weapons and cannot develop them according to its constitution. Brazil does not have aggressive neighbors. Brazil has one unified law system; India has three, one for Christians, another for Hindus, a third for Muslims. When it comes to markets, India has 22 stock or futures exchanges; Brazil does fine with just one.
Brazil has a much more diversified economy than Russia. Less-informed popular commentators still perceive Brazil as a “natural resources play”; however, oil and mining are only five percent of the economy. Brazil’s internal consumer market comprises 60 percent of its economy, similar to that of the United States. Unlike Russia, Brazil has an independent, albeit slow, legal system, with a strong respect for property rights. Last, Russia’s population is declining, while Brazil’s is growing at a pace expected to continue at least until 2045.
As the United States recognizes the advantages of enhancing its trade and economic relationships with Brazil, that new partnership linking our economy with a booming neighbor will become another factor that sets Brazil apart from China, India, and Russia. Investors who move quickly to capitalize on that opportunity will share in the substantial benefits. And so will partners in the United States.
Noriega was Ambassador to the Organization of American States from 2001-2003 and Assistant Secretary of State from 2003-2005; he is a visiting fellow at the American Enterprise Institute and managing director of Vision Americas LLC, which represents U.S. and foreign clients, rnoriega@aei.org. Fogassa is the managing partner of Hedgefort Capital Management, a registered investment adviser, mf@hedgefort.com.
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