Source: The Guardian
Infrastructure
If Brazil is ever truly to fulfil its promise, it must tackle its woefully inadequate infrastructure, from under-funded road and rail networks to outdated port facilities and creaking power generation network.
The fact that Brazil is hosting the world's two biggest sporting events in coming years – the World Cup in 2014 and the 2016 Olympic Games – heightens the need for urgent action. Both events will be a magnet for tourists and, as Antonio Pedro Figueira de Mello, secretary of Riotur, Rio de Janeiro's official travel bureau said: "It's impossible to develop tourism without infrastructure."
Tourists aside, Brazil's future growth will depend on how rapidly it can upgrade its infrastructure. The government has put in place a growth acceleration programme (PAC) which is having some impact, but Gesner Oliveira, who heads São Paulo's state-owned water and sewage utility, Sabesp, is critical of what he sees as "a very distorted tax structure" which is curtailing investment.
Bureaucracy is another obstacle, as is the shortage of skilled labour: "That is a sad thing about developing countries, the lack of labour and, at the same time, unemployment. You have a region where there is no specialised labour – we're not talking NASA engineers here, we're talking excavator operators."
Transport
The government is investing heavily in Brazil's road and rail networks, but the private sector is playing an increasingly crucial role. It was the transport sector that saw Brazil's first public-private partnership (PPP) contract, signed by road-toll operator CCR in late 2006 for Line 4 of the São Paulo metro. Connecting the south end of the city with the downtown area, it will serve 1 million commuters.
CCR is Brazil's largest road toll operator, responsible for 1,571 km of the nation's highway system. CCR financial director Arthur Piotto Filho wants the government to devolve more projects to the private sector: "One of the differences between Brazil and other countries, where PPPs are more advanced, is that there are still many assets that could be in private sector hands."
The sheer size of cities such as São Paulo and Rio, with metropolitan area populations estimated at 19 million and 12 million respectively, makes efficient transportation systems a logistical nightmare. In Rio, huge gaps in public transport have led to a chaotic informal system, including the widespread use of unregulated vans and minibuses.
These are illegal but tolerated by the authorities: "They exist because there is a demand," said Joubert Fortes Flores Filho, director of institutional relations at Metro Rio. The company has ambitious plans to extend its rail network and to reduce journey times, with passenger numbers projected to increase from 545,000 in 2008 to 811,000 in 2013.
Other major projects include a US$17bn high-speed rail link between Rio and São Paulo. Due for completion by 2016, the project has created international interest and the government will hold an auction for contractors in May.
Property
The Brazilian government launched the Minha Casa, Minha Vida (my house, my life) campaign almost a year ago, promising to build 1m low-cost homes in its effort to reduce the acute housing shortage.
Brazil's housing deficit is estimated at between 6m and 8m homes and the initiative, which will cost 34bn reais (£12bn), is also aimed at boosting the economy with the creation of up to 1.5m new jobs. The programme is not without its detractors, however. Some see it as an attempt by the Lula administration to sway voters, who go to the polls later this year. There has also been criticism from some higher-earning homeowners who fail to qualify for the subsidies.
One company that is already providing low-cost housing is Bairro Novo, which was set up in 2007 as a joint venture between the construction company Odebrecht and Gafisa, the country's second-largest house-builder. It has developed an innovative PPP approach and works with Caixa Economica Federal, the lender for low-cost housing, to develop affordable mortgage packages for its customers.
"Bairro Novo was created to fulfil the need of the customer who is ascending professionally but still doesn't have his own home," said Roberto Senna, the company president. "We had several challenges: how to lower costs without sacrificing quality, how to shorten cycles because people can't afford to pay rents and finance at the same time and how to do it on large scale so it could be an effective solution."
Space in cities was already too expensive so the company has had to search for cheaper land further out. That in turn meant it was necessary to provide infrastructure, the cost of which is covered by selling larger numbers of units.
Health
More than 50m condoms were handed out to revellers in Rio de Janeiro last month (February), as health officials chose the city's carnival festival to launch Brazil's latest Aids-awareness campaign.
The high-profile distribution of prophylactics to carnival-goers was just the latest initiative in Brazil's much-admired anti-Aids programme, which has become the model for other developing nations. Last year, the government distributed nearly 500m free condoms throughout Brazil and since 1996 has committed itself to the provision of free Aids drugs.
Brazil's family health programme, which targets vulnerable sections of the population, is also regarded as a success and is credited with achieving a marked reduction in child mortality rates.
But all of this does not come cheap although, to the Brazilian population, it does come free. Healthcare has been a constitutional right in Brazil since 1988, when the country's Unified Health System (SUS) was created. But, as with other countries which offer free healthcare, Brazil is struggling to finance its health service.
Brazil's population is now more than 190 million, some 80% of which rely solely on the SUS for their health needs. Unless the system can be reformed, it has been estimated that health spending in Brazil will rise by US$34bn over the next decade, resulting in US$38bn in lost productivity – 5% of GDP over the period.
"The great challenge of SUS is to distribute resources in a better way," said Raul Cutait, director of São Paulo's Hospital Sírio-Libanês. "We spend around $300 per capita per year in the SUS and around $600 in the private system. It means that it's not possible to offer in the public sector the same service that is offered in the private sector." It's not just a funding problem, he said. "The challenge is to improve management."
Agribusiness
Cattle ranches have been behind much of the ruinous deforestation of the Amazon rainforest, the world's largest, but companies such as Bertin, Brazil's second-largest beef producer, are now working hard on sustainability.
Last year Bertin signed a pact with Greenpeace to refuse purchases of cattle reared in parts of the Amazon jungle that have recently been deforested. The environmental pressure group said that Bertin's commitment would have a "significant impact" on driving down Amazon deforestation and greenhouse gas emissions. Cattle herds are difficult to monitor, but Bertin uses satellite images to map the ranches, enabling it to detect illegal logging activity. It is also actively training its suppliers to improve their management of the land.
"We go to the farms, we do the socio-environmental diagnosis and we detect where we can increase the production of meat per hectare, which will avoid the need for cutting down the forest," said Fernando Falco, a former director of the company.
The socio-environmental diagnosis extends to improving housing conditions for those who live in the region too, and Bertin's model of sustainable farming has now been adopted throughout the industry.
Finance
Brazil's banking system has emerged from the global downturn in significantly better shape than the rest of the world, as has the Brazilian economy. One of the last G20 nations to enter recession, Brazil was also one of the first to emerge after just two quarters of relatively mild contraction. Its GDP growth is forecast at an enviable 5% this year.
Among the factors behind the financial sector's robust performance is the pent-up demand for loans and credit from Brazil's rapidly expanding middle class. The strength of the sector was underlined last autumn by Santander's $8bn sale of shares in its Brazilian arm, which was Brazil's largest-ever initial public offering.
The Spanish banking group, which owns Abbey in the UK, now earns around one-fifth of its overall profits in Brazil, where it is the country's fourth-largest bank. It plans to open 600 new branches in the next four years and banking analysts predict it will generate more profit in Brazil than in Spain in 2010.
Mining
Brazil's biggest mining company, Vale, has come into conflict with the government over what has been perceived as a preference to invest overseas rather than at home. Tensions escalated last year after the former state-owned mining group, which is the world's largest producer of iron ore, laid off workers in Brazil and slashed its investment programme. There was even talk that President Lula, who had repeatedly urged Vale to boost its steel-making capacity for the good of the nation, planned to oust Vale's ambitious chief executive, Roger Agnelli.
Peace appears to have been restored with Vale's promise last autumn that it would spend almost two-thirds of its near-$13bn budget for 2010 in Brazil.
Energy
The vast oil and gas deposits discovered off the coast of Rio de Janeiro three years ago electrified the energy industry. But the alternative energy sector had its own excitement last month when oil major Royal Dutch Shell announced a US$12bn joint venture deal with Cosan, the Brazilian sugar and ethanol producer.
Shell's move is seen as a major vote of confidence in Brazilian ethanol and will enable Cosan to make use of the oil giant's global fuel and distribution network. Half of Brazil's sugar cane crop goes to ethanol production and demand for the biofuel in Brazil is growing at 15%-20% a year. But it needs to start exporting in a big way and the Shell tie-up is an important step towards a global presence for Brazilian biofuel.
Telecoms
There are almost twice as many people in Brazil with mobile phones than bank accounts – and for much of the country's poorer population, mobiles will become the credit cards of the future.
That's the prediction of Alex Zornig, chief financial officer of Oi, Brazil's largest and fastest growing telecoms provider. Oi, which means "hi" in English, targets middle- and lower-class consumers, and has recently launched a new service called Pago which allows customers to use their phones like credit or debit cards.
"The mobile phone will be the future credit card of poor people in Brazil," Zornig said. "They will recharge 15 reais on their phone and then be able to pay for things with it. Instead of using plastic they will use a phone."
The market has grown rapidly in recent years on the back of Brazil's booming economy, with the number of handsets now at around 176m. Penetration is around 60% but the goal is to reach 85%. "Our estimate is that if the Brazilian economy continues to grow at a rate of 5-6% each year, we'll get there by 2014 – before the World Cup," Zoring added.
Reflecting its customer profile, some 82% of Oi's market is pre-paid, with an average expenditure of just 12 reais (£4.12) a month. Zornig explained: "Our pre-paid phones compete with cachaca [Brazilian rum] and cigarettes. If a guy has 12 bucks in his pocket he will think twice about whether he drinks a shot of cachaca or recharges his phone.
"From the Amazon to the south … we want to make sure that the small guy has access. If you go to Ipanema, the guy who rents sunshades for 3 or 4 reais has a mobile phone that you can call before going. You can tell him: 'I'd like four chairs and two umbrellas – I'll be there in 10 minutes. Can you reserve them for me?'" Zornig added. "There's a very large informal market and the mobile phone is a very important tool for these people."
Case study: FIESP
There's an old Brazilian joke you don't hear too much these days: "Brazil's the country of the future – and always will be." For Paulo Skaf (pictured right), one of the country's most influential businessmen, Brazil is no longer the country of the future, "now it's the country of the present."
Brazil's economy has been boosted by the boom in commodity prices and its prospects transformed by the discovery of vast oil and gas reserves off its coastline three years ago.
The future may look bright, but it is also fraught with difficulties and Brazil faces a number of challenges if it is to capitalise on its new-found status as one of the world's most stable and best-performing economies.
Skaf is president of the Federação das Industrias do Estado de São Paulo (FIESP), Brazil's most powerful business association, regularly advising the government on a wide range of issues, and promoting the country's business interests internationally. The organisation is also active in public health, training and education.
Fiesp's president is under no illusions about the scale of the task ahead if Brazil is to fulfil its potential, and has long argued that the government urgently needs to bring in reforms and increase investment. Although this is an election year in Brazil, Skaf is confident that the country will take any change of administration in its stride: "Brazil has reached a level of political maturity," he says.
"Unlike in the past, the 2010 elections should not have a significant impact on the economy. Whoever the next president is, he should keep with what was done so far and, if possible, improve the country even more.
"Our challenge is to take advantage of the opportunity of being the first country to overcome the [credit] crisis and invest more in education, health, safety, infrastructure, research and innovation, in development, in order to achieve a new position in the world market."
He is critical of the government's economic policy and disagrees with its stance on interest rates, believing that the basic rate, the Selic, is still too high despite having been slashed to a record low of 8.75%. "FIESP has proved with technical studies that it's possible to reduce the basic interest rate to values below the current 8.75% without evil consequences for the economy.
"But what's troubling is that even if Selic is at the lowest level in the history of the country, credit rates have not followed the same trend because of the high spread charged by private banks. Credit is still very expensive and there's no plausible justification. The government needs to do something."
However, he readily acknowledges the government's achievements: "We can't ignore the fact that Brazil has succeeded in controlling inflation, cutting interest rates – although we know it's possible to decrease them even more – stimulating production with tax reduction in some sectors, thereby reversing the recession process very quickly."
Whoever wins the general election, Skaf says it is "essential" that they are committed to implementing reforms without delay: "Brazil can't postpone political, fiscal, labour and social security reforms any more."