Bridge over ocean
1 February 2013 CFA Institute Journal Review

The Geopolitics of Brazil: An Emergent Power’s Struggle with Geography (Digest Summary)

  1. Marc L. Ross, CFA

Brazil’s ascent as an emerging market has been affected by its struggle with a difficult geography. The intractability of much of Brazil’s landmass has made the development of infrastructure an ongoing challenge. This challenge has defined and continues to define the country’s evolution.

What’s Inside?

Climate and topography have critical roles in Brazil’s growth and development as an emerging market and world power. Infrastructure has been at cross-purposes with the country’s need to achieve economies of scale among urban centers and has placed a considerable burden on the development of farming and industry. Brazil continues its efforts to emerge from its struggles with these issues.

How Is This Research Useful to Practitioners?

Economic gains in Brazil have been hard won. A dearth of arable land and a surplus of tropical forestation have made economic development an arduous task. In addition, the topography of much of Brazil’s interior, which sits on top of a plateau (the Brazilian Shield) that abuts the Atlantic coast with a precipitous drop to the ocean along the Grand Escarpment, has also caused the development of a viable infrastructure to be an ongoing difficulty. Brazil’s coastal cities are isolated on flat tracts of land along the escarpment. Such geographic sequestration precludes the development of megacities and the economies of scale that are obtained by such major economic centers as New York City, London, and Tokyo.

Brazil’s geography has challenged and continues to challenge sustained economic growth at the risk of inflation, a historical blight on the nation’s growth. The lack of a robust infrastructure has led to economic isolation among the country’s regions, which has, in turn, led to political compartmentalization. Such weakness has hindered Brazil’s ability to have an international impact until recently. A telling example is the lack of a national navy to protect its southern coast, consolidate control over the Rio de la Plata area, and deter potential predators. This deficit puts the country at the mercy of maritime-oriented countries.

In contrast, examples of progress include advantageous trade relations with Uruguay, Paraguay, and Bolivia, which are now economic satellites of Brazil. Additionally, opportunities for economic cooperation have developed with China, which culminated in Brazil’s President Dilma Rousseff making a five-day visit to China in April 2011. During her visit, she and Chinese President Hu Jintao signed more than 20 bilateral agreements as well as 13 agreements between Chinese and Brazilian companies. The agreed-upon deals relate to infrastructure, development, defense, finance, extractive industries, trade, and aviation. China has become Brazil’s largest trading partner. This shift is not without consequences: Chinese manufactured goods have glutted Brazil at the expense of its own manufacturing industry, but in contrast, Brazil has managed to compete in natural resources.

Finally, a unique challenge has arisen with respect to ethanol production. U.S. laws subsidizing the industry expired at the end of 2011. As a strong international competitor in ethanol production, Brazil is facing increasing demand at home and decreasing production because its ethanol derives from sugar cane, with a two-year maturity requirement, rather than from corn, which has a six-month maturity requirement. Bad weather has resulted in meager harvests in Brazil over the past several years, as well. The country’s lack of production capacity leaves it vulnerable to foreign competition to supply U.S. needs.

How Did the Author Conduct This Research?

Stratfor’s research team has drawn on the rich economic and political history of Brazil and the broader region to give an account of the challenges of hard-earned economic development, often with a high inflationary cost and at the expense of the country’s growth as an international power.

Abstractor’s Viewpoint

Brazil’s potential as a global economy and world power has long been hampered by geographic struggles, which have held back the development of an integrated economy and political system. Economic stability and control continue to be difficult. Brazil’s economic success has resulted in an influx of capital that carries the risk of the return of inflation. The Real Plan—which has stopped the government from periodically raising prices (a practice known as “indexing inflation”) and introduced the real as the nation’s currency, with a value partially linked to that of the U.S. dollar—has succeeded in keeping this danger in check since its implementation in the mid-1990s, but the challenge remains. The nation’s push to the interior has fostered political liberalization that, along with the management of inflation, has allowed the country to compete on a global scale and earn the status of a promising emerging market with increasingly prosperous consumer markets and resource opportunities.

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