Many things have not changed: The warmth of the people; the beauty of the beaches; the oily kick of the cachaca and the infernal traffic of Sao Paulo. However for the first time in 50 years of travels through Brazil I detected a faint tone of worry. While the general sense of optimism is still intact there is a distinct undertone that the exceptionalism of Brazil may be fading. Of course the recent official confirmation of a less than spectacular GDP growth of 2.7% in 2011 did not help nor did the year’s 20+ percent decline in the BOVESPA Index but the worries run deeper.
In numerous conversations with friends in the market they raised the sort of issues that one hears regularly in New York or London: Excessive taxation job-stiffling regulation a lack of skilled employees a broken education system a failure to make required investments in infrastructure etc. I did not interpret these complaints as signs that Brazil was returning to its bad old days of cycles of boom and bust — quite the contrary. It appears to me that Brazil has matured to the point that the challenges facing its government and business leaders are no longer run-away inflation risks to democracy or widespread labor unrest. Rather they are the everyday challenges of modern fully emerged economies — how to sustain growth finance desired social programs such as education and a minimum safety net all the while balancing populism and good policy in a robust democracy.
Some will lament this fall into normalcy and indeed some commentators have suggested that Brazil be kicked out of the "BRICs" grouping of high-growth markets. I think this is wrong on two scores. First most Brazilians themselves will admit that the country still has a long way to go to reduce poverty and crime eliminate official corruption streamline its tangled web of regulation and improve education — not to mention complete the stadiums and infrastructure needed to host successfully the 2014 World Cup and 2016 Olympics. Second I believe that Brazil will continue to grow at attractive rates compared to other Western markets. The ride will not always be a smooth one and the path may take its swings and roundabouts but the destination is not in doubt.
[Full disclosure: I have investments in and relating to Brazil that could benefit from positive investment sentiment towards the country.]
