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ARTICLE

INTRODUCTION

The BRIC represents a concept developed by Jim O'Neill

(2001) from Goldman Sachs, and included in a paper

titled “The World Needs Better Economic BRICs.” It referred

originally to a group of emerging economies composed

of the following countries: Brazil, Russia, India, and China,

with South Africa being added to the list in a re-evaluation

of the concept in December 2011. Those emerging

economies, according to the research performed by

Goldman-Sachs, would be wealthier than most of the

major economic powers at the turn of the 21st century by

2050 (Figure 1).

From 2000 to 2008, these countries increased their

economic output from 16 to 22% of the world's total

representing 40% of the global population, while

occupying over a quarter of Earth's land area.

* Research Chair, Center for Workplace Diversity Research, School of Advanced Studies, University of Phoenix.** Dean, Central Florida Campus & Research Fellow, Center for Workplace Diversity Research School of Advanced Studies, University of Phoenix.

ABSTRACT

This paper describes the current levels of economic growth in the Brazilian economy, one of the BRIC countries (Brazil,

Russia, India, and China), presenting a historic overview of the country's economic growth in the past years, as well as the

evolution of some macroeconomic indicators. Brazil's participation in international organizations forums, such as the

IMF and WTO, is included in this paper. The country's inflow and outflow Foreign Direct Investments (FDI) in recent years are

also discussed and examples are given to illustrate the current trend of investments in different markets, with an emphasis

on the USA and the State of Florida, in particular.

Keywords: Foreign Direct Investment, BRIC, Brazil, Florida, Emerging Economies, Multinational Companies.

CARLOS TASSO EIRA DE AQUINO *

By

ROBERT W. ROBERTSON **

BRAZIL: A BRIC'S ECONOMIC GROWTH, ANDITS RECENT FDI HISTORY IN FLORIDA

Figure 1. Goldman-Sachs Projections for2050. (Goldman-Sachs, 2007)

2 i-manager’s Journal o Management, Vol.n l l9 No. 4 March - May 2015

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During the 21st century, the BRICs have confirmed and

even anticipated the predictions of development, with a

formidable middle class growth, as well as a dramatic

increase in science and technology investments. Figure 2

shows some key indicators and statistics related to BRIC

countries:

This paper focuses on one of the BRICs - Brazil, the powerful

economic force of Latin America.

Brazil has an area of 8.51 million square kilometers,

covering 47% of the entire South America, with a

population in June 2012 that mounted to 193.946.886

inhabitants, representing the 5th largest country in world

as well as the 5th largest population. Half of its territory

encompasses the Amazon forest (3.6 million square

kilometers), the most important biodiversity preserve in the

entire planet. The country is also among the more

culturally and ethnically diversified countries in the entire

world, due to strong immigration movements since its

discovery in 1500.

One of the top 10 economies in the world, Brazil had in

2011 a GDP of more than US$ 2 trillion (BRL$ 4.143 trillion),

being the largest Latin-American economy, and playing

an important role in the international arena, both

regionally and globally. With a Human Development

Index (HDI) in 2011 of 0.718 – 84th in the world, Brazil is a

country of contrasts, holding the 12th position in the GINI

coefficient list that statistically measures the income

distribution of a nation's residents (0.513); in 2011, the

literacy rate of the population was 90.4%, meaning that

13 million (9.6% of population) people were still illiterate in

the country; functional illiteracy has reached 21.6% of the

population in that same year; in 2012, 16.2 million people

(8.5 percent of the population) still lived on less than R$70

per month, the threshold considered by the Brazilian

government as the extreme poverty line.

Among the reasons for the existence of such huge

contrasts are: the 400 years of slavery abolished in 1888 -

in which the black labor coming from Africa was only

exploited with no investment in human development; the

agricultural model with focus on exports that was

prioritized for many years; and the low priority given by the

Brazilian society and government to education.

Brazil was discovered by Portuguese navigators in 1500

and remained a colony to Portugal until 1815. In that year,

the king of Portugal moved to Brazil and created the

United Kingdom of Portugal and Brazil. In 1822, Brazil finally

proclaimed its independence from Portugal and, as a

sovereign country, established the Brazilian Empire. Sixty

seven years later, in 1889, the country became a

presidential republic, with the three powers (Executive,

Legislative, and Judiciary) working together to govern the

country.

An Historical Economic Overview

In the early 1970's, the Brazilian economy experienced a

two-digit growth per year that didn't seem to diminish as

years passed by. That was the pinnacle of a period known

as the “Economic Miracle”, under the auspices of a

military regime. The “miracle” was characterized by an

astounding number of infra-structure investments - such

as new highways, hydroelectric power plants, and new

communication networks – together with an industrial

“boom”, particularly in the sectors of oil, mineral

extraction, and automobiles.

Tired to be labeled as “the country of the future”, Brazil put

together a long-term developmental project to leave the

Third World. With a focus on economic self-sustainability,

and on the reduction and/ or substitution of imports, the

country decided to produce most of its needs in-house.

The military regime, in charge of governing the country,

injected large amounts of public money into the

economy to develop diverse industries, enlarged the size

and importance of government companies, and Figure 2. BRICs Economic Indicators (Global SHERPA, 2011)

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subsidized national businessmen, in order to create an

island of economic sustainability. The most important

companies to date in the Brazilian economy were

originally created or better structured by the government

in that period. Examples include Petrobras, Embraer, and

Vale, which later, in the 1990's, were privatized.

However, as the 1980's started, the economy stopped

growing, and the bill of all investments made in the 1970's

needed to be paid back. That bill generated unbelievably

high levels of inflation that reached 90% a month in some

years between 1981 and 1993. With the end of the military

regime and living in a democratic environment, with

elected presidents, Brazil spent those years using

economic shocks and other policies to fight the inflation,

and until that burden was not completely defeated, the

Brazilian economy experienced years of very low or no

growth at all.

At the end of the presidency of Itamar Franco (1992-

1995), the “Plano Real” was created and successfully

implemented by the Minister of the Treasure and future

president Fernando Henrique Cardoso (1995-2002). The

economic plan reduced dramatically the price rises and

stabilized the economy, with very low annual inflation

levels. At the same time, Brazil experienced a boom of

globalization in the domestic market, opening its frontiers

to the international capital and to global competition like

it never did before. This whole combination of factors

created the right environment for a sustainable

economic growth that permeated the Brazilian economy

at the turn of the century. Due to those positive economic

outcomes and potential for growth, Brazil was included in

a group of countries, the BRIC, that according to

Goldman Sachs (O'Neill, 2001) would portray the

economic powers of the future.

stIn the 21 century, the Brazilian economy experienced

three great economic years: 2007, 2008, and 2010. A

domestic social policy that included real increases on

minimum wage levels and provided the poor population

with social programs - to complement the budget of

families below and around the poverty line - caused a

sizeable increase in consumption and a better quality of

life to families that used to struggle on a daily basis to

survive. At the same time, the Brazilian government

implemented an economic policy that increased the

credit access to the low income portion of the Brazilian

population, increasing consumption and aggregated

demand. The multiplier effect was responsible for a real

increase in the number of jobs and in salaries, feeding

even further an increasing consumption trend. All those

efforts added millions of new Brazilians to the consumer

market, creating conditions for Brazil to mitigate the

effects of the world recession of 2009 on its domestic

economy. While the entire world was experiencing

sizeable reductions in their GDP's, the Brazilian index

remained stable in that year, and showed the best

performance of the past 35 years in 2010.

Between 2000 and 2008, taking advantage of the

increasing demand for commodities and their prices, the

country multiplied the value of its exports by four,

contributing to the increase of cambial reserves and,

therefore, leading the economy into a stable path. This

fact, together with the growth of the domestic market,

motivated international investors to make more direct

investment into the country, with an astonishing growth

(five times) between 2003 and 2007.

Brazil is nowadays an industrialized country full of natural

resources to exploit, with a growing economy that can

leverage an integral development of the country. In spite

of being the host for many industries (steel, automobile,

chemical, airplane, etc), the country still relies heavily on

the export of commodities as one of the main sources of

revenues. Brazil is the fourth largest exporter of agricultural

products in the entire world. Since the colonial period

(1500-1822), agriculture has always played a major role in

the Brazilian economy, with different crops leading the

exports along its history: sugar cane, coffee, wheat, and

soybeans more recently.

Starting in the 1970's, the Brazilian agricultural sector

experienced a leap of quality, and began using

mechanized farming, and producing other crops, such

as rice, corn, and soybean. Productivity was improved

and electric power became, for the first time in the

Brazilian history, a crucial “ingredient” of the agricultural

sector. In the 1980's, agriculture for export became the

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focus of the sector, leading to higher profitability for

producers, and allowing Brazil to consolidate its role as

one of the world's largest exporters of grains. Currently, the

Brazilian agricultural sector is structured as agribusinesses,

with a clear business focus on all stages of the production

chain. With this new approach, an even bigger growth is

being expected, since the country has access to state-of-

the art technology and has the qualified human

resources to deliver the products demanded by a

growing and increasingly demanding international

market.

1. Brazil and International Organizations

1.1 Brazil and the International Monetary Fund (IMF)

Close the end of the World War II, 44 allied countries sent

their representatives to a small town in New Hampshire,

Bretton Woods, in order to prepare strategies to target the

monetary future of the world. The Americans proposed

the creation of a fund that would help countries in trouble

with their balance of payments. This fund was named

International Monetary Fund and its main responsibility

from its creation has been to establish rules for

international monetary policies, as well as their

enforcement for international trade. Each country

member had to contribute funds, named quotas, to

compose a pool of monetary resources that could be lent

to members that would temporary be in troubled

situations. The amount of quotas contributed by each

country member has been directly proportional to the

total amount of money that can be borrowed by that

country, as well as to the number of votes that a given

country has had in terms of decision making. A country

that borrows funds from the IMF is subjected to a “recipe”

for improving its balance of payments. The IMF usually

makes “suggestions” regarding monetary policy,

government expenditures, exchange rates, and interest

rates. Those “suggestions” can impact the supply of

money circulating in the economy, as well as inflation

rates, affecting disposable income for consumption and

investments together with the real GDP. That is an issue to

be taken into account when doing business in countries

that are in this situation. (Aquino, 2013a)

Being one of the countries that founded the IMF in 1944,

Brazil has had a “roller-coaster” relationship along the

years with that international organization. During the

1980's, due to a crisis of the external debt and to a very

delicate status of its balance of payments, Brazil received

financial assistance and had to follow many economic

adjustment programs specified by the IMF. From that

point on, the relationship between Brazil and the IMF was

punctuated by further financial assistance and tentative

of rolling out the debt. In 1985, the IMF suspended

financial assistance since Brazil did not achieve some

goals included in an economic adjustment program. The

country declared a unilateral moratorium in 1987 and

suspended the payments to the IMF; it re-started paying its

duties (principal and interest) in 1994, when it regularized

its external credit. Finally, in 2005, Brazil paid back all funds

borrowed from the IMF, amounting to $15.5 billion, two

years before the deadline of December 2007. This mark in

the Brazilian economic history was only possible due to

the economic growth and financial stability achieved by

the country.

In 2009, for the first time in history, Brazil became an IMF

creditor, buying $10 billion in IMF bonds to help emerging

countries with financing difficulties due to the world

economic crisis. That amount was obtained from Brazilian

reserves in foreign currency, which totaled more than

$205 billion. (MercoPress, 2009)

1.2 Brazil and the World Trade Organization (WTO)

The World Trade Organization (WTO) replaced the GATT

(General Agreement on Tariffs and Trade) after the

Uruguay Round back in 1995. Its main purposes are (i)

facilitate reciprocal trade negotiations and (ii) enforce

trade agreements between or among member

countries. By monitoring the trade relationships among

countries, the WTO can have a great impact on business

done by companies in those locations. If a specific

country creates or increases barriers of entry (tariff and

non-tariff) for products and services that come from

abroad, the countries that feel harmed by those

government decisions can appeal in WTO. Those barriers

have been used by either emerging countries, as well as

by the top world economies. In those cases, WTO accept

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the complaint from the country that feels harmed by

those practices, and tries to mediate a compromise

between the affected countries for the benefit of

international trade. (Aquino, 2013a)

Along the years, Brazil has both filed complaints about

some trade tariffs and taxes imposed by other countries,

and acted as the respondent in other disputes. To date,

Brazil is by far the emerging economy that has more

frequently used the WTO for trade disputes, since it is only

behind the USA, EU, and Canada, in the number of WTO

cases. Another relevant information is that the country has

won most of the disputes in which was involved. Since the

WTO creation in 1995 until 2009 (WTO, 2009), 400 trade

disputes were filed with the organization, and Brazil was

involved in 38 of them, 24 as the complainant and 14 as

the respondent. The United States were involved in 201

disputes, followed by the European Union (148) and

Canada (48). Some of the relevant Dispute Settlements

(DS) filed at WTO and involving Brazil includes:

·Ds250 - US overtaxing orange juice from foreign

producers, such as Brazil, to avoid unfair competition

with products coming from the state of Florida and

California.

·In March 2002, Brazil complained to the WTO about

the “Equalizing Excise Tax” charged by Florida on the

orange juice concentrate imported from foreign

suppliers to protect local producers and eliminate

advantages offered by the imported items. Brazil, as

the biggest exporter claimed that the tax would be

reducing the competitive advantage of the Brazilian

juice in the American market.

·After many negotiation rounds between the Brazilian

and the US government (and the state of Florida

government as well), an agreement was achieved

and the tax was dropped. The two countries informed

the WTO that they had reached a mutually agreed

solution on 28 May 2004 (WTO, 2014)

·DS266 - Export subsidies provided by the European

Union for excess of production that cannot e

commercialized internally (C quota sugar) and re-

export subsidies for sugar originally manufactured at

former European colonies in Africa, Caribbean, and

the Pacific above WTO pre established limits

·The EU decided to implement such subsidies due to

the low competitiveness of the sugar based on beat,

which had much higher costs of production than the

sugar extracted from sugar cane. Brazil and other

countries formally complained about this policy and

requested the EU to drop those subsidies.

·WTO suggested a change in the EU sugar policies

regarding these subsidies and requested the

monitoring of sugar exports, giving the EU 12 months

to implement those changes. Filed in September

2002, the dispute was settled only on 8 June 2006

(WTO, 2014)

2. Brazil and the Evolution of Macroeconomic

Measurements

Brazil has shown in the past few years that the predictions

for 2050 made by Goldman Sachs in 2001 are about to

turn into reality. The country has been moving up the ranks

of the world's largest economies, with many

macroeconomic measurements confirming that.

Unemployment rates reached a record low in 2010, with

2.56 million new jobs created in Brazil that year. Levels of

poverty and income inequalities have been falling

consistently, as well, in the past years, with the government

taking care of implementing social programs and

providing wider credit access to improve the quality of life

of the population. On the down side, interest rates

continue to be among the highest in the entire world, and

inflation has climbed up a little when compared to the

levels of late 1990's. This section will discuss the evolution

o f B r a z i l r e g a r d i n g s o m e m a c r o e c o n o m i c

measurements, such as GDP, unemployment, inflation,

interest rates, and exchange rates. Table 1 summarizes

some economic indicators that seem to be relevant to

this analysis. (OECD, 2013)

2.1 Gross Domestic Product

In the first years of the 21st century, millions of new

Brazilians were added to the consumer market, which

spared the Brazilian economy from being deeply

affected by the world recession of 2009. While the entire

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ARTICLE

world was experiencing sizeable reductions in their Gross

Domestic Product (GDP), the Brazilian index remained

stable in that year, and showed the best performance of

the past 35 years in 2010 setting a new historic record,

7.5%. The record high growth was primarily generated in

the first three quarters as a consequence of the untapped

growth potential that emerged after the financial crisis. In

the three years before the financial crisis (2006-2008),

Brazil had an average GDP growth of 4.1%, becoming be

one of the world's top 10 biggest economy, and moving

Table 1. Macroeconomic Indicators - Brazil

Sectors 2000 2008 2009 2010 2011 2012

Supply and demand

GDP (in current BRL billion)

GDP (in current USD billion)

GDP (in current USD, PPP)

GDP growth rate (real, in percent)

Supply

Industry

Services

Demand

Private consumption

Public consumption

Gross fixed investment

Exports

Imports

Public finances (in per cent of GDP)

General government

Revenue

Expenditures1Gross debt

Consolidated public sector

Primary balance

Norminal balance

Balance of payments ( )in USD billion

Current account balance

In per cent of GDP

Trade balance

Exports

Imports

International reserves (gross)

EDI (net inflows)

Outstanding external debt

In per cent of GDP

Agriculture

Net debt

Exchange rate and prices

Exchange rate (BRL per USD, period)

CPI inflation (IPCA, in per cent, end-of-period)

Core inflation (in per cent, end-of-period)

GDP deflator (in per cent)

Labour market2Unemployment rate (in per cent)

1179.5

644.6

7.016.6

4.3

4.8

3.6

4.0

-0.2

5.0

12.9

10.8

32.5

29.3

.....

3.2

-3.4

-24.2

-3.8

-0.7

55.1

-55.8

33.0

32.8

236.2

36.6

2.7

45.5

1.8

6.0

3.9

6.2

.....

3032.2

1653.2

10405.2

5.2

4.1

4.9

5.7

3.2

13.6

0.5

15.4

36.7

38.6

57.4

3.4

-2.0

-28.2

-1.7

24.8

197.9

-173.1

193.8

45.1

198.3

12.0

6.3

38.5

1.8

5.9

6.1

8.3

7.9

3239.4

1622.0

10414.9

-0.3

-5.6

2.1

4.4

3.1

-6.7

-9.1

-7.6

35.6

38.8

60.9

2.0

-3.3

-24.3

-1.5

25.3

153.0

-127.7

238.5

25.9

198.2

12.2

-3.1

42.1

2.0

4.3

5.0

7.2

8.1

3770.1

2142.4

11180.3

7.5

10.4

5.5

6.9

4.2

21.3

11.5

35.8

36.8

39.6

53.4

2.7

-2.5

-47.3

-2.2

20.1

201.9

-181.8

288.6

48.5

256.8

12.0

6.3

39.1

1.8

5.9

6.1

8.2

6.7

4143.0

2474.1

11639.7

2.7

1.6

2.7

4.1

1.9

4.7

4.5

9.7

36.1

39.0

54.2

3.1

-2.6

-52.5

-2.1

29.8

256.0

-226.2

352.0

66.7

298.2

12.1

3.9

36.4

1.7

6.5

7.0

7.0

6.0

4402.5

2252.8

12.055

0.9

-0.8

1.7

3.1

3.2

-4.0

0.5

0.2

38.9

41.6

58.7

2.4

-2.5

-54.2

-2.4

19.4

242.6

-223.2

373.1

65.3

312.9

14.9

-2.3

35.2

2.0

5.8

5.6

5.3

5.5

1. In this table, gross debt does not include treasury bills on the central bank balance sheet not used under repurchase agreements, amounting to about 9% of GDP at the end of 2012.2. Monthly Employment survey (PME/IBGE), new methodology. Source: IBGE, Central Bank of Brazil, National Treasury, IMF.

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Great Britain, France, and Italy down in the rank. After that

peak in 2010, the Brazilian economy increased the GDP in

much more modest levels (2-4%), not being able to

repeat the 2010 growth.

In the Brazilian economy, the service sector has been the

most important contributor to the national GDP (69% of

the total in 2012). In that sector the most important

segments were: government, education and health

(17%); other services (16%); wholesale and retail trade

(13%); real estate (8%), and business and financial

services (7%). The industrial sector constituted 26% of the

GDP in 2012, and the largest segments within this sector

were: manufacturing (13%); construction (6%) and

mining (4%). Agriculture accounted for the remaining 5%

of Brazilian's GDP in that year.

Figure 3 shows the evolution of Brazil GDP growth for the

period of 2000-2014. Table 2 presents a compilation of

the GDP value and growth for the top world's 14

economies in 2010.

2.2 Consumption and Demand

While experiencing wider access to credit, and reduction

in unemployment, the Brazilian society has dramatically

increased the domestic consumption in the 21st century,

raising the demand for products and services in

comparison with previous years. Figure 4 presents an

evolution of the consumer spending in the country for the

period between 2000 and 2014. (Values are in Brazilian

Real – 1 USD = 2 BRL). Consumer spending in Brazil

averaged BRL 345,000 million between 1995 and 2013,

reaching an all time record high of BRL 765,000 million in

the third quarter of 2013 and a record low of BRL 100,000

Million in the first quarter of 1995.

In the 21st century, Brazil has also become the destination

of an increasing number of foreigners that have chosen

the country as their local of investments and tourism. With

the intensification of domestic business operations,

combined with an increase of the average family

revenue and low cost vacation offerings, Brazilians started

to fly more frequently, both for business and leisure. Only in

2010, 155 million air travelers were counted by Infraero,

the organization in control of Brazil's air traffic, representing

a growth of 20% compared to the previous year. Figure 5

shows the growth of the number of passengers in the

Figure 3. GDP Growth – Brazil (IBGE, 2014)

Table 2. National GDP -2010 – 14 Top World Economies (CIA, 2011)

Country GDP Real Growth

United States $ 15,040,000,000,000 1.1%

China $ 11,300,000,000,000 9.5%

India $ 4,463,000,000,000 7.8%

Japan $ 4,389,000,000,000 -0.5%

Germany $ 3,085,000,000,000 2.7%

Russia $ 2,273,000,000,000 4.3%

Brazil $ 2,284,000,000,000 7.5%

United Kingdom $ 2,250,000,000,000 1.5%

France $ 2,214,000,000,000 1.7%

Italy $ 1,826,000,000,000 0.6%

Mexico $ 1,657,000,000,000 3.8%

South Korea $ 1,554,000,000,000 3.9%

Spain $ 1,411,000,000,000 0.8%

Canada $ 1,389,000,000,000 3.1%

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country between 2004 and 2010.

2.3 Unemployment

The unemployment rate represents the percentage of the

workforce that is currently not employed. In Brazil, the end

of the 20th century was marked by a high level of

unemployment. The recovery of the economy and the

reduction of inflation represented positive marks

achieved by the “Plano Real”, an economic plan

successfully applied to stabilize the Brazilian economy in

mid 1990's. On the other side, however, some measures

used to contain the inflationary trend resulted in cuts of

government expenses and reduction in the creation of

new jobs. High unemployment during this period led to

much social unrest in Brazil. In a critical year, and

according to official figures, the unemployment rate for

the first six months of 1998 in Brazil was 7.8%, a record high.

Figure 4. Consumer Spending in Millions of BRL(Brazilian Real) – Brazil (IBGE, 2014)

Figure 5. Air passengers (in millions) and percentagegrowth – Brazil (Infraero, 2014; IBGE, 2012)

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But unions and other organizations not connected with the

government claimed that the real picture was much

worse, almost twice that figure.

The beginning of the 21st century brought a much brighter

situation to the labor domestic market in the country. After

2000, unemployment rates in Brazil stabilized with minor

fluctuations, and after 2010 unemployment rates have

dropped to levels around 5%. Only in 2010, 2.56 million

new jobs were created in the country. From 2001 until

2013, Brazil's unemployment rate averaged 8.8%,

reaching an all time high of 13.1% in April of 2004, and a

record low of 4.3% in December of 2013.

Figure 6 presents the evolution of unemployment rates in

Brazil during the 21st century, with Figure 7 showing

monthly unemployment rates for the past two years.

2.4 Interest Rates

Monetary policy is an instrument used by the Federal

Reserve (in the USA) and by Central Banks of different

countries to control the amount of money in the market

(money supply) and the level of interest rates in order to

influence aggregate demand. A cut in the interest rates or

the increase in the quantity of money available in the

market has the effect of raising the aggregate demand

and, therefore, the GDP. (Aquino, 2013b)

Figure 6. Unemployment Rate – 2001 -2014 – Brazil (IBGE, 2014)

Figure 7. Monthly Unemployment Rate – 2012 -2014 – Brazil (IBGE, 2014)

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In Brazil, the Banco Central do Brasil (BACEN) is the

organization in charge of defining the monetary policy. It

has acted quickly lowering the interest rates to help the

Brazilian economy to recover from the global financial

crisis of 2009. Figure 8 shows a historical evolution of

interested rates in Brazil. The benchmark interest rate in

Brazil was last recorded at 10.50 % in January 2014

(BACEN, 2014). From 1999 until 2014, Brazil Interest Rate

averaged 16.0 %, reaching an all time high of 45.0% in

March of 1999 and a record low of 7.3 % in October of

2012. The numbers shown in Figure 8 reflect the official

interest rate measured by Brazil's Central Bank, which is

named SELIC rate (the Special System of Clearance and

Custody rate), which is the overnight lending rate.

2.5 Inflation

Brazil experienced incredibly high inflation between 1981

and 1993, when the country faced levels that reached

90% a month in some years. With the end of the military

regime and living in a democratic environment, with

elected presidents, Brazil spent those years using

economic shocks and other policies to fight the inflation.

The first big step towards achieving that goal relied on

economic policies initially adopted in the government of

President Collor de Mello (1990-1992), that were

intensified during the presidency of Itamar Franco (1992-

1995), in which a new price stability plan – “Plano Real” –

was implemented (1994). After many others failed to

defeat inflation, this plan succeeded in controlling the

inflationary process, combining policies related to

international capital liquidity recovery with reduced

restrictions on capital and goods circulation. A

contractionary monetary policy was adopted by raising

interest rates. The goal was to not only avoid an economic

acceleration, but also attract capital flows and

accumulate international reserves necessary for

sustaining the plan. The government also decided to

control the exchange rate with the dollar by implemented

a policy that provoked the domestic currency

appreciation against the American currency. With that in

place, imports became cheaper and the domestic

products more expensive, which caused domestic

companies to stop rising their prices in order to maintain

their competitiveness and market share. On the down

side, balance of payments and economic growth were

both negatively affected, but the population was happy

with the temporary purchasing power gain for lower

income population.

Table 3 shows the main components of the consumer

price index that is used in Brazil to measure the inflation

rate.

In the 21st century inflation in Brazil has been kept in low

levels during the 21st century, as can be verified on Figure

9, although a peak occurred in 2003-2004, showing the

government the need to review the monetary policy.

2.6 Exchange Rates

The Brazilian currency in the 20th century was

characterized for constant devaluations against the

dollar, what made the Brazilian government change the

currency denomination many times (Figure 10). Originally

named Real (1500-1833), the Brazilian currency had

different denominations until finally return back to the

Figure 8. Brazil Interest rates 2000-2014 (BACEN, 2014)

Table 3. Components of Consumer Price Index (IPC)

Figure 9. Inflation Rates – Brazil (BACEN, 2014)

food, alcohol and tobacco (31%) transport (15%)

real estate (12%) health care (11%)

clothing (9%) communication (5%)

education (4%)

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11

ARTICLE

original name in 1994 due to stabilization plan

implemented during the presidency of Itamar Franco, in

1994. One of the pillars of this plan was to control the

exchange rate by implementing a policy that provoked

the domestic currency appreciation against the

American currency. Using a fixed rate for many years, the

Brazilian government had to move in the 21st century

towards a floating currency policy to accommodate the

needs of exporters and to revitalize the economy in 2003.

The current value of the Real varies around 2 to 2.5 dollars

in the past few years, with a decrease in the average value

to 2.39 for each US dollar in February from 2.41 in January

of 2014. Figure 11 presents the variation of the Real

exchange rate (against the dollar) in the 21st century.

Figure 11. Brazil's Real against USD – 2000-2014 (BACEN, 2014)

Figure 10. History of Brazilian Currency (BACEN, 2014)

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ARTICLES ARTICLE

12

3. Brazil and Foreign Direct Investment

Since the 1990's, emerging economies like the BRIC

countries, have increasingly attracted the attention of

investors, showing growing market participation in terms of

world trade and capital flows. They have become

important producer and consumer markets as well as

g reat f inanc ia l cente r s, w i th an inc reas ing

internationalization of domestic companies, via mergers

and acquisition or joint ventures.

Foreign Direct Investment (FDI) data from United Nations

Conference on Trade and Development (UNCTAD, 2013)

reveals a rising flow trend towards emerging economies in

the last decades (Table 4). The same trend can be

observed in terms of outflow FDI coming from those

economies. Those numbers show that domestic

companies located originally in the emerging

economies reallocated their capital around the world as

part of their strategy to arrange global or regional

production networks in order to capture the benefits from

different markets and, by being close to final customers,

be able to reduce costs in logistics and insurance.

It follows a discussion of the character of both inward and

outward movements of transnational corporations in

response to economic policy orientation in Brazil.

3.1 Inflow FDI

In recent years, the inflow FDI in Brazil can be divided into

two clearly distinguished cycles: the first one

characterized mostly by mergers and acquisitions,

particularly in the services sector of the economy; and a

second one driven by greenfield investments.

After the Brazilian government broke up its monopoly in

sectors such as electricity and telecommunications in

1995, an inflow of foreign capital ownership, transferred

via M&A, was destined basically to public services in the

country. The banking sector also went through a

restructuring process, with the government having also

decided to reduce its participation, what created a good

opportunity for international banks like HSBC, ABN-AMRO,

and Santander to acquire some domestic players and

consolidate their participation in the Brazilian market.

In this cycle, the participation of industry in FDI inflows

remained relatively low. The price stability and a

perspective of regional integration with the creation of

Mercosur, however, attracted foreign capital in some

specific industries, such as the automobile industry,

looking for exploring potential economies of scale and

scope in the production between Brazil and Argentina.

The second cycle, in the 21st century, has been

characterized by the importance recovery of the industry

sector in FDI inflows even though services sectors in

general have remained the main foreign investment

receiver. The recovery of economic growth also led

companies already established in Brazil to increase their

capacity and attend prospective demand. The boom in

commodity prices in this period also caused a rising

participation of primary sector in FDI inflows, mainly of oil,

gas and mining sectors.

Figure 12 presents an evolution of Inflow FDI in Brazil, from

1990 to 2010, while Table 5 shows the distribution of those

investments among the different sectors of the Brazilian

economy, from mid-1996 to 2009 (Borghi, 2013).

3.2 Outflow FDI

Brazilian outward expansion is a much more recent

phenomenon, with only a few exceptions happening

before the 21s century, after the economic openness in

the early 1990s. The need for consolidating their position in

the Brazilian market with the fiercer competitive

Table 4. Evolution of World FDI

Year Total World FDI (in USD billion) Emerging Economies Participation

Inflow Outflow Inflow FDI Outflow FDI

1980 54.1 51.6 13.8% 6.2%

2012 1,350 1,391 52.0% 30.6%

Figure 12. Inflow FDI in Brazil (BACEN, 2014)

0

5

10

15

20

25

30

35

40

45

50

1990

1991

1992

19

93

1994

1995

1996

1997

1998

1999

2000

2001

200

2

2003

2004

2005

2006

2007

2008

2009

2010

US$billion

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

%ofto

talworld

US$ billion % of total world

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ARTICLE

13

environment, made most Brazilian companies with

potential to become global to decide postponing their

internationalization plans. After that was achieved, most

of them opted for a regional ized model of

internationalization, concentrating their operations in

Latin America and quite often expanding their operations

abroad through acquisitions.

Brazilian outward FDI movement has been marked by

some particular features:

·Companies prioritized their investments above all in

Latin America or, more specifically, Mercosur, where

they have better market positions and could benefit

from a favorable trade and investment institutional

framework with partner countries.

·The favorite approach to internationalization have

been through M&A operations rather than greenfield

investments, although construction of new facilities

and joint venture partnerships were also observed

·It relies on a small, although increasing, number of

companies (Table 6), but only a few, such as

Petrobras, Vale, Gerdau, Votorantim and Odebrecht,

have shown a strong footprint in international venues.

Only the first three are among the top 100 non-

financial transnational corporations from developing

countries (UNCTAD, 2013).

This does not mean, however, the inexistence of other

leading companies able to compete and, especially as

a result of the world financial crisis, to consolidate abroad.

They have international presence, but are concentrated

in particular market niches, such as Embraer in the aircraft

industry, and Marcopolo (buses).

Finally, Brazilian companies operating abroad are more

concentrated in low-tech segments, expressed by the

predominance of resource-based companies, basic

input suppliers, construction enterprises and consumer

goods producers. Only a few companies are equipment

and component suppliers (most in automotive industry)

and systems assemblers which involve a higher

technological degree (e.g. Embraer and Marcopolo).

The sharp rise of Brazilian outward FDI movement in the

21st century can be explained by a combination of

interrelated international and domestic macroeconomic

conditions, and the boom in commodity prices. Given the

abundance of natural resources in the country and the

fact that many Brazilian large companies are resource-

based, they could register huge gains and consequently

intensify their consolidation process as global players.

4. Brazilians and Brazilian Companies in Florida

Economic development represents and important

objective within the State of Florida. There are two key

Table 5. Brazil Inflow FDI by Sector of the Economy

Sectors 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Agriculture, livestock and mining 1.4 3.0 0.6 1.5 2.2 7.1 3.4 11.5 5.3 10.2 6.1 14.8 29.6 14.7

Industry 22.7 13.3 11.9 25.4 17.0 33.3 40.2 34.9 52.8 29.8 39.3 36.1 31.9 39.2

Food and beverages 2.4 2.1 0.6 4.5 3.3 2.7 10.0 3.2 26.4 9.6 3.3 5.4 5.1 1.8

Chemical products 2.9 2.4 1.5 4.6 3.7 7.3 8.4 7.1 6.7 3.5 5.1 2.2 2.5 3.6

Metallurgy 0.4 0.0 0.5 0.4 0.8 2.0 0.7 2.7 4.0 1.4 7.7 13.9 11.4 12.4

Electrical, electronic andcommunication. equipments 1.3 2.2 1.8 5.4 2.5 7.2 5.4 4.0 2.6 2.9 2.5 1.6 1.1 2.2

Automotive 3.7 1.5 4.6 6.6 3.2 7.4 9.4 7.5 4.2 4.3 1.3 2.6 2.2 7.1

Others 11.9 5.1 2.9 3.8 3.5 6.6 6.4 10.4 8.9 7.9 19.4 10.4 9.7 12.0

Services 75.9 83.7 87.5 73.1 80.9 59.6 56.4 53.6 41.9 60.1 54.5 49.1 38.5 46.1

Utilities 21.2 23.2 9.5 10.8 9.9 6.9 8.2 5.0 5.8 7.3 10.5 1.8 2.1 3.2

Retail and wholesale trade 8.0 5.1 9.4 9.7 5.2 6.9 7.6 6.3 5.9 12.9 6.6 8.2 5.8 9.1

Financial intermediation 5.0 10.4 25.4 6.1 21.3 9.4 6.2 3.0 4.2 4.1 11.9 17.3 8.7 8.2

Post and telecomm. 8.0 5.4 11.0 29.4 36.5 19.6 22.3 21.8 14.7 8.8 5.5 0.9 1.0 1.0

Others 33.7 39.6 32.1 17.1 7.9 16.9 12.0 17.5 11.3 26.9 20.1 20.9 20.9 24.6

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Total (US$ million) 7,665 15,311 23,271 27,572 29,876 21,042 18,778 12,902 20,265 21,522 22,231 33,705 43,886 30,444

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14

public/ private partnerships with a mandate to promote

the State as a tourism destination and as a location for

business. These agencies are Visit Florida (n.d.) and

Enterprise Florida (n.d.). In particular, Enterprise Florida Inc.

(EFI) “is a public-private partnership between Florida's

business and government leaders and is the principal

Table 6. Brazilian Companies Operating Abroad in 2007

Company SectorSize (sales inUS$ million)

Firstexport

First plantabroad

Unitsabroad Countries (sequence)

Mode of entry(sequence)

Manufactured goods

Ambev Beverage 14,400 1979 1993 35 LA, USA, EU Acq, JV

Artecola Auto parts, shoes 120 - 2000 5 LA, USA, EU JV, Acq

Busscar Bus assembly 260 - 1999 9 LA Acq, JV

Braskem Chemicals - - 2006 2 LA JV

Camargo Correa Cement and engineering 4,000 - 2003 - LA Acq

Cinex Furniture 15 - 2002 2 LA GF

Citrosuco Beverage 312 - 1997 1 USA Acq

Coopinhal Coffee - - 2006 1 Russia JV

Coteminas Textile 550 1997 1997 11 USA JV, Acq

CSN Steel 5,500 1977 2001 9 USA, EU Acq

Cutrale Orange juice 1,000 - 1990 1 USA Acq

Duas Rodas Food - - 1997 3 LA GF

Duratex Construction materials 692 1957 1995 10 LA, EU Acq

Embraco Compressors 590 1980s 1994 6 EU, Asia Acq

Embraer Aircraft 3,906 1975 1979 3 China, EU JV, Acq, GF

Friboi Food 11,500 1997 2005 6 USA, LA, EU, ME Acq

Gerdau Steel 14,000 1980 1980 63 LA, USA, EU, India Acq, GF

Guerra Trucks 80 1993 2005 1 LA GF

H. Stern Jewelry 200 - 1955 80 LA, EU, ME GF, JV

Ipiranga Oil and gas 10,000 - 1995 4 LA JV, GF

Klabin Paper 1,500 1970s 1996 1 LA GF

Marcopolo Bus assembly 843 1961 1991 9 South Africa, LA, EU, China JV, GF, Acq

Metagal Auto parts - - 1996 1 LA -

Metalcorte Electric engines 180 - 2005 1 LA Acq

Metalfrio Refrigeration 300 - 2005 4 EU, USA Acq

Natura Cosmetics 1,600 - 1981 6 LA, EU GF

Oxiteno Chemicals 2,205 1990s 2003 6 LA Acq

Perdigão Food 3,000 1976 1990 4 ME, EU, LA JV, GF

Petrobrás Oil 79,120 - 1972 100 LA, Africa, USA Acq

Random Trucks 1,900 1973 1994 7 LA GF

Sabó Auto parts 170 1975 1992 9 LA, EU, USA Acq, GF

Sadia Food 4,100 1967 1991 10 EU, LA, ME, Japan JV, Acq

Santista Textile 365 1994 1995 8 LA, EU Acq, JV

Smar Industries solutions 80 1989 1988 7 LA, EU GF

Tigre Construction materials 850 - 1977 6 LA GF, Acq

Tramontina Tools and house supply 700 - 1986 10 USA, ME GF

Vale Mining 23,350 1949 1984 52 USA, EU, China Acq, GF

Votorantim Mining 1,750 - 2004 1 LA Acq

Votorantim Cement 11,500 1970 2001 29 Canada, USA Acq, JV

Weg Electric engines 1,500 1980s 1995 12 LA, EU, China Acq

IT and services

CI&T Business intelligence 150 - 2006 2 USA, EU GF

Andrade Gutierrez Engineering and construction 2,150 - 1980 11 LA GF, Acq

Atech IT 50 - 1997 1 USA GF

Datasul Business intelligence 95 1993 2001 4 LA GF

Ibope Telecommunication - - 1991 16 LA JV, GF

Odebrecht Engineering and construction 11,322 1979 1979 14 LA, Africa, EU Acq, GF

Politec Business intelligence 250 - - 2 USA, Japan GF, Acq

YKP Business intelligence 18 - - - LA JV

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ARTICLE

15

economic development organization for the state of

Florida. EFI's mission is to expand and diversify the state's

economy through job creation. In pursuit of its mission, EFI

works closely with a statewide network of economic

development partners and is funded both by the State of

Florida and by private-sector businesses” (Enterprise

Florida, n.d.).

Brazilians have been playing a crucial role in the Florida's

economic environments for the past years. Recognized

as the internal partner #1 of Florida, the country has

gathered the attention of both government and private

sector. In 2010, Florida's trade with the country topped

$14.4 billion. The current Florida's governor Rick Scott

organized a trade mission to Brazil in October 2011 to try to

increase the economic relationships between the two

partners. Mayor Bob Buckhorn from Tampa also went to

Brazil in late 2013 accompanied by a team of executives

from different industries, airport and port officials, with the

same intent: bring more Brazilian funds to Florida, either by

increasing the tourism or by having more Brazilian

investments in the sunshine state.

The state of Florida has non-stop flights to Sao Paulo,

Campinas, Rio de Janeiro, Manaus, and Brasilia on a daily

basis, and Tampa is working hard to get the same benefit.

In 2012, there were 123 weekly flights between Brazil and

Florida. The Port of Tampa has defined Brazil as a focus for

the current administration in its trading strategy.

According to the latest statistics, Brazilian tourists spent

$5.9 billion in the U.S. in 2010 in a tsunami of cash that's

shifting American immigration practices and boosting

economies in hard-hit parts of the U.S. that remain in the

doldrums (Barchfield, 2012). In the same year, only in the

state of Florida, Brazilian nationals spent 1.2 billion dollars

(Huettel, 2011), twice as much as the British (number 2 in

expenses not considering Canadians).

Real state has also been a target for Brazilian nationals

that have consistently purchased houses, condos, and

even hotels in the state of Florida. But not only in tourism

and real state the Brazilian footprint can be recognized in

the sunshine state. Companies like Cutrale, Odebrecht,

Gerdau, and Embraer, are recognized by the Floridian

population as reliable business players and job creators,

although most people don't even know they are Brazilian

multinational companies. The same happens with other

Brazilian corporations like InBev (Belgian Brazilian),

currently owner of Anhauser-Busch, and 3G Capital, the

private equity firm that bought Burger King in 2010 for $4

billion.

A snapshot of the main Brazilian FDI in Florida is described

as follows:

Cutrale Citrus Juices USA, Inc

·Headquartered in Auburndale, Florida.

·It is the largest orange juice processor in the United

States and the parent company, Sucocitrico Cutrale

LTDA, a Brazilian company, is one of the world's largest

growers and processors of oranges

Odebrecht USA

·Construction company

·Major role in public projects (more then $4 billion):

Metromover, American Airlines Arena, the Adrienne

Arsht Center for the Performing Arts, the North and

South Terminals at Miami International Airport.

·Odebrecht USA is part of a Brazilian conglomerate

that has become a global force and has diversified

far beyond const ruct ion wi th in terests in

petrochemicals, sugar, real estate development,

ethanol and bio-energy, power generation, water

and environmental engineering, oil and gas, plastics,

t ranspor tat ion/ log is t ics, and defense and

technology.

Gerdau USA, Inc

·Leading company in the production of long steel in

the Americas and one of the major suppliers of

specialty long steel in the world.

·Leader in mini-mill steel production and steel

recycling in North America, with an annual

manufacturing capacity of approximately 10 million

metric tons of mill finished steel products

·More than 45,000 employees, with an installed

capacity of more than 25 million metric tons of steel

and it is the largest recycler in Latin America, and

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ARTICLE

16

around the world, it transforms millions of metric tons

of scrap into steel every year.

·Has a presence in 14 countries: Argentina, Brazil,

Canada, Chile, Colombia, Dominican Republic,

Guatemala, India, Mexico, Peru, Spain, U.S., Uruguay

and Venezuela.

Embraer Aircraft Holding, Inc

·A subsidiary of Embraer - Empresa Brasileira de

Aeronáutica, with facilities in Fort Lauderdale (FL),

Nashville (TN), and Melbourne (FL)

·Embraer is one of the world's main aircraft

manufacturers, with net revenues of $ 6.1 billion in

2012, and a large footprint in the regional jets market,

in which the main competitor is the Canadian

company Bombardier.

·The company was created in 1969 as a mixed-

capital model, until it was completely privatized in

1994.

Conclusion

Global trade is an increasingly important component of

the economy in any country. As a fast growth BRIC

economy, Brazil has an impressive record of economic

growth. Within the America's Brazil has developed close

social, cultural and economic ties with the State of Florida.

In many instances, these ties reflect business opportunities

and foreign direct investment projects and initiatives in

Florida. The relationship between Brazil and Florida has, in

part, been advanced by the State of Florida and it is

designed to be a “win-win” opportunity for both entities. In

that regard, it can serve as a model for similar partnerships

globally.

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ABOUT THE AUTHORS

D.

li-manager’s Journal o Management, Vol. No. 4 ln 9 March - May 2015