Expert reviewed • 22 November 2024 • 13 minute read
In recent times, globalisation has had a significant impact on Brazil's economy. Being the largest economy in Latin America, Brazil has experienced profound increases in its economic growth and development as a result of increased integration into the global economy.
Brazil's integration into the global economy has been shaped by various economic reforms and policy initiatives. These policies aimed to liberalise trade, attract foreign investment, and enhance competitiveness. How these aims were achieved is outlined below:
Since the 1990s, Brazil has progressively reduced tariffs and other trade barriers. As a result, its integration into the global economy and access to foreign markets and products has significantly increased. Additionally, since 1990, Brazil has entered into various trade agreements, both bilateral and multilateral, which have facilitated greater access to international markets for Brazilian products. This has allowed for significant growth in Brazilian exports, particularly in agriculture and natural resources. For example, as of 2022, total Brazilian exports reached a value of $384.9 billion USD, which is a significant increase from 1990, being approximately $31.4 billion USD.
Globalisation has significantly increased foreign direct investment (FDI) inflows into Brazil. This has been driven by the privatisation of state-owned enterprises, which attracted substantial foreign capital. In 2022, Brazil's FDI inflows reached $86 billion, marking a 69.9% increase from the previous year's $50.6 billion. Key sectors benefiting from these investments include manufacturing, services, and extractive industries, with the manufacturing sector alone receiving significant contributions. Additionally, Brazil has actively sought to attract FDI by implementing policies that create a favourable investment climate. This includes facilitating technology transfer and productivity improvements. In the first eight months of 2023, Brazil attracted $37.9 billion in FDI inflows.
Global demand, particularly from China, has fuelled a significant commodity boom in Brazil, leading to a surge in exports of soybeans, iron ore, and oil. In 2023, Brazil exported approximately 102 million metric tons of soybeans, a 29% increase from the previous year. Additionally, Brazilian iron ore exports reached around 379 million metric tons. This boom has improved Brazil's terms of trade and contributed to economic growth. However, it also increased the country's heavy reliance on these exports.
Furthermore, Brazil has adopted multiple strategies to leverage globalisation for economic growth and development. These include:
Brazil implemented key reforms to stabilise its economy, beginning with the Real Plan in 1994. This plan successfully controlled hyperinflation by introducing a new currency, the real. The country further adopted inflation targeting and a floating exchange rate, allowing for more flexible and effective monetary policy. Additionally, the implementation of fiscal responsibility laws improved public finances by imposing stricter budgetary controls and enhancing fiscal discipline.
Furthermore, Brazil implemented extensive social welfare programmes to address inequality. One of the cornerstone initiatives is the Bolsa Família conditional cash transfer programme. This programme provides financial aid to low-income families. The government also expanded access to education and healthcare, ensuring broader coverage and improved services. Additionally, Brazil increased the minimum wage, enhancing the standard of living for many workers and contributing to poverty reduction and social equity.
The Brazilian government pursued strategies to boost industrial competitiveness in sectors such as aerospace and oil and gas. For instance, Embraer, a prominent aerospace company, received substantial support, becoming a global leader in regional jets. The National Development Bank (BNDES) played a crucial role by financing "national champions," with over $70 billion in loans to various industries in recent years. Additionally, local content requirements in key industries, such as the oil sector, required that 65% of goods and services be sourced domestically. This, in turn, significantly stimulated local production and development.
Brazil has invested heavily in transportation, energy, and communication networks through various initiatives. One significant programme is the Growth Acceleration Program (PAC), which has earmarked BRL 1.7 trillion (approximately $350 billion) for infrastructure projects across the country. This includes BRL 371 billion from Brazil's General Budget, BRL 343 billion from state-owned companies, BRL 362 billion in financing, and BRL 612 billion from the private sector.
Key projects under PAC include highway expansions, port modernisations, and energy generation initiatives. These projects aim at improving domestic connectivity and facilitating international trade. For example, PAC has allocated BRL 33 billion specifically for urban transport projects, including the expansion and modernisation of metro systems in major cities such as São Paulo and Brasília.
Brazil has made substantial efforts to promote innovation and technological development. In 2022, Brazil's R&D expenditure reached 1.27% of its GDP, reflecting a commitment to boosting scientific and technological research. Key programmes like the National Fund for Scientific and Technological Development (FNDCT) have been instrumental in providing financial support for research projects and scholarships. Additionally, the Brazilian government has implemented tax incentives to encourage innovation activities. These incentives aim to reduce the financial burden on companies investing in R&D, to foster innovation.