Brazil and the next Republican president, part II

The next Republican president needs to look at Brazil as we do Canada and Mexico. Consider that Brazil is currently the sixth or the seventh biggest economy in the world, and depending on whose projections you follow, is forecasted to become the fifth sometime in the next ten years. After 16 years of political and …

The next Republican president needs to look at Brazil as we do Canada and Mexico. Consider that Brazil is currently the sixth or the seventh biggest economy in the world, and depending on whose projections you follow, is forecasted to become the fifth sometime in the next ten years. After 16 years of political and economic stability, targeted social programs, and private sector led growth through the opening of the economy, over 25 million people have been pulled out of poverty.

Much has been written about the major oil discoveries off the coast of Brazil. Some predict that Brazil will be one of the top five oil producers in the world in 2020 and the largest in South America. There is talk of as much as $1 trillion needed to drill off shore in very complicated contexts to achieve these production levels. The business opportunities for American oil and oil service companies and the changes to the way we think about energy security are favorable to the United States.

Brazil is the leading producer and innovator in the field of biofuels with significant portions of their car and truck fleets running on sugar based ethanol.

Not as publicized, but equally important, Brazil has, for the most part, gotten a handle on its rainforest problem and is seeking to balance agriculture (mainly soy and beef production) with preservation of the rainforest. With three center-left governments elected since 2002 with the implicit or explicit backing from the Green party, the debate between agriculture and environment has found a balance the Brazilians are happy with. Recent satellite photos demonstrate that the rainforest is reclaiming over 20 percent of the lands that have been cut down. Ask yourself when was the last time you heard a plea from an environmental NGO to “save the rainforest” and you’ll see what I mean.

Brazil is hosting the World Cup and the Summer Olympics over the next five years. Even if we don’t take soccer seriously, the rest of the world does and these are both big prestige wins for Brazil and a big opportunity for American business.

Brazil’s largest trading partner is China — something that has happened only in the last five or seven years. Its second is the European Union with the United States close behind. At the same time, the bloom has come off the rose with the Chinese and this may present an opportunity for the United States over the medium term on a free trade agreement between the United States and Brazil. The Brazilians are concerned about the “invasion” of “cheap” Chinese manufactured goods competing with local Brazilian goods. In other words, in the Brazilian Mind: “selling soy to China good. Buying Chinese shoes is bad…” This may be our opportunity to restart bilateral trade talks down the road if this continues to be a source of worry for the Brazilians.

The U.S. embassy in Brazil processes more visas to visit the United States than that of any other country in the world — more than China. By the way, we are well represented in the country by Ambassador Tom Shannon — Shadow Government readers will remember him as Assistant Secretary for Western Hemisphere in Bush 43.

The American Chamber of Commerce in Brazil is the largest in the world with 5000 companies that are only about 10 percent American and 80 percent or so Brazilian.

This is not to say that Brazil has a long way to go. First, we have significant differences over sugar subsidies (ours) while they have become the lead producer and innovator of biofuels. Second, there are some lingering anti-American sentiments among the elites, but overall the country has a benign orientation towards the United States. Third, Brazil still has tens of millions of poor people, which holds the country back in many ways. Fourth, neither the U.S. or Brazil understands each other very well — the level of working English (sorry international readers — English IS the international language …) is appalling for a country that wants to host major international events in the next several years or seeks to develop an army of world class petroleum engineers to produce 5 million barrels a day. At the same time, I counted five English language schools in a middle class neighborhood in a quarter mile area so that could and will change. Finally, Brazil will play in the multilateral security arena in benign emergencies like Haiti, but they will not be reliable security partners in the medium term out of the Western Hemisphere. For example they abstained on the Libya Security Council vote.

However, if we can move the relationship in the right way, we will have:

  • More oil in the market from a stable, reliable partner
  • A big and growing market for American goods
  • A partner for needed breakthroughs in agriculture to feed the billions of people we have on the planet and a strategic partner on biofuels as part of an “all of the above energy” Republican energy policy
  • A source of growth for other Latin American countries — Brazil buying other neighbors goods and services and bringing our neighbors along in the process
  • And finally, a model of democratic capitalism that closely rhymes with ours that we can offer up to developing countries to follow instead of what I have described as “darker versions” of globalization on offer.

The potential challenges shown here can certainly temper enthusiasm about our relationship with Brazil, but we must also go in with eyes open. If these challenges are managed correctly, Brazil is going to offer us market based capital framework that rhymes with ours; and will oppose dark forces in the global economy.

Article Published in on November 17, 2011.

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