Introverted Economy

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Brazil needs a new trade and investment strategy, but so far the country seems to prioritise politics over economics.

Brazil’s strategy for growth over the past decade has favored more than just consumption over investment, and more than ad hoc fiscal incentives for companies and sectors blessed by the country’s ‘local content’ industrial policy. At its core, Brazil’s economic strategy is the expression of an approach that is mostly insular and which prioritizes its domestic market over a more incisive interaction with the global economy.

From an international relations perspective, this approach reveals a great deal about Brazil’s lack of a sophisticated project in terms of both influence and prosperity. Present-day Brazil, where significant economic expansion has been kept at bay for more than three years, is the result of a political economy of ideological preferences, with a strong accent on political affinities and less attention to economic pragmatism.

Globally, Brazil’s political discourse has sounded much louder over the past decade than have its cross-border economic achievements. The country’s idea of its global reputation is intertwined primarily with bringing the United Nations system up to date: becoming a permanent member of the Security Council, strengthening ties among Latin American countries, and praising the benefits of South-South cooperation; in short, a foreign policy permeated by ‘good intentions’ and ‘balanced’ relations with the world’s top players.

But the fact is that recent attempts by Brazil to build strategic political partnerships that could bring economic benefits, such as with China or France, have been unilateral in most cases. Brazil’s bilateral trade with China has increased tenfold in the past decade. But that has been mostly driven by dramatic growth in China’s infrastructure and consumer market, and its consequent voracious appetite for the mineral and agricultural commodities in which Brazil has clear comparative advantages. The result? One ton of Brazilian exports to China is worth about $200. One ton of Chinese exports to Brazil is worth more than $2,000. That could hardly be called a partnership.

Brazil’s interests in Africa are overshadowed by the expanding outreach of Chinese corporations. UN reform is nowhere near the horizon. And the various geometries fostered by Brazil in Latin America, either using Mercosur, the Union of South American Nations, or the Community of Latin American and Caribbean States, yield plenty of speeches on how the world should be made more equitable – and few, if any, tangible economic results.

Brazil’s global agenda has prioritized its political objectives – modulated by the ideological preferences of the day – over economic initiatives that might have included more bilateral free-trade agreements. Since Mercosur was created in the early 1990s, Brazil has only concluded three FTAs (with Egypt, Israel and Palestine), while Mexico, since NAFTA, has put more than 40 FTAs in place. Brazil’s ideological biases over the past decade – coupled with the finest breed of protectionism-prone conservatives in the US – have helped put the idea of a Free Trade Area of the Americas to rest.

The low priority Brazil has put on its foreign economic goals has prevented a more aggressive stance in trade and investment promotion. Brazil should have strengthened and expanded its ambitious APEX – a trade and investment promotion agency founded during the Fernando Henrique Cardoso administration in the 1990s – which now consists of a few dozen officials based mostly in Brasília. Instead of setting up muscular business bureaus in the global cities of North America, Europe or Asia, Brazilian strategists believed themselves to be taking steps toward greater global stature by opening diplomatic posts in cities like Baku, Belmopan, Basse-Terre, Castries, Conakry, Cotonou, Khartoum, Gaborone, Malabo, Nouakchott, Roseau, St George’s, St John’s, and Ouagadougou.

Seemingly clueless of – or oblivious to – the forces driving the global economy, Brazil was recently surprised to learn that the United States and the European Union were working toward an FTA to come into force in 2015. As news of the plan came out, a high-ranking official in Brazil’s presidency told newspapers Brazil had been following ongoing negotiations “without the hastiness of a subordinate.”

Brazil should decide whether it wants trade to be a driver of its economic development. The country’s economic relations with its Latin American cousins, given their small scale as buying markets, represent a low ceiling. Meanwhile, the more dynamic economies of Latin America – Colombia, Peru, Chile and Mexico – are reconfiguring their strategies and joining forces in an FTA of their own, one that will entertain an open trade dialogue with the US.

As for further access to Europe’s markets, Brazil’s negotiating position is rendered less mobile by the limits imposed under its membership of Mercosur. The diametrically opposed views of the Mercosur and European Union countries – especially when it comes to agriculture – prevent negotiations from advancing to other areas. Were Brazil to make its local content requirements more flexible, particularly in areas related to infrastructure, transport and logistics, a new phase in Brazil’s economic relations with Europe could be launched. But that would be going against Brazil’s current industrial policy mantra.

When it comes to the BRICs, Brazil certainly revels in China’s demand for its low-value-added exports. But Brazilian industry lacks the stamina to face China’s hypercompetitiveness – so no FTA in sight here. Russia and India have great potential as trading partners, but they lack the complementarities in both geography and natural resources that are conducive to forming economic blocs.

The BRICS will coordinate common positions in economic and political forums. They will certainly trade more among themselves. They may even come up with preferential credit lines, or even a BRICS Bank, to help finance infrastructure projects. But given the scale of the issues in which their interests do not converge, the bloc will never form an FTA, much less a vertical, deeply integrated economic zone.

As a consequence, Brazil, especially in comparative terms, will keep a low profile in global economic statistics. The country’s share of international trade is only about one percent. The sum of all its imports and exports represents 18% of Brazil’s GDP. Its share of world GDP, at 2.9%, is unchanged since 2002. With the watershed event of the US-EU Transatlantic FTA now in the making, Brazil should get its act together and add some urgency to the idea of defining its place on the map of 21st century trade and investment.

If Brazil made the right choices now, it could no doubt use the productivity and competitiveness of its agro-energy sector to help foster a tech-intensive, globally connected economy. Otherwise, if it continues to shun interaction with the most important markets of the world, it will be rendered an ever less relevant, ‘bloc-less’ economic player.

Official partners

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