Brazil arrives at its 'future'

Long described as "the country of the future - and always will be", Brazil finally seems to have arrived.

After decades of under-performance and dashed expectations - as escalating crime and inequality eclipsed bright prospects - a positive economic performance and political leadership is now defining Brazil's global trajectory.

In the middle of a tight election campaign that bade farewell to President "Lula" Da Silva - arguably the most popular president in Brazil's democratic history - state oil and gas company Petrobas undertook the largest share offering in history, raising $70-billion.

At the same time, the Brazilian government took centre stage in the "currency wars" debate that is likely to feature prominently on the international agenda as emerging powers start shaping a new financial architecture.

Most observers agree that Brazil's emergence and recent surge can be attributed to a fortuitous combination of political leadership, the sequencing of tough reforms since the 1990s, targeted social policies, and the commodity boom. Politics and policy have enabled this resource-rich country to maximise gains as a commodity exporter while diversifying output and growing its middle class.

All of these developments have important lessons for SA, but the most instructive aspect of Brazil's ascent is the strong consensus and common vision that has developed between government and business over the past decade.

Brazil has great aspirations as a global leader. Its government is exercising its voice beyond its region and projecting its values around the world, especially in the developing south. Its business sector - a strong proponent of this - is taking Brazilian products, long-term investments and "soft power", in the form of culture and media, to locations as diverse as Angola, Libya and Guinea-Bissau.

The government is opening up diplomatic channels in pursuit of these business interests. Brazilian companies, mostly unknown just 10 years back, are unashamedly looking to be the biggest and best in the world.

This was the message received by MBA students of the Gordon Institute of Business Science (GIBS) in Johannesburg who visited Brazil recently.

The students met representatives of various companies, ranging from Embraer, the aircraft manufacturer; Odebrecht, the diversified civil engineering and construction company, and Vale, the world's second-largest miner, to Petrobras, now the largest company in the Southern Hemisphere with a market capitalisation of $220-billion. They also visited development bank BNDES, the "godfather" of the Brazilian economy.

With few exceptions, most of these companies began as strategic state-owned enterprises (SOEs). While most were privatised in the 1990s, the state - directly or indirectly - retains a large portion of shares and influence through joint projects, financing and contracts.

There is no better evidence of this than Petrobras's share offering last September, which saw $46.4-billion being purchased by the Brazilian government (and its entities like BNDES) - a strategic decision to increase government's controlling stake from 40% to 50% - with the remaining $23.5-billion going to market.

The Brazilian federal government alone purchased more than $31-billion of Petrobras shares, which is remarkable for a developing country, if not concerning given Brazil's ongoing developmental challenges and growing fiscal constraints after a decade of rigorous (but expensive) social policies funded by public expenditure.

Herein lies a warning about the delicate balancing act between emerging power and dynamic market, and meeting development imperatives back home and in the region. Pursuing global influence and flexing new-found emerging power muscle can cloud rational economic judgment and hamper sustained development.

Brazil's socio-economic progress is well known. According to the recent Brookings Latin America Economic Perspectives report, between 2000 and 2007 the income of the poorest 10% of Brazilians grew by 7% a year or nearly three times the national average. Extreme poverty has halved 10 years ahead of the 2015 Millennium Development Goals target and data shows a marked improvement in equality - traditionally the Achilles heel of Brazil.

Unemployment is at an historical low with a million new jobs created in 2009, despite the financial crisis.

But even with a growing middle class and a healthy economy, the reality in Brazil is that much of the visible poverty alleviation and reduced inequality has come from public transfers with enormous fiscal costs. Even employment creation was through targeted policy measures that forced formal employment. Expansion of these social policies will require resources that are simply no longer available.

These resources are expected to come from new economic growth prospects and, in particular, Pre Sal oil deposits. But Brazilians across the board agree that a real impact from economic growth is unlikely unless education and infrastructure are addressed with greater urgency.

Arriving at Sao Paulo Guarulhos International Airport, one of the so-called "new global business capitals", it is hard to believe that this is home to companies that are building world-class airport facilities from Miami to Tripoli. The airport is tired and overstretched to the point of discomfort and even safety concerns.

Road and port infrastructure is in a desperate state, while telecoms and electricity costs remain high. All this risks eroding Brazil's competiveness, and thus resources for further social expansion.

More inclusive economic growth and targeted programmes brought political dividends for the Da Silva government, and similar support will be enjoyed by his (almost certain) successor Dilma Rousseff. But she has tough decisions to make, such as considering the trade-offs of picking champions like Petrobras over investing in enablers of economic development like infrastructure and education.

Though Brazil embraces its new role as an emerging power dynamo with enthusiasm, the new president will have to navigate with caution.

• White is the director of the Centre for Dynamic Markets at GIBS.