Page last updated at 11:45 GMT, Monday, 18 June 2007 12:45 UK

Brazil tries to seize economic momentum

Analysis
By Jonty Bloom
BBC News, The World Tonight, Brazil

A Brazilian shipyard
The Santos shipyard could be more efficient, management say.

Brazil is often grouped with India and China as one of the up and coming economies of the world.

And with vast natural resources, almost unlimited land and a young population of almost 190 million, that should be the case.

But while China's economy is growing at over 10% a year and India's at just below that level, Brazil is managing economic growth of just under 4%.

Certainly there is no shortage of hi-tech industry. In Rio de Janeiro, the research centre of Petrobras, the Brazilian oil giant, claims to be the biggest in South America.

It is a massive complex like one giant chemistry lab and this is where scientists are trying to find new ways of making biofuels from soya, castor beans and sugar cane.

It all goes to show that Brazil has world-beating industries.

The problem is it doesn't have enough of them.

Bureaucratic wrangling

Brazil's current economic boom has instead been fuelled by the export of commodities and raw materials.

That means ports such as Santos, outside the industrial centre of Sao Paulo, are working flat out.

Miners clear forest in Brazil's Amazon rainforest
Environmentalists say soya production is damaging

But Santos has problems, not least that it desperately needs dredging.

"With the depth we have now we can take ships of up to about 60,000 tonnes," says Fabricio Piero Domenico, the port's commercial director.

"But if we dredged the channel just a few metres deeper we could take ships of up to 120,000 tons, and that would give us a reasonable capacity."

However, that dredging has been delayed for years by bureaucratic wrangling, an example of how red tape and poor infrastructure are holding Brazil back.

And anyway the real money is made in processing and refining raw materials.

The vice president of soya exporter Caramuru, Cesar Borges de Souza, says he would love to process more in Brazil but that government policy is working against him.

"If a farmer exports his produce directly he pays less tax than if he sells it to a Brazilian company which then exports the products made from his soya.

"There's a difference of about 5% in favour of direct exports, which is a stupid attitude by the Brazilian government."

Opportunity missed?

It is not as if Brazil's government is necessarily spending all that tax revenue wisely.

In recent years it has increased taxation, but less and less of it is being invested.

It is being spent on pensions and other types of social security payments. Yet Brazil still has millions of poor, who earn so little they don't have enough money to buy things that would boost the domestic economy.

All this means that, unlike China or India, Brazil's current growth rate is not being sustained by rapid industrialisation or domestic demand, but by the high prices the rest of the world is willing to pay for its commodities and raw materials.

When that demand falters or prices fall, Brazil may well find it has missed a golden opportunity for rapid economic development.

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