The growing vaccination rate in Brazil and the perspective of more control over the pandemic have led economists to venture some optimistic forecasts for the Brazilian economy in 2021 and 2022. From the beginning of the year until now, however, the optimism generated by the market at the end of 2020 is being replaced by a political instability, accompanied by fear of the unsustainability of public spending, which increased significantly with emergency social welfare payouts during the worst phase of the pandemic. What makes an analysis of the Brazilian economy during the next 18 months even more difficult are the elections in 2022, when the presidential race could incite further internal disputes.
There are, however, good opportunities within the Brazilian market to be explored. After two years practically without investments, Brazil needs to reignite expansion and modernization programs for all of its infrastructure, especially transportation, energy and technology.
According to data published by the Ministry of Economy in September of this year and compiled by the Institute of Studies of Industrial Development (IEDI) in August 2021 alone, the surplus of the Brazilian trade balance reached 7.7 billion reais, a record for the month since 1997. When looking at the Brazilian GDP, the Brazilian Institute for Geography and Statistics (IBGE) has shown that the foreign market has been one of the main sources for growth, with strong export increase in all sectors, with special emphasis on the extrative sector, at the lead.
Amongst Brazil’s biggest challenges in the next year and a half are the capacity to meet the demand of Asian markets for raw materials and animal products – and that will necessitate the modernization of its transportation grid.
Additionally, the pandemic has also forced a drastic change in consumer habit, accelerating the development of online shopping, generating great investment opportunities along all distribution chain. Since May 2021, e-commerce in Brazil has grown 74,4% in comparison to 2020 and 153,5% in comparison to 2019.
Resuming industrial activity will require access to cutting edge technology that will allow production costs to be reduced, while at the same time, within the service sector, working remotely becomes a concrete alternative to profitability. All of this, coupled with the rapid growth of digital banks (fintechs) – whose appeal if the ease of opening na account – and electronic payment methods – Brazilian Central Bank launched its own recently – will put pressure for better wifi services.
Climate change also makes it urgent for Brazil to rethink its energy matrix, currently heavily dependent on hydro. Today, wind energy accounts for 10,9% of total production, while solar will reach only 2,9% by the end of the year. Both are very attractive sectors for investments, given the urgency the country faces over recent water shortage crisis.
These opportunities were already present before the pandemic, but gained a new dimension as Brazil urgently tries to find the path to economic growth again. If the political uncertainties for 2022 advise caution, the decision to invest in the country should take into account medium and long term commitments, within which the country will not be able to escape fixing key bottlenecks and stimulating productive investments that will rebuild Brazil’s position in the world economy.