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Table of Contents

Part 1..................................................................................................................................... 3

Introduction........................................................................................................................ 3

Period before economic slowdown (before 2008).................................................4Period before 2003.................................................................................................................... 4Period from 2003 – 2008......................................................................................................... 4

Period after economic slowdown (post 2008)........................................................5

Facts and Figures............................................................................................................... 5

Part 2..................................................................................................................................... 6

Brazil CPI.............................................................................................................................. 7

Part 3..................................................................................................................................... 7

Part 1

Introduction

The economy of Brazil is characterized by well develop and large

manufacturing, agricultural, mining and service sectors. Brazil has probably the best

and most stable economy in the entire South America. Brazil is on an expansion path

and today many other economic powers have recognized the importance and value of

Brazil economy on the world map. Since 2003, the government of Brazil has worked

in order to maintain high foreign reserves and in fact government is successful in

improving the levels of macroeconomic stability. Brazil has shifted its debt burden to

instruments that are held domestically. Brazil efforts from 2003 started to reflects

good output and it was year 2007 when Brazil got two investment grade status awards

from two rating agencies. 2008 was the first year when Brazil became the net external

creditor for the first time.

Probably the year 2007 and 2008 were the most valuable years in the economy

of Brazil. However like many other countries, Brazil was also hot by the economic

and financial crises of 2008. That was the time when exports of Brazil dwindled and

Brazil, like many other countries, experienced recession. Having said that, one of the

points worth mentioning is that Brazil was one of the few emerging and developing

markets that recovered quickly. Only after 2 years, in the year 2010, Brazil was able

to get a strong GDP growth of 7.5%. It is the highest GDP growth for Brazil in the

last 25 years. However due to bad market conditions and global slowdown authorities

in Brazil were not able to control the wide spread Inflation. Consequently Brazil had

to adopt certain measures to cool down the growth of economy and in the year 2011

the growth slow down to little below 3% level. The period before the economic crises

of 2008 and after the period of 2008 can be better discussed under following

headings: -

Period before economic slowdown (before 2008)

If the timeline of Brazil is constructed for the economic conditions, then year

2003 and year 2008 are the major points where transition occurs. As discussed above,

it was year 2003, after which Brazil started to outcast its presence in International

market.

Before 2003 2003 2003 - 2008 2008 Post 2008

Timeline of Brazilian economy

The entire period before global meltdown of 2008 can be discussed as: -

Period before 2003

Before 2003, the economy of Brazil was driven by agriculture. The gates to

foreign investment were not completely open and government mainly emphasize on

domestic countries. In the international market Brazil was not considered as a threat

however Brazil was a key player as far as South American market was considered.

The agriculture and mining was the main occupation of people and service industry

was in its early phase.

Period from 2003 – 2008

This was primarily the growth period in the economy of Brazil, 2003 was the

year when government adopted certain reforms and that was the time when Brazil

started to outcast its image in the International market also. This period also witnessed

a transition change from manufacturing based industry to service sector industry.

2006 – 2008 was the period when Brazil started to reap the benefits of change in

economic policies. The growth was remarkable in this period and year 2007 witnessed

a GDP growth of more than 7%.

Period after economic slowdown (post 2008)

As a matter of fact there was not a single company in the world that was not

affected by the global meltdown, Brazil also suffered some serious setbacks. It was

the result of this setback that in the time of 2 years only (2008 - 2010) the GDP

growth falls by 5% (from 7.5% to 2.5%). As of today the economy of Brazil is the

seventh largest in the world and it is expected that in coming year the economy of

Brazil would be fifth largest in the world.

Post 2008 the employment level also observed certain low points. As a matter

of fact the urban unemployment touched the historic low of 4.7% in December 2011.

Till 2008, it was considered that Brazil has somewhat decent level of Income equality

however after 2008 the disparity levels rose between the average income levels.

One significant thing about Brazil is that the interest rates have been generally

high in country; as a result it is one of the favorite destination of foreign investors.

The currency of Brazil has appreciated against several other countries in the past

several years. This also had the negative impact on the domestic manufacturing

industry of the country, due to this government intervened and raised the tax levels on

some of the foreign capital inflow. Some of the facts about the economy of Brazil can

be presented as:-

Facts and Figures

Rank 6th Nominal, 7th PPP

GDP $2.5 trillion (nominal), $2.3 trillion (PPP)

GDP per capita $12,900 (nominal), $11,800 (PPP)

GDP by sector Agriculture 5%, Industry 28%, Services 67%

Post 2008, after the global financial meltdown, the government of Brazil

realized that it would have to provide certain stimulus to the economy and at the same

time the high growth rate targets were reduced. In order to increase the liquidity in the

market, government provided certain stimulus packages. At the same time

government also realized that this global financial meltdown is taking on people jobs,

so in order to create more of domestic jobs the government invested in many projects

of shipping ports through out the country. Brazil government knew that they are also

shattered with the economic meltdown however government had the long term vision

and it devised and implemented the ways by which negative effects of meltdown can

be minimized. Government also looked for various infrastructure projects where it can

spent so as to create more of employment opportunities.

Their was a mix impact, it was positive in a way that there were job

opportunities in the country, however at the same time many experts and researchers

have accused government of excess deforestation. It has been reported that the

government overlooked the environmental concern and involved itself in lot of

deforestation just on the name of infrastructure project.

Part 2 Period (USA)

Inflation (CPI)

Period (BRAZIL)

Inflation (CPI)

 october 2012 2.162 %

 november 2012 5.533 %

 october 2011 3.525 %

 november 2011 6.641 %

 october 2010 1.173 %

 november 2010 5.635 %

 october 2009 -0.183 %

 november 2009 4.219 %

 october 2008 3.655 %

 november 2008 6.388 %

 october 2007 3.536 %

 november 2007 4.188 %

 october 2006 1.306 %

 november 2006 3.017 %

 october 2005 4.348 %

 november 2005 6.216 %

 october 2004 3.189 %

 november 2004 7.237 %

 october 2003 2.041 %

 november 2003 11.019 %

Brazil CPI

USA CPI

As presented in the above diagrams, the CPI level is stable in Brazil post 1995, as a

matter of fact Brazil has faced serious inflation before 1995 and that was the period of

high cycle in Brazil.

In USA Inflation is somewhat under control, the fluctuation is there but then the level

of fluctuations is less.

Part 3

With Globalization, world has become a smaller space and at the same time

investors have got the chance to invest in the international market. Gone are the days

when investment decisions were made only inside domestic boundaries. As presented

in the case that the investment in both the countries (USA and Brazil) would be in a

high quality organization, hence the chances or risks factors are less. While deciding

upon this investment decisions there are various factors that would be taken care of,

some of these factors are discussed below: -

Political factor

It is required that political atmosphere of the country should be conducive to

work. Many researchers and experts have believed that investment decisions should

not be made in the countries where there exists political uncertainty. Comparing on

political grounds, I believe that USA is more stable than Brazil. Brazil is a developing

nation and political problems are more as compared to USA.

Legal

Before making any international investments decision, investors must realize

the legal structure of the country. Investors must have the idea that what are the legal

constraints in the country and what re grounds on which investor can be challenged.

For this activity it is always preferable that investors should contact some local people

in the country.

ROI (return on investment)

The first motive and aim of any investment is to get handsome returns. Many a

times it is not easy to calculate the return on investment, however every investor

should try to figure out the expected cash flows from the investment and find the

return on investment.

Time value of Money

This is similar to the concept of ‘opportunity cost’ in economics, their exists a

time value of money for every money invested by investors. The idea of every

investment is to get maximum returns within the time frame as initially expected.

Investments should not be done if profits are realized after a long time.

Attractive Factors

Attractive factors are one that prefers the investment for this uncovered

international investment; I believe that ROI (Return on Investment) is the most

attractive factors among all the factors. If any foreign investment is able to provide

the positive returns then investment can be made on that. Second attractive factors is

the economy of country itself, if the economy of foreign country is growing then

again the investment decision can be made.

Unattractive factors

Factors such as Social, Technical etc are unattractive factors; these factors do

not have much influence over the investment decision in foreign firms.

As discussed above the factors to invest or not to invest would depend upon the lot of

factors. It is the matter of chance if attractive factors outweigh unattractive factors

then investment decision is made in favor otherwise investment decision is made

against, i.e. uncovered international investment is not made.

The uncovered foreign investment also has the risk associated to fluctuations

in currency, for example at present 1 USD is around 2 Brazil reals however in future

this equation can change considerably. If this equation is changed then investor can

bear certain losses in the investment, though sometimes this can be good also however

this does increase the associated risks, therefore this kind of investments should only

be made if investors have the risk taking capabilities.

Neutral Factors

Neutral factors are those, which does not have any impact on the decision of

investment. These are the factors like Environmental factors. Investors, investing in

international market often think about the environmental factors and atmospheric

conditions.

Example of USD and EURO