Brazil holds a special position as an emerging market – as one of the BRICS it is a market of the highest potential. Since weathering the 2008 financial crisis well, though, Brazil’s path to prosperity hasn’t always been straightforward and official data released in August showed GDP contracting for the second consecutive quarter to usher the country into a recession.
Despite this, it’s still relatively easy to believe that the situation isn’t all that bad. Unemployment in Brazil is historically low, household incomes continue to rise and a strong sense of optimism remains around the country. In the 2014 Agility Emerging Markets Index, for example, Brazil performed to the expected high standards, ranking 2nd overall with the market’s size and potential for growth driving its performance. Moreover, industry professionals used the Emerging Markets survey to express their own optimism – not only ranking Brazil as a top prospect to emerge as major logistics market, but placing the country ahead of China as the top destination for expansion over the next five years. This, however, set against a backdrop of survey respondents pointing out the threat poor infrastructure and convoluted bureaucracy pose to market development.
Indeed, Brazil’s performance in the 2014 Emerging Markets survey mirrors real life – a dividing narrative is pitching Brazil’s potential against its failure to overcome chronic problems. One side, led by President Rousseff, puts the country’s dip into recession down to unfortunate timing rather than any fundamental problem with the economy. The host of this summer’s football World Cup lost more than just national pride it seems; working days were cut and, when combined with a generally weak global economy, Brazil found itself in the wrong place at the wrong time. Rousseff’s opponents in the upcoming presidential election are disinclined to believe this, instead pointing to falling business confidence, interventionist policies and poor fiscal management compounding long-standing issues such as poor infrastructure and a highly and complex bureaucratic system.
The state of Brazil’s infrastructure is a concern. The World Economic Forum ranks Brazil 120th of 144 economies for the overall infrastructure quality and 122nd for the quality of its roads. When the country became the world’s leading soybean producer in 2013, logistics providers found their ability to benefit from increased volumes limited by the dire state of the road network and queues at the Port of Santos which stretched over 40km when the bumper harvest overwhelmed infrastructure. This points to a wider failure of Brazil’s government to address what is threatening to become a general collapse of the country’s infrastructure. Strikingly, just 14% of Brazil’s road network is paved, and the World Economic Forum points out Brazil’s ongoing failure to develop much needed capacity in its shipping sector while overlooking 50,000 km of inland waterways – including the Amazon river – as a source of alternative, and cheaper, freight transportation.
The country – to this point, at least – remains a vital and relatively dynamic logistics market. In recent years, many leading providers have established or expanded operations in the country – DHL, Kuehne + Nagel, Panalpina, Expeditors, CEVA and UPS included – while the country has emerged as a production and manufacturing location serving both domestic and international demand. But two visions of Brazil are emerging – one is optimistic, a continuation and development of the country as a powerhouse of economic growth, the other peering into a future where resource wealth and growth potential have been squandered. Whichever is to be the case, it is clear that Brazil stands at something of a crossroads.
This brief is the first in a series that will examine emerging logistics markets. Next week, the second brief in the series will look at the Asia Pacific region. You can take part in the 2015 edition of the Agility Emerging Markets survey by clicking here. Now in its sixth year, the Agility Emerging Markets Survey collects the opinions of industry leaders and offers those with knowledge of the world’s most dynamic logistics markets the chance to share their insights and inform thought leading debate.
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)