How and Why to Invest in Brazil
Brazil is a country in transition. It is the eighth-largest economy in the world, with a GDP of $1.868 trillion, but it continues to climb back from a devastating recession that was fueled by political uncertainty, high unemployment rates, and inflation. After being elected in 2018, President Jair Bolsonaro made pension reform a priority, but in 2019, consulting firm Kearney removed Brazil from its list of 25 most reliable countries for foreign investment—a list it had been on since its inception in 1998.
In 2015 and 2016, during the peak of its recession, investments in Brazil had dropped by 13.9% and 12.1%, respectively. Investor enthusiasm has since improved, and in
2018, investments increased 4.1% into the country.
Like most emerging markets, investing in Brazil involves a trade-off between risk and reward because political instability and commodity-dependence make it riskier than developed markets. International investors know Brazil best for its rich natural resources. Their number one export is soybeans, and they account for 12% of all the country's exports, totaling $25.9 billion. In addition to its extensive offshore oil fields, the country is the second-largest producer of iron ore in the world, exporting $20.1 billion, and produces more ethanol than Asia and Europe combined.
These resources help it cheaply produce a wide variety of industrial and consumer goods while serving as a key raw material supplier to countries like China, the U.S., and Argentina, which are its top three export destinations. China leads the way receiving $48 billion worth of Brazil exports, while the U.S. and Argentina are distant contenders at $25.1 billion and $17.8 billion, respectively.
The country also has a relatively stable economy. After taking steps toward fiscal stability and liberalizing its economy in the 1990s, Brazil has become a top-tier economy with a growing technology sector and an inward focus that should reduce commodity dependence.
Investing in Brazil is as attractive as ever. Markets are looking for a momentum shift. Brazil’s been a runaway train. It’s time to put on the brakes. But that will not last forever. Nor will the coronavirus, as bad as it is in Brazil.