Between 2011 and 2020, Brazil’s GDP registered an average annual growth of a mere 0.27% – a sad figure for a developed state
Not too long ago, Brazil was the darling of global investors. After registering red-hot growth rates in the 2000s, the country was made a part of the BRICS as one of the economies of the future. Fast forward to today- the country has barely grown in the last ten years; a quarter of its workforce is still underemployed, with almost 13.4 million Brazilians out of work. Something has gone seriously wrong in Brazil’s economy, turning it from a poster child to a global laggard.
Brazil’s economy is grappling with a severe crisis, no doubt. The past decade has unfolded as yet another “lost decade” for the nation, reminiscent of the one in the 1980s. In fact, this recent decade has proven to be the worst of the past 120 years. Over the course of the last ten years, Brazil has faced two major economic downturns. The first recession occurred from 2014 to 2016, followed by another that began in 2020. Regrettably, there appears to be no clear resolution in sight.
The situation is way worse than it seems
Between 2011 and 2020, Brazil’s GDP registered an average annual growth of a mere 0.27% – a sad figure for a developed state, let alone a supposedly vibrant, developing one like Brazil. In comparison, during the earlier “lost decade” (1981–90), the average annual growth was six times higher at 1.57%. Moreover, in the period 1981 to 1990, GDP per capita saw a decline of 0.4%, compared to a steeper drop of 0.56% from 2011-2020. New data from 2020 underscores the country’s economic struggles, with its GDP now standing 6.4% below the 2014 level and GDP per capita having contracted by 10.8%.
Furthermore, Brazil is undergoing a rapid process of deindustrialisation, marked by a sharp decline in its manufacturing sector. During its zenith in 1985, manufacturing contributed 36% to the country’s GDP. However, in the aftermath of the challenges of the previous decade, industrial production has plummeted by 12.4% compared to the levels observed in 2011. As of 2020, a mere 11.3% of Brazil’s GDP comes from manufacturing.
This figure is lower than levels seen over the past seventy years, showing just how much the country’s economy has moved away from manufacturing. The proportion of high and medium-high technology within Brazil’s exports has also regressed, declining from 43% in 2000 to 32% in 2019, being the lowest level recorded since 1995. These statistics paint a picture of an economy where the industrial sector is mired in low technological investment and products with limited value addition.
Public finances aren’t doing so great, either. The country has one of the largest debt burdens among developing countries at almost 80%, and with a deficit of over 4.60%, its public debt will soon be larger than its economy at current trends. Profligate spending on social welfare schemes is a major reason, but the country has also been mired in massive graft and corruption, with the high-profile ‘Lava Jato’ scandal being emblematic of a much more pervasive problem.
What went wrong?
A number of factors have combined to deal with Brazil’s economy with a losing hand. The country’s massive growth in the 2000s was based in large part on sky-high global commodity prices. An exploding Chinese economy was gobbling up the global supply of commodities such as soybeans, iron ore, and energy, and Brazil’s economy benefited greatly from this period of high demand. However, while some infrastructure was built, the gains from this period seem to have been mostly squandered.
Instead of using the windfall to raise the country’s growth trajectory and invest in education, infrastructure, technology and industrialisation as a means to move up the value chain, the government mostly spent huge sums on social welfare schemes providing monthly payments to the poor. While these schemes have no doubt had a positive impact on people’s welfare and greatly reduced human suffering, they proved to be unsustainable in the long run, as the global commodities bubble burst, and the state has been running itself ever deeper into deficit since.
Nor did these schemes go far enough in the first place. While they had a positive immediate impact, they seem to have failed to generate enough human capital to pivot Brazil’s economy to higher value-added sectors and, instead, provided an impetus for wages and productivity to remain low. Brazil’s household consumption is now stalling as families tighten their belts, and productivity has also dropped by most estimates.
Political instability has also been a major pain point. The country’s pervasive political corruption reached a head with the Lava Jato graft scandal, which helped bring in the government of Jair Bolsonaro with its neoliberal agenda and pro-austerity stance. Recently, that government was also removed amidst a whirlwind of controversy, and current President Lula has vowed a reversal of Bolsonaro’s policies and a leftist revival.
While these policies may turn out to be good for Brazil long term, the country can ill afford these see-saws in policy positions at a time when crime rates are skyrocketing, more and more Brazilians are being pushed into poverty and hunger, the economy has rapidly become over-reliant on agriculture and financialisation at the cost of all other sectors, and global demand for Brazil’s primary exports is struggling.
What the country needs most is a strong and assertive central government which collaborates with local bodies to provide good urban services, a national infrastructure grid both to generate employment and connectivity, a strong push for education and skill development, and an industrial policy to help the country move up the value chain.
Brazil does not lack skilled labour, with two of its most notable successes being aviation manufacturer Embraer and its advances in agrotech. However, it needs to scale its institutions up massively to meet its potential, all while keeping public debts in check. That’s a tall order for any government, but Lula has shown his mettle in the past, and the fate of millions of Brazilians depends on him being able to deliver once again.