When president-elect Jair Bolsonaro walks up the ramp to the Palácio do Planalto on January 1st, he will be facing more than a polarized Brazil with an underperforming economic recovery. The challenges ahead range from the low quality of public education and the return of once-eradicated diseases, to a lack of infrastructure and decreasing confidence in investments and consumption.

To make sense of the veritable Rubik’s cube which is 2018 Brazil, The Brazilian Report has compiled a comprehensive set of data, charts, and maps that synthesize what Brazil’s next president will inherit once in office.

Demographics

Jair Bolsonaro will rule over 208.5 million citizens, mostly concentrated in big cities. According to IBGE, Brazil’s statistics agency, 57 percent of the country’s population live in just 5.7 percent of its towns. That means 118.9 million people are crammed into just 317 of the country’s 5,570 municipalities.

The distribution of Brazilians across the extent of its territory is even more uneven if one considers that 84.3 percent of the people occupy merely 0.63 percent of the country, according to Embrapa, a public agribusiness research company.

On top of the challenge of balancing policies that will benefit both those living in condensed metropoles and others in small, isolated villages, Brazil’s demographic projections also turn the country into a ticking time bomb. IBGE estimates the country’s population will reach 233 million in 2047 and decrease afterwards.


brazil popularion pyramid


From the economic perspective, this trend means fewer people actively forming part of the labor market and more people retiring and taking a pension. Brazil’s next president will be urged to increase the levels of productivity for the country to take advantage of its young population while it still can. However, the much-awaited pension reform is seen as urgent in the short term.

Fiscal reform

The already high and still increasing level of expenditure on pensions is something that haunts the Ministry of Finance – and basically anyone minimally involved with the country’s economics. Such payments currently account for 11 percent of the country’s Gross Domestic Product (GDP). That alone makes Brazil an outlier.


brazil pension system


In other nations with similar spending levels, the elderly make up between 18 and 26 percent of the total population, while in Brazil, inhabitants over the age of 60 account for only 12 percent. What makes this a catastrophe waiting to happen is that if no reform is passed, as more people get older – and the top of the demographic pyramid gets wider than bottom – these payments will represent 30 percent of the country’s GDP by 2030, according to IMF estimates.

The situation becomes even more critical as Brazil has now a public spending cap which limits any increases to the federal budget for the next 20 years. The scenario is one of a fiscal standoff. The majority of economists argue that “some sort of” adjustment is needed to put Brazil back on track. On the other hand, critics claim that such measures will push the burden onto the country’s poorest segments. However, as the Brazilian Institute for Applied Economics (Ipea) said in one of its reports, finding a balance between revenue and expenses is critical:

A good fiscal regime defines the potential growth of a country. Without balanced public accounts, there is no stable macroeconomic environment capable of stimulating production and investment. Under an uncontrolled fiscal environment, the country drowns in a spiral of excessive public indebtedness, high inflation, and recurring confidence crisis.

Ipea report


Primary expenditure and the spending cap pension reform


With no reform, Ipea projects that the organic growth of the current expenses will make it impossible for not only Mr. Bolsonaro, but also Brazil’s future presidents, to comply with the spending cap approved by Congress in 2016.

This may be one of the main challenges the president-elect will have to address at the very beginning of his administration. If no reform is passed, pensions will represent an increasingly large proportion of public expenditure (as indicated by the growth of the light blue bars above) and squeeze other expenses while exceeding the budget limit.

Consultancy firm Tendências estimates that the next president will have to reduce about BRL 20 million to BRL 30 million in costs every year to comply with the new fiscal legislation in the scenario that a minor pension reform is passed.

Federal budget

Mr. Bolsonaro will take office with around BRL 3.5 trillion at his disposal. That may sound like a lot, but the catch is that the president-elect will have very little say on how to allocate that sum.

Half of that amount is already drained by financial expenses, the payment of foreign and domestic debts, plus interest.

And it gets worse. Of the BRL 1.7 trillion remaining to pay for so-called primary expenses, over 90 percent is dedicated to a bill that the government simply must pay. Fábio Klein, a public finance analyst for Tendências, breaks down the numbers to illustrate Brazil’s budgetary dead-end.

“Spending on pensions and wages of public servants, for instance, adds up to nearly 65 percent of this total,” he says, adding that a wide range of social benefits established by law, the budgets of the Legislative and Judiciary branches, and financial compensations for subsidized credit policies make the sum reach nearly BRL 1.6 trillion. “Barely 10 percent is left for everything else. Investments, therefore, take only a small portion of it, which is likely to decrease in the upcoming years”, Mr. Klein estimates.

Currently, federal investments represent a mere 2.7 percent of Brazil’s BRL 1.7 trillion total budget for primary expenditure – or BRL 44 billion in total. When considering where public money goes, financial expenses take up around 60 percent of resources, and nearly 20 percent goes to the pensions system.


budget


Meanwhile, healthcare and education receive just over 3 percent each, national defense, 2 percent, and areas such as agriculture, transportation, public safety, and science and technology get less than 1 percent each. The data below outlines why this is a problem for everyday Brazilians.

Violence in Brazil

Violence is an epidemic in Brazil. The absolute numbers of violent deaths top those in the more populated India and conflict zones such as Syria, Nigeria, and Afghanistan. When analyzing the rate of violent deaths per 100,000 people, Brazil ranks tenth among all the countries that are not under armed conflict.

5 - Violence World Map

UN data shows that Brazil’s nearly 60,000 murders in 2015, for instance, equals the amounts registered in the U.S., China, Europe, Northern Africa, Japan, Indonesia, Australia, Canada, and New Zealand, combined.

In 2017, the rate of violent deaths exceeded 30 per 100,000 inhabitants. Intentional homicides are by far the main cause, followed by the killing of women (not necessarily femicides) and deaths by police.


violent deaths


Although Brazil’s legislation limits the right to bear arms, this is still a pressing issue. The number of registered guns is reported to be just over 8 million as of 2017. The Small Arms Survey also that the country has about 9,5 million illegal firearms, placing it in the 8th position globally when it comes to the civil ownership of guns. No wonder the country ranks among those where firearms were used in more than half of the violent killings in 2016, according to the Global Violent Deaths report.


% of prisoners not sentenced, per state


The problem is by no means a new concern for Brazilians. Previous administrations have historically failed to prevent the smuggling of arms across its vast land border, which reaches 17,000 kilometers – or 10,500 miles, over five times the length of the US-Mexico border.

From Paraguay and Argentina by land or from Colombia and Bolivia by planes or boats through the Amazon jungle, the smuggled guns generally end up in the hands of organized crime gangs, fueling drug wars in slums across the country.

According to the president of the Federal Police Federation (Fenapef) Luís Boudens, the number of officers patrolling the borders should be three times higher. In an interview to UOL, he argued that there are too many police officers in desk jobs.

Another challenge which the president-elect will have to address regarding public safety is directly linked the gun problem and the resulting violent deaths. The criminals arrested are packed into the country’s overcrowded jails. Brazil’s prison population increased by eight times over the course of 26 years.

As of June 2016, one figure of the federal report sums up the problem: “occupancy rate: 197.4 percent.” That means Brazil has almost twice as many incarcerated individuals than the total capacity of its jails. On top of the current 368,000 existing places, the country would need to make room for an extra 358,000 men and women sentenced to serve time.


incarcerated population


The issue is not only connected to the high level of criminality in the country or the lack of space in prison. The justice system must also take its share of the blame: 40 percent of Brazil’s prison population has yet to have been sentenced. That represents 292,400 prisoners. In the states of Amazonas, Ceara, and Sergipe, the ratio reaches six in every ten. 

Sanitation in Brazil

The budgetary constraints have also had a direct impact on the living conditions of Brazilians outside of jail. Earlier this year, the United Nations Children’s Fund (UNICEF) warned that 60 percent of the country’s children – 32.7 million – live in precarious conditions. Sanitation topped the rankings as the main problem, affecting 13.3 million kids and teenagers.

The lack of proper infrastructure affects people of all ages, though. The existing sewage system reaches only 57 percent of households. This figure, however, can reach as low as 9.4 percent in the Northern state of Pará or 10.7 percent in Piauí, in the Northeast.

Among the five regions in Brazil, the Southeast, the richest and most developed, is the one that ranks best. Still, proper collection of wastewater or sewage is a reality for only 67.9 percent of this supposedly more affluent population.

When it comes to sewage treatment, the situation is even worse: 55 percent of all waste produced is disposed back into the environment without any caution. That translates to 5.2 billion cubic meters per year – almost 6,000 Olympic size pools per day.


sewage and piped water 2


The water supply infrastructure is slightly better, but noteworthy differences among regions remain. The national average indicates that 83.3 percent of Brazilians have access to clean water, with São Paulo leading the ranking at 95.8 percent. In the North region, however, the indicator drops to 55.3 percent, with the state of Amapá at the very bottom of the list, with 35.8 percent of its inhabitants covered by the piped water system.

Healthcare

With such impoverished conditions, it is no surprise that the spread of diseases and the increase the number of avoidable deaths are more likely, especially among children.


life expectancy


Over the past 80 years, Brazil has managed to decrease its child mortality rate from 146 per 1,000 births in 1940 to 14, in 2016. During the same period, life expectancy increased by 30 years, to 75.8 years old. The overall trend shows solid progress.

The year of 2016, however, was the first in decades not to register a drop in child mortality rate. While the chances of a baby dying before one year can be as low as 8.8 per 1,000 births in Espírito Santo, it spiked to 23.2 in Amapá. In fact, in 18 states, the figures are above the national average – all of them in the North and Northeast.


child mortality


Speaking to The Brazilian Report, the Ministry of Health argued that this “does not characterize a significant increase or a change in the trend” and also blamed the epidemic of the zika virus, known for causing brain malformation in fetuses. The spread of the disease would not only be a direct cause of more deaths in 2016 but also led to the postponement of pregnancies and thus indirectly affected the calculation of the child mortality rate.

As the ministry highlights, a series of public services are focused on early childhood care. Brazil’s federal government provides, at no cost, 11 vaccines for children and 19 in general for its citizens, following recommendations by the World Health Organization. A recent challenge, however, has to do with the spread of fake news that links inoculation with autism, for instance.

Of the 14 vaccine campaigns launched by the Ministry of Health in 2017, only the BCG – primarily used to prevent tuberculosis – reached its goal. The vaccine coverage against other diseases ranges between 70 and 85 percent, while the target was 95 percent in most cases. That means that despite providing the resources, the efforts to keep preventable diseases eradicated might fall short. 


vaccination cov


Dengue fever, for instance, a disease against which there are vaccines available, is still responsible for hundreds of deaths in the country. Epidemics of diseases transmitted by the Aedes aegypti mosquito, such as dengue, zika, and chikungunya, have worried Brazilians in previous years.

Until August 25, 2018, the country recorded over 7,000 cases of zika, 72,100 of chikungunya and almost 199,000 of dengue fever. Compared with the same period of 2017, the figures represent decreases of 55, 59 and 4 percent respectively, according to the Ministry of Health. The number of deaths on account of such diseases, despite still being high, has fallen recently.


deaths aedes


Long lines, lack of proper materials and a shortage of professionals are some of the main complaints among those who use Brazil’s public healthcare system. However, the SUS cannot be considered a failure, as The Brazilian Report has discussed.

One of the reasons is its size. Public primary healthcare services cover 98.6 percent of the territory and reach 80 percent of Brazilians – or 157 million people. In 2017, SUS recorded 3.9 billion ambulatory care services, 1.4 billion appointments, 899.6 million exams and 11.6 million hospitalizations throughout the country.

Official data shows that, unlike other socio-economic indicators, virtually all the population of poor states such as Piauí and Paraíba, in the Northeast, are covered by public health services, while in developed but more populated areas such as the Federal District or the state of São Paulo, only about 60 percent of the inhabitants have access to the primary healthcare.


primary healthcare coverage


The same goes for the proportion of public hospital beds out of the total available. While the national average is at 67 percent, it can go as high as 91 percent in Roraima. In fact, the 15 states with the highest ratio of hospital beds covered by the SUS are in the North and Northeast, above 74 percent. Meanwhile, São Paulo, Rio de Janeiro, and the Federal District rank the lowest, at about 55 percent.

Over the past 10 years, the budget of the Ministry of Health increased by almost 50 percent in real terms – that is, considering the inflation of the period. It was not enough to deliver public services at the level Brazil’s tax burden would require, but the social role performed by this universal public healthcare system in such an unequal country is critical.

If he wants to play the book, the future president of Brazil will have to find a balance between providing resources and conditions for this welfare network to keep running amid the fiscal constraints placed upon it. Failing to do so would involve stripping a fundamental right envisioned by the current Constitution.

Education

Brazil is also neglecting its citizens in another pillar of proper citizenship. Education minister Rossieli Soares himself labeled the country’s public system as “failed,” when addressing the performance of Brazilian high school students in a biannual national evaluation taken in 2017.

The grades show his choice of words was correct. On a scale from 0 to 9, the national mean was 2 in both Mathematics and Portuguese exams.

Some 70 percent of those who finished high school were given “insufficient” marks. That reveals that after going to school for 12 years, they cannot read and interpret a simple text or perform basic math operations.

Even more strikingly, only 4 percent demonstrated having proper knowledge on those subjects – or 60,000 out of 1.4 million students. These are teenagers about to go to college and later join the country’s labor force, it must be said.

The data provided by the Ministry of Education shows that in 12 states (out of Brazil’s 27), at least 25 percent of the students were graded zero in the Portuguese exam. The same goes for the Math exam in ten states. Also, insufficient marks added up to 75 percent of the results in 13 states for both tests.

The two charts below illustrate how poorly Brazil is doing when it comes to education. The top bar shows the overall performance and the ones below indicate the breakdown by each state in the Portuguese and Math exams, respectively.


Math proficiency scores

math grades


Portuguese language proficiency scores

portuguese


The shades of red and orange represent the grades 0 to 3 and mean an insufficient mark. The two shades of green and the lighter shade of blue show levels 4 to 6 and display a basic understanding of the subjects. The last three shades of blue indicate an adequate performance, corresponding to levels 7 to 9.

Such detailed results illustrate how big Brazil’s educational challenges are. Beyond this army of poorly educated young professionals, the country still struggles to reduce its number of actual illiterate citizens.

The official rate was estimated at 7 percent in 2017. A closer look, though, sheds light on another historic social issue: the marginalization of black people. While the illiteracy rate within the white population is at 4 percent, it spikes to 10.8 percent among blacks, according to IBGE figures.

A geographic approach also throws up astonishing differences. The cities where over 30 percent of the population cannot read are concentrated only in the Northeast and the far west of the North region, as the map below shows.

15 - Map Illiteracy Rate

The Brazilian Report has already discussed how education plays a key role in Brazil’s staggering inequality, and how the racial disparity in the educational system affects the chances of black people in the labor market. We have also tackled how the low levels of literacy affect the local publishing market and this is directly linked to how Brazilians are used to consuming information.

Telecommunications / Sources of information

When it comes to electronic goods, TV still reigns supreme in the country. It inhabits virtually every household (97.2 percent), according to IBGE data from 2016. Landline phones (94.6 percent) are still more common than mobiles (77.1 percent), despite the boom of the latter in recent years. Also on the rise, the internet (69.3 percent) has already more penetration in Brazilian homes than computers themselves (45.3 percent).

Among those who surf the web, 94.6 percent use cell phones to do so. The penetration of such devices, however, is yet another aspect that evidences the geographical disparities in Brazil.

Of the population over the age of 10, more than 80 percent have a cell phone in the states of the South, Southeast and Center-West regions. The percentage among the North and Northeast population ranges from 57 percent to 76 percent, as the chart below shows.


cell phone coverage


In this matter, the national average was 77.1 percent – 80.9 percent among the urban population and 54.3 percent in the rural areas.

This outlook helps to understand how locals inform themselves. And the numbers corroborate a long-lasting scenario: the prevalence of electronic media over traditional, analogical means of information in Brazil.


source of information


The profile of readers and viewers is starkly different. While the typical newspaper reader has obtained at least a bachelor’s degree, lives in large cities and earns more than five times the minimum wage, TV is mostly watched in the Northeast and by people with little or no education.

Among the latter group, 77 percent reported doing so daily, for three to four hours on average, according to the latest version of the Brazilian Media Survey, released by the federal government in 2016.

Employment and income

The lack of quality education also affects productivity levels, potential earnings, and the conditions to face one of the worst crises in the country’s history. The recession of 2015 and 2016 delivered a major blow to the local labor market, which is only now starting to recover.

The first quarter of 2018 apart, unemployment has been steadily decreasing since it peaked at 13.7 percent in the first three months of 2017. The latest data shows the rate at 12.3 percent and 12.9 million jobless people between May and July 2018.

Combining those who are unemployed with employees willing to take longer shifts, there are 27,5 million workers somehow affected by Brazil’s economic downturn. So why is there still a drop in unemployment rates? The answer has to do with the increase of discouragement.

After looking for a job for a long time, some people just give up. They may start working on their own – and 23,1 million Brazilians are doing so now – or wait a couple of months until the economy improves. When doing that, they go off the radar of the statistics agency. Excluded from the calculations, they help the official rate to fall even if there are no new jobs available in the real economy.

Currently, there are 4.8 million discouraged laborers in the country – a peak in the six years the data has been tracked. The figure is also more than three times larger than the record low of 1.5 million, recorded in 2014, just before the economic crisis hit Brazil.

Underemployment is another big issue. Workers with no formal jobs total 11 million. Combined with the 23 million working on their own, they outnumber the 32.9 million employees hired under the country’s labor legislation, known as CLT.


employment


In other words, vulnerability is on the rise. Fewer employees have stable jobs and more people are making less money. The sum of wages of formal employees totaled BRL 100,25 billion as of April 2018. That represents a decrease of 7.3 percent in a year – or BRL 8 billion less per month circulating in the economy, according to a monthly survey by Fipe, the Institute of Economic Research Foundation, linked to the University of São Paulo.

Meanwhile, data collected by IBGE shows the mass income of Brazilian workers has remained relatively stable over the past year. That means that the overall situation has not got even worse as breadwinners are finding alternative ways to provide for their families.

This scenario, however, is alarming for president-elect Mr. Bolsonaro. Poorer labor conditions can easily lead to generalized dissatisfaction among the population, which could potentially translate to less patience for the results from the federal administration. Since the economy has a strong correlation with presidential approval ratings, its effects on people’s lives is a key aspect to keep an eye on.

Also, as household expenditure accounts for nearly two-thirds of the Brazilian economy, the echoes such circumstances will produce in the real economy will also be on the top of the list of presidential concerns come January 1st.

Retail

Although the recession is officially over, the economic recovery has been weaker and slower than anticipated. GDP grew by only 0.2 percent in the second quarter of 2018, after even shier results in the previous six months. In short, Mr. Bolsonaro will face an idling economy. He will have to provide clear signs about his plans to boost activity, consumption and the confidence of Brazilians even before taking office in order to get the country’s engines in motion soon.

Retail, for instance, is doing better than in the past two years. But the sales have not reached the pre-crisis level yet. According to IBGE, the volume of transactions recorded in the first semester of 2018 is comparable to 2012 levels. The sector has not been able to regain the increments recorded through 2013 and 2014 yet. 


retail sales


The languishing scenario has a direct effect on the sentiment of retail entrepreneurs. They are less optimistic about the performance of their companies, their specific sector and the national economy in general, as shown by a monthly study by the National Confederation of Commerce (CNC). The sector confidence index has gone back to levels of a year ago after a significant improvement had been registered. That means there will be less investment and fewer hirings ahead. 


20 - Line chart - Retail Confidence Index


Businessmen will now wait for the first key signs from the new president. The transition period and the assembly of the next cabinet will be decisive to determine if and how fast the mood among entrepreneurs will improve.

Industry

In regards to the Brazilian industry, the scenario is a bit different. Its businesses were among the first to be hit by the economic crisis. Not by coincidence, they have been the first ones to show signs of recovery.

In the 12 months before June, sales were up by 5 percent, and physical production was growing by 3.5 percent. But by no means can the scenario be considered positive. “Recovery is still partial,” as the National Confederation of Industry (CNI) puts it.

In August, the sector’s confidence index retreated to the “contraction level” for the first time in 2018, according to Fundação Getulio Vargas, Brazil’s leading think tank. “The lack of good news and results, the high level of uncertainty due to local and foreign matters, make the recovery of the confidence further in time,” it reports. For now, the sector’s labor market is bleak. The number of blue collar jobs and their payroll have declined recently.

21 - Image - Industrial Indicators

Brazilian industry has been losing its importance in the economy for decades now. It currently accounts for only one-fifth of the country’s GDP and nearly a third of its exports.


22 - Line chart Industry GDP


22.1 - Line chart Industry Trade


Its importance for the local economy also pales in comparison with other emerging markets.


industry


The deindustrialization process that shrinks the relative size of the Brazilian industry is partially to do with the thriving of agribusiness due to the commodities boom. The problem is that the country is becoming more and more dependent on the international prices of oil, iron ore and soybeans, for instance – and less in control of its future.

At the same time, Brazil has not increased its production of manufactured goods nor invested more in technology, research & development nor in cutting-edge technologies that could boost the country’s productivity at a faster pace. Brazil also trails many other countries in this matter:


r&d


Thus, the next president has two fronts to tackle. On top of short-term measures to improve production and employment, long-term bottlenecks will have to be addressed for the country to draw near its potential growth.

Infrastructure

The Brazilian Report has already discussed the many factors that impair local productivity, increase production costs and push prices up – in a country where the minimum wage is BRL 954 per month, around USD 230. To narrow down the issues, let’s focus on infrastructure. The matter is often cited as one of the main bottlenecks – especially the country’s high dependence on roads.

To illustrate the current situation in the country,, Brazil has 1.5 million kilometers of roads and just 30,600 kilometers of railways and 21,000 kilometers of waterways. The latter two means of transportation account for 0.003 percent of the total extension transport infrastructure combined. The gap is still huge even when taking only federal roads into account, which add up to 76,616 kilometers (or about 5 percent of the total). The maps below illustrate the striking differences, even considering only federal highways.



For Jair Bolsonaro, however, the extension of the means of transportation is not the only problem. The quality of the infrastructure itself is another big issue. According to the World Economic Forum’s (WEF), Brazil ranks 73rd out of 137 countries in terms of infrastructure. Considering the condition of roads alone, it falls to 103rd place.

And it will be hard to change that situation in the foreseeable future. Federal investments in transport infrastructure have been steadily falling since 2014. The amount of resources destined to this end decreased by 9.3 percent between 2016 and 2017. When one considers what has actually been spent, the drop is even sharper: 16.2 percent, from BRL 18.5 billion to BRL 15.5 billion. 


26 - Bar chart Transport Investment


That has a cascade effect that curbs the potential development of the economy. According to Ipea, the amount of public investment in transport results in an 11 times higher increase in the country’s GDP in the long-run. “As many governmental plans estimate the need to invest more than BRL 100 billion in transport infrastructure, there would be a potential increase of about BRL 1.1 trillion to the economy throughout the years or 17 percent of the 2016 GDP,” the institute reports.  

With little room in its budget to increase investments, the next president will need to reach out to the private sector. Ipea mentions the PPPs (Public-Private-Partnerships) as a natural solution. And there will be a lot to decide on.

President Michel Temer will leave more than 50 projects of privatization for the next administration, G1 reports. Finding the right balance between the needs of the country and conditions that are attractive enough have been a puzzling riddle past presidents failed have failed to answer, however.

Agribusiness

This year, Brazil is set to produce 228.3 million tons of grain. Despite the impressive figure, it represents a decrease of 3.9 percent in comparison with the record level registered the previous year, according to the National Company of Supply (Conab).

Regardless of this year’s blip, Brazilian agribusiness has outperformed over the past decade. The consecutive investments in technology enabled the country to optimize the use of its resources. The chart below focuses only on the productivity gains of soybeans but successfully illustrates the wider trend.


27 - Line chart - Soybeans productivity


From the 2003/04 harvest until the current one, the entire grain production grew by 48 percent, almost twice as much as the expansion of the area used for agriculture in the country. That represents roughly a 45 percent increase in productivity over the course of 14 years.

Brazil’s agriculture activity is spread all over its territory, including high-tech farms, but also small family-run properties which account for 70 percent of the beans and nearly 40 percent of coffee production, for instance.



Over the second half of the past century, Brazil experienced an intense expansion of its grain-producing area, mainly from the South to the Center-West region. Currently, the new agricultural frontier is called MATOPIBA, an acronym for the northeastern states of Maranhão, Tocantins, Piauí, and Bahia.

As arable land expands, environmental issues arise. Deforestation concerns, which has always kept the Amazon Forest on the international spotlight, now engulf the Cerrado vegetation as well. President-elect Jair Bolsonaro will have to balance these worries with a strong rural caucus in Congress. Just this year, it succeeded in passing a controversial bill loosening the control over the use of pesticide in the country.

Landowners have always been able to push for their own interests within the political class in Brazil. That is because some of them are actual members of the Congress and also due to the financing of a wide array of politicians. But also because agribusiness is a key component of the Brazilian economy, and has assumed a central role in the political sphere, especially during the recent crisis.

When analyzing detailed GDP data during 2015 and 2016, some local economists resorted to a hack Brazilian saying, stating that agribusiness was “saving the harvest.” Normally employed to refer to something that is doing well amid other underperforming counterparts, the pun was seemingly irresistible because in this specific case it was actually the crop production that was preventing the economy to have an even worse performance.

Creativity apart, they were right. While industry, commerce, and construction plunged deeply into recession, the numbers coming from cropping fields and meatpacking plants were quite impressive and represented a relief to the widespread, sharp downturn. Although it also dropped in 2016, the agribusiness growth rate spiked to 13 percent in 2017, while the overall GDP stagnated at 1 percent.


economic performance


The good performance also poured out to other sectors of the economy. Since most of food production is oriented towards exportation, there is a strong correlation between agribusiness and foreign trade.

Trade

According to government data, 37.6 percent of 2017 exports were non-industrialized products – 18 percent came from agriculture and cattle raising related goods alone. On the other hand, 60.3 percent of imports were medium and high technology goods. Essentially, regardless of investments in technology Brazil is still a commodities exporter and a manufactured goods importer – as it has always been. This logic is the cause and consequence of the strong agribusiness/weak industry dynamics discussed before.

Back in 2009, China surpassed the U.S. as Brazil’s main trade partner. Last year, it bought USD 47.4 billion in goods from Brazil, while the Americans imported USD 26.8 billion. That places China as the destination of 21.8 percent of Brazilian exports, nearly twice as much as the 12.3 percent share held by the U.S.


trading partners


Intriguingly, China is both the destination of most non-industrial exports and by far the main origin of high-tech imports. The colorful maps below shows the different countries Brazil trades with in order, regardless of the volume of commerce. But when considering the amount of dollars involved in the transaction, the sums negotiated between Brasília and Beijing literally makes all other countries pale in comparison, as the less colorful maps below highlight.



Alongside agribusiness, foreign trade has also made positive contributions to the Brazilian economy over the recent recession. That is because GDP calculations take into account the difference between the total exported and the amount imported: the larger the gap, the bigger the contribution for the economy.

On one side, there were depressed levels of consumption – for either national goods, but for imports as well. On the other, the depreciation of the Brazilian real made local products cheaper for foreign buyers. This recipe catapulted foreign trade to the position of an assured relief in times of economic depression. As economists used to say, it was good news, but not for good reasons.


exports and imports


Brazilian economist Paulo Gala observes, however, that counting on agribusiness and foreign trade was not enough. “It is noteworthy that agriculture and cattle raising, the extractive industry remained strong throughout all this period [of the recession]; exports too. And the impact on the GDP was null,” he argues, pointing out that the Brazilian economy still dropped 3.5 percent for two consecutive years.

The CEO of FAR Asset Management, linked to Fator investment bank, poses that commodities and the agribusiness represent very little of Brazil’s total economy and therefore “they are incapable of saving us.”

What should be done?

Given this overall scenario, no matter from which perspective Brazil’s reality is looked at, there seem to be endless challenges for the future president.

With a huge need for investments and a progressively tighter budget, addressing Brazil’s intrinsic problems must involve improving the quality of the public expenditure. Doing more with less, as it is commonly said.

In November 2017, the World Bank published a report tackling these issues. Calling for a fiscal adjustment aimed at efficiency and equity of public spending, the opening line of the document summed up the problem: “Brazil spends a lot more than the country can afford and on top of this spends poorly.”

Among the recommended measures were the reduction of inefficiencies within the public administration and the elimination of privileges, especially for civil servants, while keeping in mind that rural and social pensions, for instance, should be treated as social programs – “and reformed accordingly.”

The report concludes that the country could save at least 7 percent of GDP by 2026 if, among other things, it passed a pension reform, reduced the wage bill of federal public servants, optimized its social assistance and labor market programs, limited the use of subsidized credit and improved efficiency in health and education

The study is from 2017, but it could be from any point in the past 20 years or so. An alternative conclusion could be that Brazil has stopped in time.

Four years ago, then Finance Minister Joaquim Levy was about to start his failed crusade for fiscal reform and the improvement of public spending. A tax reform has been waiting years to be voted on. The three presidents that preceded Temer made small changes to the pension system, but none was capable of gathering enough political support to solve the problem in a definitive manner. Brazil is still discussing these very same topics.

This entangled web of economic limitations, social imbalances, and political division are what Mr. Bolsonaro has inherited. Although he will only walk up the ramp to the presidential palace on January 1, the demand for proposals and solutions will not wait that long. The clock is already ticking and now it is time to know how he effectively plans to lead the country for the next four years.

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BY Mario Braga

Braga is a journalist from São Paulo. He is an Erasmus Mundus Journalism scholar pursuing his Master’s degree at Aarhus University (Denmark) and at the London’s City University.