Tim Harcourt | The Airport Economist

For most of our respective histories, Australians have typically ignored Brazil. That was partly down to the tyranny of distance, as the two great southern lands were so far away from each other that it was a case of “out of sight, out of mind”. Our colonial ties were very different too. Australia looked to the British Empire and Brazil to the crumbling Portuguese ; our legacy was transportation theirs was slavery;  and while Australia looked to London, Brazil looked to Lisbon. Brazil, with political instability and economic crisis, seemed like a place with too many problems that was best to keep away from (except at carnival time).    More recently, the sheer importance of our bilateral economic relationship with China sometimes seemed to leave little room to consider other emerging markets.

But times are changing and the rise of the new Brazil has seen many international delegations flying down to Rio, (and Sao Paulo, Brasilia, Belo Horizonte, Porto Alegre and the rest of Brazil’s burgeoning metropolises) to seek stronger economic ties with Brazil. Brazil is being overrun by international business diplomatic delegations from the US, Canada, Germany, Japan, China and increasing the emerging powers of Asia, the Middle East and Africa too.

Although we are hardly a first move, Australia has now joined the pack with significant investment in Brazil by Pacific Hydro, Westfield, and major resource, agribusiness and infrastructure playMedia previewers. The Australian Government has also redirected resources to Brazil and Austrade has made a strong push to strengthen ties with Brazil when the spotlight hits the country with the FIFA World Cup in 2014 and the Rio Olympic Games in 2016 with its highly respected Business Club Australia programme.

So why all this attention on Brazil?  As we highlight in a new report, there are several good reasons for Australians to pay more attention to this other great southern land.

It’s economic.  Brazil is already a major global economy. Brazil is the world’s fifth largest country by population and the seventh (on a purchasing power parity ppp basis) or sixth (on a US dollar basis) largest country in the world, accounting for between 3 and 3  ½  per cent of world output (depending on how GDP is measured). As an agricultural, mining and aviation exporter, it’s a food aerospace, resources  and energy superpower with Petrobras, Vale, Embaer, JBS Beef and Ambev some of the world’s most influential multinationals and investors.  Granted, Brazil’s recent economic performance has disappointed.  Growth last year slumped to less than one per cent and policymakers must now manage a complex macro environment.  But key fundamentals, including sheer size and vast ecological wealth, keep Brazil firmly in the ‘too big to ignore’ camp. 

It’s diplomatic. As a member of the BRICSA grouping (Brazil, Russia, India, China and South Africa), Brazil is playing an important role in international affairs as we have seen in the World Trade Organisation (WTO) and G20 multilateral fora.  Brazil has undertaken a charm offensive in the developing world under the ‘South-South banner’. Under President Luiz Inacio ‘Lula’ da Silva, Brazil opened up 53 new embassies in Africa and has expanded its sphere of influence across the globe.  The diplomatic initiatives have continued under President Dilma Rousseff: A Brazilian will be the next head of the WTO.

It’s because of China. Australia now faces a resources rival in Asia. We saw at the height of the global financial crisis (GFC) that Australia and Brazil were the two largest beneficiaries of the Chinese stimulus package, as Brazil and Australia’s resources and energy stoke China’s rapid urbanisation and industrialisation.

It’s because of shared challenges.  Like Australia, Brazil has had to manage the complexities of the current resource boom, the challenges of Chinese investment into sensitive resource sectors, and the side-effects on its exchange rate from quantitative easing and the so-called currency wars. 

None of this is to deny that there are risks to Brazil’s outlook. Our co-author Patrick Carvalho, who outlines Brazil’s recent macroeconomic achievements, has also warned of: “Weak infrastructure, inefficient bureaucracy and tax system, expensive and unfair pension system and despite some recent improvement, high crime rates.”  As he reminds us, “economic development is a marathon not a sprint” And Brazil is still some distance from the finish line.

However, for all of these challenges, as the world’s 6th largest economy, Brazil is an important player, and like with the Girl from Ipanema, it’s now Australia’s turn to do the wooing.

A shorter version of this blog post was previously published in The Australian Financial Review.

Tim Harcourt is the JW Nevile Fellow in Economics and an adjunct professor in International Business Strategy, at the Australian School of Business, the University of New South Wales (UNSW) & author of The Airport Economist:  www.theairporteconomist.com.

 Tim Harcourt and Mark Thirlwell are the co authors, along with Fernando Cardim and Patrick Carvalho, of Great Southern Lands: Building ties between Australian and Brazil, a report by the Lowy Institute & COALAR.