103021052 brazil competitiveness report 2009

The Brazil CompetitivenessReport 2009

Irene Mia, World Economic Forum

Emilio Lozoya Austin, World Economic Forum

Carlos Arruda, Fundação Dom Cabral

Marina Silva Araújo, Fundação Dom Cabral

Editors

The Brazil Competitiveness Report 2009 © 2009 World Economic Forum

The Brazil Competitiveness Report 2009is published by the World Economic Forum withinthe framework of the Global CompetitivenessNetwork. The Brazil Competitiveness Report 2009 is the result of a collaboration between the WorldEconomic Forum and Fundação Dom Cabral.

Professor Klaus Schwab,Executive Chairman, World Economic Forum

EDITORS

Irene Mia, Director and Senior Economist, WorldEconomic Forum

Emilio Lozoya Austin, Director and Head of LatinAmerica, World Economic Forum

Carlos Arruda, Professor of Innovation andCompetitiveness, Fundação Dom Cabral

Marina Silva Araújo, Economist, Fundação Dom Cabral

GLOBAL COMPETITIVENESS NETWORK

Jennifer Blanke, Director, Senior Economist,Head of the Global Competitiveness Network

Ciara Browne, Senior Community ManagerAgustina Ciocia, Community ManagerMargareta Drzeniek Hanouz, Director

and Senior EconomistThierry Geiger, Economist, Global

Leadership FellowPearl Samandari, Team CoordinatorEva Trujillo Herrera, Research Assistant

THE REGIONAL AGENDA TEAM, LATIN AMERICA

Arturo Franco, Community Manager, GlobalLeadership fellow, Latin America

Antonio Human, Community Relations Manager,Latin America

Nathalie de Preux, Senior Community RelationsManager, Latin America

A special thank you to Hope Steele for her superbediting work and Pearl Jusem for her excellentgraphic design and layout.

The terms country and nation as used in this reportdo not in all cases refer to a territorial entity that is astate as understood by international law and practice.The terms cover well-defined, geographically self-contained economic areas that may not be states butfor which statistical data are maintained on a sepa-rate and independent basis.

World Economic ForumGeneva

Copyright © 2009by the World Economic Forum and Fundação Dom Cabral

All rights reserved. No part of this publication can be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, or otherwise without the prior permission of the World Economic Forum.

ISBN-13: 978-92-95044-20-3ISBN-10: 92-95044-20-7

This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources.

Printed and bound in Switzerland bySRO-Kunding, Geneva.


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Contents

Preface ...........................................................................vby Klaus Schwab, World Economic Forum

Executive Summary ........................................................viiby Irene Mia and Emilio Lozoya Austin, World EconomicForum; and Carlos Arruda and Marina Silva Araújo, FundaçãoDom Cabral, Brazil

Part 1: An Assessment of Brazil’s Competitiveness............................................................1

1.1 An Appraisal of Brazil’s Competitiveness Landscape: Insight from the Global Competitiveness Index 2008–2009...............................3by Irene Mia and Emilio Lozoya Austin, World EconomicForum; and Carlos Arruda and Marina Silva Araújo,Fundação Dom Cabral, Brazil

Part 2: Overcoming Competitiveness Gaps .................29

2.1 Infrastructure: Will PAC Really Accelerate Growth? .................................................................31by Paulo Resende, Fundação Dom Cabral, Brazil ..............

2.2 Challenges and Institutional Changes to Promote Brazil’s Competitiveness .............................41by Claudia Costin, Municipality of Rio de Janeiro, Brazil

Part 3: Taking Advantage of CompetitivenessOpportunities...............................................................49

3.1 Sustainability and Competitive Advantage.................51by Jacques Marcovitch, University of São Paulo, Brazil

3.2 Leveraging Brazil’s Business Environment for Increased Competitiveness .................................59by Pablo Haberer and Nicola Calicchio, McKinsey &Company, Inc., Brazil

3.3 Assessing the Performance and Potential of Brazil as a Foreign Direct Investment Destination .............................................................75by Fabrice Hatem and Anne Miroux, UNCTAD

3.4 Agribusiness: Innovation and Competitiveness in Brazil.........................................87by Elísio Contini and Francisco Reifschneider, Embrapa, Brazil

Part 4: Country Profiles ...............................................97

How Country Profiles Work ...................................................99

List of Countries...................................................................103

Country Profiles....................................................................104

About the Authors .........................................................139


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Preface Pref

ace

The Brazil Competitiveness Report 2009 is being publishedat an important moment for Brazil, given the challengesto the national competitiveness agenda brought aboutby the current global economic downturn. Against thedaunting background of what is probably the most seri-ous economic crisis in decades for the United States andthe rest of the world, it becomes even more urgent forBrazil’s public and private sectors to address together theweaknesses in the country’s competitive environment,while at the same time dealing with the negative impli-cations of the global economic outlook. All relevantnational stakeholders need, more than ever, to unite inthe definition and implementation of a comprehensivecompetitiveness strategy that is able to ensure sustainedeconomic growth and prosperity for the benefit of allBrazilians for many years to come.

The last two decades have been a period of impor-tant progress for the country in consolidating macroeco-nomic stability, liberalizing and opening the economy,and reducing income inequality, among other dimen-sions. This has put the economy on a sounder founda-tion in terms of sustainable, long-term growth.Nevertheless, a number of shortcomings continue toundermine national competitiveness. These include highlevels of government indebtedness, an overly rigid labormarket, and poor educational standards coupled with anenduring inequitable income distribution and low levelsof citizens’ trust in politicians despite the manyimprovements that have been made. It is a tough call forBrazil’s institutions to tackle these shortcomings in thepresent context of major external shocks on exportdemand and financing availability along with fallingcommodity prices.

The Brazil Competitiveness Report 2009 builds on themethodology and findings of the World EconomicForum’s Global Competitiveness Report 2008–2009 andintends to further the understanding of the main com-petitiveness challenges ahead for Brazil. Moreover,thoughtful essays on specific issues of competitivenesswritten by leading scholars and practitioners are featuredin Parts 2 and 3 of this Report, providing more detailedinsight into the challenges and opportunities of Brazil’scompetitiveness landscape.

The Report provides a unique platform for discussionand a valuable tool for policymakers, business strategists,and other stakeholders to use in identifying the mainhurdles to growth and designing best policies and prac-

tices to foster competitiveness. We hope the Report willprovide support for any discussion on Brazil’s competi-tiveness aimed at generating concrete insight and priori-ties for action.

We would like to express our gratitude to the distin-guished experts and scholars who have contributedexcellent papers to the Report, casting light on differentaspects key to enhancing Brazil’s competitiveness. Weespecially wish to thank the editors of the Report, CarlosArruda and Marina Silva Araújo at Fundação DomCabral, Brazil and Irene Mia and Emilio Lozoya Austinat the World Economic Forum, for their leadership andcommitment. Appreciation also goes to the other mem-bers of the Global Competitiveness Network: JenniferBlanke, Ciara Browne, Agustina Ciocia, MargaretaDrzeniek Hanouz, Thierry Geiger, Eva Trujillo Herrera,and Pearl Samandari. Last but not least, we would like toconvey our sincere gratitude to the network of 150Partner Institutes around the world and to all the busi-ness executives who participated in our ExecutiveOpinion Survey, without whose valuable input thepreparation of this Report would not have been possible.

KLAUS SCHWAB

Executive Chairman, World Economic Forum


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Executive SummaryIRENE MIA,World Economic Forum

EMILIO LOZOYA AUSTIN,World Economic Forum

CARLOS ARRUDA, Fundação Dom Cabral, Brazil

MARINA SILVA ARAÚJO, Fundação Dom Cabral, Brazil

With its extensive and growing domestic market, richnatural resources, and diversified industry and exportstructure, Brazil is increasingly becoming a key player inthe global economic and geopolitical landscape.Moreover, since the 1990s, important steps have beentaken toward improving fiscal sustainability as well asliberalizing and opening up the economy and reducingpoverty and income inequality. This has put the countryin a stronger position to weather the current global eco-nomic turbulence and the related major external shocksin both export demand and financing as well as fallingcommodity prices.

However, a number of shortcomings continue toaffect Brazil’s competitiveness landscape and prevent thecountry from fully leveraging its large potential and real-izing higher growth and prosperity. Important imbalancesare still present in the macroeconomic environment, nodoubt caused by the challenges to achieving a promptfiscal adjustment brought about by large unmet socialneeds, as well as by widespread rigidities in the tax sys-tem, regulatory system, and goods and labor markets,among other factors. Moreover, despite the government’sgreater focus on education in recent years, the countryhas failed to upgrade its basic and higher educationalstandards to the level of best practices. Also a large part ofthe population has not been lifted out of poverty, and thecountry continues to display one of the most unequalincome distributions in the world.

The Brazil Competitiveness Report 2009 providesBrazil’s policymakers, business leaders, and relevantstakeholders with a unique instrument in identifying the country’s main competitiveness flaws and strengths,together with in-depth analyses on areas crucial forlong-term economic growth. In doing so, the Reportaims to support national stakeholders in defining anational competitiveness agenda by identifying the priority issues that need to be tackled for Brazil to boostits competitiveness in the context of the current chal-lenging economic outlook.The Report is organized into four thematic parts.

Part 1 gauges the current state of Brazil’s competitive-ness and its potential for sustained growth using thebroad methodological framework offered by the GlobalCompetitiveness Index (GCI) 2008–2009. Parts 2 and 3feature contributions from a number of experts provid-ing additional insights on key challenges and opportuni-ties related to Brazil’s competitiveness. Part 4 includes

detailed profiles for Brazil and eight selected comparatorcountries, offering a comprehensive competitivenesssnapshot for each of these countries.

Part 1: An assessment of Brazil’s competitivenessIn Chapter 1.1, “An Appraisal of Brazil’s Competitive-ness Landscape: Insight from the Global CompetitivenessIndex 2008–2009,” editors Irene Mia and Emilio LozoyaAustin (both at the World Economic Forum) and CarlosArruda and Marina Silva Araújo (both at Fundação DomCabral, Brazil) provide an account of the main impedi-ments and opportunities related to Brazil’s competitive-ness. The chapter is based on the findings of the mostrecent GCI, featured in The Global Competitiveness Report2008–2009. To properly benchmark Brazil’s progress andchallenges, comparisons are made with selected relevantnational and regional comparators. The GCI provides astate-of-the-art methodological framework to assess “theset of institutions, policies, and factors that determine thelevel of productivity of a country” and identifies a largenumber of macro- and microeconomic drivers of growtharound 12 pillars of competitiveness. These pillars alldrive national competitiveness, but their importance differs according to any given country’s stage of develop-ment. The elements driving productivity, and thereforecompetitiveness, change as countries move along thedevelopment path. Accordingly, the GCI classifies countries into three specific stages of development: factor-driven, efficiency-driven, and innovation-driven. Brazil is currently placed in the efficiency-driven stage, togetherwith regional neighbors Argentina, Colombia, and Peru,and other relevant comparators such as South Africa and Thailand.Brazil is ranked 64th among 134 countries in the

most recent GCI computation (59th in a constant2005–06 sample), showcasing a remarkable eight-position improvement from 2007. Table 1 summarizesthe findings of the GCI 2008–2009 for Brazil, displayingthe rankings for each of its component 12 competitive-ness pillars. The country’s performance captured by eachof the 12 pillars reveals a number of weaknesses andchallenges, which need to be addressed if the country isto fully leverage its competitive potential. The poormarks registered for macroeconomic stability (122nd),goods (101st) and labor market (91st) efficiency, andinstitutions (91st) are particularly worrisome in view of


the importance of basic requirements and efficiencyenhancers at Brazil’s current stage of development.Among the other deficiencies in need of improvementand upgrading are the quality of the educational sys-tem (79th and 58th in the health and primary educa-tion and higher education and training pillar, respec-tively), and infrastructure (78th). On a more positivenote, Brazil can count on an extensive market for itsfirms (10th) and a fairly sophisticated and innovativebusiness sector (35th and 43rd in the business sophisti-cation and innovation pillar, respectively) among itsmain competitive advantages.

The authors point out how significant steps havebeen taken in the last two decades or so toward macro-economic stability, as well as toward opening, liberalizing,and diversifying Brazil’s economy. However, the analysisperformed by the GCI highlights areas that remain ofconcern among the basic requirements (e.g., a poormacroeconomic environment and institutions) as well asthe efficiency enhancers (e.g., inefficient and rigid goodsand labor markets and a poor quality higher educationsystem). These shortcomings need to be addressed by ajoint effort of all political parties, the business sector, andcivil society. Only then could the country fulfill itspotential and generate long-term growth and prosperityfor all Brazilians.

Part 2: Overcoming the competitiveness gapsThis part of the Report provides an in-depth assessmentof two major weaknesses affecting Brazil’s competitive-ness landscape and the remedial steps that have alreadybeen taken, together with some proposals for action.The areas examined are infrastructure and the country’sinstitutional environment.

The Growth Acceleration Program (PAC), infrastructure,and competitivenessInfrastructure is one of the basic requirements of anycompetitive economy. However, as a result of a historical

lack of planning and sustained investment, the currentstate of Brazilian infrastructure requires robust interven-tions to improve the capacity and efficiency of all trans-port modes as well as energy generation and distribu-tion. Indeed, infrastructure as it is today does not fullysupport Brazil’s integration into global markets, which isa key determinant of interregional and internationalcompetitiveness. Also it results in higher logistics costs inBrazil vis-à-vis similar economies, with negative impli-cations for interregional trade efficiency.

In his chapter “Infrastructure: Will PAC ReallyAccelerate Growth?” Paulo Resende (Fundação DomCabral, Brazil) provides a thoughtful account of the mainchallenges involved in upgrading Brazil’s infrastructurenetwork, as well as of the US$280 billion PAC, launchedby Brazil’s federal government in 2007 to address theaccumulated infrastructure demand of the past threedecades. Furthermore, he examines PAC’s implications interms of accelerating Brazil’s development and competi-tiveness.The author argues that PAC is a significant stepin the right direction, but further actions and programsare needed. Private participation should become constantthrough regulatory milestones that permit sustainedreturns on investment; the states and the federationshould share responsibilities and authority for infrastruc-ture facilities, making rational and non-ideologically baseddecisions, among others. PAC has tried to convey a mes-sage about the need for better allocation of expenditure,focusing on strategic goals and thereby reducing the over-all cost of infrastructure. How to generate the fiscal abilityto increase public investment remains a critical issue.

Finally, the success of PAC depends not only onthe government’s good will and commitment, but alsoon its capacity to bring different stakeholders togetherand to change or overcome federal, state, or municipallaws, rules, and procedures that are not conducive toinvestment in infrastructure, particularly through public-private partnerships.

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Table 1 Brazil’s competitiveness at glance, as assessed by the GCI 2008–2009

Source: World Economic Forum, 2008.

Pillar Rank

Macroeconomic stability 122

Goods market efficiency 101

Labor market efficiency 91

Institutions 91

Health and primary education 79

Infrastructure 78

Financial market sophistication 64

Higher education and training 58

Technological readiness 56

Innovation 43

Business sophistication 35

Market size 10


Institutional environment and competitivenessIn her chapter “Challenges and Institutional Changes toPromote Brazil’s Competitiveness,” Claudia Costin(Municipality of Rio de Janeiro, Brazil) identifies andexamines a number of shortcomings in Brazil’s institu-tional environment that have hampered the country’sgrowth in the recent past and are impeding theimprovement of its competitiveness. Among these are avision of public management and control that focuseson processes rather than results; the very recent consoli-dation of property rights and creation of several regula-tory agencies; the excess and overlapping of publicagencies involved in regulation, not completely dissoci-ated from political parties; frequent modifications in thelegislation regarding the private sector and privateinvestment; fragile political institutions captured bypatronage on one hand and corporatism on the other;and, last but not least, a poorly educated workforce.

The author deems that Brazil presents all the condi-tions necessary for becoming one of the most dynamicBRIC economies, provided the institutional hindrancesabove are tackled. She puts forward a few remedial meas-ures, including the consolidation of the rule of law andproperty rights; the simplification of the regulatoryframework and of the interface with the private sector;the modernization of public institutions in order toachieve more efficiency; and the upgrading of the work-force, especially at the higher education level.

Adopting these measures is crucial to making thecountry’s regulatory environment become competitive-ness friendly and support Brazil’s efforts to effectivelycompete in a more integrated world economy.

Part 3: Taking advantage of competitiveness opportunitiesThis part of the Report focuses on Brazil’s competitivestrengths and opportunities that can be further exploitedfor enhanced competitiveness. A number of deep-diveson the environment as a competitive advantage, businesssophistication, FDI to and from Brazil, and innovationin the agribusiness sector are presented.

Environment as a competitive advantageSimilar to many other countries, Brazil has not reachedyet a satisfactory level of environmental awareness,although significant progress has been made in this areasince the second half of the 1980s. Reflecting society’sgrowing awareness of these issues, the corporate worldhas been moving in the right direction to make sustain-able management a competitive differential. Chapter 3.1,“Sustainability and Competitive Advantage” by JacquesMarcovitch (University of São Paulo, Brazil), examinesthe degree of environmental sustainability displayed bythe private sector in the country, unveiling an encourag-ing panorama of businesses from all sectors engaged inmoving the economy to new levels of sustainability.

The author points out how the Brazilian businesssector shows a notable inclination toward competitive-ness and acts proactively on environmental issues,increasingly using or developing clean technologies. Heemphasizes that this approach on the part of businessesprovides a good rebuttal to those who wrongly arguethat the Kyoto Protocol had no impact on corporatestrategy, at least in Brazil.

Also, although Brazilian companies are not overlyenthusiastic about the competitive gains derived fromenvironmentally friendly practices, according toMarcovitch they show a willingness to maintain ongoingenvironmental strategies in their respective sectors.

On a less positive note, the notion of the environ-ment’s relevance for domestic competitiveness does notappear to have been sufficiently disseminated in the busi-ness world. Senior executives in the private sector, as wellas in government-owned companies, do not succeed ineffectively transmitting to their respective organizations astrategic vision when dealing with sustainability. Theauthor concludes that the path to changing such a situa-tion will necessarily go through civil society, where themore open-minded and organized sectors can play animportant role as change agents. Also, education at alllevels should stress environmental responsibility in Brazilas well as globally.

Business sophistication as a driver of enhanced competitivenessIn their chapter “Leveraging Brazil’s BusinessEnvironment for Increased Competitiveness,”PabloHaberer and Nicola Calicchio, (both at McKinsey &Company, Inc., Brazil) highlight how, despite its lowoverall competitiveness scores, Brazil performs relativelywell on a number of indicators related to the qualityand dynamism of its business environment, including thesophistication of its production processes, its capacity forinnovation, and its marketing and consumer orientation.Therefore it becomes important to explore how Brazilcan leverage the dynamism of its business environmentfor better growth and competitiveness.

The authors identify three major avenues toward thisend as follows: (1) a higher participation of the formalsector in the overall economy, to be obtained by reduc-ing the high costs of operating formally and hence theincentives to stay informal; (2) the extension of business-sector best practices to increase productivity in the publicsector; and (3) the leverage of opportunities for acceler-ated growth offered by global mega-trends such as theemergence of a new consumer market and the increaseddemand on natural resources.

In 1998, the McKinsey Global Institute published areport on Brazilian economic performance. That report’smain conclusion was that the country could embark on atrajectory of accelerated growth that would double GDPover a 10-year period if economic policies that both

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enabled and motivated productivity growth were put inplace. The report emphasized that there were no structur-al, insurmountable barriers keeping Brazil from achievingmuch higher productivity levels than it recorded at thetime. While Brazil’s GDP has not doubled since then, theperformance of national leading companies across manysectors has been outstanding, particularly during the period of relative stability between 2004 and 2008.

The authors believe the transformative and competi-tive capabilities of Brazil’s entrepreneurs are a reason forhope in fulfilling the forecast of the 1998 report, takinginto consideration that they can enable substantial gainsto Brazil’s competitiveness going forward.

Brazil and FDIFDI flows and stocks have significantly increased overthe past 15 years in Brazil, making the country thelargest host for foreign investment in Latin America andsecond only to China among developing countries.“Assessing the Performance and Potential of Brazil as aForeign Direct Investment Destination” by FabriceHatem and Anne Miroux (both at UNCTAD) exploresthe main enabling factors behind the above encouragingtrend, including Brazil’s competitive advantages—such asits large and expanding market coupled with its abun-dant natural resources and its relative openness to FDI.The composition of FDI located in the country by sec-tor, mode of entry, and nationality of the investor areanalyzed in the chapter, together with the challengesthat lie ahead for Brazil in maintaining and consolidat-ing its status as a top FDI destination. Last but not least,the authors examine the key role taken recently by for-eign companies in many activities and sectors of thedomestic economy, ranging from the primary sector(mining, biofuels) to manufacturing (automotive, metals,chemicals, food, and so on) and services (telecommuni-cations, retail, banking, and so on).

They conclude that, against a background of growingworldwide competition in the attraction of FDI, Brazil’srecent performance has been positive. Brazil’s welcomingattitude toward FDI, the country’s vast natural resources,and its market potential are three of the major factorsbehind its good performance in this area. However,important obstacles to further increasing FDI are to befound in the fairly weak government efficiency andsevere competition from low-cost destinations in somelabor-intensive, export-oriented activities. The authorsalso identify a more recent trend toward international-ization of Brazilian companies, with a consequent rise inFDI outflows. This seems to suggest that a new step hasbeen taken in Brazil’s development path—one that hastransformed the country into one of the major economicpowerhouses of the Southern Hemisphere.

Agribusiness and innovation for competitivenessChapter 3.4, “Agribusiness: Innovation andCompetitiveness in Brazil” by Elísio Contini andFrancisco Reifschneider (both at Embrapa), focuses onthe importance of innovation for Brazil to continuegrowing and generating wealth for the benefit of all itscitizens, by analyzing the factors that allowed Brazilianagribusiness to become competitive in internationalmarkets. The authors also examine, from the point ofview of innovation and its enabling conditions, whatallowed Brazil to adequately supply its domestic marketand become a large exporter of products of agriculturalorigin (both raw and processed).

Innovation has played an important role in thedevelopment of Brazilian agriculture and, particularly in recent decades, has allowed for growth and the goodperformance of Brazilian agribusiness. The case of theagribusiness sector makes clear that there are many basicconditions for innovation. These range from investmentin public research, which is responsible for a large partof Brazilian agricultural research, to various systems of incentives for Brazilian small, medium, and largeentrepreneurs.In the current globalized scenario in which there is a

clear international division of labor, the critical question,the authors believe, is whether Brazil will be a worldleader in agribusiness products (e.g., foodstuffs, fibers,forestry products) as well as in agro-energy. For this tohappen, in the context of the future scenario of climatechange, severe limitations on water supply, biologicalsecurity, and non-tariff and energy barriers, greaterspeed in innovation on the part of the agribusiness sec-tor will be required. Important enabling elements forthis will be greater investment in research, the presenceof highly qualified human resources across the produc-ing chains, and a better capacity for institutional innova-tion—which is weak at the moment in Brazil—so thatporosity between the public and private and the nationaland international sectors may be fairly exploited to thebenefit of all citizens.

Part 4: Country profilesPart 4 presents detailed competitiveness profiles forBrazil and the countries used as comparators in theanalysis performed in Part 1 of this Report, together witha section on how to read the country profiles and inter-pret the information they provide.

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An Assessment of Brazil’sCompetitiveness


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CHAPTER 1.1

An Appraisal of Brazil’sCompetitiveness Landscape:Insight from the GlobalCompetitiveness Index2008–2009

IRENE MIA, World Economic Forum

EMILIO LOZOYA AUSTIN, World Economic Forum

CARLOS ARRUDA, Fundação Dom Cabral, Brazil

MARINA SILVA ARAÚJO, Fundação Dom Cabral, Brazil

Displaying an impressive GDP of US$1,314 billion andwith a population of 191 million in 2007,1 Brazil is the10th largest economy and 5th most populous countryin the world, as well as the largest market in LatinAmerica and the Caribbean. This, coupled with richnatural resources and a fairly sophisticated industrialbase, provides the country with key competitive advan-tages in agriculture and livestock, an important sourceof export revenues in times of high commodity pricesand an important potential for further industrial andexport diversification in the future. These factors havealso made Brazil the leading foreign direct investment(FDI) recipient in Latin America, with a US$35 billioninflow in 2007, as compared with US$25 and US$16billion to the second and third top destinations in theregion, Mexico and Chile.2

Further, the last two decades have seen a consolida-tion in macroeconomic stability in recognition, on thepart of successive governments, of the importance ofsound macroeconomic fundamentals as a prerequisitefor private-sector development.The above remarkable achievements and competitive

strengths are not fully reflected to date in Brazil’s per-formance in terms of economic growth rates, enhancedcompetitiveness, and better living conditions for its citi-zens. Indeed, the country has registered average annualgrowth rates of 3.9 percent for the 2003–07 period,rather poor when compared with 10.8 percent, 8.6 percent, and 7.3 percent, respectively, of fellow BRICcountries China, India, and Russia;3 likewise, Brazil’sevolution in the Global Competitiveness Index (GCI)rankings over the 2005–08 period has been fairlyerratic, with the country placing in middling positionsyear after year (64th out of 134 countries in the latestcomputation in 2008–2009). Last but not least, despitean increase in social spending, Brazil’s income distribu-tion remains among the most unequal in the world,pointing to the fact that the country’s immense poten-tial has not yet translated into increased prosperity for all Brazilians.4

Moreover, progress in establishing a solid foundationof macroeconomic stability has been slower thanexpected, reflecting the difficulties of a quick fiscaladjustment in the presence of large unmet social needs,as well as widespread rigidities in the tax system, regu-latory system, and goods and labor market, among others.In addition, the major external shock on export demandand financing availability, brought about by the currentglobal economic crisis, coupled with falling commodityprices, is expected to slow Brazil’s growth to 1.8 percentin 2009.In view of the above, it becomes critical to identify

the impediments to sustained growth and competitive-ness-enhancing policies and strategies.


The Brazil Competitiveness Report 2009 provides acomprehensive overview of the country’s current com-petitiveness landscape, highlighting strengths and prob-lematic areas in need of immediate attention andaction. It aims at being a useful tool for policymakersand all interested and relevant stakeholders in thedesign of an effective competitiveness strategy for Brazilfor the years to come. This chapter will introduce theReport by gauging the state of Brazil’s competitivenessand its potential for sustained growth in the long runthrough the methodological lens of the GCI, developedfor the World Economic Forum by Xavier Sala-i-Martin of Columbia University. The GCI offers a snap-shot of the factors, institutions, and policies drivingcountries’ competitiveness and represents an invaluableinstrument for policy prioritization according tonational levels of development. In the rest of the Report,respected academics and experts will address the differ-ent competitiveness challenges facing Brazil at present(Part 2), while highlighting the competitiveness oppor-tunities that the country could and will need toincreasingly leverage to sustain and boost its growthpotential going forward (Part 3).The findings of the Report will be presented and dis-

cussed during the World Economic Forum on LatinAmerica 2009 to be held in Rio de Janeiro on April14–16, 2009. It is hoped they will raise awareness on thecontinuing importance of focusing on long-term com-petitiveness especially in the present time of crisis.

After a brief outline of the GCI methodology, thischapter will focus on Brazil’s performance in the 12 pil-lars of competitiveness highlighted in the Index, usingthe results of the latest GCI computation, featured inThe Global Competitiveness Report (GCR) 2008–2009.Comparisons with relevant countries and regions willbe made to set Brazil’s showing into context.

The Global Competitiveness Index: Presenting themethodological frameworkIntroduced by the Forum in 2004, in the years since itsinception the GCI has become one of the mostrespected and broadly used international assessments ofnational competitiveness. Building on the most recentcompetitiveness literature and thinking, as well as onprevious Forum competitiveness indexes, the GCI rep-resents a comprehensive methodological frameworkcasting light on the “the set of institutions, policies, and fac-tors that determine the level of productivity of a country.”5

Taking into account the complex nature of competi-tiveness, the Index identifies 12 pillars of competitive-ness (see Figure 1), reflecting the diverse and interre-lated factors that have a bearing on national long-termpotential for sustained growth.Below is a brief description of each of the pillars

composing the GCI and the main aspects they take intoconsideration. Also see Appendix A: Structure of the

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• Institutions• Infrastructure• Macroeconomic stability• Health and primary education

• Higher education and training• Goods market efficiency• Labor market efficiency• Financial market sophistication • Technological readiness• Market size

• Business sophistication• Innovation

Key for

economies

Key for

economies

Key for

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Figure 1 The 12 pillars of competitiveness



Global Competitiveness Index 2008–2009 at the end ofthis chapter for more detailed information on the morethan 110 variables included in the pillars.

Institutions: the quality of public and private insti-tutions, including perceived fairness and transparency ofgovernment activities, government efficiency, securitylevel, and corporate governance;

Infrastructure: the quality and extent of generaland specific basic infrastructure, including roads, rail-roads, ports, air transport, and fixed telephony;

Macroeconomic stability: the soundness of themacroeconomic environment and the related quality of macroeconomic management;

Health and primary education: the generalhealth level of a country’s population and the quality of, and access to, basic education;

Higher education and training: the quality of,and access to, secondary and higher education and effec-tiveness of on-the-job training;

Goods market efficiency: the extent of domesticand foreign competition in a given market and the qual-ity of demand conditions;

Labor market efficiency: the flexibility of thelabor market and the degree to which it ensures theefficient allocation and use of talent;

Financial market sophistication: the sophistica-tion and trustworthiness of financial markets;

Technological readiness: the penetration of infor-mation and communication technologies (ICT) andcountries’ capacity to leverage exogenous technologyand knowledge, notably through FDI, by adopting andadapting it in their production systems;

Market size: the size of the domestic and foreignmarkets available for firms operating in a given country;

Business sophistication: at the firm level, the degreeof sophistication of operations and company strategiesand the presence and development of clusters; and

Innovation: the national potential to generateentirely new products and processes.Underpinning the GCI’s methodological framework

is the idea that, although the 12 pillars all matter indetermining countries’ competitiveness, each does thisin a different way, depending on the specific stage ofdevelopment of each country. Factors that cruciallydrive national competitiveness evolve as economiesmove up in the development path. In this sense, theIndex, integrating the well-known theory of stages ofdevelopment,6 classifies economies into the three fol-lowing stages of development: factor-driven, efficiency-driven, and innovation-driven.In the initial, factor-driven stage, nations compete based

on their factor endowments, primarily unskilled labor andnatural resources, and their economies are centered oncommodities and/or basic manufactured products.Efficient public and private institutions (pillar 1), well-

developed infrastructure (pillar 2), good macroeconomicfundamentals (pillar 3), and a healthy and literate laborforce (pillar 4) are critical for competitiveness at this stage.As countries progress to the efficiency-driven stage, their

competitiveness becomes increasingly driven by well-functioning factor markets and efficient productionprocesses and practices at the firm level. Important ele-ments at this stage include quality higher education andtraining (pillar 5); efficient markets for goods and services(pillar 6); flexible and well-functioning labor markets(pillar 7); sophisticated financial markets (pillar 8); a largedomestic and/or foreign market allowing for economiesof scale (pillar 9); and the ability to leverage existingtechnologies, notably ICT, in the national productionsystem (pillar 10). In the most advanced, innovation-drivenstage, nations cannot rely exclusively on their factorendowments and efficient market and production sys-tems to continue to grow and need to start developingunique, high value added goods. Therefore, the capacityto generate innovation (pillar 11) and to use sophisti-cated production processes (pillar 12) become key.Countries are allocated to the different stages of

development according to their GDP per capita at mar-ket exchanges, rates as a proxy for wages. This criterionis then corrected by a second one measuring the extentto which countries are factor-driven, using as a proxythe share of exports of primary goods in total exports(goods and services); the assumption is that countriesthat export more than 70 percent of primary productsare to a large extent factor-driven.A list of the 134 economies included in The Global

Competitiveness Report 2008–2009, regrouped by stagesof development, is displayed in Table 1. The economiesfalling in between two of the three stages are defined asbeing “in transition.”Table 1 shows that Brazil is currently in the interme-

diate, efficiency-driven, stage of development, thereforeits competitiveness depends critically on pillars 1through 10.The concept of stages of development is used to

organize the GCI’s 12 pillars of competitiveness intothree subindexes (see Figure 1), as follows:

1. pillars 1 through 4 are considered basic require-ments of competitiveness, key for factor-driveneconomies but also representing the foundation ofany competitive economy;

2. pillars 5 through 10 are defined as efficiencyenhancers, crucial for economies in an efficiency-driven stage; and

3. pillars 11 and 12 represent innovation and sophisti-cation factors, particularly relevant for innovation-driven economies.

The above is reflected in the calculation methodo-logy of the GCI, in which different relative weights are

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assigned to each subindex according to the specificdevelopment stage of a country, as detailed in Table 2.7

In the case of Brazil, for instance, 40, 50 and 10 percent of the overall score is determined by the scoresobtained respectively in basic requirements, efficiencyenhancers, and innovation and sophistication factors.In line with the Forum’s benchmarking methodo-

logy, the GCI is composed of a mixture of hard and survey data capturing both quantitative and qualitativedeterminants of national competitiveness. Hard datacapture quantitative factors, such as inflation rates, public

debt, or enrollment rates and are collected by interna-tional organizations, including the IMF, the World Bank,and various United Nations agencies. Internationallycollected and validated data ensure the comparability ofthe latter across countries.The survey data gauge dimensions that are more

qualitative in nature or for which there are no hard dataavailable for a large number of countries, but arenonetheless crucial in capturing national competitiveness.These data come from the Executive Opinion Survey(the Survey), which the Forum administered to over

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Table 1 List of countries/economies at each stage of development

Stage 1 Transition from 1 to 2 Stage 2 Transition from 2 to 3 Stage 3

Bangladesh Armenia Albania Bahrain AustraliaBenin Azerbaijan Algeria Barbados AustriaBolivia Botswana Argentina Chile BelgiumBurkina Faso Brunei Darussalam Bosnia and Herzegovina Croatia CanadaBurundi China Brazil Estonia CyprusCambodia El Salvador Bulgaria Hungary Czech RepublicCameroon Georgia Colombia Latvia DenmarkChad Guatemala Costa Rica Lithuania FinlandCôte d'Ivoire Iran Dominican Republic Poland FranceEgypt Jordan Ecuador Qatar GermanyEthiopia Kazakhstan Jamaica Russian Federation GreeceGambia, The Kuwait Macedonia, FYR Slovak Republic Hong Kong SARGhana Libya Malaysia Taiwan, China IcelandGuyana Morocco Mauritius Trinidad and Tobago IrelandHonduras Oman Mexico Turkey IsraelIndia Saudi Arabia Montenegro ItalyIndonesia Venezuela Namibia JapanKenya Panama Korea, Rep.Kyrgyz Republic Peru LuxembourgLesotho Romania MaltaMadagascar Serbia NetherlandsMalawi South Africa New ZealandMali Suriname NorwayMauritania Thailand PortugalMoldova Tunisia Puerto RicoMongolia Ukraine SingaporeMozambique Uruguay SloveniaNepal SpainNicaragua SwedenNigeria SwitzerlandPakistan United Arab EmiratesParaguay United KingdomPhilippines United StatesSenegal Sri Lanka Syria Tajikistan Tanzania Timor-Leste Uganda Vietnam Zambia Zimbabwe

Bangladdesh h Benin Bolivia Burkina a Fasso Burundi Camboddia Camerooon Chad Côte d'IIvoirre Egypt Ethiopia a Gambiaa, Th he Ghana Guyanaa Honduras India Indonessia Kenya Kyrgyz R Republiic Lesotho o Madagaascaar Malawi Mali Mauritaania Moldovva Mongollia Mozambiquue Nepal Nicaraggua Nigeria Pakista n Paragu ay Philippines Senegaal Sri Lankka Syria Tajikistaan Tanzani a Timor-Leste e Ugandaa Vietnam m Zambia Zimbab we

Armeniaa Azerbaijan

Botswanna Brunei D Darussallam

China El Salvaddor Georgia

Guatemaala Iran

Jordan Kazakhsstan Kuwait Libya

Morocco o Oman Saudi Arrabiaa

Venezueela

Albania Algeria Argentin na

Bosnia and Herzzegovin na Brazil

Bulgaria a Colombia

Costa Rica Dominiccan R Repuublic

Ecuado r Jamaicaa

Macedoonia , FYRR Malaysi ia Mauritiuus

Mexico Montennegro o

Namibiaa Panama a

Peru Romania Serbia

South A Africa a Surinam me Thailand d Tunisia

Ukraine e Uruguay y

Bahrain n Barbados

Chile Croatia Estonia Hungar y

Latvia Lithuan ia

Poland Qatar

Russian n Fedderation Slovak R Repuublic c

Taiwan, , China Trinidadd and d Tobbago

Turkey

Australia Austria

Belgiumm Canadaa Cyprus Czech R Repuublic

DenmarkFinlandFranceGermanny

Greece Hong K ong SARR

IcelandIreland

Israel Italy

JapanKorea, R Rep..

LuxembbourgMalta

Netherllands New Zeealannd Norwayy Portugaal

Puerto Ricoo Singapoore

SloveniaSpain

Swedenn Switzerrlandd

United A Arab b EmmiratesUnited K KinggdommUnited S States



12,000 business leaders across 134 economies in 2008.Examples include dimensions relating to the efficiency ofthe government, public ethics standards, or the quality ofeducation, among others. For all these dimensions, forwhich no hard data are available, the Survey represents aninvaluable source of information and insight.

The state of Brazil’s competitiveness according to theGCI 2008–2009This section will provide a broad assessment of Brazil’scompetitiveness, building on the findings of the mostrecent GCI, featured in The Global Competitiveness Report2008–2009. To place Brazil’s competitiveness perform-ance into context, comparisons will be made with

selected countries and regions of interest. In this spirit,Brazil will be compared to Chile (the regional top per-former) and Mexico within the region; with fellowBRIC countries China, India, and Russia; with otherrelevant and comparable emerging markets such asSouth Africa and Turkey; and with Spain, as a Europeancomparator (see Table 3 for some comparative key facts).The averages of Latin America and the Caribbean, theBRIC countries, and EU Accession 12 will also beadded to the picture.8

Figures 2 and 3 show, respectively, Brazil’s competi-tiveness performance in 2008–09 by pillar and the evo-lution of Brazil in the GCI rankings from 2005 to 2008in a constant 2005 sample.9

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Table 2 Weights of the three subindexes per stage of development

Pillar group Factor-driven stage (%) Efficiency-driven stage (%) Innovation-driven stage (%)

Basic requirements 60 40 20Efficiency enhancers 35 50 50Innovation and sophistication factors 5 10 40


Table 3 Key indicators, Brazil and selected countries

Population (millions), 2008 GDP (US$ billions), 2007 GDP 2003–07 growth GINI index

Brazil 194.2 1,313.6 3.84 57.0Chile 16.8 163.8 5.00 54.9China 1,336.8 3,250.8 10.80 46.9India 1,186.2 1,098.9 8.60 36.8Mexico 107.8 893.4 3.38 46.1Russian Federation 141.8 1,289.6 7.28 39.9South Africa 48.8 282.6 4.70 57.8Spain 44.6 1,439.0 3.51 34.7Turkey 75.8 663.4 6.91 43.6

Source: Population Fund’s State of World Population 2008; International Monetary Fund (IMF)’s World Economic Outlook Database (October 2008); WDI 2008.

0 20 40 60 80 100 120 140

Market size

Business sophistication

Innovation

Technological readiness

Higher education and training

Financial market sophistication

Infrastructure

Health and primary education

Institutions

Labor market efficiency

Goods market efficiency

Macroeconomic stability

Figure 2 Brazil’s competitiveness performance at glance, 2008



122

101

91

91

79

78

64

58

56

43

35

10


Tables 4 through 7 complement the information ofthe figures with a comparative perspective, displayingBrazil’s rankings and scores in the GCI 2008–2009 andin the three component subindexes together with thoseof Chile, China, India, Mexico, Russia, South Africa,Spain, and Turkey, as well as the scores for the regional,BRIC and EU Accession 12 averages.Brazil ranked 64th out of 134 economies in the

GCI 2008–2009 and last in the comparative sample,with quite a diverse showing across the 12 competitive-ness pillars, as indicated in Figure 2. While Brazil cancount on an extensive large market for its firms (10th)and a fairly sophisticated and innovative business sector(35th and 43rd in the business sophistication and inno-vation pillars, respectively) among its main competitiveadvantages, the perceived quality of its institutions (91st),the efficiency of its labor (91st) and good (101st) mar-kets, and especially its macroeconomic stability (122nd)

remain areas of concern. It is worth noting that some ofBrazil’s best showings are to be found in the innovationand sophistication factors, which, as mentioned, arebound to become increasingly important as the countrymoves from its current, efficiency-driven stage of devel-opment to the most advanced, innovation driven one.Although this may bode well for Brazil’s growthprospects going into the future, it should not lead tocomplacency and to overlooking the serious deficienciesaffecting several efficiency enhancers and basic require-ment of competitiveness, on which the country’s currentcompetitiveness crucially depends. In particular, as Table4 points out, basic requirements (96th) are especiallyproblematic, as opposed to efficiency enhancers (51st)and innovation factors (42nd), which are sounder.A glance at Brazil’s evolution over the last four years

highlights a relatively erratic trend (Figure 3), withnonetheless a noticeable improvement from 2007 to 2008

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Figure 3 Brazil’s evolution in the GCI ranking, 2005–2008

0

20

40

60

80

2008–20092007–20082006–20072005–2006

Note: Ranks are in a constant 2005–2006 sample.

50

65 67

59

Table 4 GCI 2008–2009 and its subindexes: Brazil and selected comparators


Basic requirements Efficiency enhancers Innovation factors

Country/region Rank Score Rank Score Rank Score Rank Score

Brazil 64 4.23 96 3.98 51 4.28 42 4.04Chile 28 4.72 36 5.15 30 4.58 44 4.00China 30 4.70 42 5.01 40 4.41 32 4.18India 50 4.33 80 4.23 33 4.49 27 4.29Mexico 60 4.23 60 4.47 55 4.16 70 3.60Russian Federation 51 4.31 56 4.54 50 4.29 73 3.56South Africa 45 4.41 69 4.41 35 4.46 36 4.13Spain 29 4.72 27 5.34 25 4.75 29 4.25Turkey 63 4.15 72 4.34 59 4.10 63 3.70

Latin America & the Caribbean average 3.92 4.22 3.77 3.43BRIC average 4.37 4.44 4.37 4.02EU Accession 12 average 4.29 4.67 4.30 3.78


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Table 5 Basic requirements 2008–2009: Brazil and selected comparators

Macroeconomic Health and

Institutions Infrastructure stability primary education Country/region Rank Score Rank Score Rank Score Rank Score Rank Score

Brazil 91 3.56 78 3.15 122 3.89 79 5.31 96 3.98Chile 37 4.73 30 4.59 14 5.90 73 5.37 36 5.15China 56 4.18 47 4.22 11 5.95 50 5.71 42 5.01India 53 4.23 72 3.38 109 4.32 100 4.99 80 4.23Mexico 97 3.49 68 3.51 48 5.32 65 5.55 60 4.47Russian Federation 110 3.29 59 3.75 29 5.55 59 5.59 56 4.54South Africa 46 4.55 48 4.21 63 5.06 122 3.84 69 4.41Spain 43 4.59 22 5.30 30 5.53 35 5.96 27 5.34Turkey 80 3.72 66 3.54 79 4.79 78 5.33 72 4.34

Latin America & the Caribbean average 3.57 3.22 4.68 5.41 4.22BRIC average 3.82 3.63 4.93 5.40 4.44EU Accession 12 average 4.07 3.72 5.20 5.70 4.67


Table 6 Efficiency enhancers 2008–2009: Brazil and selected comparators


Country/region Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score

Brazil 58 4.12 101 3.90 91 4.15 64 4.36 56 3.59 10 5.54 51 4.28Chile 50 4.34 26 4.91 17 4.90 29 5.05 42 3.99 47 4.26 30 4.58China 64 4.05 51 4.48 51 4.49 109 3.64 77 3.19 2 6.58 40 4.41India 63 4.06 47 4.52 89 4.16 34 4.98 69 3.27 5 5.96 33 4.49Mexico 74 3.83 73 4.14 110 3.97 66 4.30 71 3.25 11 5.48 55 4.16Russian Federation 46 4.40 99 3.90 27 4.74 112 3.60 67 3.36 8 5.71 50 4.29South Africa 57 4.13 31 4.79 88 4.17 24 5.22 49 3.70 23 4.77 35 4.46Spain 30 4.75 41 4.63 96 4.11 36 4.93 29 4.59 12 5.47 25 4.75Turkey 72 3.87 55 4.38 125 3.57 76 4.11 58 3.53 15 5.16 59 4.10

Latin America & the Caribbean average 3.74 4.01 4.15 4.12 3.20 3.43 3.77BRIC average 4.16 4.20 4.39 4.15 3.35 5.95 4.37EU Accession 12 average 4.54 4.45 4.41 4.60 4.15 3.64 4.30

Higher education

and training

Goods market

efficiency

Labor market

efficiency

Financial market

sophisticationTechnological

readinessMarket

size

Table 7 Innovation and sophistication factors: 2008–2009: Brazil and selected comparators


Business sophistication Innovation Country/region Rank Score Rank Score Rank Score

Brazil 35 4.58 43 3.50 42 4.04Chile 31 4.65 56 3.35 44 4.00China 43 4.50 28 3.87 32 4.18India 27 4.85 32 3.74 27 4.29Mexico 58 4.24 90 2.95 70 3.60Russian Federation 91 3.70 48 3.41 73 3.56South Africa 33 4.62 37 3.64 36 4.13Spain 24 4.89 39 3.61 29 4.25Turkey 60 4.23 66 3.16 63 3.70 Latin America & the Caribbean average 3.97 2.89 3.43BRIC average 4.41 3.63 4.02EU Accession 12 average 4.20 3.37 3.78


(up eight positions in a constant 2005 sample). Such adevelopment is the result of important advances registeredacross the board, particularly marked in the institutions,labor market, and technological readiness pillars.The rest of this section will discuss Brazil’s perform-

ance in each of the 12 dimensions covered by the GCI,in order to highlight competitive strengths and opportu-nities, as well as weaknesses that need to be addressedfor the country to fully leverage its potential.

Basic requirementsAccording to the GCI methodological framework, fairand well-functioning institutions, a stable macroeco-nomic environment, well-developed infrastructure, and ahealthy and literate workforce represent basic require-ments of competitiveness. These are particularly impor-tant for factor-driven economies but also, as their namesuggests, are basic elements of every country’s competi-tiveness. In the case of efficiency-driven economies suchas Brazil, they account for a considerable 40 percent ofthe overall GCI score.Brazil ranks a dismal 96th place for the quality of its

basic requirements, by far the worst showing across thethree subindexes. The country is also last in the compar-ative sample, with gaps of 69 and 60 places, respectively,with respect to Spain (27th) and Chile (36th)—top performers in this respect. Brazil, with a 3.98 score, alsosignificantly underperforms the EU Accession 12 (4.67),BRIC (4.44), and even regional (4.22) averages. On a more positive note, the country has posted importantimprovements in the four pillars composing the sub-index since 2007, making a definite step in the rightdirection. Yet the performance gap vis-à-vis the majorityof the comparators suggests that there is a long and dif-ficult path ahead to catch up with international bestpractices.

InstitutionsA transparent and well-functioning institutional envi-ronment is a necessary precondition for national socialactors—namely individuals, businesses, and the govern-ment—to be able to interact efficiently and generatewealth and prosperity. In this sense, competitiveness-enhancing public institutions strongly guarantee prop-erty rights and a fair environment for contract enforce-ment and dispute resolution, and operate in a fair andefficient manner. They also define the developmentstrategy and the best allocation of costs and benefits,together with promoting entrepreneurship, maintainingmacroeconomic stability, managing risk-taking by finan-cial intermediaries, providing social security and ade-quate safety nets, and fostering participation andaccountability.At the same time, the role of well-run and efficient

private institutions, including strong standards of corpo-rate ethics and transparent accounting and reportingpractices, cannot be overlooked.

In line with the primary role of the institutionalframework referenced above, the GCI includes publicand private institutions within the basic requirement ofcompetitiveness—especially key for factor-driven andefficiency-driven countries.The institutions pillar is composed of two subpillars,

gauging the quality of public and private institutions,respectively. The former accounts for three-quarters andthe latter for one-quarter of the overall pillar score.The public institutions subpillar assesses different

dimensions related to the quality and efficiency of thenational institutional environment. Notably, the protec-tion of property rights (including intellectual property),public ethics standards, and the efficiency of publicadministration are taken into account, together with theperceived security situation in a given country—whichhas an important bearing for opening and managingbusinesses.The private institutions subpillar, in turn, measures the

quality of corporate ethics displayed by the firms locatedin a given country, as well as different elements of cor-porate accountability.Brazil is assessed quite poorly for the quality of its

institutions: at 91st, this is its fourth-worst showingamong the GCI pillars. With a mediocre score of 3.56,the country compares poorly with the comparator sam-ple best performers Chile (37th), Spain (43rd), and SouthAfrica (46th) as well as with the BRIC (3.82) and EUAccession 12 (4.07) regional averages, but outperformslaggards such as Russia (110th) and Mexico (97th). It isinteresting to note that the assessment of Brazil’s institu-tions is completely in line with the regional average(3.57), pointing to the fact that the quality of the institu-tional environment, especially its public component,remains of great concern in Latin America.On a more positive note, the institution pillar is the

area in which the country has registered the largestimprovement since 2007 (up 13 positions and 0.25 inscore), also reflecting a more buoyant mood in the busi-ness community in 2008, one partially linked to thehigher growth rates experienced by the country inrecent years.A closer look at the pillar’s variables reveals that the

problem lies particularly in the public institutions com-ponent (98th), while the quality of private institutions isfairly good (61st), especially in terms of corporateaccountability (49th). This highlights a number of seri-ous flaws, especially the entrenched culture of bureau-cracy and red tape (124th for government efficiency),the perceived poor level of public ethics (121st) and thelack of security (103rd).In particular, the burden of government regulation is

perceived as being enormous (129th); this is also corrob-orated by Brazil’s showing in the World Bank’s DoingBusiness 2009. According to this report, which includes181 economies, the country is ranked 127th, 121st, and

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100th, respectively, for starting a business, employingworkers, and enforcing contract components.Government spending is also assessed as being

extremely wasteful, at 129th, no doubt because of anumber of important rigidities in public-sector spendingin the form of earmarking revenues to particular expen-diture categories, constitutional or legal mandates thatestablish floors on certain types of spending, the auto-matic linking of social and pension benefits to the mini-mum wage, and mandatory transfers to regional govern-ments, among others.10

Moreover, the security situation in the country isconsidered to impose significant costs on businesses(103rd)—in particular, rampant organized crime(116th), violence (123rd), and a low level of trust in the police (117th).

InfrastructureWell-functioning and extensive infrastructure plays afundamental role in enhancing the growth prospects ofan economy. Both the level and quality of infrastructureare important in raising private-sector productivity andinvestment rates,11 particularly the adequate functioningof roads, railroads, ports, and air transport, as well as anelectricity supply free of interruption and an adequatetelecommunications network. Widespread quality infra-structure can also greatly impact income inequality andpoverty, connecting poor communities to importantmarkets, allowing children in remote areas to go toschools or have access to virtual education, and improv-ing health standards by providing potable water, amongother benefits.12

In the past decade or so, Brazil has made importantefforts toward upgrading and extending its infrastructurenetwork. However, Brazil is no exception to the trendobserved for Latin America as a whole, for which it hasbeen estimated that the region needs to invest up to 6percent of GDP for regional infrastructure upgrading inorder to catch up with Korea and keep up with China.13

This mixed performance is reflected in a rather low78th rank (corresponding to a score of 3.15) registeredby Brazil in the infrastructure pillar, last in the compara-tor sample. Indeed, if Brazil positions itself just belowthe Latin American (3.22) and the BRIC (3.63) regionalaverages and comparator countries such as Mexico(68th) and India (72nd), it shows a very consistent gapvis-à-vis top performers Chile (30th) and China (47th).Of particular concern is the quality of port (123rd), road(110th), and air transport infrastructure (101st). The per-formance in these indicators represents a serious obsta-cle to Brazil’s modernization aspirations.In consideration of the above, President Luiz Inácio

Lula da Silva (President Lula) launched in 2007 aGrowth Acceleration Program (PAC), which earmarkedat its inception R$504 billion toward infrastructurespending,14 distributed as follows:R$171 billion forsocial infrastructure, R$275 billion for energy-relatedprojects, and R$58 billion for logistics.15 Private-publicpartnership (PPP) modalities of financing are given apreeminent position in the program. Also a leading cata-lyst role is envisaged for the Brazilian DevelopmentBank (BNDES), given the limited public resources to beinvested and the positive developments in Brazilian capi-tal markets, increasingly willing to finance long-termprojects in local currency. The main challenge related toPAC is likely to remain the implementation capacity ofthe government agencies in charge of the above largecontracts, especially in the current difficult times. SeeChapter 2.1 of this Report for more details on PAC.On a related note, the Infrastructure Quality Gap

Index (IQGI) and Infrastructure Private InvestmentAttractiveness Index (IPAI), developed by the Forum in2007 for 12 selected Latin American countries, shedssome additional light on the subject, notably identifyingthe challenges and opportunities for private investmentin infrastructure in Brazil.16

The IQGI measures the infrastructure quality gapvis-à-vis Germany, the best performer globally in the

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Table 8 Brazil and infrastructure: The IPAI and IQCI rankings, 2007

Source: Mia at al., 2007.

Table 8a: IPAI ranking, 2007

Rank Country Score

1 Chile 5.43 2 Brazil 4.40 3 Colombia 4.33 4 Peru 4.23 5 Mexico 4.04 6 Uruguay 4.02 7 El Salvador 3.97 8 Guatemala 3.64 9 Argentina 3.41 10 Venezuela 3.37 11 Bolivia 3.34 12 Dominican Republic 3.33

Table 8b: IC IQGI rankings, 2007

Rank Country Score

1 Bolivia 6.66 2 Peru 5.49 3 Colombia 4.90 4 Venezuela 4.47 5 Brazil 4.40 6 Guatemala 4.23 7 Uruguay 4.10 8 Dominican Republic 3.80 9 Argentina 3.77 10 Mexico 2.68 11 El Salvador 2.48 12 Chile 1.37


infrastructure pillar. Brazil ranked 5th out of the 12countries covered for its infrastructure gap with respectto best practices; this confirms the extent of the chal-lenge, as well as the opportunity, in terms of requiredinvestment. At the same time, Brazil ranks 2nd on theIPAI, reflecting the presence of a friendly environmentin the country for private investment in infrastructure(see Table 8).Figure 4 presents a snapshot of Brazil’s environment

for PPPs in infrastructure according to the IPAI. Amongthe strengths: a very low political risk, with little war orexpropriation risk, as well as a fairly well developedlocal capital market. Other positive aspects include afairly good track record in private investment in infra-structure, with few projects cancelled or in distress, and arelatively high level of private investment in infrastruc-ture projects over the 1994–2005 period (2.2 percent ofGDP). Among the most important weaknesses: the qual-ity of the country’s legal framework and, to a lesserextent, the inefficiencies in its macro environment.

Macroeconomic stabilityHealthy macroeconomic fundamentals are a sine qua noncondition for economic prosperity and efficient marketoperation since they establish the enabling environmentfor companies to operate and generate wealth. For thisreason, macroeconomic stability is considered by theGCI to be among the basic factors of national competi-tiveness—key for factor-driven countries but also a basicrequirement for any competitive economy.The macroeconomic stability pillar takes into

account a plethora of data, such as government budgetbalance and debt, inflation, interest rate spreads, andnational savings rates.

Although since the 1990s, there has been an increas-ing recognition on the part of the successive administra-tions of the importance of a stable macroeconomic envi-ronment, and important efforts have been made towardputting public finances on a sounder basis,17 progress hasbeen slower than in other countries, reflecting no doubtthe complexities faced by Brazil in this respect.Notwithstanding a four-place improvement since lastyear, Brazil is still ranked a disappointing 122nd place forits macroeconomic stability, which remains its weakestarea across the 12 covered by the GCI.Not surprisingly, Brazil is also the laggard in the

comparator sample, with a gap of more than 100 placeswith respect to the two best performers China (11th)and Chile (14th).Key factors explaining Brazil’s poor showing include

extremely high interest rate spreads (131st), still highlevels of public indebtedness (close to 50 percent ofGDP, at 85th), and deficit (2.23 percent of GDP, at 91st),and low national savings rates (86th).The interest rate spreads present an area of particular

concern and burden for economic agents in the coun-try, as this issue is also highlighted by looking at thecomparator countries’ performances (Table 9). Brazil hasthe highest interest rate spread (33.14 percent) in thesample, way above Spain (6.02 percent) and India (5.56percent), the second and third highest in the sample.According to the Brazilian Central Bank, despite theincreased flexibility of the country’s monetary policy inthe last two quarters of 2005, overall spreads were notsignificantly reduced.18 According to the IMF, this couldbe linked to the inefficiencies displayed by LatinAmerican banks, high interest rates, and heavier legaldemands to maintain reserves. However, banking execu-

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Figure 4 Investment attractiveness: Brazil’s performance at glance according to the IPAI, 2007

Chile Average (excl. Chile)Brazil

1

2

3

4

5

6

7Government readiness for private investments

Government and society

Private investmenttrack records

Financial markets enablers

Access to information

Political risk

Legal framework

Macro environment


tives in Brazil claim that the real culprit is the high costof money in the country, determined by its long-terminterest rate (LTIR), or Central Bank–set SELIC, taxeslevied on credit operations—such as the tax on financialoperations (IOF) and income tax, among others, inaddition to growing defaults in the past.Public debt and deficit levels also remain very high

by international standards. On a related note, publicspending is high and on the rise, due to higher expensesin the government payroll and social welfare, whichhave been expanding in an unsustainable way. Publicspending accounted for 17 percent of GDP in 2008 (upfrom 14.7 percent in 2007).A particularly worrisome aspect of public spending

structure in Brazil is its rigidity: earmarking revenuesfor particular expenditure categories, constitutional orlegal mandates that establish floors on certain types ofspending, the automatic linking of social and pensionbenefits to the minimum wage, mandatory transfers tostate governments, and other forms of interventionslimit the ability of the federal government to restruc-ture spending in a way that could allow for greaterprioritization of productivity-enhancing expenditurecategories, such as education, training, and infrastruc-ture improvement.19 This becomes particularly prob-lematic in times of economic crisis and GDP contrac-tion such as the present one.On a more positive note, Brazil’s inflation rate is rela-

tively low (3.64 percent in 2007, at 54th), the end resultof years of stern control and tight policies of inflationtargets. Brazilian monetary policy walks a tightrope. Onthe one hand, a rigid control of inflation is maintained,inflation striking deep fear into the hearts of Braziliansociety and government. On the other hand, economicgrowth is promoted through a gradual reduction of theinterest rate. For some analysts, including Nobel PrizeLaureate Paul Krugman, this balancing act can actuallyplace Brazil’s Central Bank in a more favorable positionto deal with the current economic crisis than theCentral Banks in Europe and the United States, wherenear-zero interest rate leave no flexibility in their instru-ments to foster economic growth.

Health and primary educationA healthy and literate work force is a basic requirementfor national productivity and competitiveness. Workerswho are ill tend to be less productive, adding significantcosts to businesses. At the same time, basic educationincreases workers’ efficiency and enables them to gettraining for, and adapt to, more advanced productionprocesses and techniques. Literature and anecdotal evi-dence both support the key role of basic education andhealth as a key enabler of competitiveness. Recent stud-ies also highlight the importance of the quality of basiceducation, on top of enrollment rates.The health and primary education pillar assesses the

basic health standards in a country, together with thequantity and quality of primary education. With a scoreof 5.31, Brazil is ranked 79th for the quality of its basichealth and education (five places up from 2007), largelyoutperforming South Africa (122nd) and India (100th)and clustering with comparators such as Turkey (78th)and, rather surprisingly, the Latin American top per-former Chile (73rd). At the same time, the still amplegap with the EU Accession 12 average (5.70) and thesample’s best performer Spain (35th) suggests there issignificant room for improvement.Brazil displays a fairly even performance in the two

component subpillars, measuring respectively healthquality (80th) and primary education (85th), signaling amedian position as compared to the other 133economies covered by the GCI.Comparing Brazil’s performance to that of the com-

parator sample, the country ranks 6th for the quality of itshealth standards among the nine countries included, quitefar from the two best performers, Spain (13th) and Chile(31st). As for the primary education subpillar, Brazil isagain 6th among the nine, but not so distant from the topperformers, Spain (40th) and China (44th). This mightindicate that countries with economic and developmentlevels similar to Brazil face more problems in offeringprimary education than in offering health services.Surprisingly, Chile—leading Latin American countries ingeneral competitiveness—gets the worst relative assessmentfor the quality of its primary education system (105th).

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Table 9 Macroeconomic stability, Brazil and selected countries, 2007


Country Brazil 33.14 –2.23 18.15 3.64 46.99 Chile 3.05 8.70 25.46 4.39 4.11 China 3.40 0.70 52.20 4.75 18.40 India 5.56 –5.99 35.40 6.37 75.91 Mexico 4.36 0.00 20.40 3.97 22.70 South Africa 4.01 0.80 14.09 7.09 31.30 Spain 6.02 2.23 21.20 2.84 42.63 Turkey 4.40 –1.20 21.40 8.76 39.40 Russian Federation 4.89 5.10 30.61 9.01 9.50

Interest rate spread

National savings rate

(percent GDP)Inflation (percent)

Government debt (percent GDP)

Government surplus/deficit (percent GDP)



Starting from the health subpillar, despite recentadvances, Brazil is still far from offering adequate healthservices. Its huge territory, large population, and scantinvestment in the health system are all to blame for theexisting child mortality rates and life expectancy worsethan those of Mexico, for instance: 28 percent and 72years versus 8 percent and 78 years, respectively. Braziland Mexico have roughly similar-sized economies, yetMexico, in 2006, had a larger percentage of governmentspending (vis-à-vis total expenditures) in health: 11 per-cent versus 7.2 percent for Brazil. In terms of govern-ment spending in health, India came in last, with 3.4percent. For the sake of comparison, Turkey and Spainspent 16.5 and 15.3 percent, respectively, of total gov-ernment spending in the health sector (Figure 5).Turning our attention to the primary education sub-

pillar: although Brazil has achieved almost universal netprimary enrollment (94.4 percent, at 58th place), thequality of primary education seems to be an area inparticular need of improvement (119th); this despite the high expectations in the Program to DevelopEducation (PDE) launched by the Ministry ofEducation in 2007 as a keystone of upgrading the edu-cational system. This could be partly explained by therelatively small amount of resources invested by thegovernment in education—4.29 percent of total gov-ernment expenditure, corresponding to 64th place—thelowest in the comparator sample.Another major weakness shared by the basic and

higher education system in Brazil has to do with a largeregional bias against the North and Northeast, as con-firmed by the results of a test called Prova Brasil, appliedby INEP/Ministry of Education in public elementaryschools (1st to 8th graders), evaluating performance, byschool units, in mathematics and Portuguese.A recent positive development is the increasing

awareness among both the private and public sectors

about the need to review and improve the educationalsystem, at all levels. In launching the aforementionedPDE, Education Minister Fernando Haddad stressed theneed for a systemic vision of the education process,including the need for good teachers and professors,access to adequate educational infrastructure, and sup-port from families and from society as a whole.

Efficiency enhancersAt its current stage of development, Brazil relies cru-cially on efficiency enhancers to support its competi-tiveness (they make up 50 percent of the total GCIscore). In other words, the country’s sustained growthprospects rest in large part on a quality higher educationand training system, well-functioning factor markets, thecapacity to leverage technology (especially ICT) presentin the national economy, and a market large enough toallow for economies of scale to flourish.With a 4.28 score, Brazil is assessed fairly well at 51st,

outperforming Turkey (59th) and Mexico (55th) as wellas the regional average (3.77) in the comparator sample.It almost matches the EU Accession 12 average (4.30),and the gap with the best performer in the subindex,Spain (25th), is much smaller (26 places) than the gap inthe basic requirements subindex. However, a more care-ful look at the subindex shows a very mixed perform-ance at the pillar levels, whereby a remarkably largemarket (10th) and a relatively high degree of technolog-ical readiness (56th) go together with inefficient goodsmarkets (101st) and rigid labor markets (91st).

Higher education and trainingA quality higher education and training system is anessential precondition for a well-functioning economy,since it provides the national production system with anadequate pool of qualified human resources able toadapt to the changing needs of the latter. This is espe-

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Figure 5 Health expenditures as a percentage of total government expenditures, 2006

0

5

10

15

20

TurkeySpainChileMexicoRussian Federation

South AfricaChinaBrazilIndia

Source: World Health Organization, available at http://www.who.int/en/.

Note: Ranks are in a constant 2005–2006 sample.

3.4

7.2

9.9 9.910.8 11.0

14.1

15.316.5


cially the case for efficiency-driven economies such asBrazil, which increasingly derive their competitivenessfrom more advanced production processes requiringwell-qualified and trained workers.Ranked 58th (up six positions from 2007) for the

quality of its higher education and training system,Brazil clusters with comparator countries such as SouthAfrica (57th) and Chile (50th), while it outdoes Mexico(74th), Turkey (72nd), and, to a lesser extent, China(64th) and India (63rd) as well as the Latin Americanaverage (4.12 versus 3.74). At the same time, Brazil lagsbehind not only highest-ranked Spain (30th) but boththe BRIC (4.16) and EU Accession 12 (4.54) averages.It is interesting to note that Brazil does much better

in higher education and training than in primary educa-tion (85th), which appears to reflect the government’straditional larger focus and investment on higher educa-tion. However, this historic trend was reversed by theaforementioned PDE, which earmarked a higher shareof government investment both in basic and highereducation (4.29 percent and 4.09 percent, respectively).20

With the PDE, the country seems to be moving inthe right direction in terms of improving its educationalsystem in its totality, but attention must be paid also tothe quality of higher education, as highlighted by thepoor ranks registered for the quality of the educationalsystem (117th), especially for math and science educa-tion (124th). Also the tertiary enrollment rate, at 25.48percent, is fairly low (76th).On a more positive note, Brazil displays fairly good

management schools (58th), a satisfactory level of on-the-job training (33rd), and universal enrollment in sec-ondary education (14th).

Goods market efficiencyWell-functioning goods and services markets ensure theallocation of resources to their best use, balancing supplyand demand in a given economy. Goods market effi-ciency is especially important for Brazil, since, at itspresent stage of development, its competitiveness restscritically on efficient markets and production systems.Key factors for an efficient goods and services mar-

ket include a competitive environment among bothnational and international economic actors –and therelated absence of distortive government regulations orinterventions-, and the creation of adequate demandconditions.With a score of 3.90, Brazil ranks a disappointing

101st for the efficiency of its good markets, the secondworst performance, after macroeconomic stability, postedby the country among the 12 pillars of competitive-ness.21 Moreover, Brazil, together with Russia (99th), isthe laggard in the comparator sample, with a significantdivide with respect to top performers Chile (26th),South Africa (31st) and, to a lesser extent, Spain (41st).At the same time, the country is not only outperformedby the BRIC (4.20) and EU Accession 12 (4.45) aver-

ages, but also by Latin America (4.01); this is quite wor-risome considering market flexibility is a general con-cern in the region.A note of caution must be introduced here: while

both the domestic and foreign competitive conditions inthe country seem to be particularly poor, at 117th, thequality of demand conditions is assessed comparativelybetter, at 61st. This points to distortive regulations andmeasures as the main area to tackle in order to improvethe efficiency of the goods markets in Brazil. Indeed,widespread red tape, a burdensome and inefficient tax sys-tem, and an entrenched tradition of bureaucracy all con-tribute to the creation of a distortive business environ-ment in which it is difficult for both national and inter-national economic actors to operate and create wealth.Although we direct the readers to Chapter 2.2 of this

Report for a more detailed analysis of the role of bureau-cracy in Brazil, a glance at the variables composing thepillar is enough to appreciate the scale of the problem.With respect to domestic competition conditions, thecountry positions itself last in the sample for the dis-tortive effect of its taxation system and 116th for thetotal tax rate (69.20 percent of total profits, according tothe World Bank),22 while it ranks 125th and 127th forthe number of procedures and number of days to start abusiness, respectively.The situation is not much better for the quality of

foreign competition, fairly distorted by widespread andhigh trade barriers (106th for the prevalence of tradebarrier and 92nd for the trade-weighted tariff rate). Thisissue is treated more in detail in the description of themarket size pillar below.On a more positive note and as already mentioned,

Brazil performs well in the quality of demand condi-tions subpillar (61st), with a fairly high degree of cus-tomer orientation (56th) and rather sophisticated buyers(69th). These data reinforce the idea that the greatestdifficulty faced by companies located in the country isnot a lack of demand or of diversification in the goodsand services market, but rather the environmental con-ditions in which these companies operate. Only byaddressing the deficiencies in the general environmentfor doing business in Brazil and the various regulationswith a distortive effect can the country enable eco-nomic actors to do business and prosper.

Labor market efficiencyFlexible labor markets—ensuring that the labor force isallocated to its most efficient use—is a critical competi-tiveness enhancer for all economies. This is more so forcountries competing mainly on high value added goodsin markets that, because of their dynamism, require con-tinuous adjustments to their national production sys-tems, and therefore the ability to move workers to themost dynamic sector at any time. Further, well-function-ing labor markets can play a central role in povertyreduction and in fostering social equity. This is particu-

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larly meaningful for countries such as Brazil, character-ized by a highly unequal income distribution and wide-spread poverty.With a score of 4.15, Brazil is ranked a dismal 91st

for labor market efficiency, the third-worst assessmentamong the 12 pillars of competitiveness. This is a reasonfor special concern given that the country’s currentcompetitiveness rests crucially on the efficiency of itsfactor markets. Although Brazilian labor markets areassessed as being more efficient than their equivalents inTurkey (125th, the laggard in the comparator sample),Mexico (110th), and even Spain (96th), a comparisonwith the impressive marks obtained by the best per-former in the sample, Chile (17th), or with Russia(27th) and the BRIC average (4.39) shows the magni-tude of the challenges on this front.The GCI assessment reflects the particularly inflexi-

ble nature of the formal labor market in Brazil, which ischaracterized by extremely burdensome labor regula-tions involving important non-wage labor costs (37 per-cent of total salary, corresponding to a 123rd place),rigid hiring and firing practices (ranked 112th), andwage determination procedures (106th). This, coupledwith an onerous and inefficient tax system,23 hinderslabor mobility and keeps important human resources“trapped” in low-productivity sectors. As a result, laborinformality is widespread, especially among the less edu-cated, for whom labor turnover is also high, discourag-ing investment in productivity-enhancing human capitalaccumulation through labor training. Despite high par-ticipation rates, own-account workers and those withoutsocial security coverage vary between 33.7 percent to53.9 percent of the employed population—dependingon the definition of informality—according to the latest

OECD data.24 Figure 6 provides a regional overlookwith respect to informality for comparison purposes.These data are confirmed by the Forum’s Survey,

which gives Brazil a rank of 91 out of 134 countries forthe prevalence of its informal sector—far belowSingapore and Switzerland, the two top performers inthis indicator; and also Chile (22nd), the most competi-tive country in the region; and China (56th) and India(72nd) among the BRIC economies.The large informal market also has serious implica-

tions for overall national productivity, given the natureof jobs in the informal market: unstable, poorly paid, andwith diminishing returns. Further, it reduces the taxpayer base, ultimately jeopardizing the sustainability ofthe public finances.Structural reforms to tackle these rigidities appear to

be a priority in view of enabling the labor market toallocate workers according to the needs of the produc-tion system. In this spirit, some of the general guidelinesthat could be followed are: (1) lowering the social secu-rity contributions for low-paid workers,25 as well asreducing the incentives for negotiated separation by rais-ing the rate of return on FGTS balances,26 and by grad-ually phasing out the severance indemnity in the eventof unfair dismissal;27 and (2) improving the supply ofvocational training and creating a national skills certifi-cation system, and more generally upgrading the educa-tional and training system, since for labor mobility tofunction, a skilled, continuously trained and eager tolearn labor pool is required.

Financial market sophisticationAs underlined by the severe economic consequences ofthe current global financial crisis, a sophisticated and

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Figure 6 Labor market informality in Latin America

Source: OECD, 2008.

0

20

40

60

80

Chile

Costa Rica

Argentina

Uruguay

Panama

Venezuela

Mexico

Dominican RepublicBrazil

El Salva

dor

Ecuador

NicaraguaPeru

Guatemala

Paraguay

Bolivia

Labor informality (productive definition) Labor informality (legalistic definition)


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efficient financial system is an important feature of anycompetitive economy—more so for countries at higherstages of development. Cross-country analyses tend tofind that financial depth predicts future economicgrowth, physical capital accumulation, and improvementsin economic efficiency, even after controlling for initialincome levels, education, and a variety of policy indica-tors.28 Some studies even suggest that developing deepand efficient financial systems is not only correlated witha healthy economy, but can also reduce poverty andincome inequality.29 Development of the financial systemcontributes to economic growth by reducing the costs ofacquiring and processing information, helping investorsdiversify risks, and reducing monitoring costs. As a con-sequence, it improves resource allocation.The financial market sophistication pillar measures the

degree of development and the efficiency of the financialsystem, together with its soundness and trustworthiness,by looking at variables such as the ease of obtaining bankloans, the soundness of banks, the ease of raising moneyon the local stock market and debt markets, and theavailability of venture capital, among other aspects. Witha score of 4.36, Brazil is ranked 64th for the sophistica-tion of its financial markets, way above fellow BRICeconomies China (109th) and Russia (112th), as well asthe Latin American (4.12) and BRIC (4.15) regionalaverages. However, it still displays a large gap with respectto top performers South Africa (24th), Chile (29th), aswell as India (34th).30

After transitioning from hyperinflation to price stabil-ity, and with the support of well-crafted regulation andsupervision, Brazil’s banking sector has emerged strongerand able to weather numerous crises, both domestic andregional, including the tequila crisis of 1995, theBrazilian real devaluation of early 1999, the Argentineandebacle of 2001–02, and the Brazilian crisis of confi-dence in the run-up to the presidential election in late2002. Brazil’s top banks have high levels of capitalizationand stand today as the most solid and profitable financialinstitutions in Latin America, poised to expand regionallywith their strong balance sheets. The recently mergedBanco Itaú Unibanco is among the 10 largest banks in theworld for market capitalization. The cost of money inBrazil was for many decades a key factor hampering theflow of credit, and therefore economic growth.Corporate lending rates have been on a downward trendsince 2004, but remain high by international standards.31

In 2006, corporate lending rates averaged just below 30percent, down from an average of 33 percent during2005 and 67 percent in 2003;32 by 2009, they hoveredbetween 20 percent and 30 percent. Spreads on con-sumer credit operations are significantly higher. Manyfactors have contributed historically to keeping lendingcosts high, namely:

1. Wide spreads are partly the result of the long his-tory of price instability and high public-sector bor-rowing requirements.33

2. Spreads are also affected by explicit and implicittaxation. Explicitly, the banking sector is subject totaxes and contributions; implicitly, to cross-subsi-dies, such as reserve requirements that are amongthe highest in the world, enforced loans at lower-than-market interest rates to special groups,34 andother distortions.35

3. Outmoded bankruptcy legislation has made legalprocedures to execute guarantees very expensivefor lenders. A reform was passed in 2004, signifi-cantly streamlining bankruptcy processes; this is stillin the implementation phase but promises topotentially have an impact on lowering spreads.

Lowering the cost of credit while maintaining thesturdiness of the banking sector’s balance sheet remainsan important policy challenge for the country.Box 1 provides more insight on the sophistication of

Brazil’s financial markets, with particular reference toequity and debt capital markets, and to the role of thepension system.Corroborating the positive developments mentioned

above, Brazil gets high marks for its financial marketsophistication (21st), soundness of banks (24th), regula-tion of securities exchanges (28th), strength of investorprotection (50th), and financing through the local equitymarket (56th). The above notwithstanding, importantchallenges lie ahead in improving capital availability forsmall- and medium-sized enterprises and consumers ingeneral, as highlighted by the very poor marks thecountry gets on the variables assessing restrictions ofcapital flows (119th) and the protection of legal rights(119th). This makes part of a vicious circle of relativelow credit availability and inadequate legal right protec-tion. The difficulty that creditors have in executing col-lateral or guarantees remains an important barrier toexpanding credit, because of the many days it takes tohave a judge award a case and enforce a conviction.Furthermore, the real estate and property registry data-base, the proper functioning of which is essential forcollateral confirmation, are slow and often cited as abarrier to the expansion of mortgage markets.

Technological readinessAccess to cutting-edge technology becomes increasinglyimportant for firms and countries in sustaining theircompetitiveness as they progress to the efficiency-drivenstage of development and cannot continue to relyexclusively on cheap factors of production as main com-petitive advantages. At this stage, what really matters isthe availability of technology within the country, regard-less of its origin: the capacity to generate knowledgedomestically becomes a key driver of competitivenessonly for economies near to the technological frontier, inthe third and most advanced stage of development.In particular, it is critical for firms, as well as for indi-

viduals and government, to have access to and fully


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Equity marketsCorporate financing through the stock market has enjoyedsubstantial growth over the past several years, thanksnotably to efforts to encourage a culture of equity financ-ing through regulatory changes, including measures toprotect the interests of minority shareholders. The NovoMercado is a prime example.1 Brazil’s main stockexchange, Bovespa, is the largest in Latin America for itsmarket capitalization, which as grown significantly as apercentage of GDP (Table A).

The evolution of pension fund portfolios has played animportant role in strengthening corporate governancestandards. With over 100 companies being listed since thecreation of the Novo Mercado in 2005, the pension fundshave worked closely with enterprises when consideringtheir initial public offerings (IPOs).2 This voluntary collabo-ration between issuers and providers of capital hasresulted in improved corporate governance; in turn thishas attracted additional funds—not only domestically, butalso from the rest of the world—with a remarkable growthin trading value and activity.3

Debt capital marketsThe development of Brazil’s debt capital markets in thepast five years has been fairly successful, driven by pru-dent public debt management strategies that providedmarket-making schemes for government debt and estab-lished clear benchmarks for corporate debt. The govern-ment was able to place bonds in local currency at maturi-ties of up to 30 years. Another positive trend was a mas-sive exchange of foreign currency-denominated debt forlocal currency-denominated debt, which made the countrymuch less vulnerable to swings in the currency marketsthan it had been in the past. However, it remains to beseen how the appetite for Brazilian securities will evolve inthe context of the present financial and economic down-turn. Adding to the positive trend in the debt markets, theBrazilian options and futures market (Bolsa deMercadorias e Futuros de São Paulo) has significantlyincreased its trading volumes and contract options. It

ranks among the five largest such markets worldwide interms of trading volumes, specializing in currency andinterest rate swaps.

Pension system investmentThe pension system policy in Brazil has not followed theLatin American trend of reform from publicly funded pay-as-you-go programs toward fully funded, privately man-aged, defined-contribution systems of individual accounts.The country’s approach has been to strengthen the sol-vency of the public pay-as-you-go system and furtherdevelop the existing privately managed, voluntarily fundedpension system.

A positive aspect vis-à-vis its Latin American peers isthat pension funds’ portfolios are better diversified and notso heavily invested in government debt, therefore con-tributing more to financing the productive sector and tostrengthening corporate governance standards. The cur-rent regulation allows pension funds to invest up to 50 per-cent of their portfolios in enterprises listed under the newcorporate governance guidelines of the Novo Mercado, butonly 35 percent in those listed in the regular market. Thisvoluntary collaboration between issuers and providers ofcapital has resulted in improved corporate governance andhas attracted additional funds, as noted above.

Notes1 The Novo Mercado is a listing segment designed for sharesissued by companies that voluntarily undertake to abide by cor-porate governance practices and transparency requirements inaddition to those already requested by Brazilian law and theBrazilian Securities and Exchange Commission. Given its volun-tary aspect, the Novo Mercado is widely seen as a successbecause both investors and companies consider corporate gover-nance obligations to be advantageous.

2 See http://www.bovespa.com.br/pdf/FactsFigures.pdf.

3 As of February 2008, Brazil became the largest emerging marketin the MSCI Global Emerging Market index, bringing it to 14.95percent of the index. In 2002, Brazil accounted for just 5.3 per-cent of the index. See http://www.mscibarra.com

Box 1: A deep-dive into Brazil’s financial sophistication

Table A Stock market indicators, Brazil and selected countries and regions

Country (or region)

Source: OECD 2008.a2003.

Argentina 2.3 26.2 0.6 5 179 104

Brazil 3.6 42.0 1.2 12.3a 581 357

Chile 44.9 116.2 2.5 12.2 215 239

Colombia 3.5 22.5 0.2 1.5 80 114

Mexico 12.4 23.7 4.6 6.3 199 152

Peru 3.1 26.1 0.4 1.6 294 194

Latin America and the Caribbean 7.7 39.4 2.1 8.3 1 ,748 1,525

Australia 35.1 122.8 12.9 80.7 1, 089 1,515

Singapore 92.9 129.6 55 75.6 150 484

Spain 21.8 86.6a 8.9 111.5a 427 3,191

United Kingdom 85.8 132.6 28.2 174.5 1,701 2,684

United States 53.2 139.4 30.4 165.3 6,599 5,231

Listed enterprises (number)

1990 2004

Stock market capitalization(percent of GDP)

1990 2004

Value traded(percent of GDP)

1990 2004


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leverage ICT—the most innovative technologies of ourday. ICT plays a crucial role in stimulating growth bysignificantly impacting productivity across sectors andindustries. It is increasingly moving to the center ofnational innovation and development strategies in manycountries in view of its astounding power as a driver ofchange, modernization, and competitiveness.36

The technological readiness pillar attempts to gaugecountries’ agility in adopting existing technologies—among which ICT—to foster their firms’ productivity.With a score of 3.59, Brazil is ranked 56th for its

technological readiness, clustering with Turkey (58th)and South Africa (49th), and largely outperforming fel-low BRIC countries China (77th), India (69th), andRussia (67th) as well as regional comparator Mexico(71st). The country is also a great deal more technologi-cally ready than the regional average (3.20).This fairly positive showing can be attributed to

Brazilian prowess in attracting FDI—one of the mainsources of technology—and in absorbing innovation,together with a relatively high degree of ICT penetra-tion. With respect to the former, the country is ranked58th, 42nd, and 43rd, respectively, for the availability ofthe latest technologies, firm-level technology absorption,and FDI and technology transfer. In particular, as men-tioned, Brazil was the main FDI destination in theregion in 2007 and is considered to be among the mostattractive destinations by foreign investors because of itslarge market, natural resources, and sophisticated anddiversified industrial base. Chapter 3.3 of this Report pro-vides a thoughtful account of FDI flows to Brazil inrecent years.The assessment of the country’s ICT readiness is more

mixed, with mediocre national ICT penetration rates.37

After the privatization of the state telecommunicationscompanies in 1999, Brazil’s basic ICT infrastructure grewrapidly, mobile penetration boomed,38 and the number ofpersonal computers (PCs) increased dramatically, aidedby government credit programs and others. However, thecountry only displayed 52.90 percent, 22.55 percent,16.90 percent and 3.14 percent penetration rates formobile telephone subscribers, Internet users, numbers ofPCs, and broadband Internet subscribers, respectively, in2006.The data above, collected on a national basis, conceal

a great degree of diversity in the extent of ICT accessand computer literacy by region and income level. Theenormous economic and social divide affecting thecountry seems to translate into an important digital one.At the same time, Brazil is home of one of the mostadvanced e-government services in the region and inter-nationally, with the most elaborate electronic voting sys-tem in the world and a remarkable online tax return.Moreover, the government has long considered ICT dif-fusion an important instrument for improving productiv-ity, growth, and the provision of government services aswell as a useful complement in addressing the country’s

huge social and economic problems. Notably, the currentadministration has focused on two main projects withthe aim of using ICT and e-government services tobridge the social gap: the e-Brasil Project, promoting abroad agenda of public policies aimed at building a moreequitable and competitive country through the intensiveuse of ICT; and the 2014-Bis project that—in parallelwith the preparation of the World Cup 2014, to behosted by Brazil—intends to create a stronger countrybrand, showcasing unique Brazilian developments interms of technology, scope, approach, and social impact.39

Market sizeAn extensive market size plays an important role inenhancing national productivity, since it allows compa-nies to benefit from economies of scale in their produc-tion processes and strategies; this makes investment inresearch and development (R&D) and innovation moreprofitable. This is especially relevant for companies andcountries, whose competitiveness relies fundamentally onefficient production processes and more value-addedproducts, as in the case of Brazil.In today’s globalized world, the relevant market for

companies operating in a given economy increasinglystretches beyond national borders; therefore a compre-hensive definition of market size needs to include bothdomestic and foreign components.With a rank of 10th, market size represents by far

Brazil’s strongest competitive area among the 12 pillarscomposing the GCI. In the comparator sample, thecountry clusters with Mexico (11th), Spain (12th), andRussia (8th), and it is outperformed only by China (2nd)and India (5th) and the BRIC average (5.54 versus 5.95).On the other hand, countries such as Chile—LatinAmerica’s leader in competitiveness, with better globalindicators than Brazil—have stronger limitations becauseof the size of their markets. Chile, for instance, is in 47thposition in the overall ranking, the last in the sample.Within the market size components, particularly

noteworthy is the size of Brazil’s domestic market, assessed9th out of 134 economies. The extensive market of some180 million Brazilians is a strong asset for the country,especially considering that the recently attained macro-economic stability, expanding credit, and social programsfor the poor have contributed to a marked reduction inpoverty and to the emergence of a larger middle classwith stronger purchasing power. In particular, the middleclass, which accounted for 44 percent of the total popu-lation in 2002, has risen to 51.89 percent in 2008, repre-senting a 17 percent increase. Neri attributes this phe-nomenon not only to public income transfers (pensionor social programs related to income distribution), butmainly to structural changes in the labor market (relatedto the increase of formal jobs).40 This has been associatedwith an increase in monthly average household income,from US$1,569 to US$1,957 between 2004 and 2008.The study also shows an encouraging trend toward


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increasing social mobility: the probability of an individualrising to classes A or B has never been so high, while thepossibility that this same person would fall to classes Dor E has never before been as low as it is now.Further, social programs such as Bolsa Família (Family

Allowance) and Bolsa Escola (School Allowance) haveplayed an important role in reducing poverty and incomeinequality, as reflected in the fact that the Gini index hasconsistently improved over the last five years (falling from58.8 in 2002 to 56.6 in 2007),41 and in the FundaçãoGetulio Vargas Misery Index42—according to which thepopulation living in conditions of extreme poverty fellfrom 37.13 percent in 2003 to 25.16 in 2008.In terms of foreign market size, Brazil posts a strong

showing at 23rd. Given its important production capac-ity, Brazil may regard the external market as a target forfuture expansion, a strategy that would certainly generatecompetitive gains in the pillar under consideration.Brazil does not currently perform to its full potential

as far as commercial openness is concerned. For bothtotal imports (as a percentage of GDP) and total exports(as a percentage of GDP), Brazil occupies the last relativeposition in the comparator sample. That the percentagerates are below 15 percent of GDP for both imports andexports seems to point to untapped possibilities in termsof international trade. In this area, Brazil appears to beless competitive than countries such as China, Mexico,and Chile, where import and export rates represent morethan 30 percent of GDP. Indeed, Brazil’s economy con-tinues to be relatively closed compared with interna-tional peers, as witnessed by the country’s fairly low par-ticipation in world trade. This accounted for only 1.16percent in 2008, with a minor improvement from 2004(1.05 percent)—a small amount especially consideringthe boom experienced by international trade before thecurrent economic downturn.In particular, the MERCOSUR trade agreement does

not seem to have significantly increased Brazil’s intra-regional trade.43 Indeed, in 2007 the signatory countriesof MERCOSUR accounted for only 10.8 percent ofBrazil’s total exports and 9.64 percent of total imports.Meanwhile, the United States still accounted for 15.6percent of total exports and 15.52 percent of totalimports for the country.44 According to the Ministry ofForeign Affairs, the poor performance of MERCOSURintra-regional trade could be related to the maintenanceof the high tariff barriers imposed by the signatorycountries as well as to problems of access to the marketsimposed by foreign countries.The above is corroborated by Brazil’s relative perform-

ance in the sample for the size of its foreign markets,which lags behind China (1st), India (5th), Russia (6th),Mexico (16th), and Spain (19th). It should be empha-sized, however, that the distance between the best and theworst performance scores in this comparison is small.Despite these fragmentary comparisons, Brazil’s overallperformance in this pillar lies well above the average.

Innovation and sophistication factorsAs countries move up the development path and reachthe most advanced stage of development, the capacity toproduce unique and innovative products and servicesand to incorporate sophisticated production processesbecomes increasingly critical for sustaining nationalcompetitiveness. Brazil has not reached yet the innova-tion-driven stage, and the innovation and sophisticationfactors currently account for a relatively minor 10 per-cent of its overall GCI score. However, these factors aregoing to become more and more important as thecountry gets closer to the technological frontier andreaches the innovation-driven stage of development—ina future that, it is hoped, is not too far away.As already mentioned, Brazil posts its best showing

across the GCI subindexes in the innovation and sophis-tication factors, with an impressive 42nd rank. It outper-forms Russia (73rd), Mexico (70th), Turkey (63rd), and,quite remarkably, the regional best performer Chile(44th). Also, with a score of 4.04, it largely outdoes theregional (3.43) and EU Accession 12 (3.78) and, to alesser extent, BRIC (4.02) averages.Moreover, the business sophistication (35th) and

innovation (43rd) pillars are the second and third bestassessed areas, respectively, in the GCI. For an insightfulanalysis of Brazil’s innovative and sophisticated businesssector and its potential for bridging the competitivenessgap with the rest of the world, please see Chapter 3.2 ofthis Report.

Business sophisticationThe business sophistication pillar, together with theinnovation one, aims at capturing drivers of competi-tiveness that are more “micro” in nature and have a cru-cial bearing in fostering healthy and competitive busi-ness environments. Sophisticated operations, strategies,and business networks enhance firms’ efficiency, whichin turn enables productivity and overall national com-petitiveness. Important elements include the quantityand quality of suppliers, the presence of deep and devel-oped clusters, efficient production processes, and thenature of a firm’s competitive advantage and the depthof its value chain, as well as the extent to which a firmcontrols international distribution and marketing.Business sophistication is particularly important for

firms operating at the top end of the value chain and forcountries approaching the technological frontier, whichcrucially derive their competitiveness from a sophisti-cated and innovative business sector.For its level of development, Brazil’s competitiveness

rests on the efficiency enhancers and, to a lesser extent,basic requirements. Nevertheless, the innovation andsophistication factors will become increasingly relevantas it moves further up the development path. Quiteinterestingly, given Brazil’s present development stage,the country gets its second-best mark for the sophistica-


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tion of its business sector, being ranked a remarkable35th out of 134 economies. Within the comparatorsample, it clusters with Chile (31st), the best regionalperformer, and South Africa (33rd) and largely surpassesfellow BRIC Russia (91st) and, to a lesser extent, China(43rd) as well as the other regional giant, Mexico (58th).Moreover, with a score of 4.58, it largely outshines theregional (3.97), EU Accession 12 (4.20) and BRIC(4.41) averages.In particular, the country displays important compet-

itive advantages in the quality and quantity of suppliers(41st and 13th, respectively), in the presence of well-developed clusters (43rd), and, more generally, in differ-ent elements relating to the sophistication of firms’operation and strategy (43rd).Brazil’s strong showing in the pillar reflects the

degree of diversification and sophistication achieved byits production sector. It is worth noting that FDI out-flows exceeded the inflows in 2006 (US$28 million versus US$18.8 million) in Brazil, thanks to an extraor-dinary internalization effort on the part of the Brazilianmultilatinas.45 Indeed, Brazil, together with Mexico,46 hasspearheaded the Latin American multilatinas phenome-non, through which, thanks to superior technology andorganization, successful national companies have goneglobal by massively investing abroad—both in the regionand beyond. The multilatinas are now competing forglobal leadership in sectors as diverse as oil and gas,metal and mining, cement, steel, food and beverage, andhigh tech, among others. Brazilian companies such asPetrobras, Vale, Sadia, and Embraer are among thosewhich have proven able to compete—and win—in theinternational markets, both in traditional industries andthose that are less so (Embraer).47 Brazilian multilatinasare also earning an increasing portion of their revenuesabroad. In 2005, 84 percent, 60 percent, 31 percent, and11 percent of the total sales of Embraer, AracruzCelulose, Gerdau, and Petrobras, respectively, were ininternational markets.48

InnovationInnovation, without doubt, represents the most strategicenabler of national competitiveness in the long run,since it is the only “good” not suffering from diminish-ing rates of return. Whenever a country approaches thetechnological frontier, the endogenous generation ofinnovative processes and products becomes a necessityfor sustained growth and productivity. In this sense,innovation and business sophistication are the two keycompetitiveness drivers for innovation-driven economiesin the GCI.At its current stage of development, Brazil can still

benefit from absorbing and adapting technology comingfrom outside the country. Nevertheless, with an eyetoward the future, it should continue nurturing its inno-vation potential, especially by further strengthening asupportive national environment.

With a score of 3.50, Brazil occupies a fairly satisfac-tory 43rd place for its innovation potential, coming onlyafter China (28th), India (32nd), and the BRIC average(3.63) in the comparator sample. While it clusters withimportant comparators such as South Africa (37th) andSpain (39th), it largely outperforms Mexico (90th) aswell as fellow BRIC Russia (48th), among others.Interestingly enough, Brazil displays a larger innovationpotential than the regional best performer in generalcompetitiveness, Chile (56th), and outdoes not only therather poor regional average (2.89) but also the EUAccession 12 (3.37).Among the factors boosting Brazil’s rank in this pil-

lar are especially the top-class innovation capacity dis-played by Brazilian firms (27th),49 the relatively highcompany spending on R&D (31st), and the quality ofresearch institutions in the country (43rd). The impor-tant innovation potential captured in these variables is,however, challenged by a poor government perform-ance with respect to the acquisition of advanced tech-nologies (84th, down 32 positions from 2006), unsatis-factory levels of intellectual property protection (79th,down 14 positions from 2006), and little collaborationbetween universities and industry (50th, down 10 posi-tions from 2006). This seems to suggest that the mainconstraints in view of further materializing companies’innovation potential have to do with features of thecountry’s institutional environment that are not con-ducive to innovation. Moreover, aspects of the moregeneral environment are reason for concern, includingthe poor quality of basic (119th) and higher education(117th), and the scarce availability of venture capital(79th), among other indicators.On a similar note, an analysis of the actual data on

investment on R&D highlights the long way still to gofor Brazil to become an innovation powerhouse. In 2006,the country invested US$58.51 per capita (for a totalamount corresponding to only 1.02 percent of GDP) inR&D. In the same year, private investment in R&Dreached US$5.452 million, approximately 0.51 percent ofGDP and 50 percent of the country’s total expenditureson R&D. This percentage, similar to that of Mexico, issignificantly higher than private-sector investment inother Latin American countries such as Chile (21 per-cent) and Argentina (31 percent), and even India (20 per-cent). However, this percentage pales when comparedwith the 1.42 percent of GDP (70 percent of total invest-ment in R&D) invested by the private sector in China,the top-ranked country in the innovation pillar withinthe comparator sample. The figure for China is very closeto the percentage invested by the private sector in R&Din more advanced countries, such as the United States (70percent), Japan (77 percent), Korea (77 percent), andSwitzerland (74 percent). The 2008 data on the numberof US utility patents registered for Brazil point in thesame direction. With 0.47 patents per million inhabitants,Brazil comes 58th in the GCI rankings, way below global


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top performers Taiwan (270 patents per million inhabi-tants), United States (262 patents), Japan (260 patents),and Finland (160 patents), as shown in Figure 7. Withinthe comparator sample, Brazil is second to last, showing asignificant gap with Spain (6.15 patents), South Africa(1.72 patents), and Chile (1.51 patents).

ConclusionThe analysis conducted in this chapter has highlightedthe important progress Brazil has made recently towardreinforcing the foundations for sustainable long-termgrowth. At the same time, the challenges to beaddressed, together with the opportunities for betterleveraging Brazil’s many competitive advantages, havebeen discussed.The country has embarked on a virtuous path of fis-

cal rigor, while opening and improving the efficiency ofits well-diversified economy, attracting increasingamounts of FDI, among other factors. Brazil is alsohome of a very sophisticated and innovative businesssector, with its main champions competing successfullyand investing in international markets.However, the enormous potential of its extensive

domestic market and natural resources, as well as of itsfairly sophisticated production and export base, does notseem to have been fully leveraged for the benefit of itscitizens. This is also reflected in still high poverty andincome inequality levels. The country continues to displaya number of important shortcomings in both the basicrequirements and efficiency enhancers of competitiveness.Among the basic requirements, despite increasing gov-

ernment’s efforts toward putting public finances on a

sounder basis, macroeconomic stability at 122nd remainsthe biggest weakness in Brazil’s competitiveness land-scape as measured by the GCI. Further, the quality ofinstitutions (at 91st), is assessed as worrisome, with along list of problems to be tackled, among which arepoor public governance, low levels of citizen trust inpoliticians, a deep-rooted culture of bureaucracy andgovernment inefficiency, an onerous tax system distort-ing incentives to work and invest, and an inefficientlegal framework. Epidemic levels of crime and violenceimpose considerable costs on businesses, not to mentionordinary Brazilians. This is well understood by policy-makers, but further action is required to effectivelyimprove the country’s macroeconomic and institutionalenvironment going forward.The efficiency enhancers also show room for improve-

ment: in particular, imperfect competition conditions inthe goods and services markets (101st), coupled withrigid labor markets (91st), represent a burden for thedynamic business sector in its operations and strategies,ultimately hampering economic efficiency. Poor educa-tional standards especially in math and science and inhigher education are reason for concern, considering theimportance for efficiency-driven Brazil to be able torely on a qualified, constantly learning, and adaptablelabor pool. Education is crucial not only for the properfunctioning of factor markets, but also for fostering anenvironment conducive to innovation adoption and cre-ation. Moreover, education is an important complementto the efforts toward reducing income inequality andpoverty in the country.Although there is widespread awareness of the defi-

ciencies discussed above and encouraging remedial steps

Figure 7 Utility patents per million inhabitants, 2008

0

50

100

150

200

250

300

Taiw

an, China

United S

tate

s

Japan

Finland

Spain

South A

frica

ChileChina

Mexic

oIn

diaBra

zil

Turk

ey

Russian Fe

deratio

n

Source: The United States Patent and Trademark Office, June 2008.

270262 260

160

6.15 1.72 1.51 1.32 0.58 0.50 0.48 0.47 0.25


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have been taken in recent times, for Brazil to rise to itsfull potential, a joint effort by all relevant stakeholders—including all political parties, the business sector, and civilsociety—is required to design an effective competitive-ness strategy. This effort, of course, needs to be matchedby a concomitant long-term focus on action and diligentexecution, regardless of administration changes.The current challenging times of global economic

crisis make collective reflection and action, if anything,more urgent: only in this way can Brazil move to ahigher growth trajectory in which all Brazilians willreap the fruits of increased prosperity.

Notes1 IMF 2008.

2 UNCTAD 2008a. Brazil also ranked 5th in the World InvestmentProspect Survey 2008–2010 (UNCTAD 2008b) in terms of its attrac-tiveness for foreign investors for the period 2008–10. For furtherdetails on FDI flows from and to Brazil, see Chapter 3.3 of thisReport.

3 IMF 2008.

4 According to the World Development Indicators 2008, Brazil dis-played a Gini index of 56.6, one of the highest in the world (seeWorld Bank 2008). Just to put this number in context, the Giniindex varied from a maximum of 74.3 for Namibia (the mostunequal country) to a minimum of 24.7 for Denmark (the mostequal country in the sample).

5 As the definition makes clear, the concept of competitivenessunderlying the Index includes both static and dynamic components,since productivity not only determines countries’ capacity to sustaina high level of income, but also, through its impact on rates ofreturn to investment, national growth potential.

6 The version adopted in the Index is a slightly modified version ofMichael Porter’s theory of stages of development (see Porter 1990).For further details, see Sala-i-Martin et al. 2008.

7 The weights have been derived from a growth regression usingdata since the establishment of the GCI.

8 The EU Accession 12 are Bulgaria, Cyprus, Czech Republic, Estonia,Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovak Republic,and Slovenia.

9 The constant 2005 sample includes only the 117 economies cov-ered in the 2005–2006 edition.

10 See Singh et al. 2005.

11 Also Borensztein et al. (1998) consider well-developed infrastruc-ture, in particular in transport and telecommunications, to be a keydeterminant in attracting FDI.

12 According to Hulten (1996) approximately 40 percent of the growthdifferential between low- and high-growth countries can beexplained by differences in the effective use of infrastructure.

13 Fay and Morrison 2005.

14 Approximately US$220 billion. The amount was recently increasedto R$646 billion (around US$281 billion) in an effort to boost invest-ment growth against the background of the present major eco-nomic downturn.

15 See http://www.globalinsight.com/SDA/SDADetail8123.htm.

16 For further details, see Mia et al. 2007.

17 In particular, Brazil has consistently reduced its levels of public debtand deficit over recent years, and it has been running primary sur-pluses to improve its debt dynamics.

18 See Central Bank of Brazil 2006.

19 See Singh et al 2005.

20 However, a caveat must be introduced here since the 4.29 percentspent on primary education needs to meet the requirements of aconsiderably larger part of the population than the portion ear-marked for higher education investment

21 Even more worrisome is the fact that the country has seen its per-formance in this pillar worsening over time, losing a total of 21places since 2006.

22 The tax system, in particular, has an important negative impact onnational entrepreneurship, and it is at the root of many small enter-prises remaining in the informal market. The complex tax laws, thehigh tax burden, and the lack of reforms are major hindrances forcompanies’ operations and performances. According to the BBC, aBrazilian’s typical enterprise needs to work 2,600 hours per year topay all taxes while an enterprise from Ireland, for example, needsjust 76 hours. In addition to labor taxes and contributions to socialsecurity, companies need to pay state sales taxes (for 27 Brazilianstates governed by 27 different sets of laws) and a number of othertaxes (at the municipal, state, and federal levels) in sales, profits,and payments. For further information, see http://www.bbc.co.uk/portuguese/reporterbbc/story/2008/02/080226_pressftreformafiscal_ba.shtml.

23 Brazil ranks last out of the 134 economies covered by the GCR2008–2009 for the extent and effect of taxation and 116th for itstotal tax rates, corresponding to 69.20 percent of total profits.

24 OECD 2008.

25 This would reduce the cost of employing low-wage workers with-out reducing their wages.

26 FGTS or Fundo de Garantia por Tempo do Serviço is a severanceinsurance mechanism.

27 As suggested in OECD 2006.

28 De la Torre and Schmuckler 2007 and Levine et al. 2000.

29 Levine 2005.

30 Interestingly enough, Brazil does well in this pillar compared withthe other BRIC economies, with the exception of India.

31 According to Sobrinho, this figure is ten times larger than the aver-age in industrial countries and three times larger than the LatinAmerican average. See Sobrinho 2007

32 EIU 2007.

33 The successful fight against inflation in the past decade has beenan important factor in lowering bank spreads.

34 Marcovitch 2007, p. 133.

35 These distortions are taxes or charges such as the CMPF, FGC,income tax, PIS, Cofins, and IOR. See alsohttp://www.bcb.gov.br/?SPREAD.

36 See Mia et al. 2009.

37 Ranked 78th, 57th, 50th, and 52nd for mobile telephone sub-scribers, Internet users, numbers of personal computers, and broad-band Internet subscribers respectively.

38 According to Magalhães et al. 2009, Brazil had over 150 million cel-lular lines at the beginning of 2009, growing at a stellar rate of1,300,000 a month despite the economic downturn.

39 For a full analysis of Brazil’s ICT policies and initiatives ahead,please see Magalhães et al. 2009.

40 Neri 2008.

41 See World Bank 2008.

42 This is an index published by Fundação Getulio Vargas; seehttp://www.fgv.br/.

43 This trade area was established by the treaty of Asunción amongBrazil, Argentina, Uruguay, and Paraguay in 1991, with the purposeof creating a common market and boosting intra-regional trade.

44 These figures are according to the Ministry of Foreign Affairs 2008.See www.mercosul.com.br.

45 See UNCTAD 2008a


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46 According to Santiso 2008, among the 50 most profitable multilati-nas, 35 are either from Mexico or Brazil. Also among the 100 mostimportant multinationals from emerging markets, 11 are Brazilianand 6 Mexican.

47 Embraer, in particular, has become one of the global players in theaeronautics industry, thanks to its level of technological prowess.

48 See Santiso 2008.

49 One must underscore the significant progress and innovation real-ized by Brazil in specific knowledge areas such as genetics, biofu-els, agribusiness, and software. See Chapter 3.4 of this Report foran interesting account of Brazil’s progresses in agribusiness.

ReferencesAlfaro, L. and E. Hammel. 2006. “Latin American Multinationals.” In

The Latin America Competitiveness Review 2006. Geneva: WorldEconomic Forum. 79–81.

Browne, C., R. Bryden, M. Delgado and T. Geiger. 2008. “The ExecutiveOpinion Survey: Capturing the Voice of the BusinessCommunity.” In The Global Competitiveness Report 2008–2009.Geneva: World Economic Forum. 67–77.

Borensztein, E., J. de Gregorio, and J-W. Lee. 1998. “How DoesForeign Direct Investment Affect Economic Growth?” Journal ofInternational Economics 35: 115–35.

Central Bank of Brazil. 2006. Recent Evolution of Bank Spread: InflationReport. June. Rio de Janeiro: Central Bank of Brazil.

De Laiglesia, J. R. 2008. Brecha en telecomunicaciones en AL. ElEconomista February 29.

De la Torre, A. and S. Schmuckler. 2007. Emerging Capital Markets andGlobalization: The Latin American Experience. The World Bankand Standford University Press. Available athttp://siteresources.worldbank.org/DEC/Resources/DelaTorreandSchmuklerEmergingCapitalMarketsandGlobalization.pdf.

ECLAC-CEPAL (Economic Commission for Latin America and theCaribbean). 2004. Productive Development in Open Economies.Thirtieth Session of ECLAC-CEPAL. San Juan.

EIU (Economist Intelligence Unit). 2007. Country Profile: Brazil. August.London: EIU

———. 2009a. Forecast: Brazil. February. Available at http://www.econ-omist.com.

———. 2009b. Factsheet: Brazil. February. Available athttp://www.economist.com.

———. 2009c. Economic Standards: Brazil. February. Available athttp://www.economist.com

Fay, M. and M. Morrison. 2005. Infrastructure in Latin America & theCaribbean: Recent Developments and Key Challenges. Report No.32640- LCR, The World Bank Finance, Private Sector andInfrastructure Unit, Latin America & the Caribbean Region.Washington, DC: The World Bank.

Gonçalves E., M. Borges Lemos, and J. de Negri. 2008.“Condicionantes de la innovación tecnologica en Argentina yBrasil.” Revista de la CEPAL 94 (April); 75–99.

Hulten, C.R. 1996. “Infrastructure Capital and Economic Growth: HowWell You Use It May Be

More Important Than How Much You Have.” NBER Working PaperSeries, Vol. w5847.

IMF (International Monetary Fund). 2008. World Economic OutlookDatabase, April.

———. 2009. World Economic Outlook Update. January 28.

Levine R. 2005. “Finance and Growth.” In Handbook of EconomicGrowth, ed. P. Aghion and S. Durlauf. Amsterdam: Elsevier.

Levine R., N. Loayza, and T. Beck. 2000. “Financial Intermediation andGrowth: Causality and Causes.” Journal of Monetary Economics46 (1): 31–77.

Magalhães D., P. Knight, and E. Moreira da Costa. 2009. “Brazil: Willthe Soccer World Cup of 2014 Help Bridge the Social Gap throughthe Promotion of ICT and E-government in Brazil?” In The GlobalInformation Technology Report 2008–2009. Geneva: WorldEconomic Forum. 133–43.

Marcovich J., ed. 2007. Economic Growth and Income Distribution inBrazil: Priorities for Changes. São Paulo: University of São Paulo.

Mia, I., J. Estrada, and T. Geiger. 2007. Benchmarking NationalAttractiveness for Private Investment in Latin AmericanInfrastructure. Geneva: World Economic Forum. Available at:http://www.weforum.org/pdf/Global_Competitiveness_Reports/Benchmarking.pdf.

Mia, I., S. Dutta, and T. Geiger. 2009. “Gauging the NetworkedReadiness of Nations: Findings from the Networked ReadinessIndex 2008–2009.” In The Global Information Technology Report2008–2009. Geneva: World Economic Forum.

Nassif A. 2008. “Estructura y competitividad de la industria brasileña debienes de capital.” Revista de la CEPAL 96 (December): 239–62.

Neri M. 2008. A Nova Classe Média. Rio de Janeiro: Centro de PolíticasSociais/IBRE/FGV. Available at http://www.fgv.br/cps/classemedia.

Nieto Parra S. 2008. “Public Debt Management and Political Cycles:Challenges for Latin America.” Policy Insights 78 (October).

OECD. 2006. Economic Survey of Brazil. Paris: OECD.

OECD Development Center. 2007. The Latin American EconomicOutlook 2008. Paris: OECD

__________. 2008. The Latin American Economic Outlook 2009. Paris: OECD

Porter, M. 1990. The Competitive Advantage of Nations. New York: TheFree Press.

Rajan R. G, and L. Zingales. 2003. Saving Capitalism from theCapitalists. New York. Crown Business Division of RandomHouse.

Sala-i-Martin, X. J. Blanke, M. Drzeniek Hanouz, T. Geiger, I. Mia, and F.Paua. 2008 “The Global Competitiveness Index: Prioritizing theEconomic Policy Agenda.” In The Global Competitiveness Report2008–2009. Geneva: World Economic Forum. 3–41.

Santiso J. 2008. “La emergencia de las multilatinas.” Revista de laCEPAL 95 (August): 8–30.

Singh, A., A. Belaisch, C. Collyns, P. de Masi, R. Krieger, G. Meredith,and R. Rennhack. 2005. “Stabilization and Reform in LatinAmerica: A Macroeconomic Perspective on the Experience Sincethe Early 1990s.” Occasional Paper No. 238. Washington, DC:IMF.

Sobrinho, S. N. 2007. The Macroeconomics of Bank Interest Spreads:Evidence from Brazil. Los Angeles: University of California.

UNCTAD (United Nations Conference on Trade and Development).2008a. World Investment Report 2008. New York and Geneva:United Nations.

———. 2008b. World Investment Prospects Survey 2008–2010. NewYork and Geneva: United Nations.

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World Economic Forum. 2008. The Global Competitiveness Report2008–2009. Geneva: World Economic Forum.


Appendix: Structure of the Global Competitiveness Index 2008–2009

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This appendix presents the structure of the GlobalCompetitiveness Index 2008–2009 (GCI). The numbering of the variables matches the num-

bering of the Data Tables in The Global CompetitivenessReport 2008–2009. The number preceding the periodindicates to which pillar the variable belongs (e.g., vari-able 1.01 belongs to the 1st pillar, variable 12.04 belongsto the 12th pillar).The hard data indicators used in the GCI are nor-

malized on a 1-to-7 scale in order to align them withthe Executive Opinion Survey’s results.a The TechnicalNotes and Sources at the end of The GlobalCompetitiveness Report 2008–2009 provide detailedinformation on all the hard data indicators.Those variables that are followed by the symbol 1/2

enter the GCI in two different places. In order to avoiddouble counting, we give them a half-weight in eachplace by dividing their value by 2 when computing theaggregate score for the two categories in which theyappear.b

The percentage next to each category represents thiscategory’s weight within its immediate parent category.The computation of the GCI is based on successiveaggregations of scores, from the variable level (i.e., thelowest level) all the way up to the overall GCI score(i.e., the highest level), using the weights reportedbelow. For example, the score a country achieves in the9th pillar accounts for 17 percent of this country’s scorein the Efficiency enhancers subindex. Similarly, the scoreachieved on the subpillar Networks and supporting indus-tries accounts for 50 percent of the score of the 11th pillar. Reported percentages are rounded to the nearestinteger, but exact figures are used in the calculation ofthe GCI. Unlike for the lower levels of aggregation, the weight

put on each of the three subindexes (Basic require-ments, Efficiency enhancers, and Innovation factors) is not fixed. It depends on each country’s stage of devel-opment, as discussed in the text.c For instance, in thecase of Brazil—set in the second stage of develop-ment—the score in the Basic requirements subindexaccounts for 40 percent of its overall GCI score, while itrepresents just 20 percent of the overall GCI score ofSpain, a country in the third stage of development.

Weight (%) within

immediate parent category

BASIC REQUIREMENTS

1st pillar: Institutions......................................................25%

A. Public institutions .................................................................75%1. Property rights ...................................................................................20%

1.01 Property rights1.02 Intellectual property protection 1/2

2. Ethics and corruption .......................................................................20%

1.03 Diversion of public funds1.04 Public trust of politicians

3. Undue influence ................................................................................20%

1.05 Judicial independence1.06 Favoritism in decisions of government officials

4. Government inefficiency ..................................................................20%

1.07 Wastefulness of government spending1.08 Burden of government regulation1.09 Efficiency of legal framework1.10 Transparency of government policymaking

5. Security ...............................................................................................20%

1.11 Business costs of terrorism1.12 Business costs of crime and violence1.13 Organized crime1.14 Reliability of police services

B. Private institutions ................................................................25%1. Corporate ethics ................................................................................50%

1.15 Ethical behavior of firms

2. Accountability ....................................................................................50%

1.16 Strength of auditing and reporting standards1.17 Efficacy of corporate boards1.18 Protection of minority shareholders’ interests

2nd pillar: Infrastructure ................................................25%

A. General infrastructure ..........................................................50%2.01 Quality of overall infrastructure

B. Specific infrastructure .........................................................50%2.02 Quality of roads2.03 Quality of railroad infrastructure2.04 Quality of port infrastructure2.05 Quality of air transport infrastructure2.06 Available seat kilometers (hard data)2.07 Quality of electricity supply2.08 Telephone lines (hard data)

3rd pillar: Macroeconomic stability............................25%3.01 Government surplus/deficit (hard data)3.02 National savings rate (hard data)3.03 Inflation (hard data)d

3.04 Interest rate spread (hard data)3.05 Government debt (hard data)


Appendix: Structure of the Global Competitiveness Index 2008–2009 (cont’d)

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4th pillar: Health and primary education....................25%

A. Health.......................................................................................50%4.01 Business impact of malariae

4.02 Malaria incidence (hard data)e

4.03 Business impact of tuberculosise

4.04 Tuberculosis incidence (hard data)e

4.05 Business impact of HIV/AIDSe

4.06 HIV prevalence (hard data)4.07 Infant mortality (hard data)4.08 Life expectancy (hard data)

B. Primary education .................................................................50%4.09 Quality of primary education4.10 Primary enrollment (hard data)4.11 Education expenditure (hard data)1/2

EFFICIENCY ENHANCERS

5th pillar: Higher education and training ...................17%

A. Quantity of education............................................................33%5.01 Secondary enrollment (hard data)5.02 Tertiary enrollment (hard data)4.11 Education expenditure (hard data)1/2

B. Quality of education..............................................................33%5.03 Quality of the educational system5.04 Quality of math and science education5.05 Quality of management schools5.06 Internet access in schools

C. On-the-job training ................................................................33%5.07 Local availability of specialized research and

training services5.08 Extent of staff training

6th pillar: Goods market efficiency .............................17%

A. Competition.............................................................................67%1. Domestic competition ...............................................................variablef

6.01 Intensity of local competition6.02 Extent of market dominance6.03 Effectiveness of anti-monopoly policy6.04 Extent and effect of taxation1/2

6.05 Total tax rate (hard data)1/2

6.06 Number of procedures required to start a business (hard data)g

6.07 Time required to start a business (hard data)g

6.08 Agricultural policy costs

2. Foreign competition...................................................................variablef

6.09 Prevalence of trade barriers6.10 Trade-weighted tariff rate (hard data)6.11 Prevalence of foreign ownership6.12 Business impact of rules on FDI6.13 Burden of customs procedures10.04 Imports as a percentage of GDP (hard data)

B. Quality of demand conditions .............................................33%6.14 Degree of customer orientation6.15 Buyer sophistication

7th pillar: Labor market efficiency...............................17%

A. Flexibility.................................................................................50%7.01 Cooperation in labor-employer relations7.02 Flexibility of wage determination7.03 Non-wage labor costs (hard data)7.04 Rigidity of employment (hard data)7.05 Hiring and firing practices6.04 Extent and effect of taxation1/2

6.05 Total tax rate (hard data)1/2

7.06 Firing costs (hard data)

B. Efficient use of talent............................................................50%7.07 Pay and productivity7.08 Reliance on professional management1/2

7.09 Brain drain7.10 Female participation in labor force (hard data)

8th pillar: Financial market sophistication 17%

A. Efficiency.................................................................................50%8.01 Financial market sophistication8.02 Financing through local equity market8.03 Ease of access to loans8.04 Venture capital availability8.05 Restriction on capital flows8.06 Strength of investor protection (hard data)

B. Trustworthiness and confidence........................................50%8.07 Soundness of banks8.08 Regulation of securities exchanges8.09 Legal rights index (hard data)

9th pillar: Technological readiness.............................17%9.01 Availability of latest technologies9.02 Firm-level technology absorption9.03 Laws relating to ICT9.04 FDI and technology transfer9.05 Mobile telephone subscribers (hard data)9.06 Internet users (hard data)9.07 Personal computers (hard data)9.08 Broadband Internet subscribers (hard data)

10th pillar: Market size ..................................................17%

A. Domestic market size ...........................................................75%10.01 Domestic market size index (hard data) h

B. Foreign market size...............................................................25%10.02 Foreign market size index (hard data) i

INNOVATION AND SOPHISTICATION FACTORS

11th pillar: Business sophistication ............................50%

A. Networks and supporting industries.................................50%11.01 Local supplier quantity11.02 Local supplier quality11.03 State of cluster development


Appendix: Structure of the Global Competitiveness Index 2008–2009 (cont’d)

27

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razil's Com

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ess

B. Sophistication of firms' operations and strategy............50%11.04 Nature of competitive advantage11.05 Value chain breadth11.06 Control of international distribution11.07 Production process sophistication11.08 Extent of marketing11.09 Willingness to delegate authority7.08 Reliance on professional management1/2

12th pillar: Innovation.....................................................50%12.01 Capacity for innovation12.02 Quality of scientific research institutions12.03 Company spending on R&D12.04 University-industry research collaboration12.05 Government procurement of advanced technology

products12.06 Availability of scientists and engineers12.07 Utility patents (hard data)1.02 Intellectual property protection1/2

Notesa. The standard formula for converting hard data is the following:

The sample minimum and sample maximum are, respectively, thelowest and highest country scores in the sample of countries cov-ered by the GCI. In some instances, adjustments were made toaccount for extreme outliers. For those hard data variables forwhich a higher value indicates a worse outcome (e.g., disease inci-dence, government debt), we rely on a normalization formula that,in addition to converting the series to a 1-to-7 scale, reverses it, sothat 1 and 7 still corresponds to the worst and best possible out-comes, respectively:

b. For those groups of variables that contain one or several half-weightvariables, country scores for those groups are computed as follows:

c. As described in Chapter 1.1 of the The Global CompetitivenessReport, the weights are the following:

Factor- Efficiency- Innovation-driven driven driven

Weights stage (%) stage (%) stage (%)

Basic requirements 60 40 20

Efficiency enhancers 35 50 50

Innovation factors 5 10 30

d. In order to capture the idea that both high inflation and deflation aredetrimental, inflation enters the model in a U-shaped manner as fol-lows: for values of inflation between 0.5 and 2.9 percent, a countryreceives the highest possible score of 7. Outside this range, scoresdecrease linearly as they move away from these values.

e. The impact of malaria, tuberculosis, and HIV/AIDS on competitive-ness depends not only on their respective incidence rates, but alsoon how costly they are for business. Therefore, in order to estimatethe impact of each of the three diseases, we combine its incidencerate with the Survey question on its perceived cost to businesses.To combine these data we first take the ratio of each country’s dis-ease incidence rate relative to the highest incidence rate in thewhole sample. The inverse of this ratio is then multiplied by eachcountry’s score on the related Survey question. This product is thennormalized to a 1-to-7 scale. Note that countries with zero reportedincidence receive a 7, regardless their scores on the related Surveyquestion.

f. The Competition subpillar is the weighted average of two compo-nents: Domestic competition and Foreign competition. In both com-ponents, the included variables provide an indication of the extentto which competition is distorted. The relative importance of thesedistortions depends on the relative size of domestic versus foreigncompetition. This interaction between the domestic market and theforeign market is captured by the way we determine the weights ofthe two components. Domestic competition is the sum of con-sumption (C), investment (I), government spending (G), and exports(X), while foreign competition is equal to imports (M). Thus weassign a weight of (C+I+G+X)/(C+I+G+X+M) to Domestic competi-tion and a weight of M/(C+I+G+X+M) to Foreign competition.

g. Variables 6.06 and 6.07 combine to form one single variable.

h. The size of the domestic market is constructed by taking the naturallog of the sum of the gross domestic product valued at PPP plusthe total value (PPP estimates) of imports of goods and services,minus the total value (PPP estimates) of exports of goods and serv-ices. Data are then normalized on a 1-to-7 scale. PPP estimates ofimports and exports are obtained by taking the product of exportsas a percentage of GDP and GDP valued at PPP. The underlyingdata are reported in the Data Tables section.

i. The size of the foreign market is estimated as the natural log of thetotal value (PPP estimates) of exports of goods and services, nor-malized on a 1-to-7 scale. PPP estimates of exports are obtained bytaking the product of exports as a percentage of GDP and GDP val-ued at PPP. The underlying data are reported in the Data Tables ofThe Global Competitiveness Report 2008–2009.

(country score – sample minimum)

(sample maximum – sample minimum6 x + 1

(country score – sample minimum)

(sample maximum – sample minimum6 x + 7

(sum of scores on full-weight variables + x (sum of scores on half-weight variables)

(count of full-weight variables + x (count of half-weight variables)

12

12


29

Overcoming Competitiveness Gaps


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CHAPTER 2.1

Infrastructure: Will PAC ReallyAccelerate Growth?

PAULO RESENDE, Fundação Dom Cabral, Brazil

What is the impact of infrastructure on the economicdevelopment of a country? And will this impact lay thegroundwork for sustainable competitiveness? Debate ofthis issue has resurfaced strongly in recent years, mostlyas a result of the new role played by emerging mar-kets—including Brazil—in the global economy.Discussions have also been stimulated by the growingbelief that Brazil must expand its exports if it is to be aplayer in the international game of globalized move-ment of higher added value goods. However, the con-centration of industrial activities in a few urban settle-ments in the country and the divergence in living stan-dards among these and the vast rural areas are notori-ous. These issues point to the need to establish an effi-cient and extensive infrastructure network, ensuringthat all the regions and sectors of the Brazilian econ-omy have an opportunity to share the improvements innational development. The integration of Brazilianregional economies through infrastructure offers ampleopportunities for existing industries to increase theirtrade in manufactured goods. The value-adding processrepresents a logical succession of stages in industrialchains. Through investment in infrastructure, productiv-ity and output capacity are expanded, so that increasesin real income match population growth and improveliving standards.

However, the current condition of infrastructure inBrazil requires robust interventions to improve thecapacity and efficiency of all transport modes as well asenergy generation and distribution. In order to regainspeed in infrastructure investment and supply the accu-mulated demand of the past 30 years, in 2007 the fed-eral government launched the Growth AccelerationProgram (PAC), which will be used here to analyze theinfluence of infrastructure in accelerating Braziliandevelopment and competitiveness.

PAC: An overviewPAC is an infrastructure package based on the conceptthat investment allied to economic policies stimulatesgrowth in all economic sectors, simultaneously bringingsocial benefits to the Brazilian macro regions. Betweenthe 1990s and 2006, investment from the federal govern-ment in Brazil represented less than 0.5 percent of GDP.Figure 1 shows the evolution of investment in the trans-port system as a percentage of GDP in recent decades.

The same trend applied to investment in energy pro-duction and distribution, among other infrastructureareas. After 2006, a series of projects with a major focuson oil and gas by the Brazilian petroleum companyPetrobrás helped the economy grow at average annualrates of 3.7 percent. In 2008, growth rates reached 6.4percent, the highest in recent Brazilian history.


The original PAC provided for US$220 billion ininvestment for the 2007–10 period. In 2008, the PACbudget was raised to US$280 billion as a counter-cyclicalmeasure in the context of the current economic slow-down. And, if investments after 2010 are taken intoaccount, an additional US$200 billion should beincluded, elevating the total PAC budget to approxi-mately US$500 billion. With complex infrastructureprojects, PAC has been conceived by the government asa new model for planning and managing public invest-ment. It is focused on articulating infrastructure projectsto accelerate growth, together with providing bettersocial and urban conditions, mainly within the mostimportant Brazilian metropolitan areas.

PAC does not, however, consist only of new projects.As a matter of fact, most of the projects included hadbeen studied and designed from the 1980s onward.During the 1990s, the federal government started a seriesof studies based on transportation corridors, whichresulted in an infrastructure package called Brasil emAção (Brazil in Action), focusing on transport projects.This package was the first in many years to considerinfrastructure strategic to national development.

Despite its strategic focus, the Brasil em Ação packagedid not reach its objectives because of drastic cuts in pub-lic spending in the context of fiscal adjustment. This alsonegatively affected private investment, except in someareas that had already been privatized. For example, thelack of investment in infrastructure culminated in theenergy blackout of 2001, which changed forever the per-ception of public managers with respect to infrastructureneeds in Brazil.

Around that time, the government became convincedof the importance of infrastructure investment as anenabler of economic growth and job creation. Specialists

estimated that infrastructure investment in Brazil had toreach 5 percent of GDP to maximize positive impact oneconomic growth. This figure became the target of anyfuture infrastructure package. At the same time, thestrong correlation between infrastructure and economicgrowth had increasingly become accepted by civil soci-ety, which began to claim more infrastructure projects.

Based on these premises and on the experiences ofthe past, PAC was launched in 2007 in a climate ofurgency for investment in infrastructure, with the fol-lowing objectives:

• to put together the most important infrastructureprojects realized in the last 30 years;

• to build a package that would include not onlytransport, but also energy, oil and gas, and socialand urban projects;

• to transform the package into a unique set of proj-ects, protected from economic instabilities—so thatit became strategic to the government; and

• to have a different managing model to acceleratecontrol and achievements in a short timeframe.

PAC was adopted by the government as the uniqueinfrastructure package aiming at a better allocation ofresources so that new investment would focus onincreasing productivity and competitiveness. PAC alsoencompassed a series of policies to decrease regulatoryrisks, improve the framework for private participation ininfrastructure, and develop risk mitigation mechanisms.Once implemented, PAC would guarantee coverage andquality of infrastructure as well as better access to waterand sanitation, electricity, transport, and energy. The pro-gram was structured into infrastructure segments (see thebreakdown by area of investment in Table 1) in order to

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Figure 1

Source: Resende, 2007.

Investments in transport as a percentage of GDP

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2007


achieve its ambitious objectives. In this chapter, we willfocus on PAC’s transport and energy projects.1

PAC and its impact on infrastructure gaps in BrazilTwo major developments have shaped infrastructuretrends in the last decades throughout Latin America,including Brazil. First, countries have experienced trau-matic macroeconomic crises that have required drastic fiscal adjustments. Second, financial and regulatorychanges have led to large turnarounds in the infrastruc-ture paradigm, based on the notion that the private sectorshould take the main role in both the infrastructurefinancing and provision while the governments wouldlimit itself to a primarily regulatory role. Private invest-ment, however, never reached the critical mass needed to offset the massive collapse in the public one. Further, it was focused on a limited number of projects, such astelecommunications, some road concessions, railroads, and a few others, and virtually excluded from the greatmajority of projects without some degree of certainty

in return on investment. Against this background, PACcomprised (1) projects attractive only to the public sector;(2) projects attractive only to the private sector; and (3)projects attractive to both public and private sectors, characterizing public-private partnerships (PPPs).

Regardless of the characteristics of the specific proj-ect, the main question remains: what can the real role ofPAC be to satisfy infrastructure demand in Brazil? Theanswer may rely on a segmented analysis of the projectswithin PAC.

Energy generationWithin a moderate scenario, the Brazilian ElectricityRegulatory Agency (ANEEL) estimates that an increaseof 91,000 megawatts in total capacity is needed in the2008 to 2012 period with respect to energy generation.In this period, there should be an increase of 1.3 percentper year over current capacity. Figure 2 shows two sce-narios for energy generation capacity in megawatts from2008 to 2012.

The energy generation resulting from PAC’s projects,once completed, will provide approximately 20,000megawatts. This means that PAC will be sufficient to ful-fill all energy generation demands in Brazil.

Energy distributionBrazilian specialists indicate that the country needs34,072 kilometers of energy distribution lines in addi-tion to the current 86,229 kilometers. The new linesrepresent a cost of approximately US$10 billion.Currently, PAC has projects for a total of 7,120 kilome-ters, which are not enough to fully address the demand.But the private sector has also expanded its projects inenergy distribution lines. Therefore, if PAC alone could

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Table 1 PAC in numbers (US$)

Electricity 34,086

Oil and gas 77,826

Biofuel 7,565

Logistics 20,738

Naval industry 4,600

Social and urban 28,043

Subtotal 172,861

Housing

TOTAL 219,078

Source: Ministério da Casa Civil, 2007.

Figure 3

Source: ANEEL (2007)

Energy generation capacity estimates in megawatts: 2008–12

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

02008 2009 2010 2011 2012

Moderate scenarioOptimistic scenario


not guarantee an efficient answer to the demands forenergy distribution lines, projects from private energyconcessionaries may add lines, contributing to the satis-faction of current and future demands.

TransportThe current deteriorated transport system is responsiblefor tremendous economic losses and very high accidentfigures, with negative effects on national competitive-ness. Figure 3 displays the current position of Brazilcompared with other countries in shares of roads andrailroads in their respective transport matrices.

PAC has in its budget a total of US$20 billion ear-marked for transport projects. This is not enough torespond to the current and near future demands. A moredetailed analysis of each transport mode follows.

HighwaysBrazil has the third largest highway network in theworld (approximately 1.6 million kilometers, of whichonly 195,000 kilometers, or around 12 percent, ispaved). This network is highly concentrated in the east-ern part of the country where the major urban settle-ments are located.

The Brazilian transport matrix is unlikely to face sig-nificant changes in the next decades, mostly because of theexcessive concentration of freight volumes on the highwaynetwork. Associated with this, returns on capital are morelikely to occur if investment is directed to highways ratherthan other transport modes. Therefore, it is clear that anymulti-sector investment program related to infrastructurein Brazil must rely heavily on highway improvement. Inline with this, 70 percent of the PAC total transportbudget is dedicated to highway improvements.

According to the National Association for Cargo

Transport Users (ANUT),2 the increasing deteriorationof the highway system (70 percent of the highway sys-tem is estimated as being of poor quality) is a particulararea of concern, also considering its importance forlogistics systems in Brazil. Back in 2004, ANUT esti-mated that approximately US$5 billion would be neededto restore the highway system.

PAC has reserved approximately US$14 billion forhighways, but the country needs mores than US$25 bil-lion to achieve efficient service levels in its system.Therefore, even taking into account PAC and other proj-ects, Brazil still has a gap of US$10 billion in this respect.

PortsAfter highways, ports are the second priority for elimi-nating the main logistics bottlenecks and reducing oper-ational transport costs in Brazil. The country has one ofthe largest coastlines in the world, and the presence ofharbors in almost all the coastal states represents animportant advantage in international trade flows.However, in spite of these geographical advantages, thecurrent port structure exhibits several critical weaknessesthat are in need of immediate attention. Among theseare equipment obsolescence, inefficiencies in labordevelopment and allocation, lack of capacity in harbors,and inadequacies in port administration.

Investing in port equipment, labor skills, and harborcapacity could lead to important efficiency gains for theBrazilian logistics system. Increasing harbor capacity inBrazil could result in handling Capesize ships capable ofmoving 150 thousand dead weight tons. Most of theBrazilian ports handle panamax ships with a freight costof approximately US$36 per ton, while the newCapesize generation operates at a US$12 per ton freightcost. In Brazil, only seven ports are able to handle

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Figure 3

Source: Adapted by Resende from Coppead, 2007.

10 20 30 40 50 60 70 80 Railroads

90

80

70

60

50

40

30

20

10

0

Hig

hway

sFrance

Brazil

Belgium

Germany

United States

China

Russian Federation

Transport distribution in Brazil vs. selected countries: Railroads and highways, (percent total freight volumes), 2008


Capesize ships, and projects should be conducted toincrease the number of ports with water depths of 16 to18 meters so that Capesize ships could be employed.

The port system is one of the most important logisti-cal elements in the country, especially because of itsinfluence on international and national logistics effi-ciency. The Port Modernization Enactment of 1993opened port operations to private companies that tookresponsibility for the operations of 6 out of the 10 majorports in the country. However, in 2005, the NationalAgency for Waterway Transport (ANTAQ) enacted twocontroversial resolutions (resolutions 55 and 517) thatchanged the rules of port operations and private terminalcapacity improvements. Concession periods, for example,were reduced from a 25-year-period to a precariousone-year authorization that can be revoked at anymoment. These resolutions have discouraged privateinvestment from taking place on a larger scale.

PAC’s port projects include a total of US$5 billion,including ship construction. This is worrisome, since spe-cialists estimate that Brazil needs at least three timesmore resources to improve its standing in global trade.

Other modes of transportOne recurring issue in logistics discussions in Brazil hasto do with the lack of equilibrium in the Brazilian trans-port matrix. Incentives to use transport modes other thanhighways should be a trend already consolidated in thecountry. And some changes in transport dynamics can beviewed as movements toward the desired equilibrium inthe transport matrix.

In the last 10 years, under the management of privateconcessionaries, the Brazilian railroad system has signifi-cantly improved. Progress can be seen in the exponentialincrease in level of investment, traffic volumes, productiv-ity gains, and in the reduction in the number of acci-dents. Railroads are currently responsible for approxi-mately 26 percent of the freight volume in Brazil—anincrease of almost 80 percent since privatization in 1996.Investment went up from US$10 million in 1995 toUS$3.2 billion in 2006. In the same period, the freightvolume unit of transport increased by 55 percent,together with a reduction of 56 percent in the numberof accidents.3

It is expected that the railroad share in the transportmatrix will have reached 28 percent by 2008; another 2percent can be added if government invests what is nec-essary to expand the railroad network. With a 30 percentshare, the Brazilian railroad system would be closer to the42 percent international parameter that has been consid-ered the ideal share of railroads in the transport matrix ofcountries with similar industrial and regional features.

Railroads in Brazil still need to take several actions tobe part of a larger logistics network and, consequently,share the right amount of traffic volume for the transportmatrix to reach equilibrium. First, the concession con-tracts of the current operators need to be revised. There

are also some related issues that need to be updatedbecause of the current consolidated private use of rail-roads. These issues include how to share client demandsince the operators have demands of their own, and howto improve the interface among two or more conces-sionaries in the macro regional corridors.

Brazil’s inland waterways present another mode oftransport that demands a more detailed analysis. InBrazil, inland waterways account for less than 1 percentof the total freight volume; these waterways are restrictedto a very few rivers, mostly in its northern region.Although the country has more than 28,000 kilometersof navigable rivers, this mode of transport has notreceived sufficient attention from decision makers. As inany other region of the world, long navigation coursesmust be planned for inland waterways to reach adequateproductivity levels. In Brazil, with a few exceptions, rivertransport has operated only through poorly sophisticatedfacilities. The public and private sectors have never pre-sented a sound plan to improve navigable rivers toincrease inland waterways’ potential. As of today, theadministration of inland waterways practically does notexist in the context of the Brazilian transport agencies.Financing programs have aimed only to maintain thebasic needs of the current facilities, mainly in regionshighly dependent on river navigation, specially theAmazon area.

A last mode to be investigated is air transport. In spiteof the recent lack of capacity in controlling operations,which has created significant bottlenecks for air transport,this mode has shown significant improvement in Brazil.Infraero, the agency responsible for air transport adminis-tration, has successfully implemented an investment pro-gram that is modernizing and increasing the capacity ofterminals. In 2006, Infraero invested approximatelyR$530 million, improving the capacity of key airportssuch as Santos Dumont (Rio de Janeiro), Congonhas (SãoPaulo), Goiânia (Goiás), and João Pessoa (Paraíba), tomention only a few. The targets for 2010 are to transformViracopos (Campinas) into one of the main passenger air-ports of the country in order to alleviate traffic at the air-ports of Cumbica (São Paulo) and Congonhas.

Together with the provision of investment in airtransport, other measures have also led to essentialimprovements to the sector. These include the replace-ment of the Civil Aviation Department (DAC) by theNational Civil Aviation Agency (ANAC) and its regula-tion; the continuation of important projects to improvecargo handling at Florianópolis (Santa Catarina),Uberlândia (Minas Gerais), Confins (Minas Gerais), andCuritiba (Paraná) airports, among others; and, finally, thegradual but important structuring process of ANAC,slowly demilitarizing the sector and organizing opera-tions throughout the country.

Approximately US$12 billion of PAC’s budget isearmarked for investment in railroads, inland waterways,and air transport. Specialists believe that the country

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needs twice this figure, or a total of US$25 billion.Therefore, once again PAC alone is not enough to sat-isfy the entire demand of other modes of transporta-tion.

Table 2 shows the main infrastructure segments ana-lyzed above together with the relevant actions/budgetsprovided by PAC.

PAC will no doubt be an important factor in acceler-ating growth in Brazil, but alone it will not be able tomeet all the country’s infrastructure demands. Incentivesto private investment should therefore be made a maintarget. However, as elaborated in the next section, theBrazilian environment for private investment is not themost appropriate.

An evaluation of the major successes and missinglinks of PACThere is no doubt that higher amounts of infrastruc-ture investment (from 4 percent to 6 percent of GDP)foster growth, and more growth will require moreinvestment in infrastructure, in a virtuous cycle. It isclear that a failure to keep up with other countries’infrastructure can only harm Brazil’s future competi-tiveness. And, in terms of investment, PAC tries to copewith the needs of current and near-future demands.Yet, PAC is not likely to address problems alone:improvement to the regulatory and policy environmentshould go hand in hand with physical investment. It isprecisely in policies and regulations that one can findmajor successful accomplishments as well as missinglinks for the country.

Regulatory agenciesBrazil has experienced, in the last 15 years, a series ofimportant regulatory and policy reforms affecting theinfrastructure sector. Old agencies have been replaced bynew ones with different roles and concepts. Some poli-cies have been created to modernize and consolidate—for example, energy generation and distribution, portoperations, multimodal transport operators, regulatorymilestones to highways and railroad concessions, andadministration transfers from the federation to states. Ingeneral, the public sector in Brazil has had a clear inten-tion of providing the infrastructure sector proper poli-cies under modern concepts.

However, the mere existence of policies and regula-

tions does not guarantee modern and efficient opera-tions, and, above all, it does not ensure that operationsare ready to accommodate the new infrastructurecapacity resulting from PAC. On the contrary, accom-modating everyday operations is the main challenge ofdecision-makers.

Nonetheless, having policies is a first step towardachieving efficiency. A few examples are listed below:

1. Highways: there is an agency responsible for thecontrol and regulation of the highway system, theNational Agency for Road Transportation(ANTT); a national policy for highway concession(Programa Nacional de Concessões de RodoviasFederais) has been tested and approved. There isalso a department to implement highway projects,the National Transport Infrastructure Department(DNIT). The Brazilian Development Bank(BNDES) has approved credit lines for fleetrenewal, tracking systems, labor training, and otherprojects, and, a specific transport tax. TheContribuição sobre Intervenção de DomínioEconômico (CIDE) has been created to guaranteepermanent funds to road investments.

2. Railroads: since 1996, the railroad system in Brazilhas operated under private concessions and beenregulated by the ANTT. Policies to create a betterenvironment for passenger and cargo sharing inmetropolitan areas have been studied.

3. Ports: in 1993, a new law was passed to modern-ize port administration and operations, togetherwith specific tax exemptions for equipment andterminal investment in major maritime ports; alsoa new law has provided important regulations tocoastal navigation.

4. Air transport: passenger and cargo movements havebeen slowly deregulated and a new competitive environment has lessened entry barriers for new air-lines to operate both regional and national routes.

5. Energy generation and distribution:ANEEL has beencreated with strong policies and a consolidated con-trolling model to regulate energy concessionaries.

Regulatory agencies in Brazil are important to sup-port PAC and their role must be reinforced, especially inthe following areas: administration of the concessionary

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Table 2 Summary of PAC`s resources to address infrastructure demands (US$ billion)

Infrastructure Segment PAC budget Demand needs Alternatives and strategic actionsEnergy generation 28.7 20.0 Reduce dependence from international credit linesEnergy distribution 5.6 10.0 Investments from current concessionariesHighways 14.0 25.0 Incentives to private investmentsPorts 5.0 15.0 Incentives to private investmentsRailroads, inland waterways and air transport 12.0 25.0 Incentives to privates investments


contracts, from the project concept to contract imple-mentation; regulation and control of tariffs and prices;studies of infrastructure demands; registration of cargovehicles, operators, fleet control, and accident statistics;multimodal operator registration and control; and pro-motion of regulatory and control policies to all infra-structure networks in the country.

However, distortions that originated from the privati-zation processes in Brazil have led to a new reality forthe regulatory agencies. If the intention is to regulate andcontrol the concession processes, agencies should not befocused on eventualities but instead on the market andthe ample policies that direct the ways in which infra-structure facilities are operated in the country. Therefore,the following weaknesses need to be addressed to rein-force the role of the regulatory agencies:

• The concept of regulatory agencies in Brazil wasadopted a hundred years after it was conceived inthe United States. This fact points to the impor-tance of the learning process that has been neg-lected in Brazil; this process must be embraced tomake the regulatory agencies more in tune withthe realities facing the country’s infrastructure.

• The main raison d’être of regulatory agencies shouldbe to build a protective shield against politicalinfluence. Exactly the opposite seems to be thecase of Brazilian regulatory agencies.

• Public projects should be geared toward givingmore autonomy to the agencies.

• An upgrading of regulatory agencies’ technicalskills is required; this can be reached by increasingthe number of highly skilled personnel.

• Excessive budget cuts seem to have prevented reg-ulatory agencies from becoming an essential ele-ment that guarantees the efficiency and safety ofinfrastructure operations in Brazil.

PoliciesIn Brazil, policies have been created with laudable inten-tions to provide a modern and efficient environment forinfrastructure. However, in practice, most of the policieshave not worked properly; implementation especiallyremains an important challenge. For example, nationalhighway policies that address questions related to decen-tralization and concessions are in place, together withmulti-year expenditures programs, such as PAC.Discussions about the responsibilities of railroad expan-sions are a fact. Port administrations and policies are inthe daily news and make for constant debate. Air trans-port operations have been subjected to important analy-ses. In sum, infrastructure policies have been the center ofattention in Brazilian public and private sectors. However,discussions must lead to actions, and actions should be inthe direction of increasing efficiency.

Privatization, PPPs, and the role of the private sectorSince the 1990s, the Brazilian government has adopted aprimary surplus target as one of its macroeconomic pol-icy’s foundations. Given that the public sector has notbeen efficient in cutting expenses, it has not been ableto invest more in infrastructure. This, coupled with theprivatization process that began in the 1990s, hasprompted a change in infrastructure financing, with theprivate sector playing an increasingly central role.

Besides the positive impact vis-à-vis the primary sur-plus target, the privatization of infrastructure facilities hasachieved other relevant objectives, such as greater effi-ciency, better service levels, a sustainable investment level,investment in technology and labor training, more taxes,and lower maintenance costs for the public sector.

Related to the privatization programs are projectsdone through PPPs. This type of partnership has alreadybeen successfully tested in the United States, Canada,Australia, Italy, South Africa, Mexico, Portugal, and Chile,among other countries. In Brazil, the regulatory frame-work has only recently been developed, together withfiduciary funds to support PPPs. Initial projects havetaken place in the states of Minas Gerais and São Paulo,with the MG-050 and Line 4 of the São Paulo Subway,respectively. The former project was a 25-year concessionin Minas Gerais, connecting Belo Horizonte to the northof the São Paulo state; the latter was a 13-kilometerlength of urban subway in the capital city of São Paulo,with an estimated flow of 900,000 passengers per day.

Following these two projects, a considerable numberof PPPs have been started both at the federal and statelevels. Despite some unsolved regulatory issues specifi-cally related to federal fiduciary funds, there is full con-sensus that PPPs should be a fundamental source of valuefor the concession operators in the long term. Thisassumption is mostly based on the fact that PPPs arevalue accretive, even with lower internal rates of return(IRR). Several figures have shown that, with a weightedaverage cost of capital value of 13.2 percent, implying anapproximate 8.5 percent discount rate, the real IRR ofthe PPPs would fall in a 13.5 percent to 8.5 percentrange, which makes the PPPs still accretive.

In spite of PPPs’ attractiveness, there is a need to con-solidate the concession and privatization process in Brazil.To this end, economies of scale must prevail and providean element of financial stability for operators. In Brazil, thecontracts are regulated by economic-financial equilibrium.Any changes in the investment plan may lead to tariffrevisions in order to maintain the original IRRs.

Today, operators of a concession need to continuallyadjust their value added by cutting operational costs.Since regulations do not permit lower service levels, suchcost cutting is limited. Scale is the key for providingvalue added, since it dilutes highly fixed costs and, conse-quently, improves profitability and return basis. Currentoperators and future players should be helped by newconcessions to create greater scale. Current operators are

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in a better position because they already have some scal-ability in their business models, together with embeddedsynergies and know-how of relationships with publicauthorities.

Privatization and PPPs involving infrastructure areprocesses that require a high level of exposure to politicalrisks. Dealing with the public sector depends on severalissues that vary according to a very dynamic set of reali-ties. Consequently, operators and private partners arealways exposed to risks related to regulatory, administra-tive, and political frameworks. Below are some examplesof these risks:

1. Delays in tariff increases or even tariff revisionshave occurred because of the populist appeal oftoll roads. These issues have already created a trackrecord of Supreme Court rulings favoring the con-cessionaries. As the models are consolidated, thereis a tendency for these issues to become lessimportant, but they continue to be ranked as polit-ical risks.

2. Political interests and excessive bureaucracy stilllead to permanent delays in auction processes.Complex bureaucratic rituals involving differentpublic agencies have a negative impact on trustwith respect to accelerated implementations ofnew concessions.

3. There is a lack of strong and reliable regulatoryframeworks for PPPs, mainly at the federal level.The acceleration of PPPs should occur not only to improve road efficiency, but also to create atrack record of the government’s commitment toconsolidated regulatory frameworks. This is impor-tant because state and federal governments are sub-jected to different models of partnership fiduciaryfunds, and—depending on the basis of each fund—companies can be exposed to delinquencies.

ConclusionThe infrastructure sector in Brazil displays a number ofinefficiencies that negatively affect its competitiveness,mainly in terms of the global reorganization of pro-duction and distribution chains. These inefficiencies arenot new; they are the result of a historical lack of plan-ning and sustained investment.

As a consequence, infrastructure does not fully support Brazil’s integration into global markets, whichis a key determinant of interregional and internationalcompetitiveness. Logistics costs in Brazil are higherthan in other, similar economies, which results in inefficient interregional trade with unbalanced competitiveness among states. Moreover, an increasing

accessibility to Brazilian products is negatively affectedby concomitant increases in infrastructure costs,thereby reducing competitiveness.

Several infrastructure sectors have not receivedenough attention and sustained investment to competewith other countries’ networks. For example, contraryto developed countries, multimodal transport in Brazilhas not been sufficiently developed to take advantageof what each transport mode has to offer.

With respect to policies and regulations, the infra-structure sector in Brazil is subjected to modern andappropriate policies and regulatory agencies. However,in practice, operations are still outdated and under-developed. Unclear regulations for railroads, excess portlabor and bureaucracy, freight transport modes withlow productivity, and agencies operating under politicalinfluence have created an environment where operatorswork with a dangerous level of independence.

Finally, transfers of infrastructure facilities to the private sector do not seem to follow a path conduciveto accelerated concessions needed for maintenance and operation. Comprehensive reviews of concessionbiddings and contract documents have taken too long,which has also prevented PPPs from becoming a viable alternative.

Brazil needs immediate and massive investment in infrastructure. PAC is a significant step in the rightdirection, but further actions and programs are needed(see Box 1). Private participation should become con-stant through regulatory milestones that permit sus-tained returns on investment. Policies should be imple-mented in the direction of movement efficienciesthrough interregional integration, in a highly con-trolled system.

PAC has tried to convey a message of better alloca-tion of expenditure. The program’s investment focuseson strategic goals, thereby reducing the overall cost ofinfrastructure networks. PAC also has the advantage ofbeing responsible for much of infrastructure financing,both directly and indirectly, by helping to structurefinancing networks. However, the critical issue of howto generate the fiscal ability to increase public invest-ment remains.

Infrastructure in Brazil should be seen as strategic,and part of a more complex function that must be effi-cient and balanced. Costs should be followed by level of service so that competitiveness is not negativelyaffected. Brazil needs to play a larger role in the globalmarket, which requires infrastructure to be part of thedaily plans of all public and private high managementtransactions.

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Notes1 We do not deal with the segments strongly related to the Petrobrásinvestment mentioned earlier, since these include long-term plansand are relatively distinct from governmental planning.

2 ANUT 2006.

3 ANTT 2006.

References

ANEEL (Brazilian Electricity Regulatory Agency). 2007. Available athttp://www.http://www.aneel.org.br.

ANTT (National Agency for Road Transportation). 2002, 2006, 2008.Available at http://www.antt.org.br.

ANUT (National Association for Cargo Transport Users). 2006. “Soluçãopara a Competitividade Logística no Brasil.” Available athttp://anut.org.br.

Coppead. 2007. “Estudos Sobre as Perspectivas dos Transportes noBrasil.” Rio de Janeiro: Centro de Estudos Logísticos, FederalUniversity of Rio de Janeiro.

Ministério da Casa Civil. 2008. Available athttp://www.presidencia.gov.br/casacivil.

MT (Ministry of Transport). 2008. Available athttp://www.transportes.gov.br.

Resende, P. 2007. “Introductory Chapter: The Brazilian TransportSection.” In The Evaluation of Impact of the Transportation Sectoron the Economic Development of Brazil. Washington, DC: WorldBank.


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PAC alone is not enough to fill all the gaps in infrastructuredemands. A series of actions is needed to complement therole that PAC has played in guaranteeing the right infra-structure level for Brazil. A six-action guideline is pre-sented here to assist policymakers to achieve the samelevel of investment and infrastructure framework observedin other developed countries.

Action 1. The public sector in Brazil needs to create regu-latory standards that protect the return on investment tothe private sector. Private participation in infrastructureshould become constant through regulatory milestonesthat permit sustained return on investment, mainly forinternational investors.

Action 2. The states and the federal government shouldshare responsibility for infrastructure facilities, and admin-istrative, political, and ideological issues should notbecome the only elements in decision making.

Action 3. PAC should be protected from political influ-ences, mainly with respect to the 2010 elections. PACneeds to become a national program, with societal guar-antees and protections, so that investment does not sufferinterruptions or distortions due to political processes andideologies.

Action 4. The government must define the infrastructurepolicies for PPPs. Today, potential private partners are notsure about the boundaries and formats of the federal andstate PPPs. A set of policies and PPP formats should bedesigned based on the specific patterns of each infra-structure project.

Action 5. Monetary resources, especially those from dedi-cated taxes (e.g., CIDE), should be protected from usesother than those described by the law. In Brazil, the cen-tralization of all tax monies and their consequent distribu-tion affects the amount of resources dedicated to infra-structure improvements. Therefore, what is collected forparticular purposes should not be used in areas other thanthose specified.

Action 6. Long-term infrastructure projects should beallowed to continue regardless of election outcomes.Projects whose timetables are longer than four yearsshould not suffer from disruptions due to changes in gov-ernment. Laws and regulations should protect long-terminfrastructure investments, thereby guaranteeing the fullcompletion of the projects.

Box 1: Six actions policymakers should take to complement PAC in filling infrastructure gaps


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2.2: Challenges and Institutional Changes to Promote Brazil’s Com

petitiveness

CHAPTER 2.2

Challenges and InstitutionalChanges to Promote Brazil’sCompetitiveness

CLAUDIA COSTIN,Municipality of Rio de Janeiro

Since the early 1990s, Brazil has been opening itself toan increasingly globalized world economy, with the con-sequent challenge of how best to take advantage of theopportunities produced by the acceleration of interna-tional trade and financial exchanges in order, ultimately,to improve the country’s competitiveness. The goal is toproduce what is demanded at an affordable cost, attractforeign direct investment (FDI), and create markets forBrazilian products.Brazil has important competitive advantages in the

size of its internal market, the diversity of its production,and its growing middle class (currently accounting formore than half of the population). The country is theworld’s biggest exporter of meat, oranges, sugar, soybeans,coffee, swine, and poultry. Even so, as Khanna reminds us,“agriculture represents only 10% of the country’s econ-omy, one of the world’s ten biggest.”1 Brazil can alsocount on one of the most diversified and high valueadded production structures in the region. The recent dis-coveries of oil and gas fields in the country, along withthe existence of important water resources, make Brazil aglobal player in the world’s energy market.But, although the potential for development and

improved competitiveness is high, results have beensomewhat inconsistent. Growth has lagged behind inrecent years as the world economy has shown a positiveperformance, although the figures still place the countryamong the BRIC economies, together with Russia,India, and China.Some institutional hindrances have been getting in

the way of improving the country’s competitiveness.Many of these obstacles derive from the period whenthe economy was more closed to the world; others arefrom an auto-referred management culture that is stillalive. Among these latter impediments, we can highlightthe following:

1. a vision of public management and control thatfocuses on processes rather than results, thusemphasizing the rituals followed by the public official in what one researcher calls bureaucraticadministration,2 based on Weber’s analysis;

2. the still very recent consolidation of propertyrights and creation of some of the regulatory agencies;

3. the excess and overlapping of public agenciesinvolved in regulation, not completely dissociatedfrom political parties;

4. the frequent modification of legislation regardingthe private sector, which makes investment risky;

5. the still fragile political institutions captured bypatronage on one hand and corporatism on theother; and

6. the poorly educated workforce.


These challenges each need to be addressed for Brazil tobe able to compete in a more integrated world economy.The rest of this chapter will analyze each of the abovechallenges and propose ways to bypass or address them.

Changing a bureaucratic cultureNepotism is deeply embedded in Brazilian political cul-ture. It brings with it a strong trend of corruption, opac-ity in the relations between the public and private sec-tors, favoritism, and risks for investment. To fight thisproblem, however, the country has adopted a remedythat can be as harmful as the disease.The state in Brazil was not originally designed to

deliver universal public services. It was conceived, his-torically, to play two roles. One was to generate incomeand employment for the white impoverished populationthat arrived with the Portuguese royal family fleeingNapoleon in the beginning of the 19th century. Theother role involved the reduction of the cost of capitalproduction by means of investment that could enablethe private sector to operate in a sustainable way in thecountry. This reduction was carried out primarily by thestate-owned companies, which appeared to be quiteefficient and important in promoting the developmentof the country. This was done throughout the entiremultifaceted steel, energy, road construction, and, morerecently, telecommunications industries. The first role—of generating income and employment for the newlyarrived population—was greatly influenced by thenepotistic system that exchanged votes and political loy-alty for jobs. Positions were offered in what was calleddirect administration, where salaries were always lower andservices of poor quality.In fact, there was a third function of the state that

was related to delivering services and generating oppor-tunities for segments of the elite population and theascending middle class; this was intended to avoid prob-lems that might have endangered the whole population,such as infectious diseases or natural disasters. An exam-ple of this third function of the state is public schools,whose attendance was limited until the 1930s to only21.5 percent (compare this with 83.5 percent in coun-tries such as Argentina) of school-age children.3 But inmost cases, the role of the state was not seen as deliver-ing universal public services or reducing poverty. Thestate was not prepared or equipped for that.An inflection point requiring a change in public

administration procedures was reached when citizensbegan to have a voice. With democracy and the demandfor better services, the whole logic that governed publicservice had to change. Thus, the legal system acceptedthat ethics, or the use of nondiscretionary procedures indealing with civil service and state affairs, rather thanefficiency should have been the main driving force ofthe state machinery. In practice, this meant that no

merit-system career was allowed, and a very strict (yetoften inefficient, especially for certain positions) publicselection system was established to recruit public ser-vants, while salaries—especially for higher and morecomplex positions—were not comparable to those pre-vailing in the private labor market. The reasoning behindthis development was connected to what was seen as themain role of the state. If the state is not concerned withdelivering universal public services, but instead is con-cerned only with providing jobs and income to some,one has to make sure that patronage cannot capture thewhole process. That is why isonomy—or an equality oflaws, rights, and privileges—among public servants andavoiding independent management judgment becamemore important than efficiency.With the 1988 Constitution, curiously, things got

worse on the public administration front. Because ofadministrative excesses that had occurred during the dic-tatorship, when the press was censored and there was nopossibility of social control, with the new Constitutionthe spirit of the time attempted to inject morality intopublic service by introducing rigid legal controls. Lessflexibility was admitted. This had a huge impact onadministrative procedures and very often formal proce-dures replaced any effort to attain good results for thecitizens or for the country's development. In this con-text, innovation—which requires flexibility—becamevery difficult. The new emphasis on control in order toavoid corruption and nepotism made good manage-ment almost impossible, and turned the life of compa-nies and individuals having any contact with govern-ment into a nightmare.There is, one should note, an awareness of this prob-

lem, and vigorous processes of de-bureaucratization havebeen put in place.

Property rightsThe national Constitution protects property rights andeven considers them to be a human right (article 5) andan important principle of the economic order (article170), together with the social function of the property,which in a sense limits the full exercise of this constitu-tional right. Heritage is also an ensured right under theConstitution. Expropriation is possible with the pay-ment of compensation (either monetary or in publicbonds), but it is possible only in order to pay debts thathave been legally contracted, such as payments related toworkers’ rights or taxes established by law, or in thename of a collective interest.Brazil has an independent judicial system. The courts

tend to respect most cases of property rights with oneexception: workers’ rights come first in specialized courtscalled the Work Tribunals, which were created at thetime of Getúlio Vargas’ administration and inspired byMussolini’s labor laws.

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More recently, there has been a consolidation ofindustrial property rights—in other words, there is now a time-limited right for the creators of industrial inven-tions and for brands and company names giving themprivileges regarding their utilization. The same has hap-pened with authors’ rights, which Brazilian law associateswith the creations of the mind and for which it providesa list of works protected by law, including texts of liter-ary, artistic, and scientific works, conferences, choreogra-phies, music with or without lyrics, computer programs,translations, and artistic and similar works.The agency responsible for industrial rights is the

National Institute for Industrial Property (INPI), whichis responsible for brand registration, patents concession,contracts of technology transfers, computer programs,and similar industrial processes and products. Althoughthe agency was established in 1970, it was, until veryrecently, ineffective, disorganized, and subject to corrup-tion. There is still a long way to go to reduce bureau-cracy and excessive paperwork in this agency.The new bankruptcy law, adopted in 2005, is another

important piece of property rights protection. This lawprovides a process of recovery for the company filing forbankruptcy and, at the same time, gives an eventualacquirer clarity on judicial procedures involved with theclosing of the asset purchased.The creation and the proper functioning of regula-

tory agencies ensure the transparency of the rules relatedto the private sector’s utilities and the operation of otherpublic services. In the 1990s, just after the widespreadprivatization process, Brazil put in place different regula-tory agencies for different purposes, such as the BrazilianElectricity Regulatory Agency (ANEEL), theTelecommunications Agency (ANATEL), and the Oiland Gas Agency (ANP). Other agencies followed, eachwith similar aims of avoiding overpricing in areas wheremonopolies or oligopolies are possible and establishingclear and independent rules for investors.The independence of these agencies is crucial to

ensuring that private investment is protected against dis-continuity in government policies. However, this has notbeen the case in every circumstance. Mixed signals havebeen sent by the present government in its first term,asserting the independence of agencies while, at the sametime, pressing their boards to change their rules or toresign. Fortunately, a better understanding of the modelof regulatory agencies now seems to be in place.Another situation where private property and invest-

ment might be at risk even when protected by lawoccurs when a populist approach is taken with respect toroad concessions or in other sectors of infrastructure andsocial policies. More often than we would like to admit,a governor tries to enhance his popularity right afterelections by threatening to freeze the tariffs defined bycontract of a privately operated road toll. One governoreven supported the populace taking over the polling sta-

tions in elections. In the end, the tariffs were adjusted asestablished in the contracts, but behind the threat is aculture still averse to private investment.

Excessive and overlapping organizations involved inregulations and trade controlPrivate investment is vital for Brazil, especially under thecurrent circumstances of fiscal crisis and budget rigiditycoupled with huge expenditures in personnel and cur-rent expenses. In this context, it is important to analyzeorganizations that might favor or discourage FDI andnational private investment. Appendix A provides anoverview of the most significant organizations dealingwith private investment in the country.To deal with the inevitable bureaucratic disputes

among the different agencies involved in external tradeand simplify the procedures for the companies, the fed-eral government has created SISCOMEX, an integratedsystem through which government control over externaltrade can be exercised. SISCOMEX is a tool that reduces(but does not eliminate) parallel controls and thus dimin-ishes the paperwork involved in investment operations. Itdoes so by integrating, with the help of informationtechnologies (IT), the activities of all the organizationsinvolved in external trade, allowing for monitoring, ori-entation, and control of the different phases of theimporting and exporting processes.Other agencies can make business difficult if they are

not properly conducted. Those are state and local regula-tory agencies. Brazil is a federation and national govern-ments establish their own organizations on issues coveredby competitive legislation. There is, for example, in moststates an Environment Agency and Secretariat that is alsoresponsible for licensing works that might affect therivers, the air, and the biomes. The same happens withthe local agencies. Often, an investment gets an approvalby one level of government and yet is not approved bythe agencies of the other levels.Many attempts have been made to coordinate the

requirements of different agencies involved with privateoperation and investment in the country; some progresshas been made, as with SISCOMEX. Unfortunately, theculture behind the legislation, and even the interpreta-tion of the law by some of these agencies, still seemsbiased against the private sector and, thus, against thevery possibility of development. We should makeBrazilian democracy and political institutions favorable todevelopment.4

Piquet Carneiro also predicts a dark future for themanagement of the state, should action not be taken. Hedeclares that the President is very angry at bureaucracy’sslow pace, that the ministers claim that public biddingsare almost entirely bogged down in excessive formalrequirements, and that disputes among competitors inthe judiciary system threaten to paralyze the use of

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energy from the river Madeira. He further asserts thatinitiatives to simplify external trade run up against theconservatism of the large number of organizations andauthorities that are necessarily involved. And it is notonly the Executive Branch that should be blamed: thereare irregularities in 70 percent of airport ventures,according to the external Union Court of Auditors, and the federal prosecutor’s office gets injunctions tosuspend works in progress. Piquet Carneiro’s recipe forchange is simple: to introduce flexibility in the design of the state, which would require among other measuresthe simplification of bidding processes and more effec-tive autonomy for public agencies.5

The appointment of directors of some of these agen-cies has not been divorced from political parties. Thispersistent relationship might bring with it the possibilityof the political capture of rule-making and strong dis-continuity, which may in turn harm long-term invest-ments. The approval of candidates for directorships bythe Senate and fixed terms is a measure that has intro-duced some protection in the process, but it is apparentlynot enough. The difficulties of the elected governmentin 2003 in understanding the regulatory agencies put themodel at risk, as they pressed the directors of the agen-cies to resign. Fortunately, the misunderstandings wereapparently temporary.

Modification of legislation regarding the private sectorBrazil has undergone, in the last decade or so, a spectac-ular change in its institutions and has created an invest-ment climate more favorable to the private sector (eventhough the political culture has a long way to go in thisregard). These advances would have not been possiblewithout an important transformation in theConstitution, laws, and regulations.The judiciary is proud of its hard-won independence

after years of dictatorship, and the reform of Justice(brought about by a Constitutional amendment and dif-ferent laws) is responsible for it. Organizations, such asthe regulatory agencies, were created or strengthened (asin the case of CADE) also by Constitutional amend-ments and laws. The concession law, for instance, wasvital to the telecommunications sector.The Secretariat of Federal Revenues has been mod-

ernized and has improved the process of income tax dec-laration, which can be done via the Internet. The regula-tory activities performed by the agency have also beenadapted to take advantage of IT. On the other hand, aneffort to reduce the costs and time to pay taxes in thecountry is still required. The number of employees andthe paperwork needed in order to pay taxes and establisha relationship with government adds to the operatingcosts of companies.Another important recent law is the Lei de Falência

e Recuperação de Empresas (Law 11.101, issued in 2005,which replaces the previous DL 7661 that had been ineffect from 1945 until 2005). This New Bankruptcy Law,

which applies to most corporations, provides enhancedprotections and flexibility for debtors to reorganize whilecontinuing to operate their businesses. At the same time,creditors may improve their debt recovery prospectswhen businesses are liquidated, giving them a more rele-vant role in the negotiation of restructuring plans and inreorganization proceedings than they had under the pre-vious bankruptcy law.A federal law was issued in December 2004 providing

for the possibility of private-public partnerships (PPPs),and some states have established their own legislation onthe topic. This federal legislation established PPP as acontract that is funded and operated by a partnership ofgovernment and one or more private companies. The private partner is responsible for the investment and thepublic sector pays an additional fee over the tariff prac-ticed (sponsored concession) or pays for the service without user’s payment (administrative concession).Under those two modes, the PPP requires bidding. Theprocess was so complicated and the bureaucratic views sosteeped in the administrative culture that few PPPs everleft the drawing table. But the law was certainly anadvance and it is a matter of time before it can supportmore such ventures.All these laws certainly helped businesses and ulti-

mately development, and changes were welcomed, butthe instability and uncertainties introduced by the fre-quent reissuing of legal documents and judicial question-ing of their constitutionality made business decisions dif-ficult. The inexperience of the country with regulatoryagencies and those agencies’ own immaturity made regu-lations change more frequently than they should have.Novelty has a cost. The division of labor between min-istries—which should coordinate national policies—andthe agencies in charge of regulations, inspection, andconcessions was also a matter of tension that affected pri-vate-sector operations.

Fragile political institutionsBrazilian democracy suffered an important setback in1964, when the elite and the military joined to fightwhat they, in the climate of the Cold War, perceived asthe threat of the establishment of a communist regime inBrazil. The Congress was closed, political freedoms weresuspended, and, as in Argentina and Chile, opponents ofthe regime were jailed. The military regime, as the dicta-torship of this period is often called, lasted 21 years. Butthe modernization of the country continued (and accel-erated), and the national-developmentalist mode, adoptedby Getúlio Vargas in the 1930s, was preserved.The return to democracy resulted from a confluence

of factors: the economic crisis that made the elites lesshappy with the military government and less paranoidabout the risk of a communist regime, an internationalclimate more favorable to democracy and the existenceof a viable alternative project from the opposition. Withthe return to democracy, state governments were

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strengthened: a process that was, in fact, started in 1982,during the military rule, and according to Abrucio theprocess lasted until the Plan Real (the name of the cur-rency adopted in Brazil in 1994).6

Also a new Constitution was issued in 1988. The textenshrined democratic institutions, amplified social andpolitical rights, established rules of fiscal prudence andtighter legislative control over the budget and publicexpenditure, and gave greater autonomy to states andmunicipalities. However, written as it was in a climate of resentment against the dictatorship and of search forsocial justice, some mistakes were made. The text is toolengthy (345 articles) in an attempt to please every inter-est group; there are provisions for more social servicesthan the public budget could afford to cover; there is toomuch constitutional protection for public officials(including stability of employment—tenure—for all posi-tions, an annual wage revision independent from infla-tion, extremely favorable conditions for retirement, andeven the establishment of the amount of wages for spe-cific positions, such as chief of police); there is no externaladministrative control for the judiciary; and a maximumrate of interest is established, among other provisions.Ames emphasizes the “sins” committed by the

Brazilian Congress during and after the drafting of theConstitution, and the weaknesses associated with the legislative procedures and the electoral-political system of the country. 7 But these errors do not invalidate theimportance of the Constitution in the process of consoli-dating democracy and making it more inclusive andmature. Constitutional amendments were proposed bythe last administrations, and some of these early problemshave been addressed.Moreover, even with its alleged weaknesses, as shown

by Armijo et al., it is remarkable how Brazil has remainedpolitically stable since its return to democracy.8 This sta-bility has persisted despite a president—Fernando Collorde Mello—resigning to avoid impeachment, and with the calm transfer of power from Fernando HenriqueCardoso, the head of a center-right coalition, to a leftistpresident, President Luiz Inacio Lula da Silva (Lula).Lula’s government is based on the largest coalition in

the country’s history, involving 12 parties with 3 addi-tional small parties that always vote with the governmentin Congress.It is important to understand that alliances may be

different at the federal level than at the state level. Thisdifference may also be explained by local conflictsbetween regional oligarchies. National parties, in this sit-uation, end up being a “federation of state parties.”9

In this context, parties do not necessarily representdifferent ideologies. Some represent local or regionalinterests, in a rather parochial way, enhancing the patron-age approach that is still very present in the political cul-ture. Others are more connected to trade unions, profes-sional groups, and corporations. The same politician can

even be found practicing patronage and advocating aspecific professional group.Modernizing institutions’ demands, under these cir-

cumstances, requires great effort and political ability.Brazilian political institutions are characterized on onehand by republican, presidential, and federalist alternatives,and on the other by a history of anachronism, patronage,and of what Bolivar called “consociativism”—a diversityof centers of power. Federalism certainly offers a multi-plicity of actors, but the political parties behave as thoughthey are federations of local parties, the governors havegreat power to block public policy so as to obtain specificadvantages for their constituents, and regional oligarchiesstill veto any efforts to modernize the country.These institutions still favor the fragmentation of

objectives—in other words, “multiple actors are account-able to diverse and fragmented constituencies.”10 Brazilhas a proportional representation in open lists, in whichcandidates from each party are also in competition withtheir peers. This encourages independent personal votingwhere the candidates tend to vote as they want, withoutnecessarily following the party line.On a more positive note, democratic institutions are

much stronger now than at any previous time. Thethree branches are truly independent: government’sproposals must be approved by Congress and are oftenrejected; and there is a reasonable alternation of parties,both at the federal and the subnational levels, withoutcausing serious political crises. In addition, the state iswell organized: regulatory agencies are in place and arequite independent, which ensures continuity of rules,minimizes investor’s risks, and provides predictability inthe quality of services offered to citizens. Public ser-vants are, at least at the federal level, professionalized,reasonably well paid, and recruited through publiccompetitive selection.These positive changes are only now beginning to be

reproduced at the state level. Funding approved by theInter-American Development Bank (IADB) in 2006 wasintended to strengthen public administration so as tomake it more professional, transparent, and modern. Twoyears from the inception of the program, changes havebegun to be visible. Even though a significant number of state-level positions are still freely appointed by thegovernor and the administrative procedures are slow andsubject to a sometimes corrupt system, services are deliv-ered more universally and with improving quality.The presence of a free and independent press further

strengthens Brazilian institutions. According to IADB,Brazil and Chile, despite their different models, are thebest examples of good governance and are the mostinstitutionalized countries in the region.11 In the samevein, Sanchez, in his excellent analysis of the process ofde-institutionalization of political parties in SouthAmerica, considered Brazil and Chile the only excep-tions to a negative trend.12

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Workers’ qualificationsUnfortunately, Brazil has been somewhat late in provid-ing access to basic education for all school-age children.In the 1960s, access to schooling for Brazilian childrenwas similar to most countries in Asia; by 1990, thecountry had still a long way to go. It was only in 1997that the target of putting every child in school wasestablished.As a result, 10 percent of Brazil’s adults are consid-

ered illiterate and 74 percent are functionally illiterate(they are able to write their names but unable to read abook)—a total of 84 percent of the adult population ofthe country is at a serious disadvantage. Moreover, only65 percent of enrolled children finish primary school,and only 42 percent of enrolled children finish secondaryschool. The mean years of schooling of the adult popula-tion is 7.4; it is important to note that one additionalyear of schooling in the country has the power toimprove workers’ income by around 10 percent. There isvisible growth in this area over previous years, but thespeed of the change is low.As for the quality of the education offered, most

school-age children are not learning what is expected fortheir age and grade in either math or reading. TheMinistry of Education has begun an aggressive effort toimprove enrollment of the poor segments of the society,who were until recently excluded from schools for vari-ous reasons. Investment in teacher training, assistance, andintervention in low-performing schools along with assis-tance in transporting rural children to schools are amongthe measures that have been adopted.Most of this progress was made possible during

Cardoso’s administration, through the competent financ-ing system FUNDEF, which is a public fund for primaryeducation that controls the distribution of resources tostates and municipalities according to the number ofchildren enrolled. The resources for education in thebudget became earmarked at the federal, state, andmunicipal levels, and public funding for educationincreased significantly. During Lula’s administration, thefund was extended to secondary schools and early child-hood education, and an evaluation system was intro-duced for children in 4th through 8th grades with anindex that made monitoring school by school feasible,ensuring a better targeting for educational policies.These advances are very important and compensate

for the lack of interest of elected officials in educationalachievements. In fact, their constituents do not press forresults in this area. A recent poll done by IBOPE—aninstitute for research on public opinion—discoveredthat only 1 percent of voters considers the educationalpropositions of their candidates when voting for a mayoral candidate.Unfortunately, there is still a long way to go. Brazil

has performed poorly in the OECD’s Programme forInternational Student Assessment (PISA) test given every

three years to 15-year-old students in 57 countries toassess their scholastic capabilities in reading as well astheir mathematic and scientific literacy. Brazil has partici-pated since 2000 and has consistently been among theworst performers in all three tests given since then.As a result, the workforce is poorly prepared and,

since access to the public university system is even morerestrictive than access to public primary and secondaryeducation, and since the quality of the education pro-vided is also poor at this level, a college degree does notensure a competent worker. To make things worse, anexcessive emphasis on humanities and academicism insome universities fails to help prepare a competitiveworkforce for higher positions.

ConclusionsBrazil has the potential to become one of the mostdynamic BRIC economies. This goal can be realizedwith the help of a number of measures where institu-tions play a major role.First and most important, Brazil has to continue to

consolidate democracy and the rule of law. As we haveseen above, important advances have been made inrecent years, especially with respect to the independ-ence of the judiciary, the peaceful transition from oneelected government to another, and changes in impor-tant laws and even in the Constitution brought aboutby the elected Congress using legal mechanisms toensure due process.Second, the country has to implement new measures

to simplify the lives of its citizens and companies in theirinterface with government. This would require an effortto substitute a bureaucratic culture, which is based oncontrol over formal procedures and red tape, with a moremanagerial culture that is more result-driven. If inclusiveand sustainable development is the goal, it is not throughorganizations that exhibit inflated control and competingrequirements from different agencies that the goal can be attained. This cultural change would require intensivetraining in measurements. Civil servants and public offi-cials should be comfortable identifying costs involved in projects and in comparing expected goals and actualresults achieved through each government program.Measures such as the internal program contracts adoptedby the government of Minas Gerais, where each secre-tariat or agency has targets to be reached and ceilings for expenditures, is a good example to follow.It is also important to develop more tools to meas-

ure the impact of each public policy. Importantadvances—such as the index of development of basiceducation (IDEB), which allows a comparison amongschool systems and the international experience, as well as other measurements in health or public secu-rity—have been introduced. Now the thrust of theeffort should be to develop accountability and rewardfor the attainment of goals.

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Respect for property rights and private investmenthas shown great improvement and institutional progress.The new bankruptcy law is certainly among these posi-tive developments, as well as the recent strengthening ofINPI. But, to ensure that property rights are fully pro-tected, INPI still has a long way to go and the protec-tion of intellectual property should gain more support.There is an unfortunate myth in the country aboutideas and inspiration having to be socialized. Howeverpoetic this may sound, behind this apparently generousproposition is an implied disrespect for intellectual workand investment.On the overlapping of organizations dealing with

private investment and international trade, SISCOMEXand the establishment of regulatory agencies have beenimportant (although not so recent) steps. But great careshould be taken to ensure, on one hand, that additionalpaperwork is not required outside the system in ademonstration of micro-power in bureaucratic disputesand, on the other hand, that independence for the agen-cies to issue regulations and avoid noncompetitive badpractices is maintained.A better definition of the roles of federal, state, and

municipal level governments in different policies shouldorganize not only public services but also the competingrequirements of each level. Citizens and companiesshould not be penalized for operating in regulations’ gray areas.Environmental requirements should be emphasized in

the design of ventures, so as to save time and money onlarge projects. At the same time, simplification and areduction of bureaucratic requirements and inter-organi-zational disputes (a result of three levels of the federationbeing involved with environmental impact analyses andlicensing) should be considered to allow good invest-ments to be more rapidly pursued.Recent changes in legislation regarding private-sector

operation and investment have been preceded by publichearings. This is a very welcome change. The techno-cratic approach that prevailed during the dictatorshipperiod has unfortunately outlived its authoritarian times;listening to all groups involved is a development thatmust be preserved.It is also important to understand that some changes

are necessary to modernize both the way the marketoperates and its relationship with the state. At the sametime, predictability is essential for businesses and allowsfor long-term investment.Political institutions should be modernized, ensuring

that nepotism and patronage are part of Brazilian pastand not a cultural trait to be preserved. While the possi-bility of political reform remains remote for the timebeing, the climate for change needs to be created, allow-ing an improvement of the electoral system and thestrengthening of the political parties.Last but not least, the present attention given to basic

education should be enhanced, with an emphasis on uni-

versal access to secondary school and a strong investmentin technical education and scientific careers. Brazil needsmore engineers and more science teachers andresearchers. Here the institutions are ready—all we needis strategic persistence.

Notes1 Khanna 2008, p. 210.

2 Bresser Pereira 1998b, p. 15.

3 As shown by Lindert 2004, p. 92. In this book, Lindert compareschildren enrolled in primary schools between the ages of 5 to 14 invarious countries, from 1830 to 1930. Normally, in Brazil we workwith data related to children from 7 to 14 years old, when theyshould be attending 1st to 8th grade (Brazilian 2nd to 9th).

4 Reis Velloso 2009, p. 6.

5 Piquet Carneiro 2009, p. 167.

6 Abrucio 2003.

7 Ames 1995, p. 325.

8 Armijo et al. 2006, p. 763.

9 This description is from Armijo et al. 2006, p. 762.

10 Armijo et al. 2006.

11 IADB 2007.

12 Sanchez 2008, p. 334.

ReferencesAbrucio, F. L. 2003. “Reforma Política e Federalismo: Desafios para a

democratização.” In Reforma Política e Cidadania, M. V.Benevides, P. Vanuchi, and F. Kerche, eds.1st edition. São Paulo:Editora Fundação Perseu Abramo. 225–65.

Ames, B. 1995. “Electoral Rules, Constituency Pressures, and PorkBarrel: Bases of Voting in the Brazilian Congress.” The Journal ofPolitics 57 (2): 324–43.

Armijo, L. E., F. Faucher, and M. Dembinska. 2006. “Compared toWhat? Assessing Brazil’s Political Institutions.” ComparativePolitical Studies 39 (6): 759–86.

Bresser Pereira, L. C. 1998a. Reforma do Estado e AdministraçãoPública Gerencial. Rio de Janeiro: Editora da Fundação GetúlioVargas.

———. 1998b. “A Reforma do Estado nos anos 90: Lógica eMecanismos de Controle.” Lua Nova 45: 49–95.

IADB (Inter-American Development Bank). 2007. A política das políticaspúblicas: Progresso economic e social na América Latina –Relatório 2006. Rio de Janeiro: Elsevier; Washington, DC: IADB.

Khanna, P. 2008. O Segundo mundo: Impérios e influência na novaordem global. Rio de Janeiro: Intrínseca.

Lindert, P. 2004. Growing Public: Social Spending and EconomicGrowth since the Eighteenth Century. New York: CambridgeUniversity Press.

Piquet Carneiro, J. G. 2009. “Bases de uma Reforma Adminitrativa deEmergência.” In Na crise global, como ser o melhor dos BRICS,ed. J. P. Reis Velloso and R. Cavalcanti de Albuquerque. Rio deJaneiro and São Paulo: Elsevier and INAE. 167–84.

Reis Velloso, J. P. 2009. “Prefácio.” In Na crise global, como ser omelhor dos BRICS, ed. J. P. Reis Velloso and R. Cavalcanti deAlbuquerque. Rio de Janeiro and São Paulo: Elsevier and INAE.

Sanchez, O. 2008. “Transformation and Decay: The De-institutionaliza-tion of Party Systems in South America.” Third World Quarterly29 (2): 317–37.

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Among the important organizations dealing with differentaspects of private investment in Brazil, one must mention:

� • The Brazilian Agency for the Promotion of Exportsand Investment (APEX) was created in1997 and oper-ated as a special department of the BrazilianSupport Service to Micro and Small Enterprises(SEBRAE ) until 2003, when it was renamed APEX-Brasil and began to act as an autonomous agencyworking in association with the Ministry ofDevelopment, Industry and Foreign Trade. Under itsnew status, APEX-Brasil took on the role of coordi-nating and implementing trade promotion policiesendorsed by the federal government. Its main func-tion is promoting the insertion of national companiesinto the world market, diversifying and raisingexports, consolidating existing markets, and openingup new ones.

� • The Brazilian Agency for Industrial Development(ABDI), created in 2004, operated as part of theMinistry of Development with the mission of promot-ing the implementation of the Ministry’s industrialpolicy, in accordance with external trade and sci-ence and technology policies.

� • The Brazilian Chamber of External Commerce(CAMEX) belongs to the structure of the GovernmentCouncil. It is in charge of the formulation, adoption,implementation, and coordination of policies andactivities related to external trade of goods and serv-ices, including tourism. Among its functions are thecoordination of the organizations related to externaltrade; the regulation of certification of companies forthe practice of external trade; the classification ofproducts and rules of origin of goods; the formulationof directives on tariffs; and directives for bilateraland multilateral negotiations, for bad practices inexternal trade, and for export financing.

• The Secretariat of the Federal Revenues (SRF), sub-ordinate to the Ministry of Finance, is responsible foradministering federal taxes. At the same time, itassists the executive branch of the government informulating Brazilian tax policy and is responsible forpreventing and combating tax evasion, contraband,smuggling, counterfeiting, and trade fraud, alongwith other international trade-related illicit acts. TheSRF is also in charge of managing and executingcustoms administration, inspection, and control.

• The Ministry of Development, Industry and ExternalTrade (MDIC) is responsible for different aspects ofindustry, trade, and services promotion such as intel-lectual property and technology transfer, measures,norms and industrial quality, as well as externaltrade policies. MDIC also takes care of regulatingexternal trade and implementing programs and safe-guard mechanisms in the area, participating in inter-national negotiations, and supporting small and

medium enterprises and activities of the registry ofcommerce. This is done through the Secretariats ofExternal Trade, Industrial Development, Commerceand Services and Industrial Technology.

• INPI, discussed above, is responsible for the registryof brands, patents, and contracts of technologytransfers and company franchising, as well as theregistry of software, industrial design, and geo-graphic indications.

� • The National Institute of Metrology, Normalizationand Industrial Quality (INMETRO) acts as theExecutive Secretariat of the National Council ofMetrology, Normalization and Industrial Quality, andis responsible for enforcing the technical and legalrules related to measurement of industrialprocesses. It is also in charge of harmonizing meas-urements with international patterns and of accredi-tation activities for laboratories of calibration andorganizations of certification, inspection, and trainingnecessary for the development of the infrastructureof technological services in the country.

� • The Brazilian Development Bank (BNDES) wasestablished with the goal of supporting projects thatcontribute to the development of the country. Sinceits creation in 1952, the Bank has financed importantpublic and private works in industry, agriculture,public transport, and infrastructure. It also con-tributes to the strengthening of the capital structureof private companies and the development of finan-cial markets.

� • The Secretariat of Agriculture Defense (SDAA), partof the Ministry of Agriculture, coordinates the coun-try’s system of agricultural defense, including itsinternational agricultural surveillance program.

� • The Administrative Council of Economic Defense(CADE) is the antitrust agency within the Ministry ofJustice. It has the role of orienting, auditing, andinvestigating, as well as preventing abusive behaviorby a firm dominating a market and anti-competitivepractices that tend to lead to such a dominant posi-tion.

� • The Brazilian Institute of Environment andRenewable Resources (IBAMA), a federal agencythat is within the Ministry of Environment, is respon-sible for implementing the national environment pol-icy, including the control and investigation of the useof natural resources and the licensing for investmentthat might have an environment impact.

� • There are other regulatory agencies for specific sec-tors—such as ANATEL for telecommunications, ANAfor water and sanitation, ANEEL for utilities, ANP foroil and gas, ANTT for road and train transports, andANVISA for sanitary surveillance.

Appendix A: Public organizations dealing with private investment in Brazil

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An Assessment of Brazil’s Competitiveness


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CHAPTER 3.1

Sustainability and CompetitiveAdvantage

JACQUES MARCOVITCH, University of São Paulo, Brazil

Like almost every other country, Brazil has not yetreached a satisfactory level of environmental awareness,although significant progress has been made in this areasince the second half of the 1980s. Reflecting society’sgrowing awareness of these issues, in order to compete,the corporate world needs to include environmentalsustainability high in its agenda and among its key val-ues. In less than three decades, significant advances havebeen made; still, much ground must be covered to rec-oncile sustainability with competitiveness from a globalperspective.Through its executive, legislative, and judicial

branches, the government of Brazil has consolidatedbroad and consistent legislation on this theme. The fed-eral government, through successive mandates, has imple-mented welcome environmental practices, the mostrecent being voluntary goals to reduce deforestation inthe Amazon. Furthermore, despite credit restrictionsimposed by the global crisis, the Brazilian DevelopmentBank (BNDES) offers unlimited credit lines for sustain-able projects presented by companies.Several large Brazilian corporations have already

established themselves among the most sustainable on theplanet, mainly in energy efficiency, and they do not hesi-tate to point out that such innovation is an enabling toolfor their growing market shares.Some comments about the role of economics for

such a major theme are appropriate. Economic aspects ofthe environmental issue have, for a long time, occupied aless prominent position than the issue’s political and sci-entific determinants. The Kyoto Protocol has contributedto changing this picture, putting all factors that relate tothe issue of the environment on the same level. Byimposing limitations on the emissions of polluting gases,the Protocol has strengthened ethical commitments inrelation to the well-being of future generations and hasinspired models for measuring the efficiency of countrieswith respect to global warming.Within such a context, the need for urgent techno-

logical innovations and the consolidation of internationaltrade in carbon certificates inserted in clean developmentmechanisms (CDM) has emerged. This market amountedto US$97 billion in 2008. Until now there have been840 projects registered in 49 emerging countries; another1,800 are in line to be registered. Long-term forecastsestimate that the market for low carbon energy productswill grow to at least US$500 billion by 2050. InSeptember 2007, over 60 Brazilian companies werenegotiating credits issued by the United Nations (UN).As a consequence, 11.3 million tons of greenhouse gaseswere not expelled into the atmosphere. Financial transac-tions related to these credits are estimated to stand ataround 90.4 million euros.1

The outlook appears to be quite positive. In 2008, at the opening of COP 14th in Poznan, UN Secretary-General Ban Ki-moon highlighted some encouraging


signs. Brazil uses clean fuel to meet 44 percent of itsenergy needs, while the global average is less than 13percent. China invested over US$10 billion in 2008 toexpand its renewable matrix. It is estimated that world-wide investment in zero emission energy will reachUS$1.9 billion in 2020—enough to reconfigure theexisting industrial model.2

This paper builds on the insight of the project ToChange the Future: Climate Changes, Public Policies andBusiness Strategies.3 The first study, in 2006, featured theperceptions of highly innovative companies and sectoralrepresentatives, gathered in surveys, and described theirstrategies to mitigate greenhouse gas effects in productivemodels. The second study, in 2008, assessed the resultsobtained.4

Brazil’s commitment to environmentally sustainableenterprisesIf it were necessary to point out three traits that wouldbest characterize a modern company, these wouldundoubtedly be strategic sensitivity, social responsibility,and innovation. All these are present in each of the proj-ects that were assessed in the study of 2008. Theresponses that were gathered detailed the experiences aspresented by the companies’ managers. The goals thatwere forecasted or met demanded sophisticated techno-logical standards and highly complex methodologies.The panorama unveiled by this assessment in 2008

reveals efforts that demonstrate the commitment ofBrazilian businesses to moving the economy to new levels of sustainability:5

• The largest reforesting company in São Pauloselected a large area to develop its project withinthe Chicago Climate Exchange (CCX) so as tomeasure the real conditions of greenhouse gasemissions in its respective production process chainand analyze its capacity to reduce these emissionsand thus set up an involvement strategy in the carbon market.

• In the steelmaking industry, the third largest com-pany in Brazil, according to the ranking of thebiggest producers, has implemented an energymodel based on gas recovery, developed new applications for its co-producers, and minimizedatmospheric emissions.

• A very large corporation operating in the Brazilianpork, beef, chicken, and turkey byproducts industryhas installed biodigesters to capture and burnmethane and CO2 and thus improve its waste man-agement systems and its suppliers’ quality of life.Although it maintained its choice for sustainableexpansion, this company made a substantial reviewand reduced the goals it set out in 2005. Thisreduction was a consequence of the institutional

and regulatory instability of the United Nationsregarding changes in the methodology used tomeasure emissions.

• A very important plant in the sugar and alcoholsector has dedicated itself to the co-generation ofenergy from bagasse and has obtained excellentresults in this enterprise, which can be placedamong the most innovative green technologies. To be able to achieve these results, some importantphysical alterations were made in the industrialprocess and new environmental management procedures were implemented in the company’splanting areas.

• The largest Brazilian company, the state-owned oil company, acts selectively in the wind, solar,biodiesel, and biogas energy markets, among others.It estimates that 10 percent of the electrical energyit uses in its plants will be obtained from renewablesources by 2010. In 2008, it increased its goals toreduce greenhouse gas emissions to 21.3 milliontons of equivalent CO2 between 2007 and 2012.

• A major multinational in Brazil dealing with solu-tions for the environment has been recovering thebiogas that is released in its sanitary landfill and useit as an energy source. This company forecasts digi-tal monitoring in its CDM project, which will becarried out in real time with indicators that can besimultaneously observed by the company and byexternal auditors.

• Another large corporation from the reforesting sec-tor has been working with three projects simultane-ously. It has strived for great reductions in green-house gas emissions since 2001, and it works with a28-year horizon.

�• In Nova Iguaçu, Rio de Janeiro, the first project in the world to obtain CDM registration is beingdeveloped. This project is being carried out by acompany founded over 50 years ago, operating inseveral heavy construction sectors. It foresees beingable to use energy gases from organic material thatcan be found in landfills.

This sample, taken from the top level of Brazilianindustry, makes it clear that a new era has arrived for theworld economy, in which profit is no longer an end initself but rather it performs social functions that hadnever been imagined before.Taken as a group, the companies that were included

in the study represent quite a promising scenario. Theanswers obtained from the survey refer to the entire2008 period. These companies show a notable inclinationtoward competitiveness and they act proactively in envi-ronmental issues. Clean technologies are increasinglybeing used or developed. It is worth stressing that theyhave strengthened the technical makeup of their profes-

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sional staff dedicated to reducing greenhouse gases. Thedata from the study show great dynamism in all theexperiences observed, and provide a good rebuttal tothose who wrongly argue that the Kyoto Protocol isonly a paper agreement. In this survey, the impact fromthe Protocol on corporate strategy can be demonstratedin great detail.When carrying out the survey, we dealt with out-

standing contributors to domestic GDP—blue chipcompanies that are successful in their businesses and areengaged in effectively modernizing Brazil. These compa-nies distinguish themselves by the social balance sheetthey have presented in the last few years. The answers tothe questionnaires describe sustainability lines that havebeen well thought out and met—differentiating themfrom mere corporate marketing ploys. They are trendsetters that inspire other businesses to follow their lead.

The sectoral landscapeAnother recent study analyzed, by means of interviews,sustainable practices in several sectors of the Brazilianeconomy. Overall, although they were not overly enthu-siastic about the competitive gains derived from suchpractices, these companies showed that they intend tomaintain ongoing environmental strategies in theirrespective sectors.6

In the approach taken by agricultural firms that raisecattle and produce beef products, it was underscored that there is no tension between the development of an economic sector and the sustainable productionprojects that may be implemented. Several cases—GrupoBertin, Carrefour, Pão de Açucar, and Wal-Mart Brasil—were examined one by one, emphasizing the internalmeasures these companies have been adopting in envi-ronmental management.In the domestic cattle raising sector, despite

delays in implementation, productivity gains have influenced the mitigation of greenhouse gas emissions,mainly methane. However, the extensive mode of cattleraising still prevails and the average time to slaughter is three years; it takes only two years to bring cattle toslaughter in countries that adopt intensive cattle raisingprocesses.The case study finds that, in the cattle supply chain,

there is a technical gap between raising cattle and bring-ing the beef to market in Brazil—the latter have alreadyreached international levels but bringing them to marketremains an unsteady potentiality. The aggregate ofBrazilian cattle herds has also earned the negative distinc-tion of causing the largest domestic methane emissions: itis responsible for 76 percent of methane emissions andsignificantly contributes to deforestation in the Amazon.In the cattle supply chain it was possible to identify

an excess of informality in transactions and a low-qualityproduct. However, standards of excellence that are con-tinuously evolving to supply foreign markets and large

Brazilian cities can already be seen. It is estimated, forexample, that there will be a progressive internal reduc-tion in the number of butcher shops, which will bereplaced by supermarkets.Brazil has the largest cattle herd in the world, and is

the second largest beef producer. The adoption of inten-sive practices and genetic enhancement programs hasincreased productivity in several states. An increasinglydemanding international consumer has brought abouttech-nological innovations and better sanitary conditions.However, it is necessary to overcome factors that do not allow Brazil to reach in natura beef markets such as the United States and Japan, as well as overcomerecent barriers created by the European Union along the same lines.To mitigate the volume of greenhouse gases, the

cattle-raising sector will have to improve pasture management through appropriate diet and nutritionalsupplements as well as develop better animal handlingpractices. According to the scientific community, if such measures were taken in South America theywould reduce methane emissions by 8 percent.Nevertheless, the main idea is that increased produc-tivity is the best path to bring about the reduction ofthese emissions.An analysis of the steelmaking industry demonstrates

concrete ways to overcome environmental limitationsof steel plants that go beyond a simple, broad diagnosticassessment. In relation to greenhouse gas emissions, theBrazilian steelmaking industry still includes sectors thatdo not recycle steel because of a lack of scrap iron; sev-eral still use mineral coal while others, although work-ing with vegetal charcoal, extract it from native forests,thus indirectly contributing to CO2 emissions throughdeforesting.The recycling mirrored in the aluminum sector

deserves particular attention. Here the plants in the pro-ductive chain have joined forces to make recycling plantsfeasible and have created a collection model that gener-ates efficiency, jobs, and income. It is suggested that theintegrated and semi-integrated steel plants and scrap ironoperators should act in a synergetic way together withthe independent companies and adopt the same proce-dures. Such an initiative would benefit the solid wastetreatment system and decrease CO2 emissions in steelreplacement in the market.Exemplary and successful projects by ArcelorMittal

and Plantar could more broadly insert the industry intothe clean development mechanism. Above all, the initia-tive would involve independent pig iron producers; itwould also induce large Brazilian steel makers to adoptnew competitive models that would reduce pollutinggases. In a nutshell, we propose that integrated and semi-integrated steel plants should act synergistically withindependent companies to increase current levels ofrenewable charcoal use under the rules recommended bythe international scientific community.

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Paper and pulp, originating from re-forested eucalyp-tus, are emblematic sustainability products in Brazil.Brazil leads the world in pulp production from shortfiber. Aracruz Celulose is the largest company in theindustry, and 94 percent of its production is exported.Other significant players are Klabin, Suzano, andVotorantim. As for paper production, there are twostrong conglomerates besides Suzano and Votorantim:International Paper and Ripasa. The peculiarities andinnovative opportunities of the sector’s productiveprocess are described in the study.7

Although we recognize important results that comefrom mitigating greenhouse gas emissions, it is also nec-essary to adopt innovative measures such as carbonizingand fixing biomass to soils, improving the use of waste togenerate energy, using clean fuel in transportation, andeven setting environmental goals by sector.The approach of the Brazilian energy sector is based

on the premise that there is room for environmentalmanagement without great costs, counting on investmentbeing made as a result of proven economic returns. Fromsuch a perspective, we demonstrate that reducing wastecan coexist with meeting demands for electricity.Aterro Sanitário Bandeirantes is a pioneering initia-

tive in Brazil that is dedicated to generating electricityfrom waste. It aims to mitigate the emission of methanegas that is produced by the decomposition of organicresidues. It is a thermoelectric plant installed in SãoPaulo that generates a total of 22 megawatts. Such volume makes this landfill the most powerful thermo-electric plant run on biogas in the world, and it is theonly one in Brazil. Its capacity is large enough to gen-erate energy to supply four large shopping malls for 24 consecutive hours.California in the United States undertook major

innovative public policies regarding climate change andenergy management. In this regard, its experience withenergy efficiency—particularly with electricity consump-tion—is an inspiring one. A broad look through the pro-grams mentioned shows that electricity consumption percapita was 40 percent lower than the national average,and this lower consumption did not set back economicdevelopment. Some concrete measures should reinforceinitiatives that have already been adopted in Brazil—among these are rationalizing consumption throughincentives; repotentializing older plants; reducing elec-tricity transmission and distribution losses; increasing theefficiency of motors, lamps, showerheads, refrigerators,and air conditioners; and creating a new revenue struc-ture for the utility companies.A priority agenda can be sketched with respect to the

role of the productive sector to enable it to face environ-mental and social challenges while also helping strategicbusiness plans, as follows:

1. To reduce the effects that cause climate changes, it

is crucial to reach high energy efficiency levels andinvest in innovations that drastically reduce green-house gas emissions into the atmosphere, includingusing renewable bioenergy and fighting deforesta-tion.

2. To maintain biodiversity it is essential to ensure the sustainable use of biological resources, reducethreats to habitats, catalog new species, avoid environmental damage, support pro-biodiversityinitiatives, promote the egalitarian distribution ofnatural benefits, and share data and information onbiodiversity.

3. To respond to social challenges, it is necessary toselect some lasting priorities that can reconcile economic growth and income distribution. Amongthem are universal access to basic sanitation, fight-ing against the housing deficit, promoting access tocredit, increasing the generation of decent jobs, andguaranteeing quality education for all.

Opportunities for new enterprises and for companies’consolidation can be found in emerging markets, in newtechnological frontiers, and in dynamic sectors. Againstsuch a background, it will be the innovative and vision-ary companies that will be able to turn environmentaland social challenges into a source of competitive advan-tage. This will make them more efficient and profitablewhile strengthening their surroundings, on which theydepend for their survival.

The AmazonAn indispensable dimension related to sustainability inBrazil and to its competitive insertion into the globaleconomy relates to an important issue that carries muchweight both in the country and in the world. It focuseson the set of sustainable practices of the logging sector inthe Amazon and its controversial role in regional defor-estation. The study also examines government actionswithin this same scenario.8

A careful assessment of the socioeconomic panoramaof the group of states that make up the Brazilian Amazonhighlights their differences, common culture, singulari-ties, and conflicts. Based on technical sources, we analyzethe role of the tropical forests as CO2 sinkholes, as acounterpoint to the dominant discourse that focusesonly on the high volume of emissions that forest burningreleases into the atmosphere. We believe that forest burn-ing also reflects a social issue, as it mobilizes labor thathas no alternative source of income.The formal logging sector is resentful of the delay in

the government’s approval of projects for sustainablemanagement, while the illicit logging sector supplies thedomestic market with the demand that is not met byregular operations. The two groups that were studied,Orsa and Cikel, described their wood certification prac-

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tices, which fully meet legal guidelines.In the case of Orsa, although it has no program focus-

ing on greenhouse emissions or carbon credit commer-cialization, such a goal is indirectly met by the use ofnonpolluting and efficient logging technologies. TheCikel group does not develop greenhouse gas mitigatingactions either. It will consider implementing such actionsafter it has carried out a carbon inventory (an ongoingstudy) that will allow it to gain entry into the certificatemarket. Among the initiatives that enhance productivity,the charcoal industry stands out. This way, an alternativesupply for the region’s steel plants is created.

The role of civil societyThe environmental issue receives heterogeneous treat-ment by the business sector. The notion of its relevanceto domestic competitiveness has not been sufficientlydisseminated in the business world. Senior executives inthe private sector, as well as in government-owned com-panies, fail to imbue their respective organizations with a strategic vision when dealing with sustainability. Thepath to changing such a situation will necessarily involvecivil society, where the more open-minded and organ-ized sectors can play the role of pressure and changeagents. All the progress made so far has been the result of this increasingly influential force, although it is notstrong enough yet to reinforce competitiveness via greenproduction.While several corporations increase their environmen-

tal projects and even modify their traditional productionmodels toward this end, institutional industry representa-tives conclude agreements with the federal governmentalong these same lines. In some ways the conceptualmodel of the Montreal Protocol and the Kyoto Protocol,which has historically established ethical obligationsalong with coercive tools, is being applied to theAmazon to mitigate polluting emissions.These sectoral agreements between industry and

government could become a model and achieve greaterrepercussion through the setting up of anEnvironmental Development Council, along the linesof the Economic Development Council, that would becoordinated by the Environment Ministry. Its aimwould be to seek a broad domestic agreement aroundpublic hearings and encourage predictable confronta-tion among nongovernmental organizations, lobbies,government, scientists, and business people. One of theCouncil’s executive roles would be, for example, theconsolidation of laws dealing with the theme of envi-ronmental sustainability and its attendant establishedjurisprudence and contradictions among related codes.The new mechanism would in no way substitute for

the healthy and democratic debate among the partiesthat is traditionally carried out in public hearings. Itwould introduce a moderating force that would be able

to resolve conflicts summarily and bring about, as aunifying element, the consensus that environmentalismcan no longer be divorced from development and fromcompanies’ competitive strengths. As a matter of fact,this has been the main inspiration for the pacts that wesum up below.In July 2008, a covenant was signed by the

Environment Ministry, the Brazilian Association ofVegetable Oils, and the National Association of SoybeanExporters that extended to July 2009 the enforcement of a soybean moratorium suspending the commercializa-tion of the product should it come from deforested areasin the Amazon. Civil society organizations that wereinvolved in the agreement supplied technical informationto the specific work group. The Environment Ministrywas charged with implementing a register of rural prop-erties and activating Ecologic-Economic Zoning in theAmazon basin.During this same period, the Pact for Legal Wood and

Sustainable Development was enacted. This was signedby the Pará Industry Federation (FIEPA), the Associationof Wood Industry Exporters from the State of Pará(AIMEX), the Group of Certified Forest Producers inthe Amazon (PFCA), the Environment Ministry, and thegovernment of Pará. Businesses agreed not to buy prod-ucts from illegal sources and to monitor whether thelegal papers accompanying the merchandise met officialguidelines. They also had to show the source of a pri-mary wood product and any contingent irregularitiesdetected in purchasing that would have been detrimentalto activities in logging areas.In this document, the Environment Ministry commit-

ted to auctioning 4 million hectares of forest conces-sions, regulating logging in planted forests, and makingthe standing of suppliers available on the Internet. Thegovernment of the state of Pará committed to auctioning150,000 hectares of state forests.Another document brings together the Federation of

industries of the State of São Paulo (FIESP) and theEnvironment Ministry to encourage the sustainable con-sumption and use of wood products from the Amazonforest in that state. Among the various objectives coveredby the agreement one should emphasize the formalcommitment undertaken by FIESP to abide by the sameobligations undertaken by its sister organization in Pará.The federal government has also undertaken identicalobligations. This agreement becomes even more relevantwhen one considers that São Paulo is currently a moreimportant center than the foreign market for the com-mercialization of wood from the Amazon.Instituto Ethos, also from São Paulo, has launched the

program Business Connections: São Paulo – the Amazon,which encompasses a pact for the use and commercial-ization of certified forest products. By expressly mention-ing community concessions and forest handling, theEthos document establishes the obligation, for early

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comers and new companies that are associated with theprogram to engage members of the value chain. A pactfollow-up committee has been set up and will present itsfirst report on the actions stemming from this totallynew program in the business sector.For this commitment to become reality, it is hoped

that problems—such as the lack, in eight states of theAmazon (the exception is Mato Grosso), of an officialproperty register defining the legal origin of a product—can be overcome. When faced with this obstacle,Instituto Ethos initially adopted two consensual criteria.First, wood, beef, grain, and vegetable oil suppliers couldnot be on the list of companies that employ slave labor.Second, these suppliers had to show that illegal deforest-ing has not been practiced on their lands. The largecompanies that have signed the pact have the ability todemand that their suppliers follow environmental rules.These facts demonstrate a new positioning on the

part of business entities vis-à-vis issues related to theenvironment. In the past, a culture of confrontation wasencouraged. This led to endless court actions that wereextremely damaging to the principles of social responsi-bility. Even though a pact might not have negative con-sequences for nonconformance, it forces those who havesigned it to position themselves in relation to societyand to undertake clear commitments. This is related to avaluable asset of the whole corporation’s brand: its mar-ket image. There is also an economic component toinspiring the agreed-upon obligations. Different fromthe criticisms made of these agreements, their adoptioninvolves no naivety. In environmental management, pri-vate companies are undertaking original and greatly rel-evant procedures for the history of Brazil’s development.

The role of educationThe future is the only stage on which yesterday’s andtoday’s dreams can be realized. As it is clearly impossibleto change the past—and as we must take into accountthat current changes had to be imagined before theywere realized—it is up to today’s leaders to care for theenvironment and the place where the next generationwill live. These leaders can currently be found in compa-nies, schools, governments, and civil society.Among other legacies, Albert Einstein left us this

advice: “No problem can be solved by the same level ofconsciousness that created it. We must learn to see theworld anew." Eastern wisdom, on the other hand, hasbrought about the idea that change is the only thing thatis permanent. The next day, a time that has not yet beenlived, can be changed for the better now, when we havethe transforming intelligence of scientists on our side.But it is not enough to follow the hypotheses and con-clusions of the scientists. In the case of the environment,it is also essential that the society constantly enhance itsvalues and notions of social interactions so that it canchange the future. Education is the most important pathto reach such an objective.

To face the complexities of our times, environmentaleducation has become much broader than the ecologicalorientation provided in a classroom for children andteenagers. The target audience of environmental educa-tion must truly be society as a whole, particularly theadults that must re-consider their behavior, their produc-tion and consumption, among other habits. The merelyludic and civic concept at the basis of ecologic pedagogyof the past is currently not only insufficient but alsoinconvenient, as it restricts to the domain of basic learn-ing an issue that is strategic and of general interest.It is up to universities to align their curricula so that

they can supply staff to a productive sector that increas-ingly depends on sustainable innovation and on a societythat is concerned about the frightening effects of globalwarming. No academic project anywhere in the worldwill be attuned to the future if it does not contemplatedefending the environment.A complete inventory of the programs offered by

Brazilian universities on the environment would surelyfind over a thousand programs. The University of SãoPaulo, the most productive in the country, has identifiedover 400 on this theme. Educators and students must bereminded that modern education is going through a pro-pitious scenario that can lead to important advances incurricula, all because of the notorious climate changephenomenon and the enactment of the Kyoto Protocol.Education in Brazil could benefit very much from uni-versity leaders paying attention to this knowledge fron-tier that has become exceptionally relevant.It surely will not be easy, even with the technological

means that are being developed or that are already avail-able, to lead society to quickly change its attitudes andembrace responsible consumption, the economy of natu-ral resources, the option of nonpolluting transportation,and other habits that only continuing education willbring. It is also necessary to preserve essential human val-ues in any educational agenda. It is perfectly feasible toharmonize these values with the challenges broughtabout by the new realities. As it was Hannah Arendt’swish, we must do our utmost so that “in our world weall become fully aware that, at the same time, we inhabitour country and we inhabit planet Earth.”9

It is up to Brazil to clean up its production of com-modities, independently from it being convenient toovercome environmental or protectionist barriers inEurope and the United States. In the case of the NorthAmerican market, we have to be careful about the effectsof public policies announced by the Obama administra-tion with respect to the production of alternative energy.This could make it feasible to produce ethanol fromwood pulp in the United States, which would make iteven more difficult for Brazilian sugarcane-derived biofuel to be freely imported.The ongoing economic crisis has been interpreted

by UK Prime Minister Gordon Brown as “de-globaliza-tion,” as each country seeks its own way out. It has led toa hardening of almost all frontiers, which has severely

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impacted free trade. For a long time, even products fromenvironmentally certified origins will likely lose theircompetitive strength, despite their attractive prices andquality. At the height of globalization, we are all vulnera-ble to the effects of major turbulences. Let us say, to par-ody John Donne’s poem about man, that no country, noteven England, is an island.

Notes1 Portal Fator Brasil, available at

http://www.revistafator.com.br/ver_noticia.php?not=67395.

2 Marcovitch 2008.

3 Marcovitch 2006.

4 Marcovitch 2008.

5 The second stage of the survey we have already mentioned dealtwith Scriven’s conceptualization, according to which an assessmentis always a value or merit judgment. The questionnaires sought toidentify the quality of the projects, but also evoked answers onpunctual objectives and on the means to achieve them. On theother hand, the reports presented went beyond the dilemma ofinternal assessment versus external assessment. The final tablebrings together our perceptions and the companies’ experiences.See Marcovitch 2008.

6 Marcovitch 2009.

7 Marcovitch 2009.

8 Marcovitch 2009.

9 Arendt 2000.

ReferencesAgerri, F., E. Pezet, C. Abrassart, and A. Acquier. 2005. Organiser le

development durable: Espériences des enterprises ponnières et formation de règles d’action collective. Paris: Vuilbert.

Arendt, H. 2000. A Condição Humana. 10th edition. Rio de Janeiro:Forense Universitária.

Marcovitch, J. 2006. Para Mudar o Futuro – Mudanças Climáticas,Políticas Públicas e Estratégias Empresariais. São Paulo:Edusp/Saraiva.

_____. 2008. A Economia e o Futuro do Planeta. Available athttp://www.usp.br/mudarfuturo/ecoplan/.

_____ . 2009. “Introdução.” In Mitigação de Gases de Efeito Estufa: aExperiência Setorial e Regional no Brasil. Available athttp://www.usp.br/mudarfuturo.

Portal Fator Brasil. Ciclo de palestras sobre emissões de carbono emercado global. Available at http://www.revistafator.com.br/ver_noticia.php?not=67395.

Stern, N. 2006. The Economics of Climate Change: The Stern Review.Cambridge, UK and New York: Cambridge University Press.

Touraine, A. 1997. Pourrons-nous vivre ensemble? – Égaux et dif-férents. Paris: Librairie Arthème Fayard.

Worthen, B. R., J. R. Sanders, and J. L. FitzpatrickL. 2004. Avaliação deProgramas – Concepções e Práticas. São Paulo: Edusp/EditoraGente.

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59

3.2: Leveraging Brazil’s

Business Environm

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CHAPTER 3.2

Leveraging Brazil’s BusinessEnvironment for IncreasedCompetitiveness

PABLO HABERER,McKinsey & Company, Inc., Brazil

NICOLA CALICCHIO, McKinsey & Company, Inc., Brazil

Brazil’s ranking in a number of dimensions pertaining to competitiveness as measured by various surveys ofcomparative national performance has been consistentlypoor. Brazil is typically ranked at or below the medianof survey samples, as well as below its own relative ranking in terms of GDP per capita. According to theWorld Economic Forum’s Global CompetitivenessIndex (GCI) 2008–2009 presented in Chapter 1.1 ofthis Report, for example, the country ranks 64th in competitiveness among the 134 countries studied, wellbehind the other BRIC economies of China (30th),India (50th), and Russia (51st). In certain narrower studies, Brazil’s performance is even worse: for instance,it ranked 52nd out of 57 countries in the OECD’sProgramme for International Student Assessment (PISA)tests, an indicator of the relative performance of educa-tion systems in different countries (Figure 1).

Yet, despite Brazil’s low overall competitivenessscores, it performs relatively well in a number of factorsrelated to the quality and dynamism of its businessenvironment, including the sophistication of its produc-tion processes, its capacity for innovation, and its mar-keting and consumer orientation. Of the 10 main indi-cators for which the business sector is chiefly responsi-ble, Brazil is ranked 30th, behind only India in terms ofBRIC performance. In contrast, when we considerBrazil’s position relative to 10 indicators in which thebusiness environment has limited involvement, thenation ranks 121st out of 134 countries (Figure 2). Inno other country from the sample is the ranking ofbusiness competitiveness so different and superior tothe ranking in government competitiveness.

In light of the above, the purpose of this chapter is toexplore how Brazil can leverage the relative quality anddynamism of its business environment in order toincrease its competitiveness. The strong correlationbetween productivity and competitiveness rankings andthe relationship between the change in competitivenessand the change in GDP suggest that success in this effortcould contribute to improving the living standards of thecountry’s population (Figure 3).

After providing an overview of the methodologicalapproach, this chapter will offer a diagnosis of the qualityand dynamism of Brazil’s business environment and propose a few options to explore to leverage Brazil’sbusiness environment for increased competitiveness.

The opinions expressed in this chapter are those of the authors and donot necessarily reflect the views of McKinsey & Company.

The authors wish to thank Bernardo Neves, Rafael Stille, and WilliamJones for their invaluable contribution to this chapter. They also wish tothank Andrew Whitehouse, Baudouin Regout, Heinz-Peter Elstrodt,Igor Meskelis, Jaana Remes, Marcos Cruz, and Wieland Gurlit for theirefforts in discussing the topics and revising the content in their respec-tive areas of expertise.


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Wastefulness of government spending Burden of government regulation Efficiency of legal framework Transparency of government policymaking Extent and effect of taxation Total tax rate Number of procedures required to start a business Time required to start a business Burden of customs procedures Non-wage labor costs

Aspects considered

Average of rankings in ten aspects for which the government is chiefly responsible (out of 134 countries)

Reliance on professional management Financial market sophistication Local supplier quantity Local supplier quality State of cluster development Production process sophistication Extent of marketing Willingness to delegate authority Capacity for innovation Company spending on R&D

Aspects considered

Venezuela

Brazil

India

Germany

Japan

Russian Fed.

United States

Mexico

Chile

China

Argentina

Average of rankings in ten aspects for which the private sector is chiefly responsible (out of 134 countries)

United States

Germany

Japan

India

Brazil

Chile

China

Mexico

Argentina

Russian Fed.

Venezuela

Source: World Economic Forum 2008, McKinsey analysis.

Figure 2 Brazil's relative ranking in indicators measuring the performance of the business environment is higher than in those of the state/public sector

76

Index 2005 2006 2007 2008Institution Relative performance

Global Competitiveness Index

65 (117) 66 (122) 72 (131) 64 (134) World Economic Forum -

Quality of Life Index 39 (111) n/a1 n/a1 n/a1 Economist Intelligence Unit =

Overall Competitiveness Ranking

42 (51) 44 (53) 49 (55) 43 (55) IMD -

Ease of Doing Business Index

125 (181) n/a1 n/a1 122 (178) World Bank -

Index of Economic Freedom 63 (155) 69 (157) 97 (157) 97 (157) Heritage -

Corruption Perception Index 62 (158) 70 (163) 72 (179) 80 (180) Transparency International =

Human Development Index 70 (177) 2 n/a2 n/a2 n/a2 United Nations Development Programme =

Worldwide Centers of Commerce Index

n/a1 484 (63) n/a1 564 (75) Mastercard -

Programme for International Student Assessment (PISA)

n/a1 n/a1 52 (57) 5 n/a1 OECD -

Brazil's rank (out of total)

Figure 1 Brazil's current performance is poor against competitiveness indexes

Source: World Economic Forum; World Bank; Economist Intelligence Unit; IMD; Heritage Foundation, Transparency International; United Nations Development Programme; Mastercard; Organisation for Economic Co-operation and Development; McKinsey analysis.

1. Report not published that year.2. The latest 2007–2008 Human Development Report provides the Human Development Index for the year 2005.3. There is a + sign if the most recent ranking is in the top 20 percent, = if it is between 20 percent and 45 percent, and – if it is below 45 percent (Brazil ranks in the 45th percentile in

GDP per capita among countries in the GCI 2008–2009).4. This is the ranking for São Paulo, the top performing Brazilian city in the ranking.5. Based on average of scores in reading as well as science and math literacy..


Overview of the methodological approachWe begin this review of our methodological approachwith our proposed definition for business environment. Toarrive at the definition below, we draw from the method-ology developed over the past 18 years by the McKinseyGlobal Institute (MGI) in its research on the reasons fordifferential economic performance across countries:1

��• The business environment includes activities in themarket economy, which in turn includes both competi-tive market sector activities and non-competitive marketactivities. In most countries, the competitive marketsector accounts for two-thirds of the economicactivities, whose very nature makes it feasible forthe products and services to be supplied by private-sector companies operating in competitive environ-ments. These cover a broad set of sectors in manu-facturing (e.g., automotive, food processing) andservices (e.g., food retail, retail banking, and con-struction). About 10 percent of the overall eco-nomic activity occurs in non-competitive marketsectors, where the nature of the industry may notlead to an effective competitive dynamic amongprivate-sector companies. These may include elec-tricity distribution, utilities, or railroad services.

�• Within the market economy, our definition of thebusiness environment includes elements related tothe production processes of firms, to their compet-itive environment, and to capital markets (e.g., governance practices), while excluding externalfactors (also called “enablers”) such as macroeco-

nomic stability, workforce educational levels, andproperty rights and contract enforcement.

�• The non-market economy accounts for about 25 percent of economic activities. In this case, thenature of the service does not lend itself well tomarket-based transactions because of long-time lags between service and resulting benefits, lack ofeasily observable metrics for quality, and/or simplybecause, as public-sector services, they tend not tobe provided by profit-maximizing firms. The mostimportant segments here include healthcare, educa-tion, and pure public-sector services such as defenseor taxation, customs, and excise.

In our diagnostic of the Brazilian business environ-ment, we also apply a framework developed by MGI inthe context of national or regional development proj-ects. This framework distinguishes between those factorspredominantly related to the business environment (e.g.,structure of supply, structure of demand, and marketefficiency) and those predominantly associated with theexternal environment (e.g., government efficiency, insti-tutional enabling factors, and macroeconomic stability).

The analyses and proposals herein draw from a num-ber of sources, including (1) global competitiveness rank-ings, in particular the GCI; (2) a review of academic andMGI research on economic performance; (3) interviewswith McKinsey consultants and other specialists; and (4)McKinsey proprietary research on themes such as infor-mality, education, healthcare, and global mega-trends.

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Labor productivity GDP at PPP per worker, US$ thousands

Global Competitiveness Index Overall score, 2006–2007

Real GDP growth rates CAGR (percent)

Countries that substantially improved their competitiveness managed to grow at high rates

Cross-country experience shows positive correlation between productivity and competitiveness

Singapore (1986–96)

Dubai (1992–2002)

Hong Kong (1978–88)

Chile (1988–98)

Taiwan (1990–2000)

9.3

8.4

8.2

7.6

6.6

Figure 3 Cross-country evidence shows there is a strong relationship between a country’s competitiveness and its labor productivity

Source: World Economic Forum 2006, General Organization for Social Insurance (GOSI); Global Insight data service; McKinsey analysis.


Diagnostic of the quality and dynamism of Brazil’sbusiness environmentOur diagnostic of the Brazilian business environmentreaches two major conclusions. The first is that the qual-ity and dynamism of the Brazilian business environmentis strong at the aggregate level; the second is that, inspite of this strength, the same performance is not con-sistent throughout the economy, with the formal-sectorperformance being significantly superior to that of theinformal sector.

Performance at the aggregate levelAs noted previously, despite Brazil’s low overall compet-itiveness scores, the country performs relatively well in anumber of factors related to the quality and dynamismof its business environment.

A diagnosis of Brazil’s relative performance using the framework developed by MGI indicates that Brazilperforms relatively well on the structure of supply anddemand (Figure 4).2 These dimensions reflect, amongother elements, the overall sophistication of companyoperations and strategy and the endowment in naturalresources, market size, and consumer capabilities. Theimportance of strong performance in these dimensionsis critical, since they indicate an economy’s intrinsicpotential.

Brazil also performs well on indicators of market effi-ciency, in particular those related to competitiveness andopenness and to corporate governance. The significanceof the good performance on competitiveness is hard to

overestimate.3 MGI research of comparative economicperformance has consistently found that exposure tocompetition from best practice and high levels of com-petitive intensity are crucial determinants of differencesin sectoral labor productivity, and therefore in GDP percapita.4 Relatively weaker performance on factor marketefficiency (i.e., efficiency in land, capital, and labor mar-kets) already hints at the relative weaknesses in govern-ment efficiency, as measured by both its efficiency as aregulator and its institutional capacity.

Anecdotal support for Brazil’s relative strength in thesupply dimension can be found in a listing of accom-plishments by Brazilian companies either in terms oftheir overall competiveness (i.e., as reflected in theirdominant or leading share of global trade) or of thesophistication of their business processes (e.g., Brazilianscount on one of the fastest, most automated, and effi-cient payment systems in the world). On the demanddimension, Brazil’s importance as a consumer market canbe demonstrated by its relative importance for a numberof leading global companies and by the fact that a highproportion of the world’s largest companies—73 out ofFortune 100 firms—operate in Brazil (Figure 5).

Differences in performance between the formal andinformal sectorsAlthough aggregate performance is relatively strong andpockets of excellence are found in the Brazilian businessenvironment, this is not true for all businesses.

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Potential – economics

Demand Supply

Financial capital – availability of capital, domestic savings, etc.

Size of domestic market – total domestic demand

Customer sophistication – level of customer expectations and power

Size of accessible foreign markets – foreign demand

Natural resources – location, endowment of natural resources

Hard

Enabling factors

Soft

Telecom and IT services

Property rights protection

Contract enforcement

Macroeconomic stability

Logistics and core infrastructure

Telecommunications and IT services

Capability – institutions

Competition

Labor market

Financial market

Land market

Factor market efficiency

Market efficiency

Corporate governance

Labor force talent – skilled professionals, entrepreneurship

Competitive disadvantage

Competitive advantage

Government efficiency

Regulatory burden – process efficiency

Institutional capacity – execution efficiency and responsiveness to private-sector concerns

Education/scientific infrastructure

Rule of law (e.g., crime, corruption) Energy and utilities

Competition and openness – intensity of competition, entry/exit barriers Business

environment

Figure 4 Despite its low overall competitiveness scores, Brazil performs relatively well in factors related to the quality of its business environment

Source: MGI; World Economic Forum, 2008; McKinsey analysis.


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The world's largest exporter of coffee, orange juice, and ethanol

The world's largest exporter of iron ore and hardwood market pulp 2nd largest exporter of steel slabs

Auto OEM's have more plants in Brazil than in any other country, except the United States and China

Embraer is the world leader in regional commercial jets; it was the biggest Brazilian exporter in 2002–04

One of the world's most robust payment systems; approximately 85 percent of all bank transactions are electronic (vs. ~90 percent in the United Kingdom and ~75 percent in the United States) 202+ million telecommunication lines (fixed, mobile, and broadband) 2nd cleanest energy matrix in the world (based on hydro)

3rd largest market worldwide for Coca-Cola and Unilever

2nd largest market worldwide by volume for Avon and Nestlé

Among McDonald's 8 largest consumers

2nd largest global consumer of meat and coffee

4th largest global consumer of beer

3rd largest global consumer of cosmetics and soft drinks

73 of Fortune's Global top 100 are present in Brazil

Supply Demand

Agribusiness

Basic Materials

High value-added manufacturing

Services

$ 5th largest mobile market in the world (151 million users, 78 percent of the population)

Top 100

Figure 5 Competitiveness and importance as a consumer market illustrate Brazil’s high scores on structure of supply and demand

Source: Company websites; international and local industry associations; Brazilian government; McKinsey analysis.

Share in the total of jobs (percent) Informality (percent)

63.3%

13.9%

16.4%

Level of informality1

High

Medium

Low

Total 93.6%

19.7 1.7 7.7 6.4 2.0 3.9 1.3 1.0 16.6 1.0 2.0

3.5 0.5 2.4 0.8 0.6 4.8 0.7 0.6 0.0

0.1 3.2 0.6 5.2 0.5 1.0 5.2 0.6

Sector

28 sectors (out of 48)

Agriculture, livestock Personal services Domestic services Construction Apparel and accessories Accommodation and catering Recreational and cultural activities Textile Commerce Furniture Fuel and automotive retail/ maintenance

Wood products Foods and beverages Metal products Non-metallic minerals Services rendered to companies Leather and shoes Real-estate activities and rent Tobacco products

Transportation

Chemical products2

Health and social services Mail and telecommunications Education Machinery and equipment2

Financial intermediation2

Public administration Automotive vehicles2

2.8

Percent of workers employed in both Market economy Low informality

Figure 6 Nearly 80 percent of the Brazilian workforce is employed in sectors with either high or medium informality levels

Source: IBGE, 2003a and 2003b; McKinsey, 2004.1. Estimate from the share of employed population not contributing to public welfare.2. Considering only sectors of the market economy: chemicals, machinery and equipment, financial intermediation, and automotive.


Specifically, there is a significant gap between the per-formance of the predominantly formal and the predomi-nantly informal sectors—a particularly serious issue inBrazil given the prevalence of informality. We estimatethat nearly 65 percent of Brazilian workers areemployed in sectors where informality is high (that is, where over 50 percent of employment is informal)(Figure 6).

Less than 15 percent of all workers are in sectorswhere informality is considered medium-level (i.e.,where formal employment represents 25–50 percent ofemployment in the sector). In these sectors, even if directemployment in informal companies is small, the impactof even a small number of companies operating infor-mally can seriously and adversely affect the competitivedynamics in the sector, and thus the ability of formalcompanies to earn sufficient profits to expand, gain share,and thereby disseminate higher productivity businesspractices throughout the economy.

The majority of workers in the low-informality sectors are employed in the non-market economy bysectors including public administration (5.2 percent ofemployment), education (5.2 percent), and health andsocial services (3.2 percent). Only approximately 3.0percent of Brazilian workers are employed in marketeconomy sectors with low informality.

MGI’s research in Brazil and in over a dozen coun-tries at various stages of economic development hasconcluded that informality is a key obstacle to higherproductivity growth. Companies operating informallyadopt lower productivity business models that remaincompetitive because of non-productivity-related factors.Further, the advantages of informality can be such thatthey surpass the advantages provided by higher produc-tivity, in some cases quite dramatically so.5 A first step inleveraging Brazil’s business environment is thereforeensuring that business models from higher productivitysegments are more widely disseminated throughout theeconomy. It is to this topic that we turn next.

Proposals to leverage Brazil’s business environmentWe believe the Brazilian business environment can contribute significantly to increasing the country’s com-petitiveness and thereby raise the standards of living inan inclusive and sustainable manner. We see three majorlevers, or pillars, through which this can take place: (1)increasing the share of the formal sector in the marketeconomy; (2) using business-sector practices to increaseproductivity in the non-market economy; and (3) cap-turing opportunities for accelerated growth offered bycertain global mega-trends (Figure 7).

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Leveraging Brazil’s Business Environment for Increased Competitiveness

Increasing the share of the formal sector in the market economy

Using business sector practices to increase productivity in the non-market economy

Capturing opportunities for growth offered by certain global mega-trends

Figure 7 We see three key pillars through which the Brazilian business environment can achieve those objectives


Pillar 1: Increasing the share of the formal sectorin the overall economy. To increase aggregate pro-ductivity and thereby capture the full potential of thequality and dynamism of its business environment, policymakers should consider how good business-sectorpractices might occupy an increased share of businesspractices in Brazil. Doing so requires addressing themajor obstacles to the country’s productivity growth—namely, informality and macroeconomic instability.Research conducted by McKinsey’s Brazil office in 2006under the oversight of MGI concluded that informalityand macroeconomic instability were the two mostimportant first-order barriers explaining the productivitygap between the United States and Brazil (Figure 8).

As mentioned above, informality delays the adoptionof higher-productivity business models by creating anon-level competitive playing field in which productivitydifferentials may not be a definitive source of competi-tive advantage. Widespread informality deters sector consolidation and modernization. As an illustration,between 1997 and 2006 the three highest ranking sectorsin terms of number of merger and acquisition transac-tions were telecommunications, utilities, and financialintermediation—the three largest sectors in the marketeconomy where informality is low. In contrast, construc-tion and commerce had jointly fewer transactions thanfinancial intermediation alone. That said, while the latteraccounts for less than 1 percent of total employment, theformer two combined account for 23 percent.

Macroeconomic instability exacerbates this challengeby removing what would otherwise be an importantsource of competitive advantage for formal players: theaccess to lower-cost and lower-risk sources of financing.Whereas Brazil’s macroeconomic fundamentals haveimproved significantly, the conditions and costs of accessto capital even for the country’s best companies remaininadequate. This is manifested, for example, in its veryhigh real interest rates and in the virtual unavailability to private-sector companies (or to the public sector) oflong-term, local currency denominated, fixed-ratefinancing at costs comparable to those prevailing in inter-national markets. Current conditions of financing inBrazil deny companies in formal sectors a source of com-petitive advantage that could increase further the capitalintensity and technology gap between those in formaland informal sectors.

The critical importance of combating informality topromote extensive adoption of best business practices isconfirmed when we verify that reduction in informalityis associated with step-changes in productivity levels(Figure 9). Average productivity doubles in situations ofmedium informality relative to low informality, and dou-bles again in the low-informality sectors. Only one sec-tor with medium or high informality (tobacco products)had labor productivity above 50 percent above the mar-ket economy average, whereas every low-informality sector performed above that level. With few exceptions,(e.g., leather articles and shoes) the productivity levels

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Participation of barriers in Brazil’s productivity gap Percent of total gap

Infrastructure

Public service provision (e.g., judiciary system)

Macro- economic instability

Informality and regulation

First- order productivity gap

Second- order barriers 1

Brazil's productivity gap

Major obstacles to business productivity

First-order barriers

Key barriers to growth of the formal sector

Informal practices enable low-productivity companies and business models to survive (and thrive), impeding the spread of high-productivity practices

Macro-instability reduces a key competitive advantageof formal companies: their access to capital markets

100

35

65

39

13

8 5

Source: MGI, 2006; McKinsey analysis.1. Second-order constraints that will naturally relax with Brazil's growth.

Figure 8 To capture the full potential of the quality of its business environment, Brazil should address informality and macroeconomic instability


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PRODUCTIVITY LEVELProductivity index:

100 = average productivity of the market economy, 2006

Agriculture and Livestock

Domestic & personal services

Construction

TransportsMetal products

Manufacture of tobacco products

Chemical products

Machines and Equipments

Finance and insurance

Light vehicles and trailers

Trucks and Buses

Vehicles parts

Other transport equipment

Informality level Percent 1

Leather articles and shoes

Sectorial productivity level vs. informality level

Total market economy productivity

2.8 248

13.9 187

63.3 49

Average productivity (index)

Share of employment (percent)

00

50

100

150

200

250

650

1,000

5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Services to companies

Figure 9 Lower levels of informality are associated with significantly higher levels of productivity

Source: IBGE, 2003a, 2003b, and 2009; McKinsey analysis.1. Estimate from the share of employed population not contributing to public welfare.

Results

Spain increased tax collection by 75 percent on SMEs and observed unemployment decrease by 40 percent

In Slovakia, there was a 12 percent increase in the number of registered companies

In three years, unemployment dropped from 7 to 4 percent in Singapore

Initiatives

Set targets, standards and indicators for the public sector through the Prime Minister’s Office of Public Sector Reform

Lever

Set aspiration targets and define Key Performance Indicators

Countries

United Kingdom

Simplification of tax code Allowed temporary work, extended extra hours Labor deals overrule general labor regulation Part-time contracts with no labor "obligations" Created single point of contact to business Electronic registration of business via Internet

Reduce burden of being formal

Spain Spain, Slovakia Singapore Netherlands Portugal United States, Canada

Collaboration between producers and police Update, integration and automation of tax, labor and social databases (cross-check) Private enforcement, new collateral law

Enhance auditing and enforce penalties

Poland Spain

Slovakia

Campaign about the effects of informality Communicate tax evasion fighting programs

Raise awareness and create a culture of formality

Spain Italy, United States

Created tax evasion control bureau, specialized courts

Moved incorporation cases from judges to court clerks Created Project Management delivery unit to coordinate implementation of measures

Set implementation structure

Spain, United States, Netherlands Slovakia

United Kingdom

Obj

ectiv

es

Polic

ies

Ex

ecut

ion

Figure 10 Several countries successfully implemented programs to reduce informality

Source: McKinsey & Company, 2004.


of the medium-informality sectors are likewise nearlyuniformly superior to those with high informality. Whileinformality alone certainly does not explain these pro-ductivity differentials—informality tends to be inverselycorrelated to capital intensity—it contributes to bothexacerbating differences across sectors and keeping theemployment share of high-productivity sectors low.

In Brazil, several important initiatives that are likelyto contribute to reduced informality have been imple-mented recently. These include the introduction of theSimples, a simplified tax system for small and medium-sized businesses; the operational integration of internalrevenue service and social security administrator; and the Nota Fiscal Paulista, an initiative to raise awareness of the importance of requesting invoices in São Paulo.The level of impact of these programs remains to be seen. Our observations of experiences in othercountries reveal that successful programs to reduceinformality include clearly defined and aspirationalobjectives, a coherent and self-reinforcing set of poli-cies, and an appropriately empowered and resourcedstructure for execution (Figure 10).

These successful experiences suggest that initiatives inall three dimensions are advisable in order for transfor-mation to be more effective, as each reinforces the effectsof the others (Spain’s program is a good example ofmany initiatives working together to generate impressiveresults). The most successful programs included manysector-specific initiatives that were prioritized andlaunched in waves and a limited set of horizontal initia-tives (such as the streamlined tax and labor laws adopted

in Spain). Program coordinators followed a pragmaticapproach, where feasibility prevailed and coordinationand alignment across multiple stakeholders was empha-sized. The results obtained from such programs in termsof increased tax collection, employment levels, and for-mally registered companies are highly encouraging.

Pillar 2: Using business-sector practices toincrease productivity in the non-market economy.Brazil’s private sector can also be a source of learning toimprove the performance of the non-market economy,which includes major sectors such as education, health-care, and other government services. Increasing theirproductivity would be important not only for the directeffect this would have on aggregate productivity, but alsofor its indirect effect in the market economy. Thisimpact can be highly relevant: as shown in Figure 8, lessefficient provision of public and infrastructure servicestogether account for as large a portion of the produc-tivity gap between Brazil and the United States asmacroeconomic instability.6

While measuring public sector efficiency is veryhard, evidence from indicators across a range of publicsector functions suggests room for improvement.Despite showing relatively high tax revenues, Brazil’sinfrastructure, particularly regarding transportation, isoutdated and insufficient. The judicial system is amongthe least effective in the world, and opening a businessis a lengthy and bureaucratic process (Figure 11).

For the government to turn into an effective catalyst of economic growth, evidence suggests that

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Average time for judiciary debt recovery Days

World average 389 days

Time and procedures to open a business Days, number of procedures – 2008

Colombia

India

China Argentina Portugal

United States

Mexico Russia Chile

Canada Australia

Brazil

Infrastructure deficit Indexed US = 1.0, 2007

Distribution infrastructure

Water transportation

Energy infrastructure

Total infrastructure

China

0.57 India

0.44 Brazil

0.58 Mexico

1.00 United States

0.93 Chile

0.79

1.00

0.80

0.86

0.46

0.66

0.60

1.00

1.01

0.83

0.43

0.55

0.40

0.49

0.82

0.92

1.00

0.49

0.58

United States Chile Mexico India Brazil China

Brazil

GDP (PPP) per capita Int’l $, 2006

Total tax revenues Percent of GDP, 2006

Latin America and Asia

Developed countries

Brazil’s tax burden is higher than other emerging countries

Tax revenues vs. GDP per capita

0

0 5 10 15 20 25

50

180

150

120

90

60

30

0

40

30

20

10

010,000

241 250305

421 425

546

20,000 30,000 40,000 50,000

Figure 11 Opportunities exist to strengthen Brazil's performance in the public sector

Source: IMD, 2008; World Bank, 2008; McKinsey analysis.


inefficiencies will need to be removed. Adapting busi-ness frameworks to the rules of the public sector tostreamline processes and improve performance couldcontribute to this objective. We illustrate this conceptby two fundamental non-market sectors: healthcare and education.

�• Healthcare: Although improvements in healthcareprovided to the overall population have beenachieved in the past few years, providing increasedaccess remains a key challenge in Brazilian health-care. Only about 20 percent of the population hasaccess to private health plans (below 10 percent inthe poorer regions of the North and Northeast),with the remaining population relying on govern-ment-provided healthcare. Based on our experi-ence in the sector and expert interviews, the chal-lenges include the low quality of services; lack ofinfrastructure, especially in poor areas; difficulty inattracting the most qualified professionals; and lim-ited distribution of free medicines.

MGI research benchmarking healthcare sys-tems around the world has identified seven keylevers for their improvement.7 In Brazil, given thecriticality of increasing access, three levers mightmerit particular attention for the short andmedium terms: (1) increasing the availability ofhealthcare infrastructure, labor, and technology(drugs and equipment); (2) promoting wellness toreduce incidence of disease and injury; and (3)

increasing system-wide organizational capabilitiesand implementation skills (Figure 12).

Extending business-sector practices and/or presence in the healthcare sector may provide an important contribution for these three levers.The business sector can contribute to increasingthe availability of healthcare by both supplyingspecialized practitioners and promoting the use ofbest technologies. It can also do much more toencourage healthy life styles and to build organiza-tional capabilities (Figure 13).

�• Education: Recently published research byMcKinsey’s Public Sector Practice reveals thatincreased spending alone is not enough toimprove the quality of an educational system, andthat high-performing school systems consistentlydo three things well:8 getting the right people tobecome teachers; developing these people intoeffective instructors (the only way to improve out-comes is to improve instruction); and putting inplace systems and targeted support to ensure thatevery child is able to benefit from excellentinstruction (Figure 14).

The implications of these findings are highlysignificant as well as a reason for optimism inBrazil, since they imply that improvement in edu-cation can be achieved through better administra-tive practices. Research findings are also positive inthat educational systems that implemented such

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Short term

Medium term

Long term

Increase availability of healthcare infrastructure, labor and technology (drugs and equipment)

1

Promote wellness to reduce incidence of injury and disease 2

Increase system-wide organizational capabilities and implementation skills

3

Promote improvements to safeguarding and to service levels 4

Promote improvements to cost competitiveness 5

Ensure value-conscious consumption 6

Promote sustainable financing mechanisms to collect and distribute funds

7

Measures to increase access

Source: MGI, 2006a; McKinsey analysis, based on MGI's framework to guide the reform of healthcare systems.

Figure 12 Three of the seven important principles of healthcare reforms are aimed at increasing access and should be considered in the short term


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1970 1975 1980 1985 1990 1995 2000 2005

Literacy (9 years) Literacy (13 years) Literacy (17 years)

Spending per student (US$, 2004)

Student-to-teacher ratio

Linear index

US teachers, spending and performance

Spending and outcomes in the OECD

Increase in real expenditure per student 1

(1970–94, percent)

Increase in student achievement 2

(1970–94)

Belgium United Kingdom Japan Germany Italy France

Australia New Zealand

To improve instruction, high-performing school systems consistently do three things well:

They get the right people to become teachers (the quality of an education system cannot exceed the quality of its teachers)

They develop these people into effective instructors (the only way to improve outcomes is to improve instruction)

They put in place systems and targeted support to ensure that every child is able to benefit from excellent instruction (the only way for the system to reach the highest performance is to raise the standard of every student)

706050403020100

6577

103108

126212

223270

-5-8

2-5

1-7

-10-2

Figure 14 A study of the top-performing school systems showed higher spending alone will not improve performance

Source: McKinsey & Company, 2007.1. Real expenditure, corrected for the Baumol effect using a price index of government goods and service2. Math and science

Levers Some options on how to leverage Brazil's environment in the public heath sector

Private sector role

2. Promote wellness

Reduce environmental hazards

Comprehensive immunization programs

Promote healthy lifestyles

Sanitization through concessions (public-private partnerships) Expansion of current preventive care programs within the companies and to employee communities Adoption of some regions or small cities (e.g., Trombetas-Pará)

3. Provide adequate organizational framework, strategy, and management

Build organizational capabilities and governance model

Deploy the right approaches to implementation

Local, state, and national demand planning and optimization with multilayered approach: primary, secondary, and tertiary care models with gatekeeping and different roles and accountabilities per level (e.g., cities responsible for local medical centers and primary care)

Incentive programs and variable compensation for professionals based on performance metrics (e.g., effective treatment on the first visit; appropriate exams)

1. Promote efficient capacity

Create adequate physical resources

Adequate supply of labor and use of medical technology

Locally centralized system for patients to book non-emergency care and optimize current structure Partnerships to allow for training of public professionals and sharing of best practices by private institutions

unclear

Figure 13 The private sector could play different roles regarding the levers of health systems

Source: MGI, 2006a; McKinsey analysis.


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practices obtained improvements in the relativenear term (e.g., United Kingdom and Bostoncases).9 And although the paths taken by variousschool systems in the past and the paths that otherschool systems will have to take in the future toachieve similar performance are, inevitably, verydifferent, they all share the same key success factor:a more actively managed approach to core func-tions such as teacher recruitment and assessment.

In addition to the transfer of managerial prac-tices, another way in which the business sector canimprove Brazil’s educational system is by providingsecondary and technical education. Since comple-tion of secondary education does not appear tolead to dramatically higher paid employmentopportunities—jobs for graduates of secondaryschools have salaries on average 26 percent higherthan jobs for workers with no education at all—this results in lack of incentive to pursue studies.But technical education can have a much highersalary differentiation (up to 160 percent higher paythan salaries for workers with no education at all),especially when the right skill set is available. Thebusiness sector can contribute here by participatingin the definition of the necessary skill set, in creat-ing syllabi, and in creating opportunities for theresulting professionals to be employed.

Pillar 3: Capturing opportunities for acceleratedgrowth offered by certain global mega-trends.Empirical research conducted by McKinsey’s StrategyPractice both abroad and in Brazil indicates that corpo-rate decisions about where to compete (i.e., their choiceof product markets, technology, and geography) are crit-ical components of long-term economic performance.In sectors such as banking, telecommunications, andtechnology, almost two-thirds of the organic growth oflisted western companies can be attributed to being inthe right markets and geographies. Companies that ridethe currents succeed; those that swim against them usu-ally struggle. Identifying these currents and developingstrategies to navigate them are vital to corporate success.

Within this context, McKinsey’s Strategy Practiceundertook a major effort to identify the 10 majormacroeconomic, social, environmental, and businesstrends that will make the world of 2015–20 a very dif-ferent place than the one in which we do businesstoday. Three of these trends are particularly relevant toBrazil: (1) increased burden on the public sector (e.g.,due to an aging population); (2) expansion of the con-sumer landscape, with over 1 billion new consumersentering the market over the next decade; and (3) theimpact of population growth and economic develop-ment on the demand for natural resources (Figure 15).Whereas the first of these presents a challenge that maycompromise the country’s fiscal balance, and therefore

Economics of knowledge

Evolving industry& ownership structures

Science of management

Shifting centers of economic activity

Overburdened public sector

New consumers

Turbulent tides of talent

Social cost of free market

Limited resources, unlimited demands

Social life in technological world

Social & environmental trends

Business trends

Macro- economic trends

1

2

3

Description of the issues 10 major global trends

4

5

6

7

8

9

10

A new consumer market is emerging in Brazil, due to demographic shifts… – Low-income population becoming consumers – Increased importance of north/northeast regions – Growing number and wealth of retirees – Importance of university students to gain future consumer loyalty – Growing importance of newly rich … and value trends – Global connectivity and media – Environmentally conscious – Health and well-being – Premiumization (branding)

While most countries are concerned with the scarcity of natural resources, Brazil is blessed with abundant natural resources, for example: – Guarani reserve holds 13 percent of the world's fresh water – There are still 90 million hectares available for agriculture – The Amazon forest has 70 percent of the world's biodiversity This creates an immense opportunity for economic development by attracting resource-intensive industries, and by developing leading global exporters The key question going forward is: how to leverage these opportunities?

While measuring public sector efficiency is very hard, evidence from indicators across a range of public sector functions suggest room for improvement – Brazil is an outlier in terms of time and procedures to open a business – Brazil’s infrastructure index is 50 percent that of the United States – These inefficiencies and gaps contribute to a high tax burden that could get

worse if nothing is done to increase public-sector efficiency

Source: Davis and Stephenson, 2006; McKinsey analysis.

Figure 15 A McKinsey study identified 10 major global trends that are changing the world’s corporate landscape, three of which are key for Brazil’s future


its macroeconomic stability, the remaining two arelikely to generate major opportunities for Brazilianbusinesses to capitalize upon.

�• Increased burden on the public sector: The unprece-dented aging of populations across the developedworld will call for new levels of efficiency andcreativity from the public sector. Without clearproductivity gains, the pension and health-careburden will drive taxes to stifling proportions. Butthis problem is not confined to developedeconomies—in many emerging markets, includingBrazil, governments will have to decide what levelof social services to provide to citizens, whoincreasingly demand state-provided protectionssuch as healthcare and retirement security. Unlesspublic-sector productivity is increased, taxes inBrazil would need to rise by 80 percent frompresent (relatively high) levels in order to maintaincurrent benefits for future generations. Thus, theadoption of proven private-sector approaches willlikely become pervasive in the provision of socialservices across the world (Figure 16).

�• Expansion of the consumer landscape: Almost a bil-lion new consumers will enter the global market-place in the next decade as economic growth inemerging markets pushes them beyond the thresh-old level of US$5,000 in annual householdincome—a point when people generally begin tospend on discretionary goods. Over the nextdecade, the consumer’s spending power in emerg-

ing economies will increase from US$4 trillion tomore than US$9 trillion—nearly the currentspending power of Western Europe. Over thisperiod we estimate that more than 30 millionBrazilians will pass the US$5,000 threshold.

These new consumer trends in Brazil presentenormous opportunities for growth. Historically,the country has had a very homogeneous con-sumer base, which helped make mass marketstrategies with a focus on efficiency quite effec-tive. However, the playing field is now changing.The demographic evolution of the Brazilian pop-ulation, in combination with changing trends intheir values, has contributed to significantlyincreasing diversity as well as making way for animportant share of new arrivals to the consumerarena. Combined with increased consumer credit,the result will be even further buying power.In terms of values, greater concern for sustainabil-ity and the protection of natural resources, as wellas the awareness of the social cost of economicactivity for the climate and the environment, hasalso led to changes in consumer behavior. Arecent McKinsey survey showed that Braziliansare the most likely consumers to reward a com-pany for social responsibility.10

In view of all the above, the growth championsin Brazil in the next 20 years will most likely bethose who can “de-average” their view of themarket and develop a granular perspective on

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0.3

1997

1.8

2007

2.2

2017E

CARG 10%

Transferring knowledge and best practices

– From private to public sector

– Within the public sector

Attracting and retaining talent

– Meritocratic practices

– Attractive value proposition

Promoting dialog with the pri-vate sector and stakeholders

Reducing tax burden and complexity

Simplifying labor laws

Improving judicial system

Improving social services

… that could benefit from changes in government policy and in how it is implemented

Growing public spending on pensions and healthcare benefits … (percent of GDP)

Growing social security deficit … (percent of GDP)

2001 2030E2

19.7 33.3 Japan

11.5 23.1 Italy

17.3 28.8 Germany

12.9 21.5 Brazil

10.5 15.5

United States

17.6 25.8

30

40

90

140

175

France

CAGR +1.7%

... leading to potential tax increases…

Increase in taxes necessary to maintain current benefit levels for the future generation 1 (percent increase)

Japan

Italy

Germany

Brazil

United States

France

80

Figure 16 Some key policy changes could help address the overburdened public sector

Source: OECD 1995; 1996; 1997 and US Census Bureau; Ministério da Fazenda; McKinsey analysis.1. Assumes no change in taxes or other spending and assumes all other savings continues at the same rate.


trends, future growth rates, and market structures.The companies that move to cater to these newconsumers in Brazil and translate these skills tonew consumers abroad will undoubtedly derivemuch benefit.

• Impact of population growth and economic develop-ment on the demand for natural resources:11 As economic growth accelerates—particularly inemerging markets—we are using natural resourcesat unprecedented rates. Surging demand across abroad range of commodities is being verified. Forexample, oil demand is projected to grow by 50percent in the next two decades, and without largenew discoveries or radical innovations supply isunlikely to keep up. In China, demand for copper,steel, and aluminum nearly tripled in the pastdecade. This whole scenario is increasingly con-straining the world’s resources, and in many coun-tries, water shortages will be the key constraint togrowth. Innovation in technology, regulation, andthe use of resources will be thus central to creatinga world that can both drive robust economicgrowth and sustain environmental demands.

With its wealth of biodiversity, ample territory,and excellent and varied climate and soil, Brazil isparticularly well positioned to strengthen its com-modity production and performance in interna-tional trade to further capture the opportunities

presented by this surge in demand. The countryhas a number of the world’s largest and mostcompetitive mineral deposits, as well as the possi-bility of consolidating its position as a key inter-national player in agribusiness and bio energies byexploring its land and hydro potential (Figure 17).

The public sector plays a crucial role in enablingBrazilian businesses to capture these opportunities.Currently many resource projects in the world are onhold, or even cancelled. However, the combination ofresource depletion with a broken investment pipelinewill aggravate the shortage of many commodities in thefuture, even where analysts assume more modest eco-nomic growth rates when compared with the periodpreceding the financial crisis. While the capital projectpipeline is on hold, Brazil should pursue initiatives tobecome an even more attractive place for those invest-ments once they are back, and secure more than its fairshare of the global investment pie. This requires address-ing the barriers that may have delayed or even preventedbillions of capital investments in Brazil. Such initiativesmight include regulatory reform and efforts tostrengthen infrastructure (energy, ports, railways).

ConclusionBrazil’s competitiveness rankings have typically beendisappointing, in line with or below its GDP per capitaranking. However, the average ranking masks significant

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With increasing international pressure for renewable resources and Brazil's potential for developing low-cost energy…

… could Brazil create an opportunity for energy-intensive companies?

Share of renewable energy in 2020 Percent of total consumption

Energy consumption Gigawatt hours per establishment

Guarani ground water reserve complex holds 12 percent of worlds' fresh water

2,068 Primary aluminum

533 Newsprint mills

324 Alkalies & chlorine

189 Petroleum refineries

176 Paper mills (excl newsprint)

174 Iron & steel mills

161 Primary copper smelting & refining

100

Brazil

100

Rest of the world

Renewable

Non-renewable

Brazil has historically one of the lowest energy

costs in the world

14

85

15

86

Figure 17 Brazil has the potential to create opportunities for energy- and water-intensive industries

Source: ANEEL; US Census Bureau; DOE/EIA; McKinsey analysis.

Besides clear opportunity for agribusiness, are there water intensive industries that Brazil could explore?

The Amazon river provides 18 percent of total fresh water flowing into the oceans


differences in the country’s performance in indicatorsrelating to primarily government related activities versus those primarily related to the business sector.Whereas Brazil would rank approximately 120th out of the 134 countries on a “government competitive-ness” index, its business-sector competitiveness wouldrank around 30th. The main objective of this chapterhas therefore been to explore how Brazil can lever the quality and dynamism of its business environmentto increase the country’s competitiveness. We exploredthree major avenues through which this contributioncould take place:

�• Expanding the participation of the formal sector in the overall economy. Currently, high costs of operating formally provide substantial non-productivity-related advantages to informal players.These costs must be reduced (and the perceivedrisks of adopting informal practices increased) toaccelerate the share of economic activity adoptinghigh-productivity business models. Further consoli-dation of macroeconomic conditions that ensurethat terms and costs of financing are comparable to those in normal markets will contribute to this trend.

• Using business-sector practices to increase produc-tivity in the non-market economy. While there hasbeen much effort to improve, and pockets ofexcellence can be found, the efficiency of Brazil’sgovernment is relatively low in many areas. Brazil’sranking in those GCI indicators where govern-ment involvement is most intensive is very low—lower even than that of BRIC countries at an earlier stage of economic development, such asIndia and China. The business sector can con-tribute to increasing public-sector productivity bysupporting the transfer of best managerial practices.The country will benefit not only from the directimpact on productivity in these sectors, but alsofrom the follow-on indirect impact that improvedpublic services will bring, whether in healthcare,education, the judiciary, or infrastructure services.

�• Capturing opportunities for accelerated growthoffered by certain global mega-trends. Finally,Brazil’s business environment can contribute to the country’s overall competitiveness by riding thetailwinds major global trends provide—particularlythose involving the emergence of a new consumermarket and the increased demand on naturalresources. Brazilian companies that are able toposition themselves will experience acceleratedgrowth and extend their benefits to the country by increasing its strategic importance as a majorsupplier of scarce resources to the world. Brazilianbusiness can also play an important role in mitigat-

ing the impact of a potentially unfavorable trendassociated with the increased burden on the publicsector that will ensue from an aging population,again through contributions to increase public-sector productivity.

Over 10 years ago, MGI published an in-depthreport on Brazilian economic performance.12 The basicconclusion for Brazil was an optimistic one: the countrycould embark on a trajectory of accelerated growth thatwould double GDP over a 10-year period if economicpolicies that both enabled and motivated productivitygrowth were put in place. Underpinning this assertionwas a critical finding arising from in-depth analyses ofthe productivity growth potential in eight sectors of theBrazilian economy: there were no structural, insur-mountable barriers keeping Brazil from achieving muchhigher productivity levels than it recorded at the time.

One key piece of evidence of that finding was that inseveral sectors we found examples of leading Braziliancompanies operating at productivity levels comparable orsuperior to those of their counterparts in developedmarkets. Brazil’s leading banks, for example, achievedhigher productivity than their peers in the United Statesand Europe. Leading food processing companies, recentlyestablished automotive manufacturers, and formal-sectorretailers registered slightly lower productivity than theirUS comparables, but this could be explained by rationaldecisions regarding capital intensity given the far lowerwages prevailing in Brazil, as well as income-related fac-tors that contribute to economies of scale (e.g., higherincomes lead to higher average tickets in retail).

While Brazil’s GDP has not doubled since 1998, theperformance of its leading players across many sectors hasbeen extraordinary, particularly during the period of rel-ative stability between 2004 and 2008. The convergenceof favorable macroeconomic conditions and a strongcompetitive position in selected industries made this aunique moment in the history of corporate Brazil. Withsignificant global liquidity and Brazilian macroeconomicfundamentals consistently improving, local companiesgained from the falling cost of capital and broadeningalternatives for funding their growth plans, while locallyestablished multinationals benefited from stable condi-tions to establish an exporting platform or to capturepotential growth in the domestic market.

This period was one of significant, productivity-enhancing transformation in a number of sectors: in basicmaterials, a number of companies made moves to con-solidate their presence abroad and/or to strengthen theirdominant position in global trade flows. Agribusinesscompanies also expanded via a combination of consoli-dation and export growth, while the real estate sectorseemed to emerge from scratch as capital markets condi-tions and prospects of a reasonably priced real estatefinancing improved. Consolidation continued in a num-

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ber of sectors, such as banking and telecommunications.All this shows the transformative and competitive capa-bilities of Brazil’s entrepreneurs, and gives strong reasonto believe that such capabilities can substantially con-tribute to future gains in Brazil’s competitiveness.

Notes1 The McKinsey Global Institute is McKinsey & Company’s econom-ics research arm. Founded in 1990, its primary purpose is to under-take original research and develop substantive points of view oncritical economic issues facing businesses and governments aroundthe world. MGI’s research is funded by the partners of McKinseyand not commissioned by any business, government, or other insti-tution.

2 Brazil’s relative performance for these dimensions was based on ananalysis of its relative competitiveness ranking in the indicators ofthe GCI, as well as on other competitive indexes.

3 Competitiveness in the MGI framework refers strictly to the inten-sity of competition in a given sector, a narrower sense than thatemployed in the GCI.

4 Since 1990, the McKinsey Global Institute has analyzed relative eco-nomic performance in 17 countries at various stages of economicdevelopment and adopting different economic development models(among these are countries as diverse as the United States, Japan,Korea, Brazil, Russia, Thailand, Turkey, and India). The factors identi-fied in all countries as barriers to higher labor productivity are micro-economic policies that inhibit exposure to best practice (e.g., via tar-iffs or restrictions on foreign direct investment) or that diminishcompetitive intensity (e.g., zoning restrictions on retailers or pricecontrols).

5 Prior MGI research estimates that evasion of sales, social security,and income taxes can more than triple the sales margins of a repre-sentative Brazilian food retailer.

6 The material below draws from research conducted by McKinsey’sBrazilian office in 2006 on the major barriers to faster economicgrowth in Brazil. The conclusions of the study were summarized infour editions of Exame Magazine, published in August/September2006 (editions 874, 875, 876, and 877). Excerpts of this researchare also available in MGI 2006b.

7 MGI 2006a.

8 McKinsey & Company 2007.

9 McKinsey & Company 2007.

10 September 2007 McKinsey survey of 7,751 consumers in Brazil,Canada, China, France, Germany, India, the United Kingdom, andthe United States.

11 The data included in this section are drawn from research con-ducted by McKinsey’s Global Forces Initiative, an internal researcheffort focused on identifying and describing the major global trendsshaping the corporate landscape over the next decade.

12 MGI 1998.

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IMD. 2005, 2006, 2007, 2008. World Competitiveness Yearbook.Switzerland: IMD. Available at http://www.imd.ch/research/publications/wcy/wcy_online.cfm.

Mastercard Worldwide. 2008. Worldwide Centers of Commerce Index2008. New York: Mastercard Worldwide. Available athttp://www.mastercard.com/us/company/en/insights/index.html.

McKinsey & Company. 2004. Eliminando as Barreiras ao CrescimentoEconômico e à Economia Formal no Brasil. São Paulo: McKinsey& Company, Inc. Available at http://www.mckinsey.com/ideas/pdf/Diagnostico_da_Informalidade-final.pdf.

———. 2007. How the World’s Best-Performing School Systems ComeOut on Top. London: McKinsey & Company, Inc. Available athttp://www.mckinsey.com/locations/ukireland/publications/pdf/Education_report.pdf.

McKinsey Global Institute. 1998. Productivity: The Key to anAccelerated Development Path for Brazil. São Paulo, Washington,DC: McKinsey & Company, Inc. Available at http://www.mckinsey.com/mgi/reports/pdfs/brazil/Brazil.pdf

———. 2006a. A Framework to Guide Health Care System Reform. SanFrancisco: McKinsey & Company, Inc. Available at http://www.mckinsey.com/mgi/publications/Framework_Health_Care_System.asp

———. 2006b. How Brazil Can Grow. São Paulo and Washington, DC:McKinsey & Company, Inc. Available at http://www.mckinsey.com/mgi/publications/brazil_grow.asp,

Ministério da Fazenda. Available at http://www.fazenda.gov.br/.

OECD (Organisation for Economic Co-operation and Development).Available at http://www.oecd.org/home/0,2987,en_2649_201185_1_1_1_1_1,00.html.

Transparency International. 2005, 2006, 2007, and 2008. CorruptionPerceptions Index. Berlin: Transparency International. Available at:http://www.transparency.org.

UNDP (United Nations Development Programme). 2007. HumanDevelopment Report 2007/2008 – Fighting Climate Change:Human Solidarity in a Divided World. New York: PalgraveMacmillan. Available at http://hdr.undp.org.

US Census Bureau. Available at http://www.census.gov/.

World Bank. 2008. Doing Business 2009: Comparing Regulations in 181Economies. Washington, DC: World Bank, International FinanceCorporation, and Palgrave Macmillan. Available athttp://www.doingbusiness.org/downloads.

World Bank and Oxford University Press. 2004. Doing Business in2004: Understanding Regulation. Washington, DC: World Bank.Available at http://www.doingbusiness.org/Documents/DB2004-full-report.pdf.

World Economic Forum. 2005. The Global Competitiveness Report2005–2006: Hampshire: Palgrave MacMillan.

———. 2006. The Global Competitiveness Report 2006–2007:Hampshire: Palgrave MacMillan.

———. 2007. The Global Competitiveness Report 2007–2008.Hampshire: Palgrave MacMillan.

———. 2008. The Global Competitiveness Report 2008–2009. Geneva:World Economic Forum.

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creased Co

mpetitiveness


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3.3: Brazil as a Foreign Direct Investment D

estination

CHAPTER 3.3

Assessing the Performanceand Potential of Brazil as aForeign Direct InvestmentDestinationFABRICE HATEM, UNCTAD

ANNE MIROUX, UNCTAD

One of the most striking features of globalization is thata growing share of companies’ investment projects areimplemented abroad. The capacity to attract the resultinginternational investment flows appears therefore to be animportant component of national competitiveness. Thischapter aims at shedding some light on this issue by pro-viding an overview on foreign direct investment (FDI) toBrazil as well as on the presence of foreign companies inthe Brazilian economy.1

FDI flows and stocks have significantly increased overthe past 15 years, making Brazil the largest host countryfor foreign investment in Latin America and second onlyto China among developing countries. The followingsections will explore the main enabling factors of thisencouraging trend, including Brazil’s competitive advan-tages—such as its large and expanding market coupledwith its abundant natural resources and its relative open-ness to FDI. The composition of FDI located in thecountry by sector, mode of entry, and nationality of theinvestor will be analyzed in detail, together with thechallenges that lie ahead for Brazil in maintaining andconsolidating its status as a top FDI destination.

Brazil as one of the top FDI recipients in the developing worldTraditionally one of the major FDI recipients in thedeveloping world, Brazil had lost ground in this regardduring the 1980s as a consequence of the debt crisis.However, after an increase in FDI inflows in the mid-1990s, Brazil seems to have fully recovered its position asone of the largest FDI recipients in the developing world.

A global analysis of FDI trends over the past 15 yearsFDI in Brazil is quite an old story. One century ago,there was already substantial FDI in areas such as rail-ways, ports, infrastructure, and banks. And from the endof World War II until the early 1980s, the country hadbeen both the largest FDI recipient in Latin America andone of the largest FDI recipients (and sources) among alldeveloping countries. In the aftermath of the debt crisis,however, the importance of Brazil for investors declined.Because of a period of macroeconomic instabilityextending until the beginning of the 1990s,2 FDI flowsdecreased from almost US$2.5 billion annually in the1977–82 period to a little more than US$1 billionbetween 1983 and 1993. By that year, Brazil had recededto 14th place as an FDI inflows recipient among developing countries.

Flows started to pick up again in the mid-1990s, inconjunction with the large privatization programs under-taken at that time (especially in services), the differentreforms aimed at liberalizing the Brazilian economy, the

The opinions expressed in this article are those of the authors and do notnecessarily reflect the views of the United Nations.


opening of its markets to foreign investors and interna-tional trade, and the increased regional integration(notably with the creation of the Mercosur in 1991).Inflows reached a peak of nearly US$33 billion in 2000(Figure 1), and Brazil recovered its position as a top FDIrecipient among developing countries by that year, sec-ond only to China.

After a decline in the early 2000s,3 growth in FDIresumed in 2004—incidentally, with important positiveeffects on job creation—reflecting both an increase ingreenfield projects and a new wave of mergers andacquisitions (M&As) (see Figure 2 and Box 1). Thestrength of this upward trend was reflected in itsresilience to the recent global economic downturn.Indeed, FDI in Brazil reached a historical record ofUS$45.1 billion in 2008 (an increase of 30 percent over2007), while total world inflows fell by 21 percent.4

Brazil vs. the developing worldAt the global level today, the position of Brazil as an FDIrecipient could be considered relatively marginal. Itsshare in world FDI inflows decreased somewhat over thelast decade to reach about 2 percent in 2007—13th posi-tion in the world. In the same year, its share of worldFDI inward stocks was also around 2 percent (Figure 3).

This somehow disappointing performance is largely theresult of the relatively low value (compared to world levels)of cross-border M&As having targeted Brazilian companiesin recent years. In fact, the overall high levels of FDI globalflows reflect the surge in M&As that has taken place overthe last 10 years. Most of these purchases have been con-centrated in developed countries, while Brazil—despite amarked increase of M&A operations in its territory—attracted only a very limited share: less than 1 percent ofthe world’s total over the 2005–08 period.

76

3.3:

Bra

zil a

s a

Fore

ign

Dire

ct In

vest

men

t Des

tinat

ion

Figure 1

Source: UNCTAD, based on data from the Central Bank of Brazil.

FDI to and from Brazil, 1970–2008

50,000

40,000

30,000

20,000

10,000

0

–10,0001970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2008

Outflow

Inflow

US$ billions

Figure 2

Source: FDi Markets.

International greenfield projects and related job creation in Brazil, 2003–08

2003 2004 2005 2006 2007 2008

350

300

250

200

150

100

50

0

120

100

80

60

40

20

0

Jobs (thousands)ProjectsNumber ofprojects

Number of jobs


77

3.3:

Bra

zil a

s a

Fore

ign

Dire

ct In

vest

men

t Des

tinat

ion

Figure 3

Source: UNCTAD.

Brazilian FDI inward flows and stock as a share of world total, 1980–2008

Inward flows

Inward stock

6

5

4

3

2

1

0198419821980 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

The rise of FDI to Brazil during the late 1990s was largelyattributable to the privatization programs that took placebetween 1991 and 2002. This privatization was one of themost extensive in the world. The total value of sales ofstate companies to private investors during this periodexceeded US$ 100 billion; these sales peaked in 1998–99.Three-quarters of these privatizations involved the serv-ices sector, mostly telecommunications and electricity.

After the slowdown of this privatization program andthe global overall decline of M&As, acquisition of domesticfirms by foreign companies dropped abruptly between2000 and 2002 (see figure A). Their marked resurgencesince 2005—with more focus than previously on the sec-ondary sector—was one important factor in the recentincrease in FDI inflows to Brazil.

Since 2004, most of the major M&As in Brazil have targeted privately owned companies. Among the mostnotable operations are the finalization in 2005 of themerger between the beverages companies Ambev andInterbrew (Belgium) (US$1.3 billion); the acquisition ofBanco Pactual by UBS (Switzerland) in 2006 (US$2.6 bil-lion); the acquisition in 2007 of the retail companyAtacadão by Carrefour (France) (US$1.1 billion) and of thecredit services company Serasa by Experian Group (UnitedKingdom) (US$1.2 billion); the acquisition in 2008 of the ironore mining company IronX Mineracão by Anglo-American(United Kingdom) (US$3.5 billion), and (partially) of the ironmining company Namisa by a consortium of Japaneseinvestors led by Itochu (US$3 billion).

Box 1: Cross-border M&As in Brazil

Figure A

Source: UNCTAD, based on Thomson Financial database.

Cross-border M&As in Brazil, 1987–2008

Value (million US$)Number of deals

200

180

160

140

120

100

80

60

40

20

0

19871988

19891990

19911992

19931994

19951997

1998 19992000

20012002

20032004

20052006

20072008

1996

25,000

20,000

15,000

10,000

5,000

0

Value of dealsNumber of deals


78


estination

The performance of Brazil (as well as of developingcountries as a whole) is much better when it comes toattracting greenfield projects. Among the top 15 hostcountries in terms of number of operations between2003 and 2008, 6 are from the developing world (Table1).5 And the world share of Brazil is also more substantialthan in the case of M&As, with respectively 1.8 percentand 2.9 percent of greenfield projects and related jobs.

An analysis carried out only at the world level wouldtherefore not fully capture the real importance of Brazil asan FDI recipient, because it would be somewhat biased by

the geographical patterns of cross-border M&As. It ismore accurate to compare Brazil with its peer group ofdeveloping economies. Within this group, Brazil plays anoutstanding role as a host country for FDI. With almost 6percent of inward flows over the 2004–07 period, itranked second behind China. It is also the major FDIrecipient in Latin America, with 23 percent of inflows (onaverage for 2005–07) and 29 percent of inward stocks (in2007). From 2003 to 2008, according to the fDi Marketdatabase, it also accounted for around 30 percent of allgreenfield projects in the region (see Appendix A).

Table 1

Country Number of projects Share (percent)

China 8,174 12.0

India 4,364 6.4

United States 4,279 6.3

United Kingdom 3,778 5.5

France 2,703 4.0

Russian Federation 2,647 3.9

Germany 2,126 3.1

Spain 1,849 2.7

Poland 1,694 2.5

Romania 1,647 2.4

United Arab Emirates 1,581 2.3

Vietnam 1,264 1.9

Brazil 1,259 1.8

Hungary 1,247 1.8

Canada 1,228 1.8

Singapore 1,219 1.8

Source: fDi Market database.

Table 1

Greenfield projects: Worldwide share of the main recipient countries, 2003–08

Figure 4

Source: UNCTAD, 2008b.

Brazil in UNCTAD’S WIPS ranking

2008 survey2007 survey

6

5

4

3

2

1

0

Percent*

* Percentage of responses to UNCTAD's survey.

SouthAfrica

PolandUnitedKingdom

MexicoCanadaAustraliaIndonesiaGermanyVietnamBrazilRussian Federation

United States

IndiaChina France Turkey


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estination

Brazil’s major factors of attractiveness for foreigninvestorsBrazil enjoys a good image among international investors,due in particular to its market potential and its availabilityof natural resources. Government efficiency and the regu-latory environment, however, are generally seen as weak-nesses for the country. The nature of the major Braziliancompetitive advantages has a direct impact on its patternof FDI performance by kind of activity.

Brazil’s potential to attract FDIBrazil is often mentioned by the executives of multina-tional corporations as one of the privileged investmentlocations in the world. The country was, for instance,ranked 6th in 2007 (as against 7th in 2005) by the latestissue of A.T. Kearney’s FDI Confidence Index,6 and as the5th favorite location in the world in the 2008 edition ofUNCTAD’s World Investment Prospects Survey (WIPS),7 astrong progression from the year before (see Figure 4).

Main competitive advantages and disadvantages ofBrazil as an FDI destinationInvestors’ perceptions of Brazil are influenced by a num-ber of factors, of which the most prominent are its largeand growing market potential and its natural resourcesendowment.

In particular, the size and growth rates of theBrazilian market appear to be a major asset for market-seeking investments of all kinds. This is illustrated byinvestors’ responses to UNCTAD’s WIPS survey, whichhighlighted those elements as key factors prompting theirfirms to invest in Brazil (see Table 2).8

At the same time, the richness in natural resourcesdisplayed by the country makes it very attractive forresources-seeking export-oriented FDI. Brazil is thethird largest agricultural exporter in the world, as well asa major exporter of mineral commodities. A survey byA.T. Kearney in 2007 found that, among all the respon-dent companies, those active in commodities—as well as

infrastructure—were the ones expressing the most favor-able views on Brazil as an FDI destination. UNCTAD’sWIPS survey finds that access to natural resources is amore important location factor for Brazil than, on aver-age, for the rest of the world.

Among the other competitive advantages displayed byBrazil, the limited labor costs also contribute to the coun-try’s attractiveness for export-oriented FDI in the manu-facturing sector. However, UNCTAD’s WIPS does notfind this criteria to be particularly determinant, especiallyvis-à-vis Asian countries such as India, China, or Vietnam.The same applies for the industrial environment criteria(availability of suppliers, infrastructure) and the availabilityof skilled labor.9 Furthermore, Brazil’s relative openness toforeign investment represents another relevant asset inattracting FDI to the country (see Box 2).

On a more negative note, a lack of governmenteffectiveness is generally considered to be a problematicarea of the business environment in Brazil. For instance,Brazil was ranked 125th (of 181 countries) in the 2009issue of the World Bank’s Doing Business study, a declineof 6 positions from 2006 (119th of 155 countries).10 And,based on the World Bank’s ranking of Brazil on variouscriteria, it appears that there is large room for improve-ment in the areas of paying taxes, starting and closing abusiness, employing workers, registering property, dealingwith construction permits, and enforcing contracts.According to the World Economic Forum’s GlobalCompetitiveness Report 2008–2009, Brazil is laggingbehind in terms of the quality of its institutions (91st of134 countries), labor market efficiency (91st), and goodsmarket efficiency (101st).11

Such weaknesses may partly explain why, despiteachieving significant FDI inflows in recent years, Brazilremains below its potential with respect to attractingFDI. This is illustrated by the fact that, according toUNCTAD, Brazil’s ranking for its FDI performanceindex, as compared with 141 countries in the world,remains below its FDI potential index: 97 against 70.12

Table 2 Ten most attractive countries for FDI by factors favoring investment, 2008–10 (percent of responses for a given country)

1 China 13 2 3 2 5 6 14 4 3 4 22 22 2 India 12 2 2 — 10 4 15 4 3 3 24 22 3 United States 14 7 2 2 11 7 1 6 8 13 8 21 4 Russian Federation 12 2 5 1 3 3 8 3 2 2 30 29 5 Brazil 17 2 8 2 4 4 8 2 4 4 25 22 6 Vietnam 9 — 4 8 15 6 21 8 2 — 19 9 7 Germany 13 4 4 4 16 7 — 4 13 16 7 13 8 Indonesia 5 — 15 8 5 10 13 5 10 — 15 13 9 Australia 18 2 9 2 14 2 — 2 9 11 18 11 10 Canada* 15 8 13 3 13 13 — 8 5 10 8 8 10 Mexico* 13 — 8 4 13 13 19 — 2 6 13 10 10 United Kingdom* 14 5 3 — 14 11 — 3 8 19 5 19 World average 14 3 5 3 8 6 8 4 6 7 18 18

Host country

Access to international /

regional marketsRank

Access to local capital

markets (finance)

Access to natural

resourcesAccess to incentives

Availability of skilled

labor and expertise

Availability of suppliers

Cheap labor

Follow-ing your

competitors

Government effective-

ness

Quality of infra-

structure

Market growth

rateMarket

size

Source: UNCTAD, 2008b. * Canada, Mexico, and the United Kingdom are all ranked 10th.


Brazil’s FDI performance by kind of activityTransnational corporations (TNCs) decide on investmentlocations on the basis of a large set of criteria, the hierar-chy of which differs depending on the activity involved.A country will hence be more attractive for projectswhose characteristics are well in line with its own com-petitive advantages. An analysis of Brazil’s FDI marketshare by industries and business functions can shed lighton the nature of Brazil’s competitive advantages and com-plement the foregoing assessment. A review of FDI datafor the 2003–08 period suggests that, by industry, Brazil’sworld market share, in terms of FDI projects, seems espe-cially high in metals, minerals, business machines andequipments, wood products, chemicals, rubber, communi-cations, alternative and renewable energy, and beverages.13

It is lower than average in such activities as medicaldevices, textiles, biotechnologies, consumer products andconsumer electronics, semi-conductors and electroniccomponents, healthcare, and business services. And bybusiness functions, Brazil’s shares are relatively high inproduction and extraction. They are below average insuch activities as research and development (R&D),shared services centers, business services and headquar-ters, retail, and sales marketing and support.

Brazil therefore appears to be a very attractive loca-tion for a large set of activities, ranging from exploitationof natural resources and production of renewable energiesto a number of manufacturing activities (especially inheavy industries, automotive assembly, some equipment

goods, and food and beverages), where TNCs havealready set up large production bases in the country. Inaddition, the country’s privatization program has resultedin a large-scale foreign presence in such activities astelecommunications, utilities, banking, and transportation.

However, Brazilian attractiveness seems relativelymore limited in three categories of activities: (1) innova-tion-related activities such as semi-conductors, electroniccomponents, and health industries; (2) high value addedbusiness support functions such as R&D centers, regionalheadquarters, or shared services centers; and (3) somelight industries such as consumer electronics, textiles andgarments, and other consumer goods where competitionfrom countries with low factor costs, as is especially thecase in Asia, is higher.

Who, where, how? Patterns of FDI in BrazilAlthough the United States has historically been the mostimportant source of FDI in Brazil, European companieshave markedly increased their presence in the countryover the past 15 years. FDI flows had been focusedmainly in services during the late 1990s but the share ofmanufacturing has noticeably increased in recent times.

Trends of European FDI in BrazilBy country of origin, the major investors in Brazil havehistorically been US companies. Nonetheless, theirshare—though still significant—has declined over time to

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estination

Brazil welcomes FDI in almost all business activities, andno distinction has been made since 1995 between foreignand national ownership. National treatment applies in prin-ciple to all foreign investors. However, there is no generalforeign investment law or code and Brazil does not haveany bilateral investment treaties with third countries. Somerestrictions remain on FDI entry in a number of selectedsectors such as mining, telecommunications, media, finan-cial services, and transportation. In the mid-2000s, financialservices—especially banking, where foreigners alreadyowned a large share of the local market—were further lib-eralized. With a few exceptions, FDI does not require priorapproval, but investment must be registered with theCentral Bank. Fund transfers and capital remittances areallowed with some restrictions, among which is the gov-ernment’s ability to cap the repatriation of profits to 10 per-cent of the investment’s historical value. Capital repatria-tion may also be restricted “whenever the economic situa-tion warrants,“ but this has never been applied in the past20 years. International arbitration is possible in the case ofa dispute between the state and a foreign investor, but isnot binding.

In recent years, there has been little evolution directlyaffecting the foreign investment regime in Brazil. It shouldbe mentioned, however, that measures were taken in 2008toward the opening of the reinsurance sector (ending themonopoly on reinsurance by the state-owned Instituto de

Resseguros do Brasil). FDI is now permitted in this sector,but will be restricted to 40 percent of the Brazilian marketduring the first three years. Also in 2008, the governmentproceeded with the first privatization of road infrastructurein Brazil in almost 10 years.

Other recent measures may also have a significant,albeit indirect, impact on foreign companies operating inBrazil, notably the Growth Acceleration Program (PAC)announced in 2007, aimed at boosting economic growth(see Chapter 2.1 of this Report). Among the measuresincluded in PAC are some corporate tax reductions ofsome R$10 billion (US$4.7 billion) over the following fouryears, as well as an annual rise of R$10 billion in publicinfrastructure investment. Tax incentives were introducedthe same year to stimulate investment in specific sectorsof the economy, principally in the textile and leather, agri-culture, and automotive industries. A series of incentivesand benefits have also been made available to exporters,such as the Special Tax Regime for Exports of InformationTechnology Services (REPES) and the Special Regime forAcquisition of Capital Goods for Export Companies(RECAP). Furthermore, foreign exchange transactionsaffecting exporters have been liberalized. Companies sell-ing goods abroad can now open a bank account outsidethe country and deposit up to 30 percent of their exportrevenues there.

Box 2: The regime for FDI in Brazil


the benefit of European investors. All together, Europe (inparticular the Netherlands, Spain, France, and Germany—in that order; see Table 3)14 accounted for roughly half ofFDI inflows from 2001 to 2006.15 Canada, Japan,Belgium, Luxembourg, and Portugal have also been sig-nificant investors in recent years. Some companies fromdeveloping Asia (notably China and Korea, Rep.) havealso recently begun to set up activities in the country.

The evolving patterns of FDI by type of industryHistorically, the bulk of FDI in Brazil was in manufac-turing: this sector accounted for more than two-thirds ofFDI stocks in 1995. However, the privatization programof the late1990s prompted a sharp increase in FDI flowsin services. FDI stocks in this activity thus rose veryquickly to reach more than two-thirds of total stocks in2000 (Table 4).

In more recent years, following the deceleration ofthe privatization program, the share of services in FDIinflows has declined significantly, even if it has continuedto exceed 50 percent over the 2001–06 period.16

Conversely, the increasing importance of the primarysector and manufacturing was largely due to significant

FDI flows in oil and mining, chemicals, automotive, met-als, and food and beverages. A large part of investment inservices took the form of M&As, but, in contrast withthe previous period, most of the acquired companieswere privately owned (see Box 1).

Modes of entry for FDI in BrazilEntry modes in Brazil differ widely depending on thespecific industry. In some activities, such as infrastructureand finance, TNCs could expand their activities throughthe acquisition of existing assets. As a result, M&Asbetween 1998 and 2008 have been very much concen-trated in four industries, amounting to more than two-third of the value of M&A operations in Brazil over theperiod: finance, telecommunications, utilities, and miningand petroleum (see Table 5).

In other industries, the more limited number of localtargets for M&As (as is the case in the automotive indus-try) and/or the importance of the local unexploitedpotential in terms of market and resources (for example,in real estate) led TNCs to rely more widely on green-field investments. Five sectors (metals, automotive OEM,food & tobacco, real estate, hotels & tourism) accounted

81


estination

Inward stocks (percent) 1995

Inward stocks (percent) 2000

Inward flows(percent) 2001–06

Table 3 FDI stocks and inflows by home country of investor in Brazil

Total world 100.0 100.0 100.0Developed countries 82.3 79.7 82.3Europe 43.3 49.6 51.1European Union 35.8 46.6 47.4France 4.9 6.7 6.2Germany 14.0 5.0 4.4Italy 3.0 2.4 1.8Netherlands 3.7 10.7 18.1Portugal 0.3 4.4 3.5Spain 0.6 11.9 6.7United Kingdom 4.5 1.4 1.7Belgium - Luxembourg 2.3 1.6 3.7Other developed Europe 7.5 3.1 3.7Norway 0.1 0.2 0.5Switzerland 6.8 2.2 2.7North America 30.4 25.8 23.5Canada 4.4 2.0 4.2United States 26.0 23.8 19.3Other developed countries 8.6 4.4 7.7Australia 0.2 0.1 0.9Japan 6.4 2.4 3.7Bermuda 2.0 1.9 3.0Developing economies 12.6 17.0 17.7Africa 0.5 0.2 —Latin America and the Caribbean 11.7 16.0 16.8Caribbean 6.3 11.2 11.6British Virgin Islands 2.2 3.1 2.3Cayman Islands 2.1 6.0 8.4South America 3.7 3.0 2.0Central America 1.7 1.7 3.2Mexico 0.1 0.1 2.3Panama 1.6 1.5 0.8Asia and Oceania 0.3 0.9 0.9Southeast Europe and CIS — — —

Source: UNCTAD.


for roughly 55 percent of job creation related to overseasgreenfield projects during the 2003–08 period.17

The key role of TNCs in the Brazilian economyThe large inflows of FDI into Brazil during the last 15years have resulted in a significant increase in the foreignpresence in the country. More recently, a number ofBrazilian companies have also increased their presenceoverseas, resulting in a rise of outward FDI flows fromthe country.

The growing presence of TNCs in BrazilOver the past 15 years, the presence of foreign compa-nies in the Brazilian economy has significantly increased.Since 1995, the ratio of inward FDI stocks to GDP hasmultiplied by more than 4, increasing from less than 7percent to more than 25 percent in 2007 (Figure 5).During the same period, the estimated number of for-

eign affiliates more than doubled, from 6,312 to over11,000 in 2006. Today most of the TNCs in UNCTAD’stop TNCs list and approximately 80 percent of theFortune Global 500 companies have a presence in Brazil.

Presently, foreign companies account for a large shareof the Brazilian economy.18 More than half of the top 20Brazilian non-financial companies ranked by total assets areforeign-owned. TNCs are especially active in sectors suchas automotive (where they represent three-quarters ofsales), retail, paper and pulp, electronic equipment, chemi-cal, telecommunications, and utilities (see also Box 3).19

By region, FDI into Brazil follows the country pat-terns of economic development. The Southeast, whichremains the most developed part of the country, is by farthe prime FDI destination, even if other regions, withthe exception of the North and Northeast, have alsoincreased their share of total FDI stock in recent years.

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estination

Source: UNCTAD, Based on Thomson Financial.

Table 5 Cross-border acquisitions of Brazilian companies by foreign TNCs, 1998–2008

Number of deals Value (US$ billions)

Deals Percent Amount Percent

Total industry 1,151 100.0 100.5 100.0Primary 87 7.6 9.6 9.5 Mining, quarrying, and petroleum 56 4.9 8.5 8.5Secondary 421 36.6 18.4 18.3 Food, beverages, and tobacco 79 6.9 5.2 5.2 Chemicals and chemical products (including refining and drugs) 89 7.7 6.4 6.3Services 643 55.9 72.6 72.2 Electric, gas, and water distribution 53 4.6 10.7 10.6 Trade 105 9.1 5.2 5.2 Telecommunications 59 5.1 23.1 22.9 Finance 102 8.9 24.1 24.0 Business services 173 15.0 4.1 4.1

Table 4 FDI flows and stocks by industry, 1995 and 2000

Source: UNCTAD, based on data from the Central Bank of Brazil.

Stocks Flows 1995 Amount 2000 Amount 2001–06 Amount (US$ millions) Percent (US$ millions) Percent (US$ millions) Percent

Total 41,695.62 100.0 103,014.51 100.0 116,740.6 100.0Primary 924.99 2.2 2,401.08 2.3 8,248.729 7.1Secondary 27,907.09 66.9 34,725.62 33.7 44,916.71 38.5Food, beverages, and tobacco 3,542.93 8.5 5,342.49 5.2 11,220.95 9.6Textiles, clothing, and leather 1,036.26 2.5 874.4 0.8 1,224.354 1.0Chemicals and chemical products 5,331.12 12.8 6,042.71 5.9 7,295.417 6.2Metal and metal products 3,577.66 8.6 3,106.66 3.0 4,347.819 3.7Basic metals 3,004.9 7.2 2,513.35 2.4 3,759.349 3.2Electrical and electronic equipment 2,343.86 5.6 3,440.81 3.3 4,737.351 4.1Motor vehicles, trailers, and semi-trailers 4,837.7 11.6 6,351.39 6.2 6,335.233 5.4Other manufacturing 4,232.66 10.2 7,053.81 6.8 5,996.232 5.1Tertiary 12,863.54 30.9 65,887.81 64.0 63,575.18 54.5Electricity, gas, and water 2.09 0.0 7,262.24 7.0 8,897.715 7.6Construction 202.68 0.5 415.62 0.4 1,437.901 1.2Trade 2,885.7 6.9 10,240.14 9.9 9,581.471 8.2Transport and storage 193.06 0.5 495.25 0.5 1,287.856 1.1Post and communications 398.74 1.0 18,761.54 18.2 17,215.58 14.7Finance 2,178.42 5.2 12,651.55 12.3 11,437.57 9.8Business activities 6,545.9 15.7 15,178.73 14.7 11,472.03 9.8Other services 456.95 1.1 882.74 0.9 2,245.062 1.9


Brazil and outward FDIUntil the early 2000s, investment abroad by Braziliancompanies was limited: outward FDI flows stagnated at avery low level and stocks were declining, both as a shareof world FDI stocks and Brazilian GDP (see Figure 5).This situation, however, began to change at the begin-ning of this decade, as an increasing number of Braziliancompanies began to actively internationalize. While out-ward FDI flows were not even equivalent to 10 percentof inward flows in the 1990s, they rose sharply in recentyears. In 2006, they surpassed inflows for the first time inhistory as a result of the acquisition of the Canadianmining company Inco by Vale (Figure 1).20 Today, Brazilis the leading foreign investor among Latin Americancountries in terms of outward FDI stocks, even if its

holdings in this area amount to only less than 1 percentof the world’s total FDI stock.

An analysis of the top Brazilian TNCs reveals thatBrazil’s outward FDI is dominated by a few giants: thetop 20 TNCs account for more than half of Brazilianoutward investment stocks. Three quarters of their assetsare concentrated among the three biggest ones: Vale (rawmaterials), Petrobras (oil and gas), and Gerdau (steel).These three companies also rank among the UNCTAD’slist of top 100 investors from developing countries.

Another trend is that Brazilian TNCs seem toremain mainly regional for the time being. The top 20carry out half of their sales and hold two-thirds of theirjobs abroad in Latin America. Their internationalizationand geographical spread level remain below the levels

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Figure 5

Source: UNCTAD.

FDI stocks as a percentage of GDP, Brazil vs. the world, 1980–2007

0

5

10

15

20

25

30

35

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

World outward stocks

World inward stocks

Outward stocks from Brazil

Inward stocks into Brazil

% of GDP

• Natural resources and commodities: Cargill, Monsanto,Global Foods, ADM (agrifood); Chevron, Texaco, NorskHydro, British Gas Group (oil and gas); Anglo AmericanPLC, BHP Billiton, Rio Tinto Group, Kinross Gold, ChinaMinmetals Group (mining); Noble Group Limited (com-modity trading).

• Infrastructure: Verizon, Telefónica de España, Portugal Telecom, América Móvil, Telecom Italia(telecommunications).

• Heavy industries and metallurgy: Holcim (building mate-rials); Japan Brazil Paper & Pulp, International Paper,Veracel (paper), Dongkuk Steel Mill, Vallourec, Arcelor-Mittal, Nippon Steel, Shanghai Baosteel Group,ThyssenKrupp, Nucor (steel), Du Pont (chemicals),Aluminum Corporation of China, Alcan/Rio Tinto, Alcoa(non-ferrous metals), KME (tubes), Huvis (plastics),

• Automotive: Fiat, Renault, Volkswagen, Ford, DaimlerAG, Hyundai Motor, General Motors, Honda, Daimler,

Toyota Motor (automotive assembly); Yamaha (motor-bikes); Delfingen (automotive cables)

• Equipment goods: Tyco Internacional, Dell Computers,Ericson, IBM (ITC); China Harbour Engineering,SembCorp Marine Ltd (Shipbuilding); Mitsubishi, A.M.G.(other equipment goods).

• Food products: Nestlé, Pepsico, Coca-Cola, Interbrew, Bunge.

• Other consumer goods: Procter & Gamble, Samsung(consumers electronics), Rexam (packaging).

• Non-financial services: Pestana, Grupo Iberostar, Accor(tourism and hotels); Sonae, Carrefour, Wal Mart, Casino(Retail); Ingeconser, Aker Kvaerner (engineering);Experia, MCI Communications Corp (business services).

• Financial services: Banco Santander, Central HispanoSA, UBS AG, ABN-AMRO Holding NV, Banco PrivadoPortugues (BPP), HSBC, GoldenTree.

Box 3: Some TNCs present in Brazil, by sector


achieved by their counterparts in developed countries;however, this is rapidly increasing in terms of sales aswell as jobs. This quick internationalization process islargely carried out through M&As (as Petrobras did inoil and biofuels in 2007).21

ConclusionIn the context of a growing worldwide competition inthe attraction of international investment, Brazil’s recentperformance has been positive. The country is now oneof the most prominent locations for TNCs in the devel-oping world, ranking second only to China for inwardFDI flows for this group of countries. Foreign compa-nies, whose number has increased in Brazil over the past15 years, now play a key role in many activities and sec-tors ranging from the primary sector (mining, biofuels)to manufacturing (automotive, metals, chemicals, food,and so on) and services (telecommunications, retail,banking, and so on).

Brazil’s welcoming attitude toward FDI, the coun-try’s vast natural resources, and its market potential arethree of the major factors behind its good performancein this arena. However, in terms of FDI attractiveness,fairly weak government efficiency and severe competi-tion from low-cost destinations in some labor-intensive,export-oriented activities represent notable challenges.More recently, Brazilian companies have begun todevelop their presence abroad, triggering a rise in FDIoutflows. This suggests that a new step has been taken inthe development path of the country, which nowappears as one of the major economic powerhouses ofthe southern hemisphere.

Notes1 This does not, however, provide evidence or elements of debate

regarding the impact of foreign transnational corporations (TNCs) inthe Brazilian economy. It also only marginally addresses the ques-tion of outward FDI by Brazilian TNCs.

2 This stage alternated between periods of recession (1981–83 and1990–92) and rapid growth (1984–87).

3 This decline was due to a number of reasons, including the end ofthe privatization program, a reduction in the dynamism of domesticeconomic activity, and the overall downturn in global investmentflows. FDI to Brazil, however, remained substantially higher thanprevious historical levels.

4 UNCTAD 2009.

5 Moreover according to the criteria of the number of jobs created,the number of host countries from the developing world is 9,because of an overall larger size of projects in developing countries.

6 A.T. Kearney 2007.

7 UNCTAD 2008a.

8 UNCTAD 2008b.

9 It should be mentioned, however, that Brazil enjoys a large-scaleand diversified industrial base.

10 World Bank 2008.

11 World Economic Forum 2008.

12 UNCTAD 2008b. Those two indexes compare 141 economies in theworld: The FDI performance index is expressed as a ratio of FDIstocks to GDP for the three last years. The FDI potential index inte-grates a dozen of basic macroeconomic and structural indicators.

13 This analysis is based on the fDi Markets database (2003–08). Seealso OCO 2009 and Appendix A.

14 It should be noted, however, that the importance of FDI from andto tax havens, such as the Cayman Islands, blurs the geographicalanalysis of flows.

15 Spanish companies have been especially active in M&As.

16 Some foreign companies, which had acquired formerly state ownedforeign assets in services activities, even disinvested; an exampleis EDF in the utilities sector in 2007.

17 See OCO 2009. An analysis by function of the same data for the2003–08 period shows that manufacturing production is by far thestrongest contributor to most of the job creation related to interna-tional greenfield projects in Brazil (62 percent), followed distantly byconstruction (10.6 percent), extraction (7.3 percent), and retail (5.9percent). Other functions seem to make only a marginal contribu-tion to job creation.

18 Foreign companies already accounted for 49.3 percent of imports,41.3 percent of exports and 19.7 percent of sales in 2000. The find-ings of the 2005 census were not available at the time this paperwas written, but preliminary results suggest that these figures havesignificantly increased since then.

19 There is an on-going debate on the impact of FDI in Brazil. On onehand, TNCs are more productive, are capital- and skills-intensive,and grant higher wages than their domestic counterparts. Linkageswith the local economy have been growing over time in industriessuch as automotive, including R&D activities (see Balcet 2007). Onthe other hand, some authors consider that the predominantly mar-ket-seeking strategies implemented by these firms in Brazil, as wellas their high propensity to import (especially in innovation intensiveactivities), involve some negative consequences, such as a growingtechnological dependence of the country from the rest of the worldand crowding-out effects detrimental to domestic firms (see, forinstance, Hiratuka 2008). In addition, some authors point to somenegative social and environmental impact of activities carried out byTNCs in the primary sector (agriculture, biofuels, oil and mining andforestry; see Past 2008).

20 It should be noted, however, that a large part of outward FDI (two-thirds in 2004–05) goes to offshore financial centers.

21 See also FDC-CPII 2007.

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ReferencesA.T. Kearney. 2007. New Concerns in an Uncertain World: The 2007

A.T. Kearney Foreign Direct Investment Confidence Index. Vienna, VA: A.T. Kearney. Available athttp://www.atkearney.com/shared_res/FDICI_2007.pdf.

Balcet, G. 2007. “Global Technology and Knowledge Management:Product Development in the Brazilian Car Industry.”Communication to the 15th Gerpisa International Colloquium,Paris. June.

FDC-CPII. (Fundação Dom Cabral – Columbia Program on InternationalInvestment). 2007. “Brazil’s Multinationals Take Off: Release ofthe FDC-CPII 2008 Ranking of Brazilian Multinational Enterprises.”Press release. December 3.

Hiratuka C. 2008. “Foreign Direct Investment and TransnationalCorporations in Brazil: Recent Trends and Impacts on Economic Development.” Discussion Paper No. 10, April. The Working Group on Development and Environment in theAmericas. Available at.http://ase.tufts.edu/gdae/Pubs/rp/DP10HiratukaApr08.pdf.

fDiMarkets.com. 2009. “FDI to Brazil, January 2003 to December2008.” Mimeo.

OCO. 2009. FDI to Brazil, January 2003 to December 2008, February.

Past, A. 2008. “Multinational Likely Cause of Poverty in LandlessAgricultural Workers.” Ireland: Mercyhurst College.

UNCTAD (United Nations Conference on Trade and Development).2008a. World Investment Report: Transnational Corporations andthe Infrastructure Challenge. New York and Geneva: UnitedNations.

———. 2008b. World Investment Prospects Survey 2008–2010. NewYork and Geneva: United Nations.

———. 2009. “Global Foreign Direct Investment Now In Decline – AndEstimated To Have Fallen During 2008.” Press releasePR/2009/001, January 19. Geneva: United Nations.


World Bank. 2008. Doing Business 2009. Washington, DC: World Bank.

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Appendix A A snapshot of international greenfield projects in Brazil, 2003–2008

In Latin America In the world

Aerospace 5 0.4 11.9 0.6

Alternative/Renewable energy 24 1.9 32.9 2.4

Automotive Components 40 3.2 29.2 1.7

Automotive OEM 46 3.7 28.4 2.4

Beverages 20 1.6 33.3 2.6

Biotechnology 5 0.4 26.3 1.1

Building & Construction Materials 16 1.3 34.0 1.6

Business Machines & Equipment 30 2.4 47.6 3.4

Business Services 53 4.2 26.9 1.3

Ceramics & Glass 5 0.4 35.7 1.7

Chemicals 72 5.7 52.2 3.2

Coal, Oil and Natural Gas 34 2.7 14.8 1.7

Communications 81 6.4 36.7 3.0

Consumer Electronics 16 1.3 18.2 1.3

Consumer Products 34 2.7 23.4 1.2

Electronic Components 28 2.2 26.9 1.3

Engines & Turbines 9 0.7 40.9 2.2

Financial Services 71 5.6 32.6 1.2

Food & Tobacco 79 6.3 32.0 2.2

Healthcare 4 0.3 25.0 1.3

Hotels & Tourism 41 3.3 21.2 2.1

Industrial Machinery & Equipment 61 4.8 37.9 2.0

Leisure & Entertainment 18 1.4 24.3 2.0

Medical Devices 4 0.3 10.5 0.6

Metals 109 8.7 27.2 4.2

Minerals 7 0.6 41.2 4.0

Non-Automotive Transport OEM 17 1.4 54.8 4.9

Paper, Printing & Packaging 14 1.1 34.1 1.9

Pharmaceuticals 23 1.8 31.5 1.9

Plastics 30 2.4 35.7 2.1

Real Estate 31 2.5 30.7 1.2

Rubber 14 1.1 35.9 3.2

Semiconductors 9 0.7 36.0 0.8

Software & IT services 130 10.3 29.7 1.7

Space & Defence 1 0.1 25.0 0.5

Textiles 30 2.4 28.8 0.9

Transportation 25 2.0 22.1 1.1

Warehousing & Storage 8 0.6 20.5 1.0

Wood Products 15 1.2 38.5 3.0

Total 1,259 100.0 29.6 1.8

Source. fDi Markets.

Number of projects

Percent of international

projects in BrazilPercent of international projects

Source: fDi Markets.


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CHAPTER 3.4

Agribusiness: Innovation andCompetitiveness in BrazilELÍSIO CONTINI, Embrapa, Brazil

FRANCISCO J. B. REIFSCHNEIDER, Embrapa, Brazil

It will be seen that the material development of the country, coupled with the parallel growth of the energies of the race, willunleash a flourishing of the sciences, the arts and letters.

—Arthur Dias, Brazil Actual, 1904

The World Economic Forum, in its GlobalCompetitiveness Report, analyzes 12 pillars deter-mining the future growth potential of an economy,among them innovation.1 Of the 134 countries analyzedin the 2008–09 edition, Brazil occupies the 43rd posi-tion in the innovation pillar, with a score of 3.5 (out of 7). This pillar is broken down into a number of indicators, namely firms’ capacity to innovate, thequality of scientific research institutions, companyspending on research and development (R&D), univer-sity-industry research collaboration, government pro-curement of advanced technology products, availabilityof scientists and engineers, and utility patents per capita.The aggregated data presented for the innovation pillarplace Brazil in an intermediate position, apparentlycompatible with that of an emerging economy.However, within the country itself the perception ismore negative; one can find some trenchant criticismsand dissatisfaction in academic circles and within thegovernment and the business sector with respect to (1) the lack of investment in research, development, and innovation (RDI), (2) the bureaucracy and rigidityof the standards applied to RDI, and (3) the low degreeof transformation of the knowledge generated in uni-versities and other research institutes into innovation.Research is a necessary condition for innovation, but it is not sufficient by itself.

Our general hypothesis is that, for Brazil to continuegrowing and generating wealth for the benefit of all itscitizens, it will need to make an additional effort ininnovation, eliminating bottlenecks and strengthening itsnotoriously weaknesses while stimulating its strenghts. Inthe current globalized world—in spite of recenthitches—competitiveness will determine who will be thereal producers of knowledge, the suppliers of technolo-gies/products, and the providers of services in the worldmarket. We believe there is a significant space to beoccupied by Brazil in that domain.

The present work analyzes the factors that allowedBrazilian agribusiness to become competitive in the inter-national markets. It also examines, from the point of viewof innovation and its minimum conditions, what allowedBrazil to adequately supply its domestic market and

The authors would like to thank Dr Carlos Alberto Lopes and Mr OsórioVilela Filho, both from the Brazilian Agricultural Research Corporation(Embrapa), for their contributions. The article represents the opinion ofthe authors and not necessarily that of their institution.


become a large exporter of products of agricultural ori-gin, both in natura and processed. In a globalized scenariowhere there is a clear international division of labor, thecritical question of whether Brazil will be a world leaderin agribusiness products (e.g., foodstuffs, fibers, forestryproducts) as well as in agro-energy is posed.

Although some of the previously mentioned innova-tion indicators refer more specifically to the industrialand service sectors, this chapter presents indications thatthe modern agricultural sector in Brazil has an importantcomponent of innovation.

This chapter focuses on two important aspects: (1)innovation and (2) the offering and adoption of tech-nologies that impact the agricultural sector and agribusi-ness as a whole. The latter encompasses the results of thetransformation of Brazilian agriculture, with its increas-ing production, productivity, and contribution to thecountry’s external accounts. Last but not least, some lightwill be shed on innovation in agriculture going forward.

Innovation and its processTo innovate (from the Latin innovare) is to change, tointroduce new things. The innovator is he or she whoinnovates and the word, curiously, was used to character-ize the Lutherans, Calvinists and Anabaptists, among others who introduced dogmas contrary to the Catholicfaith.2 It is interesting to note that the first annual publi-cation on the country—Brazil Actual, by Arthur Dias(1904)—already contained a specific chapter on“Inventors and Scientists,” separating those who weretransforming knowledge into products from those whowere doing science. The ability to innovate depends on aprocess of experimentation where new products andservices are created or existing ones are improved. But itis recognized that, among other factors, the costs ofexperimentation have limited the capacity for innova-tion. In the recent past there still existed a mistaken biu-nique link, a real synonymy, between research and inno-vation. Innovation is much more than research: realinnovation certainly requires research (and the knowl-edge generated by it) as a condition, but is associated witha knowledge of the market, a conducive financing system(classical or innovative such as risk capital, among others),training (and its components such as creativity, tenacity,etc.), collaborative mechanisms, and supportive policiesenforced by solid institutions or organizations (sensu lato).3

Innovation can be seen as the last link of a full chain.4

Without demand, real or potential, there is no innova-tion.5

The discussion on innovation, nevertheless, is not arecent one. Possibly one of the greatest contributions tothe theory of innovation we owe to the work of JosephA. Schumpeter, who was working in this area as early asthe 1910s. He initially conceived of innovation as adynamic process of substitution of old technologies bynew ones—that is, “creative destruction.”6 New, more

efficient technologies replace the old ones in a continu-ous process, which leads capitalism toward economicdevelopment. But even with all the euphoria in recentdecades about the new technologies appearing withimpressive speed, these technologies do not developproducts and services—they are developed by people, asamply discussed by Thomke.7

Innovation can be categorized in distinct ways; classi-cally, this has resulted in two groups: (1) “radical” innova-tion, which occurs when profound ruptures are pro-duced in the productive system, and (2) “incremental”innovation, which occurs when modifications are addedto the productive processes. Schumpeter made finer dis-tinctions, identifying five types of innovation as follows:(1) the introduction of new products, (2) new methodsof production, (3) the opening up of new markets, (4)the development of new sources of raw materials, and (5) new market structures.8

In a more recent work, the OECD/FINEP classifiesinnovation into four types: (1) product innovation, (2)process innovation, (3) marketing innovation, and (4)organizational innovation.9 More recent contributions ofthe neoclassical theory associate innovation with the cre-ation of assets. In this sense, it is a part of the businessstrategy for the development of products or improve-ment of its efficiency. Recent ideas center on the con-cept of cost reduction to enter new markets or createcompetitive advantage.10 This can be expressed in thepithy phrase of Howard Rush: “Innovation only exists in fact when some value is created from the practicalapplication of an idea.”11

Ownership of the benefits of innovation through theseveral forms of intellectual property (patents, copyrights,etc.) is important since it stimulates companies andresearch bodies to take risks for their development.12 Ingeneral, public research institutions generate publicgoods, accessible to all; private companies register theirinnovations and charge for their use. International expe-rience with public RDI institutions indicates that,although intellectual property fees provide them with thecapacity to recover a small part of their expenditures,they cannot be self-sustaining by investing in high-riskareas and issues that have a low return or that requireinvestment without return for long periods. The law onintellectual property and the recent Law 10.973, ofDecember 2004—which deal with incentives for innova-tion and scientific and technological research in the pro-ductive environment—are important, but these laws donot provide sufficient advances for supporting innovationand the competitiveness of Brazilian agribusiness. Thestandards and processes are still slow, complex, highlybureaucratic, and very often doubtful. National Instituteof Industrial Property (INPI) data on patents, coveringthe last five years, are not exactly good news.

In Brazil, the funding of research and innovation is stillpredominantly public. In this context, it is important toemphasize the greater porosity of the formerly firm

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boundaries between public and private sectors as well asbetween national and international ones. It is, however, afact that researchers in Brazil’s public institutions are notproperly conscious of their real and important role ininnovation. There is a big hiatus between the conceptionof research, its results, and innovation. The evolution ofpublic funding has been the object of recent studies thatdraw attention to the challenges and the slowness withwhich countries adjust themselves (e.g., legally, institu-tionally) to new models.13We are going through a periodof enormous and rapid change in the public financialarchitecture, including new options of public/private sup-port to RDI,14 with great expectations for the impact ofagribusiness in innovation. The Brazilian Ministry ofScience and Technology’s Plan of Action 2007–2010 inScience, Technology and Innovation for Developmentidentifies several strategic priorities. Among these are thepromotion of technological innovation and R&D instrategic areas, such as the sustainable development of theAmazon Region and the Semi-Arid Region.15

To explain innovation in agriculture, Hayami andRuttan developed the theory of induced innovation.16

Based on historical data, particularly from the UnitedStates and Japan, they established trajectories for technicalchange in agriculture. When the supply of land is inelas-tic, the market brings pressure to develop biologicaltechnologies that substitute for land, as was the case inJapan. When labor is inelastic, this restriction can beovercome by the development of mechanical technolo-gies, as was the case in the United States. Expensiveinputs should be substituted by cheaper ones. Rapidgrowth in agriculture depends on the proper choicebetween these alternative trajectories. These differentsigns of relative scarcity or abundance of the factors ofproduction are transmitted, through pressures in relationto relative prices, to the organizations and institutionsthat generate technology.

Innovation in agribusiness can occur along the wholechain or in some of its components. The complexity ofthe agribusiness chain, with its multiple players, extendsfrom the supply of inputs—agricultural, cattle raising, orforestry production itself—to agro-industrial processing,marketing, institutional arrangements, and finally theend consumer. This conception, which extrapolates theconcept of agricultural production sensu stricto, wasdefined by Davis and Goldberg in their classical work AConcept of Agribusiness,17 used the Brazilian Association ofAgribusiness (ABAG) and by the Ministry ofAgriculture, Cattle Raising and Supply (MAPA) in theirprocess of strategic planning.18 In this point-of-view,agribusiness includes small, average, and large rural pro-ducers as well as family and business agriculture.

Finally, the risks associated with the elements ofinnovation are many, but the diaspora of highly capableprofessionals, academic endogamy, the highly variablegovernment support for RDI programs, bureaucracy, theseveral international barriers to interchange, institutional

aging, and the short-term vision of the political classesare possibly the principal elements in need of attention.

Conditioning factors of innovation in agribusinessThe transformation of traditional agriculture into amodern and competitive agribusiness, domestically andinternationally, has its basis in the modernization ofBrazilian economy and society. The decision of theBrazilian government, at the beginning of the 1950s, tosupport a policy of forced industrialization accelerated arural exodus and started a process of rapid urbanization(see Table 1). Industrialization diversified the economyand increased citizens’ purchasing power. More urbanand richer, Brazilians increased the demand for food-stuffs, giving rise to an environment favorable to thegrowth and modernization of agriculture, based on sci-ence and technology.19

One of the foundations of innovation in agricultureconsists of the idea that the sector is location-specific inits technologies and its products. There are few opportu-nities where one can copy or directly transfer technolo-gies and products from one country to another withoutadaptation and without considering differences in cli-mate, soil, vegetation, and culture. This idea is even morerelevant for technologies developed for countries withtemperate climates that one wants to apply in tropicalcountries. This was the case of Brazil in the conquest ofthe cerrados (Brazilian savannahs). There was no technol-ogy specific to agriculture in the cerrados; the solutionwas to adapt forms of agriculture being used elsewhereto this large system. This idea is mirrored in the expres-sion tropical technology.

Allied to the availability of labor, one important fac-tor that allowed innovation in Brazilian agribusiness wasthe availability of cheap land, principally in the cerradoregions of the country. Until the 1960s, marginal landfor extensive cattle raising, with around one head of cat-tle per 10 hectares—a total of 207 million hectares ofland, which was, in large part, mechanizable and demo-graphically empty—challenged RDI institutions toincorporate cheap land into the production process. Thefirst solution proposed was the correction of the acidicsoil, with its low phosphorous and high toxic aluminum

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Table 1 Urbanization of the Brazilian population (percent)

Source: Brazilian Institute of Geography and Statistics (IBGE).

Census year Percent

1940 31.2

1950 36.2

1960 44.7

1970 55.9

1980 67.6

1991 75.6

2000 81.2

2010 (forecast) 86.8


content. The adjustment of the soil was followed by thecreation of crops adapted to the tropical climate, thedevelopment of production systems compatible with theregion, the offer of credit for investment, and the avail-ability of inputs and machinery. The results began to bevisible in the 1990s, both in the production of grainsand in more pasture and meat.20 The strategic decisionof the then military government to invest in the educa-tion of personnel and technology through several publiccompanies and institutions (the embras), among themEmbrapa, was one of the pillars that facilitated theachievement of results. Efforts by various states and theirinstitutions, all strongly supported by the Brazilian uni-versities, were also fundamental.

Another pillar of the technological revolution inBrazilian agribusiness was the implementation of agri-cultural policy instruments to support large-scale pro-duction. The first instrument was the agricultural creditthat permitted the opening of new areas and the pur-chase of machinery and equipment to expand theamount of land being cultivated, and the guarantee ofminimum prices reduced producers’ risk. Although there

is controversy regarding the role of government in thisprocess, its presence was really important for the trans-formation of a traditional agriculture into a technicalone, incorporated in the conception of agribusiness.

Brazilian entrepreneurship certainly deserves specialmention. Without entrepreneurial farmers, the agricul-tural revolution, particularly in the cerrados, would nothave occurred. In the south of Brazil, a culture in theproduction of grains—such as soy, corn, rice, andwheat—had been created that was restricted to proper-ties that were too small for scale gains, principally bymeans of more efficient machinery and equipment. Fromthe 1940s to the 1960s, medium and small gaucho pro-ducers migrated to the west and southwest of the state ofParaná, and then to Mato Grosso do Sul. Subsequently, inthe 1970s and 1980s, these producers started conqueringthe cerrados in the states of Mato Grosso, Goiás, MinasGerais, Bahia, and Maranhão. The raising of beef cattlebegan in the North, with improved pastures andincreased productive efficiency. The epic narrative of theconquest of the cerrados continues, increasing the produc-tion of grains and transforming many small producers of

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Figure 1

Source: Alves et al., 2008, p. 72.

The Embrapa RDI network


the South into successful business people. And today,more than ever, the balance between production and theenvironment deserves our attention so that future gener-ations may continue to benefit from the large contribu-tion of agribusiness.

The beginning of institutional innovationThe training of highly capable human resources is oneof the innovation pillars and depends on higher educa-tion organizations. Degree courses in agriculture begana hundred years ago, but the momentum took off in the1960s and 1970s with the creation of Masters and PhDcourses in agricultural sciences supported by foreign uni-versities, especially from the United States.

Fewer people in the interior and more demand forfoodstuffs in the cities raised prices and generatedgreater pressure for responses from agriculture. The fer-tile land had already been occupied; therefore increasein foodstuffs supply could occur only by increasing pro-ductivity and taming marginal land, such as the cerrados.Strong R&D institutions were needed. In response tothese concerns, the Brazilian federal government createdEmbrapa in 1973, with the mission of transforming tra-ditional agriculture into a modern, technically and sci-entifically based one, based on two pillars: (1) qualifiedhuman resources, trained in centers of excellence (inBrazil but principally abroad), and (2) a concentratedresearch model covering the whole country, withresearch centers located in important producing regions,creating critical mass. Additionally, the Brazilian systemof agricultural research, SNPA, was established, encom-passing the state system, universities, and private initia-tive, and recognizing the importance of joint collabora-tion among the various players (Figure 1). With theconstitutional shifts of 1988 limiting the transfer ofresources to the states, the SNPA became quite frail.

Other agents had an impact on agriculture modern-ization, among them the official rural extension pro-vided by cooperatives, the private sector, and develop-ment banks. Important roles were also played by theBank of Brazil, which provided credit for the paymentof operational costs, and the Brazilian DevelopmentBank (BNDES), which financed machinery and equip-ment. In relation to official extension, in the 1970s, thefederal government created the Empresa Brasileira deExtensão Rural (Embrater) to coordinate the Braziliansystem. With the new Constitution of 1988, the respon-sibility of rural extension was transferred to the states;many of them had limited activity in agricultural exten-sion. States such as São Paulo, Paraná, Santa Catarina,and Minas Gerais, among others, continued to help theiragricultural workers, principally the small ones. With theappearance of the Ministry of Rural Development(MDA), the federal government again took up supportfor the small producer via rural extension. Figure 2shows agricultural credit evolution from 1969 to 2006.

The private sector worked principally at the leadingedge of the agribusiness chain, in areas such as the sup-ply of agricultural machinery and equipment as well asfertilizers and pesticides, essential inputs in the modern-ization of agriculture. According to the BrazilianAssociation of Automotive Vehicle Producers(ANFAVEA), the sale of tractors of all sizes has beenincreasing, especially those utilized the most in extensivegrain-producing areas. From 2000 to 2004 there was a35 percent increase in the sales of harvesters, from 3,651to 5,598 units. The total apparent consumption of fertil-izers from 1975 to 2005 went from 1,977,000 to8,526,000 tons, with an annual geometrical growth rateof 4.1 percent. Pesticides in 2007 had a sales value ofover R$5 billion.21

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Figure 2

Source: Brazilian Central Bank, 2007.

Evolution of agricultural credit, 1969–2006

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Examples of technologies for the transformation oftropical agricultureOne of the big merits of Brazilian agricultural playersand agriculture and cattle raising research in recentdecades has been the incorporation of the cerrados intoagricultural production, both for grains and for cattleraising. Together with the cerrados, research has tropical-ized crops traditionally associated with a moreamenable climate. Researchers in the genetic improve-ment of soybeans have developed varieties adapted tolow latitudes and created resistance to important dis-eases.22 The availability of human resources concen-trated in one center (Londrina), the availability ofgermplasm, and an extensive network of experimenta-tion with the participation of public and private insti-tutions were essential factors in the advance of thegenetic improvement of soybeans. From 1997, legisla-tion relative to the registration and protection ofadapted varieties apparently gave an impetus to thiswork. From 1968 to 1997, 116 new varieties of soy-beans were launched; in 1998, 183 varieties; and from1999 to 2006, 419—just under 100 per year. The estab-lishment of a seed production industry, under tropicalconditions, also contributed to the development of soycultivation and other crops, together with the paralleldevelopment of techniques for the integrated manage-ment of diseases and pests, management of irrigation,and the correction/fertilization of the soil.

Another important grain for the production of ani-mal protein is corn. The technological progress of cornis due to advances in its breeding, as well as to improve-ment of agricultural practices and productive processes.23

Tall plants, subject to lodging and low sowing density,gave place to shorter ones that have greater resistance tolodging, greater planting densities, greater adaptability toconditions of water stress and acid soils, greater capacityto respond to fertilizing, and greater resistance to pestsand diseases. There was a large-scale introduction ofimproved germplasm, recurring selection for adaptationto different agro-ecological regions, and ample distribu-tion of these materials to the several research organiza-tions, led by Embrapa Corn and Sorghum. Anotherimportant program in corn improvement was the adap-tation to abiotic stresses, such as tolerance to aluminumtoxicity, adaptation to acidic soils, and greater efficiencyin the use of nutrients such as phosphorous and nitro-gen. At the beginning of the 1980s, an innovative modelof public-private partnership between Embrapa and theBrazilian corn seeds sector was established, with theproduction of double hybrids.

Public research into the cultivation of corn in Brazilcontributed to genetic change, innovated in the imple-mentation of public-private agreements in the form offranchise/licensing of adapted varieties, worked for theadaptation to acid soils, and transferred knowledge toother developing countries, especially in Africa. In

recent years, large multinational companies have startedto dominate the seed market. This new reality can beseen as an opportunity for partnership for the develop-ment of cutting edge technologies, such as the modernbiotechnology tools including transgenesis and otherresearch techniques. But at the same time, this realityrequires from Embrapa and other public institutions theidentification of niches, in the science and technologymarket, where the public sector can and should makesignificant contributions. For the time being, we areforced to admit that the public sector has not demon-strated the speed and flexibility needed to form a largenumber of public-private partnerships.

In the area of beef cattle, research contributes togenetic improvement for (1) biological characterizationand causes of variation and estimates of genetic param-eters, (2) programs of genetic evaluation, and (3) evalu-ation of breeds and crossings. This last line of researchcomprises feed conversion, nutritional demands, utiliza-tion of foodstuffs, evaluation of carcasses, resistance toparasites, milk production, and effect of animal size onproduction efficiency.24

The area of forage crops has been an importantcomponent for the competitiveness of cattle raising inBrazil. In the 1980s, programs for the genetic improve-ment of forage were started in Brazil. Noteworthy fea-tures of the research work have been the introductionand genetic improvement of varieties of Brachiaria andPanicum (tropical grasses), relationship of the foragecrop with soil fertility, grazing behavior, developmentof new adapted varieties of other grasses and legumes,management of pastures, and the integration of grainsand livestock production. Results have been variousvarieties of grasses such as the Tobiatã, Centenário, andCentauro launched by the IAC; and Vencedor, Tanzania,Mombaça, and Massai launched by Embrapa.25

Another innovation of great impact was the biologi-cal fixation of nitrogen. Selected bacteria withdrawnitrogen from the air and transfer it to plants, substitut-ing, in large part, this element in fertilizers. Legumesand some grasses are the plants that present greaterpotential for substitution. All soy cultivation in Brazil—today occupying around 22 million hectares—utilizesthis technology with an estimated economy of R$7billion/year.

Focusing on fruit, irrigation and adapted varietiesenabled the cultivation of grapes near the tropics, as isthe case of Petrolina/Juazeiro in the Northeast. It has aready-made external market as the grapes can be pro-duced year round, depending on the irrigation program-ming. The processing of fine wines is also beginning.

Thirty years ago, almost all commercial apples consumed in Brazil were imported from Argentina and Chile. Experiments and the adaptation of the apple in Santa Catarina and Rio Grande do Sul pro-duced good results and captured the preference of

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Brazilian consumers. Today Brazil produces around 1 million tons of apples. And the Brazilian peach, withadapted varieties developed in Brazil, already occupiesa prominent position.

No-tillage (NT), although a well-known technol-ogy, became feasible over extensive areas only whencombined with chemical weed control. This tech-nology was introduced in the South in Brazil in 1969with the principal purpose of controlling water ero-sion. From the 1980s, it started to be seen as a tool ofconservationist agriculture, involving the diversifica-tion of species via crop rotation, making continuousplanting feasible without prior preparation of the soil.In consequence, NT requires less machinery andequipment infrastructure; demands less labor and fossil fuel; benefits the biological activity of the soil;favors biological pest, disease, and weed control; minimizes erosion; optimizes utilization of fertilizers;and provokes the processes of soil aggregation and itsdevelopment. NT was established as a widely usedtechnology from 1991, reaching more than 22 millionhectares in 2006, which represents almost half of theannual cultivated area.26

In a large number of cases, the development ofknowledge, products, technologies, and services ofinterest to Brazilian agriculture enjoyed importantexternal support through international cooperation,with foreign and international research institutes, uni-versities, multilateral organs, and the private sector asactive players. This international cooperation was, andwill continue to be, critical. It is noteworthy that of thetotal, worldwide investment in RDI, only 3 percent isdirected to agriculture. For the country to benefit from part of the other 97 percent, international cooper-ation in its most diverse forms, in addition to inter-institutional Brazilian cooperation, is essential. Theestablishment by Embrapa of virtual laboratories abroad,the LABEX—operating in North America (for around 10 years) and in Europe, and expanding into Asia—exemplifies one of the strategies used for mobilizingexternal competence in Brazil’s interests.

Some significant resultsThe final result of an entire innovation chain is anincrease in production, productivity, efficiency (econom-ics of factors of production), and the sustainable use ofthe natural resource base. Technologies incorporatedinto the production systems are part of innovation, asthey overcome restrictions imposed by scarce resources.Brazilian agribusiness over the last 40 years provides agood example of the application of institutional andtechnological innovations in an ample and diversifiedspectrum of products.

Growth of agricultural production depends on anexpansion of the area cultivated and/or on an increasein productivity. In traditional economics, expansionthrough the incorporation of new areas into the pro-duction process is the dominant element, as was the casein the 1950s and 1960s of the western part of ParanáState and Mato Grosso do Sul. From the 1970s, land andlabor productivity became the determining factors inthe increase of agricultural production. The taming ofthe cerrados is a victory of courageous entrepreneurs,proper public policies, and the application of scienceand technology.

In more recent times, productivity emerges as themotivating force of the increase in grain production. Inthe 1976–77 harvest, 37 million hectares of cereals,legumes, and oilseeds were planted in Brazil, producing46,943,000 tons, with an average productivity of 1,257kilograms per hectare; in 2004–05, 49 million hectareswere planted, with 114,695,000 tons produced and anaverage productivity of 2,339 kilograms per hectare.27

Another important result that received significanttechnological input, principally in the Center-West andParaná, is the production of corn in a second harvest,after the soybean harvest. The adoption of this system ofproduction, starting in the 1980s, produced, in the1989–90 harvest, 1 million tons; production exceeded10 million tons a year from 2002 to 2008. Two harvestsa year optimize land and labor use, reduce unit costs ofmachinery and equipment per unit of product, protectthe land for a longer period because of the crop cover-age, and favor supply during the year.

Tables 2, 3, and 4 highlight the annual growth ratesof the cultivated area, production, and productivity for

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Table 2

Source: Brazilian Institute of Geography and Statistics (IBGE).* All temporary cultivation, up to 2005.

Annual growth rate of area harvested

Years Rice Corn Beans Soy Wheat All *

1975 to 2007 –2.37 0.25 –0.62 3.49 –2.14 0.65

1980 to 1989 –0.97 1.72 1.35 3.35 5.08 1.87

1990 to 1999 –3.25 –0.95 –3.04 2.66 –6.15 –0.56

2000 to 2007 –1.10 0.48 0.51 7.65 3.50 5.92


Table 3


Annual growth rate of quantity produced

Years Rice Corn Beans Soy Wheat All*

1975 to 2007 1.00 3.25 1.48 5.44 0.90 3.62

1980 to 1989 2.98 2.98 1.13 4.16 14.76 5.16

1990 to 1999 0.82 3.54 0.28 6.80 –2.09 3.29

2000 to 2007 1.81 2.65 4.14 7.07 5.24 5.68

Table 4


Annual growth rate of productivity

Years Rice Corn Beans Soy Wheat All*

1975 to 2007 3.45 2.99 2.11 1.88 3.11 2.95

1980 to 1989 3.99 1.24 –0.22 0.79 9.21 3.23

1990 to 1999 4.20 4.53 3.43 4.04 4.32 3.87

2000 to 2007 2.94 2.16 3.61 –0.53 1.68 –0.23

the five main grains. With the exception of soybean,with the considerable increase in area of 7.7 percent ayear, the other crops do not show an increase in the cul-tivated area in most of the periods considered. However,all the grains showed large increases in production andproductivity in all the periods considered, with theexception of beans between 1980 and 1989 for produc-tivity, soybean between 2000 and 2007 (the result of twobad droughts), and wheat for production between 1990and 1999. Two crops deserve special mention: soy andcorn. Their growth rate, higher than the rate of popula-tion, is due to their use as input for the production ofanimal protein (swine and poultry) and as export crops.

Genetic improvement, planted pastures, and moreefficient production systems contributed to a revolutionin the production of meat in Brazil. A production of 2.7million tons in 1975 increased to 17.8 million tons in2007; especially noteworthy is the production of poultrymeat, which went from 373,000 tons to 8,368,000 tonsin the same period. The period of greatest dynamism isfrom 2000 to 2007, with an overall growth of meat pro-duction of 72 percent. As with grains, the increase ofproduction coincides with the period of exchange liber-alization. This shows that macroeconomic policy inBrazil has a strong influence on agricultural production,as the country is open to the international market.

In the area of fruit and vegetables, an innovativehighlight was the introduction of the apple. From 1975to 2005, growth was 12.5 percent a year. The cropenjoyed significant gains in productivity with the excep-tion of the more recent period. Between 2000 and2005, the production of grapes grew 4.22 percent a yearand potatoes 5.02 percent a year. Potato productivityincreased by 100 percent over the last 20 years.

Another sector that demonstrated extraordinary per-formance in recent years is agro-energy. The productionof sugar cane grew from 290 million tons in 1996–97 to427 million in 2006–07, and the production of fuel

alcohol went from 14.43 million cubic meters to 17.89million in the same period. Growth in the demand forfuel alcohol—principally in the internal market throughflex-fuel cars, which run on any combination of alcoholand gasoline—and the rise in the price of sugar in theexternal market partly explain this expansion. In theBrazilian energy matrix, sugar cane has already over-taken hydro-generated energy.

The measurement of the global efficiency of the sec-tor is estimated by the methodology of the total pro-ductivity of the factors (TPF). In the Brazilian case 61crops were considered, along with six products of animalorigin, and three types of meat as well as the inputs usedto produce them such as land, pastures, labor, agricul-tural machinery, fertilizers, and pesticides. The produc-tivity of Brazilian agriculture as a whole grew, over thelast 30 years, at an average annual rate of 2.5 percent(1975–2005). Considering the period 2000–05, the TPFgrew at 3.87 percent a year.28

The positive performance of Brazilian agriculturecontributed to the balance of the external accounts inBrazil. Exports of Brazilian agribusiness totaled US$20billion in 2000, reaching US$71.3 billion in 2008. Allthe positive balance of the Brazilian trade is due to thesector, especially meat, soybean, and timber.29

The degree of international opening to agribusinessas a whole, measured by the exported value of total production, reached 20 percent in 2006; this is up from4 percent in 1995. A large part of the expansion ofagribusiness products is the result of the increase inexports. Brazil is a country well supplied with land,entrepreneurs, and tropical technology capable of sup-plying a considerable part of the world’s need for food-stuffs and other raw materials of agricultural origin. Thegrowing internal demand that comes from the improve-ment in the social situation of the Brazilian population,along with the increase in demand both of countrieswith large populations such as China and India, and of

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others undergoing a rapid process of industrializationand an overt expansion of consumption (in spite of hav-ing smaller populations) offer special opportunities forBrazilian agribusiness. Some bottlenecks still have to beovercome. Brazil needs improvement in its infrastruc-ture, a solution to sanitary problems, a resolution toconflicts for the possession of land, and a more rationalapproach to environmental restrictions on production.

Thinking about the future: The agricultural innovationof tomorrowThe data presented demonstrate that innovation hasplayed an important role in the development ofBrazilian agriculture and, particularly in recent decades,has allowed for growth and the good performance ofBrazilian agribusiness. It is clear also that there are manybasic conditions for innovation; these range from invest-ment in public research, which is responsible for a largepart of Brazilian agricultural research, to various systemsof incentives for Brazilian small, medium, and largeentrepreneurs.

The growing Brazilian and world concern aboutenvironmental issues and their relation to agriculturalproduction cannot pass without mention, nor can con-cern about product quality. The contribution of agricul-ture to Brazilian development requires one to look atagricultural issues carefully; a balanced discussion aboutproduction and environmental protection is required toenable them to co-exist and to provide benefits for thisand future generations. Quantity and quality shall neces-sarily march together. The more developed the country,the greater the concern about the quality of agriculturalproducts, as the asymmetry of risks between the indus-trialized and the less developed is sadly enormous.Equally relevant is the land tenure question and thesocial movements that contribute nothing to the neces-sary peace required by a productive rural sector, and lit-tle to the growth of agribusiness and the quality of lifeof the Brazilian population, urban and rural.

The future scenario of climate change, severe limita-tions on water supply, biological security, and non-tariffand energy barriers will require greater speed in inno-vation on the part of agribusiness. A much largerinvestment in higher risk research will certainly be nec-essary; equally necessary will be the intensive utilizationof several tools, as simulation and pre-prototypes, allow-ing an acceleration of the transformation of part of theknowledge in products and technology and the conse-quent lowering of the final cost of the innovation.30

Brazil’s production systems will have to increasingly use intelligent decision tools to remain competitive.And these tools and machinery, which should utilizeintensively the systems of global positioning, modeling,and so on, should benefit small farm (family) agricul-ture as much as business agriculture in the production

of primary products and those of added value. The useof nano-technology, of biotechnology tools, and ofintelligent remote control systems will be common intomorrow’s advanced agricultures. The quantity ofknowledge and information being generated will needan excellent filtering and organization capacity for it tobe used efficiently.

The future scenario requires highly capable humanresources throughout the producing chains, fluent in thelanguage(s) of the day used in international transactions(today English), with a sensitivity for public, private,environmental, and social questions. It requires, equally,an enormous capacity for institutional innovation—stillvery weak in Brazil—so that porosity between the pub-lic and private and the national and international sectorsmay be fairly exploited to the benefit of all citizenswithin the legal framework in force. Institutional inno-vation will necessarily be different from the past where amodel was used and, if approved, replicated elsewhere.No longer will there be only one model, but differentmodels that are efficient in the search for solutions tothe problems that arise every day need to be created.Work networks, creation nets,31 and many other real andvirtual innovation systems will have to co-exist withinthe same institution. Legal flexibilization becomes,accordingly, critical to prevent the innovation processfrom being strangled. The domestic capacity to “absorb”technologies, as presented by the World Bank,32 providesa partially somber indication of the technological appli-cations that Brazil will not probably succeed in com-manding fully by 2020, such as tissue engineering ordisposable computers, because there are limitations inthe country’s adaptive technological capacity. This fore-cast, right or wrong, should switch on a yellow light forall who deal with public policy and RDI in Brazil.

Finally, we believe that the future opportunities aremany and that Brazil has the basic elements for agricul-ture to continue to be an important basis of develop-ment. The present crisis, which presumably will be longand difficult, certainly works against some of these ideas,making countries turn more inward. But the currentglobalization process, we believe, is irreversible andexpansionist. The lion’s share of world development willgo to the more competitive, environmentally responsi-ble, and socially fair. We would like to believe that Brazilwill be one of these winners. Brazil’s children andgrandchildren will tell whether this exercise in futurol-ogy was a valid one.

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Notes1 See Sala-i-Martin et al. 2008 for a detailed analysis of the Global

Competitiveness Index and its 12 pillars of competitiveness.

2 As defined in one of the most classical dictionaries of thePortuguese language, the Diccionario Portuguez or Thesouro daLingua Portugueza by Dr Frei Domingos Vieira of the EremitasCalcados de Santo Agostinho, in 5 volumes. Porto, 1871.

3 Included here are all the new forms of informal organizations suchas networks and virtual groups.

4 See OECD 2002.

5 World Bank 2003.

6 Schumpeter 1934.

7 Thomke 2003.

8 OECD /FINEP 1997.

9 Product innovation is described as a new or significantly improvedgood or service as regard to characteristics or envisaged use;process innovation consists of the new or significantly improvedimplementation of a method of production or distribution (tech-niques, equipment, and/or software); marketing innovation encom-passes significant changes in the conception of the product or in itspackaging, in the positioning of the product, in its promotion or inthe establishment of prices; and, finally, organizational innovationencompasses a new organizational method in the practice of com-pany business, in the organization of its work place or in its externalrelations.

10 Sutton 1992 in OECD/FINEP 1997.

11 Interview given to the Revista Época, available at (25/06/08).

12 At issue is whether to guarantee access to all (i.e. public good) or toguarantee specific financial benefits for the proprietor.

13 Kaul and Conceição 2006.

14 Portugal et al. 1999.

15 Ministério da Ciência e Tecnologia 2007.

16 See also Ruttan and Hayami 1991.

17 Davis and Goldberg 1957.

18 MAPA 2007.

19 Alves et al. in Albuquerque and Silva, eds. 2008.


21 Figures are from ANFAVEA, available at http://www.anfavea.com.br(accessed on December 8, 2008).

22 Kiihl and Calvo, in Albuquerque and Silva, eds. 2008.

23 Bahia et al., in Albuquerque and Silva, eds. 2008.

24 Euclides Filho, in Albuquerque and Silva, eds. 2008.

25 Euclides et al. in Albuquerque and Silva, eds. 2008.

26 Denardin et al. in Albuquerque and Silva, eds. 2008.


28 See Gasques et al. 2007.

29 MAPA 2007.

30 Thomke 2003.

31 http://www.johnseelybrown.com/creationnets.pdf.

32 World Bank 2008.

ReferencesAlbuquerque, A. C. S. and A. G. Silva, eds. 2008. Agricultura Tropical,

volume 1. Brasília: Embrapa.

Alves et al. 2008. “Evolução da produção e da produtividade daAgricultura Brasileira.” Agricultura Topical. Available athttp://www.embrapa.br/.

Davis, J. H. and R. A. Goldberg. 1957. A Concept of Agribusiness.Cambridge: Harvard University Press.

Dias A. 1904. Brazil Actual. Rio de Janeiro: Imprensa Nacional.

Gasques, J. G., E. T. Bastos, and M. P. Bacchi. 2007. “Produtividade efontes de crescimento da agricultura brasileira.” Brasília, March.Mimeo.

Hayami, Y. and V. W. Ruttan. 1988. Desenvolvimento Agrícola – Teoria eExperiencia Internacionais. Brasilia: Embrapa.

Kaul, I. and P. Conceição, eds. 2006. The New Public Finance:Responding to Global Challenges. United Nations DevelopmentProgramme. Oxford University Press.

MAPA (Ministry of Agriculture, Cattle Raising and Supply). 2007. PlanoEstratégico. Brasília: MAPA.

Ministério da Ciência e Tecnologia. 2007. Ciência, tecnologia e inovaçãopara o desenvolvimento nacional: Plano de ação 2007–2010:resumo. Imprenta Brasília: Ministério da Ciência e Tecnologia.

OECD (Organisation for Economic Co-operation and Development).2002. Frascati Manual. Paris: OECD.

OECD/FINEP (Organisation for Economic Co-operation andDevelopment and The Brazilian Innovation Agency). 1997. Manualde Oslo. Rio de Janeiro: Terceira Edição.

Portugal, A. D, F. J. B., Reifschneider, E. Contini, and A. B. Oliveira.1999. “Taxa voluntária de desenvolvimento tecnológico(Agromais) - Um mecanismo inovador de financiamento para aPesquisa, Desenvolvimento e Promoção do Agronegócio.” Idéias& Debate 5–17.

Ruttan, V. W. and Y. Hayami. 1991. “Rapid Population Growth andTechnical and Institutional Change.” In Consequences of RapidPopulation Growth in Developing Countries. Published for and onbehalf of the United Nations. New York and London: Taylor &Francis. Proceedings of the United Nations/Institut NationalD’études Démographiques Expert Group Meeting, New York,August 23–26 1988, by the United Nations and the InstitutNational d’Études Démographiques (France).

Sala-i-Martin, X. J. Blanke, M. Drzeniek Hanouz, T. Geiger, I. Mia, and F.Paua. 2008. “The Global Competitiveness Index: Prioritizing theEconomic Policy Agenda.” In The Global Competitiveness Report2008–2009. Geneva: World Economic Forum. 3–41.

Schumpeter, J. A. 1934. The Theory of Economic Development.Cambridge: Harvard University Press. Initially published in Germanin 1912

Thomke, S. H. 2003. Experimentation Matters: Unlocking the Potentialof New Technologies for Innovation. Boston: Harvard BusinessSchool Publishing Corporation.

World Bank. 2003. Agriculture and Rural Development (ARD),Enhancing Agricultural Innovation: How to Go Beyond theStrengthening of Research Systems. Washington, DC: WorldBank.

———. 2008. Global Economic Prospects: Technology Diffusion in theDeveloping World. Washington, DC: World Bank.

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Part 4Country Profiles

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This part of the Report presents detailed information inthe form of competitiveness profiles for Brazil and eightcomparator countries.

Page 1

Key indicatorsThe first section presents a selection of key indicators.Population figures come from the United NationsPopulation Fund’s State of World Population 2008. Grossdomestic product and current account data come fromthe October 2008 release of the International MonetaryFund (IMF)’s World Economic Outlook. Import coverratios come from the IMF’s International Finance Statisticsdatabase and the Economist Intelligence Unit (EIU)’sCountryData Database (both consulted on March 17,2009). The latter is also the source for the unemploy-ment data. Finally, the Human Development Indexscores are from the United Nations DevelopmentProgramme (UNDP)’s Human Development Report2007/2008. For all indicators, the most recent dataavailable for each country are displayed.

Global Competitiveness IndexThe table shows the country’s rankings in the GlobalCompetitiveness Index (GCI) 2008–2009 as presentedin The Global Competitiveness Report (GCR) 2008–2009.Ranks are measured against the 134 countries coveredby that edition of the GCR.For Brazil, a bar chart on the right-hand side com-

pares its scores on each dimension of the GCI with theaverage score for Latin America and the Caribbean(LA&C), the BRIC countries (Brazil, Russian Federa-tion, India, and China), the European Union’s 12 newestmember countries (EU Accession 12),1 and the best performing country.For other countries, a spiderweb chart on the

right-hand side shows their scores per subindex and pillar, as compared with Brazil’s scores.

The most problematic factors for doing businessThis chart summarizes factors considered by businessexecutives as the most problematic for doing business in their country. The information is drawn from theWorld Economic Forum’s Executive Opinion Survey2008. From a list of 15 factors, respondents were askedto rank in order the five most problematic. For thecomparator countries, the results for Brazil are shownfor comparison.

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Note: From a list of 15 factors, respondents were asked to select the five most problematic for doing business in their country and to rank them between1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

Source: World Economic Forum.


Tax regulations................................................................19.0Inadequate supply of infrastructure ...........................15.1Tax rates...........................................................................14.8Restrictive labor regulations ........................................13.8Inefficient government bureaucracy ..........................13.5Corruption ..........................................................................6.7Inadequately educated workforce................................5.7Access to financing .........................................................4.3Policy instability................................................................2.4Foreign currency regulations.........................................1.7Crime and theft .................................................................1.2Poor work ethic in national labor force .......................0.7Poor public health ............................................................0.7Inflation ..............................................................................0.3Government instability/coups ........................................0.1

Population (millions), 2008............................................................................194.2GDP (US$ billions), 2007.............................................................................1,313.6GDP (PPP) per capita (int'l $), 2007..........................................................9,703.2Real GDP growth (%), 2007 ..............................................................................5.4GDP (PPP) as share (%) of world total, 2007.................................................2.8Current account balance (% GDP), 2007 .......................................................0.1Foreign reserves (months of imports), 2008 ................................................10.6Unemployment (% labor force), 2008 .............................................................7.9Human Development Index, 2006..................................................................0.81

Brazil

Global Competitiveness Index 2008–2009....64.........4.1GCI 2007–2008 (out of 131)....................................72..........4.0GCI 2006 –2007 (out of 122)....................................66..........4.1

Basic requirements...............................................96..........4.01st pillar: Institutions .............................................91..........3.62nd pillar: Infrastructure.......................................78..........3.23rd pillar: Macroeconomic stability..................122..........3.94th pillar: Health and primary education ...........79..........5.3

Efficiency enhancers ............................................51..........4.35th pillar: Higher education and training ...........58..........4.16th pillar: Goods market efficiency...................101..........3.97th pillar: Labor market efficiency ......................91..........4.28th pillar: Financial market sophistication.........64..........4.49th pillar: Technological readiness.....................56..........3.610th pillar: Market size..........................................10..........5.5

Innovation factors .................................................42..........4.011th pillar: Business sophistication ....................35..........4.612th pillar: Innovation............................................43..........3.5

Stage of development: 2

50 10

Percent of responses

15 20

71

United States

United States

United States

United States

United States Hong Kong SAR

Netherlands

United States

United States

United States

Finland

Finland Singapore

Finland

Singapore

Germany

Germany

Kuwait

5.7

5.7 5.8

6.2

6.26.6

6.5

6.6

5.8

6.15.8

6.26.0

6.6

6.9

5.85.9

5.8

Brazil Best LA&C EU Acc 12 BRIC

Global Competitiveness Index 2008–2009....28.........4.7GCI 2007–2008 (out of 131)....................................26..........4.8GCI 2006–2007 (out of 122)....................................27..........4.8

Basic requirements...............................................36..........5.11st pillar: Institutions .............................................37..........4.72nd pillar: Infrastructure.......................................30..........4.63rd pillar: Macroeconomic stability....................14..........5.94th pillar: Health and primary education ...........73..........5.4

Efficiency enhancers ............................................30..........4.65th pillar: Higher education and training ...........50..........4.36th pillar: Goods market efficiency.....................26..........4.97th pillar: Labor market efficiency ......................17..........4.98th pillar: Financial market sophistication.........29..........5.19th pillar: Technological readiness.....................42..........4.010th pillar: Market size..........................................47..........4.3


Stage of development: Transition from 2 to 3

The most problematic factors for doing business

Restrictive labor regulations ........................................26.0Inefficient government bureaucracy ..........................17.6Inadequately educated workforce..............................11.7Corruption ..........................................................................6.5Poor work ethic in national labor force .......................5.2Access to financing .........................................................5.1Inflation ..............................................................................4.9Tax rates.............................................................................4.7Inadequate supply of infrastructure .............................4.1Policy instability................................................................4.1Tax regulations..................................................................4.0Crime and theft .................................................................3.8Poor public health ............................................................1.6Foreign currency regulations.........................................0.4Government instability/coups ........................................0.3



Key indicators

Rank Score(out of 134) (1–7)




Chile

ChilePopulation (millions), 2008..............................................................................16.8GDP (US$ billions), 2007................................................................................163.9GDP (PPP) per capita (int'l $), 2007........................................................13,921.2Real GDP growth (%), 2007 ..............................................................................5.1GDP (PPP) as share (%) of world total, 2007.................................................0.4Current account balance (% GDP), 2007 .......................................................4.4Foreign reserves (in months of imports), 2007..............................................3.7Unemployment (% labor force), 2008 .............................................................7.8Human Development Index, 2006..................................................................0.87

7

6

5

4

3

2

1

Institutions

InfrastructureInnovation


Health and primary

educationMarket size

Macroeconomicstability

Businesssophistication

Higher educationand training

Technologicalreadiness

Goods marketefficiency

Financial marketsophistication

BrazilChile

0 5 10 15 20 25 30Percent of responses

ChileBrazil


100


Page 2

GDP (PPP) per capita (int’l $), 1996–2007This chart shows the evolution of GDP based on purchasing power parity (PPP) per capita for the period1996–2007. The data were obtained from the IMF’sWorld Economic Outlook database.

FDI inflows, 1996–2007 (US$ millions)This chart tracks the evolution of foreign direct invest-ment (FDI) inflows for a 10-year period through 2007.The data are from the United Nations Conference onTrade and Development (UNCTAD)’s Foreign DirectInvestment Database, consulted in March 2009.

Main exports,1996–2007 (US$ billions) This chart illustrates the evolution in the composition thecountry’s exports. It shows the total value in billions of US dollars for all exports, as well as for the top three cate-gories of exports, according to the Standard Inter-nationalClassification Trade Classification (SITC). Data come fromUnited Nations Statistics Division’s Comtrade Database.

Share of merchandise exports by main destination, 2007This figure presents the breakdown of exports by destination country or region with the total value of acountry’s exports appearing below, for 2007 or the mostrecent year available. These figures come from the WorldTrade Organization’s statistical database, Trade profiles,consulted in March 2009.

Export Product Concentration Index, 2006The bottom right area features an indicator of a coun-try’s score of the 2006 Export Product ConcentrationIndex. This value reflects the Herfindahl-Hirschmanindex measure of the degree of export concentrationwithin a country. For further details on the calculationof this Index please consult the following link:http://info.worldbank.org/etools/wti2008/docs/userguide.pdf.

(US$ billions)

Source: IMF.

Source: UNCTAD.

Source: United Nations Statistics Division.

Source: WTO.

Source: World Bank.

(US$ millions)

Note: For further details and explanation, please refer to the section “How to Read the Country Profiles” at the beginning of this chapter.

Brazil

Brazil ..............................................................9.1

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil

Western Hemisphere

12,000

10,000

8,000

6,000

4,000

2,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Machinery and transport equipment

200

150

100

50

0

All commodities

Food and live animals

Manufactured goods classified chiefly by material

European Union 25.2%

United States 15.8%

Argentina 9.0%

China 6.7%Venesuela 2.9%

Others 40.4%


101


101

Page 3 (and 4 for Brazil)

The Global Competitiveness Index in detailPage 3 (and 4 for Brazil) provides detailed informationon each component and indicator included in the GCI.

INDICATOR This column contains the title of eachcomponent and each indicator of the GCI. Hard dataindicators are identified by an asterisk and the units areindicated in parenthesis. The number to the left of eachindicator refers to the numbering of the Data Tables pre-sented in the GCR 2008–2009. For a full description ofall the indicators of the GCI, please refer to Appendix Aof Chapter 1.

RANK This column reports the country’s positionamong the 134 economies covered by the GCI. ForBrazil, next to the rank, a colored square indicateswhether an indicator constitutes an advantage (n) or adisadvantage (n) for the country. For Brazil, as for alleconomies ranked lower than 50 in the overall GCI, anyindividual variables ranked higher than 51 are consid-ered advantages. Any variables ranked lower than 50 areconsidered as disadvantages. For comparator countries,next to the rank, a symbol indicates whether the coun-try ranks higher (+), lower (–), or the same (=) as Brazil.SCORE This column reports the country’s score. Forindicators drawn from the Survey, scores range from 1 (lowest) to 7.

EVOLUTION This column shows Brazil’s evolution inthe score of each component and indicator. The firstarrow indicates whether the score in 2008–2009 hasimproved (s), worsened (t), or remained unchanged (=)compared with the 2007–2008 edition. The secondarrow indicates whether the score achieved in2007–2008 has improved (s), worsened (t), or remainedunchanged (=) compared with 2006–2007.

For the sake of comparison, wereport the average scores of the Latin America & theCaribbean region (LA&C), the BRIC countries(BRIC), the 12 newest EU members (EU Acc 12), andthe best performer, whose name is also indicated.

Note1 These are Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Latvia,Lithuania, Malta, Poland, Romania, Slovak Republic, and Slovenia.

LA&C BRIC EU Acc 12

The Global Competitveness Index in detail

INDICATOR RANK/134 SCORE

+ Better than Brazil (87 times) – Worse than Brazil (23 times)

* Hard data.Note: For further details and explanation, please refer to the section "How to Read the Country Profiles" at the beginning of this chapter.

1st pillar: Institutions

1.01 Property rights ....................................................................................40.......+ ......5.41.02 Intellectual property protection .......................................................63.......+ ......3.61.03 Diversion of public funds ..................................................................52.......+ ......3.81.04 Public trust of politicians ..................................................................42.......+ ......3.41.05 Judicial independence ......................................................................52.......+ ......4.51.06 Favoritism in decisions of government officials ...........................41.......+ ......3.61.07 Wastefulness of government spending..........................................49.......+ ......3.71.08 Burden of government regulation ...................................................34.......+ ......3.71.09 Efficiency of legal framework ..........................................................30.......+ ......4.81.10 Transparency of government policymaking...................................26.......+ ......4.91.11 Business costs of terrorism..............................................................27.......– ......6.31.12 Business costs of crime and violence............................................84.......+ ......4.41.13 Organized crime..................................................................................32.......+ ......6.21.14 Reliability of police services.............................................................16.......+ ......6.11.15 Ethical behavior of firms ...................................................................23.......+ ......5.31.16 Strength of auditing and reporting standards...............................32.......+ ......5.61.17 Efficacy of corporate boards..............................................................7.......+ ......5.61.18 Protection of minority shareholders’ interests..............................32.......+ ......5.3

2nd pillar: Infrastructure

2.01 Quality of overall infrastructure.......................................................29.......+ ......5.12.02 Quality of roads...................................................................................22.......+ ......5.52.03 Quality of railroad infrastructure .....................................................73.......+ ......2.12.04 Quality of port infrastructure............................................................37.......+ ......4.92.05 Quality of air transport infrastructure.............................................24.......+ ......5.92.06 Available seat kilometers (per week, in millions)* .......................39.......– ..427.12.07 Quality of electricity supply ..............................................................49.......+ ......5.32.08 Main telephone lines (per 100 population)* ..................................63.......– ....20.2

3rd pillar: Macroeconomic stability

3.01 Central government balance (% GDP)*..........................................10.......+ ......8.73.02 National savings rate (% GDP)*.......................................................51.......+ ....25.53.03 Inflation (%)* .......................................................................................60.......– ......4.43.04 Interest rate spread (%)* ..................................................................23.......+ ......3.13.05 Government gross debt (% GDP)*.....................................................7.......+ ......4.1

4th pillar: Health and primary education

4.01 Business impact of malaria ..............................................................26.......+ ......6.84.02 Malaria incidence (cases per 100,000 population)*.......................1.......+ ......0.04.03 Business impact of tuberculosis .....................................................22.......+ ......6.64.04 Tuberculosis incidence (cases per 100,000 population)*............31.......+ ....15.04.05 Business impact of HIV/AIDS...........................................................43.......+ ......5.84.06 HIV prevalence (% adult population)* ............................................68.......+ ......0.34.07 Infant mortality (deaths per 1,000 live births)* ..............................39.......+ ......8.04.08 Life expectancy at birth (years)* .....................................................29.......+ ....78.04.09 Quality of primary education ..........................................................110.......+ ......2.74.10 Primary education enrollment (net rate, %)* ................................99.......– ....88.04.11 Education expenditure (% GNI)* .....................................................84.......– ......3.7

5th pillar: Higher education and training

5.01 Secondary education enrollment (gross rate, %)*.......................54.......– ....91.25.02 Tertiary education enrollment (gross rate, %)*.............................41.......+ ....46.65.03 Quality of the educational system ...................................................86.......+ ......3.25.04 Quality of math and science education........................................107.......+ ......3.15.05 Quality of management schools ......................................................19.......+ ......5.25.06 Internet access in schools ...............................................................41.......+ ......4.55.07 Local availability of research and training services ....................46.......– ......4.35.08 Extent of staff training .......................................................................48.......– ......4.2

6th pillar: Goods market efficiency

6.01 Intensity of local competition...........................................................19.......+ ......5.76.02 Extent of market dominance.............................................................57.......– ......3.96.03 Effectiveness of anti-monopoly policy............................................25.......+ ......5.06.04 Extent and effect of taxation ............................................................45.......+ ......3.86.05 Total tax rate (% profits)* ..................................................................12.......+ ....25.96.06 Number of procedures required to start a business* .................58.......+ ......9.0

6.07 Number of days required to start a business*..............................61.......+ ....27.06.08 Agricultural policy costs .....................................................................3.......+ ......5.16.09 Prevalence of trade barriers ..............................................................5.......+ ......6.16.10 Trade-weighted tariff rate (% duty)*...............................................57.......+ ......4.76.11 Prevalence of foreign ownership ....................................................11.......+ ......6.16.12 Business impact of rules on FDI ......................................................19.......+ ......5.86.13 Burden of customs procedures .........................................................7.......+ ......5.66.14 Degree of customer orientation.......................................................47.......+ ......5.06.15 Buyer sophistication ..........................................................................29.......+ ......4.4

7th pillar: Labor market efficiency

7.01 Cooperation in labor-employer relations........................................51.......+ ......4.77.02 Flexibility of wage determination.......................................................6.......+ ......6.07.03 Non-wage labor costs (% worker’s salary)* .................................12.......+ ......3.07.04 Rigidity of Employment Index (0–100, 100 is worst)*....................32.......+ ....24.07.05 Hiring and firing practices ................................................................74.......+ ......3.77.06 Firing costs (in weeks of wages)* ...................................................81.......– ....52.07.07 Pay and productivity ..........................................................................21.......+ ......4.87.08 Reliance on professional management..........................................18.......+ ......5.67.09 Brain drain .............................................................................................6.......+ ......5.37.10 Female-to-male participation ratio in labor force ......................111.......– ......0.5

8th pillar: Financial market sophistication

8.01 Financial market sophistication .......................................................26.......– ......5.88.02 Financing through local equity market ...........................................10.......+ ......5.48.03 Ease of access to loans ....................................................................28.......+ ......4.28.04 Venture capital availability ...............................................................37.......+ ......3.78.05 Restriction on capital flows..............................................................36.......+ ......5.58.06 Strength of Investor Protection (0–10, 10 is best)* ......................26.......+ ......6.08.07 Soundness of banks...........................................................................18.......+ ......6.58.08 Regulation of securities exchanges................................................14.......+ ......5.88.09 Strength of Legal Rights (0–10, 10 is best)* ...................................72.......+ ......4.0

9th pillar: Technological readiness

9.01 Availability of latest technologies....................................................42.......+ ......5.29.02 Firm-level technology absorption ....................................................33.......+ ......5.49.03 Laws relating to ICT ...........................................................................26.......+ ......5.09.04 FDI and technology transfer .............................................................31.......+ ......5.39.05 Mobile telephone subscribers (per 100 population)* ..................55.......+ ....75.69.06 Internet users (per 100 population)* ...............................................51.......+ ....25.29.07 Personal computers (per 100 population)* ....................................53.......– ....14.89.08 Broadband internet subscribers (per 100 population) .................38.......+ ......5.9

10th pillar: Market size

10.01 Domestic market size index*............................................................47.......– ......4.010.02 Foreign market size index* ...............................................................43.......– ......4.9

11th pillar: Business sophistication

11.01 Local supplier quantity ......................................................................20.......– ......5.411.02 Local supplier quality.........................................................................28.......+ ......5.311.03 State of cluster development ...........................................................53.......– ......3.711.04 Nature of competitive advantage....................................................69.......+ ......3.411.05 Value chain breadth...........................................................................55.......+ ......3.911.06 Control of international distribution ................................................24.......+ ......4.711.07 Production process sophistication..................................................36.......– ......4.411.08 Extent of marketing ............................................................................18.......+ ......5.511.09 Willingness to delegate authority....................................................36.......+ ......4.6

12th pillar: Innovation

12.01 Capacity for innovation......................................................................57.......– ......3.312.02 Quality of scientific research institutions ......................................62.......– ......3.912.03 Company spending on R&D..............................................................64.......– ......3.112.04 University-industry research collaboration ...................................51.......– ......3.512.05 Gov't procurement of advanced tech products............................53.......+ ......3.712.06 Availability of scientists and engineers..........................................35.......+ ......4.712.07 USPTA utility patents, 2007 (per million population)*...................40.......+ ......1.5

ChileINDICATOR RANK/134 SCORE


INDICATOR RANK SCORE EVOLUTION LATAM BRIC EU ACC 12 BEST PERFORMER

Competitive advantagesCompetitive disadvantages

Brazil

Global Competitiveness Index......................................64 .......................4.1 ....... ......... ........3.9 .......4.4 .......44..44 .......5.7 United StatesBasic requirements......................................................................96 ..........................4.0 ......... .......... ..........4.2 .........4.4 .........44..88.........6.2 FinlandEfficiency enhancers...................................................................51 ..........................4.3 ......... .......... ..........3.8 .........4.4 .........44..44.........5.8 United StatesInnovation and sophistication factors .....................................42 ..........................4.0 ......... .......... ..........3.4 .........4.0 .........33..88.........5.8 United States

1st pillar: Institutions ..........................................................................91 ............................3.6 .......... ........... ...........3.6 ..........3.8 ..........44..11 ..........6.2 Singapore

1.01 Property rights ......................................................................................70 ............. ...........4.6 .......... ........... ...........4.2 ..........4.5 ..........4.9 ..........6.7 Switzerland1.02 Intellectual property protection .........................................................79 ............. ...........3.3 .......... ........... ...........3.1 ..........3.4 ..........3.9 ..........6.3 Switzerland1.03 Diversion of public funds ..................................................................118 ............. ...........2.5 .......... ........... ...........3.1 ..........3.2 ..........3.7 ..........6.5 Denmark1.04 Public trust of politicians ..................................................................122 ............. ...........1.6 .......... ........... ...........2.2 ..........2.3 ..........2.6 ..........6.5 Singapore1.05 Judicial independence ........................................................................68 ............. ...........3.8 .......... ........... ...........3.4 ..........3.9 ..........4.2 ..........6.6 New Zealand1.06 Favoritism in decisions of government officials .............................63 ............. ...........3.2 .......... ........... ...........2.7 ..........3.2 ..........2.9 ..........6.0 Denmark1.07 Wastefulness of government spending..........................................129 ............. ...........2.2 .......... ........... ...........2.9 ..........3.2 ..........3.2 ..........6.1 Singapore1.08 Burden of government regulation ...................................................133 ............. ...........1.9 .......... ........... ...........2.9 ..........2.8 ..........3.1 ..........5.7 Singapore1.09 Efficiency of legal framework ............................................................98 ............. ...........3.0 .......... ........... ...........3.1 ..........3.6 ..........3.6 ..........6.3 Denmark1.10 Transparency of government policymaking...................................101 ............. ...........3.6 .......... ........... ...........3.7 ..........3.9 ..........3.9 ..........6.3 Singapore1.11 Business costs of terrorism................................................................12 ............. ...........6.5 .......... ........... ...........5.5 ..........5.5 ..........6.2 ..........6.8 Finland1.12 Business costs of crime and violence............................................123 ............. ...........3.1 .......... ........... ...........3.4 ..........4.5 ..........5.4 ..........6.7 Syria1.13 Organized crime..................................................................................116 ............. ...........4.1 .......... ........... ...........4.4 ..........4.6 ..........5.6 ..........6.8 Norway1.14 Reliability of police services.............................................................117 ............. ...........2.8 .......... ........... ...........3.3 ..........3.8 ..........4.4 ..........6.7 Finland1.15 Ethical behavior of firms .....................................................................89 ............. ...........3.8 .......... ........... ...........3.9 ..........3.9 ..........4.2 ..........6.6 Sweden1.16 Strength of auditing and reporting standards .................................60 ............. ...........5.0 .......... ........... ...........4.5 ..........4.7 ..........5.1 ..........6.3 Hong Kong SAR1.17 Efficacy of corporate boards..............................................................46 ............. ...........4.9 .......... ........... ...........4.6 ..........4.8 ..........4.7 ..........6.1 Sweden1.18 Protection of minority shareholders’ interests................................42 ............. ...........5.0 .......... ........... ...........4.2 ..........4.4 ..........4.4 ..........6.1 Sweden

2nd pillar: Infrastructure ....................................................................78 ............................3.2 .......... ........... ...........3.2 ..........3.6 ..........33..99 ..........6.6 Germany

2.01 Quality of overall infrastructure .........................................................98 ............. ...........2.7 .......... ........... ...........3.3 ..........3.2 ..........3.9 ..........6.8 Switzerland2.02 Quality of roads...................................................................................110 ............. ...........2.5 .......... ........... ...........3.4 ..........3.0 ..........3.5 ..........6.7 France2.03 Quality of railroad infrastructure .......................................................86 ............. ...........1.8 .......... ........... ...........1.5 ..........3.6 ..........3.5 ..........6.8 Switzerland2.04 Quality of port infrastructure............................................................123 ............. ...........2.5 .......... ........... ...........3.7 ..........3.5 ..........4.3 ..........6.8 Singapore2.05 Quality of air transport infrastructure.............................................101 ............. ...........3.7 .......... ........... ...........4.5 ..........4.2 ..........4.7 ..........6.9 Singapore2.06 Available seat kilometers (per week, in millions)* .........................12 ............. ....2,353.9 .......... ........... .......327.2 ...3,677.4 ......104.6 .33,454.2 United States2.07 Quality of electricity supply ................................................................58 ............. ...........5.0 .......... ........... ...........4.2 ..........4.4 ..........5.3 ..........6.9 Denmark2.08 Main telephone lines (per 100 population)* ....................................62 ............. .........20.5 .......... ........... .........17.5 ........20.7 ........32.6 ........66.9 Switzerland

3rd pillar: Macroeconomic stability ..............................................122 ............................3.9 .......... ........... ...........4.7 ..........4.9 ..........5.2 ..........6.5 Kuwait

3.01 Central government balance (% GDP)*............................................91 ............. .........–2.2 .......... ............=..........–0.2........–0.6........–0.8 ........43.8 Kuwait3.02 National savings rate (% GDP)*.........................................................86 ............. .........18.1 .......... ........... .........20.9 ........34.1 ........17.7 ........67.5 Kuwait3.03 Inflation (%)* .........................................................................................54 ............. ...........3.6 .......... ........... ...........7.1 ..........5.9 ..........4.8........–8.8 Chad3.04 Interest rate spread (%)* ..................................................................131 ............. .........33.1 .......... ........... ...........8.6 ........11.7 ..........3.7 ..........1.0 Switzerland3.05 Government gross debt (% GDP)*.....................................................85 ............. .........47.0 .......... ........... .........46.7 ........37.7 ........32.5 ..........0.0 Multiple (2)

4th pillar: Health and primary education........................................79 ............................5.3 .......... ........... ...........5.4 ..........5.4 ..........55..99 ..........6.6 Finland

4.01 Business impact of malaria ................................................................66 ............. ...........6.3 .......... ........... ...........5.9 ..........6.0 ..........6.7 ..........7.0 Finland4.02 Malaria incidence (cases per 100,000 population)*.....................101 ............. .......206.4 .......... ............=........393.7 ........93.3 ..........0.0 ..........0.0 Multiple (60)4.03 Business impact of tuberculosis .......................................................51 ............. ...........6.2 .......... ........... ...........5.7 ..........5.8 ..........6.1 ..........6.9 Finland4.04 Tuberculosis incidence (cases per 100,000 population)*..............64 ............. .........50.0 .......... ........... .........61.1 ......106.0 ........34.9 ..........4.0 Multiple (2)4.05 Business impact of HIV/AIDS.............................................................71 ............. ...........5.2 .......... ........... ...........4.7 ..........5.4 ..........5.8 ..........6.6 Norway4.06 HIV prevalence (% adult population)* ..............................................86 ............. ...........0.6 .......... ........... ...........0.8 ..........0.5 ..........0.3 ..........0.1 Multiple (26)4.07 Infant mortality (deaths per 1,000 live births)* ................................88 ............. .........28.0 .......... ............=..........22.5 ........29.5 ..........6.9 ..........1.8 Hong Kong SAR4.08 Life expectancy at birth (years)* .......................................................66 ............. .........72.0 .......... ............=..........72.4 ........68.5 ........74.8 ........83.0 Japan4.09 Quality of primary education ............................................................119 ............. ...........2.5 .......... ..........n/a ..........3.0 ..........3.8 ..........4.6 ..........6.7 Finland4.10 Primary education enrollment (net rate, %)* ..................................58 ............. .........94.4 .......... ........... .........93.8 ........92.8 ........92.8 ........99.9 Malaysia4.11 Education expenditure (% GNI)* .......................................................64 ............. ...........4.3 .......... ............=............4.0 ..........3.4 ..........4.8 ..........9.3 Lesotho

5th pillar: Higher education and training .......................................58 ............................4.1 .......... ........... ...........3.7 ..........4.2 ..........4.7 ..........6.1 Finland

5.01 Secondary education enrollment (gross rate, %)*.........................14 ............. .......105.5 .......... ........... .........81.9 ........79.8 ........97.2 ......150.3 Australia5.02 Tertiary education enrollment (gross rate, %)*...............................76 ............. .........25.5 .......... ........... .........29.7 ........32.8 ........57.6 ........94.9 Greece5.03 Quality of the educational system ...................................................117 ............. ...........2.7 .......... ........... ...........3.0 ..........3.8 ..........4.0 ..........6.2 Finland5.04 Quality of math and science education..........................................124 ............. ...........2.7 .......... ........... ...........3.2 ..........4.4 ..........5.0 ..........6.5 Finland5.05 Quality of management schools ........................................................58 ............. ...........4.2 .......... ........... ...........4.1 ..........4.4 ..........4.3 ..........6.1 France5.06 Internet access in schools .................................................................67 ............. ...........3.4 .......... ........... ...........3.0 ..........3.8 ..........4.8 ..........6.4 Finland5.07 Local availability of research and training services ......................26 ............. ...........4.9 .......... ........... ...........3.8 ..........4.5 ..........4.2 ..........6.1 United States5.08 Extent of staff training .........................................................................46 ............. ...........4.3 .......... ........... ...........3.7 ..........4.2 ..........4.1 ..........5.9 Denmark

6th pillar: Goods market efficiency................................................101 ............................3.9 .......... ........... ...........4.0 ..........4.2 ..........4.5 ..........5.8 Singapore

6.01 Intensity of local competition.............................................................43 ............. ...........5.3 .......... ........... ...........4.7 ..........5.3 ..........5.4 ..........6.4 Germany6.02 Extent of market dominance...............................................................32 ............. ...........4.6 .......... ........... ...........3.5 ..........4.4 ..........4.2 ..........6.1 Germany6.03 Effectiveness of anti-monopoly policy..............................................36 ............. ...........4.6 .......... ........... ...........3.5 ..........4.2 ..........4.2 ..........6.0 Netherlands6.04 Extent and effect of taxation ..............................................................134.............. ............1.7 .......... ........... ...........3.2 ..........3.3 ..........3.6 ..........6.2 United Arab Emirates


List of Countries

Country Page

Brazil 104Chile 108China 112India 116Mexico 120Russian Federation 124South Africa 128Spain 132Turkey 136

103

List of Countries

103



Key indicators


104

4: Country Profiles





Tax regulations................................................................19.0Inadequate supply of infrastructure ...........................15.1Tax rates...........................................................................14.8Restrictive labor regulations ........................................13.8Inefficient government bureaucracy ..........................13.5Corruption ..........................................................................6.7Inadequately educated workforce................................5.7Access to financing .........................................................4.3Policy instability................................................................2.4Foreign currency regulations.........................................1.7Crime and theft .................................................................1.2Poor work ethic in national labor force .......................0.7Poor public health ............................................................0.7Inflation ..............................................................................0.3Government instability/coups ........................................0.1

Population (millions), 2008............................................................................194.2GDP (US$ billions), 2007.............................................................................1,313.6GDP (PPP) per capita (int'l $), 2007..........................................................9,703.2Real GDP growth (%), 2007 ..............................................................................5.4GDP (PPP) as share (%) of world total, 2007.................................................2.8Current account balance (% GDP), 2007 .......................................................0.1Foreign reserves (months of imports), 2008 ................................................10.6Unemployment (% labor force), 2008 .............................................................7.9Human Development Index, 2006..................................................................0.81

Brazil

Global Competitiveness Index 2008–2009....64.........4.1GCI 2007–2008 (out of 131)....................................72..........4.0GCI 2006 –2007 (out of 122)....................................66..........4.1

Basic requirements...............................................96..........4.01st pillar: Institutions .............................................91..........3.62nd pillar: Infrastructure.......................................78..........3.23rd pillar: Macroeconomic stability..................122..........3.94th pillar: Health and primary education ...........79..........5.3

Efficiency enhancers ............................................51..........4.35th pillar: Higher education and training ...........58..........4.16th pillar: Goods market efficiency...................101..........3.97th pillar: Labor market efficiency ......................91..........4.28th pillar: Financial market sophistication.........64..........4.49th pillar: Technological readiness.....................56..........3.610th pillar: Market size..........................................10..........5.5



50 10

Percent of responses

15 20

71

United States

United States

United States

United States

United States Hong Kong SAR

Netherlands

United States

United States

United States

Finland

Finland Singapore

Finland

Singapore

Germany

Germany

Kuwait

5.7

5.7 5.8

6.2

6.26.6

6.5

6.6

5.8

6.15.8

6.26.0

6.6

6.9

5.85.9

5.8

Brazil Best LA&C EU Acc 12 BRIC


105

4: Country Profiles

(US$ billions)

GDP (PPP) per capita (int’l $), 1996–2007

FDI inflows, 1996 –2007

Main exports, 1996–2007

Share of merchandise exports by destination, 2007 Export Product Concentration Index, 2006

Source: IMF.

Source: UNCTAD.


Source: WTO.

Source: World Bank.

(US$ millions)


Brazil

Brazil ..............................................................9.1

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Brazil

Western Hemisphere

12,000

10,000

8,000

6,000

4,000

2,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Machinery and transport equipment

200

150

100

50

0

All commodities




United States 15.8%

Argentina 9.0%

China 6.7%Venesuela 2.9%

Others 40.4%



106

4: Country Profiles


n Competitive advantagesn Competitive disadvantages

Brazil

Global Competitiveness Index......................................64 .......................4.1 .......s.........t ........3.9 .......4.4 .......4.4 .......5.7 United StatesBasic requirements......................................................................96 ..........................4.0 .........s ..........t ..........4.2 .........4.4 .........4.8.........6.2 FinlandEfficiency enhancers...................................................................51 ..........................4.3 .........s ..........s ..........3.8 .........4.4 .........4.4.........5.8 United StatesInnovation and sophistication factors .....................................42 ..........................4.0 .........s ..........s ..........3.4 .........4.0 .........3.8.........5.8 United States

1st pillar: Institutions ..........................................................................91 ............................3.6 ..........s ...........t ...........3.6 ..........3.8 ..........4.1 ..........6.2 Singapore

1.01 Property rights ......................................................................................70 .............n ...........4.6 ..........s ...........t ...........4.2 ..........4.5 ..........4.9 ..........6.7 Switzerland1.02 Intellectual property protection .........................................................79 .............n ...........3.3 ..........t ...........t ...........3.1 ..........3.4 ..........3.9 ..........6.3 Switzerland1.03 Diversion of public funds ..................................................................118 .............n ...........2.5 ..........s ...........t ...........3.1 ..........3.2 ..........3.7 ..........6.5 Denmark1.04 Public trust of politicians ..................................................................122 .............n ...........1.6 ..........s ...........t ...........2.2 ..........2.3 ..........2.6 ..........6.5 Singapore1.05 Judicial independence ........................................................................68 .............n ...........3.8 ..........s ...........s ...........3.4 ..........3.9 ..........4.2 ..........6.6 New Zealand1.06 Favoritism in decisions of government officials .............................63 .............n ...........3.2 ..........s ...........t ...........2.7 ..........3.2 ..........2.9 ..........6.0 Denmark1.07 Wastefulness of government spending..........................................129 .............n ...........2.2 ..........s ...........t ...........2.9 ..........3.2 ..........3.2 ..........6.1 Singapore1.08 Burden of government regulation ...................................................133 .............n ...........1.9 ..........s ...........t ...........2.9 ..........2.8 ..........3.1 ..........5.7 Singapore1.09 Efficiency of legal framework ............................................................98 .............n ...........3.0 ..........s ...........t ...........3.1 ..........3.6 ..........3.6 ..........6.3 Denmark1.10 Transparency of government policymaking...................................101 .............n ...........3.6 ..........s ...........t ...........3.7 ..........3.9 ..........3.9 ..........6.3 Singapore1.11 Business costs of terrorism................................................................12 .............n ...........6.5 ..........s ...........s ...........5.5 ..........5.5 ..........6.2 ..........6.8 Finland1.12 Business costs of crime and violence............................................123 .............n ...........3.1 ..........s ...........s ...........3.4 ..........4.5 ..........5.4 ..........6.7 Syria1.13 Organized crime..................................................................................116 .............n ...........4.1 ..........s ...........t ...........4.4 ..........4.6 ..........5.6 ..........6.8 Norway1.14 Reliability of police services.............................................................117 .............n ...........2.8 ..........s ...........t ...........3.3 ..........3.8 ..........4.4 ..........6.7 Finland1.15 Ethical behavior of firms .....................................................................89 .............n ...........3.8 ..........s ...........t ...........3.9 ..........3.9 ..........4.2 ..........6.6 Sweden1.16 Strength of auditing and reporting standards .................................60 .............n ...........5.0 ..........s ...........s ...........4.5 ..........4.7 ..........5.1 ..........6.3 Hong Kong SAR1.17 Efficacy of corporate boards..............................................................46 .............n ...........4.9 ..........s ...........s ...........4.6 ..........4.8 ..........4.7 ..........6.1 Sweden1.18 Protection of minority shareholders’ interests................................42 .............n ...........5.0 ..........s ...........s ...........4.2 ..........4.4 ..........4.4 ..........6.1 Sweden

2nd pillar: Infrastructure ....................................................................78 ............................3.2 ..........s ...........t ...........3.2 ..........3.6 ..........3.9 ..........6.6 Germany

2.01 Quality of overall infrastructure .........................................................98 .............n ...........2.7 ..........s ...........t ...........3.3 ..........3.2 ..........3.9 ..........6.8 Switzerland2.02 Quality of roads...................................................................................110 .............n ...........2.5 ..........s ...........t ...........3.4 ..........3.0 ..........3.5 ..........6.7 France2.03 Quality of railroad infrastructure .......................................................86 .............n ...........1.8 ..........s ...........t ...........1.5 ..........3.6 ..........3.5 ..........6.8 Switzerland2.04 Quality of port infrastructure ............................................................123 .............n ...........2.5 ..........t ...........t ...........3.7 ..........3.5 ..........4.3 ..........6.8 Singapore2.05 Quality of air transport infrastructure.............................................101 .............n ...........3.7 ..........t ...........t ...........4.5 ..........4.2 ..........4.7 ..........6.9 Singapore2.06 Available seat kilometers (per week, in millions)* .........................12 .............n ....2,353.9 ..........s ...........s .......327.2 ...3,677.4 ......104.6 .33,454.2 United States2.07 Quality of electricity supply ................................................................58 .............n ...........5.0 ..........s ...........t ...........4.2 ..........4.4 ..........5.3 ..........6.9 Denmark2.08 Main telephone lines (per 100 population)* ....................................62 .............n .........20.5 ..........t ...........t .........17.5 ........20.7 ........32.6 ........66.9 Switzerland

3rd pillar: Macroeconomic stability ..............................................122 ............................3.9 ..........s ...........t ...........4.7 ..........4.9 ..........5.2 ..........6.5 Kuwait

3.01 Central government balance (% GDP)*............................................91 .............n .........–2.2 ..........s ............=..........–0.2........–0.6........–0.8 ........43.8 Kuwait3.02 National savings rate (% GDP)*.........................................................86 .............n .........18.1 ..........t ...........t .........20.9 ........34.1 ........17.7 ........67.5 Kuwait3.03 Inflation (%)* .........................................................................................54 .............n ...........3.6 ..........s ...........s ...........7.1 ..........5.9 ..........4.8........–8.8 Chad3.04 Interest rate spread (%)* ..................................................................131 .............n .........33.1 ..........s ...........s ...........8.6 ........11.7 ..........3.7 ..........1.0 Switzerland3.05 Government gross debt (% GDP)*.....................................................85 .............n .........47.0 ..........s ...........s .........46.7 ........37.7 ........32.5 ..........0.0 Multiple (2)

4th pillar: Health and primary education........................................79 ............................5.3 ..........s ...........t ...........5.4 ..........5.4 ..........5.9 ..........6.6 Finland

4.01 Business impact of malaria ................................................................66 .............n ...........6.3 ..........t ...........s ...........5.9 ..........6.0 ..........6.7 ..........7.0 Finland4.02 Malaria incidence (cases per 100,000 population)*.....................101 .............n .......206.4 ..........s ............=........393.7 ........93.3 ..........0.0 ..........0.0 Multiple (60)4.03 Business impact of tuberculosis .......................................................51 .............n ...........6.2 ..........s ...........s ...........5.7 ..........5.8 ..........6.1 ..........6.9 Finland4.04 Tuberculosis incidence (cases per 100,000 population)*..............64 .............n .........50.0 ..........s ...........s .........61.1 ......106.0 ........34.9 ..........4.0 Multiple (2)4.05 Business impact of HIV/AIDS.............................................................71 .............n ...........5.2 ..........t ...........t ...........4.7 ..........5.4 ..........5.8 ..........6.6 Norway4.06 HIV prevalence (% adult population)* ..............................................86 .............n ...........0.6 ..........t ...........s ...........0.8 ..........0.5 ..........0.3 ..........0.1 Multiple (26)4.07 Infant mortality (deaths per 1,000 live births)* ................................88 .............n .........28.0 ..........s ............=..........22.5 ........29.5 ..........6.9 ..........1.8 Hong Kong SAR4.08 Life expectancy at birth (years)* .......................................................66 .............n .........72.0 ..........s ............=..........72.4 ........68.5 ........74.8 ........83.0 Japan4.09 Quality of primary education ............................................................119 .............n ...........2.5 ..........s ..........n/a ..........3.0 ..........3.8 ..........4.6 ..........6.7 Finland4.10 Primary education enrollment (net rate, %)* ..................................58 .............n .........94.4 ..........t ...........t .........93.8 ........92.8 ........92.8 ........99.9 Malaysia4.11 Education expenditure (% GNI)* .......................................................64 .............n ...........4.3 ..........s ............=............4.0 ..........3.4 ..........4.8 ..........9.3 Lesotho

5th pillar: Higher education and training .......................................58 ............................4.1 ..........s ...........t ...........3.7 ..........4.2 ..........4.7 ..........6.1 Finland

5.01 Secondary education enrollment (gross rate, %)*.........................14 .............n .......105.5 ..........s ...........s .........81.9 ........79.8 ........97.2 ......150.3 Australia5.02 Tertiary education enrollment (gross rate, %)*...............................76 .............n .........25.5 ..........s ...........s .........29.7 ........32.8 ........57.6 ........94.9 Greece5.03 Quality of the educational system ...................................................117 .............n ...........2.7 ..........s ...........t ...........3.0 ..........3.8 ..........4.0 ..........6.2 Finland5.04 Quality of math and science education..........................................124 .............n ...........2.7 ..........t ...........t ...........3.2 ..........4.4 ..........5.0 ..........6.5 Finland5.05 Quality of management schools ........................................................58 .............n ...........4.2 ..........s ...........t ...........4.1 ..........4.4 ..........4.3 ..........6.1 France5.06 Internet access in schools .................................................................67 .............n ...........3.4 ..........s ...........t ...........3.0 ..........3.8 ..........4.8 ..........6.4 Finland5.07 Local availability of research and training services ......................26 .............n ...........4.9 ..........s ...........t ...........3.8 ..........4.5 ..........4.2 ..........6.1 United States5.08 Extent of staff training .........................................................................46 .............n ...........4.3 ..........s ...........t ...........3.7 ..........4.2 ..........4.1 ..........5.9 Denmark

6th pillar: Goods market efficiency................................................101 ............................3.9 ..........s ...........t ...........4.0 ..........4.2 ..........4.5 ..........5.8 Singapore

6.01 Intensity of local competition.............................................................43 .............n ...........5.3 ..........s ...........s ...........4.7 ..........5.3 ..........5.4 ..........6.4 Germany6.02 Extent of market dominance...............................................................32 .............n ...........4.6 ..........s ...........s ...........3.5 ..........4.4 ..........4.2 ..........6.1 Germany6.03 Effectiveness of anti-monopoly policy..............................................36 .............n ...........4.6 ..........s ...........t ...........3.5 ..........4.2 ..........4.2 ..........6.0 Netherlands6.04 Extent and effect of taxation ..............................................................134..............n............1.7 ..........s ...........t ...........3.2 ..........3.3 ..........3.6 ..........6.2 United Arab Emirates


107

4: Country Profiles

The Global Competitveness Index in detail (cont’d)



s/t Improve/worsen between GCI 2007–2008 and GCI 2008–2009s/t Improve/worsen between GCI 2006–2007 and GCI 2007–2008

Brazil

6.05 Total tax rate (% profits)* ..................................................................116 .............n .........69.2 ..........s ............=..........50.2 ........66.3 ........44.6 ........14.4 Multiple (2)6.06 Number of procedures required to start a business*..................125 .............n .........18.0 ..........t ............=..........10.6 ........13.0 ..........7.6 ..........2.0 Multiple (3)6.07 Number of days required to start a business*..............................127 .............n .......152.0...........=.............=..........74.4 ........62.3 ........24.4 ..........2.0 Australia6.08 Agricultural policy costs .....................................................................27 .............n ...........4.5 ..........s ...........s ...........3.9 ..........4.2 ..........3.7 ..........5.8 New Zealand6.09 Prevalence of trade barriers ............................................................106 .............n ...........4.1 ..........s ...........s ...........4.4 ..........4.3 ..........5.3 ..........6.7 Hong Kong SAR6.10 Trade-weighted tariff rate (% duty)* .................................................92 .............n ...........8.5 ..........t ............=............7.4 ........14.1 ..........1.1 ..........0.0 Multiple (2)6.11 Prevalence of foreign ownership ......................................................80 .............n ...........4.9 ..........s ...........t ...........5.2 ..........4.5 ..........5.3 ..........6.7 Hong Kong SAR6.12 Business impact of rules on FDI ........................................................82 .............n ...........5.0 ..........s ...........t ...........4.9 ..........4.8 ..........5.2 ..........6.7 Ireland6.13 Burden of customs procedures .......................................................127 .............n ...........2.5 ..........t ..........n/a ..........3.4 ..........3.3 ..........4.4 ..........6.5 Singapore6.14 Degree of customer orientation.........................................................56 .............n ...........4.8 ..........s ...........t ...........4.3 ..........4.7 ..........4.7 ..........6.2 Japan6.15 Buyer sophistication ............................................................................69 .............n ...........3.6 ..........t ...........t ...........3.6 ..........4.0 ..........3.7 ..........5.4 Switzerland

7th pillar: Labor market efficiency...................................................91 ............................4.2 ..........s...........s ...........4.1 ..........4.4 ..........4.5 ..........5.8 United States

7.01 Cooperation in labor-employer relations..........................................84 .............n ...........4.3 ..........s ...........s ...........4.3 ..........4.5 ..........4.4 ..........6.2 Denmark7.02 Flexibility of wage determination.....................................................106 .............n ...........4.3 ..........s ...........s ...........4.9 ..........5.1 ..........5.4 ..........6.3 Hong Kong SAR7.03 Non-wage labor costs (% worker’s salary)* .................................123 .............n .........37.0 ..........s ............=..........14.8 ........32.3 ........28.6 ..........0.0 Multiple (8)7.04 Rigidity of Employment Index (0–100, 100 is worst)*......................93 .............n .........46.0 ..........t ............=..........38.0 ........36.0 ........44.1 ..........0.0 Multiple (3)7.05 Hiring and firing practices ................................................................112 .............n ...........3.0 ..........s ...........t ...........3.5 ..........3.7 ..........3.6 ..........6.0 Denmark7.06 Firing costs (in weeks of wages)* .....................................................67 .............n .........37.0 ..........t ............=..........63.4 ........50.3 ........22.2 ..........0.0 Multiple (4)7.07 Pay and productivity ............................................................................66 .............n ...........4.2 ..........s ...........s ...........4.0 ..........4.7 ..........4.6 ..........5.9 Hong Kong SAR7.08 Reliance on professional management ............................................25 .............n ...........5.4 ..........s ...........s ...........4.5 ..........5.2 ..........4.6 ..........6.4 Sweden7.09 Brain drain .............................................................................................34 .............n ...........4.3 ..........s ...........s ...........3.4 ..........4.0 ..........3.3 ..........6.1 United States7.10 Female-to-male participation ratio in labor force ...............................75 .............n ...........0.7 ..........s ............=............0.7 ..........0.7 ..........0.8 ..........1.0 Mozambique

8th pillar: Financial market sophistication ....................................64 ............................4.4 ..........s ...........s ...........4.1 ..........4.1 ..........4.7 ..........6.2 Hong Kong SAR

8.01 Financial market sophistication .........................................................21 .............n ...........6.0 ..........s ...........s ...........4.2 ..........4.7 ..........4.6 ..........6.8 Switzerland8.02 Financing through local equity market .............................................56 .............n ...........4.6 ..........t ...........t ...........3.8 ..........4.5 ..........4.2 ..........5.8 Hong Kong SAR8.03 Ease of access to loans ......................................................................77 .............n ...........3.2 ..........s ...........t ...........3.0 ..........3.2 ..........3.9 ..........5.4 Denmark8.04 Venture capital availability .................................................................79 .............n ...........2.9 ..........s ...........s ...........2.8 ..........3.3 ..........3.3 ..........5.1 United States8.05 Restriction on capital flows..............................................................119 .............n ...........3.3 ..........s ..........n/a ..........4.8 ..........3.5 ..........5.3 ..........6.6 Hong Kong SAR8.06 Strength of Investor Protection (0–10, 10 is best)*.........................50 .............n ...........5.3...........=.............=............4.8 ..........5.3 ..........5.5 ..........9.7 New Zealand8.07 Soundness of banks.............................................................................24 .............n ...........6.4 ..........s ...........s ...........5.6 ..........5.5 ..........5.8 ..........6.8 Canada8.08 Regulation of securities exchanges..................................................28 .............n ...........5.5 ..........s ..........n/a ..........4.6 ..........4.6 ..........4.8 ..........6.3 Sweden8.09 Strength of Legal Rights (0–10, 10 is best)* ...................................119 .............n ...........2.0...........=.............=............3.7 ..........3.5 ..........6.0 ........10.0 Multiple (2)

9th pillar: Technological readiness .................................................56 ............................3.6 ..........s ...........s ...........3.2 ..........3.4 ..........4.3 ..........6.0 Netherlands

9.01 Availability of latest technologies......................................................58 .............n ...........4.8 ..........s ...........s ...........4.1 ..........4.5 ..........4.9 ..........6.7 Iceland9.02 Firm-level technology absorption ......................................................42 .............n ...........5.3 ..........s ...........s ...........4.5 ..........5.0 ..........4.9 ..........6.6 Iceland9.03 Laws relating to ICT .............................................................................49 .............n ...........4.2 ..........s ...........t ...........3.4 ..........4.1 ..........4.4 ..........6.1 Denmark9.04 FDI and technology transfer ...............................................................43 .............n ...........5.2 ..........s ...........t ...........4.7 ..........4.9 ..........5.0 ..........6.4 Singapore9.05 Mobile telephone subscribers (per 100 population)* ....................78 .............n .........52.9 ..........s ...........s .........58.5 ........52.1 ......102.9 ......138.1 Lithuania9.06 Internet users (per 100 population)* .................................................57 .............n .........22.6 ..........s ...........t .........20.5 ........15.4 ........43.3 ........92.5 Barbados9.07 Personal computers (per 100 population)* ......................................50 .............n .........16.1 ..........t ...........s ...........8.6 ..........9.4 ........29.2 ........94.6 Canada9.08 Broadband internet subscribers (per 100 population) ...................52 .............n ...........3.1 ..........s ............=............2.5 ..........2.3 ..........9.6 ........31.9 Denmark

10th pillar: Market size .......................................................................10 ............................5.5 ..........s ...........t ...........3.4 ..........5.9 ..........3.8 ..........6.9 United States

10.01 Domestic market size index*................................................................9 .............n ...........5.6 ..........s ...........t ...........3.2 ..........5.9 ..........3.5 ..........7.0 United States10.02 Foreign market size index* .................................................................23 .............n ...........5.5 ..........s ...........t ...........4.0 ..........6.1 ..........4.3 ..........7.0 China

11th pillar: Business sophistication ................................................35 ............................4.6 ..........s ...........s ...........4.0 ..........4.4 ..........4.3 5.9 Germany

11.01 Local supplier quantity ........................................................................13 .............n ...........5.5 ..........s ...........s ...........4.6 ..........5.3 ..........4.9 ..........6.3 Japan11.02 Local supplier quality...........................................................................41 .............n ...........5.1 ..........s ...........s ...........4.5 ..........4.7 ..........4.9 ..........6.4 Austria11.03 State of cluster development .............................................................43 .............n ...........3.9 ..........t ...........t ...........3.3 ..........4.0 ..........3.5 ..........5.6 Taiwan, China11.04 Nature of competitive advantage......................................................96 .............n ...........3.0 ..........s ...........t ...........3.3 ..........3.1 ..........3.6 ..........6.3 Germany11.05 Value chain breadth .............................................................................66 .............n ...........3.6 ..........t ...........t ...........3.4 ..........3.7 ..........4.1 ..........6.1 Sweden11.06 Control of international distribution ..................................................46 .............n ...........4.3 ..........s ...........t ...........3.8 ..........4.2 ..........4.1 ..........5.5 France11.07 Production process sophistication....................................................33 .............n ...........4.5 ..........s ...........s ...........3.4 ..........4.0 ..........4.0 ..........6.2 Japan11.08 Extent of marketing ..............................................................................27 .............n ...........5.3 ..........s ...........t ...........4.5 ..........4.7 ..........4.6 ..........6.5 United States11.09 Willingness to delegate authority......................................................37 .............n ...........4.6 ..........s ...........s ...........4.1 ..........4.3 ..........3.9 ..........6.2 Sweden

12th pillar: Innovation..........................................................................43 ............................3.5 ..........t ...........t ...........2.9 ..........3.6 ..........3.4 ..........5.8 United States

12.01 Capacity for innovation........................................................................27 .............n ...........4.0 ..........t ...........s ...........2.9 ..........3.9 ..........3.4 ..........6.0 Germany12.02 Quality of scientific research institutions ........................................43 .............n ...........4.3 ..........s ...........s ...........3.4 ..........4.5 ..........4.2 ..........6.3 United States12.03 Company spending on R&D................................................................31 .............n ...........3.9 ..........s ...........s ...........2.9 ..........3.9 ..........3.3 ..........6.0 Switzerland12.04 University-industry research collaboration .....................................50 .............n ...........3.6 ..........s ...........s ...........3.0 ..........3.8 ..........3.5 ..........5.8 United States12.05 Gov't procurement of advanced tech products..............................84 .............n ...........3.4 ..........t ...........t ...........3.2 ..........3.6 ..........3.6 ..........5.5 Singapore12.06 Availability of scientists and engineers............................................57 .............n ...........4.4 ..........t ...........s ...........3.7 ..........4.8 ..........4.3 ..........5.9 Finland12.07 USPTA utility patents, 2007 (per million population)*.....................58 .............n ...........0.5 ..........t ...........s ...........0.7 ..........0.7 ..........2.7 ......270.4 Taiwan, China








Restrictive labor regulations ........................................26.0Inefficient government bureaucracy ..........................17.6Inadequately educated workforce..............................11.7Corruption ..........................................................................6.5Poor work ethic in national labor force .......................5.2Access to financing .........................................................5.1Inflation ..............................................................................4.9Tax rates.............................................................................4.7Inadequate supply of infrastructure .............................4.1Policy instability................................................................4.1Tax regulations..................................................................4.0Crime and theft .................................................................3.8Poor public health ............................................................1.6Foreign currency regulations.........................................0.4Government instability/coups ........................................0.3



Key indicators


108

4: Country Profiles




Chile

ChilePopulation (millions), 2008..............................................................................16.8GDP (US$ billions), 2007................................................................................163.9GDP (PPP) per capita (int'l $), 2007........................................................13,921.2Real GDP growth (%), 2007 ..............................................................................5.1GDP (PPP) as share (%) of world total, 2007.................................................0.4Current account balance (% GDP), 2007 .......................................................4.4Foreign reserves (in months of imports), 2007..............................................3.7Unemployment (% labor force), 2008 .............................................................7.8Human Development Index, 2006..................................................................0.87

7

6

5

4

3

2

1

Institutions



Health and primary








BrazilChile


ChileBrazil


109

4: Country Profiles





Source: IMF.

Source: UNCTAD.

(US$ billions)


Source: WTO.

Source: World Bank.

(US$ millions)


Chile


United States 16.0%

Japan 10.8%

China 8.8%

Korea, Rep. 6.1%

Others 30.8%Chile..............................................................39.3

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

16,000

12,000

8,000

4,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

All commodities

Crude Materials, inedible, except fuels



70

60

50

40

30

20

10

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Chile

Bazil

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0



110

4: Country Profiles

INDICATOR RANK/134 SCORE




1.01 Property rights ....................................................................................40.......+ ......5.41.02 Intellectual property protection .......................................................63.......+ ......3.61.03 Diversion of public funds ..................................................................52.......+ ......3.81.04 Public trust of politicians ..................................................................42.......+ ......3.41.05 Judicial independence ......................................................................52.......+ ......4.51.06 Favoritism in decisions of government officials ...........................41.......+ ......3.61.07 Wastefulness of government spending..........................................49.......+ ......3.71.08 Burden of government regulation ...................................................34.......+ ......3.71.09 Efficiency of legal framework ..........................................................30.......+ ......4.81.10 Transparency of government policymaking...................................26.......+ ......4.91.11 Business costs of terrorism..............................................................27.......– ......6.31.12 Business costs of crime and violence............................................84.......+ ......4.41.13 Organized crime..................................................................................32.......+ ......6.21.14 Reliability of police services.............................................................16.......+ ......6.11.15 Ethical behavior of firms ...................................................................23.......+ ......5.31.16 Strength of auditing and reporting standards...............................32.......+ ......5.61.17 Efficacy of corporate boards..............................................................7.......+ ......5.61.18 Protection of minority shareholders’ interests..............................32.......+ ......5.3


2.01 Quality of overall infrastructure.......................................................29.......+ ......5.12.02 Quality of roads...................................................................................22.......+ ......5.52.03 Quality of railroad infrastructure .....................................................73.......+ ......2.12.04 Quality of port infrastructure............................................................37.......+ ......4.92.05 Quality of air transport infrastructure.............................................24.......+ ......5.92.06 Available seat kilometers (per week, in millions)* .......................39.......– ..427.12.07 Quality of electricity supply ..............................................................49.......+ ......5.32.08 Main telephone lines (per 100 population)* ..................................63.......– ....20.2


3.01 Central government balance (% GDP)*..........................................10.......+ ......8.73.02 National savings rate (% GDP)*.......................................................51.......+ ....25.53.03 Inflation (%)* .......................................................................................60.......– ......4.43.04 Interest rate spread (%)* ..................................................................23.......+ ......3.13.05 Government gross debt (% GDP)*.....................................................7.......+ ......4.1


4.01 Business impact of malaria ..............................................................26.......+ ......6.84.02 Malaria incidence (cases per 100,000 population)*.......................1.......+ ......0.04.03 Business impact of tuberculosis .....................................................22.......+ ......6.64.04 Tuberculosis incidence (cases per 100,000 population)*............31.......+ ....15.04.05 Business impact of HIV/AIDS...........................................................43.......+ ......5.84.06 HIV prevalence (% adult population)* ............................................68.......+ ......0.34.07 Infant mortality (deaths per 1,000 live births)* ..............................39.......+ ......8.04.08 Life expectancy at birth (years)* .....................................................29.......+ ....78.04.09 Quality of primary education ..........................................................110.......+ ......2.74.10 Primary education enrollment (net rate, %)* ................................99.......– ....88.04.11 Education expenditure (% GNI)* .....................................................84.......– ......3.7


5.01 Secondary education enrollment (gross rate, %)*.......................54.......– ....91.25.02 Tertiary education enrollment (gross rate, %)*.............................41.......+ ....46.65.03 Quality of the educational system ...................................................86.......+ ......3.25.04 Quality of math and science education........................................107.......+ ......3.15.05 Quality of management schools ......................................................19.......+ ......5.25.06 Internet access in schools ...............................................................41.......+ ......4.55.07 Local availability of research and training services ....................46.......– ......4.35.08 Extent of staff training .......................................................................48.......– ......4.2


6.01 Intensity of local competition...........................................................19.......+ ......5.76.02 Extent of market dominance.............................................................57.......– ......3.96.03 Effectiveness of anti-monopoly policy............................................25.......+ ......5.06.04 Extent and effect of taxation ............................................................45.......+ ......3.86.05 Total tax rate (% profits)* ..................................................................12.......+ ....25.96.06 Number of procedures required to start a business* .................58.......+ ......9.0

6.07 Number of days required to start a business*..............................61.......+ ....27.06.08 Agricultural policy costs .....................................................................3.......+ ......5.16.09 Prevalence of trade barriers ..............................................................5.......+ ......6.16.10 Trade-weighted tariff rate (% duty)*...............................................57.......+ ......4.76.11 Prevalence of foreign ownership ....................................................11.......+ ......6.16.12 Business impact of rules on FDI ......................................................19.......+ ......5.86.13 Burden of customs procedures .........................................................7.......+ ......5.66.14 Degree of customer orientation.......................................................47.......+ ......5.06.15 Buyer sophistication ..........................................................................29.......+ ......4.4


7.01 Cooperation in labor-employer relations........................................51.......+ ......4.77.02 Flexibility of wage determination.......................................................6.......+ ......6.07.03 Non-wage labor costs (% worker’s salary)* .................................12.......+ ......3.07.04 Rigidity of Employment Index (0–100, 100 is worst)*....................32.......+ ....24.07.05 Hiring and firing practices ................................................................74.......+ ......3.77.06 Firing costs (in weeks of wages)* ...................................................81.......– ....52.07.07 Pay and productivity ..........................................................................21.......+ ......4.87.08 Reliance on professional management..........................................18.......+ ......5.67.09 Brain drain .............................................................................................6.......+ ......5.37.10 Female-to-male participation ratio in labor force ......................111.......– ......0.5


8.01 Financial market sophistication .......................................................26.......– ......5.88.02 Financing through local equity market ...........................................10.......+ ......5.48.03 Ease of access to loans ....................................................................28.......+ ......4.28.04 Venture capital availability ...............................................................37.......+ ......3.78.05 Restriction on capital flows..............................................................36.......+ ......5.58.06 Strength of Investor Protection (0–10, 10 is best)* ......................26.......+ ......6.08.07 Soundness of banks...........................................................................18.......+ ......6.58.08 Regulation of securities exchanges................................................14.......+ ......5.88.09 Strength of Legal Rights (0–10, 10 is best)* ...................................72.......+ ......4.0


9.01 Availability of latest technologies....................................................42.......+ ......5.29.02 Firm-level technology absorption ....................................................33.......+ ......5.49.03 Laws relating to ICT ...........................................................................26.......+ ......5.09.04 FDI and technology transfer .............................................................31.......+ ......5.39.05 Mobile telephone subscribers (per 100 population)* ..................55.......+ ....75.69.06 Internet users (per 100 population)* ...............................................51.......+ ....25.29.07 Personal computers (per 100 population)* ....................................53.......– ....14.89.08 Broadband internet subscribers (per 100 population) .................38.......+ ......5.9




11.01 Local supplier quantity ......................................................................20.......– ......5.411.02 Local supplier quality.........................................................................28.......+ ......5.311.03 State of cluster development ...........................................................53.......– ......3.711.04 Nature of competitive advantage....................................................69.......+ ......3.411.05 Value chain breadth...........................................................................55.......+ ......3.911.06 Control of international distribution ................................................24.......+ ......4.711.07 Production process sophistication..................................................36.......– ......4.411.08 Extent of marketing ............................................................................18.......+ ......5.511.09 Willingness to delegate authority....................................................36.......+ ......4.6


12.01 Capacity for innovation......................................................................57.......– ......3.312.02 Quality of scientific research institutions ......................................62.......– ......3.912.03 Company spending on R&D..............................................................64.......– ......3.112.04 University-industry research collaboration ...................................51.......– ......3.512.05 Gov't procurement of advanced tech products............................53.......+ ......3.712.06 Availability of scientists and engineers..........................................35.......+ ......4.712.07 USPTA utility patents, 2007 (per million population)*...................40.......+ ......1.5

ChileINDICATOR RANK/134 SCORE


Competitiveness rankings


Key indicators


112

4: Country Profiles China




ChinaAccess to financing .......................................................13.7Policy instability..............................................................13.1Inefficient government bureaucracy ..........................11.5Inflation ............................................................................10.8Tax regulations..................................................................8.0Corruption ..........................................................................7.4Inadequate supply of infrastructure .............................7.2Tax rates.............................................................................6.8Inadequately educated workforce................................6.2Poor work ethic in national labor force .......................4.1Restrictive labor regulations ..........................................4.0Foreign currency regulations.........................................3.9Government instability/coups ........................................1.9Poor public health ............................................................0.9Crime and theft .................................................................0.6

Population (millions), 2008.........................................................................1,336.8GDP (US$ billions), 2007.............................................................................3,280.2GDP (PPP) per capita (int'l $), 2007..........................................................5,325.2Real GDP growth (%), 2007 ............................................................................11.9GDP (PPP) as share (%) of world total, 2007...............................................10.8Current account balance (% GDP), 2007 .....................................................11.3Foreign reserves (in months of imports), 2007............................................17.8Unemployment (% labor force), 2008 .............................................................9.0Human Development Index, 2006..................................................................0.76



Efficiency enhancers ............................................40..........4.45th pillar: Higher education and training ...........64..........4.16th pillar: Goods market efficiency.....................51..........4.57th pillar: Labor market efficiency ......................51..........4.58th pillar: Financial market sophistication.......109..........3.69th pillar: Technological readiness.....................77..........3.210th pillar: Market size............................................2..........6.6


Institutions



Health and primary








BrazilChina

7

6

5

4

3

2

1



ChinaBrazil


113

4: Country Profiles





Source: IMF.

Source: UNCTAD.

(US$ billions)


Source: WTO.

Source: World Bank.

(US$ millions)


China


United States 19.1%

Hong Kong SAR 15.2%Japan 8.4%

Korea, Rep. 4.6%

Others 32.6%

China ............................................................11.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

China

Brazil

12,000

10,000

8,000

6,000

4,000

2,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

All commodities

Machines and transport equipment

Miscellaneous manufactured articles


1,400

1,200

1,000

800

600

400

200

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

100,000

80,000

60,000

40,000

20,000

0



114



INDICATOR RANK/134 SCORE INDICATOR RANK/134 SCORE

4: Country Profiles


1.01 Property rights ....................................................................................54.......+ ......5.01.02 Intellectual property protection .......................................................53.......+ ......3.91.03 Diversion of public funds ..................................................................66.......+ ......3.51.04 Public trust of politicians ..................................................................36.......+ ......3.61.05 Judicial independence ......................................................................69.......– ......3.81.06 Favoritism in decisions of government officials ...........................47.......+ ......3.41.07 Wastefulness of government spending..........................................36.......+ ......3.91.08 Burden of government regulation ...................................................23.......+ ......3.91.09 Efficiency of legal framework ..........................................................54.......+ ......3.91.10 Transparency of government policymaking...................................46.......+ ......4.51.11 Business costs of terrorism..............................................................89.......– ......5.31.12 Business costs of crime and violence............................................56.......+ ......5.11.13 Organized crime..................................................................................84.......+ ......4.91.14 Reliability of police services.............................................................50.......+ ......4.71.15 Ethical behavior of firms ...................................................................60.......+ ......4.21.16 Strength of auditing and reporting standards...............................86.......– ......4.41.17 Efficacy of corporate boards............................................................90.......– ......4.41.18 Protection of minority shareholders’ interests..............................94.......– ......4.1


2.01 Quality of overall infrastructure.......................................................58.......+ ......3.92.02 Quality of roads...................................................................................51.......+ ......4.12.03 Quality of railroad infrastructure .....................................................28.......+ ......4.12.04 Quality of port infrastructure............................................................54.......+ ......4.32.05 Quality of air transport infrastructure.............................................74.......+ ......4.42.06 Available seat kilometers (per week, in millions)* .........................2.......+7,215.12.07 Quality of electricity supply ..............................................................68.......– ......4.72.08 Main telephone lines (per 100 population)* ..................................47.......+ ....27.8


3.01 Central government balance (% GDP)*..........................................49.......+ ......0.73.02 National savings rate (% GDP)*.........................................................5.......+ ....52.23.03 Inflation (%)* .......................................................................................62.......– ......4.83.04 Interest rate spread (%)* ..................................................................33.......+ ......3.43.05 Government gross debt (% GDP)*...................................................22.......+ ....18.4


4.01 Business impact of malaria ..............................................................77.......– ......5.94.02 Malaria incidence (cases per 100,000 population)*.....................71.......+ ......2.04.03 Business impact of tuberculosis .....................................................73.......– ......5.74.04 Tuberculosis incidence (cases per 100,000 population)*............87.......– ....99.04.05 Business impact of HIV/AIDS...........................................................48.......+ ......5.74.06 HIV prevalence (% adult population)* ............................................23.......+ ......0.14.07 Infant mortality (deaths per 1,000 live births)* ..............................80.......+ ....23.04.08 Life expectancy at birth (years)* .....................................................55.......+ ....73.04.09 Quality of primary education ............................................................34.......+ ......4.74.10 Primary education enrollment (net rate, %)* ..................................5.......+ ....99.54.11 Education expenditure (% GNI)* ...................................................120.......– ......1.8


5.01 Secondary education enrollment (gross rate, %)*.......................92.......– ....75.55.02 Tertiary education enrollment (gross rate, %)*.............................81.......– ....21.65.03 Quality of the educational system ...................................................55.......+ ......3.85.04 Quality of math and science education..........................................38.......+ ......4.85.05 Quality of management schools ......................................................74.......– ......3.95.06 Internet access in schools ...............................................................33.......+ ......4.65.07 Local availability of research and training services ....................39.......– ......4.55.08 Extent of staff training .......................................................................42.......+ ......4.4


6.01 Intensity of local competition...........................................................27.......+ ......5.66.02 Extent of market dominance.............................................................39.......– ......4.46.03 Effectiveness of anti-monopoly policy............................................55.......– ......4.06.04 Extent and effect of taxation ............................................................36.......+ ......4.06.05 Total tax rate (% profits)* ................................................................120.......– ....73.96.06 Number of procedures required to start a business* ...............108.......+ ....13.0

6.07 Number of days required to start a business*..............................83.......+ ....35.06.08 Agricultural policy costs .....................................................................6.......+ ......5.16.09 Prevalence of trade barriers ............................................................72.......+ ......4.56.10 Trade-weighted tariff rate (% duty)*.............................................122.......– ....14.26.11 Prevalence of foreign ownership ..................................................105.......– ......4.46.12 Business impact of rules on FDI ......................................................55.......+ ......5.46.13 Burden of customs procedures .......................................................42.......+ ......4.56.14 Degree of customer orientation.......................................................73.......– ......4.66.15 Buyer sophistication ..........................................................................21.......+ ......4.8


7.01 Cooperation in labor-employer relations........................................65.......+ ......4.57.02 Flexibility of wage determination.....................................................52.......+ ......5.37.03 Non-wage labor costs (% worker’s salary)* ...............................126.......– ....44.07.04 Rigidity of Employment Index (0–100, 100 is worst)*....................32.......+ ....24.07.05 Hiring and firing practices ................................................................53.......+ ......4.07.06 Firing costs (in weeks of wages)* .................................................108.......– ....91.07.07 Pay and productivity ............................................................................9.......+ ......5.17.08 Reliance on professional management..........................................46.......– ......5.07.09 Brain drain ...........................................................................................36.......– ......4.27.10 Female-to-male participation ratio in labor force ........................32.......+ ......0.9


8.01 Financial market sophistication .......................................................83.......– ......3.88.02 Financing through local equity market ...........................................80.......– ......4.18.03 Ease of access to loans ....................................................................99.......– ......2.78.04 Venture capital availability ...............................................................49.......+ ......3.38.05 Restriction on capital flows............................................................121.......– ......3.38.06 Strength of Investor Protection (0–10, 10 is best)* ......................67.......– ......5.08.07 Soundness of banks.........................................................................108.......– ......4.98.08 Regulation of securities exchanges..............................................109.......– ......3.68.09 Strength of Legal Rights (0–10, 10 is best)* ...................................93.......+ ......3.0


9.01 Availability of latest technologies....................................................83.......– ......4.29.02 Firm-level technology absorption ....................................................46.......– ......5.19.03 Laws relating to ICT ...........................................................................47.......+ ......4.29.04 FDI and technology transfer .............................................................79.......– ......4.79.05 Mobile telephone subscribers (per 100 population)* ..................90.......– ....34.89.06 Internet users (per 100 population)* ...............................................85.......– ....10.49.07 Personal computers (per 100 population)* ....................................81.......– ......5.69.08 Broadband internet subscribers (per 100 population) .................49.......+ ......3.8


10.01 Domestic market size index*..............................................................2.......+ ......6.410.02 Foreign market size index* .................................................................1.......+ ......7.0


11.01 Local supplier quantity ......................................................................18.......– ......5.511.02 Local supplier quality.........................................................................62.......– ......4.711.03 State of cluster development ...........................................................19.......+ ......4.611.04 Nature of competitive advantage....................................................71.......+ ......3.411.05 Value chain breadth...........................................................................56.......+ ......3.811.06 Control of international distribution ................................................47.......– ......4.311.07 Production process sophistication..................................................59.......– ......3.711.08 Extent of marketing ............................................................................62.......– ......4.611.09 Willingness to delegate authority....................................................58.......– ......4.2


12.01 Capacity for innovation......................................................................25.......+ ......4.212.02 Quality of scientific research institutions ......................................37.......+ ......4.412.03 Company spending on R&D..............................................................24.......+ ......4.212.04 University-industry research collaboration ...................................23.......+ ......4.512.05 Gov't procurement of advanced tech products............................20.......+ ......4.212.06 Availability of scientists and engineers..........................................52.......+ ......4.512.07 USPTA utility patents, 2007 (per million population)*...................54.......+ ......0.6

China


116

4: Country Profiles

Competitiveness rankings


Key indicators

India



India


IndiaBrazil

Inadequate supply of infrastructure ...........................25.5Inefficient government bureaucracy ..........................14.6Corruption ........................................................................10.1Restrictive labor regulations ..........................................9.9Tax regulations..................................................................8.8Inflation ..............................................................................5.6Policy instability................................................................5.0Inadequately educated workforce................................4.8Tax rates.............................................................................4.3Poor work ethic in national labor force .......................3.8Access to financing .........................................................3.1Foreign currency regulations.........................................1.7Government instability/coups ........................................1.3Poor public health ............................................................1.3Crime and theft .................................................................0.3

Population (millions), 2008.........................................................................1,186.2GDP (US$ billions), 2007.............................................................................1,100.7GDP (PPP) per capita (int'l $), 2007..........................................................2,563.3Real GDP growth (%), 2007 ..............................................................................9.3GDP (PPP) as share (%) of world total, 2007.................................................4.6Current account balance (% GDP), 2007 .....................................................–1.4Foreign reserves (in months of imports), 2007............................................11.7Unemployment (% labor force), 2008 .............................................................6.8Human Development Index, 2006..................................................................0.61




Basic requirements...............................................80..........4.21st pillar: Institutions .............................................53..........4.22nd pillar: Infrastructure.......................................72..........3.43rd pillar: Macroeconomic stability..................109..........4.34th pillar: Health and primary education .........100..........5.0

Efficiency enhancers ............................................33..........4.55th pillar: Higher education and training ...........63..........4.16th pillar: Goods market efficiency.....................47..........4.57th pillar: Labor market efficiency ......................89..........4.28th pillar: Financial market sophistication.........34..........5.09th pillar: Technological readiness.....................69..........3.310th pillar: Market size............................................5..........6.0


Institutions



Health and primary








BrazilIndia

7

6

5

4

3

2

1



117





Source: IMF.

Source: UNCTAD.

(US$ billions)


Source: WTO.

Source: World Bank.

(US$ millions)


4: Country ProfilesIndia


United States 13.8%

United Arab Emirates 9.9%

China 6.5%Singapore 4.9%

Others 43.7%India..............................................................14.2

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

India

Brazil

12,000

10,000

8,000

6,000

4,000

2,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

25,000

20,000

15,000

10,000

5,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

All commodities


Mineral fuels, lubricants and related materials


160

140

120

100

80

60

40

20

0



118

4: Country Profiles India




1.01 Property rights ....................................................................................52.......+ ......5.01.02 Intellectual property protection .......................................................57.......+ ......3.71.03 Diversion of public funds ..................................................................55.......+ ......3.71.04 Public trust of politicians ..................................................................84.......+ ......2.31.05 Judicial independence ......................................................................43.......+ ......4.91.06 Favoritism in decisions of government officials ...........................58.......+ ......3.21.07 Wastefulness of government spending..........................................62.......+ ......3.51.08 Burden of government regulation ...................................................90.......+ ......2.91.09 Efficiency of legal framework ..........................................................42.......+ ......4.41.10 Transparency of government policymaking...................................55.......+ ......4.21.11 Business costs of terrorism............................................................106.......– ......5.01.12 Business costs of crime and violence............................................53.......+ ......5.21.13 Organized crime..................................................................................71.......+ ......5.21.14 Reliability of police services.............................................................62.......+ ......4.41.15 Ethical behavior of firms ...................................................................61.......+ ......4.21.16 Strength of auditing and reporting standards...............................30.......+ ......5.61.17 Efficacy of corporate boards............................................................45.......+ ......4.91.18 Protection of minority shareholders’ interests..............................33.......+ ......5.2


2.01 Quality of overall infrastructure.......................................................90.......+ ......2.92.02 Quality of roads...................................................................................87.......+ ......2.92.03 Quality of railroad infrastructure .....................................................21.......+ ......4.42.04 Quality of port infrastructure............................................................93.......+ ......3.32.05 Quality of air transport infrastructure.............................................66.......+ ......4.72.06 Available seat kilometers (per week, in millions)* .......................10.......+2,724.92.07 Quality of electricity supply ............................................................108.......– ......3.22.08 Main telephone lines (per 100 population)* ................................107.......– ......3.6


3.01 Central government balance (% GDP)*........................................127.......– ....–6.03.02 National savings rate (% GDP)*.......................................................19.......+ ....35.43.03 Inflation (%)* .......................................................................................77.......– ......6.43.04 Interest rate spread (%)* ..................................................................69.......+ ......5.63.05 Government gross debt (% GDP)*.................................................113.......– ....75.9


4.01 Business impact of malaria ............................................................107.......– ......5.04.02 Malaria incidence (cases per 100,000 population)*...................100.......+ ..165.04.03 Business impact of tuberculosis .....................................................92.......– ......5.14.04 Tuberculosis incidence (cases per 100,000 population)*............99.......– ..168.04.05 Business impact of HIV/AIDS...........................................................98.......– ......4.54.06 HIV prevalence (% adult population)* ............................................68.......+ ......0.34.07 Infant mortality (deaths per 1,000 live births)* ............................105.......– ....56.04.08 Life expectancy at birth (years)* ...................................................105.......– ....63.04.09 Quality of primary education ............................................................80.......+ ......3.44.10 Primary education enrollment (net rate, %)* ................................94.......– ....88.74.11 Education expenditure (% GNI)* .....................................................77.......– ......3.9


5.01 Secondary education enrollment (gross rate, %)*.....................104.......– ....54.05.02 Tertiary education enrollment (gross rate, %)*.............................98.......– ....11.85.03 Quality of the educational system ...................................................37.......+ ......4.35.04 Quality of math and science education..........................................17.......+ ......5.25.05 Quality of management schools ......................................................12.......+ ......5.45.06 Internet access in schools ...............................................................60.......+ ......3.55.07 Local availability of research and training services ....................32.......– ......4.75.08 Extent of staff training .......................................................................34.......+ ......4.6


6.01 Intensity of local competition...........................................................11.......+ ......5.96.02 Extent of market dominance.............................................................19.......+ ......5.16.03 Effectiveness of anti-monopoly policy............................................28.......+ ......4.96.04 Extent and effect of taxation ............................................................28.......+ ......4.36.05 Total tax rate (% profits)* ................................................................117.......– ....70.66.06 Number of procedures required to start a business* ...............108.......+ ....13.0

6.07 Number of days required to start a business*..............................77.......+ ....33.06.08 Agricultural policy costs ...................................................................82.......– ......3.86.09 Prevalence of trade barriers ............................................................69.......+ ......4.66.10 Trade-weighted tariff rate (% duty)*.............................................131.......– ....18.76.11 Prevalence of foreign ownership ....................................................69.......+ ......5.26.12 Business impact of rules on FDI ......................................................61.......+ ......5.36.13 Burden of customs procedures .......................................................72.......+ ......3.76.14 Degree of customer orientation.......................................................45.......+ ......5.06.15 Buyer sophistication ..........................................................................38.......+ ......4.2


7.01 Cooperation in labor-employer relations........................................44.......+ ......4.77.02 Flexibility of wage determination.....................................................54.......+ ......5.37.03 Non-wage labor costs (% worker’s salary)* .................................69.......+ ....17.07.04 Rigidity of Employment Index (0 –100, 100 is worst)*....................48.......+ ....30.07.05 Hiring and firing practices ..............................................................104.......+ ......3.27.06 Firing costs (in weeks of wages)* ...................................................85.......– ....56.07.07 Pay and productivity ..........................................................................45.......+ ......4.57.08 Reliance on professional management..........................................24.......+ ......5.47.09 Brain drain ...........................................................................................49.......– ......3.77.10 Female-to-male participation ratio in labor force ......................122.......– ......0.4


8.01 Financial market sophistication .......................................................33.......– ......5.38.02 Financing through local equity market .............................................8.......+ ......5.48.03 Ease of access to loans ....................................................................42.......+ ......3.98.04 Venture capital availability ...............................................................27.......+ ......4.08.05 Restriction on capital flows..............................................................83.......+ ......4.48.06 Strength of Investor Protection (0–10, 10 is best)* ......................26.......+ ......6.08.07 Soundness of banks...........................................................................51.......– ......5.98.08 Regulation of securities exchanges................................................25.......+ ......5.68.09 Strength of Legal Rights (0–10, 10 is best)* ...................................29.......+ ......6.0


9.01 Availability of latest technologies....................................................43.......+ ......5.29.02 Firm-level technology absorption ....................................................26.......+ ......5.59.03 Laws relating to ICT ...........................................................................38.......+ ......4.69.04 FDI and technology transfer .............................................................20.......+ ......5.49.05 Mobile telephone subscribers (per 100 population)* ................115.......– ....14.89.06 Internet users (per 100 population)* ...............................................84.......– ....10.79.07 Personal computers (per 100 population)* ....................................96.......– ......2.89.08 Broadband internet subscribers (per 100 population) .................92.......– ......0.2




11.01 Local supplier quantity ........................................................................4.......+ ......5.911.02 Local supplier quality.........................................................................37.......+ ......5.211.03 State of cluster development ...........................................................24.......+ ......4.511.04 Nature of competitive advantage....................................................83.......+ ......3.311.05 Value chain breadth...........................................................................28.......+ ......4.511.06 Control of international distribution ................................................29.......+ ......4.611.07 Production process sophistication..................................................41.......– ......4.211.08 Extent of marketing ............................................................................28.......– ......5.211.09 Willingness to delegate authority....................................................25.......+ ......4.8


12.01 Capacity for innovation......................................................................35.......– ......3.812.02 Quality of scientific research institutions ......................................27.......+ ......4.812.03 Company spending on R&D..............................................................29.......+ ......3.912.04 University-industry research collaboration ...................................45.......+ ......3.612.05 Gov't procurement of advanced tech products............................88.......– ......3.412.06 Availability of scientists and engineers............................................3.......+ ......5.712.07 USPTA utility patents, 2007 (per million population)*...................57.......+ ......0.5





Key indicators


120

4: Country Profiles Mexico




Mexico

Inefficient government bureaucracy ..........................18.4Corruption ........................................................................13.1Inadequate supply of infrastructure ...........................10.3Restrictive labor regulations ........................................10.0Tax regulations..................................................................8.8Access to financing .........................................................7.7Tax rates.............................................................................7.6Crime and theft .................................................................6.7Inadequately educated workforce................................6.4Policy instability................................................................3.9Poor work ethic in national labor force .......................3.3Government instability/coups ........................................1.6Inflation ..............................................................................1.6Foreign currency regulations.........................................0.4Poor public health ............................................................0.3

Population (millions), 2008............................................................................107.8GDP (US$ billions), 2007.............................................................................1,022.8GDP (PPP) per capita (int'l $), 2007........................................................14,119.8Real GDP growth (%), 2007 ..............................................................................3.2GDP (PPP) as share (%) of world total, 2007.................................................2.1Current account balance (% GDP), 2007 .....................................................–0.6Foreign reserves (in months of imports), 2007..............................................3.4Unemployment (% labor force), 2008 .............................................................4.0Human Development Index, 2006..................................................................0.84



Efficiency enhancers ............................................55..........4.25th pillar: Higher education and training ...........74..........3.86th pillar: Goods market efficiency.....................73..........4.17th pillar: Labor market efficiency ....................110..........4.08th pillar: Financial market sophistication.........66..........4.39th pillar: Technological readiness.....................71..........3.210th pillar: Market size..........................................11..........5.5


Institutions



Health and primary








BrazilMexico

7

6

5

4

3

2

1



MexicoBrazil


121





Source: IMF.

Source: UNCTAD.

(US$ billions)


Source: WTO.

Source: World Bank.

(US$ millions)


4: Country ProfilesMexico

Others 8.2%

United States 82.2%

European Union 5.3%

Canada 2.4%

Colombia 1.1%

Venezuela 0.9%Mexico .........................................................15.3

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Mexico

Brazil

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

All commodities




300

250

200

150

100

50

0



122

4: Country Profiles Mexico




1.01 Property rights ....................................................................................89.......– ......4.11.02 Intellectual property protection .......................................................82.......– ......3.21.03 Diversion of public funds ..................................................................95.......+ ......3.01.04 Public trust of politicians ..................................................................98.......+ ......2.11.05 Judicial independence ......................................................................86.......– ......3.41.06 Favoritism in decisions of government officials ...........................90.......– ......2.81.07 Wastefulness of government spending..........................................80.......+ ......3.21.08 Burden of government regulation .................................................121.......+ ......2.41.09 Efficiency of legal framework ........................................................111.......– ......2.91.10 Transparency of government policymaking...................................94.......+ ......3.81.11 Business costs of terrorism..............................................................71.......– ......5.61.12 Business costs of crime and violence..........................................125.......– ......3.01.13 Organized crime................................................................................127.......– ......3.51.14 Reliability of police services...........................................................124.......– ......2.51.15 Ethical behavior of firms ...................................................................82.......+ ......3.91.16 Strength of auditing and reporting standards...............................71.......– ......4.71.17 Efficacy of corporate boards............................................................82.......– ......4.61.18 Protection of minority shareholders’ interests..............................69.......– ......4.5


2.01 Quality of overall infrastructure.......................................................76.......+ ......3.32.02 Quality of roads...................................................................................66.......+ ......3.52.03 Quality of railroad infrastructure .....................................................72.......+ ......2.12.04 Quality of port infrastructure............................................................94.......+ ......3.32.05 Quality of air transport infrastructure.............................................56.......+ ......5.02.06 Available seat kilometers (per week, in millions)* .......................18.......–1,740.32.07 Quality of electricity supply ..............................................................87.......– ......4.02.08 Main telephone lines (per 100 population)* ..................................68.......– ....18.3


3.01 Central government balance (% GDP)*..........................................59.......+ ......0.03.02 National savings rate (% GDP)*.......................................................74.......+ ....20.43.03 Inflation (%)* .......................................................................................57.......– ......4.03.04 Interest rate spread (%)* ..................................................................54.......+ ......4.43.05 Government gross debt (% GDP)*...................................................34.......+ ....22.


4.01 Business impact of malaria ..............................................................37.......+ ......6.74.02 Malaria incidence (cases per 100,000 population)*.....................75.......+ ......3.74.03 Business impact of tuberculosis .....................................................37.......+ ......6.34.04 Tuberculosis incidence (cases per 100,000 population)*............39.......+ ....21.04.05 Business impact of HIV/AIDS...........................................................68.......+ ......5.34.06 HIV prevalence (% adult population)* ............................................68.......+ ......0.34.07 Infant mortality (deaths per 1,000 live births)* ..............................77.......+ ....22.04.08 Life expectancy at birth (years)* .....................................................50.......+ ....74.04.09 Quality of primary education ..........................................................116.......+ ......2.64.10 Primary education enrollment (net rate, %)* ................................23.......+ ....97.74.11 Education expenditure (% GNI)* .....................................................31.......+ ......5.3


5.01 Secondary education enrollment (gross rate, %)*.......................67.......– ....87.25.02 Tertiary education enrollment (gross rate, %)*.............................74.......+ ....26.15.03 Quality of the educational system .................................................109.......+ ......2.85.04 Quality of math and science education........................................127.......– ......2.65.05 Quality of management schools ......................................................53.......+ ......4.35.06 Internet access in schools ...............................................................76.......– ......3.25.07 Local availability of research and training services ....................55.......– ......4.15.08 Extent of staff training .......................................................................87.......– ......3.6


6.01 Intensity of local competition...........................................................78.......– ......4.86.02 Extent of market dominance...........................................................103.......– ......3.16.03 Effectiveness of anti-monopoly policy............................................92.......– ......3.46.04 Extent and effect of taxation ............................................................89.......+ ......3.16.05 Total tax rate (% profits)* ..................................................................92.......+ ....51.26.06 Number of procedures required to start a business* .................44.......+ ......8.0

6.07 Number of days required to start a business*..............................61.......+ ....27.06.08 Agricultural policy costs .................................................................105.......– ......3.56.09 Prevalence of trade barriers ............................................................55.......+ ......4.86.10 Trade-weighted tariff rate (% duty)*.............................................105.......– ....11.16.11 Prevalence of foreign ownership ....................................................25.......+ ......5.86.12 Business impact of rules on FDI ......................................................62.......+ ......5.36.13 Burden of customs procedures .......................................................74.......+ ......3.66.14 Degree of customer orientation.......................................................55.......+ ......4.86.15 Buyer sophistication ..........................................................................52.......+ ......3.8


7.01 Cooperation in labor-employer relations........................................68.......+ ......4.57.02 Flexibility of wage determination.....................................................72.......+ ......5.17.03 Non-wage labor costs (% worker’s salary)* .................................89.......+ ....21.07.04 Rigidity of Employment Index (0–100, 100 is worst)*....................99.......– ....48.07.05 Hiring and firing practices ................................................................91.......+ ......3.57.06 Firing costs (in weeks of wages)* ...................................................81.......– ....52.07.07 Pay and productivity ..........................................................................70.......– ......4.27.08 Reliance on professional management..........................................76.......– ......4.57.09 Brain drain ...........................................................................................64.......– ......3.47.10 Female-to-male participation ratio in labor force ......................115.......– ......0.5


8.01 Financial market sophistication .......................................................56.......– ......4.58.02 Financing through local equity market ...........................................77.......– ......4.28.03 Ease of access to loans ....................................................................95.......– ......2.88.04 Venture capital availability ...............................................................99.......– ......2.58.05 Restriction on capital flows..............................................................45.......+ ......5.48.06 Strength of Investor Protection (0–10, 10 is best)* ......................26.......+ ......6.08.07 Soundness of banks...........................................................................55.......– ......5.88.08 Regulation of securities exchanges................................................43.......– ......5.28.09 Strength of Legal Rights (0–10, 10 is best)* ...................................93.......+ ......3.0


9.01 Availability of latest technologies....................................................92.......– ......4.09.02 Firm-level technology absorption ....................................................92.......– ......4.49.03 Laws relating to ICT ...........................................................................69.......– ......3.89.04 FDI and technology transfer .............................................................60.......– ......5.09.05 Mobile telephone subscribers (per 100 population)* ..................80.......– ....52.69.06 Internet users (per 100 population)* ...............................................63.......– ....19.09.07 Personal computers (per 100 population)* ....................................55.......– ....13.89.08 Broadband internet subscribers (per 100 population) .................56.......– ......2.8


10.01 Domestic market size index*............................................................12.......– ......5.410.02 Foreign market size index* ...............................................................16.......+ ......5.8


11.01 Local supplier quantity ......................................................................55.......– ......4.911.02 Local supplier quality.........................................................................46.......– ......4.911.03 State of cluster development ...........................................................58.......– ......3.611.04 Nature of competitive advantage....................................................68.......+ ......3.411.05 Value chain breadth...........................................................................59.......+ ......3.811.06 Control of international distribution ................................................69.......– ......4.011.07 Production process sophistication..................................................67.......– ......3.611.08 Extent of marketing ............................................................................53.......– ......4.711.09 Willingness to delegate authority....................................................54.......– ......4.2


12.01 Capacity for innovation......................................................................67.......– ......3.112.02 Quality of scientific research institutions ......................................79.......– ......3.712.03 Company spending on R&D..............................................................71.......– ......3.012.04 University-industry research collaboration ...................................84.......– ......3.012.05 Gov't procurement of advanced tech products..........................104.......– ......3.212.06 Availability of scientists and engineers........................................105.......– ......3.512.07 USPTA utility patents, 2007 (per million population)*...................56.......+ ......0.5





Key indicators


124

4: Country Profiles Russian Federation




Russian Federation

Corruption ........................................................................19.4Tax regulations................................................................14.8Access to financing .......................................................12.8Inefficient government bureaucracy ..........................11.5Tax rates.............................................................................9.2Inflation ..............................................................................8.4Inadequate supply of infrastructure .............................8.3Inadequately educated workforce................................6.7Crime and theft .................................................................3.8Poor work ethic in national labor force .......................2.0Foreign currency regulations.........................................0.9Government instability/coups ........................................0.8Restrictive labor regulations ..........................................0.6Policy instability................................................................0.6Poor public health ............................................................0.4

Population (millions), 2008............................................................................141.8GDP (US$ billions), 2007.............................................................................1,289.5GDP (PPP) per capita (int'l $), 2007........................................................14,705.0Real GDP growth (%), 2007 ..............................................................................8.1GDP (PPP) as share (%) of world total, 2007.................................................3.2Current account balance (% GDP), 2007 .......................................................5.9Foreign reserves (in months of imports), 2007............................................20.3Unemployment (% labor force), 2008 .............................................................6.3Human Development Index, 2006..................................................................0.81


Basic requirements...............................................56..........4.51st pillar: Institutions ...........................................110..........3.32nd pillar: Infrastructure.......................................59..........3.73rd pillar: Macroeconomic stability....................29..........5.64th pillar: Health and primary education ...........59..........5.6

Efficiency enhancers ............................................50..........4.35th pillar: Higher education and training ...........46..........4.46th pillar: Goods market efficiency.....................99..........3.97th pillar: Labor market efficiency ......................27..........4.78th pillar: Financial market sophistication.......112..........3.69th pillar: Technological readiness.....................67..........3.410th pillar: Market size............................................8..........5.7


Institutions



Health and primary








BrazilRussian Federation

7

6

5

4

3

2

1



Russian FederationBrazil


125





Source: IMF.

Source: UNCTAD.

(US$ billions)


Source: WTO.

Source: World Bank.

(US$ millions)


4: Country ProfilesRussian Federation

Russian Federation ....................................34.7

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Russian Federation

Brazil

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

1996

60,000

50,000

40,000

30,000

20,000

10,000

01997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

All commodities



Goods not classified by kind elsewhere in the SITC

400

350

300

250

200

150

100

50

0


Turkey 5.2%

Ukraine 4.8%

China 4.5%

Switzerland 4.1%

Others 25.6%



126

4: Country Profiles Russian Federation




1.01 Property rights ..................................................................................122.......– ......3.31.02 Intellectual property protection .......................................................98.......– ......2.91.03 Diversion of public funds ................................................................102.......+ ......2.91.04 Public trust of politicians ................................................................111.......+ ......1.91.05 Judicial independence ....................................................................109.......– ......2.91.06 Favoritism in decisions of government officials ...........................88.......– ......2.81.07 Wastefulness of government spending..........................................82.......+ ......3.21.08 Burden of government regulation .................................................118.......+ ......2.51.09 Efficiency of legal framework ........................................................107.......– ......2.91.10 Transparency of government policymaking.................................119.......– ......3.21.11 Business costs of terrorism............................................................100.......– ......5.11.12 Business costs of crime and violence............................................80.......+ ......4.51.13 Organized crime................................................................................105.......+ ......4.31.14 Reliability of police services...........................................................105.......+ ......3.21.15 Ethical behavior of firms .................................................................112.......– ......3.51.16 Strength of auditing and reporting standards.............................108.......– ......3.81.17 Efficacy of corporate boards............................................................35.......+ ......5.11.18 Protection of minority shareholders’ interests............................128.......– ......3.3


2.01 Quality of overall infrastructure.......................................................78.......+ ......3.32.02 Quality of roads.................................................................................104.......+ ......2.52.03 Quality of railroad infrastructure .....................................................32.......+ ......4.02.04 Quality of port infrastructure............................................................76.......+ ......3.72.05 Quality of air transport infrastructure.............................................88.......+ ......4.22.06 Available seat kilometers (per week, in millions)* .......................11.......+2,415.62.07 Quality of electricity supply ..............................................................65.......– ......4.82.08 Main telephone lines (per 100 population)* ..................................39.......+ ....30.8


3.01 Central government balance (% GDP)*..........................................19.......+ ......5.13.02 National savings rate (% GDP)*.......................................................27.......+ ....30.63.03 Inflation (%)* .....................................................................................109.......– ......9.03.04 Interest rate spread (%)* ..................................................................62.......+ ......4.93.05 Government gross debt (% GDP)*...................................................11.......+ ......9.5


4.01 Business impact of malaria ..............................................................36.......+ ......6.74.02 Malaria incidence (cases per 100,000 population)*.......................1.......+ ......0.04.03 Business impact of tuberculosis .....................................................47.......+ ......6.34.04 Tuberculosis incidence (cases per 100,000 population)*............90.......– ..107.04.05 Business impact of HIV/AIDS...........................................................28.......+ ......6.04.06 HIV prevalence (% adult population)* ..........................................103.......– ......1.14.07 Infant mortality (deaths per 1,000 live births)* ..............................51.......+ ....11.04.08 Life expectancy at birth (years)* .....................................................96.......– ....66.04.09 Quality of primary education ............................................................31.......+ ......4.74.10 Primary education enrollment (net rate, %)* ................................81.......– ....90.94.11 Education expenditure (% GNI)* .....................................................89.......– ......3.5


5.01 Secondary education enrollment (gross rate, %)*.......................76.......– ....84.05.02 Tertiary education enrollment (gross rate, %)*.............................16.......+ ....72.35.03 Quality of the educational system ...................................................36.......+ ......4.35.04 Quality of math and science education..........................................24.......+ ......5.05.05 Quality of management schools ......................................................72.......– ......3.95.06 Internet access in schools ...............................................................59.......+ ......3.65.07 Local availability of research and training services ....................71.......– ......3.85.08 Extent of staff training .......................................................................80.......– ......3.7


6.01 Intensity of local competition.........................................................108.......– ......4.46.02 Extent of market dominance.............................................................79.......– ......3.66.03 Effectiveness of anti-monopoly policy............................................95.......– ......3.36.04 Extent and effect of taxation ............................................................94.......+ ......3.16.05 Total tax rate (% profits)* ..................................................................94.......+ ....51.46.06 Number of procedures required to start a business* .................44.......+ ......8.0

6.07 Number of days required to start a business*..............................66.......+ ....29.06.08 Agricultural policy costs .................................................................104.......– ......3.56.09 Prevalence of trade barriers ..........................................................114.......– ......4.06.10 Trade-weighted tariff rate (% duty)*.............................................125.......– ....14.86.11 Prevalence of foreign ownership ..................................................127.......– ......3.56.12 Business impact of rules on FDI ....................................................129.......– ......3.56.13 Burden of customs procedures .....................................................121.......+ ......2.76.14 Degree of customer orientation.......................................................79.......– ......4.56.15 Buyer sophistication ..........................................................................74.......– ......3.5


7.01 Cooperation in labor-employer relations........................................82.......+ ......4.37.02 Flexibility of wage determination.....................................................56.......+ ......5.37.03 Non-wage labor costs (% worker’s salary)* ...............................112.......+ ....31.07.04 Rigidity of Employment Index (0–100, 100 is worst)*....................87.......+ ....44.07.05 Hiring and firing practices ................................................................23.......+ ......4.67.06 Firing costs (in weeks of wages)* ...................................................28.......+ ....17.07.07 Pay and productivity ..........................................................................11.......+ ......5.07.08 Reliance on professional management..........................................58.......– ......4.87.09 Brain drain ...........................................................................................44.......– ......4.07.10 Female-to-male participation ratio in labor force ........................21.......+ ......0.9


8.01 Financial market sophistication .......................................................89.......– ......3.78.02 Financing through local equity market ...........................................87.......– ......3.88.03 Ease of access to loans ....................................................................86.......– ......3.08.04 Venture capital availability ...............................................................64.......+ ......3.08.05 Restriction on capital flows............................................................125.......– ......3.28.06 Strength of Investor Protection (0–10, 10 is best)* ......................67.......– ......5.08.07 Soundness of banks.........................................................................107.......– ......4.98.08 Regulation of securities exchanges..............................................110.......– ......3.68.09 Strength of Legal Rights (0–10, 10 is best)* ...................................93.......+ ......3.0


9.01 Availability of latest technologies....................................................98.......– ......3.99.02 Firm-level technology absorption ..................................................105.......– ......4.19.03 Laws relating to ICT ...........................................................................79.......– ......3.59.04 FDI and technology transfer .............................................................99.......– ......4.49.05 Mobile telephone subscribers (per 100 population)* ..................25.......+ ..105.79.06 Internet users (per 100 population)* ...............................................67.......– ....18.09.07 Personal computers (per 100 population)* ....................................58.......– ....13.39.08 Broadband internet subscribers (per 100 population) .................59.......– ......2.0




11.01 Local supplier quantity ......................................................................89.......– ......4.511.02 Local supplier quality.......................................................................100.......– ......4.011.03 State of cluster development ...........................................................96.......– ......3.011.04 Nature of competitive advantage..................................................109.......– ......2.911.05 Value chain breadth.........................................................................105.......– ......3.011.06 Control of international distribution ................................................98.......– ......3.711.07 Production process sophistication..................................................66.......– ......3.611.08 Extent of marketing ............................................................................90.......– ......3.911.09 Willingness to delegate authority....................................................85.......– ......3.8


12.01 Capacity for innovation......................................................................45.......– ......3.412.02 Quality of scientific research institutions ......................................45.......– ......4.312.03 Company spending on R&D..............................................................46.......– ......3.412.04 University-industry research collaboration ...................................48.......+ ......3.612.05 Gov't procurement of advanced tech products............................66.......+ ......3.612.06 Availability of scientists and engineers..........................................34.......+ ......4.812.07 USPTA utility patents, 2007 (per million population)*...................41.......+ ......1.3





Key indicators


128

4: Country Profiles South Africa




South Africa

Inadequately educated workforce..............................22.3Crime and theft ...............................................................19.8Inadequate supply of infrastructure ...........................12.9Inefficient government bureaucracy ............................8.3Restrictive labor regulations ..........................................8.1Corruption ..........................................................................6.2Poor work ethic in national labor force .......................6.0Policy instability................................................................5.8Inflation ..............................................................................5.7Access to financing .........................................................1.6Poor public health ............................................................1.4Tax regulations..................................................................1.1Foreign currency regulations.........................................0.7Government instability/coups ........................................0.2Tax rates.............................................................................0.0

Population (millions), 2008..............................................................................48.8GDP (US$ billions), 2007................................................................................283.1GDP (PPP) per capita (int'l $), 2007..........................................................9,767.5Real GDP growth (%), 2007 ..............................................................................5.1GDP (PPP) as share (%) of world total, 2007.................................................0.7Current account balance (% GDP), 2007 .....................................................–7.3Foreign reserves (in months of imports), 2007..............................................4.0Unemployment (% labor force), 2007 ...........................................................23.0Human Development Index, 2006..................................................................0.67


Basic requirements...............................................69..........4.41st pillar: Institutions .............................................46..........4.62nd pillar: Infrastructure.......................................48..........4.23rd pillar: Macroeconomic stability....................63..........5.14th pillar: Health and primary education .........122..........3.8



Institutions



Health and primary








BrazilSouth Africa

7

6

5

4

3

2

1



South AfricaBrazil


129





Source: IMF.

Source: UNCTAD.

(US$ billions)


Source: WTO.

Source: World Bank.

(US$ millions)


4: Country ProfilesSouth Africa

South Africa ................................................15.6

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

South Africa

Brazil

12,000

10,000

8,000

6,000

4,000

2,000

0

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

-1,0001996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

All commodities

Manufactured goods classified by chiefly by material

Machines, transport equipment

Crude Materials, inedible, except fuels

2000 2001 2002 2003 2004 2005 2006 2007

70

60

50

40

30

20

10

0

Zambia 2.2%

Japan 11.0%

Others 35.5% European Union 33.0%

United States 11.8%China 6.5%



130

4: Country Profiles South Africa




1.01 Property rights ....................................................................................20.......+ ......6.01.02 Intellectual property protection .......................................................23.......+ ......5.31.03 Diversion of public funds ..................................................................49.......+ ......4.11.04 Public trust of politicians ..................................................................50.......+ ......3.21.05 Judicial independence ......................................................................30.......+ ......5.21.06 Favoritism in decisions of government officials ...........................50.......+ ......3.41.07 Wastefulness of government spending..........................................29.......+ ......4.11.08 Burden of government regulation ...................................................95.......+ ......2.81.09 Efficiency of legal framework ..........................................................20.......+ ......5.21.10 Transparency of government policymaking...................................29.......+ ......4.91.11 Business costs of terrorism..............................................................36.......– ......6.21.12 Business costs of crime and violence..........................................134.......– ......1.81.13 Organized crime................................................................................126.......– ......3.61.14 Reliability of police services...........................................................109.......+ ......3.11.15 Ethical behavior of firms ...................................................................42.......+ ......4.61.16 Strength of auditing and reporting standards.................................4.......+ ......6.21.17 Efficacy of corporate boards..............................................................8.......+ ......5.61.18 Protection of minority shareholders’ interests..............................13.......+ ......5.6


2.01 Quality of overall infrastructure.......................................................46.......+ ......4.52.02 Quality of roads...................................................................................40.......+ ......4.82.03 Quality of railroad infrastructure .....................................................37.......+ ......3.52.04 Quality of port infrastructure............................................................49.......+ ......4.42.05 Quality of air transport infrastructure.............................................25.......+ ......5.92.06 Available seat kilometers (per week, in millions)* .......................21.......–1,081.52.07 Quality of electricity supply ............................................................101.......– ......3.42.08 Main telephone lines (per 100 population)* ..................................91.......– ......9.9


3.01 Central government balance (% GDP)*..........................................47.......+ ......0.83.02 National savings rate (% GDP)*.....................................................102.......– ....14.13.03 Inflation (%)* .......................................................................................91.......– ......7.13.04 Interest rate spread (%)* ..................................................................45.......+ ......4.03.05 Government gross debt (% GDP)*...................................................54.......+ ....31.3


4.01 Business impact of malaria ..............................................................95.......– ......5.44.02 Malaria incidence (cases per 100,000 population)*.....................85.......+ ....29.04.03 Business impact of tuberculosis ...................................................129.......– ......3.64.04 Tuberculosis incidence (cases per 100,000 population)*..........134.......– ..940.04.05 Business impact of HIV/AIDS.........................................................133.......– ......2.24.06 HIV prevalence (% adult population)* ..........................................132.......– ....18.14.07 Infant mortality (deaths per 1,000 live births)* ............................101.......– ....51.04.08 Life expectancy at birth (years)* ...................................................121.......– ....51.04.09 Quality of primary education ..........................................................104.......+ ......2.84.10 Primary education enrollment (net rate, %)* ................................97.......– ....88.34.11 Education expenditure (% GNI)* .....................................................32.......+ ......5.3


5.01 Secondary education enrollment (gross rate, %)*.......................44.......– ....94.75.02 Tertiary education enrollment (gross rate, %)*.............................93.......– ....15.45.03 Quality of the educational system .................................................110.......+ ......2.85.04 Quality of math and science education........................................132.......– ......2.25.05 Quality of management schools ......................................................25.......+ ......5.05.06 Internet access in schools ...............................................................91.......– ......2.85.07 Local availability of research and training services ....................29.......– ......4.75.08 Extent of staff training .......................................................................15.......+ ......5.1


6.01 Intensity of local competition...........................................................59.......– ......5.16.02 Extent of market dominance.............................................................33.......– ......4.66.03 Effectiveness of anti-monopoly policy............................................13.......+ ......5.56.04 Extent and effect of taxation ............................................................25.......+ ......4.56.05 Total tax rate (% profits)* ..................................................................45.......+ ....37.16.06 Number of procedures required to start a business* .................44.......+ ......8.0

6.07 Number of days required to start a business*..............................70.......+ ....31.06.08 Agricultural policy costs ...................................................................12.......+ ......4.86.09 Prevalence of trade barriers ............................................................43.......+ ......5.06.10 Trade-weighted tariff rate (% duty)*...............................................75.......+ ......6.26.11 Prevalence of foreign ownership ....................................................58.......+ ......5.46.12 Business impact of rules on FDI ......................................................77.......+ ......5.06.13 Burden of customs procedures .......................................................58.......+ ......4.06.14 Degree of customer orientation.......................................................78.......– ......4.56.15 Buyer sophistication ..........................................................................28.......+ ......4.5


7.01 Cooperation in labor-employer relations......................................119.......– ......3.77.02 Flexibility of wage determination...................................................123.......– ......3.57.03 Non-wage labor costs (% worker’s salary)* .................................14.......+ ......4.07.04 Rigidity of Employment Index (0–100, 100 is worst)*....................81.......+ ....42.07.05 Hiring and firing practices ..............................................................129.......– ......2.37.06 Firing costs (in weeks of wages)* ...................................................39.......+ ....24.07.07 Pay and productivity ..........................................................................81.......– ......4.07.08 Reliance on professional management..........................................16.......+ ......5.77.09 Brain drain ...........................................................................................72.......– ......3.17.10 Female-to-male participation ratio in labor force ......................103.......– ......0.6


8.01 Financial market sophistication .......................................................12.......+ ......6.38.02 Financing through local equity market .............................................4.......+ ......5.78.03 Ease of access to loans ....................................................................31.......+ ......4.28.04 Venture capital availability ...............................................................29.......+ ......3.98.05 Restriction on capital flows............................................................111.......+ ......3.78.06 Strength of Investor Protection (0–10, 10 is best)* ........................9.......+ ......8.08.07 Soundness of banks...........................................................................15.......+ ......6.58.08 Regulation of securities exchanges..................................................5.......+ ......6.18.09 Strength of Legal Rights (0–10, 10 is best)* ...................................52.......+ ......5.0


9.01 Availability of latest technologies....................................................37.......+ ......5.49.02 Firm-level technology absorption ....................................................32.......+ ......5.59.03 Laws relating to ICT ...........................................................................34.......+ ......4.89.04 FDI and technology transfer .............................................................38.......+ ......5.29.05 Mobile telephone subscribers (per 100 population)* ..................48.......+ ....83.39.06 Internet users (per 100 population)* ...............................................95.......– ......7.89.07 Personal computers (per 100 population)* ....................................68.......– ......8.49.08 Broadband internet subscribers (per 100 population) .................77.......– ......0.7




11.01 Local supplier quantity ......................................................................43.......– ......5.111.02 Local supplier quality.........................................................................24.......+ ......5.411.03 State of cluster development ...........................................................40.......+ ......3.911.04 Nature of competitive advantage....................................................72.......+ ......3.411.05 Value chain breadth...........................................................................75.......– ......3.511.06 Control of international distribution ................................................37.......+ ......4.511.07 Production process sophistication..................................................43.......– ......4.211.08 Extent of marketing ............................................................................15.......+ ......5.611.09 Willingness to delegate authority....................................................22.......+ ......4.8


12.01 Capacity for innovation......................................................................36.......– ......3.812.02 Quality of scientific research institutions ......................................31.......+ ......4.712.03 Company spending on R&D..............................................................28.......+ ......4.012.04 University-industry research collaboration ...................................28.......+ ......4.212.05 Gov't procurement of advanced tech products............................63.......+ ......3.612.06 Availability of scientists and engineers........................................110.......– ......3.412.07 USPTA utility patents, 2007 (per million population)*...................39.......+ ......1.7





Key indicators


132

4: Country Profiles Spain




Spain

Restrictive labor regulations ........................................17.3Access to financing .......................................................13.0Inefficient government bureaucracy ..........................12.6Inadequately educated workforce..............................11.6Tax rates...........................................................................10.9Inadequate supply of infrastructure .............................9.3Inflation ..............................................................................9.1Policy instability................................................................6.4Tax regulations..................................................................5.5Poor work ethic in national labor force .......................2.2Corruption ..........................................................................1.4Poor public health ............................................................0.6Crime and theft .................................................................0.3Foreign currency regulations.........................................0.0Government instability/coups ........................................0.0

Population (millions), 2008..............................................................................44.6GDP (US$ billions), 2007.............................................................................1,440.0GDP (PPP) per capita (int'l $), 2007........................................................30,118.4Real GDP growth (%), 2007 ..............................................................................3.7GDP (PPP) as share (%) of world total, 2007.................................................2.1Current account balance (% GDP), 2007 ...................................................–10.1Foreign reserves (in months of imports), 2007..............................................0.5Unemployment (% labor force), 2008 ...........................................................11.3Human Development Index, 2006..................................................................0.95





Institutions



Health and primary








BrazilSpain

7

6

5

4

3

2

1



SpainBrazil


133





Source: IMF.

Source: UNCTAD.

(US$ billions)


Source: WTO.

Source: World Bank.

(US$ millions)


4: Country ProfilesSpain

Spain ............................................................10.6

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Spain

Brazil

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

60,000

50,000

40,000

30,000

20,000

10,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

All commodities



Chemicals and related products, n.e.s.

300

250

200

150

100

50

0


Others 20.0%

United States 4.4%Mexico 1.7%

Turkey 1.6%

Switzerland 1.5%



134

4: Country Profiles Spain




1.01 Property rights ....................................................................................42.......+ ......5.41.02 Intellectual property protection .......................................................34.......+ ......4.71.03 Diversion of public funds ..................................................................32.......+ ......4.71.04 Public trust of politicians ..................................................................39.......+ ......3.61.05 Judicial independence ......................................................................56.......+ ......4.31.06 Favoritism in decisions of government officials ...........................43.......+ ......3.51.07 Wastefulness of government spending..........................................28.......+ ......4.11.08 Burden of government regulation ...................................................94.......+ ......2.91.09 Efficiency of legal framework ..........................................................43.......+ ......4.41.10 Transparency of government policymaking...................................89.......+ ......3.81.11 Business costs of terrorism............................................................108.......– ......4.91.12 Business costs of crime and violence............................................59.......+ ......5.01.13 Organized crime..................................................................................54.......+ ......5.61.14 Reliability of police services.............................................................26.......+ ......5.71.15 Ethical behavior of firms ...................................................................33.......+ ......4.91.16 Strength of auditing and reporting standards...............................37.......+ ......5.31.17 Efficacy of corporate boards............................................................36.......+ ......5.11.18 Protection of minority shareholders’ interests..............................53.......– ......4.8


2.01 Quality of overall infrastructure.......................................................27.......+ ......5.12.02 Quality of roads...................................................................................30.......+ ......5.12.03 Quality of railroad infrastructure .....................................................19.......+ ......4.72.04 Quality of port infrastructure............................................................33.......+ ......5.02.05 Quality of air transport infrastructure.............................................34.......+ ......5.62.06 Available seat kilometers (per week, in millions)* .........................7.......+3,428.22.07 Quality of electricity supply ..............................................................38.......+ ......5.62.08 Main telephone lines (per 100 population)* ..................................21.......+ ....45.8


3.01 Central government balance (% GDP)*..........................................32.......+ ......2.23.02 National savings rate (% GDP)*.......................................................72.......+ ....21.23.03 Inflation (%)* .......................................................................................44.......+ ......2.83.04 Interest rate spread (%)* ..................................................................76.......+ ......6.03.05 Government gross debt (% GDP)*...................................................75.......+ ....42.6


4.01 Business impact of malaria ..............................................................43.......+ ......6.64.02 Malaria incidence (cases per 100,000 population)*.......................1.......+ ......0.04.03 Business impact of tuberculosis .....................................................31.......+ ......6.54.04 Tuberculosis incidence (cases per 100,000 population)*............51.......+ ....30.04.05 Business impact of HIV/AIDS...........................................................41.......+ ......5.84.06 HIV prevalence (% adult population)* ............................................79.......+ ......0.54.07 Infant mortality (deaths per 1,000 live births)* ..............................10.......+ ......4.04.08 Life expectancy at birth (years)* .......................................................5.......+ ....81.04.09 Quality of primary education ............................................................55.......+ ......4.04.10 Primary education enrollment (net rate, %)* ..................................4.......+ ....99.74.11 Education expenditure (% GNI)* .....................................................78.......– ......3.9


5.01 Secondary education enrollment (gross rate, %)*.........................4.......+ ..118.75.02 Tertiary education enrollment (gross rate, %)*.............................18.......+ ....67.45.03 Quality of the educational system ...................................................52.......+ ......3.85.04 Quality of math and science education..........................................78.......+ ......3.95.05 Quality of management schools ........................................................6.......+ ......5.95.06 Internet access in schools ...............................................................43.......+ ......4.35.07 Local availability of research and training services ....................37.......– ......4.55.08 Extent of staff training .......................................................................63.......– ......3.9


6.01 Intensity of local competition...........................................................15.......+ ......5.86.02 Extent of market dominance.............................................................15.......+ ......5.26.03 Effectiveness of anti-monopoly policy............................................33.......+ ......4.76.04 Extent and effect of taxation ............................................................75.......+ ......3.46.05 Total tax rate (% profits)* ................................................................110.......+ ....62.06.06 Number of procedures required to start a business* .................75.......+ ....10.0

6.07 Number of days required to start a business*............................102.......+ ....47.06.08 Agricultural policy costs ...................................................................92.......– ......3.76.09 Prevalence of trade barriers ............................................................45.......+ ......4.96.10 Trade-weighted tariff rate (% duty)*.................................................5.......+ ......1.16.11 Prevalence of foreign ownership ....................................................63.......+ ......5.36.12 Business impact of rules on FDI ......................................................76.......+ ......5.16.13 Burden of customs procedures .......................................................40.......+ ......4.56.14 Degree of customer orientation.......................................................43.......+ ......5.06.15 Buyer sophistication ..........................................................................31.......+ ......4.4


7.01 Cooperation in labor-employer relations........................................74.......+ ......4.47.02 Flexibility of wage determination...................................................104.......+ ......4.47.03 Non-wage labor costs (% worker’s salary)* ...............................117.......+ ....33.07.04 Rigidity of Employment Index (0–100, 100 is worst)*..................114.......– ....56.07.05 Hiring and firing practices ..............................................................116.......– ......2.97.06 Firing costs (in weeks of wages)* ...................................................85.......– ....56.07.07 Pay and productivity ..........................................................................84.......– ......4.07.08 Reliance on professional management..........................................33.......– ......5.37.09 Brain drain ...........................................................................................28.......+ ......4.57.10 Female-to-male participation ratio in labor force ........................78.......– ......0.7


8.01 Financial market sophistication .......................................................23.......– ......5.88.02 Financing through local equity market ...........................................55.......+ ......4.68.03 Ease of access to loans ....................................................................47.......+ ......3.78.04 Venture capital availability ...............................................................32.......+ ......3.98.05 Restriction on capital flows..............................................................72.......+ ......4.88.06 Strength of Investor Protection (0–10, 10 is best)* ......................67.......– ......5.08.07 Soundness of banks...........................................................................20.......+ ......6.58.08 Regulation of securities exchanges................................................46.......– ......5.18.09 Strength of Legal Rights (0–10, 10 is best)* ...................................29.......+ ......6.0


9.01 Availability of latest technologies....................................................40.......+ ......5.29.02 Firm-level technology absorption ....................................................57.......– ......5.09.03 Laws relating to ICT ...........................................................................35.......+ ......4.89.04 FDI and technology transfer .............................................................58.......– ......5.09.05 Mobile telephone subscribers (per 100 population)* ..................22.......+ ..106.49.06 Internet users (per 100 population)* ...............................................32.......+ ....42.89.07 Personal computers (per 100 population)* ....................................30.......+ ....36.99.08 Broadband internet subscribers (per 100 population) .................25.......+ ....15.4


10.01 Domestic market size index*............................................................11.......– ......5.410.02 Foreign market size index* ...............................................................19.......+ ......5.7


11.01 Local supplier quantity ......................................................................10.......+ ......5.611.02 Local supplier quality.........................................................................25.......+ ......5.411.03 State of cluster development ...........................................................37.......+ ......4.011.04 Nature of competitive advantage....................................................28.......+ ......4.411.05 Value chain breadth...........................................................................21.......+ ......4.811.06 Control of international distribution ................................................32.......+ ......4.611.07 Production process sophistication..................................................28.......+ ......4.611.08 Extent of marketing ............................................................................14.......+ ......5.611.09 Willingness to delegate authority....................................................40.......– ......4.5


12.01 Capacity for innovation......................................................................30.......– ......3.812.02 Quality of scientific research institutions ......................................55.......– ......4.112.03 Company spending on R&D..............................................................39.......– ......3.712.04 University-industry research collaboration ...................................46.......+ ......3.612.05 Gov't procurement of advanced tech products............................55.......+ ......3.712.06 Availability of scientists and engineers..........................................38.......+ ......4.612.07 USPTA utility patents, 2007 (per million population)*...................28.......+ ......6.1





Key indicators


136

4: Country Profiles Turkey




Turkey

Inefficient government bureaucracy ..........................13.5Tax regulations................................................................12.1Policy instability..............................................................11.8Access to financing .........................................................9.6Tax rates.............................................................................9.6Inadequately educated workforce................................8.8Inadequate supply of infrastructure .............................7.7Foreign currency regulations.........................................5.5Inflation ..............................................................................4.9Corruption ..........................................................................4.8Government instability/coups ........................................4.2Poor work ethic in national labor force .......................3.2Restrictive labor regulations ..........................................2.4Poor public health ............................................................1.8Crime and theft .................................................................0.2

Population (millions), 2008..............................................................................75.8GDP (US$ billions), 2007................................................................................659.3GDP (PPP) per capita (int'l $), 2007........................................................12,858.4Real GDP growth (%), 2007 ..............................................................................4.6GDP (PPP) as share (%) of world total, 2007.................................................1.4Current account balance (% GDP), 2007 .....................................................–5.7Foreign reserves (in months of imports), 2007..............................................5.2Unemployment (% labor force), 2008 ...........................................................10.7Human Development Index, 2006..................................................................0.80



Efficiency enhancers ............................................59..........4.15th pillar: Higher education and training ...........72..........3.96th pillar: Goods market efficiency.....................55..........4.47th pillar: Labor market efficiency ....................125..........3.68th pillar: Financial market sophistication.........76..........4.19th pillar: Technological readiness.....................58..........3.510th pillar: Market size..........................................15..........5.2


Institutions



Health and primary








BrazilTurkey

7

6

5

4

3

2

1



TurkeyBrazil


137

4: Country Profiles






Turkey


Russian Federation 4.4%United States 3.9%

United Arab Emirates 3.0%

Iraq 2.7%

Others 28.8%Turkey...........................................................47.3

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Turkey

Brazil

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

25,000

20,000

15,000

10,000

5,000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

All commodities




120

100

80

60

40

20

0



138

4: Country Profiles Turkey




1.01 Property rights ....................................................................................83.......– ......4.21.02 Intellectual property protection .......................................................93.......– ......3.01.03 Diversion of public funds ..................................................................83.......+ ......3.21.04 Public trust of politicians ..................................................................78.......+ ......2.41.05 Judicial independence ......................................................................64.......+ ......4.01.06 Favoritism in decisions of government officials ...........................77.......– ......3.01.07 Wastefulness of government spending..........................................97.......+ ......2.91.08 Burden of government regulation .................................................104.......+ ......2.71.09 Efficiency of legal framework ..........................................................82.......+ ......3.31.10 Transparency of government policymaking...................................97.......+ ......3.71.11 Business costs of terrorism............................................................117.......– ......4.61.12 Business costs of crime and violence............................................65.......+ ......4.81.13 Organized crime..................................................................................89.......+ ......4.71.14 Reliability of police services.............................................................83.......+ ......4.01.15 Ethical behavior of firms ...................................................................58.......+ ......4.21.16 Strength of auditing and reporting standards...............................79.......– ......4.41.17 Efficacy of corporate boards..........................................................127.......– ......3.81.18 Protection of minority shareholders’ interests..............................80.......– ......4.3


2.01 Quality of overall infrastructure.......................................................70.......+ ......3.52.02 Quality of roads...................................................................................54.......+ ......3.92.03 Quality of railroad infrastructure .....................................................69.......+ ......2.22.04 Quality of port infrastructure............................................................88.......+ ......3.42.05 Quality of air transport infrastructure.............................................55.......+ ......5.02.06 Available seat kilometers (per week, in millions)* .......................24.......– ..916.32.07 Quality of electricity supply ..............................................................84.......– ......4.22.08 Main telephone lines (per 100 population)* ..................................53.......+ ....25.4


3.01 Central government balance (% GDP)*..........................................75.......+ ....–1.23.02 National savings rate (% GDP)*.......................................................71.......+ ....21.43.03 Inflation (%)* .....................................................................................107.......– ......8.83.04 Interest rate spread (%)* ..................................................................55.......+ ......4.43.05 Government gross debt (% GDP)*...................................................68.......+ ....39.4


4.01 Business impact of malaria ..............................................................55.......+ ......6.54.02 Malaria incidence (cases per 100,000 population)*.....................80.......+ ....13.04.03 Business impact of tuberculosis .....................................................54.......– ......6.24.04 Tuberculosis incidence (cases per 100,000 population)*............48.......+ ....29.04.05 Business impact of HIV/AIDS...........................................................37.......+ ......5.94.06 HIV prevalence (% adult population)* ..............................................1......n/a...<0.14.07 Infant mortality (deaths per 1,000 live births)* ..............................84.......+ ....26.04.08 Life expectancy at birth (years)* .....................................................55.......+ ....73.04.09 Quality of primary education ............................................................91.......+ ......3.04.10 Primary education enrollment (net rate, %)* ................................77.......– ....91.44.11 Education expenditure (% GNI)* .....................................................90.......– ......3.5


5.01 Secondary education enrollment (gross rate, %)*.......................84.......– ....78.65.02 Tertiary education enrollment (gross rate, %)*.............................60.......+ ....34.65.03 Quality of the educational system ...................................................77.......+ ......3.45.04 Quality of math and science education..........................................73.......+ ......3.95.05 Quality of management schools ......................................................65.......– ......4.15.06 Internet access in schools ...............................................................55.......+ ......3.75.07 Local availability of research and training services ....................68.......– ......3.95.08 Extent of staff training .......................................................................90.......– ......3.6


6.01 Intensity of local competition...........................................................42.......+ ......5.36.02 Extent of market dominance.............................................................51.......– ......4.06.03 Effectiveness of anti-monopoly policy............................................41.......– ......4.36.04 Extent and effect of taxation ..........................................................123.......+ ......2.66.05 Total tax rate (% profits)* ..................................................................70.......+ ....45.16.06 Number of procedures required to start a business* .................19.......+ ......6.06.07 Number of days required to start a business*................................6.......+ ......6.0

6.08 Agricultural policy costs ...................................................................88.......– ......3.76.09 Prevalence of trade barriers ............................................................44.......+ ......4.96.10 Trade-weighted tariff rate (% duty)*...............................................48.......+ ......4.06.11 Prevalence of foreign ownership ....................................................42.......+ ......5.66.12 Business impact of rules on FDI ......................................................50.......+ ......5.46.13 Burden of customs procedures .......................................................83.......+ ......3.56.14 Degree of customer orientation.......................................................69.......– ......4.66.15 Buyer sophistication ..........................................................................78.......– ......3.5


7.01 Cooperation in labor-employer relations......................................116.......– ......3.77.02 Flexibility of wage determination.....................................................83.......+ ......4.97.03 Non-wage labor costs (% worker’s salary)* .................................94.......+ ....22.07.04 Rigidity of Employment Index (0–100, 100 is worst)*....................81.......+ ....42.07.05 Hiring and firing practices ................................................................51.......+ ......4.17.06 Firing costs (in weeks of wages)* .................................................113.......– ....95.07.07 Pay and productivity ........................................................................102.......– ......3.77.08 Reliance on professional management..........................................93.......– ......4.17.09 Brain drain ...........................................................................................67.......– ......3.37.10 Female-to-male participation ratio in labor force ...........................129.......– ......0.4


8.01 Financial market sophistication .......................................................39.......– ......5.08.02 Financing through local equity market ...........................................65.......– ......4.58.03 Ease of access to loans ....................................................................75.......+ ......3.38.04 Venture capital availability ...............................................................97.......– ......2.58.05 Restriction on capital flows..............................................................25.......+ ......5.68.06 Strength of Investor Protection (0–10, 10 is best)* ......................50 .......=.......5.38.07 Soundness of banks.........................................................................114.......– ......4.78.08 Regulation of securities exchanges................................................69.......– ......4.68.09 Strength of Legal Rights (0–10, 10 is best)* ...................................93.......+ ......3.0


9.01 Availability of latest technologies....................................................45.......+ ......5.19.02 Firm-level technology absorption ....................................................48.......– ......5.19.03 Laws relating to ICT ...........................................................................55.......– ......4.09.04 FDI and technology transfer .............................................................86.......– ......4.79.05 Mobile telephone subscribers (per 100 population)* ..................60.......+ ....71.09.06 Internet users (per 100 population)* ...............................................68.......– ....17.79.07 Personal computers (per 100 population)* ....................................80.......– ......5.99.08 Broadband internet subscribers (per 100 population) .................50.......+ ......3.7




11.01 Local supplier quantity ......................................................................32.......– ......5.211.02 Local supplier quality.........................................................................55.......– ......4.811.03 State of cluster development ...........................................................54.......– ......3.711.04 Nature of competitive advantage....................................................91.......+ ......3.111.05 Value chain breadth...........................................................................38.......+ ......4.111.06 Control of international distribution ................................................51.......– ......4.311.07 Production process sophistication..................................................56.......– ......3.811.08 Extent of marketing ............................................................................70.......– ......4.511.09 Willingness to delegate authority....................................................95.......– ......3.6


12.01 Capacity for innovation......................................................................55.......– ......3.312.02 Quality of scientific research institutions ......................................52.......– ......4.112.03 Company spending on R&D..............................................................73.......– ......3.012.04 University-industry research collaboration ...................................57.......– ......3.412.05 Gov't procurement of advanced tech products..........................106.......– ......3.112.06 Availability of scientists and engineers..........................................59.......– ......4.312.07 USPTA utility patents, 2007 (per million population)*...................66.......– ......0.3



139

About the Authors

Carlos ArrudaCarlos Arruda is a Professor of Innovation andCompetitiveness as well as Advisor on InternationalRelations and Coordinator of the Department of Innovationat Fundação Dom Cabral (FDC), Brazil. He also is a mem-ber of the Board of Trustees of the University Consortiumfor Executive Education (UNICON) in the United States.Previously he worked at FDC as Director of Developmentand Finances, Director of the Corporate MBA Programme,and Coordinator of the Department of Internationalizationand Competitiveness. He is the lead author or editor ofpublications in Brazil and abroad. Prior to joining FDC, he worked for the Superior Officer of the Division ofBusiness Development and Support at the InternationalTrade Centre (ITC). His main research interests are in thefields of company longevity, innovation, competitiveness,cultural management, and the internationalization of com-panies. Dr Arruda holds a PhD in International BusinessAdministration from the University of Bradford, UnitedKingdom.

Claudia CostinClaudia Costin is Secretary of Education of theMunicipality of Rio de Janeiro, in charge of 1,062 schoolsand 254 early childhood education centers. Previously sheheld positions in the federal government, includingSecretary of Planning and Evaluation of the Ministry ofEconomy, Secretary of Private Social Security, and FederalMinister of Public Administration and State Reform. Shewas also State Secretary of Culture in Sao Paulo, a posi-tion where she promoted the largest nationwide programestablishing municipal libraries. Dr Costin has significantinternational experience, including a visiting professorshipin Québec University and work experience in Angola andCape Verde in state modernization and improvement ofpublic policies. Since 2007, she has been Manager of thePublic Sector Unit for Latin America at the World Bank.Other recent positions include Executive Vice-President ofFundação Victor Civita, a private foundation devoted toimproving the quality of public education in Brazil. A boardmember of the Nature Conservancy; the Dow ChemicalInternational Environ-mental Advisory Council; and DASA,a public company in the health industry, Dr Costin is also acolumnist for a daily newspaper, o Estado de São Paulo,and has a strong record of publications in the area of pub-lic policy. Dr Costin is a graduate in Public Administrationand Economics from Fundação Getúlio Vargas, Brazil, andholds a Master and PhD in those areas.

Nicola CalicchioNicola Calicchio is a Director in the McKinsey Brazil officeand leader of the Consumer Goods and Retail Practice for Latin America. For the last 10 years he has led con-sumer and durable goods producers and retailers on sev-eral fronts, including presenting long-term strategies forcore businesses, providing corporate and business unit

strategy, restructuring programs, reassessing overall busi-ness portfolios and organizational models and commercialand logistics effectiveness, and evaluating format redesignand category management. Mr Calicchio was in charge ofa major effort aimed at developing a regional strategy forone of the largest states in Brazil. The study identified thepotential to generate 100,000 jobs and double the growthrate of the state’s GDP for the following five years. He hasactively participated in the study promoted by theMcKinsey Global Institute about how productivity canleverage the growth of the Brazilian economy, and sup-ported over 50 McKinsey teams working on developingstrategies and improving operations of companies inBrazil, Argentina, Chile, Mexico, Colombia, the UnitedStates, Europe, India, China, and South Africa, among others. Prior to joining McKinsey, Mr Calicchio worked asa sales rep/manager for a software company. Mr Calicchioholds a BS in Civil Engineering from the UFMG and anMBA from MIT Sloan School of Management, UnitedStates.

Elisio ContiniElisio Contini is Head of the Office of International Affairsat the Brazilian Agricultural Research Corporation(Embrapa). Previously, he worked as Head of the StrategicManagement Office (AGE) for the Cabinet of the Ministerat the Ministry of Agriculture, Livestock and Food Supplyof Brazil. Dr Contini worked in the preparation and evalua-tion of projects funded by international agencies, such asthe IADB and the World Bank, in Latin American coun-tries. Since 1995, he has been Adviser to the President ofEmbrapa. Previously, Dr Contini worked as a researcher inagricultural economics and published four books as wellas 60 scientific and other technical publications. Since1996, he has been a member of the Board of Trustees ofthe International Center for Tropical Agriculture (CIAT) andExecutive Director of the Brazilian Rural EconomistAssociation. He has also been an Economics andBusiness Administration Guest Professor at severalBrazilian universities. His main areas of expertise includeagricultural research management, agricultural economics,strategic and project planning, and food policies. DrContini obtained a Master in Public Administration fromFundação Getúlio Vargas, Brazil, and a PhD in PublicEconomics from Muenster University, Germany.

Pablo HabererPablo Haberer is a Director in the McKinsey Brazil office.Mr Haberer leads the MERCOSUR Media andEntertainment Practice, and is a member of the GlobalMedia and Entertainment Leadership Group and theGlobal Telecom Leadership Group Practice of McKinsey.Furthermore, he leads the Latin American StrategyPractice and has led the Global Champion Initiative ofMcKinsey. His main areas of expertise are strategicgrowth and business creation for media, entertainment,

About the Authors


140

About the Authors and telecommunications companies. He has helped lead-

ing telecommunications and media companies in Brazil,Chile, Argentina, Spain, and Venezuela with strategic,operational, and organizational issues. Mr Haberer hasextensive experience in supporting growth strategies forconsumer-driven companies in Brazil, in sectors such aselectronics, apparel, real estate, and financial services.Before joining McKinsey, he worked as a SeniorConsultant for Deloitte & Touche Uruguay and as a Brand Manager for Philip Morris Argentina. Mr Habererholds a Master of Science in Management from PurdueUniversity, United States, and is a Certified PublicAccountant from the University of the Republic ofUruguay.

Fabrice HatemFabrice Hatem works as a Senior Economics Officer atUNCTAD, where he participates in the drafting of theWorld Investment Report, among other tasks. Previouslyhe was Chief Economist at Electricité de France Interna-tional and the Invest in France Agency. He has writtenmany books and articles on international investment andmultinational corporations. Dr Hatem holds a PhD inEconomics from Université Paris X Nanterre, France.

Emilio Lozoya AustinEmilio Lozoya Austin is Director, Head of the LatinAmerica regional team, and a Global Leadership Fellow atthe World Economic Forum. Prior to joining the Forum, MrLozoya Austin worked as an Investment Officer at theInter-American Investment Corporation (the private arm ofthe Inter-American Development Bank) in the structuredfinance and distressed assets units, focusing on local cur-rency projects and investments in different industries, aswell as in the capital markets of the region. He is a co-founder of TerraDesign, a Harvard Business School startupfocused on social housing, with projects in Senegal andMexico. Before launching TerraDesign, he worked in theOperations Department of the Central Bank of Mexico,investing the country’s international reserves in distinctsecurities, as well as performing optimization strategiesfor the different portfolios and hedging strategies for thecountry’s oil production. Mr Lozoya Austin is the author ofstudies in monetary policy, public policy efficiency, IT education, and electoral systems. He holds a BSc inEconomics from ITAM, Mexico; a BA in Law from UNAM, Mexico; and a Master in Public Administration in International Development from Harvard University,United States.

Irene MiaIrene Mia is Director and Senior Economist with theGlobal Competitiveness Network at the World EconomicForum. She is also responsible for competitivenessresearch on Latin America and Iberia. She has written andspoken extensively on issues related to national competi-tiveness, serving as lead author and editor on a number ofregional and topical competitiveness papers and reports;notably, she is the co-editor of The Global InformationTechnology Report series. Before joining the Forum, sheworked at the headquarters of Sudameris Bank in Paris fora number of years, holding various positions in the interna-tional affairs and international trade divisions. Her mainresearch interests are in the fields of development, inter-national trade, economic integration (with special refer-ence to the Latin American region), and competitiveness.Dr Mia holds an MA in Latin American Studies from theInstitute of Latin American Studies, London University ,United Kingdom, and a PhD in International Economic andTrade Law from L. Bocconi University, Italy.

Jacques MarcovitchJacques Marcovitch is a Professor at the University of SãoPaulo in Brazil, Senior Adviser to the World EconomicForum, and member of the Global Agenda Council on theFuture of Latin America. He is Steering CommitteeChairperson of a two-year multi-institutional report on eco-nomic impacts of climate change in Brazil. Among his pastappointments are President, University of São Paulo(Brazil); Director, Institute for Advanced Studies/USP andPresident of Electric Utilities of the State of Sao Paulo. A graduate of Vanderbilt University, United States, inManagement, he is the recipient of numerous internation-al awards, including the Doctor Honoris Causa fromUniversité Lumière, Lyon, and Chevalier de la Légiond´Honneur, France. As a member of scientific institutionshe was awarded the Medal of Brazilian Scientific Merit.Professor Marcovitch is the author of several books andarticles, among which are Pioneiros e Empreendedores: ASaga do Desenvolvimento no Brasil (2003, 2005, and2007) and Para Mudar o Futuro: Mudanças Climáticas,Políticas Públicas e Estratégias Empresariais (2006), bothpublished by Edusp/Saraiva, São Paulo, Brazil. He was theeditor of Economic Growth and Income Distribution inBrazil: Priorities for Change (also published by São Paulo,Edusp, in 2007), which won the Jabuti Award of BestBook in Economics and Business in 2008.

Anne MirouxAnne Miroux is Chief of the Investment Issues AnalysisBranch in the Division at Investment, Technology andEntreprises (DITE) at UNCTAD, and directs the researchand analysis activities of the Division on FDI and its impacton development. She has been the team leader ofUNCTAD’s World Investment Report for many years. DrMiroux began her career at the United Nations as an econ-omist at the UN Centre on Transnational Corporations inNew York, where she was involved in the negotiations onthe UN Code of Conduct on Transnational Corporations.She has also led a number of research and policy analysisprojects, including the recent UNCTAD series “CurrentStudies on FDI and Development,“ the UNCTAD projecton FDI and tourism, and the World Investment ProspectsSurveys. Dr Miroux holds an MBA from École des HautesÉtudes Commerciales (HEC) in France and a PhD inEconomics from Université Paris, France.

Francisco J. B. ReifschneiderFrancisco J. B. Reifschneider is a Senior Researcher at theBrazilian Agricultural Research Corporation (Embrapa) anda member of its Managerial Committee for Strategies(SGE), and leads publicly and privately financed researchprojects on pepper breeding. Additionally, he serves as aSpecial Advisor to the Brazilian Minister of Agriculture. Histechnical and scientific expertise is in plant pathology andplant breeding, and most of his technological contributionshave been linked to the development of disease-resistantvegetable cultivars and hybrids that today occupy signifi-cant areas in Brazil. As a university professor, he hasadvised students from Cornell University, University ofBrasília, ESALQ, and FTB. As a manager, he has occupiedseveral positions in Brazil and abroad, including TechnicalDirector and Director General of the National ResearchCenter for Vegetable Crops in Brasilia; Agricultural Officerat the Investment Center, at FAO; and Director of theConsultative Group on International Agricultural Research,at the World Bank. He has also received major awards,including Embrapa’s highest award, the Frederico deMenezes Veiga Prize, in 1989, and the Jabuti Prize, in2001, for the book Capsicum: Pimentas e pimentões noBrasil. Dr Reifschneider graduated from the University of


141

About the AuthorsBrasilia and received his PhD from the University of

Wisconsin, United States, in Plant Pathology.

Paulo ResendePaulo Resende is Associate Dean for Research andDevelopment, as well as Professor and Researcher ofLogistics, Value Chain, Supply Chain and TransportationPlanning at Fundação Dom Cabral (FDC), Brazil. ProfessorResende is also Chief-Editor of DOM, a magazine pub-lished by FDC. He worked as Academic Coordinator of theProfessional Masters in Administration, FDC/PontifíciaUniversidade Católica de Minas Gerais (PUC). Previouspositions held include professor at several universities,including PUC, Centro Universitário (UNA), UniversidadeFederal de Minas Gerais (UFMG), Memphis StateUniversity, and the Instituto Brasileiro de MercadosCapitais. He is the author of books and articles in thefields of logistics, transportation, value chain, supply chain management, sales, and distribution channels.Professor Resende received his PhD in TransportationPlanning and Logistics from the University of Illinois atUrbana–Champaign, where he also holds qualifications asa Specialist in Urban Planning and Statistics. He holds aMaster in Planning and Transportation Engineering fromMemphis State University, United States, and a Bachelordegree in Civil Engineering from Fundação Mineira deEducação e Cultura–FUMEC, Brazil.

Marina Silva AraújoMarina Silva Araújo is an Economist and member of theCompetitiveness Team at Fundação Dom Cabral (FDC),Brazil. Her responsibilities include the coordination of the World Economic Forum’s Global CompetitivenessNetwork activities and studies in Brazil, and the construc-tion and development of indexes as well as data analysisfor various projects and studies. She has written and spo-ken on issues related to national competitiveness, interna-tional investment, and Chinese foreign direct investments.Before joining FDC she worked at the Center of RegionalPlanning and Development (CEDEPLAR) and at theLaboratory of Finance at the Federal University of MinasGerais. Her main areas of expertise include competitive-ness, macroeconomics, econometrics, international invest-ments, emerging countries, and economic development.Ms Araújo holds a BA in Economics from the FederalUniversity of Minas Gerais, Brazil, with a specialization inquan-titative methods and company economics.
