Brazil and Australia: the rise of the southern hemisphere powers

Celebrating: after being seen as a basket case for so long, Brazil’s economy is now powering. AAP

Few countries have been left unscathed by the global financial crisis and it seems that they are all situated in the southern hemisphere. Brazil and Australia are some of them. Recently, their economies have started engaging with each other - at times competing for the same markets, at times collaborating and exchanging technology and know-how.

For a long time Brazil was perceived as more of a basketcase than an emerging power. Although epithets such as “the country of the future” and “the sleeping giant” had often been associated with it since the 1970s, until not long ago many Brazilians used to say that Brazil was to be eternally the country of the future. The so-called “economic miracle” of the 1970s, which entailed a rapid and unequal industrialisation, was wiped out by mounting debts inherited from previous decades and the oil crises of 1970s.

This was followed by two decades of profound economic crisis, exacerbated by loans and assistance packages given by the International Monetary Fund and the World Bank that encouraged developing countries to comply with harsh neo-liberal economic reforms. These included currency devaluations, a freeze in wages, cuts in public spending, privatisation of assets and tax breaks for the productive sectors.

Poverty in Brazil escalated between 1990 and 1995. AAP

Between 1990 and 1995, inflation averaged 764% a year and in 1993 it hit 2,489%. Inflation and subsequent stagflation, escalating prices, unemployment, endemic corruption, nepotism, and the information revolution all helped to widen the gap between the very rich and the very poor.

Brazilians became disillusioned. Many migrated, first to the US, Europe and Japan (Brazil is home of the largest Japanese migrant community outside Japan, so these were mainly Japanese-Brazilians), and then to other parts of the global north.

What started with a trickle in the mid-1980s became a diaspora of 3-4 million people in 2008, according to the Brazilian Ministry of Foreign Affairs, known in Brazil as the MRE.

In the late 1990s, tertiary educated, middle-class Brazilians started arriving in Australia in search of better quality of life. Many come as students. Brazil is among the five largest source countries of students in Australia, after China, India, South Korea, and Thailand.

Yet to everyone’s surprise, the future seems to have arrived in the first decade of the 21st century. In 2001, Jim O’Neill, an economist at Goldman Sachs, coined the acronym BRIC (Brazil, Russia, India, China) to denominate “emerging economic giants”. His assessment seems to be accurate.

Brazil’s President Dilma Rousseff met China’s Chinese Vice Prime Minister Wang Qishan this week. AAP

In the past decade, Brazil’s economy has grown around 5% a year, and in 2010 it grew 7.5%. In late 2011 Brazil overtook the UK to become the sixth-largest economy in the world. By 2025 Brazil is set to become the world’s fifth-largest economy, behind only the United States, China, India and Japan, according to The Economist.

Currently, it detains 40% of Latin America’s GDP. Indeed, it is the world’s biggest exporter of coffee, sugar, orange juice, tobacco, ethanol, beef and chicken, and soya products, according to The Economist.

Australia competes with Brazil for markets for some of these commodities such as sugar and beef. In 2007, massive oil fields were discovered 7km below the surface of the Atlantic. Brazil’s current position as the world’s 16th largest oil producer will improve as soon as the country starts drawing on these reserves.

The rise of this economic powerhouse is not only due to natural and mineral riches. Brazil’s technological innovation is also helping the economy. Embraer is the world’s third largest producer of commercial jet aircraft and the market leader in jets with five to 20 seats.

The newly appointed head of the state-run oil giant Petrobas, Maria das Gracas Silva Foster. AAP

Brazil has also been working with clean energy since the first oil crisis hit, when it developed technology to produce ethanol from sugar cane to run its car fleet. At present around 30% of its energy comes from hydropower and another 15% from biomass. In recent years Brazil has been assisting Australia in its development of biofuel technologies.

Furthermore, like Australia, Brazil has diversified its trade partners. China corresponds to 38% of Brazil’s trade surplus and is set to become Brazil’s top foreign investor, supplanting the US. To this end, Brazil is building the world’s largest industrial port complex nicknamed “Highway to China” in conjunction with Chinese investment. Iron ore, grain, soy and oil will be shipped through this port after it opens in 2012 on the Rio coastline.

These are areas in which Brazil competes with Australia, but which they also work together to increase commodity prices.

Notwithstanding all the hype, there is a long road before Brazil becomes a developed country like Australia. Massive social inequalities persist and with it high rates of crime and violence.

According to the Brazilian Institute of Statistics (IBGE), while the top 10% of the Brazilian population accounted for 43.2% of all individual income, the bottom 10% accounted for only 1.1% in 2007, according to analysts (Lage & Machado 2008).

Indeed, Brazil has the 10th most unequal wealth distribution in the world with a Gini coefficient of 0.53. By contrast, Australia is a much more equal country with a Gini coefficient of 0.331 in 2007-08.