Brazil, South America's biggest country, may become a global economic superstar in the future, but it will have to stop being an inward-looking giant.

There is new evidence that, despite President Dilma Rousseff's announcement last week that Brazil will have a record grain crop this year, the country's huge oil discoveries, and the unique propaganda opportunity Brazil will gain from hosting the 2014 World Cup and the 2016 Olympic Games, recent trade trends don't bode well for the country.

The World Bank published a report entitled The Brazilian Competitiveness Cliff that shows Brazil's exports of high-valued industrial goods aren't doing well. It says Brazil is facing "considerable competitiveness challenges." Translation: the country is falling behind other emerging powers.

The report, written by World Bank economists Otaviano Canuto, Matheus Cavallari and Jose Guilherme Reis, says that Brazil's overall exports have more than doubled in recent years, largely thanks to a steep rise in world commodity prices. But that's way below the export performance of other big emerging countries, it says.

While Brazil's exports of goods and services grew by 262 percent over the past decade, the average export growth for other emerging economic powers such as Russia, India, China and South Africa was 439 percent, the study says.

Brazil's trade integration with other countries "is among the lowest in the world," and there are "no recent signs of improvement," it says.

While trade accounted for 29 percent of Brazil's economic output in 2005, the figure fell to 23 percent in 2010, it says.

What's worse, while Brazil is by far Latin America's leader in high-tech exports - its Embraer planes, for instance, are among the world's best-selling aircraft, "there is a clear reduction in the share of high-technology exports in recent years," the report says.

The share of high-technology exports fell from 10.4 percent of Brazil's total exports in 2000 to 5 percent in 2010. Conversely, Brazil's share of commodity exports - mainly soybean sales to China - increased from 46 percent to 63 percent over the same period, the report says.

In other words, Brazil has become too food exports-dependent, and too China-dependent.

Over the past decade, Brazil's high-tech exports have grown by a modest 36 percent, compared with China and India whose high-tech exports increased by 873 percent and 389 percent respectively, the report says.

Among the reasons behind Brazil's unimpressive export performance are the country's overvalued currency, which makes labor costs more expensive, low productivity, high logistics costs, and a maddening government bureaucracy that increases the costs of doing business, the report says.

"The Brazilian government is very conscious of these issues, and is moving to correct them," Canuto, the report's lead author, told me in a telephone interview.

"But it must act fast, because the growth factors that worked well for the country in recent years have exhausted themselves. World commodity prices will not keep growing as they have in the past 10 years," he added.

Other economists see a brighter picture, stressing that Brazil's economic growth is likely to recover from an anemic 1 percent last year to 3.5 percent this year, and that Rousseff's government plans new infrastructure auctions to the private sector that indicate a shift away from statist policies.

Also, unlike most of its neighbors, Brazil is taking serious steps to crack down on corruption and to improve education standards. Rousseff recently launched a plan to send 100,000 Brazilian university graduates to pursue mostly science and engineering degrees in U.S. and European universities.

My opinion: I'm a great fan of Rousseff's anti-corruption campaign, and of her moves to internationalize Brazil's higher education system, as well as of her social programs for the poor.

In almost every aspect - except its foreign policy, which remains too friendly with some of the world's worst dictatorships - Brazil should be a model for its neighbors.

But Brazil must insert itself faster into the global economy. At a time when the world seems to be moving into free trade mega-blocs, such as the Trans-Atlantic Partnership announced Feb. 12 by President Obama that would create a U.S.-European Union free trade bloc, Brazil cannot afford not to have free trade agreements with the United States, the European Union, or virtually any other free trade bloc outside its neighborhood.

Brazil can't keep relying on its domestic consumption either, nor on ever-rising commodity prices. If it doesn't cease being a self-absorbed giant, it risks becoming a "once-emerging power."

 

 

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