Political Risk Latin America Blog @PolRiskLatam

Be Careful What You Wish For

Posted in News and Articles, Political Risk by politicalrisklatam on July 6, 2011

by Vander Giordano & Eduardo Gomide for Kroll Tendencias, July 2011.

Foreign firms bidding on infrastructure projects or buying up local companies in Brazil are understandably keen to get in on the country’s economic boom. But two projects gone awry provide a cautionary tale of the considerable risks that accompany potential rewards in Brazil.

In November 2009, The Economist noted that “Brazil has been democratic before, it has had economic growth before, and it has had low inflation before. But it has never before sustained all three at the same time. If current trends hold (which is a big if), Brazil, with a population of 192 million and growing fast, could be one of the world’s five biggest economies by the middle of this century, along with China, America, India and Japan.”

Predictably, Brazilians have embraced the optimistic scenario. They have concluded that it is Brazil’s time to shine. The media has reported extensively on how Brazil is finally tapping into opportunities in a changing world economy and fulfilling all the potential of its large population, fertile lands, vast mineral resources, and now huge deepwater oil reserves discovered in the last decade.

However, economic growth and prosperity – Brazil’s GDP grew 7.5% in 2010 – also bring the risks associated with excessive optimism and a gold-rush mentality. On top of the “big if” listed above, investors and companies need to pay careful attention to details when it comes to where they put their money. A consideration of just two areas – the potential pitfalls of Brazil’s rapidly growing infrastructure sector and compliance issues arising from new environmental legislation – show that a lack of such care can be costly. (continue reading… )

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