The Brazilian Economy Ministry ended the year pleased as punch that its economy had leap-frogged the UK to become the sixth-largest in the world, with its sights now firmly set on overhauling France to make it into the Top Five in the year to come.
It is difficult to predict whether Brazil's strong economic performance of recent years will continue into a 2012 that looks increasingly choppy. Each of the BRICS comes with its own particular set of characteristics, which offer advantages and drawbacks for dealing with the uncertainty ahead. In fact, while the acronym is handy, one of the dumbest mistakes any business can make is to lump countries as diverse as China, South Africa and Russia in one basket. But, in Brazil's case, one area that they will need to pay attention to as they seek to take advantage either of generous interest rates, or a punt on a domestic growth explosion, is that of security.
Vice-President Michel Temer announced on 15 December that counter-narcotics operations in border areas over the past six months had resulted in the seizure of 115 tons of illegal drugs and lead to 4,200 arrests. Speaking at a press conference alongside Justice Minister Jozé Cardoso and Defence Minister Celso Amorim, Temer also reported the successful seizure of 534 firearms, and the destruction of three illegal landing strips.
The success of the operation is extremely positive for Brazil, particularly in a country that, in addition to seeing a host of M&A work from multinationals and private equity houses, is also hosting a World Cup in 2014 and an Olympics (in Rio) in 2016. However, we feel that sustaining these efforts so that they become more than pockets of good news is going to be challenging. They remain likely to be undermined by a number of weaknesses in governance and law enforcement, including widespread corruption among the security forces and ties between the police and narco-trafficking organisations.
As a result of these underlying issues, and despite the government’s recent successes, drug-trafficking remains a serious problem in Brazil. It is a major contributor to instances of violent crime in major cities such as Sao Paulo and Rio de Janeiro. Overall Brazil remains one of the most violent countries in the region, with a murder rate of 26.2 per 100,000 inhabitants.
The risk of serious violence to foreigners is still low, barring ill-advised trips into certain areas. But dealing with an uncertain security situation acts like an additional tax on business, driving up costs. It requires greater spending on operational security, and time-consuming due diligence requirements. For small business operating locally, extortionate demands by local actors (either in law enforcement or in organised crime) in order to continue trading are then passed onto consumers.
While Temer has acknowledged that operations would continue in 2012 we feel that Brazil must start to look outward as well as inward in order for its counter-narcotics strategy to take the next important steps towards success. Bilateral relationships with its neighbours will become increasingly important in this regard, particularly with respect to Bolivia – one of the region’s largest coca producers, and to Paraguay, which is emerging as a key transit route.
In addition, President Dilma Rousseff has already shown herself as having little patience with the taint of corruption at Cabinet level. Her administration needs to transmit this to the security apparatus, particularly among the rank and file officers. Then, Brazil's rapid rise up the world's economic rankings will be accompanied by greatly improved security, and reduced costs, for investors and citizens alike.
