Thomas White Global Investing
Brazil
Brazil Stamp
April 16, 2010
A Postcard from the Americas
Brazil: $878 billion bonanza from Lula

Landscape of Sao Paulo city

Under Lula, Brazil has reduced poverty and is readying itself for the 2014 FIFA World Cup as well as the 2016 Olympics.

The race to replace Brazilian President Lula da Silva is heating up. Two of the country’s foremost leaders are resigning their posts, with sights on Brazil’s the top job. Even as Dilma Rousseff and Jose Serra prepare themselves for the October elections, Lula da Silva, already one of Brazil’s most popular presidents, announced a massive $346.4 billion investment plan that his successor would eventually implement.

The investment is the second installment of Lula’s Growth Acceleration Program (PAC), which was launched in 2007. With this second influx of money, total investment is expected to reach $878 billion, with around $530 billion to be spent between 2011 and 2014. Similar to the first phase of the program, PAC in its second avatar offers improvements in sectors relating to logistics, energy, and social development. PAC also promises to target problems in urban infrastructure, housing, sanitation, electricity and transportation including airways, roadways and railways. Much of the investment, $255.3 billion between 2011 and 2014 and $343.9 billion after 2014, is directed at the energy sector. No surprises there, given that Brazil wants to expand its energy supply, especially in the field of clean fuels, of which it is undoubtedly a leader. “There is no time to lose,” asserted Lula da Silva while announcing the launch of the second program, a nod to Brazil’s rapid growth as an economic superpower in the Americas.

Lula has favored Rousseff as his successor, going as far as to call her “the mother of PAC” for the role that she played in implementing the first PAC. Rousseff herself had tears in her eyes when announcing the next step to the program, and this is clearly a project she holds close to her heart. Laudable among PAC’s goals is its approach to bettering the lives of Brazil’s weaker citizens: especially those living in favelas or slums. PAC hopes to raise their standard of living with the construction of two million homes. Reports about PAC’s implementation have been contentious – Rousseff’s office boasts that 80% of the projects have been completed in the first phase, which sharply contrasts the statement by the Brazilian Court of Accounts that claims just 12% of the 2007-initiated projects having been completed.

Despite the recession last year, when Brazil’s economy contracted by 0.2%, the prevailing feeling is that Brazil is well on the way to becoming the fourth largest economy in the world by 2050. The country is also preparing to host two of the biggest sporting events – the soccer World Cup in 2014 and the Olympics in 2016. Clearly, there is no time to lose. Brazil has naked ambition – to lift itself from the bowels of poverty and corruption and live up to the promise that it has always had. PAC might just show the way.

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