June 14, 2010
Rio de Janeiro, Brazil
It’s nice to be back in Brazil again… if you haven’t been to this country, I highly recommend that you check it out.
Brazil is one of the largest countries on earth in terms of both land mass and population (over 200 million); consequently, there is tremendous diversity. The capital city of Brasilia is completely different than the tourism hub of Rio de Janeiro, which is completely different than the commercial center of Sao Paulo.
As a nation, though, it has an incredibly bright future, mostly due to its substantial economic prospects. This is what I want to talk to you about today because it’s one of the reasons that I think Brazil should be on your radar for planting multiple flags.
Remember, when you’re considering foreign jurisdictions, it always makes sense to plant flags in countries that have strong economies– they will be the least likely to change their policies and deteriorate.
Below I outline the reasons why I expect Brazil to maintain its economic power in the future, which is why it is should be on your radar for multiple flags, especially residency, citizenship, banking, property, or investment:
1) Industrial capacity. Long-term economic power is derived from the ability to turn savings and resources into productive goods and services. A nation’s industrial capacity is its means to accomplish this task, and includes things like the quality of its work force, magnitude of entrepreneurship, availability of factories and heavy equipment, etc.
Brazil has all of these elements in spades; it can manufacture the full range of products, from raw materials to finished goods, in a variety of sectors including agriculture, biotechnology, automotive, and even airplanes.
2) Technological capabilities. In the long-run, real economic growth requires two key ingredients– a substantial pool of savings which can be invested in production, and technology which boosts productivity.
In many ways, technology is the more important of the two because the right technology can obviate the need for capital.
In Brazil’s case, the country has been able to effectively develop and deploy alternative fuel technology that has eliminated its import need for retail gasoline. It’s amazing that the Brazilians have been able to do this, but other countries haven’t.
3) Resource independence. Being reliant on foreign countries for vital resources is a death blow to an economy. Real power is rooted in independence, creating a position of strength at the bargaining table.
In this respect, Brazil is one of the most fortunate countries on earth. It requires absolutely nothing from the outside world to sustain itself and is blessed with massive reserves of just about every resource a country could ever want, including the three most important: energy, food, and fresh water.
Given the vast amounts of oil that continue to be discovered off the coast of Brazil, the country will likely end up as #3 or #4 in the world in terms of proven oil reserves. Additionally, Brazil is home to more fresh water than just about every nation on earth, and its agricultural capacity could easily feed the entire hemisphere.
As such, Brazil is in a fortunate position in global trade– other nations are in desperate need of Brazil’s resources, and that directly translates into wealth and economic power.
4) Consumer market strength. The stronger a nation’s consumer market, the more powerful its economy becomes to the rest of the world. The US is in that position now– companies around the world want to sell their products to US consumers, and they’re willing to make necessary concessions to achieve that end.
If you’ve ever run a business, you know that your biggest customer frequently has more clout than your biggest shareholder. The customer is always right, and the same rule applies in macroeconomics.
By nature, Brazilians tend to be spenders, not savers. If you think that the average American is a shopaholic, hop a plane for the nearest Brazilian shopping mall and marvel at all the useless trinkets and knick-knacks that they waste their money on.
As the US consumer market runs out of steam, I’m convinced that the Brazilian market (numbering well over 200 million) will pick up the slack. They have the right consumer psychology, and they’re getting richer by the day from their immense resource wealth.
5) Balanced macroeconomic fundamentals. Economic power starts with a healthy balance sheet. Debt to GDP ratios and government spending must inspire confidence in global financial markets, not horror.
Brazil’s economy is fairly sound. It has experienced crisis in the past, and the trend is towards more stability, more discipline. The government and society seem determined to not repeat the fiscal mistakes of the past.
6) Political and military reputation. It’s no good having economic power if you can’t back it up with military power; how are other countries going to take you seriously if they know that they can just waltz in and steal your resources at gunpoint?
Brazil doesn’t exactly have the most active military forces on the planet– you don’t hear about the Brazilians deploying soldiers to 30 different countries at a time. Yet, its military remains strong enough that no one would be stupid enough to start a fight unnecessarily.
This stability generates investor comfort and helps promote growth in domestic financial markets.
Overall, each of these factors bodes very well for the Brazilian economy, which means that as a multiple flag jurisdiction, it will likely improve rather than deteriorate.
I would also suggest parking some of your long-term savings in the Brazilian currency (the real), which you can do through an Everbank foreign currency account, or the Wisdomtree Trust ETF (NYSE: BZF).
Over the next few days I’ll talk a bit more about Brazil, as well as what I think is the best part about the country– its passport.
More to follow.
