Much was said and published in 2009 about Brazil finally proving it has finally gotten its’ act together. The final test was the actual worldwide financial crisis, which it was able to weather it quite well. Going forward, the challenge is to keep the momentum. The economy continues to thrive and with interest rates finally reaching one digit, the lowest money cost in the history of the country. According to the economic consultants, a 2 point percentage drop in actual interest rates means an additional incentive up to 1.5 percentage points for the gross domestic product. With actual interest rates reduced to 5 %, as expected this year, the growing potential of the Brazilian economy raises from 4 % to at least 5, 5% a year.
According to Arminio Fraga, former Chairman of the Brazilian Central Bank, the current interest rates are the result of long-term efforts to control inflation and public debt. However, he also believes that there is no assurance that they will always remain low. He mentions that lax controls may jeopardize everything and that important structural reforms are still necessary to bring down the size of the State.
Regardless, however, with the end of substantial interest gains, companies, banks and also the government will have to seek more productivity. It will be necessary to balance the drop in interest rates with an increase in operations output. This is where a new mentality is needed. This is where it is believed where lies the greatest chance for Brazil to consolidate as one of the new Super Powers. It is not by chance that is seen as a compounding effect for Brazil, the winning of the hosting of the two largest world sporting events: The FIFA Football World Cup in 2014 and the Summer Olympic Games in 2016.
The drop in interest rates is very meaningful to several sectors that have been affected in the past. The most obvious one is the stock market. In this new context, investment funds and pension funds should more than double the investments in the stock market, which could reach US %$ 160 billion by 2013. This amount does not take into account investments from foreign companies or what 500 000 new investors might invest. The number of individual investors will double the stock market and all this appetite will boost debentures and secure bonds.
The new economic dynamics will not only help revive investments in infrastructure, but above all it means that instead of going abroad to obtain cheaper money and longer term loans, now local companies can just go around the in country corner. Now companies will be able to become competitive in the global scenario by having the same investment capability, which in turn releases the power for innovation and creation of competitive advantages. Companies will be able to entertain consolidation strategies and by that create more Brazilian multinationals.
Creating bigger companies in the information technology sector is considered one of the greatest strategic challenges for the Brazilian IT industry, which is very dynamic, but also very fragmented. Now is the time to take advantage of all the converging positive elements. It is an opportunity that can’t be afforded to lose.