The Brazilian economy demonstrated remarkable resilience in 2023, significantly surpassing initial expectations. The Brazilian Institute of Geography and Statistics (IBGE) revised the economic growth upward from 2.9% to 3.2%. This adjustment, announced in December 2024, reflects stronger economic performance than initially reported.

Sectoral Developments

Service Sector

The service sector, which accounts for over 70% of Brazil’s GDP, recorded growth of 2.8% instead of the originally reported 2.4%. This correction is based on a comprehensive review of the monthly service survey and the incorporation of new industry data.

Agricultural Sector

The agricultural sector experienced a significant upward revision from 15.1% to 16.3%. This highlights the resilience and adaptability of this important economic sector.

Industrial Sector

The industrial sector also contributed to overall growth, albeit to a lesser extent. The growth rate was slightly revised upward from 1.6% to 1.7%.

Economic Dynamics

Brazil’s GDP has now grown for 13 consecutive quarters, indicating sustained economic momentum following the pandemic. This development suggests that market-oriented policies and entrepreneurial initiatives have played a crucial role in the country’s recovery.

Outlook and Implications

The revised figures position Brazil as a stronger player in the global economy. They could potentially attract more foreign investment and influence regional economic dynamics in South America. Market analysts have revised their GDP growth forecasts for Brazil for 2024 upward from 1.52% to 3.22%. This revision reflects growing confidence in the country’s economic prospects.

Methodological Improvements

The revision of economic data underscores the importance of accurate data collection in economic reporting. IBGE’s commitment to refining its methods ensures a more precise representation of Brazil’s economic landscape and aligns with principles of transparency and accountability. These positive developments indicate that Brazil remains on a solid growth trajectory despite global challenges and continues to strengthen its position as a major economic power in Latin America.

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The Brazilian Real was many years overvalued, now the Big Mac Index suggest it is significant undervalued.

If entering a market that has an undervalued currency, the front up investment costs may be lower.

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The decision has been made to expand internationally. The reasons for this can be diverse. Rarely is a specialist for the target market consulted up to this point; the entry is decided internally and is set. Please also take a look at our Market Entry Framework. Often, the company is not only successful but also a price leader or technology leader in its field. Help is often sought only in the background for language barriers, e.g., in China or Brazil. The cultural differences and challenges are almost always underestimated. Due to success in the home market, one thing is rarely considered: That the expansion could fail.

What Can Be Learned from the Decision Tree in the Oil Industry. To Drill or Not?

The insights from the well-known book “Decisions Under Uncertainty: Drilling Decisions By Oil and Gas Operators” are taught in many MBA courses. Decision trees and Expected Monetary Value (EMV) are powerful tools in decision analysis that have their roots in the oil industry and have since found wide application in finance and other fields. These concepts were developed to help decision-makers navigate complex choices in uncertain environments. Decision trees emerged in the 1960s as a graphical method for representing and analyzing sequential decision-making under uncertainty. They provide a structured approach to breaking down complex problems into a series of smaller, more manageable decisions.

By visually mapping out different scenarios, their probabilities, and potential outcomes, decision trees allow for a clearer understanding of the available options and their possible consequences. Expected Monetary Value (EMV) is a key concept used in conjunction with decision trees. It provides a way to quantify and compare different options by calculating the average outcome of a decision, taking into account the probabilities of various scenarios. The EMV is computed by multiplying each possible outcome by its probability and then summing these products.

The oil industry played a pivotal role in the development and refinement of decision tree analysis and EMV concepts. In the 1960s, oil companies faced high-stakes decisions about where to conduct exploratory drilling. They needed a systematic method to evaluate geological uncertainties and potential returns. Decision trees allowed them to map out drilling scenarios and calculate EMVs to compare options, which helped optimize exploration strategies and capital allocation.
The principles developed in the oil industry were soon recognized for their broader applicability and adopted in the financial sector. Financial experts recognized the value of using decision trees and EMV for various applications, including investment decisions, risk management, portfolio optimization, and option pricing. The finance industry built upon the foundational work from oil exploration, incorporating more complex probability distributions, developing sophisticated software tools for analysis, and integrating these concepts with other financial models and theories.

In the financial world, decision trees and EMV have become invaluable tools for structuring problems, quantifying uncertainties, and making data-driven decisions. They are used to evaluating projects, analyze potential outcomes of different strategies, optimize asset allocation decisions, and model the value of financial options. This evolution from oil exploration to finance demonstrates how powerful analytical tools can be adapted and refined across industries to address similar challenges in decision-making under uncertainty.

Today, the principles of decision trees and EMV are applied in various fields beyond oil and finance, including healthcare, technology, and public policy. Their enduring relevance speaks to the universal need for structured approaches to decision-making in complex, uncertain environments. As data analysis and computational capabilities continue to advance, these tools are likely to evolve further, maintaining their importance in helping individuals and organizations make more informed and effective decisions.

Chances of Success

The chances of success for a successful market entry are much lower than most companies assume. Don’t forget, even the billion-dollar corporation Walmart failed with its market entry in Germany. And Walmart certainly didn’t fail due to lack of financial power or lack of knowledge of how to do business. The owner of a German medium-sized chemical company that was close to sinking a double-digit million amount in the USA once said that 9 out of 10 market entry attempts in the USA would fail. One can discuss this number for a long time. But the chances of success are certainly not above 50%. And success prospects of at most 50% are not particularly good. You should be clear about three things: 1. The odds are against you. 2. You must do everything that increases the chances of success. And 3. The market entry could fail.

This decision tree uses the concept of Expected Monetary Value (EMV) to make a data-driven decision about whether to hire a consultant for entering a foreign market. Let’s break down the analysis:

Hiring a Consultant:

• The probability of success is higher (70%) due to the consultant’s expertise.
• The potential revenue is higher ($1,000,000) as the consultant may help identify better opportunities.
• The costs of failure are lower ($200,000) as the consultant can help mitigate risks.
• The consultant’s fee is assumed to be $50,000.

Not Hiring a Consultant:

• The probability of success is lower (40%) without expert guidance.
• The potential revenue is lower ($800,000) due to potentially missed opportunities.
• The costs of failure are higher ($300,000) due to increased risks.
• The EMV calculations show that hiring a consultant has a significantly higher expected value ($590,000) compared to not hiring one ($140,000). This suggests that despite the additional cost for the consultant, the increased probability of success and potentially higher revenues make this option more attractive.

This decision tree analysis provides a clear framework for decision-making and takes into account both the costs and potential benefits of hiring a consultant. It shows that the relatively low cost of the consultant is outweighed by the significantly increased chances of success and potential revenues. Keep in mind that while this analysis provides valuable insights, it should be combined with other factors such as company strategy, risk tolerance, and qualitative considerations before a final decision is made.
We provide a sample analysis in UML diagram format instead of the usual event fork and activity fork conventions.

The numbers are just examples; you can now play through this at any time with your own probabilities.

You want to expand in Europe, Germany, China, Brazil or India? Looking for long term partners? Talk to us. 

Source: Visual Capitalist.

In a changing world, can you afford not to be present in at least one BRICS country? Talk to us.

Source: Visual Capitalist.

In a changing world, can you afford not to be present in at least one BRICS country? Talk to us.

The report forecasts that India’s nominal GDP will nearly double, reaching over $7 trillion by fiscal 2030-31, up from $3.6 trillion in fiscal 2023-24. This growth would increase India’s share of global GDP from 3.6% to 4.5% and significantly raise per capita income.

India’s economic performance post-pandemic has been remarkably strong, with growth hitting 8.2% in the fiscal year ending March 2024, surpassing earlier government estimates. This positive trend has continued into fiscal 2024-25, bolstered by record goods and services tax collections and encouraging indicators from the manufacturing and services sectors.

The report underscores that structural reforms aimed at enhancing business transactions and logistics will be crucial for maintaining this growth trajectory. By fostering private sector investment and reducing reliance on public capital expenditure, India can sustain strong economic performance despite fiscal challenges. Nevertheless, high food price inflation linked to climate change poses risks that could complicate investment and monetary policy.

While India’s economic prospects are robust, certain challenges may temper growth in the short term. The Reserve Bank of India’s rate hikes from May 2022 to February 2023 are still influencing demand, and regulatory measures targeting unsecured lending may also impact consumption in fiscal 2024-25. Additionally, the government’s commitment to fiscal consolidation could limit public investment.

Despite these hurdles, India’s real GDP is projected to grow by 6.8% this fiscal year, positioning it as the fastest-growing large economy globally. The private sector is expected to take a more prominent role in driving investment, particularly as government spending becomes constrained. While private sector investment has not fully rebounded yet, signs of recovery are emerging, especially in infrastructure projects that encourage participation from related industries like steel and cement.

India’s economic growth is enhancing its integration into global value chains, with ongoing improvements in logistics and infrastructure set to boost competitiveness and attract foreign investment.

Furthermore, India’s strong external buffers contribute to its economic resilience. The current account deficit narrowed significantly in fiscal 2023-24 to just 0.7% of GDP, down from 2.0% the previous year. Foreign exchange reserves remain robust at over $650 billion, and India’s favorable net external debt position minimizes risks associated with capital outflows.

In summary, the S&P Global report concludes that India’s economic outlook is positive, driven by strong growth prospects supported by ongoing reforms and rising private investment. However, challenges such as high food price inflation and fiscal constraints could pose short-term risks. To maintain momentum, the private sector must lead in investment while the government addresses structural issues to control inflation and support effective monetary policies. As India continues to grow, it is well-positioned to become a significant player in global economic dynamics by the end of the decade.

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China’s growing influence in Latin America and the Caribbean has been marked by significant economic engagement and strategic partnerships. In 2021, China emerged as the second-largest trading partner for the region, with trade volumes reaching nearly $450 billion, a remarkable increase from just $12 billion in 2000—an increase of almost 40 times. This surge in trade is largely driven by China’s demand for soybeans, which is crucial for addressing its domestic food security challenges.

From 2005 to 2020, Chinese investment in Latin America surpassed $130 billion. Notably, Brazil received around $60 billion, while Peru and Chile each attracted $27 billion. Argentina benefited from $12 billion in Chinese official foreign direct investment. The implications of such investments are complex; for instance, Venezuela serves as a cautionary example of the risks associated with substantial loans to economically struggling nations.

Belt and Road Initiative

The Belt and Road Initiative (BRI) is a comprehensive infrastructure and development strategy initially designed to connect East Asia with Europe. However, its scope has expanded to include Africa and Latin America. By 2022, Argentina became one of 20 countries in the region to formally join the BRI, which has shifted investment focus from traditional sectors like materials and energy to a broader range including consumer goods, financial services, industrial products, telecommunications, and utilities.

Joining the BRI is often seen as a means for countries to enhance their diplomatic relations with China, positioning themselves favorably within the geopolitical landscape.

Economic and Political Implications

China’s increasing presence in Latin America has raised both opportunities and concerns. While it offers economic benefits, such as infrastructure development and access to Chinese markets, it also poses risks related to dependency and political influence. The U.S. has expressed apprehension over China’s ambitions, viewing its growing ties as a challenge to American influence in the region.

China’s strategic investments and diplomatic outreach, particularly during the COVID-19 pandemic, have solidified its role as a key player in Latin America. The distribution of medical supplies and vaccines further enhanced its image as a reliable partner, contrasting with the U.S.’s inconsistent diplomatic engagement.

As Latin American countries navigate these evolving dynamics, they must weigh the benefits of Chinese investments against the potential for increased economic dependence and the implications for their sovereignty and political stability. The future trajectory of these relationships remains uncertain, influenced by both regional political developments and global economic trends.

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Danny Quah, a professor at the London School of Economics (LSE), studied the dynamics of the global economy’s centre of gravity in a 2011 paper. He defined the economic centre of gravity as the average location of the planet’s economic activity, measured by GDP generated across nearly 700 identifiable locations on Earth’s surface.

In 1980, the world’s economic centre of gravity was situated in the middle of the Atlantic Ocean. However, by 2008, it had drifted eastward to a location between Izmir and Minsk, east of Helsinki and Bucharest. Extrapolating growth in the 700 locations, Quah projected that by 2050, the economic centre of gravity would be located between India and China.

An updated graphic shows the WECG’s movement over time. In 1AD, China and India were the world’s largest economies. European industrialization and America’s rise drew the economic centre of gravity into the Atlantic. However, Japan’s economic boom made it the second-largest economy in the world, pulling the centre northward. As China has regained economic leadership, the centre is now retracing its steps towards the east.

Interestingly, the WECG appears to move horizontally, suggesting that the north-south divide may remain relatively constant. Quah’s research shows that the latitude declines from 66 degrees North to 44 degrees North by 2049, implying that the south, like the east, is gaining considerable relative economic strength.

As the global economy’s centre of gravity continues to shift eastward, policy formulation and global governance will require more inclusive engagement with the east. While some global policy questions, such as promoting economic growth, may remain the same, others, like appropriate political and military intervention, might change in character.

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Real per US Dollar exchange rate

Brazil also presents good entry opportunities into a BRIC country, thanks to currently favorable exchange rates, as seen in the “Real per Dollar” exchange rate graph above. Historically, the Real has often been expensive and likely overvalued. The Economist’s Big Mac Index currently indicates an over 25% undervaluation. Therefore, from an exchange rate perspective, market entry or company acquisition in Brazil can be interesting. Don’t forget, Brazil is large!

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