How Brazil can win back investors

Wednesday, July 3, 2013

FORTUNE — The massive protests in Brazil may have subsided, but the unrest is far from over, as evidenced by the tear gas earlier this week outside the Brazil-Spain soccer game in Rio. The turmoil threatens to exacerbate an already tense situation for the nation’s shaky financial markets. The protests, which erupted last month in response to a hike in bus fares, is undermining the Brazilian government’s attempt to alleviate a potentially disastrous flight of foreign capital as investors cycle out of emerging markets.

If the government doesn’t move to address the grievances of its restless and frustrated population quickly and prove to the investment community that it is still committed to responsible government spending, then the country could be setting itself up for a severe economic downturn.

Brazilians rarely like to rock the boat. They have lived through dictatorships, corrupt governments and wild economic swings without much popular dissent. Indeed, this was, after all, the last western nation to ban slavery — and it didn’t come about because of a mass popular uprising, it just happened because it was time.

But Brazil has changed dramatically in the last few years. Brazilians, now numbering nearly 200 million, are richer and more educated than at any time in the nation’s short history. An amazing 20% of the population, around 40 million people, have been lifted out of poverty in the past decade. At the same time, enrollment in higher education has doubled and the nation’s literacy rates among youths now tops 97%.

These are all good things for investors to hear. A richer and more educated population usually leads to a healthy uptick in spending within the country on a variety of services and assets. This creates an upward spiral in economic growth where investors are able to reap healthy returns across a variety of markets.

Source: Fortune (link opens in a new window)