It’s not all gloom and doom for Brazil

This week has been all about Brazil’s epic 1-7 World Cup embarrassment at the hands of Germany in Belo Horizonte. In sporting terms, this outcome is worse than anyone’s worst-case scenario and will most certainly leave a scar. Conflating the loss to a wider economic meltdown, however, has the whiff of drama for drama’s sake.

Darkest before the dawn

Some experienced equities analysts have speculated that the loss was so devastating as to kill consumer confidence, making economic revival in Brazil unlikely any time soon. This logic reverses a standing argument that the home team’s elimination might guarantee an election loss for Brazilian President Dilma Rousseff and thus a change in economic policy that could fix the stagflation currently haunting the country.

Many think Rousseff will indeed be ousted, but that the national bummer will overwhelm any structural benefits attending the change. Is it really this bad?

New data from SCM World points to a rosier future. We have now assembled over 850 completed responses to our annual CSCO survey, which asks, among other questions, where supply chain executives see the best opportunities for growth. Germany may have crushed Brazil on the football pitch, but the reverse is true for business prospects.

Brazil has been picked in the top three by 277 individuals already and the survey is still open. Germany, by contrast, has seen only 56 people identify it as a top three growth opportunity.

Yay Brazil!

The respondent pool is geographically reasonably diverse, with 49% from the Americas, 37% from Europe, the Middle East or Africa and 14% from Asia. It also comprises all industry sectors with none accounting for more than 15% of the total and over half at the vice president or higher levels of authority.

These are the people who decide where to build new plants, how to develop new distribution channels and from whom to buy supplies. Perhaps their supply chain plans deserve more weight than a jolt of national self-pity in judging Brazil’s business outlook.

A firm foundation

Macroeconomic data for Brazil is indeed concerning, including inflation running above 6% and growth below 2%, plus a restive population feeling left out of the party. On the other hand, the country’s infrastructure has performed better than expected during this World Cup and the relative lack of riots following the German humiliation gives comfort to supply chain strategists considering investment plans in Brazil.

Consumer confidence matters, but big, mature economies aren’t so fragile as to crumble over spilt milk. I think Brazil is such an economy.

When we studied global manufacturing footprints last year, Brazil looked very strong, it tied for third after China and the US with 28% of respondents planning capacity increases in the next three years. Capacity increases in Brazil were also the second most likely to be based on more automation rather than additional labour.

With big sectors across the spectrum, from raw materials through industrial, technology, consumer goods and retail, Brazil’s economy is diversified. Its biggest companies, including Petrobras, Ambev, Vale and Embraer, are sophisticated global entities. In addition, its energy position, including huge amounts of green hydro power and domestic oil, insulates it against supply chain risks like carbon taxes and transportation cost volatility.

In the survey cited above, we also asked respondents which countries were too risky to operate in at all. As one might expect, many of the same ones flagged for growth potential are also considered risky. Judged against this scale, however, Brazil looks downright safe, way behind China, India, Russia and Nigeria, all of which made the top 10 for growth prospects.

Cheer up

I can’t deny the misery of this week’s football (soccer) disaster, but from a supply chain perspective, Brazil still looks pretty solid. If political change puts economic policy on the right track, we might look back at this World Cup as the start of something good.