How Brazil beats poverty trap

South African government departments and development agencies have been visiting Brazil in droves, eager to learn from that country’s recent success.

Between 2003 and 2007, prior to the financial crisis, economic growth in Brazil averaged 5% a year — its best performance in more than 25 years.

There was also progress in education and poverty alleviation, eradication of HIV/Aids and inequality, the Achilles heel of modern Latin America. Although the Brazilian economy is expected to decline in 2009, this will be far less than the Latin American average.

Growth projections for 2010 are about 2% to 3% and general sentiment is positive for Brazil’s upward socioeconomic trajectory.

Most supporters of the so-called “leftist model” in Latin America attribute these results to President Luiz Inácio Lula da Silva’s inclusive social programmes.

But the reality is a complex, delicate blend of social policies and progressive economics that has, in time, matured into a model of developmental success.

Once described as the country that will always have potential (and will never realise it), Brazil was trapped in mediocre growth and a dismal investment record after an economic boom between 1965 and 1975 when the country grew on average 10% a year.

By the 1980s economic slowdown and social neglect had created unacceptable poverty levels and enormous income inequalities, even though Brazil is one of the world’s largest food producers and blessed with natural resources.

Today more than 40-million Brazilians are poor, living on less than $2 a day. Levels of inequality are on a par with South Africa, but more severe than in countries such as India, Chile and Nigeria.

The richest 10% of Brazilians account for nearly 50% of the national income, whereas the poorest 50% account for only 10%. But things are changing.

Sustained economic growth has brought confidence and the economy appears more resilient to the global crisis.

In 2007 foreign investment reached record levels of $35-billion. A favourable trade balance, with exports exceeding $700-billion, has driven Brazil’s export-led growth. The Brazilian stock market has performed well.

Last year the Brazilian commodities and futures exchanges merged to become the second-largest exchange in the Americas.

Brazil has adopted a more assertive foreign and commercial policy through a vigorous investment drive across Latin America and Africa, coupled to an increasingly liberal trade policy. This approach, with new-found oil reserves off the coast of Brazil, is part of a plan to fuel its next long-term growth cycle.

But it is Brazil’s success in social development that has piqued the interest of South African policy thinkers.

Shortly after his election in 2003, Lula da Silva launched an ambitious programme to end hunger. Fome Zero or “Zero Hunger” is a novel approach that combats hunger and malnutrition by combining this with other social priorities such as education, healthcare and a grounded family structure.

The programme targets the neediest households in a particular community and provides food coupons in exchange for school attendance or skills training. This aims to empower the needy and ultimately integrate them into the formal economy.

Since 2003 the number of poor people — those living on less than $1 a day — has dropped by 21%, from 15.4-million to 11.3-million in 2008.

By 2010 Lula da Silva hopes to be able to deliver three meals a day to every family in Brazil. Most seem to agree on the basic formula behind the social progress.

First, difficult structural reforms and economic liberalisation in the 1990s under the former president Fernando Henrique Cardoso provided the necessary revenues for Brazil to benefit from the commodity boom and implement far reaching social policies.

The Lula da Silva administration says that Cardoso’s macro policies laid the foundation for Brazil’s positive outlook today.

Second, an initial push for economic growth was essential. Without growth — and a benign international environment — the country would never have had the resources necessary for effective social programmes and delivery.

Third, a coherent policy framework that serves the dual purpose of economic growth and social delivery through careful husbanding of resources is essential.

Nevertheless, the Brazilian ministry of planning, budget and management says that linking macroeconomic policy and public spending remains a challenge.

Fourth, social programmes have been well structured, clearly targeted, thoroughly managed and supported by government and non-government institutions — including local community groups. These institutions are involved at various levels of planning at both the federal and state level.

Finally, leadership was key. Lula da Silva’s greatest achievement has been his ability to create consensus between the powerful labour unions and organised business on what is required in a country notorious for its divergent interests.

The Cardoso-Lula da Silva succession has proved an effective combination. After the rhetorical priority of structural adjustment in the 1990s, the country has — as one Brazilian official put it — become normal under Lula da Silva.

It is no longer sidetracked by silver-bullet solutions for growth prevalent in the 1980s and 1990s and is more open to international dialogue on policy and integration.

Brazilians admit that the country is still grappling to overcome patronage and instil meritocracy in public service. Political expediency means that a lot of planning is still short term.

The future is also in question as the country prepares for elections in 2010 when the president completes his second and final term.

Brazil has shown that a balanced approach to growth and development can work in developing countries and under difficult socio-economic challenges when social policies and economic reforms are integrated to meet common goals through conscientious planning and leadership.

Elizabeth Sidiropoulos is national director and Dr Lyal White is research associate at the South African Institute of International Affair