Economists urge the country to reduce barriers, improve competitiveness, and embrace global markets as supply chains realign

04/22/2025

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Given the ongoing global trade wars, it is increasingly vital for Brazil to address persistent domestic challenges, including poor logistics infrastructure, bureaucratic obstacles, restricted access to quality education, an ineffective public sector, insufficient credit guarantees, and the overall cost of doing business in Brazil, experts advised Valor.

Experts argue that in addition to Brazil’s well-known reform agenda, the United States’ latest tariff hike should also catalyze the country to open its still highly protectionist economy.

Gesner Oliveira, founding partner at GO Associados and professor at Fundação Getulio Vargas (FGV), likens the current external shock to a scenario where “the water level drops, and the rotting boats begin to surface.”

“In emerging markets, the need for better infrastructure, less bureaucracy, and a streamlined public sector is already pressing—now it’s urgent. Our tolerance for inefficiency is shrinking rapidly. Only the most competitive economies will survive,” he said.

According to him, the three most critical reforms Brazil needs to seize the moment—what he calls the “Trumpist wave”—are improvements in physical infrastructure, education and vocational training, and rationalization of the public sector.

Amid global instability, Mr. Oliveira sees an opportunity for nations and businesses to rethink their supply chains. He suggests that if Brazil enacts necessary reforms, it could emerge as a strong alternative. “It’s as if everything has been reset, and countries are reconsidering their suppliers. If Brazil can prove itself as a competitive economy with stable market access and quality products, it could benefit from this new order,” he stated.

In this shifting trade landscape, competitive capacity becomes a “matter of life and death,” said Rafael Cagnin, executive director of the Institute for Industrial Development Studies (IEDI). “Improving Brazil’s competitiveness has always been vital, but now it’s critical. The country will only benefit from emerging opportunities if it reaches a competitive level closer to global standards.”

Mr. Cagnin pointed out that Brazil’s high production costs—known as the “Brazil cost,” which compares unfavorably with the average cost structures of OECD countries—“suffocate the country’s ability to seize opportunities and address new challenges.”

Taking a more optimistic view, Aldemir Drummond, strategy professor at Fundação Dom Cabral, sees opportunities for Brazilian sectors with natural competitive advantages, particularly in energy and food security. “In a world where the only certainty is uncertainty,” he said, “Brazil won’t benefit across the board, but there’s room to capitalize in key areas.”

Given the country’s “glaring” fiscal constraints, Mr. Drummond argues that the government should act more as a facilitator than as an investor in the necessary reform agenda. “Nothing is ready yet—Brazil has a lot to do. However, with the fiscal bottleneck we face, the government must focus on enabling reforms rather than directly funding them. Infrastructure is a prime example, where concessions could be accelerated,” said Mr. Drummond, who coordinates the Imagine Brasil project.

Mr. Oliveira noted that Brazil is currently experiencing record levels of infrastructure investment through both traditional privatizations and public-private partnerships (PPPs), strategies being pursued across the political spectrum and at several levels of government.

Another area where Mr. Drummond sees both need and opportunity is in strengthening credit guarantee mechanisms to help stimulate private investment despite high interest rates. “The government could facilitate this by offering guarantees through investment banks or public financial institutions. While it wouldn’t yield immediate results, it could drive progress in the short to medium term.”

According to Mr. Drummond, closer coordination between the public and private sectors is essential for reform. He believes Brazilian society still tends to expect the government to solve all major problems. “It’s important to engage the private sector and promote a convergence of public and private interests, as has worked in the past. Too often, the private sector still seeks subsidies. That may be acceptable for a limited time, but it requires targets and accountability.”

Among the reforms on Brazil’s to-do list, Fernando Veloso, a researcher at FGV’s Brazilian Institute of Economics (FGV Ibre), highlights trade liberalization as the most important. He also sees Brazil potentially benefiting from the ongoing restructuring of global supply chains—but only if the country abandons its protectionist stance. “Brazil needs to finally break from its closed-economy tradition and integrate with global markets by reducing tariffs and non-tariff barriers. There was some liberalization in the 1990s, but little progress since,” Mr. Veloso said.

While the U.S. appears to be retreating from global trade, the same is not true for the rest of the world, he noted. Trade liberalization could better position Brazil for this new environment.

In his view, Brazil has made progress with the approval of tax reform, even if the transition period is long, and has a well-defined reform agenda, including infrastructure upgrades and better credit guarantee mechanisms. “But trade liberalization remains the most delayed agenda item,” he warned.

Mr. Cagnin also supports reinforcing the commercial focus of Brazil’s diplomacy but believes that protective measures are still needed to counter unfair competition.

“It would be good to have a more active foreign trade policy aligned with industrial development goals—using all tools available to guard against unfair competition. Diplomacy could lean more in that direction,” he said.

In a recent Folha de S.Paulo newspaper op-ed, Santander Brasil chief economist Ana Paula Vescovi also emphasized the importance of reforms in the current context.

“Structural reforms are increasingly necessary to enhance competitiveness without resorting to subsidies, which would only worsen public finances and raise interest rates,” she wrote.

According to Ms. Vescovi, progress in tax, administrative, and regulatory reforms could improve systemic efficiency and reduce the Brazil cost, helping mitigate the effects of foreign trade barriers. “By signaling efforts to boost corporate competitiveness—rather than isolating itself, Brazil can turn this challenge into an opportunity and stand as a reliable supplier in global chains that will be increasingly vulnerable to instability,” she added.

*By Lucianne Carneiro — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/