The fall of Eike Batista and Brazil’s sagging economy

By Luisa Frey
The collapse of Eike Batista’s business empire has dominated the headlines about Brazil in recent weeks. With good reason. The brash entrepreneur’s rise and fall has become a metaphor for the end of the country’s economic boom.

After growing 7.5 per cent in 2010, Brazil’s economy expanded by a paltry 2.7 per cent in 2011 and sputtered to only 0.9 per cent last year. This year it is forecast to grow by 2.5 per cent. Meanwhile, inflation is stubbornly high at 5.84 per cent in October (on a yearly basis) – well above the official target of 4.5 per cent. To keep expanding, the country will need to boost its productivity by eliminating growth bottlenecks, improving infrastructure and encouraging investment.

Here are some of the best articles from the FT and elsewhere about the end of the “Samba economy”.

From the FT

  • Eike Batista’s story is “synonymous with Brazil’s rise and fall”, comments FT’s Latin American editor, John Paul Rathbone. Just as Batista’s empire – who was the seventh-richest man only 18 months ago – “Brazil’s go-go years of the mid 2000s are also over.”
  • Brazil has missed the opportunity of implementing vital structural reforms during its years of high growth, which could have helped the country keep expanding. But Brazil is not alone: investors worry about emerging markets’ failure to pursue reforms.
  • A special report on innovation, research and development in Brazil argues these are key to the country’s economic success. But even if there is still a lot to be done, there have been achievements, such as Embraer – which has became the third-largest commercial jet producer in the world by units sold.
  • Improving infrastructure will be crucial to whether Brazil can boost growth. Investments in this area are in the spotlight now that the country is about to host the World Cup and the Olympics.
  • Exactly because of the lack of infrastructure investments, “Brazil risks lost decade”, analyses Joe Leahy, FT’s Brazil Bureau chief.
  • Earlier this year, Jonathan Wheatley, deputy emerging markets editor, also pointed out that Brazil has to invest in building productivity, in an environment of “low investment, bureaucratic problems and bottlenecks.”
  • Brazil also risks losing its investment grade status, said Barclays last week. The sovereign rating downgrade may come next year if the country’s low growth rate and fiscal deterioration continue.

The Best of the Rest