How state of health/education and inequality affect each other and Brazil’s business prospects

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Topic 1: How state of health/education and inequality affect each other and Brazil’s business prospects

 

Topic 2:  How inequality, rule of law and environmental degradation affects each other and Brazil’s business prospects

 

Topic 3: State of trade, a sign of promise?

 

 

 

We chose Brazil because it is a key developing country in the world with an unsure political and economic future.  Another reason we chose Brazil is that most of the disrupters discussed in the reading are relevant to Brazil’s development.  The three most important disrupters are inequality, rule of law and the state of public health and education.  Inequality is important because they have among the highest Gini coefficients in the world.  This inequality brings unrest, violence and threats to growth in Brazil.  The rule of law in Brazil is important because the government and law enforcement agencies don’t have a solid handle on the rampant and widespread crime, which was widely discussed leading up to the Olympics.  From the drug cartels to bribery in business, the rule of law is struggling to maintain stability in Brazil.  Lastly the state of public health and education is another important disruptive force.  The inequality, discussed previously is causing unsafe living conditions in favelas with a lack of affordable healthcare for the lower-class in Brazil.  The lack of universal public education is continuing to keep the poor uneducated and not giving them the opportunity to compete with the upper-class.  We also plan to discuss state capitalism, terrorism, environmental degradation and the state of trade in our presentation since they also pertain to conducting business in Brazil.

 

  1. Inequality - Emma
  2. Rule of Law - Conor
  3. State of Public Health and Education - David
  4. Environmental Degradation - Corrie
  5. State of Trade - Kevin

 

 

  1.       I.        Rule of Law
    1. The restriction of the arbitrary exercise of power by subordinating to well-defined and established laws
    2. Rule of law arguably one of the most important in Brazil because it directly pertains to conducting business
      1. Without laws, minimal competition due to bribery

a)    Makes it not worth it for companies

  1. Any tax revenue does not go to infrastructure to foster environment to conduct business

a)    Revenue goes to politicians to foster an environment of non-competition

b)    Taxes continue to rise rapidly and government workers see bribery and corruption as only alternative to financially survive

c)    Example: Construction companies overbid for Petrobras contracts and Petrobras gives cash to campaigns/politicians and politicians give favoritism to these construction companies

(1)  This was named operation car wash

d)    Operation Mensalao gave public funds to congressmen to vote for specific things

  1. Currently only way to survive as a business in Brazil would be to take part of the corruption and bribery

a)    Businesses extremely reluctant to do that due to FCPA

  1. Failure of Rule of Law also affects not only corrupt wealthy politicians and businessmen, but the poor also

a)    Thuggery, cartels, violent and deadly crime often go without punishment resulting in companies not wanting to put employees at that risk

(1)  Not only white collar government workers but also cops work with gangs out of fear and financial motive

b)    The failure of the rule of law ties the lower class with other disruptive forces such as inequality and the inability to move social classes, and the state of health and education

  1. Brazil is looking to remedy this corruption with the Bid Rigging Act of 2014-there version of the FCPA
  2. Rule of Law/Corruption stats for Brazil
    1. Transparency International, an international organization that works to decrease corruption around the globe ranked Brazil’s corruption 38/100 with 100 being the cleanest, this is 76th/168 countries
    2. The Heritage foundation, lists Brazil as “Mostly Unfree” in most rule of law categories including property rights, freedom from corruption, labor freedom and government spending

a)    Most of these metrics are also trending downwards

 

 

II. State of Public Health and Education

 

A.   Brazil’s prosperity and strong economy are determined by their public health institutions and policies which will helped improve and increase their life expectancy.

 

  • According to Dr. Hans Rosling’s research and study on life expectancy against income, wealth and health have positive correlation. The higher the income (GDP per Capita), the higher the life span. The life expectancy of the Brazilian population has increased from 69.66 years in 1998 to 74.6 years in 2012
  • Brazil has implemented several child health policies and child mortality rates has improved and declined, however, rates are still high compared to international standard. With a low child mortality rate, Brazil will have a larger population and workforce.

B.    Current State of Public Health.

  • Brazil’s national health system,Sistema Único de Saúde (SUS) has an estimated health care expenditure of $208 billion in 2013, comprised an estimated 4 percent GDP. Which is still considered low compared to other country. For instance, UK devotes at least 7% of GDP to this sector. Despite that, Brazil still has the largest health care system in the world.
  • About 70% of Brazil’s population receives care,2700 family health teams are active.
  • Brazil has approximately 6,800 public and private hospitals, 195,000 service units, and 500,000 hospital beds. However, the country’s estimated 2.5 hospital beds per 1,000 people is a relatively low number, and their distribution and the quality of provision are patchy.
  • One challenge that Brazil face is the maldistribution of funds between the public and private health care providers.75% of populations are enrolled in public health, and also relied on publicly fund SUS,but the funds that go into public health plan are insufficient. Moreover, 35% of the 75% is still poor, living in remote jungles and farms or in ghettoized favelas
  •  Another challenge is unsatisfactory remuneration for doctors leading to a shortage of general practitioners in the public sector and lack of infrastructure for the provision of services, equipment, and supplies.

 

C. education system is accordingly plagued by many deficiencies and social and regional       disparities.

  • Despite its 92.0 % literacy rate, there are still 13.2 million that are functionally illiterate. They know words and numbers but cannot use it in a sentence or perform in mathematical operation.
  • Public School and local government in several underdeveloped region do not receive funds and making poors uneducated, therefore affecting poors to compete with the upper class.
  • Challenges for public school:1) lack of teachers 2) overcrowded classroom 3) lack of security and infrastructure.
  •  Government Improvements-1) In 2014, the Brazilian Gov’t implemented a program called PNE (short for Plano Nacional de Educação). The mission is to increase the number of mandatory education years, the percentage of Brazilians going to schools and universities and provide training for faculties to improve their skills and professions. By reaching the targets, the gov’t will have to double their investment and increase the 5.3% of GDP to at least 8.9 % of GDP. 2)The gov’t also implemented a new program in early 2015 called Prouni, which provides scholarships for students with lower income to private university.

 

III. Environmental Degradation

           

A.         Overview of main environmental issues

1.)   Air Pollution
- Due to rapid urbanization and industrial development in cities
- Population boom lead to quick expansion of cities and little attention was paid to the environment
- New initiatives are being started to reduce this

2.)   Acid Rain
- Affects pH levels in soil and water: Limits the number of types of plants and animals that can survive in an area

3.)   Land Degradation and Water Pollution
- Due to mining activities

4.)   Wetland Degradation and Severe Oil Spills

5.)   Waste Disposal
- 161,000 tons of solid waste produced each day
            - 2/3 disposed of in landfills
- Soil around landfills becomes toxic and unable to sustain life
- Solutions:
            - New focus on recycling
            - Major campaign to educate citizens on use and disposal of various items

6.)   Endangered Species
- Due to hunting, destruction of habitat, and introduction of foreign species
- Huge reduction of fauna as a result
- Hundreds of species in danger of extinction

7.)   Deforestation of the Amazon Basin
- Large amounts of trees are being cut down for timber, development, and agriculture

B.         How this affects those wishing to do business in Brazil

1.)   There are two extremes

  • Degradation of the environment in general
    - Less raw materials available
    - Negative impact on tourism industry (which will likely affect the income of many Brazilians and therefore keep the entire country from growing economically)

- A lot of resources will be required to improve current state of the environment

- Sustainability is becoming a bigger focus in the economic environment

 

  • Measures taken to improve the environment- Environmental policies and restrictions have made it nearly impossible to improve the country’s infrastructure (i.e. build a dam, pave a road etc.)
    - makes it difficult to transport raw materials and finished goods
    - requires companies to find innovative ways to conduct business

                                    - The Brazilian Environment and Renewable Natural Resources Institute

                                                - IBAMA

                                                - federal agency that creates most regulations for things like

                                                Pollution control

                                                - “Other agencies are required to take IBAMA regulations into

account when examining applications for incentives and financing of investment projects.” (PwC)

- “Non-compliance with environment control regulations may result in the suspension of tax benefits, credit restrictions or even the closing down of operations.” (PwC)

I.                State of Trade

A.               Current Trade Balances

1.               Exports

a)                $190.1 billion (2015 est.)

b)                Key export commodities

(1)              Transport equipment, iron ore, soybeans, footwear, coffee, automobiles

c)                Key export partners (2015)

(1)              China 18.6%
(2)              US 12.7%
(3)              Argentina 6.7%
(4)              Netherlands 5.3%

2.               Imports

a)                $172.4 billion (2015 est.)

b)                Key import commodities

(1)              Machinery, electrical and transport equipment, chemical products, oil, automotive parts, electronics

c)                Key import partners (2015 est.)

(1)              China 17.9%
(2)              US 15.6%
(3)              Germany 6.1%
(4)              Argentina 6%

3.               It is estimated that Brazil had a $17.7 billion dollar trade surplus in 2015

B.               Popular Economic Indicators for 2016

1.               Country growth is projected to finish the year down 12.39 due to a slowdown in China’s economy that is impact the whole world. The global economy shrunk by 11.42 this year.

2.               Exports of goods and services (% of GDP)         13.04

3.               Imports of goods and services (% of GDP)         14.32

C.               Ease of Doing Business

1.               In the World Bank’s report for 2016, Brazil ranked 121 out of 190 countries.

2.               Difficult to start a business by getting a line of credit and obtain the necessary construction permits

3.               Relatively easy to get electricity

4.               Laws in place to enforce contracts and handle solvency issues

5.               Good protection for minority owners

6.               Hard to register property

7.               Terrible at paying taxes

8.               Trade across borders is lower than expected

D.              Trade Policies

1.               Brazil has suffered a significant loss in the World Trade Organization (WTO). The institution has considered seven of Brazil’s industrial policy programs to be illegal, thus agreeing with challenges made by both Japan and the European Union. To avoid retaliation from other countries, Brazil must either reform or abandon these policies, which include subsidies to several industries such as sugar, steel, cellulose, mining, ethanol, electronics, and automobile.

V.         Inequality
A.         Causes of Inequality: Inequality is typically a side effect of modern capitalism
i.          Benefits of market capitalism are not shared equally where governance is weak or corrupt
ii.          Success of capitalism has little effect on the standard of living of the poor communities
1.         Makes the richer, richer
2.         Increases gap between rich and poor
iii.         Sometimes linked to changes in governance
iv.        Leads to populist movements
1.         In most Latin American countries, populist movements are viewed negatively because they can lead to severe and harmful government interventions
a.         Bureaucratic regulation of the market transactions and outcomes
b.         expropriation and confiscation of property
c.         abrogation of property rights
2.         Populist movements often lead to investor reluctance to support and sustain capital flow, away from a sustainable free market economy
3.         Brazilians are in favor of populism
a.         Do not believe it is a threat to social and economic stability
b.         Belief that recent stability is related to the voting poor and not traditional business interests that preferred instead cheap money, closed borders, and various forms of favoritism and government protection
(i)         Poor are more represented in modern elections
(ii)        The poorest 50-60% of the population voted for Luiz Inácio Lula da Silva
(iii)       support from the poor continues to stabilize the macroeconomic economy in Brazil - they want low interest rates and protection (Threats to the Global Market System)
B.         The current state of Brazilian inequality: According to the Gini Index, Brazil is the 13th poorest country in the world (Sweig)
i.          Brazil is currently in a recession - recessions lead to economic slowdowns; Latin America`s largest economy shrank 3.8% last year and the IMF now forecasts it will fall another 3.3% this year (Gillespie)
ii.          Economic slowdowns lead to decrease in available jobs and increase in unemployment rate
1.         About 12 million Brazilians are now out of work, up from 8.8 million a year ago, recent government figures show.
2.         Wages in Brazil declined 3% in August and the unemployment rate rose to 11.8%, up from 8.7% a year ago. (Gillespie)
iii.         It is more difficult to cut inequality than poverty
1.         Household unemployment is rising
2.         Inflation is making wages effective
3.         And while the poor are living better , access to consumer goods does not define success for the future
a.         while 95% of brazilians own a TV, only 57% have access to sewage
4.         The income gap between the country`s top and bottom decile remains about five times as wide as in advanced economies (Corrigan)
C.        Problems Inequality poses for Brazil
i.          Discourages investors
ii.          Decrease in standards of living
1.         Inequality of wealth has become inequality of opportunity in regard to education (corrigan)
2.         Unemployment rates
iii.         GDP growth
1.         mostly likely caused by the lack of decent healthcare systems and infrastructure which are considered to be prerequisites to connecting individuals to markets (corrigan)
2.         Corruption - make a severe impediment to an economy`s capacity to grow inclusively (corrigan)
D.        Barriers to Inequality Reduction
i.          Informality of business
1.         Brazil lacks the culture for enterprise - defined as the propensity to view entrepreneurial failure as a learning experience rather than embarrassment
2.         Small business ownership and self-employment are important factors of fostering economic growth because many people derive their income from these areas
3.         Brazil lacks the culture of enterprise: among upper middle income countries, only Croatia and Bulgaria rank lower
ii.          Educational Systems
1.         System delivers poor value for money: only three other upper middle income countries rank lower in regard to the quality of education but only three spend a higher portion of GDP of education
2.         Failing children from less wealthy families:
a.         disparities in reading and math scores between children from the top and bottom income quintiles are larger than in most countries at similar income levels
b.         scores poorly on a measure of how many students from socio-economically disadvantaged backgrounds manage to become top performers at school
3.         Poor quality of health services
a.         among upper middle income peers, only Venezuela scores lower
4.         infrastructure - energy, transport and communications
a.         ranks 24 out of 26 upper middle income peers
5.         Ineffective government activity
a.         scores lower that comparative countries in regard to social programs and their benefit-to-cost ratio
b.         only Venezuela and Argentina score lower in regard to perceptions of wasteful spending
c.         high levels of corruption
1.         cause public to distrust politicians
2.         diversion of public funds
3.         irregular payments in tax collection
4.         entrenches existing power relationships and impacts are mostly felt by ordinary citizens

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