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The Geopolitics of Brazil: An Emergent Power’s Struggle with Geography

August 11, 2011

Just last week in Thoughts from the Frontline, we discussed the relative valuations of emerging markets. Any discussion of an emerging market is incomplete without understanding the underlying geopolitical forces that guide behaviors of countries and often predetermine the outcome of events. 

Today I'm sending you STRATFOR's geopolitical analysis of Brazil, a much-discussed emerging market. This is a long read, but it's the most thorough and enlightening analysis I've seen thus far on how the continent's geography has shaped Brazil's history to date, and the major challenges the the country faces today. Hint: Brazil's biggest problems are an overvalued "real," Mercosur, and an Asian giant (you guess which one...). 



For anyone considering an emerging market as an investment choice (or who is simply interested in world affairs), I highly recommend reading STRATFOR's other geopolitical assessments, which they have on all the major players, including emerging markets. You can access these assessments, and all STRATFOR's analysis and updates, when you subscribe. OTB readers can <<get a hefty discount on their subscriptions here>>. Their content is a valuable asset for any investor. 



Your now considering samba lessons analyst,

John Mauldin, Editor
Outside the Box

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The Geopolitics of Brazil: An Emergent Power's Struggle with Geography

July 14, 2011

Editor's Note: This is the 15th in a series of STRATFOR monographs on the geopolitics of countries influential in world affairs.

Related Special Topic Page

South America is a geographically challenging land mass. The bulk of its territory is located in the equatorial zone, making nearly all of the northern two-thirds of its territory tropical. Jungle territory is the most difficult sort of biome to adapt for human economic activity. Clearing the land alone carries onerous costs. Soils are poor. Diseases run rampant. The climate is often too humid to allow grains to ripen. Even where rivers are navigable, often their banks are too muddy for construction, as with the Amazon.

As the tropics dominate South America, the continent's economic and political history has been problematic. Venezuela, Guyana, Suriname and French Guiana are fully within the tropical zone, and as such always have faced difficulties in achieving economic and political stability, though the discovery of oil in Venezuela improved that country's economic trajectory. Throughout the tropical zones nearly all of the population lives within a few dozen kilometers of the coast. For the most part, however, those coasts are not naturally sculpted to encourage interaction with the outside world. Natural ports — deepwater or otherwise — are few and far between.

There are, however, two geographic features on the continent that break this tropical monotony.

The first is the Andean mountain chain. The Andes run along the continent's western edge, giving rise to a handful of littoral and transmountain cultures physically separated from the continent's eastern bulk and thus largely left to develop according to their own devices. Colombia and Ecuador straddle the tropics and the Andes, with their economic cores not being coastal, but instead elevated in the somewhat cooler and dryer Andean valleys, which mitigates the difficulties of the tropics somewhat. Farther south are the arid transmountain states of Peru and Bolivia. Peru has achieved some degree of wealth by largely ignoring its own interior except when seeking resource extraction opportunities, instead concentrating its scant capital on the de facto city-state of Lima. In contrast, landlocked Bolivia is trapped in a perennial struggle between the poor highlanders of the Altiplano and the agriculturally rich region of the lowland Medialuna.

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The combination of mountains and jungle greatly limits the degree to which states in this arc — from French Guiana in the northeast to Bolivia in the southwest — can integrate with each other or the outside world. In all cases, basic transport is extremely difficult; tropical diseases are often a serious issue; there are few good ports; agricultural development is both more labor and capital intensive compared to more traditional food-producing regions; humidity and heat hinder conventional grain production; and the ruggedness of the mountains raises the costs of everything.

Historically, the only way these states have achieved progress toward economic development is by accepting dependence on an external (and usually extraregional) power willing to provide investment capital. Without this, these states simply lack the capital generation capacity to meet their unique and staggering infrastructure challenges. Consequently, the broader region is severely underdeveloped, and the residents of most of these states are generally quite poor. While some may be able to achieve relative wealth under the right mix of circumstances, none has the ability to be a significant regional — much less global — power.

The second exception to the tropical dominance of South America is the temperate lands of the Southern Cone. Here, the summers are dry enough to allow traditional grains to ripen, while cooler weather — especially winter insect kills — limits the impact of disease outbreaks. Unlike the scattered populations of the Andean region, the Southern Cone is one large stretch of mostly flat, moderately watered territory. The bulk of that land lies in Argentina, with significantly smaller pieces in Uruguay, Paraguay and Brazil. The only remaining country on the continent is where the temperate Southern Cone overlaps with the Andean mountain zone: Chile, one of the world's most physically isolated states. It takes longer to fly from Santiago to Lima than it does to fly from London to Moscow, and longer to sail from Santiago to Buenos Aires than it does from New York City to London. Chile consequently does not participate significantly in the politics of the Southern Cone.

In stark contrast to the mountains and jungle that dominate the majority of South America, the Southern Cone flatlands are the best land on the continent. Their flatness, combined with their natural prairies, lowers the cost of construction, and the temperate climate makes them rich agricultural zones. But the real advantage lies in the region's river structure. The Parana, Uruguay and Paraguay rivers combined with the Rio de la Plata — a massive estuary that empties into the Atlantic between contemporary Buenos Aires and Montevideo — are all navigable for a great portion of their length.

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Comments

Ed Remmell

Aug. 16, 2011, 11:27 p.m.

Great article! This is the best free information I’ve ever gotten in my in-box.

Evandro Menezes

Aug. 13, 2011, 9:50 p.m.

As a Brazilian, after reading this article, in spite of 3 minor historical errors, I finally understood the Brazilian economic challenges from 10,000ft. 

In spite of growing up in Brazil into my adult life, though I had all the information that someone on the ground could get, besides being deep in the maelstrom raising a family to form the whole big picture, I also lacked the economic knowledge that I’ve enriched in the past decade. 

I’m happy to say, now that I live in the US and can look at Brazil from the outside, that this article has allowed me to synthesize the geography, history and economics of Brazil in a much more complete view.

PS: all the oxygen produced and the CO2 absorbed in the Amazon is cycled locally.

Jon Anderson

Aug. 13, 2011, 1:01 a.m.

I was thinking a similar thing.  What is the “market value” of all of the oxygen that those rainforests are producing, and of all the carbon dioxide they are soaking up?

Thanks, and keep up the excellent work.

Zak Klemmer

Aug. 12, 2011, 3:55 a.m.

America could use a Real Plan, i.e., low inflation, low debt and economic growth. Perhaps we could lend Brazil our Constitution and we could implement their real plan.

david caccia

Aug. 12, 2011, 2:25 a.m.

A very interesting look at Brazil.  I find it distressing that you think the Amazon Jungle is a thing to be cleared, a drag on Brazil’s economy.  It has been said that a strong economy is worthless without a healthy environment.  The Amazon is important to keeping the world climat stable, and Brazil’s climate also.  Without the jungle, the area could become a desert, not even good for farming.
David Caccia