Brazil’s rising role as a geopolitical heavyweight

For many people, Brazil’s Rio de Janeiro evokes images of sunny beaches and colorful celebrations. But the city’s biggest international event of this year (in fact, the largest since the 2016 Olympic Games) will likely involve more suits than bikinis. Next month, for the first time, Brazil will take center stage on the world’s preeminent platform for global economic cooperation as host of the G20 (Group of 20) Summit in Rio.

The coalition, which includes the United States, China, India, the European Union, and most recently, the African Union, represents the world's major economies—accounting for roughly 80% of global gross domestic product (GDP), 75% of global trade and two-thirds of the global population.¹

Since taking office early last year for his third non-consecutive term, Brazilian President Luiz Inácio Lula da Silva’s (Lula) has spent much time abroad trying to raise his country’s global standing. His efforts may be paying off. A recent Pew Research survey found that most Brazilian adults are optimistic about their country’s status as an international power.²

Beyond the G20, Brazil is also slated to play host for other high-profile events, such as the UN Climate Change Conference (COP30) and the BRICS (Brazil, Russia, India, China and South Africa) summit in 2025, while concurrently pursuing membership in the Organisation for Economic Co-operation and Development (OECD).

In the nearly three years since Brazil began its formal accession process for OECD membership, it has reached many milestones toward this goal. If it succeeds in being admitted, Brazil would be in a unique position to influence increasing geopolitical and economic competition between developed and developing countries as the only nation to simultaneously straddle BRICS, the G20 and the OECD. 

As the world’s eighth-largest economy and the biggest one in Latin America, Brazil could be a strong link in global discourse over key issues for the Global South:³ fighting hunger, poverty and inequality; sustainable development; and global governance reform. If Brazil can galvanize political and financial commitments toward advancements for priorities, such as digital infrastructure, that could be a boon toward not only raising Brazil’s GDP but also reducing its economic, urban-rural and gender divides. Consider that the implementation of a relatively new central bank-led instant payment platform, known as Pix, has already bolstered financial inclusion, raising access to banking services from around 70% to more than 84%.⁴

We believe an OECD stamp of approval would also encourage global investors who seek the assurance of the coalition’s high standards for ease of doing business. Having a seat at the table would give Brazil a stronger voice in shaping best practices and global frameworks over quickly evolving technology standards. The country’s artificial intelligence and fintech firms are already among the largest in South America.

Resource-rich Brazil is a leader in the energy sector as the largest oil⁵ producer for Latin America, and one of the world’s top 10 producers (at the end of 2023, it comprised 4% of total world oil production).⁶ But its largest sector, with more than a 36% weighting, is financials.⁷

Areas of concern and opportunity

High government expenditures remain an area of key concern, but we believe any restraints on that would bring optimism to its capital markets. Brazil is also an outlier in the global trend of easing rates as its central bank raised interest rates in September in a bid to contain inflationary pressures. The Brazilian real is expected to remain stable or strengthen somewhat over the near term, owing in part to declining US interest rates, and we see this as a potential benefit to foreign investors to Brazil.

We are encouraged by recent progress in Brazil’s long-awaited value-added tax (VAT) reform, which could provide a tailwind to the private sector as efficiency gains from a simpler tax system could favor investment.

Brazil’s manufacturing and services expansion increased faster in September with output up for both, indicating strong growth in business activity. In addition, its market currently trades at what we consider to be discounted valuations. Improved manufacturing conditions in Brazil were driven by a renewed increase in production, stronger job creation and a pickup in sales growth, according to S&P Global.⁸ Outpaced by only India at the end of September, Brazil’s Manufacturing PMI increased to 53.2 (from 50.4 in August; readings above 50 indicate expansion).

Expectations are also high for Brazil to receive an economic boost in 2027 given its historic winning bid to host the FIFA Women’s World Cup, a first not only for Brazil, but for all of South America. And at which point, Rio should expect fewer suits and more face paint as a host city.

Over the near term, we believe investors should stay attuned to the opportunities in Brazil and may find what we consider an attractive entry point into this large and diverse market.