Institutional Structures Of Brazil And China Economics Essay

institutional Structures Of brazil nut And China Economics EssayThere argon a spell of factors that multi-national corporations ought to consider forrader investing in an early(a) re world. The challenges that atomic number 18 faced vary from acres to artless. In some cases in that location are similarities at heart the institutional structures of these countries that may attract corporations to take advantage of the kindly factors. On the early(a) hand some instructional structures are capable of limiting the polity alternatives available to investors and different indemnity makers. The control in power among government organizations such as the legislative, judicial and executive makes it difficult for the policy making process to be reviewed.This paper seeks to analyze and discuss five areas of the institutional structures of brazil nut and china that are likely to influence global corporations like OPEC to invest in the pet fictitious characterum pains of othe r country. A discussion of the comparative attractiveness of these securities sedulousnesss is also presented after the judicial decision of the two countries. A drawing back ground of the two countries is also presented. A logical conclusion is drawn from such assessment at the barricade of this paper.overview of brazil-nut treeWith the exploitation of gargantuan natural resources and a large labor intense providence, brazil-nut tree has risen to the position of cosmos the leading sparing power in South the States as a major emerging economy. Revenues from the work and supply of crude vegetable fossil oil take make a significant contribution to the development of the economy. Petrobras (a major oil producing company in brazil nut founded in the yr 1953) has naturalised itself as the biggest oil company in the Latin America in cost of gross and trade capitalization according to the rankings from Latin Business Chronicle, Petrobras 2008 revenue was 118.3 gaz illion. While the company (Petrobras) has withdrawn itself from macrocosm brazil-nut trees legal monopolist in the pet partingum manufacture in 1997, it continues to play a significant role as a major oil pissr, with production exceeding 2 million barrels of oil per day. Information presented on CIA- world fact a book show that in 2008 brazil-nut trees estimated oil production in barrels of oil equivalent per day was 2.422 million.The country is governed under the 1988 constitution of amendment, of which it is presently organism run by the federal republic (government type). The countrys president (leader of government) who is elected into office by the highest votes can mete out a four year term (and may do so on two terms), has twain the positions of the head of bow and head of government.Brazil has an increasing economy based primarily on financial, usefulness, manufacturing and craft (Britannica concise encyclopedia, 2010). With an increasing and developing agricultura l, mining, manufacturing and service sectors, Brazil is bug outd at the top of all the countries within South America. This has allowed the country to accomplish a well established position in the global market and economy. According to a calculate produced by the World Economic Forum, the Brazilian economy was class-conscious as the top country in rising evolution of competitiveness in 2009.Brazil posses a large mineral riches comprising of iron ore, tin, quartz, industrial diamonds, gem st geniuss, gold, uranium, bauxite and platinum. The newly found offshore oil and natural ball up deposits can place the country in the position of being a major attack and petroleum manufacturer. The country also has a very large food processing and the principal manufacturing industries produce of products such as shoes, chemicals, steel, aircraft textile and machinery. The main source of Brazils electricity comes from water power, and it has a cracking untouched potential for hydroelect ricity, more than so in the Amazon basin.Brief overview of RussiaRussia has gone through a stage of industrialization since the disintegration of the Soviet Union (in 1991) shifting from an globalistly-isolated, predominantly designned economy to a market-oriented and internationally-integrated economy. The economic restructuring and development process which began in the 1990s has witnessed the nationalization of most industry, with the distinct exclusion in the qualification and security body-related sectors. Today, Russia has been experiencing significant economic development as one of the major emerging market. In addition, Russia has a favorable balance of trade where exports exceed imports in a significant way. According to CIA-the world fact book, Russias estimated exports for 2008 and 2009 are 471.6 billion and 295.6 billion respectively, whereas their imports for the same period are 291.9 billion and 196.8 billion respectively. Russias Petroleum industry is some ot her major contributor to the economy and is one of the biggest oil producers in the global market. According to a June 2009 report present by the Energy Information Administration, Russia is ranked the 2nd largest oil producer with the production of 9,677 kB barrels of oil per day. The report also ranked Russia as the fourth biggest consumer of petroleum in the world with consumption of approximately 2,811 thousand barrels per day. As it relates to oil export, Russia is ranked as the 2nd biggest crystallize exporter) with 6,866 thousand barrels per day.The government type of Russia is a federal Republic which basically fuddleds that the country has a federation of states run by a Republican type of government. This type of government is comprised of some(prenominal) a President and a Prime Minister that jointly runs the countrys affairs. The President holds the position of head of state composition the Prime Minister holds the position of head of state the Executive authority is carried out by the government and the Legislative Authority is carried out by some(prenominal) the government and the two chambers of the Federal Assembly of Russia. The safe guarding of property rights issue has continued to be an area of serious awe musical composition the strong state interference in private sector continues to be a norm. Russias industry is chiefly divided mingled with internationally competitive product producers. In 2009, Russia was the worlds biggest exporter of both petroleum and natural gas and was ranked in third spot as the biggest exporter of steel and main aluminum.In order for tradees to dispense hostile enthronements there are a some take a chance factors that can serve as barriers for investments. These jeopardy factors could undermine appendage and economic perceptual constancy and they should be taken into stipulation so that businesses would remain profitable and carry verifyable market share in this competitive global era. Ev ery business minutes have some level of risk. However, when business transaction takes place across global borders, additional risk is prevalent as oppose to domestic transactions. This section, examines the stability of both Brazil and Russia as it relates to the potential investment of Oil Industry. In order to compare and contrast both countries on its stability, considerations have to be given(p) to the Political, Economic, Regulatory and Technological environment.Compare and contrast Brazil and Russia as it relates to political stabilityBrazil has a Federal Government type meaning their political environment is made up of a number of self-governing states united by a federal government (Babylon translation, 2004), whereas, Russia on the other hand is made up of a Constitutional Federation (Federal Republic). The issue here is whether governments action could affect the profitability of investing in Brazil or Russia. Brazil is a changeless government who is open to the idea o f foreign investors. It is the largest foreign direct investment recipient in Latin America, attracting an estimated USD 42 billion in 2008 (United Nations report). Although Brazil is considered as friendly or appropriate environment for investment, the governments implementation of high level taxation and regulative requirements exist. Brazil has a cooperate tax of 34% as compared to Russia 20% (Brazil income taxes 2010). As a result, conducting business in Brazil as compared to Russia with taxation as the variable makes Russia more of an attractive market since businesses in Russia leave alone have more disposable earning for expansionary purposes of the oil industry. The level of decomposition in a country has far reaching ramification on investments and on the doing business climate. According to Transparency International (2010) which gives corruption perception indices on a scale of 1-10 (1 being passing corrupt and 10 being unembellished from corruption), Brazil has a co rruption perception index of 3.5 whereas Russia has a corruption perception index of 2.3. Hence, Russia highly probability of investors in the oil industry being subjected to unfair business practices than that of Brazil.Compare and contrast Brazil and Russia as it relates to their Regulatory stabilityAccording to Bloombergs report (2008), the Brazilian economy grow at the red-hot paste since 2004 and in sync with exemplars and poors report the country is expected to maintain annual growth up to 4.5%. This type of economic growth gives credit to the country for potential investment. and then, the previous year Brazil preserve a record high of $34.6 billion foreign investment. This amount of foreign direct investment unneurotic with a tripled export rate will cover Brazils current account deficit (Standard and Poors, 2008). Brazil stable economy have drawn investors and trade agreements between Brazil and other countries. Russia on the other hand, economy has been contracting du e to falling oil prices and trade disputes with neighbors. This has resulted in Russia being the first G-8 nation to be downgraded since the start of the global economic crisis. Russia has been struggling with rising inflation, high unemployment, negative economic growth and loving unrest which have bend a disincentive for foreign direct investment including that of the oil industry (Walker and Robbins, 2009).Compare and contrast Brazil and Russia as it relates to their Economic stabilityAs every other country Russia has restrictive establishment in place, however as a result of corruption, regulations are not implemented as to attend in the fear treatment of investors. The influence of governments on prices, bureaucratic inconsistency and other forms of government controls detours investments in various sectors. The regulatory environment in Russia makes it difficult to start, operate and close a business. Bureaucratic procedures are drawn out and complicated. For example, ob taining a business license takes more than 18 procedures and 218 old age (The heritage foundation 2010). Investment law is very subjective to federal law which allows Government a lot of discretionary control over foreign investment. That is to say, while investment laws speculate the national treatment or foreign investors, federal law is given the prerogative in the protection of the constitution and disproof of state. In retrospect, the Russian government in 2006 introduced what is known as the strategic sectors law under which interests by foreign investors must be pre-approved by the Russian government which has been marred by corruption (Russia been ranked 147 out of 149 countries on transparency international index or 2008 and bribery being rampant), inadequate foundation and unreliable contract enforcement. All of these factors affecting the oil industry in various ways. The court system however, in Brazil has proven to be highly ineffective. This is due to lack of human r esource and economical functionary equipment, especially when dealing with issues pertaining to shareholder rights and claims. This parity shows that both markets have varying weaknesses as it relates to regulatory systems. However, specific to oil industry, Brazil has a comparative advantage in that, the country has had regulatory stability for over 10 years of petroleum Law (Hale, 2009).In addition to these, other factors influences the attractiveness of the market relative to the potential oil industry. Provided hereunder is the convertibility of currency which is another deeming factor that can influence investment opportunities in Brazil or Russia.Convertibility of Local Currency to DollarsThe convertibility of a countrys local currency also plays an significant role in further development of an economy. With the U.S sawhorse being the world reserve currency, developing countries would do well to have a close, if not full convertibility rate to the U.S dollar. In Brazil the currency use is the Brazilian Real (R$), also known as BRL. At present the exchange rate for Brazilian currency to the U.S dollar is 1.82 BRL to $1 U.S.D. Though not fully convertible, the Brazilian Real stands strong. Ever since 2003, the U.S dollar has fallen 50% against the BRL. The reason for the strength in the Brazilian Real is the fact that Brazils exports surpass its imports. Thus more foreign currency comes in, than the BRL goes out. This can affect the Brazilian currency positively as a convertible currency would mean free movement of capital, which can help strengthen the economy. Oil is in great invite all over, for it has a vast number of uses. If the oil industry were to come to Brazil it will yield much higher profits due to its close conversion rate to the US dollar of 1.82 BRL to $1 U.S.D as mentioned earlier. As of 2009, Brazil had the second largest oil reserves in the land of South America, of 12.6 billion barrels as was proven by The Oil and Gas Journal (OGJ) . 2.4 billion barrels of oil was produced in Brazil each day and continued to rise throughout the years. With increases such as these, the Short-Term Energy Outlook forecasted as of September 2009, that oil production would reach just about 2.61 million and 2.81 million in 2010. Brazil, in this respect intelligibly has high potential where the oil industry is concerned and would prove to be a profitable area for investors wishing to position their industry in the country. However, investors must still be cautious. Although Brazil is high on foreign exchange, in order to sustain this level of foreign currency coming into the country, and to deter inflation of their currency, trade barriers and the high tariffs are place on some goods to prevent or minimize imports. Taxes are also very high and are placed on all citizens in the country to cover government spending. So at the end of the day a heavy amount of a businesss profits would go towards paying taxes. So while an oil industry may work well in Brazil, there are other areas of concern that investors must take into consideration before selecting the country as a target market.Russia on the other hand has achieved full convertibility of its currency since the year 2006. Russias currency uses the ruble or RUB. At present, its rate to the US is 1 RUB to 0.03 US dollars. This therefore opens Russias economy to freer movement of trade and a major doer in international financial markets (Encyclopedia.com, 2006). A fully convertible currency has gained Russia multiple benefits such as the opening of ruble accounts for both foreign and local investors alike and the advantage of investing in both foreign and domestic businesses. Russia is quickly becoming a globally established economy. However, there remain few problems with the Russian currency. According to The Worlds Favourite Currency Site, Russians inflation rate, compared to the US Dollar, is near 6.5 percent, while the ruble has bleached to 33 rubles per U S dollar. Russia, as the largest oil producer on the globe, can suffer greatly from fluctuations. This is be realise as prices rise and fall, so must the prices of oil change to reflect. This, as a result, hinders the ability for the country to plan a proper budget for its economy and consequently, the ability to plan for expansionary purposes for the economy as a whole. comparison and contrast trade agreements International relationship specific to the WTO and OPEC as it relates to the Brazil and RussiaAs the result of globalization, international relations between countries have become increasingly significant, hence the reason why, the rules regarding international trade became necessary. On average 52.3% of Russias total trade turnover takes place with the European Union which is also the biggest investor in Russia accountancy for 75% of Russias foreign direct investment. Notwithstanding this, Russia is the worlds largest economy which is not part of the WTO and with Russia be ing the second largest producer of oil in the world, it is not part of OPEC. Russias non-membership in these deprecative organizations limits its ability to play an active role in the decision making process as an emerging market. In the case of the WTO, despite good word for accession into the WTO by the EU and other members of the BRIC forum, Russia has failed to implement some of the necessary regulatory requirements as the leaders of the country has shown the lack of political will to do so. There have been years of rescheduling, timetabling and back and forrader negations to ensure that Russia becomes a member of the WTO, however in June 2009 Russian Prime Minister Vladimir Putin made an terrific decision to abandon efforts for accession into the WTO. In retrospect, the development of Russia by exploiting opportunities made available through the WTO and its triangular trade agreements is hindered. Similarly, Russias non-participation in OPEC has had far-reaching ramificati ons for the oil industry since it is not able to play a role in controlling the supply and price of oil. On the other hand, Brazil is a member of several international economic organizations as such as the WTO and WCO. The WTO is a global international organization which deals with trade between nations. Brazils membership into the WTO represents the fact that the regulatory requirements of the WTO have been met by Brazil which allows for the exploitation of balance of rights and obligations and ensures that there is security and fairness as it relates to multilateral trade. Traditionally Brazil has produced just about enough oil to aid in its local consumption. However in 2008 with the discovery of off show oil deposits which may give up as much as 100 billion barrels of oil Brazil may become one of the worlds emerging oil exporters. In this regard Brazilian authorities have expressed the proclivity to become members of OPEC whenever it commences oil exports. This motive will sta nds to provide mutual benefits for both Brazil and the OPEC since the addition of Brazil as a member of OPEC will allow for the organization to have control over a larger percentage of the worlds oil hence more influence on oil supply and by extension prices. Similarly, Brazil will now have influence over world oil prices as a member of OPEC. This gives Brazil a comparative advantage over Russia relative to the oil industry in that although Russia have been a major exporter of oil, it has not established relationships with other oil exporting countries to help the regulation of oil supply, prices and corruption in the industry. Further, while Russia is suffering from quickly depleting oil supply Brazil has been able to locate new oil reserves resulting in more clout for Brazil on the international scene as it relates to trade as a decision maker in the oil industry.Market size and attractivenessBoth Russia and Brazil are part of the four emerging markets (BRIC) with great potential for economic growth. Brazil has a population of 192,272,890, ranked number four in terms of population size on the market potential index for emerging markets in 2009. Brazilians has a mean disposable income of USD 16,208 with an emerging middle class. The level of economic growth has left some inequalities and therefore 75% of the population earns below the mean disposable income. The rapid growth of the middle class in Brazil has resulted in higher demands for oil and oil related products impacting positively on the industry. Growth of the upper/ elect class is also evident with a 124% increase in average disposable income from 2002-2007 of USD 72,932. These levels of growth have been complemented by increased government spending and a falling debt to GDP ratio. The decreasing amount of public and foreign debt stands to benefit the economy in terms of employment since government can spend more of its resources the capital side of the budget equation and in some cases less taxes a re necessary to service recurrent expenditure and debt hence more disposable income is available to circulate in the economy. These economic conditions amongst some(prenominal) others are responsible for the position Brazil has established in the global market as one of the worlds fastest emerging and most attractive markets. Russias population stands at 141,927,297 as of 1 January 2010 with poise growth of the upper/elite class driving oil consumption to an all time high. The changing lifestyle of persons in the upper class fueled by high-end motor vehicles has resulted is a ravenous demand for oil and oil based products. Russias low debt to GDP ratio of 6.8% should allow for efficient distribution of wealth and steady economic growth. However because of the level of corruption there is inefficient distribution of wealth and the overdependence on the oil industry hinders the countrys ability to compete in other areas. Russia also has the highest disposable income of emerging mar kets with 87% of per capita income being disposable, with projected increase of disposable averaged at 15% annually. There is a widening middleclass especially in Moscow which has a disposable income that is more than three times that of the national average. The average disposable income is $ 1023. This comparison clearly shows why both countries are regarded as emerging markets and are generally attractive to investors. This will yield much benefit to the oil industry because of the increasing demand tied with improvements in the standard of living and disposable income. Russia however is confronted with the problem of depleting oil supply, hence, if demand continues to rise Russia oil imports will eyeshade resulting in a steep fall in GDP. It should also be noted that the spread of wealth in Brazil is more equitable than that of Russia which creates a gap in class strata which is known to cause increases in indigent rates which leads to civil unrest in some cases.ConclusionsThe oil Industry is clearly very dynamic and is affected by several variables in the economy including the type of government, economic freedom, regulatory systems, currency fluctuation and convertibility, general economic condition , trade and international relations, market size and attractiveness and many other related factors. With Russia and Brazil being members of the BRIC forum of emerging markets and the concurrent peaks in demand for oil, efficient and prudent economic management should ensure the equitable spread of wealth which should stimulate economic growth. However limitations of governments and other related variables are impediments to the achievement of these noble dreams. Hence, based on the evaluation of critical areas in this paper it is conclusive that both Brazil and Russia presents opportunities for investment and in specific areas one may have a comparable advantage over the other. Clearly in generalization Brazil offers a more stable and predictable investment environment which hinges on its steady system of government with established trade relations and a regime prone to fighting corruption as opposed to Russia which have been marred by corruption at all levels and mismanagement in its oil industry. The emergence of proximo oil exporting potential by Brazil will further position Brazil to be one of the worlds economic powers. While Russia have had some level of growth, much of it is not attributed to the efforts of it government system but rather to economic factors as a result of changing spending patterns. Our recommendation of Brazil as the choice investment market is relative to outlook from the perspective of the oil industry and may vary for other industries. It is arguable that based on the industry being examined and the economic variables under consideration that Russia may be found suitable for investment.