God is Brazilian
Brazil’s Rising Energy Dominance
By Daniel Muniz

So how did Brazil emerge as a leader in the production of energy?

President Luiz Inácio Lula da Silva famously declared that “God is Brazilian” when a huge oil reserve was discovered right off of their coast. And with sky high oil prices, the nation intends to harness its abundant natural resources to help bring greater prosperity to its population.

Actually, much of the country has already exploded in economic growth in so many different industries. So how did Brazil manage to create wealth and new jobs for its people?

The simple solution is that the government abandoned socialism.

As with most Third World countries, the government owns and runs everything. Unfortunately, having natural resources that fetch high market prices is more of a curse than a blessing. State run companies that should have been churning out enormous profits are mired in inefficiency and corruption. And even so, nationalistic rhetoric of the political parties that run these nations has always prevented any real changes. They would rather have a government that keeps the masses in poverty instead of a free market that creates wealth and jobs.
 

Story Continues Below ę

Today's Top Stories

● Retirement Quiz - The Responsibility of Retirement ● Ban Cell Phones: Do Students Need Phones in Schools? ● Overcrowded Solution - But the Unions Really Hate It ● Victoria’s Secret - Has Sexy Become Too Trashy?

Yesterday's Top Stories

● Bad Example - School Principal Driving Drunk ● Banning Toy Guns - Laws That Go Way Too Far ● Shoplifter Dies - And Parent Files Lawsuit ● Hey S*** Face - Abusive Bill Collectors

But in the 1990’s, Brazil changed course.

The political leadership began privatizing its ownership of state enterprises.

And the transformation was breathtaking. Now that profit was a motive, these privatized companies sought ways to become more efficient in their business practices. That in turn created wealth which then helped it achieve greater prosperity because there was now more capital available for investment.

Brazil hasn’t completely shucked off all of its socialism but it has made great strides in doing so. They managed to partially privatize Petrobras, their state run oil company. And by removing all of its idiosyncratic and nationalistic regulations, Petrobras was able to modernize itself into a real for-profit corporation. It raised capital through a listing in the New York Stock Exchange and began entering into agreements with foreign operators. This flexibility allowed the company to make the best business decisions in exploring and drilling for oil.

Today, Petrobras is a highly respected energy conglomerate with operations in 27 countries and a market capitalization of over $200,000 billion. And by reinvesting their profits back into the company, Petrobras has also become an expert and industry leader in deep water oil exploration. In addition, their advanced technology and modern equipment also allowed them to become an industry leader in natural gas discovery and delivery.

For contrast, take a look at Mexico. Their state run oil company is Pemex and it is forbidden by Mexican law to enter into any kind of partnership agreements with foreigners even if it means wasting a lot of money by using inferior and inefficient methods.

And still worse, the government takes whatever profit the oil company earns and applies it directly to its general fund. In fact, one third of Mexico’s budget comes from Pemex but what that really means is that there is no money left over for exploration and to modernize its aging equipment and facilities.

Many experts believe that there are still plenty of massive oil reserves off of Mexico’s coastal waters waiting to be discovered but Pemex does not have the capability to find them. And even if they did find all of them, the company would not be able to efficiently extract the oil. The recent discovery of a huge oil reserve off their coast proves just that. Pemex is required by law to use substandard technology to extract it.

With a free market approach, Brazil has no such restrictions.

Petrobras is free to make good business decisions by partnering with the best foreign energy firms who already have the expertise, technology, and the know-how to get the job done cheaper and better. And in the process, Petrobras has slowly developed its own expertise in energy production.

Surprisingly, the Mexican government has slowly begun to ease some of their burdensome regulations by allowing Pemex to enter into very limited contracts with foreign companies, including Petrobras.

Mexico has already loosened up a few restrictions particularly in manufacturing but the political leadership, very much like most Third World countries, is still kicking and screaming to hold onto its remaining vestiges of socialism. Regrettably, too many nations still subscribe to the belief that it is the government, instead of free enterprise, that creates wealth and prosperity. And it is irrelevant that these same countries have spent decades in abject poverty even though they are rich in natural resources.

The Almighty may not be Brazilian but the free market certainly has been a blessing to the few countries that have sought to embrace it. If socialist nations like Mexico want to cast away their shackles of poverty, they ought to take a closer look at success instead of endlessly repeating failure.

We want your opinion! Tell us what you thought about this article. Click the Your Feedback menu item to send us your comments.