Brazil: Trends and Opportunities
Adoniro Neto, TTS Client Sales Management Head for Brazil, Citi
CTS Latin America & Mexico
Macroeconomic Trends
Overall positive expectations of growth for Brazilian economy in spite of world crisis
2007 2008
2009
2010 2011
2012(f) 2013 (f)
Real GDP Growth (%- market prices)
5.4
5.1
-0.2
7.5
2.7
1.8
4.5
Inflation (IPCA)– end of period (%)
4.5
5.9
4.3
5.9
6.5
4.9
5.6
Nominal Interest Rate Selic (end of period, % p.a) 11.3
13.8
8.8
10.8
11.0
7.3
9.3
1.8
2.3
1.7
1.7
1.88
2.00
2.01
Net Public Sector Debt (% GDP)
42.9
36.0
42.7
40.4
36.5
38.8
38.8
Trade Balance (US$ billion)
40.0
24.8
25.5
20.1
29.8
21.2
9.6
Export (US$ billion)
160.6 197.9
153
201
256.0
251
258
Import (US$ billion)
120 173.1
127.5
181 226.3
229
249
Exchange Rate (end of period R$/US$)
Current Account (US$ billion)
3.6
-28.2
-24.2
-45.2
-52.6
-54.0
-71.6
Current Account (% GDP)
0.3
-1.8
-1.6
-2.4
-2.2
-2.3
-2.7
International Reserves (US$ billion)
180.3 206.8 239.1 288.6 354.1
378.1
378.1
Total External Debt (US$ billion)
197.7 186.5 204.5 255.2 297.3
222.7
228.7
Source:
Citi Research (f): Forecasted
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Volatile Trend
Aug’11: 1.55
Aug’12: 2.00
YoY BRL
Deprec 23%
CTS Latin America & Mexico
Growing Brazilian Middle Class
There are now as many middle and upper-class Brazilians as there are people in France and Britain
combined
Consumption Trends
 Broad Band: 16.8 M of users in
2012. 91% increase with respect
to 2011
 Cars: 63.7 M of cars in circulation.
114% increase in the last 10 years
 Mobile Phones: 256 M of mobiles
in 2012. 17.8% increase Vs 2011
Sources: McKinsey&Company report
Brazilian Demographic Bonus: Brazil has
two-thirds of the population between 15 and
64 years age range considered to be more
economically productive
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 TVs LCD: 10.95 M of new units
sold in 2011. 175% increase with
respect to the 2009 sale level
Sources: Teleco, IBOBE, IPEA
CTS Latin America & Mexico
Pre-Salt Discoveries
Brazil expected to become one of the top 10 exporters of oil in the world
▲ Subsalt layer discovery of potentially massive oil
reserves estimated at up to 8BN barrels of oil and gas
equivalent
▲ At full production, expected exportation of 600K
barrels/day, i.e. +73% with respect to 2010. US$ 28BN
of expected revenues from exportation until 2020
Local Challenges
Ten world biggest Projects in oil and gas in US$ Bn
 Local content rule: requiring operators to purchase a
certain % of goods and services from local providers
which are required to offer conditions of price, term and
quality equivalent to those offered by foreign competitors.
Local Trends:
Petrobras
Brazil
40 US$BN
 Growing need to secure stable supplies and to facilitate
and standardize the supply chain financing
 Progredir: Petrobras Supply Chain financing Program.
In one year R$ 2,3 bn were channelled though
Progredir, with 275 involved suppliers
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CTS Latin America & Mexico
Infrastructure
Growing investments in infrastructure projects promoted by Governmental initiatives
▲ PAC II scope: housing, transport and energy
electrification and water provision. US$534bn is to
be invested in construction projects between 2011
and 2014, with 81.6% from the public sector
Impact of PAC I on GDP Growth
▲ Brazil Maior: government plan for the period
2011-2014 meant to foster the country
development in productive investment,
technology, innovation and increase competitively.
Local Trend
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PAC II expected spending breakdown
 High infrastructure investments
PAC II in R$ Bn
Urban Mobility: investment in metros and intercity rail
2011-14
% of Tot
PAC Citade Melhor
57
6%
PAC Comunidade Cidada
23
2%
PAC Minha Casa, Minha Vida
278
29%
PAC Water and light
30
3%
PAC Transport
104
11%
PAC Energy
461
48%
Total
955
100%
Investments logistics: Roads, Ports, Airports /
Investments in Power: generation, transmission,
distribution
 Traditional and new source of funds at work
(Multilaterals, ECA, Local Capital Market, PPP)
CTS Latin America & Mexico
Change in Export Trends
Exponential growth of Brazilian exports towards emerging countries like China
▲ Since 1990 China’s share in Brazilian
exports has increased by 14 times. US’
share has more than halved!
% of Brazilian Total Export from 1990
Local Trend: increased trade in local
currencies
 Need to avoid excessive dependence on
US$
 Gain of operational efficiencies for both
exporter and importers
China
US
EU
Mercosul
 Fast and cheaper liquidity since
governments incentive payments in local
currencies with tax rebates and less red
tape
▲ Increasing need to develop knowhow,
deploy people and intelligence in local
markets to optimize collection
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CTS Latin America & Mexico
Trends in Working Capital Management
Although recent reduction cycle, yet very expensive working capital
Local Trend
Nominal Interest rate (Selic) and Real Interest Rate
Forecasted rates
Companies’ research of higher operational efficiency
in Working Capital Management in an inefficient
environment
2012: 7.25%
2013: 9.25%
 Borrowing Side
% year
Inflation
Eg: Cost of financing for 90 days tenor
WC
12.76%
Credit Assign.
9.44%
ACC
ACC+Swap
Libor+2%
8.17%
IOF flat 0.38%
IOF p/day up to 365 days: 0.0041%
 Investing Side
Eg: Investing for 10 days tenor – 66% of IOF and 22,5%
WHT
Withdraw Date 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
IOF
96% 93% 90% 86% 83% 80% 76% 73% 70% 66% 63% 60% 56% 53% 50%
Sources: Brazilian Ministry of Finance
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Withdraw Date 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
IOF
47% 43% 40% 37% 33% 30% 27% 23% 20% 17% 13% 10% 7% 3% 0%
CTS Latin America & Mexico
Q&A?
Picture by The Economist
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CTS Latin America & Mexico
Doing Business: Brazil Trends and
Opportunities
Jerry Haar, Ph.D. Associate Dean of International Programs
Director of the Pino Global Entrepreneurship Center
College of Business Administration, Florida International University
The Financial Professionals Forum 2012
Overview of the Business Environment in Brazil
Brazil – Country Outlook for 2012-2013
Political Factors
 The gods are shining upon President Dilma Rousseff….for now….
 Poised to win a second term?...
 Consumer confidence…a boon to Dilma…
 A happily consuming middle class…
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The Financial Professionals Forum 2012
Overview of the Business Environment in Brazil
Brazil’s Global Competitiveness Ranking: Nothing to Brag About--126 out of 183
World Economic Forum’s Global Competitiveness Report 2011-2012
Pro’s
Con’s
▲ Brazil improves five places to rank 53rd
overall
▼ The lagging quality of its overall
infrastructure (104th) despite its Growth
Acceleration Programme (PAC)
▲ one of the world’s largest internal markets
(10th)
▲ Is a sophisticated business environment
(31st), thus allowing for important
economies of scale and scope.
▲ one of the most efficient financial markets
(40th)
▲ one of the highest rates of technological
adoption (47th) and innovation (44th) in
the region.
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▼ its macroeconomic imbalances (115th)
▼ the poor overall quality of its educational
system (115th)
▼ the rigidities in its labor market (121st)
▼ and insufficient progress to boost
competition (132nd)
The Financial Professionals Forum 2012
Overview of the Business Environment in Brazil
Market Challenges
 Doing business in Brazil—the nightmare of “Custo Brasil”…
 The need for the “personal touch”…
 The quest for foreign direct investment…
 The chaos of urban life….
3
The Financial Professionals Forum 2012
Opportunities for Local and International Players
Sectors and Industries In Demand
Market Opportunities
 Foreign investment?... “We’re open for business!”
 Commodities remain the name of the game…
 Best prospects?....air transportation, telecom, oil and gas, and mining
 But there’s much more……
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The Financial Professionals Forum 2012
Winning Sectors and Companies
Who’s on top?
Events of Global Scale
 The World Cup in 2014 and the Olympics in 2016
Growth of Oil Markets
 Petrobrás—oil powerhouse started as very strong player, but unexpectedly reported its first
quarterly loss in more than a decade.
 Could Brazil be a top oil producer?...
 It’s all about investment and developing and harnessing world-class technology….
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The Financial Professionals Forum 2012
Winning Sectors and Companies
Who’s on top?
Nuclear Energy
 Diversification and demand response…
 The bidding is open….
IT Markets
 Brazil is hot, hot, hot…
 IT spending on the rise…..
 Where will the money be allocated?...
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The Financial Professionals Forum 2012
Winning Sectors and Companies
Who’s on top?
Venture Capital
 Venture capital firms are looking to the future, beyond the current economic struggles
 Internet use is on the rise, mobile Web is growing rapidly
 Large void in early stage venture capital – Major investment opportunities
 Tropicalization - many venture capital firms making money on old ideas in new markets
 Getulio Vargas Foundation Study: U.S. $ 750 million invested in Brazilian startups, 2011
Brazil is Latin America's biggest consumer market,
–spends $13 billion a year online with just 40 percent of the country using the Internet about half the U.S. rate, but rising quickly.
 Fast growth warns of a potential investment bubble
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The Financial Professionals Forum 2012
Winning Sectors and Companies
Who’s on top?
Technology
 Brazil leads in biofuels, agricultural research, deep-sea oil production, remote sensing
 Web and mobile startup system and tech is hot  fueled by investment
– Compounded by growth in access to internet
 IT sector grew more than 10% in 2011, with revenues exceeding $182bn by year-end
 Shortage of IT professionals to meet the demand
 Apple Inc. is looking to build five more factories for liquid crystal displays
 The number of M&As in Brazil's technology sector grew 3.7% year-on-year in the first
quarter of 2012, according to the Deal Flow Indicator (DFI) report
 Manufacturing segment accounts for the greatest volume of IT investments
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The Financial Professionals Forum 2012
THANK YOU…..GRACIAS….MUITO OBRIGADO…..MERCI……DANKE SCHON
The Financial Professionals Forum 2012