Edition nº 23
With a growth forecast for 2010 and investments in several sectors of the economy, Brazil offers business opportunities in industries in which Canadian companies stand out due to their competitive advantages
Louis Génot, do Rio de Janeiro
There is consensus among specialists that Brazil was one of the countries that fared well in overcoming the international financial crisis. As the world economy begins to signal recovery, the Brazilian market is again becoming attractive for foreign investors, such as the Canadians. Domestically, the outlook is encouraging. The most recent edition of Focus, a bulletin published by the Central Bank, foresees Gross Domestic Product (GDP) growth of 5.5% in 2010, reflecting the optimism of analysts.
Among consumers, who sustain retail sales and consumer credit, the prevailing impression is that 2010 will be more favorable than 2009. The Consumer Confidence Index is close to 160 points, a record level according to the Federation of Trade of the State of São Paulo (“Fecomercio-SP”). With this background of good indicators, one expects a repetition of the progress achieved in recent years in bilateral relations between Brazil and Canada, the celebration of cooperation agreements in different areas, and the participation of executives in a variety of trade fairs and events in Brazil, Canada and elsewhere, and increased business activity.
Many economic sectors, with enhanced economic activity due to fiscal incentives granted by the federal government, the availability of official credit and the very evolution of the Brazilian economy, are viewed as attractive. “There are excellent opportunities to directly invest in the segments in which Canada enjoys comparative advantages, such as mining, engineering services, oil and gas exploration, renewable energy, technologies for the environment, financial services (including insurance), activities in real estate (services and investments) and infrastructure”, points out Walt Hutchings, vice-president of Export Development Canada (EDC).
According to the executive, Canadian entrepreneurs are favored by their experience in exporting goods and services. “There is demand throughout the oil and gas supply chain, and new electric power stations will probably be built. The paper industry, in turn, offers opportunities in line with Canadian know-how and the country’s capacity to supply equipment. In addition, a considerable amount of funds will be invested in roads, airports, ports and sanitation”, states Hutchings.
Demand and production – Sérgio Vale, chief economist at the MB Associados consultancy, mentions some reasons for this renewal of expectations. “The hydroelectric potential is large, with at least three major plants under construction or being planned on the Madeira River (States of Rondonia and Amazonas and on the Xingu River (State of Pará). In Hutching’s assessment, the civil construction industry may also develop in the next decade to become what the automobile industry has been in recent years”.
In the mining industry, demand in China has accelerated production in Brazil and overcoming the global crisis changes the scenario. “We were impacted, mainly in export operations. Not even research and development were spared. In Brazil, investments decreased from US$ 400 million (2008) to US$ 230 million (2009), whereas worldwide the decrease reached 42% in the same period, falling from US$ 13.8 billion to US$ 8 billion”, explains Paulo Camillo Vargas Penna, president of Instituto Brasileiro de Mineração - Ibram (Brazilian Mining Institute).
To illustrate the possibilities of industrial activity in Brazil, Penna compares it to Peru, a country that in 2009, and not withstanding its smaller size, invested twice as much as Brazil in exploration. “This investment deficit is an opportunity for foreign companies. Gold is our prime product, but we also offer opportunities in copper, manganese, nickel and bauxite. Even so, less than 30% of the Brazilian territory has been adequately surveyed. This shows that we still have a large potential and receptiveness for new ventures”, adds Penna.
The Tapajós valley (State of Pará), according to the executive, is an example of the more intensive presence of Canadian companies. In the region, in which many mines were closed, new projects are being revived by small and medium companies in the country, such as Magellan Minerals and Albrook Gold. “In total, some R$ 20 million to R$ 25 million are being directed to the extraction of gold in Tapajós. Apart from this region, these junior companies operate in the State of Mato Grosso, in the Amazon region, and in the states of Rio Grande do Norte, Piauí and Rio Grande do Sul”, says Penna, who goes on to say that state-of-the-art technology in research and production makes the Canadian mining industry stand out as an international reference.
This competitive advantage also favors large groups, such as Yamana Gold. “In the second semester, we will begin construction work at a fourth production site, the C1 Santa Luz mine in the State of Bahia, close to the Jacobina mine that we already exploit. To that end, we will invest US$ 150 million in the next three years. We are also performing feasibility studies in three other localities - Ernesto/Pau-a-Pique (State of Mato Grosso), and Pilar and Caiamar (State of Goiás)”, explains Evandro Cintra, senior vice-president of Technical Services. For him, the political and economic stability makes Brazil an interesting region.
Aluminum is another metal that has brought about new activity. One of the most active corporations in the country, Rio Tinto Alcan is expanding its facilities and operations. “We invested R$ 500 million to expand the Alumar refinery (State of Maranhão) and additional R$ 25 million are planned for the MRN bauxite mine (State of Pará), where we plan on opening new extraction sites. This budget increase reveals the confidence in Brazil’s potential”, states Ronaldo Ramos, Rio Tinto Alcan’s director-general.
The favorable outlook for 2010, however, is not limited to a few sectors. Infrastructure works throughout Brazil will originate many investment projects is coming years, and result in business partnerships. A study by the National Economic and Social Development Bank (BNDES) shows that electric power, telecommunications, sanitation and logistics alone are expected to account for R$ 274 billion between 2010 and 2013. The Growth Acceleration Program (PAC), the preparations for the World Cup (2014) and the Olympic Games (2016), along with the pre-salt layer oil reserves, will require a number of reforms, in addition to technology absorption and exchange programs. The supply of electric power, for example, imposes limitations, a fact known to the federal government and the states. The National Energy Plan (PNE), drawn up by Empresa de Pesquisa Energética – EPE (Energy Research Company), sets the need for capital for investment in generation, transmission and distribution, at US$ 185 billion.
Software and mobility – The estimated value of Petrobras’ project portfolio, US$ 174.4 billion by 2013, will assure large scale demand for a variety of equipment, of which Canadian companies are well-known suppliers. Investments will foster the development of a high technology production chain, given that the pre-salt layer reserves, located in very deep waters, will require innovative solutions. To observers and specialists, the outlook for renewing financial cooperation and innovation opportunities is very good.
Information Technology stands to benefit from this scenario in the medium term. Antônio Carlos Rego Gil, the executive president of Associação Brasileira de Empresas de Tecnologia da Informação e Comunicação – Brasscom (Brazilian Association of IT and Communication Companies), sees good reason for narrowing Brazil-Canada relations. “The Canadians have state-of-the-art technology in this industry and a special relationship with Brazil. For instance, the first course in Computer Science was offered by the Pontifícia Universidade Católica do Rio de Janeiro – PUC – Rio (Pontifical Catholic University of Rio de Janeiro), in partnership with the University of Waterloo (Ontario)”, tells Gil. To him, opportunities are concentrated in services and in the development of software and in areas involving mobility, by spreading information through cell phones and cloud computing, an online data storage system.
However, while many infrastructure works or the development of new technologies are in the planning or implementation stage, the increase in consumption has provided immediate results. The outlook is for continued growth. “Last year, expansion reached 5.5% in food retail sales. With an improved scenario in 2010, we expect a 7% increase. Brazil, from the consumption point of view, is not a mature market. There is still some difficulty in accomplishing mass consumption. A country like Canada, which is used to sophisticated consumption, could be more interested in investing in industry niches, such as in the pharmaceutical or fuel industries”, assesses Sussumu Honda, president of Associação Brasileira de Supermercados – Abras (Brazilian Supermarket Association).
Consumption propensity – In real estate business, increased credit availability and the participation of low income consumers in the market are positive factors. Ricardo Betancourt, president of Colliers in Brazil, sees large official projects as encouragement for the industry’s recovery. “The development of basic infrastructure, with the expansion of ports or airports, will be a distinguishing factor for our company. Whenever there is a novelty, like when there is a new metro rail line, this favors the outlook for the future”, assures Betancourt.
The benefits resulting from the increase in the population’s spending also reflect on tourism. “In 2009, some 250 Brazilians travelled to Canada through our agency, a decrease of 20% in relation to 2007, a year considered to have been excellent. Nevertheless, the Brazilian market suffered much less than that of the United States, which declined by 50% last year. In 2010, we expect a 30% growth in Brazil, mainly because of the end of the crisis, which made tourists be more confident”, assesses Márcia Lucas, representative of Butterfield & Robinson.
Among hotels, one of the conclusions is that the country must expand its hospitality capacity to meet the World Cup and Olympics demand. In February, for example, the Minister of Tourism, Luiz Barretto, and the vice-president of BNDES, Armando Mariante, announced a R$ 1 billion credit line for the refurbishing, expansion and construction of hotels. The Canadian hotel chain Four Seasons, with 83 facilities in 35 countries, has specific plans for Brazil. “Our objective is to develop a hotel with 200 to 240 rooms in São Paulo, another with 150 to 200 rooms in Rio de Janeiro and a resort with 100 to 150 rooms”, says diz Alinio Azevedo, the Development director.
Due to economic growth in recent years that boosted the expansion of a class with a high purchasing power, which is increasingly more interested in premier hospitality, the executive goes on to say that there is also the possibility of building resorts in the Northeast, in the Amazon and Pantanal regions, and in places around Foz do Iguaçu. With an eye on the future, Azevedo says that “the World Cup and the Olympics will provide the country the opportunity to reassert itself as a worldwide tourist destination, with enormous exposure in the international media”.
Translation to English: BeKom Comunicação Internacional
Many economic sectors are viewed as attractive
for foreign investments in 2010
Infrastructure works will
originate many investment projects and are
expected to result in business partnerships
Canadian chain bets on the launching of new hotels and
a resort in Brazil