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  Edition nº 28

Cover Story

Time to plan

Companies in Brazil and Canada look ahead to a 2011 of opportunities, based on growth expectations of the Brazilian GDP to US$ 2.1 trillion, and plan to invest while not ignoring specific challenges in different sectors of the economy

Paula Monteiro

Brazil again stands out after surprising the world due to the relative ease with which it overcame the 2008-2009 international financial crises. Whereas Europe and the United States seem incapable of resuming growth, the Brazilian economy surpasses itself in terms of results and perspectives. The outlook is a 7.5% growth of Gross Domestic Product (GDP) in 2010, according to the International Monetary Fund, which will allow the country to transform recent social and economic achievements into opportunities in the coming decade. In terms of superpower country ranking, this is expected to translate into a projected GDP of US$ 2.1 trillion in 2011. Should this outcome materialize, Brazil will consolidate itself as the seventh economy in the world, ahead of Italy.

Foreign trade and domestic consumption were the main contributing factors for the positive 2010 balance. Rising imports and exports strengthened bilateral relations with several countries, especially Canada, which also more easily came out of the international financial crises. In several industries, such as mining, oil, and technology, companies of both nations reviewed their investment projections in recent months and look ahead to a 2011 of opportunities.

Canadian entrepreneurs bet on the continued growth of the Brazilian GDP and do not deny their interest in the preparations for the 2014 World Cup and the 2016 Olympics. In turn, large companies such as Vale and Petrobras strengthen ties to Canada, while more and more Brazilian executives of small and medium size companies take part in trade fairs and initiatives in several provinces and regions.

INCREASED PRESENCE – Export Development Canada (EDC) is aware of the changes and intends to reinforce its staff in Brazil next year, alert to the infrastructure construction projects for the two mega sports events. With the recently held 2010 Winter Olympic Games in Vancouver, specific experience and knowledge can be shared. According to the entity’s president, Eric Siegel, energy and environmental engineering companies – mainly for the treatment of hydric resources and residues – are already doing business in the country with support from EDC. The objective is to expand this presence, while not waiving caution. “Other promising segments are communications, information technology, transportation, the hospitality industry, as well as auto parts. On the other hand, we expect authorities to determine the manner in which projects will be structured and conducted”, says the entity’s executive.
Ely Couto, executive director and senior representative of BMO Capital Markets, of the Bank of Montreal financial group, also deems the time right – new products will be developed for the capital market -, but she foresees some challenges. “To continue attracting investments, it is important that the Brazilian government reduce public spending following the setting of priorities and accelerate the needed reforms, particularly the fiscal, labor and judiciary reforms”, assesses Couto. An example of the mutual interests in the banking industry was the sale, in September, of Dresdner Bank Brasil-Banco Múltiplo, a subsidiary of Commerzbank, to Scotiabank

Banking institutions are expected to continue to grow their business in coming years because they increased their sales and expanded their credit portfolios, favored by the population’s increased purchasing power and the rise in domestic consumption. According to Serasa Experian’s Economic Activity Outlook Indicator, average family expenses increased by 7.4% in the first nine months of 2010, in comparison with the same period in the previous year.

This positive scenario is also to be seen in other economic areas, calling the attention of foreigners. A study conducted by the United Nations Committee of Trade and Development (UNCTAD), published in September, ranked Brazil as the third most sought after destination – rather than fourth as in the ranking in previous reports – for direct foreign investments (FDI), until 2012. The country is expected to receive FDI for labor and the exploration of natural resources, as well as, and ever increasingly, for innovation and technology.

According to Sérgio Vale, chief economist at the MB Associados consultancy, next year will be good for the economy. However, he believes a reduction in the current account deficit and a fiscal reform will be necessary to diminish pressure on companies’ and the federal government’s balance sheets in the long term. Among the industries poised for growth, Vale includes the service sector. “This will probably be an important niche, foremost for health and education, due to the strong demand for professionals”, says Vale.

Canadian mining company Kinross invested about R$ 400 million in 2010 alone. “The money was for developing the Morro do Ouro mine and included the purchase of equipment, such as a new ball mill”, says José Roberto Freire, president of the Brazilian subsidiary. With start-up set for the first half of 2011, the equipment will increase the crushing capacity and allow for the processing of harder ore. “We have also made progress in mineral research projects in Minas Gerais, Mato Grosso, Pará, Goiás and Maranhão”, Freire goes on to say, revealing that annual production was increased by approximately 15 tons, 35% more than in 2009. “The projection is to increase capacity to about 17 tons”, says the executive, who is counting on additional R$ 400 million being invested in the next two years.

On the Brazilian side, Vale in November announced that it would implement an ambitious plan in Canada that may exceed US$ 10 billion in investments over a five-year period, with the intent of expanding operations and production in the country. In a communiqué, Tito Martins, the CEO of Vale Canada, explained that “the program we are launching is indicative of the bright future we see for Vale in Canada. These initiatives are an important step into the future of operations in Canada”. During 2011, expectations are that the multinational company’s total investments reach US$ 24 billion.

Novelis, which manufactures aluminum plate for laminated products and beverage cans, is also expanding operations. In 2010, the total will amount to US$ 300 million. Since January, the company has been able to perfect procedures and increase production by more than 15%. This increase was needed to meet additional demand in the domestic market. “The objective is to increase the Pindamonhangaba, State of São Paulo, plant capacity by more than 50%, expected to occur by the end of 2012”, states Mauro Moreno, vice-president of Sales and Marketing. “The beverage can sector is expected to end the year with growth of more than 20%”, estimates Moreno. According to him, the World Cup and the Olympics will be additional enhancement factors. “These are events that will likely bring about growth in beverage consumption. In addition, infrastructure works will demand more aluminum”, concludes Moreno.

SALES AND PROFIT – In civil construction, the good phase is also felt. Brookfield Incorporações posted a net profit of R$ 266 million in the first nine months of 2010, according to Cristiano Machado, executive finance director. In that period, the company set up a unit in Curitiba, State of Paraná, and another in the interior of the State of São Paulo. “In partnership with the International Finance Corporation (IFC), the trade arm of the World Bank, we also entered a real estate area for properties in the price range up to R$ 130,000. We hope to close the year with about R$ 3.5 billion in contracted sales”, states Machado. For 2011, the financial projection is between R$ 3.5 billion and R$ 4 billion, that, in being achieved, would represent a 20% increase.

With the strengthening of bilateral business in 2010, many Canadian companies show more interest in exporting to Brazil, as exemplified by the performance of Northstar, specialized in financing the purchase of goods that Canadian exporting companies offer their clients abroad. Overall, 22 new contracts were signed until November – an increase of more than 37% in the Brazilian market in comparison with the same period in 2009.

“This has been the group’s best year for business since 1997, because local industry invested more in high technology equipment”, explains Rodrigo Fernandes de Freitas, of RF Capital Consult, the representative of Northstar in the country. The executive points out that the increase in demand for international credit occurred mainly in sectors such as beverages and food, and in the printing industry.

The improvement of Brazil’s international image is also viewed in some instances as an unequivocal sign of opportunity. The financial group Fairfax this year opened an insurance and reinsurance unit in São Paulo, which will be the base for operations throughout Latin America. According to Bruno de Almeida Camargo, vice-president, Fairfax Brasil already has more than 30 contracts with reinsurers. Camargo states that “the Outlook for 2011 is good due to future investments in infrastructure”, and that this segment shows growth projections.

Camargo is cautious in stating that the industry is under much pressure to reduce some of the insurance rates. Even so, he sees a promising 2011. “Fairfax will continue investing, because we seek a 2% share of the commercial and industrial credit line market that is expected to reach a business volume of R$ 8 billion”, concludes Camargo.

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