Andrew Peter Carson

Table of Contents
Brazilian Sugar Seats ............................................................................................................... 3
Project Background ........................................................................................................................... 3 Investment Factors ............................................................................................................................ 4

Country Assessment ................................................................................................................ 5

Economic Outlook .............................................................................................................................. 5 Political Outlook ................................................................................................................................. 6

Conclusions ................................................................................................................................. 7
Industry Outlook................................................................................................................................. 7 Recommendation & Next Steps ..................................................................................................... 8

Brazilian Sugar Seats

Project Background
As the world looks to Brazil for the FIFA World Cup and the Olympics, new pressures mount for more eco-friendly solutions to traditional transportation and logistics problems. New industries are however emerging to answer the call, such as the new widely talked about Sugar Seats. This new technology converts Brazils abundant natural resource, cane sugar, into a sustainable plastic. In preparation for infrastructure improvements, public and private funds have been pouring into such projects. This creates an ideal atmosphere for investment. Despite short-term lackluster GDP growth, the future prospects in 2016 have the potential to launch Brazils green chemical manufacturing industry globally. Although the window may have mostly past, the environment is still ripe to invest in Brazilian companies such as Braskem. This Brazilian chemical giant has quietly been acquiring global companies for years, cementing its position as polypropylene mega-producer. In partnership with US companies, Braskem has built the worlds first green ethylene plant using proprietary technology. The opportunity presented in the proposed sugar seats could help jumpstart demand and lock in production for this exportable product (Morley). This opportunity also represents the ideal time for investment, as many big-name partnering and investing US companies, such as Procter & Gamble, point to the lucrative nature of this project. With political, economic and industry factors taken into account, this report will attempt to summarize all relevant factors of investment and provide a final recommendation for next steps.

Investment Factors
In the current environment, Brazil represents a safe long-term venture for smart investors who know how to handle the market. With a population of just under 200 million, the country still manages to attract significant FDI despite more than few complications (Foreign Direct Investors). Transparency International gives the country a corruption perception index rank of 69 out of 176. Behind Chile, Brazil is the most transparent country in South America. The country is also ranked in the 91st percentile in the perception of corruption control (Transparency International). However, in the ease of doing business ranking released by the World Bank Group, Brazil is listed 28 out of 33 Latin American countries. Additionally, Brazil is listed even lower in the ease of trading across borders. Despite this low ranking, in 2011 Brazil was fifth in terms of global foreign direct investment inflows at 71.5 billion USD (Foreign Direct Investment). Clearly, as an investment Brazil presents both opportunities and problems. The difficulty of exporting goods and services out of the country, for example, could serve to tie up assets domestically. The number of documents required to export from Brazil is 7 compared to the OECD average of 4. The cost to export a single shipping container is 2,215 USD compared to the OECD average of 1,028 USD (Doing Business). Overall the investing and exporting environment for chemical manufacturing promises growth and knowledge capital. Investors must however be prepared to deal with possible liquidity and bureaucracy complications when exporting such products from Brazil.

Country Assessment
Economic Outlook
Currently Brazil is still suffering from a lagging economy that is not recovering from the global financial crisis as expected. With expected GDP growth hovering around one percent for 2012, Brazils economic problems have only placed further pressure to enact protectionist policies. However having not completely given into such pressures, the economy should respond to current low interest rates and expansionary fiscal measures. Additionally, Brazils educated and resilient labor market is expected to aid the countrys bounce back to an expected 3% annual growth rate. Inflation is above the 4.5% target for the third year in a row. Particularly vital and related to the sugar and ethanol industry, the average inflation for food has also been well over 8% for the past year. Despite government policy measures to control the appreciation of the Real, the current expansionary policy is somewhat counter-productive towards controlling inflation. With both a sluggishly rebounding economy and alarming inflation, the government is faced with a trade-off. Rousseff can either decide to tackle inflation or elect to promote economic competiveness and future growth. Monetarily, Banco Central do Brazil (BCB) has not further reduced interest rates from their already historic lows, demonstrating their willingness to run an inflation slightly above target. Though Brazil has several economic choices to make before it can return to normal growth expectations of a BRIC country, the sheer economic momentum that both FIFA and the Olympics will generate should help Brazil wake from its slumber.

Political Outlook
Politically, Brazil enjoys a relative receptiveness to market oriented reforms. In the political metrics table below there is quick analysis of the political elements that have been driving Brazils current market oriented reforms. Political Party System Political Credentials Leadership Skills Political Consensus Fragmented High High High

The current president, Dilma Rousseff, has largely been able to manage an ultimately fragmented political system. In the house of deputies, for example, the Partido Do Trabalhadores only directly controls about one fifth of the political process. With record popularity however, Rousseff has been well able to bring about political consensus in the past. With her roots in the workers movement and her support of economic reform, which was given the blessing of Brazils golden man former president Lula da Silva, Rousseff has a wide political base to pull from. Currently the appetite for such strong market oriented reforms may have eroded. However this is mostly explained by the global economic crisis precipitating slow years of growth in the country. If Rousseff is able to weather such instability, control inflation and meet expectations for easily winning her fourth term, her presidency will stretch into the Olympics and FIFA World Cup. Such economically profound events would only serve to bolster Rousseffs appeal and heighten her political clout. Although Rousseff herself may not whole-heartedly embrace marketoriented policies, she has proven willing to fight for tax reform and PAC2 (EIU country report: Brazil).

Conclusions
Industry Outlook
As FIFA and Olympic crowds begin pouring into Brazils cultural centers of Rio de Janeiro and So Paulo, new life will breathe into the recovering Brazilian economy. As with Beijing, such international events will allow this powerhouse country of 200 million to officially introduce herself on the world stage. In preparation for the games, Brazil is well underway in reconstructing 12 major stadiums most of which could use the proposed sugar seats. With an estimated budget of 13 billion USD (World Cup) and 18 billion USD (Olympics), liquidity for investment in such sustainable projects is high. Currently the largest player in the Latin American industry is Braskem S.A., leading the market in petrochemical manufacturing. The chemical manufacturing giant clocked in last year with a revenue of 17 billion USD. In 2010, the company began a partnership with Procter & Gamble to build the worlds first green ethylene plant, based on proprietary Braskem technology (Braskem S.A. Profile). The revolutionary plant in the state of Rio Grande do Sul has a capacity of 200,000 tons a year. The raw material, sugar based ethanol, is being sourced from major producers in Minas Gerais, Paran and So Paulo (Braskem Ethanol-to-Ethylene). With already growing demand for renewable plastics as end consumers expect more sustainable practices, Braskem has plans to construct a second facility and partner with Toyota, Shiseido, Tetra Pak, Petropak, Johnson & Johnson and Brazilian firm Natura.

Recommendation & Next Steps

Interested investors should overlook current economic factors, such as sluggish growth and high inflation. The arrival of FIFA and the Olympics will bring about several desirable effects that should help ease such concerns. The events will bolster tourism, increase Brazilian global awareness, solidify Rousseffs popularity and highlight Braskems sugar seats. With a more solidified political base, Rousseff will be better equipped to tackle eco-political problems holding Brazil back. Additionally, the economic implication of these events should help speed up Brazils return to expected growth. These events will also jump start Brazils green plastics industry, if the sugar seats are installed as planned. Individual and company investors should look into investing quickly in Braskem, as the international events are fast approaching. With plans to open a second green ethylene plant, there is a demonstrable market forming and therefore a need for appropriate long-term investors. As a growing global firm with ownership of this proprietary technology, Braskem is an ideal company. Investors should also be aware of the risks. The ease of conducting and exporting business in Brazil is cause of concern and further inquiry. More technically speaking, on Braskems Balance sheet inventory has been significantly creeping up along with accounts receivable and accounts payable. This is also cause for concern and further research before investment is considered.

(I.)

Bibliography

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