2.

0 BRAZIL - Economic Data

2.2 Overview

Since 1985, Brazil has continued to pursue agricultural and industrial growth and the development of its
interior. Its position has been cemented through exploiting its natural resources and large labor pool and
is today the leading economic power and regional leader in South America. Brazil is also one of the four
primary emerging markets projected by analysts to become one of the wealthiest economies by 2050,
collectively termed the “BRIC” economies. These countries consist of Brazil, Russia, India, and China. On
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April the 30 2008 Standard & Poor’s became the first rating agency to classify Brazil as “investment
grade” this move sparked a 6.3% rise in the BOVESPA index.
Literacy is relatively high, supplying an abundant able workforce, with 88.4% of males and 88.8% of
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females over the age of 15 able to read and write. Brazil is also the 6 most populous country in the world
and has 198,739,269 residents.
There are a number of other market participants that may support future sustainable investments into
Brazil, as an example, the Brazilian Development Bank (BNDES) has stakes in over 30 publicly listed
Brazilian companies and holds a portfolio of approximately $16 billion US dollars. The wealth
management market is important and there are currently 143,000 high net worth individuals, creating a
market of approximately $1.4 trillion US with approximately 16% of Latin American high net worth
individuals allocating some part of their portfolio’s into sustainable “green investments” such as
alternative energy. The investment environment in Brazil in relation to the sustainable investments sector
is relatively strong in comparison to its emerging BRIC economy counterparts,. Brazil is particularly strong
in its voluntary “non-financial” reporting by companies. Approximately 60% of companies in the BOVESPA
publish reports detailing sustainability, many of which are based on the international good practice
guidelines issued by the Global Reporting Initiative (GRI). The annual survey for the International Carbon
Disclosure Project (CDP) is also progressing. Based on the IMF’s 2008 estimates of worldwide GDP, Brazil
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is today the worlds 9 largest economy. Economic growth in Brazil increased from 3.8% in 2006 and
exceeded the 2007 expectations at 5.4%. In 2008 this trend continued for the first several months with
the GDP growing at 6.1% however as the shockwaves of the global financial crisis rippled across the globe
the growth of the GDP also slowed as such the growth prospects for 2009 are low from the projected
5.1% in 2008 to 0.5% in 2009.
In response to the financial crisis the Brazilian government has expanded its social security net and has
developed its strategic investment initiatives by creating jobs in the infrastructure sector whilst also
progressing its social housing strategy. Through 30 years, the development of the rural poverty reduction
projects have developed with 53% of low income rural populations now receiving resources directed
through their communities. These resources allow the community to choose how to invest them and
implement projects directly. The result is that these community projects are 50% less expensive to
implement.
In addition, the land loans (Credito Fundiario) project offers financing and donations to communities to
identify and purchase land for farming. This has led to the average income of families settled by the
program increasing by 181% between 1998-2003, and 145% between 2003-2005. Agricultural production
as a result has also increased by around 350% between 1998-2000 and by 100% between 2000-2003. As a
result of these and other initiatives before the crisis, Brazilians have been benefiting for the first time in a
generation from stable economic growth coupled with low inflation rates and large improvements in
social well-being. The development of the Brazilian market in these recent years is primarily down to
sustained strong commodity prices, allowing the economy to grow at an average of 4.8% between 2004
to 2008 above the average growth rate of previous decades of just below 2.5%.

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 ECONOMIC INDICATORS

GDP (purchasing power parity) GDP (real growth rate)

2006 (est) 2006 (est)

$1.794 trillion 4%

2007 (est) 2007 (est)

$1.896 trillion 5.70%

2008 (est) 2008 (est)

$1.993 trillion 5.10%

GDP (per capita PPP) GDP (sectoral composition)

2006 (est) AGRICULTURE

$9,400 6.70%
2007 (est) INDUSTRY
$9,800 28%
2008 (est) SERVICES
$10,200 65.30%

LABOUR FORCE (sectoral composition) LABOUR FORCE

AGRICULTURE TOTAL (2008 est)
20% 93.65 million
INDUSTRY UNEMPLOYMENT RATE (2007 est)
14% 9.30%
SERVICES UNEMPLOYMENT RATE (2008 est)
66% (2003 est.) 7.90%
POPULATION BELOW POVERTY LINE (2005)
FAMILY INCOME DISTRIBUTION (Gini
index) 31%
56.7 (2005)

60.7 (1998) INFLATION RATE (consumer index)

2007 est

INVESTMENT (gross fixed) 3.60%

19% of GDP 2008 est
BUDGET REVENUES (2008 est) 5.70%
NA

BUDGET EXPENDITURES (2008 est) CENTRAL BANK DISCOUNT RATE

NA 20.48% (31 December 2008)
17.85% (31 December 2007)

PUBLIC DEBT

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 COMERCIAL BANK (prime lending
2004 est (of GDP) rate)
52%
2008 est (of GDP) 31st Dec 2007
36.90% 43.72%
31st Dec 2008

STOCK OF QUASI MONEY N/A

31st Dec 2007

$792.8 billion STOCK OF MONEY

31st Dec 2008 31st Dec 2007
N/A $131.1 billion
31st Dec 2008

STOCK OF DOMESTIC CREDIT $NA (31 December 2008)

31st Dec 2007
MARKET VALUE OF PUBLICLY
$1.377 trillion TRADED SHARES
31st Dec 2008 31st Dec 2008
N/A $589.4 billion
31st Dec 2007

PRODUCTS $1.37 trillion

AGRICULTURE 31st Dec 2006
coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus; beef $711.1 billion
INDUSTRY

textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, ELECTRICITY
aircraft, motor vehicles and parts, other machinery and
equipment ELECTRICITY (production)
INDUSTRIAL PRODUCTION GROWTH RATE 437.3 billion kWh (2007 est.)
4.30% ELECTRICITY (consumption)
402.2 billion kWh (2007 est.)

CURRENT ACCOUNT BALANCE ELECTRICITY (exports)

2007 est 2.034 billion kWh (2007 est.)
$1.551 billion ELECTRICITY (imports)
2008 est 40.47 billion kWh; note - supplied by Paraguay (2007 est.)
$-28.19 billion

OIL
EXPORTS OIL (production)
2007 est 2.277 million bbl/day (2007 est.)
$160.6 billion OIL (consumption)
2008 est 2.372 million bbl/day (2007 est.)
$197.9 billion OIL (exports)
EXPORT PARTNERS (2008) 481,100 bbl/day (2005)
Germany 4.5% OIL (imports)
Netherlands 4.9% 648,800 bbl/day (2005)
Argentina 8.6%

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 China 11.5% NATURAL GAS
US 14.6% NATURAL GAS (production)
EXPORT COMMODITIES 9.8 billion cu m (2007est )
transport equipment, iron ore, soybeans, timber, footwear, coffee,
autos NATURAL GAS (consumption)
19.8 billion cu m (2007 est.)

IMPORTS NATURAL GAS (exports)

2007 est 0 cu m (2007 est.)
$120.6 billion NATURAL GAS (imports)
2008 est 10 billion cu m (2007 est.)
$173.1 billion

IMPORT PARTNERS (2008) RESERVES FX AND GOLD

Germany 7% 31st Dec 2007
Argentina 7.9% $180.3 billion
China 11.6% 31st Dec 2008
US 14.9% $193.8 billion
IMPORT COMMODITIES
machinery, electrical and transport equipment,

chemical products, oil, automotive parts, electronics EXTERNAL DEBT

31st Dec 2007
STOCK OF FOREIGN INVESTMENT (in
house) $240.5 billion
31st Dec 2007 31st Dec 2008
$248.9 billion $262.9 billion
31st Dec 2008

$294 billion EXCHANGE RATES

Reals (BRL) per US dollar

STOCK OF FOREIGN INVESTMENT (abroad) 2006

31st Dec 2007 2.434
$107.1 billion 2007
31st Dec 2007 1.85
$127.5 billion 2008
1.864

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 2.0 BRAZIL - Economic Data (cont)

Brazil has the largest economy of all the Latin American nations and continues to expand its global
presence. The diversity within its economy has been pivotal in its success. Ranging from a strong
agricultural sector to flourishing mining and commodity markets, there has been a wide depth of
industrial growth. Brazil has also recently discovered significant off shore oil reserves. Recognized from an
international standpoint for prudent fiscal management, the Brazilian government has presided over
current account surpluses in recent years. President Lula da Silva re stated his commitment to fiscal
responsibility following the 2006 elections and promised further economic reforms involving
infrastructural investment and tax reductions. As a percentage of its GDP, Brazils exports are relatively
modest in comparison to many of the worlds largest economies. Approximately 13% of GDP for Brazil,
compared to almost 40% for Japan and Germany. The institutional community, Standard and Poor and
Fitch have assigned investment grade status to Brazils sovereign debt. Brazil commenced a tightening of
monetary policy during 2008 due to inflationary pressures. In line with most major market indices, the
Bovespa, Brazils stock exchange dropped 40% during the global financial crisis. In 2008, Brazil incurred a
current account deficit as global commodity demand fell. Brazil has recently emerged from recession
following recently reported growth figures. The first South American Country to come out of recession.

BRAZIL – Eucalyptus (primary species)

Secondary Markets
The substitution of reconstituted wood products like plywood for solid wood products has been an
ongoing change in the non-structural wood sector. Costs, both of the raw product and processing are
significantly less compared to traditional wood products. As native forests have diminished and
environmental regulations against the harvesting of natural forests have increased, Brazilian
manufacturers have moved into plywood and particleboard production.

Pressure Treated Lumber

Fenced posts throughout the southern region are either made of concrete or are cut from native trees
and are often used with the bark still intact. Utility poles are also made exclusively from concrete. By
pressure treating posts or poles with cremated copper arsenate (CCA), plantation wood can be placed in
the ground for up to 20 years and the cost of a pressure treated post is far less than concrete. Auto-clave
facilities to pressure treat exist ing Southern Brazil and the product has been accepted domestically and is
being successfully exported.

Furniture
Furniture exports from Brazil recently exceeded US$1 billion annually. Eucalyptus is used to produce
various types of garden furniture including chairs, tables, benches, cabinets, stands, and dressers. While
exports of furniture have been threatened by a stronger local currency, growth has been sustained.
Exports for Brazilian furniture production are destined mostly to the United States, but also to France and
Argentina. In addition to furniture, Brazilian eucalyptus is also exported for flooring, molding and joinery.

Although Eucalyptus is the predominant species in Brazil, Loblolly pine also plays a role and is an
important species in many countries, including Brazil where 1 million hectares of plantations have been
established from latitudes 20° - 32°S in the states of Matto Grosso do Sul, Sao Paulo, Parana, Santa
Catarina, and Rio Grande do Sul In southern Brazil, Mean Annual growth is around 25 m3/ha/yr with
rotation ages from 20-25 years. Much of the rapid growth rates of loblolly in Brazil can perhaps be
attributed to the relatively mild climate of southern Brazil

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 BRAZIL - Other Plantation Species

Introduction:

Eucalypt and Pine are the predominant species planted in Brazil however several other species are

noticeably worth looking at. These are -

• Wattle (Acacia Mangium & Acacia Mearnsii). An important multipurpose agro-forestry

species.

• Rubber Tree (Hevea Braziliensis). Primarily in the Amazon regions.

• Parica (Schizolobium amazonicum). Primarily utilized for veneer, toothpicks and plywood.

• Teak (Tectona grandis) Primarily located in Mato Grosso, Amazonas, and Acre. One of the

best known high value species.

• Araucaria (Araucaria angustifolia) The main uses are sawnwood and vaneer, solid wood,

mouldings, furniture and long fibre pulp.

• Poplar (Poplar spp) This species is primarily used in manufacturing matches, furniture,

doors, interior woodwork.

• Guanandi (Calophyllum brasiliense)

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 BRAZIL - Other Plantation Species (cont)

Acacia

Acacia is notably one of the most important multi-purpose agro-forestry species in the world. There are a

large number of uses for this species, notably including honey making, cattle fodder (retaining approximately

61% protein in leaf content), high value timber (can be produced within 10 to 12 years) pulp and paper,

fuelwood and charcoal, and most notably tannins. Acacia holds one of the highest tannin contents in its bark

and is heavily utilized by the leather industry. It should also be noted that the only industrial exporters of

tannins are Brazil, South Africa, Chile and China. This species has both strong domestic as well as

international acceptance and the areas planted are primarily concentrated in Rio Grande do Sul and

Roraima.

Rubber Tree

Native to Brazil and originally found in the Brazilian Amazon, this species is tapped to produce rubber. The

species has also been grown in other states that have the right climate and abundant water supplies to

support large scale agri-business ventures. The states that offer the best geographical locations are widely

seen as Bahia, Minas Gerais, Sao Paulo, Mato Grosso, and Mato Grosso do Sul. There is an ongoing Brazilian

strategy to avoid total dependence on imported rubber by producing domestic rubber in plantations.

Additional to this, research has begun and clones have been developed to produce pest-resistant strains to

combat the threat of native pests which have in the past been a concern of producing rubber in Brazil.

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 BRAZIL - Other Plantation Species (cont)

Parica

The plantation areas predominantly used for this species are situated in Para and Maranhao. Another native

Brazilian species, the timber is suitable for veneer and plywood, moldings, ceilings, toothpicks and furniture.

Araucaria

Parana/Araucaria (Araucaria angustifolia) forest plantations are sited mainly in the southern states of
Paraná and Santa Catarina. The timber is predominantly used for sawnwood and veneer, solid wood
products, such as ceilings and mouldings, and furniture,. Despite its importance for certain regions,
araucaria planted area in Brazil diminished over recent years, mainly as a result of it’s substitution by
faster growing species and laws restricting araucaria logging (including natural and planted forest).

The Administrative Ordinance now lists araucaria as a threatened native species and it is now is subject to
legal restrictions on its harvesting, for any purposes, which can only be via a through a permit obtained
from the competent environmental agency. Poplar (Populus spp) forest plantations are also concentrated
in Parana and Santa Catarina. This is a minor planted species, generally used in manufacturing of matches,
furniture parts, doors, interior woodwork, and others.

Poplar

Poplar forest plantations are concentrated in Parana and Santa Catarina. This is a minor planted species,
generally used in manufacturing of matches, furniture parts, doors, interior woodwork, and others.

Teak
Plantations for teak are mostly located in Amazona, Acre and Mato Grosso, Teak is considered to be one of the moshighly
valued timbers in the timber market, a clear reason for its expansion in plantation areas over recent years. Primary uses are
for construction (doors, window frames, panels, ceilings etc.), flooring and decks, furniture, shipbuilding, decorative veneer,
decoration, sculpture and woodcarving. Teak was originally planted between 25-30 years ago in Brazil. Most plantations are
still at a young age. The teak plantations are managed by a handful of major forestry companies. Few of them have mature
forests producing high-value timber products for export. The remaining companies are about to start managing their young
plantations and will likely be producing small-diameter logs (fuelwood/residues) for domestic markets.

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 BRAZIL – Primary industries

The Iron and Steel Industry

The Brazilian Iron and Steel Industry is an important market driver for forestry products.

Charcoal extracted from natural forests was paramount to the development of this Brazilian industry. A
number of restrictions have been put in place over the years in order to stop charcoal extracted from native
forests being used. These changes have led to the development of laws to ensure “re-forestation is relative
to consumption” and as such has driven demand for plantation-grown charcoal that has been approved as
sustainable by the regional governments.

It is forecast that total Brazilian steel production capacity will increase from 33 to 57 million tons in the next
ten years due to the heavy investment programmes undertaken in recent years and ongoing projects.
Investments totaling apporoximately R$32billion in the 3 years from 2008 to 2011 are predicted by The
National Development Bank. Pig-Iron production based on charcoal stayed unchanged over the last 3 years.
The region of Minas Gerais, a central hub for production of pig iron has reduced output. Following difficulties
in sourcing charcoal, many of the charcoal kilns have been out of use, with a reported 50% standing idle in
2007. Several companies with sourcing difficulties have turned to the neighbouring state of Bahia for
supplies of charcoal produced from the Eucalyptus plantations. Nearly one third of pig- iron production in
Brazil (32.5 million tons recorded in 2006) uses charcoal in the smelting process. The charcoal is produced
equally between by the forestry plantations and from natural forests.

A groundswell of opinion led by environmentalists is generating pressure against natural forest usage for
iron smelting. As a result, there are significant numbers of private and public sector enterprises targeting the
charcoal production market from forest plantations. Of particular note, the state of Minas Gerais, in a
public-private enterprise, plans to find new outlets to boost financing for plantation investing, with an
planned increase of 0.6 million hectares in 8 years., resulting in a total of 1.8 million hectares being
anticipated to be in production at the end of the period. This is widely viewed as a part answer to the threat
which faces the natural forest together with a workable solution to addressing the problems of charcoal
scarcity. Under the supervision of The Secretary of State for agriculture a body known as the “Sectoral
Chamber for Silviculture” has been formed to address the situation

Coal/Coke
Linked to steel and iron production, coking coal has undergone significant price rises between 200 and
2005 due to demand pull influences. The figure below show a small decline in imported coal prices in
2007. Coal prices are not available on stock markets but rather are determined in negotiations between
specific countries/companies. Prices in spot markets have risen twofold with further rises anticipated in
future.

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 We hope that you have enjoyed this 9 page
sample of the “World Forestry Update”
This forestry “market brief” is a Greenwood Management
ApS publication designed to help both forestry investors as
well as professionals.

You can access the full 56 page report by going to –

www.greenwood-management.com

Or alternatively you can email –

j.randall@greenwood-management.com

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Greenwood Management ApS

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