11/29/11

Best of local comment: Brazil s attractions reaffirmed - BrazilConfidential.com

BULLS AND BEARS

Best of local comment: Brazil s attractions reaffirmed

Published 24 Nov 2011
BRAZIL S ECONOMY MAY BE DECELERATING, BUT LOCALLY THERE IS STILL PLENTY OF CONFIDENCE THAT THE COUNTRY WILL FARE BETTER THAN THE DEVELOPED WORLD, ESPECIALLY IF DIRECT FOREIGN INVESTMENT CONTINUES TO ARRIVE IN SUCH HIGH VOLUMES AS IN RECENT MONTH.

Will we manage to resist the global crisis again and maintain our capacity in the long-term? Everything suggests that we will, concluded Caio Megale, economist at Ita Unibanco, writing in Valor. All the fundamentals that paved the way for our development are still there, especially those that have a bearing on the potential of our domestic market and the good shape of our external accounts. Brazil is one of the few regions in the world that has good perspectives for growth and a return on capital. Certainly there are some challenges ahead. Some of the forces that helped Brazil grow in the late 2000s are weakening or disappearing, suggested Cristiano Romero in the same newspaper. For example, with unemployment at record lows, there is limited room for new job creation and increased labour productivity is still too low. Investment levels are a worry too and could as Folha de S. Paulo pointed out in an editorial fall further if turbulence grows on world markets. Brazil was the fifth most attractive market for foreign investment in 2010, accounting for a 5.4% share. But the economic difficulties of the North raise some doubts as to whether it can continue attracting such volumes. If the crisis were to develop in a more traumatic fashion and produce the kind of credit crunch we saw three years ago and bankruptcies in the corporate world, investment would decline. Even so unless that happens Brazil probably will retain market confidence, suggested Folha. It could still do with a helping hand from credit rating agencies, wrote Miriam Leito, columnist at O Globo. Despite the recent increase (by Standard & Poor s) of Brazil s rating to BBB, this is still three notches below the A of Italy. Our [gross public] debt is 55% of GDP, theirs is 120% and will become even bigger because they will not grow quickly," she argued. "The role of the agencies has to be reviewed. They are influential but they make too many mistakes. -A new model for the Amazon? Editorial in Folha de S. Pa lo The 4.8m inhabitants of Par are being asked to vote in a plebiscite on December 11. Should their state be divided into three new entities? Or should it stay as it is: covering 1.2m square kilometres, rich in natural resources but with scarcely 1.4% of the country s GDP, with terrible social indicators and a violent struggle over land?

brazilconfidential.com//Best-of-local-comment-Brazils-attractions-reaffirm

1/2

11/29/11

Best of local comment: Brazil s attractions reaffirmed - BrazilConfidential.com

It s an opportunity to debate the development model for the Amazon, which at the moment still reflects the ideas of the 1970s and the disorderly advance that was part of the economic miracle. Polling suggests 58% of the Par s residents want to maintain the status quo. And you have to ask whether the two new entities that would be created (Tapajs and Carajas) would do any better than the current state based in Belm in dealing with the problems of isolated populations. The cost of creating two new states also has to be taken into account. According to Ipea it costs at least R$832m a year (in 2008 prices) to maintain a new state. There d be six new senators, 13 new deputies and in each of the new states a legislative assembly. Someone would have to pay for this at the end of the day. People in Par will have to decide but this is a discussion that concerns the country as a whole. -African opportunity Sergio Leo in Valo Winning a bigger share of the African market is a priority for President Dilma Rousseff. One priority is finance: which is on the agenda of Fernando Pimentel, the development minister, who this week travelled to Mozambique. But there are other things going on as well. Specialists at the Getlio Vargas Foundation are working on a $1bn fund that could be launched at the beginning of 2012. The idea would be to support African projects that have already been identified: an ethanol distillery, a plant to crush soyabeans and ten thermoelectric generators fired by biomass. The fund is supported by DWS Investments, which is linked to Deutsche Bank. If the projects attract investors, Brazilian business might become interested, partly because there would be demand for equipment. But Brazil has powerful competitors in Africa, such as China. And these don t have to face unpleasant surprises such as the one that astonished Brazilian exporters earlier this year, when the export lines offered by Proex, Brazil s official agency, were cut by 70%. -Petrobras falls behind Editorial in O E ado de S.Pa lo Petrobras is committed to investing $224.7bn between 2011 and 2015, but this programme, as the finance director has admitted, has been delayed. Between January and September the state company invested just $50.8bn, 10% less than in the same period of 2010. It is not just the investments that are lower than forecast. Production is down too. On average it was just 2,013,000 barrels per day compared with the 2.1m bpd produced last year. Petrobras is short of equipment to explore the Carioca field, an area in the pre-salt reserves which will not now come on stream until 2013. In 2011 results were affected by frequent interruptions to production. The fall in production and related decline in sales has hit Petrobras s capacity to generate cash and forced it to import more petrol. The problem is that Petrobras hasn t clarified the nature of many of these problems. The deepening global crisis could affect the company s access to credit so those explanations need to be more detailed.

The Financial Times Ltd 2011 'Brazil Confidential', 'FT' and 'Financial Times' are trade marks of The Financial Times Ltd.

A FINANCIAL TIMES S ER ICE

brazilconfidential.com//Best-of-local-comment-Brazils-attractions-reaffirm

2/2