Reasons to Invest in Brazil?
Brazil is going to have startling growth next year as it emerges from the crisis said President Lula da Silva last month. The OECD has predicted 4% economic growth for Brazil which shows evidence that Brazil is one of the first economies to recover from the economic slump in an resounding way.
State oil company Petrobras discovered vast deepwater reserves that it is developing with a five-year, $174 billion investment program. The goal is to double Brazil’s production, to 3.5 million barrels a day, by 2012, making the country a top oil exporter, in line with many Middle Eastern countries such as Kuwait and Saudi Arabia, increasing the wealth in the country immensely. The United States has agreed to provide as much as $10 billion in financing to go towards the development of these oil fields. Brazil will reap tremendous benefits from this oil exploration and avoid over-reliance on oil because it made its discoveries after its economy had diversified and industrialised.
The growing middle classes and consequent increasing domestic consumption of the BRIC nations is creating greater demand for exports. While US consumers continue to tighten their purse strings, Brazil, Russia, India and China will be responsible for around 50% of worldwide export demand.
Brazil has spent enormously on tourism since 1995, increasing international visitor numbers from 1.9 million to 5.2 million in 2008. The 2014 World Cup is expected to increase tourism and the Government is pledged to spend in excess of $250 million over the next 5 years on airports, roads, sanitation and hydroelectric power.
With residential mortgages only accounting for 2.5% of Brazils GDP (figures supplied by the Banco Central do Brasil), the market has huge room for expansion. To give an example, residential mortgage levels in other countries are 11% in Mexico, 20% in Chile, 45% in Spain and as much as 68% in the US. Despite the current worldwide financial crisis, mortgage lending in Brazil has risen by 41% in the last year, twice as fast as consumer credit. Caixa Economica Federal, the state-owned bank, expects to lend R$26 billion for real estate purchases in 2009 compared to its average of R$5 billion four years ago. The bank has lent R$19 billion already this year.
Brazil has a huge domestic market resulting in its huge export industry only representing 12% of its $1.5 trillion economy. This is due to its population of 190 million people and a growing middle class making up more than half of the population. This has resulted in Brazilians buying more food, clothing, and household goods. Whirlpool (WHR), which has a 40% share of Brazil’s appliance market, has benefited, too. Sales jumped 20% in May and June compared with a year earlier. Even when the tax cut ends in October, sales should remain strong, says Jos A. Drummond Jr., president of Whirlpool Latin America. This has also fueled retail spending at supermarkets such as Grupo Po de Acar, which had a revenue of $8.9 billion in 2008. To cash in on booming sales of fridges, washers, and the like, the company in June paid $422 million for Ponto Frio, an appliance retailer with 458 outlets. “Over the next five years, we’ll see a doubling of sales of durable goods in Brazil,” says Jos Roberto Tambasco, vice-president for operations at Po de Acar.