2011 - delta - brazil and latin america
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Overview of Brazil and selected Latin American countries. Comparison between economies.TRANSCRIPT
1
Brazil and Latin America
Luiz Nelson Porto Araujo
São Paulo, April 7th 2011
Recent Development and Perspectives
CONFIDENTIAL
This report is confidential. It may contain confidential, proprietary or legally privileged information. No confidentiality or privilege is waived or lost by any access to it. You
must not, directly or indirectly, copy any part of this report without the written consent of Delta.
2
Fundamentals
Global Scenario
Latin America
Brazil
3
Fundamentals
Global Scenario
Latin America
Brazil
4 Source: Dani Rodrik e Arvind Subramanian (2003): The Primacy of Institutions; Delta analysis
Economic development
Integration
Institutions
Geography
Income
capacity to trade
natural
resources and
institutions
distance from
markets
Health of
population and
agricultural
productivity
demand
for good
institutions
efficiency and
dissemination of
technology demand
for foreign
goods and
services
openness and transparency
property rights and
rule of law
5
Growth and competitiveness
TFP (innovation)
• Acquiring global knowledge
• Creating knowledge through own
efforts
• Disseminating and using existing in-
country knowledge
Growth
Physical capital
Adjusted for
• capacity utilization
• vintage of capital
Human capital
Labor adjusted for
• education
• skills
• training
Capital
market
Labor
market
• Three areas are usually
considered for enhancing
competitiveness and
accelerating growth, and
which are also relevant for
the analysis of Latin America
• First – macroeconomic
environment to extend
reforms that will improve the
investment climate
• Second – higher productivity
will require a focused effort
to expand TFP through
innovation-based growth
• Third – "micro" reforms to
foster growth
Analysis
Source: OECD: Delta analysis
• Investment climate
• Macroeconomic conditions
• Rule of law
• Competition policy
• Governance
• Security
6
Slow development and underdevelopment
• Growth of per capita
income income be
low or even negative,
even if GDP increase
significantly
• Development trap
• In some countries
there are no
institutions that
ensure long-term
concerns
• Populism and
poverty
• In some contries
corruption takes the
place of markets or
rule based decisions
• Interest groups and
inefficiency
• Some countries are
involved in internal
civil wars, tribal
conflicts and
religious clashes
• Uncertainty and
inefficiency
Population Internal conflicts Corruption Institutions
• Low savings result in
small capital stock;
production remais
low
• Low technology
innovation
• Lack
entrepreneurship
• Poor education
system
• Low innovation and
risk taking
• Some countries have
accumulated a high
foreign and domestic
debt
• High cost of capital
and negative
balance of services
• Countries are
characterized by
different
endowments
• Technology and
commercial
advantages
Capital formation Endowments Debt Entrepreneurship
Source: Delta analysis
7
Underdeveloped markets
• size
• income
• price
• access
• regulation
Developed markets
• size
• income
• price
• access
• regulation
Markets – main drivers
Source: Delta analysis
8
• Criation of jobs and opportunites for
local residents
• Atraction and retention of
investments and capitalization of
competitive advantages
• Efficient environmental management
and optimization of growth
opportunities
• Sustainable fiscal management to
attract and retain talents (quality of
life and business)
Source: Delta analysis
Creative cities and regions
9
Cities – from Europe to Asia
10 Largest cities in 1900 (in Millions)
City, country Population
London, UK 56.5
New York, USA 4.2
Paris, France 3.3
Berlin, Germany 2.7
Chicago, USA 1.7
Vienna, Austria 1.7
Tokyo, Japan 1.5
St. Petersburg, Russia 1.4
Manchester, UK 1.4
Philadelphia, USA 1.4
10 Largest cities in 2015 (in Millions)
City, country Population
Tokyo, Japan 26.4
Mumbai, India 26.1
Lagos, Nigeria 23.2
Dhaka, Bangladesh 21.1
São Paulo, Brazil 20.4
Karachi, Pakistan 19.2
Mexico City, Mexico 19.2
New York, USA 17.4
Jakarta, Indonesia 17.3
Calcutta, India 17.3
Source: United Nations; Delta analysis
Americas Europe Asia Africa
10
Income distribution
Source: United Nations, UNCTAD; Delta analysis
5%
26% up
to US$
30.000
53% up to US$
6.000
16% up to US$ 1.000
13%
45% up to
US$ 30.000
36% up to US$ 6.000
6% up to US$ 1.000
2007 2030
Population
6.7 billions
Population
8.5 billions
1.8
6.7
3.6
1.0
3.1
0.6
2.8
1.1
upper class
middle class
low income
class
poverty/extreme
poverty
GDP PPP per capita 2007
75 countries that represent 97% of the world´s GDP and 90% of world population
11
Fundamentals
Global Scenario
Latin America
Brazil
12
World crisis - contagion
Begining
• Higher than
expected default
in the U.S. sub-
prime market
• End of "great
moderation"
Propagation
• From housing
market
• To derivatives
• To balance
sheets of banks
• To inter-bank
loans
• To credit
markets in
general
Impact
• Fall of stock
market
• Portfolio
realocation
• Higher volatility
• Fall in liquidity
• Higher demand
for liquid assets
Implications
• No two crises
are alike
• Flexibility for
specific events
• Guarantee of
sistemic stability
Source: Delta analysis
13
World crisis – challenges
Developed economies
• banking crisis
• employment
• confidence
BRICs
• exports
• growth and inflation
• international governance
Latin America
• social inclusion
• infrastructure
• public governance
Source: Delta analysis
14
Economic powers – new and emerging
Source: NASA; Delta analysis
The economics of agglomeration and development
15
Economic powers – new and emerging (cont.)
Area Rank Population Rank GDP PPP Rank
thous km2
millions US$ billions
Russian Federation 17.075,2 1 138,8 9 1.477,0 6
Canada 9.984,7 2 34 37 1.335,0 15
United States 9.826,6 3 313,2 3 14.720,0 1
China 9.597,0 4 1.336,7 1 9.872,0 2
Brazil 8.512,0 5 203,4 5 2.194,0 7
Australia 7.686,9 6 21,8 55 889,6 17
India 3.287,6 7 1.189,2 2 4.046,0 4
Argentina 2.766,9 8 41,8 32 596,0 23
Kasakhstan 2.717,3 9 15,5 64 197,7 53
Sudan 2.505,8 10 45,1 29 98,8 70
population estimated for July 2011
PPP – purchasing power parity
Source: United Nations, International Monetary Fund, Economic Commission for Latin America; Delta analysis
16
Dancing with the emerging economies
Source: World Bank, International Monetary Fund, Goldman & Sachs; Delta analysis
• By the year 2050, the E7, the world´s seven emerging
economies – China, India, Russia, Brazil, Indonesia, Mexico and
Turkey – will overtake the economies of the G7 – US, Japan,
Germany, UK, France, Italy and Canada
Size
• This will create exciting business and investment opportunities
across multiple markets, including consumer, agricultural,
industrial, banking and logistics
Opportunities
• In this scenario Latin America still faces significant economic
challenges: i) public governance, ii) social inclusion, iii)
infrastructure and iv) cost of doing business
Challenges
17
Global trends – risks and opportunities
Source: Monitor(2010): A Vision into the Future; Delta analysis
• The BRICs are receiving
significant attention
• Population aging Demographics
Megacities
Societal values
Technology and Knowledge
• Each country will present
a unique set of
opportunities and risks
• Growing domestic
incomes, relative political
stability, and open foreign
investment environments
• Political and regulatory
risks will pose ongoing
challenges to foreign firms
18
Fundamentals
Global Scenario
Latin America
Brazil
19
A land of contrasts
Source: Delta analysis
20
Geography
Argentina
Bolivia
Brazil
Chile
Colombia
Mexico
Paraguay
Peru
Uruguay
Venezuela
Area
million km2
2,8
1,1
8,5
0,8
1,1
0,3
2,0
0,4
1,3
0,2
0,9
Argentina
Bolivia
Brazil
Chile
Colombia
Mexico
Paraguay
Peru
Uruguay
Venezuela
Source: World Bank; Delta analysis
Ecuador
Ecuador
21
Institutional environment
Politics Economics Social Competitivity Doing
business
Argentina
Bolivia
Brazil
Chile
Colombia
Ecuador
Mexico
Paraguay
Peru
Uruguay
Venezuela
Source: United Nations, International Monetary Fund, Economic Commission for Latin America, International Finance Corporation; Delta analysis
x
x very good very bad x
x
x
x bad x
x neutral x
x good
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
22
15
9
24
21
41
50
57
15
22,3
15
31,1
1,0
1,8
1,3
1,0
1,3
1,1
1,1
1,8
1,2
0,3
1,7
42
10
203
17
45
15
114
6
29
3
28
Population
Millions, 2011 (est.)
Average annual growth
%, 2005-2010
Argentina
Bolivia
Brazil
Chile
Colombia
Density
People/km2, 2011
Mexico
Paraguay
Peru
Uruguay
Venezuela
Population
Source: World Bank, United Nations; Delta analysis
• Area, population and density vary significantly. Brazil is the largest and most populated country in LA
Ecuador
23
Population (cont.)
Population (millions) Population in 2050 (millions)
1950 1975 2007 Low Medium High
World 2.535 4.076 6.671 7.792 9.191 10.756
More developed regions 814 1.048 1.223 1.065 1.245 1.451
Less developed regions 1.722 3.028 5.448 6.727 7.946 9.306
Least developed countries 200 358 804 1.496 1.742 2.002
Other less developed countries 1.521 2.670 4.644 5.231 6.204 7.304
Africa 224 416 965 1.718 1.998 2.302
Asia 1.411 2.394 4.030 4.444 5.266 6.189
Europe 548 676 731 566 664 777
Latin America and the Caribbean 168 325 572 641 769 914
Northern America 172 243 339 382 445 517
Oceania 13 21 34 42 49 56
% of Latin America and the
Caribbean 6,8 8,0 8,6 8,2 8,4 8,5
Source: Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat (2007). World Population Prospects: The 2006
Revision; Delta analysis
24
Economics
GDP growth and
income distribution
Low interest rates
and public debt
Increase in public
and private
investment
Low and stable
inflation
Agenda
Source: Delta analysis
Economic agenda
• Local governments
have tried to
maintain a
credible economic
agenda, with a few
exceptions. The
challenges are
tremendous and
should not be
underestimated
• Sudden shifts in
the current
agenda are not
expected
25
Economics (cont.)
351
19
2.024
199
283
57
1.004
17
154
41
285
0
500
1.000
1.500
2.000
2.500
Argentin
a
Bolivia
Brazil
Chile
Colo
mbia
Equator
Mexic
o
Paraguay
Peru
Uruguay
Venezuela
GDP (US$ bill) official exchange
rate – 2010
596
48
2.194
260
432
115
1.560
33
277
48
344
0
500
1.000
1.500
2.000
2.500
Argentin
a
Bolivia
Brazil
Chile
Colo
mbia
Equator
Mexic
o
Paraguay
Peru
Uruguay
Venezuela
GDP (US$ bill) PPP – 2010
Source: United Nations, International Monetary Fund, Economic Commission for Latin America; Delta analysis
26
Economics (cont.)
GDP PPP Inflation GDP growth Poverty Reseves
US$ billions % % % of pop US$ billions
Argentina 596,0 22,0 7,5 30,0 53,9
Bolivia 48,0 7,2 3,8 30,3 9,7
Brazil 2.194,0 4,9 7,5 26,0 290,4
Chile 260,0 1,7 5,3 11,5 26,1
Colombia 431,9 3,1 4,4 45,5 28,5
Ecuador 115,3 3,3 3,7 33,1 3,6
Mexico 1.560,0 4,1 5,0 18,2 116,4
Paraguay 33,3 7,2 14,5 18,8 4,1
Peru 276,9 1,5 8,7 34,8 44,1
Uruguay 48,4 6,9 8,5 20,9 7,7
Venezuela 344,2 29,8 -2,8 37,9 29,5
data for 2010
PPP – purchasing power parity
Inflation – consumer price
Population below poverty line
Source: United Nations, International Monetary Fund, Economic Commission for Latin America; Delta analysis
27
Economics (cont.)
• Brazil and Mexico are the largest economies in LA. Growth rates have a strong dispersion. Brazil, for
nearly two decades have grown slowly compared to other countries in the region
7,5
3,8
7,5
5,3
4,4
3,7
5,0
14,5
8,7
8,5
-2,8
8,7
4,6
6,1
4,6
6,3
2,0
3,3
6,8
8,9
7,5
8,2
2,7
3,4
2,6
6,0
2,7
2,3
3,0
1,7
3,8
2,2
1,5
GDP growth rate (real)
%, 1992-2011
GDP growth rate (real)
%, 2007
GDP growth rate (real)
%, 2010
Argentina
Bolivia
Brazil
Chile
Colombia
Mexico
Paraguay
Peru
Uruguay
Venezuela
Ecuador
Source: World Bank, International Monetary Fund; Delta analysis
28
Economics (cont.)
• The production structure is similar, with differences for Bolivia and Paraguay (agriculture), Bolivia
and Paraguay (industry), and Brazil and Uruguay (services)
60
43
68
54
53
58
63
60
53
68
61
32
17
26
41
38
36
33
18
33
23
35
9
40
6
6
9
6
4
22
6
9
4
Agriculture
% of GDP, 2010
Industry
% of GDP, 2010
Services
% of GDP, 2010
Argentina
Bolivia
Brazil
Chile
Colombia
Mexico
Paraguay
Peru
Uruguay
Venezuela
Ecuador
Source: World Bank, International Monetary Fund; Delta analysis
29
Economics (cont.)
• There is a strong correlation between population and the labor force. Brazil, as expected, has by far
the largest labor force, but other countries present higher growth rates. Unemployment is generally
high
7,9
6,5
7,0
8,7
11,8
5,0
5,6
5,7
7,9
6,8
12,1
16,6
4,2
103,6
7,6
21,3
4,6
47,0
3,0
15,7
1,6
13,3
Labor force
Millions of inhabitants, 2010
Unemployment
% of labor force, 2010
Argentina
Bolivia
Brazil
Chile
Colombia
Mexico
Paraguay
Peru
Uruguay
Venezuela
Ecuador
Source: World Bank, International Monetary Fund; Delta analysis
30
Economics (cont.)
• Mexico (NAFTA) and Brazil are responsible for most of the international trade in LA
Source: World Bank, International Monetary Fund; Delta analysis
15,4
1,6
12,0
10,1
4,0
-0,3
-3,0
-1,6
8,0
-1,6
33,5
52,6
5,4
187,7
54,2
36,3
17,7
306,0
9,6
25,7
8,3
31,4
68,0
7,0
199,7
64,3
40,2
17,4
303,0
8,0
33,7
6,7
64,9
Exports
US$ billions, 2010
Imports
US$ billions, 2010
Trade balance
US$ billions, 2010
Argentina
Bolivia
Brazil
Chile
Colombia
Mexico
Paraguay
Peru
Uruguay
Venezuela
Ecuador
31
Natural resources and agriculture/livestock
Hydropower Minerals Oil/gas Agriculture/
Livestock Other
Argentina
lead, zinc, tin, copper,
iron ore, manganese,
uranium
oil
sunflower seeds, lemons,
soybeans, grapes, corn,
tobacco, peanuts, tea,
wheat; livestock
fertile plains of the
pampas
Bolivia X
tin, zinc, tungsten,
antimony, silver, iron,
lead, gold
oil/gas
soybeans, coffee, coca,
cotton, corn, sugarcane,
rice, potatoes
timber
Brazil X
bauxite, gold, iron ore,
manganese, nickel,
phosphates, platinum,
tin, rare earth elements,
uranium
oil/gas
coffee, soybeans, wheat,
rice, corn, sugarcane,
cocoa, bananas, apples,
lemons, citrus; beef,
poultry, pork
arable land, timber,
cellulose, fish
Chile X
copper, iron ore, nitrates,
precious metals,
molybdenum
grapes, apples, pears,
onions, wheat, corn,
oats, peaches, garlic,
asparagus, beans; beef,
poultry
timber, fish, wool
Colombia X coal, iron ore, nickel,
gold, copper, emeralds oil/gas
coffee, cut flowers,
bananas, rice, tobacco,
corn, sugarcane, cocoa
beans, oilseed,
vegetables; forest
products; shrimp
Ecuador X oil
bananas, coffee, cocoa,
rice, potatoes, manioc
(tapioca), plantains,
sugarcane; cattle, sheep,
pigs, beef, pork, dairy
products; balsa wood;
fish, shrimp
timber
Source: CIA World Factbook; Delta analysis
32
Natural resources and agriculture/livestock
Hydropower Minerals Oil/gas Agriculture/
Livestock Other
Mexico silver, copper, gold, lead,
zinc oil/gas
corn, wheat, soybeans,
rice, beans, cotton,
coffee, fruit, tomatoes;
beef, poultry, dairy
products
timber
Paraguay X iron ore, manganese,
limestone timber
Peru X
copper, silver, gold, iron
ore, coal, phosphate,
potash
oil/gas
asparagus, coffee, cocoa,
cotton, sugarcane, rice,
potatoes, corn, plantains,
grapes, oranges,
pineapples, guavas,
bananas, apples, lemons,
pears, coca, tomatoes,
mango, barley, medicinal
plants, palm oil, marigold,
onion, wheat, dry beans;
poultry, beef, dairy
products; guinea pigs
timber, fish
Uruguay X minor minerals
beef, soybeans, rice,
wheat, lumber, dairy
products
arable land, fish,
cellulose
Venezuela X iron ore, gold, bauxite,
other minerals, diamonds oil/gas
corn, sorghum,
sugarcane, rice, bananas,
vegetables, coffee; beef,
pork, milk, eggs
fish
Source: CIA World Factbook; Delta analysis
33
Industries
Main industries
Argentina food processing, motor vehicles, consumer durables, textiles, chemicals and petrochemicals, printing, metallurgy, steel, tourism
Bolivia mining, smelting, petroleum, food and beverages, tobacco, handicrafts, clothing
Brazil
food processing and beverages, textiles, consumer durables, shoes, chemicals and petrochemicals, cement, lumber, tin, metallurgy,
iron and steel, aircraft, motor vehicles and parts, other machinery and equipment, tobacco, wood and wood products, tourism
Chile
copper, lithium, other minerals, foodstuffs, fish processing, iron and steel, wood and wood products, transport equipment, cement,
textiles, tourism
Colombia textiles, food processing, oil, clothing and footwear, beverages, chemicals, cement; gold, coal, emeralds
Ecuador petroleum, food processing, textiles, wood products, chemicals
Mexico
food and beverages, tobacco, chemicals, iron and steel, petroleum, mining, textiles, clothing, motor vehicles, consumer durables,
tourism
Paraguay sugar, cement, textiles, beverages, wood products, steel, metallurgic, electric power
Peru
mining and refining of minerals, steel, metal fabrication, petroleum extraction and refining, natural gas and natural gas liquefaction,
fishing and fish processing, cement, textiles, clothing, food processing
Uruguay food processing, electrical machinery, transportation equipment, petroleum products, textiles, chemicals, beverages
Venezuela petroleum, construction materials, food processing, textiles; iron ore mining, steel, aluminum; motor vehicle assembly
Source: CIA World Factbook; Delta analysis
34
115
149
127
43
39
130
35
106
36
124
172
Rank
2005
Rank
2006
Doing business
• The Doing Business database provides objective measures of business regulations and their
enforcement. They indicate the regulatory costs of business and can be used to analyze specific
regulations that enhance or constrain investment, productivity, and growth
-2
-1
-3
10
-1
-3
6
-1
10
-2
-2
Change in rank
Last two years
113
148
124
53
38
127
41
105
46
122
170
Source: International Finance Corporation; Delta analysis
Argentina
Bolivia
Brazil
Chile
Colombia
Mexico
Paraguay
Peru
Uruguay
Venezuela
Ecuador
35
Doing business (cont.)
Vibrant financial markets with a full array of financial products and
services (Brazil, Chile and Mexico, mostly)
Openness to Foreign Direct Investment (FDI); Brazil is the largest
recipient of FDI in Latin America
Prudent monetary and fiscal policies, solid macroeconomic position
and controlled inflation (most counries)
Domestic consumption-led growth (most counries)
Booming middle class – better educated, more disposable income
and spending (most counries)
Increasing demand for imports – consumption and investment goods
(most counries)
Source: Delta analysis
36
Fundamentals
Global Scenario
Latin America
Brazil
37
A land of contrasts
Source: Delta analysis
38
Overview
• 8.5 million km2
• More than 5,500 cities
• 7,500 km coastline
• 84% of households in urban areas
Geography
• 190 million inhabitants (census 2010)
• Growth rate: 12.3% over 2000
• Life expectancy: 71 years
• Poverty: 11% of population
Population
• Illiteracy rate: 11%
• More than 80% with water
• More than 90% with electricity
• Ranks 65th in UN’s HDI
Education and
living standards
• Labor force: 100 million
• Urban unemployment: 7,0%
Labor
• Public/private investments
• Main gaps: roads, railways, ports, airports
Infrastructure
Source: IBGE, Bacen; Delta analysis
39
GDP
14,7
5,7
1,4
5,4
3,3
1,5
2,0 2,3
2,6
2,0
0
2
4
6
8
10
12
14
16
United S
tates
Chin
a
India
Japan
Germ
any
Russia
Brazil
United Kin
gdon
France
Italy
GDP (US$ trill) official exchange
rate – 2010
14,7
9,9
4,0 4,3
3,0
2,2 2,2 2,2 2,2 1,8
0
2
4
6
8
10
12
14
16
United S
tates
Chin
a
India
Japan
Germ
any
Russia
Brazil
United Kin
gdon
France
Italy
GDP (US$ trill) PPP – 2010
Source: World Bank, International Monetary Fund; Delta analysis
40
GDP (cont.)
Source: IBGE; Delta analysis
2,7
1,1
5,7
3,2
4,0
6,1
5,1
-0,2
7,5
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
2002 2004 2006 2008 2010
GDP growth (%)
16,4
15,3
16,1 15,9
16,4
17,4
19,1
16,9
18,4
10,0
12,0
14,0
16,0
18,0
20,0
2002 2004 2006 2008 2010
Savings and investment (% GDP)
Gross savings
Gross investment
41
GDP (cont.)
Natural resources
• Iron ore, manganese, bauxite, nickel, uranium, gemstones, oil, wood,
and aluminum
• 14% of world´s renewable fresh water
Agriculture
• 6% of GDP
• Coffee, soybeans, sugarcane, cocoa, rice, livestock, corn, oranges,
cotton, wheat, and tobacco
Industry
• 26% of GDP
• Steel, iron ore, coal, commercial aircraft, chemicals, petroleum,
machinery, motors, vehicles, auto parts, consumer durables, cement,
and lumber
Services
• 68% of GDP
• Mail, telecommunications, banking, transportation, commerce and
computing
Source: Delta analysis
42
13,1 27,6
5,1 8,1
56,8 42,6
16,3 14,6
8,7 7,1
GDP and population
Inequalities
• South/Southeast account for
73% of GDP and 57% of
populations
• Slow income level
convergence
• South/Southeast
• slower growth of GDP and
population
•North/Northeast/Middle-west
• new frontier
% of GDP
% of population
data for 2010; GDP per capita US$ 10.900
Source: IBGE; Delta analysis
122,6
111,6
133,3
47,5
63,0
Middle-west
South
Southeast
Northeast
North
% of GDP per capita
43
2003 2009
Rise of middle classe
• Since 2002, around 25 million Brazilians have moved to the middle of the social pyramid. In 2010,
the C class accounts for about 103 million Brazilians and will continue to expand in coming years.
For the period between 2008 and 2010, the estimate is that the class C percentage of population
will increase 21.5%
2014
Source: Fundação Getúlio Vargas, IBGE; Delta analysis
8%
37%
27%
28%
13
66
47
49
20
95
44
29
31
113
40
16
% of pop and million individuals % of pop and million individuals % of pop and million individuals
11%
50%
24%
15%
16%
56%
20%
8%
44
Sustainable
development
strategy
Low and
stable
inflation
Social
inclusion
Public
governance
Income,
investment,
employment
growth
Sustainable development
Source: Delta analysis
45
Sustainable development (cont.)
Sustainable development
Economic policy
- inflation targeting
- floating exchange rate
- fiscal control
Social policy
- protection
- focalization
- efficiency
Regional policy
- incentives
- scale and scope
- relocation
• GDP growth and low inflation
• Infrastructure expansion and new development vectors
• Expansion of brazilian firms abroad
• Income distribuition and reduction of poverty
• Change in labor force – higher qualification
Expected results
(2011-2015)
• Good fundamentals
• Growth of production, employment and income
• Improvement in regulatory framework and risk mitigation
• Social inclusion and income transfer programs
Virtuous cycle
Source: Delta analysis
46
Political environment
Results and inaugural speech
• Dilma Rousseff, from the Labor Party (PT),
was elected president with 56% of valid
votes
• The runoff for several state elections also
took place: in the end, 16 out of 27 elected
state governors are from parties within the
PT's coalition. This adds to an already
favorable picture in Congress, where
support for Dilma is about 70% in both
houses
• Inaugural speech:
• fight inflation
• domestic economy
• social policies to end poverty and
homelessness
Votes in second round
Votes %
Dilma 55.745.867 56,0
Serra 43.707.472 44,0
Dilma Rousseff
José Serra
RR
RO
AM
AC
AP
PA
PI
MA
MT
MS
TO
DF
GO
CE
RN
PB
PE
AL
SE
BA
MG
ES
RJ SP
PR
SC
RS
Total electors
135.804.433
Source: Tribunal Superior Eleitoral; Delta analysis
47
Business climate
Growth and consumption
• Macroeconomic stability
• Growth led by domestic consumption and investiment
• Emerging middle class
Investment
• Gaps in infrastructure
• Higher demand for durable and non-durable goods
• Attraction of foreign investment
Demographics
• Changing structure
• Better educated
• Higher income per capita
Financial markets
• Consolidated
• Social inclusion
Source: Delta analysis
48
Business climate (cont.)
Business climate Investor consideration
• Auto Industry: new players entered the
market in the recent past. Capacity
adjustment. Repositioning of major
brands
• Major Manufacturing Industries:
petrochemicals, steel, mining, cement,
pulp and paper, and food processing are
in expansion. Consolidation expected
• Service Industries: now a significant
and growing part of the economy. Apart
from restrictions in the banking, finance
and telecommunications sectors
(gradually being put down), foreign
investors may participate in service
industries. Consolidation expected
• High-Tech Industries: comprised
mainly of the assembly of imported
components and parts. Multinationals
dominate, but there are several large
domestic goups. Consolidation expected
• Political stability has been maintained
for almost three decades
• There is a large domestic market
• Favorable site for South America
expansion – foreign investment is
welcome
• Many state and local governments offer
incentives to attract investment; foreign
investors are elegible for most incentives
available
• Local and foreign investors are treated
equally – joint-ventures with local
partners are favored but not essential
• Exports are being encouraged; trade
barriers are gradually being reduced
Source: Delta analysis
49
Growth Acceleration Program 2
city
citizenship
housing
water and
energy
transport
energy
and pre-
sal
Source: federal government; Delta analysis
PAC 2
(2011-2014)
• PAC Cidade Melhor – major cities
challenges
• PAC Comunidade Cidadã – state
presence
• PAC Minha Casa Minha Vida –
housing deficit
• PAC Água e Luz Para Todos –
universalization
• PAC Transportes – expansion and
interconnection
• PAC Energia – renewable energy
and development of pre-sal
Planning
Investment
Development
50
Social agenda
The social agenda is
managed by the
federal government,
with initiatives
throughout the
Executive
Education
Social
inclusion
Technology
Employment
Source: federal government; Delta analysis
Fundamentals
• Announced by former president Lula,
in 2007, the objectives of the social
agenda are:
• consolidate Social Policy as a
guaranty to citizen´s rights
• reduce social inequality
• integrate initiatives to promote
opportunities and emancipation of
poor families
• enhance and improve the
integration of inter governmental
agents, and articulate with States
and Cities
51 Source: federal and local governments, companies; Delta analysis
Multiplier effects
• derived demand
• income and employment
• new frontiers
• new markets
• new clusters
• South/Southeast
• focus – scale and scope
• sectors – oil & gas,
education, agribusiness,
energy (including biomass),
construction
• North/Northeast/Middle-west
• Focus – frontier (new
industries)
• sectors – agribusiness,
retail, construction
pré-sal
energy
steel
sugar cane
ports
cattle
soybean
Regional development
SOUTH
MIDDLE-WEST
NORTH
NORTHEAST
SOUTHEAST
railroads
52
World soccer cup 2014
States Cities
North AM Manaus,
Northeast CE, RN, PE e BA Fortaleza, Natal, Recife and
Salvador
Southeast MG, RJ e SP Belo Horizonte, Rio de Janeiro
and São Paulo
South PR e RS Curitiba and Porto Alegre
Middle-west MT Brasília and Cuiabá
Potential market – main drivers
• North: infrastructure (transport/energy),
housing
• Northeast: infrastructure
(transport/energy/telecom), industrial
location, housing
• Southeast: infrastructure
(transport/telecom), housing
• South: housing
• Middle-west: infrastructure
(transport/energy/telecom), housing
NORTHEASAT
SOUTHEASAT
MIDDLE-WEST
SOUTH
NORTH
Source: Delta analysis
53
Risks
Short-term Medium-term Long-term
Population, mortality, fertility, and urbanization
Religion
Social structure
Cultural unity and diversity
Social conflict and participation
Government and politics
Economics
Environment
Regulation
Source: Delta analysis
x
x very relevant very unrelevant x
x
x
x not relevant x
x indifferent x
x relevant
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x