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1
Brazil’s Opportunities for Investment
Luiz Awazu Pereira da Silva*
Bilateral Annual Meeting
Conselho Empresarial Brasil-China (CEBC)
Brasília – July 17, 2014
(*) Deputy-Governor, International Affairs and Financial Regulation, Banco Central do Brasil
(BCB). These remarks are personal and do not necessarily reflect the opinions of the BCB.
2
1. Large and diversified economy, potential to be used as
a regional hub for production and exports
2. Strong fundamentals capable of ensuring
macroeconomic and financial stability
3. Sustainable development model aiming at increasing
social and financial inclusion; meeting environmental
standards; fostering more investment (infrastructure)
4. Capacity to react timely and respond to shocks and
challenges; demonstrated resilience to crisis using
textbook macro policies, domestic and external buffers
5. Pragmatism: neither excessive optimism nor pessimisim;
awareness of potential for higher TFP, “Low Hanging
Fruits”
Summary: Good Reasons to Invest in Brazil
3
• One of the largest countries in terms of
territory, population and GDP
• 7th largest GDP: US$ 2,243 billion (2013)
• Continental country: 5th largest area
8,515,767 km2
• 5th largest population: 201 million people
(2013)
• Vast natural resources, including recently
discovered large offshore oil fields
• Diversified industrial base, dynamic and
sophisticated private sector, and well-
structured public sector
• Strong institutions, social inclusion and
democracy with stable political system
Sources: IBGE / BCB / IMF
A Large and Diversified Economy
• Brazil has good relations with all its
neighbors and has increased its ties
with all regions of the world
4 Source: IMF World Economic Outlook, Apr/2014
Brazil is Well Positioned in South America
South America GDP (PPP, USD bi, 2014)
2.505
560
794
412
369
352 Total GDP
US$5.3 trillion
5 Source: MDIC
Brazilian Exports are Very Well Diversified
Composition Destination
US 10,2%
EU*** 17,0%
Germany 2,7%
Asia** 13,1%
China 19,0%
Latin America & Caribbean*
14,1%
Argentina 8,1%
Others 15,8%
* excluded Argentina
** excluded China and Middle East
*** excluded Germany
Primary Products
47,8%
Manufactured Products
39,3%
Semi-Manufactured products
12,9%
Exports in 2013
6 Source: Mdic and Unctad
South America is a Key Market for Manufacturing Goods
Regional Destination Country Destination
within South America
Manufacturing Exports in 2013 US$85,1 billion
Argentina
55%
Chile 9%
Paraguay
8%
Venezuela
7%
Colombia
7%
Peru 6%
Bolivia 4%
Uruguay 4%
*excluded Middle East
South America
40%
EU 21%
Others 17%
USA 15%
Asia* 7%
7 Source: BCB
Organizations and Forums Enhance Regional Integration
LATIN AMERICA
SOUTH AMERICA
UNASUL MERCOSUL ALADI
CCR SML RMFPBC GMC
SGT-4 SGT-12
8
Largest brewer in Latin America. One of the largest beer producers in the world
World leader in meat production. World’s largest exporter of animal protein
Third largest manufacturer of commercial jets in the world
Largest long steel producer in the Americas and the second largest in the world
Operates in 23 countries (engineering, construction, infrastructure, energy, industry)
The only steel sheet producer in Brazil and the world 5th larger producer
Largest world producer of iron ore and second largest of nickel
Largest producer of thermoplastic resins in the Americas
One of the 10 largest food companies in the world, exports to 140 countries
Source: Exame, Valor Econômico, Companies’ Websites
Brazil Has Firms as Global Players
9
• Main features of the macroeconomic policy framework:
- Inflation targeting
- Fiscal responsibility
- Exchange rate flexibility
• The macroeconomic fundamentals, combined with
adequate prudential policy and strong bank supervision,
resulted in:
- Capacity to absorb internal and external shocks
- Macroeconomic and financial stability
- Sustainable growth
- Credit and capital market development
- Social and financial inclusion
Brazil’s Strong Macroeconomic Fundamentals
10 Source: Bloomberg
Ind
ex D
ec 0
7 =
100
Cumulative Real GDP Growth
Brazil’s Economy Weathered Well the Global Crisis
119.0
118.2
120.6
110.6
106.1
97.8
90
95
100
105
110
115
120
1254Q
07
1Q
08
2Q
08
3Q
08
4Q
08
1Q
09
2Q
09
3Q
09
4Q
09
1Q
10
2Q
10
3Q
10
4Q
10
1Q
11
2Q
11
3Q
11
4Q
11
1Q
12
2Q
12
3Q
12
4Q
12
1Q
13
2Q
13
3Q
13
4Q
13
1Q
14
Poland Brazil South Korea Mexico USA Euro Zone
11 Source: IBGE
Brazil’s Investment Ratio at New Level %
of
GD
P
18,3
16,9
17,4
17,0
15,7
16,8
17,0
16,4
15,3
16,1 15,9
16,4
17,4
19,1
18,1
19,5
19,3
18,2 18,2 18,1
14
15
16
17
18
19
20199
5
199
6
199
7
199
8
19
99
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
20
08
200
9
201
0
201
1
201
2
201
3
201
4*
*1Q 2014 (12 months)
12 Source: BCB
FDI into Brazil is Strong and Remained Stable U
S$ b
illio
n
*May 14 (12 months)
1,5 1,4 0,3 1,2 2,8 1,1 1,0 1,1 2,1 1,3 2,1 4,4
10,8
19,0
28,9 28,6 32,8
22,5
16,6
10,1
18,1 15,1
18,8
34,6
45,1
25,9
48,5
66,7 65,3
64,0
66,5
0
10
20
30
40
50
60
70
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
20
02
200
4
200
6
20
08
201
0
201
2
20
14
*
13 Source: UNCTAD
US
$ b
illio
n
Brazil is One of the Leading Recipients of FDI
28
31
32
37
38
40
46
53
56
63
64
72
94
127
159
0 60 120 180
India
Luxembourg
Germany
Spain
Mexico
Australia
Ireland
UK
Singapore
Brazil
Canada
Hong Kong
Russia
China
USA
2013
29,5
31,6
34,3
40,4
40,9
41,4
51,1
52,9
64,0
65,8
66,7
96,1
103,3
124,0
226,9
0 60 120 180 240
Spain
India
Italy
Germany
France
Canada
UK
Russia
Singapore
Australia
Brazil
Hong Kong
Belgium
China
USA
2011
19,3
22,6
26,4
27,3
39,6
44,1
47,2
48,5
54,4
58,9
62,5
65,3
72,5
119,7
146,7
0 50 100 150
Belgium
Luxembourg
Chile
India
Ireland
Russia
Canada
Australia
Singapore
France
UK
Brazil
Hong Kong
China
USA
2012
14
5%
7%
7%
7%
7%
10%
12%
17%
30%
33%
0 5 10 15 20 25 30 35
Mexico
Japan
Indonesia
Russia
India
UK
Brazil
Germany
US
China
%
Which 3 countries, excluding the country in which the CEO is based, do they consider most
important for their overall growth prospects over the next 12 months? *
Source: PwC 17th Annual Global CEO Survey *Base: 1,344 respondents
Global CEO Survey 2014: Brazil is a Key Country
15 Source: Conab
Brazil’s Agricultural Performance is Remarkable m
illio
n h
ecta
res,
mill
ion
to
ns
*estimate in June
37,9
39,1
36,6
37,8
43,9 47,9 47,7
47,4 50,9
56,9
57,9
76,0 78,4
83,0
123,2
122,5 135,1
149,3 166,2
193,6
20
40
60
80
100
120
140
160
180
20090/9
1
91/9
2
92/9
3
93/9
4
94/9
5
95/9
6
96/9
7
97/9
8
98/9
9
99/0
0
00
/01
01/0
2
02/0
3
03/0
4
04/0
5
05/0
6
06/0
7
07/0
8
08/0
9
09/1
0
10/1
1
11/1
2
12/1
3
13/1
4*
Cropped Area (1991-2013)
Growth: 41% = 1.6% / year
Production (1991-2013)
Growth: 223% = 5.5% / year
Grains: Production and Cropped Area
16
Liquid Assets to Short Term
Liabilities
11,6
12,0
13,3
13,4
13,9
14,0
14,3
14,4
14,4
14,7
14,8
15,7
16,1
16,4
17,1
19,1
10 12 14 16 18 20
Australia
Spain
India
Russia
Italy
South Korea
France
United States
Canada
Japan
South Africa
Turkey
Mexico
United Kingdom
Brazil
Germany
26,1
36,1
40,0
44,9
45,0
46,7
49,9
72,5
76,4
82,0
96,9
121,4
140,3
160,0
0 50 100 150 200
India
South Africa
United Kingdom
Canada
Australia
Mexico
Japan
Turkey
United States
Russia
Italy
South Korea
Germany
Brazil
-86,3
-31,9
-22,2
-19,2
-14,7
-14,5
-13,6
-13,6
-10,9
-6,0
-3,9
-3,2
7,7
10,6
-120 -20 80
Italy
Spain
South Africa
Japan
Australia
United Kingdom
United States
India
Russia
Canada
South Korea
Turkey
Mexico
Brazil
Source: IMF (FSI – latest available data)
Brazil’s Financial System is Sound…
Regulatory Capital to
Risk-Weighted Assets ( Provisions – NPL) / Capital
Source: BCB
Mar 14
Origin of Bank Funding
95,7
88,7 86,3
91,4
4,3
11,3 13,7
8,6
60%
80%
100%
public-owned private-owned foreign-controlled total
Domestic External
Brazil’s Banks Not Dependent on External Funding
18 Source: BCB
Brazil’s Net Public Debt Falling Despite the Crisis %
of
GD
P
*May 14
-26.2 p.p.
of GDP
52,0
60,4
54,8
50,6 48,4
47,3 45,5
38,5
42,1
39,1
36,4 35,3
33,6 34,6
20
25
30
35
40
45
50
55
60
65
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
20
12
201
3
201
4*
-25.8 p.p.
of GDP
19 Sources: IBGE / Ipea
Income Inequality, Poverty Have Declined in Brazil
0,490
0,500
0,510
0,520
0,530
0,540
0,550
0,560
0,570
14
16
18
20
22
24
26
28
30
32
34
36200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
1
201
2
Poverty headcount ratio below poverty line (LHS) Gini Index (RHS)
% o
f popula
tion
index (
0 t
o 1
)
Gini Index and Poverty Headcount Ratio Below Poverty Line
20 Sources: IBGE / FGV
Redistributive Growth Across Income Brackets
Higher Income
Lower Income
Per Capita Income Growth (Per Percentile)
annual average 2001-2012
7,1%
6,4%
5,9%
5,5%
5,2%
4,9%
4,2%
3,6%
2,8%
2,1%
0% 1% 2% 3% 4% 5% 6% 7% 8%
10
20
30
40
50
60
70
80
90
100
21 Source: FGV
Resulting Social Mobility: New Middle Class
49
25 17
47
39 32
66 105
118
13 23 29
0
50
100
150
200
2003 2011 2014*
E D C A/B
mill
ions o
f people
Social Classes
*FGV forecast
22 Source: BCB
Brazil’s Growth of Credit / GDP ratio %
of
GD
P
new methodology since 2007
*May 14
2005-2008: 25.4% (average growth of nominal credit)
2009-2013: 17.1% (average growth of nominal credit)
25,8 26,0 24,6 25,7
28,3 30,9
35,5
40,7
43,9 45,4
49,1
53,9 56,1 56,2
0
10
20
30
40
50
60200
1
200
2
200
3
200
4
200
5
200
6
200
7
20
08
200
9
201
0
201
1
201
2
201
3
201
4*
23 Sources: BCB / IBGE
Access to Financial Services
2000 2010
0 (20%)
>0 to 2 (22%)
>2 to 5 (40%)
>5 to 10 (16%)
>10 (2%)
# of points per 10,000 adults
(% of municipalities)
0 (0%)
>0 to 2 (0%)
>2 to 5 (6%)
>5 to 10 (29%)
>10 (65%)
# of points per 10,000 adults
(% of municipalities)
Geographic Coverage Increased: 82% of municipalities had less than 5 points per
10,000 adults in 2000; in 2010, 94% were above this level.
Bank branches, bank advanced outposts (PAA), credit cooperatives
(headquarters and outposts) and correspondents
Brazil Eco. Policy Timely Reactions to QE, Tapering
• After the GFC and UMP, we knew that there will be ups
and downs in market sentiment so we prepared
ourselves keeping textbook macro policies
– Flex ER as 1st line of defense; accumulated sizeable reserves
– adopting preventive measures during upswing (MaPs for
tightening excessive credit growth);
– keeping strong capital, provisions & liquidity in our financial
system; and cautious reliance on external sources of funding
• Ahead of curve, we took early and sizeable action on
monetary policy to address inflation pressure
• Implemented successful FX auctions program to provide
FX hedge to investors, firms, and liquidity to the market
in a predictable manner
24
25 Source: BCB
Brazil’s International Reserves Worked as a Buffer U
S$ b
illio
n
as of Jul 3rd
12 12 7 7 9 10 10 9 24
32 39 52
60 52
45 36 33 36
38 49 53 54
86
180 194
239
289
352
379 376 380
0
50
100
150
200
250
300
350
400198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4*
26 Source: BCB
Brazil’s Low External Debt Ratios
120,6%
63,4%
38,8%
25,2% 27,9%
14,4%
0
20
40
60
80
100
120
140
short term debt/intl.reserves
debt services/exports external debt/GDP
Dec 03 May 14*
%
*estimate
Brazil’s Development Strategy is Clear
• More investment & capital, physical (infrastructure)
and human (education) to complement strong base of
domestic consumption
• Foster more productivity gains (TFP) & externalities
• Brazil has “low hanging fruits”, i.e. well-identified
infrastructure projects with high return and relatively
low financing cost
27
Investment in Infrastructure is Key
• The need for more investment in infrastructure is
clear
• Externalities from investment in infrastructure are
larger than those coming from “other investments”
(e.g., machinery, equipment, etc.)
Two pillars:
• Public investment: Growth Acceleration
Program(PAC)
• Broad program of concessions
28
Source: Ilos, World Bank
Brazil’s Logistics Costs Can Fall
30
• To support accelerated and sustainable
development:
- Extensive and modern infrastructure network
- Efficient logistics
• New phase:
- Integration between highways, railways,
waterways, ports and airports
- Interaction with supply chains
Brazil’s Concessions Program is Huge
31
• Highway Concessions: 7,000km – Estimated investment: US$ 23 billion
• Railway Concessions: 11,00km – Estimated investment: US$ 49.8 billion
• Ports – Estimated investment: US$ 27.3 billion
• Airport concessions – Two major airports (Galeão (RJ) and Confins (MG)) and 270
regional airports. Estimated investment: US$ 8.2 billion
– Previously: Guarulhos (SP), Campinas (SP), Brasília (DF) and S.
Gonçalo do Amarante (RN) — auctioned before the launch of PIL
Logistics Investment Program (PIL)
Source: EPL
32 Source: Anac
in m
illio
n o
f passengers
(R
PK
)
+188% growth
average growth: 12.5% p.a.
Brazil’s Air Traffic Growing Fast
29,1 32,1 38,7 43,2 47,4 49,9
56,9
70,1
82,1 88,7
8,1 9,1
10,4 10,8
12,3 13,6
12,8
15,4
17,8
18,5
0
20
40
60
80
100
120
20
03
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
domestic international
Domestic and International Flights: Million of passengers
33 Source: Antaq
in m
illio
n to
ns
Growing Cargo Movement in Brazilian Ports
500
550
600
650
700
750
800
850
900
950
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
average: 633.4
average growth:
5.0% p.a. average: 857.6
34 Source: ABCR - Brazilian Association of Highway Concessionaires
in t
housands o
f vehic
les
Growth in Road Traffic is High as Well
0
20
40
60
80
100
120
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
20
11
201
2
201
3
average: 51.6
average: 94.7
51.4% growth
average growth: 7.3% p.a.
Vehicles per Kilometer in Private Toll Roads
35 Source: EPE
Electricity Generation Capacity
*EPE estimates
GW
85 98
119
2
2
3
17
21
23
5
6
7
9
10
14
2
11
17
0
20
40
60
80
100
120
140
160
180
200
2012 2016* 2022*
hydroelectricity nuclear thermal small hydropower plants biomass wind
Source: IEA (World Energy Outlook 2013)
Oil Production m
bpd
0
1
2
3
4
5
6
2012 2025 2035
Deepwater Other
Source: MEC
Investment in Human Capital
• Programs aimed at increasing access to
technical schooling and higher education:
o Technical and professional education:
Pronatec: 5.5 million students in technical and professional
education since 2011 (goal is 8 million by end of 2014)
o Higher education:
Prouni: almost 250,000 undergraduate scholarships in
private institutions for disadvantaged students in 2013
Science without frontiers: 100,000 scholarships abroad up
to 2015 Currently almost four thousand undergraduate and graduate
students in the UK
38 Source: IBGE
form
al em
plo
ym
ent
/ to
tal em
plo
ym
ent
(%)
Formal Employment and Unemployment Rate
4
5
6
7
8
9
10
11
12
55
57
59
61
63
65
67
69a
br
05
abr
06
abr
07
ab
r 0
8
abr
09
abr
10
ab
r 1
1
abr
12
abr
13
ab
r 1
4
formal employment (LHS) unemployment rate (RHS)
% (
seasonally
adju
ste
d)
Apr 14
4.6%
Apr 14
67.6%
Investment in Human Capital
39 Source: IBGE
Quality of Education Has Improved as Well,
Although There is a Long Way Ahead
Number of Schooling Years Have Increased
Conclusions
• Brazil´s economy has strong fundamentals,
kept macro & financial stability, sailed well
through the crisis
• Brazil has clear development strategy that
requires and offers large investment
opportunities to foster “productivity” (TFP)
• Education and infrastructure play a key role in
attracting investments and creating better long-
term growth conditions
• Brazil has long tradition to host FDI in a stable
and conducive macro, social environment
40
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