5/8/2009 INTERNAL 1

Brazil’s economic perspectives in crisis times

Dr. Rolf-Dieter Acker

BASF S.A., São Paulo, Brazil

Deutsch-Brasilianische Gesellschaft e.V.

September 25th 2009

5/8/2009 INTERNAL 2

In a global context the South American macroeconomy has a minor position

USA

10 tn

Germany

2,5 tn

Japan

3,3 tn

China

2,9 tn

NAFTA12 tn

(+2,2%)

EU2712 tn

(+1,1%)

Asia10 tn

(+3,9%)

SA1,9 tn

(+2,9%)

Brazil

1.072 bnArgentina

223 bn

Brazil as the dominating country in South America ranks globally on 9th positionSource: ZZS, IMF

Nominal GDP 2008 in €(CAGR 08-20)

5/8/2009 INTERNAL 3

6.608 Bn Usd9.147 Bn USd

1%

2%

3%

4%

5%

6%

7%

8%

1% 2% 3% 4% 5% 6% 7% 8%

South America will remain growing above World’s GDP and faster than in the last years. Brazil will maintain its position as the major economic force

Gro

wth

of

GD

P07

-20

in %

p.a

.

Brazil represents roughly half of the continent’s population and 56% of total GDP Within the region, top six countries account for 96% of total GDP Despite differences in growth rates, the economic power distribution doesn’t change Chile exhibits steady growth

0%

1%

2%

3%

4%

5%

6%

7%

0% 1% 2% 3% 4% 5% 6% 7%

SAØ 4.5%

Chile

Peru

UruguayVenezuela

Colombia

Brazil

Argentina

Ecuador

Growth of GDP95-07 in % p.a.

Circle Size reflects GDP 2020 w/o inflation

SAØ 3.1%

Growth of GDP95-07 in % p.a.

WorldØ 3.1%

SouthAmerica

Asia Pacificw/o Japan

EasternEurope

Western Europe

Japan

NAFTA

EmergingAsia

Oceania

Circle Size reflects GDP 2020 w/o inflation

WorldØ 3.1%

5/8/2009 INTERNAL 4

The most significant challenge in South America’s past was the macroeconomic volatility

GDP Growth between 1990 and 2008

1990 2008

Developing Asia 7,7% p.a. South America 3,3% p.a. Advanced Economies 2,5% p.a

“ Having growth rates like OECD countries and fluctuations like Asia”

5/8/2009 INTERNAL 5

Did you know that….

Embraer is No 3 in the world in production of commercial airplanes. Pentagon bought 58 patrolling airplanes form Embraer for USD $7 billions

The Frankfurt Stock Exchange works with Brazilian software

Petrobras is world leader in deep water exploration

Odebrecht (Brazilian company) is world leader in hydroelectric machinery construction

Germany imports Brazilian ITA VS30 rockets for use in experiments of micro gravity

South America produces more than 3 million cars and Brazil ranks 6th globally

5/8/2009 INTERNAL 6

6%

8%

8%

9%

11%

17%

18%

19%

24%

33%

4%

0

Automotive

Personal Care

Pulp

Biofuels

Mining

(Global car sales-units)

(worldwide consumption Bn USD)

(production Mt)

(production USD)

(production M Liters)

Poultry(production Mt)

Beef(production Mt)

Decorative Painting(worldwide consumption Mt)

4% (%South Americain World GDP)

Important industries in South America are relevant in global markets

Relevance of South America in some global markets (2007)

USA USA USA USA USA USAJa-

PanChina

Brazil

4,5% p.a*

Brazil

7% p.a*

Brazil

2,5%p.a*China

Cana-da

Japan USA Chile

Arg.W.

EuropeChina

Brazil

4,8% p.a*

Brazil

7% p.a*

Brazil

4,1% p.a*

China AUS

ChinaRest of Europe

Arg. Japan FranceGer-many

South

Africa

IndiaOther S. Am.

Swe-den

Ger-many

S.

KoreaRussia

Para-guay

Africa FinlandBrazil

5,5% p.a*

USA

CanadaBrazil

6,3% p.a*

1º

2º

3º

4º

5º

7º

6ºS

oyb

ean

Bio

eth

ano

l

Pu

lp

Per

son

al C

are

Bee

f

Au

tom

oti

ve

Min

ing

Po

ult

ry

Glo

bal

Ran

kin

g

* CAGR 2007 - 2020

Crop production(production tons)

Crude Oil(reserve boe)

Natural Gas(reserve boe)

1

2

1

2

With recent discoveries in Venezuela and in Brazil (pre-salt), South America could represent 30% of crude oil reserves in the world. (Source: BCG)

South America has currently only 11% of total potential arable land farmed

5/8/2009 INTERNAL 7

Industrywise Brazilian exports are highly diversified, but mainly based on natural resources

Oil/Fuel13%

Iron Ore11%

Steel/Metals11%

Pulp & Paper3%

Meat8%

Automotive14%

Mech. Equipments

5%

Electronics4%

Chemicals7%

Others10%

Soybean10%

Sugar4%

Exports2008USD

198 bn

5/8/2009 INTERNAL 8

Regarding FDI confidence Brazil outpaces many established economies

Source: ATK FDI Confidence Index 2008

5/8/2009 INTERNAL 9

Amongst BRIC countries Brazil shows a stable upwards trend regarding FDI

0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

80.000

90.000

100.000

2004 2005 2006 2007 2008

Recent FDIs are targeting strong sectors like agriculture and sectors to be improved like industrial

Bra

zilC

hina

Rus

sia

Indi

a38%

32%

30%

Agriculture

Industrial

Services

FDI Target Sectors

5/8/2009 INTERNAL 10

Efficiency gains in agricultural industry boosted business throughout South America, especially in Brazil and Argentina

57,9

68,476,0

81,1 78,482,4

100,3

123,2 120,7

130,5

113,5

119,1

96,7

83,076,6

73,668,3

90/9

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

00/0

1

01/0

2

02/0

3

03/0

4

04/0

5

05/0

6

06/0

7

07/0

8

08/0

9*

37,938,5 35,6

39,1 38,5 37,0 36,6 35,0 36,9 37,8 37,8 40,243,9 47,4 48,8 47,3

46,0

Production (million tons)

Area (million hectares)

146%

27%

Related crops: ( soybean, corn, wheat, peanuts, rice, barley, cotton, oat, bean, sunflower, castor seed, sorghum)

* expected for 08/09 seasonSource: Conab

47

48*

142143 *

5/8/2009 INTERNAL 11

0 100 200 300 400 500 600

Arable Land * Land Currently Farmed

Arable Land per Region Arable Land per Region

56

413

115

11

137

Potential arable land

w/o deforestation

Source: FAO , 2005. Not considering areas dominantly under forest ecosystems.

Million Hectares

89Oceania

Europe (North+South+West)

America North

Europe East + Russia + Middle East

Asia

Latin America

* Considering Pasture as potential arable land.

Sustaining the agriculture importance, South America has the highest potential of arable land

5/8/2009 INTERNAL 12

Most important crop areas in South America are far away from amazonian rainforest

Amazonianrainforest

IntenseAgriculturalUse

Urbanized Areas

Source: Embrapa

5/8/2009 INTERNAL 13

Biotech penetration in agricultural industry

95 Million Hectares

Source: Clive James 2009

34 Million Hectares

157 Million Hectares

30 Million Hectares

Soybean 70%(in Brazil 60%

In Argentina 95%)

Cotton 46% Maize 24% Canola 20%

5/8/2009 INTERNAL 14

In 2009 the economic dip in South America will be less harsh compared to other regions

-4,4

-3,2

-1,8-1,1 -1

-7,8

5,7

7,7

-10

-8

-6

-4

-2

0

2

4

6

8

10

EU27 NAFTA Asia SA Brazil Russia India ChinaRealGDP

Growth’08-’09

(%)

Brazilian GDP depends only by 15% on exports, private consumption will grow by 1,5% in 2009

5/8/2009 INTERNAL 15

Brazil’s private consumption pattern gets closer to developed countries

Car Production

Brazil

Korea

Germany

USA

China

Japan

0 5 10 15

Million Units

Personal Care & Toiletries Sales

UK

France

Germany

China

Brazil

JapanUSA

0 15 30 45 60

US$ mn

Cell Phones Lines

Japan

Brazil

Russia

USA

India

China

0 100 200 300 400 500 600

Million of Lines

All figures 2008

5/8/2009 INTERNAL 16

South America LV production – monthly outlook

100.000

200.000

300.000

400.000

500.000

Jan Feb Mrz Apr Mai Jun Jul Aug Sep Okt Nov Dez

2008

2009

3,83,5

Total [mn]

-6,5%

2008 2009

5/8/2009 INTERNAL 17

LV production per regionchange 2009 vs. 2008

-40

-30

-20

-10

0

10

20

30

40

W-EU

-24,3%

CEE

-2,5%

Asia

-25,1%

Japan

30,2%

China

-8,8%

Korea

18,7%

India

-33,0%

NA

-6,5%

SA

-20,2%

EU

-18,3%

2,43,411,08,227,64,811,916,73,58,4mn units

2009

% c

ha

ng

e

5/8/2009 INTERNAL 18

For many years Brazilian retail figures showed a steady growth

Even the crisis at the end of 2008 was not impacting the private consumption significantly

05/2001 05/2009

IndexedRetailSalesFigures(2003=100)

+15%

+17%

+21%

+24%

+37%

+54%

+62%

Washing Powder

Toilette Paper

Yoghurt

Diapers

Frozen Food

Chocolate

Sun Care

June08-June09

5/8/2009 INTERNAL 19

Brazilian consumers are increasingly shopping in supermarkets

5/8/2009 INTERNAL 20

Successful social programs increased private consumption impacting the consumer behavior

4,6%

17,8%

30,6%

34,4%

12,7%

4,6%

17,8%

30,6%

34,4%

12,7%

Roughly one fifth of Brazilian households have moved from classes D & E to B & C in the past five years

5,6%

26,3%

41,9%

23,8%

2,3%

Class1 :

A

B

C

D

E

1. Socioeconomic classes are defined according to consumption levels (number of televisions, car ownership, etc), rather than the “multiple of a minimum monthly salary” method used by the Brazilian statistics agency, in order to eliminate the effect of adjustments to minimum wages, inflation and regional cost-of-living differences.Source: Target Brasil; BCG analysis

Example: Shift of wealth in Brazil (% of urban households)

2002 2007

5/8/2009 INTERNAL 21

Seven good reasons to be optimistic about Brazil in crisis times

Significant increase in purchasing power supports domestic markets

Large food exports stabilize Brazil’s international trade

Regionally diversified and growth oriented exports dampen volatility

More than 220 billion USD of financial reserves to bridge gaps

Sophisticated financial system and no credit or real estate bubbles

No dependence on imported crude oil due to green energy matrix

Stable democratic political system

5/8/2009 INTERNAL 22

In general, German companies do have considerable business in Brazil

14.414

6.112

2.390

2.164

1.672

1.502

1.084

886

822

815

462

459

352

332

325

302

276

255

234

206

Volkswagen

Mercedes-Benz

BASF

Robert Bosch

Bayer

Siemens

Allianz

Lanxess

Mahle

Scania

Thyssen Krupp

SAP

Evonik

Merck

Voith Paper

Stihl

Melitta

Thyssen Krupp Elevadores

Voith Siemens

Cognis

The sales of major German The sales of major German companies in Brazil companies in Brazil accounted for US$ 35bn in accounted for US$ 35bn in 20082008

5/8/2009 INTERNAL 23

5.000 employees, 3.500 in Brazil

Total Sales:

• 2,99 billion euros(including Wintershall)

• 1,87 billion euros in Brazil

Sales in 10 countries

22 production sites

There of 8 sites in Brazil

BASF IN SOUTH AMERICA 2008

5/8/2009 INTERNAL 24

BASF has a veritable site footprint in South America

Camaçari

Puerto Montt

Santiago

Concón

Lima

Burzaco

TortuguitasGeneralLagos

MauáDemarchi

Guaratinguetá

Jaboatão

Indaiatuba

Bellen deEscobar

Ocumare del Tuy

Multi-divisional sites

Single-divisional sites

S. Jose d. Campos

Vila Prudente

Callao

5/8/2009 INTERNAL 25

BASF’s sales portfolio in South America is quite different from the global one

South America 2008EUR 2,9 bn

5%

15%

14%

16%

23%

17%

Agricultural Solutions

Functional Solutions

Performance Products

Plastics

Oil & Gas

ChemicalsBASF Group 2008EUR 62,3 bn

29%

22%

18%

16%

10%

5%

5/8/2009 INTERNAL 26

5/8/2009 INTERNAL 27