Brazil Economic Overview
Brazil
Economic
Overview
Brazil
Economic
Overview
About BRAiN
Founded in March 2010, BRAiN – Brasil Investments & Business – has
the mission to articulate and catalyze the consolidation of Brazil as
an international business and investments hub, with a regional focus
in Latin America, but with global connections and projection.
Conceived by three key entities of the financial and capital markets
of the country – ANBIMA (Brazilian Financial and Capital Markets
Association), BM&FBOVESPA (Securities, Commodities and Futures
Exchange) and FEBRABAN (Brazilian Federation of Banks) – BRAiN
is an association representing several sectors of the society and has
the sponsorship and participation of various private institutions.
BRAiN is an interlocutor of the private sector that works with the
Public Power aiming at an improvement of the business environment. Bearing in mind this objective, it articulates with the both,
public and the private sectors, either nationally and globally, fostering actions in several fronts.
In order to strengthen the competitiveness of the Brazilian business
environment, BRAiN created the Doing Business Commission, aiming at assessing the report with the same name, issued by the World
Bank. The document measures the ease of doing business in 189
8
9
countries. In order to continuously raise the position of Brazil in the
rankings, BRAiN works together with authorities for improving the
business environment and, at the same time, to present to the World
Bank the evolutions that happened in the Country and that are not
yet reflected in the Doing Business report.
BRAiN also organizes the Best Brazil, a roadshow for promoting the
Brazilian financial market in the main global economic centers. The
event, which has happened since 2004, has already reached more
than three thousand investors in 18 cities: Dubai (Arab Emirates),
Abu Dhabi, Riad, Kuwait, Doha, Hong Kong, Singapore, Tokyo, Sidney,
Beijing, Seoul, New York, Toronto, Boston, London, Zurich, Luxembourg and Paris. The target audiences are managers of some of the
main global investors, such as pension funds, sovereign funds, asset
management companies and insurers, beyond regulators – central
banks and securities commissions.
BRAiN’s Financial Integration of Latin America Project falls under the
Inter-American Development Bank’s Initiative for the Promotion of
Regional Public Goods (RPG Initiative), which is a response to the increasing importance of South-South cooperation in the development
agenda of most Latin American and Caribbean countries and the
IDB’s commitment to be an active partner in a South-South led learning and cooperation process. The initiative gathered together the
securities commissions of Brazil, Chile and Colombia, and included
several studies of regulatory, tax and exchange rate issues related to
both fixed income and equity. The studies were conducted by both
PwC and Professor Guillermo Larraín of the University of Chile, and
covered 6 of the most important Latin American economies: Brazil,
Argentina, Mexico, Colombia, Chile and Peru. Latin American corporations have already crossed borders within the region, but they
hardly find in it the financial services that meet their investment
needs. These companies are called “multilatinas” and they often
have to rely on foreign traditional centers like New York and London
to fund their expansion plans. This is the problem BRAiN’s project is
trying to address.
16
Brazil, an attractive country for doing business
26
Consumer Market
36
Demographic bonus
38
AGRIBUSINESS HIGHLIGHTS
42
REFERENCES IN THE INDUSTRIAL SECTOR
46
C CLASS
56
Consolidated Democracy
58
São Paulo, capital of Latin America
62
Infrastructure opportunities
68
Financial market in Brazil
16
17
Brazil, an
attractive
country for
doing business
T
he country has evolved a lot in the last decade from the
economic, social and institutional points of view. The
economy is less vulnerable and the short term economic
issues can be overcome and do not invalidate the fact that, with the
appropriate adjustments, there will be conditions for engaging in a
new era of growth within the next years. Now, Brazil is positioned
as the seventh biggest economy in the world. The balance of transformations is extremely positive and it opens new opportunity
windows in several fronts, supported by a series of indicators.
A good sign comes also from companies in several parts of the
world, and from several sectors that came to Brazil in 2014 with
promising perspectives for the future:
- Nissan invested US$ 981 million to produce the New March in the
Industrial Complex of Resende (RJ);
- T he joint-venture formed by Deere and Hitachi inaugurated a
factory of hydraulic bulldozers in Indaiatuba (SP);
- Weber Saint-Gobain constructed a new industrial branch in the city
of Planaltina (GO);
- With an investment of US$ 566 million, BASF constructed the Acrylic
Complex in the Industrial Hub of Camaçari (BA);
- Knauf of Brazil spent US$ 56,6 million in a plant in the Industrial Hub
of Camaçari (BA);
- The Petrópolis Group invested US$ 226 million in order to start
producing the Itaipava beer in Itapissuma (PE).
18
19
GDP Ranking
of the biggest
economies
(in US$ billion
and PPP*)
Nominal – 2005
Nominal – 2014**
PPP – 2005
PPP – 2014**
1 USA 13.094
1 USA 17.416
1 USA 13.094
1 China 17.632
2 Japan 4.572
2 China 10.355
2 China 6.456
2 USA 17.416
3 Germany 2.771
3 Japan 4.770
3 Japan 3.859
3 India 7.277
4 United Kingdom 2.324
4 Germany 3.820
4 India 3.340
4 Japan 4.788
5 China 2.287
5 France 2.902
5 Germany 2.705
5 Germany 3.621
6 France 2.207
6 United Kingdom 2.848
6 Russia 2.314
6 Russia 3.559
7 Italy 1.789
7 Brazil 2.244
7 France 2.047
7 Brazil 3.073
8 Canada 1.164
8 Italy 2.129
8 Brazil 1.963
8 France 2.587
9 Spain 1.133
9 Russia 2.057
9 United Kingdom 1.907
9 Indonesia 2.554
10 Korea 898
10 India 2.048
10 Italy 1.846
10 United Kingdom 2.435
11 Brazil 882
11 Canada 1.794
11 Mexico 1.475
11 Mexico 2.143
12 Mexico 866
12 Australia 1.483
12 Indonesia 1.301
12 Italy 2.066
* purchasing power parity
** prospects
source: imf and ministry
of finance of brazil
20
21
International Reserves
us$ (billion)
400
350
300
250
200
150
100
50
* december of each year (from 1970 to 2014)
2014
2010
2005
2000
1995
1990
1985
1980
1975
1970
0
22
23
Inflation - IPCA
Índice de Preços ao Consumidor Amplo (IPCA - Broad Consumer Price Index).
Notice: The index of August 1991 was exceptionally calculated
by the IBGE as the geometric mean of the values observed in July
and September. That’s why the variation rates presented for August
and September 1991 are the same.
inflation – ipca
2500
2000
1500
1000
500
* december of each year (from 1980 to 2014)
2014
2010
2005
2000
1995
1990
1985
1980
0
26
27
Consumer
Market
T
he Brazilian internal market has a consumption potential superior to US$ 400 billion and the income of Brazilians has
been booming and growing beyond the global average.
While the annual average growth of salaries in the world in 2006
was equivalent to 2.6%, in Brazil the number was 4%; in 2010, the
world average was 2.1% and Brazil’s was 3.8%; in 2011, it grew 1.2%
in the world, and in Brazil, 2.7%. In 2012, the Brazilian income grew
4.1%, while the global indicator measured by the International Labour Organization (ILO) stayed in 2.2%.
28
29
AVERAGE MINIMUM WAGES
Real and nominal Minimum Wage (INPC) in R$, Unemployment, in %
Brazil is going through a period of adjustments and the current
structural reforms have the power to prepare the scenario for the
recovery of growth and investment. In the next 15 years, within
a favorable environment, Brazil may more than double its per
capita income.
nominal minimium
real minimum
unemployment
The Country is still one of the main destinations of Foreign Direct Investments (FDI). Throughout the last years, the participation of Brazil
200
6,7
6,0
724
737
678
724
652
544
510
618
8,1
461
7,9
409
9,3
373 559
462
287
433
253
300
419
400
230
500
10,0
527
9,8
600
577
11,5
700
652
12,3
338
800
622
707
900
788
in the global FDI more than tripled and it might keep this trend within
14,0
12,0
10,0
8,0
5,5
5,4
6,0
4,9
4,0
2,0
2015**
2014*
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0,0
2003
100
average until july 2014 for the minimum wage and until april for the unemployment
** ploa 2015
source: ibge and dieese
prepared by ministry of finance of brazil
the next years.
30
31
Brazilian share –
Global FDI
4,8
3,4
2,5
2006
2007
4,4
2,1
1,7
1,3
4,0
2008
2009
2010
2011
2012
2013
main fdi destinations
us$ billion
united states
161
124
121
china
russia
79
51
77
75
hong kong
brazil
64
65
singapore
64
61
canada
43
50
australia
spain
méxico
188
26
18
62
2013
2012
56
39
38
source: unctad
32
33
FOREIGN
INTERNATIONAL
INVESTMENTS
Financial account – Direct investments –
US$ (million) – Central Bank of Brazil – Report – Section
of balance of payments (BCB report/BP) – BNP_MCI
us$ (million)
Brazilian
economic
growth pillars
80000
70000
60000
50000
40000
30000
20000
- Reduction of public costs;
10000
- Acceleration of private concessions
and public-private partnerships;
2014
2013
2012
2011
2010
2005
2000
1995
1990
1985
1980
1975
1970
0
- Improvement in the education level and increase
of tecnical labor;
- Increase in the offer of labor;
- Changes in federal taxation;
* december every year (from 1970 to 2014)
- Support to entrepreneurship and to business initiatives;
- Focus on international trade.
36
37
Demographic
bonus
B
razil is going through a period of demographic bonus. Proportionally, there are more people in the age groups able to
perform an economic activity and those who depend on this
group. Until 2018, people aged between 30 and 39 years will be the
majority of the Brazilian population according to prospects of the Instituto Brasileiro de Geografia e Estatística (IBGE - Brazilian Institute
of Geography and Statistics). The main effects of the demographic
transition are the greater number of potentially productive people
and the greater capacity of savings. The scenario also widens the
chances for improvements in the coverage and quality of education.
38
39
agribusiness
HIGHLIGHTS
A
gribusiness is a strategic sector for Brazil and accounts
for 22.15% of its GDP. It constitutes an attractive area for
foreign investments, with wide return opportunities.
With a population of 196.7 million, Brazil is one of the largest food
consumer markets in the world, along with China and the United
States. About 70% of the food production in Brazil is consumed
internally and 30% are shipped to more than 210 markets.
Brazil is a country with natural vocation for agribusiness due to
its favorable characteristics of climate, soil, topography and light.
Some data show that.
40
41
MAIN PRODUCTS
EXPORTED BY BRAZIL
products
world
ranking of
production
world
ranking of
exportation
share
in WORLD
TRADE (%)
sugar
1
1
50
coffee
1
1
27
orange juice
1
1
85
soy bean
2
1
40
beef
2
2
39
chicken
3
1
38
corn
3
2
25
pork
2
2
39
soy oil
4
2
19
soybean meal
4
2
8
cotton
5
4
11
tobacco
2
1
11
42
43
Field of opportunities
The results of the Brazilian agribusiness are only possible thanks to
intensive investments in machines, equipment, supplies and technology. Brazil is an international reference in agricultural research
with the Empresa Brasileira de Pesquisa Agropecuária (Embrapa Brazilian Agricultural Research Corporation), an institution that has
been developing technologies for more than four decades and that
spreads knowledge for agricultural sustainability for the benefit of
REFERENCES
IN THE INDUSTRIAL
SECTOR
the Brazilian society. Each US$ 0.377 invested in Embrapa becomes
more than US$ 2.64 returned to the Brazilian society in the form
of technologies, knowledge and jobs. The research developed by
Embrapa enabled the transformation of Brazil into one of the largest
grain producers in the world, contributing to increase the livestock
productivity.
Long flights
Brazil has the fourth largest aerospace industrial park in the world.
There are approximately one hundred companies that make up the
sector, among aircraft manufacturers helicopters and components
including satellite industry, sounding rockets, propulsion systems,
defense equipment, radar and air traffic control systems.
The aerospace industry has a perspective of investments of around
US$ 4.5 billion for the period between 2015 and 2018, especially with
the need of new investments of Embraer, Helibras and new projects
under development by the companies of the sector.
Embraer is one of the biggest aerospace companies in the world. It
operates in the development, manufacture, sale and post-sale support
of aircrafts in commercial and executive aviation, segments of commercial and executive aviation, beyond offering integrated solutions
for defense, security and systems. With more than 45 years of existence, the company is a leader in the market of commercial jets with up
to 130 seats, the fifth biggest manufacturer of executive jets in the world
and the biggest supplier of defense and security solutions in Brazil.
44
45
BY COMBINING THE
GROWTH OF THE
DOMESTIC INDUSTRY
WITH TECHNOLOGICAL
DEVELOPMENT, BRAZIL
WON WORLDWIDE
RESPECT BOTH
IN THE AGRIBUSINESS
AND IN THE AEROSPACE
SECTOR, AREAS
IN WHICH THE COUNTRY
IS A REFERENCE
46
47
C CLASS
E
conomic growth and better income distribution have
allowed more than 40 million Brazilians to enter the
middle class over the last ten years. If the Brazilian middle
class was a single country, it would be the 12th most populous
in the world.
The change in the socioeconomic profile reflected in economic,
political and cultural aspects of society and, above all, it has widened
the consumer market, opening up several possibilities for the
provision of goods and services.
- The consuming power of the middle class might support a GDP
growth of 40% by 2020;
- The C class represents 54% of Brazilians and has a consuming
capacity superior to USD 377 billion, which is equivalent to 51% of
all the revenue of the Brazilian families;
- In 2015, the middle class will account for a consumption equivalent
to those of classes A and B together.
source: fecomercio-sp
48
49
In 2020, BRAZIL
will be one
of the LARGEST
consumER
markets and
one of the
LARGEST global
economies
50
51
years of study (IPEA)
Ratio of the sum of the number of years of education
completed by the persons who are 25 years
or older and the number of people in this age group
years of study
In education, the homework has been done: the construction of
8
schools and the expansion in the number of vacancies put almost all
7
ducing income inequality of the Brazilian population. The Gini index
has fallen consistently since the early 2000’s, reflecting the smaller
gap between the rich and the poor.
* december of every year (from 1995 to 2013)
2013
2012
2011
2009
2008
2007
2006
2005
0
2004
The improvement in the education indicators has contributed to re-
1
2003
Brazil has 22 universities among the 800 best in the world.
2
2002
educatiion (20% only today) to 60% by 2030.
3
2001
cation and raise the percentage of workers with higher and technical
4
1999
Brazil is working to position itself among the world’s 30 best in edu-
5
1998
between 2006 and 2014.
6
1997
in higher education: the number of university students grew 60%
1995
Brazilian children in elementary school. Advances are also noticeable
1996
Education
52
53
GINI COEFFICIENT
It measures the degree of inequality in the distribution of per capita
household income among individuals. In theory, ts value may vary from
zero (when there is no inequality and the income of all individuals have the
same value) to 1 (when the inequality is maximum, and only one individual
owns all the revenue of the society and the revenue of all other individuals
is equal to zero). This series is calculated based on the answers given
to the pesquisa nacional por amostra de domicílios (Pnad - National Survey
by Sample Households/IBGE).
revenue/inequality
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
* december of every year (from 1986 to 2012)
2012
2010
2005
2000
1995
1990
1986
0
56
57
Consolidated
Democracy
B
razil displays very consistent economic, political and social
Fundamentals. Among BRICS countries (group of emerging
powers also made up of by Russia, India, South Africa and
China), it is the country with the most consolidated democracy and
with the most sustainable growth. The country restored the direct
vote for President of the Republic 25 years ago and, since then, there
were several institutional advances without risk of a setback.
Brazil is the fourth largest democracy in the world when it comes to
the number of voters, after India, the United States and Indonesia.
The country was among the first in the world to use the electronic
ballot, internationally renowned for its safety and efficiency. The result of elections is known within a few hours after the end of the
voting. Now, Brazil is advancing towards the use of biometrics for
the identification of electors.
Together with the consolidation of the political and economic development model, Brazil created independent regulatory agencies
in order to remove the legal and institutional gaps. There are ten
of such organizations, created in order to oversee the provision of
public services offered by the private sector and also to establish
the rules for the sector.
58
59
São Paulo,
capital of Latin
America
S
ão Paulo is the most influential city in Latin America and the
financial heart of the largest economy in South America. The
biggest stock exchange of the region, BM&FBOVESPA, is placed
in the city and its gastronomic and cultural diversity is equivalent
to that of major global cities.
The economy of the capital of the State of São Paulo represents
the largest municipal gross domestic product (GDP) of Brazil, which
contributes to a solid business tourism sector. The city hosts 63%
of the headquarters of international corporations established in the
country, eight of 10 largest brokerage firms and five of the top ten
largest insurance companies.
São Paulo is one of the largest financial centers in the world and
is among the cities that receive the greatest amount of global investments. The city concentrates more than 240 thousand stores;
1.9 thousand bank branches; 50 thousand industries and almost
half of one hundred largest private companies of national capital.
The city has the second largest fleet of helicopters in the world and
approximately 200 heliports. It is served by three airports for commercial aviation (Guarulhos, Congonhas and Viracopos) and another
one for executive aviation (Campo de Marte). The metropolitan area
has access to the main aerial routes of the world and it is served by
more than 40 national and international airlines.
A road beltway eases the connection with the roads that cross
Brazil and provides the connection of the metropolitan area and
with the Port of Santos, the Petrochemical complex of Cubatão and
the industries of ABCD (Santo André, São Bernardo, São Caetano
do Sul and Diadema).
62
63
Infrastructure
opportunities
W
ith an area of 8.5 million square kilometers; 194
million inhabitants; a territory full of mineral and water
resources; a growing industry; and a strong democra-
cy, Brazil is one of the most attractive countries for investment in
infrastructure.
Over the past 20 years, a wide program of concessions intensified the
presence of the private initiative in the infrastructure area through
an attractive and competitive model. The participation of the private
sector is essential to accelerate the growth of the country and will
be critical for Brazil to carry forward its infrastructure investment
program, which expects expenditures of R$ 600 billion between
2015 and 2018, according to the Banco Nacional de Desenvolvimento
Econômico e Social (BNDES – The Brazilian Development Bank).
Land area
8.515,767 km²
Coastline
7.367 km
Population
194 million people
64
65
Program of Investment
in Logistics (PIL -2015-2018)
The Federal government has announced the new stage of the
Program of Investment in Logistics (PIL). This is another step in the process
of modernizing the country’s transportation infrastructure as part
of a recovery strategy of economic growth.
Brazil has developed its economy in recent years, increasing social
demands and, consequently, the potential for infrastructure investment.
Around R$ 198.4 billion in investment are estimated, of which R$ 69.2
billion should occur from 2015 to 2018 and R$ 129.2 billion from 2019 on.
30+45+322E
Investments are divided as follows:
us$ 37.4
billion
us$ 8.5
billion
roads
railways
airports
ports
us$ 66.1
billion
us$ 86.4
billion
source: ministry of planning, budget and management
66
67
INVESTMENT
PROSPECTS
in r$ billion of 2014 (1st semester)
Sectors*
2010 – 2013
2015 – 2018
variation (%)
oil & gas
358
509
42,1
mineral extraction
44
40
(8,0)
automotive
58
59
0,4
paper and cellulose
20
21
2,5
chemical industry
22
22
2,6
steel
20
12
(38,5)
eletronic complex
22
28
25,9
health industrial complex
8
13
57,0
aerospace
4
12
187,0
food
58
49
(15,8)
sugar cane and ethanol
41
25
(40,5)
other industries
112
121
8,0
industry
767
909
18,5
eletric
191
192
0,5
telecommunications
102
141
37,8
social infrastructure
53
87
64,6
roads
62
80
29,1
railways
23
45
98,9
ports
15
36
141,0
airports
11
16
49,5
457
598
30,8
infrastructure
residences
810
963
19,0
agriculture and services
1.469
1.631
11,0
total
3.502
4.101
17,1
source: committee of sector analysis / bndes.
* sectors with prospect data for 2015-2018 only: beverages (industry) – r$ 32 billion;
urban solid waste (infrastructure) – r$ 5 billion.
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69
Financial
market in Brazil
B
razil has a robust financial market, an important generator of
jobs, economic growth and taxes for the country. Of the ten
largest banks in Latin America, four – Itaú Unibanco, Brades-
co, Banco do Brasil and Caixa Econômica Federal – are brazilian.
The regulation of the Brazilian financial system is recognized worldwide as a reference due to its transparency and consequent mitigation of systemic risks. Private entities such as the Associação
Brasileira das Entidades dos Mercados Financeiro e de Capitais
(ANBIMA - Brazilian Financial and Capital Markets Association),
BM&FBOVESPA and Cetip, as well as the supervising entities of the
public sector, such as the Comissão de Valores Mobiliários (CVM The Securities Commission of Brazil) and the Banco Central (Central
Bank), are responsible for ensuring compliance with laws and rules.
In Brazil, investment funds are required to diclosure their positions
to regulators within three months. Financial transactions are registered in the name of the final beneficiary and not the intermediary,
which ensures the security of the first in case of insolvency of the
second. All derivative operations in Brazil are registered in a single
environment: the Central de Exposição de Derivativos (CED – Derivative Exposure Central).
BM&FBOVESPA advances in the clearings integration project, which
should be completed in 2016. The greater standardization and automation of processes are translated into a reduction of recurring
expenditures and operational risks.
70
71
organization chart
of the national
financial system
image 1. normative, regulatory and oversight structure of the national financial system
normative bodies
regulators and/or overseers
bc
multiple and
commercial
banks
participants
the financial
institutions
other
financial
intermediaries
cmn
cvm
cnsp
susep
cgpc
spc
federal
revenue
source: central bank
prepared by: authors
bm&fbovespa
irb
insurers
efpc (pension funds)
capitalization
eapc
72
73
The regulation
of the Brazilian
financial system
is RECOGNIZED
WORLDWIDE as a
reference due to
its transparency
and consequent
mitigation
of systemic risks
74
75
BRAZIL INVESTMENTS & BUSINESS
av. nações unidas, 8501, 11º andar
Pinheiros – São Paulo SP – 05425-070
tel.: 55 11 2529.7040