Oct 2009Brazil: Land of Opportunity

By: Jan R.E. Jarne

Brazil's future looks very promising in both the near and the long term. Much has been written about Brazil as one of the least affected nations in the global crisis, and it is the only country to have received an upgrade from rating agencies. Furthermore, Brazil is one of the few countries with positive growth, does have its inflation and domestic interest rates in balance, and has a floating exchange rate regime with increasing international reserves. Brazil is also an emerging regional leader and taking a more active role in international leadership forums, including G-20.

The near term looks equally promising. Brazil's victory in attaining the International Olympics for 2016 follows being named the host country for the World Soccer Championships in 2014. Both events will be drivers of internal growth and opportunities within the country in such areas as land development, tourism, transportation, agribusiness, energy, infrastructure, and cluster industries, among others. 

The investment opportunities are enormous in a country of agriculture par excellence that is also blessed by vast untapped energy sources. The economic growth from the development of these two areas will fuel and spread wealth throughout  Brazil. As a result of the new pre-salt oil and gas findings offshore, Petrobras alone will be investing more than USD 110 billion by 2020, and it estimates that the goods and services industry will follow with investments of more than USD 400 billion.

Moreover, according to a recent IIF report, the estimated foreign capital inflows for this year are USD 42.7 billion, which is USD 5.0 billion more than in 2008. For 2010, the projections are that FDI will increase to USD 63.7 billion. A good portion is expected to be net inflows in the form of portfolio investments in the stock market, further consolidating BM&FBovespa as one of the largest exchanges in the world.  Even if it is speculative capital, it will fuel the local capital markets with a renewed activity in primary and secondary issues. This development will augur well as the global credit markets going forward can still be restrictive in lending.

On the political and social front there is still plenty to be done. Brazil has one of the highest disparities in income distribution, a poor educational system, and a dearth of investment in health care. These issues are certain to be part of the electoral platform for presidential elections next year.  But the principal political candidates will all converge on the same agenda, and the dispute will be focused on who is a better candidate to manage the country.  In other words, the election will boil down to a difference in the means, not the ends.

Brazil is the largest democracy among the western emerging countries, is a friendly society, has a skilled labor force, and has a growing middle class that will continue to fuel consumption. Albeit still relatively low in terms of income, the middle class (the "C" class in Brazil) already represents 53% of total family incomes in Brazil.

With the country expected to exceed 5% growth next year, this is the moment to be investing in new ventures or to be seeking partnerships with local businesses in Brazil.

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Jan R.E. Jarne

Author: Jan R.E. Jarne
Jan R. E. Jarne is a partner of CDI Global based in Sao Paulo, Brazil. His nationality is Finnish; his language skills include English, Portuguese, Finnish and Spanish. He holds a B.S. degree in industrial engineering from the University of Massachusetts (USA) and an M.B.A. degree from the Thunderbird School of Global Management, Arizona, USA.

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