After the crisis and the political storm, Brazil proves to be a treasure chest full of opportunities

May 16, 2018

In an article on Milano Finanza, Dr. Graziano Messana talks about new political perspectives and what influences them in Brazilian development and growth. Some examples of Italian companies that have continued to invest in Brazil with a medium and long-term perspective are presented, such as Enel, Gavio group and Azimut group.

Find out how to invest in Brazil here.

It is true that the world macroeconomic situation was profoundly different from today but, after a few years, Brazil has found itself in a deep crisis, the heaviest of the last 50 years, which has dragged the country into a deep recession culminating in the two year period 2015 and 2016 with a GDP fall of 3.5%. New covers this time with the same rockets but in free fall.

However, during this political and economic blackout, the country was in fact governed by the Minister of Finance and the President of the Central Bank. We find ourselves today with a political situation in the process of being defined but which does not worry much in view of the upcoming elections in October, whatever the outcome.
The “Lava Jato” operation (so-called “Car Wash” operation) has in fact re-established, albeit in a traumatic way, the rules in the business world and transparency and compliance criteria that had been lost over time with high corruption and impunity.

The scenario today is again very favourable and also very different compared to 2010. Development and growth trends that make it, given its size, a macro-region with incredible potential for Italian companies looking abroad to grow.

2017 ended with a GDP increase of 1% and further growth is expected between 2.5% and 3% for the next two years. Beyond the data on GDP, the challenges facing the country are focused on large interventions to be implemented to support growth and development.

President Temer, who took over from Dilma Rousseff in mid-2016, was a good political articulator and was able to approve the reform of labour law, leaving a challenging and crucial social security restructuring to be carried out. Without this last reform, it will not be possible to correct public accounts, a necessity that meets consensus from many sides but difficult to implement today. The lifetime of a Brazilian has passed, in the last 20 years, from 67 years (1994) to 75 years (2015), and this is clearly positive news. However, over the next 10-15 years, this will have further implications for the labour market, health insurance and health system costs.

Brazil, which I know in light of my 15 years of professional experience on-site, is a cyclical country where it is not usually advisable to invest opportunistically. Often I am forced to give “cold showers” to potential investors: I advocate a medium-term horizon in which the possibility of collecting good fruit is much higher.

In 2010 we saw China buying commodities by overheating the economy; today it is the first investor in Brazil on an industrial fabric that for decades has stagnated in terms of productivity. Who invests today, thanks to the very favourable exchange rate, invests well and has the chance to be competitive in an inefficient market that consumes a lot. In all those sectors where the state is slow, the private sector finds space. It is not only Asian companies that invest, but many opportunities are seizing American and European companies. Large plans have been launched to support industry 4.0, the Internet of Things (IoT) world is driving the health and hospital management, urban mobility, agribusiness and industrial automation sectors.

A genuine revolution is taking place in the Fintech sector. At the end of April, the legislation changed to introduce Peer 2 Peer (P2P) loans, allowing Fintech companies to grant credit without going through banks. If we add that the official interest rate has passed, in less than two years, from 14% to the current historical minimum of 6.5% (real rates are higher) and we observe that in Brazil there are more than 40 million people with limited or no access to the banking system, it is easy to understand why this market has enormous potential for growth and an estimated value of around 24 billion dollars over the next 10 years.
Also in the renewable energy market, it is impressive to see the growth that is being generated in a country that already has the most “renewable” energy matrix of the industrialized world.

There are several examples of Italian companies that have continued to invest in Brazil with a medium to long-term interpretation. Among the most significant investments, it is worth mentioning those of the Gavio Group that began in 2016 with 2.25 billion of Reais, investing about 770 million reais in 2017 and an additional 3.5 billion of Reais in the early months of 2018 (a part deferred ), all destined for motorway concessions. Today they are the second player in Brazil by a number of concessions.

Enel in the energy sector has already invested in Brazil buying the CELG (Goias) and the hydroelectric plant or rather the thirty-year concession located on the Rio Grande (Minas and SP) investing 9 billion of Reais only in 2017 and 5 billion of Reais in 2016. In 2018 it is in the running for the acquisition of Eletropaulo valued 7 billion of Reias and together with Enel Green Power, which already owns here wind, photovoltaic and hydroelectric, has a 2018-2021 plan of several billion euros of investment.

The Azimut group (finance) also recorded various acquisitions that led the Brazilian operation to a total of assets under administration exceeding 15 billion Reais (today it represents the second foreign market for the Group).

In short, Brazil certainly has great challenges ahead of its own but undoubted opportunities for both large companies and, not to be underestimated, for small and medium-sized Italian companies.

Original article in Italian.

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