Why business is still booming in Brazil
Posted on: 04 Sep 2012 by James Farmer

Over the past year the remarkable economic growth of Brazil, one of the world’s largest economies, has dramatically slowed, prompting speculation that this emerging market has had its day.

But despite this economic slowdown Lisa Best, Project Manager of ethical investment company, Global Forestry Investments, explains why business is still booming in Brazil and why it should not be overlooked as an investment opportunity. 

 

Brazil is an extremely attractive country to do business in.  It has achieved political stability over the last thirty years, shaking off the associations with its former military dictatorship and settling into a system of democracy. This has enabled the Brazilian economy to thrive and the government is fully committed to the economic and social improvement of the country, creating a business environment that encourages investment and start-ups by employing a wide range of business incentives to attract investors. The recent $66bn stimulus plan announced by the Brazilian government last month has proved this commitment to improvement and has helped offset the impact of the global crisis on Brazil’s economy.

 

These measures have sent out a clear message to the world ahead of the 2014 World Cup and 2016 Olympics that Brazil is very much open for business despite what her detractors say. These incentives are also operating at a local level with Rio de Janeiro’s Mayor Eduardo Paes introducing a business-development agency to market the city and capitalise on foreign business opportunities. This agency helps businesspeople find investment opportunities, and advises on paper work and tax breaks, essentially rolling out the red carpet for business.

Coupled with these strong governmental incentives, another reason why business is doing so well in Brazil is the country’s diverse economy which has provided plenty of investment opportunities for both Brazilian and overseas investors. This economy is characterised by strong agricultural, mining, manufacturing and service sectors. In particular, Brazil is very rich in natural resources like diamonds, gold and oil, recently discovering new oil supplies in the Tupi field, off the coast of Rio de Janeiro. This could yield up to eight billion barrels of oil and has launched Brazil as one of the major international players in the oil and gas sector with many CEOs and business leaders visiting the country to attend the Unconventional Gas Summit this year.

 

Brazil has also been flourishing in the technology sector with an increasing number of broadband users, mobile phone owners and social media sign ups. This has in part been due to Brazil’s rising middle classes known as “C-ers” as over the past three years, 45 million Brazilians have moved into the middle class which has opened up a world of consumer opportunity. This ascent has led to rapid consumption with C-ers buying everything from cell phones to refrigerators, and for the first time in their lives a home. Brazil has also seemingly become the place to go to when it comes to manufacturing technology and it is rumoured that Apple are manufacturing the new iPad Mini in Brazil, which could result in other global brand names taking to the Latin American shores to do the same for future releases.

 

One of the most attractive investment opportunities for overseas investors is in Brazil’s forestry and renewable energy sectors.

Brazil currently derives around 85 percent of its energy from clean energy sources like water, wind and ethanol and the government plans to develop this further to meet greenhouse gas emission commitments. The Brazilian government is investing heavily in these sustainable sectors, encouraging institutions to incorporate sustainability into their day-to-day activities making forestry and clean energy key investment opportunities.  The government has also vowed to reduce deforestation by 80 percent by 2020 and reforest 3 million hectares of land. Even without such a large governmental focus on forestry, timber is a strong investment choice as growth is driven by the world’s requirement for energy and housing. So as the world’s population continues to grow and the overall standard of living increases, there will be a greater demand for timber to build the relevant infrastructure to support the population. This demand will also be felt from Brazil’s growing middle classes who will want better houses and furniture as their disposable income grows.

 

Within our organisation, we offer investors the chance to invest in both teak and eucalyptus. Our Belem Sky plantation in Para, Brazil consisting of 300,000 teak trees provides investors with an immediate dividend because the teak trees are 8 years old and ready for the first thinning cycle. Unsurprisingly this has been a hugely popular plantation to invest in and availability is rapidly reducing. We are committed to sustainability and reforesting the Amazon.

 

Of course, like all countries Brazil has its weaknesses and its sparse infrastructure is one of them. The government has recognised this and is undertaking a variety of measures to ensure that Brazil is ready to host the 2014 World Cup and 2016 Olympics. Indeed, work has already begun to ensure that Brazil will be able to support the influx of visitors; construction has begun on a new, high-speed train route linking Sao Paulo and Rio de Janeiro, subways are being overhauled, and highways are being repaved. It is estimated that the World Cup and Olympics will drive more than $131 billion into the Brazilian economy, leaving behind a lasting legacy of improved infrastructure, tourism and foreign investment. Another important driver for the government’s investment in infrastructure is the already mentioned rise of the middle class. This has provided real opportunities for UK businesses to expand into Brazil due to the real needs that emerge when an economy grows at great speed, such as an increase in domestic demand for basic infrastructure needs like energy production, distribution and transportation.

 

Brazilian tax and legal systems are complex and difficult to navigate. I would strongly recommend that investors seek advice from legal professionals, in order to identify any issues that could arise as a consequence of an infrastructure deal. Investors unfamiliar with the region should take extra care and take time to speak to local lawyers and businessmen to build up a network of people that they trust. As long as investors tap into the local expertise and plan for potential pitfalls, they can be confident that infrastructure in Brazil should provide a reliable, long-term source of returns.

 

Ultimately business is still booming in Brazil; absolute and relative poverty have declined, unemployment is at a historic low and infrastructure is rapidly improving. Coupled with the world sporting events that Brazil is due to host, this growth does not look like it’s going to stop anytime soon.

 

For more information, see www.globalforestryinvestments.com

 

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