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Global events reinforce Brazil boom time

Global events reinforce Brazil boom time
2013-11-042013-11-04emerging marketsen
The South American nation’s economy remains robust and shows signs of booming again ahead of hosting two of the world’s biggest events, the 2014 FIFA World Cup and 2016 Olympic Games.
Published November 4, 2013 by Anthony Plewes in emerging markets
Brazilian flag

Over the past decade Brazil has been one of the world’s true economic success stories. One of the BRIC nations, along with Russia, India and China, Brazil has attracted huge inward investment even in the face of the global economic collapse, with average GDP growth of more than 4 per cent between 2004 and 2009, peaking at 7.5 per cent in 2010.

In 2012 Brazil ranked third in terms of foreign direct investment (FDI), behind only China and the USA. Despite some recent domestic upheaval and a realigning of economic forecasts to predict slightly more conservative growth levels, Brazil’s economy remains in good health. So while growth has slowed slightly throughout 2013 compared with the previous five years, the second quarter of 2013 still saw Brazil’s GDP accelerate to around 1.5 per cent above that of the previous three months thanks to good export and agricultural production figures.

big brands blossoming in Brazil

Global brand giants like McDonald’s, Coca-Cola, Nestlé and Procter & Gamble all highlighted Brazil in their annual reports this year. McDonald’s called Brazil the market with “the greatest potential for the company” while Coca-Cola lists Brazil in its five most significant countries alongside the USA, Mexico, Japan and China. Nestlé enjoyed over $5 billion worth of sales in Brazil in 2012, 6 per cent of the company’s total global revenues, while P&G saw sales increase by 20 per cent in the final quarter of 2012.

Tech titans are enjoying success in Brazil too; Facebook now has more than a third of Brazil’s population subscribed, and monthly users grew by a massive 81 per cent in 2012. Hon Hai, the parent company of technology giant Foxconn, last year bought 350 acres of Brazilian real estate with a view to expanding manufacturing operations into the country, while Apple is this year set to open its first retail store in Brazil – more are sure to follow soon after.

land of plentiful resources

One of the main factors underpinning Brazil’s recent rapid growth and emergence as an economic world power is its vast natural resources – and they continue to offer opportunities today.

Brazil is home to vast tracts of fertile land, ready and waiting for multinational corporations (MNCs) to expand operations into. To put the scale into some kind of perspective, there is 865 million acres of unused arable land available in Brazil, over two and a half times the total farm land in the USA. The country also boasts large amounts of energy resources – energy provider Petrobras is the largest company in the southern hemisphere – and Brazil’s natural exports of agricultural products, metals and energy all can meet the demand from the fast-growing Asian economies.

Another of Brazil’s most valuable resources is its huge population and domestic market. The country’s 195 million citizens have a higher average per capita purchasing power than China’s 1.3 billion, something which has helped shelter Brazil quite effectively from recent global financial storms.

big events and the infrastructure challenge

The 2014 FIFA World Cup and subsequent Summer Olympic Games in 2016 offer Brazil further opportunity to showcase itself to the world on the very largest of stages.

The soccer World Cup is expected to attract over 600,000 visitors to Brazil in summer 2014, bringing with them a $70 billion boost to the economy and huge opportunities for investors. The country’s Ministry of Sports estimates that 332,000 permanent jobs and 381,000 temporary jobs will be created through infrastructure and tourism-related jobs around the World Cup.

Twitter recently opened an office in Brazil, its third largest market after the USA and Japan, and expects to enjoy a prosperous 2014 World Cup. Brazil’s soaring smartphone sales and middle class disposable income make the country an attractive proposition to the likes of Twitter and Facebook.

The infrastructure question is key to Brazil’s success in hosting two such major events and ensuring that they leave a legacy for the country’s citizens. President Dilma Roussef recently endorsed a planned infrastructure spend of $66 billion, mainly allocated to road and rail systems, but with $10 billion aimed at information technology and communications.

reasons for optimism

Following this year’s economic slowdown in Brazil, there are green shoots appearing that ease any fears about the country’s long-term and sustainable attractiveness as an investment destination once again. Inflation dropped down below 6 per cent following corrective action taken by Brazil’s central bank.

At the same time, the country’s currency is growing stronger, meaning consumer goods, particularly those in-demand luxury brands from overseas, become cheaper and more affordable to Brazilians. By the end of August 2013 the Brazilian real had climbed almost 11 per cent up against the US dollar, giving a boost to domestic spending and the economy as a whole.

In addition to these financial forward steps, Brazil’s job market also kicked on in August 2013, with the country adding almost 128,000 new jobs – up markedly from the 41,000 created in July.

There are still barriers to overcome: Brazil needs to keep unemployment low and continue adding these new jobs to the economy at a rate of around 100,00o per month to continue the current upward trend. Inflation is another vital factor and must continue on its downward trajectory. But these targets are, according to Brazil’s central bank, achievable and will help boost the country’s attractiveness as both a manufacturing destination and, with the two massive global sporting events on the horizon, a location for sustained inward investment.

How do you think Brazil will fare with the World Cup and Olympics? Will it be able to make the most out of being in the global spotlight and will it manage to complete all the infrastructure in time?


image © daboost -

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