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Brazil: Investment Opportunities
and Challenges
Brazil: Opportunities and Challenges
 Brazil
 General Info/Macroeconomic Situation
 Opportunities
 Challenges
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
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Brazil: General Facts
 5th largest country in the world, with 8.5 million sq km
(the U.S. is 3rd, with 9.8 million sq km)
 5th most populated country in the world, with a population of 191.8
million (the U.S. is 3rd, with a population of 307.2 million)
 10th largest economy in the world
 GDP in 2008: R$2.9 trillion (U.S.$1.5 trillion), a 5.1% increase vs. 2007
 Investment grade
 2008: Standard & Poor’s and Fitch Ratings
 September 2009: Moody’s
 Stable democracy
 Presidential elections in 2010
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
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Overview – strong growth is expected for 2010, which is expected to be
reflected in considerable increases in stock market indices, especially those
of developing countries.
Impact on Stock Markets
Expected GDP Growth
8.5%
-72%
5.4%
78%
-44%
27%
2009E
-43%
World Average
0.1%
47%
-42%
31%
-40%
(2.0%)
(1.1%)
(0.7%)
(0.5%)
72%
-31%
20%
52
0
49
(4.0%)
6
(5.1%)
34
1
2010E
10.0%
21
5
6.5%
World Average
4.0%
1.2%
4.0%
3.9%
2.0%
1.9%
12
0
11
2.7%
2005
Brazil
2006
Russia
2007
China
2008
India
USA
200
9
5
Japan
Source: Bloomberg as of September 25, 2009
África
Source: IIF and FMI
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
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Growing Stock Market – the real appreciated and Brazil had single-digit interest
rates for the first time, which has had a positive impact on the market and brought
the Brazil’s risk back to historically low levels.
Ibovespa X Country Risk
Appreciation of the Exchange Rate (R$ / U.S.$)
3.0
2.5
2.0
60,356
1.79
1.5
1.0
2005
2006
2007
2008
2009
Decreases in Interest Rates (%)
19.25
19.50
16.50
14.25
12.75
11.25
11.75
25,722
13.00
186
11.25
8.75
2005
2006
2007
Country Risk
2008
2009
Ibovespa
Source: Bloomberg and Itaú BBA, on September 25, 2009
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
...
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Current Economic Situation
 GDP increased by 1.9% compared to the
1st Qrt of 2009.
 International Reserves: increased by
3.4% from U.S.$211.9 billion in June 2009
to U.S.$219.1 billion in August 2009.
 Inflation: in August 2009 inflation totaled
4.35% for the last 12 months, below the
government’s target of 4.5%.
 Primary Surplus: in the 12 months ended
June 2009 totaled 1.76% of GDP, a 60%
decrease compared to the previous year
(4.38% of GDP).
 Consumption: increased by 2.1%
compared to the 1Qtr of 2009 and 3.2%
compared to the 2Qtr 2008.
 Industrial Production: increased by 2.2%
in July 2009 compared to June 2009,
growing for 7 consecutive months.
 Commercial Balance: accumulated
results by August 2009 increased by 18%
compared to the same period in 2008.
 Volume of credit reached a record
amount of R$1,311.4 billion in June 2009
or 45% of GDP, representing an increase
of 21% compared to June 2008.
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
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Promising Economic Sectors
 Infrastructure . . . ports, roads, airports, mass transit, sanitation
 Real Estate . . . housing deficit, reduced interest rates
 Agribusiness . . . beef/poultry, soybeans, sugar/ethanol, pulp/paper
 Mining . . . iron ore; other metals/commodities
 Energy . . . oil & gas; hydroelectric power
 World Cup . . . Olympics . . . = ??
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
7
Brazil Oil & Gas: Pre-Salt Region
 Region located approximately 170 miles off the coast of Brazil in the
Atlantic Ocean, almost 500 miles in length and 125 miles in width
 Named “pre-salt” because the oil is held beneath deep and ultra-deep
waters (approximately 2,200 meters) and an additional layer of salt (up
to an additional 2,000 meters)
 Estimated reserves: 5-8bn barrels of oil equivalent (boe)-largest-ever deep-
water oilfield discovery. (British Gas estimates between 12-13bn boe.)
 Expected to result in Brazil becoming one of world’s leading oil producers
(from 10th to 5th, or higher)
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
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Brazil Oil & Gas: Pre-Salt Region: Required Investments
 Estimated investment needs of US$190 billion up to 2013.
 Other estimates of required investments are much higher
 With Spillover Investment Needs. . . Examples:
 Refining
 At least two large-scale refining projects being discussed
 Shipbuilding: huge demand for drilling platforms and tankers.
 Petrobras has announced plans for a public bidding process for 28 floating
platforms, with an additional 21 to follow
 Several greenfield shipyards under construction in Brazil
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
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Brazil Oil & Gas: Pre-Salt Region: Required Investments
 Infrastructure:
 Large, long-range helicopters to ferry workers and equipment.
 In City of Santos, in the State of São Paulo, Petrobras plans to build its "pre-
salt" headquarters, housing 2,000 workers.
 Other areas will have similar investments, and related required mass-transit,
other infrastructure needs.
 Technology:
 Huge technological challenges to extracting the oil: distance to
shore/depth/salt layer.
 Schlumberger recently opened a research center in Rio de Janeiro.
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
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Challenges
 Lack of infrastructure
 Deficient educational system/poverty . . . need for skilled workforce
 Bloated bureaucracy. . . Corruption concerns
 Security issues
 Byzantine tax and labor system
 Overwhelmed judicial system
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
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Negotiating Transactions in Brazil
 Avoid conflicts. . . do not say “no”
 Personal relationships. . .face-to-face meetings
 Language issues
 “Civil law approach” to contracts
WHITE & CASE
Brazil: Opportunities and Challenges
April 14, 2010
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Brazil:
Opportunities
and Challenges
April 14, 2010
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