More Analysis of Brazil’s Growth
After the Economist’s 2009 cover story on Brazil, it would seem much of the business world knows about Brazil’s growth, but another look at some of the numbers underscores the changes happening in the country. Chambers and Partners recently published an article comparing Brazil in 1960 to the modern day story. Here’s a good summary of the article in its own words:
“A brief analysis of the other BRIC countries suggests the following conclusions: China may have become a superpower but as a nation it remains oriented towards its domestic market. Democracy remains nonexistent. India is beset by religious issues and also has to cope with a sensitive geopolitical situation. Russia has yet to overcome the problems resulting from the demise of its former political system.
In such a global scenario, Brazil emerges as the best option – either on its own merits or due to its comparative advantages over other BRIC countries.”
The article goes on to point out some eye-popping numbers, such as a projected 40% growth in agribusiness, investments over 500 million reais by IBM and Santander, and FDI inflows increasing by 30% over last year. The only concern cited in the article is political stability in light of future elections.
Written by a Brazilian attorney, the article may have a slight bias, but the numbers are difficult to challenge. Investment is so rapid some economists are predicting an “over heating” of the economy, as reflected in the dramatic swings in the value of the real. In sum, Chambers sounds like it is singing the same tune: Brazil’s growth is here to stay.
Roundup of Brazil News
A few interesting stories have come out of Brazil recently, showing a strengthening economy and strong investor confidence. Instead of writing three blog posts to analyze every story, this post will highlight them all in one easy-to-read package. We start with the big one.
Petrobras Raises a Massive Amount in Stock Offering
According to Reuters, Petrobras raised $70 billion in a recent share offering. From the article, it seems everything points to this as a huge event:
“The cash generated by the world’s biggest-ever stock offering is part of Petrobras’ $224 billion investment plan over the next five years to exploit the so-called subsalt area, a reserve discovered off Brazil’s southern coast in 2007.”
The sale was so large it actually affected other sectors of the economy, with the large influx of dollars causing the real to strengthen.
Brazil has long been at the forefront of the alternative energy market, but the find by Petrobras promises to make Brazil a bigger player in the traditional fossil fuels market. In our travels to Brazil, this is a major topic of conversation. It has sparked discussion regarding the kinds of contracts necessary to extract the oil and role of arbitration in dispute resolution. Some also see the find as vindication for the large role of the state in Petrobras, giving it the resources and stability to continue searching for the hydrocarbons, even when other private companies could not take the risk. And while this is definitely a big story, it has not affected investment in other parts of the economy.
Israeli Firm Prepares to Invest in Hydroelectric Power
The energy generation section continues to attract foreign capital, and for good reason, Brazil’s expanding population and industrial base needs more energy. An Israeli firm has identified the same opportunity:
“The deal being examined would involve Ten Petroleum acquiring 39.65% of a private Brazilian company which produces hydroelectric power for about $17 million. The announcement stressed that the deal was not yet concluded and no agreements have been signed so far.”
Energy producers are not only vital to the economy, but they contain unique issue of international commercial and investment law. Brazil has not ratified any investment treaties, so investor-state arbitration does not play a big role in these transactions. But the use of international commercial arbitration is practically the default. Whether the parties choose to arbitrate in Brazil or outside of it, investments like the one above promise to bring greater activity for those involved in advising on international transactions.
For our final article, we look at something most observers have already identified but bears repeating.
For Investment Firms, Brazil’s Election is a “Nonevent”
This may come as a surprise to the average reader, but upcoming elections in Brazil have done little to stem the capital flows and increasing investment related to Brazil. From the article:
“Global private equity investors, buoyed by Brazil’s fast-growing economy, are ramping up takeover and fund-raising activity despite uncertainty in the run-up to the country’s presidential election, which they are treating broadly as a nonevent, industry executives said on Wednesday.”
From bureaucrats to business leaders, this is the constant refrain we hear, and it is a great sign. Without entering into the merits of either candidate, it is welcome news when political change does not hurt investor confidence.
The Brazil-Cuba Connection
It’s no secret Brazil has a relationship with Cuba distinct from the United States, and a recent article from the BBC shows the difference:
“Brazil’s foreign minister says his country has offered to help Cuba develop small and medium businesses as part of a drive for economic growth.
Celso Amorim was quoted as describing Cuban plans to lay off half a million public-sector workers in the next six months as “very courageous”.
He said Cuba could learn from Brazil’s successful experience in fostering entrepreneurship.”
This article underscores how Brazil is approaching Cuba and other countries outside the normal channels of international commerce. It is connecting with developing countries and offering those countries support both politically and financially. Not only is this something Brazil is pushing at the top diplomatic levels, we have seen the same from some of our Brazilian clients. Increasingly, they consider Cuba as an investment opportunity.
The Beginning
For many years, the legal blog scene has grown rapidly, improving in quality, depth, and coverage. There are quality blogs dedicated to the U.S. Supreme Court, a variety of different sectors, and international legal issues. In particular, there are now excellent blogs focusing on business with China, Europe, and Canada. Despite this array of information, few blogs turn their attention to the growing economy in Brazil and Latin America. Our blog hopes to fill this gap.
Starting today, we will publish articles analyzing the legal, economic, and cultural factors influencing trade with Brazil and Latin America, often with a focus on the relationship between this region and the United States. Because we are writing from the multi-lingual city of Miami, some of the articles may be in Spanish, Portuguese, or English. We hope our readers will appreciate the diversity of languages, especially because it is such a crucial part of doing business in this part of the world.
We encourage comments on the blog but reserve the right to remove those comments that contain potentially defamatory statements or serve to criticize individuals instead of building a meaningful discourse on the issues. The core goal is to learn about Brazil, Latin America, and their connections to the rest of the world. Anything detracting from this goal does not help anybody involved.
