View
288
Download
1
Category
Tags:
Preview:
DESCRIPTION
Presentation to the UKTI's mission to Brazil on November 2013 covering Brazilian economy's situation, outlook and expectations for 2014 and beyond. Interesting for company planning to enter the Brazilian market or develop expansion strategies.
Citation preview
Rafael Mastrocola December 2013
Helping CEOs and their teams achieve a winning performance and develop their businesses!
Healthcare Products and Services Distribution NASDAQ: HSIC USA
Brazilian Market Entry Strategy
Pharmaceuticals China
Brazilian Market Entry and Strategic Partnership
Beverages Canada
Brazilian Distribution Strategy Advisory
Beverages United Kingdom
Brazilian Distribution Strategy Advisory
Clients Sector / Country Projects
1967 - 1994
1.142.332.741.811.850 % 6 currencies from 1967 – 1993 * Introduction of Real Plan in 1994
Fiscal Responsability Floating Exchange Rate Regulatory Agencies Privatizations Inflation Targeting in 1999
* Cruzeiro Novo (1967), Cruzeiro (moeda) (1970), Cruzado (BRC) (1986), Cruzado Novo (1989), Cruzeiro (moeda) (1990) e Cruzeiro Real (1993)
3,1% average annual growth last 20 years 3 different moments 3 different presidents
2,5*
-1
0
1
2
3
4
5
6
7
8
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
GDP (% yoy)
2,6
4,1 2,0
Sources: IBGE, Focus Report Central Bank of Braszil, RBCE * Market expectations ranging from 0,5% to 3,5%. Median 2,5%
GDP Weigth (%) 2008 2009 2010 2011 2012 2013e 2014eAgriculture 5,2 6,3 -3,1 6,3 3,9 -2,3 8,2 1,0Industry 26,3 4,4 -5,6 10,4 1,6 -0,8 1,3 2,2Services 68,5 4,9 2,1 5,5 2,7 1,7 2,3 1,9Private Consumption 62,3 5,7 4,4 6,9 4,1 3,1 2,3 2,2Gov. Consumption 21,5 3,2 3,1 4,2 1,9 3,2 1,7 3,0Investments 18,1 13,6 -6,7 21,3 4,7 -4,0 5,9 1,0Exports 12,6 0,5 -9,1 11,5 4,5 0,5 1,1 4,0Imports -14,5 15,4 -7,6 35,8 9,7 0,2 8,3 0,0
Supp
lyDe
man
d
Sources: IBGE, Focus Report Central Bank of Braszil, CS, RBCE
5,2
-0,3
7,5
2,7 0,9 2,5* 2,1*
GDP (% yoy)
* Market expectations ranging from 0,5% to 3,5%, Median 2,5% in 2013
7
Actual inflation target is 4,5% with ± 2% tolerance level
Recently the goverment has tried to keep inflation lower with “artificial measures”
CPI (IPCA) 2014 – 5.94%
Sources: IBGE, Focus Report Central Bank of Braszil, RBCE
5,5 5,8
6,3
7,2 7,3 7,7 7,5
7,1
6,2
6,6 6,5 6,7
6,3
5,8
11/12 1/13 3/13 5/13 7/13 9/13
CPI with Gov. Intervention
0
5
10
15
20
25
30
2003 2005 2007 2009 2011 2013
CPI (IPCA) 12-Month (%) SELIC Target Rate (%)
* monetary tightening Including pauses
8
Public Financial Institutions financed most of the consumer boom in the past recent years
The Govt. should not reach the minimum primary balance in 2013
58,0 57,4 60,9
53,4 54,2 58,7 58,6 58,0 56,9 56,3
45,5 38,5
42,1 39,2 36,4 35,2 34,8 33,9 32,4 31,0
13,2 11,7 14,7 13,5 14,2 16,6
0,5 1,4 4,5 6,8 7,7 9,2
0
10
20
30
40
50
60
70
2007 2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e
Gross General Government Debt (% GDP) Net Public Sector Debt (% GDP)
International Reserves (% GDP)
Financial Public Institutions Debt (% GDP)
Sources: Ministry of Finance of Brazil, RBCE * We are using data from the Ministry of Finance and not taking into account changes on the accountig of the debt
3,3 3,7 3,8 3,2 3,3 3,4 2,0 2,7 3,1
2,4 2,3
-5,2
-2,9 -3,6 -3,6
-2,8 -2,0
-3,3 -2,5 -2,6 -2,5 -2,3
3,1
2003 2005 2007 2009 2011 2013
Minimum primary balance required to stabilize the Debt/GDP ratio has diminished
Primary Nomial
9
Recent Evolution of Brazil’s Credit Rating. In contrast with the crisis that split up in the global financial markets in 2011, Brazil’s credit rate was raised by the main international Credit Rating agencies.
Sources: Ministry of Finance of Brazil, RBCE
90
100
110
120
130
2005 2007 2009 2011 2013
Consumer Confidence (In Points, Seasonally Adjusted)
Sources: FGV, Ministry of Finance, RBCE
World Cup investments has not impacted Brazil in a significant way. R$28 bn in 4 years
Infrastructure and Logistics Program R$470,1 bn
Confidence is lower
60,00
80,00
100,00
120,00
140,00
2005 2007 2009 2011 2013
Business Confidence (In Points, Seasonally Adjusted)
Manufacturing Services
8,9
8,4
7,6
1,9 1,3
World Cup Investments (R$ bn)
Transportation
Airports
Stadiums
Security
Others
Sources: FGV, CAGED, Central Bank of Brazil, RBCE
5%
7%
9%
11%
13%
15%
2003 2005 2007 2009 2011 2013
Unemployment Rate (%, Seasonally Adjusted)
-20,0%
-15,0%
-10,0%
-5,0%
0,0%
5,0%
10,0%
1.400
1.500
1.600
1.700
1.800
1.900
2.000
2003 2005 2007 2009 2011 2013
Average Real Wage (R$) YoY Growth 3MMA (RHS)
15,0% 20,0% 25,0% 30,0% 35,0% 40,0% 45,0% 50,0%
2005 2007 2009 2011 2013
Household Leverage Ratio
Going foward, we should expect unemployment to pick up slightly along with lower increases in real wages which should contribute less for 2014 growth
Sources: IBGE, Focus Report Central Bank of Braszil, CS, RBCE
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
-78.000
-63.000
-48.000
-33.000
-18.000
-3.000
12.000
27.000
42.000
57.000
72.000
2000 2002 2004 2006 2008 2010 2012 Current Account Balance (in US$ mn) FDI (in US$ mn) Current Account Balance as a % of GDP (RHS)
1,40
1,60
1,80
2,00
2,20
2,40
2,60
2007 2008 2009 2010 2011 2012
BRL
BRL should continue devaluated PBR helped to increase CA deficit Market Expectations
2,30 Year End 2013 2,40 Year End 2013
13
14
North: Extractive/ mining (18,5% of total); agriculture (10%), construction (7,1%), manufacturing (4,8%)
Northeast: Utilities (20% of total), construction
(17.5%), agriculture (17.1%), commerce (15.9%), manufacturing (9.3%)
Midwest: Agriculture (19.1% of total), construction
(9.4%), finance (9%), commerce (8.4%), manufacturing (4.7%)
Southeast: Oil & mining (71.1% of total); IT
services (70%); finance (67%), manufacturing (60%), transportation/ storage (59.4%)
South: Agriculture (25.5% of total), manufacturing
(21%), utilities (20%), commerce (19.5%), transportation and storage (18%)
202; 5%
507; 14%
350; 9%
2.088; 57%
536; 15%
GDP (R$ bn) North
Northeast
Midwest
Southeast
South
45%
18%
19%
11% 7% Area
North
Northeast
Midwest
Southeast
South
Sources: IBGE, RBCE
15
Categories Rank #
Overall Index 51
Regulatory framework 82
Business environment and infrastructure 76
Human, cultural and natural resources 12
Source: World Bank
Rank Country
1 Switzerland
5 USA
10 United Kingdom
29 China
55 Mexico
56 Brazil
60 India
64 Russia
16
Factors (in order)
Infrastructure
Tax Regulations
Tax Rates
Gov. Bureaucracy
Labor Regulations
Corruption
Worforce Education
Source: World Bank
Infrastructure Rank/144
Quality of overall infrastructure 107
Quality of roads 123
Quality of railroad infrastructure 100
Quality of port infrastructure 135
Quality of air transport infrastructure 134
17
2013 Other Latin
America OECD China Brazil
Procedures to start a business (number) 9 5 13 13
Time to start a business (days) 53 12 33 119
Time to pay taxes (hours per year) 367 176 338 2,600
Cost to export* ( USD per container) 1,268 1,028 580 2,215
Cost to import* ( USD per container) 1,612 1,080 615 2,275
Time to resolves insolvency (years) 3.1 1.7 1.7 4.0
Source: World Bank
18
Dilma approval from 38% to 41% 1st cenario Dilma would win in the first round 2nd cenario there would have second round
Source: Data – Folha
Adapted from multiple sources 19
MAIN DUE DILLIGENCE ISSUES NORMALLY IDENTIFIED
Material tax, environmental and labor risks and contingencies
Informality in the operations e.g. unrecorded transactions
Owner: “the company is 95% clean” Owners personal interests included in the
company’s interests (and vice-versa)
“Outsourced” or unregistered employees
Inadequate accounting practices controls and reconciliations = triggering significant accounting adjustments and tax risks
Inadequate cash management
MANY SOLUTIONS AVAILABLE TO ELIMINATE OR
MITIGATE RISK
Escrow
Alternative Transaction Structures
Asset Deals
DON’T UNDERESTIMATE THE
NEED TO DEEP DIVE INTO THESE ISSUES
20
Business Development Stepping in Entry Planning
Market Screening Entry Strategy
Planning
Acquisition Joint Venture
Strategic Partnership Transaction Advisory
Post-Merger Integration (PMO)
Investment Monitoring
Greenfield Project Planning and
Execution Advisory
Partnership Business
Development Advisory
21
1. Diversity and Opportunity: Brazil is very complex!
2. Elections can bring new information and surprise the market. Dilma is ahead.
3. Economy is still growing
Growth 2014 (2.1%) Inflation 2014 (5.94%)
22
5. Brazil will win the World Cup in 2014!
4. Many ways to plan your market entry strategy: Understand market dynamics very carefully: - Middle-class consumption - Informality - Bureaucracy - Import taxes
Rafael Mastrocola Partner
+5511 96037-1324 www.belotti.com.br
rafael@belotti.com.br
Recommended