Helen JoyceBrazil bureau chief

Latin America and Brazil: the

political and economic

prospects for the

construction industry

Brazil takes offLatin America: Nobody’s backyard

Brazil is the country of the future…(and always will be)

Countries named after commodities: Argentina; Brazil;

Panama; Uruguay

Latin America’s strengths•Big; stable; growing population; young•Growing richer and less unequal•Developing domestic consumer market•Mineral resources: oil, iron ore, precious metals•Thriving agribusiness: soya, protein, sugar, fruits, coffee, ethanol, wood…•Optimism! And things are worse elsewhere•The potential for much more growth ahead

An economy of two halves…Domestic consumption… • The explosion of pent-up consumer demand• 30-40m “new middle-class” in Brazil, and lots more well-off people too• Huge increases in credit

• A developing mortgage market• Shopping centres• Travel and tourism• Auto sales

…and extractive industries

• Some of the world’s most productive farms• Huge commodity reserves• Infrastructure being developed by oil and mining companies and agribusiness• Energy: sugar-cane ethanol; flex-fuel cars; advanced biofuels and thermal-power generation• Brazil’s off-shore “sub-salt” oil: like sending a man to the moon

…What’s long been lacking: investment and competitiveness…• Low domestic savings (in Brazil < 20% of GDP)

• Capital scarce and pricey; very high interest rates, especially in Brazil

• In Brazil, BNDES provides most long-term credit

• Poor education, low productivity (though not in Mexican industry), fast-rising prices, scarce labour

• Ubiquitous cost and scheduling over-runs

• Backlogs in infrastructure and maintenance

Difficulties in doing business• Cartorios; lawyers; despachantes• Growing protectionism• Corruption…or at least a personalised style of doing business• High-cost, low-quality labour• Brazil in particular is still a closed economy; serious bottlenecks in foreign trade• (Cultural) difficulties in saying “no”!

The agenda• Persistent slow growth: four BRICs – three that grow and one that doesn’t• A slowdown in China. Domestic consumption based partly on strong commodity exports• Growing political interference• Overvalued currency; high costs; inflation• Complacency: reform fatigue has set in before reforms even started

What’s needed• A genuine effort to tackle costs, for example the infamous “custo Brasil”• A “doing business agenda”• Greater government efficiency• Better education• Better rules and regulators• A sense of urgency