What’s going on in Brazil? Yes, the Olympics. But also an economic recession/depression. According to the Economist, this is the biggest economic slump since the 1930s here. This is a problem.
GDP falling. Look at the GDP growth rate over the last few years. Clearly you don’t have to be an economist to see that the economy is slowing down, and actually shrinking. This is a remarkable reversal from the good fortunes of the BRIC (Brazil, Russia, India, China) touted just a few years ago.
Unemployment rising. Unemployment rate trend looks like a hockey stick, growing to more than 10%, just a few months before the Olympics. Shouldn’t employment be high with all the fiscal stimulus from construction and the ramp up of tourism?
Politics and mosquitos. To compound the mess, President Dilma Rousseff is undergoing impeachment for corruption and the threat of the Zika virus has caused many people to even call for the postponement of the Olympic events here.
So, for all this pessimism, what do consultants think about Brazil’s prospects? Oddly, most of the research is not macro-economic – but instead targeted to specific industries. Guess that makes sense. . they are more likely to be hire by a retailer, chemical manufacturer, or medical device company – not the government. That said, all the signs are point in the same direction = trouble. Direct quotes in blue.
Meet the new Brazilian Consumer McKinsey &Company
“Consumer confidence in Brazil was the lowest among 26 countries surveyed: only 8 percent of Brazilians were optimistic about the national economy”
“Fully 72 percent of Brazilians said they were worried that someone in their household would lose a job in the next year, and 49 percent said they were living paycheck to paycheck”
“During downturns, Brazilians tend to gravitate to either high-end or low-end brands. CPG companies should have a clear and complete price architecture, with a premium offering to attract up-traders and a compelling low-priced offering aimed at down-traders and mass consumers.”
Developing a National Chemical Strategy for Brazil. Bain
“Brazil’s chemical industry has grown significantly over the past 15 years and is now the sixth-largest domestic market globally, with revenue of $157 billion in 2014, or 3% of a global market of $5.2 trillion. However, Brazil’s chemicals market has met an increasing portion of this growth with imports. Prior to 2007, the industry’s trade deficit was $6 billion to $9 billion, but by 2014, this had risen to $31.2 billion—an alarming trend.”
“We classified the primary focus segments into four groups, according to the principal competitive advantage of the respective segments: strong local demand, competitive and available raw material, potential competitive raw material, and competitive raw material with emerging technology”
“Brazil has the largest agrochemicals market in the world, representing about 20% of the global total. Revenue in 2012 amounted to $9.7 billion, and growth ran at 16.1% between 2006 and 2012, more than twice the global average. But more than half of agrochemicals (56%) come into the country as imports.”
“Brazil has natural advantages in the production of biomass, accounting for 30% of global production of sugarcane and 18% of soybean oil. Given this head start, the market for chemicals produced from renewable sources could represent as much as 10% of Brazil’s chemical industry by 2020. But to get there, the industry will need to invest about $20 billion in new technologies, products and processes related to converting biomass into chemicals”
How Brazil Could Unlock Billions in Trade Growth. Bain
“One step toward improving the situation is to reduce the cost to export. In 2014 it cost an average of more than $2300 to ship a container from Brazil. That is 21% higher than the cost of a similar container in South Asia and 5.5% higher than sub-Saharan Africa. . . . Bringing just two key supply chain barriers – border administration and transport and communications infrastructure– even halfway to the world’s best practices could unlock $84 billion in Brazil.”
“In a country the size of Brazil, the most efficient and effective way to spur exports will be to view trade barriers across the end-to-end value chain in the most important industries, and then tackle those barriers to make the industry competitive. Improving those particular industries sets the stage for improvements in others.”
Brazil: Yearning for Good Times. Deloitte
“Turning toward Asia is a step in the right direction for Brazil, given the former’s ascendancy in the global economy.1 But with commodities a key export to Asia, Brazil is vulnerable to the fluctuations in the global commodities market—as it is painfully finding out.”
“Is the current commodities downturn a good opportunity for Brazil to revive manufacturing competitiveness? And will a weak Brazilian real aid this process? The answer is likely yes. In recent months, the weak real has indeed come to the aid of Brazil’s exports. The currency has lost 41.1 percent against the US dollar since December 2013”
“A weak currency, however, won’t be enough to restore Brazil’s manufacturing advantage. The shares of two key exports, airplanes and vehicles, in manufacturing exports have declined (figure 5). Brazil also faces formidable competition in manufacturing. For example, Mexico fares much better in the World Bank’s ease of doing business rankings: 38 against Brazil’s 116”
Hospital Strategies in Brazil. LEK
“We now estimate private expenditure at US $70 billion, ranking Brazil as the sixth-largest private health market in the world – and still among the world’s fastest-growing markets for the past 10 years. Fueled by aging, obesity and the increasing presence of private payers (linked to increased formal employment), the private market expanded at double-digit rates.”
“Carlyle (with its investment in Rede D’Or), Amil (UnitedHealth, with its advances in vertical integration) and DNA Capital (the investment arm of the former Amil owner, Edson Bueno) seem to be the contenders to consolidate the market, seizing the opportunity in the core markets of São Paulo, Rio de Janeiro and others”
“Our fundamental belief is that the local market structure is the starting point to define the strategy for a hospital business and the potential need for investor participation”.
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