Brazil: an economic superpowerIvan Van de Cloot

Chief Economist Itinera Institute

Independent “Think-tank” Based on facts and figures- international comparisonsLong term

“ To show, to defend and to build roads for policy reform towards sustained economic growth and

social protection, for Belgium and its regions.

”

Summary

1. Economic and social progress

2. A sustainable economy?

3. The future

Since 2003 some 20m Brazilians have emerged from poverty and joined the market economy.

Source : The Economist, Lula’s Legacy, Sept 30th 2010

Social protection delivers lower poverty

Population increasingly urban

Source : The Economist, Lula’s Legacy, Sept 30th 2010

% Urban Population

84,36

30

40

50

60

70

80

90

1950 1960 1970 1980 1991 2000 2010

Growth at the bottom

Source : Centre for Social Policies, Rise of the New Middle Class

Analfabetism dropping

% of Analfabetism for persons > 10 years old

6

8

10

12

14

16

18

1992 1995 1998 1999 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source : IBGE, Pesquisa Nacional por Amostra de Domicílios 1992, 1995, 2001-2009

Life expectancy at birth, male

Source : Worldbank

Summary

1. Economic and social progress

2. A sustainable economy

3. The future

Age pyramid which is much younger than Europe’s

Ageing in advanced economies took three times as long as it will in Brazil

Vital for democracy: middle class

Source : Centre for Social Policies, Rise of the New Middle Class

Financial stability? 1. How to cope with massive capital inflows?=direct investment but also portfolio investment2. Abundant global liquidity3. Improvement in regulatory quality & financial market deepening4. Subsidised credit by national develeopment bank (BNDES)5. Household debt is climbing=for now asset price bubble remains contained

Exchange rate appreciation 1. Massive capital inflows =but also positive productivity differential with trading partners2. Oil production or Dutch disease3. Studies estimate overvaluation at 3- 20%4. Policy: tax on capital inflows (IOF) to discourage speculative bubble =FDI versus portfolio investment5. Accumulation of international reserves=costly policy

Investment rate to be boosted by Plano Brasil Maior 2014

Source : World Bank

Reforms for Brazil and Belgium

1. Simplification of the tax system=Fragmentation, complexity and changing provisions 2. Increase public saving in order to fund investment

Potential to open Brazilian market more

High level of tariff protection =non-agricultural goods at 14.1%Product market regulation, preferential treatment domestic

Net debt as % of GDP

0

10

20

30

40

50

60

70

80

90

100

110

120

130

Brazil China Russia Peru Indonesia G7

%

2000 2010 2013e

Source: National sources, World Bank, OECD, IMF, UBS as at December 2010

Emerging countries= not over-indebted

A lot of reserves

And steep climbing reserves

Source: Thomson Reuters Datastream

01 02 03 04 05 06 07 08 09 10 110

200

400

600

800

1000

1200

0

200

400

600

800

1000

1200

CLAIMS ON PRIVATE SECTOR : BrazilBANKING INSTS.: RESERVES : BrazilBANKING INSTS.: FOREIGN ASSETS : BrazilFOREIGN EXCHANGE RESERVES : Brazil

Total reserves incl gold (mio USD)

Source : Worldbank, 2011

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

EM Developed

Annual GDP growth

Emerging countries suffered but recovered

Growth would be sustained in coming years

Summary

1. Economic and Social progress

2. A sustainable economy?

3. The future

Proven oil reserves

Source : ANP Agência Nacional do Petróleo, Gás Natural e Biocombustíveis , Annual Report 2011

Oil as manna from heaven?

Source: Thomson Reuters Datastream

Crude Oil Production Brazil

2002 2003 2004 2005 2006 2007 2008 2009 2010 20111200

1400

1600

1800

2000

2200

0

20

40

60

80

100

120

140

160

CRUDE OIL PRODUCTION - Peak Production of 2180.08 Barrels / Day on Dec 10U$/BBL (RH Scale) - High Price of U$145.61 / Barrel on 7/11/2008

Real opportunities: but challenging to exploit

Source : The Economist, Nov 5th 2011

• The Lula well is deeper than BP’s Macondo

Untapped reserves (grey areas)

Growing number of multinationals

Source: Thomson Reuters Datastream

BRAZIL EQUITY MARKET

2007 2008 2009 2010 20110

50

100

150

200

250

300

350

0

50

100

150

200

250

300

350

BRAZIL BOVESPA (E)EMBRAER ON (E)PETROBRAS PN (E)VALE PNA (E)AMBEV PN (E)

Labour Force 15-64 y

0

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

E

2015

E

2020

E

2025

E

2030

E

2035

E

2040

E

mill

ions

Emerging Developed

Source: United Nations, as at December 2010

Favorable demographics

Source: IMF IFS, Central Bank Data, BIS, Bank of America Merrill Lynch Global Research estimates. Note: Most data from end 2009 and also includes some estimates from BofA ML Global Res.

34%

21%

63% 72

%

13%

16%

19%

44%

15%

21%

4% 0%16

%

5% 2%

15% 33

%

5% 11%

0%

14%

4% 12%

1%

17%

2% 3%

21%

2% 10%

3%

18%

8% 3%29

%

1%

25% 43

%11

%

0%

25%

50%

75%

100%

Ger

man

y

Japa

nU

K

US

A

Bul

garia

Cro

atia

Cze

ch

Est

onia

Hun

gary

Isra

el

Kaz

akhs

tan

Nig

eria

Pol

and

Rom

ania

Rus

sia

Slo

vaki

a

S A

frica

Turk

ey

Ukr

aine

Egy

pt

Kuw

ait

Om

an

Qat

ar

Sau

di

UA

E

Arg

entin

a

Bra

zil

Chi

le

Col

ombi

a

Mex

ico

Per

u

Chi

na

Indi

a

Indo

nesi

aM

alay

sia

Phi

lippi

nes

S K

orea

Taiw

an

Thai

land

Mortgage penetration as % GDP

A lot of growth potential

Cars per 1000 people Job creation

0

100

200

300

400

500

600

India China Mexico EasternEurope

South Korea USA Japan WesternEurope

Cars per 1000 People

-500.000

0

500.000

1.000.000

1.500.000

2.000.000

2.500.000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Ann

ual n

et jo

b cr

eatio

n

Source: Ministry of Labor, Brazil; data as of 19 January 2011. Morgan Stanley, Haver as of 28 October 2010

Source: Credit Suisse, Datastream, March 2010

A lot of potential for domestic consumption

Huge investments planned (Programa de acelaracao do crescimento)

Private sector involvement

Potential output growth

The plant bottle

22.5% of the bottle’s PET is plant- based, made from brazilian ethanolCoca Cola aims to sell by end 2011more than 5 billion bottles in 20countries

FEB- P.A. De Smedt

44.18

50.72

51.26 51.1049.69

31.98

15.57

28.07

17.3416.3920.62

32.41

38.81

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

Países membros do G7

Países membros do E7

SHARE OF G-7 AND E-7 (PPP) IN THE GLOBAL GDP

G7 countries

E7 countries

Questions