Webinar ITI Brazil - Investing in Brazil in a time of change
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Transcript of Webinar ITI Brazil - Investing in Brazil in a time of change
1© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
Mauricio Endo
October 2016
kpmg
UKTI WebinarInvesting in Brazil in a time of change
2© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
■Largest country in South America (7th largest country in the world): 8.5 million km2
■Population (2015): 206 million people (87.3% urban area / 12.7% rural area)
■GDP (2015): USD 1.8 trillion
■Currency: Real (BRL/USD = 3.30 in Sept 15th,2016)
■26 States, 1 Federal District and 5,565 Municipalities
■Brazilian economy experienced accelerated growth untill 2013 largely driven by increased demand from China, coupled with a boom in commodities prices, and internal consumer market growth
■ In the last couple of years, Brazilian economy stagnated due to the fall in global commodities prices, driven by a slowdown in Chinese demand, political turmoil and the rise of the national debt
■The general consensus anticipates a return to growth from 2017 on
Source: (1) Demografic sensus for 2016, IBGE (2) Oxford Economics, July, 2016. (3) Central Bank of Brazil.
Brazil is the largest economy in South America with a GDP of USD 1.8 trillion and a population of 206 million people
Brazil overview
SOUTH EAST86 million55% of GDP
NORTH EAST57 million14¨of GDP.
NORTH18 million
6% of GDP
MIDWEST16 million
9% of GDP
SOUTH29 million
16% of GDP
GDP and population by region (2015)
3© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
Brazil is the seventh largest economy in the world
17.929 16.549
7.328
4.457 3.541 3.426 2.946 2.622 2.462 2.455
China UnitedStates
India Japan Germany Russia Brazil Indonesia UnitedKingdom
France World
0.9CAGR(2015 – 2020)
Top 10 countries GDP (US$ bn at PPP, 2015)
Source: Oxford Economics, July, 2016.
GDP by country region
10.6GDP per capita (USD ‘000)
2.2
52.1
6.0
6.7
7.0
1.7
0.3
45.0
1.5
45.3
1.0
11.9
1.6
41.5
1.6
42.2
3.5
10.3
5.4
3.9
103,820
% of GDPCAGR
(2010 – 2013)
North 6% 4.3%
Northeast 14% 3.3%
Central-west 9% 4.3%
Southeast 55% 2.4%
South 16% 3.3%
Brazil overview
4© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
Brazil has a strong consumer market and is expected to be the 8th largest in the world by 2020
Forecast
4,7
3,4
2,21,7 1,7 1,7 1,5 1,3 1,1
12,8
Note: (a) Almacenes Exito acquired 18.8% stake in Companhia Brasileira de Distribuicao. (b) The Hershey Company, the listed US-based manufacturer of confectionery, chocolates and snack products has agreed to acquire the remaining 49% stake Hershey do Brasil Ltda.
Source: Oxford Economics, database 2016
Country’s consumer market (USD trillion), 2020Brazilian personal disposable income (USD’000) and unemployment rate (%)
1,2041,133
1,214
1,6411,701 14%
7%8%
20132011 20162015
12%
9%
2018
12%1,346
2020
Disposable incomeUnemployment rate
1Brazil overview – Consumer context
5© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
Further supporting the economic recovery is the healthy demographics of Brazil
10.4%
63.6%
23.8%
2.2%
Lending Interest Rate, Average, % Average household personal disposable income (US$’000)
Average Wages per hour (US$)
Total Household Income from all Sources (US$/month)
Breakdown of Income Groups in Brazil (Percentage of total households)
Class “A”
Class “B”
Class “C”
Class “D”Class “E”
3.670
2.202
4402940
Note: (a) All historical data and projections are in real terms and aligned to the overall Global macroeconomic trend scenario described by both the IMF and Oxford Economics Database; Source: (1) EIU; (2) IMF; (3) Central Bank; (4) Oxford Economics Global Database (September 2015); (5) The Economist Intelligence Database Unit; (6) KPMG interview program; (7) IBGE; (8) Valor Econômico
2015
Forecast Forecast Forecast
Evolution of social classes, in millions and percentage of population:
Brazil overview – Social context
Class “A”
Class “B”
Class “C”
Class “D”Class “E”
6© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
Despite the challenging macroeconomic context, the strong FDI numbers show a bullish standpoint from international investors in Brazil
Source: Institute of Applied Economic Research (Ipea), accessed July 2016.
18,817,1
9,3
18,615,0 15,4
26,130,1
19,9
75,0
84,7
64,1
30,8
57,9 56,4
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
FDI (USD billion 2001 – 2015)
Brazil overview – Foreign investments
7© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
M&A volumes have remained high despite the economy turmoil, historically, cross-border transactions represent larger share than domestic deals
161 168130
101123
146 143116 100
150183
351379
219
333
410
342365
331
269
167
204221
208
230 194
84 114
199
213
290
348284
235
393
407 474431
487
504
328
372351
309
353 340
227 230
299
363
473
699663
454
726
817 816796
818
773
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Domestic Cross Border
Number of M&A transactions 1996 - 2015)
Crisis in Argentina and elections
Financial Crisis
Russian Crisis
Source: Merger & Acquisitions Research 2016 – 1st Semester: Mirror of transactions undertaken in Brazil, KPMG.
Brazil overview - Transctions
© 2016 KPMG Consultoria Ltda., a Brazilian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Brazil. The KPMG name andlogo are registered trademarks or trademarks of KPMG International.
8
New government (President Michel Temer), its new team, reforms and focus on infrastructure
Source: Eurasia Group
Reforms Description
Pension A priority within the team. They will at a minimum introduce a retirement age, but also talking about delinking minimum wage from inflation.
Ceiling on Spending
Will establish a ceiling on spending that will tackle earmarked provisions of health and education, but not tackle social security.
Tax Proposals to unify state based value added tax ICMS, and federal taxes, but that will come only at the end of the year.
Labor More flexibility of labor code, but not constitutional reforms; government will piggy back on a bill in congress.
Microeconomicreforms
Oil reform highly likely to get approved and also telecommunications reform. Logistics infrastructure will have an upside potential.
New government understands he has a very narrow window of opportunity for reforms
Political survival strategy predicated on boosting confidence in private sector
A very credible economic team
Ceiling will come quicker than pension
Microeconomic reforms will move in parallel
A market friendly economic team
A sequential strategy on reforms
Energy, logistics to benefit
Pre-salt reform (2H2016)
SOE reform (2H2016)
State pension reform (2H 2016)
Doubling infrastructure investment (2017 onwards)
Commercial opening under Minister Serra
Telecom overhaul (2017)
Mining code (2017)
Microeconomic agenda will move faster
Brazil overview – New Government
9© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
Brazil economy is anticipated to return to growth from 2017
-4%
-2%
0%
2%
4%
6%
8%
00 01 03 0402 05 1312111009080706 18
EIU
16 1714
BACEN
2015 19
Oxford
Sources: Economist Intelligence Unit (EIU); Oxford 2015; Banco Central do Brasil, 2015
Brazil GDP year over year growth (real)
EIU, Oxford Econimics and BACEN (Brazilian Central Bank) forecasts anticipate a return to growth from 2017 on
Real GDP has been declining since 2014 due to a recession that triggered by the decline in commodity prices and political turmoil.
Brazil’s economy overall grew at a relatively stable rate until 2013 (except 2009) following growth in global commodity markets.
Forecast
Brazil overview – Economic context
10© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
Macroeconomic indicators support economic analysts estimate of an imminent recovery in 2017 – 2018
Interest Rate Evolution, SELIC, % Inflation, CPI, %
Note: (a) All historical data and projections are in real terms and aligned to the overall Global macroeconomic trend scenario described by both the IMF and Oxford Economics Database; Source: (1) EIU; (2) IMF; (3) Central Bank; (4) Oxford Economics Global Database (September 2015); (5) The Economist Intelligence Database Unit; (6) KPMG interview program; (7) IBGE; (8) Valor Econômico
ForecastForecast
Brazil overview – Economic context
11© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
Brazil has been investing around 2% to 2.5% of its GDP in infrastructure, however the minimum necessary for sustainable growth is 5%
*Estimate
3,1%
2,0%1,4%
1,8% 2,0% 2,0% 1,9%2,5% 2,5% 2,4% 2,1% 2,3% 2,4% 2,4%
Investment in Infrastructure in Brazil (% GDP)
13,4%
10,3%
7,3%5,1% 4,8% 4,2%
2,2%
China (2010) Vietnam (2009) China (2003) Chile (2008-11) India (2009-10) Peru (2008-11) Brazil (2008-13)
Investment in Infrastructure (% GDP)
Minimum necessary for sustainable growth is 5%
Source: IBGE; Frischtak, 2012 “Brasil e China: Perspectivas”
Brazil overview - Infrastructure
12© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
One of the first actions of President Michel Temer as interim government was the announcement of the Provisional Measure 727/16, establishing the Investment Partnership Program (PPI –Programa de Parcerias de Investimento), with the objective to incentivize and increase private investment through Privatization, Concessions and PPPs (Public-Private Partnerships).
New government’s Investment Partnership Program (PPI)
Brazil overview – PPI
PPI key benefits:
Governance
Executive Board of PPI: led by the President and composed by the Secretary of PPI, Ministry of CivilHouse, Ministry of Finance, Ministry of Planning, Ministry of Transportation, Ministry of Energy andMining, Ministry of Environment and President of The Brazilian Development Bank (BNDES)
Secretary of PPI subordinated directly to the President
One Stop Shop for investors - the Secretary of PPI will have a dedicated team of 30 specialists that willaccumulate technical information of all projects in the program and be a single interface with the private sectorinvestors
Technical support - Company Planning and Logistics (EPL – Empesa de Planejamento e Logistica), with 120engineers, will be the technical supporting body to the Secretary of PPI.
Funding - BNDES will create FAEP (Fundo de Apoio à Estruturação de Parcerias), a fund with an initial term of10 yeras, renewable for similar periods, with the objective to contract services to structure projects for thepartnerships (privatizations, concessions and PPP) within PPI.
13© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
The information contained herein is of a general nature and is not intended to address the circumstances of any particularindividual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that suchinformation is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on suchinformation without appropriate professional advice after a thorough examination of the particular situation.
© 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas à KPMG International Cooperative (“KPMG International”), uma entidade suíça. Todos os direitos reservados. Impresso no Brasil.
Mauricio EndoPartner, Head of Government & Infrastructure in Brazil and Latin AmericaKPMG in Brazil+55 11 3940 [email protected]