BRICS to change world economy

The BRICS countries’ leaders are preparing for their annual meeting. These countries make up 42 percent of the world’s population and a quarter of its landmass. They are also responsible for 20 percent of the Global GDP and
own a whopping 75 percent of the foreign reserve worldwide. In these tough
times for world economics these countries are trying to find a solution for the situation. RT’s Priya Sridhar gives us a sneak peak of the summit from India.

Source: RTAmerica

Coca-Cola To Invest BRL14 Billion In Brazil Through 2016

Coca-Cola Co. (KO) is planning to invest 14 billion Brazilian reais ($7.6 billion) in its operations in Brazil through 2016, the local newspaper Valor Economico reported in its Thursday edition.

The country is scheduled to host the soccer World Cup in 2014 and the Olympic Games in 2016.

Previously, the company was planning to invest that amount through 2020, said the company’s communication director, Marco Simoes, according to the newspaper.

Company officials weren’t immediately reached for comment earlier Thursday.

Coca-Cola plans to build three new factories in Brazil. Currently, it has 47 factories here.

Source: Smart Money

Is Brazil More Than Oil & Minerals?

For the layman, the first thoughts that come to mind regarding Brazil are Carnaval in Rio de Janeiro, FIFA World Cup soccer champions, and the Amazon.  For investors, the first thoughts are Petrobras (PBR) and its vast oil riches off the Rio coastline, and Vale (VALE), and its expanding iron ore operations, including some in the Amazon.

But for investors who watch Brazil closely, they see companies like Embraer (ERJ), the third largest jet maker in the world.  A country can’t build a successful aviation company without having some technological know-how and a serious dose of home grown innovation. Little do most Americans know, that on their short flights from Boston to New York, they were most likely flying an Embraer jet.

Taken deeper, Brazil is a tech savvy.  It’s elections are all digitized.  People can sit at home and watch national election data unfold straight from a government’s website, without watching the evening news.  Technology at Brazilian banks is some of the most innovative around, not only for security matters, but also for the myriad of ways that Brazilians have grown accustomed to paying bills — through checks and money orders and bank receipts — all facilitated online. Brazilian computer engineers have come up with proprietary tech to compliment their society and their business.

So, yes, Brazil is more than just oil and minerals.  But will their tech talents ever translate into a company like India’s Infosys? Or Accenture?

When it comes to IT companies, most people think of corporate India as the hub, with its brand name multinationals.  Few people would know that Brazil ranks seventh in the world’s IT market to India’s 9th place ranking, according to IDC in Framingham, Mass.  After China, it is the second largest emerging market for IT spending.  Brazil even beats Russia, home to Nobel prize winning scientists, cosmonauts and Kaspersky Lab, the third largest consumer cyber security company in the market.

All the big IT players in Brazil.  Industry group Brasscom is hoping to push Brazil’s ranking to No. 5 and make it one of the three global hubs for IT research and development.

It won’t be easy.  The Brazilian currency is a lot stronger than IT competing nations like China, the third largest IT market after the U.S. and Japan.  The stronger currency makes Brazil a less attractive place to invest in R&D, says Sergio Pessoa, Market Development Director of Brasscom.

Then there’s the high skill labor issue.  According to the Labor Ministry, Brazil is not graduating engineers fast enough in the computer sciences.  Those that are in the market now do not have some of the required skills. There’s not a severe labor shortage in the market for IT, but if graduation rates don’t improve for computer engineers, there will be.

Paulo Nascimento, a researcher at Brazil’s Research Institute for Applied Economics (IPEA), says a lack of highly skilled labor is not as bad as it seems at the moment. He notes that 38% of students who graduated with advanced degrees in engineering are working as engineers, and if the economy grows at a steady clip of 3.5%, that will rise to around 44%. “When you hit 70% of those with engineering degrees working in the field, then it becomes a supply issue,” he says. “But that kind of level would be above the worldwide norm.”

Meanwhile, the government is doing its part by reducing payroll taxes to help the sector grow.  There is political support for the sector in Brasilia, the nation’s capital.

Source: Forbes

Brazil CSN Q4 profit jumps 81 pct on ore, steel sales

Brazilian steelmaker CSN reported an 81 percent annual jump in net profit for the fourth quarter, as stronger-than-expected sales of iron ore and flat steel products offset a surge in expenses.

The Sao Paulo-based company posted a net profit of 817 million reais ($450 million) for the fourth quarter compared with 450 million reais in the same period of 2010. But that was a 26 percent drop from 1.097 billion reais in the third quarter.

The company was expected to post net profit of 733 million reais in the fourth quarter, according to the average estimate of seven analysts in a Reuters poll.

Despite the forecast-beating results, operating profit margins in key business segments narrowed, sales expenses soared and net debt climbed. Earnings at its mining unit, CSN’s most profitable, came in at the lowest level for the year.

Brazil’s steel industry is passing through its worst crisis in years, hurt by rising costs of raw materials and soft demand in Latin America’s largest economy.

Net revenue rose 21 percent on an annual basis to 4.167 billion reais, also beating the 4.079 billion reais estimate in the poll, driven by higher iron ore and flat steel sales, CSN said. But it slid 2 percent from the prior quarter, reflecting lower iron ore prices and a poorer sales mix for steel products in the company’s home market.

Sales of iron ore surged 25 percent year-on-year to 1.196 million tonnes. Proceeds from steel operations accounted for 56 percent of total revenue, and mining revenue about 39 percent.

Sales expenses surged 144 percent annually as production and output of iron ore and steel rose. They also more than doubled from the third quarter of 2011 as iron ore freight costs climbed.

Earnings before interest, tax, depreciation and amortization (EBITDA), a gauge of cash generation, rose 1 percent to 1.463 billion reais from a year earlier but fell 14 percent from the third quarter and missed a forecast for 1.504 billion reais. CSN said that a poorer sales mix and rising expenses pushed EBITDA lower.

The EBITDA margin, or relation between operating profit and total sales, fell to 35 percent of revenue in the fourth quarter from 42 percent a year earlier and 40 percent in the third quarter.

Source: Reuters

A View from Brazil: Alberto Ramos, Goldman Sachs


Alberto Ramos, co-head of Latin America research in our Global Investment Research Division, discusses Brazil’s economic progress over the past decade and what its future may hold.

Watch here.

Brazil Lags Behind Its BRICS Rivals

Two numbers sent a jolt through the government of Brazilian President Dilma Rousseff in March. The first was the gross domestic product figure for 2011: Brazil GDP grew only 2.7 percent last year, vs. 7.5 percent in 2010. That sorry statistic made Brazil the laggard among the BRICS nations (Brazil, Russia, India, China, and South Africa). The second number hurt, too: January industrial output contracted 3.4 percent from a year earlier. Rousseff’s strategy—to leverage Brazil’s strength to build up a world-class manufacturing power—is threatened.

Rousseff’s impulse is to protect Brazilian industry. In that respect she hasn’t strayed far from her days as a graduate student studying developmental economics with some of Brazil’s most left-wing professors. Many of Brazil’s companies from the textiles, shoe, electronics, and other industries are urging her on, as she’s imposed tariffs on shoes, chemicals, textiles, and even Barbie dolls. Under pressure from automakers, which saw imports jump 30 percent last year, the government renegotiated a trade deal in March that caps car imports from Mexico for three years.

Rousseff has also been quick to condemn the loose monetary policy of the U.S. and Europe, which, she said in a speech in Germany on March 5, forced a “monetary tsunami” on Brazil. European and U.S. investors turned off by low rates at home have been buying higher-yielding Brazilian bonds. The influx of foreign capital has strengthened the real, which reached a 12-year high against the dollar last year. In recent weeks, Finance Minister Guido Mantega has threatened to unleash an “infinite arsenal” of measures against investors driving up the real. That blast has weakened the currency somewhat, but it remains much stronger than during most of the administration of Luíz Inácio Lula da Silva.

Strong currencies make exports more expensive. Brazil’s trade deficit in manufactured goods was $92.5 billion last year. Strong currencies also make it cheaper to buy foreign goods: One in five industrial products consumed in Brazil was imported in 2011, according to the National Industry Confederation.

While the currency is having an impact, Brazilians in industry say the problem is much bigger. Rousseff’s moves don’t address inefficiencies in the world’s sixth-largest economy, says José Augusto de Castro, vice president of the Brazilian Foreign Trade Association. He argues that the government has used the currency as a scapegoat to hide the lack of progress in fixing infrastructure. The government also must reduce the second-highest interest rate (9.75 percent) in the Group of Twenty nations and relieve a tax burden that totals 34 percent of GDP. “It’s no good blaming others. We’re at fault as well,” he says.

Inflation has also been pernicious, driving up the costs of energy, raw materials, and wages. Operating costs in Brazil are now higher than in many developed countries, says José Velloso, vice president of the association of machine builders. “If you were to take a factory by helicopter from Germany to Brazil, your costs would jump 48 percent as soon as you touched down,” says Velloso. “Those of us producing in Brazil are doomed not to be competitive,” he adds. Bank loans at double-digit rates are much more expensive than in Germany, and steel costs 30 percent more in Brazil, says Velloso. Because of wage inflation, a treasury director at a multinational company in Sao Paulo earns 285,000 reais, compared with 185,OOO in New York and 249,000 in Shanghai.

The government has granted tax credits and low-cost loans to boost domestic production and promote research in such areas as digital tablets, automobiles, and offshore oil production. It also intends to cut payroll taxes in up to five industries to push down labor costs. Julio Gomes, economist at the industry-funded think tank Iedi, thinks manufacturers will still struggle. In a worst-case scenario, Brazil’s industry could lose another 20 percent share of its market and 1 million jobs, Gomes says.

The decline of its industry could force Brazil to reassess its strengths—and that could be a good thing, says Alberto Ramos, chief Latin America economist atGoldman Sachs (GS). “What is the comparative advantage of Brazil? I doubt it is industry. It’s services, agribusiness, and commodities,” says Ramos. “The economy needs to redirect resources to where it’s competitive. That’s actually a healthy process.”

Source: Business Work