Brazil is a very attractive emerging market for many of our clients. It is the second largest economy in the Western hemisphere – the largest in Latin America. The country has one of the fastest-growing economies in the world, and is home to many promising businesses. Our coverage – using our unique Total Analysis model – ensures that our clients make well-informed investment decisions in Brazil. Our teams keep them informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. We also provide in-depth analysis on 24 of Brazil's most important industries. Our winning combination of interactive data and forecasting, alongside our risk-assessed and results-proven analysis, will make sure that you, as one of our clients, are always ahead of the game in Brazil.
Brazil Country Risk
Over the long-term, Brazil will only experience modest levels of growth as structural headwinds limit any quick economic solutions to the challenges faced from falling global commodity prices. Growth will only return to the economy following a two consecutive years in recession in both 2015 and 2016.
The Banco Central do Brasil will back down from its promise to cut rates in 2016 and will instead hike the benchmark Selic rate by 150 basis points in 2016. Inflation has continued to accelerate despite the bank's attempts to stymie price increases through over 700 basis points of rate hikes in the past two years. Capital has continued to flow out of Brazil, putting depreciatory pressures on the real, feeding through to rising import costs.
The widespread public protests that took place in June 2013...
Brazil Operational Risk Coverage (9)
Brazil Operational Risk
Brazil Operational Risk
BMI View: As one of the largest economies in the world, with considerable opportunities for development in key sectors, Brazil holds huge appeal to foreign investors. However, the country's economic potential continues to be constrained by a difficult operating environment, characterised by complex regulatory and legal systems, high levels of government intervention in the economy, an inadequate logistics network, and exorbitant labour costs. In addition, investor sentiment is dented by the poor rule of law, with criminal gangs remaining prevalent in many areas and corruption scandals frequently rocking the establishment. Brazil's huge investment potential means that many companies are willing to overcome these substantial obstacles, but structural economic and legal reforms will be necessary before the country is able to offer a stable, welcoming and open operating environment. Consequently, Brazil is...
Brazil Crime & Security
Brazil Crime & Security
BMI View: The most significant security risk facing foreign workers and businesses in Brazil is its high crime rate, particularly with regard to violent crime and cyberattacks. Indeed, while the rates of theft, assault and homicide have remained steady in the last few years, they still remain among the highest in Latin America. Powerful criminal organisations conduct activities in all regions, including affluent areas, although the urban centres of Rio de Janeiro and Sao Paulo are a major focus of security forces' efforts and have seen some reduction in criminal activity. The transition of criminal gangs into the digital sphere is also becoming one of the country's most pertinent security risks. In contrast, the threat of terrorism or interstate conflict disrupting business activity in Brazil is negligible, due to the lack of domestic insurgent groups, limited...
Brazil Labour Market
Brazil Labour Market
BMI View: The Brazilian labour force possesses many strengths, including a relatively large pool of workers with degrees and rising numbers of university graduates from technical or science programmes. The large size and urbanised nature of the labour force also results in a wide pool of labour available for recruitment. However, hiring Brazilian workers entails significant costs, even for low-skilled positions, due to mandatory minimum wages and labour taxes, while demand for highly skilled staff further pushes up the cost of employment. Other major drawbacks...
BMI View: Brazil's economic growth remains constrained by the lack of development in its transport and utilities infrastructure, increasing operational risks and adding costs to supply chains. The utilities sector offers competitive prices, but soaring demand means it is overstretched, and droughts have led to frequent water and power shortages, compromising business activities in Brazil's main economic sectors, agriculture and mining. In addition, trade flows are reliant on a poor quality and congested road network, which is not able to meet supply chain needs, increasing the risk of delays. Although investment across utilities and transport infrastructure is underway, the burden placed by economic and population growth will ensure that the risk of disruption to...
Brazil Trade & Investment
Brazil Trade & Investment
BMI View: Brazil offers numerous opportunities for foreign investors, with abundant natural resources and a growing middle class consumer base among the main attractions of the country's vibrant economy. However, significant bureaucracy, government intervention in the form of onerous taxes, lingering corruption issues, and an overburdened judiciary present obstacles to businesses operating in the country. In particular, the huge corruption scandal engulfing state-owned oil company Petrobras has plunged the economy into recession and heightened investor caution towards Brazil over the short term. Brazil therefore ranks 20th out of 42 Latin American states in the overall BMI...
Brazil Industry Coverage (22)
BMI View: We believe that grains production growth over the next five years will slow relative to the preceding five. In particular, corn production will lose acreage to soybean and see negative growth in 2015/16. Soybean production will outpace that of corn, as lower production costs for soybean relative to corn will make the commodity more attractive to grow. However, we see limited growth out to 2018/19 given the scarcity of area available for expansion as well as high import costs for fertilisers. We also see strong growth in the livestock and dairy sectors, as these will continue to benefit from Russia's ban on imports of US products, which has been extended to August 2016. We hold a more positive view on the sugar industry now than we have held in the past, due to reforms in the ethanol sector and the significant...
BMI View: Brazil's new vehicle market will return to growth in 2016 but will remain at historically low volumes. Upward pricing pressures, tightening lines of credit, consumer and business deleveraging and general economic stagnation will continue to drag on market performance.
|Passenger Car and Light Commercial Vehicle Sales|
|f = BMI forecast. Source: National Association of Motor Vehicle Manufacturers (Anfavea), BMI|
Brazil Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
Brazil Consumer Electronics
BMI View: Brazilian consumer electronics spending declined sharply in 2015 due to recession and depreciation, with a double-digit decline even in local currency terms. Spending is forecast to contract again in 2016 as recession and further depreciation erode purchasing power, but conditions are expected to be slightly less hostile than in 2015. Under our core scenario, the market is however forecast to return to growth from 2017, as wider economic sentiment improves with an added boost from currency appreciation, which we believe will unlock deferred purchases from 2015 and 2016. The improvement will be most pronounced in the PC and AV markets where demand was worst affected by economic conditions but it will still be handset sales growth that outperforms 2016-2019 as a result of the...
Defence & Security
Brazil Defence & Security
BMI View: The Brazilian defence sector is set to continue to be one of the most active and open for foreign players, both with regards to imported goods from more established countries, and its relatively unfettered export market. In addition, the government's emphasis on creating a self-sufficient defence sector over the longer term is resulting in an ever-increasing number of partnerships and joint ventures on various development programmes between Brazilian companies and their foreign peers.
At present, the domestic defence sector is comparatively well developed, particularly with regards to small firearms, ammunition and aerospace products, and relatively diverse. However, the armed forces and police force lack advanced maritime, surveillance and rockets/missile capabilities and are keen to expand these areas. This is not only resulting in a ramping up of imports relating to these segments, (...
Food & Drink
Brazil Food & Drink
BMI View: The impact of the weakening macroeconomic environment and low consumer confidence is beginning to be felt by consumer goods businesses in the food and drink sector. Premium category products in particular are seeing a slowdown in sales, as more consumers opt for discount brands. This is likely to be the case over 2016 as well, as we see little scope for a rebound. The positive for the market will be an influx of high-spending tourists in August-September 2016 for the Rio Olympic Games.
A less favourable external environment (in light of an ongoing slowdown in Chinese growth), a poor domestic business environment and a lack of export competitiveness all pose significant headwinds to growth. Although we previously argued that...
Brazil Freight Transport
BMI View: We expect steady if lacklustre growth in Brazil's freight sector in the coming years, with tepid increases in mining and agricultural output ensuring demand remains elevated. We caution that a more robust expansion will be prevented by a slowdown in the consumer sector, weak global commodities and a lacklustre external picture. As a result, we expect the road and rail sector will display the largest gains.
Brazil's economy will remain in recession in 2016 after dipping below zero in 2015, for the first time in seven years. We forecast real GDP to contract by -0.8% in 2016 following a contraction of -2.7% in 2015. Major headwinds to private consumption and a fixed investment via a slow resolution of the corruption scandal at national oil company Petrobras will be the primary driver of the slowdown, with unemployment...
Brazil Information Technology
BMI View: As was the case for many regional markets, Brazilian IT demand was hurt by US dollar appreciation in 2015, but the decline in Brazil was particularly severe due to the negative impact of the commodity downturn and domestic political uncertainty. We believe the IT market contracted 16% in 2015 - and with recession forecast to extend into 2016 we expect the IT market to contract again, but at a much slower rate. After this negative shock we expect IT spending to resume on a growth trajectory from 2017 as the economy recovers and the real appreciates, supporting a CAGR of 5.1% for 2016-2019 to total IT spending of BRL109.2bn in 2019. We highlight opportunities in the enterprise markets for cost efficiency and flexibility generating solutions in the short-term during hte period of economic uncertainty - and...
BMI View: Brazil's construction sector will remain in recession in 2016 as the direct and indirect implications of Operation Lava Jato weigh on the industry. With contracting effectively halted and existing projects in a state of flux whilst the investigation is ongoing, construction activity has stalled. Indirectly, with the scandal having fed through to major economic weakness and political turmoil, consumer related construction is also slowing.
Latest Updates And Structural Trends
We are maintaining our forecasts for Brazil's construction sector to remain in recession in 2016 following an estimated contraction of 7.6% y-o-y in 2015. Quarterly data supports our outlook, with -8.5% growth recorded in the first nine months of 2015. With worse to come in...
BMI View : Brazil remains an insurance market that is both large in absolute terms and relatively fast growing. Both of the two major segments should sustain solid mid-single digit growth through the forecast period. In the larger non-life segment, the key driver of the expansion is the rise in volumes and prices of health insurance. In the life segment, the main opportunity is for the insurers to increase sales of their various offerings to existing clients.
Brazil Medical Devices
BMI Industry View: The relatively low density of the medical device market means Brazil will continue to offer considerable potential for expansion, despite a contracting economy and a depreciating real, which is making imported products more expensive. We forecast that the import share, which is already lower than in other parts of Latin America, will fall still further over the longer term given the current drive to expand domestic production into new product areas through technology transfers. The recent decision to grant tax breaks to domestically-produced devices will provide an...
BMI View: Brazil's mining industry will be supported by solid production growth in the country's iron ore sector over the next few years. Despite this, gold, nickel and tin production growth will slow due to continued price weakness.
Oil & Gas
Brazil Oil & Gas
BMI View: Brazil's vast pre-salt reserves suggest substantial growth potential over the long term, underpinning our bullish upstream view that crude, natural gas, and other liquids output will rise throughout our forecast period. However, production growth will be limited by lower oil prices and decreased capex funds. As such, we maintain a relatively modest outlook, reflecting our view that the above-ground environment remains a considerable obstacle to the upstream and downstream segments due to weakening project economics, waning investor confidence, and a burdensome regulatory environment.
BMI View: The Brazilian petrochemicals industry is faced with heightened risk amid exchange rate volatility and a slumping domestic market, on top of the worsening business environment which is seeing chemicals industry incentives withdraw, taxes hiked and input costs soar. While export growth helped limit the effects of a deteriorating domestic market in 2015, there is uncertainty over whether the sector will have sufficient access to competitively priced feedstock going forward, even as the recession is set to continue into 2016.
The petrochemicals market was affected by recessionary forces in 2015 with a negative performance across the polymer slate. According to the Brazilian Chemical Industry Association (Abiquim), domestic demand for resins fell 4.7% y-o-y in 9M15. Domestic sales fell by 1.5% y-o-y...
Pharmaceuticals & Healthcare
Brazil Pharmaceuticals & Healthcare
BMI View: Brazil's pharmaceutical market will become increasingly unattractive to pharmaceutical companies due to the growing fiscal tightening in the country. Multinational drugmakers will face the risk of revenue decreases, due to increasing generic competition and more intensified cost-containment measurements.
Headline Expenditure Projections
Pharmaceuticals: BRL62.0bn (USD26.4bn) in 2014 to BRL65.8bn (USD19.8bn) in 2015; +6.1% in local currency terms and -25.0% in US dollar terms. Forecast in has been revised down from Q415....
BMI View: Brazil will continue to offer numerous opportunities for power sector investors, despite a worsening of the country's economic recession. We hold a particularly positive outlook for the non-hydro renewables sector and the development of smart grids, underpinned by growing investor interest in the market. That said, high interest rates and continued currency weakness, along with a corruption investigation into public energy companies, will maintain the power sector's growth rate below potential.
Brazil Real Estate
BMI View: A redressing of the balance between supply and demand is characterising the real estate markets in Brazil in 2016, as large amounts of developments completed over the past years have resulted in over-supply. Therefore despite respectable demand, we do not see rental rates increasing over the coming year. We forecast transactional activity to pick up in 2017, off the back of the Olympic Year, which should see the nation's profile raise in time for new economic reform policy to be implemented, making Brazil a more attractive place in which to both invest and operate from.
With the economy headed towards recession, Brazil's property markets are under considerable pressure. We expect a rebound in the economy and the real estate sector to take hold from 2017 onwards. When the...
BMI View : As the wider economic downturn worsens, we expect growth in non-hydro renewables to decrease below previously forecast levels for 2015 and 2016. Although auctions in H215 showed stable interest, increasing obstacles such as high interest rates and a weakened currency have led us to further revise our already conservative overall estimates. Solar power has, nevertheless, experienced another upward revision for our long-run outlook; we now expect the sector to cross the 1GW capacity mark in 2017 - instead of...
BMI View: A weakening labour market, elevated inflation and tightening credit conditions will to continue weigh on Brazilian retail sales over 2016, with the non-essentials segment suffering in particular. That said, the country remains the largest market in Latin America and we expect a more pronounced recovery in consumer sentiment from 2017 onwards.
Brazil's economy is poised to deteriorate even further in the coming months on the back of additional job losses and elevated inflation in 2016. Labour market rigidity had long precluded rises in unemployment; even as the economy began to weaken in 2014, unemployment remained below 5.0%. Since then, we have seen a considerable deterioration, with unemployment rising to nearly 8.0% as of October 2015. Moreover, the public sector has...
|Increasing Spending Power Will Boost Demand For Data and 3G/4G Growth|
|3G Phone Subscribers 2010-2019|
|f = BMI forecast. Source: BMI, Operators, Anatel|
BMI View: We expect to see a number of wide ranging acquisitions within the Brazilian telecommunications sector leading to further consolidation in 2016. The three largest operators: Oi, Claro and Telefonica's Vivo are reportedly considering a bid for TIM. BMI believes that the Brazilian mobile and fixed markets will be expanding and spectrum auctions will add growth to the 3G...
BMI View: We expect the tourism industry to perform well in 2016, as international and domestic visitors flock to Rio de Janeiro for the Olympic Games. However, post-2016 we expect the industry to stagnate, led by a slowdown in the hotels sector in response to lower demand following the sporting events. In addition, economic weakness in Brazil will discourage domestic investment in the sector, especially following high levels of investment and development in the run-up to the 2014-2016 period.
BMI View: We have extensively updated and expanded our Brazil water forecasts, including those for non-mains, and agricultural consumption, water losses and wastewater treatment methods. Overall, we believe that the pressures stemming from the ongoing drought, in conjunction with rising industrial and agricultural water demand, will stimulate heavy investment into water reuse, wastewater treatment facilities and the expansion and improvement of the distribution and collection networks.
Irrigation water areas are rising, albeit gradually, from 4.5mn hectares in 2006, to 5.4mn hectares in 2008, and 5.8mn hectares in 2012. We now forecast agricultural water consumption to see steady growth over the coming years...