Video: Brazil’s bright outlook

By Sue Herera Anchor
updated 4/18/2005 4:19:33 PM ET 2005-04-18T20:19:33

Do you think you know Brazil? You might know the country’s beautiful beaches, its famous night life and captivating music, but there’s another Brazil you need to know about. It’s a Brazil with a growing economy — a South American economic giant into which investors are pouring money.

It wasn’t so long ago that Wall Street associated Brazil with little more than volatility; The country was considered a chaotic place drowning in hyperinflation. But increasingly, investors both large and small are thinking of Brazil as a tasty investment opportunity.

After generations of economic instability, Brazil is finally enjoying a period of calm, steady growth. The nation’s economy grew at a solid 5 percent annual rate in 2004, but the country could achieve stronger growth in the future says Goldman Sachs’ emerging markets economic research chief Paulo Leme.

“Brazil could grow at much faster rates … GDP in the region could grow to $1 trillion dollars, and above that,” Leme said.

In fact, Brazil is growing so fast that Wall Street now counts it in the same league as other strong, emerging markets like Russia, India and China. And some money managers even have a shorthand term for these four economic powers — “BRIC.”

Some very familiar U.S. companies with a footprint in Brazil are also befitting from the nation’s growth, having discovered that the country is a good place to invest.

Take automaker Ford, for example.

New cars are rolling of the company’s assembly line in Sao Paulo faster than ever these days, but Ford’s Brazilian operations lost money for eight years before making a profit last year, thanks to an efficient new factory in the country’s northeast and strong demand for trucks.

Indeed, Brazil is becoming a vital market for a wide variety of corporate heavy-hitters, like Microsoft, Sun Microsystems, Caterpillar and McDonald’s.

(MSNBC is a Microsoft-NBC joint venture.)

In total, U.S. companies have over $30 billion dollars invested in the Brazilian economy says Jeffrey Schott, an analyst at the Institute for International Economics. And the Brazil-U.S. Business Council says that 197 members of the U.S. Fortune 500 have a presence in Brazil, and that footprint is growing.

Meanwhile, in Brazil a formidable foursome of public companies is helping to drive the nation’s economic momentum: Energy producer Petrobras; Wireless provider Telesp Celular; Mining giant CVRD; And Embraer, a manufacturer of small and medium sized commercial gets.

CVRD says its fourth quarter profits more than doubled to $721 million in 2004, and experts like Daniel McQuoid of Capitania Advisors say there’s still more room for growth: “Brazil has substantial reserves of iron ore,” he said. “It stands to continue to export for a long, long time.”

Observers also say that, like many Brazilian companies, CVRD is still shaking off the inefficiencies of its state-owned past, which could mean even more productivity gains.

It’s the same story at Embraer. The jet manufacturer isn’t immune to the problems now plaguing the airline industry, but it still has a healthy order book says McQuoid.

“They’re not dependent on any specific region of the world,” said McQuoid. “They’re present globally and they’ve done a good job of marketing to the globe.”

A generation of fiscal discipline has changed Brazil’s business climate. Luiz Inácio da Silva, the country’s popular president who took office in 2003, has spent his first three years in office calming markets with pro-growth policies. Indeed, Brazil’s economy is much less vulnerable to shocks than it was just a few years ago notes Mark Thomas, a country economist for Brazil at the World Bank.

International investors reacted to Brazil’s economic turnaround by pouring $18 billion in direct foreign investment into the country in 2004, up 80 percent from the year before.

And Brazil’s capital markets are responding. The BOVESPA, Brazil’s main stock exchange in Sao Paulo, hosted seven high-profile IPOs in 2004 after a five year drought. The list of companies going public included online retailer, discount airline Gol and America Latina Logistica, the formerly government-owned railroad company.

Like other Brazilian companies, America Latina Logistica is seeing an increase in interest from foreign investors. Sixty percent of investors in the company’s IPO were from abroad, mostly the United States and Europe according to Sergio Pedreiro, the company’s finance director.

© 2012 CNBC, Inc. All Rights Reserved


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