Webinar ITI Brazil - Investing in Brazil in a time of change

  • Published on
    18-Jan-2017

  • View
    99

  • Download
    2

Transcript

  • 1 2016 KPMG Assessores Ltda., uma sociedade simples brasileira, de responsabilidade limitada, e firma-membro da rede KPMG de firmas-membro independentes e afiliadas KPMG International Cooperative (KPMG International), uma entidade sua. 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 KPMG International Cooperative (KPMG International), uma entidade sua. 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 million14of 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 KPMG International Cooperative (KPMG International), uma entidade sua. 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 KPMG International Cooperative (KPMG International), uma entidade sua. 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

    Countrys consumer market (USD trillion), 2020Brazilian personal disposable income (USD000) 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 KPMG International Cooperative (KPMG International), uma entidade sua. 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 DClass 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 Econmico

    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 DClass 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 KPMG International Cooperative (KPMG International), uma entidade sua. 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 KPMG International Cooperative (KPMG International), uma entidade sua. 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 KPMG International Cooperative (KPMG International), uma entidade sua. 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.

    Brazils 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 KPMG International Cooperative (KPMG International), uma entidade sua. 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 Econmico

    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 KPMG International Cooperative (KPMG International), uma entidade sua. 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 KPMG International Cooperative (KPMG International), uma entidade sua. 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 governments 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 Estruturao 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 KPMG International Cooperative (KPMG International), uma entidade sua. 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 KPMG International Cooperative (KPMG International), uma entidade sua. Todos os direitos reservados. Impresso no Brasil.

    Mauricio EndoPartner, Head of Government & Infrastructure in Brazil and Latin AmericaKPMG in Brazil+55 11 3940 8322mendo@kpmg.com.br

    Slide Number 1Brazil is the largest economy in South America with a GDP of USD 1.8 trillion and a population of 206 million peopleBrazil is the seventh largest economy in the worldBrazil has a strong consumer market and is expected to be the 8th largest in the world by 2020Further supporting the economic recovery is the healthy demographics of BrazilDespite the challenging macroeconomic context, the strong FDI numbers show a bullish standpoint from international investors in BrazilM&A volumes have remained high despite the economy turmoil, historically, cross-border transactions represent larger share than domestic dealsSlide Number 8Brazil economy is anticipated to return to growth from 2017Macroeconomic indicators support economic analysts estimate of an imminent recovery in 2017 2018Slide Number 11Slide Number 12Slide Number 13