Brazil is back, Bolsonaro will tell Davos investors
Andre Coelho /Bloomberg
Government eager to turn page on corruption and recession
Economic team to present list of investment opportunities
By Raymond Colitt / Bloomberg
Petroleumworld 01 22 2019
President Jair Bolsonaro will debut in the World Economic Forum of Davos this year with a mission -- to present a new Brazil, more open to trade and foreign investment.
Investors will listen for sure. Prospects that the world's ninth-largest economy may become more business-friendly sounds like music to the ears of oil executives and portfolio investors alike, after more than a decade of interventionist policies from previous governments. Even after a 20 percent rally over the past four months, the main index of the Sao Paulo stock exchange is still 40 percent below it's all-time high in dollar terms.
For all the potential, investors will want more than just promises. Years of corruption scandals, economic recession and political turmoil that included a presidential impeachment are still fresh in the collective memory. A taste of economic populism in Mexico didn't help the region either.
Now Brazil's new leader, a former Army captain who has admitted to utter ignorance of economic issues, will have to convince his audience in the Swiss alps that he can plug a huge budget deficit by cutting expenditures and finding additional sources of revenue. The economic outlook for the country remains stable but disappointing, according to the latest estimates from the International Monetary Fund, which forecasts growth of 2.5 percent this year and 2.2 percent in 2020.
“Brazil is a hot topic for foreign investors,” said Fabio Alperowitch, portfolio manager and founder of Fama Investimentos, a Sao Paulo-based fund manager. “But no one will change their opinion just because of his speech. Investors' level of skepticism with emerging markets is still high.”
On his long flight to Davos, Bolsonaro will carry the most crucial plan to tackle a budget deficit that hovers around 7 percent of gross domestic product -- a draft proposal to cut pension outlays and save as much as 1 trillion reais over 10 years. Whether he will attract enough congressional support for the bill when lawmakers reconvene in February will be a make or break moment for his administration.
In the Spotlight
With the absence of regional leaders such as Argentina's Mauricio Macri and Mexico's Andres Manuel Lopez Obrador as well as big names such as Donald Trump or Xi Jinping, Bolsonaro should steal some of the limelight at Davos. While the presidents of Colombia, Ecuador and Paraguay were grouped into the same panel on Latin America, Bolsonaro will give his own “special address” on stage with WEF founder Klaus Schwab.
The president's entourage will include his anti-corruption czar, former judge and now Justice Minister Sergio Moro, as well as the head of his economic team, Paulo Guedes. The University of Chicago-trained Guedes is expected to outline plans to downsize government, cut pension benefits and slash import tariffs.
“It's a unique moment that you have a government that is unabashedly liberal," said Alberto Ramos, chief Latin America economist at Goldman Sachs. "We've never seen that in Brazil.”
The potential is huge. Brazil not only sits on large energy reserves but it also has a sizable consumer market with pent-up demand for all sorts of quality goods and services, from premier health care to cheaper cars and better roads.
Take the example of solar panels. The sector grew nearly 400 percent last year and still only represents 0.4 percent of Brazil's power matrix. That compares to around 6 percent of solar energy consumption in Germany, where solar radiation is 40 percent weaker than in Brazil, according to World Bank data.
In a taste of the kind of deals that may flourish under a Bolsonaro administration, the former paratrooper this month signed off on the merger that will give Boeing control over Brazil's Embraer, the world's third-largest plane maker.
Options are not limited to the aviation industry, where caps on foreign ownership were lifted last year. Up for sale are as many as 200 state-owned companies, including energy giant Eletrobras. As a result, the head of Brazil's anti-trust agency, Cade, expects a 30 percent increase in M&A activity this year.
“The opportunities are large,” said Bernardo Schneider, Chief Executive Officer of Icatu Vanguarda, a Rio de Janeiro-based investment management firm with 21 billion reais ($5.6 billion) under management. “It's not a chicken flight, it's a long-term opportunity.”
— With assistance by Peter Millard, Eric Martin, Vinicius Andrade, and Robert Jameson
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