Aod Cunha | Economic Analysis of Brazil & Sao Paulo | Global Cities Initiative

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  • 1. GLOBAL CITIES INITIATIVE São Paulo, Brazil November 2012STRICTLY PRIVATE AND CONFIDENTIAL
  • 2. This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of J.P. Morgan. The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. J.P. Morgan’s opinions and estimates constitute J.P. Morgan’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. J.P. Morgan makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects. Notwithstanding anything herein to the contrary, the Company and each of its employees, representatives or other agents may disclose to any and all persons, without limitation of any kind, the U.S. federal and state income tax treatment and the U.S. federal and state income tax structure of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Company relating to such tax treatment and tax structure insofar as such treatment and/or structure relates to a U.S. federal or state income tax strategy provided to the Company by J.P. Morgan. J.P. Morgans policies on data privacy can be found at http://www.jpmorgan.com/pages/privacy. J.P. Morgan’s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering to change a rating or price target, to a subject company as consideration or inducement for the receipt of business or for compensation. J.P. Morgan also prohibits its research analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investors. IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone not affiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S.GLOBAL CITIES INITIATIVE tax-related penalties. J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan arranging, financial advisory and other investment banking activities are performed by a combination of J.P. Morgan Securities Inc., J.P. Morgan plc, J.P. Morgan Securities Ltd. and the appropriately licensed subsidiaries of JPMorgan Chase & Co. in EMEA and Asia-Pacific, and lending, derivatives and other commercial banking activities are performed by JPMorgan Chase Bank, N.A. J.P. Morgan deal team members may be employees of any of the foregoing entities. This presentation does not constitute a commitment by any J.P. Morgan entity to underwrite, subscribe for or place any securities or to extend or arrange credit or to provide any other services.
  • 3. Agenda Page Latin America 1 Brazil economy 6 São Paulo: State and metropolitan region 14GLOBAL CITIES INITIATIVE 1
  • 4. Latin America – GDP overview Real GDP growth (%) Foreign Exchange – Ccy/USD (eop) GDP growth avg. ’06-’11 2011 2012E 2013E GDP growth avg. ’12E-’16E Argentina 4.13 4.80 5.70 Average ’12E-’16E = 4.5% Brazil 1.67 2.02 1.95 Chile 483 490 500 7.0% 5.8% 3.9% 4.8% 4.4% 4.8% 4.2% 4.6% 1.4% 3.7% 6.8% 3.7% 0.5% 2.2% 0.4% 1.2% Colombia 1,847 1,775 1,775 Mexico 12.44 12.50 11.80 2011 GDP¹ 177 249 333 2,474 1,154 448 15,094 13,104 (US$bn): Population as Peru 2.75 2.57 2.55 29.4 17.3 44.7 196.7 114.8 40.8 311.6 332.4 of 2011(mm) Sources: EIU (as of May 2012); Individual country central banks; World Bank Source: J.P. Morgan estimates 1 Represents nominal GDP Emerging markets real GDP growth by region (%yoy) Current Sovereign ratings Latin America Emerging Asia Emerging Europe Moodys S&P 10.4 B3 / Stable B / Negative 9.7 9.1 8.3 8.7 7.1 7.3 6.8 6.8 6.9 6.4 6.1 5.7 5.8 6.1 6.2 Baa2 / Stable BBB / Positive 5.4 4.9 4.5 4.4 4.2 4.5 4.0 2.9 2.7 Aa3 / Positive A+ / Stable Baa3 / Stable BBB- / StableLATIN AMERICA -2.2 Baa1 / Stable BBB / Stable -5.5 Baa3 / Positive BBB / Positive 2004 2005 2006 2007 2008 2009 2010 2011 2012E Source: J.P. Morgan Source: Bloomberg 2
  • 5. Country risk perception across Latin American countries have returned to pre- crisis levels, still with apparent differences across countries Country risk evolution (EMBIG index, spread over US treasuries) 1 Latin America Argentina Brazil Colombia Chile Mexico Peru CA&C 2,000 1,800 1,600 1,400 1,200 1,165 1,000 800 600 400 375 367 168 200 149 130 124 120 0 01/03/07 11/04/07 09/04/08 07/06/09 05/07/10 03/08/11 01/07/12 11/07/12 Latin America Argentina Brazil Colombia Chile Mexico Peru CA&C 1 Current 367 1,165 149 120 130 168 124 375 1 year ago 440 807 214 181 156 205 190 386 2 years ago 336 529 171 143 121 158 146 279LATIN AMERICA 3 years ago 373 738 226 220 137 220 192 379 4 years ago 701 1,711 441 504 359 422 441 608 5 years ago 248 385 199 185 124 146 163 216 Source: Bloomberg, as of November 07, 2012 1 Central America and Caribbean, based on CACI index 3
  • 6. China is now the top export destination for Brazil, Chile and Peru, but the trade links between China and many other Latin American countries are also growing fast EM countries with the highest exposure to commodities (% of total exports unless stated otherwise) Impact of 20% decline in commodities1 Total Commodities by type: % of total exports to: on current account commodities Oil Metals Agriculture US EU China (US$ billion) (% GDP) Argentina2 61.0 -3.5 5.2 55.8 5.0 17.0 7.7 -9.4 -2.3 Brazil 58.9 10.4 21.5 27.0 10.9 19.4 17.8 -25.0 -1.0 Chile3 75.8 -14.5 65.1 10.7 10.9 17.5 22.7 -10.5 -4.2 Colombia 72.4 58.4 4.7 9.3 37.8 15.4 5.9 -6.3 -1.7 Ecuador 78.4 53.7 0.5 23.0 43.8 16.2 1.0 -2.5 -4.0 Mexico 16.3 12.4 1.0 3.0 78.5 5.8 1.7 -2.0 -0.2 Peru 89.7 10.3 62.7 16.8 13.3 18.6 15.0 -4.4 -2.1 Uruguay 63.7 1.2 2.5 58.1 3.7 11.3 7.8 -1.0 -2.2 Venezuela 97.6 95.1 2.3 0.1 38.0 6.4 13.3 -18.0 -6.0 Latin America 50.9 17.8 14.3 18.2 35.3 15.4 10.5 -9.2 -1.2 ¹Assuming a drop in ALL commodity prices at once. ²In Argentina, oil exports are net of imports, that’s why it appears as a negative number. ³In Chile, the agriculture category includes cellulose and oil category is net of imports. Source: J.P. Morgan Latin America’s terms of trade are heavily driven by commodity prices, which in turn are driven by China’s growth cycle Exports to China as a share of total exports Latin America: Export growth and commodity prices 22.7 60% Export growth %oya %oya Commodity prices (JPMCCI prices) 2005 2012 17.8 40% 15 20% 10.9 11.4 9.8 0% 7.9 7.7 7.8 5.9 5.8 -20% 3.5 2.2LATIN AMERICA 1.7 1.9 0.5 1.1 -40% 0.1 Mexico Ecuador Colombia Argentina Uruguay Venezuela Peru Brazil Chile -60% 2000 2002 2004 2006 2008 2010 2012 Source: J.P. Morgan Source: J.P. Morgan 4
  • 7. Challenges Challenges Correlation between US and EURO growth with LATAM’s 1 Demographic and internal issues Impulse response of Emerging Markets growth to a US/EMU real GDP growth shock over four quarters Low level of education in the region Response to 1% change in US and EURO area GDP (% impact level of GDP): High inequality of income in most of the nations Model estimated 1Q00 to 2Q11 Fourth Quarter Lack of homegrown technological innovation Relative to Region / Country First Quarter Cumulative US/Euro area Emerging Asia 0.9 1.4 0.6 External economic issues China 0.7 1.0 0.4 2 India 0.3 0.6 0.3 Contagion from Europe: Large foreign claims of Korea 1.4 2.4 1.0 European banks suggest risk of capital outflows Taiwan 2.6 4.0 1.6 Latin America 1.1 2.9 1.2 Potential impact of European bank deleveraging on Brazil 1.3 2.6 1.1 bank credit in Latin America Mexico 1.1 4.0 1.6 Emerging EM 1.0 3.4 1.4 Fiscal balances are seeing deterioration in several Russia 1.2 3.8 1.5 Latin American countries this year due to the growth Turkey 1.4 4.9 2.0 slowdown Emerging 0.9 2.1 0.9 Source: J.P. Morgan 3 Trade issues: Impulse response of Emerging Markets growth to a EURO area real GDP growth shock over four quarters Needs to take continued steps to integrate as a region Response to 1% change in EURO area GDP (% impact level of GDP): Terms of trade are heavily driven by commodity prices, Model estimated 1Q00 to 2Q11 which in turn are driven by China’s growth cycle Region / Country After 1 quarter After 4 quarter Latin America 1.2 0.9 China’s influence in driving Latin America’s growth has Brazil 1.5 1.0 increased sharply since 2008, particularly for Brazil. Mexico 1.3 1.3LATIN AMERICA Emerging 0.7 0.6 Source: J.P. Morgan A 1%-pt decline in US/Euro area growth has translated into a 1.2%-pt drop in Latin America’s growth since 2000, while a 1% growth in US/Euro real GDP generated a response of 0.9% in Latam growth after 4 quarters 5
  • 8. Agenda Page Latin America 1 Brazil economy 6 São Paulo: State and metropolitan region 14GLOBAL CITIES INITIATIVE 6
  • 9. Brazil is the leading economy in the region, having experienced a positive transformation on its macroeconomics indicators Brazil has favorable macroeconomic fundamentals such as strong economic growth, increasing income per capita... GDP growth, interest rates and inflation Components of GDP GDP per capita Net exports Consumption In USD In BLR Real GDP growth (%) Selic (%) - EoP 25,000 Gov’t spending Fixed investment 17.8% 18.0% 4,800 Inventory change 13.3% 13.8% 1 .3% 1 12.2% 1 .0% 1 2.0% 1 % 5.1 7.5% 4,300 5.7% 7.5% 20,000 5.7% 5.1% 18.0% 3.2% 4.0% 2.8% 1 .4% -0.2% 3,800 12,917 3,300 10,814 2004 2005 2006 2007 2008 2009 2010 201 201 1 2E 15,000 21.0% 2,800 8,706 8,348 7,283 2,300 10,000 5,867 Inflation rate (%) - IPCA 4,812 1,800 3,655 3,186 3,097 2,861 7.6% 5.7% 5.9% 5.9% 6.5% 5.2% 1,300 61.0% 5,000 4.5% 4.3% 3.1% 800 300 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010 201 201 1 2E (200) (1.3)% Source: J.P. Morgan and IBGE as of February 2012 Source: IBGE (Brazilian Statistics and Geography Institute), Source: IMF as of January 2012 J.P. Morgan Asset Management … low unemployment rate and historical low risk premium Unemployment rate Brazil’s EMBIG – spread over US Treasuries¹ 12% 1% 1 3,000 Presidential elections 10% 2,400 9% Real devaluation 8% 1,800 Argentine 7% devaluationBRAZIL ECONOMY 1,200 6% 5.3% Credit crisis 5% 600 4% 195 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Aug-12 Jan-99 Sep-01 May-04 Feb-07 Oct-09 Jul-12 7 Source: IBGE and J.P. Morgan economic research Source: J.P. Morgan ¹Also called “Risco Brasil”
  • 10. Brazil positive socio-demographic characteristics create ideal conditions for solid economic growth Breakdown of Brazil’s population by socioeconomic Evolution of poverty levels in Brazil (% of total class (mm individuals and % population) population) Class A/B Class C Class D/E 28.1% 25.4% Poverty level almost halved 22.8% 47mm 56mm 19.3% 18.3% 96mm (24%) (29%) 16.0% 15.3% (55%) 106mm 113mm +40mm (54%) (56%) 66mm (37%) 13mm 44mm 31mm (8%) (22%) (15%) 2003 2011 2014E 2003 2004 2005 2006 2007 2008 2009 Source: IBGE as of February 2012 Source: IBGE as of February 2012 Note: Socioeconomic classes defined by household monthly income thresholds; A/B exceeding Note: Poverty level line is defined as a monthly income lower than US$35 per capita US$2,627, C between US$610 and US$2,627, D between US$439 and US$610, and E under US$439 Evolution of population distribution by age (millions of Brazil has a young and fast-growing population people) Age Age Men Women Men Women Total population: 197mm Total population: 270mm 8… 80+ Growth: 0.9% Growth: 0.3% % under 35 years 7… 70-79 6… 60-69 % abo ve 65 years 5… 50-59 4… 40-49 60% 3… 30-39 40% 2… 20-29 1… 10-19 19%BRAZIL ECONOMY 7% 0-9 0-9 20 15 10 5 0 5 10 15 20 20 15 10 5 0 5 10 15 20 2012 2050 Brazil France, Germany, Italy and UK Source: IBGE, projection of population in Brazil Source: IBGE as of March 2012 8
  • 11. Brazil can be considered a relatively closed economy, with exports and imports representing only 11.9% and 12.6% of GDP respectively. In 2011 Brazil exports reached US$256 billion, a 26.5% increase from the previous year Brazilian and Latin American exports Brazil’s main exports % of nominal GDP, USD terms, By region/country and product, USD terms, YTD as of Aug. 2011 2012 Capital goods Consumption goods Commodities Brazil 12% 35% 31% Colombia 17% 30% Argentina 19% 25% 20% 19% 20% Peru 26% 15% 12% Venezuela 29% 10% 5% 4% Mexico 30% 5% 0% Chile 33% Asia EU LatAm USA Africa Middel East Source: (Top) J.P. Morgan, IBGE (Brazilian Statistics and Geography Institute), Central Bank of Brazil, J.P. Morgan Asset Management. (Bottom left) Central Bank of Brazil, Economy Ministry of Argentina, Central Bank of Venezuela, Bank of Mexico, Central Bank of Chile, World Bank, IBGE, DANE (National Administrative Department of Statistics of Colombia), J.P. Morgan, Central Reserve Bank of Peru, INEGI (National Institute of Statistics and Geography of Mexico), J.P. Morgan Asset Management. (Bottom right) MDIC(Ministry of Development, Industry, and External Commerce), J.P. Morgan Asset Management. Data reflect most recently available as of 9/30/12 Main Brazilian Exports (% of total exports) Destination of Brazilian Exports (% of total exports) Top 10 Export Companies (% of total exports) Rank Products 2011% Products YTD 1H12% Rank Country 2011% Country YTD 1H12% Company 2011% Company YTD 1H12% 1 Iron Ore 16.3% Iron Ore 12.7% 1 China 17.3% China 18.1% Vale 13.5% Vale 11.9% 2 Soy 8.6% Soy 10.2% 2 U.S 10.1% U.S 11.7% Petrobras 9.0% Petrobras 11.4% 3 Crude Oil 8.4% Crude Oil 8.9% 3 Argentina 8.9% Argentina 7.5% Bunge Alimentos 2.6% Bunge Alimentos 3.5% 4 Cane Sugar 4.5% Poultry 2.8% 4 Netherlands 5.3% Netherlands 6.0% BRFoods 1.9% Cargill 2.2% 5 Coffee 3.1% Cane Sugar 2.7% 5 Japan 3.7% Germany 3.1% Samarco 1.7% Embraer 2.2% 6 Poultry 2.8% Coffee 2.4% 6 Germany 3.5% Japan 3.0% Embraer 1.6% ADM do Brasil 2.1%BRAZIL ECONOMY 7 Pulp 2.0% Fuel Oil 2.3% 7 Italy 2.1% Italy 2.1% Cargill 1.6% Louis Dreyfus 1.8% 8 Steel 1.8% Pulp 2.0% 8 Chile 2.1% India 2.0% ADM do Brasil 1.3% Samarco 1.7% 9 Autos 1.7% Steel and Iron 1.9% 9 U.K 2.0% Venezuela 2.0% Braskem 1.1% Braskem 1.4% 10 Beef 1.6% Airplanes 1.7% 10 Spain 1.8% Chile 1.9% Louis Dreyfus 1.0% BRFoods 1.3% Others 49.1% Others 52.3% Others 43.2% Others 42.6% Other 64.7% Other 60.5% Source: MDIC. 9
  • 12. Government Programs PAC – Program for Growth Acceleration Minha Casa, Minha Vida (MCMV) Aims to accelerate the country’s economic growth through It is focused on lower income families in order to facilitate investments in infrastructure (housing, transportation, utilities access to housing by granting mortgages subsidies and sanitation) The resources are subsidized by the Union and FGTS PAC 1: Government forecasted more than US$ 328bn in investments between 2007 and 2010 Already reached its goal contracting over 1 million units by PAC 2: Launched in March 2010 with investments the end of 2010 estimations of around US$ 477bn from 2011 to 2014 PAC 1 Investments (US$ billion) – 2007 to 2010 Minha Casa, Minha Vida (MCMV) breakdown Sector Total Estimated Total Concluded % Income Segment Proposed Units Contracted Units % of total Up to 3 minimum wage 400,000 574,874 57.2 Logistics 213.9 111.7 52.2 From 3 to 6 minimum wage 400,000 284,079 28.3 Housing and Sewage 114.3 110.2 96.4 From 6 to 10 minimum wage 200,000 146,075 14.5 Total 328.2 221.9 67.5 Total 1,000,000 1,005,028 100.0 Source: Federal Government Source: Caixa Econômica Federal Bolsa Familia Fome Zero “Bolsa Família” is a program of direct income transfer to Aims to ensure the right of having adequate food to people families in poverty serving more than 13mm households with limited food access. In June 2011, President Dilma Rousseff announced the Four main drivers: Food access, strengthening on family expansion of the program, as part of the “Brasil sem Miséria” agriculture, income generation and social control Aims to remove another 16.2mm people living in extreme Focused in the Northeast region (40.2% of the country’sBRAZIL ECONOMY poverty situation poors), mostly in the rural area Source: Ministry of the Social Development 10 Source: Ministry of the Social Development
  • 13. Main events and Investments Large Events (Fifa World Cup and Olympic Games) Pre-salt Investments Host Cities and Total investments (USD bn) Description It is a new development stage for the oil industry in Brazil affecting strongly the investments’ dynamic in the sector Fortaleza Manaus Natal It is located in the South and Southeast regions, encompassing Campos, Santos and Espirito Recife Santos basins. Cuiabá Salvador Out of the 149,000 km2, 41,000 km2 have Brasília been already granted, of which 38,000 km² Host cities Belo Horizonte belong to Petrobras Rio de Janeiro Pre-salt total investments estimated in US$ Planned Investments in US$ bn 43.7bn in the next four years São Paulo 6.3 Curitiba 24.9 18.6 Petrobras has already assumed that the pre- Porto Alegre salt can easily double their current level of FIFA World Cup 2014 Olympics 2016 Total Investments proved reserves World Cup and Olympic Games planned infrastructure Investments Petrobras Oil Production (USD bn) Thousands of Barrels/day 4,200 World Cup Planned Investments (US$ bn) Olympic Games Planned Investments (US$ bn) Total 18.6 Investments Hotels 0.9 Sector Public COJO* Total % 2,500 Health and Security 2.3 Accomodation 1,295.2 0.0 1,295.2 20.7 ,855 1,971 2,004 2,022 2,000 ... ... Energy and Telecom 1.9 1,584 1,778 1,792 1 Technology 202.9 35.8 238.7 3.8BRAZIL ECONOMY Total Civil Infrastructures 13.5 Sport Instalation 476.6 282.2 759.1 12.1 Ports and Airports 4.1 Urban Mobility 6.0 Tranport 3,730.0 0.0 3,730.0 59.6 Arenas 3.4 Security 235.9 0.0 235.9 3.8 2005 2006 2007 2008 2009 2010 2011 2012 2016F 2020F 0.0 5.0 10.0 15.0 20.0 Total 5,940.6 318.0 6,258.6 100.0 Source: Ministry of Finance and Ministry of Sports Source: Company fillings *COJO: Rio 2016 Organization Committee 11
  • 14. Brazil presents several bottlenecks that difficult its economic growth Airports Education Current installations are not enough to support the World Brazilian student spends 7.2 years at school which is not Cup and Olympic events demand even enough to complete the basic education In 1H2012, the government sold 51% of the airports of Average is below almost all Latin America countries Guarulhos, Viracopos and Brasilia in an auction that brought Brazil spends US$2,098 per student per year on basic US$ 12.2bn to the government education. The OECD average is US$7,870 Additional investments should reach US$ 3.7bn In 2010, more than 18 million people were illiterate Airport Investments (US$ MM) City - State Airport Investment (in US$ mm) % of total 37.2% Illiteracy Rates (2005-2010) – in % of total Population São Paulo – SP Guarulhos 1,035.5 28.1% Rio de Janeiro – RJ Galeão 449.4 12.2% São Paulo SP Viracopos 438.5 11.9% 11.3% 10.4% 9.6% 9.3% 6.8% 6.6% 6.0% 5.4% 4.8% Brasília - DF Pres. Juscelino Kubit. 432.4 11.7% 1.4% 1.1% 1.0% 0.4% 0.2% Natal - RN São Gonçalo 291.2 7.9% z. a a a ly a co a ru na g. a S le il bi Others - 1,036.8 28.1% ri c ivi di It a az ub ne si U Pe ra hi i hi om In ex l us Af Bo Br C C Pa Ve C M R ol S. Total - 3,683.8 100.0% C Source: Ministry of Sports and JP Morgan research team. Source: JP Morgan research team Energy Logistics JPM estimates that the country should invest US$ 15bn on New investment pipeline of concessions on toll roads, ports, the sector every year in order to maintain the stability and urban mobility projects Four main plants in construction totaling US$ 31.8bn in Large cities are very short handed in the subway grid investments (Belo Monte, Santo Antonio, Teles Pires, Jirau) PPP with tax exemption project for three new subway Supply vs Demand scenario in Brazil (in GW) lines in São Paulo 95 88 90 84 86 85 Supply 77 80 Third round of federal road auctions (BR-040 and BR-116) 74 75 Demand 72 for 2H12BRAZIL ECONOMY 66 63 Estimated capex for projects above is US$ 6.1bn 65 59 55 Expectation for the concession of four large ports (Prainha, 45 Suape, Manaus and Ilheus) totaling over US$ 2.1bn 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e Source: EPE (Brazilian Government Energy Research Company) 12 Source: JP Morgan research team
  • 15. Growth potential is still limited by microeconomic challenges Challenges Diminished competitiveness due to high tax burden and bureaucracy costs Lack of education: scarcity of well-skilled labor and low productivity limit potential growth Logistics bottlenecks also limits potential growth High inequality of income and poverty Great dependence on commodities Government higher expenditures don’t mean higher investments Infrastructure investments totaled 2.1% of the total GDP in the period of 2001-2007. Much lower than the comparable Latam countries and other Emerging countries Most of the challenges are on the microeconomic front, affecting the supply-side % of GDP in Infrastructure Selected competitiveness indicators (2012) Brazil: The most problematic factors in doing business (%) Investments in Infrastructure Indicator Brazil Latam OECD Tax Regulations 18.7 Days to start a new 16.5 Country (Period) % of GDP 119 54 12 business Inadequate Suply of infrastrucutre 17.5 15.2 Brazil (2001-2007) 2.1% Years to close a Tax Rates 17.2 4 3 2 business 20.0 Inneficient government 11.1 Chile (1998-2001) 6.2% Recovery rate from bureaucrecy 10.6 18 31 68 10.1 insolvent firm (%) Restrictive Labor Regulation 12.5 Colombia (1998-2001) 5.8% Number of hours spent Inadequately educated Workforce 7.4 2,600 382 186 8.3 preparing taxes India (2006-2007) 5.6% Corruption 6.0 6.2 Total Tax rateBRAZIL ECONOMY 67 48 43 3.9 (% profit) Access to financing 3.0 2012 China (2000-2003) 7.3% Labor tax and Foreign Currency Regulations 2.1 2011 41 15 24 2.3 contributions (% profit) Vietnam (1998-2003) 9.9% Inflation 0.3 1.8 Cost to Export 2,275 1,546 1,085 Thailand (2000-2003) 15.4% (US$ per container) 0.0 5.0 10.0 15.0 20.0 Source: World Economic Forum Source: World Economic Forum Source: World Bank 13
  • 16. Agenda Page Latin America 1 Brazil economy 6 São Paulo: State and metropolitan region 14GLOBAL CITIES INITIATIVE 14
  • 17. The state of São Paulo can be well compared, in economic terms, to the largest nations in the Latam Region Latam Peers Comparation – GDP, GDP per capita and population (as of States participation on the GDP in US$ 2009¹) mm and % (as of 2009) GDP (USD mm) - as of 2009 1,621 1,800 18,000 Brazil 1,621 (100%) GDP Per Capita - as of 2009 1,600 16,000 São Paulo 542 (33%) GDP per capita (US$) 1,400 13,101 14,000 11,606 Rio de Janeiro 177 (11%) 1,200 10,179 12,000 GDP (US$ mm) 1,000 882 9,117 10,000 Minas Gerais 144 (9%) 8,392 7,876 7,665 800 8,000 Rio Grande do Sul 108 (7%) 542 600 4,412 6,000 307 329 Paraná 95 (6%) 400 4,000 173 127 200 2,000 Bahia 69 (4%) 30 0 0 Distrito Federal 66 (4%) Brazil State of São Mexico Argentina Venezuela Chile Peru Uruguay Paulo Santa Catarina 65 (4%) Others (19 States) 357 (22%) Population as of 2009 193.2 41.0 112.0 40.0 28.4 17.0 28.8 3.3 0 500 1,000 1,500 (mm)SÃO PAULO: STATE AND METROPOLITAN REGION Source: World Bank and Fundação SEADE. Source: IBGE and Fundação SEADE ¹The latest GDP information from the State of São Paulo is dated as of 2009. GDP per capita evolution – State of SP Components of GDP evolution–State of SP GDP growth projection (% yoy) In USD In BLR State of São Paulo Brazil 30,000 5.0% Agriculture Industry Services 100% 25,000 4.5% 90% 4.5% 4.4% 4.3% 20,000 80% 4.2% 4.2% 48% 49% 13,101 50% 51% 51% 54% 12,229 70% 11,334 15,000 4.0% 9,775 60% 8,988 3.7% 8,079 50% 7,384 6,630 10,000 40% 3.5% 30% 50% 5,000 49% 48% 47% 47% 44% 20% 10% 3.0% 0 2% 2% 2% 2% 2% 2% 2011 2012-2015 2015-2030 2002 2003 2004 2005 2006 2007 2008 2009 0% 2004 2005 2006 2007 2008 2009 Source: IBGE and Fundação SEADE. Source: IBGE and Fundação SEADE. Source: IBGE and Fundação SEADE. 15
  • 18. São Paulo positive socio-demographic characteristics create ideal conditions for solid economic growth The age pyramid of São Paulo is similar to the national average... Demographic pyramid comparation – as of 2010 Age Age Age Age Men Women Men Women Men Women Men Women 80+ 80+ 80+ 80+ 70-79 70-79 70-79 70-79 60-69 60-69 60-69 60-69 50-59 50-59 50-59 50-59 40-49 40-49 40-49 40-49 30-39 30-39 30-39 30-39 20-29 20-29 20-29 20-29 10-19 10-19 10-19 10-19 0-9 0-9 0-9 0-9 -10.0% -5.0% 0.0% 5.0% 10.0% -10.0% -5.0% 0.0% 5.0% 10.0% -10.0% -5.0% 0.0% 5.0% 10.0% -10.0% -5.0% 0.0% 5.0% 10.0% Brazil São Paulo Rio Grande do Sul Bahia Source: IBGE census of 2010.SÃO PAULO: STATE AND METROPOLITAN REGION … while the demographic distribution of Rio Grande do Sul and Bahia represent extremes of the country Population evolution projection in the State of SP Population growth rate 0 to 14 years 15 to 64 years 65 years or more 40000 Population growth rate: Period of 2000-2010 in % yoy 1.3% 35000 Population (thousand people) 30000 25000 1.19% 1.2% 1.17% 20000 15000 1.09% 1.1% 10000 5000 1.0% 0 Brazil (without State of Brazil State of SP 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 SP) Source: IBGE and Fundação SEADE. 16 Source: IBGE and Fundação SEADE.
  • 19. Production growth trends and exports distribution Production growth projection by sectors Comments State of São Paulo - Production Growth Sectors Examples In the short term there will be an increase in projection (% yoy) High •Aerospace, Electronic and demand for natural resources and energy Sectors 2012-2015 2015-2030 Technological Telecommunications, IT, Intensity Chemical and Pharmaceutical High Techn. Intensity 7.14% 5.13% In the long term the state economy dynamics Public Administration 4.88% 4.32% •Shipbuilding, Motor vehicles, Medium Metallurgy, Petroleum refined will be driven by technology-intensive goods Technological Med.Techn. intensity 4.92% 4.07% products, Machinery and production Intensity Electrical equipment and Rail Services 3.66% 3.83% transportation Natural Resources 5.07% 3.58% Low Given the better conditions of public finances •Recycling, Pulp and Paper, Low Techn. intensity 3.74% 3.13% Technological Food and Beverages, Textiles sustainability, the Government sector will Intensity Tobacco and Footwear. become a key growth driver Total 4.76% 4.16% Source: FIPE/USP and Secretary of Planning and Regional Development Source: Plano Pluria nual 2012-2015SÃO PAULO: STATE AND METROPOLITAN REGION In terms of trade, the State of São Paulo accounts for 23.4% of all exports and 36.3% of all imports of Brazil1 Main Product Exports of the State of São Paulo (% of total exports of Top 10 Export Companies of the State of São Paulo (% of total exports of the State) the State) Products 2011% Products YTD 3Q12% Company Sector 2011% Company Sector YTD 3Q12% Sugarcane 10.6% Sugarcane 7.6% Embraer Aerospace 6.7% Embraer Aerospace 7.4% Airplanes 5.3% Airplanes 6.0% Copersucar Sugar 3.4% Petrobras Oil 3.8% Other Sugar 4.6% Other Sugar 3.5% Petrobras Oil 3.2% Caterpillar Industrials 3.3% Meat 2.1% Fuel 2.8% Caterpillar Industrials 3.0% Copersucar Sugar 3.1% Cars 2.1% Cars 2.2% Raizen Ethanol 3.0% Volkswagen Automobile 2.6% Fuel 1.9% Alcohol 1.9% GM Automobile 2.8% Raizen Ethanol 2.4% Orange Juice 1.8% Meat 1.7% Volkswagen Automobile 2.5% GM Automobile 2.1% Alcohol 1.5% Soy 1.7% Mercedes-Benz Automobile 2.1% Cutrale Juice 1.8% Coffee 1.2% Orange Juice 1.6% Ford Automobile 1.7% Mercedes-Benz Automobile 1.8% Car Parts 1.2% Levies 1.3% Cutrale Juice 1.7% Ford Automobile 1.7% Others 67.7% Others 69.7% Others - 69.9% Others - 70.0% Source: MDIC. 1 As of 2011 17
  • 20. Geographically GDP growth trends GDP growth projection by administrative region of the State of São Paulo – 7 largest growth by period 2011 2012-2015 2015-2030 Belo Horizonte - MG Belo Horizonte - MG Belo Horizonte - MG Barretos Barretos Franca São José do Rio Preto Ribeirão Preto Ribeirão Preto Rio de Rio de Rio de Araraquara Janeiro - Araraquara Janeiro - Araraquara Janeiro - Presidente Marília RJ Campinas RJ Campinas RJ Prudente São José dos São José dos São José dos Campos Sorocaba Campos Sorocaba Campos Santos Santos Metropolitana de São Paulo Curitiba Curitiba Curitiba Source: FIPE/USP and Secretary of Planning and Regional Development GDP Growth in the state of São Paulo presents a trend movement, in the future years, toward the states of Rio de Janeiro and Minas Gerais, which are, after São Paulo, the largest regional markets in the countrySÃO PAULO: STATE AND METROPOLITAN REGION GDP Growth Projection by administrative region Comments Administrative GDP as of 2009 (US$mm) GDP Growth projection (% a.a) Campinas: Has competitive advantages such as Region 2009 % of the State 2011 2012-2015 2015-2030 specialization in technology-intensive sectors and their own Metropolitana de SP 306.6 56.53% 4.17% 4.26% 4.11% role as a producer and consumer markets Campinas 84.2 15.53% 4.11% 4.73% 4.22% São José dos Campos 27.8 5.12% 4.80% 6.05% 4.83% Sorocaba 26.9 4.96% 4.19% 4.87% 4.20% Sao José dos Campos: Geographically privileged (close to Santos 20.0 3.69% 4.02% 4.96% 4.03% major regional markets of Rio de Janeiro and Minas Gerais) Ribeirão Preto 13.7 2.54% 4.32% 4.48% 4.06% combined with specialization in technology-intensive sectors São José do Rio Preto 12.4 2.29% 4.40% 4.43% 3.94% (metallurgical complexes, military and aerospace) Araraquara 10.1 1.86% 4.72% 5.14% 4.29% Bauru 9.8 1.81% 4.29% 4.51% 4.01% Marília 7.4 1.37% 4.41% 4.53% 3.98% Santos: Majorly due to the investments on the pre-salt area Araçatuba 6.3 1.15% 4.18% 4.50% 3.87% Presidente Prudente 6.2 1.14% 4.49% 4.41% 3.95% Registro, Presidente Prudente and São José do Rio Preto: Franca 5.5 1.01% 4.21% 4.57% 3.89% Far away from the influence of the metropolitan region, has Barretos 4.0 0.73% 4.53% 4.66% 3.92% low productive diversification and weak consumer market Registro 1.3 0.24% 3.64% 4.43% 3.52% Total – State of SP 542.2 100.00% 4.22% 4.52% 4.15% 18 Source: FIPE/USP and Secretary of Planning and Regional Development
  • 21. The Metropolitan region of São Paulo Map of the Metropolitan region of São Paulo Summary and comparable table Metropolitan region of São Paulo Metropolitan State of SP Brazil Area (km²) 7,943 248,209 8,514,877 Population as of 2011 (in mm) 19.9 41.7 196.7 Demographic density (inhabitants / km²) 2,501 168 23 Population growth (2000 - 2010 in %a.a) 0.97% 1.09% 1.17% Urbanization level as of 2011 (%) 98.9% 95.9% 84.4% GDP as of 2009 (in US$mm) 307 542 1,621 GDP per capita as of 2009 (in US$‘000) 15,499 13,101 8,392 Agribusiness participation¹ (%) 0.1% 1.6% 5.6% Industry participation¹ (%) 24.6% 29.0% 26.8% Services participation¹ (%) 75.3% 69.4% 67.5% Source: IBGE and Fundação SEADE. ¹Participation in the total of the value addedSÃO PAULO: STATE AND METROPOLITAN REGION Strengths Challenges Stands out as the largest financial, industrial and Urban mobility is a huge bottleneck for the economic growth commercial center in the country Projects for expansion and improvement of the public transportation Consist as a diversified technological hub for diverse research Uneven development of urban activities by territory Population density is greater in the peripheral areas Large headquarters concentration of the most important while the economic activity and jobs related to it are industrial complexes, commercial and financial companies focused on the expanded center The largest consumer market in the Latin American region High criminality rate compared to other regions of Brazil 19
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