Brazil:                 Where next?                 Guilherme da Nóbrega                 Economist                 Itaú BB...
Latin America:     A healthy departure from the past  Deepening democratic values are helping improve macro policies  Vote...
Latam macro achievements:      Inflation control, external solvency    Inflation - average annual rate          Foreign re...
Political openness and market-friendly        policies are paying off        4500        4000                             ...
Brazil: two very different 15-year periods                       1980-1994   1995-2010Presidents                  5       ...
Privatization                                                              • Telebrás                                     ...
“Plano Real” – 15 years of inflation control    IPCA inflation vs Central Bank target     22.4                            ...
Progress towards world class companies             World’s second largest mining company             World’s third largest...
Brazil’s fast changing consumer profile Population by annual household income                 During 2003-09, 36 million n...
What’s bringing inequality down?      Bolsa Familia is important, but the key factor has been more income from better     ...
Interest rates: the road to normality             30%                                          26.50%             25%     ...
Credit: still the green fields            Total bank accounts and bank lending                                         Loa...
A diversified investment case             MACRO STABILITY            INFRASTRUCTURE                                       ...
A great 2010, but not an outstanding record                     GDP growth                                         Average...
Near the roof: capacity utilization                  Industrial capacity utilization )%)                 % of ships with m...
A tight job market        Formalization ratio (% of Total Labor Force)                    Unemployment rate and NAIRU     ...
Rising inflationary expectations                   6.5                   6.0                                          6.0%...
Airport traffic up 21% in 2010         150                                                                140 million     ...
Rebalancing: fiscal policy        A R$ 50 bn budget freeze                                                 Government spen...
Challenges       Low savings ratio       Infrastructure bottlenecks and long-term credit       Quality of government spend...
Low domestic savings ratio    60%      Average 2004-09                                                              Saving...
Total social security spending (% GDP)   A generous social security system                                         20%    ...
There’s time to act                   Brazil has a few years to go before the issue gets                   complicated by ...
300                                                                 350                                                   ...
A Brazilian advantage: entrepreneurial spirit                           2007                               2008           ...
Macro Forecasts                                                                   2006      2007      2008      2009      ...
Long run - Macro Forecasts                                                                  Long Run Scenario          Dat...
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Itaú BBA Presentation to GOAP

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Geeks on a Plane South America - Company presentation by Guilherme da Nobrega, Chief Economist, of Itaú BBA in Sao Paulo, Brazil.

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Itaú BBA Presentation to GOAP

  1. 1. Brazil: Where next? Guilherme da Nóbrega Economist Itaú BBAApril 2011 1
  2. 2. Latin America: A healthy departure from the past Deepening democratic values are helping improve macro policies Voter discipline: less experimentation, more stability, longer-term thinking New consumer mindset demands low inflation, product quality, sustainability, global ties Well-designed income transfer programs reduce poverty Demand for education is growing Global integration creates world-class companiesApril 2011 2
  3. 3. Latam macro achievements: Inflation control, external solvency Inflation - average annual rate Foreign reserves - % of GDP Major Latam regions Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela 90-99 00-09 15% South America 273% 8% 14% Central America 162% 8% Caribbean 12% 8% 13% Source: IDB 12% 11% 10% 9% 8% 90 96 02 08April 2011 3
  4. 4. Political openness and market-friendly policies are paying off 4500 4000 Brazil, Chile, Peru and Mexico Argentina and Venezuela 3500 Greece 3000 2500 2000 1500 1000 500 0 2007 2008 2009 2010 2011April 2011 4
  5. 5. Brazil: two very different 15-year periods 1980-1994 1995-2010Presidents 5 2Finance ministers 15 3CB presidents 14 5Currencies 6 1Avg annual inflation 730% 7%April 2011 5
  6. 6. Privatization • Telebrás System • BEMGE • Gerasul 1991 to 2002 (US$ billion) • CVRD 38 • BANERJ • Acesita 28 • Acesita Energética • Fosfértil • BANESPA • CSN • BANESTADO• Usiminas • CST • Açominas• Mafersa • Copesul • Cosipa • Embraer • Light • DataMec 11• CELMA • Petroflex • PQU • BEG 7 5 3 4 2 3 2 2 2 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Proceeds – Breakdown by SectorHighlights 1.5% 7.9% 3.6%Privatized Sectors PartiallySteel Privatized Sectors 32.1% 8.4%Petrochemical PortsFertilizers Financial 2.2% 30.9%Mining Sanitation 6.1% 6.7%Aerospace Toll-Roads 0.7%Railroads Power Steel Oil & Gas Mining Transports SanitationTelecommunication Oil & Gas Petrochemical Financial Power Telecom Other April 2011 6
  7. 7. “Plano Real” – 15 years of inflation control IPCA inflation vs Central Bank target 22.4 IPCA (YoY) 12.5 Inflation Target 9.6 9.3 8.9 7.7 7.6 6.0 5.7 5.9 5.9 6.3 5.2 5.0 4.5 4.3 3.1 1.7 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012April 2011 7
  8. 8. Progress towards world class companies World’s second largest mining company World’s third largest commercial aircraft maker World’s largest brewery Merger between Unibanco and Itaú created 10th largest bank by market capitalization Merger with Chile’s Lan will create the world’s fourth largest airliner Largest animal protein processing company in the world Perdigão-Sadia merger created the world’s largest meat and poultry company The world’s 13th biggest steel producer “Odebrecht wins prize of largest family company of the world.”April 2011 8 The world’s third largest oil company by market capitalization
  9. 9. Brazil’s fast changing consumer profile Population by annual household income During 2003-09, 36 million new consumers (million) Low (< US$ 8,000 ) 2996m 94m Low Middle 73m High65m Middle (US$ 8-35,000) 7 High (> US$ 35,000) 36 million 20m new consumers13m -23 2003 2004 2005 2006 2007 2008Source: FGV; Itaú UnibancoApril 2011 9
  10. 10. What’s bringing inequality down? Bolsa Familia is important, but the key factor has been more income from better jobs (2003-2008) The main sources of income, 2008 How each of them helped, 2003-2008 20% 16% 2% 2% 17% 76% 67% 1% Work Other transfers Work Other transfers Bolsa Família Pensions Bolsa Família PensionsSource: FGV; Itaú Unibanco April 2011 10
  11. 11. Interest rates: the road to normality 30% 26.50% 25% 20% Nominal Selic Rate 15% 13.75% 12.25% 11.8% 10% 8.75% 5% 4.2% Real Selic Rate 3.4% 0% 1999 2001 2003 2005 2007 2009 2011Source:BCB April 2011 11
  12. 12. Credit: still the green fields Total bank accounts and bank lending Loans to individuals (% total) 50 148 141.3 60% Million bank Other 46.7 accounts (right) Personal loans 45 128 (incl payroll debit) 50% 40 108 Total Credit % GDP (left) 40% 35 88 30% Acquisition of goods (incl cars) 30 68 63.7 20% Acquisition of goods (incl cars) Overdraft Credit Card 25 48 10% 24.2 20 28 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001 2003 2005 2007 2009 2011Source: Febraban; BCB April 2011 12
  13. 13. A diversified investment case MACRO STABILITY INFRASTRUCTURE & CONSTRUCTION LOWER COST OF CAPITAL CONSUMER & FINANCIAL SERVICES NATURAL RESOURCES COMMODITIES 190 MILLION PEOPLEApril 2011 13
  14. 14. A great 2010, but not an outstanding record GDP growth Average 4.0%April 2011 14
  15. 15. Near the roof: capacity utilization Industrial capacity utilization )%) % of ships with more than 72 hs delay at port of Santos 88 27% 86 84 19% 17% 15% 82 14% 80 78 76 2006 Source: FGV 2008 2010 2006 2007 2008 2009 2010 Source: Port of Santos websiteApril 2011 15
  16. 16. A tight job market Formalization ratio (% of Total Labor Force) Unemployment rate and NAIRU 54 14 52.05 13 52 12 50 11 48 10 46.23 9 46 NAIRU 8 44 7.5% 7 42 Unemployment rate 6 6.2% 40 5 2002 2004 2006 2008 2010 2002 2004 2006 2008 2010Source: IBGE; ItaúApril 2011 16
  17. 17. Rising inflationary expectations 6.5 6.0 6.0% 2011 5.5 5.0 5.0% 2012 4.5 4.0 Jan-10 May-10 Sep-10 Jan-11Source: FOCUS April 2011 17
  18. 18. Airport traffic up 21% in 2010 150 140 million 140 130 21% growth in 2010 24 120 110 12 3 100 7 90 6 80 2006 2007 2008 2009 2010Source: InfraeroApril 2011 18
  19. 19. Rebalancing: fiscal policy A R$ 50 bn budget freeze Government spending growth (IPCA adj) 12% 11% 10% 10% 10% 9% 9% 8% 8% 6% Our estimate 4% 3% 3% 2% 1% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: BCB; Itaú Unibanco April 2011 19
  20. 20. Challenges Low savings ratio Infrastructure bottlenecks and long-term credit Quality of government spending and the social security system High tax burden, complex and inefficient tax code Education, Education, EducationApril 2011 20
  21. 21. Low domestic savings ratio 60% Average 2004-09 Savings/GDP 50% Investment/GDP 40% 30% 20% 10% 0% China India Russia Japan Mexico Eurozone Brazil USApril 2011 21
  22. 22. Total social security spending (% GDP) A generous social security system 20% Italy 18% 16% Poland 14% Brazil 12% 10% Japan 8% US 6% 4% Mexico 2% Colombia 0% 5% 10% 15% 20% 25% 30% People older than 65 as a % of total population April 2011 22
  23. 23. There’s time to act Brazil has a few years to go before the issue gets complicated by population ageing 160 35% Pop aged 15 to 60 (million - left) 140 30% 120 25% 100 20% 80 15% 60 Pop > 60 as % total (right) 10% 40 6% 20 5% 0 0% 1980 1990 2000 2010 2020 2030 2040 2050 Source: UNApril 2011 23
  24. 24. 300 350 400 450 500 550 600April 2011 Shanghai Source: OECD; Itaú Unibanco Finland Korea Canada Chinese Taipei Netherlands Switzerland 2009 PISA rankings Germany Macao-China Iceland United Kingdom Slovenia France United States Sweden24 Portugal Austria Italy Luxembourg Croatia Russian Federation Israel Serbia Bulgaria Romania Mexico Education: still a long way to go Montenegro Brazil Kazakhstan Tunisia Indonesia Qatar Peru
  25. 25. A Brazilian advantage: entrepreneurial spirit 2007 2008 2009 2010 2011IPOs IBOV INDEXFOLLOW ONs Summary 2007 Summary 2008 Summary 2009 Summary 2010 Summary 2011 AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT # # # # # (US$ BN) (US$ BN) (US$ BN) (US$ BN) (US$ BN) IPO 64 29.8 IPO 4 4.6 IPO 6 13.1 IPO 11 6.3 IPO 5 3.0 Follow On 12 8.5 Follow On 8 16.6 Follow On 18 11.9 Follow On 12 82.9 Follow On 4 1.1 Total 76 38.3 Total 12 21.2 Total 24 25.0 Total 23 89.2 Total 9 4.1 Source: Dealogic, CVM, Thomson, Bloomberg April 2011 25
  26. 26. Macro Forecasts 2006 2007 2008 2009 2010 2011F 2012F World Economy W orld GDP growth 5.1 5.2 3.0 -0.6 4.9 4.4 4.0 USA 2.7 1.9 0.0 -2.6 2.8 2.9 2.5 Euro Area 3.2 2.8 0.3 -4.0 1.7 1.7 1.3 Japan 2.0 2.4 -1.2 -6.3 3.9 0.7 1.4 China 12.7 14.2 9.6 9.1 10.3 9.0 8.5 Brazil External Sector & Exchange Rate BRL / USD - eop 2.14 1.77 2.34 1.74 1.69 1.55 1.65 BRL / USD - year avg 2.18 1.95 1.84 1.99 1.76 1.60 1.60 Exports - USD bn 138 161 198 153 202 243 254 Imports - USD bn 91 121 173 128 182 227 250 Trade balance - USD bn 46 40 25 25 20 16 4 Total Trade Flows (exp + imp) - % GDP 21 21 22 18 18 19 18 Current Account - USD bn 14 2 -28 -24 -48 -70 -102 Current Account - % GDP 1.3 0.1 -1.7 -1.5 -2.3 -2.8 -3.7 Foreign Direct Investment - USD bn 19 35 45 26 48 58 65 Foreign Direct Investment - % GDP 1.7 2.5 2.7 1.6 2.3 2.3 2.4 International reserves, cash - USD bn 86 180 194 239 288 335 361 International reserves - % GDP 7.9 13.2 11.7 14.9 13.9 13.3 13.1 Economic Activity Nominal GDP - BRL bn 2,369.5 2,661.3 3,031.9 3,185.1 3,655.3 4,040.0 4,410.2 Nominal GDP - USD bn 1,088.8 1,366.5 1,650.7 1,598.4 2,076.6 2,521.0 2,749.2 Real GDP growth - % 4.0 6.1 5.2 -0.6 7.5 3.6 3.8 Inflation IPCA - % 3.1 4.5 5.9 4.3 5.9 6.3 5.0 IGP–M - % 3.8 7.8 9.8 -1.7 11.3 6.3 5.4 Interest Rate Selic - eop - % 13.25 11.25 13.75 8.75 10.75 12.25 11.50 Selic - year avg - % 15.1 12.0 12.5 9.9 10.0 12.0 12.1 Public Finances Primary budget surplus - % GDP 3.2 3.3 3.4 2.1 2.8 2.5 1.9 Nominal budget surplus - % GDP -3.5 -2.7 -1.9 -3.3 -2.6 -3.7 -3.0Source: Itaú Unibanco Net Debt - % GDP 47.0 45.1 38.4 42.8 40.4 39.3 37.9 April 2011 26
  27. 27. Long run - Macro Forecasts Long Run Scenario Data and Fore casts 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020External Sector Exchange rate Dec 2.34 1.74 1.69 1.55 1.65 1.66 1.65 1.69 1.75 1.79 1.85 1.93 2.00 Current Account % GDP -1.7 -1.5 -2.3 -2.8 -3.7 -3.8 -3.7 -3.5 -3.4 -3.2 -3.2 -3.1 -2.9Economic Activity Real GDP growth % 5.2 -0.6 7.5 3.6 3.8 4.7 4.6 4.7 4.7 4.7 4.5 4.4 4.3Inflation IPCA % 5.90 4.3 5.9 6.3 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 IGP-M % 9.8 -1.7 11.3 6.3 5.4 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0Monetary Policy Selic Target (% a.a.) Dec 13.75 8.75 10.75 12.25 11.50 10.75 10.50 10.25 10.00 9.75 9.75 9.75 9.75Fiscal Policy Primary Surplus % GDP 3.4 2.1 2.8 2.5 1.9 1.5 1.3 1.0 1.0 1.0 1.0 1.0 1.0 Net Public Debt % GDP 38.4 42.8 40.4 39.3 37.9 38.3 37.7 37.0 36.1 35.2 34.3 33.4 32.5 Source: Itaú Unibanco April 2011 27

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