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Macroeconomic Analysis of Brazil

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This was a presentation prepared by The Jai Group about the Brazilian Macroeconomy in 2014.

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Macroeconomic Analysis of Brazil

  1. 1. 20092009200920092009200920092009 20132013201320132013201320132013 The Jai Group Business Services for the BRICs Economies Why should Indian businessmen still care about Brazil ? Some thoughts on exports and investment prospects for Indian businesses in 2014
  2. 2. J Schedule • Executive Summary • Macro-Economic Story • Analysis of India- Brazil Trade Data • Nine Key Trends to Watch out For The Jai Group Business Services for the BRICs Economies • Nine Key Trends to Watch out For • About The Jai Group 2
  3. 3. J Objectives for the Webinar • Recently international press has been critical on Brazilian economy and international investors have been worried. Crises in the region in Venezuela and Argentina, has not made things easier for perception about Brazil. • While there is some truth in what the international press is writing about, Brazilian economy remains a strong market and investment destination. • This presentation gives Indian investors, a basic understanding about what is going on in the Brazilian economy, and what are implications from an Indian point of view The Jai Group Business Services for the BRICs Economies on in the Brazilian economy, and what are implications from an Indian point of view • This presentation is focused more on exporters ( principally merchandise) and potential investors does not cover opportunities such as sourcing and strategic alliances with Brazil • This presentation also does not cover specific issues/ concerns on trading procedures or Brazilian legislation changes on trading norms. However we will be happy to respond to written queries on this subject 3
  4. 4. J Executive Summary (1/2) Theme Key Conclusions Brazilian Economy Current State Brazil is currently growing less than world average and Latin America average since 2011. It is expected to continue this way at least up to 2015. It is one of the slowest growth of the emerging markets, considering the time frame between 2010-2013. Reasons for recent years slow growth Brazilian growth model was based in reducing inequalities, raising employment and salary levels and giving selective incentives for investment. Now inequality has shrank, employment levels are high and domestic investment has not stepped up, even if foreign investment seems disproportionately high. Current account balance had the worst result in 5 years, mainly due to a higher deficit in the service balance, largely equipment rentals. Trade balance had a bad result also, partly due to a rise in imports of fossil fuels. Structural challenges The main challenges for the next decade in Brazil is pick up investment, improve productivity, improving it’s Brazil has exhausted its current employment and consumption driven growth model and is struggling to find a new one based on investment, manufacturing and knowledge driven growth The Jai Group Business Services for the BRICs Economies infrastructure, reducing it’s burden of taxes, further integrating with the world economy and reducing it’s cost of capital. Those are not causes of recent slow growth in Brazil as they’ve been a problem for Brazil for decades The government is unable to lower interest rates because of the inflation goal. At the same time, bank spreads are among the highest in the world. Transformation Industry is losing share of GDP since the 70’s. Trade dynamics and composition Brazil export composition is balanced between basic products and semi-manufactured (59%) and manufactured (39%) and importer of manufactured goods (84%). Most of the industrialized products that Brazil exports are inside Mercosur area. China has overtaken the US as the major Brazilian trade partner, importing commodities and exporting manufactured goods. Trade pattern with India Almost at USD 10 Bi, trade among nations has fallen slightly in the last year . Exports from India to Brazil, seems to be increasing much more than the other way around. Chemicals is evolving as a dominant theme in the India- Brazil relationship. This could be consolidated more as we move forward. Automotive and Capital Goods are other areas 4
  5. 5. J Executive Summary (2/2) Theme Key Conclusions Major opportunities- Service exports to Brazil Major opportunities in service right now are: Equipment Rental, Travels, BPO and IT. Equipment Rental has grown to be the single most important factor in the service Balance, with Travels in #2 and BPO as #3. IT is relatively small yet, but is growing at 12% CAGR since 2008. Equipment Rental is growing at almost 20% rate. Major opportunities-Product export to Brazil Automotive, Capital Goods and Chemicals continue to be clusters to focus on. Optical Instruments is another key sector Major Opportunities- Investment in services within Brazil Health and Education, Non-classified services (which include basic services) and commerce are the major opportunities in Brazil, in terms of both size and growth. Mobile and Internet related also are good investments, as most Brazilians have mobile and internet access (and enjoy surfing on the web). Due to its size and macro-stability, these relatively uncertain times are best for Indians to consolidate gains and open new beachheads, always cautious to avoid risky investments The Jai Group Business Services for the BRICs Economies Brazil investments, as most Brazilians have mobile and internet access (and enjoy surfing on the web). Major opportunities- Investment in Industry within Brazil Major Industrial segments in Brazil are related with oil, sugar cane, iron ore, automotive. Fastest growing are Medical and Optical Equipment's, wood, furniture, automotive, metal-mechanic. Most companies investing in Industry are focusing either on improving the productive process or expanding the capacity of current production line. Notice that these factors are highly correlated. Major Opportunities- Investment in Agriculture Brazil continues to offer interesting opportunities for investment in agriculture, and could serve as a pulse producing country for India. Advice for 2014 Brazil is going through relatively tough times. However it is macro-economically stable and growth drivers are intact: consumer middle class, demographic dividend, big infrastructure investments, oil and gas story though tempered by US shale gas, consolidation as an agri-commodities exporter. India can use these tougher times in Brazil, to acquire assets cheaply, consolidate in its current areas of strength such as organic chemicals and Pharma, open up sectors where FDI investments by current customers are under way- Automotive. Partnerships are easier now than in the last few years. 5
  6. 6. J Brazil - Overview Brazil is a 200 million, 2.2 trillion economy • With current exchange rate devaluation it should go from the 6th position to the 9th position on world largest economies, loosing ground to Russia, Italy and UK. • Larger area than the continental United States • Democracy and private sector capitalism • One of the BRICS, relatively less affected by crisis In an uncertain world, western , democratic and with a large domestic market that is growing, Brazil is a very attractive proposition The Jai Group Business Services for the BRICs Economies Growth driven by: • Commodity trade, Rise of a new middle class, services. • Strong Macro-economic fundamentals: fiscal surplus, trade surplus, stable inflation rate. • Upcoming sporting events and huge Oil finds, ongoing investment cycle Problems exist, and have to be managed • Taxes and Bureaucracy • Corruption • Market Concentration Source: Jai Group Analysis 6
  7. 7. J Brazil and India- Economy Comparison 5% 17% 26% 26% 68% 57% Brazil India GDP composition-Product Optic Brazil is 25 % bigger than Indian economy and is even more consumption driven and is dependent on services, both have a smaller than normal manufacturing GDP 2.19 1.70 GDP Size USD Bn USD Official exchange Rate 2013 The Jai Group Business Services for the BRICs Economies Agriculture Industry Services 63% 56% 22% 12% 18% 38% Brazil India GDP Composition- Expenses optic Government Families Investment Trade Deficit Brazil India Source: CIA, IBGE,, Jai Group Analysis 7
  8. 8. J Schedule • Executive Summary • Macro-Economic Story • Analysis of India- Brazil Trade Data • Nine Key Trends to Watch out For The Jai Group Business Services for the BRICs Economies • Nine Key Trends to Watch out For • About The Jai Group 8
  9. 9. J 6.0 8.0 10.0 12.0 World Emerging World Developing Brazilian Growth Rates vs Row Brazil is struggling even to grow above world average. Despite it has recovered well from the crisis in 2009, the growth rate on the period 2011-2013 was low. IMF prospects are not so optimists also. The Jai Group Business Services for the BRICs Economies -6.0 -4.0 -2.0 0.0 2.0 4.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 ( E) 2015 ( E) Developing Asia Latin America Brazil Advanced Source: IBRE-FGV and IMF (IMF Projections), Jai Group Analysis Crisis in Brazilian Economy (FGV datation) 9
  10. 10. J Chosen growth model might be hitting it’s limit (I) 7.9 8.1 6.7 6.0 5.5 5.4 4.8 2008 2009 2010 2011 2012 2013 2014 Unemployment Rate 101 100 104 106 99 102 109 106 108 115 123 128 2008 2009 2010 2011 2012 2013 Productivity and Cost Change- Normalized Value 2007=100 Productivity Cost Increasing employment and wages, and lowering inequality, without raising productivity is reaching its limits The Jai Group Business Services for the BRICs Economies Source: IPEA, FGV, CNI, BIS via Bradesco and MDIC, Jai Group Analysis 13 44 12.5 30.5 15.5 52 14 18.5 Elite Middle Class Emerging Poor Wealth Distribution Evolution 2002 2012 0% 8% 16% 28% 36% 42% 47% 57% 60% 70% 87% UK Mexico Germany USA Dennmark Canada Poland Sweden Switzerland Norway Israel CzechRepublic Japan Filipinnes NewZealand Estonia Australia Slovakia Cingapure Brazil Variation of Labor Cost on Industry 2006-2010 10
  11. 11. J 4.2 4.9 4.8 6.9 3.9 7.4 4.8 6.5 2.1 2 3.1 2.8 Payroll expenses (total) % Growth 5.1 6.3 9.6 9 6 10.9 6.6 8.4 4.1 3.4 3.2 3 2005 2006 2007 2008 2009 2010 2011 2012 2013e2014e2015e2016e Retail Sales % Growth Chosen growth model might be hitting it’s limit (II) Consumption growth naturally is beginning to slow, though it is still positive The Jai Group Business Services for the BRICs Economies 2005 2006 2007 2008 2009 2010 2011 2012 2013e2014e2015e2016e 2005 2006 2007 2008 2009 2010 2011 2012 2013e2014e2015e2016e 4176 4683 5349 6321 7473 9769 12744 16501 18151 2005 2006 2007 2008 2009 2010 2011 2012 2013e TV Subscription 95.1 102.8 112.1 125.7 133.6 141.3 150.1 162.9 171.2 2005 2006 2007 2008 2009 2010 2011 2012 2013e Number of Current Accounts in Thousands Source: Itaú, Bradesco 11
  12. 12. J 120 140 160 180 200 Itau Commodity Index Commodities cycles is stopping External source of growth through commodities too is becoming slower, as agricultural and metal commodities prices are getting lower. The Jai Group Business Services for the BRICs Economies 0 20 40 60 80 100 120 jan-00 out-00 jul-01 abr-02 jan-03 out-03 jul-04 abr-05 jan-06 out-06 jul-07 abr-08 jan-09 out-09 jul-10 abr-11 jan-12 out-12 jul-13 abr-14 ICI (USD) ICI Agrícolas ICI Metais ICI Energia Source: ITAU 12
  13. 13. J 200 250 300 Billions Brazil’s Exports and Imports with World (US$ Bn) Exports Brazil’s Exports and Imports with World (US$ Bn) CAGR 2009-13 12% After a sharp rise in trade, Brazil has clamped down on growth in trade, as it gets its house in order The Jai Group Business Services for the BRICs Economies Source: ITC, Jai Group Analysis 0 50 100 150 2009 2010 2011 2012 2013 Imports CAGR 2009-13 17% 13
  14. 14. J Brazilian Protectionism is reflected in a closed economy 0 20 40 60 80 100 120 140 160 Import+ Export as % of GDP 2012 Brazil United States ArgentinaColombia Peru Indonesia Venezuela, RB Russian Fed China India France Turkey South Africa Canada Mexico Chile Poland Germany Korea, Rep. Thailand While it is still working out its investment and growth equation, Brazil is providing tariff cover to its local producers The Jai Group Business Services for the BRICs Economies 0.8 0.8 2.6 4.1 4.7 5.1 5.9 6.6 8.3 8.6 9.4 10.6 11 11.3 11.7 0 2 4 6 8 10 12 14 Spain Poland Canada Australia Chile Turkey South Africa Colombia Mexico Korea Russia Argentina China Brazil India Average of tariff weighted by commerce volume Brazil States ArgentinaColombia Peru Indonesia RB Fed China India France Turkey Africa Canada Mexico Chile Poland Germany Rep. Thailand Source: World Bank, CNI, Jai Group Analysis 14
  15. 15. J Balance of Payments and Current Account Deficit Brazil Balance of Payments is doing worse than in recent years, higher deficit in services, lower trade surplus and lower surplus on portfolio investment and other investments are the main causes. Still, current account deficit is half of India’s. 4 12 14 14 2 -28 -24 -47 -52 -54 -81 5 -8 -9 16 89 29 71 100 112 70 75 8 2 4 31 87 3 47 49 59 19 -6 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Balance of Payments (USD Bn) Current Transactions Capital and Finance account Errors/omissions Balance of payments 1.99 1.76 1.67 2.151.95 Exchange rate 1.831.942.172.432.953.07 The Jai Group Business Services for the BRICs EconomiesSource: Central Bank of Brazil, Jai Group Analysis 48 67.7 41.5 20 30.8 39.4 64 34.7 18 2.5 47.5 39.7 FDI Surplus Portfolio Investment Surplus Other Foreign Investments Surplus Trade Surplus Service Deficit Income Deficit Individual Itens- Balance of Payment comparison 2013 2010 -81 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 5.92 10.35 0 2 4 6 8 10 12 Brazil India Current Account Deficit 2013 USD Bn 15
  16. 16. J Government Incentives and Investment rate While Government has tried to stimulate domestic investment rate, it has not picked up 17.50% 29% 28.30% 40.90% 35.10% 25.90% 41.60% 35.90% 45.80% Government Tax Reliefs Investment Production Others R$ 44.5 Bn R$ 72.1Bn R$ 91.5 Bn 19.1 19.4 19.7 20.3 20.6 21.8 22.1 23.9 24 24.1 26.7 26.5 29.9 Spain South Africa Poland Turkey Mexico Argentina Russia Colombia Camada Chile Korea Australia India Investment as % of GDP 2012 The Jai Group Business Services for the BRICs Economies 108.8 84.9 94.7 124.8 94.3 98.6 8.83 -22.01 21.43 2.75 -8.27 7.53 2008 2009 2010 2011 2012 2013 Investment- % Change Normalized Value (2007=100) % change 419 442 470 512 529 627 813 981 989 2021 Food Industry Wholesale commerce Other transport equipment Land Transportation Clothing Leather Machines & Equipment Car Manufacturing Office Services IT Payroll tax ease, top 10 beneficiary sectors up to sep 2013 (R$ Mn) Total Benefits: R$ 11 Bn. 2012 2013 2014 18.1 19.1 Brazil Spain Sources: CNI, IBGE, Brazil Treasury Dept,, FGV , Jai Group Analysis 16
  17. 17. J Most Investment In Brazil is done with self financing and saving rates are low…. 14.80% 15.10% 21.00% 21.90% 28.30% 28.80% Saving Rates of selected countries 8 8.8 6.6 6.4 2.2 3 Sources of Financing for Industrial Ventures 2013 Self-Financed Development Bank Commercial Public Banks Commercial Private Banks Others Debt capital remains expensive and development lending crowds out capital markets, which is weak with low savings rate to begin with The Jai Group Business Services for the BRICs Economies 56% 37% 32% 30% 29% 28% 28% 28% 27% 26% 11% 5% Top 10 Most expensive average lending Rates + India and Mexico Brazil South Africa Mexico Colombia Russia India 62.9 54.9 20.5 27.1 8 8.8 Executed Planned Sources: CNI and CIA 17
  18. 18. J Compared with 2010, Brazil received less Foreign Investment, but, as a share of global FDI it is getting bigger. 0 20000 40000 60000 80000 100000 120000 140000 160000 180000 Foreign Investment in Brazil USD Mn Other Direct Portfolio 2.6 2.1 3.5 4.2 5 2.5 3.1 1.9 2.0 1.7 Share of World FDI Foreign Direct Investment remains surprisingly strong and is growing as a % of total world FDI The Jai Group Business Services for the BRICs Economies -20000 2008 2009 2010 2011 2012 2013 Portfolio investment restrictions in 2011 led to a Major reduction in Direct Investments to Brazil ∆ 10-11 ∆ 11-12 ∆ 12-13 Direct 37.4% -2.1% -1.8% Portfolio -72% -10% 110% Others 12% -58% -7.8% Aggregated -16% -23% 15% Investment Variation YoY 2008 2009 2010 2011 2012 24 64 India Brazil FDI Inflow 2012 USD Bn Source: IPEA, UNCTAD, Jai Group Analysis 18
  19. 19. J Not only the origin of capital in Brazil is changing… 9.3 8.2 6.5 3.8 3.5 3.3 2.8 2.5 1.9 1.8 1.7 1.1 1.1 1 0.7 M&A’s in Brazil 2005-08 However Chinese and American are supplanting Europeans as the biggest investors in Brazil The Jai Group Business Services for the BRICs Economies UK Luxemb. USA Japan Spain France Germany Canada Norway Swiss Italy Chile Mexico India S. Africa 23.5 20.8 14.2 9.8 9.5 7.4 6.9 6.7 5.9 3.6 3.3 2.5 2.3 2 1.9 China USA Spain France Japan Chile UK Norway Portugal Luxemb. Swiss Bermudas Emirates Singapure Germany M&A’s in Brazil 2009-12 Source: Brazilian Treasury Dept. 19
  20. 20. J But also it’s destination. 20.17% 9.63% 7.92% 7.45% 7% 6.90% 4.52% 4.22% 4% FDI Distribution By Sector 2005 Physical goods economy has received more investment than intangible services in 2013, compared to a decade ago The Jai Group Business Services for the BRICs Economies 14.50% 12.60% 7.20% 6% 4.90% 4.20% 4.10% 3.90% 3.60% Oil and Gas Commerce Metal Works Financial Services Transports Food and Beverage Chemicals Insurance Vehicles FDI Distribution By Sector 2013 Telecom Service to enterprises Financial Sector Chemical Products Wholesale Vehicles Utilities Telecom Food & Beverage Agriculture & Mining Source:Brazilian Treasury Dept, Brazilian Central Bank, Jai Group Analysis 20
  21. 21. J Services-Growth and composition 3% 2% 3% 4% 4% 2% 4% 6% 2% 4% 3% 1% 3% 11% 2% 2% 4% 2% 4% 5% 4% Lula1 Lula2 Dilma Service component growth Health and Education Others Commerce Real Estate Finances Delivery Information 03-06 07-10 11-12* Secular growth of Retail and health and education, marks the rise of services in Brazilian economy, Information Services beginning to make its presence felt The Jai Group Business Services for the BRICs Economies 17% 14% 15% 16% 19% 21% 23% 23% 25% 16% 22% 23% 21% 16% 25% 22% 21% 23% 30% 26% 20% 15% 12% 15% 15% 18% 18% 17% 13% 12% 11% 13% 19% 15% 13% 12% 12% 15% 20% 28% 33% 11% 11% 12% 10% 7% 8% 9% 8% 5% 7% 7% 7% 8% 1% 2% 2% 2% 2% 2% 5% 6% 4% 1972 1977 1982 1987 1992 1997 2002 2007 2012 Service Composition Health and Education Others Commerce Real Estate Finances Delivery Information Source: IBGE, Jai Group analysis 21 Other Services: Lodging and Restaurants, public administration services other than health and education, , cinematographic related, associative activities, domestic and personal services, etc.
  22. 22. J Industry-Growth and composition 3% 2% -1% 2% 6% 3% 4% 6% 2% 5% 5% 4% Lula1 Lula2 Dilma Industry Components Growth Transformations Construction Extrativist Utilities 03-06 07-10 11-12* Brazil’s big challenge is to revive manufacturing, that has lost space as Brazil has become a commodities based economy . When Brazilian economy opened up in 1989, Transformation Industry started to loose participation on GDP in a very deep way. The Jai Group Business Services for the BRICs Economies 77% 77% 75% 70% 68% 64% 62% 61% 50% 16% 16% 17% 18% 20% 23% 20% 17% 22% 2% 2% 3% 5% 4% 3% 6% 8% 16% 6% 5% 5% 7% 8% 10% 12% 13% 12% 1972 1977 1982 1987 1992 1997 2002 2007 2012 Industry Composition Transformation Construction Extrativist Utilities Source: IBGE, Jai Group analysis 22
  23. 23. J Main Challenges in Investing in Brazil Unexpected rise in predicted costs Demand revaluation Cost of Credit/Financing Dificultie in obtaining… Economic Uncertainty Perceived risks for non-realization of predicted investments* 4.1 4.5 Expansion Goals Dimish a lot Dimish Keep as it is Expand Expand a lot 89.6 87.7 91 84 Investment in industry Expected investment is the lowest of the series. Bureaucracy , access and cost of capital and economic uncertainty remain barriers to doing business, but businesses remain optimistic, More than 50% of industrial companies are planning expansion in 2014. The rate of company that expect to invest is the lowest since 2010, but still is 78%. The Jai Group Business Services for the BRICs Economies 0 50 100 Technological Challenges Others Dificulty in obtaining raw… Environmental Restriction Infrastructure deficiency Hard obtantion of Labor Bureaucratic Challenges predicted costs 2013 2014 Source: Research with 700 Brazilian companies of different sizes, by the National Industry Confederation (CNI) 2.8 5.3 14.7 12.6 24.6 28.5 53.8 49.1 2013 2014 83 78.7 79.7 83 84 83 78.1 2009 2010 2011 2012 2013 2014 Realized Expectation 23
  24. 24. J Brazil in an International Comparison with 15 countries, 13 emerging + Canada + Spain. 0.8 3.2 3.4 4 4.412 23 43 32 66 India China Colombia Brazil Turkey Labor Cost and Productivity: 5 cheapest emerging markets Labor cost (USD/Hour) Labor Productivity (GDP Industry/ # of workers in Industry 0.11 0.12 0.12 0.13 0.15 0.15 0.17 0.18 Energy cost for Industrial Consumers (KwH/USD) General Ranking Availability and cost of labor Availability and cost of capital Infrastructure and Logistics Burden of Tributes Macroeconomic Environment 14 7 14 13 14 13 10 Brazilian Ranikng in Infrastructure indicator (144 countries) Ports 135 Airports 134 Labor availability, productivity and lack of infrastructure remain major real sector barriers The Jai Group Business Services for the BRICs EconomiesSources: CNI and IMD World Competitiveness, CIA factbook,, WEF 0.05 0.07 0.11 0.12 0.12 0.13 0.15 0.15 0.17 0.18 Microeconomic Environment Education Technology & Innovation 13 8 9 Airports 134 Roads 123 Railroads 100 Eletricity supply 68 2 4.1 4.6 5.1 5.4 8.7 9.4 10.1 10.2 12.2 13.4 13.9 16.4 16.4 Brazil Chile USA Germ… Mexico France Denm… Swee… Japan Poland China Portugal Finland Korea Engineers per 10,000 people 2007 22.9 19.5 9 5.1 4.7 3.4 USA (2007) India (2009) China (2008) Russia (2006) Canada (2008) Brazil (2008) Railroads KM per 1,000 KM2 of land 24
  25. 25. J Infrastructure Challenges: Electric Sector Example On time 24% 18,870 KM monitored Security of staff issues 3% Issues related to Delay of construction 2% Delay in procurement 5% Fundiary issues 2% Delay in delivery and mounting of MPCCSR 7% Reported causes of Delay Projects get delayed routinely The Jai Group Business Services for the BRICs Economies Average Delay: 15 months Source: Minute of121 meeting of Electric Sector Council ANEEL report on TL enterprise fiscalization Feb/13 Jai Group Analysis Delayed 76% Environmental License 52% ONS not allowing energization 2% Change in the delineation 2% Difficults in project approval (Basic & Executive) 9% Issues related to tenders conditions and finding supplyers 16% 25
  26. 26. J Brazil Market Projections 2014-2017 1.4 2.0 2.0 2.0 2014 2015 2016 2017 Primary Balance (% GDP) -75.0 -67.8 -68.9 -70.0 Current Account Balance (US$ Bn) 6.0 5.7 5.5 5.3 Inflation (IPCA in %) 2.5 2.6 2.6 2.6 Exchange Rate (R$ / US$) Central Bank, projects moderate growth, with steady FDI projections and increasing inflation control for the coming years The Jai Group Business Services for the BRICs Economies 26 2014 2015 2016 2017 -75.0 2014 2015 2016 2017 2014 2015 2016 20172014 2015 2016 2017 11.3 12.0 10.8 10.0 2014 2015 2016 2017 CB Year End Interest Rate % 1.7 2.0 3.0 3.0 2014 2015 2016 2017 GDP Growth Rate % 34.7 35.0 34.5 34.0 2014 2015 2016 2017 Net Public Sector Debt 58.8 57.3 60.0 60.0 2014 2015 2016 2017 Foreign Direct Investment (US$ Bn) Source: Central Bank
  27. 27. J Schedule • Executive Summary • Macro-Economic Story • Analysis of India- Brazil Trade Data • Nine Key Trends to Watch out For The Jai Group Business Services for the BRICs Economies • Nine Key Trends to Watch out For • About The Jai Group 27
  28. 28. J BILATERAL TRADE WITH BRAZIL (USD Mn) Trade with Asia is growing ..... 3130 9487 CAGR*=25% 37302 Brazil to India India to Brazil Brazil to China China to Brazil CAGR*=29% 83328 50747 98518 CAGR*=12% Brazil to Europe Europe to Brazil The Jai Group Business Services for the BRICs Economies 28 Numbers are not on same scale * Compound annual growth rate Source: Unctad, Secex, Indian Department of Commerce, Jai Group Analysis 485 6357 553 2003 2013 1038 Major Indo-Brazilian Joint Ventures • Steel: Gerdau and Kalyani Auto Parts: COFAP and Endurance • Buses: Tata and Marcopolo Automation: Perto and Lipi All joint ventures have happened over the last 5 years 4533 46026 2147 2003 2013 6680 18873 4777113066 2002 2013 31939
  29. 29. J Brazil’s Trade Balance with World (2013) 9 9 11 22 28 36 46 Plastics and articles thereof Fertilizers Organic chemicals Vehicles other than… Electrical, electronic equipment Machinery, nuclear… Mineral fuels, oils, distillation… Top 20 Products Imported by Brazil(USD Billions) 8 12 13 14 15 18 23 35 Iron and steel Sugars and sugar confectionery Machinery, nuclear… Vehicles other than… Meat and edible meat offal Mineral fuels, oils, distillation… Oil seed, oleagic… Ores, slag and ash Top 20 Products Exported by Brazil(USD Billions) Brazil is a big importer of manufactured goods, Electricals, Capital Goods, Chemicals and Automotive Vehicles constitute roughly half of Brazilian imports The Jai Group Business Services for the BRICs Economies 1 2 2 2 2 3 3 3 5 5 5 7 7 0 20 40 60 80 Tanning, dyeing extracts, Paper and paperboard, articles… Manmade filaments Copper and articles thereof Inorganic chemicals, precious… Aircraft, spacecraft, and parts… Cereals Iron and steel Articles of iron or steel Rubber and articles thereof Miscellaneous chemical products Optical, photo, technical, medic… Pharmaceutical products 3 3 3 4 4 5 5 5 5 7 7 8 8 0 20 40 60 80 Pearls, precious… Tobacco and manufactured… Organic chemicals Plastics and articles thereof Aircraft, spacecraft, and parts… Electrical, electronic equipment Commodities not elsewhere… Coffee, tea, mate and spices Pulp of wood, fibrous cellulosic… Cereals Residues, wastes of food… Ships, boats and other floating… Iron and steel Source: ITC, Jai Group Analysis 29
  30. 30. J Brazil’s Trade Balance with India (2013) 190 195 269 320 640 3365 Vehicles other than… Miscellaneous chemical products Manmade filaments Machinery, nuclear… Organic chemicals Mineral fuels, oils, distillation… Top 20 Products Imported by Brazil from India (USD Mn) 69 72 236 241 435 1587 Iron and steel Organic chemicals Animal,vegetable fats and… Ores, slag and ash Sugars and sugar confectionery Mineral fuels, oils, distillation… Top 20 Products Exported by Brazil to India (USD Mn) Total Exports to India 2011 2012 2013 Value (US$ Bn) 3.2 5.57 3.13 Total Imports from India 2011 2012 2013 Value (US$ Bn) 6.01 5.04 6.35 India is beginning to establish beachheads in some of them, Chemicals is one area where India seems to have got it right The Jai Group Business Services for the BRICs Economies 23 33 33 35 36 66 71 79 92 110 110 115 120 181 190 0 1000 2000 3000 4000 Essential… Manmade staple fibres Glass and glassware Articles of… Optical, photo, technical, medic… Cotton Articles of iron or steel Iron and steel Rubber and articles thereof Articles of… Tanning, dyeing… Plastics and articles thereof Electrical, electronic equipment Pharmaceutical products Vehicles other than… 13 13 14 14 15 16 19 22 26 27 39 42 42 62 69 0 500 1000 1500 2000 Pharmaceutical products Rubber and articles thereof Beverages, spirits and vinegar Copper and articles thereof Raw hides and skins (other… Optical, photo, technical, medic… Pearls, precious… Wood and articles of… Aircraft, spacecraft, and parts… Vehicles other than… Salt, sulphur, earth, stone, plas… Electrical, electronic equipment Railway, tramway… Machinery, nuclear… Iron and steel Source: ITC, Jai Group Analysis 30
  31. 31. J 4 5 6 7 Billions Brazil’s Exports and Imports with India (US$ Bn) Exports Brazil’s Exports and Imports to India (US$ Bn) CAGR 2009-13 -2% No consistency in Brazilian exports to India, finding a mutually beneficial two way flow, will remain a principal challenge in the next years, Brazilian exports slightly lesser in 2013 than in 2009 The Jai Group Business Services for the BRICs Economies Source: ITC, Jai Group Analysis 0 1 2 3 4 2009 2010 2011 2012 2013 Imports CAGR 2009-13 31% -2% 31
  32. 32. J Completely New Products Imported From India (US $ Mn) 1.07 0.06% 0.08% 0.10% Asa%ofTotalImportsbyBrazil Completely New Products Imported From India (US $ Mn) Value of Imports From India in 2013 (US$ Mn) Fish and crustaceans India is making progress in some promising new products, fish is one such area The Jai Group Business Services for the BRICs Economies Source: ITC, Jai Group Analysis 0.11 -0.02% 0.00% 0.02% 0.04% 0% 20% 40% 60% 80% 100% 120% Asa%ofTotalImportsbyBrazil CAGR 2009-13 Ores, slag and ash 32
  33. 33. J Completely New Products Imported From India (US $ 000) HS2 Code HS2 Description 2013 2012 2011 2010 2009 03 Fish and crustaceans, molluscs and other aquatic invertebrates 1065.4 0.0 6.5 0.0 0.0 14 Vegetable plaiting materials; Vegetable products not elsewhere specified or included 2.6 0.0 0.0 0.0 0.0 26 Ores, slag and ash 106.2 0.0 191.3 0.0 0.0 Had been Identified as a potential category for increasing sourcing from India The Jai Group Business Services for the BRICs Economies Source: ITC, Jai Group Analysis 78 Lead and articles thereof 0.2 0.0 0.0 0.8 0.0 33
  34. 34. J Products that saw a > US $ 5 Mn Jump in Imports (US$ Mn) 23.1 15% 20% 25% Asa%ofTotalImportsbyBrazil Products that saw a > US $ 5 Mn Jump in Imports (US$ Mn) Value of Imports From India in 2013 (US$ Mn) Lac, gums, resins and other vegetable saps and extracts India is growing its trade in principal ly chemicals and automotive The Jai Group Business Services for the BRICs Economies Source: ITC, Jai Group Analysis 3364.5 194.7 190 640.1 92.1 180.979.4 110.4 115.5 110 35 23.2 13.8 -5% 0% 5% 10% 0% 10% 20% 30% 40% 50% 60% 70% Asa%ofTotalImportsbyBrazil CAGR 2009-13 Mineral fuels, mineral oils, bituminous substances Organic chemicals Pharmaceutical products Miscellaneous chemical products Articles of Apparel and Clothing Accessories Tanning or dyeing extracts Iron and steel Plastics Vehicles other than railway or tramway 34
  35. 35. J Products that saw a > US $ 5 Mn Jump in Imports (US$ Mn) HS2 Code HS2 Description 2013 2012 2011 2010 2009 CAGR 09-13 27 Mineral fuels, mineral oils, bituminous substances; Mineral waxes 3364.5 2209.9 3433.0 1872.8 600.0 41% 38 Miscellaneous chemical products 194.7 106.0 74.4 78.2 32.4 43% 87 Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof 190.0 122.0 109.9 91.8 51.7 30% 29 Organic chemicals 640.1 578.7 532.5 439.4 405.6 10% 40 Rubber and articles thereof 92.1 59.6 61.8 38.0 27.5 27% 30 Pharmaceutical products 180.9 163.2 129.2 120.7 93.2 14% 72 Iron and steel 79.4 64.9 67.8 114.5 50.6 9% Had been Identified as a potential category for increasing sourcing from India Jai Group study for the Consulate had identified many of the potential high growth prospects for 2013 in early 2012 The Jai Group Business Services for the BRICs Economies Source: ITC, Jai Group Analysis 72 Iron and steel 79.4 64.9 67.8 114.5 50.6 9% 32 Tanning or dyeing extracts; Tannins and their derivatives; Others 110.4 97.3 76.4 86.1 55.4 15% 39 Plastics and articles thereof 115.5 104.4 134.7 71.5 35.3 27% 62 Articles of Apparel and Clothing Accessories, Not Knitted Or Crocheted 110.0 99.6 78.8 41.8 30.3 29% 13 Lac, gums, resins and other vegetable saps and extracts 23.1 15.5 14.0 9.2 6.4 29% 61 Articles of Apparel and Clothing Accessories, Knitted Or Crocheted 35.0 29.1 25.4 27.1 8.6 33% 33 Essential oils and resinoids; Perfumery, cosmetic or toilet preparations 23.2 17.4 18.4 10.5 8.8 22% 64 Footwear, gaiters and the like; Parts of such articles 13.8 8.4 7.2 5.0 1.7 52% 35
  36. 36. J Products that saw a > US$ 1 Mn to < US $ 5 Mn Jump in Imports (US$ Mn) 268.9 15% 20% 25% Asa%ofTotalImportsbyBrazil Products that saw a > US$ 1 Mn to < US $ 5 Mn Jump in Imports (US$ Mn) Value of Imports From India in 2013 (US$ Mn) Man-made filaments Man made filaments will continue to grow and consolidate with refining capacity in Brazil expected to stagnate The Jai Group Business Services for the BRICs Economies Source: ITC, Jai Group Analysis 6.9 13.817.7 8 4 2.23.23.1 8.7 0.10.1 1.1 -5% 0% 5% 10% 15% -40% -20% 0% 20% 40% 60% 80% 100% 120% Asa%ofTotalImportsbyBrazil CAGR 2009-13 Tobacco and manufactured tobacco substitutes Miscellaneous articles of base metal Furniture; Bedding, mattresses, cushions Natural or cultured pearls Oil seeds and oleaginous fruits Books, Newspapers, Pictures 36
  37. 37. J 212 157 133 132 119 Italy UK Argentina Netherlands Korea Trinidad 29 Organic chemicals Imports in 2013 US$ Mn 113 97 85 78 64 Italy Spain South Africa Uruguay Israel Switzerland 38 Miscellaneous chemical products Imports in 2013 US$ Mn % Share in Total Imports by Brazil 1% 1% 1% 1% 2% 175 156 140 112 103 India Denmark Argentina Spain Sweden Mexico 30 Pharmaceutical Product Imports in 2013 US$ Mn % Share in Total Imports by Brazil 1% 2% 2% 2% 2% % Share in Total Imports by Brazil 1% 2% 2% 2% 2% Key Sources for Pharma and Chemicals for Brazil in 2013 (US$ Mn) Chemicals as a whole seems to be interesting, India should leverage its competencies and low cost advantage to strengthen its position as a leading Source for Brazilian imports The Jai Group Business Services for the BRICs Economies 2304 2184 1316 640 544 524 524 381 242 234 0 2000 4000 USA China Germany India Switzerland Mexico France Japan Spain Italy 1637 416 378 339 325 318 195 172 120 119 0 1000 2000 USA Germany France UK Argentina China India Belgium Denmark Italy 2% 2% 4% 5% 5% 5% 6% 12% 20% 21%1456 1420 801 505 386 366 354 309 190 181 0 1000 2000 USA Germany Switzerland France Italy Belgium UK Ireland Austria India 2% 3% 4% 5% 5% 5% 7% 11% 19% 20% 2% 2% 2% 3% 4% 6% 7% 7% 8% 8% 33% Source: ITC, Jai Group Analysis 37
  38. 38. J Products that saw a > US$ 1 Mn to < US $ 5 Mn Jump in Imports (US$ Mn) HS2 Code HS2 Description 2013 2012 2011 2010 2009 CAGR 09-13 24 Tobacco and manufactured tobacco substitutes 6.9 2.7 6.1 38.1 18.2 -18% 83 Miscellaneous articles of base metal 13.8 9.9 7.1 4.0 2.6 39% 94 Furniture; Bedding, mattresses, cushions and similar stuffed furnishings; Others 17.7 13.9 7.3 5.3 3.8 36% 12 Oil seeds and oleaginous fruits; Grains, seeds; Others 8.0 5.3 5.1 4.8 3.8 16% Had been Identified as a potential category for increasing sourcing from India The Jai Group Business Services for the BRICs Economies Source: ITC, Jai Group Analysis 8.0 5.3 5.1 4.8 3.8 49 Books, Newspapers, Pictures and Other Products of The Printing Industry; Others 4.0 1.9 2.4 0.9 0.5 54% 23 Residues and waste from the food industries; Others 2.2 0.9 0.7 0.5 0.1 96% 68 Articles of stone, plaster, cement, asbestos, mica or similar materials 3.2 1.9 1.9 1.2 0.8 32% 86 Railway or tramway locomotives, rolling-stock and parts thereof; Others 3.1 1.9 1.3 1.8 2.1 8% 54 Man-made filaments 268.9 267.7 215.0 198.0 76.1 29% 71 Natural or cultured pearls, precious or semi-precious stones, Others 8.7 7.5 4.4 3.4 2.5 28% 03 Fish and crustaceans, molluscs and other aquatic invertebrates 1.1 0.0 0.0 0.0 0.0 NA 38
  39. 39. J 16.7 20% 25% 30% Asa%ofTotalImportsbyBrazil Products that saw a < US$ 1 Mn Jump in Imports (US$ Mn) Products that saw a < US$ 1 Mn Jump in Imports (US$ Mn) Optical Instruments is beginning to grow Coffee, tea, maté and spices The Jai Group Business Services for the BRICs Economies Source: ITC, Jai Group Analysis 35.8 1.2 -5% 0% 5% 10% 15% -20% 0% 20% 40% 60% 80% 100% 120% Asa%ofTotalImportsbyBrazil CAGR 2009-13 39 Optical, photographic, cinematographic instruments Manufactures of straw, of esparto or of other plaiting
  40. 40. J Products that saw a < US$ 1 Mn Jump in Imports (US$ Mn) HS2 Code HS2 Description 2013 2012 2011 2010 2009 CAGR 09-13 90 Optical, photographic, cinematographic instruments; Others 35.8 35.0 40.7 26.3 13.8 21% 07 Edible vegetables and certain roots and tubers 5.7 5.0 5.2 3.6 2.3 20% 09 Coffee, tea, maté and spices 16.7 16.0 15.7 10.1 10.4 10% 81 Other base metals; Cermets; Articles thereof 0.7 0.2 0.3 0.3 0.3 20% 05 Products of animal origin, not elsewhere specified or included 0.9 0.5 1.2 1.0 1.0 -1% Photographic or cinematographic Had been Identified as a potential category for increasing sourcing from India The Jai Group Business Services for the BRICs Economies Source: ITC, Jai Group Analysis 37 Photographic or cinematographic goods 0.6 0.3 0.2 0.2 0.3 15% 20 Preparations of vegetables, fruit, nuts or other parts of plants 0.4 0.2 0.2 0.0 0.0 80% 46 Manufactures of straw, of esparto or of other plaiting materials 1.2 1.1 0.9 0.9 1.1 2% 26 Ores, slag and ash 0.1 0.0 0.2 0.0 0.0 NA 36 Explosives; Pyrotechnic products; Matches; Others 0.2 0.1 0.1 0.2 0.0 NA 17 Sugars and sugar confectionery 0.1 0.0 0.0 0.0 0.1 1% 91 Clocks and watches and parts thereof 0.1 0.1 0.1 0.1 0.0 29% 06 Live trees and other plants; Others 0.1 0.1 0.0 0.0 0.0 18% 35 Albuminoidal substances; Modified starches; Glues; Enzymes 1.1 1.1 0.2 0.4 0.3 27% 40
  41. 41. J Sourcing From India In Our Previous Study We found the following items We identified 46 items that can power Indian exports to Brazil over the next three years Total Imp From India – US $ 6 Bn High Potential for further growth Moderate Potential for further growth Top 10 Imports From India (US $ 4.2 Bn) 3004, Medicaments 8708, Parts and Accessories of Motor Vehicle 2933, Heterocyclic Compounds 3902, Polymers of Propylene High Imports But Low Potential Because Indian share already 20-25% : 2710, Petroleum 5402,Synthetic Filament 2704, Coke of Coal 2934, Nucleic Acids 5509, Yarn 5205, Cotton Yarn Currently traded large value 3808, Insecticides 8419, Plant and Lab machinery 3204, Synthetic Organic Coloring Matter 8502, Eletric Gensets 5510, Yarn of artificial fibres 8504 Electrical Transformers 8536, Electrical Apparatus for protecting circuits 8481, Taps and Cocks The Jai Group Business Services for the BRICs Economies 41Source : Jai Group Analysis Currently traded large value (Total, Brazilian Imports), but low Indian market share 8419, Plant and Lab machinery 4202, Trunks suitcases 3921, Plastic Plates, Film, Sheets, Film 8481, Taps and Cocks 8421, Centrifuges 3811, Antiknock Preparations 8532, Capacitors 9032, Automatic Regulating 3824, Binders for Foundry 8535, Electrical apparaturs for protecting circuits Currently Traded Small Value(Total Brazilian Imports) <US $ 200 Mn 2833, Sulphates and Alums 5503, Synthetic Staple Fibres Not Carded Combed 6109, Tshirts 8547, Insulating Fitting for Electrical 3303, Perfumes and Toilet water 9001, Optical Fibres 4901, Printed Books 9608, Ballpoint Pens 9404, Mattress supports 8204, Hand Operated Spanners 8205, Hand Tools, 1302, Vegetable Saps and extracts 9405, Lamps and Lighting including Searchlights 3823, Industrial Mono Carboxlyic Acids Future Items 3924, Plastic Tableware 3212, Pigments for Paints 3302, Mixtures of Odiferous Substances 8803, Parts of Helicopter 8484, Gaskets and similar 9603, Brooms, brushes, hand operated sweepers 3002, Human Blood for therapeutic
  42. 42. J Sourcing From India (Reasoning) High Potential for further growth Low Potential for further growth Top 10 Imports From India • High Growth >15% • India Share Low t< 15% • Low Growth <15% • India Share High Already >15% Currently traded • High Growth >15% • India Share Low <15% • Low Growth <15% • India Share Already High >15% The Jai Group Business Services for the BRICs Economies 42 Currently traded • India Share Low <15% • India to America Share > 15% • India Share Already High >15% • India to America Share < 15% Future Large Value • Imports by Brazil Greater than US $ 200Mn • India Share Low < 15% • India Share to US Significant • Also products that are almost zero in terms of value exported to Brazil. • Imports by Brazil Greater than Cutoff • Import Growth Not High • India Share High Already > 15% • India to US Limited Future Small Value • Imports by Brazil Lesser than US $ 200 Mn • High Growth > 15% • Imports by Brazil Lesser than Cutoff • Low Growth < 15% Source : Jai Group Analysis
  43. 43. J Schedule • Executive Summary • Macro-Economic Story • Analysis of India- Brazil Trade Data • Nine Key Trends to Watch out For The Jai Group Business Services for the BRICs Economies • Nine Key Trends to Watch out For • About The Jai Group 43
  44. 44. J Summary of Trends (1/3) Trends Agri Commodities Oil and Gas Metals and Mining Consumer Products Capital Goods Chemicals & Pharma complex Auto- components and Automotive Complex Financial Services Constructi on and Projects/ Concessio ns Technology and Services Healthcare and Education % of GDP ( 2012) 5%/ 22 %** 4.77% 5.6% 1.9% 11.4% Import Penetration ( 2013 2 S) 4% 68% 15% 36% 38% 21% Growth Rate 7% -2.8%* -2.8%* 1.7% 1.9% 5.3% 2.1% Migration from lower Strong internal Consumpti on Increased Small car models similar Higher % of people having Strong demand for Nine Key Trends to define impact on multiple industries going forward in 2014-2015 The Jai Group Business Services for the BRICs Economies Migration from lower middle class to middle class demand for food and bio- fuels on expected to increase need for generics models similar to India, entry of Asians access to financial products demand for higher education Decade of Demographic Dividend Consumpti on expected to increase Complex molecules for lifestyle diseases Increase of consumption Strong demand for healthcare and higher education Investments in infrastructure Significantly boost supply chain efficiency by investing in ports Capital Goods will benefit from Investments in Infra Lower growth rates for trucks/road implements Broadband connectivity and 4G/ LTE roll out planned Hospital related investments planned Continued exploration of deep sea oil Local content policy will boost investment in capital goods + ++ Source : Jai Group Analysis 44*Aggregated of Extrativist Industry. **Considering food processing
  45. 45. J Summary of Trends (2/3) Trends Agri Commodities Oil and Gas Metals and Mining Consumer Products Capital Goods Chemicals & Pharma complex Auto- components and Automotive Complex Financial Services Construction and Projects/ Concessions Technology and Services Healthcare and Education Consolidation of Agribusiness dominance . Higher demand for chemical products in the field Tractor and Tractor parts sale expected to increase Infrastructure investment concentration in the Center West. Continued focus on Will make financing CAPEX Local partnership Increasingly important to Local investment will May need to leverage new segments and Training could be a good Nine Key Trends to define Future Impact on multiple industries as we go forward The Jai Group Business Services for the BRICs Economies Local sourcing/ Trade Protectionism difficult and reduce demand for India needed for regulatory approvals have a local presence/ partner be welcome, liberal credit available niches to sell. Local presence important be a good reason to justify imports US Shale gas Refining Capacity will be delayed. Ethanol will not have much significan ce Could reduce demand for new refining plants Import share of chemicals expected to increase. Key projects could get delayed Chinese Slowdown As China shifts to consumption, demand unlikely to slow. Mining Assets could be cheaper Chinese investments could increase in concessions Source : Jai Group Analysis 45
  46. 46. J Summary of Trends (3/3) Trends Agri Commodities Oil and Gas Metals and Mining Consumer Products Capital Goods Chemicals & Pharma complex Auto- components and Automotive Complex Financial Services Construction and Projects/ Concessions Technology and Services Healthcare and Education US economic recovery Rising interest rates will benefit any cost of capital Lesser competition/ greater bargaining power for foreign Relevance of Brazil declines relatively Nine Key Trends to define Future Impact on multiple industries as we go forward The Jai Group Business Services for the BRICs Economies advantage investor Indian companies operating in Brazil Renuka Sugars Videocon - BPCL, ONGC, Reliance KEC, Sterlite United Phosphorou s, Torrent Pharma, Birla Carbon Motherson, Many more on the way NA L&T TCS, HCL, Wipro, KPIT Cummins NA Indian Exports to Brazil ~ USD 1 Bi ~ 250 M Source : Jai Group Analysis 46
  47. 47. J Income Gains Trend 1: Lower middle class is continuing to move in to middle class 881.2 Absolute Expenditure Per Income Class In Consumption 2010 In R$ Bn 913 800 780 678 627 624 Canda Spain Russia Mexico Australia Turkey Household consumption US$ Bn (2010) The Jai Group Business Services for the BRICs Economies Source: Itaú DataPopular 47 423.9 486.8 394.1 14.4 A B C D E 10216 3261 2079 1886 1479 1278 1238 964 913 0 2000 4000 6000 8000 10000 12000 United States Japan China Germany France Brazil Italy India Canda
  48. 48. J Luxury Usage Patterns 880 820 790 730 720 Turkey Mexico Canada China India Number of Mobile Subscriptions per 1000 People 10.5 9.2 8.4 2.2 1.1 Turkey Brazil Colombia South Africa India Number of People Using Broadband Internet per 100 PeopleRef. 2011 Ref. 2012 While Mobile penetration is quite high, broadband penetration still is low. The Jai Group Business Services for the BRICs Economies 48 1793 1349 1290 1260 1240 1130 1080 1080 980 0 500 1000 1500 2000 Russia Argentina Chile South Africa Brazil Spain Korea Australia Colombia 37.6 32.9 25.1 24.3 14.5 13 12.4 10.9 10.9 0 10 20 30 40 Korea Canada Australia Spain Russia China Chile Mexico Argentina Source: CNI
  49. 49. J Regional Re-Distribution Trend 1: Consumption is reaching out to poorer regions of Brazil. Poorer regions are picking up Average Annual rate of population growth between 2000 and 2010 (%) and participation of regions in Brazil GDP 8.8 16.5 9.3Central West GDP 2010 (%) GDP 2002 (%) The Jai Group Business Services for the BRICs Economies 49 Source: Ita’u, FGV, DataPopular 4.7 13 56.7 16.9 5.3 13.5 55.4 16.5 0 20 40 60 North North East South East South
  50. 50. J Decade of Demographic Dividend Trend 2: Brazil continues to enjoy demographic dividend The Jai Group Business Services for the BRICs Economies Sources:: IBGE and UN 50
  51. 51. J Investment in Infrastructure Trend 3: Continues to invest in Infrastructure, largely through Government expenditure Airports, 34.7 Petroleum and Gas, 188.1Urban Mobility, 81.4 Ports, 54.7 Highways, 43 Planned Investment in R$ Bn Airports Galeao, Confins, Viracopos, Brasilia, Guarulhos Petroleum and Gas 3 Rounds fo Concessions for 12 to 15 platforms Energy Transmisssion Towers 40,469 MW ~ 39,048km The Jai Group Business Services for the BRICs Economies 51Source : EPE, MME, Ministerio da Fazenda, Jai Group Analysis Energy, 186.1 Railways, 91 Mobility, 81.4 MW ~ 39,048km Railways 10 Railroads = 12000km Urban Mobility Sao Paulo Metro, Rio de Janiero Public Transport Programmas de Portos Investments in 15 states, Public and Private Highways 9 Federal Highways = 7500kms
  52. 52. J Oil and Gas Contribution of oil deficit/surplus to current account (% of GDP) 2013: • Production of oil retreated 3.5% • USD 4.6 Bn of imported fuels in 2012 where accounted in delay 2014: • Peak in oil production due to less interruptions for maintenance • More depreciated exchange rate • Moderation in activity. Trend 4: Oil and Gas self sufficiency is still a goal that is elusive, though likely to be achieved The Jai Group Business Services for the BRICs Economies 52 0 -0.10% 0 -0.60% -0.40% -0.50% -0.10% -0.10% 0.30% 0.80% 1.40% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Contribution of oil deficit/surplus to current account (% of GDP) Contribution of oil deficit/surplus to current account (% of GDP) Source : Itaú
  53. 53. J Oil and Gas The Jai Group Business Services for the BRICs Economies 53Source : Petrobrás
  54. 54. J Trend 5: Despite Chinese slow down, Brazil expects to consolidate its leadership in world agribusiness Annual Growth Market Share in Brazil BrazilWorld Beef Dynamism of exports (1/2) The Jai Group Business Services for the BRICs Economies Source :FGV-DEAGRO Chicken Pork 54
  55. 55. J Dynamism of exports (2/2) Annual Growth Market Share in Brazil BrazilWorld Soybean The Jai Group Business Services for the BRICs Economies Corn Sugar 55Source :FGV-DEAGRO
  56. 56. J Trend 6: Protectionism is on the rise Levers to protect Brazilian Industry Twists and Tweakings Examples Tariff Rates Ad hoc changes in tariffs Anti Dumping Tariffs Aluminum conductor tariffs hiked from 12- 25 % in 2013 Value added Requirements Link local tax slabs to local value added Regulate interstate GST as a function of value added Specific rules of origin Excise tax for cars increased from 7 % to 37 % if local value added less than 60 % Financing at concessional rates Link concessional financing to value add requirements Tractors who do not have a value add of 60 % will not be financed The Jai Group Business Services for the BRICs Economies rates to value add requirements financed Regulatory Standards Increasingly complex approval processes that take time and money Arbitrary, non transparent preferences for specific countries of origin Indian Pharma molecule registrations Biosimilar PPD registrations arbitrarily assigned Product Specifications Arbitrary, non performance related chemical and dimensional specs, Brake shoe size for trailer axles, specific to Brazil, different from ROW Chemical composition of structural steel for transmission towers Source : Jai Group Analysis 56
  57. 57. J External Happenings External Happenings First Level Effects on Brazil Second Level Effects on Brazil Specific Implications for Brazil Chinese Economy beginning a structural change, slowing growth and moving towards internal consumption Cooling of the commodity cycle, especially mining Agribusiness not affected as much Pressure on Exchange Rate Diminished Exports and trade balance European Union regaining top spot as export destination ? US economy beginning to recover and starts the tapering program Capital outflow has begun, and will become worse unless Brazil increases growth and controls Pressure on Exchange Rate Exchange rate has devalued from around 2 to almost 2.4 today Trend 7,8, and 9 : Changes in the External world is changing Brazilian plans The Jai Group Business Services for the BRICs Economies tapering program growth and controls inflation US achieving energy self sufficiency, through Shale gas Oil glut forecast makes refinery capacity be postponed or Shifted Despite being a potential large oil producer, Brazil is still a net importer of refined products and expected to continue until 2020 Comperj petrochemical project in Brazil delayed indefinitely • Braskem/Petrobras project supposed to be the largest ever in Latin America • Originally planned to be naphtha-based and start up in 2012-2013 • Now will be gas-based IF Petrobras can supply at the right price Brazil’s Braskem shifting to gas-based investments • “Competing against a US polyethylene [PE] player is a challenge… Ethylene and PE is where the money is being made in the US, and here we are looking into what we might do. A PE plant and cracker is one alternative.” Fernando Musa, CEO, Braskem Americas, May 2013 Source : Jai Group Analysis 57
  58. 58. J Type of Business Sub category Mode of Entry Equity Joint Venture as an entry strategy Acquisition as an entry/ consolidation strategy Organic Growth Directly in Brazil North America or Europe Fully Owned Strategic Alliance Significant capital to bootstrap business Not much capital to boot strap business Skills / Knowledge embedded in Product/ Zydus, Pidilite United Phosphorous Torrent , Aurobindo Coromandel Fertilizers Ranbaxy Emcure – Biolab Mahindra SUV Mahindra Some Indo Brazil Case Studies The Jai Group Business Services for the BRICs Economies Skills / Knowledge intensive Product/ Brand Phosphorous Aurobindo Ranbaxy Mahindra Tractors Dr. Reddys Skills delivered through people Tata Consulting KPIT cummins, Tech Mahindra Wipro through enabler HCL, Infosys Capital Intensive Initial CAPEX intensive Renuka Sugars Aditya Birla- Novelis Aditya Birla- Carbon Black Working Capital Intensive, projects and tender business Sterlite ? KEC Vijai ELectricals , CRI Pumps Source: Interviews, Jai Group Analysis
  59. 59. J Things to Watch Out for • Election Spending in 2014 and Post Election Revival of Growth • Impact of sporting events and whether they bring drop in investments post 2014-2016 • Brazilian response to Chinese Slow Down • Delays in Infrastructure Projects and Whether International Appetite returns • Evolution of Oil and Gas Industry and Self - Sufficiency The Jai Group Business Services for the BRICs Economies Source : Jai Group Analysis 59
  60. 60. J Jai Group – Contact Details Please feel free to contact us at our India or Brazil office as below : • Mr Rachit Chaudhry (Pune, India) – Email – rachit.chaudhry@thejaigroup.com – Cell : +91 9823702077 • Mr Rakesh Vaidyanathan (São Paulo, Brazil) The Jai Group Business Services for the BRICs Economies • Mr Rakesh Vaidyanathan (São Paulo, Brazil) – Email – rakesh@thejaigroup.com – Ph: +55 11 3254 3524 – Cell: +55 11 9 8339 5983 • Mr Fernando Alves(São Paulo, Brazil) – Email – fernando.alves@thejaigroup.com – Ph: +55 11 3254 3524 – Cell: +55 11 97201 3484 60
  61. 61. J Jai Group – Some Clients Who Have Worked With Us Several repeat clients - long term relationships The Jai Group Business Services for the BRICs Economies 61Source: Jai Group Analysis GOVERNMENT OF INDIA
  62. 62. J Large Companies Focus of Jai Group- Management Consulting Gerdau TATA CVRD Birla Focus of incumbent consulting companies Ford Unilever IBM Bayer Jai: Strategic Partner for first time entrants into emerging markets … Jai Group – Areas of Potential Strategic Assistance BPCL IOCL CCorrea The Jai Group Business Services for the BRICs Economies 62 Companies Mid-Sized Companies Developed Countries Developing Countries Focus of Jai Group- Co-Management / Business Development Focus of Jai Group- Co-Management/ Management Consulting = High degree of Globalization in Emerging Markets = Low degree of Globalization in Emerging Markets Thermax Sterling Purico TorrentBermad Chiesi Kaplan FCC Ranbaxy Caramuru BPCL Engevix Bajaj Auto Promon BEML Source: Jai Group Analysis
  63. 63. J Management Contractor Services The Jai Group Management Consulting … acts as both Management Consultant and Management Contractor … Focus on Emerging Markets The Jai Group Business Services for the BRICs Economies 63 Services • Help emerging market multinationals – Structure and analyze complex issues involved in international expansion in emerging markets – Numerically and using hard facts validate intuitive hypotheses – Synthesize findings to evolve coherent strategy • Stand in as country managers until local operation attains critical size to build a local team – Implement strategies /structure partnerships – Coordinate investment projects – Recruit and manage other service providers – Provide basic infrastructure and logistical support Source: Jai Group Analysis M & A Advisory • Support M&A Deals across Geographies – Stand in as representatives and support for the entire process – Coordinate negotiations and due diligence – Analyze target and present basic diligence and market feedback for better understanding of target from a customer and supplier standpoint
  64. 64. J … having served clients in 5 countries … GEOGRAPHIC COVERAGE US Corporate partnerships / actively prospecting Permanent offices Relevant experience Alliance partners Russia The Jai Group Business Services for the BRICs Economies 64Source: Jai Group Analysis Brazil Mexico US South Africa India
  65. 65. J Jai Group – Contact Details Please feel free to contact us at our India or Brazil office as below : • Mr Rachit Chaudhry (Pune, India) – Email – rachit.chaudhry@thejaigroup.com – Cell : +91 9823702077 • Mr Rakesh Vaidyanathan (São Paulo, Brazil) The Jai Group Business Services for the BRICs Economies • Mr Rakesh Vaidyanathan (São Paulo, Brazil) – Email – rakesh@thejaigroup.com – Ph: +55 11 3254 3524 – Cell: +55 11 9 8339 5983 • Mr Fernando Alves(São Paulo, Brazil) – Email – fernando.alves@thejaigroup.com – Ph: +55 11 3254 3524 – Cell: +55 11 97201 3484 65

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