Brazil: A Macro-economic Outlook by Fabio Niccheri, Partner, PricewaterhouseCoopers. Presentation featured at the 2nd International Conference: Brazil: A pathway into the future from the Emerging Markets Institute at Cornell University's Samuel Curtis Johnson Graduate School of Management and Better Brazil

1. Brazil: A Pathway into the Future – Cornell University
Despite a series of bottlenecks affecting the Brazilian economy; mainly in
infrastructure, education, security, tax system, political system, among others,
the country has gone through significant business transformation during the
last 2 decades.
Brazilian companies have been playing an important role in the process of
recognition of the country as the main business area in Latin America. Brazil
counts with large companies in essentially all economic sectors, including
industrial, mining, agricultural, retail, services, financial institution, among
others. Many of those companies are efficient and compete globally, despite
the so called Brazil cost. They have also made acquisitions abroad and
continue to do so.
Several factors lead to this history of success of Brazilian companies. Those
include:
o Managerial talent. The long history of instability, high inflation, economic
plans among other difficulties helped to forge highly competent
management, flexible and capable of adjusting plans and deal with
adversities.
o Privatizations. Since the beginning of the 90’s privatization of highways,
steel, mining, energy, chemical/petrochemical, telecommunications and
industrial businesses paved the way for these companies to grow and
become large conglomerates.
o Growing domestic market. Brazil had a material portion of its high class
population keen to consume products that were not available and a material
portion of its total population without economic conditions to consume
basic products. These obstacles to growth were reduced with the opening
up of the country to imports and the launch of Real plan and other
measures in the following years that reduced inflation to reasonable levels

2. and promoted higher income level to an important portion of the
population.
o Natural resources. Although not directly affecting some of the industries,
Brazil has natural resources and climate that significantly contributes to
growth. For example, many areas of the country benefit from 2 crops
annually.
o Capital markets improvement.
The Brazilian Capital Markets suffered a radical transformation from de 90’s to
the last decade.
During the nineties the number of public companies in Brazil decreased by
approximately 100 companies. During the second half of the nineties until
2003 less than 10 companies went public in the Brazilian stock market.
Since then, fueled by the country perspectives, business dynamics and new
stock market rules including the creation of the “Novo Mercado”, the picture
changed completely. Around 150 companies went public in Brazil (BOVESPA )
from 2004 to 2011 (average of 18.5 per year, with a pick of 64 IPOs in 2007)
The IPO wave that started in 2004 strengthens companies’ cash positions and
helped the development of green field investments and acquisitions, creating
a virtuous cycle.
The revival of the Brazilian stock market generated a wave of investments
from Private Equity firms that finally managed to exit investments in Brazil
through IPOs, yielding high returns and creating stimulus for new investments.
With respect to the Brazilian M&A market, the first half of the 2000 decade
showed approximately 400 annual M&A transactions in Brazil, a number that
increased to around 650 in the last half of the decade (number only achieved

3. during the internet bubble in the late 90’s) and to around 750-800 in the last 2
years.
Another interest shift in the M&A market is that during the nineties most of
the acquirers in M&A transactions were foreigners (approximately 2/3) while
in the last and current decade it is the opposite (approximately 2/3 of the
acquirers are Brazilian companies). Private Equity firms are responsible for
some 30% of the acquisitions, based on the successful track record previously
achieved.
Some of the hurdles of doing deals and doing business in Brazil have
significantly decreased.
o Informality which was previously common, is now a practice of a minority
of companies, especially if only those with size to enter more developed
business transactions are considered. Business environment and culture do
not accept certain informal practices anymore. The companies and
government and creating new controls such as SPED (electronic
information system for exchange of information between government and
companies and e-invoicing).
o Brazil has adopted IFRS (with certain adjustments) as its GAAP (accounting
rules), although many private companies are still not using several of its
provisions. This will eventually become largely adopted even by private
companies and will make it easier for investors to analyze accounting
figures.
o Transparency and other stock market rules dealing with minority
shareholders protections have benefited the market.
Brazilian companies have ups and downs, such as the economy, but have being
following an upward trend. The future includes challenges related to the
current world economic situation and the bottlenecks still affecting the
Brazilian economy and business environment, which were analyzed by Mr.
Ramos, Mr. Cottani and Mr. Silva. Brazil is one of the largest world economies

4. and being a developing country presents more long term opportunities.
Perspectives for Brazilian companies are promising even if global economy
performance isn’t great, as the domestic market potential is still unexplored.
But additional effort is necessary for Brazil to solve infrastructure issues
already affecting the growth capacity of companies and reduce the burden
from tax and social issues.