Only three weeks set apart the beginning of Brazilian Korean LG subsidiary notebook production in August 2008 from U.S. bank Lehman Brothers' bankruptcy, which triggered the major global economic crisis in eight decades. It seemed like one of those unfortunate coincidences in which an event undetectable by any radar brought down all previously established high expectations. Less than one year after its release, the notebook division in Taubaté, Sao Paulo is one LG's highlights in Brazil. "It was a surprise. The only reason we do not sell more of them is the fact we do not have the product in stock", says Eduardo Toni, marketing manager. 12 million computers are estimated to have been sold in Brazil in 2009 - equaling last year's historical record and placing the country as the fifth major market worldwide. Overseas, GM has just emerged from a court-supervised agreement with creditors that many deemed unimaginable and is trying to cash in on part of its operations in Europe. In Brazil, their executives have just announced a 2-billion reais investment to boost the production of the Gravatai plant in Rio Grande do Sul. The automotive industry expects to sell 3 million cars, a historical record in a year with all the ingredients to become a nightmare. Some industry representatives already forecast that, by the end of 2009, Brazil will surpass China as the fastest expanding global automotive market. McDonald's has recently announced hiring 2,500 employees in different regions in Brazil and increasing its personnel headcount in 5%. The new employees will work in 26 new diners the company is planning to open in 2009 - and they will join the mass of 300,000 new jobs made available in overall economy, during the year's first semester. Most of these workers will possibly use part of their salaries to buy LG computers or, who knows, GM cars.
We are no longer talking about forecasts - we are talking about facts, i.e., things as they really are. In times of anxiety and apprehension, when developed countries are suffering the aftereffects of an awful hangover, Brazilian economy is picking up steam. Contrary to Brazil's turbulent history, this crisis - in the true meaning of the word - shows signs that it was left behind. "Around here, the crisis - understood as arrested growth - is over", says economist Luiz Carlos Mendonça de Barros, former Minister of Communication and partner of Quest Investments. "We have paid a relatively low price. Plenty of people have been included in the labor market over the last years and it was not radically affected. That is the basis of being back on the rise."
For those who paid the price with their own employment or bankruptcy, the crisis is as real and cruel as any other. For months, the shadow of these histories loomed over economy. During two trimesters, the GDP dropped, and such picture was fostered by the lack of credit, loss of confidence, sales reduction, and production discontinuation. The fact is thatwe are looking through the rearview mirror. At this point in time, we are already experiencing the next phase, the economic rebound. Considering a hypothetical year beginning last July 1st, the GDP forecast for the next 12 months reveals considerable growth - the prognosis from dozens of economists interviewed by EXAME varies from 2.9% to 4.5%. This is a remarkable improvement in view of the Focus report projection. Developed by the Brazilian Central Bank, this report is based on the opinion of hundreds of financial organizations and indicates a retraction at 0.3% in 2009. In order to determine the way this rebound currently takes place in the real world, EXAME conducted a survey over the last weeks with 360 companies established in the country. Concrete data draws the attention: 70% are back on track, have not changed or are increasing investments.
Whenever the economic picture changes drastically, it is natural that the preceding scenery should look somehow incoherent. After all, economy is the result of millions of individual actions and, naturally, not everything follows the same pace or route. Positive and negative news coexist for some time. However, it becomes increasingly clear that the pains will be related to growth, not the opposite. Consumers have been returning to waiting lists to buy some car models - especially the popular ones, in which the IPI (Industrial Product Tax) exemption represents approximately 10% of the price, or something like R$2,700 discounted in a vehicle such as Ka. This is a striking, decisive difference for incipient Brazilian consumers. Large retail conglomerates are already facing difficulties to replace inventories such as notebooks, washing machines and refrigerators. This disarray can be partially explained by the fact that some companies, particularly industries, have abruptly reduced their production, due to credit problems, or simply because of fear. "The industry was not prepared to sell that much", says Luiz Carlos Batista, president of Insinuante, a Bahia-based conglomerate with 255 stores spread throughout the Northeast, the North and the Southeast regions of Brazil. In June, sales increased by 10% in comparison with the same period last year, after losses at 8% in billings during the first quarter of 2009. With an operational income worth 2 billion reais last year, Insinuante resumed expansion plans, opening up four stores in Manaus. One hundred million reais were invested in Amazonas, where Batista plans to launch ten new stores by the end of the year. After all, why does Brazil emerge so quickly from a scenario pictured as hell's waiting room? How come a country historically connected to economic booms and busts succeeds as one of the most successfully foundational countries in the world? From now on, these questions will be the delight of economists, political scientists, sociologists, and scholars in general. Apart from academic debates, the enigma can possibly be partially explained by the current state of the Brazilian private segment. According to the last MAIORES E MELHORES (THE BIGGEST AND BEST) edition by EXAME, there are currently 17 entrepreneurial groups with annual billings over 10 billion dollars - a good part of them have businesses abroad.
Management development is perhaps more important than size, after all, this crisis has taught us that no one is safe enough from being placed in receivership. Twelve years ago, an Asian crisis struck a blow to Lojas Arapua, one of the largest retail businesses in Brazil. The company had rapidly boomed during the first years of the Plano Real. It went bankrupt when the sluggish demand and insolvency reached its peak in 1998. Now, nothing remotely similar took place this time. "In large retail conglomerates, management is more professional and runs lower risks", says Armando Vale, institutional relations manager at Whirlpool, holder of the Brastemp and Consul brands, and the largest appliance manufacturer in the country. Last year's economic stability has led to the concentration and strengthening of large groups. Amid the uncertainties of last year's crisis, Grupo Pao de Açúcar announced it would withhold part of their investments. Out of 1.2 billion reais forecasted for expansion projects, only 500 million would be spent. Since then, supermarket sales have only increased. During the first five months of this year, the segment's sales increased more than 5% in comparison to the same period in 2008. Plans apparently have changed again. In June, Pao de Açúcar acquired the appliances conglomerate Ponto Frio. Over the last weeks, the company acquired full stock control of the wholesale chain Assai. Investments for both acquisitions totaled over 1 billion reais. "We kept investing because we knew economy would spur again. This is clearer now", says José Roberto Tambasco, Pao de Açúcar commercial and operations vice-president.
Consciously or not, entrepreneurs and executives have been exploring the domestic market - the great driver of Brazilian growth in most recent years. All crisis evolution assessments demand an analysis of the consumer's behavior, which is responsible for 60% of the GDP. This variation portrays the dynamics of events in the country. In the last months of 2008, fear that economic sluggishness would cause a large wave of unemployment betrayed consumers' trust. Approximately 800.000 people lost their jobs between November 2008 and February 2009. The labor market reduction kept consumers away, causing economic sluggishness. However, the widespread unemployment lasted about three months. Since then, the wheel has revolved and 300.000 job placements were created within one semester. Brazil is one of the few countries among the 20 largest world economies that should close the year with an increase in employment, an estimated balance of about 600.000." Brazilian economy still endures a series of distortions. When one of them is expunged, as in the case of the IPI reduction, expansion becomes easy", states Sérgio Vale, head-economist of the consultancy MB Associates.
After the initial shock, family consumption
has increased by 1.3% during
the first quarter of 2009, supported by
the income increase. Consumption is
expected to be increased by 1.9% at the
end of the year - a modest rate as compared
to the 5.4% recorded in 2008, yet
quite likely to be celebrated. The hidden
meaning of this data is that even with
less available credit, Brazilians kept on
buying. "The consumer's appetite has
not changed. People need services; they
have wishes and they can afford go shopping", says Israeli Amos Genish,
the president of GVT, an operator that
provides elephone and internet services
in 14 states in Brazil. "In our segment
there are still lots of people without
broadband Internet access." Still in
December, when he realized that business
was flourishing, Genish increased
in 100 million reais its investment forecast
for this year. 600 million reais will
be destined to improvements in the existing
network and the expansion in new
urban areas. "We believe this is the
right moment to expand our business.
Brazil is currently one of the best places
to invest in the world", says Genish.
In several segments of the Brazilian economy indicators reveal an economic improvement that is even stronger than a year ago -
that is the case of car, appliances and medicines sales. Other numbers from sectors mostly affected by the crisis, such as steel
consumption and company financing have shown slower recovery - but all of them have reacted
If Brazil is one of the best places to invest in the world, the Northeast region has become one of the best places to invest in Brazil. "The region was arguably the least affected by turbulence," states Luiz Borges de Medeiros Neto, manager of Fundo Nordeste II, which has just been launched by Rio Bravo, the company responsible for their financial operations, and which has Gustavo Franco, former president of the Brazilian Central Bank, as one of its partners. This is Rio Bravo's second operation in the area. This time, 141 million reais will be spent on the acquisition of interests in mid-sized northeastern companies, food and beverage industries, support service industries, as well as education and health. The interest in this type of business arouses in proportion to the income raise in the area. For example, according to last month's employment research issued by IBGE and carried out in May, the Salvador Metropolitan Area revealed an actual 5% increase in average household income in comparison to the same period last year. This increase was 3.4% in the country as a whole. Obviously, there is a new emerging market - and this is about everything businesspeople might wish at a time when the entire world just talks about it, The Crisis.
Even segments that have experienced more sales reductions are already starting to outline defense strategies. In general, those are companies that depend less on the domestic market and, therefore, are more likely to suffer from the world's deceleration - a recent BNDES study shows that the export reduction was responsible for half of the industrial production drop from September 2008 to March this year. Bahia Pulp, a pulp manufacturer and exporter was forced to halt one of their two production lines in November, by its output by one third. The cut-back took place four months after the Chinese-capital company had expanded the plant in Brazil. "Orders vanished with the crisis and the stocks almost trebled", says Cláudio Cotrim, Bahia Pulp's financial director. The situation affected manufacturers all over the world. Four pulp and paper companies were shut down in Europe after the deepening of the crisis. However, with supply reduction and the return of the industrial activity, the market became favorable to Bahia Pulp. In June, the plant was reactivated. "We are currently selling four times as much as compared to a year ago", says Cotrim
.
Steel companies - one of the bases of Brazilian industry - have also restarted their production. Between December and March, six out of the 14 major blast furnaces in the country were stopped and the metallurgical capacity was reduced to mere 49%. The strength of the Brazilian market and the slight improvement in the foreign situation over the last few weeks led the companies to successively announce the reactivation of the furnaces. In June, CSN restarted the operations of a blast furnace that had been refurbished for the past three months and expanded the Volta Redonda plant's capacity from 65% to 90%, in Rio de Janeiro. Gerdau reactivated the largest furnace of Gerdau Açominas during the first week of July. A couple of days ago, Usiminas was also getting ready to reactivate two out of tree furnaces that had been deactivated. Considering economy as a whole, it is possible to draw the main reaction characteristics in course. First of all, it becomes quite clear that the reaction was triggered earlier than expected. In this aspect, although it was a serious crisis, it was also short - it lasted two trimesters. Secondly, it is obvious that some companies and segments are vigorously reacting beforehand. The situation tends to improve for those working closer to consumers. In the third place, the recovery of the pre-crisis expansion pace will not take place immediately. Although Brazil has shown terrific resilience, the country is integrated into the global economy, which is still weakened. Finally, investment goes one step behind consumption - as suggested by classic post-crisis recovery books.
Capital is intrinsically fearful. It is paradoxically eager to find a harbor where it can multiply itself. Safe harbors are rare in today's world. Probably this is the reason why over 11 billion dollars in foreign capital were invested during the January-May period of this year. In the first trimester, the country got 2.4% of worldwide investments - in 2007, Brazil's allocation was 1.9%. "Foreigners' quests for long-term scenarios have increased a lot", says Octávio de Barros, Bradesco's chief economist. "If it was inconceivable for an entrepreneur not to have business in China, the same happens in relation to Brazil now." Investments are expected to recovery in the second semester, gradually reinforcing the production. Industry's installed capacity was close to 80% in May, the fourth consecutive peak in the year. "There was a huge idle industrial capacity at the end of the year", says Fábio Akira, chief economist of JPMorgan in Brazil, working with an estimated rate of economic growth by 4.5% for the next 12 months. "There is a natural delay on the recovery of investments, which is now beginning to turn up."
Alcoa, the main international aluminum manufacturer, has 31 subsidiaries worldwide. The Brazilian subsidiary was the only one to keep its 1.2-billion-dollar investment plan unaltered. "It would be uneconomical to stop now. But it was not easy to persuade the headquarters", says Franklin Feder, president of Alcoa Brazil. "In order to persuade Alcoa's board to keep investing in the bauxite mine in Jurity, Pará, I said that if we discontinued an investment in the middle of Amazonia, the forest would engulf what we had already done." The mine - a venture that has taken 3.5 billion reais in resources and almost nine years of work - starts operations in September.
Based on data from companies such as Alcoa, BNDES is estimating an annual investment rate equivalent to that of 2008 - not bad for the year of the Crisis. However, the general economic performance in the second semester will be critical for other segments that still need more encouragement to react, such as the construction industry. "There is an anxiety to make second semester happen", says Marise Barroso, president of Amanco, manufacturer of pipes and plastic fittings, whose company increased installed its capacity in 20% this year. The indicators for August and September will channel Amanco's 2010 planning. According to forecasts, the construction industry should be at full speed by the end of the year, boosted by housing funding plans such as Minha Casa, Minha Vida. Construction incentives will also help restore businesses such as Termomecânica, a metallurgical company based in Bahia, operating in one of the industrial segments in which the recovery is at early stages. There are two ways of facing current conditions in the country, and both of them are equally important. The first is a short-term lookout- vital for those who need to decide where to invest, who to hire, production amount. The second is not focusing on the present and seize the broader phenomenon that the crisis - and the responses it gets - symbolizes. It is not a matter of nationalism or naivety, but rising to a new development state. Historically, foreign crises have always led to more inflation on the home front and lack of dollars on the external front. Around here results were chaotic. Results today are the opposite of what was seen in the past - inflation is being curbed and the country is piling up reserves. The crisis has lost its strength as it crossed the borders. In this respect, it is almost like Brazil had succeeded in some sort of test. The crisis ran a check in the country, the economy, companies, and markets. The facts generated at plants, stores, and on the streets revealed that we have avoided the pitfall better and faster that we ever imagined - great!
