Brazil - Facts and Figures

Brazil
How did we get here? What’s coming next?
Lecture to MBA students of John Hopkins University

by Professor Daniel Motta, Phd
CEO BMI Brazilian Management Institute

About Professor Daniel Motta
Founding Partner and CEO of BMI, 17-year
top executive education consulting

PhD in Economics at USP
MSc in Economics at FGV-EAESP
BA in Economics at USP

MBA Professor at FDC, Insper and FGV
Visiting Professor at Stockholm School of
Economics (Stockholm, Sweden, 2009)
and GE Leadership Development Center
(Crontonville, US, 2007)

Planning Director at ABRH

Co-founder of Brazilian Financial Society

Author of “Varejo de Alto Desempenho”,
Harvard Business Review, Feb 2010

Born in São Paulo, married with two
children, Julia and Fernando

What do you know about Brazil?

Our national capital is the city
of Brasília since 1960...

... our most wonderful city is
undoubtedly Rio de Janeiro...

... our most cheerful city is
definitely Salvador (Bahia)...

... our most powerful city is São Paulo,
with more than 20 million people...

7

... we certainly have some of the most beautiful
UNESCO historic cities around Minas Gerais state ...

... we probably have the most
beautiful ocean coast of the world...

... unfortunatelly, our big cities are
surrounded by favelas...

... we certainly have one of the most
complex fauna and flora of the planet...

... we have Pantanal, the world's
largest wetland of any kind...

... we have Amazon, with its
unparalleled biodiversity...

... we do have Indians, although most of them
were killed over the last five centuries...

... of course we have Carnival...

... we are always fascinated with Brazilian women ...

... we have a very rich folk culture
and traditions, mixing customs,
people, legends and music...

... we play and dance with
the sound of samba...

... we have Di Cavalcanti,
Tarsila do Amaral, Portinari,
Romero Brito e Vik Muniz...

... we have Machado de Assis, Graciliano Ramos,
Jorge Amado, Mário de Andrade, Guimarães
Rosa, Érico Veríssimo e Paulo Coelho...

... we do play soccer
everywhere, all the time...

... we once had Ayrton Senna...

... we (wish to] have Gisele...

But we are much more than music, soccer and nature...
What about Brazilian gigantic corporations?

Petrobras is the largest
company in Latin America by
market capitalization and
revenue.

It is a world leader in
development of advanced
technology from deep-water
and ultra-deep water oil
production.

65th largest company in the
world according to Fortune
Global 500

Revenue: USD 104.9 billion

N. Employees: 74,240

Itaú Unibanco is the largest
financial conglomerate in the
Southern Hemisphere and is the
10th largest bank in the world by
market value.

It accounts for about 11% of the
Brazilian market for retail banking
services. It also has operations in
Argentina, Chile, Paraguay,
Uruguay, England, Luxembourg,
USA, Japan, China and Hong Kong.



Anheuser-Busch InBev is the
largest global brewer with nearly
25% global market share and one
of the world's top five consumer
products companies by EBITA.

The company is lead by Carlos Brito
(Brazilian), and grew based on
entrepreneurship spirit of Jorge
Paulo Lehman, Carlos Alberto
Sicupira e Marcel Telles.



JBS is the largest Brazilian
multinational in the food industry,
producing fresh, chilled, and
processed beef, chicken and pork.

It is also the world's largest
company in the beef sector with the
acquisition of Swift&Co. (USA),
Pilgrim’s Co. (USA) and Bertin
(Brazil).



Vale is the second-largest mining
company in the world, the
largest producer of iron ore, and
second largest of nickel. The
company also produces
manganese, ferroalloys, copper,
bauxite, potash, kaolin, alumina
and aluminum.

It has managed to establish
itself as a global mining
company through joint ventures
and acquisitions abroad.



Grupo Pão de Açúcar is the
biggest Brazilian company
engaged in business retailing of
food, general merchandise,
electronic goods, home
appliances and other products
from its supermarkets,
hypermarkets and home
appliance stores.

It is also the biggest retail
company in Latin America by
revenue.



Odebrecht is a Brazilian business
conglomerate in the fields of
Engineering & Construction and
Chemicals & Petrochemicals .

The company has a significant
presence in Africa, Latin America
and Middle East.

ETH and Braskem are among its
most important business units.



Gerdau is the world’s 14th largest
steelmaker and the largest
producer of long steel in the
Americas. It has 337 industrial and
commercial units in the 14
countries where it operates.

Its core business is to transform
steel scrap and iron ore into steel
products.



Embraer produces commercial,
military, and corporate aircraft, and
provides related aerospace
services.

It is the third-largest aircraft
company in the world in terms of
yearly delivery of commercial
aircraft (behind Boeing and Airbus),
and fourth-largest in terms of
workforce.



Fibria was created by a merger
between Aracruz and VCP, born
positioned as a global leader in
pulp, with production capacity
exceeding 6 million tons of pulp and
paper produced in 7 factories
distributed in 5 Brazilian states.

Much of this production is exported.



BM&F Bovespa has a great
presence among stock exchanges in
the world, with a market
capitalization equivalent to USD 1.3
trillion (2009) and more than 450
listed companies.

In addition to trading, it also
undertakes the following activities:
listing companies and funds;
disseminating price quotes;
launching market indices;
developing systems and software;
implementing technological
advances, and much more.

Brazilian market wasn’t left just for national companies...
What about global corporations in our marketplace?

Volkswagen, Goodyear, Unilever,
SAP, Carrefour, Fiat, Nestlè,
Telefonica, Pirelli, Scania,
ArcelorMittal, IBM, Wal-Mart,
Bunge, Microsoft and Santander.

These are just a few examples of
global corporations focused on
Brazilian marketplace, with
significant local market share and
customer awareness.

Brazilian economy, as part of BRIC,
is now one of the key region for
seeking both growth and profit.

How we lead strategy into action?

Strategic vision inspires what should we accomplish

Strategic planning defines what should we do

Strategic execution tells us if we have a chance to be successful

What is going on in Brazilian economy?

Unique moment in our history

• Brazil has been democratic before;

• It had economic growth before;

• It also had low inflation rate before;

• But never at the same time.

Brazil is now Investment Grade
according to global rating agencies...

... but that wasn’t the only national achievement...

Brazil will host both Olympic
Games and FIFA World Cup

That’s a huge investment and social opportunity,
if they not become a corruption curse...

Brazil now belongs to BRIC:
the trillion-dollar club
GDP Forecast (in USD billion, 2003 current value)

Source: GoldmanScahs (2003)

1930 1945 1956 1964
1822 1889 1973 1979
1500 1982
1985
1990

1994

1999

2002

2008

2010

Brazilian timeline: 1500-2010

1500: Brazil was “discovered” and
colonized by Portuguese
• In the history of Brazil, Colonial Brazil
comprises the period from 1500, with the
arrival of the Portuguese, until 1815, when
Brazil was elevated to United Kingdom with
Portugal.

• Over 300 years, the economic exploitation
of the territory was based first on brazil
wood extraction (16th century), sugar
production (16th-18th centuries), and
finally on gold mining (18th century).

• Slaves, specially those brought from Africa,
provided most of the working force.

1822: Brazil finally became
Independent Empire

• Dom Pedro I, son of Dom João VI, King
of Portugal, declared himself 1st Emperor
of Brazil. There’s no independence battle
against Portugal, which was by that time
trying to recover from French invasion.

• Brazilian economy was then based on
coffee exportation, with very low level
of industrialization and infrastructure.

1889: Brazil declares Republic

• The Brazilian monarchy was
overthrown on 15 November 1889.

• The early republican government was
little more than a military dictatorship.
The army dominated affairs both at Rio
de Janeiro and in the states. Freedom of
the press disappeared and elections were
controlled by those in power.

• Coffee was still the core economic
activity, with some farmers investing in
industries, trading companies and banks.

1930: Brazil was ruled by a dictator
• By 1930, the republican regime was
weakened and demoralized, which
allowed the defeated presidential
candidate Getúlio Vargas to lead a coup
d'état and assume the presidency.

• Vargas was supposed to assume the
presidency temporarily but instead, he
closed the National Congress,
extinguished the Constitution, ruled with
emergency powers and replaced the
states' governors with his supporters.

• Brazilian industrialization accelerated.
Petrobras, Vale and CSN were founded.

1945: Brazil becomes a democracy
once again. At least for a while...
• With the allied victory in 1945 and the
end of the Nazi-fascist regimes in Europe,
Vargas's position became unsustainable
and he was swiftly overthrown in a
military coup.

• Democracy was reinstated and General
Eurico Gaspar Dutra was elected president
and took office in 1946.

• Industrialization was focused on import
substitution. Matarazzo conglomerate,
the largest Brazilian industrial group,
started losing market share and economic
power for imported goods and
multinational companies installed here.

1956: JK starts building Brasília,
and pushing industrialization
• Juscelino Kubitscheck became
president in 1956 and assumed a
conciliatory posture towards the
political opposition that allowed him to
govern without major crises.

• The economy and industrial sector
grew remarkably, but his greatest
achievement was the construction of
the new capital city of Brasília,
inaugurated in 1960.

• Inflation rate and government
debt significantly increased.

1964: Military dictatorship again
• The new military regime was intended
to be transitory but it gradually closed in
on itself and became a full dictatorship
with the promulgation of the Fifth
Institutional Act in 1968.

• The repression of the dictatorship's
opponents, including urban guerrillas,
was harsh, but not as brutal as in other
Latin American countries.

• Due to the extraordinary economic
growth, known as an "economic
miracle", the regime reached its
highest level of popularity in the years
of repression

1973: Oil Crisis and Hiperinflation
• The 1973 oil crisis started in October
1973 and lasted until March 1974, when
the members of Organization of Arab
Petroleum Exporting Countries or the
OAPEC (consisting of the Arab
members of OPEC, plus Egypt, Syria
and Tunisia) proclaimed an oil embargo
"in response to the U.S. decision to re-
supply the Israeli military" during the
Yom Kippur war.

• The 1973 oil price shock, along with
the 1973–1974 stock market crash,
have been regarded as the first event
since the Great Depression to have a
persistent economic effect over
developed (such as USA) and
developing countries, (such as Brazil).

1979: Second Oil Shock
• The 1979 (or second) oil crisis in
the United States occurred in the
wake of the Iranian Revolution.

• In Brazil, the military regime
continued, under General João
Figueiredo, to complete the transition
to full democracy in 1985.

• By that time Brazilian economy was
deeply damaged by staginflation.
The 80s would be known as “The Lost
Decade”.

1982: Brazilian economy is broken
• The Latin American debt crisis
occurred when these countries reached
a point where their foreign debt
exceeded their earning power and they
were not able to repay it.

• In the 1960s and 1970s, Brazil,
Argentina and Mexico, borrowed huge
sums of money from international
creditors for industrialization and
infrastructure programs.

• Brazil declared that would no longer be
able to service its debt. The country
would be out of global capital market
until 1994.

1985: Democracy is back in town

• In response to the crisis, Brazil
abandoned their import substitution
industrialization (ISI) models of
economy and adopted an export-
oriented industrialization strategy,
usually the neoliberal strategy
encouraged by the IMF.

• The debt crisis is one of the elements
that contributed to the collapse of
Brazil's military regime.

1990: Liberalization of Trade
• In the early 1990s, Brazil began significant
liberalization of its trade. Although import
licenses were not abolished, their approval
became a relatively routine operation, and
by 1991 most licenses were being issued
within five working days.

• Early in 1991, the President Collor de
Mello government announced a series of
tariff reductions to be phased in over the
1991-94 period. These were among the most
far-reaching and significant reductions in
Brazilian trade protection in several decades.

• Fernando Collor, who was subsequently
impeached by the National Congress in
1992, and succeeded by Itamar Franco.

1994: Real Plan and Privatization

• Fernando Henrique Cardoso
launched the highly successful Real
Plan (Plano Real) that granted
stability to the Brazilian economy
and he was elected president in 1994
and again in 1998.

• At the same time, FHC government
was marked by other major change in
Brazilian economy: public services and
state-owned companies were
privatized. That would be the basis
of our sustainable growth.

1999: Speculative attack

• From 1995 to 1999, global financial
markets were continuously affected by
emerging markets balance of
payments crisis: Mexico (1995),
Southeast Asia (1997) and Russia
(1998). These countries were deeply
damaged and were rescued by IMF.

• Brazilian economy has its fixed
exchange rate regime attacked
since 1997, and eventually Brazilian
Central Bank fired Gustavo Franco and
adopted dirty float exchange rate.

2002: Lula finally elected President

• Lula won elections after three
tentatives. He decided to keep
economic policy from FHC term. And
he expanded both social assistance
programs (such as Fome Zero) and
government new jobs.

• He was lucky until 2008: the world
and China were growing; international
commodity prices were booming;
global capital market was eager to
invest in Brazil.

2008: Brazil is Investment Grade
• Brazilian economy was finally
considered Investment Grade,
according to Standard&Poor’s. Within
next few months, Moody’s and Fitch
would both agree.

• Brazil seemed to finally reorganize
itself to accelerate development. The
major concern is about the historically
known “Custo Brasil” (a perverse
combination of high taxes,
bureaucracy, informal economy,
corruption, absence of infrastructure
and high interest rate).

2010: Brazil has a Chinese trend

• Brazil seems to be totally recover from
suprime global crisis, with its internal
consumption estimulated by formal
employment, income increase and
better individual expectations.

• Among BRIC members, Brazil is
considered the most sustainable
country, from social, economic and
politic perspectives.

• Brazilian companies are consolidating
numbers of global industries.

Brazil is ready to take off.
Will us be able to keep it going?

Brazil has been always pointed out
as a powerful country of the future

• We have to increase our competitiveness;

• We need to reduce government spending and
fiscal deficit;

• We need to improve income distribution and basic
education;

• We need all three at the same time.

(Lack of) Brazilian Competitiveness

Availability and Availability and Technology and
Logistics Tax Burden
Cost of Labor Cost of Capital Innovation

Availability and Government Transport
Cost of Labor
Cost of Credit Support to R&D Infrastructure

Productivity R&D in National Customs and
Sotck Market
of Labor Companies Operations

Labor market Financial
and relations System

(Lack of) Brazilian Competitiveness

Macroeconomic Microeconomic
Education Institutions Tourism
Environment Environment

International
High Spread of Legal
Market Efficiency Airports and
Interest Rate Education Framework
Brazilian Brand

High Quality of Government Hotels &
Infrastructure
Public Expenses Education Practices Restaurants

Poor Trade Investment in Nature, People &
Entrepreneurship
Agreements Education Culture

Brazil has a trully opportunity to
develop and become a global force.
All we need is to work hard...

Professor Daniel Motta, PhD.

Address:
Av. São Gualter, 1.734
Alto de Pinheiros, 05455-002
São Paulo,SP
Brazil

Phone:
+55 11 3567 0512 | 9966 7975

E-mail:
daniel.motta@bmibrasil.com.br

Website:
www.bmibrasil.com.br

Blog:
http://batutaebiruta.wordpress.com/

Linkedin:
http://www.linkedin.com/in/danielmotta

Transformando a Estratégia em Ação.

Brazil - Facts and Figures

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