An international business series on trade and emerging markets
For the first-time visitor to Brazil, São Paulo offers a spectacular view of the complexity, energy and vast opportunities of one of the world’s fastest-growing economies.
At first glance, this city of more than 19 million is breathtakingly modern. Its glimmering office towers and sprawling condominium developments symbolize its wealth and its role as the epicentre of Brazil’s economy, the sixth largest in the world. The reality is more diverse; while São Paulo’s extensive road network includes modern, multilane highways, it is also challenged with congested and potholed back streets, many of which are flanked by favelas – the notorious, swarming shantytowns where many of Brazil’s poorest citizens live.
Despite these challenges and the other problems that confront most growing economies, the outlook for both São Paolo and Brazil is overwhelmingly positive, and experts say that the country’s rapidly growing economy spells opportunities for Canadian businesses in sectors ranging from infrastructure to ICT services to education.
“You have to step back and look at a couple of things, starting with Brazil’s demographics and its global competitiveness,” says Eric Bonnor of Brookfield Asset Management, the Canadian investment giant that began operating in Brazil in 1899. “About 40 per cent of Brazil’s population is 25 years old or younger. This group’s rising buying power provides a strong growth opportunity for the next 20 to 30 years, similar to that of the United States in the early 1970s.”
As for Brazil’s global competitiveness, this extends to major commodity sectors including energy, mining, and forestry, and agricultural products such as soybeans, sugarcane, beef, poultry and orange juice. Consequently, says Mr. Bonnor, “you have a great platform from which you can work. Brazil’s government is putting time and money into sectors that will support continuing growth, and they’re seeking international investments and partnerships to help build on these strengths.”
Mr. Bonnor, who spent six years living and working in Brazil, adds that clean technology – from water treatment systems to run-of-river hydroelectric plants – is a sector in which Brookfield has a strong Brazilian interest. It is also one of many sectors where Canadian expertise matches Brazilian needs.
Jean Cardyn, EDC regional vice-president of South America, cites the need to fill major gaps in the country’s infrastructure, including ports, roads, airports, light rail and mass transportation systems. “The numbers are staggering,” he says, noting that some 7,500 km of highway and 10,000 km of railway line projects are up for concessions. Brazil must also increase its electricity generating capacity by 6,000 MW per year merely to keep up with the population and economic growth expected over the next decade. As for oil and gas, the Brazilian energy giant Petrobras plans to invest more than $235 billion to develop onshore and offshore reserves between now and 2015. “Even if this doesn’t all happen as planned,” says Mr. Cardyn, “the opportunities are still significant.”
Other opportunities are linked to the country’s burgeoning middle class. According to the government, this demographic expanded by 31 million between 1999 and 2009, and topped 90 million in April 2011. As Mr. Bonnor observes, “Brazil’s growing middle class is seeking products, credit, housing – you name it.”
Mr. Cardyn agrees, citing the government’s $17 billion worth of home construction programs aimed at improving living conditions. Brazil also plans to invest $8 billion in mobile technologies, broadband networks and digital-cities initiatives by 2015. “Brazilians are heavy mobile phone users,” he notes. “With more than one mobile phone per person, that’s 250 million phones. Yet smart phone penetration is currently at just two per cent.” Brazil is also the world’s fifth-largest Internet user but this ranking is likely to rise, thanks to $4.5 billion worth of investments in improving the country’s broadband network.