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Brazilian Companies Shed Debt and Get Ready to Invest

The great Brazilian factories will face a favorable situation to invest more in 2005 than in 2004. According to a research carried out recently by the Institute for Studies in aid of Industrial Development (Iedi), during the year of 2004 the great industrial companies in the country managed to reduce significantly their indebtedness level and, at the same time, increase their profitability.

“And this allows for some slack, these companies are ready to invest,” said the executive director at the Iedi, Julio Sérgio Gomes de Almeida.


According to him, it is hard to foresee exactly how much the companies will invest in production, but they should invest more, especially the sectors which were “bottlenecked” in the last few years and now must amplify their production capacity, as is the case with the basic industry.


The study prepared by the Iedi, with 105 companies, showed that the ratio between indebtedness and equity capital in these companies dropped, in average, from 0.61 in September 2003 to 0.44 in September 2004.


During the same period, the companies’ profitability, which is the ratio between profit and net equity increased from 20.8% to 23.2%.


Petrobras, Brazilian oil giant, was excluded from the calculations since the size of the state owned company would influence the average significantly.


For comparison purposes, the Iedi informed that the profitability achieved by four great Brazilian banks (Bradesco, Itaú, Unibanco and Banespa) was of 20.03% from January to September against 21.95% in the same period in 2003.


“And don’t forget that rain or shine the banks always have excellent profitability,” said Almeida. He added that profitability above 10% is considered reasonable; between 15% and 20% it is good; and above 20% it is very good.


Although exports have played an important role in improving the companies’ results, Almeida said the numbers are also reflecting the recovery of Brazilian domestic economy.


According to him, exports of manufactured products influenced the results, but also the recuperation of the construction sector, “which is very important in terms of generating employment and income,” “as well as some improvement in the consumers’ wages.”


“The industrial sector was the main responsible for the 5.3% increase in the Gross Domestic Product (GDP) between January and September, keeping up this process during the third quarter. If the sector had not grown, the GDP would not have increased either,” he said.


For him, exports of manufactured goods in the third quarter represented to Brazil “what agribusiness represented in the first semester.”


Almeida believes that in 2005 exports will carry on playing an important role, however, less than the internal market.


“In 2005, unless there is a disaster in monetary politics, the internal market will recover,” he stated.


This does not mean, according to him, that the companies will reduce their exporting efforts or stop meeting internal demand.


“Today, exports are totally included in the companies’ strategies and in a very relevant way, there is no stopping now,” he assured.


World Flow of Investments


Concerning foreign direct investments, a study published recently by the United Nations Conference on Trade and Development (Unctad) reveals good perspectives for the increase of investments in the world in the short (2004 and 2005) and medium terms (2006-2007).


“But the extension and speed of the recovery in these investments will vary according to the region and the sector,” says the report.


Furthermore, the Unctad states that the competition between the receiving countries to attract this capital will be increasingly strong.


According to the UN organisation, the expectation for improving direct investment is based on the acceleration of world economy growth, on relatively low interest rates in the main exporting countries and on the increase in investments and industrial production in these countries.


In general, according the Unctad, the services sector should be the most attractive to this capital, including tourism, telecommunications and information technology.


The transformation industry will also attract investments, according to the Unctad, especially in the electronic, automotive and machinery sectors. The primary sector, on the other hand, “will have moderate improvement in the foreign direct investments.”


In relation to the regions of the world, Unctad says Asia, Central and Eastern Europe should be the most attractive regions for this capital.


In the case of Latin America, a more timid improvement should be observed on the medium term, between 2006 and 2007, with Brazil heading the list of most attractive countries in the region.


According to the UN organization, the Latin America and Caribbean countries witnessed a decrease in the flow of foreign investments for four years up to 2003, mainly through the low economic growth rates obtained.


The improvement in investments on the short term, according to Unctad, depends precisely on the economic growth of these countries.


The United States, Spain and Canada will carry on as the main sources of foreign investments to the region. “And the usual receivers, such as Brazil, Mexico and Argentina, should continue as the most attractive countries for the investors,” stated the Unctad report.


Amongst the sectors most likely to attract investments in these countries are services, including hotels, restaurants, trade, tourism, information technologies and communications. In the case of the industrial sector, the rubber and plastics sectors ought to be the most attractive.


Contrary to the average, the investment perspectives for the primary sector in Latin America are promising, according to Unctad, where agribusiness is the most attractive segment in the short term.


Brazilian Capital Abroad


Although Brazil is not in the list as the main nations sources of foreign direct investments, another study prepared by Unctad, also released recently, shows that the flow of this kind of capital from Brazil to other countries increased and should reach record values of US$ 9.5 billion until the end of 2004.


According to the report, the accumulated stock of Brazilian direct investments in foreign countries should reach US$ 66 billion, the largest volume registered amongst the Latin American countries and the 4th largest amongst the developing countries, losing only to Hong Kong, China, Singapore and Taiwan.


“While Brazil has succeeded in attracting sizeable amounts of foreign direct investments in the past, it’s only now that investment abroad by Brazilian companies appears poised to take off,” stated Karl Sauvant, director of Unctad’s investment division.


Amongst the Brazilian companies that invest the most in foreign countries are Petrobras, Vale do Rio Doce, Gerdau and Construtora Norbert Odebrecht.


ANBA ”“ Brazil-Arab News Agency

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