The Bulls Are Loose

The Bulls Are Loose

Investments into Brazil economy should reach $15 billion this year,
almost as much as the amount invested the entire decade of the 1980s. With
all this money going into production, which has fueled a frantic rush to
build, buy or merge with local enterprises, some Brazilians have been asking:
“Is Brazil selling its soul to foreign capitalists?”

Marta Alvim

After years of turmoil and misguided plans, the disposition and determination
of the Brazilian government to put aside political interests in favor of
sound economic measures seem to be paying off at last. Plano Real, the
brainchild of President Fernando Henrique Cardoso, has not only accomplished
what was considered impossible by bringing inflation down to record lows,
but it has also managed to put Brazil back on the map of foreign investors,
who have been flooding the country with tons of cash.

The avalanche of investments into the local economy is expected to reach
$15 billion this year—almost the same amount invested throughout the entire
decade of the 1980s. All this money will be going into production rather
than the financial market, which has fueled a frantic rush to build, buy
or merge with local enterprises. State-owned companies. Industrial plants.
Retail businesses. Banks. No sector of the economy has escaped the investment
fever that has swept the country.

Approximately 600 projects have been filed with and are pending approval
by the Ministry of Industry, Commerce and Tourism, each worth at least
$10 million of investments. And according to surveys conducted by Price
Waterhouse, multinational companies were the buyers in 70% of the acquisition
deals that took place in the country during the first quarter of this year.
The question that’s been asked is: Is the “sleeping giant” finally coming
out of its inertia, or is Brazil selling its soul to foreign capitalists?

Obviously, ideological rhetoric has no bearing in the investors’ decisions;
facts and numbers do: in this case, they translate into over 160 million
avid consumers of the world’s 10th largest economy. Adding to the allure
is Plano Real’s successful attempt at economic stability which, in turn,
brought an increased buying power to the low-income population, some 80
million people. Without the specter of inflation, these new consumers are
expected to pour over $149 billion into the retail sector this year alone,
a $10 billion increase in their spending habits.

Numerous multinational companies already doing business in Brazil can
attest to the market’s potential. In 1996, for instance, Coca-Cola had
a 3% global growth compared with the 10% registered by its Brazilian subsidiary,
while automobile manufacturer Fiat recorded an increase in revenues of
nearly 7%. (During that same period the Fiat group reported a 3% raise
worldwide.) The company’s latest data shows that car sales in Brazil rose
18% in the first five months of this year, while the group’s unit car sales
climbed 8.2%.

Examples of successful performances by foreign investors abound: American
Philip Morris, French Rhodia, Korean Samsug, English Glaxo Wellcome, Swedish
Electrolux…the list goes on and on. The financial sector has also seen
an increasing participation of foreign banks. The new arrivals include
the English Lloyds, the Spanish Santander, the German Dresdner and Hong
Kong Shanghai Bank Corporation, just to mention a few. Several other foreign
institutions await Banco Central’s (Central Bank) authorization to begin
operations in the country. 


Nevertheless, the renewed confidence in the Brazilian economy is not
without caution. Brazil’s budget deficit has yet to be trimmed, and it
puts at risk the controlled inflation, Plano Real’s major achievement.
The public sector debt has escalated to $135 billion from $89 billion in
1992, yet much-publicized bills to reform the civil service and the social
security system (which would cut public spending considerably) are still
pending approval, two years after being introduced to Congress.

The trade deficit, expected to reach $13 billion this year, is another
cause for concern. So far the government has been able to deal with the
problem thanks to the great amount of foreign capital being invested in
the country, but that’s a palliative solution, and it doesn’t touch the
core of the problem.

In spite of the risks, analysts believe that the Brazilian economy is
on firmer ground than in the past, and as long as the government keeps
its consistency and commitment to the economic reforms, Brazil will remain
a top target for foreign investors. Recent research released by Site Selection,
the official publication of the International Development Research Council,
shows that Brazil is the 5th investment destination recommended by 24%
of the world’s 100 largest corporate advisors. It loses only to the United
States and China, tied in first place and chosen by 47% of the consultants;
Mexico, with 30%, and the United Kingdom, with 27%. The Brazilian market
is preferred over Malaysia, Thailand, Japan, Canada and Germany.

If the investment projects of foreign car manufacturers are any indication,
then it is safe to say that investors are betting on the good predictions
about Brazil’s future. Mercedes-Benz, Volvo, Chrysler, Mitsubishi, BMW
and Audi are just some of the industry giants with plans to set foot in
the country soon. This year alone the automobile sector is expected to
produce 2 million units, compared to the 960,000 cars manufactured in the
early 90s. By the year 2000, production should reach 2.5 million vehicles,
totaling $17 billion in investments.

Which leads to another wave of mergers, acquisitions and joint-ventures
between local and foreign component makers . The trend among car manufacturers
to produce vehicles that can be exported to any country in the world demands
a supply of standardized parts. However, in order to remain competitive,
national auto parts makers need an advanced technology, which they lack.
Partnerships with multinational companies—themselves eager for a slice
of such a promising market—would therefore seem to be the right path to


Some experts, though, fear that the acquisition process and the substitution
of national components for imported ones may be happening too fast. Although
not against the injection of foreign capital in the economy, they believe
that there should be incentives for the local manufacturing of components,
otherwise Brazil may become a mere assembly line of imports, without being
able to develop its own new technologies.

On the other hand, Brazilian companies that haven’t joined the merger
frenzy are trying to find alternatives in order to survive the overwhelming
international competition, both at home and in the export arena. The solution,
they say, is cost reduction, and major Brazilian manufacturers have already
moved to greener pastures, where they can get cheap labor, government subsidies
or any other type of incentives.

The unexplored interior of Northeastern Brazil has been one of the preferred
destinations of many in the textile sector and in the shoe industry, for
instance. Lacking jobs and all sorts of infrastructure, cities fight for
and welcome the new employers effusively. Some of these areas are so impoverished
that companies have to include lessons on how to use the restroom in their
training programs since many of the employees don’t have such a “luxury”
at home.

The Northeastern employees work long hours, earn half of what their
Southern counterparts do and have no benefits. Against such a miserable
scenario, they are nevertheless considered the lucky ones, and even the
labor unions don’t dare to interfere. After all some of these people are
making $120 a month, a small fortune compared to the monthly salary of
$6 paid by the city of Iracema (in the State of Ceará) to its employees.

Will foreign investments and the migration of local companies to needy
areas solve Brazil’s inequalities? Not really, according to some observers.
Most of the investments, both foreign and national, still go to the wealthier
South and Southeast regions, especially after the creation of Mercosul.
Others with even a more pessimistic viewpoint argue that, despite the billions
of dollars being poured into the country, not much will change if the government
doesn’t address major issues, such as the politicians corruption, illiteracy,
the no-land movement, and other pressing social matters.

In the meantime, the multinational companies keep coming, bringing along
lots of money, modern technologies and their sophisticated installations
which, in turn, will require an improved infrastructure—from better roads
and telecommunications systems to better education for its work force.
The cards are on the table, place your bets. 


After spectacular gains of over 80% since January, Brazilian stocks plummeted
in July, leaving analysts to wonder what the stock market’s future will

Recent currency troubles in Asian markets were blamed for the plunge
in stock prices as many feared that investors would be pulling their money
out of Brazil to cover losses in Asia. The heavy fall of the Bovespa (São
Paulo Stock Exchange) index sent shock waves throughout Latin America’s
stock exchanges, in a reaction that was dubbed by some as the “samba effect”—a
reference to the “tequila effect” caused by the 1994 collapse of the Mexican

However, government officials dismissed any comparisons with Asia and
regarded the drop in Brazilian stocks as a normal reaction of investors
taking profits after the exuberant gains registered during the first six
months of the year. In June, Bovespa traded an average of $1.1 billion
worth of shares each day. That rise put the São Paulo Stock Exchange
on par with big world markets, such as Canada and Hong Kong where stock
exchanges trade an average daily volume of $1.07 and $1.17 billion respectively.

According to the experts, local small investors, usually wary of such
a speculative market, have been the main force behind the extraordinary
performance of the Brazilian stocks. As inflation declined, so did the
returns on fixed-income investments, thus the rush to the stock funds.
If the investors will remove their money from the market after July’s plunge
remains to be seen. (M. A.)

Marta Alvim is a Brazilian journalist, freelance translator
and interpreter. You can reach her at

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