Brazil is proving to be the best alternative for national – and even foreign – companies to maintain their cash flows in the face of retracted global markets and of the problems faced by the world’s giant buyer, the United States, while recovering from the global economic crisis. Far from being a purchasing festival, the small growth rates recorded in some segments in the country are almost party-like, when compared with the foreign market outlook.
Future perspectives point to an expansion of domestic demand by the end of the year, according to economists.
The main driver of consumption in Brazil, over the next few months, should be credit supply. “Banks will tend to be more aggressive in their credit-granting policies from now on. Credit to natural persons is going to improve a lot, thus leveraging production,” says consultancy firm MCM Consultores economist, Antônio Madeira.
He explains that, with lower interest rates, it is no longer worth it for the banking system to keep its money in public bonds, which return approximately 9% per year, but rather to grant credit to its clients.
The supply of credit usually boosts consumption of durable goods, of higher value, a category that includes household appliances and automobiles. Sales of these products are actually already increasing, as a consequence of the reduction of the Tax on Industrialized Products (IPI). The incentive, by the way, has caused a shortage of vehicles at auto dealerships.
The demand for lower value products, such as clothing and even foods, should not increase significantly, as there is no perspective of rising employment and income in the months to come. Employment rates should remain stable, according to the chief economist of the São Paulo Trade Association (ACSP), Marcel Solimeo.
“There might be some growth towards the end of the year,” says Solimeo. And the income distribution programs, which usually influence the performance of these segments as well, will not increase significantly.
Nevertheless, the domestic scenario in Brazil is good when compared with the international one, according to the economists. “The domestic panorama has a positive outlook. Recovery abroad, particularly in developed countries, is much slower, there is a generalized slump. Brazil is one of the countries where the domestic market acts as a shock absorber, the same as in China and India,” says economist Juan Jensen, of consultancy company Tendências Consultoria Integrada.
Trade, in Brazil, should grow more than the Gross Domestic Product (GDP). “The GDP growth is expected to be near zero, whereas consumption by families should grow 2% in 2009,” says Solimeo, of ACSP. Family consumption translates the retail sector performance.
Even though there should not be much expansion this year, this slight reaction is important, according to the economist, in order to leverage growth next year.
The domestic market is favorable, but competition has increased. “Even before the crisis, there were new players coming in, with the depreciation of the real (Brazilian currency) against the dollar. And (after the onset of the crisis) companies that used to only export have entered the domestic market. The competition has gone up,” says Andrea Kohlrausch, commercial manager of Bibi Calçados, a children’s shoes manufacturing company based in the city of Parobé, state of Rio Grande do Sul.
In addition to Brazilian exporting companies, there are also the foreign companies, which are facing problems in other markets, so they are now seeking Brazil. The exchange rate is also favorable to the entry of imported products into the Brazilian market right now.
“Imports are going to increase. In 2010, the trend is one of increase as well,” says Jensen. As early as May this year, there already was growth of 8% in Brazilian imports compared with the previous month. Imports totaled US$ 9.3 billion in May, and US$ 8.6 billion in April.
Foreign investment in manufacturing and sales in Brazil, however, should not attain high volumes at the moment, the majority of economists say. “We cannot expect a recovery of investment, because there is still a lot of idle capacity in the local industry,” says Jensen.
Such is the case with the beef industry. The idle capacity is currently 40%, says the president of the Brazilian Slaughterhouse Association (Abrafrigo), Péricles Salazar. According to him, there is room for expanding consumption of beef in Brazil.
According to the economist Antônio Madeira, however, for companies from outside Brazil with funds available for investing right now, the Brazilian market is a good option. The consultancy company forecasts that foreign direct investment (FDI) in Brazil should total US$ 25 billion this year.
The figure is not considered bad, but is much lower than the US$ 45 billion recorded in 2008. Total recovery should not come even in 2010, when US$ 35 billion in FDI is expected. “But it is better than in other countries,” says Jensen.
Children’s shoe manufacturer Bibi Calçados is one of the Brazilian companies whose performance suffered the repercussions of the crisis. Exports by the company decreased between 30% and 40% in the first five months of the year, whereas its domestic market sales grew between 5% and 6%.
“The foreign market is where we have been facing the most challenges,” says the commercial manager of the company. Argentina and Ecuador, large markets for the brand, have created obstacles to imports, and Venezuela, another large buyer, reduced its purchases due to instability.
“Brazil has always been one of our main markets, and answers to 70% of sales. The crisis has affected other countries to a much higher degree,” says Andrea.
Despite having recorded a small growth rate in the first half of the year, Bibi Calçados is expecting an even better second half in the domestic market. Usually, this happens as a result of good dates for sales of children’s shoes, such as the Children’s Day and Christmas.
The economist Antônio Madeira advises for companies to follow the path of the domestic market now. “Those able to turn to the domestic market will be better off doing so. The foreign outlook is still very unfavorable,” he says.