SpirE-Journal 2012 Q4

Brazil – Will sports lift business

Reader's Ratings:

Brazil – Will sports lift business

Playing host to the 2014 FIFA World Cup and the 2016 summer Olympics will place Brazil firmly in the global limelight. Hosting the world’s two most prestigious international sporting events comes at a time when Brazil is drawing global admiration for its strong economy and sound macro-economic management. Brazil is firmly back at the top of the priority list for global firms. What effect will sports have on the dynamic Brazilian marketplace?

Brazil: Country of the future

De Caminha’s comment was a premonition of Brazil’s destiny as an agricultural super-power. This is now well-established, with Brazil’s globally admired success at converting the “cerrado” (Brazilian scrubland) into farmland.

However Brazil is much more than that. Its economy is now broadly diversified, with strong industrial, aerospace, automotive, mining and energy sectors to complement agriculture. The Brazilian economy, and its consumer population, are beginning to feel the positive effects from the boom in off-shore oil and gas production – a boom that has created massive global demand in product categories like offshore oil rigs and pipelines. Capping it all is Brazil’s reputation for sound macro-economic management – managing to combine good growth with low inflation – that is the envy of emerging economies world-wide.

What are the fundamentals underlying this positive story? Brazil is the fifth largest country in the world by geography and the sixth largest economy, with a GDP of USD 2.6 trillion in 20112. Around 22% of the country’s territory is farmable – the largest such land bank in the world and the foundation of Brazil’s agricultural superpower status. It is the world’s largest producer and exporter of sugar, coffee and orange juice, and the second largest producer of soybean, beef and tobacco. The country holds 33% of the planet’s forests – creating vast potential for eco-tourism and biotechnology that have only partially been realized to date.

How does this translate into buying power? In Brazil, 40 million people joined the middle class since 2003. These new consumers are creating demand for everything from mobile phone to homes. However, Brazil’s infrastructure is inadequate to support the rapid growth that it has the potential to generate – a common problem among emerging economies and one that China overcame only with vast state investment in infrastructure. With the 2014 FIFA World Cup Brazil and 2016 Summer Olympics looming, the country is now furiously playing catch-up.

What the World Cup and Summer Olympics will require

Brazil’s Accelerated Growth Program estimates that the country’s infrastructure sector may see investments worth USD800 billion between 2008 and 20133. Brazil has already allocated USD11bn for the 2014 FIFA World Cup Brazil and USD14 billion for the 2016 Summer Olympics. The estimated annual impact of these two mega events on Brazilian GDP is USD11 billion (2009 to 2016). The planned investments are expected to create 120,000 new jobs, both directly and indirectly, from 2009 to 2016.

In view of the 2014 FIFA World Cup, national commercial air traffic is expected to double until 2014. The event is expected to see an inflow of 500,000 tourists. USD3.3 billion is being invested in airport infrastructure to meet this projected demand. Hotels, port infrastructure as well as training and security are also getting a boost.

The 2016 Summer Olympics will impact tourism to the tune of a 15%6 hike over previous years. The state is planning a Bus Rapid Transport system to be developed in Rio de Janeiro to connect the various event destinations.

Foreign investors and marketers have good reason to be excited about the infrastructure and consumer demand that will be stoked by these two sporting events. What other sectors are of interest to global companies?

The food and beverage industry

Brazil’s major food exports are coffee, juices, sugar and alcoholic beverages. Others include fish and seafood, cocoa, cereals, fruit, tea, roots and meat. Brazil remains the world’s largest coffee producer. But the most exciting potential for growth lies in processed foods. Here Brazil is growing into a world-class producer as well as a heavyweight consumer market.

Brazil’s food and beverage (F&B) industry has undergone exceptional development due to an influx of foreign direct investment (FDI). Many global food brands and multinational firms have made Brazil their home. In 2011, Japanese drinks giant Kirin acquired majority control of Brazil’s second largest brewer Schincariol; US food giant Heinz acquired the local sauce and condiment manufacturer, Coniexpress; and PepsiCo acquired local biscuit maker Mabelin. The Swiss Multi-National Nestle has also opened a new dairy plant in the country to capitalize on Brazil’s growing milk consumption.

An interesting category within processed foods is orange juice, where Brazil now accounts for 80% of global production. The Brazilian orange juice export market hit USD203.6 million in 2011.

Brazil is also responsible for 33% of the world’s ethanol production. While ethanol is produced from sugar and is thus an agricultural product, it is used as a fuel in vehicles. Brazil is the world leader in the production of ethanol fuel – as well as the cars and infrastructure to support an ethanol-fuelled automotive population. This is a position that Brazil has maintained since the 1970s when it was way ahead of its time, whereas now the use of bio-fuels in cars is fairly commonplace and globally encouraged.


It is well known that Brazil is a booming oil and gas producer, with national oil company Petrobras climbing up the Global Fortune 500 rankings. What is less well-known is that Brazil is one of the world’s “greenest” energy suppliers. Renewable sources of energy account for 46.8% of Brazilian energy production. These renewable energy sources include biomass, and ethanol, besides wind and solar energy.

Still, the oil and gas industry accounts for the lion’s share of primary energy production in the country. Oil accounts for 49.1% of that production and natural gas 8.7%.

The exploration of deposits in the pre-salt fields of Santos, Campos and Espirito Santo has added a new dimension to the local oil and gas industry. It has also impacted the international market. Oil and gas exploration and production is expected to attract investments of over USD250 billion over ten years, including infrastructure and transport.

Increased domestic production will also enable the country to meet its rapidly increasing demand. Brazil’s domestic oil demand in 2009 totaled 2.5 million b/d and is expected to reach about 4.0 million b/d in 2035.

Petrobras currently accounts for about 95% of Brazil’s national oil and gas production. Under its most recent five-year investment plan (2010–2014), Petrobras has projected total investment of USD224 billion.

Being an oil producing country has attracted many investors. The activities of privately-owned local companies, which were once limited to participation in incremental oil production projects, are now on the rise. New entrants like OGX Petróleo e Gás and the mining giant, Vale, are now investing in offshore exploration as well.

Banking and Finance Industry

The financial system of Brazil is the one of the most sophisticated in the whole of Latin America in terms of stock market capitalization, not to mention standard measures of technology penetration like ATM prevalence.

Brazil’s capital market is highly developed and offers a wide range of financial products and services. The Stock Exchange of Sao Paulo state (BOVESPA) is the largest in Latin America and the third largest equity option exchange in the world.

High levels of capitalization in Brazilian banks has enabled them to weather the global financial crisis in far better shape than most bank around the world. Brazilian banks experienced rising bank deposits despite the crisis. They continue to maintain a good ratio of long-term to short-term deposits.

Many leading financial institutions have been growing their Brazilian operations in recent years, riding the general economic boom. These include Bank of America Merrill Lynch, Barclays Capital, Deutsche Bank, Goldman Sachs and JPMorgan Chase.

Real Estate

Real estate is one of the leading industries in Brazil, creating opportunities for suppliers to the building sector. Growing middle-class demand for properties, and the banks’ readiness to lend, have acted as catalysts for the real estate boom. Considering both the pace of population and economic growth, Brazil would need an average of 1.3 million new homes per year from 2010 to 2014.

Brazil’s Foreign Institutional Investor (FII) scheme offers foreign investors an advantageous platform for investment pooling in the real estate sector. The Brazilian Law 8.668 (1993) defines all the operations of such FIIs, such as buying and selling of assets and profit sharing, as tax-free. Private investors are exempt from tax as long as they do not own more than 10% of the shares in an FII.

Conclusion: What kind of market is Brazil?

It is said that a rising tide lifts all boats. Brazil is certainly seeing a rising tide in the lead-up to 2014 and 2016, one that is attracting marketers and investors the world over. The strength of the Brazilian Real reflects this. The most immediate opportunities would lie in:

Infrastructure and oil and gas: Opportunities abound in the market for equipment and expertise for building offshore oil and gas rigs, pipelines, terminals, ports, airports, roads, power generation, water treatment and so on. Singapore is one of the economies that has done well out of Brazil’s demand for offshore oil and gas platforms.
General consumer products and services: Brazil’s middle class will grow at an accelerated rate over the next few years, creating demand for all manner of consumer products and experiences.
Building: Brazil is undergoing a building boom which will benefit suppliers of building materials, construction equipment, building management systems and so on.

This is not to say that tapping the Brazilian market is without risks or challenges. There are factors like currency stability, corruption and language barriers to contend with. Brazilians speak a dialect of Portuguese and native speakers are largely confined to that country, which is unlike say Spanish and French-speaking countries. Corruption is an issue in Brazil, which was ranked 73 in the global Corruption Perceptions Index 2011. The Brazilian currency gained around 10% against the US dollar in the first two months of 2012, after appreciating substantially over the past 10 years or so. It is now showing signs of stabilization after depreciating sharply at the beginning of March 2012, due to governmental cooling measures.

However these kinds of issues are common to global firms operating in most emerging markets. There are a few challenges that are more peculiar to Brazil. One is crime and the other is the state’s role in industry.

Brazil struggles more than any other BRIC nation with income inequality. 31% of the total population lives below the global poverty line. Income inequality is among the highest in the world, with the Gini co-efficient consistently exceeding the 50 level (anything over 40 is considered high). The disparity in wealth has fuelled high rates of violent crime and large, drug war-torn “favelas” (slums) that are virtually uncontrollable by the police. However the rule of law has improved in recent years, particularly in Rio de Janeiro. This has been a function of not only concerted government policing action but also of economic growth.

One other unique feature is how Brazil’s government managed the economy to check the power of larger corporations. Price controls in fuel, telecommunications and the airline industry are prevalent. It is also common for suppliers to large Multi-Nationals to form industry associations which are in effect “supplier unions”, to better negotiate with their large customer.

A bigger concern might be a cyclical slow-down in growth. In spite of robust fundamentals and a very healthy record of growth over the past ten years on average, GDP growth slowed to 2.7% in 2011, coming in at 1.4% in the last quarter of that year. The reasons for this are largely cyclical – the impact of the debt crisis in Europe.

But going back to fundamentals, it is inconceivable that the mid-term trajectory for the Brazilian economy could be anything but healthy. Its economy is well-diversified, the energy sector is booming (with global oil prices set to remain high) and it will gain a consumer boost from the sporting events in 2014 and 2016. And Brazil’s absolute size also makes it impossible for global marketers to ignore.

While the common joke in the 1980s was that Brazil was forever destined to be the country of the future, it is now very much the country of the present.


Back to Top

Back to Home