LT CFO Events São Paulo

Participants at the April 2011 LT CFO event in São Paulo

The long-term outlook for Brazil is solid and strong, according to participants at the LT CFO event held April 19 in São Paulo, despite concerns about inflation and an overvalued currency. The post-crisis environment has been good to Brazilian companies, which are increasingly looking abroad.
After Brazil’s gross domestic product grew 7.6 percent last year, J.P. Morgan estimates that the rate will slow to less than 4 percent in 2011.
“Slowing to 3.8 percent growth will not be a dramatic deceleration,” said Fábio Akira, executive director and chief economist at J.P. Morgan Brazil, who noted that the rate is more consistent with Brazil’s growth potential without inflation. “On the contrary, corporate and consumer confidence will remain very high if this forecast is maintained.”
Brazil continues to benefit from abundant natural resources, which are in high demand and command high prices, and the country has enjoyed a smooth political transition, Akira said. One of the biggest challenges facing President Dilma Rousseff is inflation, which is close to the central bank’s limit of 6.5 percent, he said.
“Inflation in emerging markets is a demand-related problem and requires an adjustment in fiscal policies, and this is what we are seeing,” Akira said. “Brazil is now testing new tools to contain high inflation and avoid higher interest rates, but across the emerging markets you are seeing governments trying to reduce inflationary pressures.”
Some of the strategy is untested and perhaps risky, Akira said. However, he said he believes Rousseff will be pragmatic in her approach.
Although economic circumstances in the United States and Europe — and, to a temporary effect, the disaster in Japan — have been drags on Brazil, the more negative consequence of the international economic environment is the overvalued real, driven in part by interest rate disparities, Akira said. Despite the Brazilian government’s efforts to wage a “currency war,” the long-term solution lies in an increase in interest rates in the United States, he said.
“The problem of foreign exchange hurting some local manufacturing industries will not be resolved very quickly,” Akira said.
Rogério Menezes, CFO at AkzoNobel Pulp & Paper Chemicals, and Luis Emilio Fortou, Business Leader with Visa’s Global Commercial expansion team, discussed techniques to control costs in manufacturing and in other sectors.
The times demand thorough analysis, said Menezes, whose company developed software internally to do so. “Close the gaps, monitor your costs, identify all opportunities to reduce them,” he said. “The full command of all cost drivers makes the difference.”
Fortou, of Visa, said many companies focused more closely on costs during the economic crisis. He described how Visa’s technological solutions had helped clients understand and reduce costs. “During hard times is when we see how this system, how technology starts to help,” he said.
With the country having recovered from the recession, many Brazilian companies are beginning to internationalize, and they have resources they can tap to do so.
Apex Brazil, the Brazilian trade and investment promotion agency, works closely with Brazilian companies to help them extend their reach abroad, said Gutemberg Uchôa de Araújo, investment promotion general manager.
The Brazilian development bank BNDES further supports international expansion by providing lines of credit, said Denise Rodrigues, advisor to the bank’s president. The program, aimed at promoting internationalization, has been in place since 2002.
The idea is to “stimulate the spread and the strengthening of national capital in the international market,” she said. “We are working with a lot of companies but looking for more suppliers and more clients. We also have links with financial organizations outside Brazil, so we have trusted links to help look for external markets.”
Most large Brazilian companies receive funding from BNDES for domestic and international operations, but the bank is seeking to help small and medium-size businesses as well, Rodrigues said.

Photo Courtesy of Newton Medeiros

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