There are a couple of years that I do not write here but regarding last events in Brazil (June 2013), I believe that a small description of the current environment (politics and economics) may help who intends to invest in Brazil.
Obviously, it is a personal vision and there will be people, which will not agree with my opinion. With more than 40 years living in Brazil and observing its development, I would like to think that it would be a consistent vision.
Starting with economics, finally with the last movement of dollar (rising) we are foreseeing the possibility of increase of inflation despite the efforts of Central Bank, coupled with decrease of China expansion, which will diminish the pressure of commodities prices, where Brazil is extremely dependent and, by consequence, will reduce surplus on International Commercial Balance.
Despite some “bad weather”, at short time, the country has the possibility to sustain its small growth (around 2,5%, maybe less), comparing to others in development countries.
Brazil still has a highly cost, regarding to taxes and bureaucracy, but local executives are accustomed to that and if local administration will be made by locals, and not by foreign, the chances of success will be greater.
There are some issues about statistical numbers currently available. I would like to start with consumption. Without doubt, we had a strong demand on basic items (FMCG) motivated by government social programs, bringing over the line of poverty millions of Brazilians. However, at long term, it is not sustainable and it increases government deficit.
Another issue to monitor is the increasing cost of real state, highlighting the prices in large cities. Since January 2008: Inflation (IPCA = 34.5%) and Real State (Sao Paulo, FIPE ZAP = 171.6%).
Local executives’ confidence it is not in its best shape and it will depend on the short-term actions from government, and how they will deal with popular manifestations and how they will deal with economic scenario that it is going worst, mostly because of government debts and figures manipulation.
We are seeing the Bovespa (Brazilian Stock exchange) going to the lowest level since 2009, that movement is more speculation and foreign investor needing to sell Reais to buy Dollars than actually a problem with the local market.
Despite all current issues, it remains a strong economy with good economic fundaments. Brazil has US$ 374 billion in reserves (June 2013). Nevertheless, those fundaments need a close attention and some correction at short time, because they are coming to go to the wrong path.
One common mistake is to forecast Brazilian market using its population to define a potential market. A small tip: use population of Spain or France as parameter for retail demand (50, 60, 70 million) if you deal with products or services that are not essentials or basics, you will avoid bad surprises. Here we have a pyramid with strong wealth accumulation at the top, which actually is happening the same, in the last decades, in USA and Europe.