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Archive for November, 2008

The flow of direct foreign investments in Brazil has already surpassed the figure foreseen by the Brazilian Central Bank for the whole of 2008. According to the Central Bank, the total value of foreign investments in the country were US$ 37,1 billion, well above the predicted figure of US$ 35 billion.

The value refers to direct investments done by foreign organizations buying Brazilian companies or investing into the expansion of production capabilities of firms already settled in the country. The Central Bank estimates that, in total, multinational corporations have up to US$ 370 billion already invested in the South American country.

The flow of investment occurred by now is also superior to the US$ 34,6 billion reported in 2007, until then, the highest result since the Central Bank began registering investments in 1947. Central Bank’s Economic Department Chief, Altamir Lopes, says that as oppose to stock market investors, direct investments have long-term objectives, which explains the positive results achieved even during a critical period in the world economy.

“Direct foreign investments are long term resources that keep flowing in a satisfactory way. This is a consequence of a overall perception that the Brazilian economy has solid foundations”, said Mr Lopes.

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The U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) and Petróleo Brasileiro S.A. (Petrobras) announced today that they have signed an agreement that could accelerate the development and international commercialization of biofuels.  The announcement was made at the International Biofuels Conference in Sao Paulo, Brazil.

The NREL/Petrobras agreement will help achieve the goals of the United States and Brazil memorandum of understanding to advance cooperation on biofuels signed by the U.S. Secretary of State Condoleezza Rice and Brazil Foreign Minister Celso Amorim on March 9, 2007. “

By bringing Brazilian expertise together with some of the leading U.S. biofuels researchers at NREL, we will increase our knowledge and be able to more quickly commercialize renewable biofuels in the global marketplace,” said NREL Director Dan E. Arvizu.

Petrobras and NREL have common interests in the development of advanced next generation biofuels technologies through biochemical and thermochemical routes from biomass.  NREL conducts R&D related to technoeconomic, environmental and sustainability evaluation of advanced biofuels in support of the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE) and other partners.

Petrobras’ research and development center (CENPES) conducts research on bagasse to ethanol, vegetable oil conversion to diesel oil components (H-Bio) and production of biomass-derived petroleum-like fuels using thermochemical technologies.

“The use of residues can substantially increase ethanol production without a correspondent increase of the planted area, boosting the existing process’ production by using its own residues,” said CENPES Executive Manager, Carlos Tadeu da Costa Fraga.

The agreement identifies four major areas of advanced biofuels research collaboration: biochemical production processes, thermochemical processes, economic and sustainability analysis from lignocellulosic biomass and evaluation of intermediate blends of ethanol and gasoline. (source: National Renewable Energy Laboratory)

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As mentioned in this blog on November, 10th, Brazil’s banking system is bracing itself for a wave of consolidation. The last announcement came yesterday as Banco do Brasil, the country’s top state-controlled bank announced it will spend US$2.3 billion to buy a 71.3 percent share in Banco Nossa Caixa SA, owned by the Sao Paulo state government.

Banco do Brasil will have US$217.2 billion in assets with the acquisition of Nossa Caixa, for which it will make 18 monthly payments of US$124.7 million starting in March. Earlier this month, Brazil’s second-largest private sector bank, Itau, bought rival Unibanco, creating a Latin American financial giant with total assets surpassing Banco do Brasil.

Cyrus Sanati has posted some interesting comments on the New York Times blog about this acquisition.

“If you look at the Brazilian banking system, there are 10 large banks representing 87.1 percent of the financial system,” Felipe Asenjo Wilkins, head of research for FIT Research in Santiago, Chile, told DealBook. “This is too much if we compare it with other emerging markets like Chile, Peru and Colombia.”

So who might be next? Banco do Brasil will probably move to purchase a stake in Banco Votorantim, a family-owned bank in São Paulo, Lia da Graça, an analyst with Banif Securities in São Paulo, told Dealbook. That purchase, along with another smaller bank, would put Banco do Brasil in the top spot.

All this could be unsettling to Brazil’s third-largest bank, Bradesco. It is not shy to do a deal to maintain its market share. “From 1948, Bradesco bought like 48 financial institutions” including banks, Mr. Wilkins said.

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Unlike in the rest of the world, sales in Brazil are going up, showing the economic resilience of South America’s largest economy. Sales in September raised 9.4 percent, particularly on IT and computers. Check below a report from The Miami Herald today.

Brazil’s retail sales rose more than economists forecast in September, a sign that consumer demand in Latin America’s biggest economy remained resilient as the global credit crisis began to deepen. Retail sales jumped 9.4 percent in September from a year ago, pushed by a 51 percent surge in computer sales, the national statistics agency said Tuesday.

The increase beat 20 of 28 estimates in a Bloomberg survey of economists, whose median forecast was 8.8 percent. Sales growth was less than the 9.9 percent increase in August. Brazilian President Luiz Inacio Lula da Silva, seeking to build on consumer demand growth, is using state banks to boost lending to carmakers, home builders and consumers and meet an economic growth target of 3.7 percent next year. Economists such as WestLB’s Roberto Padovani in Sao Paulo said the September sales report is a sign that consumer sentiment was holding steady.

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The Seattle Times was yesterday full of praises for Brazil’s leading position as a major economy. Tyler Bridges talks about Saturday’s G-20 summit in Washington and how President Lula is trying to convince G7 countries leaders to give a bigger say to developing countries.  The idea is to create a permanent G14, including Brazil, Russia, China, Mexico and India. It goes on to justify Brazil’s larger ambitions:

With the world’s 10th-biggest economy, Brazil has surpassed the United States as the biggest producer of iron ore and coffee. It’s become the world’s biggest exporter of beef, poultry, biofuels and orange-juice concentrate, and is rapidly gaining in soybeans, corn and pork.

Brazil also has accumulated $200 billion in foreign reserves, almost as much as the rest of Latin America combined. That money will help cushion the global meltdown. Now, Brazil wants to be recognized for its fiscal track record and to avoid the risks that come with a global economic crisis.

“Brazil has new standing in the world,” said Rubens Barbosa, a private consultant in Brazil who’s served as the ambassador to the United States. “We think we can contribute more.” Quietly, Brazil already has become the most powerful country in Latin America.

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Still about the banking situation in Brazil, news come out everyday about new joint-ventures including heavy weights on the public sector – ie. Nossa Caixa and Banco do Brasil. The Financial Times gave a note about the consolidation process running at full throttle in the country.

Brazil’s banks are preparing for a wave of consolidation following this week’s merger of Itaú and Unibanco to create the biggest bank in South America. Brazil has about 150 banks, many of them small players concentrating on a single line of business such as car loans or payroll-linked loans, areas that have grown quickly in line with rising employment and wages.

“Smaller banks have been seeing growth of 30 or 40 per cent a year,” says Ceres Lisboa, banking sector analyst in São Paulo at Moody’s, the international credit rating agency. “That’s over. They’ll have to reinvent themselves.”

Dozens of these smaller banks will be snapped up or forced to retreat into niche markets. Banco do Brasil, the federally-owned bank that was Brazil’s biggest before the latest merger, and Bradesco, formerly the biggest private-sector bank, are expected to scurry for acquisitions as they try to regain their dominance.

Consolidation will be helped by recent government measures to inject liquidity into the banking system as the global financial crisis has unfolded. The process should also be orderly as Brazil’s banking system remains solid, thanks to relatively low levels of lending and the fact little credit is sourced overseas.

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Here’s a quick news round up, about the largest merger in the Brazilian banking history. Itau and Unibanco have announced a joint-venture yesterday creating the largest bank in Latin America – arguably the first major banking player in Latin America – combining about $260 billion in assets. The new Itau-Unibanco has also already announced investments in Mexico, Colombia and Peru. The press in Brazil has welcomed the merger, seen as a good timing to make the country’s financial system more solid to face tough times.

From The Wall Street Journal: “Brazil’s central bank recently announced a $50 billion program of currency swaps to keep financial institutions operating amid the credit squeeze. “This concentration will help strengthen the local financial system,” Finance Minister Guido Mantega told reporters in Brasilia.”

Washington Post: The banks did not give a value for their all-stock transaction, but Sao Paulo-based consultancy Economatica estimated the combined banks would have a market value of $41.3 billion, eclipsing Brazil’s state-owned Banco Brasil and the publicly traded Banco Bradesco.

Financial Times: “This operation takes place at a time of great changes and opportunities in the world, particularly in the financial sector,” they said, adding that Brazil’s banking industry was “in a privileged position, with enormous potential to improve its situation even more in relation to the rest of the world”.

The New York Times: “Whoever says the entire world needs to deleverage hasn’t paid attention to what’s happening in Brazil. Banco Itaú’s $15 billion takeover of a rival, Unibanco, should change that. The deal, announced Monday, creates Latin America’s biggest financial institution, which may become one of the few bright spots in the global banking firmament.”

AFP: “Together, Itau and Unibanco will have assets of 575 billion reais (265 billion dollars) and account for around 20 percent of Brazil’s savings accounts and credit. According to Fortune magazine, Itau made two billion dollars in profits last year from 29 billion dollars in revenues and 168.6 billion dollars in assets. Itau Unibanco would have a “strong international presence,” notably in the countries in the Mercosur trade bloc that comprises Argentina, Brazil, Paraguay and Uruguay, it said.

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