Private Equity and Venture Capital in Brazil - BVCA admin

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IV. Foreign environment: foe or friend?
Slower global growth negatively affects Brazil through two
main channels:
I. Trade balance (relevance = low)
Gross exports account for a bit more than 10% of GDP
Terms of trade for Brazil have been improving and surging
FDI more than compensates for less vibrant exports
II. Investment spending (relevance = moderate)
Brazil’s aggregated CAPEX is quite volatile
Adverse foreign shocks dent business confidence, leading
to reduced investment spending and slower job creation
There is a third channel of transmission of foreign shocks
that may be activated in the case of global meltdown:
III. Consumer purchasing power (relevance = high)
The unleveraged expansion of Brazil’s domestic
consumption market highlights the importance of real
disposable income
Adverse foreign shocks significantly affect activity if they
erode real disposable income over the longer term
Chain reaction: sharp currency depreciation higher
inflation lower disposable income weaker growth
Most likely scenario: global jitters entail deceleration of
Brazil’s real GDP growth to 3-4% in 2011-12.
90
75
60
45
30
15
0
Brazil: net FDI and terms of trade
Source: Banco Central do Brasil.
28
24
20
16
12
8
4
0
-4
-8
-12
2000
2000
US$ Billion 12-m
2001
Investment spending x MSCI stock index
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
% 12-m change % 12-m change
2006
2007
2007
2008
2008
2009
2010
Total CAPEX (left) MSCI Brazil (right)
US$ Billion 12-m
2009
Source: Banco Central do Brasil and Patria Investimentos.
2010
Long term FDI (left) Trade balance (right)
2011
2011
100
75
50
25
0
0
-25
-50
60
50
40
30
20
10
-10
33