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Recently the Época magazine released a new year edition which, amongst analysis of the economic performance of 2011, asked a number of Brazil’s business leaders about their thoughts and expectations for the coming year.  Please see translations of some of the statements made below – namely Robert Setubal (Itaú Unibanco), Luiz Carlos Trabuci Cappi (Bradesco), José Sergio Gabrielli (Petrobras), Eike Batista (EBX Group), José Antonio Grabowsky (PDG Realty), André Gerdau (Gerdau), Otávio Azevedo (Andrade Gutierrez) and Enéas Pestana (Pão de Açúcar).

Robert Setubal – President of Itaú Unibanco, the largest banking institution in Brazil

“2012 will be a year of uncertainty.  The largest danger is in light of the disorganised European Zone and, whilst we believe that there will be a solution, the process is likely to take some time.  The most probable scenario for Brazil will be slightly higher than what was seen in 2011 – with a growth rate at close to 3.5 percent.  But, if the Euro crisis becomes more acute, we could see some difficulties.  The Brazilian economy does have some solid fundamentals with primary surpluses for over a decade, US$ 350 billion in international reserves, a floating exchange rate and controlled inflation.  We are in a privileged position in comparison to other countries.  But this does not mean that we are immune to the global crisis.  The biggest decision moving forward is how we are going to carry ourselves in front of this scenario.  With fiscal adjustments, we would have space for interest rates to fall – potentially creating an opportunity from the crisis.  In spite of the challenges to be confronted by the advanced economies of the world, Brazil should maintain good levels of growth for the next decade.  In addition to having good fundamentals, the country is less tied to the developed world economies and more to the emerging world, such as China.”

Luiz Carlos Trabuci Cappi – President of Bradesco – the second largest banking institution in Brazil

“Life is made of comparisons and references.  Brazil has been seen growing at an over-powering rate, successively beating records – but then came the global crisis.  The result was that the growth of the Brazilian economy slowed but gained consistency which was followed by a ´soft landing´, as quoted by Dilma Rousseff.  Brazil is fine and will continue to be so in 2012, even with the restrictions of the global crisis.  Inflation will drop and form part of such impending behaviour.  Compared to the rest of the world, it can be seen that our position can best be described as serene.  The shield is constituted by favourable macro-economic conditions, realistic and prudent economic policy making, social mobility and large scale infrastructure development.  These are the pillars that form the general level of consensus related to the country´s fiscal and monetary decision making.  We are one of the most attractive poles of investment in the world which is benefitting employment and income statistics.  Export levels remain levelled – the global slowdown may postpone decisions related to stock repositioning, but I do not see anything serious happening.  All is being supplemented by new investments being undertaken in all sectors.  The Brazilian financial system is capitalised, solid and capacitated to facilitate the growth of the economy.   There is no credit bubble and the Central Bank and all Brazilian banking institutions are vigilant.  Brazil is a country in transformation to be a global force.  We, the banks, must accompany this evolution.  This implies the scaled investment in technology, products and services.  The major change that is happening is with credit which has come back to be the principle banking product – recognised by our clients who see the benefits.  Being well administrated in terms of risk, this sector will make growth even more viable.  The largest danger is via the external crisis which will bring some obvious risks, such as the down-sizing of financing lines and the rapid slow down of China´s economy. These are two situations that we see as remote but possible. In such cases, we have accumulated reserves of over R$ 400 billion at the Central Bank in the form of compulsory deposit titles.  Brazil is in a good relative position: demonstrating an internationally enviable and solid position with international current and public accounts in order as well as a growing internal market.  We need to remain humble and cautious and not forget the sacrifices that we made in order to arrive in the position we are in.  Interest rates are falling, inflation is under control and people want to improve their lives.  Now is the time to take advantage of opportunities.”

José Sergio Gabrielli – President of Petrobras – the state owned petroleum company that now controls significant oil and energy assets in 18 countries

“The global crisis is predominantly concentrated in Europe and the United States and the (energy) markets that are growing the most are China, India, Africa and South America.  For this reason, petroleum companies are increasing their investment plans and not decreasing.   The slowest aspect of our growth is the production capacity of suppliers.  If the necessary production speed of the shipyards, mechanical / steel production and engineering segments does not increase, our growth will be slower.  These suppliers cannot depend on just petroleum and need to think in supplying other companies in Brazil and abroad.  Petrobras has 77,000 employees, 51 percent of them working within the company for less than 10 years.   Prior to 2015, we will contract 14,000 more people.  But there is a growing problem related to the labour market.  In engineering, construction, mounting and mechanics there is a difficulty in meeting market demands.  Through Prominp – the programme that we have with the Federal Government related to the supplier chain – in the last three years we trained 79,000 people.  We will train 212,000 prior to 2015 in 180 occupations from corrosion engineering specialists to crane operation.  We need to accelerate this training as we are a country undergoing development.  It is probable that we may have a problem related to the growth of salary levels and that there will be more tension in our relationships with our employees in coming to collective agreements.  But this is a good problem and part of the difficulties faced in organisational growth.”

Eike Batista – EBX Group President – interests in the petroleum, mineralisation and logistics (see a recently translated video of the Porto Açu project in Rio de Janeiro)

The climate for foreign investment in Brazil is extraordinary.  LLX has recently announced 2 new companies that will located in the Porto Açu [see this recent translated article from the Exame magazine on the surrounding regions] – NKTF and Technip which are new factories, contracted for US$ 350 million and US$ 250 million respectively.  The largest global producers of petroleum are coming to Brazil.  This is good for the petroleum, mineralisation, and agribusiness sectors that will attract investment as a result.  These sectors will see strong growth in addition to the industries that serve the massive and growing internal demand, such as car manufacturers and sectors related to the impending large sporting events.  When the Technip agreement was signed (in November), the governor of Rio went from there directly to the new Nestlé factory (in Três Rios, Rio de Janeiro).  Brazil needs to take advantage of the moment and undertake a ‘mini-reform’ of the fiscal system whilst cutting government spending.  The government has to continue to demonstrate fiscal discipline so interest rates can fall.  Even using finance from the Brazilian Economic and Social Development Bank (BNDES), my group has a collective cost of 8 percent per year.  A foreign company with the same profile can raise funds at 3 percent per year.  We have to move in line with global standards.”

José Antonio Grabowsky – President of PDG Realty, a construction company that has been lesser hit by the noticeable share value drops witnessed the majority of Brazil real estate developers in 2011

In 2012, the Brazilian economy should continue growing, with salaries increasing above inflation levels principally for the C and D classes from January onwards.  In the property sector, there is available capital to finance companies and buyers – but a drop in interest rates and inflation is fundamental for the growth of the sector.  The level of investment in infrastructure also needs to be prioritised such as transport, sanitation and housing.  According to the Brazilian Institute of Geography & Statistics, in 2010 the number of families grew by 3 percent.  Looking at the property market, this means a demand of 1.5 million new residencies per year.  PDG should close 2011 with R$ 9 billion in launches, a growth of 30 percent compared to 2010.  The company has still not felt the impact of the deceleration of the European economy, but, for the coming year we are planning to decrease our level of growth.  We are not going to purchase companies, for example.  The objective is to gain efficiency and scale with low administrative costs.  In 2012, the company will launch R$ 11 billion in value – close to a growth of 10 percent in compared to 2011.”

André Gerdau – President-director of Gerdau – the world’s 14th largest steelmaker and the largest producer of long steel in the Americas

In spite of the uncertainty in the global economy, Brazil’s perspective is for growth particularly in the automobile and petroleum sectors.  Gerdau are participating in building stadiums for the World Cup, railroads, wind factories, bridges, highways and housing under the Minha Casa, Minha Vida programme.  Steel consumption should grow approximately 12 percent in 2012 to 29 million tons, according to the Brazilian Steel Institute.  The industry undergoing the most transformation is construction which is fuelling this growth.  Gerdau, up until now, is not feeling the effect of the economic uncertainty in sales, principally because the majority of our operations are in emerging countries where demand continues to be heated.  But we will be moving forward cautiously, a posture which is being seen by our clients.  I have a major concern with the deindustrialisation of the metal-mechanical chain in Latin America.  A study of the Latin American Steel Association (Alacero) demonstrated that the commercial deficit of the continent’s metal-mechanical with China has reached US$ 57.5 billion in 2010 (it was US$ 17.4 billion in 2005).  In Brazil, the impact in this segment is notable.  There has been a clear retraction in the participation of the manufacturing industry in aggregate value levels (exportations).  The loss in competitively happens principally via the growth in the value of the Real, by high interest rates and excessive taxes.  We have to remove the bottlenecks that are impeding the long term sustainable development of the Latin American and Brazilian industries.”

Otávio Azevedo – president of the Andrade Gutierrez that operates in the construction, communications and highway sectors

The project development growth in Brazil looks certainly set to continue.  In terms of the volume of business in construction, figures will be the same or better than in 2011.  Investment in infrastructure should grow from R$ 140 billion in 2011 to R$ 180 billion in 2012.  But from a general perspective, we are being conservative.  We are involved in 30 countries within Latin America, Africa, Europe, Asia and the Middle East.  The amplitude that the European crisis could reach may leave us a little afraid.  The Brazilian economy is already contaminated, but not to a level that will interrupt the solid growth levels.  A reduction in the supply of credit is already an apparent problem.  When there is an international crisis, there are normally concerns related to renewing credit operations with the financing of new projects.  Today, any Brazilian company that wants to take a loan from the European market will find many interested parties, but I do not know if the banks will be authorised to undertake the transaction due to the problems they are having.  In 2012, there will be a dispute between two major forces in the Brazilian economy: the fall in interest rates and the international crisis.”

Enéas Pestana – Director president of the Pão de Açúcar Group – a widely present supermarket chain

“The crisis could affect the Brazilian market if the business world remains scared and reduces production.  With the government incentivising demand, consumer finance and reducing the Credit Operation Tax (IOF), we need to maintain supply levels.  If not we will have an inflation problem and could lose track.  It is very important for business people to remain confident in the internal market and not reduce production in 2012.  Every time that there is a crisis that effects the financial system, it is normal that banks are more cautious in the supply of credit.  I would venture into saying that companies, after the events of 2008, have remained in the risk-free zone.  The supply of credit in 2008 was extremely high compared to today but there are credit lines and companies are much better prepared today due to suffering experienced in 2008.”