Nothing could underline the resurgence of Brazil more than the proposed share offer for the state-owned Petrobras petroleum company, the details of which were announced on September 25th. It is to be the largest single share offer anywhere, ever and is expected to raise about US$70bn. What is more, the offer is to be placed in Sao Paulo, not in the traditional global financial centres.
In immediate terms the basis for this unprecedented move lies in what is known as the pre-sal, a rich and vast deposit of oil deep underground off the coast of Brazil. Petrobras wants the money to fund further exploration and then exploitation of this reserve, which will in turn propel the country into the top ranks of the global oil producers. For all the concerns about global warming, resource depletion, pollution, and the need to develop renewable sources of power, the fact remains that crude petroleum is as near to liquid money as it is possible to get. This is why Petrobras should have little trouble raising the investment.
For the automotive industry contemplating the market in Brazil, however, the Petrobras offer foretells of other things as well. Not least, after many decades of economic turbulence and uncertainty there can be no more doubt that future prospects for the economy and the market for new cars in Brazil are better than they have ever been before, and that conditions are likely to be good for a very long time to come.
after many decades of economic turbulence and uncertainty there can be no more doubt that future prospects for the economy and the market for new cars in Brazil are better than they have ever been before
All the fundamentals are right in the country now. There is general political stability, even if concerns remain over issues such as corruption and land reform. The economy proved resilient during the global economic crisis of the last couple of years and is growing at a sustainable rate of just over 5% per annum. The country is debt free. Plus, the benefits of sugarcane ethanol remain, while other renewable resources continue to be explored and developed. For the prospective market, Brazil is a relatively young country with an increasingly large and affluent middle class that is pre-disposed to automobile ownership.
While all eyes are on China with its current explosive growth, or on India with its latent potential, or even on Africa as the next ‘up and coming’ region these alternatives all have their problems and risks. Can China really continue to grow at this rate? Will the infrastructure in India ever develop robustly enough to support higher levels of car ownership? Can Africa really escape the economic dysfunctionality that has characterised so much of the continent for so long?
In contrast, Brazil can offer what looks like a 30 year investment opportunity, with economic growth and inflows of investment that will underwrite a rejuvenation of the over-worked physical infrastructure. It is true that the major cities, and especially Sao Paulo, are being strangled by the existing weight of traffic. This is clearly a concern for future sales. But having come so far already, and having been really transformed in the last 15 years or so, Brazil increasingly looks like a market that any OEM should be in if they want baseline growth into the foreseeable future.
Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. Dr Wells is also a director of AutomotiveWorld.com’s sister website AWPresenter.com. He can be contacted on wellspe@cardiff.ac.uk.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
