WHEN, in 2001, Goldman Sachs dreamt up the acronym BRICs for the largest emerging economies, the country that most people said did not belong in the group was Brazil.

Today, the leading candidate for exclusion is Russia. But some prominent observers are still sceptical about Brazil’s prospects. A notable example is Martin Wolf, the chief economics commentator of the Financial Times, who recently (and very reasonably) pointed out that Brazil’s share of world output has actually fallen over the past 15 years, from 3.1% in 1995 to 2.9% in 2009 at purchasing-power parity. “Brazil cannot become as big a player in the world as the two Asian giants”, China and India, Mr Wolf concludes.

At a recent meeting with a group of investors in Hong Kong, Rubens Ricupero offered an intriguing counterargument. A long-serving and respected Brazilian diplomat, Mr Ricupero was the secretary-general of the United Nations Conference on Trade and Development from 1995 to 2004. Although he has links to the opposition to Brazil’s ruling Workers’ Party—he previously served as finance minister in the government of a rival party—his analysis is not party-political. “For the first time in its history,” he argues, Brazil is enjoying “propitious conditions in four areas that used to pose serious limitations to growth.” They are:

Commodities

Commodity production used to be regarded as either a curse or, at best, something countries ought to diversify away from as quickly as possible (which Brazil itself did in the 1970s). But over the next fifty years, Mr Ricupero notes, half the expected increase in the world population will come from eight countries, of which only one—America—is not sucking in commodities at an exponential rate of increase. The others are China, India, Pakistan, Nigeria, Bangladesh, Ethiopia and Congo. China alone will account for 40% of the additional demand for meat worldwide, he points out. This demand will remain strong partly because of rising population and partly because of urbanisation, which increases demand for industrial commodities (like iron ore to make steel) and meat (because urbanisation changes eating habits). Brazil is already a large iron-ore producer, and has transformed itself into an agricultural powerhouse over the past 10 years, becoming the first tropical country to join the ranks of the dominant temperate-climate food exporters such as America and the European Union. It is well-placed to benefit from the emerging markets’ commodity boom.

Petroleum.

Mr Ricupero argues that the success of the Brazilian state oil company, Petrobras, in offshore oil exploration has transformed Brazilian energy. “Although no precise and final estimates can be made yet of the [so-called] pre-salt oil reserves potential of the Santos Basin,” he says, “all serious indications point to the high likelihood that Brazil is poised to become at least a medium-sized net oil-exporting country.” New oil and gas deposits far away from the volatile Middle East should increase Brazil’s strategic importance, as well as improving its balance-of-payments position.

Demography.

Brazil is reaping a big demographic dividend. In 1964, its fertility rate (the average number of children a woman can expect to have during her lifetime) was 6.2. It fell to 2.5 in 1996, and is now below replacement level, at 1.8, one of the sharpest drops in the world. The result has been a collapse in the dependency ratio—the number of children and old people dependent on each working-age adult. As recently as the 1990s, that ratio was 90 to 100 (ie, there were 90 dependents, mostly children, for each for every 100 Brazilians of working age). It is now 48 to 100. Thanks to this, Brazil no longer has to build schools, hospitals, universities and other social institutions helter-skelter to keep pace with population growth. Eventually, the ratio will creep back up as today’s workforce enters retirement, but such problems remain decades ahead. In the meantime, Brazil can pay more attention to the quality rather than the quantity of its social spending, which should, in theory, improve the population’s education, health, and work skills.

Urbanisation.


Urbanisation both encourages economic growth and accompanies it. But it also causes problems. “Many of the worst contemporary problems in Brazil,” Mr Ricupero says, such as “lack of educational and health facilities, poor public transportation, marginalisation and criminality, stem from [an] inability to cope with internal migrations in an orderly and planned way.” That is now changing, he argues. The waves of migrants out of the countryside and into the cities have more or less finished. Brazil is now largely an urban country: about four-fifths of the population lives in cities. “For Brazil,” he concludes, “the period of frantic and chaotic growth of big cities that is now taking place in Asia and Africa is already a thing of the past.”

Mr Ricupero is relatively cautious about the conclusion. “The four sets of conditions outlined above,” he says “are by no means sure guarantees of automatic success.” He admits Brazil has fallen behind in infrastructure, for example, and says that, if it had the sort of infrastructure you see in Costa Rica and Chile (the two best examples in Latin America), economic growth would be about two percentage points higher per year. On the other hand, Brazil also has some other advantages: unlike China, Russia and India, it is at peace with its neighbours (all 10 of them). Whether you think all this really amounts to a rejoinder to Mr Wolf is a matter of doubt.

Brazil might still remain a relatively small player in the world. Still Mr Ricupero’s points are, at least, actually happening (not things expected in future), can be measured in concrete terms and are long-term (they should continue for decades). Who knows? Perhaps they might even be right.

Jul 26th 2010, 16:34 by The Economist online | SÃO PAULO

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Sunshine states

June 14, 2010

ADIT’s fourth Nordeste Invest expo attracted a record number of global developers and agents seeking out opportunities to partner with Brazil’s large and small-size developers.


Bernadette Costello reports from the event in Pontanegra, Natal in the state of Rio Grande do Norte.


The north east of Brazil was dubbed an investment “sweet spot” by foreign visitors and Brazilian developers who formed partnerships at Nordeste Invest last month.


From May 10-12, the states of Rio Grande do Norde, Bahia and Céara became hot property, with a focus on residential projects, hotels,shopping centres, social housing and Brazilian infrastructure. The expo was organised by ADIT,which has promoted investment in real estate in the north east for the past four years.

It is helped by APEX, the Brazil government’s investment promotion agency, and the Ministry of Tourism. ADIT predicts that up to R$1.8bn foreign investment will now flow into the north east as a result of its Nordeste Invest event in the coastal town of Pontanegra – 30 minutes from Natal airport in the state of Rio Grande do Norte.

Global asset managers, agents,developers and the world’s media were both curious and rigorous with their questions during three days of business rounds, site visits, panel debates and speed-networking events…

Agents were assured that the north east would be ready for the 2014 World Cup with stadiums, Natal s new airport and more hotel rooms. Talk centred on how ready the infrastructure and stadiums will be in the north east for Brazil’s World Cup in 2014. Other investors focused on the lack of major hotel brands but learned many are set to invest heavily in the north east states of Rio Grande do Norte, Bahia and Céara.

In fact, around 30m new hotel rooms will populate both city and coastal towns over the next decade. This includes Pontanegra which only saw its first tall hotels spring up on its beach less than five years ago.

Hotel brands on their way include Hilton, Ritz Carlton, Accor and Ibis, which will launch 55 new hotels in Brazil in time for the World Cup. But UK investors, such as Dominic Seely, co-founder of asset management firm Townhouse Capital, said holiday resorts eeded to offer more, such as water parks, golf and family entertainment.

And not all of this foreign Direct investment is focused on the burgeoning tourism industry, which is set to surge when Latin America’s largest airport open in Natal in 2011.

The building of first homes for the domestic population is seen as equally important, with 3m new social housing homes to be built across Brazil by 2030. This is the backbone of Brazilian president Luiz Inácio Lula da Silva’s policy to get people off the streets and into their own home. The “Minha Vida, Minha Casa” or “My Life, My Home” initiative is for low-income Brazilians, with each household eligible for a government subsidy of up to R$17,000 topped up with a mortgage from the Caixa Economica Federal. The bank is financing the entire Minha Vida, Minha Casa project and it’s hoped finance rates will aslo fall to 7.5% over the coming years.

Lula – as Brazilians affectionately refer to their Workers’ Party president – has also put increased standards in education and more workers’ rights at the forefront of government actions.To achieve the goal of building more than 1.5m social housing a year, plus extensive plans for holiday resorts, airports, and R$100bn of rail and road infrastructure, there is a demand for quality labour, says ADIT president Felipe Cavalcante.

Silvio Bezzera, founder of developer SindusCon and vice president of ADIT,added that the north east is tackling this issue head on. “The civil construction sector and local governments are reacting with new labour training schools – R$3m has already been put towards qualifying 15,000 people to finish projects that were started a year ago,” he said.


The transparency of Brazil’s property professionals, who were open about the drawbacks to investors, and then showed what the country is doing toimprove its problems, was evident at Nordeste Invest. This includes the lack of basic infrastructure in smaller suburbs of major cities – including roads, transport links, sewage and water quality. But to some investors this is an opportunity to help Brazil’s developers improve and prepare for the north east’s explosion in real estate.

PDG Realty SA Empreendimentos & Participacoes agreed to buy Agre Empreendimentos Imobiliarios SA for 2.44 billion reais ($1.41 billion) in stock, creating Brazil’s largest homebuilder.

Agre investors will receive 0.495 share of PDG Realty for each Agre share they hold, the companies said late yesterday in a regulatory filing. PDG Realty, Brazil’s second-largest homebuilder by market value, after Cyrela Brazil Realty SA Empreendimentos e Participacoes, plans to issue 148.5 million common shares to pay for the acquisition, according to the statement.

The purchase “gives birth to Brazil’s largest homebuilder,” Banco BTG Pactual SA analyst Rodrigo Monteiro wrote in a note to clients. It’s a “highly accretive transaction for PDG which also dispels concerns on Agre.”

The acquisition will allow PDG Realty to diversify its offerings and create a company that will benefit from economies of scale, he said, reiterating the stock as his top pick in the industry.

PDG Realty, based in Rio de Janeiro, tumbled 4.3 percent to 15.75 reais in Sao Paulo trading at 11:04 a.m. New York time as the Bovespa index dropped 3.6 percent. Agre plunged 6.4 percent to 7.63 reais, while the BM&FBovespa Real Estate index lost 3.4 percent.

Agre was formed in February through a merger of Abyara Planejamento Imobiliario SA, Agra Empreendimentos Imobiliarios SA and Klabin Segall SA. Brazilian homebuilders are merging as they recover from the effects of a recession in 2009 and tap into a government housing program for the poor.

Under the agreement, Agre will sell 70 percent of a business that focuses on low-income homes for 58.4 million reais plus a 25 percent premium, according to the statement. PDG Realty will be buying Agre at a discount of 0.7 centavo per share, based on the companies’ closing prices yesterday.

Builders had “robust” first-quarter revenue growth, Fabiola Gama, an analyst with Banco Santander SA, wrote in an April 8 note. Demand will likely be supported by government plans to help finance the construction of about 800,000 homes for workers earning three to 10 times the national minimum wage, she wrote.