ADIT, the Association for inward investment in real estate and tourism, has announced that it is widening its influence to cover the 27 states of the whole of Brazil and not just the nine states of the Northeast region.  Its name has been changed from ADIT Nordeste to ADIT Brasil.

ADIT Brasil will also broaden its fields of activity to include residential and commercial property-based investments, hospitality, real estate tourism and logistics. It will also strengthen its presence in the environmental sector, with the aim of creating legal security to advance real estate and tourism developments across the country.

The announcement has been made exactly four years after the Government-funded Association was founded. It was formed in June 2006 in order to drive forward the Northeast’s tourism and real estate development. Before then, there was no official body representing the interests of these sectors.

ADIT Brasil attracts foreign direct investment in land and real estate projects by introducing the most reputable Brazilian developers, architects, lawyers and related businesses to international investors including hoteliers and resort groups and encouraging the formation of working partnerships.

The association holds an annual conference – exhibition and business networking event called Brasil Invest (formerly known as Nordeste Invest). The event has become a milestone in the industry; in its fifth conference in May 2010 in Natal it attracted more international investors than ever before.  120 foreign investors attended and met with Brazilian companies in the real estate and tourism sectors, with parties agreeing an anticipated R$ 1.8 billion of business

The 27 regions of Brazil listed alphabetically with their capital cities:

REGION CAPITAL
Acre Rio Branco
Alagoas Maceió
Amapá Macapá
Amazonas Manaus
Bahia Salvador
Ceará Fortaleza
Distrito Federal Brasília
Espírito Santo Vitória
Goiás Goiânia,
Maranhão São Luís
Mato Grosso Cuiabá
Mato Grosso do Sul Campo Grande
Minas Gerais Belo Horizonte
Pará Belém
Paraíba João Pessoa
Paraná Curitiba
Pernambuco Recife
Piauí Teresina
Rio de Janeiro Rio de Janeiro
Rio Grande do Norte Natal
Rio Grande do Sul Porto Alegre
Rondônia Porto Velho
Roraima Boa Vista
Santa Catarina Florianópolis
São Paulo São Paulo
Sergipe Aracaju
Tocantins Palmas

For further information about ADIT, photos, members directory and case studies, please contact ADIT’s representative in the UK, Tideway Communications on+ 44( 0)20 8878 0787 (kerry@tidewaycommunications.com) or ADIT’s head office in Maceio, Alagoas  on +55 82 3327 3465 gepro@aditnordeste.org.br

Brazil powers up

June 1, 2010

The country’s economic stability and the fame it has gained from overcoming the international financial crisis are a few reasons why the world has their eye on Brazil. Recently Will Jackson, the deputy editor of Fund Strategy magazine, attended Nordeste Investe 2010 in Natal, Brazil’s most important event for real estate and tourism.

The suggestion that Brazil could be the world’s fifth-biggest power by the next decade would have once sounded far-fetched, but the election of Luiz Inácio Lula da Silva heralded a new era. But how well placed is Brazil to cope with the challenges ahead? Will Jackson reports.

Passengers travelling with TAM, a Brazilian airline, were last month posed a provocative question as they settled down and chewed their complimentary toffees. “Brazil will be the world’s fifth-biggest power by the next decade,” read an advert in Portuguese, attached to the headrest in front. “How will your company benefit from this fact?”

The suggestion that Brazil could be on the cusp of becoming a major economic force would have sounded far-fetched a decade ago. But the election of Luiz Inácio Lula da Silva – or “Lula” for short – as the country’s president in October 2002, heralded a new era of economic stability and wealth creation. Brazil’s GDP grew 3%-6% each year between 2004 and 2008, while interest rates fell by over 10 percentage points.

Even the banking crisis which engulfed the developed world in the fourth quarter of 2008 failed to put a significant dent in Brazil’s economic progress, and the country experienced a relatively mild contraction of 0.2% in 2009. Indeed, the International Monetary Fund (IMF) forecasts a rebound to GDP growth of 5.5% this year.

”Instead of becoming a victim of globalisation, Brazil emerged a victor to claim a leading role in world affairs”

This resilient growth, coupled with economic decline in the established world powers, has imbued Brazil with a growing self-confidence, and nowhere is this more apparent than in Lula’s desire for political influence beyond the country’s borders. The president joined forces with Turkey’s prime minister in May, to negotiate a nuclear fuel swap with Iran – despite direct lobbying from America to support sanctions.

Commentators, including Kevin Casas-Zamora, a senior fellow in foreign policy at the Brookings Institution, a public policy organisation based in Washington DC, noted the significance of Lula’s defiance. “A reformed Brazil has shed its subservient past,” he wrote in April. “Instead of becoming a victim of globalisation, like many in the underdeveloped South, Brazil emerged a victor to claim a leading role in world affairs.”

But despite Brazil’s development, risks to future growth remain. A recent uptick in inflation and interest rates has led to fears that the country could overheat, as wages rise and the country’s creaking infrastructure struggles to cope. Concerns also surround the potential impact of speculative inflows from overseas, and the country’s growing dependence on exports to China. So how well placed is Brazil to cope with the challenges ahead? And what has made its economy so apparently sturdy?

Mario Fleck, the president of Rio Bravo Investments in São Paulo, says the mortgage and credit markets will develop further, albeit slowly. “In the old days of high interest rates and high inflation, people would not buy houses with terms beyond 2-3 years and most people would buy their cars almost for cash,” says Fleck. “The mentality in Brazilian culture is that it doesn’t matter how much you pay as long as your income is enough to pay the monthly instalments, and that’s true for buying a fridge, a car or a house. But the trend is still very positive for the internal market here.”

Poverty remains a significant problem in Brazil – the World Bank estimates that 9% of Brazil’s 200m population was living on the equivalent of less than $2 a day in 2008, down from 22% in 2003. But the impact of rising wealth and credit creation among the middle classes can already be seen on the streets of Natal, the state capital of Rio Grande do Norte in north-east Brazil – one of the poorest areas of the country. Housing developments are springing up across the city, as middle class buyers move into apartment blocks for security and parking.

”With this capitalisation of the economy and more reasonable inflation and interest rates, we have big opportunities”

The region is attracting foreign money, and organisers estimate that this year’s Nordeste Invest conference – designed to boost real estate and tourism in north-east Brazil – generated about R1.8 billion (£660m) of new business. British companies already operating in the area include Charlemagne Capital and Salamanca Capital, which owns 50% of Ecocil, a local developer. Rupert Hayward, a director at Salamanca, says the north-east is attractive because of a lack of competition from the bigger listed construction firms, and lower land costs.

Outside of real estate, Fleck says wider credit availability offers “a huge opportunity” for other sectors. “With this capitalisation of the economy and more reasonable inflation and interest rates, we have big opportunities for retailers, for consumption, for electronics, and everything that comes with an emergent middle class,” Fleck adds. “That could mean insurance and tourism – things on which people are not used to having the money available to spend.”

In addition to credit expansion, higher wages in the public sector are also enabling consumers to spend more. Between 2003 and 2009, the number of civil servants increased by about 10%, but the total federal wage bill more than doubled in nominal terms. Wood says the government increased the minimum wage by 12% in 2009 – an increase of 7% in real terms, which will feed through to about 40% of workers.

But while higher wages and greater access to credit is bringing better housing and living conditions, fears about inflation are once again coming to the fore. The country’s economy grew by about 2.5% in the first quarter of 2010, an annualised rate of 10%. The EIU forecasts growth of 6.3% this year – well above the IMF’s estimate and too fast to be sustainable, according to Wood.

In particular, there are concerns that the country has spent too much money on higher wages and too little on infrastructure to support greater consumption and trade. Wood says Brazil is “notoriously poor” at infrastructure, in contrast to other emerging nations such as China. “Brazil has spent very little in public investment as a share of GDP – it’s only around 1 or 2%,” he says. “During this boom, you’ve had an increased tax take but unfortunately the quality of spending hasn’t been great. In the crisis, it went into civil servants’ pay packets rather than being used to fund projects to increase productivity.”

According to the World Bank, Brazil could significantly reduce its expenditure on logistics through investment in transport infrastructure – at present, it takes twice as long for Brazil to export than America. The government has ramped up spending by introducing the “PAC” accelerated growth programme, which aims to spend up to R40.5 billion on logistics, including R27.7 billion on almost 5,000 kilometres of roads – although Wood notes that only 50%-60% of PAC money has been spent so far.

”Everything is going very well so far, but down the road Brazil does not have the infrastructure to grow beyond 5%, maybe 6% a year”

Investors sense an opportunity. According to Jonathon Ong, a portfolio manager at Macquarie Funds Group, demand for electricity is growing at 1.2-1.3 times GDP a year, while vehicle traffic is rising at a similar rate. He has been overweight Brazilian infrastructure for several months, including investments in electric utilities, toll-roads, railways and ports. Ong points to government estimates that R90 billion will be spent on Brazilian infrastructure in the next five years – much of it related to the country’s hosting of the World Cup in 2014 and the Olympic Games in 2016.

But some commentators remain sceptical on PAC. Fleck recalls that even before the economy slowed during the banking crisis the country’s ports were struggling to cope with increased shipping. He dismisses the programme as “window dressing” but says that better infrastructure is crucial. “Everything is going very well so far, but down the road Brazil does not have the infrastructure to grow beyond 5%, maybe 6% a year,” he adds. “Doing some work on this infrastructure might change Brazil forever.”

Going hand in hand with the uptick in inflation are fears that Brazil could attract speculative capital inflows from overseas. In its April World Economic Outlook, the IMF noted the strong recovery in Latin America and the Caribbean, but also warned that inflation-targeting countries in the region may be vulnerable to short-term inflows as they seek to prevent overheating. “There is [an] argument for keeping interest rates low for a longer period than justified by domestic cyclical considerations, because higher interest rates may attract speculative capital inflows,” it said.

Brazil took measures to limit speculative foreign inflows in 2009, with the introduction of a 2% tax in October. “The received wisdom is that it doesn’t have much effect, but it coincided with the exuberance towards Brazil in the third quarter,” says Wood. “One could argue that the signal sent by policymakers was that they are ready to do something, to throw some sand in the works. Managing the capital inflows will be a challenge, but they’ve done reasonably well so far.” Wood says he does not expect the tax to increase, unless there is further appreciation in the real.

Despite the risks of inflation and speculative capital inflows, Wood says most of the concerns centre around Brazil’s ability to manage growth – a problem that is “a luxury to have”. However, the full realisation of Brazil’s potential is still some way off. “The next period is about consolidating the stabilisation story,” Wood says. “Brazil is well positioned to grow 4.5 – 5%, but even at those rates you’re not going to see a rapid convergence with income levels in developed markets. So although it’s doing well, and the middle class is doing well, the economy will still be lagging behind the developed markets for a while.”

Will Jackson was a guest of the Association for Real Estate and Tourism Development (ADIT) at the 2010 Nordeste Invest conference in Natal, Brazil.