Brazil – After The Dive, Dancing Samba Again?

Some bullets from the Presentation “Brazil – After the Dive, dancing Samba again?” by Eric Blattmann, Bank Vontobel and Daniel Bittner Arsago Group.....and my comments

ATRACTIVE DEMOGRAPHY

• 55% of population is below 29 years
  My comment: in order to support Brazils's growth it is mandatory that these people are well educated. I feel with education Brazil is still lacking behind. Public grade schools are significantly of worse quality than private schools. Public universities are very good. Since they are good everyone coming from private schools wants to go to such a university. Therefore it is very hard get in for people with the education level of a public grade school. 
  
  
• Working population is growing
  
  
• Unemployment rate is decreasing from 13% to 7.5 in 2010 and 6% in 2011
  
  
• Permanent increase of minimal salary (38% in-between 2003 and 2008)
  My comment: Calculated in percentage it sounds a lot. In absolute terms with the minimum salary around $400, 38% is not really so much. It is also to be considered that prices rose significantly more. As of today in Sao Paulo lunch in an average restaurant costs with $20 about half of what it costs in Switzerland. Looking at this and at other prices it is doubtful, that people earning the minimum salary, have at the end of the day more money in their pocket than in earlier years.
  
  
  
  
  SHIFT IN SOCIAL CLASSES
  
  
• Middle class is increasing
  
  
• Shift of the lower income class to the middle class (middle class 2003: 43%, 2009:54%)
  My comment: Talking to brazilian middle class people I do not feel that they are much wealthier than before although the income is higher. A statement I hear often is that the more they earn, the more taxes they have to pay, which doesn't leave them with more than they had with the lower salary.
  
  
  
  
  LENDING IS INCREASING
  
  
• Real interest rate decreased from over 20% in 2003 to 6 – 7 % as of today
  
  
• Bank intermediation rate (interest rate margin) dropped from 50% below 30%
  My comment: First of all, in the past with the level of interest rates plus the high margin (spread in-between the banks refinancing rate and the rate clients have to pay for loans) it was not very attractive to apply for a loan. Second of all the banks were very conservative and it was very difficult to get a loan at all. 
  
  
• Loans in the private sector increased from 22% to 45% of GDP
  
  
• Corporate loans increased from 8.5% to 15.5% of GDP
  
  
  
  
  SOLID BANKING SECTOR
  
  
• Credit markets are growing
  
  
• Core capital ratio of brazilian banks is at 16.9% (11% required)
  Note: as of this weeks EURO/Greece rescue summit european banks are required to have a core capital ratio of 9%. Many of them are not there yet.
  My comment: Compared to american an european banks brazilian banks are very conservative. One of the main reason is, that members of the general board (e.g. Itaú and Bradesco) will be liable with their own fortune in case of bankruptcy
  
  
  
  
  BRAZIL'S DEPENDENCY ON OTHER ECONOMIES IS LIMITED
  
  
• Only 12% of produced goods are exported
  
  
• Main investments have been coming from brazilian investors
  
  
• Since Brazil is rich of commodities and the industry sector has been growing, dependency on imports is limited.

MY CONCLUSION
• Information I have been getting from “real” people is not fully matching with the information I have been reading in statistics. They are certainly not fully wrong, but these statistics are not fully right either. 
  
  
• Basically there is a big potential. In order to benefit from this potential the first key factor is improvement in education. The second key factor is a higher efficiency of the apparatus of state. I would like to quote a brazil friend “Maybe this time Brazil will make it, since the economy is generating more money than the government / the functionaries can absorb”
  
  
• Brazilians are the most positive people I ever met. They are very pragmatic and are able to think out of the box. Also these will be important factors for future growth.
  
  
  So of course I remain positive for Brasil, above all looking at the problems we are facing in Europe and the US.
  
  
  VAMOS  O  BRASIL!!!
  
  
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