It's Carnival Time For InvestorsBy
As skittish portfolio investors continue to pull money out of Latin America's gyrating money markets, a countertrend is showing up. In Brazil, some of the world's biggest companies are pouring billions of dollars into direct investments. Hard-nosed corporate planners in industries from autos to beer believe the upsurge under way in the region's biggest economy won't be stopped by financial jitters.
On Feb. 21, General Motors Corp. announced a $2 billion, four-year investment to boost its Brazilian production capacity. The buildup is "indisputable proof of our confidence in this country," said Jose Carlos Pinheiro Neto, corporate affairs director at General Motors do Brasil.
Two days later, Volkswagen topped GM: It unveiled plans to invest $2.5 billion by 1999 to double its Brazilian output, to 1 million vehicles per year, and make Brazil its center for worldwide truck production.
"ALL THE RIGHT MOVES." What's spurring the wide-ranging investments (chart) is the economic rebound stemming from Brazil's free-market reforms. Last year, gross domestic product grew 5.7%, up from 4.2% in 1993, stimulated by the Real Plan. The plan, a mix of fiscal measures and a new currency, the real, braked inflation from more than 40% per month last June to just 1% now. This year, forecasters expect growth of around 5%.
Rising consumption is the attraction for St. Louis brewer Anheuser-Busch Cos. On Feb. 22, it laid out $105 million for a 10% stake in Antarctica Paulista, Brazil's leading brewer, with an option to buy 30%. Brazil appears to making "all the right moves," says Jack H. Purnell, chairman of Anheuser-Busch International Inc.
Nevertheless, President Fernando Henrique Cardoso must still push additional reforms through Congress. These range from revamping the bankrupt social security system to opening industries such as telecommunications and electric power to private investment.
Portfolio investors are also uneasy about the overvalued real, currently worth about $1.18. On the plus side, the strong currency is holding down inflation by pulling in cheap imports. But it is also eroding Brazil's traditional trade surplus, which dipped into deficit in recent months. To avoid Mexico's fate, Cardoso has moved to curb the deficit by hiking auto-import duties, stepping up export financing, and tightening consumer credit.
PIPES AND MOTORS. Up to now, Brazilian companies have been cautious about investing. But late last month, Tubos e Conex centses Tigre, the top maker of pipes and joints, said it would spend $80 million to increase production, while electric-motor manufacturer Weg Motores unveiled a $70 million expansion plan.
The new investments should give a boost to Brazil's productivity and trade balance. Take Procter & Gamble do Brasil. President Fernando Aguirre says P&G's new plant near So Paulo, in which it may invest $80 million over three years, will give it "an efficient, state-of-the-art facility."
For AT&T's computer division, a $6 million outlay in January for an 83% stake in computer maker Monydata is a foothold in an emerging market. "It is not a question of whether to invest in Brazil," says Fabio Steinberg, AT&T spokesman in Brazil. "It's a must." If Brazil's recovery continues, many companies are likely to feel that need, even as the financial markets continue to jiggle.
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