Brazilian Companies Looking to Invest Say Anywhere But Hereby
Political turmoil most-cited reason for change in strategies
Overseas demand top positive influence for foreign expansion
Brazilian companies have figured out where to invest amid a political crisis and rocky economy: anywhere but Brazil.
Industrial machinery maker WEG SA said 75 percent of its investments this year will be in operations outside the country. That compares with 80 percent of total investments in Brazil three years ago. In the past two months, the Jaragua do Sul-based company opened its third factory in China, increased capacity in Mexico and announced the acquisition of an electric-motor manufacturer in Indiana.
Brazil’s political and economic crises are the top reasons companies are reluctant to invest domestically. In a survey of about 670 companies conducted by the Getulio Vargas Foundation, 81 percent of respondents said the political environment was the main negative influence weighing on decisions, followed by the macroeconomic environment, with 71 percent. External demand was seen as the biggest positive, at 32 percent.
Cosmetics company Natura Cosmeticos SA reported that revenue outside Brazil increased 42 percent in the first quarter while domestic sales dropped almost 10 percent. Chief Executive Officer Roberto Oliveira de Lima blamed a worsening economic scenario as well as the company’s tax burden.
Natura, based in Sao Paulo, is concentrating for now on international expansion, Lima said last month on a conference call with investors. The company is gaining market share in other Latin American countries and is starting an online operation in France, through which it will be able to sell to people in other European countries too.
“In Brazil, it will be a year for us to focus on structural processes, so that when the country recovers its growth we’ll be well-positioned to compete,’’ he said.
A big caveat -- businesses seeking to invest outside the country have to contend with a currency that has plunged 43 percent against the dollar over the past three years, and that’s including the real’s 11 percent gain so far this year. For companies, it means they need to spend more to expand abroad, though they may gain when repatriating foreign revenue in stronger currencies.
To be sure, Brazilian companies are cutting back on investments in general. Of the enterprises surveyed by Getulio Vargas, 44 percent said they plan to invest less in the next 12 months, the lowest level since at least 2012. In the first quarter of last year, about 28 percent said they were downsizing investments.
Some companies are taking more extreme measures. Sao Paulo-based JBS SA, the world’s biggest beef and chicken producer, is looking to move its corporate registration out of Brazil to Europe, probably to Ireland, CEO Wesley Batista said in an interview this week. The primary reason: better access to global capital.
The shift of investments to outside Brazil presents a challenge for acting President Michel Temer, who is running the interim government after Dilma Rousseff was temporarily removed two weeks ago. While Temer assembled a more market-friendly group of economic advisers that Goldman Sachs Group Inc. called a “dream team,’’ one minister has already stepped down over allegations he offered to obstruct a corruption probe.
There are signs, however, that business perspectives may be changing. Industrial confidence had its biggest jump this month since it began being tracked in 2010. It rose to 41.3 in May from 36.8 in April, according to national industry group CNI.
‘Back to Life’
TRX Group, a real estate investment company with a portfolio of 5.4 billion reais in logistics and infrastructure facilities, is seeing renewed interest from businesses and the investment community -- both of which are optimistic about the new government, said CEO Luiz Augusto do Amaral.
“In the last weeks we started feeling that projects that were shelved a while ago are now being brought back to life,’’ Amaral said in an interview in Sao Paulo. “This week I also spent hours discussing a new fund with a big investment bank. It was the first time I’ve discussed a new fund to invest in Brazil in about two years.’’
Still, the allure of potentially more stable growth from abroad has the attention of many companies, such as Duratex SA, a Sao Paulo-based manufacturer of wooden boards, ceramicware and metal fittings. The company aims to increase the percentage of sales it gets outside of Brazil to 30 percent from 10 percent in 2014. Duratex spent almost half of its total investment budget in the first quarter on a tender offer to take private its Tablemac wood business in Colombia.
“It’s part of our strategy to increase the revenue that comes outside of Brazil, through Tablemac and through exports,’’ investor relations manager Guilherme Silva said on a first-quarter conference call with investors last month. The company is primarily focused on Peru, Mexico and Colombia, as well as the U.S.