Here is why the world’s smart money is being invested in Brazil.

Discussion in 'Economics' started by SouthAmerica, Sep 7, 2006.

  1. .

    “U.S., Brazil should lead biofuel plan”
    Miami Herald
    Sunday, February 25, 2007

    Our hemisphere has major oil exporters, such as Canada, Mexico and Venezuela; and oil importers, such as the United States, Chile, Uruguay and nearly all the smaller countries in Central America and the Caribbean.

    Then there's Brazil. Despite its large population and strong economic growth, Brazil has transformed itself from a significant oil importer (imports were 46 percent of consumption just 10 years ago) to a country that is self-sufficient in petroleum. The Brazilians did this in part by promoting energy conservation and by working hard to find new domestic sources of oil.

    But they also bet big on ethanol made from sugar. Defying widespread skepticism, Brazilians set out nearly 30 years ago to use home-grown sugar cane as a source of energy independence. Although the task suffered setbacks, today Brazil has replaced about 40 percent of its gasoline consumption with ethanol. It even exports ethanol to the United States, despite a high tariff.

    Brazil has used a combination of mandated content requirements, tax incentives, government-sponsored lending and research, as well as innovative programs such as ''biofuel clusters'' (large-scale agribusiness focused exclusively on the production of biofuels energy in currently marginal growing areas) to help create the economies of scale required for an efficient industry.

    To get ethanol to consumers, Brazil built a network of pipelines to transport ethanol from production facilities to domestic gasoline retailers. And more than 70 percent of the new vehicles sold there are flexible-fuel models, which can burn a mixture of up to 85 percent ethanol and gasoline.

    High oil import bills

    Brazil's experience holds important lessons for other oil-importing countries. We know the perils of over-reliance on energy imports. Prices can soar, and supplies can even stop, wreaking havoc with government budgets, snuffing out economic growth and raising the potential for domestic unrest and political manipulation by oil suppliers.

    This is especially true for some of the poorest countries in the region, like Haiti, Nicaragua and Guyana. The challenges these developing nations face are exacerbated by high oil-import bills.

    Not everyone can grow sugar cane as efficiently as Brazil. But with new cellulosic technology nearing commercial take-off, virtually any kind of biomass -- wood chips, straw, agricultural waste, even cow manure -- may be used to make biofuels.

    Experience in the United States, which makes ethanol from corn and recently passed Brazil as the world's top producer, shows that biofuel production can provide higher incomes and more jobs to struggling rural communities.

    Promote ethanol use

    The problems of petroleum dependence and the potential for biofuels will be highlighted at the June meeting of the Organization of American States' General Assembly in Panama. The primary focus will be energy, including the search for sustainable solutions for its production and use.

    All this presents Brazil and the United States with an unprecedented opportunity to join in a strategic hemispheric partnership that would at once tackle two of the hemisphere's biggest challenges: energy insecurity and poverty. The pair could spearhead a drive to spread biofuels development widely and deeply throughout the region.

    President Bush will travel to Sao Paulo in March to meet with Brazilian President Luiz Inácio Lula da Silva to sign an important bilateral biofuels agreement to improve private sector biofuels cooperation, promote ethanol use in the region and begin transforming ethanol into a global commodity.

    This is a good first step, but we believe the two can be much more ambitious. Presidents Bush and da Silva should expand and energize the initiative by launching a joint program of investment, training and research to build biofuels production capabilities throughout the region and the world.

    Grants and loans from regional development banks could be used to assess the suitability of biofuels on a country-by-country basis. Investments and loans from the U.S., Brazil and other interested governments, as well as private-sector sources, could perfect cellulosic technology, train farmers in biomass crops and build biofuel production facilities and distribution systems. Sen. Lugar will soon introduce legislation in the U.S. Senate to initiate this proposal.

    Such an investment program could, in short order, create a thriving Western Hemisphere biofuels marketplace that would alleviate poverty, create jobs and increase income, improve energy security, strengthen nations' independence, and protect the environment. If implemented vigorously and expansively, this partnership would signal a transformational change in U.S. policy on Latin America, a true collaboration between north and south on an economic and security strategy that would benefit all.

    Sen. Richard G. Lugar, R-Ind., is the ranking Republican on the Senate Foreign Relations Committee, and José Miguel Insulza is the secretary general of the Organization of American States.

    #81     Feb 25, 2007
  2. Cool. Sounds like something positive is being done. I hope it works out the way they want it to.
    #82     Feb 25, 2007
  3. .

    May 27, 2007

    SouthAmerica: Yesterday I was reading the following article that was published on the latest issue of Business Week magazine – issue dated June 4, 2007. I loved the way they described the Petrobras Company on this article:

    "Pemex is like a well-fed dog that has never needed to search for its next meal," says John Albuquerque Forman, a Brazilian energy consultant. "Petrobras is that lean, scrawny dog that has to rummage through the trash cans to survive."

    Now Pemex is turning to the hungry hound for help.

    And today that lean, scrawny dog is among the 7 best petroleum companies around the world according to a recent Financial Times (UK) article.


    Business Week
    JUNE 4, 2007
    GLOBAL BUSINESS - Latin America: “Beating The Oil Curse”
    Mexico's troubled national oil company could siphon some good ideas from Brazil's petroleum success story

    With oil prices as high as they are, you'd think Mexico's state-run oil company, Petróleos Mexicanos (Pemex), would be awash in cash. But it lost money five out of the past six years and racked up just $3.9 billion in profits in 2006 on a record $97 billion in sales. Why? Because it had to hand almost $54 billion in taxes and royalties to the national treasury last year, accounting for nearly 40% of the government's revenues.

    Pemex is Mexico's piñata. Politicians are so accustomed to the steady flow of cash from the company that they've never mustered the discipline to cut government spending or carry out major tax reform. Now, after years of underinvesting in exploration, Pemex is watching helplessly as output from its biggest oil field, Cantarell, declines by 20% a year. At current production rates, Mexico's oil reserves will last less than 10 years, meaning the world's sixth-largest oil-producing country runs the risk of becoming an oil importer.

    Contrast Pemex's woes with the situation in Brazil. At the time of the price shocks of the 1970s, Brazil imported all its crude and the economy nearly collapsed. Since then, state oil company Petróleo Brásileiro (Petrobras) has been driven with a missionary zeal that led the country to become self-sufficient in oil last year. The richest deposits were offshore, at depths that hadn't been attempted even by Big Oil multinationals. But Petrobras' engineers developed innovative techniques and equipment that allowed them to pump crude in more than 6,000 feet of water—a record at the time and still among the deepest operations worldwide. To help pay for the effort, Brazil's political leaders floated Petrobras shares on the New York Stock Exchange in 2000, raising $4.1 billion while keeping 56% of voting power under government control. Investors have been rewarded: The stock has since quadrupled in value.

    Two state-owned oil companies, two different stories. Pemex and Mexico represent a classic example of what economists call the "oil curse" that plagues countries endowed with so much of the valuable resource that they become complacent—and dependent. Mexico, which nationalized its oil industry in 1938, has spent decades "administering the abundance," as one former President put it, with little planning for the future. The result: By some estimates, production could fall as low as 2 million barrels daily by 2012 from a peak of 3.8 million barrels a day in 2004. Petrobras, in contrast, started from scratch in 1954, pumping just 2,700 barrels of oil daily. Today it produces 1.9 million. "Pemex is like a well-fed dog that has never needed to search for its next meal," says John Albuquerque Forman, a Brazilian energy consultant. "Petrobras is that lean, scrawny dog that has to rummage through the trash cans to survive."

    Now Pemex is turning to the hungry hound for help. With 60% of its reserves in deep water, Mexico needs Petrobras' knowhow. The companies signed a broad cooperation agreement last year that may give Pemex a helping hand. "The situation in Mexico is desperate—they are losing their reserves very quickly," says Guilherme Estrella, Petrobras' chief of exploration and production.


    Reviving Pemex's fortunes is important not only to Mexico but also to the U.S., which gets 14% of its imported oil from its neighbor to the south. With Venezuelan President Hugo Chávez threatening to reduce oil shipments to the U.S., the last thing Washington needs is for Mexico's oil patch to dry up. "We face the urgent challenge of taking advantage of our reserves Paragraph especially in deep water, because the country's oil future depends on it," Mexican President Felipe Calderón told Pemex workers on a March visit to an offshore oil rig.

    Mexican officials have sought a Pemex shakeup for years, but it's slow going. Some politicians have suggested floating Pemex shares to spur reforms at the hidebound institution of nearly 150,000 employees, but the company's $53.4 billion in debt would be an obstacle. "Pemex's tragedy is that it's not a company—it's a distorted bureaucracy," says David Shields, a Mexico City-based author who has written two books on Pemex.

    One possible way to spur change—greater competition—won't happen due to a Mexican constitutional ban on private investment in oil. And nationalist sentiment makes it virtually impossible to remove that prohibition, as hard- liners fear it might be a back-door effort at privatizing Pemex. Consensus is building for tax reform to reduce the burden on the oil company, though hammering out a deal could take years. "We will be alert to any moves to pry Pemex open for private investors," says Manuel Bartlett, an influential former senator.

    Pemex isn't waiting for legislators to act. It hopes to dispatch engineers to observe operations on Brazil's deepwater platforms. "We finally woke up and realized we have to do battle with this," says Pemex's exploration chief, Carlos A. Morales Gil. But what Pemex really needs is a technology-sharing joint venture with Petrobras. As a publicly traded company, Petrobras may only want to do that if it can share in the oil finds—something Mexico's constitution bars. For now, the Brazilian company says it may provide Mexico with some technology to get its foot in the door. "If they decide to change the constitution, we want to be present," says Luis Carlos Moreira da Silva, Petrobras' executive manager for international business development.

    Petrobras' expertise is on display at a giant floating platform moored in 4,000 feet of water about 80 miles off Brazil's Atlantic coast. The company each day produces gas and crude equivalent to 218,000 barrels of oil at the platform, a converted supertanker. Petrobras was one of the first oil companies worldwide to use floating platforms to reach oil that conventional fixed rigs couldn't. Company engineers designed torpedo-like anchors that are fired into the ocean bottom to secure the vessel. Petrobras is awaiting permission from the U.S. government to be the first company to use such a rig in the Gulf of Mexico, where it plans to invest $15 billion over the next decade.

    While just 10% of Petrobras' revenues now come from its international operations, the company is eyeing opportunities for expansion worldwide. Petrobras has an ambitious five-year investment plan and hopes to boost oil production to 2.4 million barrels per day by 2011. With three-fourths of the world's oil reserves held by state-run companies, Petrobras' hybrid status as a government-controlled company managed like a private one could help it win contracts in countries such as Iran and Venezuela that view Big Oil with suspicion. "Sometimes we visit a country and say, We're state-owned,' and other times we say We are independent, private,'" says Moreira da Silva.


    That approach might work in Mexico, too. But it remains to be seen just how much deepwater expertise Petrobras is willing to hand over. And Pemex needs more than technology. It would do well to emulate Petrobras' emphasis on worker training and innovation, and its managers want to be freed from heavy taxes, meddling politicians, and a powerful labor union that blocks change. "We must carry out profound reforms," says Morales, the Pemex exploration chief. "Pemex needs to be given more autonomy. We need to pay much more attention to research, technological development, and training. We're taking steps now to make up for lost time." The challenge will be to become more like Petrobras before Mexico's oil flow slows to a trickle.

    #83     May 27, 2007
  4. then im guessing you havent been to india... people take baths in one of these two places and not in a river
    #84     May 30, 2007
  5. Brazil is a war zone. More people are murdered there each year than soldiers we lose in the Iraq war each year :eek:
    #85     May 30, 2007
  6. i have a condo in ipanema and if the place was "safe" it would be overun with ugly people... i guess crime is the drawback of living in paradise
    #86     Jun 1, 2007
  7. That's why SA apparently lives in New Jersey now. He had to get away...
    #87     Jun 2, 2007
  8. .

    June 12, 2007

    SouthAmerica: Last week I met my cousin in New York – she just came for a very short visit, and she stayed only a week in New York.

    They have a very large farm close to Sao Paulo and they are specialized on sugar cane production. The farm has been in the family since the mid 1800’s going from generation to generation.

    It is a very large farm and they used to own an ethanol refinery that still is located in the middle of the farm, but her father sold the refinery to a French group 3 or 4 years ago. But they still own the farm and have a long-term contract with the refinery to deliver their sugar cane annual production.

    I did not ask why they sold the ethanol refinery, but I know they also are involved in real estate development.

    My great-great grandfather gave a huge farm for each of his 13 children, and the above farm still belong to members of our family.

    My cousin gave to me a copy of a Family Album of the “Souza Queiroz Family” that is the history of our family and was published in 2007.

    The book has a history of all the farms and also a picture of a lot of members of our family.

    One of our cousins is very well known, because his bank has been doing an outstanding job in Brazil for many years. His name is Olavo Egydio Setubal and he is the Chairman of Banco Itau, in Brazil.

    The book has a nice picture of Paulo Egydio Setubal (84) and his entire family; his sons and daughters, and subsequent generations. His picture is on pg 73 of the book.

    There are various pictures of all the members of my immediate family on page 145 of the book. You can see a copy of the book at:

    Luiz Roberto de Souza Queiroz
    Carlos Eduardo Uchôa Fagundes Junior

    The above is the Souza Queiroz side of my family. My great-granfather Carlos de Souza Queiroz (He was the youngest of the 13 children of the Barao of Souza Queiroz)

    He was married with Maria Flora de Andrada e Silva (she was my great-grandmother).

    Maria Flora was a granddaughter of Matim Francisco (who is the equivalent to Thomas Jefferson in US history) and a great-granddaughter of Jose Bonifacio de Andrada e Silva (The Patriarch of Brazilian independence).


    “The Money Flying Down To Brazil”
    Big-name investors sniff hefty ethanol profits in the country's vast cane fields
    Business Week – June 18, 2007

    Philippe Reichstul knew there was money to be made in ethanol. But the former president of Brazil's state oil company, Petrobras, also realized he needed deep-pocketed investors to make a mark in the fast-growing biofuels field. So when he heard last year that AOL co-founder Steve Case was interested in a small venture to produce sugarcane ethanol, Reichstul was eager to get in touch. But forget about anything pint-sized. "It had to be something large," Reichstul says.

    These days, lots of A-list investors see potential for big profits in Brazil's sugarcane fields. Private equity, agribusiness, and well-heeled entrepreneurs are trying to cash in on the country's ethanol. A pioneer in the industry since the 1970s, Brazil is the world's top ethanol exporter and second only to the U.S. as a producer. Nearly all cars in Brazil run on ethanol or an ethanol-gasoline mix, and the country's sugarcane-based fuel is 30% cheaper to make than the U.S. corn-based variety.

    All good reasons why Reichstul was able to attract serious money. In addition to Case, he enlisted green-fuel advocate and Sun Microsystems co-founder Vinod Khosla, supermarket magnate Ron Burkle, film producer Steve Bing, and former World Bank President James D. Wolfensohn to create Brazilian Renewable Energy Co., or Brenco. The Americans put a total of $31 million into the company, while Brazilians invested $20 million. In March, the group raised nearly $150 million more from U.S. and European investors. Brenco plans to spend $2.2 billion to plant 1.5 million acres of sugarcane, build 10 ethanol mills, and churn out 1 billion gallons a year by 2014, largely for export. Reichstul says he aims to "unlock demand" for the fuel across Europe, Asia, and the U.S.

    It's a long-term investment, with plenty of risk. Brenco won't start producing until 2009, and the company says it will have to raise a further $1.5 billion in loans and private capital to finance its buildup. Meanwhile, costs are rising: Land prices in Brazil's sugarcane- growing heartland have more than doubled since last year. And no one knows whether ethanol will remain profitable. In most countries, consumers won't buy the fuel without government subsidies--and Brazilian ethanol faces stiff tariffs in the U.S. and Europe. Even in Brazil, where ethanol isn't subsidized, producers could lose out if oil prices fall below $40 per barrel, which might spur consumers to switch to a cheaper mix. Currently, pure ethanol sells for $2.80 a gallon at the pump in Brazil, vs. $5.00 for a gasoline formula that is about one-fourth ethanol.


    A host of investors seem to think Brazil's ethanol bet is worth it. On June 3, billionaire George Soros visited a Brazilian ethanol mill owned by Buenos Aires food and energy group Adecoagro. Soros is the leading shareholder in the company, which plans to invest $1 billion in four more Brazilian fuel projects by 2015. "We expect the returns to be highly attractive," says Adecoagro President Alan Boyce. In March, private equity firms Carlyle Group and Riverstone Holdings raised $240 million to fund Brazilian partners operating four ethanol mills. "We think ethanol will be a permanent part of the [global] fuel mix," says Riverstone Managing Director Michael B. Hoffman.

    With all the money pouring in, Brazil's ethanol capacity is picking up fast. By 2010, at least 77 new ethanol plants are expected to begin operation, boosting output by a third, to almost 7 billion gallons a year, says the Agriculture Ministry. Major producers such as Brenco will have to find export markets or face the price volatility that could come with a domestic glut. Still, if there's a shakeout, the biggest players will probably survive. "We aren't saying: 'Let's do biofuels at any price," says Arnaldo Vieira de Carvalho, an energy specialist at the Inter-American Development Bank. "But in Brazil there's already proof they work."


    #88     Jun 13, 2007
  9. .

    “Radicalism and pragmatism at work in Brazil”
    By Robert Shiller
    The Taipei Times
    Monday, Jun 18, 2007, Page 9

    Brazil's stock market, as measured by the inflation-corrected Bovespa index, has more than quadrupled in value since President Luis Inacio Lula da Silva's first election victory in October 2002, and is now at almost twice the peak achieved in 2000.

    In comparison, the inflation-corrected Shanghai Composite only doubled during this period, while the US market, as measured by the inflation-corrected Standard and Poor's 500, increased only 50 percent. Indeed, the US has never experienced a fourfold increase in stock prices in less than five years, even during the late 1990s bubble.

    Given that Lula is an avowed leftist who counts Venezuelan President Hugo Chavez and Cuban President Fidel Castro among his friends, Brazil's performance is all the more surprising.

    How could he manage to preside over such a spectacular stock-market boom? Are Brazilians too exuberant? Might it be time for foreign investors to pull their money out?

    Stock-market movements are certainly hard to explain, but there are reasons to believe that Brazilians might be rationally exuberant. Corporate earnings in Brazil have gone up roughly as fast as stock prices. With the price/earnings ratio remaining stable and moderate, the stock-market boom does not appear to reflect mere investor psychology.

    On the contrary, the real question is why the increase in stock prices has not outpaced growth in corporate earnings. After all, in the 1990s, the US stock-market surge (as in many countries) was fueled by record-high price/earnings ratios.

    In 1998, the price-earnings ratio in the US was 24, compared to a historical average of around 15. By contrast, the run-up in stock prices in Brazil started from a very different point, with the price-earnings ratio as low as six in 1998.

    When a stock-market boom reaches historic proportions, a story always develops to rationalize it. The news media typically present reasons to justify the view that the economy has entered a "new era." Sometimes the stories are mere fabrications to validate market optimism, as with the 1990s boom. But, at other times, the stories seem more solid.

    Lula has called this a "magic moment" for the Brazilian economy. While such words merit caution, economy fundamentals bear them out. The currency, the real, has been strengthening steadily, to nearly twice its value against the US dollar in October 2002, when Lula was first elected.

    Inflation and interest rates are falling, the country is running with a trade surplus, foreign investment is flowing in at a high rate, and the government has more than paid off its debts to foreigners, becoming a net creditor to the rest of the world.

    So stock investors seem to be recognizing Brazil's economic vitality, carefully watching corporate earnings rise, and running with them. After being lone believers through 2002, Brazilian stock market participants are now finding that investors from all over the world want to join the party.

    Nevertheless, given corruption scandals involving prominent government figures that have come to light over the past few years, it is natural to wonder why the stock market has remained so strong.

    Why haven't the stories of corruption caused a crisis, as similar scandals in South Korea and Malaysia did during the Asian financial crisis of 1997?

    Indeed, while the scandals have shaken the government, Lula was reelected last year, and investors continue to pour money into the stock market.

    One reason is that the scandals have provided an opportunity for investors to see Brazilian freedom of speech and democracy in action. Newspapers and television commentators have been relentless in reporting the scandals, helping to prove to Brazilians and foreign investors alike that the political system is sufficiently stable to withstand open criticism.

    Lula remains popular with Brazilians because his populist rhetoric shows real sympathy with the less affluent, and with foreign investors because he has always tempered his radicalism to accommodate economic reality.

    He recently criticized Bolivian President Evo Morales' threats to seize foreign assets for his failure in this regard. "Radicalism is incompatible with the common sense needed from someone who governs," Lula said.

    That combination of philosophical radicalism and economic pragmatism has proven to be a perfect formula for Brazil's progress.

    Granted, the future is unknown; we have no crystal ball to predict the Bovespa's likely path. But, for me, the story is far more convincing than the one told during the 1990s stock-market boom.

    Robert Shiller is professor of economics at Yale University.



    MercoPress - Sunday, June 17, 2007
    Brazil revving “for takeoff rivaling China and India”

    “Brazil is revving up for an economic takeoff that could rival China and India” according to Martin Weiss author of the New York investment newsletter Money and Markets who praised president Lula da Silva for having built the “foundation for the launching pad”.

    What are the forces behind Brazil´s market blast-off this year? asks Dr. Weiss after an in depth examination of the Brazilian markets and the factors influencing the growth the economy is currently experiencing.

    The first force, he says, is the underlying firmness of Brazil´s launch pad, its foundation for growth. Brazil´s President, Luiz Inácio Lula da Silva, built that foundation by actually holding back the economy.

    “He paid off the country´s debt to the IMF. He built a huge trade surplus and made big headway in balancing the federal budget and he focused on stabilizing the currency”, said Dr. Weiss of the Lula da Silva administration orthodox approach to economics.

    For most of this decade, while China was growing by leaps and bounds, Brazil was lagging behind. But all that changed early this year: Brazil´s government has taken new steps to unleash pent-up demand and let the economy start taking off.

    ...This investment explosion is key. With it, Brazil is revving up for an economic take-off that could rival China´s and India´s", explains Weiss.

    Just last week, Standard & Poor´s surprised the financial markets with an upgrade of Brazil´s credit rating, prompting another surge in Brazilian assets.

    ...Brazil´s currency, the Real, jumped by the most since September, hit a new six-year high, and busted through the 2-per-dollar level for the first time since 2001," according to Dr. Weiss.

    “Brazil´s currency, the Real, is the strongest among all major currencies in the world this year. Its stock market is leaping ahead of all other major markets. Brazil is now in the spotlight, beginning to attract a torrent of international capital” argues Weiss.


    #89     Jun 18, 2007
  10. .

    MercoPress – Uruguay
    Independent News Agency
    June 30, 2007
    “Brazil’s unveils ten year 133 billion US dollars oil & gas plan”

    Energy corporations will invest 133 billion US dollars in the next ten years looking for oil and gas in Brazil according to a release from the country’s Ministry of Mines and Energy.

    The Ten Year Energy Expansion Plan, 2007/2016, which has Brazil’s government controlled Petrobras as the main investor, is undergoing a “public opinion consultation” process before becoming effective next July 20, when President Lula da Silva stamps his signature.

    The plan, according to official sources, seeks to balance economic growth prospects with energy supply and expanded demand.

    The Lula da Silva administration argues that the Brazilian economy has begun an unparalleled growth cycle above 5%, with low inflation and promises that the sustained expansion “will last decades” and ensures there will be no “energy shortages” for domestic and foreign investors.

    Brazil is determined to maintain “oil self sufficiency”, an objective which was achieved in the last twelve months.

    Investment in hydrocarbons exploration and production is estimated between 108 and 133 billion US dollars of which 46 to 55 billion corresponds to corporations affiliates. Petrobras’ share is estimated in 43 billion according to the company’s business road map.

    Most of the investment is scheduled to concentrate in the 2012/2016 period, with an estimated 62 to 79 billion US dollars.

    Brazil’s target for 2015 is almost 3 million bpd; production currently stands at 1.9 million bpd

    Regarding natural gas the target is to keep current annual production of 35 billion cubic meters until 2011 (96 million cubic meters per day) when output is expected to increase by 30% with the incorporation of new fields.

    Some of the international corporations operating in Brazil include Repsol/YPF; Shell; Statoil; Chevron and BP which have won tenders to explore and extract oil and gas offshore and on Brazilian territory.


    #90     Jun 30, 2007