5/8/2009 INTERNAL 1
Brazil’s economic perspectives in
crisis times
Dr. Rolf-Dieter Acker
BASF S.A., São Paulo, Brazil
Deutsch-Brasilianische Gesellschaft e.V.
September 25th 2009
5/8/2009 INTERNAL 2
In a global context the South American
macroeconomy has a minor position
USA
10 tn
Germany
2,5 tn
Japan
3,3 tn
China
2,9 tn
NAFTA
12 tn
(+2,2%)
EU27
12 tn
(+1,1%)
Asia
10 tn
(+3,9%)
SA
1,9 tn
(+2,9%)
Brazil
1.072 bn
Argentina
223 bn
Brazil as the dominating country in South America ranks globally on 9th positionSource: ZZS, IMF
Nominal GDP
2008 in €
(CAGR 08-20)
5/8/2009 INTERNAL 3
6.608 Bn Usd9.147 Bn USd
1%
2%
3%
4%
5%
6%
7%
8%
1% 2% 3% 4% 5% 6% 7% 8%
South America will remain growing above World’s GDP and
faster than in the last years. Brazil will maintain its position
as the major economic force
Brazil represents roughly half of the continent’s population and 56% of total GDP
Within the region, top six countries account for 96% of total GDP
Despite differences in growth rates, the economic power distribution doesn’t change
Chile exhibits steady growth
0%
1%
2%
3%
4%
5%
6%
7%
0% 1% 2% 3% 4% 5% 6% 7%
SAØ 4.5%
Chile
Peru
UruguayVenezuela
Colombia
Brazil
Argentina
Ecuador
Growth of GDP
95-07 in % p.a.
Circle Size reflects
GDP 2020 w/o inflation
SAØ 3.1%
Growth of GDP
95-07 in % p.a.
WorldØ 3.1%
SouthAmerica
Asia Pacificw/o Japan
EasternEurope
Western Europe
Japan
NAFTA
EmergingAsia
Oceania
Circle Size reflects
GDP 2020 w/o inflation
WorldØ 3.1%
5/8/2009 INTERNAL 4
The most significant challenge in South
America’s past was the macroeconomic
volatility
GDP Growth between 1990 and 2008
1990 2008
Developing Asia 7,7% p.a.
South America 3,3% p.a.
Advanced Economies 2,5% p.a
“ Having growth rates like OECD countries and fluctuations like Asia”
5/8/2009 INTERNAL 5
Did you know that….
Embraer is No 3 in the world in production of commercial airplanes. Pentagon bought 58 patrolling airplanes form Embraer for USD $7 billions
The Frankfurt Stock Exchange works with Brazilian software
Petrobras is world leader in deep water exploration
Odebrecht (Brazilian company) is world leader in hydroelectric machinery construction
Germany imports Brazilian ITA VS30 rockets for use in experiments of micro gravity
South America produces more than 3 million cars and Brazil ranks 6th globally
5/8/2009 INTERNAL 6
6%
8%
8%
9%
11%
17%
18%
19%
24%
33%
4%
0
Automotive
Personal Care
Pulp
Biofuels
Mining
(Global car sales-units)
(worldwide consumption Bn USD)
(production Mt)
(production USD)
(production M Liters)
Poultry(production Mt)
Beef(production Mt)
Decorative Painting(worldwide consumption Mt)
4% (%South Americain World GDP)
Important industries in South America are
relevant in global markets
Relevance of South America
in some global markets (2007)
USA USA USA USA USA USAJa-
PanChina
Brazil
4,5%
p.a*
Brazil
7% p.a*
Brazil
2,5%p.a*China
Cana-
daJapan USA Chile
Arg.W.
EuropeChina
Brazil
4,8% p.a*
Brazil
7% p.a*
Brazil
4,1%
p.a*
China AUS
ChinaRest of
EuropeArg. Japan France
Ger-
many
South
Africa
IndiaOther
S. Am.
Swe-
den
Ger-
manyS.
KoreaRussia
Para-
guayAfrica Finland
Brazil
5,5%
p.a*
USA
CanadaBrazil
6,3% p.a*
1º
2º
3º
4º
5º
7º
6ºS
oyb
ean
Bio
eth
an
ol
Pu
lp
Pers
on
al C
are
Beef
Au
tom
oti
ve
Min
ing
Po
ult
ry
Glo
bal R
an
kin
g
* CAGR 2007 - 2020
Crop production(production tons)
Crude Oil(reserve boe)
Natural Gas(reserve boe)
1
2
1
2
With recent discoveries in Venezuela and in Brazil (pre-salt), South America could represent 30% of crude oil reserves in the world. (Source: BCG)
South America has currently only 11% of total potential arable land farmed
5/8/2009 INTERNAL 7
Industrywise Brazilian exports are highly
diversified, but mainly based on natural
resources
Oil/Fuel
13%
Iron Ore
11%
Steel/Metals
11%
Pulp & Paper
3%
Meat
8%
Automotive
14%
Mech.
Equipments
5%
Electronics
4%
Chemicals
7%
Others
10%
Soybean
10%
Sugar
4%
Exports
2008
USD
198 bn
5/8/2009 INTERNAL 8
Regarding FDI confidence Brazil outpaces
many established economies
Source: ATK FDI Confidence Index 2008
5/8/2009 INTERNAL 9
Amongst BRIC countries Brazil shows a
stable upwards trend regarding FDI
0
10.000
20.000
30.000
40.000
50.000
60.000
70.000
80.000
90.000
100.000
2004 2005 2006 2007 2008
Recent FDIs are targeting strong sectors like agriculture and sectors to be improved like industrial
Bra
zilC
hin
a
Russia
India
38%
32%
30%
Agriculture
Industrial
Services
FDI Target Sectors
5/8/2009 INTERNAL 10
Efficiency gains in agricultural industry boosted
business throughout South America, especially
in Brazil and Argentina
57,9
68,4
76,081,1 78,4
82,4
100,3
123,2 120,7
130,5
113,5
119,1
96,7
83,076,6
73,668,3
90
/91
91
/92
92
/93
93
/94
94/9
5
95
/96
96
/97
97
/98
98
/99
99
/00
00
/01
01
/02
02
/03
03
/04
04
/05
05
/06
06
/07
07
/08
08
/09
*
37,938,5
35,639,1 38,5 37,0 36,6 35,0
36,9 37,8 37,840,2
43,947,4 48,8 47,3
46,0
Production (million tons)
Area (million hectares)
146%
27%
Related crops: ( soybean, corn, wheat, peanuts, rice, barley,
cotton, oat, bean, sunflower, castor seed, sorghum)
* expected for 08/09 season
Source: Conab
47
48*
142
143 *
5/8/2009 INTERNAL 11
0 100 200 300 400 500 600
Arable Land * Land Currently Farmed
Arable Land per Region
56
413
115
11
137
Potential
arable land
w/o
deforestation
Source: FAO , 2005. Not considering areas dominantly under forest ecosystems.
Million Hectares
89Oceania
Europe (North+South+West)
America North
Europe East + Russia +
Middle East
Asia
Latin America
* Considering Pasture as potential arable land.
Sustaining the agriculture importance,
South America has the highest potential
of arable land
5/8/2009 INTERNAL 12
Most important crop areas in South
America are far away from amazonian
rainforest
Amazonian
rainforest
Intense
Agricultural
Use
Urbanized Areas
Source: Embrapa
5/8/2009 INTERNAL 13
Biotech penetration in agricultural
industry
95 Million Hectares
Source: Clive James 2009
34 Million Hectares
157 Million Hectares
30 Million Hectares
Soybean 70%
(in Brazil 60%
In Argentina 95%)
Cotton 46% Maize 24% Canola 20%
5/8/2009 INTERNAL 14
In 2009 the economic dip in South
America will be less harsh compared to
other regions
-4,4
-3,2
-1,8-1,1 -1
-7,8
5,7
7,7
-10
-8
-6
-4
-2
0
2
4
6
8
10
EU27 NAFTA Asia SA Brazil Russia India ChinaReal
GDP
Growth
’08-’09
(%)
Brazilian GDP depends only by 15% on exports, private consumption will grow by 1,5% in 2009
5/8/2009 INTERNAL 15
Brazil’s private consumption pattern gets
closer to developed countries
Car Production
Brazil
Korea
Germany
USA
China
Japan
0 5 10 15
Million Units
Personal Care & Toiletries Sales
UK
France
Germany
China
Brazil
Japan
USA
0 15 30 45 60
US$ mn
Cell Phones Lines
Japan
Brazil
Russia
USA
India
China
0 100 200 300 400 500 600
Million of Lines
All figures 2008
5/8/2009 INTERNAL 16
South America LV production – monthly
outlook
100.000
200.000
300.000
400.000
500.000
Jan Feb Mrz Apr Mai Jun Jul Aug Sep Okt Nov Dez
2008
2009
3,83,5
Total [mn]
-6,5%
2008 2009
5/8/2009 INTERNAL 17
LV production per regionchange 2009 vs. 2008
-40
-30
-20
-10
0
10
20
30
40
W-EU
-24,3%
CEE
-2,5%
Asia
-25,1%
Japan
30,2%
China
-8,8%
Korea
18,7%
India
-33,0%
NA
-6,5%
SA
-20,2%
EU
-18,3%
2,43,411,08,227,64,811,916,73,58,4mn units
2009
% c
han
ge
5/8/2009 INTERNAL 18
For many years Brazilian retail figures
showed a steady growthComércio Varejista sa
141.9
131.7
119.9
113.8
102.7
105.1
103.9
145.7
149.5
97.0
151.2
94.0
109.0
124.0
139.0
154.0
ma
i/0
1
se
t/0
1
jan
/02
ma
i/0
2
se
t/0
2
jan
/03
ma
i/0
3
se
t/0
3
jan
/04
ma
i/0
4
se
t/0
4
jan
/05
ma
i/0
5
se
t/0
5
jan
/06
ma
i/0
6
se
t/0
6
jan
/07
ma
i/0
7
se
t/0
7
jan
/08
ma
i/0
8
se
t/0
8
jan
/09
ma
i/0
9
Even the crisis at the end of 2008 was not impacting the private consumption significantly
05/2001 05/2009
Indexed
Retail
Sales
Figures
(2003=100)
+15%
+17%
+21%
+24%
+37%
+54%
+62%
Washing Powder
Toilette Paper
Yoghurt
Diapers
Frozen Food
Chocolate
Sun Care
June08-June09
5/8/2009 INTERNAL 19
Brazilian consumers are increasingly
shopping in supermarkets
5/8/2009 INTERNAL 20
Successful social programs increased
private consumption impacting the
consumer behavior
4,6%
17,8%
30,6%
34,4%
12,7%
4,6%
17,8%
30,6%
34,4%
12,7%
Roughly one fifth of Brazilian households have moved
from classes D & E to B & C in the past five years
5,6%
26,3%
41,9%
23,8%
2,3%
Class1 :
A
B
C
D
E
1. Socioeconomic classes are defined according to consumption levels (number of televisions, car ownership, etc), rather than the “multiple of a minimum monthly salary” method used by the Brazilian statistics agency, in order to eliminate the effect of adjustments to minimum wages, inflation and regional cost-of-living differences.Source: Target Brasil; BCG analysis
Example: Shift of wealth in Brazil (% of urban households)
2002 2007
5/8/2009 INTERNAL 21
Seven good reasons to be optimistic
about Brazil in crisis times
Significant increase in purchasing power supports domestic markets
Large food exports stabilize Brazil’s international trade
Regionally diversified and growth oriented exports dampen volatility
More than 220 billion USD of financial reserves to bridge gaps
Sophisticated financial system and no credit or real estate bubbles
No dependence on imported crude oil due to green energy matrix
Stable democratic political system
5/8/2009 INTERNAL 22
In general, German companies do have
considerable business in Brazil
14.414
6.112
2.390
2.164
1.672
1.502
1.084
886
822
815
462
459
352
332
325
302
276
255
234
206
Volkswagen
Mercedes-Benz
BASF
Robert Bosch
Bayer
Siemens
Allianz
Lanxess
Mahle
Scania
Thyssen Krupp
SAP
Evonik
Merck
Voith Paper
Stihl
Melitta
Thyssen Krupp Elevadores
Voith Siemens
Cognis
The sales of major German
companies in Brazil
accounted for US$ 35bn in
2008
5/8/2009 INTERNAL 23
5.000 employees, 3.500 in Brazil
Total Sales:
• 2,99 billion euros(including Wintershall)
• 1,87 billion euros in Brazil
Sales in 10 countries
22 production sites
There of 8 sites in Brazil
BASF IN SOUTH AMERICA 2008
5/8/2009 INTERNAL 24
BASF has a veritable site footprint in
South America
Camaçari
Puerto
Montt
Santiago
Concón
Lima
Burzaco
TortuguitasGeneral
Lagos
MauáDemarchi
Guaratinguetá
Jaboatão
Indaiatuba
Bellen de
Escobar
Ocumare del Tuy
Multi-divisional sites
Single-divisional sites
S. Jose d. Campos
Vila Prudente
Callao
5/8/2009 INTERNAL 25
BASF’s sales portfolio in South America
is quite different from the global one
South America 2008
EUR 2,9 bn
5%
15%
14%
16%
23%
17%
Agricultural
Solutions
Functional
Solutions
Performance
Products
Plastics
Oil & Gas
ChemicalsBASF Group 2008
EUR 62,3 bn
29%
22%
18%
16%
10%
5%
5/8/2009 INTERNAL 26
5/8/2009 INTERNAL 27