This "DB" Rating Indicates: Slight risk

Transcription

1 BRAZIL Region : The Americas Edition : November 2012 D&B Country Risk Indicator DB3d This "DB" Rating Indicates: Slight risk Enough uncertainty over expected returns to warrant close monitoring of country risk. Customers should actively manage their risk exposures. Trend Deteriorating The country's overall risk profile is deteriorating owing to adverse political, commercial, economic and/or external developments The 'DB' risk indicator provides a comparative, cross-border assessment of the risk of doing business in a country and encapsulates the risk that country-wide factors pose to the predictability of export payments and investment returns over a two year time horizon. The 'DB' risk indicator is a composite index of four over-arching country risk categories: Political risk - internal and external security situation, policy competency and consistency, and other such factors that determine whether a country fosters an enabling business environment; Commercial risk - the sanctity of contract, judicial competence, regulatory transparency, degree of systemic corruption, and other such factors that determine whether the business environment facilitates the conduct of commercial transactions; External risk - the current account balance, capital flows, FX reserves, size of external debt and all such factors that determine whether a country can generate enough FX to meet its trade and foreign investment liabilities; Macroeconomic risk - the inflation rate, government balance, money supply growth and all such macroeconomic factors that determine whether a country is able to deliver sustainable economic growth to provide further expansion in business opportunities. The DB risk indicator is divided into seven bands, ranging from DB1 through DB7. Each band is subdivided into quartiles (ad), with an 'a' designation representing slightly less risk than a 'b' designation and so on. Only the DB7 indicator is not divided into quartiles.

2 Key Facts Country Overview: Population: 196.9m Surface area (sq km): 8,514,880 Capital: Brasilia Timezone: GMT -03:00 Official language: Head of state: GDP (USD): Portuguese President Dilma Vana ROUSSEFF 2.4trn GDP per capita (USD): 12,374 Life expectancy (years): 71 Literacy (% of adult pop.): 88.6 Brazil is the largest country in South America by both landmass and population, making it a natural candidate for regional leadership. It has a long coastline and shares a land border with all but two of the continent s countries. Brazil s economy is the largest in Latin America, with vast natural resources (including recently discovered oil) and a large labour pool; major sectors include manufacturing and services. Despite solid economic growth in recent years, a faster rate of expansion is constrained by an onerous and complex tax system that supports a bloated public sector (discouraging greater levels of private investment). In addition, income distribution is highly unequal, contributing to the country s high rate of violent crime (and occasional large-scale social disorder). The political environment is highly fragmented, with a large number of political parties represented at the national legislature. As a result, governance relies heavily on consensus-building, which encourages corruption and hinders reform. Trade & Commercial Environment Trade Terms Minimum Terms: SD The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country. Recommended Terms: LC D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms. Usual Terms: days Normal period of credit associated with transactions with companies in the stated country. Transfer Situation Local Delays: 0-1 month The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports. FX/Bank Delays: 0-1 month The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system.

3 Trade & Commercial Environment 100 imported goods will soon face higher tariffs as Brazil continues to protect its domestic producers. The measure will last for a year initially and cover a wide range of products despite possible retaliation from trade partners. Finance Minister Guido Mantega argued that subsidies and protectionist measures adopted by other countries make it necessary for Brazil to respond by protecting its own local industries. Despite a 0.1% decline in non-performing retail and commercial loans at the end of Q2 2012, the ratio of returned cheques to cleared cheques rose to 6.27% in June 2012, compared with 5.3% in June With increased credit and payment risks in the near term, D&B recommends letters of credit for cross border transactions. Export Credit Agencies US Eximbank Atradius ECGD Euler Hermes UK Full cover available ST cover available ST cover available, restricted MT cover Full ST cover available Economic Indicators f 2013f Real GDP growth, % Inflation, annual ave, % Govt balance, % GDP Unemployment, % C/A balance, % GDP Inflation is measured by the IPCA Index Currency Information Exchange Rates (London, 29 Oct 12) EUR GBP JPY* USD *(x 100)

4 Local Currency (Real [BRL]: USD) Local Currency (Real [BRL]: USD) Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Week Week Week Week Week Foreign Reserves (excluding Gold) Foreign Reserves (excluding Gold) (USDbn) Data Table Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep

5 Risk Factor The Selic (policy) interest rate was cut by 25 basis points in early October to an historic low of 7.25% as the central bank appeared to place inflation targeting on the back burner and focus instead on stimulating economic growth. Although increases in the food and beverages sub-index led to an upward revision of the bank s 2012 inflation forecast from 4.7% to 5.2%, local businesses expect domestic inflation to moderate to 4.8% in However, if prices continue to rise, we could see the central bank switching to inflation targeting and an increase in the Selic next year. Sustained increases in the price of food and drink would lead to a narrowing of profitability and possible cashflow problems for a number of the firms operating in this industry. For manufacturing companies in the export sector, high production costs (exacerbated by rising domestic inflation and a strong currency) will worsen the competitiveness of the country s exports in the near term. Consequently, payment risks will rise. Brazil is likely to impose further protectionist measures (in keeping with its current trend) leading to a fall in demand for imported intermediate products, raw materials and consumer goods. In this connection, importers could see a decline in their profitability and subsequent cashflow challenges as demand for imported goods contracts. D&B believes that the central bank s near term focus will be on stimulating growth rather than inflation management. As such, the Selic (policy interest rate) will be held at 7.5% for the next quarter in an attempt to contain investment costs for producers and borrowing costs for consumers. Investors from France, Spain, South Korea, Canada and Japan are among firms that have shown a strong interest in Brazil s plan for a high-speed train service to link Rio de Janeiro, Sao Paulo and Campinas. Previous attempts to attract investors have failed on account of the significant amount of civil work that is required to establish train lines in the country s mountainous terrain. D&B believes that the project is likely to be implemented (notwithstanding the country s history of project delays) as the government is now assuming responsibility for the required civil works. Private sector investors are keen to submit bids for other aspects of the project, including concessionaire and operator. Investors, in preparing their bids, should consider the real possibility of cost overruns on this project, which is designed to alleviate the high level of air and road congestion that Brazil s private and business commuters currently face. We believe that this project will provide a much-needed stimulus for the local construction sector, thereby boosting private consumption and economic activity in general. Meanwhile FDI rose to USD6bn in October, up from USD4bn in September. Glossary & Definitions DEFINITIONS Minimum Terms: The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country. Recommended Terms: D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms. Usual Terms: Normal period of credit associated with transactions with companies in the stated country. Local Delays: The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports. F/X Bank Delays: The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system. C/A (current account) balance, % GDP: Part of the balance of payments that records a nation's exports and imports of goods and services, and income and transfer payments.

6 DSR (debt service ratio), %: Annual interest and principal payments on a country's external debts as a percentage of exports of goods and services. Govt balance, % GDP: The balance of government expenditure and receipts. Real GDP growth, %: GDP adjusted for inflation. Inflation, %: The increase in prices over a given period. GLOSSARY CiA CLC CWP FX LC LT MT OA SD ST Cash in Advance Confirmed Letter of Credit Claims Waiting Period Foreign Exchange Letter of Credit Long term Medium term Open Account Sight Draft Short term Customer Service & Support Copyright 2011 Dun & Bradstreet - Provided subject to the terms and conditions of your contract. D&B Country Risk Services For information relating to D&B s Country Risk Services. UK Telephone: Fax: CountryRisk@dnb.com USA Inquiry Telephone: option 1, 1 and then 2 CountryRiskServices@dnb.com Rest of World Telephone: CountryRisk@dnb.com D&B Customer Services For all other information or queries relating to D&B products and services. UK Telephone: (UK) / (IR) CustomerHelp@dnb.com USA Telephone: option 1, 1 and then 2 CustomerService@dnb.com Rest of World You can contact your local D&B Customer Services departments by clicking here. Whilst D&B attempts to ensure that the information provided is accurate and complete, by reason of the immense quantity of detailed matter dealt with in compiling the information and the fact that some of the data are supplied from sources not controlled by D&B which cannot always be verified, including information provided direct from the subject of enquiry as well

7 as the possibility of negligence and mistake, D&B does not guarantee the correctness or the effective delivery of the information and will not be held responsible for any errors therein or omissions therefrom. Dun & Bradstreet Inc., 2011.