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New Pension Plans Should Stimulate Investments in Brazil

INTL FCStone foresees advance for sectors such as agribusiness, energy, infrastructure, construction and real estate



The approval of the “New Pension Plan”, put by the government as a fundamental condition to balance the country’s public accounts, should solidify market confidence in the government, improve the country’s growth prospects and make the investment environment more promising in sectors such as agribusiness , energy, infrastructure, construction and real estate.

“This improvement in expectations fits into a global scenario of high money stock at near-zero or even negative real interest rates in developed countries where economic growth prospects in coming years are lower, generating opportunity for capital inflows foreigner in Brazil, “explains the market analyst at INTL FCStone, Fabio Rezende.

Among the trends related to agribusiness, there is an advance in the consumption of animal protein, and a consequent increase in the demand of grains to feed the herds. It is worth noting that Brazil has a large capacity to increase planted area and INTL FCStone expects that this will result in the opening of 6 million hectares for agriculture by 2030.

Among the branches of the agribusiness sector that the group analyzes as potential recipients of international investments, stand out: storage logistics, transportation and production outflow; feedlots, farms and feed factories; factories and resales of inputs and agricultural machinery; lands; and food industry. “The main challenge for the sector, for external investments, is infrastructure deficiency, exchange rate volatility, and old-fashioned corporate governance practices,” Rezende says.

Linked to agricultural expansion, one of the biggest investment opportunities in Brazil is the production of biofuels. Public policies should keep this sector growing in the medium term, such as increasing the mandatory blend of biodiesel in diesel. Currently at 10%, the percentage will increase to 11% in June 2019, and will continue to rise until 2023, when it will reach 15%. “We estimate that, with current production capacity, changing the mandatory mix and increasing demand for diesel (linked to economic growth) will leave the country with a biodiesel deficit in 2022,” the consultancy says.

Regarding electricity generation, the Brazilian government has a clear focus on incentives: natural gas. The production of the commodity in the country has grown and tends to continue to grow with the exploitation of Pre-Salt. INTL FCStone envisions investment opportunities in natural gas (transportation and distribution) infrastructure, commodity-based (Combined Cycle) greenfield projects, and adaptations of coal-fired thermoelectric and petroleum.

There are also good investment opportunities in renewable sources. “We highlight wind power, which is growing fast in the country. The potential of wind energy in Brazil is more intense from June to December, coinciding with the drought months, so that hydropower can be used in a supplementary way. In this way, we also envisage investments in wind farms and wind farms and in the equipment industry for these plants, “he says.

The Brazilian real estate market has the potential to show a good recovery in the coming years, should the country’s economy grow again. The residential real estate market should show growth with the resumption of the economy and housing credit. Savings account balance has been on a rising trend since 2016, after the collapse in previous years, and totaled R $ 614 billion at the end of March, representing net funding of 8.2% in 12 months.

The biggest challenge in the construction sector is its dependence on the public sector, which still accounts for about 44% of the demand for works in Brazil. “The balance of the public accounts with the approval of the pension reform is essential to make room for new public works in the budget. This also depends on the government’s economic policy, “recalls INTL FCStone.

With the approval of “Nova Previdencia”, public investments in civil construction can return to the radar of the rulers, especially with the approach of the electoral period, due to the importance of the sector in the generation of employment and income, and in the dynamization of other branches important for the economy Brazilian, as the industry and commerce of materials, machinery and equipment.