NEW INVESTMENTS IN BRAZIL: REGIONAL AND SECTORIAL ASPECTS*
DENISE ANDRADE RODRIGUES**
ABSTRACT
The transformation that the Brazilian economy is currently undergoing may be
discerned by analyzing announcements of investment plans in the media during
1996 and 1997, which highlight heavy investments in infrastructure and the
consolidation of sustainable economic growth. In 1996, investment levels were
notable not only in the infrastructure sector, but also in the mechanical,
electrical/electronic, and food and beverage industries as well as in services
related to leisure. In 1997, there were notable investments in the petrochemical,
chemical, steel and paper and pulp industries, most notably in the expansion of
capacity for supplying raw materials. In addition, 1997 confirmed the trend
observed in the preceding year, towards decentralization of investments away
from São Paulo, and the extension of production and distribution corridors
towards the North East and South of the country.
1. Introduction
An analysis of investment plans made public by companies and institutions
through the media is, in the absence of censuses and surveys, an interesting
way of accompanying the development of the Brazilian economy. Over the
course of 1996 and 1997, we collected and analyzed such information from a
sectorial and regional viewpoint, and found evidence to support many of the
recently published hypotheses regarding decentralization away from the city of
São Paulo, as well as the capacity of Brazilian companies to adapt to
international standards of competitiveness.
The results of the study on investment intentions in 1996 [Rodriguez (1997)]
showed a resumption in investment that, unlike preceding periods, was
*
Agradeço os comentários e sugestões de Lídia Goldenstein, Laércio Gonçalves e Walter
Rodrigues e o apoio de Helio Hermeto. Muitas idéias desenvolvidas neste artigo, porém, são
originárias de pessoas com conhecimentos profundos de alguns setores econômicos que, no
entanto, não são responsáveis pelos erros e imprecisões aqui cometidos. Agradeço
especialmente a Maria Lucia Amarante de Andrade, Dulce Corrêa Monteiro Filha, Ricardo
Montenegro, Paulo Cesar Siruffo, Angela Macedo e Antônio Carlos Valença, todos do
BNDES, aos consultores Sebastião Soares e José Clemente de Oliveira, bem como a Edmundo
Klotz e Denis Ribeiro, presidente e assessor da Abia.
distributed across various states, with the consequent extension of the
production and distribution corridors towards both the North East and South of
the country.
From a sectorial point of view, an increase was observed in the propensity to
invest in infrastructure, most notably in highways, railroads and energy, both in
the private and public sectors. At the same time, there were notable cases of
investment in industrial and service sectors related to the increased purchasing
power of the population, such as the electrical/electronic and food industries, as
well as in leisure-related activities such as hotels, shopping malls and theme
parks.
Having reached the end of the first phase of the Real Plan, whose principal
results were economic stabilization, a fall in inflation, and the establishment of
conditions for economic growth, a new phase began, characterized by the
consolidation of conditions for sustainable economic growth through
administrative and welfare reforms, both of which are fundamental indicators, not
only of a stable environment for decision-making, but also of the state’s capacity
for adhering to strategic plans.
Over the same period, the global economy has been characterized by a severe
financial crisis originating in the Asian economies. It is not yet possible to
evaluate the impact of this crisis on the Brazilian economy, but the deliberate
raising of interest rates, aimed at defending the Real, and the lack of confidence
shown by foreign investors has produced an extremely uncertain outlook for
future investment.
It has also become very difficult to determine to what degree announcements of
new investments have been discouraged, even if it can be said that from
November 1997 onwards, there have been new, if timid, announcements. In
**
Economista da Representação Regional Sul do BNDES.
addition, cancellations of investments planned prior to October have been
insignificant, with the cases in question not even subject to previous
announcements. It is nevertheless probable that investments that were under
consideration but not yet announced, have been postponed until the international
scenario stabilizes.
Another problem that must be tackled in the short term is the mood of frustration
resulting from the privatization of companies and concessions, both among the
concessionaires, who have perceived the realities of the companies they took
charge of, as well as among the general public, who have realized that their
expectations would not be fulfilled as rapidly as they had imagined. It appears
that actual investments have been less than was necessary, both because
demand exceeded expectations, and because problems encountered were
worse than initially thought.
2. Investments Announced in 1997: Sectorial Aspects
The changes underway within the Brazilian economy may be judged from 1997
data1. Investments in infrastructure projects have been consolidated and have
matured, but the main targets for investment have been basic industries, such as
petrochemicals and chemicals, as well as paper and pulp, representing a change
from the preceding year, when announcements of investments in consumptionrelated sectors predominated. This fact is interesting in that it shows that
investment intentions for the next few years are already reflecting a scenario of
sustained economic growth (Table 1).
TABLE 1
Investment Intentions by Sector over the Period 1997/2002 Announced
in 1996 and 1997
SECTORS
INVESTMENTS
1996 (US$ Million)
%
INVESTMENTS
1997 (US$ Million)
%
1997/96
(%)
Infrastructure
27,097
25.2
46,667
38.1
72.2
Mechanical/Metallurgy
15,539
14.5
12,234
10.0
-21.2
Telecommunications
9,851
9.2
8,531
7.0
-13.4
Food, Beverages, Tobacco
9,559
8.9
6,754
5.5
-29.3
Petrochemicals
8,980
8.4
11,186
9.1
24.6
Steel
5,897
5.5
5,928
4.9
0.5
Paper and Pulp
4,067
3.8
4,770
3.9
17.3
Tourism, Shopping Malls &
4,063
3.8
4,033
3.3
-0.7
Electrical/Electronic
3,741
3.5
2,218
1.8
-40.7
Services
2,917
2.7
1,946
1.6
-33.3
Financial
2,860
2.7
2,471
2.0
-13.6
Mining
2,721
2.5
1,776
1.4
-34.7
Chemicals, Plastics,
3,147
2.9
3,791
3.1
20.5
1,911
1.8
3,574
2.9
87.0
Transport
696
0.6
1,235
1.0
77.4
Textiles & Apparel
654
0.6
921
0.8
40.8
Health & Hygiene
644
0.6
366
0.3
-43.2
Footwear
146
0.1
155
0.1
6.2
Agriculture
117
0.1
55
0.0
-53.0
2,788
2.6
3,748
3.1
34.4
107,395
100.0
122,359
100.0
13.9
Leisure
Fertilizers &
Pharmaceuticals
Trade
Misc. Industrial
Total
Sources: Coluna Angela Bittencourt (Investnews), newspapers and magazines, state planning departments.
The leading sector for proposed investments is infrastructure, with some US$ 54
billion announced in coming years, of which 43% in energy. By comparison with
1996, there was a 49% increase in investment intentions for the sector (which
includes telecommunications).
The results of the acceleration of the privatization program, due to the start of
programs in individual states after 1995, may already be observed from its
effects on private investments, which are particularly notable in the electrical
sector, in which the utilities Escelsa, Light, Cerj, Coelce, Coelba, CEEE, CPFL,
Enersul, Cemat, Energipe, Cosern, CEG and Riogás had all been sold by
December 1997, and in which 37% of announced investments came from the
private sector, notably: CEEE (Dona Franciscana hydroelectric plant),
Riogás/CEG (distribution of natural gas), Coelba (modernization and expansion),
Enersul (expansion), and Light (expansion and modernization of the Ilha dos
Pombos plant).
Private groups have undertaken independent generation projects, as is the case
with the associations between Alcan and Fiat, Belgo Mineira and Samarco, and
CSN/Odebrecht/Camargo Corrêa, as well as thermal generation projects such as
those of BHP (Paraná and Rio de Janeiro), CSN (Rio de Janeiro), Copelmi (Rio
Grande do Sul), Magistra (Rio Grande do Sul), PQU (São Paulo) and
Rhodia/Solvay/Oxypar (São Paulo).
State-owned utilities have also scheduled investments, although this study only
considers those projects that are at a more advanced stage of decision-making,
such as the hydroelectric plants of Machadinho (an association between Alcoa,
Eletrosul and Celesc), Miranda, Queimado, Porto Estrela (Cemig), Três Irmãos
(Cesp) and the Rivers Iguaçu and Tibaji (Copel), as well as Celesc’s thermal and
wind-powered plant.
The Federal Government and Eletrobrás are undertaking a number of
investments in a transmission line from Itaipu to the North of Brazil, from Urucu to
Manaus, and from Tucuruí to Fortaleza.
The importance of public sector investment in infrastructure as a way of
promoting economic growth is widely recognized: increases in the volume and
quality of energy supply of transport, telecommunications and sanitation services
raise final output, raise the productivity of private factors, and reduce the unit cost
of raw materials, and consequently stimulate investment and job creation
[Rigolon and Piccinini (1997)].
In addition, the implementation of infrastructure projects demands sophisticated
equipment and heavy construction work, both available from the domestic sector,
which still has spare capacity, and which uses domestic technology that is
internationally recognized. Such projects also produce goods and services such
as electricity, telephone services and sanitation that benefit the entire population,
promote a more equal distribution of incomes2 and are highly efficient at creating
employment.
During the whole of 1997, the telecommunications sector was at the center of
media attention. At the same time, while it announced significant investments,
representing some 7% of the national total, this number could have been even
higher if the optimism observed at the start of the privatization process had not
been dampened by the impact of a legal discussion on the validity of the process,
as well as the criteria for qualifying private companies as concessionaires, most
notably in the state of São Paulo, which has a tendency to make an impression
on the rest of the country. Of the 10 B Band cellular concessions, 5 were put out
to tender by September, after which point the privatization process was halted to
await a court decision on the concession for the interior of the state of São Paulo
(Area 2) which is expected by June.
At the same time, conditions have changed due to a shift in expectations:
companies that won concessions have recognized that demand was in xcess of
expectations, and that there is still no guarantee of agreements that give local
systems a national reach (roaming). In addition, the possibility of private service
concessionaires has led state-owned companies to make significant investments,
as is the case of Telemig and Teleceará, not only due to future competition but
also because of a need to show that such companies are viable and attractive to
the private sector as and when they are sold.
Another sector that developed positively after the privatization of concessions
was the railroad sector, which in 1997 announced planned investments of US$
1.8 billion. It is nevertheless possible that such investments would be even
greater were the deterioration of the system’s asset base not so great. This is
invariably the main frustration of a private sector group that takes on the
management (or ownership) of a former state-owned company. Several directors
of such companies have declared that even with prior information regarding the
poor financial conditions of such companies, as well as their debt structures, they
subsequently found their condition to be far worse than predicted, most notably
with regard to their physical and operational aspects.
The determination and efficiency with which the railroad system was sold has not
been repeated in the case of the road network, which involves some far more
complex problems, from a freight system dependent on the network (and the
implications of privatization in terms of costs to transporters, fuel distribution, as
well as road repair, maintenance and patrol systems) to the need for investment
by the public sector in order to make concessions financially attractive. It is
perhaps for these reasons that the road network ranks second among
infrastructure subsectors in terms of planned investment, with the public sector
alone (Federal, State and Municipal) announcing US$ 12.2 billion of investments
in repairs to highways and roads. The states of Paraná, São Paulo, Minas
Gerais, Rio Grande do Sul, Rio de Janeiro and Ceará have announced
particularly heavy investments in their road networks.
The privatization of the port system has followed a model of its own, with
management of the sector tending to remain in the hands of state-owned
companies, with the private sector restricted to leasing port areas. Announced
investments in terminals in the main ports amounted to US$ 649 million.
With regard to air transport, plans for total investments of some US$ 1.3 billion
were announced, consisting principally of expansion projects for the airports of
Campinas, Porto Alegre, São Paulo, Belém and Rio de Janeiro, as well as plans
for a new airport for Guarujá. Having said this, the transfer to the private sector of
services currently carried out by Infraero has been ruled out, at least in the short
term.
In the sanitation sector, investment plans are limited by comparison with the
needs of local authorities, with only US$ 2.7 billion announced by all the Brazilian
state governments. Plans announced by local authorities to transfer concessions
to the private sector have not led to significant investments, both because there
is still no consensus regarding the modelling of transfers, and thus the regulatory
system, and because each local authority has imposed specific conditions with
regard to its concession area as well as its current and future requirements, that
in many cases make the related project uneconomic.
For its part, the industrial sector represented 44% of proposed investments
announced in 1997. Despite a reduction in this amount from US$ 58 billion in
1996 to US$ 54 billion in 1997, a change in the relative shares of each sector
show a rise in investment in the petrochemicals, steel, paper and pulp and
chemical sectors (see Table 2).
TABLE 2
Proposed Investments in Industry Announced in 1996 and 1997
(In %)
INDUSTRY
Mechanical
Food, Beverages & Tobacco
Petrochemicals
Steel
Paper & Pulp
Electrical/Electronic
Metallurgy
Mining
Chemicals, Plastics, Fertilizers
& Pharmaceuticals
Textiles & Apparel
1996
21.0
16.5
15.6
10.2
7.1
6.5
5.9
4.6
4.1
1997
20.1
12.6
20.7
11.0
8.9
4.1
2.5
3.3
7.0
1.1
1.7
Health & Hygiene
Footwear
Other
Total
1.1
0.2
4.8
100.0
0.7
0.3
7.0
100.0
Sources: Coluna Angela Bittencourt (Investnews), newspapers and magazines, state planning departments.
Over the course of 1996, there were a large number of announcements by the
durable consumer goods industries, most notably in the mechanical sector
(especially by automobile manufacturers), as well as the non-durable consumer
goods sectors, such as food, beverages and tobacco, driven largely by the
improvement in real wages, as well as the expansion in payrolls due to the Real
Plan. After an initial growth phase, however, a downturn was observed in
immediate consumption, due, on the one hand, to households’ inability to service
their debts (related to a rise in unemployment), and on the other, to the
satisfaction of repressed demand from those sections of the population whose
incomes benefited from the Real Plan. There was also a sharp rise in demand for
housing, revealing a shift in consumption patterns, with the construction materials
industry (excluding glass and cement) announcing some US$ 890 in planned
investments.
The resumption in investments by the petrochemical, steel, paper and pulp and
chemical industries is extremely important, as it will lay the foundations for
sustainable economic development. Investments carried out at the start of the
1990s did little to expand production capacity, and showed the inability on the
part of Brazilian industry to adapt to the growth in national income and the surge
in consumer demand that was observed immediately after the launch of the Real
Plan.3
The vast majority of such investments are in the expansion of capacity within the
sector as a whole4. Of the total investments announced by the paper and pulp
sector, 80% referred to expansion of installed capacity, with corresponding
figures of 81% in the petrochemical sector, 90% in the chemical sector and 79%
in the steel sector. In such sectors, production is almost at the level of installed
capacity, a situation that has remained virtually unchanged since 1986 [see
Chami (1998)].
In the case of the chemical (and petrochemical) industry, analyzed in a recent
BNDES study [see Montenegro and Monteiro Filha (1997)], imports grew sharply
from 1995 onwards, while exports did not, largely due to the need to satisfy the
demands of domestic producers. Imports of PET resin, polystyrene,
polycarbonate, synthetic fibers, nylon and fertilizers are all high relative to
internal production and apparent consumption, with these subsectors among
those that require investments.
In the light of the above, the following investments announced by sector
companies are urgent priorities: Copene’s plans to install a new refinery and a
paraxylene plant (BA); Copesul’s plans to install an ethylene cracker; Perez
Companc’s plans for a styrene and polystyrene plant (RS); OPP and Petrobrás’
agreement to build a polypropylene plant in Paulínia (SP); Suzano’s plans for a
polypropylene plant (SP); and Trikem’s for a polyethylene plant (BA).
Petrobrás has also announced investment plans that concentrate on expanding
capacity. Due to the high costs of building new refineries, however, and the
global industry trend5 towards increasing cracker productivity, this expansion will
be limited, and when it is realized, will immediately meet with demand for all its
output. There is thus hardly any spare refining capacity, and due to the rules of
co-ordination of the market, the chemical industry’s growth plans are still tied to
Petrobrás’ own investment plans, even if the sector’s export policies require an
expansion in the production of raw materials. Table 3 below, shows several
products with the necessary capacity expansion in the case of the sector opting
for export growth strategies.
TABLE 3
Changes in the Trade Balance of the Petrochemical Sector – 1992-96
MAIN PRODUCTS
Thermoplastic Resins
Polyethylene (PE)
HDPE
LDPE
LLDPE
Polypropylene (PP)
Polyvinyl Chloride (PVC)
Polystyrene (PS)
ABS Resin
PET Resin
Thermostable Resins
Phenolic Resins
Melamine Resins
Epoxyresins
Urea-based Resins
Alkyl Resins
Polyurethane
Polycarbonates
Fibers
Artificial Fibers
Synthetic Fibers
Nylon
TRADE
BALANCE
IMPORTS
(Tonnes)
EXPORTS
(Tonnes)
INSTALLED
CAPACITY
(+)
(+)
(+)
(+)
(+)
(-)
(-)
(-)
Rising
Stable
Stable
Rising
Rising
Rising
Rising
Rising
Falling
Falling
Falling
Falling
Falling
Falling
Falling
Stable
Inadequate
(-)
(-)
(-)
(+)
(+)
(-)
(-)
Stable
Rising
Rising
Low Volume
Rising
Rising
Rising
Stable
Non-existent
Rising
Low Volume
Stable
Stable
Falling
(-)
(-)
Rising
Rising until
1995
Rising until
1995
Stable
Stable
Inadequate
Stable
Inadequate
Rising
Rising
Rising
Rising
Rising
Rising
Rising
Falling
Falling
Stable
Inadequate
(-)
Inadequate
Inadequate
Inadequate
Inadequate
Inadequate
Elastomers
++SBR++
++EPDM++
++NBR++
Polybutadiene
Fertilizers
(+)
(+)
(+)
(-)
(-)
The pharmaceutical industry has announced US$ 1.6 billion of investments in
São Paulo and Rio de Janeiro, of which 79% relate to new plants: Glaxo
Wellcome and Smithkline in Rio de Janeiro; TRB Pharma in Campinas; and
Hoechst Marion Roussel in Suzano. Despite the fact that the fertilizer sector is a
heavy importer and has inadequate installed capacity, it announced a mere US$
116 million in investments.
Almost all the companies in the paper and pulp sector announced investments in
1997, with a cumulative total of US$ 4.8 billion, corresponding to 8.9% of total
industrial investment. The most significant among these were the reactivation of
Jari’s (pulp) power station, the laying out of eucalyptus plantations by the Celmar
(MA) project, the installation of Vera Cruz Florestal, and the doubling of the Bahia
Sul JV (both projects in Bahia). According to a BNDES study [see Macedo et al.
(1997)], the sector urgently needs some US$ 10 billion of investment by 2005 if it
is merely to satisfy domestic paper demand, and maintain its current share of the
world market.
The growth in domestic demand that was an immediate result of economic
stabilization (a 41% increase in apparent consumption of paper, of all kind,
between 1993 and 1996) not only interrupted the rising export trend, but also led
to a sharp increase in paper imports (215% between 1993 and 1996), a trend
that was maintained during 1997. In similar fashion to the petrochemical sector,
production within the paper and pulp sector is almost at the level of installed
capacity.
The level of investments announced by the steel sector in 1997 remained stable
with regard to 1996, pointing to continuous planning. The Steel Sector
Technology Modernization Program had previously planned US$ 6 billion of
investment to 2000, with a view to increasing competitiveness and improving
environmental conditions. It can be seen that the sector is continuing to pursue
these objectives.
The sector’s trade balance is in heavy surplus, with Brazil the world’s secondlargest exporter of steel products. From 1995 onwards, however, steel exports
have declined due to domestic demand, while imports have increased [see
Andrade et al. (1997)]. The Mining and Metallurgy Department of the BNDES has
projected a gently declining trade balance due to the fall in profitability of exports,
not only as a result of the fall in competitiveness (due to financing costs, a high
tax burden and deficient infrastructure), but also because of currency
appreciation. Should this situation deteriorate, then Brazilian import tariffs for
steel products will be among the lowest in the world.
The sector must improve its competitive position by the increasing use of
automation, as well as by reducing the number of steps in production processes,
most notably with regard to pollutants, and by concentrating on the production of
more differentiated, value-added steels in lower physical volumes. The use of
Nucor process technology eliminates the steel shop (blast furnace) stage by
using pre-reduced pellets (spongiform iron). This allows a reduction in the
minimum size for new steel plants (mini-mills). At the same time, such production
requires an upgrade in the productive chain, involving the mining sector,
something that is being undertaken by Companhia Vale do Rio Doce (CVRD),
which is installing a pelletizing and ore reduction plant at Conselheiro Lafaiete
(MG). The vertical upgrading of the steel production chain involves the
improvement of alloys and the development of special steels, while the horizontal
upgrading includes the development of transport logistics as well as of systems
for managing clients’ inventories.
It may nevertheless be observed that there have been positive achievements in
the post-privatization period, due to reductions in headcount, rationalization of
administrative and financial structures, as well as increased fund-raising. These
developments have allowed the sector to improve both its competitive position
and its environmental conditions.
Announced investments by the mechanical/metallurgy sector remain high,
despite having decreased with respect to 19966. Manufacturers of automonbiles
and pick-ups (BMW, Fiat, Ford, General Motors, Hyundai, Mercedes-Benz,
Mitsubishi, Peugeot, Toyota, Chrysler and Subaru) as well as trucks (Skoda,
Agrale and Kia Motors) have announced investments of US$ 5.3 billion in new
plants alone, consolidating the trend for companies to establish new subsidiaries
in Brazil. In line with such projects, the auto parts sector has announced
investments of US$ 2 billion.
The food, beverage and tobacco, electrical/electronic goods and health and
hygiene sectors also experienced a slowdown in investment relative to
announcements made in 1996, an exceptionally encouraging year for consumer
goods industries. In the case of the food and beverage industries, it can
nevertheless be said that the true degree of restructuring can only be partially
detected from such information, which only considers investments in new fixed
assets, and not the purchase of existing assets. The strategies of such sectors
include the initial purchase of companies, with a view to acquiring market share
and testing the market. It is only at a later stage that expansion projects are
implemented.
The deceleration in investment announcements has not been observed in the
textile and footwear sectors, both of which have been restructuring visibly
following the serious crisis caused by trade liberalization. The process of
competitive readjustment of such sectors has entailed the closing of plants in the
South and South East of the country, and the opening of others in the North East.
Despite irreversible job losses in the former regions, the movement towards the
North East illustrates the refocusing of production within the sector. The two
sectors have together announced investments of over US$ 1 billion, most of
which is in new plants.
The service sector also suffered a reverse relative to 1996, despite an apparent
stablization in investments in tourism, shopping centers and leisure at around
US$ 4 billion per year. Investments in transport services have nevertheless
increased considerably, driven by new levels of consumption and air traffic (both
of freight and passengers).
Investments in retail amounted to US$ 3.6 billion, with several large chains
announcing plans principally for the expansion of their networks. This appears to
be the case with Supermercados Bom Preço, Carrefour, Cândia, Eldorado, Pão
de Açúcar, Sé, Lojas Arapuã, Renner, Ponto Frio, C&A, Wal-Mart, Saraiva, the
gasoline retailers Esso, Shell and Texaco and the automobile dealers for BMW,
Chrysler, Mercedes Benz and Renault.
3. Investments Announced in 1997: Regional Aspects
An analysis of announcements of proposed investments in 1996 pointed to
the possibility of a regional development paradigm that differed from that of the
1980s, when, following the end of an expansion cycle which was spread across a
relatively large number of states, there emerged a tendency towards the
concentration of economic development in a few centers close to São Paulo [see
Diniz (1995)].
The effect of an expanding domestic market with an increase in real wages,
and the economic stability and reduction in uncertainty conferred by the Real
Plan, combined with a resumption in investment in infrastructure, modified the
conditions that had previously favored the concentration of economic activity in a
polygon centered on the state of São Paulo.
There were announcements of intentions to make significant investments in
the states of Rio de Janeiro, Espírito Santo, Minas Gerais, Paraná, Santa
Catarina, Bahia and Ceará, that could cause important changes in the location of
production, as well as in its distribution axes, assuming that all such plans are
implemented. Heavy investments in infrastructure will nevertheless be necessary
in order to sustain this reorientation of industry.
Rio de Janeiro could halt the process of deindustrialization that has been
occurring there for several decades, and recover its former prominence in the
national economy. Espírito Santo is continuing to maintain its growth trend, and
could benefit from the recovery of Rio de Janeiro, the ongoing development of
Minas Gerais, and the recent development of Bahia. Minas Gerais deserves
special mention, since it is likely to achieve growth over the next few years that is
not concentrated in its capital, in similar form to São Paulo’s experience over the
last decade. Paraná could also show strong growth, albeit with a model that
remains centered on Curitiba. Santa Catarina should also grow continuously in a
decentralized way, receiving important investments in infrastructure.
Disparities between various states of the North East could nevertheless
increase, since the recent growth of Ceará and Bahia has been rapid, even if this
could be reflected in the more moderate growth of adjoining states. It is also
possible that a number of cities in the North East are undergoing fundamental
changes. Investments centered on Salvador, Recife, Fortaleza and Natal could
underpin above average growth rates in job creation. In addition, new kinds of
industry are looking to establish operations in the region with a view to exploiting
its potential for tourism, as well as its consumer market.
In 1997, the states that distinguished themselves by levels of investment
were Paraná, Bahia, Rio Grande do Sul, Amazonas, Rio de Janeiro and Ceará.
The most surprising of these was Paraná, which is set to receive an announced
US$ 13.1 billion of investment, corresponding to almost 11% of the national total.
Such investments are distributed across 17 municipalities, but are most heavily
concentrated in Curitiba, most notably mechanical sector projects: BMW/Chrysler
(motors), Chrysler (pick-ups), the VW/Audi JV (trucks) and Multibrás. Also
notable are the investments in infrastructure within the state, required to underpin
strong economic growth, that amount to US$ 10.2 billion, and that reflect 78% of
intended investments within the state. These relate to highway concessions, new
highways, and energy, most notably the construction of a gas-fired generating
plant by BHP, as well as the hydroelectric plants on the Rivers Iguaçu and Tibaji.
TABLE 4
Intended Investments by State Announced in 1996 and 1997
STATE
INVESTMENTS
% INVESTMENTS 1997
1996 (US$ Million)
(US$ Million)
São Paulo
Minas Gerais
23,681
12,935
22.1
12.0
24,534
11,451
%
20.0
9.4
1997/
96
(%)
3.6
-11.5
Rio de Janeiro
7,407
6.9
10,650
8.7
43.8
Rio Grande do Sul
5,164
4.8
8,420
6.9
63.1
Paraná
5,119
4.8
13,116
10.7 164.0
Santa Catarina
4,104
3.8
768
0.6 -81.3
Bahia
3,858
3.6
7,270
5.9
88.4
Pará, Rondônia, Acre and
3,099
2.9
219
0.2 -92.9
Tocantins
Espírito Santo
2,770
2.6
845
0.7 -69.5
Pernambuco
1,948
1.8
440
0.4 -77.4
Ceará
1,915
1.8
2,382
1.9
24.4
Alagoas, Maranhão,
1,510
1.4
569
0.5 -62.3
Paraíba, Sergipe and Rio
Grande do Norte
Amazonas
1,319
1.2
2,125
1.7
61.1
Mato Grosso and Mato
1,231
1.1
915
0.8 -25.7
Grosso do Sul
Goiás and Distrito Federal
1,061
1.0
1,037
0.8
-2.2
Total (excl. São Paulo)
50,957
49.8
60,207
49.2 18.1
Other (Simultaneous)
24,109
22.4
27,969
22.9 16.1
Undefined
8,643
5.7
9,649
7.9
11.6
Total
107,390
100.0
122,359
100.0 13.9
Sources: Coluna Angela Bittencourt (Investnews), newspapers and magazines, state planning departments.
The predominant sectors in Bahia are petrochemicals, paper and pulp and
infrastructure, precisely those sectors that most distinguished themselves at
national level in 1997. In addition to the investments in the petrochemical and
paper and pulp sectors mentioned above, there were also projects in the
mechanical and electrical/electronic sectors, a novelty for the region, such as
Hyundai’s project for a van plant, Skoda’s plans for an automobile plant, and
Semp-Toshiba’s plans to transfer its activities to the metropolitan region of
Salvador.
In the study of investments announced in 1996, emphasis was placed on
the growing importance of sectors directly associated with the rise in living
standards of the population of the North East, in addition to the evident incentives
to establish new industries offered both by state governments and local
authorities, and the cost of labor below those of the South and South East.
Such conditions continued visibly to hold in 1997: in the food sector with
Ace Aquafarms (fish farming in Paulo Afonso), Avipal (general agroindustry) and
Agronave (a vegetable oil processor based in Feira de Santana); with the
installation of footwear factories in Alagoinhas, Juazeiro do Norte, Jequié and
Serrinha, and an apparel plant in Itabuna; and in the leisure sector, with the
construction of the Sauípe Complex by the Odebrecht group in Salvador, as well
as shopping malls in Salvador (Aero Plaza Show), Feira de Santana (Iguatemi)
and Juazeiro do Norte (Cariri Shopping).
The efforts undertaken by Rio Grande do Sul to promote its own
development may be observed from the announcement of investments in 1997 in
a variety of sectors. Despite the fact that these remain concentrated in the
metropolitan area of Porto Alegre, other municipalities have also received
investments. In addition to investments in the petrochemical sector mentioned
above, the following are of note: in the steel sector, the construction of a new
plant by the Gerdau group, and the expansion of capacity of Piratini; in the
mechanical sector, two automobile plants built by Ford and General Motors
respectively, a medium and heavy truck plant by Agrale (in Caxias do Sul), and
consequently, investments in auto parts by Arteb, Goodyear and Pirelli (in
Gravataí) and Zamprogna (in Porto Alegre); in the food, beverages and tobacco
sectors, investments by Elegê Alimentos (milk), Isabela (biscuits), the Josapar
group, Souza Cruz and Coca-Cola.
Despite registering an increase in investments relative to the preceding
year, when the construction of a natural gas plant and its link to Manaus is
excluded, the state of Amazonas shows a sharp fall in investment. This highlights
the precarious position of the Manaus Free Trade Zone in the face of a
redirection of investments from consumer durables towards infrastructure and
basic products. In constituting a special regime for the electrical/electronic goods
industry, the Free Trade Zone has become dependent on this sector, and thus
vulnerable to its cycles.
In Rio de Janeiro, proposed investments are principally concentrated in:
infrastructure, with programs to improve generation and increase electricity
supply, such as BHP’s gas-fired plant at Macaé, the expansion of CEG/Riogás’
gas distribution network by the private groups, Enron Corporation (United
States), Gás Natural (Spain), Iberdrola (Spain) and Pluspetro (Argentina), the
construction of a thermal co-generation plant using waste gases from CSN, and
the installation of the Angra II nuclear plant. Investments to improve urban
transport are also planned, with the expansion of the subway as far as the Barra
da Tijuca, the construction of the Yellow Line and the Ring Road. There are also
plans by Cedae to invest in sanitation, as well as plans to expand Rio de
Janeiro’s international airport. No less important are announcements by the
petrochemical sector of plans for a cracker at the Reduc refinery, as well as the
Rio Polímeros project (mentioned above), and by the chemical sector, most
notably in the area of pharmaceuticals, with Bayer planning to double capacity,
and Glaxo Wellcome, Smithkline and Schering-Plough all planning new factories.
Most notable in the mechanical sector is the installation of an automobile plant in
Porto Real by Peugeot, as well as a shipyard by the Libra group. Within the steel
sector, both CSN and the Gerdau group are developing expansion and
modernization projects.
Investment projects are also planned in leisure and tourism: The Andrade
Gutierrez group is developing a hotel complex at Ilhas Perynas in the Lagos
region; the Suarez group is developing a resort to be managed by the Marriott
chain in Angra dos Reis; the Rio Palace Hotel will be restructured, and a further
US$ 240 million will be invested in the expansion and/or construction of five
shopping malls in the city of Rio de Janeiro.
Investments in infrastructure are also significant in the state of Ceará. Most
notable among these are the construction of the Castanhão dam, the Fortaleza
subway, the expansion of Teleceará’s network, and the installation of windpowered generators. Also of note is the completion of a steel mini-mill by CSN
(previously announced in 1996), as well as the duplication of steel capacity of a
unit belonging to the Gerdau group, and the installation of an automobile factory
by Subaru. The textile sector (Marisol, Nylorend and Vicunha), the food and
beverage sector (Kaiser and Parmalat) and the footwear sector (Grendene) are
also proceeding with their plans to establish operations.
Announced investments in the state of São Paulo were virtually stable with
regard to 1996, although those projects that were announced were extremely
large. Spread over 46 cities, despite the fact that the majority were concentrated
in the metropolitan area (around US$ 10.1 billion), these investments continued
the development trend prevalent within the state since the end of the 1980s,
namely the transfer of industry to the interior of the state, albeit in piecemeal
form, in some cases to small towns. Along the São Paulo-Rio de Janeiro axis
alone, some US$ 4.5 billion of investments were identified. It should be noted
that the transport infrastructure between these two cities is likely to prove
inadequate given the probable increase in freight volumes resulting from
investments of this size. The same may be supposed for the São Paulo-Curitiba
axis, since Paraná has become one of the states that is proposing to invest most
heavily in transport infrastructure (around US$ 6.8 billion).
In addition to the mechanical and petrochemical sectors, the service sector
is also of note. In the city of São Paulo alone, US$ 1.5 billion of investments are
planned, supporting the hypothesis that the city’s main activities are shifting
towards the service sector.
The state of Minas Gerais suffered a very slight fall in investment
announcements with relation to 19967. In similar fashion to São Paulo, a process
of piecemeal transfer of industry to the interior of the state may be observed.
Such investments are spread across 24 local authorities and cover almost all
sectors of the economy, including, most notably: infrastructure, of which energy
is the most important subsector (US$ 1.8 billion), transport (US$ 840 million),
telecommunications (US$ 620 million), steel (US$ 2.7 billion), mechanical goods
(US$ 1.4 billion) and paper and pulp (US$ 1 billion).
Investment intentions in Goiás and the Federal District remained at 1996
levels, with a total of US$ 1 billion planned in the textile sector (Vicunha, Hering
and Pingo de Gente), the food sector (Perdigão, Parmalat and Sakura), the
mechanical sector (Mitsubishi and Thermadec) and tourism (the Orla project in
Brasília and Gutheil, the Posada do Rio Quente and White Water projects in
Goiás).
All other states showed sharp decreases in announced investments with
respect to 1996. Santa Catarina and Pernambuco were both in the glare of the
media during this period, due to financial scandals. Either these states were too
busy with the resolution of their internal problems8 to announce new investments,
or did not, in fact, have many new investments to announce.
In Espírito Santo, excepting investments by CST (to install a hot-rolled strip
mill), by Kobrasco (a JV between CVRD and the South Korean Pohang to build
an iron ore pelletizing plant) and Escelsa (to build a thermal plant in conjunction
with Petrobrás), there were practically no announcements of significant
investments, unlike in 1996, when Aracruz, Belgo Mineira, Degussa, Garoto,
Andrade Gutierrez and Kia Motors all unveiled new projects.
In the North, planned investments are still at an initial stage, with a greater
volume announced in 1996, due to projects unveiled by CVRD that were not
matched in 1997. In Mato Grosso and Mato Grosso do Sul, investments are
planned in energy infrastructure and in agroindustry, the latter of which are
significant, including most notably, Agrovale and MPE (hog breeding projects)
and the Saint Germain group (wheat and corn milling).
Finally, in the North East, in addition to the states mentioned above, the
following investments are of note: the Artex/Coteminas JV in João Pessoa; the
Iguatemi shopping mall in Campina Grande; Samello’s footwear plant in Santa
Rita; the SpeedCross/Quinggi JV to assemble motor cycles in Conde, all of
which are located in the state of Paraíba; the installation of a biscuit factory by
Parmalat in Natal (RN) and the expansion of Fafen (chemicals) in Sergipe.
With regard to municipalities, a number of cities are listed below, together
with projected investments, and the principal sectors in which these are expected
to occur. A number of these deserve special mention, given the scope for
developing within them and around them, networks of small- and medium-sized
companies that will benefit indirectly from larger-scale investment. Such cities will
consequently diminish the migratory pressure on larger urban centers, and
include Uberlândia, São José dos Campos, Taubaté, Fortaleza, Juiz de Fora,
Volta Redonda, Campinas, Jacareí, Capuava, Ribeirão Preto, Londrina, Mogi
Mirim, Americana, Bragança Paulista, Ponta Grossa and Feira de Santana.
TABLE 5
Investments by Municipalities and Principal Sectors - 1997
CITY
STATE
INVESTMENTS (US$
Million)
8,279
3,973
1,822
1,500
1,500
1,494
1,440
1,380
1,372
1,328
1,200
SECTOR 1
São Paulo
Rio de Janeiro
Curitiba
Duque de Caxias
Eunápolis
Uberlândia
Cachoeirinha
Ipatinga
Porto Alegre
Mataripe
Triunfo
SP
RJ
PR
RJ
BA
MG
RS
MG
RS
BA
RS
Transport
Chemicals
Mechanical
Petrochemicals
Paper & Pulp
Services
Tobacco
Steel
Mechanical
Petrochemicals
Petrochemicals
São José dos
Campos
Porto Real
Três Lagoas
Taubaté
Fortaleza
Juiz de Fora
Pecém
Angra dos Reis
Salvador
Indaiatuba
Sete Lagoas
SP
1,002
Mechanical
RJ
MG
SP
CE
MG
CE
RJ
BA
SP
MG
1,000
1,000
966
959
895
700
685
683
613
575
Mechanical
Paper & Pulp
Mechanical
Transport
Mechanical
Steel
Energy
Services
Mechanical
Mechanical
SECTOR 2
SECTOR 3
Services
Transport
Services
Mechanical
Petrochemicals
Auto Parts
Food
Tobacco
Transport
Services
SECTOR 4
Hygiene
Services
Chemicals
Petrochemicals
Chemicals
Textile
Transport
Mechanical
Services
Mechanical
Transport
Metallurgy
Food
Services
Ouro Branco
Volta Redonda
Belo Horizonte
Cubatão
Conselheiro
Lafaiete
Campinas
Jacareí
Paulínia
Candiota
Vitória
Caldas Novas
Niterói
Gravataí
Pindamonhangaba
Joinville
Mogi das Cruzes
MG
RJ
MG
SP
MG
548
547
508
501
500
SP
SP
SP
RS
ES
GO
RJ
RS
SP
SC
SP
466
462
425
400
397
390
380
367
360
332
306
Steel
Energy
Transport
Steel
Mining
Steel
Mechanical
Chemicals
Mechanical
Logistics
Paper & Pulp
Beverages
Energy
Petrochemicals
Energy
Steel
Services
Mechanical
Auto Parts
Metallurgy
Energy Electrical/Electronic
Mechanical
Paper & Pulp
Services
Services
Metallurgy
(continued)
CITY
STATE
Rio Verde
GO
INVESTMENTS (US$
Million)
306
Macaé
Simões Filho
Sumaré
Capuava
Manaus
Ribeirão Preto
João Monlevade
Santos
Lapa
RJ
BA
SP
SP
AM
SP
MG
SP
PR
300
280
272
270
265
265
260
251
250
Rio Grande
RS
245
Timóteo
São Carlos
Sorocaba
Tubarão
Caxias do Sul
Congonhas
Palmas
Santo André
Telêmaco Borba
Camaçari
Londrina
Mauá
Campo Grande
Cuiabá
Mogi Mirim
São Mateus
Brasília
Valinhos
Uberaba
Betim
Suzano
Guarulhos
Aratu
Anápolis
Pacatuba
Jaguariúna
Guarujá
MG
SP
SP
ES
RS
MG
PR
SP
PR
BA
PR
SP
MS
MT
SP
ES
DF
SP
MG
MG
SP
SP
BA
GO
CE
SP
SP
243
230
220
215
200
200
200
200
200
195
180
162
156
155
150
150
130
130
128
117
117
115
110
108
106
105
100
SECTOR 1
SECTOR 2
SECTOR 3
SECTOR 4
Food
Energy
Mechanical
Chemicals
Metallurgy
Petrochemicals
Energy
Electrical/Electronic
Services
Trade Telecommunications
Steel
Logistics
Construction
Materials
Construction
Logistics
Materials
Steel
Mechanical
Mechanical
Steel
Mechanical
Steel
Energy
Telecommunications
Paper & Pulp
Petrochemicals
Auto Parts Telecommunications
Petrochemicals
Energy
Food
Mechanical
Beverages
Energy
Services
Mechanical
Chemicals
Transport
Mechanical
Chemicals
Paper & Pulp
Services
Petrochemicals
Textile
Beverages
Electrical/Electronic
Logistics
(continued)
CITY
STATE
João Pessoa
Otacílio Costa
Pederneiras
Americana
Montes Claros
Belém
Bragança Paulista
Tailândia
Paranaguá
Pelotas
Nova Friburgo
Barretos
Alfenas
Itaguaí
Ponta Grossa
Itu
Palotina
Charqueadas
Itabuna
Itajubá
Três Barras
Feira de Santana
Araxá
Almeirim
Cabo Frio
Campina Grande
Campo Mourão
Cantagalo
PB
SC
SP
SP
MG
PA
SP
PA
PR
RS
RJ
SP
MG
RJ
PR
SP
PR
RS
BA
MG
SC
BA
MG
PA
RJ
PB
PR
RJ
Conde
Guaíba
PB
RS
INVESTMENTS (US$
Millions)
100
100
100
92
90
81
80
80
78
77
75
72
70
70
68
65
65
60
60
60
60
54
52
50
50
50
50
50
50
50
SECTOR 1
Textile
Paper & Pulp
Food
Chemicals
Textile
Logistics
Food
Food
Logistics
Food
Energy
Food
Textile
Logistics
Food
Mechanical
Food
Steel
Textile
Electrical Materials
Paper & Pulp
Services
Chemicals
Paper & Pulp
Services
Services
Food
Construction
Materials
Mechanical
Paper & Pulp
SECTOR 2
Textile
SECTOR 3
SECTOR 4
Auto Parts
Paper & Pulp
Auto Parts
Sources: Coluna Angela Bittencourt (Investnews), newspapers and magazines, state planning departments.
4. Conclusion
Despite the uncertainties caused by the Asian crisis, new investments in Brazil
point to sustained growth of the Brazilian economy following the Real Plan. After
an initial period when economic stabilization and the fall in inflation provided a
favorable environment for the implementation of investment projects, most
notably in industries and services associated with the general increase in
incomes, the economy entered a phase in which the conditions for sustainable
growth were consolidated.
In this way, 1996 was characterized by announcements of investment plans in
the mechanical, electrical/electronic, food and beverage sectors, as well as in
service sectors related to leisure, such as hotels, shopping malls and theme
parks. Most notable in 1997 were intentions to invest in petrochemicals,
chemicals, steel and paper and pulp, most notably in capacity expansion,
removing the risks that economic growth within Brazil will be impeded by
bottlenecks in the supply of raw materials.
Above all, however, the sharp rise in investment in infrastructure will underpin the
changes in the structure of production and distribution, and will guarantee the
competitiveness of Brazilian products against foreign ones. Proposed
investments in energy, transport and sanitation increased by 72% by comparison
with 1996, already a year with extremely promising growth prospects, on the part
of both the public and private sectors.
From a regional point of view, proposed investments announced in 1997
strengthen the conclusions drawn from an analysis of announcements made in
1996. The hypotheses that industry is decentralizing away from the city of São
Paulo, and that the production and distribution axes are being extended towards
the North East and South are in agreement with the sharp increases in
announced investments in the states of Paraná, Rio Grande do Sul, Bahia and
Ceará. To this outlook may be added the possibility of economic recovery in the
state of Rio de Janeiro, and the continuing growth of Minas Gerais.
Many small- and medium-sized municipalities also face a probable increase in
their local economies, since the direct and indirect effects of investments of over
US$ 5 million are highly significant, given that 185 municipalities were mentioned
in the announcements. In addition, many infrastructure announcements involve
several municipalities at once.
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