DEREX. Department of Trade and Foreign Affairs BRAZILIAN ECONOMIC OVERVIEW

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1 DEREX Department of Trade and Foreign Affairs BRAZILIAN ECONOMIC OVERVIEW

2 INDUSTRY SYSTEM Represents 131 sector business associations, which stands for about 130,000 state and national firms; 42 regional offices throughout the state, which represent about 10,000 associated firms; Roberto Simonsen Institute Think tank specializing in industrial issues

3 INDUSTRY SYSTEM 172 basic schools and more than 500,000 children, youngsters, adults and elderly people served; Provides industrial employee s families with social services. mainly education, culture, sports and health; 171 technical schools and almost 800,000 students enrolled; Promotes professional education through technical schools providing qualified workforce to the industry; Aviônicos Mobile School

4 Federation of Industries of the State of São Paulo SCOPE Regional Action Human Capital Competitiveness and Technology Economy Entrepreneurship Infrastructure and Energy Foreign Affairs Legal Division Environment Small and Medium Companies Union and Labor Issues Social responsibility DEREX FOREIGN RELATIONS, TRADE AND INVESTMENT PROMOTION; INTERNATIONAL NEGOTIATION AND TRADE ECONOMIC RESEARCH; TRADE REMEDIES; TRADE FACILITATION; CERTIFICATE OF ORIGIN;

5 Brazilian Economic Growth drivers of the first decade of the 2000s. Macroeconomic Balance: fiscal balance, stable inflation and trade surplus; Social Inclusion: credit access and wage growth; Foreign Trade: agricultural and mineral commodities high performance; Infrastructure: renewable resources as base for the energy matrix; The Economist cover on November the 14th, 2009.

6 Brazil GDP per capita GDP per capita, PPP (current international $) (1.000 US$/year) 14,1 15,6 14,1 13,5 15,4 15,7 12,8 9,0 9,2 8,7 7,9 2,9 Brazil China Latin America and the Caribbean World Source: World Bank

7 Production Exports Brazil Agribusiness: positions in global ranking Orange Juice Sugar Chicken Coffee Beef Soy Complex Corn Pork 1º 1º 1º 3º 1º 1º 2º 4º 68% 43% 27% 17% 44% 37% 22% 8% 1º 1º 1º 2º 2º 2º 3º 4º 61% 20% 33% 16% 31% 15% 8% 3% Source: USDA (2015/2016)

8 90/91 91/92 92/93 93/94 94/95 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 09/10 10/11 11/12 12/13 13/14 14/15* Brazil Grain production 53% 261% Área Area (millhões (million hectares): de ha): + 53% Produção Production (millhões (million de tonnes): t): + 261% ,5 Productivity Produtividade (tons/ha): (t/ha): % 3, Source: Conab (August 2015) and DEAGRO-Fiesp. (*) Note: estimate of Brazilian production for 2014/15 8

9 Brazil Trade Flow: main partners Country Part. Country Part. United States 23.7% China 18.3% Argentina 11.9% United States 13.9% Germany 6.3% Argentina 6.4% Japan 4.9% Germany 4.3% Italy 3.9% Netherlands 3.5% France 3.3% Japan 2.7% Netherlands ¹ 3.2% South Korea 2.4% United Kingdom 2.5% Mexico 2.2% Mexico 2.2% Italy 2.2% Belgium 2.1% India 2.2% Subtotal (top 10) 64.1% Subtotal (top 10) 58.0% Total 100.0% Total 100.0% Source: Ministry of Development. Industry and Trade (1) Main logistics hub of Europe

10 Brazil Foreign Investment Main Investors 2015 Annual net inward FDI (US$ billion) 20.0% 69,5 65,3 NLD¹ 49,3 56,1 57,9 58,0 USA 11.5% 11.3% ESP 6,0% ALE Source: Central Bank of Brazil (1) Europe's main logistics hub Forecast JAP 5.0%

11 Brazil Energy Matrix Nuclear Energy Mineral coal Non-renewable Energy Não-renováveis 1% 6% Renewable Energy Renováveis 4% Other 8% Firewood Natural gas 13% 59% 41% 13% Hydroeletric Oil 39% 16% Sugarcane Source: Brazil s Mines and Energy Ministry (2015, 2014 base year) Renovável Não-renovável

12 In spite of the improvements of the past years, the obstacles to the productive sector remain... Tax Burden costs + bureaucracy Labor Relations costs + legislation Cost of capital Labor lack of skilled Labor Infrastructure: logistics + energy CUSTO BRASIL Pension Political System The Economist cover on September the 28th, 2013.

13 ...,beyond the political and economia deterioration... Cover of The Economist, April, 26th, 2016.

14 ¹ 2016¹ 2017¹ Brazil GDP Growth Annual GDP growth rate (%YoY) Source: Central Bank of Brazil (1) Forecast: IMF World Economic Outlook (WEO) Update, January The IMF predicts growth of 0.0% in 2017.

15 Brazil Investment (GFCF) 18,0 17,4 Investment rate (Investment as % of GDP) 21,8 21,8 21,8 21,0 20,0 20,3 19,0 18,0 20,0 19,6 Target for 2022: 25% ¹ Source: International Monetary Fund (1) Forecast: IMF

16 Brazil Cost of capital and Industry performance Target interest rate (SELIC) and industrial capacity utilization % per year 15,00 % of total installed 84,5 14,00 82,5 13,00 12,00 80,5 11,00 78,5 10,00 76,5 9,00 74,5 8,00 7,00 72,5 6,00 70,5 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 14,25 NUCI SELIC Source: Central Bank of Brazil; National Confederation of Industry (CNI)

17 Portugal South Korea Canada Finland Germany Netherlands Greece United States Hungary Spain Austria Estonia Czech Slovakia Italy Mexico France Brazil Sweden Belgium 19,8% 19,8% 20,4% 20,4% 21,7% 22,2% 23,5% 23,7% 23,9% 25,6% 26,0% 26,0% 26,6% 27,6% 28,2% 29,7% 30,4% 30,7% 30,7% 32,2% Brazil Labor Labor Benefits and taxes (% of total manufacturing labor costs) Fonte: Bureau of Labor Statistics; Conference Board (2013)

18 Mar-07 Dec-07 Sep-08 Jun-09 Mar-10 Dec-10 Sep-11 Jun-12 Mar-13 Dec-13 Sep-14 Jun-15 Mar-16 Brazil Output and Sales 170 Industrial production and Retail sales (2007=100) , ,15 70 Industrial Production Retail Sales Source: Brazilian Institute of Geography and Statistics (IBGE)

19 Brazil Trade Balance Trade balance by product categories (US$ billion) Basic Semi- Manufactured Manufactured Source: Ministry of Development, Industry and Trade (MDIC)

20 Brazil Exports agenda Product Part.(%) Product Part.(%) Airplanes 6.2 Soybeans,whether or not broken 11.0% Iron ores and concentrates 5.5 Iron ores and concentrates 7.4% Soybeans,whether or not broken 4.0 Crude oil 6.2% Passenger car 3.2 Frozen chicken meat 3.3% Transmitter or receiver devices 3.2 Raw sugar 3.1% Soybean bran 3.0 Soybean bran 3.0% Chemical wood pulp 2.9 Chemical wood pulp 2.9% Coffee beans 2.8 Coffee beans 2.9% Footwear and its parts 2.8 Corn 2.6% Semi-finished products of iron or steel 2.5 Frozen beef 2.4% Subtotal (top 10) 36.1 Subtotal (top 10) 44.8% Total 100.0% Total 100.0% Source: MDIC

21 Brazil Openness of the economy Economic openness of Brazil (US$ billion and % of GDP) % % % % ¹ Trade flow Openness of the economy 10% Source: MDIC (1) Forecast: FIESP and IMF Note: Openness of the economy is the ratio of country's total trade to the country's gross domestic product.

22 Brazil Trade Balance 300 Brazilian trade balance (US$ billion) Forecast 2016: 48,0 Result Exports Imports Source: MDIC

23 Brazil Current Account Current account evolution (as % of GDP) ¹ Source: Central Bank of Brazil (1) Forecast: IMF Nota: Current account consists of regular transactions with the rest of the world

24 Brazil International Reserves International reserves (US$ billion) Source: Central Bank of Brazil

25 CHALLENGES FOR THE INTERNATIONAL AGENDA OF THE INDUSTRY Regional Integration: MERCOSUR s development and bilateral agreements with other Latin American countries (Peru, Colombia); Extra-regional Integration: to reach agreements with countries with high technological development (United Stated, European Union e Japan); Multilateralism; Economic Partnerships: to develop policies of trade and investments with other countries; Institutional Structure: to strengthen CAMEX s role; Proposals for the External Integration of Industry 2014

26 BRAZILIAN TRADE OPPORTUNITIES 1 Market Access 2 Trade Promotion 3 Trade Facilitation (Customs) 4 Trade Finance and Guarantees 5 Tax environment improvement Source: MDIC

27 National Export Plan Scope 1 Consumer markets widening: removal of trade barriers and deeper connection to the global network of trade agreements Build, consolidate and sustain market-share for Brazilian exports Simplification of Aduana laws and bureaucracy Improvement of trade finance and guarantees mecanisms, according to the exporters needs 5 Tax environment improvement to the exporter activity (e.g.: REINTEGRA) Source: MDIC

28 Brazil Transport logistics 52% 30% 8% 5% 5% Road Railway Cabotage Waterway Pipeline Source: Brazil s Transport Ministry (2011)

29 Sao Paulo Airline hub in South America Panama Ecuador Colombia Quito Bogota Caracas Venezuela Guyana Suriname French Guiana Brazil 4h 5h 6h Peru Lima Bolivia Brasilia 2h 3h La Paz Chile Paraguay Asuncion Sao Paulo Santiago Buenos Aires Argentina Uruguay Montevideo

30 Brasil Internationalization of Brazilian Companies Countries according to the presence of Brazilian companies Ranking Country Source: Fundação Dom Cabral, 2015 No. Of Companies 1 USA 40 2 Argentina 34 3 Mexico 26 4 Chile 25 4 Colombia 25 5 Peru 22 5 Uruguay 22 6 China 21 7 Paraguay 17 8 Portugal 15 9 Bolívia 13 9 France 13 9 Venezuela Germany Angola Spain Italy United Kingdom 12 PANORAMA DA ECONOMIA BRASILEIRA

31 Brasil Internationalization of Brazilian Companies Brazilian companies by the number of foreign subsidiaries Ranking Companies No. Of Countries w/ subsdiary 1 Andrade Gutierrez 37 2 Stefanini 33 3 WEG S.A 29 4 Vale 25 4 Marcopolo 25 6 Banco do Brasil 23 6 BRF 23 8 Magnesita 21 8 Natura Cosméticos 21 8 Votorantim 21 9 Itaú Unibanco Construtora Odebrecht 17 Source: Fundação Dom Cabral, 2015 PANORAMA DA ECONOMIA BRASILEIRA

32 Brasil Internationalization of Brazilian Companies Geographical distribution of Brazilian multinationals No. Of Companies in the Country More than 30 companies companies companies 2-10 companies Only 1 company None No. Of Countries Other Source: Fundação Dom Cabral, 2015 PANORAMA DA ECONOMIA BRASILEIRA

33 Brasil Internationalization of Brazilian Companies Brazilian multinationals by sector Source: Fundação Dom Cabral, 2015 PANORAMA DA ECONOMIA BRASILEIRA

34 Thank you! / 4532 derex@fiesp.com.br Head Director Thomaz Zanotto Deputy Directors Antonio Fernando G. Bessa Eduardo de Paula Ribeiro Geraldo Haenel José Augusto Corrêa Mário Marconini Newton de Mello Vladimir Guilhamat