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SEPTEMBER 2000 |
INDUSTRY ANALYSIS: Brazilian Electricity
Sector Gathers Steam REGIONAL TRENDS: Credit is King ECONOMIC OUTLOOK: Argentina . |
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MEXICO
CITY OFFICE SAO
PAULO OFFICE |
 INDUSTRY
ANALYSISBrazilian Electricity Sector Gathers Steam Now that Brazilian industry is growing again, electricity shortages are inevitable. To sustain 4% real annual GDP growth, Brazil will need 6% more electricity each year. The expansion of electricity supply has been constrained by political delays in the privatization of the electrical sector. Debate over the level of equity control to be exercised by private concessionaires is creating uncertainty among electrical operators. This has created a supply deficit that threatens to impair short to mid-term industrial growth. Notwithstanding the political factors, the impetus for new investment in generation and transmission is very strong. Indeed, Brazil is one of the most promising markets in the world for new equipment. Over the next three years, 49 thermoelectric plants will be constructed in 16 states at a cost of US$ 6.6 billion. About 40% of new plants will be gas-based compared with less than 5% of existing plants. But the supply boost expected from Brazil's new power plants will come too late to avoid an energy shortage. New investment in the sector will reach almost US$ 17 billion this year. Close to 70% of that figure will go for new equipment, software and know-how, almost all of which is imported. There are also opportunities in electricity transmission and distribution. About 28,520 miles of transmission lines and roughly 96,000 Mva of additional substations will be incorporated into regionally interlinked and isolated systems by 2001. |
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  MARKET RESEARCH market profile benchmarking market entry viability market trend analysis new product testing customer satisfaction studies MARKET
INTELLIGENCE MARKET
ENTRY |
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Asian and North American suppliers often marvel at the ability of European competitors to garner market share in Latin America, given their relatively high prices. The answer is that credit, not price, is King in Latin America. The region's banks are weak, timid, and expensive, leaving importers with little support at home to finance their inventories. Importers, distributors, wholesalers, dealers, retailers and consumers all turn first to the supplier that offers credit. Wholesalers, a dying breed in the US economy, function in Latin America as quasi bankers. They stand between the manufacturer, which cannot evaluate the credit risks for thousands of customers, and dealer/distributors, which cannot operate without credit. Retailers that offer credit are also breaking into untapped working-class markets. Store chains selling such items as clothing and appliances sometimes offer payments extending over 30 months, at very high interest rates, secured by automobile or even home titles. Supermarkets are now getting into the financing game for computers and other expensive items. And even non-traditional retailers like telecom providers are stepping into the financing field, sometimes with dramatic results. Foreign suppliers that are trying to export to Latin American markets are also finding that offering credit is a powerful competitive tool. They can capitalize on their access to low-cost credit to attract new customers, especially during a bearish cycle, when local financing is scarce and expensive. |
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 ECONOMIC
OUTLOOKArgentina The Argentine domestic economy continues to shrink in spite of a strong boost from the external sector. Since June 1999, the construction industry has declined by more than 15%, as federal and state budgets were slashed and private investment slowed. Supermarket sales have dropped by 3% over the last year. Business and consumer confidence is at its lowest since 1995. Interest rates are hovering at 8% above inflation, discouraging investment even further. Rising international interest rates are increasing the burden of Argentina's heavy foreign debt load, putting added pressure on the fiscal balance. Notwithstanding the woes seen in the domestic economy, the country's main trading partners -- the US, Brazil, and Europe -- are boosting their imports from Argentina. As a net exporter of oil and gas, Argentina also benefits from high prices on world petroleum markets. As a result, trade surpluses are expected in 2000 and 2001. The Argentine economy is yet to bottom out. In a recent survey, two-thirds of business people said that they expect the economy to stagnate or even decline further. The government has promised an ambitious US$ 20 billion public/private investment package, but this will likely be watered down as it passes through congress. A turnaround could come later this year as FDI picks up, foreign financing returns and the government begins spending again, albeit below expectations. |
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 AMEX Avery Dennison BBDO Booz, Allen & Hamilton Citicorp International Computer Sciences Corp. Conagra |
 INFOAMERICAS
PROJECTSfor SEPTEMBER 2000
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tendencias |
With offices in
Miami,
Mexico City,
Sao Paulo |
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