Brazil under football’s spell?

I’m on my way from Mexico to São Paulo for my first visit to Brazil to get a better idea of the chances there for the Dutch – in football and in business of course!

 

The new terminal at São Paulo airport has been finished, but can’t be used by all airlines just yet. Although this is the first time that I’m landing here, the airport is still familiar to me. Even though Schiphol didn’t buy any shares in the Brazilian airport in the last sale, the yellow signs are identical to those in Amsterdam, which is incredibly useful in a chaotic airport like this.

 

Strikes
To be completely honest, I’m a little disappointed by the lack of football fever; there are very few flags and other advertising materials to be seen. That said, the traffic jam I end up in on my way from the airport to the city is directly linked to football: the strikes. The bus drivers are on strike today and the security guards at the airport will probably be on strike tomorrow. People are striking across the country because they are appalled by the massive investment in the World Cup, while essential areas like infrastructure, healthcare and education are underfunded.

 

Jeroen Plag, head of Client Coverage Asia, Americas & UK at ING CB, arrives in Brazil. To get a better idea of the chances there for the Dutch – in football and in business of course!

Poor infrastructure
One good example of the lack of infrastructure is the way in which a tonne of grain is transported across almost 3,000 km from central Brazil to the port of Santos. In terms of commodities, Brazil is one of the world’s top three countries, with exports going across the globe, including China. The aforementioned tonne of grain costs USD 600 to produce and USD 200 to transport 3,000 km. It’s then shipped to China – a slightly longer journey – for only USD 60! And why? Because of the lack of roads, extensive brokering and the various companies in the chain that have to be used. By way of comparison, the most important competitor in the US in terms of grain export spends only USD 70 to transport grain across the same 3,000 km stretch….

 

Many links
A similar picture of many links, all with their own interests, emerges when you look at the tenders for the various football stadiums. For instance, the stadium in the capital city of Brasilia cost about USD 600 million, and yet after the World Cup no local team will play in it….and the same can be said for some of the other 12 cities hosting the World Cup. In light of the pending autumn elections, this keeps the local administrators of the provinces happy. The question, however, is whether Dilma Rousseff will be re-elected, which will probably happen if Brazil becomes world champion – a feat that may prove difficult given that they will probably be knocked out in the quarter-finals by the Netherlands!

 

Asian makes on the up
The various visits to international and Dutch clients in and around São Paulo certainly confirm developments previously mentioned, but there are positive noises being made too. Companies focussing on the retail sector in particular are enjoying healthy growth. Over the last few years, the government has concentrated its policies on creating a middle class focused on consumerism – as such, you can see massive advertising hoardings of Korean chaebols like Huyndai, Samsung and LG. Before, it was European car manufacturers like Volkswagen and Fiat that did very well, but now it’s the Asian makes that are on the up, and the same can be said of other ‘consumer’ goods such as electronics and household appliances. Safety remains an issue in São Paulo, so a lot of cars are delivered under armoured guard, which increases the cost price by 30-40%. But if you can afford to drive a luxury car here, then that’s no issue!

 

Orange campsites
But back to the World Cup, where it’s all hands on deck to complete the stadiums and surrounding infrastructure on time. Now that Brazil has become the host of such prestigious events, with the 2016 Olympic Games coming up in Rio too, the government is doing everything to ensure that international guests are warmly received and leave with a positive impression. Take the Mexicans for instance. Even though they‘re not expecting much of their chances themselves, the Mexican fans are following their team en masse, which is good for Brazilian consumption. The same can be said of the Dutch supporters, who are currently pitching up at various ‘orange campsites’. Like them, I think the Netherlands has a reasonable chance. From ING’s point of view, it’d be good if our neighbours down south do well too. After all, we’re sponsoring both the Dutch national football team as well as Belgium’s Red Devils, so may the best team win!

 

Follow Jeroen on Twitter: @JeroenPlag

 

Initially published by Dutch daily 'Het Financieele Dagblad', with permission re-published by ING.