BRAZIL MEANS BUSINESS

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BRAZIL MEANS BUSINESS

In spite of the world financial crisis, Brazil remains an appealing business destination.

Presentation by: Danny DeVito

Senior Commercial Officer São Paulo, Brazil

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HEALTHY ECONOMY:

Macroeconomic Analysis

 Achieved investment grade status (S&P Rating Services – April 2008)

 Strong economy (relative to crisis)

 Falling inflation rates

 Appreciating currency

 Falling interest rates

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Southeast – 55,09 South – 19,03 Northeast – 13,68 Center-West –7,28 North – 4,92

REGIONAL DISPARITIES

GDP share - % of total GDP - 2008

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PRESIDENT LUIS INÁCIO “LULA” DA SILVA

 Took office on January 1st, 2003.  Labor Party- PT.

 First mandate - with 61.27% in 2002.

 Second mandate - with 60,83% in 2006.  Elections October 2010.

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4.5% 1.8% 8.5% 6.0% _5.5% 3.5% 7.8% 4.1% 4.5% 2001 2002 2003 2004 2005 2006 2007 2008 2009 Banco Central est. INFLATION RATE 2.25 3.5 2.75 2.6 2.25 _2.14 1.95 2.3 2.1 2001 2002 2003 2004 2005 2006 2007 2008 2009 est. EXCHANGE RATE

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INFLATION RATE

Source: Agência Estado 4.5% 1.8% 8.5% 6.0% _5.5% 3.5% 7.8% 4.1% 4.5% 2001 2002 2003 2004 2005 2006 2007 2008 2009 Banco Central est. 2,477% 1993

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Prime rate in Brazil has reached the lowest

historic level (in %)

10.25 13.00 11.75 11.50 14.75 19.75 25.50 18.50 19.00 45.00 40.18 45.67 0 5 10 15 20 25 30 35 40 45 50 Apr-09 Jul-08 Abr-08 Jul-07 Jul-06 May-05 Jan-03 Jun-02 Jul-01 Mar-99 Sep-98 Oct-97

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INTEREST RATES

 The SELIC rate is currently 10.25 % (per year).

 Mortgage loans range from 8% to 12% per year for up to 25 year loans plus inflation.

 Businesses generally pay from 2% to 4.5% (per month), depending on creditworthiness.

 Checking account rates are about 140 % year.

 Credit Card rates are 233 % per year.

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CONSUMER CREDIT as a % of GDP 2000 - 2008

Consumer credit has continued this upward trend, reaching 41.5% of

GDP in January 2009.

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Families consumption evolution – billions of USD

Dolar rate : 2.1

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In Billions of USD Forecast A1 ₃₅ - 10.8 % A2 ₁₅₀ - 1.5 % B1 174 - 0.4 % B2 ₁₉₇ - 8.4 % C1 ₁₆₁ + 5.8 % C2 ₁₀₂ + 18*

D ₅₀ The same as last year

E

3 + 33 %

Forecast by Social Classes

Total of Retail Sales: 857 billions of US dollars

Monthly income In USD A1 _6,857.14 A2 _3,857.14 B1 _2,190.48 B2 _1,095.24 C1 _666.67 C2 _452.38 D _295.24 E _209.52

Source: Exame Magazine April 2009

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Value 09 forecast

Cars, motorcycles and parts 105 - 3.6 %

Pharmaceuticals products 21 + 12 %

Electronics 17 + 3.2 %

Hypermarket and Supermarket

334 + 5.3 %

Textiles, clothing, footwear and accessories

27 - 1 %

Fuels and Lubricants 57 - 1.6 %

Other sectors 313 N/A

Total 857

Forecast by sector / product

Total of Retail Sales :

857 billion dollars

Dolar rate : 2.1 Dolar rate : 2.1

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Southeast – 450

South – 142

Northeast - 164

Center-West – 67 North –50

Projections by region – Consumption

Billions of USD for retail sales – percentage forecast for 2009

+ 3.1% + 6.1% - 0.8 % - 2.7 % - 0.3 % Dolar rate : 2.1

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Priorities by Class

(recent national survey)

Class A1 and A2 Class B and C

Class D and E

Travel Dom and

Int’l

Upgrade Home

Food

Premium trade

marks

Construction

Material

Pharmaceuticals

products

Imported cars

Electronics

Clothing

Real State for

Investment

Food

Rental

Safety

Household

Appliances

Household

Appliances

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THE “Favela” TODAY

96% 98% 89% 79% 58% 48% 48% 22% 14% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Refrigerators Televisions Blenders Stereo Sound Telephones Washing Machine VCRs Microwaves Cars

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Brazil and the crisis

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Exports (billions)

28.9 48.0 55.0 58.0 60.0 73.0 97.0 118.0 138.0 161.0 198.0 165.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Deceleration

After 10 years of growth, 2009 will have the first reduction in Brazilian exports. Still, sales will more than triple from the beginning of the decade.

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Brazil Reaction to Crisis

Government measures:

• Tax cuts such as IPI (federal tax on domestic and

imported manufactured products

• Interest rate reduction – 10.25% per year

• Incentives for civil construction

• Infrastructure development

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New measures from the government

Construction material – IPI taxes

Before: 5 to 10%

New: 0%

Compensation for states and cities

States: special credit line of $ 2 billion at 11.25%

Cities: Federal government will refund losses up to $ 350

million

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New measures from the government

Refrigerator • From 15% • To 5% Washing Machine • From 20 % • To 10% Stove • From 5% • To 0%

Household appliances –IPI taxes

Examples of impact on prices

R$ 1.799 _1.699R$ - R$ 100 R$ 999 ₉₄₄R$ - R$ 55 RS 699 ₆₈₀R$ - R$ 19

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What is getting better (compared to last month)

Industrial production Feb 1.8% Mar 0.7% Daily average of cars produced Mar 15.9% Daily average of ag machinery production Mar 10.3% Commerce activity Mar 12.2% Positions creation formal jobs Mar 34.818

What is getting worse or stable (compared to last month)

Breach of contracts (pessoa fisica) Mar 22.6% Credit very tight

Job creation, car production and commerce increase

Delinquencies also increase

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Retail Sales

Down and Up

-1.5 -1 -0.5 0 0.5 1 1.5 2

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Car Sales Down and Up

Sectors such as steel, plastic and paints recover part of their activity pulled by car sales after tax cuts

Car production increased 34.2% between February and March

90 140 190 240 290 340

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Car Production, in thousand Car Sales, in thousand

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Industrial Production

Down and Up

IBGE research indicates growth of 0.7% in March

Variation in the industrial production (comparison month against previous month in %) -14 -12 -10-8 -6 -4 -20 2 4

By category, in 1st _{trimester 2009 compared to same period of 2008, in %}

General industry: - 14.7 Consumer goods: -8.0 Capital goods: - 20.8 Durables: - 22.5

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CUSTO BRAZIL: THE TAX SYSTEM

STATE FEDERAL MUNICIPAL Import – II Export – IE

Industrialized Products – IPI Credit Operations – IOF Rural Property – ITR Fortune

Heritage and Donation – ITCMS

Circulation of Goods and Services – ICMS Property of Vehicles – IPVA

Urban Property – IPTU

Transmission of Property – ITBI Services of any Nature – ISS

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Hypothetical Cost Buildup for an Imported Machine in US Dollars

FOB price of Product 100,000

Freight 2,400

Insurance (1%) 1,000

CIF Price of Product 103,400

Import Duty Rate: 19% -- applied to CIF 19,646

IPI: 5% -- applied to CIF + import duty 6,152

ICMS: 18% -- applied to CIF + import duty + IPI 23,256

Merchant Marine Tax: 25% of ocean freight cost 600

Warehouse: 0.65% of CIF; or min. US$ 170, max US$ 235 235

Terminal Handling Charges: average US$ 100 per container 100 Contribution to Custom Broker's union 2.2% CIF; or min of US$ 71,

max US$ 160 160

Custom Brokerage Fee: average 0.65% of CIF or min US$ 170, max US$ 450 450

SISCOMEX Fee 30

Typical Cargo Transportation charge 35

Typical Bank Costs: 2% of FOB 2,000

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iPod prices around the world

Here is the CommSec iPod Index, based on January 2007 prices for 2GB iPod Nanos.

1 Brazil $327.71 2 India $222.27 3 Sweden $213.03 4 Denmark $208.25 9 United Kingdom $195.04 23 United States $149.00 24 Japan $147.63

IPOD INDEX

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Leading Brazilian Imports

Source: WorldCity analysis of U.S. Census Bureau data

• Jet Engines, Parts

• Aircraft Parts

• Computers

• Computer Parts

• Electronic Integrated Circuits

• Aircraft

• Cellular and landline phones, parts

• Medical Instruments for surgeons, dentists, vets

• Printing Machinery, including ink jet printers

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OIL & GAS REFINERIES

According to Petrobras’ strategic plan, they will open 5 new refineries by 2015 (costs are approximations):

 Premium 1 (Refinaria Abreu e Lima) –State of Pernambuco - 250,000 barrels/Day - $ 4 billion

 Premium 2 – State of Ceará - 300,000 barrels/Day - $ 11 billion

 Premium 3 - State of Maranhão – 600,000 barrels/Day - $ 20 billion (temporary name)

 Comperj – State of Rio de Janeiro - $ 8.4 billion

 Potiguar – State of Rio Grande do Norte - $ 100 million (very small refining unit)

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 The ExIm Bank recently visited the largest private Brazilian oil company, OGX, that will be ordering $20 billion worth of oil and gas equipment over the next few years.

 The combined investment by oil companies other than Petrobras and OGX is expected to exceed $20 billion through 2011.

 Máquinas Piratininga (MP), located in the Suape Industrial Complex in Pernambuco, is actively seeking industrial and commercial partnerships with American companies.

 MP can be a hub for US oil and gas suppliers, offering to: - facilitate imports with customs clearance,

- assemble products,

- manufacture large parts

- distribute the licensed machine or equipment.

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POWER GENERATION

 The government owned Power Research Company (

Empresa de

Pesquisa Energética, EPE

) is calling for $65 billion in power generation investment.

 Proinfa: The National Energy Regulatory Agency (ANEEL) and the GoB program to encourage alternative energy have made wind power an

attractive option, especially in the northeast of Brazil.

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Prospects for Wind Power Generation

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Thank you !

Points of Contact:

Brasilia: Rebecca Armand, Principal Commercial Officer

rebecca.armand@mail.doc.gov brasilia.office.box@mail.doc.gov Phone: 55-61 3312-7481 / Fax: 55 –61 3312-7656 Belo Horizonte belo.horizonte.office.box@mail.doc.gov Phone: 55-31 3213-1583 / Fax: 55-31 3213-1575

São Paulo : Miguel Hernández, Commercial Officer

sean.kelley@mail.doc.gov

sao.paulo.office.box@mail.doc.gov

Phone: 55-11 5186-7429 / Fax: 55-11 5186-7410

Recife : Adierson Azevedo, Commercial Specialist

adierson.azevedo@mail.doc.gov

Phone: 81-3416-3075 / Fax: 81-3231-1906

Rio de Janeiro : Camille Richardson, Principal Commercial Officer

camille.richardson@mail.doc.gov rio.de.janeiro.office.box@mail.doc.gov