Brazil's Burgeoning Ethanol Industry Analyzing Investment Opportunities from the Inside
With the global economy looking for cleaner and cheaper energy alternatives, the demand for ethanol has been steadily increasing.  Brazil, the world's leading producer of sugarcane ethanol, needs to invest US$10 billion by 2012 to meet the demand.  According to the Agriculture Minister Roberto Rodrigues, Brazil must build 73 new mills for ethanol production and plant an additional 2.5 million hectares of sugarcane to keep pace with global demand.

The forces contributing to growing demand for ethanol show no signs of abating. Domestic growth has been driven by the increase in international oil prices and the success of Brazils flex-fuel car industry.  Ongoing international discussions to eliminate protectionism in the energy sector will contribute to the prolonged boom of the nation's ethanol industry.  Given this promising scenario, where are the opportunities for foreign investors, and US investors in particular?

The Brazilian Government will continue to give incentives for private investment through its Development Bank BNDES, focusing on the purchase of new equipment. Government officials have said a lack of equipment has frustrated the growth of the industry's production capacity and constitutes the number one bottleneck for the industry's future development.  Another stumbling block is the poor infrastructure base, especially in the Northeast. Unica, the association of almost 100 companies producing sugar and alcohol in Brazil, has confirmed that the industry will need significant technological improvements in order to meet growing demand for ethanol at home and abroad. 

There are good examples of companies in Brazil's ethanol industry creating partnerships with foreign investors to support technology development. COSAN, a leader in the industry, has entered into partnerships with a number of large international groups.  In 1999, the British sugar group Tate & Lyle acquired 10% of COSAN's port terminal. In 2002, COSAN joined forces with French companies Tereos and Sucden to create the FBA – Franco Brasileira de Açúcar e Álcool S/A.  In 2005, the company partnered with the Chinese group Kuok, one of the most dynamic and diversified international conglomerates. Also in 2005, four companies (COSAN, Crystalsev, Nova América group and Cargill) jointly opened a terminal specifically focused on ethanol exports.  The facility is known as TEAS – Terminal de Exportação de Álcool de Santos (The Santos Alcohol Exports Terminal). These partnerships brought new resources, improved the industry's technology base and consolidated the companies involved as major players in the international market.

Brazil's Agriculture Minister has said that ethanol is a sector of strategic importance to the country.  He expects demand for ethanol to double over the next eight years. With the spike in oil prices since 2000 and the mounting environmental pressures from the international community (including the Kyoto Protocol and European regulations for use of renewable energy), there is no doubt that Brazil will consolidate its position as the world's largest sugarcane ethanol producer. Clearly, the opportunities for foreign investors abound. If you want the complete version of this article contact: karinaliendo@intrixcorporation.com

The MBA (Mexico, Brazil and Argentina) of Latin America, getting stronger?
The three big economies in the region Mexico, Brazil and Argentina are showing good signs. Mexico is the one with the least attractive forecast, since its growth has been systematically decreasing. The productivity is affected by inefficiencies in the system, such as expensive telecommunications, low human capital and oligopolies in key sectors. The country will need structural reforms in order to gain competitiveness and increase growth. Economists fear that the new government will not be able to pass those reforms.

Brazil, presents a positive scenario, facing elections soon; however, economists agree there will not be drastic changes. The current government has a proven understanding of the markets. Trade has favored the economy, which presents the most diversified export profile in the region. 

Argentina, after the crisis in 2002, has been able to grow steadily during the last three years. The strategy has worked well thanks to the high external terms of trade, the stability and growth of the trading partners and the breathing room on the debt-servicing front. The government has committed to maintain a fiscal surplus. In summary, economists are optimistic about the future of the three countries, from the investor prospective they represent interesting markets.

China could also be an alternative source for high quality equipment   

The perception that China is a source of cheap and low quality products is changing. Manufacturing companies that need to invest in new technology and equipment are looking for alternatives to the traditional American and European suppliers.  Surprisingly, Chinese equipment manufacturers are improving their quality standards and developing high technology products. They are serving the domestic market and initially covering the less exigent markets. 

Intrix has already conducted two projects looking for equipment suppliers in the automotive industry and in the electrical motors sector.  In both cases, we were able to find a short-list of companies that met our client's high standards of criteria. In addition, we conducted due diligence providing our clients good references and guaranteeing the quality of the companies selected.  

For Latin American countries like Brazil, where the dollar has devaluated almost 30%, the imported equipment offer a good alternative. A Chinese machine costs about 1/3 of the Brazilian and European machines. In the auto parts sector, there was an increase of 55.4% on the imports of manufactured goods from China.

Intrix highly recommends exploring new sources of equipment in China. This is a good time to increase productivity investing in new technology. Remember that you will reduce your risk and time expended if you do it with local help.