As London says goodbye to the Olympics, the baton is handed over to Rio, opening up many opportunities for export and infrastructure finance. Rebecca Spong reports.
Having only just extinguished the Olympic flame in London, the countdown to Rio 2016 has begun, with Brazil eager to attract foreign investors to the city.
The level of investment required to ensure that the next Olympics are a success means that there will be many opportunities for banks and financial institutions active in trade and export finance related to infrastructure.
“Infrastructure investment today is 2% of our national GDP and it must grow in the next five years by 6-7% – that’s a lot of money, so there is a lot of room for people to invest in infrastructure,” Candido Leonelli, executive director at Banco Bradesco told GTR at an event held by the Investment Promotion Agency of Rio, Rio Negócios, during the London games.
The overall budget for the Rio Olympics is estimated to reach US$11.5bn, generating 100,000 jobs, according to Rio Negócios.
With the games acting as a catalyst, it is expected that Rio will attract US$30bn in investments by 2016.
Foreign investor appetite
Brazil has already been a key market for foreign investors; the country was the fifth top destination for foreign investment last year, attracting US$60bn.
Ernst & Young, one of the sponsors for the Brazil Olympics, sees Brazil as a target market. “Our year-end is June 30 and last year we grew 41% in Brazil. This calendar year we grew 25%,” Jorge Menegassi, CEO of Ernst and Young Terco Latin America told delegates.
Rio itself is being seen as Brazil’s key growth market, with the city contributing 5.4% of Brazilian GDP and representing the country’s second highest GDP. The city has also been upgraded and granted investment grades by a number of ratings agencies over the past two years; most recently it was awarded a BBB rating by Fitch in December 2011.
As Rio continues its transformation into an Olympic city, a landmark project attracting investor interest is the revitalisation of Rio’s port area, Porto Maravilha.
This is the largest public-private partnership in Brazil to date and will require US$4.5bn of investment in total. According to Rio Negócios, the development will include the construction of housing developments as well as a new cultural centre and entertainment venues. It is expected to generate 40,000 new jobs.
Rio’s transport system will also be overhauled, with around US$7.8bn to be invested in transportation projects. Such projects include the construction of 150km of Bus Rapid Transit (BRT) lines, as well as upgrades of metro lines.
The first of four BRT corridors was opened in June this year. Called Transoeste, it cuts travel times between two Rio neighbourhoods by 50%. A further three BRT corridors will be opened by 2016. By 2015, the number of Rio citizens using mass transit will increase from 16% to 63%.
Other Olympics-related infrastructure developments include the reconstruction of the Maracana (Brazil’s biggest football arena) and a pollution clean-up project targeting Guanabara Bay.
The energy sector is set to attract investment as well, with the state of Rio de Janeiro being responsible for 85% of the national production of oil and gas. There are a number of energy-related infrastructure projects attracting investment including Ponta Negra Terminal in Marica. It is estimated that around US$1.75bn is required for infrastructure developments related to the port, such as fuel storage spaces and maintenance yards.
Yet, investing in Brazil’s burgeoning economy will not always be straightforward, remarked Ernst and Young’s Menegassi.
“Brazil has more than 50 different kinds of taxes: federal, state and municipal, and this creates additional complexity.
“It is important for investors to be in contact with organisations such as Rio Negócios. Brazil has a huge internal market that keeps growing, but you need to know how to work with the tax complexities and labour costs.”
One company that has expanded its presence in Brazil, and specifically Rio, is German airline Lufthansa. It began operating direct Frankfurt-Rio flights at the end of 2011. Christian Schindler, general manager at the airline shared his thoughts with delegates about entering the Brazilian market.
“Once you enter the market, you need to be aware it is not a mature market. It is fast-growing; 40 million new consumers in four years, that is enormous, and you need to be prepared to tackle that.”