Only two years ago, Brazilian GNP was growing at a rate of 7.5 percent, and the future seemed bright for both the Brazilian chemical industry and the country’s economy in general. Growth began to slow in 2011, and 2012 has been marked by uneven expansion. Nevertheless, government initiatives and steps taken by Brazilian chemical companies are helping to bolster performance in the midst of reduced demand from a troubled global economy.
Industrial output for Brazil declined 3.8 percent in the first six months of the year according to data from the Brazilian Institute of Geography and Statistics. In an August report, the Institute predicted a decline of 1.2 percent in the sector for 2012. In the first half of 2012, the Brazilian GDP was expected to grow only between 3.0 and 3.5 percent for 2012, but estimates have been revised even lower to less than 2 percent for the year.
To help stimulate growth, the government has reduced the IPI (an excise tax) on automobiles, prompting record sales and encouraging new orders and production. The government has also supported market demand through the year by lowering basic interest rates.
The rapid pace of growth in Brazil over the past few years has proved to be unsustainable. The continuous increase in demand eventually revealed a relative lack of infrastructure, which in turn led to problems related to the productivity of the Brazilian industry. This issue became even more evident when major market players were forced to revise their business plans for the coming years.
However, there are already signs of changes. In early October, the government announced that it will propose the expansion and modernization of the tax regime for the oil and gas sector through Repetro, a special customs system. Other incentives for the chemical sector will include the suspension of taxes on imports of machinery, equipment, devices and services in industrial projects.
In the first half of 2012, the chemical and pharmaceutical sector saw 17 mergers and acquisitions (M&A). This is the highest number ever achieved for a six-month period according to the Survey of Mergers and Acquisitions which KPMG in Brazil has been conducting every year since 1994. The total for 2012 is approaching the best annual results for this sector, which recorded 21 transactions in 2011 and 18 transactions in 2010.
This year, the National Industry Confederation (CNI) and Abiquim held a Conference on Sustainability, which helped to define certain sustainability practices and standards for the sector. This included guidance on the reduction of water and electric power consumption. The conference also discussed alternative and renewable sources for the manufacturing of chemicals with a higher added value; although significant use of these sources in the petrochemical sector has not yet been determined.
As global economic stress continues, the future remains uncertain for even the largest economies. In Brazil, what is clear is that the government and the private sector have effectively joined forces to help support sustainable growth and competitive advantage for both domestic and foreign markets.
KPMG in Brazil
Head of the Chemicals practice