From Forbes Magazine – It’s probably not the biggest risk Brazil faces, but it is worth noting that the one true magnet that’s attracting all of that foreign capital flowing into Brazil is due to just one company: oil and gas rich Petrobras (PBR).
Brazil’s foreign investments, in fact, are rather dependent on it. Without Petrobras and its massive deep ocean oil discoveries off the coast of São Paulo and Rio de Janeiro states, international inflows into Brazil would look tame. Very tame, in fact.
Foreign investment in Brazil surprised everyone in December 2011. It hit a monthly record of $15.4 billion, 300% more than what a Bloomberg survey of 11 analysts had forecast at the time.
Last year, Brazil attracted a record-breaking $48.5 billion, according to government figures. Here’s the thing; December’s record corporate inflow was driven by one company and one sector. That company was China Petroleum & Chemical Corp. (SNP) and their $7.1 billion purchase of a 40% stake in Repsol. The sector, of course: oil.
The Brazilian Association of Equipment and Maintenance Technologies, known locally as Sobratema, says that of an estimated 9,365 infrastructure projects in the works or on paper looking for domestic and international capital, more than half are for oil and gas. Most of them are Petrobras projects. It makes sense. The company plans to invest around $224 billion in the sector over the next two years. The companies that provide services to the oil and gas business love it. Brazil is the place to put their money. And they are buying stakes and building offices, bringing dollars into the country to do so.
TNK-Brasil, the local subsidiary of Russia’s third largest energy company TNK-BP, acquired a 40% stake in an offshore well with another company in November. Details of the investment were not released, but half a billion is a conservative guess.
Baker Hughes, a U.S. based energy services firm, is opening a brand new R&D center in Rio. It will be hiring about 45 engineers this year. More money flowing into Brazil because of oil and gas.
When it comes to foreign investment, and not just portfolio investment, but corporate investment in real long term assets, Brazil comes in third behind China and India. Company’s invest in China for manufacturing and to tap its growing middle class. Company’s invest in India for technology and metals. Company’s invest in Brazil for oil and gas.
Sobratema calculates that between now and 2016, more than half of the money invested in infrastructure in particular will be for oil and gas. The rest is for electricity (thanks to hydroelectric dams), airports, basic sanitation and projects for the 2014 FIFA World Cup and the 2016 Summer Olympic Games.
“The biggest investments in infrastructure in Brazil are all oil related,” Mario Humberto Marques, the VP of Sobratema, told Estado de São Paulo Wednesday.
Between 2006 and 2009, infrastructure from basic sanitation pipes and upgrades to the electric power grid accounted for just 2.1% of the country’s GDP, below the 3% necessary to keep Brazil up to date, Marques said. Only 40% of the country has basic sanitation systems in their neighborhoods. Another 15% do not have treated water. All of this requires investment, and while Brazil is indeed investing in these projects, the foreigners surely are not.
Copied from http://www.forbes.com/sites/kenrapoza/2012/02/22/brazil-at-risk-of-becoming-one-big-petrobras/