November 2009

BRAZIL, RUNNING OLYMPIC RINGS AROUND THE WORLD

We don’t get too many thrills in the forestry business to be honest. Adrenalin rushes are not exactly a daily event, but the news that the Olympics are to be held in Rio in 2016 got us feeling distinctly upbeat...excited even.

The repercussions of Brazil’s Olympic success are already being felt in our business, so we are devoting this month’s newsletter to the great news.

October 2 2009, Copenhagen

The International Olympic Committee voted to hold the 2016 Summer Olympics in Rio de Janeiro. The Games are expected to bring Brazil an estimated 50 billion dollars in investment. Not even the charm offensives of TV Diva Oprah Winfrey and President Barack Obama could persuade the delegates that Obama’s hometown Chicago should host the Olympic Games.

Fighting off other candidates Madrid and Tokyo, Brazilian President Luiz Inácio Lula da Silva made a heartfelt speech for the Games to be held for the first time in South America.The rhetoric of President Silva and football legend Pele won the day.

"I honestly believe it is Brazil's time. We're a first rate country” proclaimed President Silva.

Silva's Golden Touch

Silva’s silky schmoozing may have the swayed the International Olympic Committee a little, but it has to be Brazils economic transformation that finally tipped the balance. The World Bank projection which forecast Brazil as the world's number five economy by 2016 will also have done no harm.

Rio’s choice as the 2016 host city for the Olympics is the icing on the cake on a remarkable record of achievement for president Silva.

"Now our term of reference is going to be work, work, work. Work for Brazil to do better than any other time in its history."

Now 63 years old, Silva rose from humble beginnings as a lathe operator to become the country’s most influential union leader, before taking the presidency in 2002. Although Silva didn’t actually manage to complete his school education, he has steered the country's economy with a deft touch that many of the world’s economic eggheads must admire.

Brazilian President Luiz Inácio Lula da Silva speaking at Copenhagen

It's not all been smooth running though. Silva scrambled through some early political scrapes that took down some of his closest advisers. But now his critics are now well and truly silenced. He has an approval rating of 77 percent. Not even Obama in his honeymoon period achieved anywhere near such popularity.

Silva’s savvy monetary and fiscal management has sheltered Brazil from the turbulence of the global economic storms. Brazil was last into recession and first out of the traps from the downturn in South America, with the world’s best performing index, the Bovespa, gaining almost 60% this year.

THE CHALLENGE AHEAD

Thanks to Brazil’s recent record-high prices for steel and soy exports, it has squirreled away a juicy hoard of international reserves, now approaching a record $225 billion.

The minimum wage has risen by a staggering 45% in real terms in only seven years. The more affluent middle-classes, defined as those earning between $615-$2600 per month, have risen from 38% to 50% of the population since 2003.

The streamers have been swept away and the daunting task begins of staging the Olympics. The Barcelona games in 1992 saw the Spanish city transformed... a process that Rio hopes to copy. Rio has already approved funding of US$240 billion from the Program for Growth.

Olympic Park to be constructed

Roads and rail networks will require a massive injection of capital investmen and material resources, as will the Olympic villages and sports arenas.

Tourist accommodation, conference centres, media, entertainment, finance, and IT industries are also hoping to see a major benefit. Rio has the famous Maracana soccer stadium, the largest arena in South America, built in the 1950s for the World Cup.

The Maracana is now being fitted out for the 2014 World Cup, which Brazil is also hosting by the way, together with the Confederations Cup. As ever, success breeds success.

As stunning as Rio is, surrounded by ocean, tropical rainforest and the Sugar Loaf Mountain, the infrastructure has been quite neglected after the capital switched to Brasilia in 1960.

Adriano Pires, director of the Rio-based Brazilian Infrastructure Centre says,
"Rio de Janeiro needs to dramatically improve its infrastructure for an event of this magnitude. You name it—public transportation, subway, water and sewer, electricity”.

Right Time, Right Place

At Greenwood Management we now find ourselves in an enviable negotiating position. The global recession brought about a big de-stocking of steel stocks resulting in a depleted worldwide steel inventory.

It’s a sellers market now and basic materials cycles can last decades. On the front-line, steel producers are now frantically competing for future charcoal supply guarantees, yet there's still nowhere near the capacity to meet their current level of demand.

Looking even further ahead, underlying steel requirements will continue to be driven by projects such as Chinas plan to build 97 airports by 2020.

Exciting times ahead. We’d better get used to this.

Sincerely,

Joe Randall
Greenwood Management

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