GDP growth rates forecast by the IMF from 2010 through 2015 show advanced economies growing at an annualized rate of approximately 2.2%, while emerging economies are forecast to grow with a CAGR of almost 6.9%. These growth rates will exceed the GDP growth that both blocs registered from 2000 through 2009 of 1.6% and 5.9% respectively. China and India in the last decade have become growth engines for the bloc of emerging countries / developing economies. Economists and the popular press have taken to grouping together China, India, Russia and Brazil, or »BRIC«, signifying the largest and most dynamic emerging economies.
Slide 1
Forecast GDP Growth
During the decade prior to the economic crisis, whose full year impact was truly apparent in 2009, China registered a GDP growth of 9.8%, followed by India and Russia, both of which grew at 7%. Brazil’s economy »struggled« with an average growth rate of almost 3.4%, an achievement any advanced economy would love to duplicate. From 2010 through 2015, the IMF forecasts China to grow with an average of 9.75%, India with an 8.2% growth rate, Russia with 4.1% and Brazil improving to 4.3%.
Impact of GDP Growth varies by Industry
Although economists like to point to GDP growth as a broad indicator of a nation’s economic well being, the impact of GDP growth does not affect all wire and cable industries equally. Certainly in less developed economies where populations tend to be higher, and where the power utility sector may have suffered from decades of under investment, capital expenditure requirements for building new housing and constructing power generation, transmission and distribution networks would expect to benefit from stronger GDP growth. Cable for telecommunications applications are less sensitive to GDP as investment tends to account for a smaller share of capital budgets.
Strong Export Growth is Key for Brazil, especially with China
Strong export sales with annual increases can be a key factor in raising a country’s GDP. Brazil, according to reporting by the Wall Street Journal (WSJ) from mid-April, has been courting the other BRIC countries, particularly China, in an effort to become an indispensable source for iron ore, oil and soybeans. Brazil’s export trade to China, according to statistics cited from the Ministry of Development, Industry and Trade grew 20 fold to $20 billion from 2000 through 2009. In fact, last year China supplanted the U.S. as Brazil’s largest trading partner, a position the U.S. had held for the last fifty years. China accounted for US$36.1 billion in total trade in 2009, almost 13% of Brazil’s total trade of US$280.7 billion. Sales of Chinese goods to Brazil run the gamut of electronics, industrial products and clothing, while Brazil’s exports to China are mostly mining, oil and agricultural products.
Trade with foreign partners continues to be strong as the MDIT reports that through the third week of June 2010, exports reached US$83.1 billion, a year-on-year increase of 28% from the US$64.9 billion registered during the same period in 2009.
Benefit of Trade with China
The same April article in WSJ reported that demand from China mitigated the global economic downturn in Brazil as trade with traditional partners dwindled. China’s cash reserves and strategic interests have led to increased financing and developing of key industries in foreign markets. In Brazil’s case this includes China’s relationship with Petroleo Brasiliero or Petrobras: Sinopec helped finance a 900 mile natural gas pipeline that was just completed in May 2010. And in 2009 the China Development Bank loaned Petrobras US$10 billion to help develop its vast offshore oil reserves in exchange for future oil supply.Another example is China’s help in financing a coal fired power plant in southern Brazil. Future projects could include investment in port facilities and a proposed bullet train linking Rio de Janeiro and Sao Paolo.
Slide 2 and Slide 3
But Growth Pattern doesn’t extend to Wire & Cable Exports
for Brazil and South America
Brazil’s strong export growth does not extend to the wire and cable industry, a phenomenon shared by the South American region. When grouped into regional markets of North America, Western Europe, Eastern Europe and South America, all markets except for South America had export sales of US$3 billion or more for wire and cable products in Q409. South America for the last four quarters, meanwhile, has had export sales of US$150 million in wire and cable products with Brazil accounting for 60% to 70% of those sales. These data are based on international trade statistics in the harmonized code »8544« product category, which includes all insulated wire and cable, along with insulated conductors fitted with connectors, harnesses, and other cable assemblies.
Slide 4 and Slide 5
The above figure shows that Brazil’s wire and cable industry has grown at a much lower rate than the rest of the economy by posting a lower share relative to GDP growth. In other words the contribution of wire and cable production to Brazil’s economy and to the world’s economy is less significant than many other industry segments in the Brazilian market. Brazil’s percentage contribution comparing all countries’ for population, GDP, wire and cable production and wire and cable exports is 2% to 4% for the first three categories, but is only 0.5% of wire and cable exports, which indicates that this industry is not yet a leading growth factor in Brazil’s economy. The data for wire and cable exports are based on the Global Trade Information Services’ database of trade statistics. The line illustrating the data for Brazil’s percent of wire and cable exports refers to the percentage that Brazil’s wire and cable exports are of the world’s total of wire and cable exports. In other words, the line in this figure does not refer to the percentage of Brazil’s wire and cable production that is exported.
Slide 6 and Slide 7
How Does Brazil Compare to Russia, India and China?
Among the BRIC countries China has received the most acclaim and rightly so. How does Brazil compare to China and its emerging market cohorts? (Unfortunately Russia’s trade data was incomplete so a comparable set of time-series data was unavailable for this analysis.) When comparing total trade data in wire and cable products »8544« Brazil and China’s data in 2001 showed comparable levels at roughly US$800 million; India was at one quarter of a billion dollars. As was documented in last January’s newsletter, China’s growth was exceptional and in this case showed a CAGR of 13.7% from 2001 through 2008. Brazil, on the other hand, suffered a 70% decline in wire and cable trade in 2002, whereas China’s trade grew by 22%, recording double digit growth through 2007. Brazil also recorded double digit growth from 2003 through 2008; however, it only registered a CAGR of 5.5% from 2001 through 2009 as a result of the collapse in trade in 2002. In 2008 Brazil’s total wire and cable trade data in US dollars was 56% of China’s trade in this category.Brazil’s 2002 collapse in trade brought it down to India’s level of around US$225 million. Since 2002, however, India’s growth has outperformed even China’s growth rate, growing with a CAGR of 32% from 2001 through 2008.
Slide 8
Comparing Brazil and India’s Wire & Cable Export Markets
Brazil and India’s export sales in wire and cable in 2009 were virtually identical as each country exported around $340 million, which when combined together, only accounted for 1% of global wire and cable exports. As we reported in January’s newsletter, China and Mexico, the world’s two largest wire and cable exporters, combined accounted for US$17 billion or 22% of 2008 exports. Brazil’s main trading partners are all in South America, except for Angola, another Portuguese-speaking country, and the U.S. The eight main trading partners accounted for roughly 67% of Brazil’s wire and cable exports in 2009. India has six large trading partners, including the US, but also a number of partners in the Middle East and Nigeria. These six partners accounted for less than half of India’s exports, which means India has considerably more trading partners than does Brazil.
Slide 9
Brazil is King in South America
So Brazil compares quite favorably in wire and cable trade with its BRIC compatriots. How does Brazil compare to its regional neighbors? In this slide we look at the ten largest markets in South America to compare population, geographic size, some economic indicators as well as applying some telecom market metrics. (Some nearby countries such as Trinidad & Tobago have a higher GDP than Bolivia.) Brazil ranks first in six of the ten categories: population, geographic size, GDP, Internet Density, the number of fixed broadband subscribers and total cable consumption in US dollars.Brazil’s population just exceeds the combined population for the other nine countries by 2.2 million, and its geographic size is 96% of the combined square kilometers of the other nine countries listed. Brazil’s GDP in 2009 was 122% of the other nine countries’ aggregated GDP, and its leadership position in fixed broadband subscribers and cable consumption in U.S. dollars also exceeds the combined metrics for the other nine countries.
Slide 10 and Slide 11
Brazil’s Place in the South American Wire and Cable Sector
In 2009, Brazil’s wire and cable production was 58% of the South American total, and its consumption was 47% of the regional total. Brazil had net exports for all wire and cable product segments except for low voltage energy cables, which amounted to US$31 million in 2009, down from 2008, but which had more than doubled from 2007 to US$72 million. Excluding low voltage energy cables the data for production and consumption in Brazil show that combined exports for the other product segments accounted for 6% of its wire and cable production in 2009. This percentage was at 8% through 2007 and declined to 6% in 2008 and 2009. This means that Brazil’s domestic market grew at a slightly faster rate than its production and its exports. The general stability in Brazilian exports over the last two years reflects the broader export base, as well as the relative insularity of Brazil’s export markets as many of them were less affected by the economic crisis than those countries heavily dependent on trading partners in the developed markets.
Slide 12
