By Kohei Nakashima / Yomiuri Shimbun Staff WriterJapanese manufacturers and major trading firms are again showing strong interest in Brazil. The Brazilian economy has been sluggish for many years, but it has begun to turn around for reasons including a recent rise in crude oil prices. Many believe that the business environment in Brazil will improve, and foreign companies are making large-scale investments in the country one after another.
In October 2017, MODEC Inc., a subsidiary of Mitsui Engineering and Shipbuilding Co., won a contract to build an offshore oilfield development facility from Brazilian state-run oil company Petrobras for the first time in about three years.
The large-scale construction project is worth ¥150 billion in total. In January, a consortium including Mitsui & Co. and Mitsui O.S.K. Lines decided to jointly invest in the project. MODEC President Toshiro Miyazaki said: “Brazil has resumed a plan to increase oil output, which gives us a boost. We would like to win contracts for other projects.”
Meanwhile, Panasonic Corp. acquired a Brazilian air-conditioning engineering company in September 2017, and Toyota Motor Corp. will also increase production in the country. “Sales have been solid recently,” an official of Toyota in charge of public relations said. Toyota will make an additional investment of over ¥30 billion in its plant in Brazil to build a new production line and start producing compact cars after July.
Not only are Japanese companies looking to Brazil, but major U.S. aircraft maker Boeing and Chinese car dispatch company Didi Chuxing are also accelerating moves toward business mergers or acquisition of major Brazilian companies.
Many companies have resumed investment in Brazil because the country’s economy has emerged from past stagnation and began turning around.
On March 1, the Brazilian government announced that the nation’s real gross domestic product in 2017 grew by 1 percent from the previous year, recording positive growth for the first time in three years. Reasons for the growth include a rise in crude oil prices and a recovery in personal consumption. The International Monetary Fund forecast the Brazilian economy would continue to grow in 2018 and beyond. “The Brazilian economy is on a recovery track,” said Mitsui & Co. President Tatsuo Yasunaga.
According to the Japan External Trade Organization, the number of consultations about entering Brazil began increasing again from around the summer of 2017. In November 2017, Brazilian labor legislation was revised, allowing companies to cut costs more than before. This also provides a tailwind for companies to enter Brazil, according to JETRO.
However, there are several concerns over the prospects of the Brazilian economy.
There is concern over capital outflow from emerging economies such as Brazil against the backdrop of U.S. interest rate hikes. The country’s economic policy may also change depending on the results of the presidential election slated for October.
Takashi Kodama, economic research director of Daiwa Institute of Research Ltd., said, “Supported by domestic demand and resource prices, the real economy has entered a virtuous cycle. But the economy could slow down again, depending on external factors.”Speech