Crushed iron ore is transported in railroad cars (left) next to a conveyer belt at Vale’s Brucutu mine in Barao de Cocais, Brazil. The world’s biggest iron-ore producer plans to cut expenditures to a six-year low.
Bloomberg/New York
President Dilma Rousseff is asking Brazil’s biggest companies to help the government jumpstart growth. Her powers of persuasion may not be enough.
Natura Cosmeticos, the nation’s largest cosmetics maker, has said it will invest about 25% less in 2015. Vale, the world’s biggest iron-ore producer, plans to cut expenditures to a six-year low. Petroleo Brasileiro, the state-run oil producer dubbed by Rousseff as Brazil’s most strategic company, plans to make the lowest annual investment since 2008 amid a widening corruption probe.
Rousseff, whose approval rating is the lowest of any Brazilian president in 15 years, is urging companies to invest at a time when Latin America’s largest economy is forecast to show the worst contraction in a quarter century. Measures of business and consumer confidence have tumbled as her administration struggles to shore up fiscal accounts and tame inflation in a bid to keep the nation’s investment-grade status.
“No one is investing,” Tiago Cunha, who manages about 300mn reais ($92.5mn) in Brazilian stocks at BRZ Investimentos, said in an interview in Sao Paulo. “When you look at companies’ investment plans, most of them are scaling things down. That reflects the lack of visibility on what’s going to happen over the next couple of years.”
Officials from Petrobras declined to comment, as did Rousseff’s press office. Natura’s press office didn’t reply to an e-mail and a phone call seeking comment.
Brazil’s industrial production contracted the most since 2009 last year even as the government provided a series of tax breaks. Business confidence plunged to a record low in February amid higher borrowing costs, inflation above the government’s target and the investigation into corruption at Petrobras.
“Don’t let uncertainties undermine your vision for Brazil’s future,” Rousseff said at an event for the construction industry in Sao Paulo on March 10. “We’ll make every effort so that we see signs of a recovery by the end of the year. But we need to count on you too.”Economists covering Brazil lowered their 2015 growth outlook for a 11th straight week, and now see a contraction of 0.78%, a central bank survey published March 16 showed. The global economy will grow 2.8% this year, according to the average estimate of analysts tracked by Bloomberg.
The slowdown in Brazil is the main reason for the cut in investments this year, according a poll of 669 companies conducted by Getulio Vargas Foundation, a Rio de Janeiro-based university and research facility. More than 30% of the enterprises surveyed plan to invest less in 2015, compared with 16% last year. The share of companies that plan to spend more fell to 27% from 34%.
“If demand is going to contract, you’re obviously not going to be increasing investments until you’ve got some confidence the cycle is going to turn,” Stacy Steimel, the Chief Executive Officer for Latin America at PineBridge Investments, said by telephone from Santiago. Her firm oversees $72.9bn. “There’s not a large demand for commodities with China decelerating. So those companies are going to be cutting back on investments.”
Vale is reducing its capital expenditures as it joins global peers in cutting costs after prices for iron ore tumbled amid weaker demand in China. The Rio de Janeiro-based company said Dec. 2 it plans to spend $10.2bn in 2015, excluding research and development, compared with $12bn last year.
Vale’s press office said that no change has been made to the investment plan announced in December, when the company said keeping capital expenditures under control was “a key priority,” without linking the decision to the outlook for the Brazilian economy.
Natura, which has invested 2bn reais in logistics and technological infrastructure over the last four years, will lower capital expenditures to 385mn reais in 2015. Cash generation at the Sao Paulo-based company sank in 2014 as earnings trailed analyst estimates for four straight quarters amid higher inventories. Petrobras said on January 28 that it will make investments of $33bn at most in 2015, compared with about $42bn budgeted for last year. The oil producer is cutting expenses to eliminate the need to borrow more money this year while it delays delivering audited financial results for 2014.
The company is trying to adjust the value of assets to account for graft-related costs amid an investigation into contractors that allegedly colluded to inflate bids and paid bribes to Petrobras executives.
