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At Davos, the chatter of the ognoscenti over Krug champagne and coffee captures the global undercurrents really well. But even as participants discuss the zeitgeist, the Arab uprisings, the Occupy Wall Street movement, the euro crisis, it's the small shifts in perceptions, often precursors to big changes in the future, that linger on in the mind.
All may appear hunky-dory at the India Adda Pavilion but murmurs are being heard to the effect: Where do I invest- India or Brazil? Listen to what Gerard Lyon, the respected chief economist of Standard Chartered has to say, "I visited Latin America recently. Despite growth concerns in Brazil, it seems to be overtaking India in terms of perception and therefore the key issue for India is to start working on its economic issues and win back the confidence of investors."
Another keen India watcher, Ian Bremmer, president of Eurasia Group, a New York-based political risk consulting firm, lays it out directly: "India always over-performs at Davos but underperforms every other week of the year. Countries like Indonesia could replace the 'I' in the BRICS and Brazil could also well take a big lead." It's not just in Davos that the India or Brazil debate is playing out.
On a recent US visit, Sanjeev Krishan, a partner at PWC, faced similar queries from US companies, especially those looking to diversify from China. "American companies say Brazil is closer to the US, the Real is more stable than the Rupee and the government policies in Brasilia are more progressive," he says.
Sitting thousands of kilometres away in Sao Paulo, Marcos Almeida a partner at Ernst & Young Brazil asked a client investing in Brazil: 'Why now?' The CEO answered he was earlier focused on consolidating the European business. Now that he was globalising, Brazil seemed like the best investment destination at this point of time. "For investors, it's a combination of factors that tips the scale in Brazil's favour: low political risk, better social mobility, solid financial system, greater institutional maturity, cheaper workforce, and a great raw material resource base," says Almeida.
The slugfest now is no longer India versus China, it's India versus Brazil. For global investors, China is now TINA (there is no alternative). The Asian giant is powering ahead with a 9%-plus growth rate and emerging as the only credible nation to challenge the battered but still supreme economic might of the US of A. Within the BRIC pack, Russia is considered risky, so that leaves investors with India and Brazil. MNCs allocating capital with an eye on the changing global economic order will put bets on both countries.
But the answers to how much and why now will depend on each nation's investor-friendliness. India with its corruption, political deadlocks, opaque and cumbersome regulations and tight monetary policy that's stagnating growth, seems to have dented investor confidence and investment.
On the other hand, Brazil, carries on the progressive policies of former Presidents Fernando Henrique Cardoso and Luiz Inacio Lula da Silva that have developed the South American nation into a sound economy with a political and fiscal environment conducive to growth. Last month, Brazil emerged as the sixth largest economy in the world, right after India.
The global investors have also shown confidence in the Brazil growth story over the last decade. "Inbound FDI in Brazil has consistently exceeded 10% of gross fixed capital formation, except once in 2009 when it barely missed that level, whereas India only once approached that level, in 2008 ( Graphic A )," says Pankaj Ghemawat, Anselmo Rubiralta Professor of Global Strategy at IESE Business School and author of World 3.0.
The professor explains that some of the difference can be attributed to the fact that Brazil's per-capita income is much higher than India's and richer countries do tend to attract more FDI than poorer ones.
FDI in Brazil for the calendar year 2011, despite much slower GDP growth of 3.5% (7.5 in 2010), could surpass $65 billion, according to Banco Central do Brazil. At the same time, FDI in India for financial year 2010-11 was $19.4 billion, down from $25.8 billion in FY09-10.
Meanwhile, the Organisation for Economic Co-operation and Development (OECD) FDI restrictiveness index, ranks India 5th out of 49 countries whereas Brazil, (a non -member) ranks 20th. Ghemawat explains: "A simple way of putting this is that India imposes more restrictions on FDI than the typical poor (non-OECD) country whereas Brazil is like a rich (OECD) country in this regard, with fewer restrictions."
And just as an aside, investors pumped $124 billion into the Chinese economy last year, according to an United Nations report so the much written about India versus China remains a fight only in Indian minds not global investors who are voting with their dollars]. Brazil does make a compelling case for investors: it's a $1.53 trillion economy (2010 est.) with absolute per capita income of $10,800. The Brazilian economy is nearly half of the entire South American economy.
Among social innovations that have delivered has been creation of a social safety net with the world's biggest programme of giving money directly to poor households. The $8 billion national effort includes the much-lauded Zero Hunger social programmes that over the past eight years have helped lift at least 19 million Brazilians out of poverty. One big boost for Brazil has been its growing trade with China.
In 2009, China surpassed the US as Brazil's biggest trading partner, accounting for 12.5 percent of the Latin American country's exports. In 2010 the bilateral trade rose to $56 billion, according to the Economist, and since 2002, the trade between two countries has risen 17 times.
Brazil fits in perfectly in China's strategy: it has a big market, a large commodity reserve, and newly discovered oil fields to quench Beijing's thirst for energy. "Chinese are looking at investments in energy and infrastructure space. Brazil is looked upon as future supplier of raw materials," says Almeida.
Even for the Indian businessmen who have invested in Brazil, the experience has been positive. Narendra Murkumbi of Shri Renuka Sugars who acquired two sugar companies in Brazil (VDI and Equipav Sa) was pleasantly surprised by the hassle-free investments. "It's a relatively open economy. There is very high acceptance of foreign investment. Apart from the language and the legal system there aren't any hassles in doing business. About 40 percent of Brazil's sugar and Ethanol industry is foreign controlled," he says, "Thankfully there isn't any FIPB in Brazil."
Ask the multinational CEOs about India versus Brazil and most will say they will definitely invest in both economies, but near term Brazil is a better opportunity. "It may not be important to compare one to the other. Both economies continue to expand. From a mass transit perspective we expect big investments given they have large events coming up (read Olympics 2016 and World Cup 2014)," says Pierre Bourdoin, CEO, Bombardier.
The global food giant Cargill recently bought Unilever's branded tomato business in Brazil. For Greg Page, the chairman and CEO of Cargill, the world's largest private foods company, it makes sense (to invest) where the percentage of GDP spent on food is the lowest. "So if you get to any place where the percentage of GDP spent on food is 25% or above, you're going to see greater tension in society," he says.
"You feel it less in a place like Brazil where modestly it is below the 25% mark and much more intensely in India and clearly the most intensely in Africa. Ask CEOs which market is more profitable. Says Gilles Schnepp, chairman and Global CEO of Legrand, "The return you get from your investments in a market depends on the market share you are able to gain in the market. In India, we are now the leader in cable management products and wiring devices, the two lines that make up 50% of Legrand's total sales world-wide. In Brazil, we are also leaders in several other products."
The Hager Group entered Brazil in 2000 through a joint venture, not with a Brazilian company, but with Eaton, an American conglomerate. Eaton eventually decided to divest its holding in the JV and became a 100% subsidiary of Hager.
"Brazil and India are two very different markets," says global CEO Daniel Hager. "Brazil has already seen several waves of consolidation and its electrical industry is much more structured. Acquisitions have taken place, there are fewer companies and there are many more international companies than in India, where the process is still on." Some experts think India should be an active investor in Brazil.
"Latin America has potential for Indian corporates. They can benefit from India's strength in technology. We can benefit from their strength in agri-tech. Historically the relationship between the two regions has not been strong. I think there is room for some movement there," says Soumitra Dutta, Roland Berger Chaired Professor of Business and Technology at INSEAD.
Back in Davos, while the Indian government and industry bodies made a huge song and dance show trying to project Brand India, even the Indian CEOs didn't really seem convinced. In one of the sessions, Hero MotoCorp's Sunil Kant Munjal, noted that China makes a decision and implements tomorrow; India makes a decision and starts a debate about it. If the policy impasse continues, Munjal will be giving a Brazilian example in Davos 2013.
Is India versus Brazil replacing India versus China for global investors? - Page4 - The Economic Times
All may appear hunky-dory at the India Adda Pavilion but murmurs are being heard to the effect: Where do I invest- India or Brazil? Listen to what Gerard Lyon, the respected chief economist of Standard Chartered has to say, "I visited Latin America recently. Despite growth concerns in Brazil, it seems to be overtaking India in terms of perception and therefore the key issue for India is to start working on its economic issues and win back the confidence of investors."
Another keen India watcher, Ian Bremmer, president of Eurasia Group, a New York-based political risk consulting firm, lays it out directly: "India always over-performs at Davos but underperforms every other week of the year. Countries like Indonesia could replace the 'I' in the BRICS and Brazil could also well take a big lead." It's not just in Davos that the India or Brazil debate is playing out.
On a recent US visit, Sanjeev Krishan, a partner at PWC, faced similar queries from US companies, especially those looking to diversify from China. "American companies say Brazil is closer to the US, the Real is more stable than the Rupee and the government policies in Brasilia are more progressive," he says.
Sitting thousands of kilometres away in Sao Paulo, Marcos Almeida a partner at Ernst & Young Brazil asked a client investing in Brazil: 'Why now?' The CEO answered he was earlier focused on consolidating the European business. Now that he was globalising, Brazil seemed like the best investment destination at this point of time. "For investors, it's a combination of factors that tips the scale in Brazil's favour: low political risk, better social mobility, solid financial system, greater institutional maturity, cheaper workforce, and a great raw material resource base," says Almeida.
The slugfest now is no longer India versus China, it's India versus Brazil. For global investors, China is now TINA (there is no alternative). The Asian giant is powering ahead with a 9%-plus growth rate and emerging as the only credible nation to challenge the battered but still supreme economic might of the US of A. Within the BRIC pack, Russia is considered risky, so that leaves investors with India and Brazil. MNCs allocating capital with an eye on the changing global economic order will put bets on both countries.
But the answers to how much and why now will depend on each nation's investor-friendliness. India with its corruption, political deadlocks, opaque and cumbersome regulations and tight monetary policy that's stagnating growth, seems to have dented investor confidence and investment.
On the other hand, Brazil, carries on the progressive policies of former Presidents Fernando Henrique Cardoso and Luiz Inacio Lula da Silva that have developed the South American nation into a sound economy with a political and fiscal environment conducive to growth. Last month, Brazil emerged as the sixth largest economy in the world, right after India.
The global investors have also shown confidence in the Brazil growth story over the last decade. "Inbound FDI in Brazil has consistently exceeded 10% of gross fixed capital formation, except once in 2009 when it barely missed that level, whereas India only once approached that level, in 2008 ( Graphic A )," says Pankaj Ghemawat, Anselmo Rubiralta Professor of Global Strategy at IESE Business School and author of World 3.0.
The professor explains that some of the difference can be attributed to the fact that Brazil's per-capita income is much higher than India's and richer countries do tend to attract more FDI than poorer ones.
FDI in Brazil for the calendar year 2011, despite much slower GDP growth of 3.5% (7.5 in 2010), could surpass $65 billion, according to Banco Central do Brazil. At the same time, FDI in India for financial year 2010-11 was $19.4 billion, down from $25.8 billion in FY09-10.
Meanwhile, the Organisation for Economic Co-operation and Development (OECD) FDI restrictiveness index, ranks India 5th out of 49 countries whereas Brazil, (a non -member) ranks 20th. Ghemawat explains: "A simple way of putting this is that India imposes more restrictions on FDI than the typical poor (non-OECD) country whereas Brazil is like a rich (OECD) country in this regard, with fewer restrictions."
And just as an aside, investors pumped $124 billion into the Chinese economy last year, according to an United Nations report so the much written about India versus China remains a fight only in Indian minds not global investors who are voting with their dollars]. Brazil does make a compelling case for investors: it's a $1.53 trillion economy (2010 est.) with absolute per capita income of $10,800. The Brazilian economy is nearly half of the entire South American economy.
Among social innovations that have delivered has been creation of a social safety net with the world's biggest programme of giving money directly to poor households. The $8 billion national effort includes the much-lauded Zero Hunger social programmes that over the past eight years have helped lift at least 19 million Brazilians out of poverty. One big boost for Brazil has been its growing trade with China.
In 2009, China surpassed the US as Brazil's biggest trading partner, accounting for 12.5 percent of the Latin American country's exports. In 2010 the bilateral trade rose to $56 billion, according to the Economist, and since 2002, the trade between two countries has risen 17 times.
Brazil fits in perfectly in China's strategy: it has a big market, a large commodity reserve, and newly discovered oil fields to quench Beijing's thirst for energy. "Chinese are looking at investments in energy and infrastructure space. Brazil is looked upon as future supplier of raw materials," says Almeida.
Even for the Indian businessmen who have invested in Brazil, the experience has been positive. Narendra Murkumbi of Shri Renuka Sugars who acquired two sugar companies in Brazil (VDI and Equipav Sa) was pleasantly surprised by the hassle-free investments. "It's a relatively open economy. There is very high acceptance of foreign investment. Apart from the language and the legal system there aren't any hassles in doing business. About 40 percent of Brazil's sugar and Ethanol industry is foreign controlled," he says, "Thankfully there isn't any FIPB in Brazil."
Ask the multinational CEOs about India versus Brazil and most will say they will definitely invest in both economies, but near term Brazil is a better opportunity. "It may not be important to compare one to the other. Both economies continue to expand. From a mass transit perspective we expect big investments given they have large events coming up (read Olympics 2016 and World Cup 2014)," says Pierre Bourdoin, CEO, Bombardier.
The global food giant Cargill recently bought Unilever's branded tomato business in Brazil. For Greg Page, the chairman and CEO of Cargill, the world's largest private foods company, it makes sense (to invest) where the percentage of GDP spent on food is the lowest. "So if you get to any place where the percentage of GDP spent on food is 25% or above, you're going to see greater tension in society," he says.
"You feel it less in a place like Brazil where modestly it is below the 25% mark and much more intensely in India and clearly the most intensely in Africa. Ask CEOs which market is more profitable. Says Gilles Schnepp, chairman and Global CEO of Legrand, "The return you get from your investments in a market depends on the market share you are able to gain in the market. In India, we are now the leader in cable management products and wiring devices, the two lines that make up 50% of Legrand's total sales world-wide. In Brazil, we are also leaders in several other products."
The Hager Group entered Brazil in 2000 through a joint venture, not with a Brazilian company, but with Eaton, an American conglomerate. Eaton eventually decided to divest its holding in the JV and became a 100% subsidiary of Hager.
"Brazil and India are two very different markets," says global CEO Daniel Hager. "Brazil has already seen several waves of consolidation and its electrical industry is much more structured. Acquisitions have taken place, there are fewer companies and there are many more international companies than in India, where the process is still on." Some experts think India should be an active investor in Brazil.
"Latin America has potential for Indian corporates. They can benefit from India's strength in technology. We can benefit from their strength in agri-tech. Historically the relationship between the two regions has not been strong. I think there is room for some movement there," says Soumitra Dutta, Roland Berger Chaired Professor of Business and Technology at INSEAD.
Back in Davos, while the Indian government and industry bodies made a huge song and dance show trying to project Brand India, even the Indian CEOs didn't really seem convinced. In one of the sessions, Hero MotoCorp's Sunil Kant Munjal, noted that China makes a decision and implements tomorrow; India makes a decision and starts a debate about it. If the policy impasse continues, Munjal will be giving a Brazilian example in Davos 2013.
Is India versus Brazil replacing India versus China for global investors? - Page4 - The Economic Times
