A confluence of civil unrest, an economy faltering on falling commodity prices and a bribery scandal involving the country’s largest oil company and high-level government officials have turned Brazil, one of the superstar growth markets just a few years ago, into a challenging place to do business.
In the course of research on the electrical markets of Latin America, Electrical Marketing checked in with Bob Eisenbrown, president of Edge Global Supply, Milwaukee, Wis., to find out how those headline crises are affecting electrical business on the ground in Brazil. Edge Global Supply is a joint-venture company set up by 11 U.S.-based industrial automation-oriented electrical distributors to pursue opportunities overseas, and Brazil was the focal point for its first two rounds of acquisitions, announced in early 2014.
Here are some highlights from our conversation with Eisenbrown, which will be part of a larger feature in Electrical Wholesaling next month.
“It’s been an interesting year for the Brazilian economy. A lot has changed even from a year ago,” Eisenbrown said, citing three factors making an impact on the economy: A strong U.S. dollar and declining oil prices globally have affected some of Brazil’s largest sectors; that and the Petrobras scandal have brought new petrochemical plant construction to a standstill; and the reelection of President Dilma Rousseff, widely opposed by business interests, has made potential investors more wary.
Edge Global Supply’s operations there saw strong business conditions through last year, with an expected fall-back in growth the first part of this year. (The first half of the calendar year in Brazil is full of festivals such as Carnaval and numerous religious, state and federal holidays, so the second half is when most of the business happens.) Given the challenges mentioned above, Eisenbrown said, the second half should be better.
“There’s a tendency to spend on a calendar year budget cycle, so we expect business to increase, but it’s not the environment we had the last couple of years before that,” Eisenbrown said. “We’re not like some of the big players who’ve decided to exit the market. We’re long-term bullish. It’s just too big an economy to ignore.
“Even with all the stuff going on, they’re predicting 1%-2% GDP growth, so it’s not like the chasm we saw in U.S. in ’09, but we certainly would like to see it become more robust. Some of the things that have happened, such as rising energy prices and new safety legislation have placed the focus on upgrades and retrofits. Brownfield and greenfield construction we’re not seeing as much.”
The majority of the business Edge companies do with Petrobras is focused on operations and maintenance, while the corruption scandal is focused on construction engineering contracts for large expansion projects.
“As we’ve seen around the world, people are still producing — they have to keep the plant running — so they can’t not spend the operations money, but capital improvements are down, like in the oil industry generally. We’ve seen more cautious behavior as far as spending, but they’ve got to keep production moving, that’s their lifeblood.”
