Gentlemen, start your engines

Brazil has a long history of a local vehicle manufacturing industry. In the 50s, Toyota built the famous Bandeirante, then in the 60s Volkswagen setup a factory to build the Kombi and then Fusca. And it went on from there. Today, the assortment is broad with Nissan, Renault, Peugeot, Citroën, Honda, Hyundai, Chrysler and Audi producing locally on their own or in partnerships, apart from the established VW, GM, Ford and Fiat. The only local company producing is Troller, which builds jeeps said to master any terrain.

But the latest coup is from Hyundai. Already with an OEM in the Goias state (with CAOA), the Korean firm is now setting up shop in Piracicaba (roughly 100km from Sampa) with a factory that will be the largest outside of Korea. Next year, up to 3000 Korean expats are said to start coming there to prepare all the engineering work and production setup. Hyundai will overtake Ford as 5th largest producer in Brazil in 2013 and already today has 3% of the market - the plant, a total investment of 600m USD, will boost this growth. Local business is already excited: Real estate prices have shot up since the announcement last year and even a golf course is under construction to accomodate Korean Execs.


The investment makes so much sense because importing to Brazil is prohibitively expensive. Duties are 35%, local taxes another 60%, plus fees means that the local price will be roughly double of what a car costs abroad. If Hyundai can keep a part of this money in its own pocket and keep growing like they have, this will mean great business.

In addition, more local manufacturing will help the Brazilian economy further diversify away from commodities - even if under the current exchange rate scenario, importing is so cheap.

World Cup Troubles

Let Us Hope there are no second thoughts about this

To make it quick: The 2014 World Cup is in trouble. A report to be released these days (today?) will put a green light on the stadium construction of Belo Horizonte. Full Stop. All other stadiums will receive a yellow light for progress - except for Natal and São Paulo, where construction hasn't even begun. To be honest, I still do not know where and how the São Paulo stadium should be built.

The second part of the bad news is that almost all infrastructure to support the world cup (airports, roads, subway, etc.) will receive at least a yellow light. The "grand plan" for São Paulo is expected to be to block all access roads to and from stadiums and major hotel districts to allow soccer fans to get to and from the games - killing off the rest of the city.

The third part of the bad news is that, contrary to initial official news, almost no private money will be used for infrastructure and stadium construction. The required money is estimated to be a total of ca. 10 billion Euros, of which 7.2 billion Euros alone are for airport infrastructure projects. The available 147m EUR from the private sector are from soccer clubs used to build or refurbish their own stadiums. In other words, the tax payer will pay for 98.5% of the cost. Good job.

The fourth part of the bad news is that the world cup will be in roughly 1200 days.

The fifth and final part is that at least six stadiums with infrastructure need to be ready in 835 days - for the confederations cup...

EDIT AND UPDATE: Since last year, costs for stadium construction have already gone up, on average, by 57% according to AFP. Top cost increases were registered in Salvador, at 170%.

Cooked Inflation

Everybody in South America talks about the understated inflation in Argentina. The government claims it to be 10%, but it most likely is 20+%...

Now I have seen life in Sao Paulo get more expensive over the past months. My unrepresentative list goes like this:

- Club Monthly Fees: 13.6%
- Picanha at my grocer: 45%
- Taxi fare: +28%
- Milk: +8%
- Private School: +12%
- Real estate: Do not even mention it...

Official inflation is only aroung 5-6% but prices have been creeping up beyond, mostly food - possibly a bi-product of commodity inflation. Official numbers are not confirmed at the levels above... yet. With commodity prices soaring all around the world, more is likely to come, but I am worried that there may be much more already here in the country.

My fears have been "confirmed" with two pieces of news I came across recently: This week's Veja magazine, which is running a (non-representative and somewhat populist) special and The Economist, which has compiled a Big Mac implied inflation index. This index puts inflation in Brazil at n+4%, so more around 10%... Keep your eyes and ears open.

EDIT: Where you look, more news. Here from the Brazil Institute.