Feasibility Study on Investment in Brazilian Paper and Pulp Industry

IMG-6 Global Business Environment Feasibility study for investment in the brazilian Paper and figure Industry Report By Ashish Jindal (063011) Avneesh Luthra (063012) Aayush Singhal (063013) Deepak Arora (063014) Feasibility study for investment in the Paper and Pulp industry in brazil nut An overview of brazil brazil nut is the largest orbit in South America. It is the worlds fifth largest country, both by geographical ara and by population, with over 192 million people. It is the only Portugese-speaking country in South America. brazil is the largest national economy in Latin America.It is the worlds sixth largest economy at market exchange rates and seventh largest in terms of purchasing power parity, as per the International Monetary Fund and the World Bank. brazil has a mixed economy with abundant infixed resources. The Brazilian economy has been predicted to become one of the five largest in the world in the decades to come. It has large and developed agricultural, min ing, manufacturing and service sectors, as well as a large labour pool. Brazils current GDP is estimated to be $2. 294 trillion and Per Capita GDP $11,769The Paper and Pulp Industry in Brazil Brazil is the largest producer of reputation and figure in South America. On the world stage, it is the 4th largest producer of pulp with a return of 13,315,000 tonnes and 9th largest producer of opus with 9,428,000 tonnes (2009). Brazils Pulp & Paper Production Source Bracelpa Brazil is predominantly a tropical country. As a result, the soil and climate in most regions of Brazil are favourable to forest growth. The main geographical areas in the paper and pulp industry are the states of Sao Paulo, Parana and Santa Catarina.Furthermore, eucalyptus trees in Brazil know short growing cycles (approximately 7 years), compared to 10-12 years in Chile and 25 years in the United States. Thus, production of wood in Brazil requires little time and a smaller growing area when compared to Europe and North America, resulting in higher yields. Industry Overview- 222 companies spread in 539 municipalities, located in 18 states. 2. 2 million hectares of planted area for industrial use. 2. 9 million hectares of preserved forests- Total certified forest area 2. 0 million hectares- Exports 2010 US$ 6. billion- Trade Balance 2010 US$ 4. 9 billion- Taxes R$ 2. 2 billion- enthronements US$ 12 billion in the last 10 years- Jobs 115 thousand organize jobs (industry 68 thousand, forests 47 thousand) and 575 thousand indirect jobs. Source Bracelpa, March 2011 Macro Environmental Analysis Political & Legal environment The Foreign Direct Investment regime in Brazil has been fairly liberal and overseas capital is viewed with sympathy by the large majority of political currents and parties, who see it as a source of employment and modernization of the economy.The 1990s saw a host of path-breaking liberalisation reforms in the Brazilian economy. Certain investment policies were formulated in the 90s to rip more FDI in to the country. The Central Bank of Brazil simplified the registration procedure for FDI inflows. This led to a decline in the administrative costs associated with the opening of FDI inflows into Brazil. A series of constitutional am determinationments were enacted within 1995 and 1996, which helped remove constitutional distinction among national companies and foreign companies.In 2002 Investe Brazil was set up to promote investments in Brazil. in spite of a formally well functioning logical argument environment, corruption and bribery are still serious obstacles to doing business in Brazil, especially in business dealings with the government. Multiple corruption scandals sacrifice emerged over the years, involving politicians and bureaucrats taking kickbacks from companies in exchange for awarding public contracts. The levels of bureaucracy and lack of transparency in rules contact Brazil a difficult country to do business in. Economic Environme ntThe paper and pulp industry is one of the mainstays of the Brazilian economy. The Brazilian paper and pulp sector is comprised of nearly 200 companies. Most companies in this sector are privately owned. Foreign-owned companies account for about 6% of the output. Therefore, there is great scope for foreign investors to enter into Pulp & Paper Industry in Brazil. Latin American Pulp and Paper Producers Composition in 2010 In recent years, there has been a marked affix in paper using up in Brazil, which is an measurable indicator of the economic development of a country.Between 1997 and 2008, the average annual rate of paper consumption increased by approximately 3% per year, reaching 9 million tons in 2008, according to estimated figures from Bracelpa. Improvements in the purchasing power of Brazils citizens have led to growth in the newsprint market (up to 18% in 2009). In the same year, 21% of paper and board and 33% of pulp production was exported. Brazils paper industry has dominance for growth in both the domestic and export markets. Domestic consumption has huge growth potential, because per capita consumption in Brazil is still low when compared with other developed nations.Consumption of paper and board in Brazil is close to 44 kg per capita. Furthermore, differences are gigantic between the north and south-east parts of the country. In Western Europe, consumption of paper and board is 173 kg and in North-America 333 kg per capita. Social Environment Brazil has skilled labour in abundance. Minimum wages in Brazil are way lower in comparison to other nations. Brazilian code is, however, relatively inflexible and outdated in relation to labour costs, making things complicated. A continued shift towards a wealthier population has been apparent in Brazil since 2004.There has been significant growth in the populations real disposable income. Strong consumption (Household consumption above 60%, Government consumption close to 20%) has been backup Braz ils growth profile over the past two decades. Formal job creation increased from 1. 2 million jobs in 2009 to 2 million jobs in 2010. The cost of living in Brazil is approximately 30% lower than in the UK and Europe, and for those with a foreign income there is a set about of value for money. Technological Natural FactorsBrazils high technology and natural advantages in forestry make it one of the worlds lowest-cost producers of pulp, and in the last 20 years Brazil has become an important pulp exporter. Brazilian exports of high quality papers to Europe are growing in volume, and expected to increase in the near future. This growing market is truly attractive and one can grab the share in this market by setting up a new industrial venture in Brazil. However, this industry sector is very emulous for reasons like state-of-the-art mills, sound management and well-established plantation forestry technologies.Furthermore, approachability of raw material is not a problem in Brazil as there is huge availability of good quality raw materials indispensable for extracting and manufacturing pulp and paper. By analyzing the rotation and yield comparison of different pulp species in different countries, it is found that Brazil has the best rotation (years) and yield (m3/ha/year). This shorter maturing period also enables Brazilian producers to expedite the process of genetically improving the Eucalyptus species utilized Species Country Rotation (years) Yield (m3/ha/year) Eucalyptus Brazil 7 44 Eucalyptus South Africa 8-10 20Eucalyptus Chile 10-12 25 Pinus spp Brazil 15 38 Pinus spp Chile 25 22 Pinus spp New Zealand 25 22 An association named ABTCP Brazilian Paper and Pulp Technical Association is currently one of the most important associations worldwide in its segment. It was established with the purpose of technically qualifying the paper manufacturers in Brazil, in order to raise basis for a sustainable industry. In addition, technological development in the pap er pulp industry has been supported by the research efforts of major producers and by financing from BNDES, the Brazilian Development Bank.Opportunities The paper and pulp sector in Brazil is fast becoming the third largest in the world. The financial crisis of 2009 affected the Brazilian pulp and paper industry greatly. Brazil ultimately postponed its investment programmes. However, with the economy showing signs of recovery and emerging markets increase in demand, those programmes have resumed Over the next seven years, an estimated US$20 billion is going to be invested in the nations forest base and in the construction of new mills. 10 new plants are due to be built in Brazil by 2020. At this moment pulp production is at 13. million annual tonnes, by the end of 2017 this is expected to reach 20 million annual tonnes. Also, during the same period, planted forest areas are predicted to grow by 25% and paper production allow for rise from 9. 3 million tonnes to 12. 5 million tonne s. This has all come about through the new global scenario in the pulp and paper sector. tour the international financial crisis reduced global consumption, prices and raw material demand in traditional markets it also opened up opportunities to expand sales in growing markets, in particular China and India.Challenges The pulpwood market in Brazil has gone through major transformations. From a point where it had the lowest conifer graphic symbol costs in the world, it now is close to the global average. Any rise in fibre costs is a concern for forestry companies as the key factor out determining a companys global cost competitive position remains its raw material base. Brazil also faces a good challenge as businesses in Brazil have to deal with a number of problems, which includes bulky tax regulations, inefficient government bureaucracy, and corruption.Brazil has become less competitive in the last few years as a reason of this. Conclusion The Brazilian paper and pulp industry offers enormous potential to potential investors. The industry, with its advantage in terms of rotation, is expected to grow substantially in the coming few years with various investment programmes being in the form of implementation. There is the challenge of a complex bureaucratic environment but the long term benefits outweigh the costs. FDI is thus recommended. Bibliography http//pulp-paperworld. om/ex1/item/768-abtcp. html http//www. forestry-invest. com/2010/brazil-becomes-world%E2%80%99s-3rd-largest-pulp-and-paper-producer/513 http//www. bracelpa. org. br/bra2/sites/default/files/estatisticas/booklet_eng. p df http//www. roundtownnews. com/rtn-features/rtn-money/item/36741-ten-reasons-to-invest-in-brazil. html ftp//ftp. fao. org/docrep/fao/009/j9425e/j9425e04. pdf http//riotimesonline. com/brazil-news/rio-business/brazil-among-most-expensive-for-business/ http//www. pulpandpapercanada. com/news/the-case-for-brazil/1000225895/