Obama's election 'could be good for investment in Brazil'

Date added: 7th November, 2008 at 08:24 (view all articles from November, 2008)

Categories: Economy

The election of Democratic senator Barack Obama as the next president of the United States on Tuesday (November 4th) may have a positive impact for those interested in investment in Brazil.

A new report from the AFP claimed that Brazil had warmed to the idea of Mr Obama being the new president in recent months after initially appearing to support Republican rival John McCain.

The beaten candidate had said he would remove long-standing tariffs on the country's ethanol exports, but Mr Obama's expressed desire to re-forge close links with Latin America seems to have swayed much of the region on to his side.

As of 2008, the US is Brazil's chief export partner, accounting for 15.8 per cent of all goods sent overseas - approximately $345.8 billion (£215.7 billion) worth.

A lifting of the levy on exported ethanol, one of Brazil's largest industries, could have a significant effect on this figure and the country's economy as a whole.

US agriculture conglomerate Archer Daniels Midland, which announced this week that it was to invest $370 million in Brazil's ethanol sector over the next few years, suggested that the tax restricts exports heavily, as it makes it uneconomical for American firms to import the fuel.

Nevertheless, the US still accounted for 26.4 per cent of all Brazil's ethanol exports in 2007 - 932.75 million litres.

Only the European Union imported more, according to official government statistics, buying 28.4 per cent of all ethanol sold externally.

As with most industries around the world, Brazil's ethanol sector has been affected by ongoing financial pressures, but it will continue to grow at a strong rate in comparison to other countries in 2009, an analyst predicted this week.

Commodities firm FO Licht was quoted by Reuters as saying growth levels will remain similar to 2008 next year, while the US ethanol industry experiences growth depreciation of more than half.

Ethanol growth around the world will slow to approximately 14.4 per cent from 23.6 per cent, the company predicted, while Brazil's sector will stay steady at about 19 per cent.

Explaining why the credit problems will inevitably impact on the ethanol industry, FO Licht stated: "The current financial crisis will not remain without effects on the biofuels industry.
"After all ethanol is a capital incentive industry and maintaining the sector requires a functioning credit market."

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