Feasibility Study on Investment in Brazilian Paper and Pulp Industry

IMG-6 Global Business Environment Feasibility translate for investment in the brazilian Paper and treacle Industry musical composition By Ashish Jindal (063011) Avneesh Luthra (063012) Aayush Singhal (063013) Deepak Arora (063014) Feasibility study for investment in the Paper and soma constancy in brazil-nut tree An oerview of brazil-nut tree brazil nut is the largest country in South America. It is the foundings fifth largest country, both by geographical world and by population, with over 192 million people. It is the only Portugese-speaking country in South America. brazil is the largest national parsimoniousness in Latin America.It is the worlds sixth largest economy at commercialise exchange grade and seventh largest in terms of get power parity, as per the internationalist M adepttary Fund and the World Bank. Brazil has a mixed economy with abundant natural re credits. The Brazilian economy has been predicted to become one of the quin largest in the world in the decades to come. It has large and developed agricultural, mining, manufacturing and service sphere of influences, as well as a large labour pool. Brazils current GDP is estimated to be $2. 294 trillion and Per Capita GDP $11,769The Paper and chassis Industry in Brazil Brazil is the largest producer of study and chassis in South America. On the world stage, it is the 4th largest producer of pulp with a w ar of 13,315,000 tonnes and 9th largest producer of report with 9,428,000 tonnes (2009). Brazils shape & Paper Production Source Bracelpa Brazil is predominantly a tropical country. As a result, the soil and climate in most regions of Brazil atomic number 18 favourable to forest growth. The main geographical areas in the paper and pulp manufacture are the states of Sao Paulo, Parana and Santa Catarina.Furthermore, eucalyptus trees in Brazil admit short growing cycles (approximately 7 years), compared to 10-12 years in Chile and 25 years in the United States. Thus, produ ction of wood in Brazil requires less time and a smaller growing area when compared to europium and North America, resulting in higher yields. Industry oerview- 222 companies spread in 539 municipalities, turn up in 18 states. 2. 2 million hectares of planted area for industrial use. 2. 9 million hectares of preserved forests- Total certified forest area 2. 0 million hectares- Exports 2010 US$ 6. billion- Trade Balance 2010 US$ 4. 9 billion- Taxes R$ 2. 2 billion- Investments US$ 12 billion in the decease 10 years- Jobs 115 gibibyte direct 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 foreign 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-break ing ease reforms in the Brazilian economy. Certain investment policies were formulated in the 90s to draw off more FDI in to the country. The Central Bank of Brazil simplified the readjustment procedure for FDI inflows. This led to a decline in the administrative cost associated with the entry of FDI inflows into Brazil. A series of in construct amendments 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 press investments in Brazil. Despite a formally well functioning line of merchandise environment, corruption and bribery are dormant serious obstacles to doing business in Brazil, especially in business dealings with the government. Multiple corruption s potfuldals urinate emerged over the years, involving politicians and bureaucrats taking kickbacks from companies in exchange for awarding public contracts. The levels of bureaucratism and lack of transparency i n rules make Brazil a grueling country to do business in. Economic EnvironmentThe paper and pulp industry is one of the mainstays of the Brazilian economy. The Brazilian paper and pulp sector is comp shewd of most 200 companies. Most companies in this sector are privately owned. Foreign-owned companies flier for just about 6% of the output. Therefore, there is great scope for foreign investors to participate into take out & Paper Industry in Brazil. Latin American Pulp and Paper Producers Composition in 2010 In recent years, there has been a marked increase in paper consumption in Brazil, which is an big indicator of the economic development of a country.Between 1997 and 2008, the average annual set up of paper consumption increased by approximately 3% per year, stretchiness 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 paroleprint market (up to 18% in 2009). In the s ame year, 21% of paper and jury and 33% of pulp production was exported. Brazils paper industry has potential for growth in both the domestic and export markets. house servant consumption has huge growth potential, because per capita consumption in Brazil is still low when compared with other developed nations.Consumption of paper and identity card in Brazil is keep out to 44 kg per capita. Furthermore, differences are enormous between the north-central 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 sure-handed labour in abundance. Minimum wages in Brazil are way lower in parity to other nations. Brazilian lawmaking 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 r eal disposable income. well-set consumption (Household consumption above 60%, Government consumption close to 20%) has been supporting Brazils 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 hold in Brazil is approximately 30% lower than in the UK and Europe, and for those with a foreign income there is a guarantee of value for money. Technological raw(a) FactorsBrazils high technology and natural improvements in forestry make it one of the worlds farthermost-cost producers of pulp, and in the last 20 years Brazil has become an important pulp exporter. Brazilian exports of high tonus text file 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 competitive for reasons like state-of-the-art mills, sound management and well-established orchard forestry technologies.Furthermore, availability of raw significant is not a problem in Brazil as there is huge availability of good quality raw materials required 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 beaver rotation (years) and yield (m3/ha/year). This shorter maturing period also enables Brazilian producers to quicken the process of genetically improving the eucalyptus tree species utilized Species Country rotary motion (years) Yield (m3/ha/year) Eucalyptus Brazil 7 44 Eucalyptus South Africa 8-10 20Eucalyptus Chile 10-12 25 genus 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 general in its segment. It was established with the purp ose of technically qualifying the paper manufacturers in Brazil, in order to raise basis for a sustainable industry. In addition, technological development in the paper pulp industry has been back up by the research efforts of major producers and by financing from BNDES, the Brazilian exploitation Bank.Opportunities The paper and pulp sector in Brazil is fast decent 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 retrieval and emerging markets increase in occupy, 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 face 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. Al so, during the same period, planted forest areas are predicted to grow by 25% and paper production will rise from 9. 3 million tonnes to 12. 5 million tonnes. This has all come about through the new world(a) scenario in the pulp and paper sector. art object the international financial crisis reduced global consumption, prices and raw material demand in traditional markets it also opened up opportunities to expand gross 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 fibre costs in the world, it now is close to the global average. Any rise in fibre costs is a disturbance for forestry companies as the key factor determining a companys global cost competitive position remains its raw material base. Brazil also faces a strong challenge as businesses in Brazil have to deal with a number of problems, which includes bulky valuate 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 climax few years with various investment programmes being in the manakin of implementation. There is the challenge of a complex bureaucratic environment save the long term benefits outweigh the costs. FDI is thus recommended. 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