How is the downturn affecting Brazil?

14th Jul 2009
How is the downturn affecting Brazil?

The global downturn is even hitting Brazil’s once-booming North East region. A number of high-profile projects – including a Six Senses resort – have been delayed due to a shortage of funds and a reluctance to invest in the current economic climate.

However, the region is well placed to bounce back once the world economy starts to pick up.

Speaking at this year’s Nordeste Invest Conference in Maceio, Alessandro Teixeira, president of the Brazilian Trade and Investment Promotion Agency, said: “We are experiencing a slowdown in the world economy, and when you add that to the financial crisis, the situation is getting worse.

“However, Brazil has a number of specific points in our favour [which means] we are not immune to the financial crisis but we will recover quicker.”

Teixeira said there were three key factors which would help Brazil ride out the downturn: a banking system not based on credit, so the country is not suffering from liquidity issues. However interest rates are still prohibitively high, making investment in the country harder.


Brazil also has a growing middle class with more disposable income. According to Teixeira, 10 million Brazilians have been lifted out of poverty in the past four years and the middle class now stands at more than a quarter of the population and they are travelling more and contributing more each year to domestic tourism. And Brazil’s power and food exports are keeping the economy buoyant.

Jeanine Pires, President of Brazil’s tourism promotion agency, Embratur, said tourism numbers were predicted to stall at 5.1m this year – downgraded from an original forecast of 6m.

She said: “We are having regular meetings with airlines such as British Airways, and tour operators, but most people are adopting a ‘wait and see’ approach. We do not expect any more airlift this year.”

Pires added that the UK was a number one priority for Embratur and the organisation would be running a number of promotions this year to attract the UK market.

Pires’ words were echoed by TAP’s general manager Brazil and Argentina, Mario Carvalho who revealed the airline was likely to reduce its daily flights from Lisbon to Salvador, Recife and Fortaleza to one a week. However, he confirmed he would not cut any routes to the region.

Carvalho said: “TAP is committed to increasing accessibility to Brazil, but this [economic] crisis has affected us too, and we do need to make adjustments to frequencies to match demand.

“We will not cut any routes but we will decrease the number of seats.”

The slowdown is also leading to a re-evaluation of projects and their timing.

For example, the opening of a BR350m, 160-hectare, three-hotel, 160-villa project which will include a Six Senses resort has been delayed until at least mid next year from the end of this year. Also, the size of the villas have been significantly reduced as have the prices demanded per square metre.

Francisco Vasconcellos, director of operations of the project investors, Investur, said: “We were meant to launch at the end of 2009, but we are still evaluating when it can be launched.

“We estimate that 70-80% of our guests will be foreign tourists and they are the ones affected by the crunch.”

Vasconcellos said they had made the decision to downsize villas from 2,000msq to an average of 1000msq to reflect buyers’ reduced incomes. He added that they expect to realise $US3,000 per sqm for each property, rather than a projected $US4,000.

However, the long-term outlook for the North East to become a top luxury destination is promising. A number of leading luxury hoteliers were at the conference, including Jumeirah, Four Seasons, US-based Capella Hotels and Starwood Hotels.

James Erlacher, senior vice president of development, Americas, said: “We are aggressively looking for development opportunities in Brazil. Brazil represents a very strategic market for us.”

And Fausto Barba, vice president of finance and development of Capella, said: “A customer is willing to go to great lengths if you provide them with the right product in the right location. I don’t think this country has that to offer today, I don’t think we’re there yet.

“But who would have thought that people would travel all the way to a tiny island off Indonesia? But they do because of the quality of the product.”


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