26 August 2010
Brazil's fast-growing economy needs new feeding grounds, and one place it is finding handy is its market-friendly Andean neighbor Peru.
Source: Dow Jones
Brazil's fast-growing economy needs new feeding grounds, and one place it is finding handy is its market-friendly Andean neighbor Peru.
The president of the Brazil-Peru Chamber of Commerce and Integration, Miguel Vega, estimates that in the next 10 years more than $33 billion will be invested in the Peruvian petrochemical, gas and energy sectors by Brazilian companies. Other projects, Vega said, include textiles, forestry and ethanol initiatives, as well as a new Inter-Oceanic Highway set to link Brazil with Peru's Pacific coast.
Investment in the highway project, to be completed later this year, is about $3 billion, and the building contract went to Brazilian industrial and construction conglomerate Odebrecht SA.
More recently announced investments include the development in northern Peru of one of South America's largest phosphate mines by Brazilian mining giant Vale SA (VALE, VALE5.BR) and the purchase of a controlling stake in Peru's largest zinc mining company by Brazilian conglomerate Grupo Votorantim.
"Peru has welcomed Brazil for its industrial and technical experience," Vega said. As well as profiting from what it produces in Peru, Vega said Brazil expects to benefit from Peru's free-trade agreements with a range of countries including China and the U.S.
Peruvians are mainly positive about Brazilian investments, although they have raised some concerns about the influx of money and expertise. "Peru has weak regulations and less industrial competence, and there is a risk that Brazil--and other countries such as China and the U.S.--can exploit this," said Pedro Francke, an economics professor at Peru's Catholic University.
The question of who benefits the most from the foreign investment is also a sensitive issue. At the official opening of the phosphate mine, known as Bayovar, Vale Chief Executive Roger Agnelli was careful not to be drawn on what percentages of production would go where, saying only that it would cater to market requirements for both Peru and Brazil.
The tone was similar at Brazil's Votorantim announcement, when executives stressed that despite their holding a controlling stake in Peruvian zinc mining company Compania Minera Milpo SAA (MILPOC1.VL), the mine would continue to function as an independent entity. A spokesperson later said the acquisition would mean a "wider network" of sales opportunities for Milpo, including Brazil.
There are also suspicions that Brazil may be using Peru to develop projects that would face controversy at home, something that has been highlighted by a series of planned hydroelectric dam developments.
"One way for Brazil to avoid problems with hydroelectric dam projects is by doing them in Peru," said Francke.
The Inambari River Dam project in southern Peru, the first of six planned Brazil-Peru dam projects, is set to cost up to $5 billion. It will be one of the biggest dam projects in South America and it is slated to begin construction in the middle of next year. The station will supply Peru with electricity and sell excess power to Brazil.
The dam is to be developed by Brazil's state energy company, Centrais Electricas Brasileiras, (ELET6.BR), or Eletrobras, and construction work has been contracted to Brazilian builder Construtora OAS Ltd.
Nongovernmental organizations say the dam will damage tribal homes and hunting grounds, and displace many thousands of people.
A spokesman for Egasur, the Peru-based Inambari consortium that includes Eletrobras, defended the project in an email, saying it would "turn on a light" in a "no man's land" that currently suffers from disorderly economic development, large-scale informal mining, and deforestation.
The spokesman disputed figures given by the regional government of Puno, one of the four Peruvian regions to be affected by the dam, and said the project won't affect a nearby national park.
The Puno government said the dam will flood about 41,000 hectares, contravene the human rights of about 15,000 people, and damage protected areas. Egasur says it will flood about 35,000 hectares, and that at most 4,000 people will be moved and rehoused with better water and sewage services.
-By Sophie Kevany, Dow Jones Newswires; 51-198-903-8043;