Time of decisions
Deloitte’s survey brings market trends and expectations for 2018 – a year that combines the possibility of continuation of structural reforms with the general elections; the bet is economic recovery and resumption of investmentsOctober-December | 2017
The economic cycles seem increasingly short. Interdependent factors strongly influence the business environment, causing organizations to constantly prepare for transformations in their strategies and in their management processes.
To map the trends that should emerge in 2018, Deloitte interviewed 750 companies for the “Brazil’s Agenda 2018” survey. The organizations interviewed amount to R$ 1.779 trillion in revenues – value corresponding to 26% of the Brazilian Gross Domestic Product (GDP) estimated for 2017 – and represent 36 sectors of the economy.
An optimism, albeit cautious, emerges in the responses of the participating executives. The expectation of revenue growth itself is an indicator of this vision. If, for the 2017 closing, the organizations interviewed had hoped, in the average of their responses, a growth of 14.8% in sales compared to 2016, for 2018, they expect net revenue to grow 19% over the previous year’s results. In general, organizations expect, on average, a profit margin of 13.2% for the 2017 closing.
Among the sectors that most glimpse great results for 2018 are those of financial activities, business services, construction, machinery and equipment, and agribusiness. In common, it is possible to identify in these segments the robustness in their share in the Brazilian market and the capacity of impacting innumerable other industries with their development, generating a virtuous cycle towards the recovery.
The return of investments
In view of the fact that Brazil is an attractive market especially for those that want to invest in the long term, investments should resume their path of growth in 2018, considering not only the next 12 months, but also the prospect for the coming years. The results of the economy depicted by the Brazilian Institute of Geography and Statistics (IBGE) compared to the 3rd quarter of 2017, published at the beginning of December, already pointed this movement of resumption of investments.
In 2018, the companies interviewed for the survey estimate to expand their level of investment by 15% – which corresponds to four percentage points over what they expect to increase in contributions until the 2017 closing.
After a challenging period, in which many organizations have placed the focus on productivity and downsizing of their structure to deal with the reduction of investments, placing focus on this resumption of contributions is encouraging. Especially when we see the reasons for these investments and where they tend to be most used: release new products and services (56%) and replace machinery and equipment (40%). It is, therefore, a bet on the growth of consumption and of sales in general, with a focus on the adequacy of portfolio to new market demands.
The regional highlight in relation to results is located in the Northeast of Brazil. The companies in the region estimate to have a net revenue growth of 23% in 2018 compared to the previous year – almost 10 percentage points above the 13.4% expected by these organizations for the 2017 closing, compared to 2016, and well above the average of the other regions of Brazil.
In accordance with “Agenda 2017”, three in every four companies consider making investments by identifying opportunities related to their business – an indicator that, above all, they believe in the good prospects for their own company. Heading to a macro environment, 63% of the participants pointed out the expectation of recovery of the economic activity in Brazil as the reason for making investments in 2018. That is: there is optimism from the company both inside and out.
In relation to job generation, it is worth mentioning the prospect of expansion of jobs (indicated by 41% of respondents) and employee training (suggested by 45% of organizations). Four out of every five companies interviewed said they intend to maintain the current benefits of their employees. With this result, human capital training and motivation reiterate their importance for organizations to advance in their development path.
Concern with reforms
Comprehensive, the study reinforced some already consecrated demands from the business community. The positive impact of the infrastructure to unlock the investment flow and ensure a better business environment (remembered by 93% of respondents) is an example. Another is the view that the government must proceed with modernizing reforms, especially in the tax (mentioned by 84% of respondents) and social security (assessed as positively influential to their business by 70% of the participants) areas. This pragmatic vision from the business community puts the resumption of investment and reforms as more relevant to their business than the presidential election in Brazil (43%).
On the international scene, the events that promise to negatively affect the business, according to the respondents, are the increase in interest rates in the United States (43%) and the slowdown of the Chinese economy (33%). This concern with the external environment is justified by the fact that 30% of the participating companies have debt in foreign currency.
And where will the resources to finance the planned investments come from? The trend is that the most used source of capital will continue to be the retail banks, followed by contributions from the Brazilian Development Bank (BNDES). Contributions from owners, from the controlling group and from investment funds complement the list.
The capital market’s upward trajectory promises to continue. São Paulo Stock Exchange, the B3, recorded only two Initial Public Offerings (IPOs) in 2016, while in 2017, there were six companies going public (one less than indicated by the previous edition of the “Agenda 2017” survey). In the universe of the 750 companies surveyed, 10 demonstrated interest in conducting an IPO in 2018. This means that the market is more attentive to the Stock Exchange opportunities, and more than that: it is being structured in terms of governance and communication with investors, with a view on going public. The result is a more mature and strengthened market as a whole.
The reasons for businesses seeking to capitalize reiterate that 2018 should be better than the last few years in Brazil. Among the respondents that intend to capitalize in 2017, they will by believing in better results for their company (60%) and the recovery of the Brazilian economic activity (51%).
Technological revolution intensifies
Following the development of technology is essential for anyone who deals with the disruptions affecting entire sectors and markets. Although a significant portion of the companies surveyed are unaware about emerging technologies such as blockchain (35%), smart cities (35%), industry 4.0 (31%) and virtual and augmented reality (23.3%), these resources are already a fact and are promoting significant changes in business.
The positive side of this story is that many organizations responded having interest, in the medium term, to invest in these vectors of digital transformation in progress. At the top of the list of technologies that should receive resources over the next two years, are Internet of Things (indicated by 19 of the respondents), industry 4.0 (17%), cyber security (16%) and analytics (16%).
Best results, increased investments and more resources employed in technology. May 2018 and its numerous opportunities come.