Spotlight on the head of DEG’s representative office in Brazil

The eyes of the whole world are on Brazil at the moment. It is not just the football World Cup that is the focus of attention. Brazil has been experiencing rapid growth and is now the seventh largest economy in the world. However, this emerging nation also has to face a variety of challenges, e.g. a high level of social inequality. DEG has been active in Brazil for nearly 50 years. Mariana Bormann, director of the DEG office in São Paulo, reports on the work being done on the ground.

Ms. Bormann, Brazil is the largest country in Latin America. Is this also reflected in the current DEG portfolio?

Yes, the size and significance of the country is reflected in our portfolio as well as our new commitments in 2013. Out of the 1.8 billion euros in the whole Latin American portfolio, around a million euros were allotted to the Mercosur region, 255 million of that to Brazil alone. Brazil also had the lion share of new business in 2013, with 70 million out of 130 million euros for Mercosur as a whole.

Just before the World Cup kicks off, it becomes evident – and not for the first time - that Brazil still has some catching up to do in terms of infrastructure. What are the major challenges?

Infrastructure has been Brazil’s Achilles heel for quite some time. After too little had been done for a long time, some plans have been made in the area of infrastructure in recent years. Ports and roads have been upgraded – not only in the economically strong south and south-west but also in the north which is still less developed. Railway lines are being constructed and developed. One is planned to link central Brazil to a new port in the north in future in order to reduce freight and transport costs from farming regions to the port for export.

In metropolitan areas, there has been little investment in urban mobility in the past 20 years. In a city like São Paulo, it is quite possible for a one-hour business meeting involving a journey of less than ten kilometres to take up half a day. This is extremely costly to the economy.

Finally, the problems associated with energy supply are mounting. Apart from "normal" power cuts due to the outdated network infrastructure, there is an imminent risk of additional power failures because of the low rainfall in the past twelve months. Brazil actually has an exemplary energy mix, with more than 80 per cent renewable energies. Nevertheless, the country continues to be largely dependent on hydropower and hence on adequate rainfall, despite growing investment in other alternative energy sources (wind, biomass, solar).

In my view, Brazil’s huge need to catch up in the area of infrastructure can only be tackled in the long term with a combination of domestic capital investment and external funding.

What role does DEG play in this?

In the infrastructure sector, we are currently looking at an inland navigation project in southern Brazil, among others. Here I think we have a particularly important role in the area of renewable energies in order to improve Brazil’s energy mix. Back in 2007 DEG was involved as a founding and anchor investor in ERSA (now called CPFL Renováveis), a renewable energy developer. At present we are examining various wind power projects. One client, for instance, is planning to build a wind farm and would like to use it to meet part of his own energy needs.

Most recently – last week in fact – at a German-Brazilian symposium in the city of Natal, we were discussing initial efforts in the area of solar power. It emerged that financing is requested in local currency because the contracts with electricity consumers are agreed in Brazilian Real.

Does DEG financing focus on particular sectors of the economy?

The DEG portfolio is just as diverse as the country itself. In 2013 about a half was destined for investments in industry, healthcare and education, around 37 per cent were loans to medium-sized banks for financing small and medium companies. In addition there were financings in the agricultural and infrastructure sector, with a focus on renewable energies.

What customers do you support on the ground – are they mainly Brazilian or German companies, or from the Mercosur region?

The customers supported by us on the ground are mainly local businesses, although São Paulo is the largest German industrial location outside Germany. But, of course, we also have German subsidiaries in Brazil on our radar.

What is DEG doing to ensure the sustainability of investments it co-finances?

For more than 50 years DEG has been supporting companies through all their "highs and lows" with long-term funding and has thereby built up a reputation as a reliable partner. Our accompanying measures give companies additional “help”, which is greatly appreciated by our clients.

In our investments, we consistently work very closely with our Sustainability Department. A crucial factor in ensuring sustainability is not only thorough business as well as environmental and social auditing before financing for a project is approved, but also ongoing monitoring of DEG’s financial commitments and close support from our portfolio managers locally.

Education is another important topic in Brazil. Young people in particular are demanding more money for this. What is DEG’s involvement in this area?

Education and healthcare are key themes. Private sector commitment together with financing by DEG play an important role here too. For instance, we are financing the activities of Anhanguera University (AEDU), which offers an extensive programme for low-income individuals.

We are currently examining the feasibility of several investments in the healthcare and education sectors which are so important to Brazil’s continued development.

Mariana Bormann has been heading the DEG office in São Paulo for about a year. As native of Argentina who grew up in Brazil, she previously worked for various banks in Germany for 26 years.