Is it time to buy in to Brazil’s thriving utilities?

Brazil's electricity generating companies are in good shape. The industry has been completely overhauled recently, and the market is forecast to grow at 4.5% a year for the next few years. Eoin Gleeson examines the sector, and picks the best bet for investors.

In the past, global economic turmoil has been bad news for Brazil. During the Great Depression, the country suffered a military coup. When Argentina defaulted on its debt in 2001, Brazil's economy went into cardiac arrest. So by now, you might have expected Brazilian industry to have ground to a halt and for its politicians to have barricaded themselves into the houses of parliament. But as Brazilians return to work after carnival season, the signs are that the economy is doing just fine. Take demand for electricity. In China, a slump in power demand in recent months is stoking fears that the economy is imploding. Yet while Brazilian factories are cutting back electricity use fell 4.6% from October to January household consumption rose 5.4%, reflecting widespread optimism of a kind Brazil has rarely experienced before.

ANEEL, the Brazilian electricity regulator, reckons that Brazil's market for electric power will grow at an annual rate of 4.5% over the next few years. That may sound over-optimistic with industrial production on the wane, but the truth is that Brazil has a great deal going for it. Exports of food and industrial commodities have helped the country amass more than $200bn in foreign reserves in the last few years, says Jonathan Wheatley in the FT. And having made a huge oil discovery in the Tupi field, it will soon be one of the world's biggest producers of oil. Brazilians' low consumption of electricity per head 2,000 KWh to 2,500 KWh compared to 13,000 KWh in America is bound to escalate when oil and commodities start pumping the economy again.

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Eoin came to MoneyWeek in 2006 having graduated with a MLitt in economics from Trinity College, Dublin. He taught economic history for two years at Trinity, while researching a thesis on how herd behaviour destroys financial markets.