ASUTIL President Urioste: Complex issues, but worst is behind us

ASUTIL President and Neutral CEO Enrique Urioste took a few minutes during the 2015 ASUTIL Conference to discuss with TMI the complexity of the crisis in Brazil and how it is effecting the travel retail industry throughout Latin America.

Brazil is in the midst of an economic crisis and a political crisis, he said.

“First there is the global crisis caused by a combination of factors: the strengthening of the US dollar against other currencies, the weakness of the emerging markets’ currencies, the almost parity to the euro, the price of oil which is around 50, commodity prices in general – and all of these things together have caused the market to forecast, predict and act, expecting the worst. People were expecting a re-valuation of the euro, and that the price of a barrel of oil would be in the $30 range, and that commodities prices would go much lower and currencies to lose much more value; they were expecting the Russian Ruble to lose more than 100%; they were expecting the Brazilian Real to be in the range of the 360s.

“But the reality is that the fall was not as deep as expected. The recovery of the US market was not as speedy as first thought. Oil prices stayed in the range of 50. Commodity prices are recovering value – not to the highest level, but they did recover. And emerging markets currencies were stronger than the market forecast. The market was expecting 360 value for the Real, but it is in the range of 320.

“The reality was not as bad as the forecast. So now we will see a better consumer confidence; we will see a better investor confidence,” Urioste notes.

In the specific case of Brazil, Urioste says that the corruption scandals were expected also to be much bigger than they were. “The Petrobras loss was expected to be in the range of the 10 billion; it turned out to be 2.8 billion. Bad but much less than the market expected,” he explains.

On the political side in Brazil, Dilma Rousseff is a weak re-elected president with little power, says Urioste.

“She was forced by the market to bring in a Finance Minister (banker Joaquim Levy) who is implementing domestic measures to recover growth. The first set of measures have already been approved by the market, and basically he is eliminating all subsidies, including electricity, and petrol, and instituting austerity. He expects to generate a massive savings – this is not easy. The parliament is controlled by the socialist majority and is against these measures. These are free market measures and the parliament doesn’t want them. At the same time, they realize these measures have to be done. At the end of the day, these new measures will be approved.

“All of these factors, combined with political normality, will help Brazil’s economy. We are already seeing a slight improvement over the last two months. Will it happen overnight? No. I expect to see recovery in the Brazilian market in the second semester of 2016. But I think that the worst is over.
“As for travel retail, the industry is making massive investments in Uruguay because we believe in the fundamentals of the business. Wisa, DFA, Siñeriz, Neutral. We have seen these cycles before. I personally have gone through three during my career and I am not the oldest one in the room. The average for a cycle is two years.”