The ICT sector has seen a decline due to the economic downturn in Brazil, with decreasing demand, exchange rate volatility and high interest rates.
Market performance at a glance
- The Brazilian ICT market contracted 20% in 2014 and is expected to show another 10% decline in 2015, despite the fact that the government has extended several tax waivers (including its Digital Inclusion Programme) until 2018.
- The sector is generally hampered by the current economic downturn and lower business investments.
- The currently high interest rate of more than 12% and high inflation impact households’ spending power, while the public sector cuts expenditures due to austerity.
- Another negative factor is the devaluation of the Brazilian real against the USD, given that a large share of ICT products is imported (about 70%) and denominated in USD. Although the main suppliers have hedging programmes to protect their distribution chain, a 10-15% price increase is expected.
- Brazilian ICT businsses’ profit margins have strongly deteriorated over the past 12 months, and this negative trend is expected to continue.
- ICT payment delays and insolvencies have increased in 2014, and are expected to rise further in the first half of 2015. The level of protracted payments and business failures is currently high.
- Due to serious economic problems (decreasing demand, exchange rate volatility and high interests rates), our underwriting stance is restrictive.