1. Trading Economics, Available Online: http://www.tradingeconomics.com/brazil/interest-rate
2. Brazil, CountryWatch, Available Online: http://www.countrywatch.com.ezproxy.hofstra.edu/cw_topic.aspx?type=text&vcountry=24&topic=PORIK&GLOBAL=true
3. Globaledge.msu.edu, Available Online: http://globaledge.msu.edu/countries/brazil/risk
4. Forbes.com. 2014. Available Online: http://www.forbes.com/sites/greatspeculations/2014/03/12/coca-cola-in-brazil-global-events-and-energy-drinks-could-drive-growth-part-1/
5. Top Ten Largest Renewable Fresh Water Supply Countries, Maps Of World, 2014. Available Online: http://www.mapsofworld.com/world-top-ten/world-top-ten-fresh-water-supply-map.html
6. Shale Resources and Water Risks. WRI, 2014 Available Online: http://www.wri.org/tools/shale/#
7. Business Insurance, 2014. Available Online: http://www.businessinsurance.com/article/99999999/NEWS040102/120309899?tags=%7C59%7C332%7C338%7C76%7C313%7C80%7C84%7C342
8. Brazil monetary policy driven by inflation, not currency –source. Reuters, 2014. Available Online: http://www.reuters.com/article/2014/01/29/brazil-economy-rates-idUSL2N0L318R20140129
1. Risk Assessment
Exchange Rate in Brazil, (Brazilian Real/ USD, 2012-2014) Source: Trading Economics, 2014
Foreign Exchange Risk: The US Dollar increased from around 2.0 Brazilian Real in October 2012 to 2.5 in November 2014. If Coca Cola Company pays Brazilian Real in Brazil, the company can benefit from the depreciation of Brazil currency.
Political/Sovereign Risk: As calculated in CountryWatch’s methodology, Brazil’s political risk index assessment is 8, which is relatively very high compared with other countries in the world, indicating that Brazil has low political risks. It has a more stable public and private sector and a better-proven legal framework than some other BRIC countries. However, there are differences in risk between its 27 states and 5,000 municipalities. (Business Insurance, 2014)
GDP Growth Rate: As shown in the graph on the right, GDP growth rate is weak in 2014. (Trading Economics, 2014) Domestic consumption power, the longstanding driving force behind economic growth, is disappointing. This demonstrates that the weak purchasing power in Brazil may hurt the company’s value growth.
Real Interest Rate: High real interest rate attracts high foreign inflows in search of high yields. The Central Bank of Brazil raised the benchmark interest rate from 10 percent in the start of the year to 11.25 percent on October 29th. (Trading Economics, 2014) This monetary policy is aimed at curbing inflation and not easing currency volatility. (Reuters, 2014) This action would appreciate Brazil Real in global currency, which is not a good situation to the Coca Cola Company.
2. Market Potential
Water Resource: As a multinational beverage corporation, the Coca Cola Company has large demand for water resources. The graphics from the World Resources Institute (WRI) on the right shows the world’s water risks by regions. Risker regions are in red. The graph on the left, from the Maps of World, is the map of top ten countries by total renewable water resources. Brazil, with 8233 cu km, ranked the first, far above the second one (Russia, 4498). This illustrates that in the long term, Brazil is an ideal place for Coca Cola Company to launch its business programs.
No Soda Taxes: Unlike U.S. And Mexico, CSDs In Brazil Could Grow
Brazil is the third largest Carbonated Soft Drink (CSD) market in the world behind the U.S. and Mexico. Because of not only the health concerns related to large amounts of calories in sugary drinks, but also the wake of possible soda taxes in Mexico and U.S., traditional colas and other carbonates are expected to face resistance in both the U.S. and Mexico. So Coca-Cola can expect to gain profits from Brazil without soda taxes. (Forbes, 2014)
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