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Brazil’s investment climate stabilising says aqua exec

An improved economic outlook for Brazil promises stability for investors, says Aqua Capital's Sebastian Popik.

After a protracted period of economic turbulence, Brazil’s economy is showing signs of stabilisation, an executive for agri-focused Aqua Capital has told Agri Investor.

The agri space has been a rare bright spot for the Latin American country over the past year, as a devalued currency has made its exports more competitive in global markets, even as political and economic turmoil battered the rest of the economy. But experts have told Agri Investor the country will have to make economic strides if the agri sector is to see the infrastructure development and local demand growth necessary for long-term growth.

As the Brazilian Senate prepares for an impeachment trial against President Dilma Rousseff, Sebastian Popik, managing director for Aqua Capital, told Agri Investor that “there’s a sense that the worst is behind us, although we’re certainly not in a honeymoon period”. “The currency has re-valued, the stock market has gone up and there’s an expectation that interest rates, which are very high, will go down,” he added.

Aqua Capital, backed by institutional investors from the US and Europe among others, has pursued a vertical integration and acquisition growth strategy through portfolio companies in Brazil’s agribusiness sector. The firm’s debut $173 million fund created the country’s largest cold storage group through a merger between portfolio companies Comfrio Soluções Logísticas and Stock Tech Logística.

The firm is reportedly seeking $300 million for its follow-up fund, which has acquired controlling stakes in inputs distributor Rural Brasil and feed manufacturer Yes.

A devalued Brazilian currency has been good, on balance, for Aqua Capital’s portfolio, said Popik. However, the firm also has significant exposure to Brazil’s domestic consumer market, which he hopes will improve as the economy turns around.

Interim president Michel Temer has overseen a re-valuation of the real under a highly regarded economic team’s efforts to kick-start Brazil’s stalled economy since the Senate voted to impeach Rousseff over allegations she manipulated economic data in an effort to win reelection in 2014.

The scandal was seen by experts as a source of political gridlock, preventing the government from implementing proactive policies amid the country’s worst recession in a generation. The government is now predicting positive growth in the final quarter of 2016, and Bloomberg recently quoted analysts predicting the real to rebound further if Rousseff is permanently removed from office.

The economic improvement could make Brazil’s agri sector less competitive than it has been in recent months, said Popik. However, the overall effect of an economic improvements will be positive for investment in the sector.

“I think most investors would prefer more stability over a competitive agriculture sector,” he said.