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Brazil: a bright future in green and yellow

On October 3, 2009, when the CIO awarded the Olympics 2016 to Rio de Janeiro, president Lula wept: “this is one of the most moving days of my life. We only needed an opportunity to show that we are a great nation. I am proud to be Brazilian. Rio deserved it. Brazil deserved it. The Brazilian people deserved it.” With the FiFA World Cup in less than four years now, Brazil is preparing to live a decade full of hope, happiness and also challenges. 2014 and 2016 will both reveal the progress made by the South American giant and act as a springboard leading inexorably towards status as a great world power.Investors come to launch our brands and we know how to work with local partners. We have no majority partner, but a network of midsize regional players who continue to develop our hotels according to our specifications. Our pipeline has 61 hotels and 8,000 rooms including 48 Ibis and Formule 1. Our goal is to cover 95 cities in 3-4 years versus 60 today. With a high volume of domestic tourism, it is essential to be present in secondary and tertiary cities to develop recognition of our brands. On these markets where space is often limited, we give preference to franchising.”Until now, Brazil has kept course. The country rapidly stood from the storm that shook the world in 2009. “Before, when there was a crisis, Brazil collapsed. This time the country resisted, demonstrating its capacity to realize and follow its own path,” congratulates Roland de Bonadona, general manager Accor Hospitality for the region. Prudent, the banking sector, led by the public bank Banco do Brasil and the union of Itaú- Unibanco, was unaffected by the crisis. The Sao Paulo stock exchange and the real rapidly regained their level prior to Lehman Brothers’s bankruptcy. And, confident in the future, local and foreign investments did not go bad, even at the storm’s peak. The result of that, growth in the PIB should be greater than 5% in 2010.The times of authoritarian regimes and triple digit inflation. Since the mid-90s, presidents Fernando Cardoso then Lula progressively established the country’s economic and political place on the international scene. Starting next October, the successor of the charismatic Brazilian leader will have the heavy job of pursuing this direction without breaking this driving momentum. This giant of agriculture and energy with the recent discovery of oil reserves of the coast of the state of Rio, economically stable with low interest rates making it possible to develop credit, with a middle class that has just surpassed 50% of the population, thereby stimulating domestic consumption: his job should be facilitated by increasingly solid foundations.But this does not mean all is rose. The challenges that lie ahead for Brazil are commensurate with the size of the country. Several black points continue to limit its development, starting with a low level of education and poverty that remains high and generates violence. Getting over these pitfalls that are shared by many emerging countries will require, undoubtedly, long work along the logical course of economic development. Nonetheless, one of the other negative points that also weighs on Brazil’s economy could be corrected more rapidly.With the hosting of two major worldwide sports events, the country’s infrastructures, long neglected, are preparing to take a great leap forward. According to the rating agency Moody’s, 2014 and 2016 should generate a global investment of 80 billion, destined in particular towards improving the road network, from which the farming sector and especially the tourism industry will benefit. Another major project that should be completed, at least in part, by 2014: the high speed Rio- SaoPaulo-Campinas railroad that will connect the two poles of the country as well as their airports in less than three hours.In the framework of the pre-World Cup preparations, the hotel industry will also be pampered. Receiving tourists in the best conditions is considered strategic by the government. The country will be in the spotlight and counts on this sounding board to start the tourism counter turning that had been blocked for a decade between 5 and 6 million international arrivals (see p.). Under the impulse of the minister of tourism, the national bank of economic and social development unfroze an envelope of a billion reals (420 million euros) to modernize existing properties and build new hotels. Attractive financing with interest rates of 6.9% to 8.8% per annum is offered for projects that, in order to be eligible, must be part of a sustainable approach.According to federal authorities, this program will cover 80% of Brazil’s hotel industry’s needs. The country is waiting to see its supply grow by 5% by 2016 but this credit line should allow an initial refreshment to a supply that is quite tired. Because, unlike a country like India that is just opening up to the hotel industry, Brazil already has an old and consequential inventory, some of its markets are even flirting with overload. With many, often outdated, family hotels that are costly to renovate, local hotel groups that are well established in major cities to satisfy a strong domestic business demand and a few pioneering international players such as Accor, Pestana and Choice Hotels, diving into the scrum is not easy. And yet, with growth perspectives from both leisure and business tourism and the formidable showcase offered by the Olympics and the world Cup, there are many suitors hoping to be at the destination before the kickoff of both these events. A race to establish properties that only the most skilled tacticians will win…Dionisio Pestana, CEO - Pestana Hotels & Resorts“Last year we celebrated ten years on Brazilian soil. At the beginning of the 2000s, with the devaluation of the Real and the end of hyperinflation, we had the excellent opportunity to invest in the country. On this occasion, we demonstrated our hopes by investing in the country at a time when many of our competitors were turning toward management. Today, acquisition of these hotels would cost twice as much. Developing in Brazil is not easy with high financing costs and taxes. But there are two or three major cities where we would like to establish ourselves such as Belo Horizonte, Porto Alegre and Vitoria. Most of our new properties in the country will be new constructions because the current inventory is of poor quality or worn out.”Peter van Voorst Vader, CEO de Brazil Hotel Group“From the start, our strategy was to play an active role in the consolidation of the hotel market. In Brazil, hotel management companies do not exist, there is no group like ours, that specialize in both property and management. Today we are the third player in the country behind Accor and Atlantica. We are not looking for hotels in function of the World Cup. This event is just an added advantage. We will open 1,500 new rooms this year and are focusing on opportunities in Rio, Sao Paulo or Belo Horizonte. We are mostly targeting business and individual leisure hotels. One key point: their activity must not rely on tour operators and other intermediaries so that we may control our pricing strategy. I am very satisfied with our partnership with Golden Tulip and there is no doubt that our relations with a new owner will continue on the same foundations.”Rolan de Bonadona, General Manager, Accor Brazil“Accor, with Novotel, is present since 1975. And, from the end of the 90s, we began to develop a budget hotel division. We started with a few hotels as subsidiaries, and then with variable lease and management. Today we are continuing with these two models and also accelerating our franchise development.

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