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Investing in Information Technology in South America

Investing in the Information Technology Sector in South America requires some knowledge of the local market and a finger on the pulse of the government. Brazil looks like a good bet for some.

Last September, US Moody’s rated Brazil as investment grade, citing “the resilience of the Brazilian economy to the financial crisis for the upgrade of its sovereign debt ratings one notch to Baa3”. (Source: Financial Times).

One of the sectors that did well under the pressures of worldwide economic downturn is Information Technology (IT). According to Softex (Brazilian Association for Promoting Software Export), the Information Technology Industry in Brazil closed 2009 with revenues of approximately USD 30 billion, with a strong upward trend from less than USD 11 billion in 2008. The same source projects growth higher than 9% in 2010.

 

PT SGPS, S.A. - Sede/Lisboa - Av. Fontes Pereira de Melo, 40

PT SGPS, S.A. - Sede/Lisboa - Av. Fontes Pereira de Melo, 40

Portugal Telecom announced the acquisition of GPTI, a provider of IT services
One of the earliest signs this year of a strong international belief in the recovery of the Brazilian Systems Technology Industry comes from Europe. The company holds debt of $ 80 million Reais, or a little less than USD 45 million. Their customer base is very attractive to the Portuguese company, which is acquiring the business for an undisclosed amount via the issuing of shares of its Brazilian subsidiary, Dedic. The final closing is pending waiting for approval by the Brazilian authorities.
 

Concerns about Argentina’s antitrust regulation
The decision of investing in Brazil may be linked to the fears of some European investors that other governments’ antitrust regulations will adversely affect their interests. That Telecom Italia SpA may be forced to sell its stake at a below-market price creates uncertainty, expressed in the recent dip of the Telecom Argentina SA valuation over the past couple of years.
 

Currency devaluation in Venezuela
In Venezuela, the recent Government’s decision to devalue its currency to the USD has lead Telefonica de Espana (TE) to announce a huge Balance Sheet adjustment. The treatment of Goodwill in foreign investments was enforced by the European Commission leading TE to recognize a negative impact of 548 million Euros in revenues with a related equity increment of 676 million Euros.
 

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