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With Brazil’s economy slowing, headlines from one of the world’s largest markets haven’t been encouraging. But it’s not all bad news: venture capital continues to thrive as the country’s appetite for Internet and mobile services grows.
On one hand, inflation and unemployment show signs of rising. This week, analysts surveyed by the Central Bank raised this year’s inflation estimate to 8.26 percent, which would be the highest level since 2003. Analysts also expect the economy to shrink by 1.18 percent in 2015, having cut their estimates for 18 weeks straight. Tens of thousands of people across the country lost their jobs in the fallout from the Petrobras corruption scandal, and in March unemployment rose to 6.2 percent, the highest level for that month since 2011. Plus, average wages fell 2.8 percent from February to March in the biggest monthly drop since 2003.
But venture capital shows no signs of abating. Brazil-dedicated private equity funds raised $4.1 billion last year, the largest amount since 2011, according to the Emerging Markets Private Equity Association. The Prequin research group estimates that Brazil’s share of Latin American venture capital deals is on the rise, reaching 53 percent last year and expected to hit 67 percent in 2015.
One reason: Brazilians are among the most connected citizens in the world, an incentive for tech companies and investors alike. Consulting company A.T. Kearney found that 71 percent of Brazilians say they are connected to the Internet every waking hour—the largest percentage of the 10 countries surveyed. Brazil has the fifth-largest cell phone market globally, and the largest smartphone market in Latin America.
“We typically invest in tech, which changes the way people interact with each other and/or businesses,” investment firm Phenomen Ventures founder Dmitry Falkovich told Bloomberg. “Short-term economic cycles don’t matter for this type of investment.”
Plus, while the new middle class makes spending cuts amid the economic downturn, many families refuse to give up Internet and cell phone services. A major motor of the economy, the so-called “C class” is reducing eating out, going to the beauty salon, and buying movie tickets, according to a Plano CDE consulting group survey. But cell phone costs show up last on the list of potential future expenses to reduce. Even though 31 percent said Internet and cable TV bills represent a growing cost, these services don’t appear on the list of services families reduced or plan to reduce in the future.