26 Oct 2011:
Both the strengths and challenges to business in Brazil lie in the natural resources sphere. It is hugely wealthy in raw materials and, in that respect, is a vast warehouse for manufacturing industry’s needs.
On the other hand, Brazilian territory occupies the majority of all the South American continent. Much of it remains disconnected from the burgeoning highly developed cities like Sao Paulo, Rio de Janeiro, and Belo Horizonte, which in turn are poorly connected to each other. Right now, the hot topic for opportunity in Brazil is infrastructure.
Luiz Simione, Global Head of Business Solutions, HSBC Trade and Supply Chain, has noted recent discoveries of oil and gas, and the awards of the forthcoming World Cup and Olympic Games competitions as three key triggers of opportunity. “These demand a huge investment in infrastructure. We still need seaports and roads.”
Brazil is a star that’s rising fast. The quarterly HSBC Trade Connections trade forecast predicts that Brazil’s trade activity will outstrip world trade growth over the next 15 years, at 144% – almost double the global rate of 73%.
“British business has taken a long time to take Brazil seriously,” observes Martin Raven, the UK's former Consul General in São Paulo. HSBC research shows that Brazil imported precisely nothing of consequence from the UK in 2010, but exported nearly US$5bn – almost the exact opposite balance sheet to that of nearby competitor France. To take an equitable slice of Brazilian opportunity, British business could follow Italy, Germany, and Japan.
Some well-known names have been here a while, including HSBC, Diageo, Cadbury, Rolls Royce, and GKN. However, there’s little evidence yet of UK retail or telecoms, and defence sales have been poor. Those gaps have been spotted by European competitors. French textile concerns are there, and Martin Raven says there are now more international German companies in São Paulo alone than in any individual city in Germany.
Issues elsewhere, notably website counterfeiting in China, made Brazil a good choice for Erick Rostognat of the French worldwide exhibition organiser, GL Events, which already has eight offices in Brazil. “We expect big growth, we will make a lot of jobs and a big increase in revenue from next year,” he says. However, in common with other delegates at HSBC’s Trade Summit in Hamburg recently, he noted that taxation remained complex, with duties of up to 100%. Bureaucracy, though onerous, can be time consuming, and some delegates advocated joint venture operations. Despite some drop in confidence, 80% of Brazil’s importers and exporters were still expecting their trade volumes to either maintain or grow into the early months of 2012, as surveyed by HSBC’s Trade Connections forecast.
Of course, reserve could be a good thing. High interest rates may be good news for foreign investors in Brazil’s stock market, but price hikes, high tariffs and complicated tax are not. In the past, Jim McColl, Chairman of engineer Clyde Blowers found taxi fares going up so fast on a regular journey, that he challenged his driver until he explained the prodigious rate of inflation.
It is however a situation that’s coming under control as the government has made manufacturing growth its priority. One Trade Summit delegate from Turkey explains how he found that the waiting time for their substantial order for two machines from an Italian producer would be two years, due to a Brazilian order for two hundred units.
“The country is well supported by its vast mineral wealth and political resolve in Brazil to make sure inflation does not return”, says Pat Drake. He’s CFO of Napier Brown Holdings, which includes sugar refining in its portfolio, and is well placed to play a part in Brazil’s world-leading ethanol fuel from sugar industry. “We have a fantastic opportunity to play the continued story of consumer growth within Brazil. We see this as a long-term project.”
A growing middle class broadly fuels the consumer economy too, even though China appears to be the major beneficiary. “The country is wonderful, but the devil is in the details”, says Mariano Blanc, CFO of Spanish industrial infrastructure project specialist Duro Felguera SA. “The possibility of doing good business there is obvious. I strongly recommend that you try and get close to the country, but don’t be naive. There are some difficulties that have to be known and overcome.”
Brazil’s biggest trading partners are all outside Europe, and figures in the latest HSBC Trade Connections survey predict rapid growth over the next five years with Vietnam, China and Indonesia. In five to 10 years’ time, Brazil will make big gains in trade with the USA and Sri Lanka. A notable exception is The Netherlands, which could become a big hi-tech export destination by 2025, despite Brazil’s continued dependence on its prodigious commodity reserves.
While getting that interior wealth out is still a challenge to be overcome by road, rail, power line or telegraph pole, work is in hand on the shore at Rio. When the widely reported £1.6bn Superporto do Açu is completed, its docks and industrial complex will put manufacturing and exporting on the same pier head.
Whether the vast ships that set sail from Brazil are bound for European shores, or laden with goods from them, is in our hands.
Please click here to review the presentation given by Luiz Simione, Global Head of Business Solutions, HSBC during 'Get the inside track to business in Brazil' workshop, and click here for Mariano Blanc's presentation on how Duro Felguera expanded into Brazil.
Watch the speakers from the Summit sharing their hints and tips on doing business in Brazil.