Investment in booming industries - Brazil
|The self-consciousness of Brazil has grown considerably in recent years.
The country gains international respect, the Brazilians have confidence in their economic perspectives and President Dilma Rousseff of Brazil, who took office in early 2011, is still popular.
growth of the Brazilian economy, however, after a few good years like the 7% in 2010, has fallen in 2011 by the international slowdown.
The economic growth for the following years is forecasted around 4.5%. The unemployment rate of less than 6% is at a historical low, the middle class is growing (from 34% in 2004 to 54% in 2011). Furthermore, inflation remains relatively under control as well as the budget deficit and public debt.
projects in Brazilare emerging as the oil and gas investments in front of the coast are catching up in terms of infrastructure (ports, airports, etc.). Last but not least, the FIFA World Cup soccer in 2014 and the Summer Olympics in Rio de Janeiro 2016 provide opportunities for both Brazilian companies and foreign investors and suppliers.
On the other hand, Brazil is still troubled by a high degree of bureaucracy and corruption. What is more, high cost of finance, a complex labour market and complicated tax laws make the economy of Brazil a rather complex affair.
It is no coincidence the World Bank ranked Brazil number 116 in its Doing Business 2013 survey. As it happens, it is difficult for new foreign companies to penetrate the Brazilian market. On the other hand, as soon as access is assured, the difficult start will be often compensated with an attractive revenue growth and profit margins.
Any potential investor in the Brazilian economy should realize that just until recently Brasil had an almost exclusively inwardly-oriented market. Of time immemorial, the outside world was hardly needed; to a large extent the Brazilians were self sufficient (certainly they lived by that assumption). Also, due to the high cost of doing business, but also to the appreciation of the Real against the Euro and the Dollar, Brazil faces major problems with exporting goods.
The declining competitiveness is leading to even more protective reflex measures.
For instance, in some industrial sectors Brazilian suppliers can win a public tender even if it is up to 25% more expensive than those of foreign providers.
Furthermore, the reform of tax and labour legislation, the most important issues that affect competitiveness, are only slowly accomplished.
Nevertheless, little by little Brazil is realizing it needs foreign investments and it is slowly opening up its economy. When you are aware of the local business conduct and regulations and you chose a reliable local business partner, you can do very good business in this difficult but also attractive market. This applies to large corporations as well as smaller companies and private entrepreneurs.
Interesting sectors of the Brazilian economy are currently among others:
|With an abundance of land, water and sun agriculture has always been a backbone of the Brazilian economy. The agricultural sector contributes a quarter to the gross domestic product and accounts for 30% of employment.
Brazil is one of the largest suppliers in the world for many ‘high volume, low value’ agricultural products, especially sugar, soy, corn, poultry, beef, coffee, orange juice, wood and cellulose.
However, the bulk of this produce (two thirds to three quarters) is designated to the (evermore growing) internal market.
Because of the enormous number of available hectares of farmland and large pieces of land which can still be used more intensively (especially breeding livestock is very extensive) as well as the easy access to fresh water, the agricultural sector will increase further in the future. Development and sustainability of aligned agro-chains are however essential.
Despite bureaucracy, a lack of efficient industry communication and complicated import procedures, Brazil is still competitive in the production of a great number of commodities, due to the relatively low costs of land and labour. Agriculture was and will be one of the
booming industries of Brazil.
The opportunities for foreign investors are particularly at the beginning (fodder, animal genetics, fertilizers and seeds) and at the end of the industrial chain: farming equipment and machines for the food processing industry. Furthermore, the increasing purchasing power will change local consumption, creating opportunities for production and wholesale business of goods in the luxury segment.
Since the mid 1970s, Brazil is a major producer of bio-ethanol, currently the second largest producer after the USA.
In Brazil, the fuel is made from sugarcane (in the U.S. primarily from corn).
During many years Brazil exported ethanol, but after bad harvests due to weather, bad planning as well as the continued strong internal demand, in 2011 Brazil was a net importer of ethanol.
Recently the production of biodiesel, mainly made from soy, also increased because of a growing demand at the internal market. Moreover, the demand for biodiesel is also greater than the supply.
Due to the abundant supply of land, water and sun, in Brazil through photosynthesis much biomass is available. Restrictions on the use of this biomass for production of biofuels include the high expenses on transport (a real challenge in logistics).
There are also opportunities for high-tech companies that produce enzymes to make cellulosic ethanol, or that use biomass (products) for the development of, for example, biopolymers.
|Currently Brasil has 45 public and 131 private port terminals.
In the next few years, the Brazilian authorities will invest at least US$ 235 million in expansion and modernization of 22 state owned ports.
Most of these suffer from a bad reputation, both internationally and locally, because of their inefficient management and trailing infrastructure.
At the same time, Petrobras, the largest company in South America, has recently announced that the port of Rio de Janeiro will be its base for operations in the huge Santos Oilfield as well as several ports north of Rio de Janeiro for all its northern offshore oilfields.
The 1450 meters/ 4757 ft long quayside of the Rio de Janeiro harbour has to be refurbished and it is expected that between now and 2016 600 ship movements per month will be processed here.
Petrobras also wants to build additional port terminals in Espirito Santo and Sao Paulo (Guaruja) for the supply and discharge of oil, gas and equipment. Furthermore, the EBX Group constructs a port complex in Porto Açu in the north of Rio de Janeiro state and Vale invests in expansion of its fleet and in waterways and port facilities supporting the export of its mining products.
In particular there are opportunities in joint ventures or independent investments in local development and supply of technology. There is also a demand for recruitment and professional training of local staff for specialist positions.
Naturally, there is business for consulting agencies in the field of development and implementation of ports and other marine construction projects. Finally, Brazil is in need of professional inspection, certification and streamlining of processes in ship-building and the maritime construction sector.
Brazil has a unique position: in a period of only two years the country will be host of the world's two biggest sporting events: the World Cup in 2014 (twelve host cities, opening in Sao Paulo) and the Olympic Games in 2016 (host city Rio de Janeiro).
These sports events give an additional boost to the already high growth of the Brazilian economy and also provide
business opportunities in Brazilfor foreign companies.
It is estimated that investments for these major sports events range from US$ 13 billion to a whopping US$ 65 billion in urban transport, stadiums, airports, hotel industry, safety and sanitation. A piece of this pie is interesting to many companies, Brazilian as well as foreign.
Furthermore, Brazil is behind with preparations for the World Cup and in particular the lack of infrastructure is a problem, which offer more opportunities for foreign investors.
The competition is fierce and Brazilian companies are in principal able enough to construct the necessary infrastructure themselves. Moreover, they are protected by among other things high import barriers and tax legislation that favours them to a large extend over foreign competitors.
Also, a Brazilian construction company can hand in a bid up to 25% higher than a foreign enterprise. Therefore foreign investors that want to do business in Brazil should cooperate with local partners. Also, the privatization of companies, such as airports, offers opportunities. In February 2012, three airports were auctioned, with foreign supply companies are involved.
Brazil is urged to hurry with the preparations for the World Cup. Several times FIFA criticized the slow pace of the preparations for the World Cup. Also the IOC is starting to get concerned about the necessary preparations. The delays may offer opportunities to foreign suppliers if the authorities are forced to look for the late solutions.
Official trade missions on a regular basis are very helpful in this field, as in Brasil the government has a big finger in the pie of organizing sports events. There are opportunities for both large corporations as well as SMEs, for instance in stadium management, hospitality and security.
|Domestic tourism in Brazil: With a growing middle class and a relatively strong national currency against the dollar and the euro, Brazilians are increasingly going on holiday.
Besides the increasing total number, it is also noticeable that Brazilian tourists usually spend more than before. Although Brazilians are travelling more abroad than before, a large number of leisure travellers spend their holidays in Brazil (as internally focused as they are).
Foreign tourism in Brazil: Most tourists come from Argentina, USA, Italy, Germany and France. This is also a growth market (total of 5.9 million tourists in 2013, annual growth forecast of 16% -22%). Currently it is estimated that there are only 173,000 hotel beds throughout Brazil, while for instance at the World Cup soccer 2014 600,000 visitors alone will be expected.
More or less the same applies to other segments of the hospitality
industry in Brazil, like cruise liners, holiday resorts, restaurants, nightlife, amusement parks and travel agencies. Sports events like the Confederations Cup 2013, World Cup 2014 and the Olympic Games 2016 give the demand only an extra boost.
In 2015, Brazil expects 6.7 million tourists of which 72% will arrive by air, 26% by road from neighbouring countries and 2% by boat. A growth of 35% is expected in money spend by tourists in Brazil between 2012 and 2015.
There are many interesting opportunities for foreign entrepreneurs, large and small, who want to invest in direct activities in the leisure industry and tourism. Furthermore, there are also chances for companies which can support this industry with ICT services and for the ones operating in the field of indirect activities, such as food and safety industries.
As well as in other sectors, it is important when doing business in Brazil to look for a reliable local business partner and to take in consideration the sometimes complex labour and tax rules.