Brazil's bright future

Of all of the four BRIC economies (Brazil, Russia, India and China), Brazil is the country which, in my view, is the closest to Australia from a cultural and social perspective. Brazilians share many of the same passions as Australians - the beach, sport, football, the great outdoors and a warm and sunny climate – and this provides a great start for those looking to engage with a country of 180 million people which is rapidly growing in confidence as an emerging economic power.

Brazil’s traditional strengths are in mining and agri-business and in some ways resembles Australia as a leading exporter of commodities (notably orange juice, coffee, soy, beef, chicken) and resources. Whilst we compete in some areas (e.g. exports of iron ore to China) our opportunities to engage with Brazil, a country that will during this century dominate the global economy, far outweigh any competitive threats. And with Brazil hosting the FIFA World Cup in 2014 and the Olympic Games in 2016, Brazil should be high on the list of countries to visit in the coming years

Domestic Consumption
As with all of the BRIC countries, future economic growth in Brazil depends on strong local domestic consumption, as opposed to exports to the cash-strapped developed world, and the Brazilian Government has introduced measures to boost domestic spending via lower interest rates, an easing of capital requirements to Brazil’s banking system (designed to stimulate housing and car loans) and reducing unemployment via a range of spending initiatives.

Brazil’s aspirational population of over 180 million is:
* the 6th largest in the world (and the largest in Latin America) growing at approx. 1.3% per year.
* relatively young, with 42% under the age of 20, with a strong appetite for western style consumer goods, brands, fashion labels, technology and gourmet foods.
* 80% Urban - approximately 30% live in the ten principal metropolitan areas, including São Paulo and Rio de Janeiro which have populations of around 19 million and 12 million respectively. Some 14 other metropolitan areas have populations of more than 1 million. This makes it relatively easy to access the retail markets due to the high levels of concentration in urban centres.
* experiencing a rapid rise in the “middle classes” which is growing by over 8% per annum and becoming increasingly affluent and upwardly mobile
* keen to spend rather than save, as evidenced by the large numbers of new shopping malls, outlets, hypermarkets, supermarkets and convenience stores offering the usual wide range of services (restaurants, coffee shops, fitness centres, beauty parlours, shoe repairs, post offices, bank services and dry-cleaners) and providing entertainment with cinemas, cyber-cafés and play areas for children.

Being one of the world’s “Big Rapidly Industrialising Countries”, Brazil’s growing and increasingly affluent middle class presents opportunities across the board for all retailers, from food and beverage, cosmetics and clothing to some of our more premium products, notably gourmet food and wine.


Resources, Agriculture and Infrastructure
With Brazil’s primary strength as a resource and agricultural based economy, similar to ours, leading Australian companies offering high value adding services to the agri and resource sectors (including technology, software, engineering and consulting services) are highly sought after by Brazilian producers looking for greater efficiency, increased production and improving yields from their existing activities. With Brazil’s vast land mass, much greater than ours, much of its arable land available for farming activities and new sites under exploration for mining, Australia has much to offer Brazil as it seeks to modernise and upgrade its land economy.

In addition, whilst Brazil's construction industry was hit by the global economic slowdown, the Government's Growth Acceleration Program (launched in 2007) is committed to supporting investment in infrastructure projects. With Brazil's large fiscal stimulus package (US$254bn, representing a significant 19% of GDP) there is widespread activity across many infrastructure projects including road, rail, power and the construction of low income housing. In addition, housing, commercial and tourism construction is also set to get a sizeable boost from the preparations for the 2014 FIFA World Cup, which is estimated to inject a further US$43bn into the infrastructure sector, and the 2016 Olympic Games in Rio. With Australia’s Olympic experience in designing, constructing and fitting out sporting venues, opportunities exist in many areas for Australian architects, builders and landscapers.


Alternative Energy
Brazil has, for many decades been leading the world in the development of alternative energy sources, notably ethanol and other biofuels, and 45% of Brazil's energy is already drawn from renewable sources, according to the National Bank for Economic and Social Development, compared to only 6% from developed countries. In 2008, ethanol made from homegrown sugarcane outsold gasoline and 90% of new Brazilian cars and light trucks can run on biofuel, petroleum or both!

Australian cleantech companies, product-providers, consultants and suppliers should go to Brazil to research the significant progress and commitment being made to the renewable energy sector, not just in ethanol and biofuels but also in hydroelectric power, solar and wind farms, and look for opportunities to compare notes, collaborate and export products, services and technology to the Brazilian market.

Financial Services
In addition to the above, the Brazilian financial services industry offers a wide range of products, services and opportunities that attract numerous new entrants each year. Having lived through the Latin American debt crisis of the 1970s and the Mexican devaluation in 1995, Brazil’s banking and finance sector has been under the microscope of the IMF and the World Bank for many years and is now amongst the most well regulated in the world. Furthermore, the Brazilian Government is run by a sophisticated technocracy of top economists and international bankers, many of whom held top positions in leading international banks, and has allowed Brazil to develop a financial services sector which is thriving in the post GFC environment. Opportunities exist across the board for Australia’s financial services sector to participate in the growth of Brazil’s banking, wealth management, funds management and insurance sectors.

Challenges
Brazil offers many challenges for Australian exporters and this would explain, to some extent, the reticence of Australian companies to make the long flight across the Pacific Ocean to engage with a country which has for many years been associated with the burdens of Latin American debt, hyperinflation, military dictatorships and extreme violence and poverty.

Furthermore, with high tariffs, onerous red tape, bureaucracy and language challenges (unlike most other Latin American countries, Brazilians speak Portuguese rather than Spanish) Brazil continues to offer many challenges for Australian exporters.

However, Brazil is committed to a program of structural reform, including a raft of changes to labour, taxation and infrastructure programs, which will alleviate some of the current challenges over time. But, in the meantime, Australian exporters should be prepared for complex and onerous export documentation and customs clearance issues which calls for advice, support and patience!

Can you ignore Brazil?
During this century, Brazil will become one of the largest economies in the world, taking its place behind China, USA, India and Russia as the dominant markets of the 21st Century for business, trade and investment. Brazil will lead the world in many sectors that compliment, enhance and offer opportunities for Australian business, particularly in agriculture, resources and renewable energy, and leading Australian businesses can’t ignore the chance to gain a foothold in this large and significant long term market.

(Extracts from the above article were first published in Dynamic Export, magazine of the Australian Institute of Export (July 2009). Click [http://www.dynamicexport.com.au/articles/markets/building-business-with-brazil here] to read the full article.

Best wishes

David Thomas

Please consider coming with the BRIC+ Program on our BRIC+ Study Tour to Brazil from **1st to 8th May 2010**. A rare and unique opportunity to experience, research and explore investment and business opportunities in Brazil’s booming economy. Please contact us at mail@bricplus.net to receive more information.