Thursday, 10 Jan 2013
The Brazil Effect: UK Companies Tap into Brazil’s Commercial Potential
Brazil is one of the most dynamic and innovative countries in the world and one of the biggest economies in terms of GDP. As one of the BRIC-M nations and South America’s leading power, its presence on the world stage has been boosted in the last 10 years, attracting exporters and investors from all over the globe.
Indeed, the present Brazilian government has been proactively working to attract inward investment and partnerships by visiting target countries and receiving foreign delegations.
While Brazil’s export growth may have slowed in the last year, its internal market remains buoyant. International car manufacturers, pharma companies and technology firms have long-since realised, and tapped into, the myriad opportunities it presents.
UK business is no exception in this regard. In August, Ernst & Young’s first annual Brazilian Attractiveness Survey showed that the UK is now the second largest investor into Brazil after the US.
The business services sector in Brazil attracted the largest number of projects (17 in total — 38% of total UK FDI projects) from the UK in 2011. However, the most lucrative UK investments, in terms of value and job creation, were in the mining and metals industry, boosted by the US$5b (£3.1bn) investment by Mir Steel UK into a joint venture with Cosipar, the Brazilian pig iron producer, in 2011.
Prospects in Brazil are set to intensify in the coming years thanks to two major global sporting events: the World Cup in 2014 and the Rio Olympics in 2016.
As such, swathes of infrastructure are now needed in Brazil from stadia to airports and ports, along with the external expertise to plan, deliver and build the huge numbers of individual projects that are on the drawing board or already underway. In fact, it’s estimated that the World Cup and the Olympics present opportunities for UK companies worth an estimated £47billion.
Take the north east’s Pernambuco state, which has 14 planned new cities alone. No wonder this is the country’s fastest-growing region, requiring architects, urban mobility planners, sustainable construction experts and construction companies.
Oil and Gas
Yet it’s the entire country that has been benefiting from foreign investment. UK construction equipment manufacturer JCB, for example, recently opened a £63million factory in Sao Paulo, in the south, after the company agreed a deal with the Brazilian government to supply it with more than 1,000 machines worth over £60million.
The JCB factory will mainly be concerned with the production of excavators and backhoe loaders which will be used to improve road infrastructure across Brazil. Carlos Hernandez, Managing Director of JCB Brazil, said: “These JCB machines will play a big role in improving the infrastructure nationwide and ultimately ensure produce from family farms gets to its destination quickly”.
In recent years, Brazil’s oil and gas industry has been growing at an exponential rate, and with this expansion comes demands for deepwater drilling platforms. The UK’s BG Group plc — a world leader in natural gas — has major interests in Brazil. In February, BG Group announced that its gross production from the Santos Basin, off the Brazilian coast, has already reached some 30 million boe (barrel of oil equivalent). Its first permanent FPSO (Floating Production Storage and Offloading unit) on the basin’s Lula field — currently connected to three wells — has produced some 15 million boe in total to date. The Group expects that one billion boe will be produced through the life of the Lula field.
Then there is EM&I, an asset integrity, inspection and specialised repair and maintenance company, providing services to the oil, gas and energy industries. In September, EM&I and Odebrecht Oil & Gas (OOG) announced a partnership which will deliver contracts worth over £20million with a potential of over £70million, creating and sustaining jobs in both the UK and Brazil. The alliance will have a particular focus on floating production. “We are pleased to be operating in Brazil, one of the world's fastest growing economies,” said EM&I CEO, Danny Constantinis. “One of the largest growth sectors in Brazil is floating production, an area in which EM&I are in position to be a key player.”
Ports in Brazil are also being transformed. For example, Suape Port and Industrial Complex, located between Ipojuca and Cabo de Santo Agostinho in Pernambuco state, has been undergoing the biggest modernisation and expansion project in its 30 year history, aiming to position Suape as a distribution centre of goods and services of the oil, gas, offshore and shipping industry. As a result, the Petrobras refinery and petrochemical plant is currently under construction at the complex.
Suape Port is also the location of the largest shipyard in the southern hemisphere — with another nine shipyards planned — plus a food processing cluster, steel mills and a wind energy cluster, underlining the Government’s determination to make wind an investment priority. Other major ports in Brazil include Santos Port, the largest port in Brazil; and the ports of Rio de Janeiro, including the new super ports of Acu and Sudest.
The creative sector is new to Brazil and relatively small — accounting for 2.5 per cent of Brazilian GDP — but it has grown by around 500 per cent in the last 10 years and is particularly strong in Sao Paulo and Rio de Janeiro. In fact, the Federation of Industries of Rio de Janeiro (FIRJAN) is starting to map the creative sector, which offers opportunities to UK companies in design, games, digital media and fashion.
Brazil is also the world’s 12th largest music market, with the recording industry growing by 8.5% between 2010 and 2011. And thanks to the disposable incomes of Brazil’s burgeoning middle-class, the consumer goods sector — such as cosmetics, food and drink, textiles, white goods, cars and luxury products — is increasing rapidly. Burberry, for instance, has had particular success in Brazil, opening stores in Brasilia and Sao Paulo, while Natures Purest, the UK natural baby care products company, is set to open its third store in Rio. Brazilian people are very brand aware, with established companies having the most chance of succeeding in this market.
In the Education Sector, the Government is keen to invest in vocational and technical courses in Brazilian Portuguese, and is also supporting a Science without Borders programme of scholarships to promote the consolidation and expansion of science, technology and innovation in Brazil “through international exchange and mobility”. Plus, opportunities are available in ICT for Education in the private education sector, and in English Language Training.
Dealing with challenges
Brazil is becoming a centre for biotechnology, too, utilising British expertise and innovation. Oxitec, a British biotech company, has been collaborating with Brazilian companies to transfer new technologies developed in the UK to fight dengue fever. In July, Oxitec formally opened a new facility, attended by the Minister of Health of Brazil, Alexandre Padilha.
“The UK is a world leader in new science-based technologies and we should be looking to export this expertise to high growth markets, such as Brazil, and turn it into commercial success,” said Hadyn Parry, Oxitec CEO. “Brazil has a technologically sophisticated regulatory regime ready to take up the challenge of new scientific approaches.”
The Brazilian market does offer challenges for UK companies. Brazil’s tax regime is complex, import charges are high, labour regulations are strict and poor infrastructure and bureaucracy can create bottlenecks. In Ernst and Young’s Brazilian Attractiveness Survey, improving education and training in new systems and technologies topped the list of reforms that UK investors felt the Brazilian government needed to make, in order to improve innovation.
Yet Brazil can be a profitable market to operate in. Its people are friendly, helpful, open and keen to foster good business and personal relationships; and, culturally, the UK and Brazil share many similar values.
“The overall outlook for Brazil in terms of the prospects for closer ties and collaboration with UK business, leading to greater investment from the UK, looks very positive indeed,” says Ed Hudson, head of Brazil Business Services at Ernst & Young in the UK. “Progressing some of these projects is not without its challenges. But if Brazil can start to address and introduce some of the reforms that both UK and global investors say are required, the opportunities are tremendous.”