Think Brazil and you’ll probably think soccer supremacy and Rio de Janeiro's Carnivale. But, as Matthew Brooks reports, this huge country is rapidly becoming famed for something else: an economic resurgence that is bristling with opportunity for Australian goods and expertise.
With stable leadership and gross domestic product growth averaging 4 percent, South America's largest economy is gushing trade opportunities. So much so that Brazil is now regarded by economic analysts as one of the big four emerging economic and trading powerhouses, symbolised by the acronym BRIC—Brazil, Russia, India, and China.
Brazil's ongoing economic strength owes as much to the political stability generated by Luis de la Silva's—Lula—presidency, as to Brazil's sheer size and the fact that its 175 million population is getting younger, not older. Lula, a former metal worker, is Brazil's first president elected from the PT, or Workers Party, and has continued to successfully combine market-based reform with socially responsible policy. The result has been steadily falling unemployment and a GDP growth rate of just over 4 percent, slightly above the region's average.
As the fifth largest country in the world, and the largest on the South American continent, Brazil has always been an agriculture and commodity-based economy.
However, it was the move, which began in earnest in the mid-nineties, towards modernisation and a reduced role for the government in regulating the economy, that laid the foundation for the country’s current economic buoyancy.
The Brazilian economy has been largely deregulated, trade policy liberalised and many state-owned enterprises have been sold, generating massive amounts of foreign investment.
Despite the increasing level of direct foreign investment in Brazil's utilities, telecommunications, and mining sectors, which ensures they are world class, the strong agricultural base remains well behind other developed nations. The agricultural output remains great but this has more to do with the sheer size of the farming sector than world class agricultural practise and rurally developed efficiencies. Because of this there are a number of opportunities for Australian agribusiness expertise, and this need has been recognised by the Queensland government by way of sending an agribusiness trade mission to Brazil (in mid-July).
According to Australian Business Limited's International Trade general manager, Christine Gibbs Stewart, there is great demand across Brazil's farming sector for Australian agribusiness expertise in design, technology, products and associated services.
"The opportunities here are vast, because of the sheer size of Brazil's farming sector," she says. "Brazilian farmers want to mechanise and modernise and so the opportunities are not just for machinery, parts and associated services, but also for technical expertise, and research and development. This covers areas such as genetic modification technology for both crops and livestock, breeding and traceability programs, animal identification systems, as well as process technologies, agri-chem products and veterinarian skills and pharmaceuticals."
There are other emerging sectors, outside the traditional rural base, requiring international expertise. Most exciting for Australian business, says Gibbs Stewart, is the fact that Australian companies are already successfully trading, both domestically and internationally, within these sectors.
"Professional training and education is definitely a huge growth sector of the Brazilian economy. Particularly in web-based tuition or e-learning, as Brazil's recent uptake of computer technology has been enormous. The native language of Portuguese remains the number one dialect, but Brazilians are extremely keen to lift their level of English as they view it as a way of increasing their level of global competitiveness, as well as educational opportunities."
Because of this rapid uptake of modern technology and, most significantly, a population demographic mirroring India's—which is also getting younger, not older—enormous opportunities await Australian companies in the Information Technology and Communication (ICT) sector.
"From computer chips to laptops, mobiles and computer games to actual infrastructure like the design, manufacture and installation of mobile phone towers, Brazil's demand in their expanding ICT is almost insatiable," she says. "Brazil's population is young, mobile, progressive and technology savvy, and this creates enormous opportunity for niche ICT consumables and associated services."
There are also increasing opportunities for Australian products, services, and expertise in the environmental sector, as Brazil redresses the negative environmental impacts of both heavy industry and urbanisation, and in infrastructure design, building and construction, and transportation.
To discuss the potential growth opportunities Brazil holds for your business, call Australian Business Limited's International Trade team on 132 696.
Major industries: Textiles, shoes, chemicals, timber, iron ore, tin, steel, aircraft, motor vehicles and parts, arms, soya beans, orange juice, beef, chicken, coffee and sugar
Economic climate: Brazil is the largest economy in Latin America, and is characterised by large agricultural, mining, manufacturing and services sectors.
Gross domestic product (GDP): in 2003 US$492.1 billion
Major Australian exports to Brazil (2003/04):
*crude petroleum—A$73 million
*passenger motor vehicles—A$12 million
*medicaments (including veterinary)—A$12 million
Brazil, with Argentina, Paraguay and Uruguay, formed the Southern Cone Common Market known as 'Mercosur' in 1991. Chile and Bolivia have also special trade agreements with Mercosur member countries. Under the treaty agreement, tariffs are being lowered gradually to reach zero on practically all products. Mercosur represents a market of almost 200 million people with a combined GDP of more than US$1 trillion. Brazil accounts for 67 per cent of all goods and services produced within Mercosur.
Brazil is an active member of the World Trade Organisation.
A ‘Sawing’ Market
Lucas Mill was established in 1994, in the small rural locality of Wooragee in northeastern Victoria, producing portable sawmilling machines.
It wasn’t long before the business first started exporting, and in November of 1994 Lucas Mill sent its first export to the US. Following this, exports continued to grow and progressively, the number of countries exported to has increased and Lucas Mill now delivers into more than 50 countries around the world. Lucas Mill’s exports are now the primary outlet for its machines, accounting for more than 75 percent of total sales.
The decision to start exporting to Brazil came as part of the company’s overall strategy to generate maximum global reach. The primary opportunity in exporting to Brazil lies in the country’s rich natural resources, namely forests. "We believe that Brazil, because of its huge timber resource is probably a country with the most potential for the sale of our product," says general manager, Warren Lucas.
However, exports to the country were slow to begin with. The company was first invited by Austrade Buenos Aires (Argentina) and Austrade Sao Paulo (Brazil) in 1997 to be part
of their joint site at an agribusiness show in southern Brazil and later that year Lucas travelled to Brazil to attend the Expointer International Agribusiness show in Rio Grande do Dul In Southern Brazil, to demonstrate the Lucas Mill portable sawmill. While this event created awareness of the brand, the attempt to sell the rights to manufacture the Lucas Mill to a Brazilian company didn’t happen at this time, perhaps due to poor Brazilian economic conditions at the time.
The company’s first export to Brazil was one sawmill, sold to a wood technology researcher in 1999, who was involved in Embrapa—a Brazilian forestry organisation. Embrapa ordered a second sawmill in 2001.
And then, while attending a forestry trade show in Luzern, Switzerland in 2001, general manager, Rex Lucas met Andi Nagl, a German man whose family had owned and operated a traditional sawmill. Andi’s fiancÈe was a Brazilian and in 2002, the couple moved to Brazil to settle but on her way, Heidi visited Australia. On this trip she visited the Lucas factory and presented a proposal for her and her partner to become distributors for the Lucas Mill in Brazil. A distribution agreement was forged, and the couple purchased their own sawmill the following year.
Lucas Mill faced some hurdles in exporting to Brazil. Andi and Heide could not afford to import multiple machines due to Brazil’s high import taxes. To overcome this they can store machines in a bonded warehouse in Brazil, from which the couple can nationalise individual machines as they can afford to do so. The possibility of having components of the sawmills made in Brazil is also being investigated in order to try and reduce import duties.
There is also a prevalence of ethanol fuel use in Brazil, so Lucas Mill has made engine modifications so the machines are capable of running on high ethanol content fuel.
And so from 2003, Brazilian sales began to flourish for Lucas Mill which were also, in-part, thanks to regular business trips by both Rex and Warren Lucas to Brazil, which allowed them to build strong working distributor relationships and increase product and brand awareness.
Overall, for businesses looking to export to Brazil, Lucas Mill suggest they find a distributor who has the same enthusiasm about the product as you do. It also simplifies communication if the distributor is capable of speaking both the native language and English.
Lucas Mill believe persisting until you find the right distributor definitely pays off.