Brazil is not for beginners, quipped Tom Jobim the late Brazilian composer behind the hit song The girl from Ipanema. The same holds true for foreign investors, given the massive opportunities but challenging business environment in this vast land.
Last month, a Brazilian trade mission visited Saudi Arabia and the UAE to attract foreign investments from the region. Priority sectors that require investment are construction, food and beverage, agribusiness, machinery, infrastructure and real estate.
Brazil, one of the Bric sisters and Latin America's largest economy, makes a compelling investment pitch: It overtook Britain to become the world's sixth largest economy last year following a long journey of economic reforms. Its estimated GDP for the year gone by was put at $2.5 trillion (Dh9.18 trillion), according to the CIA World Factbook. It set a national record when it raked in $60 billion in foreign direct investment (FDI) in the first 11 months of last year.
With a population of approximately 205 million people and a growing middle class wielding improving purchasing power, Brazil is a substantial consumer market.
Although last year, Brazil's economy recorded a weak growth of just 2.7 per cent, a sharp slowdown during President Dilma Rousseff's first year in office, recovery is possible. The dip from the 7.5 per cent expansion in 2010 came as the economy was buffeted by foreign factors including the Eurozone crisis last year and plagued by homegrown problems including inflation at a seven-year high and soaring costs of doing business.
However, analysts expect Brazil to make a modest recovery this year. The IMF forecasts three per cent growth this year. Rousseff has pledged to provide tax incentives to troubled industries as a way to secure at least 4 per cent growth.
Commodities base
One of Brazil's major economic strengths is its large commodities base. It is one of the world's leading exporters of iron, coffee, soy beans, orange juice, beef, chicken, sugar and ethanol. It is also home to one of the world's largest petroleum reserves but focuses on biofuels production.
Brazil is the fourth largest aircraft manufacturer in the world and top producer of 120-seat jets. It has the world's largest river basin, with hydropower supplying 81 per cent of electricity generation.
This helped boost Brazil's trade balance last year. Exports totalled $256 billion last year, a 26.8 per cent increase over the 2010 result, according to government statistics. The balance of trade expanded 47.8 per cent to $29.7 billion last year.
"Market expansion is crucial for Brazil to keep its good foreign trade performance and it increasingly demands continuous contact with non-traditional markets," said Fernando Pimentel, the minister of development, industry and foreign trade.
The UAE was the 30th most important destination for Brazilian goods, taking 0.8 per cent of its exports last year, he said.
Brazilian exports to the UAE totalled $2.17 billion and imports reached $478.7 million last year. Brazil's trade with the Arab world increased more than 28 per cent to $25.13 billion last year and is expected to grow by up to 15 per cent this year, according to the Arab Brazilian Chamber of Commerce.
Brazil's top export destinations in the Middle East were Saudi Arabia with $3.5 billion, Egypt with $2.6 billion and Iran at $2.3 billion last year.
The South American country has a population of approximately 12 million Arabs, including a large Lebanese population, with many settled in Sao Paulo.
Brazil's land area spans 8.5 million square kilometres. But there are hurdles to doing business in this land of opportunities.
Brazil ranks 126th among 183 countries in the 2012 ‘Doing Business' report by the World Bank, falling six ranks from last year. It lost points on the ease of registering property, trading across borders, protecting investors, getting credit and paying taxes.
In Transparency International's 2011 Corruption Perceptions Index, considered a credible measure of domestic public sector corruption, Brazil ranked the 73rd least corrupt country out of 183 surveyed.
Brazilian industrialists complained about the bureaucracy, high taxes and delays caused by poor roads and overcrowded ports. It takes about a week for shipments of halal beef products to be cleared in the ports due to slow paperwork, Alan Serrao, a trader at Brazilian beef exporter Minerva, told Gulf News during a recent visit to their plant.
Poor road networks and red tape are also problems in exporting furniture, according to Adriana Katekawa of the Commercial Intelligence Unit in the Brazilian Furniture Project, established to boost exports.
Transformative phase
Asked how the government expects to attract foreign investors given these hurdles, Pimentel said during a visit to Dubai last month: "Brazil today is in a transformative phase. Five or six years ago we exported $60 billion to $70 billion [in products], now we are exporting $250 billion and imports have increased similarly. This means that international trade has expanded and developed very quickly but domestic institutions and infrastructure have not kept up at the same rate. Now the government is investing in airports, ports and international trade administration."
The Brazilian government must move quickly to tackle these challenges if it is to capitalise on the full potential of Brazil as a foreign investment destination.
Agribusiness
Dubbed ‘the breadbasket of the world', Brazil has 388 million hectares of highly productive arable land of which 90 million hectares remain unexplored. It exports 35 per cent of its production to 211 markets. It is the second largest producer of organic food and third largest producer of fruit.
Brazil's agriculture exports amount to $95 billion (Dh348.86 billion) or 37 per cent of total exports, according to statistics by the Ministry of Agriculture. The top three exports were soy beans and byproducts (24 per cent), sugar, ethanol and meat (17 per cent) and coffee (9 per cent). Agricultural production contributed 8 per cent to GDP and agribusiness contributed 26 per cent. Brazil exported $1.4 billion worth of agricultural goods to the UAE last year. Brazilian coffee exports to the UAE alone amounted to $10 million in beans and $8.4 million in ground coffee. As coffee prices soared last year, the value of Brazil's coffee exports increased 24 per cent.
Foreigners buying land in Brazil for food security are restricted by Brazilian law, Celio Porto, secretary at the Ministry of Agriculture, Livestock and Food Supply, said. "It's a delicate question in Brazil…the government is trying to reach a middle ground between public opinion and the needs of development. After two years of discussion there is still no consensus."
Foreign investors are encouraged to partner with Brazilian companies instead. Major areas that require investments are the ports, roads and other infrastructure for easier transport of agri-products.
Meat and poultry
Brazil has the largest commercial cattle herd in the world, with more than 200 million head of cattle occupying 220 million hectares of grassland. It accounts for one in every three pounds of meat sold globally and its beef is sold in 180 countries. Brazil is also the third largest producer of poultry. Investments in research and technology have made this a sophisticated sector.
Brazil also complies with halal sluaghter procedures certified by Islamic monitoring bodies and approved by the Arab Brazilian Chamber of Commerce. The revenue of the Brazilian halal beef market last year was $1.6 billion following up on $1.88 billion in 2010, according to the Brazilian Association of Beef Exporters. The Islamic market represented around 32 per cent of the beef exported from Brazil last year. Iran was the top importer with 38 per cent, followed by Egypt (30 per cent) and Saudi Arabia (8 per cent).
Furniture
The Brazilian furniture industry is seeking to increase its global market share which stands at just 4.1 per cent, according to an industry study. The Middle East is a major export target for Brazilian furniture since this region imports nearly half of its furniture. Brazilian furniture exports stood at $542.8 million last year, down 9.8 per cent from 2010. Due to the global economic crisis in 2008-2009, its exports to the UAE declined by 75 per cent to about $1 million. Recovery in 2010-2011 brought about 130 per cent growth to $1.6 million last year.
However, competition from China in the UAE remains a major challenge for Brazilian furniture exports. The Brazilian Furniture Project was established by government investment promotion agency Apex-Brasil to promote furniture exports. The eight target markets include the UAE, the United States, Latin America and France.
Infrastructure
Large investments are required to overhaul roads, ports and railways that are ageing or operating at well over peak capacity. The country will need $403.5 billion in infrastructure investments, including $60.5 billion for transportation from 2010 to 2014, according to Apex-Brasil. Ports operator DP World has partnered with Brazilian company Odebrecht to acquire a stake in Embraport, the largest Brazilian private multi-modal port terminal in the city of Santos.
The Santos port is the largest Brazilian container port and the largest in South America, with 90 per cent of its cargo destined for the local Sao Paulo market.
Brazilian ports experienced growth of 7.1 per cent in total tonnage in the first half of last year while this year is also expected to witness strong growth, according to Business Monitor International's Brazil Shipping Report.
With Brazil hosting the Fifa World Cup 2014 and Olympic Games in 2016, urban transportation projects are in high demand. Infrastructure development will impact industry, real estate, tourism and agribusiness sectors. A flurry of construction activity in housing, hospitality, stadiums and transportation offers a major investment opportunity for UAE firms.
Renewable energy
More than 80 per cent of Brazil's energy is generated from renewable sources. With experience in clean energy projects, Brazil has the potential for partnerships with the UAE and specifically Abu Dhabi, which has a keen interest in renewable energy generation. The recent Brazilian trade mission to the UAE visited Abu Dhabi to explore investment opportunities in the capital last month.
Tourism
Despite its great potential, the tourism sector seems to be under-leveraged by the government. One reason is that growth has traditionally come from industrial and agricultural sectors, according to Apex-Brasil experts. Tourist information centres and multilingual facilities for tourists are not prevalent.
A visit to the Presidential Palace in Brasilia, where President Roussef conducts her work, will leave tourists bewildered as tours are conducted only in Portuguese. Investment opportunities also lie in the hospitality sector here.
Brazil offers rich investment opportunities for the GCC and Middle East in a range of sectors and opens a gateway to the Mercosul countries
Support network
Apex-Brasil, a Brazilian government agency, aims to promote Brazilian exports, contribute to introducing Brazilian companies to the international scene and attract foreign investments into Brazil.
The agency supports over 13,000 companies in 80 sectors. It organises trade promotion activities such as trade missions and business roundtables and provides business intelligence studies for domestic companies entering international markets. Based in Brasilia, it has business support centres around the world.
Its Middle East presence is through Dubai-based offices in Jafza, Emirates Towers and soon in Dubai Media City. Apex Dubai focuses on facilitating credit for Brazilian companies and providing information for UAE investors interested in Brazil. There are over 30 Brazilian companies in the UAE with about half in incubation with Apex Dubai.
