South America's thriving superpower

While Brazil may be better known for its famous beaches and world-class soccer, it is now emerging as an economic force in the world—buoyed by an economy poised for impressive growth.

“Brazil is evolving from an economy of production to an economy of consumption,” says Guillermo Rishchynski, Canada’s Ambassador to Brazil. As a result, Brazil has been identified as one of Canada’s three priority emerging markets, says Rishchynski.

Big market to tap

Some 45 million consumers and a highly developed industrial economy has resulted in strong export and import growth and a record goods trade surplus of some $50 billion, with goods and services accounting for some $41 billion of that surplus. Recently, Brazil has become energy self-sufficient in oil.

Potential is what makes this marketplace so special, says Rishchynski. “There have been many positive changes to Brazil’s economy in recent years,” he says, noting that the marked economic improvements are primarily due to the macro-economic policies of its government. “A solid and stable democracy has led to a functioning market economy. In fact, progress in economic reforms has been evident in bankruptcy legislation, anti-trust reinforcement, and in the public-private partnerships law designed to improve the country’s infrastructure.”

The numbers support Rishchynski’s optimism. Inflation is under control at 6.9%, the debt-to-GDP ratio has shrunk, foreign reserves have been built up and credit conditions are improving. Despite some domestic political concerns, Brazil’s “country risk” has been decreasing and is well on its way to attaining investment grade level. In 2005, Brazil ranked tenth as a destination for foreign direct investment—attracting over $17 billion—after France, the U.K., the U.S., Mexico, China, Hong Kong, Malaysia, Singapore and Russia.

Canada aims to double its exports to Brazil by 2010. Rishchynski says that a global commercial strategy is in the process of being finalized, one that identifies eight priority sectors: oil and gas, mining, information and communication technology (ICT), cultural industries, environment, forestry, agriculture and power. The strategy will focus on developing the full potential of Canadian small and medium-size enterprises in Brazil’s marketplace.

Taking the world stage

But when it comes to seeing potential in the Brazilian market, Canada is not alone. “The world has responded enthusiastically to the positive changes in Brazil,” says the ambassador. Mercosur—the Southern Common Market made up of Brazil, Argentina, Paraguay, and Uruguay—has made bilateral trade agreement overtures that have been warmly welcomed by other large markets and is actively negotiating agreements with the EU, India and South Africa.

Brazil, the world’s eleventh-largest economy, has also become a strategic player in international forums in addition to being the economic engine of South America and Mercosur. As a member of Mercosur, Brazil is part of the fifth-largest trade area in the world after the EU, NAFTA, EFTA and ASEAN. Brazil is also the G-20 lead for trade negotiations in the WTO.

With Brazil’s economy riding high, Ambassador Rishchynski stresses that there are a multitude of opportunities available to Canadian exporters who want to take their business to this dynamic market. “Now is the time for Canadian exporters to make their move.”

Contacts in Canada and Brazil

Business tips: Steering clear of potential pitfalls

Brazil, South America’s largest economy, offers great business opportunities for exporters who have researched and targeted this complex market. CanadExport offers a few quick tips to consider if you plan on taking your business to this challenging yet rewarding market.

Get local, get in

There are many ways for Canadian companies to enter the Brazilian market. All the customary import methods exist including agents, distributors, import houses, trading companies, and subsidiaries of foreign firms. Most Canadian exporters use local sales representatives with technical capabilities or distributors.

As direct sales to the end user are rare, the key to success is to maintain a solid and reliable relationship with a suitable local firm, capable of protecting and promoting your company’s interests. During sales contract negotiations, local buyers will almost always place an emphasis on quality, technical assistance and training.

The most common way for Canadians to do business in Brazil is through a sales representative or agent. Although some Brazilian companies import directly from overseas manufacturers without local representation, the presence of a local agent or distributor is essential in most cases. As in other markets, the selection of an agent requires careful consideration.

In Brazil, larger representatives have sales offices in several cities to supply buyers throughout the country, whereas smaller representatives may either supply companies in a limited region or appoint “business opportunity finders” in different regions outside of their operational area.

The ability of an agent to cover the country depends in large part on the item being sold. If your product has just a few buyers throughout Brazil, one agent may be enough. However, if your product sells to a wide potential market, the need for countrywide service facilities could place a much greater demand on a single agent.

When in Rio...

Culturally, Brazil is as diverse as all other countries that make up Latin America, so a business approach that is sensitive to this is required. Business is often conducted in English, but promotional material should be in Portuguese, Brazil’s official language. You can get by with Spanish, but many local businesspeople may prefer to speak English. Of course, learning Portuguese would be greatly appreciated. Most importantly, however, it sends a strong message to your local contacts that you are committed and respectful of local culture.

Know before you go

Local import regulations can be confusing to a first-time seller to Brazil. However, complying with local requirements are the responsibility of the importer, who will normally process necessary paperwork through a customs broker. Nevertheless, Canadian exporters should understand the process and be familiar with the regulations involved to avoid costly delays related to the non-compliance of regulations.

While patience and understanding are crucial for doing business in new markets, demonstrating a long-term commitment to the market is key. Make frequent visits to gain first-hand knowledge of the people and place. It will help steer you clear of potential pitfalls.

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Direct investment : Rising exports on the horizon?

Two-way investment with Brazil is growing and has consistently exceeded Canada’s investment relationships with other emerging economies over the last five years. According to Statistics Canada, total two-way investment amointed to 8.5 billion as of 2004. But will inward and outward investment mean rising Canadian exports?

The answer should be yes. According to the Organisation for Economic Co-operation and Development (OECD), there is a strong relationship between investment and trade, with every dollar of outward investment generating two dollars worth of additional exports for the originating country. That’s because investment can induce imports in the short term.

Jonathan Gage and Sébastien Miroudot of the OECD Trade Directorate explain in a report that a company investing in a new plant, for example, may require capital items only available (or cheaper) from foreign sources. Similarly, trade between companies and their affiliate offices can also act as a trade stimulant.

Source: World Bank WDI Trade = Average of Exports & Imports for Goods & Services; Real US$ 1995

The OECD also points to the benefits of inward investment for exporters. In India, for example, the import of most consumer goods were prohibited before 1991 and inward investment was subject to a discretionary government approval system. Now, few import restrictions remain and regulations stifling the inward flow of investment have been liberalised. The result: substantial and correlating growth conditions between India’s overall trade and investment over a 20-year period (see graph).

In recognition of this, the Canadian International Development Agency administers the Industrial Cooperation Program (CIDA Inc.) to assist developing countries to increase industrial capacity through Canadian investment. The program encourages the industrial and technological development of eligible countries through the promotion of technology transfer, technical training and, most essentially, strategic alliances between Canadian and local firms.

“In Brazil, opportunities to use the CIDA Inc. program to form joint-ventures are plentiful,” says Charles Perry, Trade Commissioner with the Canadian Consulate General in Sao Paulo. In fact, the OECD found that investment flowing into emerging countries like Brazil may generate more than double the amount of future trade than the initial investment.

Canadian investment in Brazil tripled in the last ten years, from $2.3 billion in 1994 to $6.4 billion in 2004. In fact, Brazil is the second-largest destination for Canadian investment in Central and South America after Chile.

Canadian investment in Brazil has a long history, with Brookfield Asset Management Inc., or Brascan, being the first company to establish operations there in 1899. Over 400 Canadian companies have since followed Brascan and now have operations in Brazil.

Brazil is also the largest source of investment from Central and South America, with $2.1 billion invested in Canada. Interestingly, companies from other large emerging markets show a different picture when it comes to investment in Canada, with India at $62 million, China at $220 million and Mexico at $427 million.

Success stories: Canadian companies thrive in Brazil

Canadian companies have had remarkable success in Brazil thanks in part to assistance from trade commissioners in Brasilia, Belo Horizonte, Rio de Janeiro and Sao Paulo. In the last year, more than $1 billion in goods and services were exported there.

But what made these Canadian companies successful? According to Paula Caldwell, Senior Trade Commissioner with the Canadian Consulate General in Sao Paulo, a lot goes into being an export success. “They all got the basics down,” says Caldwell. “Perhaps most importantly, they found a reliable and qualified local partner. We can help them do that. They also made plenty of visits to the market to establish their business. Getting to know your customer is key,” she adds.

Here are some shining examples of Canadian successes over the past year:

Quebec-based Pulp and Paper Research Institute of Canada, or Paprican, signed a memorandum of understanding this year with the Institute of Forest Research and Studies of Brazil to cooperate in pulp and paper research. They were introduced by the Canadian Consulate General in Sao Paulo. It is hoped that this will lead to greater market access for Canadian forestry companies in Brazil.

Calgary-based Propak invested $75 million in GPU Guamaré, a gas processing unit in the Northeast state of Rio Grande do Norte. This was Propak’s second project for Petrobras, Brazil’s national oil company. In fact, among the nine largest gas processing units operated by Petrobras, three were designed, engineered or built by Canadian firms. The engineering and construction of the Guamaré plant took two years and was done in Airdrie, Alberta, and its processing capacity is 1.5 million cubic metres of gas per day.

Skywave Communications introduced its specialized technology to JaburSat, one of the fastest growing road transport tracking companies in Brazil. The Ottawa-based company’s satellite transceivers allow JaburSat to monitor the movement of trucks throughout Brazil and react on any truck delay. With almost two million kilometres of roadway spread over an area of 8.5 million square kilometres, truck transportation plays a significant role in the growth of the Brazilian economy.

Yamana Gold, formerly Yamana Resources, has invested $220 million in a large-scale copper and gold mine in the Brazilian state of Goias. Another $330 million will be invested in the coming years which will make the Toronto-based company the third-largest copper exploration company in Brazil. Yamana just bought Jacobina gold mine facilities from Desert Sun Mining Canada, aiming to become one of the biggest gold producers in Brazil.

SBB International's emergency electrical towers

SBB International has revolutionized the market for emergency electrical towers. The company has spent 10 years and over $1.5 million developing this fast-mounting tower for the transmission of electricity. In Brazil, the company has sold more than 85 emergency towers valued at more than $6 million. Its towers each provide up to 500 kilovolts of power, are composed of modular aluminum components and can be erected in just three hours.

Waterloo, Ontario-based Slipstream Data Inc. is a globally recognized software development company with customers in Latin America like POP, Terra and Embratel. The company boasts millions of subscribers in Brazil, making it the leading provider of acceleration solutions in this region. SlipStream’s significant market presence is also supported through established partnerships with key distributors and technology partners.

Film and television relationship in the spotlight

Canadian cultural industries have taken centre stage recently with announcements of multi-million dollar agreements.

Carlos Eduardo Nogueira's Desirella is about an elderly woman who wears magic shoes to make her young again. Brazil will be showcased at the Ottawa International Animation Festival.

Projects worth about $27 million were confirmed after last year’s Canada-Brazil Co-Production Forum, where 20 Canadian and some 150 Brazilian producers and experts met to discuss television and film co-production opportunities.

And just last March, the National Film Board of Canada (NFB) and the Brazilian Ministry of Culture signed a commercial cooperation agreement that will explore opportunities in co-production, film distribution, professional exchanges and the application of new production technolgies.

Brazil plays a leading role in digital cinema and is recognized as a high-quality producer of film and television. In fact, Brazil will be the featured country at this year’s Ottawa International Animation Festival from September 20 to 24, 2006, taking place during the Television Animation Conference.

Brazil is the largest entertainment and media market in Latin America. Currently valued at $12 billion, this sector represents 3.5% of Brazil’s GDP and is expected to grow 6% annually by 2010. Considering Brazil’s economic stability and prospects for growth, the number of potential consumers in this market is expected increase substantially.

Brazil agriculture sector ripe for the picking

With a diverse climate, and some 400 million hectares of agricultural land—an area bigger than the province of Quebec—the Brazilian agricultural sector is large, highly diversified and open for business.

Processed, health and organic foods are increasing in demand. In fact, Canadian agri-food producers can find even greater opportunities with these products, says Marcio Francesquine, Trade Commissioner with the Canadian Consulate General in Sao Paulo. “With high demand and low market presence, consumers are willing to pay premium prices for these foods.”

However, the expansion of the Brazilian agricultural sector—driven by the need for increased quality and productivity—has created opportunities in a other segments as well, including genetics, agricultural services, training and education. Canadian companies can capitalize on these through licensing, joint-ventures and strategic investment.

Farming now accounts for around 12% of the national GDP, considering only the value of production. Agribusiness as a whole—the sum of operations, production and distribution of supplies and new agricultural technologies—amounts to over 35% of the GDP and 37% of the country’s jobs, making the agriculture sector the main driver of the Brazilian economy.

Brazil, however, is highly urbanized with approximately three-quarters of the population living in cities. This population tends to follow westernfood trends; the biggest trend is convenience, with prepared meals, fast food and snack foods becoming more popular.

Remember that few food retailers and processors import products directly, so it is recommended that Canadian companies enlist the services of an experienced agent or invest in partnerships with local suppliers. “This ensures that the exporter has a solid understanding of the regulatory environment, marketing, promotional and business intricacies of the Brazilian industry, including the proper registration of food products,” adds Francesquine.

Environmental reputation bodes well for Canadian firms

Brazilian companies attach a great deal of importance to protecting the environment. As part of the international trend to move beyond compliance and make environmental management an important part of business success, Brazilian companies have, since the early 1990s, adopted ISO-quality standards. By December 2005, Brazil had some 2,000 companies with ISO certification for environmental management.

Canada is recognized as having leading edge technology and excellent environmental management practices. This bodes well for Canadian environmental companies interested in doing business in Brazil’s environment sector.

Environmental challenges come hand in hand with economic development. Brazil went through the consolidation of its industrial manufacturing capacity and infrastructure during the 1970s. By the early 1980s, it had a comprehensive body of environmental legislation in place, most of it inspired by U.S. regulations.

Since then, it has been consistently improving its regulatory capacity. The state of Sao Paulo has gone the farthest in introducing environmental regulations and ensuring compliance through its environment agency.

In 2005, Brazil’s environment market was estimated to be worth about $4 billion, with an expected annual growth rate of 5% over the next five years. Imported goods and services represent approximately 15% of this market and Canada is estimated to have a 12% market share.

Opportunities can be found in the following sub-sectors:

• air pollution control services and monitoring;
• industrial waste management;
• remediation/treatment of soil;
• clean process technologies;
• environmental information systems analytical software;
• consulting engineering;
• renewable energy services (solar, biomass and wind); and
• technologies and services to reduce greenhouse gas emissions.

Forestry sector market watch

Opportunities in Brazil’s forestry sector are expected to increase in the future (see box) with the expected investment of some $17 billion in pulp and paper industry upgrades and expansion projects over the next seven years. That’s about $6 billion to the paper industries, $9 billion to pulp industries and $2 billion to the expansion of planted forest areas.

Business opportunities for Canadian suppliers include:

• anti-corrosion products and technologies;
• industrial pulp and paper sludge de-watering technology;
• odour control systems;
• consulting and engineering services;
• automated manufacturing process control;
• soft pulp for packaging and wrapping paper;
• IT solutions, machine upgrades and research and technology;
• forestry management software;
• recycling and de-inking technologies;
• paper and paperboard coated with kaolin; and
• mechanized harvesting and transportation equipment.

The Brazilian forestry sector, the largest in South America, includes lumber, veneer, plywood, particle board, fibre board, cellulose and paper. In 2005, this sector accounted for 4.1% of the country’s total GDP and reported $30 billion in revenues. It exported $8.5 billion in forestry products and imported $1.5 billion worth.

Most Brazilian companies are export-oriented and are constantly upgrading capacity and technology to increase production and reduce costs. In fact, Brazilian companies are always looking for new technologies to ensure their global competitiveness—good news for Canadian exporters.

Going for gold in the mining sector

Canadian mining sector exports to Brazil accounted for $12.1 million in 2004 in a market supplied locally and valued at some $5 billion—proof that there is a lot of digging room for Canadian firms.

Moreover, according to the Brazilian Association of Equipment, demand for mining equipment should grow at 30% per year over the next five years, worth about $22 billion in sales. There are various mining projects planned or already underway creating many opportunities for Canadian suppliers of equipment and services who are ready to expand into this dynamic economy.

For example, Brazil’s Companhia Vale do Rio Doce (CVRD)—the largest diversified mining company in the Americas—is considered to be the sector’s main player in Brazil. CVRD plans to invest over $11 billion over the next five years to increase its production of coal, nickel and iron-ore.

There are already more than 40 Canadian mineral exploration companies active in Brazil—mainly gold, nickel, diamond, copper and semi-precious stones exploitations—and 10 mining equipment suppliers. But there is room for more.

The Brazilian government is working to deregulate and restructure the mining sector through the implementation of a new mining code. Canadian exporters can expect to see impressive growth based on the sheer size of this territory and the diversity of its geological resources.

Brazil boasts more than 1,700 open pit mines and 180 underground mines. It produces 22% of the world’s supply of iron ore and has 94% of the world’s reserves of niobium. The country has significant reserves of tantalite, not to mention a huge variety of other metals and minerals.

Brazil is the fifth-largest mineral producer in the world. Primary mining contributes about 2% to the country’s GDP, or $18 billion in 2004, while mineral transformation contributes 8% towards the GDP, about $71 billion.

Public auctions open up power industry

Canada has a lot in common with Brazil when it comes to electric power systems. Both systems, for example, are predominantly hydroelectric and are supported by long transmission lines. These similarities, and the fact that Canadian technical standards are recognized in Brazil, can give Canadian power products, services and technologies a possible edge over competitors.

“Canadian firms can form consortiums with Brazilian companies to bid in auctions for the concession of power generation, transmission and distribution services and/or target the winners of these auctions to provide them with product, services and technologies,” says Marie-Josée Gingras, Trade Commissioner with the Canadian Consulate General in Rio de Janeiro. She adds that under Brazil’s New Electricity Model, which came into effect in 2004, concessions for generation, transmission and distribution are now awarded through public auctions.

Small companies can get in on the action too. “In 2003, Brazil created a renewable energy program to encourage investment in biomass, wind power and small hydro power plants,” says Gingras. Alternatives like fuelled thermoelectric generation are also becoming attractive. Brazil’s National Development Bank recently created a financing program for the power sector and Export Development Canada is also interested in supporting such projects.

Brazil will invest some $67.5 billion in generation and transmission over the next 10 years. This includes the Rio Madeira hydroelectric complex and a variety of hydro and transmission projects.

In 2004, Canada exported over $19 million of electric power equipment to Brazil, the third-largest producer and consumer of electricity in the Western Hemisphere.

Get connected to ICT opportunities

Brazil has great potential to become an important partner for Canada, with opportunities in software development, telecommunications, Internet technologies and banking.

The Brazilian software industry is one of the country’s most dynamic sectors and has been targeted as a business development priority by its government. Software sales were forecasted to exceed $12 billion in 2005, with imported products expected to account for over 40% of those sales. Opportunities for Canadian companies exist in business intelligence, mission critical enterprise software, e-business and electronic document management.

“The privatization of telecommunications infrastructure has been a key factor in the increased use of ICT,” says David Verbiwski, Trade Commissioner with the Canadian Consulate General in Sao Paulo. As a result, the number of fixed lines has increased to over 40 million with another 40 million Brazilians using cell phones. Moreover, convergence strategies are becoming more popular. “With the widespread development of Voice Over Internet Protocol, or VoIP, more companies are looking to incorporate Internet telephony with their broadband offerings. In fact, several companies have already combined VoIP, broadband and pay TV services,” adds Verbiwski.

Brazil dominates the South American Internet market with some 25 million users. Since 2002, there has been a steady migration from dial-up to broadband, and while virtually all cable television companies offer modem services, ADSL is the access technology of choice, accounting for 83% of the country’s broadband market.

The Brazilian banking system is also advanced, with opportunities in IT security, auditing, fraud detection, regulatory compliance and IT Infrastructure Library technology.

Oil and gas opportunities run deep

The ambitious investment plans of over 30 international and local petroleum firms will open a wide range of opportunities for Canadian suppliers interested in Brazil’s burgeoning deepwater oil and gas industry.

Brazil has launched an aggressive drive to increase its oil and gas production. Planned investments in this sector—greater than in any other industrial sector—could exceed $13 billion in 2006. Market forecasts indicate that, over the next ten years, the volume of investments may reach $95 billion for exploration, production, transportation and refining. Another $17 to $23 billion is expected to be allocated to natural gas projects including those related to thermal power plants and pipeline infrastructure.

While deepwater exploration and production is undoubtedly the greatest achievement of Brazil’s petroleum industry, there are challenges. While Brazil has the second-largest proven oil reserves in South America at 11 billion barrels, a deepwater supply requires extensive capital investment. Overall, the U.S. Geological Survey and International Energy Agency refer to deepwater fields as the world’s most promising sources of oil, with reserve potential greater than 100 billion barrels.

Since 1980, the country’s oil production has grown at an average of 9% per year. Today,

Brazil’s oil and gas market represents 9% of the country’s GDP. In 2004, it produced an average of 1.6 million barrels of oil per day.

Canada helps shape Brazil’s health sector

The adoption of a Canadian health services accreditation system in Brazil will enhance the reputation that Canada enjoys in Brazil’s health sector and may also provide Canadian suppliers of medical equipment and services with an additional—and powerful—tool to promote their products.

Over the past decade, both the private and public healthcare systems in Brazil have made great efforts to improve the quality of medical services and the modernization of management practices and systems.

To boost quality standards in health care, the Canadian Consulate General in Sao Paulo approached the Canadian Council of Health Services Accreditation (CCHSA) in 2002 to discuss a strategy to introduce the Canadian accreditation system to the Brazilian hospital market.

CCHSA, which has been active in Canada for over 50 years with projects throughout the world, was a perfect match for the needs and requirements of Brazilian private sector hospital managers. CCHSA offers a system that not only is recognized internationally for its high quality but has the flexibility to take into consideration the particularities of the Brazilian market.

Despite the economic crisis that plagued emerging economies in the late 1990s, Brazil still ranks among the 10 largest health markets in the world, generating some $67 billion in annual revenue. With over 50,000 hospitals, thousands of medical laboratories and other health services for a population of some 185 million people, the Brazilian hospital sector cannot be ignored.

Brazil to showcase e-government opportunities

Ottawa, Ontario, October 23-25, 2006 > Canadian ICT exporters will have the chance to network with the Brazilian e-government sector at GTEC 2007—a unique and multi-faceted learning and networking event for public sector IT professionals.

Brazil, the featured country at GTEC, will showcase its innovative expertise and technology solutions driving government online across the country.

Facts on Brazil

• Exports to Brazil: $1.1 billion (2005)
• Imports from Brazil: $3.1 billion (2005)
• Canadian Direct Investment in Brazil: $6.4 billion (2004)
• Brazilian Direct Investment in Canada: $2.1 billion (2004)
• Canadian Visitors to Brazil: 30,400 (2004)
• Brazilian Visitors to Canada: 52,000 (2005)
• Language: Portuguese
• Population: 188 million
• GDP per capita:$4,800 (2005)
• City population (2005):
1. Brasilia (Capital): 2.2 million
2. Sao Paulo: 10.3 million
3. Rio de Janeiro: 6.1 million
• Total area: 8.5 million square kilometres

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