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Brazil: Challenges and Opportunities for Singapore businesses

International Enterprise (IE) Singapore's Centre Director for Latin America offers insider tips and insights

Economic Cooperation Between Singapore & Brazil

During Prime Minister Lee Hsien Loong's visit to Brazil in November 2008, he and President Luiz Inacio "Lula" da Silva witnessed the signing of the following agreements between Brazil and Singapore: the Bilateral Air Services Agreement (ASA); the Memorandum of Understanding (MOU) on Establishing the Joint Committee on Promoting Trade and Investment; and the MOU in Science and Technology Cooperation.

The ASA supersedes the one signed in 1997. The new ASA liberalises traffic rights between Singapore and Brazil and will open up more flights between the two countries. Airlines from both countries can now operate a total of 28 weekly passenger flights and 14 weekly cargo flights between Singapore and Brazil, compared to only 6 weekly flights (either passenger or cargo) under the previous ASA.

The MOU between the Ministry of Trade and Industry of Singapore and the Ministry of Development, Industry and Foreign Trade of Brazil will lead to the establishment of a Joint Commitee for government-to-government discussions on improving the regulatory environment for business and investment between the two countries.

As can be expected amid the current global financial crisis, Brazil is experiencing the usual signs of economic slowdown: higher unemployment; lower industrial output; reduced trade and investment; and decreased spending in most higher ticket items such as real estate.

In light of its current situation, does Brazil still offer opportunities for Singapore businesses?

inews spoke with Clarence Hoe, IE Singapore's Centre Director for Latin America to gather insider tips for local companies keen on expanding to Brazil.

According to Hoe, Brazil's strong internal demand, market fundamentals and government support offer some reassurance in the face of a dimming economy.

"The banks have limited exposure to the subprime crisis of the United States. Inflation is estimated to drop to 3.5 percent from 4-5 percent in 2008, which will help maintain domestic spending," Hoe said.

He added that in order to stimulate the economy, the government created a package to reduce tax and committed to maintain or accelerate key infrastructure projects to ensure employment. The government also has US$200 billion in reserves to soften the blows of the crisis.

Opportunities in Growing Industries

When asked about the sectors that hold the most opportunities for Singapore companies, Hoe listed the following industries:

• Oil and Gas - Petrobras, a semi-public Brazilian energy company, recently published its revised investment plan for the next five years. Its proposed capital spending of $174 billion over this period exceeds the entire economy of Chile.
• Air and Sea Ports - Only 15 out of Brazil's 62 airports are profitable, while its sea ports still exhibit a low level of automation. The government is thus expected to invest US$9.05 billion in improving port efficiency in the next five years.
• Infrastructure - Growth Acceleration Plan (PAC) projects are scheduled to continue and accelerate.
• Low-income Housing - There is a new project to use resources from the Employee's Guarantee Fund (FGTS) to build one million low-income houses in the next two years.
• Agribusiness - Brazil has 250 million hectares of available land for agriculture and continues to be a worldwide reference in this sector.
• Finance - The banking system will continue to show high revenue levels, thanks to highly capitalised local banks, tight credit requirements and high interest rates. The creation of a Government Sovereign Fund for investment should also spark financial and investment interest.
• Information and Communication Technology - Growing consumer demand in the ICT sector offers opportunities for companies dealing with mobile applications and web content and solutions among others.

More Reasons to Consider Expanding to Brazil

Hoe indicated several factors that make Brazil favourable for foreign investors, the first being the country's huge domestic market. Its current population of 190 million is the biggest in South America and fifth in the world.

This not only translates to strong internal demand but also availability of manpower, ranging from technical skills to professor level. Brazil has a 1.73 percent share of scientific articles published in international journals, which is higher than Taiwan, a leader in research and development.

Hoe also noted that Brazil has enjoyed political stability in the last decade and has established a pro-business administration that aims to reduce bureaucracy and corruption and promotes incentives and policies to attract foreign direct investment (FDI). FDI doubled from US$16 billion in 2006 to US$35 billion in 2007 and stayed at US$32 billion in 2008.

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