The location of the India-Brazil Chamber of Commerce’s office says a great deal about the trade relationship between the two developing countries. Based in Brazil’s hilly state of Minas Gerais, the Chamber is more than 500km from most companies’ headquarters in São Paulo, but only a short drive from some of the country’s largest mines.
Metals, along with other commodities such as crude oil and sugar, make up the vast majority of Brazilian exports to India. Crude oil alone accounts for 45 per cent of the value of shipments to the Asian country, according to the latest data from Brazil’s ministry of trade. According to Thomson Reuters, exports to India stood at $3.6bn in the 12 months to last November (see graphic).
While Brazil’s politicians have talked fervently over the past few years about a new relationship with fellow emerging markets – a south-south alliance in defiance of “old world”-trade – data show its commercial links with these countries are as problematic as they have been with the US and Europe.
India and China largely sell manufactured goods to Brazil, using the country as a base for serving the rest of the growing Latin America market, but Brazil has done little but ship basic commodities in return.
Roberto Dumas Damas, a professor at the Brazilian business school Insper and a specialist on China, says: “Here in Brazil, we have a rather sad saying that goes like this: ‘Brazil doesn’t sell to China, China buys from Brazil’.”
Thomson Reuters estimates that total exports to China in the year to last November stood at $45.9bn, while imports totalled $40.7bn.
Soyabeans and iron ore account for 75 per cent of Brazilian exports to China in value terms, while China’s largest exports to Brazil are mainly components for televisions, computers and mobile phones.
Similarly, India imports vast quantities of crude oil from Brazil and sends it back as refined diesel, along with other desired exports such as medicines, textiles and plastics.
Brazil’s relationship with Russia – the remaining “Bric country” – is little different: it mainly exports beef, sugar and pork, while Russia sells back goods with greater added value, such as fertilisers and aluminium.
The nature of Brazil’s unequal relationship with its fellow emerging markets extends beyond trade. While Chinese and Indian companies have begun to venture into Brazil, not only to exploit the country’s natural resources but also its fast-growing consumer market, few Brazilian companies have made the return trip.
In 2010, the Chinese refiner Sinopec announced it would buy 40 per cent of the Brazilian arm of Spain’s Repsol for $7.1bn to gain better access to Brazil’s vast oil reserves. Chinese companies PetroChina and Cnooc were also part of a consortium that won the rights to Brazil’s vast deepwater oilfield, Libra, in an auction last year.
Meanwhile, Chinese consumer-focused companies, such as the automaker Chery, have expanded across Brazil. After winning over middle-class drivers with low-cost cars, it will open its first factory in the country this year. Chinese banks have followed suit.
“On the other hand, Brazilians barely invest in China?.?.?.?they like to stay within their familiar ‘backyard’ of the US and Europe,” says Insper’s Prof Dumas Damas.
While this is largely a result of language and cultural barriers, it is also partly the Brazilian government’s fault. Politicians have pursued unhelpful policies and done little to make it easier for businesses to venture into the Chinese market, he says.
Although production costs are rising in China as the country shifts to a consumption-led model of economic growth, it still makes sense for many Brazilian companies to outsource their production there to avoid extremely high costs at home.
“The time to ‘discover’ China has long gone. The most profitable time to be in China has passed, but there is still a lot of room to make money there,” says Prof Dumas Damas.
Similarly, Leonardo Ananda Gomes, the executive director of the Brazil-India Chamber of Commerce, sees many untapped opportunities for Brazilian companies in India. “One particularly interesting possibility for Brazil is the exportation of processed foods to India,” he says.
“Ten years ago supermarkets basically didn’t exist in India – as logistics were very difficult – but now they do.”
While Brazilian companies have generally been slow to explore foreign markets, there are notable exceptions, he says.
In 2006, the Brazilian bus manufacturer Marcopolo signed a joint venture with India’s Tata Motors to build buses and coaches for the Indian market from a plant in Dharwad in India.
Embraer, the Brazilian aircraft maker, clinched its first big deal in India in February. The company, which ranks as the world’s largest maker of regional aircraft, sold 50 jets valued at $2.94bn to the Indian domestic carrier Air Costa.
The Brazilian manufacturer has also expanded into China, winning approval in 2012 to build its Legacy 600/650 business jet at a plant in the northern Chinese city of Harbin.
Brasil Foods, Brazil’s largest food group, has pursued a similarly aggressive expansion plan in China, forming partnerships with local distributors.
Given that China overtook the US to become Brazil’s biggest trading partner in 2009 – and is set to play an ever-bigger role in the global economy – Brazilian companies have no choice but to follow in the footsteps of Embraer and Brasil Foods, says Prof Dumas Damas.
“It’s no longer acceptable for a Brazilian producer not to at least investigate the possibility of China,” he says. “In fact, every shareholder should be asking their companies why they’re not already there.”
Fonte: Financial Times – 29/04/2014
Centro de Gestão e Políticas Públicas do Insper amplia ações em ensino, pesquisa e difusão de conhecimento