An international business series on trade and emerging markets
For the first-time visitor to Brazil, São Paulo offers a spectacular view of the complexity, energy and vast opportunities of one of the world’s fastest-growing economies.
At first glance, this city of more than 19 million is breathtakingly modern. Its glimmering office towers and sprawling condominium developments symbolize its wealth and its role as the epicentre of Brazil’s economy, the sixth largest in the world. The reality is more diverse; while São Paulo’s extensive road network includes modern, multilane highways, it is also challenged with congested and potholed back streets, many of which are flanked by favelas – the notorious, swarming shantytowns where many of Brazil’s poorest citizens live.
Despite these challenges and the other problems that confront most growing economies, the outlook for both São Paolo and Brazil is overwhelmingly positive, and experts say that the country’s rapidly growing economy spells opportunities for Canadian businesses in sectors ranging from infrastructure to ICT services to education.
“You have to step back and look at a couple of things, starting with Brazil’s demographics and its global competitiveness,” says Eric Bonnor of Brookfield Asset Management, the Canadian investment giant that began operating in Brazil in 1899. “About 40 per cent of Brazil’s population is 25 years old or younger. This group’s rising buying power provides a strong growth opportunity for the next 20 to 30 years, similar to that of the United States in the early 1970s.”
As for Brazil’s global competitiveness, this extends to major commodity sectors including energy, mining, and forestry, and agricultural products such as soybeans, sugarcane, beef, poultry and orange juice. Consequently, says Mr. Bonnor, “you have a great platform from which you can work. Brazil’s government is putting time and money into sectors that will support continuing growth, and they’re seeking international investments and partnerships to help build on these strengths.”
Mr. Bonnor, who spent six years living and working in Brazil, adds that clean technology – from water treatment systems to run-of-river hydroelectric plants – is a sector in which Brookfield has a strong Brazilian interest. It is also one of many sectors where Canadian expertise matches Brazilian needs.
Jean Cardyn, EDC regional vice-president of South America, cites the need to fill major gaps in the country’s infrastructure, including ports, roads, airports, light rail and mass transportation systems. “The numbers are staggering,” he says, noting that some 7,500 km of highway and 10,000 km of railway line projects are up for concessions. Brazil must also increase its electricity generating capacity by 6,000 MW per year merely to keep up with the population and economic growth expected over the next decade. As for oil and gas, the Brazilian energy giant Petrobras plans to invest more than $235 billion to develop onshore and offshore reserves between now and 2015. “Even if this doesn’t all happen as planned,” says Mr. Cardyn, “the opportunities are still significant.”
Other opportunities are linked to the country’s burgeoning middle class. According to the government, this demographic expanded by 31 million between 1999 and 2009, and topped 90 million in April 2011. As Mr. Bonnor observes, “Brazil’s growing middle class is seeking products, credit, housing – you name it.”
Mr. Cardyn agrees, citing the government’s $17 billion worth of home construction programs aimed at improving living conditions. Brazil also plans to invest $8 billion in mobile technologies, broadband networks and digital-cities initiatives by 2015. “Brazilians are heavy mobile phone users,” he notes. “With more than one mobile phone per person, that’s 250 million phones. Yet smart phone penetration is currently at just two per cent.” Brazil is also the world’s fifth-largest Internet user but this ranking is likely to rise, thanks to $4.5 billion worth of investments in improving the country’s broadband network.
Brazilian national Raul Papaleo, a former senior executive with Hewlett Packard and now the Toronto-based president of the Brazil-Canada Chamber of Commerce (Braz-Can), says that although the states of São Paulo, Rio and Minas Gerais typically garner the most attention, Brazil’s opportunities and needs are widespread. “Economic growth in northeast Brazil – formerly the country’s poorest region – has been faster than that of China. They need everything, and the states in this region are offering incentives to organizations that want to do business and invest.”
Braz-Can expects to host a number of Brazilian officials in Canada over the next six to eight months to talk about the country’s needs. “Because of the economic situation in Europe,” says Mr. Papaleo, “people have started to look for strong partners elsewhere. Canada is now one of the first choices in terms of trade and investment.”
Mr. Papaleo notes that the deepening Canada-Brazil relationship is evident in other developments too, such as Prime Minister Stephen Harper’s 2011 visit to Brazil, when he and Brazilian President Dilma Rousseff signed several agreements. In April 2012, Governor General David Johnston also went to Brazil and met with President Rousseff to further Canadian involvement in the Science Without Borders program. Mr. Papaleo estimates that this program will eventually see some 12,000 Brazilian students come to Canada to take MBAs and PhDs.
Beyond fostering stronger cultural ties, education has a clear commercial dimension. “Brazil needs skilled workers,” says Mr. Bonnor, “and there are limited numbers of technical schools turning out technicians and engineers. As a result, Canadian organizations that provide technical skills training would be wise to look to Brazil.”
While opportunities are abundant, Mr. Papaleo cautions that Canadians should approach Brazil with a well-thought-out, long-term strategy. “It’s not the transparent, English-speaking environment of the United States, but there are still great growth opportunities here that should not be ignored.”
Mr. Papaleo says that Canada’s cost-competitiveness in manufactured goods is another advantage for Canadian firms doing business in Brazil. “Canadian brands are considered affordable and of good quality. I think Canada could promote its brand even more, as the Americans did some years ago.”
Before rushing in, however, a Canadian company should take the time to understand Brazil’s language and culture, market drivers, competitive environments and bureaucratic hurdles, as well as challenges such as labour availability and industrial costs. Mr. Papaleo also notes that a business’s structure – whether it’s a partnership, joint venture or an independent enterprise – will affect its access to incentives. These can be important, since in some instances they can reduce corporate taxes from the range of 10 to 17 per cent to as low as one to two per cent.
Both Mr. Papaleo and Mr. Cardyn say that organizations such as Braz-Can, EDC and the Canadian Trade Commissioner Service can provide guidance and can connect Canadian businesses with organizations and people who can help them succeed in Brazil.
Brazil Market Strategy:
Establishing Local Partnerships 2012
Date: October 16, 2012
Time: 11:30 a.m. – 12:30 p.m. (EDT)
Learn more about Brazil’s market risks, benefits and investment opportunities. Join EDC and experts from Alothon, Deloitte and Heenan Blaikie as they explore the business potential in Brazil.
Register now: www.edc.ca/CDIAbrazil2012
Raul Papaleo is president of the Brazil-Canada Chamber of Commerce in Toronto
“Economic growth in northeast Brazil – formerly the country’s poorest region – has grown faster than China. They need everything. And the states in this region are offering incentives to organizations that want to do business and invest.”
CASE STUDY: Bétons Préfabriqués du Lac
In André Bouchard’s opinion, companies that are serious about growth have to expand beyond Canada’s borders. “If you stay in your home town, you won’t go anywhere as a business,” says Mr. Bouchard, president and CEO of Bétons Préfabriqués du Lac (BPDL), a Canadian firm that opened a Brazilian operation nearly 20 years ago and has never looked back.
Based in the small community of Alma in Quebec’s Lac St-Jean region, BPDL specializes in the design, engineering and fabrication of precast concrete components for large buildings such as hotels, office towers and condominiums. The company has undertaken numerous high-profile jobs, one of which was providing the concrete bleachers and exterior walls for the new Yankee Stadium, which opened in 2009. That project involved the shipping of 1,900 truckloads of precast concrete components from three Quebec factories to New York City.
BPDL first entered the Brazilian market 18 years ago, at the invitation of Brazilians who had heard of the company. The firm had already built a solid book of business in Canada and the United States and was looking to expand outside North America. Its Brazilian operation, located in the city of Barueri in the greater São Paulo region, now functions completely independently of its Canadian parent, under the name of Stamp pré-fabricados arquitetônicos ltda.
Mr. Bouchard says that BPDL started by bringing its technology to Brazil and, working from a rented factory, began building staff and expertise on-site. As local expertise grew, so did the number of work orders, although there were a few bumps along the way. Operating efficiently required everyone in the firm to be on the same page but, according to Mr. Bouchard, establishing “the Canadian way of doing things” in BPDL’s Brazilian operation was no small feat.
The initial hurdles were overcome, however, aided partly by Bouchard’s visits to Brazil every two months and his daughter’s 10-year stay in the country to help supervise the business. Once the operation settled down, Mr. Bouchard found that his Brazilian employees grew increasingly committed and hard-working.
The country’s political stability, combined with its growing economy and large population, continue to provide amazing opportunities. “We’re fully booked for a year ahead and we actually have to turn down work,” says Mr. Bouchard. “And Brazil is a great country. Sometimes it’s hard to convince Canadians working there to go back home.”
André Bouchard is president and CEO of BPDL Inc.
“We’re fully booked for a year ahead and we actually have to turn down work.”