BRAZILIAN COMPANIES IN AFRICA
BRAZIL STEPS UP THE PACE IN AFRICA
China has been boosting its economic presence in Africa for more than a decade and India has
not been far behind as an investor in the sub-continent. Now Brazil is the latest emerging economic
powerhouse to try and stamp its mark on Africa. However, in contrast with China, it is Brazil’s private
sector that is breaking ground mostly by itself in countries such as Sudan and Angola. The
expectation is that cultural affinities, technological ability and, hopefully, maybe a little push from
the government in form of favourable credit lines, will help Brazilian firms to carve themselves a
larger space in one of the fastest growing regions of the world. Rodrigo Amaral reports.
STRENGTHENING COMMERCIAL LINKS with Africa has been a diplomatic priority for the government of president Luiz Inacio Lula da Silva.
Trade with the region has been on the rise in the past two decades. Since Lula came to power, in 2003, exports to African nations increased fourfold to $10.2bn by the end of 2008. The global economic crisis made a dent in the country’s performance last year, but volumes look to be recovering again. In 1989, Brazilian exports to Africa, excluding Middle Eastern countries, amounted to less
than $1bn. In 2010 meantime, the same benchmark was breached in the first two months of the year. Trade in the other direction has increased even more steeply. In 1989, Brazil imported less than $600m of African products; last year, the volume was $8.5bn
Even if the raw numbers look impressive, there is a feeling among many Brazilian companies that much more can be done to take Advantage of the rapid development of Africa, as the share of Brazilian exports represented by sales to Africa still amounts to less than
6% of the country’s overseas sales. Big Brazilian multinationals like Petrobras (oil), Vale (mining) and Odebrecht (construction) have for some time added Africa to their range of international operations. Now however, even smaller companies are beginning to engage in their own African adventures.
One sector where interest has been greatest is agribusiness. Brazil has transformed itself into a major agriculture power over the past two decades and companies have identified conditions in Africa to replicate some of their successful experiences at home. For instance, in April this year, Grupo Pinesso, a large agriculture conglomerate based in the farming state of Mato Grosso, announced it would begin producing soy beans and cotton in Sudan. The deal is based on a partnership with Agadi, a Sudanese company, and stipulates that the Brazilians will oversee the cultivation of 400 hectares of cotton and 100 hectares of soy beans, while providing technical expertise and the latest technologies.
The end goal is more ambitious: to invest $200m over four years to spread cultivation over a total of 100,000 hectares. Net profits are to be shared between the two companies. Grupo Pinesso has announced plans to take part in a similar project in Ethiopia too.
Two facets of doing business
The project reflects two facets of doing business in Africa. On the one hand, it is necessary to rebuild capacity lost over decades of mismanagement or war.
On the other, there is the opportunity to find new areas of cultivation where African countries can excel. While Sudan, for instance, had a long history of cotton cultivation which degraded over the years through neglect and mismanagement, an opportunity now exists to change to soya cultivation, as production costs are projected to be only half those in Brazil. “The Sudanese had never planted soy beans before,” says Paulo Hegg, a foreign trade consultant based in São Paulo who helped to develop the contacts between the Brazilians and the Sudanese. Hegg thinks that Sudan could be producing the commodity with techniques similar to those that catapulted Brazil to the top league of agricultural producers.
When he announced the Sudan deal, Grupo Pinesso highlighted not only the favourable production conditions of the land, but also its prime location for Brazilian companies to reach near markets such as India and China, which are geographically too far away from
Latin America.
There are also opportunities closer to home. Hegg points out that, being made in a poor African country, Sudan’s agricultural products enjoy very favourable conditions to enter European markets; something that Brazilian producers can only dream about. Setting up shop in a country such as Sudan could be a strategy to reach a protectionist market that is usually very hard for them to tackle. “We are taking a shortcut, albeit one that is longer than the actual road, to European markets,” he says.
He points out that Tirolez, a dairy company owned by his family, is itself thinking of creating a cheesemanufacturing plant in Sudan. “Sudan has the land and plenty of sun, and they are in a good geographic position to export to markets such as Europe and Saudi Arabia,” agrees Everardo Mantovani, the chief executive officer of Irriger, an engineering and consultancy firm that has been managing irrigation projects in the country. Companies like his represent another facet of Brazilian business with Africa, mainly the transfer of technologies that could help boost the local economy. Irriger, itself a small company, has been working in Sudan since 2008and already has four representatives living there. One of the main attractions for the firm is the sheer size of projects that are demanded by a country where a lot of things still need to be put in place.
“There are irrigation projects in Sudan that we would not even dare thinking about in Brazil,” Mantovani says. “Here, a large projectinvolves some 5,000 hectares of land. In Sudan, they routinely talk about 10,000, 50,000 or 100,000 hectares for a project.” Brazilians are world-beaters in technology for agriculture, and the state-owned company Embrapa is a world-class reference of research in the area. This is another key that is opening doors for Brazilian entrepreneurs in the continent. Hegg says that during a meeting of the Brazilian government with 43 African Agricultural ministers in May, almost all of them asked whether it would be possible for Brazil to take Embrapa to their countries.
Sugar and ethanol
Sudan has also been favoured by a number of Brazilian companies that produce sugar and ethanol, and which have identified the country as a place where the production of sugar cane and its subsequent processing can be done at very reasonable costs. Some ethanol
projects are being developed with the participation of firms such as Irriger, and Kenana, a Sudanese firm, which purchased in 2009 a €15m plant in Brazil to begin producing ethanol there. Some might think that transferring prime technology in a nascent, strategic industry like ethanol to a possible future competitor could be a risky thing for Brazilian companies to do. However, market players say that this is exactly what Brazil should do to advance its long term interests in the sector.
“Today, nobody wants to be dependent on a single provider of fossil energy,” explains Antonio Carlos Christiano, the chief executive officer of Sermatec, a leading provider of equipments to sugar and ethanol plants. “In the same way, nobody will want in the future to rely on a single producer of ethanol. We need to consolidate an international market for ethanol, and helping Africa to produce it is a tool for it.” “We see Africa as a region with great potential to produce ethanol in a similar way that Brazil does,” Christiano remarks. “The weather, the land and the water sources are much alike the conditions we have in
Brazil. Therefore we at Sematec see Africa as a huge commercial opportunity.” His firm is involved in an initiative to create a large ethanol complex in Angola, another country that is firmly in the radar of Brazilian firms. The U$200m Biocom project has among its partners Odebrecht and Sonangol, the state-owned Angolan oil producer. Thanks to an oil bonanza and the efforts to rebuild the country after a long civil war, Angola is living an economic boom and, not only for technological reasons, but cultural ones too, is particularly welcoming to Brazilian companies, according to Mr Christiano. “The Angolans love Brazilians,” he says. “The shared language, the TV shows, and the
Brazilian football team, actually they are of great help to us there.” Other companies say that the favourable view of Brazil, which boasts the largest population of African origins outside Africa, is an asset for them elsewhere in the continent too. They claim that many Sudanese, for example, appreciate that Brazilians don’t subscribe uncritically to American-inspired views of the country, which have turned Sudan into a pariah with the West. "”Sudan is a very little known country,” says Mantovani, who has become a frequent visitor in the past two years. “No one denies the problems in Darfur, for instance. Behind the American embargo is the fact that the Americans have been left out of oil exploration there, to the benefit of the Chinese.”
Upside and downside
Not everything however is conducive to improving Brazil’s economic links to Africa. “Other companies are coming to Sudan,” says Mantovani. “It is a big movement, but a recent one too. The main hurdle right now is the lack of official credit lines to trade with Africa, and it is hard to compete with the Chinese and their costs.” There are also other problems. Christiano complains that, when he makes a sale to his Angolan clients, payments take three times longer than when he sells to a client in Argentina. The reason is all the financial engineering required to make a deal to happen. Hegg mentions the case of one particular of ethanol plant to be set up in Sudan that was fully designed in Brazil by local experts, but, when the time came to purchase equipment, the successful contractors turned out to be Indian. “Our ethanol technology is better than India’s; but they are very inexpensive and have access to official funding too,” he says.
BNDES, the development bank, which provides favourable credit lines for companies that trade with countries like Argentina and others of Brazil’s main commercial partners, is said to be studying the creation of such instruments. However, firms acknowledge that this is not an easy thing to do, due to the financial and political risks involved. However, if Brazil wants to fulfil its pledge to become a major player in Africa, as China has done, something of this sort will have to be arranged. “Brazil is expected to become the fifth largest economy in the world,” says Hegg. “We have to begin to think big as well.”
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