Câmara de Comércio Sueco-Brasileira Swedish-Brazilian Chamber of Commerce BRAZIL - Country Report March 2005.

Câmara de Comércio Sueco-BrasileiraSwedish-Brazilian Chamber of Commerce

BRAZIL - Country Report

March 2005


• It is the largest economy in South America and the 12th largest economy in the world

• After years with of a protectionist economy Brazil opened the economy for foreign competition in 1990

• The government is commitment to privatization and lower import tariffs

• Brazil has since 1985 a stable democratic government

• The country has a huge potential growth

• It is use by foreign companies as a gateway to Mercosur and other South American countries

• Brazil is one of the largest recipients of FDI in the world

• The economy and industrial production are growing

• There is a large and traditional Swedish presence in Brazil

There are several compelling reasons for doing business in There are several compelling reasons for doing business in Brazil.Brazil.


• Brazil basicsBrazil basics

• Economy

• Foreign direct investments

• Swedish presence in Brazil

• Swedish-Brazilian trade

AgendaAgenda


Brazilian basic facts

• 5th largest country in the world in area (19 times larger than Sweden)

• 174,5 million inhabitants (5th after China, India, USA and Indonesia)

• 30 million consumers with Swedish purchasing power or stronger

• 47% of total GDP in South-America

• FDI investments were US$ 18,2 billion in 2004

Source: Estado de São Paulo (Brazilian newspaper) /

IBGE (Brazilian Institute of Geography and Statistics )

Brazil is a huge country in many aspects.Brazil is a huge country in many aspects.


Source: Swedish-Brazilian Chamber of Commerce /

STC Brazil

Brazil - 8 500 000 Km2 Europe - 6 000 000 Km2

Sweden - 450 000 KmSweden - 450 000 Km22

Europe easily fits inside Brazil's boundaries.Europe easily fits inside Brazil's boundaries.

• Rio de Janeiro

• Porto Alegre

• Curitiba• São Paulo

• Belo Horizonte

• Recife

• Fortaleza• Belém

• Manaus

• Brasilia

Lisbon • • Madrid

• Paris

Rome •

• Berlin

• Athens

Oslo • • Stockholm

• Helsinki


Mid. WestMid. West

SouthSouthSouth - EastSouth - East

NorthNorth

North-EastNorth-East

Political system:

President:

States:

Largest cities:

Exchange rates:

Life expectancy:

Urbanization:

Brazil is usually divided into five different geographic Brazil is usually divided into five different geographic regionsregions

Democracy

Luis Inácio Lula da Silva

26 and a federal district

Brasília (capital), São Paulo, Rio de Janeiro, Curitiba, Porto Alegre, Belo Horizonte

USD 1.00 = R$ 2.70R$ 1.00 =SEK 2.60

67.6 years

82%


• Brazil was discovered in 1500 by Portuguese explorer Pedro Álvares Cabral, and was divided into a series of separate colonies until its independence was declared

• Brazilian independence day is September 7, 1822, followed by an imperial period, marked by educational promotion, communications improvement and agriculture development. Also in may, 1888, slavery was abolished

• Brazil was declared republic on November 15, 1889. This period was marked by two long dictatorship periods, totaling 36 years (1930 to 1945 - 1964 to 1985)

• In march 1985 power was transferred to a civilian president, and a new constitution was approved in 1988. On November 1989 the first presidential elections of the post-military era were held.

Source: KPMG

Brazil has gone through many changes since it was Brazil has gone through many changes since it was discovered in 1500.discovered in 1500.

Brazilian history


Brazilian culture

• Brazil´s inhabitants are a mix of many races

• Portuguese colonizers mixed with the native Indians and African slaves

• Dutch and French colonization also took place in the Northeast. In the 19th century, waves of German, Italian, Polish and Japanese immigrants added new elements to the mixture and established settlements mainly in the South Region

• Portuguese is the national language, but Brazilian Portuguese is very different in accent and intonation compared to the language spoken in Portugal

• Religion: Roman catholic:88%; Protestant: 6%; Afro-Amer. Spirit: 2%; Spiritist: 2%; Atheist: 1%; Other: 1%

Source: STC Brazil

Brazilians are perhaps one of the most racially mixed Brazilians are perhaps one of the most racially mixed people in the world.people in the world.


• Mercosur is a common market between Brazil, Argentina, Paraguay and Uruguay, and with Chile and Bolivia as associated, not yet full members.

• It is a market with a population of about 200 million people and a total GDP of approximately 1.000 billion USD

• The principal Mercosur objectives as stated in the Treaty signed in 1991 are:

Key figures about Mercosur

Source: KPMG

Mercosur is a growing common market Mercosur is a growing common market in South Americain South America

– Free transit of goods, capital and services

– To follow a common trade and economic policy, adopting a Common External Tariff (TEC)

– Co-ordination of macro and sector economic policies

– Commitment of members to adjust their legal framework to facilitate integration


• Brazil basics

• EconomyEconomy




AgendaAgenda


Current economic outlook

2003-2004: The elected president – Lula – continued economic politics:

• Maintain fight against inflation

• Keep primary surplus in budget

• Continue paying foreign debt

• Keep privatizations

• Incentives to exporters

After a period of turbulence the economy was stabilized After a period of turbulence the economy was stabilized during 2003 and showed a healthy growth in 2004during 2003 and showed a healthy growth in 2004

Speculations and uncertainty related to the presidential elections led to significant economic turbulence during 2002.


Current economic outlook

The business climate is positive right now – but the Lula The business climate is positive right now – but the Lula government has a number of important issues to deal with government has a number of important issues to deal with

- Total tax pressure is high: 38 %- Interest rates are very high: ~19%- Need for investments in infrastructure- Bureaucracy continues as a problem- Government agencies are less independent- Security is a main concern

- Total tax pressure is high: 38 %- Interest rates are very high: ~19%- Need for investments in infrastructure- Bureaucracy continues as a problem- Government agencies are less independent- Security is a main concern

+ Industry growth is high: 7,6 %+ GDP higher than expected: 5.2 %+ Currency stable + Inflation controlled: 7,6%+ Country risk below 400+ Exports are over USD 100 Bi (+32%)

+ Industry growth is high: 7,6 %+ GDP higher than expected: 5.2 %+ Currency stable + Inflation controlled: 7,6%+ Country risk below 400+ Exports are over USD 100 Bi (+32%)

but

• The big challenge is now to carry out some important reforms (fiscal area, labor laws, administrative and legal systems, etc.). This will not be easy considering that 1) 2006 is election year 2) PT is divided on many issues and 3) loss of power in congress

• In a positive scenario - where current economic politics continues and necessary reforms are made - Brazil could enter a phase of “sustainable growth”


Foreign debtInflation (average/month)

ReservesExchange rateImports tariffs

Mercosur (trade)Ports

Privatization of the state companiesInfotech marketForeign capital

PatentsElectricity sector

TelecommunicationsGas distribution

OilMining sector

Railways

Worrying 26,00% USD 8.7 Billion Fixed Average 42% USD 3.6 Billion Monopoly None Protected Discrimination None Monopoly Monopoly Monopoly Monopoly Monopoly Monopoly

High but manageable 0,63 % USD 46 Billion Floating Average 38,0% USD 15,3 Billion Privatized Substantial Free Equal rights Patent laws Concessions law Privatized Opening process Opening process Privatized Concessions law

20041990

During the last decade major achievements have been During the last decade major achievements have been achieved in the Brazilian economyachieved in the Brazilian economy

Source: Swedish-Brazilian Chamber of Commerce /

STC Brazil


Brazil´s economic reform program from 1994 has four key features

– Monetary stabilization– Tax reform– Privatization and deregulation– Market liberalization

Source: Ministry of Finance/ Brazilian Central Bank

The “Plano Real” is the most successful economic reform The “Plano Real” is the most successful economic reform program in the history of Brazil.program in the history of Brazil.


Monthly inflation, comparison with previous stabilisation plans

Source: FIPE

The “Plano Real” is the most successful economic reform The “Plano Real” is the most successful economic reform program in the history of Brazil (cont…).program in the history of Brazil (cont…).

Based on monthly IPC-FIPE rate from Jan/85 to Dez/04-10

0

10

20

30

40

50

60

70

80

90

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Cruzado

BresserVerão

Collor 1

Collor 2RealReal

The “Plano Real” was launched on July 1, 1994

Dec 010,25

Mar 9079,11

Jul 98-0,77

Jul 953,72

%

2002

Dec 022,1

2003

Dec 030,5

2004

Dec 040,6


0

5

10

15

1998 1999 2000 2001 2002

1,6

8,9

5,9

12,5

%

7,6

Inflation – ( IPCA*)

Source: IPEA - Institute of Applied Economic Research

9,3

2003

* IPCA - Consumer Price* *Target – Central Bank

Inflation is today relatively stable.Inflation is today relatively stable.

7,6

2004 2005**

5,1


Interest Rate( SELIC*)

The interest rates are high to keep inflation under control.The interest rates are high to keep inflation under control.

Source: IBGE / Brazilian Central Bank

*SELIC is the Central Bank average rate based on banks transactions

0

10

20

30

40

1998 1999 2000 2001 2002

31,2

19,015,7

19,4

%

19,0

2003

22,9

2004

16,3


1

2

3

4

95 96 97 98 99 00 01 02 03 04 05

5

4,2

2,7

3,3

0,1

3,6

4,4

1,3

1,9

0,5

5,2

4,0*

Brazil had 2004 the best GDP growth for the last 10 Brazil had 2004 the best GDP growth for the last 10 yearsyears

Germany

UK

Japan

USA

Brazil

GDP Growth % by country- 2004

1,7

3,2

4,0

4,4

5,2

*EstimateSource: IBGE - Brazilian Institute of Geography and Statistics

Source: IBGE, BEA, OCDA, INDEC, Chinese goverment

Câmara de Comércio Sueco-BrasileiraSwedish-Brazilian Chamber of Commerce Source: Brazilian Central Bank

Foreign reserves are increasing essentially the last two Foreign reserves are increasing essentially the last two yearsyears

0

10

20

30

40

50

60

70

1997 1998 1999 2000 2001 2002

4552

36

45

33

Bi USD

36

Brazilian foreign reserve

46

2003

54

2004


Industry growth was 7,7 % in 2004Industry growth was 7,7 % in 2004

Source: IBGE - Brazilian Institute of Geography and Statistics

-1,9

1,1

-5,2

0,5

4,5

7,97,7

5,7 5,65,3

Commerce Construction Other ServicesProcessing Industry Farming

2003

2004

Annual variation GDP subsector in %


Steel was fast-growing sector in terms of profitability in Steel was fast-growing sector in terms of profitability in 20042004

Pulp and Paper Chemistry Siderugy

32,0

23,8

14,4

24,3

20,6

45,12003

2004

Source: Brazilian Central Bank

Return on the net equity in %


2

4

6

8

Finland

Denmark

Sweden USA

Chile

South Afri

ca

South Korea

Brazil

Mex

ico

Corruption is still present in BrazilCorruption is still present in Brazil

Source: Transparency Internaton Corruptions Index- 2004

China

Turkey

India

Russia

Argen

tina

Haiti

Score0-10

Country RANKING-1 to 146

1 3 6 17 20 44 47 59 64 71 77 88 92 107 146

#

10 9,79,5

9,2

7,5 7,4

4,6 4,5

3,9 3,6 3,4 3,22,8 2,8

2,5

1,5

Câmara de Comércio Sueco-BrasileiraSwedish-Brazilian Chamber of Commerce Source: The Economist Inteligence Unit

Brazil GDP is over than 50% of total GDP in South America.Brazil GDP is over than 50% of total GDP in South America.

Top 5 biggest GDP in 2003 ( US$ million – market exchange rate )

452

102 9480

64

0

100

200

300

400

500

Brazil Argentina Venezuela Colombia Chile


Source: UNCTAD Nov 2004

The most attractive location for FDI in Latin America the The most attractive location for FDI in Latin America the next three years is Brazilnext three years is Brazil

Intended destiny of FDI (%)

0

Uruguay

Colombia

Peru.

Venezuela

Chile

Argentina

Mexico

Brazil

20 40 60

Câmara de Comércio Sueco-BrasileiraSwedish-Brazilian Chamber of Commerce Source: BNDES

Services is the dominating sector in Brazil.Services is the dominating sector in Brazil.

GDP by sector

AgricultureManufacturing

59%59%

33%33% 8%8%

Services

Câmara de Comércio Sueco-BrasileiraSwedish-Brazilian Chamber of Commerce Source: IBGE- Brazilian Institute of Geography and Statistics

There are approximately 30 million people in Brazil with There are approximately 30 million people in Brazil with Swedish purchasing power or stronger.Swedish purchasing power or stronger.

Family income of different consumer groups in Brazil (USD/month)

Classes D/E - Income from 0 to 217 USD

Class C From USD 217 to 725 USD

Class A/B From 725 USD and more

Classes A/B18%

Class C

40%

Classes D/E

42%


• Brazil basics

• Economy

• Foreign direct investmentsForeign direct investments



• Industry sectors

AgendaAgenda


Source: BNDES

Among the emerging economies, Brazil is the 1st Among the emerging economies, Brazil is the 1st destination of direct investments for many countries.destination of direct investments for many countries.

Brazilian foreign direct investors

France

Germany

Italy

Netherlands

Spain

Sweden

Swizerland

USA


Source: Federal Government Planning and Budget Ministry of Brazil / SOBEET.

Due to less privatisation, FDI in Brazil has decreased but Due to less privatisation, FDI in Brazil has decreased but still represents a substantial amount.still represents a substantial amount.

FDI Brazil (USD bi)

2

6

11

19

29 3032

1917

0

5

10

15

20

25

30

35

94 95 96 97 98 99 00 01 02

* forecast

03*

15


Source: Annual Report Gazeta Mercantil 2001 / Cense, Nielesen, Bacen and Abras

A large share of the biggest Brazilian groups is represented A large share of the biggest Brazilian groups is represented by companies with foreign ownership.by companies with foreign ownership.

310 biggest Brazilian groups by capital origin - 2000

73%

23%

4%

National

State

Foreign


• Brazil basics

• Economy


• Swedish presence in BrazilSwedish presence in Brazil


• Industry sectors

AgendaAgenda


Swedish-Brazilian industrial history

• Ericsson delivers the first telephone switch to Brazil in 1891

• The Johnson line starts regular transportation between Sweden and Brazil in 1908

• ASEA supplies electric equipment to the sugar loaf cable car in Rio de Janeiro in 1912

• AGA and SKF where the first two companies to get established in Brazil in 1915

• Skånska Cement supplied cement to the Corcovado statue construction in 1931 (sometimes called “Limhamns-Jesus”)

Source: Swedish-Brazilian Chamber of Commerce / STC Brazil

Sweden has a long industrial history in BrazilSweden has a long industrial history in Brazil


Swedish-Brazilian industry

• The Swedish business community consists of over 180 companies and 28.000 employees

• An average of 4-6 new Swedish companies have entered Brazil during the last few years

• The Swedish-Brazilian companies invested over USD 3.3 billion over the last five years and plan investments for the coming five-year period of more than USD 3 billion

Source: SOBEET, Swedish-Brazilian Chamber of Commerce / STC Brazil

Today São Paulo is “Sweden’s largest industrial city”Today São Paulo is “Sweden’s largest industrial city”

“São Paulo har vuxit fram som en av de absolut viktigaste tillverkningsorterna för bolagen vi är engagerade i. Vi ser dessutom Brasilien som en viktig tillväxtmarknad” - Marcus Wallenberg till Veckans Affärer


Source: Swedish-Brazilian Chamber of Commerce/ STC Brazil

The majority of the Swedish companies are situated in four The majority of the Swedish companies are situated in four statesstates

RJRJSPSP

MGMG

PRPR


Accumulated Swedish investments

Source: Brazilian Central Bank

Auto industry leads Swedish investments in Brazil Auto industry leads Swedish investments in Brazil

Auto industry

Metallurgy

Electric / electronic industry including Telecom

Chemical industry

Mechanical industry

36%

20%

14%

12%

5%


Sweden has a strong presence in Brazil, through its Sweden has a strong presence in Brazil, through its multinational companiesmultinational companies


Examples of major multinationals active in Brazil

ABBAGA Gases Alfa LavalAstra ZenecaAtlas CopcoAutolivElectroluxEricssonInterprint

Arla Food

Company Sector

Electrical equipmentIndustrial gasesMechanical equipmentPharmaceuticalsMechanical equipmentAutomotive partsConsumer goodsTelecommunicationsBusiness forms, security printing, Dairy products

Pharmacia UpjohnSandvikScaniaSKFSvedalaSwedish MatchTeliaTetra PakTrelleborgVeracel (Stora)Volvo

Company Sector

PharmaceuticalsCutting toolsAutomotive industryBall bearingsMining equipmentConsumer productsTelecommunicationsLiquid packagingRubber productsPulp and paperAutomotive industry

Source: Swedish-Brazilian Chamber of Commerce/ STC Brazil


Swedish companies established in Brazil 1998-2002

Several Swedish companies have started their activities in Several Swedish companies have started their activities in Brazil during the last years Brazil during the last years


AkersAllgonBT Gambro HörnellLGPMedi Team NynasPIABScandinavian SteelSegerströmTelia Overseas TESSMölnlycke Heath CareGateway

Company Sector

Equipment for rolling millsAntennas for telecom Fork liftsHemodialysis equipment Safety equipment welding Amplifiers for telecom Caries remover Special petroleum oilsVacuum systemSteel traderMechanical industry Mobile system operatorMedical SuppliesEntrance Control



Swedish exporters in Brazil 2002

There are several examples of successful Swedish There are several examples of successful Swedish exporters represented in Brazilexporters represented in Brazil


Absolut VodkaBT industries Borgstena Kalmar LMV Orrefors Kosta BodaPIABPerstorp Flooring TarkettThuleRoxtec

Company Sector

BeveragesForkliftTextiles for vehiclesForkliftsCrystalsVacuum equipmentFlooringFlooringRack for vehiclesSealings for cables and pipes

- In total there are over 1400 companies exporting to Brazil



• Brazil basics

• Economy



• Swedish-Brazilian tradeSwedish-Brazilian trade

AgendaAgenda


Source: SECEX

Sweden has a large trade surplus with BrazilSweden has a large trade surplus with Brazil

Swedish-Brazilian Trade (USD FOB - millions)

0

200

400

600

800

1000

1994 1995 1996 1997 1998 1999 2000 2001 2002

Exports to Brazil

Imports from Brazil

2003 2004

512

819


Sweden exports traditional industrialized products and Sweden exports traditional industrialized products and imports basic goods as well as industrialized productsimports basic goods as well as industrialized products

Source: Sveriges Statistiska Centralbyrå

Swedish-Brazilian Trade in 2003 - %

Machines and instruments 17.0%Coffee 16.0%Electrical appliances 12.0%Motor vehicles and parts 12.0%Animal food - Soy 10.0%Meat – frozen and refrigerated 7.0%Iron and steel 4.0%Fresh Fruits 3.0%

Machines and instruments 30.0%Electrical appliances 28.0%Motor vehicles and parts 13.0%Iron and steel 4.0%Optical equipment, photo and surgical equip. 3.0%Pharmaceutical products 3.0%Plastics and rubber 2.0%Inorganic chemical products 2.0%

Imported from Brazil Exported to Brazil


Business climate in Brazil - ConclusionsBusiness climate in Brazil - Conclusions

- Big market – huge business potential

- Industry and economy performances are good and the forecast is optimistic

- Still need for economic reforms – high taxes, bureaucracy, etc.

- Do right from the beginning – analyze the market, find right partners and get local support

- Big market – huge business potential

- Industry and economy performances are good and the forecast is optimistic

- Still need for economic reforms – high taxes, bureaucracy, etc.

- Do right from the beginning – analyze the market, find right partners and get local support

= good business


Contact information

Swedish-Brazilian Chamber / Swedish Trade Council Brazil can Swedish-Brazilian Chamber / Swedish Trade Council Brazil can support your company to do business in Brazilsupport your company to do business in Brazil

• Johan Fager

• Phone: +55 11 3066-2550

• Fax: +55 11 3064-3042

• Email: [email protected]

• Web site: www.swedcham.com.br

• Address: Rua Oscar Freire, 379, cj. 121

• Zip:01426-001

• City: São Paulo

• Country: Brazil

• Johan Fager

• Phone: +55 11 3066-2550

• Fax: +55 11 3064-3042



• Address: Rua Oscar Freire, 379, cj. 121

• Zip:01426-001

• City: São Paulo

• Country: Brazil

• Lars Magnusson

• Phone/Fax: +55 21 2521-9843



• Address: Rua da Candelária, 9, sala 1101

• Zip: 20091-020

• City: Rio de Janeiro

• Country: Brazil

• Lars Magnusson

• Phone/Fax: +55 21 2521-9843



• Address: Rua da Candelária, 9, sala 1101

• Zip: 20091-020

• City: Rio de Janeiro

• Country: Brazil

São Paulo Head Office Rio Branch Office


Câmara de Comércio Sueco-Brasileira Swedish-Brazilian Chamber of Commerce BRAZIL - Country Report March 2005.

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