São Paulo – Last week, the Brazilian arms industry received the best piece of news since the launch of the National Defence Strategy (END), in 2008. President Dilma Rousseff signed a provisional measure exempting the industry from the Tax on Industrialized Goods (IPI), da the Contribution for the Financing of Social Security (Cofins) and the Social Integration Program (PIS) during five years.
According to the Federal Revenues, as a result, total taxes on the industry’s production chain should decrease by an average of 30%, a breather in a country where the tax burden is a major complaint of businessmen, alongside the dollar exchange rate and precarious infrastructure.
“The Abimde estimates that the new rules should enable 23,000 direct jobs and 90,000 indirect ones to be created within a 10-year period,” the president of the Brazilian Defence and Security Industries Association (Abimde), Orlando José Ferreira Neto, told ANBA by email.
In practical terms, he forecasts that the industry will double in size. Presently, according to information supplied by the Abimde, which comprises 144 companies, the industry employs 25,000 people in direct jobs, and 100,000 in indirect ones.
The tax waiver is a part of the END, which aims to strengthen the national industry. Further, Plano Brasil Maior (Greater Brazil Plan), launched by the government in early August, grants priority to domestically manufactured products in government purchases in certain fields, including weapons. To Abimde’s executive vice president, Carlos Afonso Pierantoni, this is one of the major changes made by the plan with regard to the industry.
He added that within the scope of the END, the establishment of a Secretariat for Defence Products “has made it much easier for industries to converse with the Ministry of Defence.” The ministry is headed by Celso Amorim, formerly the minister of Foreign Relations.
The incentives, however, are not solely meant to provide stimulus to the industry and import replacement, but also to boost exports, as Dilma said last week. According to the Abimde, its affiliated companies sold the equivalent of US$ 2.7 billion in 2009, US$ 1 billion of which were export revenues.
“We do not want to manufacture for Brazil only. It is clear to us that our ability to be competitive is based on the fact that we are capable of exporting. [The measure] will have a two-fold effect: it will boost the industry and lead to a more balanced trade balance,” said the president, according to Agência Brasil.
Made in Brazil
The implementation of tax benefits does not imply that the Brazilian defence industry is not structured and that it does not develop technologies domestically. The best known example is Embraer, a manufacturer of civil and military aircraft with vast international presence, but there are many others.
Another case in point is Opotvac, a company that makes night vision cameras. “It was all made in Brazil. Our core business are very restricted technologies, and we had to develop and learn it all by ourselves, with the clear-cut objective of helping the country recover the time it has lost in these technologies,” said the company’s research and development manager, Henrique Nobre.
According to him, the company’s success in this field has placed Brazil among a select group of companies that manufacture “space-quality optical systems” and which master infrared thermal imaging technologies, which enable people and vehicles to be located in the dark and at great distances, including forests, because human body heat stands out from the surroundings. “These success cases were made possible through hard work, perseverance, and competences that are 100% Brazilian,” he said.
Nobre added that the equipment has military, public and private security applications, and that there is a market for them in Brazil and abroad. “On the foreign market, demand for thermal night vision cameras is very strong. Optovac’s aim is to make its night vision technology fully accessible to the markets of Brazil and other countries, both in South America and, of course, in the East,” he asserted.
Another case in point is Iacit, a company based in São José dos Campos, in the interior of the state of São Paulo, which has been hired by the Brazilian Air Force (FAB) to update the technology in six weather radars. “An agreement signed with a foreign company enabled a minor share of knowledge to be acquired, but 95% of development took place in Brazil,” said the company’s president, Luiz Teixeira.
According to Iacit, the project took 18 months to be completed and required 2 million reals (US$ 1 million) of the company’s own funds to be invested, starting with a radar used by the Air force that was “almost entirely modified, to become one of the most modern in the world.”
The equipment is used in weather studies and can monitor weather phenomena at great distances, according to Teixeira. To him, there is a market for the product in Latin America and Africa. The executive claimed, however, that “the largest market, according to our expectations, is the Brazilian one.”
Yet another example is Orbisat, which developed an unmanned aerial vehicle named Sarvant. According to the company, this is the first product of its kind in the world to feature SAR-type remote sensing radar, which can go past the crowns of trees. The first flight of the radar-equipped aircraft is scheduled for December, and sales should begin in 2012.
The company expects to tap into a 25 million real (US$ 13.3 million) market in Brazil, and a 100 million real (US$ 53.3 million) one abroad. Development has been going on for three years and investment has amounted to 8 million reals (US$ 4.2 million). In addition to the defence field, the equipment may be used for mapping farms, dams and hydroelectric plants.
Partnerships
But government purchases and tax breaks are not the only government incentives the industry receives. The State funds projects as well. Optovac and Iacit, for instance, count on funds from organizations such as the State of São Paulo Research Foundation (Fapesp) and the Studies and Projects Funding Body (Finep), an organ affiliated to the Ministry of Science and Technology.
International partnerships that include technology transfer are also crucial to the Brazilian industry. Best known and most recent cases include the development of Embraer’s KC-390 transport jet, which has suppliers in different countries, the agreement between Brazil and France for building four conventional submarines and a nuclear one, a large order for helicopters placed by a government to Helibras, a Brazilian state-owned company controlled by the European EADS, which owns Eurocopter and Airbus.
According to Ferreira Neto, of the Abimde, as a result of the National Defence Strategy, major projects of the Brazilian Armed Forces, including those mentioned above, should amount to at least US$ 40 billion over the next 10 years. Considering the need to meet other military demands, the figure may reach US$ 120 billion, according to him, by a “conservative” estimate.
“Our enterprises will export more defence and security products, cooperation between the ministries of Defence and Justice will increase, especially with regard to border surveillance; in short, the scenario is promising,” added Pierantoni, also of the Abimde.
*Translated by Gabriel Pomerancblum
