São Paulo – Brazilian exports have grown much in recent years, rising from US$ 58 billion in 2001 to US$ 256 billion in 2011, and Brazil won new markets and expanded its presence in less traditional destinations, especially in emerging countries, but the list of products traded has become more and more concentrated on basic items.
According to figures disclosed by the Ministry of Development, Industry and Foreign Trade, basic products answered to 26.3% of Brazilian exports in 2001, a share that rose to 47.8% last year. At the same time, the share of semi-manufactured products remained practically stable, at around 14%, whereas the share of manufactured products dropped from 56.5% to 36.1%.
There are several factors causing this change in the profile of the trade basket. In the first place is growing global demand for commodities and the greater prices of these products over the last decade, causing Brazilian exports of basic products to sell more and with greater return. More than volumes, it was revenues obtained with shipment of these products that gained space.
“In recent years there has been greater weight of basic products in the basket due to higher commodity prices,” said to ANBA the Foreign Trade secretary at the ministry, Tatiana Prazeres. “Exports of manufactured products also grew [in absolute terms], but basic products grew faster, granting them greater weight,” she added.
According to the president at the Brazilian Foreign Trade Association (AEB), José Augusto de Castro, the country has always been an exporter of commodities, but the greater food demand among developing nations has further intensified the Brazilian talent in the agricultural area. “Diversification [of markets] is due to the greater buying power of these [developing] countries,” she added.
The CEO at the Arab Brazilian Chamber of Commerce, Michel Alaby, pointed out that economic growth in nations like China, India, South Africa and the Arab nations, among others, has created conditions for an improvement in living conditions of their populations, especially through feeding, which is reflected, for example, in the strong growth in Brazilian exports of animal protein, mainly poultry and beef.
Exchange
If Brazilian commodity exporters have gained on the one hand, Brazilian industry has lost competitiveness on the other, due to the depreciation of the Brazilian real against the dollar. Over much of the last decade, manufactured products were responsible for the largest part of the Brazilian export basket, but the scenery started changing after 2007.
“All export companies have been affected by exchange rates,” pointed out Tatiana Prazeres. I the case of commodities, however, the growth in prices on the international market has compensated losses due to appreciation of the real. Furthermore, sectors that use a significant volume of imported inputs, like agriculture, which depends on fertilizers acquired abroad, had cost reduction in the Brazilian currency.
“Industries that use more intensive labour were most affected by exchange rates,” pointed out the secretary. This, according to Castro, includes “typically Brazilian” sectors, like furniture, shoes and garments, which not only lost in competitiveness on the foreign market due to exchange rates, but also had to face Asian competition on the international and domestic market. “Brazilian prices cannot compete in the area of manufactured products,” said the AEB executive.
To him, in industry, only multinationals with factories in Brazil benefitted from the appreciation of the real against the dollar, as they use inputs imported from their head offices. That is, if their products made in the country are more expensive in dollars, on the one hand, on the other hand, imports of inputs became cheaper in reals.
Domestic strength
Alaby added that, apart from exchange, the growth of the domestic market in Brazil was also not stimulating for industrial exports. “With greater domestic income, companies turn their production much to the domestic market,” stated the Arab Brazilian Chamber executive.
Early last decade, the Brazilian economy was on the down and more and more companies sought buyers for their products on the international market, a scenery that has reverted in recent years, with Brazil taking broad strides while turbulence hit other countries worldwide.
Alaby recalled that Brazilian companies always consider the foreign market a way out, resorted to when the domestic market is weak, and this culture is still present, despite a more professional export sector.
In his evaluation, to compete, especially with Chinese products, companies need to invest in greater production, in quality, design, promotion of the brand and exploration of market niches. According to him, there are examples of shoe, furniture and garment factories that have good performance abroad due to unfavourable exchange rates, but it is not possible to compete with the Asian markets offering the same kinds of products.
On the government side, both Castro and Alaby mention another factor for the lower Brazilian competitiveness, the so-called “Brazil cost”, that is, the high tax burden, bureaucracy and lacking infrastructure, among other problems.
As the domestic market is very large, despite the difficulties, it is worth producing here to supply it, and as that requires great scale, it is also possible to produce enough to export. Brazil continues mainly selling industrialised products to some markets, especially in Latin America.
In Alaby’s point of view, however, the main bottleneck to exports of higher value-added products is the lack of financing. Credit for this kind of operation is uncommon and expensive in Brazil.
And the government recognizes that. So much so that, last week, the executive secretary at the ministry, Alessandro Teixeira, informed that in the near future new measures will be announced for export incentives, and greater ease in access to credit should be among them. Tatiana Prazeres did not want to anticipate these measures, but informed that, apart from financing, they should involve insurance and reduction of bureaucracy, mainly for smaller companies.
Promotion
The government also bets on trade promotion, specially in emerging markets, like Africa, the Middle East and Asia. To Prazeres, this effort is the cause for diversification of destinations for Brazilian exports over the last decade. In the period, within a policy of incentives to South-South cooperation, the importance of developing countries for Brazilian exports rose significantly. China, for example, has exceeded the United States as the main Brazilian client.
To Castro, however, this diversification was more due to the growing demand of emerging nations than to Brazilian efforts for promotion. He strongly criticises the lower participation of traditional markets, like the US, in country exports. This share has already been 25%, but is now just 10%.
According to Alaby, Brazil often seems more concerned with protecting its domestic market than with facing competition abroad, but he recognizes that the opening of new destinations has not taken place solely due to the growing demand among emerging nations, also recognising the export effort made by companies and the government. He believes that diversification is a positive side, as it reduces dependence on a few markets.
Future
The CEO at the Arab Brazilian Chamber pointed out, however, that Brazil will need to be more aggressive on the international front from now on, as, with their economies wilting, the United States and the European Union are going to compete with emerging nations on the international market. “Europe and the United States are going to need to export more and are going to compete with Brazil, China and Turkey, among others,” he said.
In the long run, however, he believes that the indebted European countries will have to reduce or eliminate subsidies to the agricultural sector, which is good for Brazilian agribusiness.
With the crisis in developed nations, the AEB forecasts lower exports and trade surplus this year. The government prefers not to make forecasts for the time being. According to Tatiana Prazeres, as the foreign scenery is unstable, the ministry prefers to define these export targets late in the first quarter.
*Translated by Mark Ament
