Brazil Country Brief – March 2009
The Bilateral Relationship
Australia and Brazil celebrated 60 years of diplomatic relations in 2005. The event marked the opening of Australia’s first diplomatic mission in Latin America, established in Brazil’s former capital, Rio de Janeiro, in 1945. Today, Australian and Brazilian foreign and trade policy interests coincide in several important areas, and the two countries cooperate multilaterally on issues of mutual interest. Australia and Brazil hold senior officials' meetings every 1-2 years to exchange views on key bilateral, regional and multilateral issues. The most recent meeting was held in Canberra in May 2008. Science, technology and innovation cooperation are among the areas nominated for increased cooperation in the future.
The Minister for Foreign Affairs, the Hon Stephen Smith MP, visited Brazil on 24-26 August 2009. Brazil’s Minister for External Affairs, Mr Celso Amorim, visited Australia on 26-28 August 2008. On 27 August 2008 Australia and Brazil announced that an Enhanced Partnership would be developed to reflect growing interest in the broadening and deepening bilateral engagement. Australian and Brazilian officials are currently developing a Plan of Action containing bilateral initiatives aimed at improving bilateral links. The Treasurer, the Hon Wayne Swan MP, attended the G20 Finance Ministers’ Meeting in Sao Paulo, Brazil on 8-9 November 2008.
We also participate in the CER-Mercosur Dialogue, bringing together Australia, New Zealand, Brazil, Argentina, Paraguay, Uruguay and Venezuela. The dialogue was established in 1996 as a mechanism to strengthen cooperation on global trade policy issues and to promote inter-regional trade and investment. The most recent of these meetings was hosted by Brazil in November 2004. Both Australia and Brazil are members of the Forum for East Asia-Latin America Cooperation (FEALAC), which aims to increase and improve mutual understanding, political dialogue and cooperation among member states of East Asia and Latin America. Brazil hosted the Third FEALAC Ministerial Meeting (FMM III) in August 2007.
Australia and Brazil work closely together on a range of multilateral issues, including climate change, agricultural trade reform in the World Trade Organization (WTO) through the Cairns Group, and as members of the 'five interested parties' coalition (FIPs - with the US, European Community and India). Australia recognises the importance of Brazil’s role as Chair of the G20 group of developing countries in the WTO, and in shaping views among developing countries on the Doha Round.
Political Overview
Background
Brazil achieved independence from Portugal in 1822. It is a federal republic composed of 26 states and a federal district, with three tiers of government. Each state has its own government structure mirroring that at the federal level, and there are over 5,500 municipal councils. Voting is universal and compulsory for all literate citizens from 18-70, and optional for those aged 16-17 and over 70, or who are illiterate. Under Brazil’s Constitution, the president and vice president are elected on the same ticket by popular vote for four-year terms. The National Congress consists of the Federal Senate with 81 members serving eight year terms, and the Chamber of Deputies consisting of 513 members elected by proportional representation to serve four-year terms.
Brazil has traditionally been an inward-looking country, both politically and economically. However, throughout the 1990s, Brazilian foreign policy reflected a more internationalist approach under former Presidents Collor and Cardoso. Priority was given to relations with other Latin American countries. Former President Cardoso worked to promote Brazil's image as an important international player and regional power, and commenced a campaign to win a permanent seat for Brazil on the United Nations Security Council.
Brazil’s outward-looking focus in foreign policy has accelerated under current President Luiz Inacio Lula da Silva, who has projected Brazil as a leader in Latin America and emphasised the importance of Mercosur (Mercosul in Portuguese). The President has championed the rights of developing countries, and worked consistently to strengthen Brazil's ties with other major developing powers including China, India and South Africa. Brazil is also a driving force in the recently created Union of South American Nations (known as UNASUR).
As a leader in the developing world, Brazil has become a regular participant in global forums such as the World Economic Forum, the G8 and G20. Brazil hosted the G20 Finance Minister’s Meeting in 2008.
The Lula administration retained the confidence of the market in its first term through its policies to promote economic growth and rein in inflation. The Government has placed increased emphasis on reciprocity in trade negotiations. It has asserted that progress in the World Trade Organization and Doha Round negotiations will be contingent on concessions being offered by developed countries on agricultural subsidies. Brazil also pursues this agenda through the G20 group of developing countries.
President Lula’s central policy platform has been to improve living conditions for Brazil's poor. President Lula has continued the economic discipline of his predecessors, while responding to the global economic downturn through a range of stimulatory measures. After taking office in 2003, he launched the Bolsa Família (Family Fund Program) which consolidated five income transfer programs to poor families. This program, which is managed by the Brazilian Ministry of Social Development, provides a stipend to parents to feed and clothe their children, provided they keep them at school and to take them for medical check-ups. The fund now reaches the poorest quarter of Brazil's population. According to Fundação Getulio Vargas, a prominent Brazilian think tank, the program has been effective in reducing poverty.
Outlook
President Lula was re-elected in the second round of Presidential elections on 29 October 2006 with 60.83 per cent of votes, defeating the leading opposition candidate, Geraldo Alckmin. The election results underscored a clear north-south division in Brazilian politics: while President Lula retained overwhelming support from the very poor north and north-east regions, Alckmin was the clear front-runner in the agricultural and industrial centre-west and south of the country. Lula’s electoral platform focused on continuing the sound economic management and political and economic reforms achieved during his first term, whilst also increasing controlled social security programs and access to education.
President Lula began his second term on 1 January 2007 with his cabinet including Celso Amorim as Minister for External Relations, Miguel Jorge as Minister for Development, Industry and Trade, Reinhold Stephanes as Minister for Agriculture, Fernando Haddad as Minister for Education and Edison Lobão as Minister for Mines and Energy. President Lula has sought to continue political reform to improve governance and legislative effectiveness during his second term. Boosting economic growth, increasing the investment rate and controlling public finances and the social security deficit are also priorities.
President Lula’s government has faced a number of corruption allegations and a weakening of the ruling coalition. The result of municipal elections in October 2008 resulted in losses for President Lula’s Workers Party several key mayoral races. President Lula is constitutionally ineligible to seek a third term by contesting the presidential elections due in October 2010. The Worker’s Party is yet to nominate its candidate to contest the presidential elections in 2010. The electoral fortunes of the Worker’s Party are likely to be linked to perceptions regarding the success of the government’s Growth Acceleration Program (PAC) implemented in the period 2007-2010 (aimed at infrastructure and social development programs) as well as its handling of the current economic downturn.
Economic Overview
At a glance
For the latest economic data refer to the Brazil country fact sheet.
Policy directions
Economic Outlook
Possessing large and well-developed agricultural, mining, manufacturing and service sectors, Brazil's economy (ranked by the International Monetary Fund in 2008 as the world’s tenth largest economy with a GDP of $US1,572billion) outweighs that of all other South American countries and is expanding its presence in world markets (Australia was the world’s 14th largest economy in 2008 at $US1,013 billion.
The Brazilian economy recovered from the economic setbacks experienced earlier this decade, including an internal energy crisis in 2001, increased international investor risk aversion following the 2001 terrorist attacks in the United States, and the flow-on effects of the economic crises in some South American countries in 2001-02. IMF support since August 2002, combined with prudent economic management by the Lula Government, has helped to restore confidence in the Brazilian economy. At the end of 2005, President Lula was able to repay the outstanding US$15.5 billion owed to the IMF ahead of time. Brazil has also repaid US$2.6 billion to creditors of the Paris Club. In April 2008, the rating agency Standard and Poors increased Brazil’s sovereign rating to investment grade (BBB-), reflecting Brazil’s status as a net creditor nation.
Brazil’s relatively low exposure to international trade is expected to limit the impact of the global economic downturn that emerged in late 2008. That said, the IMF expects that global financial instability will lead to lower GDP growth in 2009 of 1.8 per cent (down from 6.8 per cent in 2008). Employment, domestic demand and investment declined sharply in late 2008 and early 2009. The Economist Intelligence Unit expects that contraction in domestic demand will expected to lead to a decline in the rate of inflation to 3.5 per cent in 2009 (down from a projected inflation figure of 5.8 per cent in 2008) The Government has responded to the instability in financial markets through the introduction of measures to stimulate economic activity and restore liquidity to credit markets. These measures include lowering taxes, bringing forward infrastructure development, provision of $US100 billion in additional liquidity to banks and currency markets, developing a sovereign wealth fund to assist local businesses to roll over their debt and the use of currency swaps with the US Federal Reserve.
Brazil continues to face considerable difficulties in implementing economic reforms, particularly in tax and business regulation. The President's focus on fiscal discipline has also deprived the Government of some of its traditional support base. Judicial reform, improving education and fighting crime and corruption remain key challenges for the Government. In the longer term, Brazil will also need to invest heavily in infrastructure to sustain growth. Investments in roads (privatisation/modernisation of roads has been initiated), railways (railway privatisation has been resumed), ports and the energy sector are required.
Externally, the Southern Cone Common Market (known in Portuguese as Mercosul) is the most important economic grouping for Brazil. Mercosur was formed in 1991 by Brazil, Argentina, Paraguay and Uruguay. In July 2006, Venezuela officially announced that it would seek to become a full member of Mercosur. Venezuela’s accession has been approved by Argentina and Uruguay, but is yet to be approved by the Brazilian Senate and Paraguay. Under the Mercosur treaty, tariffs between members are lowered gradually on most products and common external tariffs are applied to non-members. Mercosur represents a market of almost 270 million people with a combined GDP in 2007 of more than US$1.6 trillion. Brazil is also an active member of the World Trade Organization, and pursues agricultural trade liberalisation through the Cairns Group and the G20.
Bilateral Economic and Trade Relationship
Australian economic engagement with Brazil has grown steadily since the mid-1990s, most notably in the mining, agribusiness and services sectors. Two-way merchandise trade between Australia and Brazil was A$3 billion in 2008-09, a 70 per cent increase on the previous year. Merchandise trade comprised exports of A$1,483 million to Brazil and imports of A$1,040 million from Brazil (refer Brazil country fact sheet). Major exports to Brazil included coal, nickel ores and medicaments. Major imports from Brazil included aircraft, animal feed, pulp and waste paper, fruit juices and pig iron.
In April 2005, during a visit to Brazil by the former Minister for Education, Science and Training, Dr Brendan Nelson, Australia and Brazil signed a Memorandum of Understanding (MOU) on Education Cooperation. This followed an MOU on Science and Technology, signed in 2001, which established a joint cooperation program. In April 1998, an MOU on Sanitary Matters was signed by the Agriculture Ministers of Australia and Brazil to facilitate bilateral trade in agricultural products.
Opportunities exist for increased Australian trade and investment in areas such as information technology, biotechnology, transportation (rail and marine), telecommunications, banking and insurance, mining, water and waste water management, oil and gas, power, education, agribusiness, tourism and infrastructure. A growing number of Australian companies are now operating in Brazil, though a lack of mutual awareness remains an obstacle to expanding commercial ties.
Brazil is the world’s largest ethanol producer and views Australia as a natural partner in the development of a global ethanol market. Brazilian interlocutors have held discussions on bio-fuels with previous Australian government ministers, the Queensland Government and Australian sugar industry representatives. On 17-21 November 2008 Brazil hosted an international conference on biofuels in Sao Paulo as part of its efforts to promote the use of ethanol and bio-diesel as part of the global response to climate change.
The Australian education system is an increasingly attractive option for Brazilians. In 2008, around 16,000 Brazilian students were enrolled at Australian institutions (in schools, English language courses, TAFE and tertiary institutions).
Australia and Brazil cooperate in the Cairns Group and through the G20 to promote agricultural trade liberalisation.
There are no direct flights between Australia and Brazil, although since November 2008 Qantas has operated a three times weekly direct flight between Sydney and Buenos Aires in Argentina. Qantas also operates services to South America via a code sharing agreement with Chile’s Lan Airlines. Qanats has operated an office in São Paulo since 1999.
In 2001, the Australian Government announced the establishment of a Council on Australia Latin America Relations (COALAR). Since its inception, the Council has been active in promoting Latin America as a market for Australian exporters. It has supported a range of activities in Brazil, including cultural and trade promotion events.
Major Australian Investment Activity
Mining and Mining Services
BHP- Billiton owns 50 per cent of the Samarco iron ore mine, and also conducts bauxite, oil and gas exploration in Brazil.
Troy Resources has 70 per cent ownership of the Sertão gold mine.
Mincom & Maptek provide information technology services - technical support for the mining sector.
GRD Minproc was awarded a $1.6 billion contract for engineering, procurement and construction management in the mining sector. This has prompted them to open corporate and project offices in Belo Horizonte in the state of Minas Gerais. It is expected that more contracts will eventuate.
Orica has an industrial explosives plant in Brazil.
Mundo Minerals is operating its Engenho gold mine in Minas Gerais and is expected to deliver 30,000 ounces of gold per year from the second quarter of 2008.
In September 2007 Coffey International Limited acquired Brazilian mining sector consulting company Geoexplore Consultoria e Serviços Ltda.
Mirabela Nickel has explored and is now developing nickel and other base metal targets in Bahia, Sergipe and Tocatins, including the Santa Rita nickel sulphide project
A number of other Australian mining juniors have operations of various sizes and stages of development.
Agribusiness
Interest exists from a number of Australian companies and institutions for investment in agricultural production including production of feedstock for biofuels generation.
Renewable Energy
Pacific Hydro have 2 wind farms operational in the state of Paraiba in northeast Brazil with investments to date of approx $A200 million, generating renewable energy that is sold back to the grid. The company plans additional projects in the region.
Document Management
Recall (Brambles) provides storage of documents in paper or electronic format.
Insurance Services
QBE Brazil provides life and accident insurance.
Export Opportunities
Business and Financial Services
Expo Australia 2008 was held in Sao Paulo in October 2008. The expo featured Australian educational institutions and their partners in Brazil, as well as tourism, wine, and culture. The event gained exposure for businesses by uniting government allies and industry players, including the Council on Australian and Latin American Relations (COALAR), Tourism Australia, Australian Education International (AEI) and Qantas.
Expo Australia 2008 was also held in Mexico, Colombia, Peru and Chile.
Agribusiness
Brazil applies a range of non-tariff measures (e.g. quarantine) that restrict the entry of agricultural products into its market. Australia continues to seek access improvement to the Brazilian market for agricultural goods including genetic materials, meat and dairy products and plant products.
Education and Training
Brazil is the largest market for Australian education in Latin America. In April 2005, then Australian Minister for Education, Science and Training, Dr Brendan Nelson, and former Brazilian Minister for Education, Mr Tarso Genro, signed a Memorandum of Understanding (MoU) to increase bilateral education cooperation. The MoU provides opportunities for Australian and Brazilian universities, students, teachers and officials to work together over the coming years.
Austrade (São Paulo) is working closely with Australian Education International to promote Australia as a quality provider of education services in Brazil. Education is a major part of the Expo Australia (formerly Australia Festival) program which began in 2001. Education is also featured in the Australia Guide produced by Austrade, now in its fifth edition.
Mining and Minerals
Australian participation in the Brazilian mining industry is increasing. An Australian pavilion was organised by Austrade for the (September) 2007 mining exhibition Exposibram, the biggest of its kind in Brazil. The exhibition was held in Belo Horizonte, the capital of the state of Minas Gerais, and is scheduled to be held again in 2009.
Vale (formerly CVRD), Brazil's largest mining company and the second largest in the world following its recent acquisition of Inco of Canada, has recently announced a capital investment program of over US$1 billion: this offers a range of opportunities to Australian firms.
Austrade maintains a virtual office in Belo Horizonte with a primary focus on the mining sector.
Transportation
Opportunities for the supply of vessels exist in the mining and oil industries, and there are further prospects in the leisure boat market.
Textile, Clothing and Footwear
Brazil shares Australia's passion for surf and outdoor activities. Australia's expertise in this regard presents strong opportunities for further trade and investment in alternative brands and innovative equipment. Surf and outdoor wear is part of an ongoing Austrade promotional program.
Changes in Trade and Investment Conditions
Changes in Trade Conditions
Brazil’s simple average MFN applied tariff was 11.5 per cent in 2008, up from 10.4 per cent in 2004. Brazil reduced its highest duty rates from 55 per cent in 2004 to 35 per cent in 2008. Brazil has introduced a number of export finance, insurance and guarantee measures aimed at assisting producers and exporters to access credit. Brazil claims to have simplified its import licensing regime and expedited customs clearance procedures.
Changes in Investment Conditions
Brazil continues to liberalise its services sector, including telecommunications and financial services. The government has a reform agenda for the taxation system, social security, bankruptcy laws and other improvements in financial markets to reduce the cost of finance.
Trade Successes
Agribusiness
In May 2007, Nufarm Limited took 100 per cent ownership of Agripec (Brazil's largest locally owned crop protection company) after acquiring a 49.9 per cent stake in the company in 2004. Nufarm has stated its Agripec investment constitutes a key element of the company's expansion into Latin America.
Australian companies have also been successful in exporting animal genetics to Brazil, creating new opportunities in this market. Goat and sheep genetics are a promising sector with ongoing exports from Australia expected to complement existing shipments of bovine genetics.
Mining
The mining sector continues to generate successes with consulting services, extraction and processing technologies, and software leading the list of exports. Principal amongst these successes is the awarding of a $1.6 billion EPCM (engineering, procurement and construction management) contract to GRD Minproc.
Manufacturing
Australian companies have also been successful in signing licensing agreements with Brazilian companies to offer lower-priced manufactured goods into Brazil and the Mercosur markets. Typical successes are technology products related to packaging or food processing.
Food & Beverage
Australian wine has been successful in growing its base in Brazil with imports worth US$1,583,361 in 2007 , up from US$1,059,677 in 2006. Australia is currently ranked eighth in wine imports with 27 Australian wine brands available in the market. Austrade conducts two wine-related events each year in Brazil. Coopers Beer has also been introduced to Brazil.
For further assistance please contact the Council on Australia Latin America Relations (COALAR) Secretariat on 02 6261 3334 or the Department's Latin America and Caribbean Section.
Updated: 23 October 2009