By Doug Gray, Senior Contributing Reporter
RIO DE JANEIRO – As UK Secretary of State for Business Vince Cable’s week-long visit to Brazil concluded in Rio on Friday, the new Coalition Government’s intentions towards the country could not be clearer. UK business is to be encouraged to take the reins and help foster a new model in Anglo-Brazilian relations, with the comforting and potentially highly lucrative backdrop of an Olympic handover to help pave the way.
Relations between the two countries have, Dr Cable admitted, been “at a low level”. With little shared history, insignificant bilateral trade and little in the way of key diplomatic relations over the years, the handover of Olympic know-how has proved to be the perfect re-introduction. March’s Host2Host knowledge-sharing accord was augmented last week with the signing of a CEO Forum agreement, enabling more open discussion between chief executives from both countries.
Indications are positive. In the midst of an economic downturn, UK exports to Brazil have more than doubled over the last five years ago to a total of £1.7billion. Meanwhile, UK Trade & Investment (U.K.T.I.) has reported a 500 percent increase in British business interest and approaches in Brazil. “How much of that actually produces real products crossing borders we can’t guess,” said Dr Cable. “But there is a big upsurge in interest.”
High on the delegation leader’s agenda was addressing the tariffs that continue to make business with Brazil prohibitively expensive. “I had fairly substantial talks with several ministers about trade liberalization,” Mr Cable said. “I think there is now a real possibility of us making some headway in terms of Mercosur [South America’s leading trading block] and the European Union, and the British are very much in favor of that happening as quickly as possible.
Current success stories may not yet abound, and the major impact of British companies on Brazilian shores has yet to be felt too far beyond the likes of BG, which committed £25billion to offshore investment, and Shell’s £3billion deal with Brazil’s Cosan ethanol giant. Signs are, however, “optimistic” for future defense and naval cooperation, whilst another oil-related company, Newcastle’s Wellstream, has shown the way forward with its flexible piping business designed to carry oil from deep sea well-heads to the rig or ship.
Winning Company of the Year from the Brazilian Chamber of Commerce in 2007, Wellstream’s approach to working in the country has been anything but formulaic, a policy which has been at the root of its success. Setting up training and operations in Niterói, the industrial city just across Guanabara Bay from Rio, the factory now operates with close to 100 percent local staff and the rewards have been plentiful.
“Four years ago we decided to set up in Brazil and it was a turning point for the company,” says executive vice president, Luis Antonio Araujo, who worked in Scotland before joining the Newcastle operation.
“Investing in Brazil was the key. We acted like a Brazilian company, which both Petrobras and the government liked, but we have a good mix. We also implemented the British business culture here, and you wouldn’t recognize much difference between the plant in Newcastle and the plant in Niteroi.”
Dr Cable was also adamant about how UK companies should approach Brazil. “What is most important is accepting they have got to build long term relationships. The point being stressed is not to come here on a fly-by-night basis. It’s long term relationship building with Brazilian partners, and that’s the only way to operate.”
The clearest areas of opportunity in the near future remain closely tied to the 2014 World Cup and 2016 Olympic projects, and the huge funds that BNDES, the Brazilian Development Bank, is making available. As the first Growth Acceleration Plan (PAC) comes to an end this December, PAC II then begins, with nearly USD$890billion assigned to investment within the country.
Beyond this huge potential, British products need to battle the taxation system in order to compete in a Brazilian market laden with poor quality and not inexpensive products stamped with ‘Industria Brasileira’. Imported items, from cars to clothing and food, are met with such high tariffs as to make them inaccessible even to much of the emerging middle class.
The dream for UK exporters of being able to price their goods competitively on Brazilian shelves remains a long way off.
Whilst Brazil’s current growth may not be as headline-grabbing as that of China or India, the time is clearly right for the coalition government to make inroads into what some economists are predicting will be the world’s fourth largest economy by 2040, comfortably leap-frogging that of the UK.
Correction: September 16, 2010
This article was first published on September 7th, 2010 with the £25 billion investment wrongly attributed BP, rather than BG.