APPENDIX 23
Memorandum submitted by UKTI
CHAPTER 1: INTRODUCTION
1.1 The past decade has seen an increase
in the pace of global economic activity underpinned by the rise
of key emerging markets which account for over 37% of the planet's
population. China and India have spearheaded this with average
growth of 9% and 6.4% per year since 1996. Brazil's economy has
grown more slowly than this averaging at 2.6% per year since 2000.
However, this relatively poor growth performance is not the whole
picture. Brazil's economic policy stance under the previous, current
and likely future governments is the pursuit of macroeconomic
stability. Brazil is aiming at consolidating a base for healthy,
but not spectacular, growth. Its aim is for a trend growth rate
of 4-4.5%.
1.2 Brazil still remains one of the largest
emerging markets and an increasingly leading voice among developing
countries. In terms of GDP, Brazil is rated as second to China
amongst Emerging Markets (see paragraph 8 of Annex A) and despite
slower growth rates than others in the top five it is unlikely
that Brazil will drop out of the top five for a quarter of a century
if at all. So even if Brazil is not meeting the globalisation
challenge in a manner comparable to China and India, one must
not lose perspective about its place in the world.
1.3 Brazil has become much more open to
trade over recent years. Total trade in 2004 was 26% of GDP up
from around 13% in 1996. The country's abundance of natural resources
has helped it experience its first period of export led growth
in 20 years.
1.4 Against this background Brazil has immense
potential as a trade and investment partner.
CHAPTER 2: BRAZIL'S
INDUSTRIAL AND
TRADING CLIMATE
2.1 Successive Brazilian Governments have
supported free enterprise and the free trade system. However some
state and semi state entities still control part of the public
utilities sectors. There is significant bureaucracy with regulations
constantly changing and complex labour and tax laws. On the other
hand there is a motivated work force and a development of labour
intensive industries directed towards exporting. The Brazilian
economy is broad-based covering most industries. It is a mixed
economy and includes listed companies, state monopolies, foreign
owned companies, joint ventures, family enterprises and many small
businesses. In 2002 the number of companies in Brazil by size
was:
|
Size of company | Numbers
| Percentage of total
|
|
Micro | 4,605,607
| 93.6% |
Small | 274,009
| 5.6% |
Medium | 23,652
| 0.5% |
Large | 15,102
| 0.3% |
Total | 4,918,370
| 100% |
|
CHAPTER 3: BRAZIL'S
ROLE IN
THE GLOBAL
MARKET PLACE
3.1 Brazil is a key player in the WTO as leader of the
G20, which Brazil founded, and a member of the G6. They are a
founder member of the Common Market of the Southern Cone (MERCOSUR)
which is currently composed of Brazil, Argentina, Paraguay, Venezuela
and Uruguay with Chile and Bolivia as associated countries. Under
the MERCOSUR agreement tariffs are reduced to zero; movement of
labour, goods and services are unrestricted; capital investment
encouraged; macroeconomic policies coordinated; and policies and
tariffs for non member countries harmonised. Negotiations for
an inter-regional Association Agreement between the EU and Mercosur
began in November 1999. (See Annex B)
3.2 Brazil has played a crucial role in WTO. They share
the UK's objective to restart the negotiations at the earliest
opportunity. The overwhelming consensus in Brazil is that movement
on agriculture ie the dismantling of protectionist policies by
developed countries has to come before there is any movement on
industrial tariffs and services. Within the G20 grouping Brazil
is probably one of the more willing to be flexible if the right
deal on agriculture is on the table.
CHAPTER 4: THE
UK'S TRADE
& INVESTMENT PERFORMANCE
WITH BRAZIL
4.1 Brazil is the UK's most important trading partner
in Latin America. In 2005 we were the 13th largest exporter to
Brazil, down from 9th in 2003 with a market share of just under
2%. UK market share slipped in relative terms due to the strength
of sterling against the US dollar, fluctuating oil prices, growing
ICT exports to Brazil from South Korea and increased imports of
minerals from Chile used in the booming steel industry. A full
summary of UK's performance against our EU competitors and the
rest of the world is at Annex C.
|
UK Trade in Goods | |
| | |
| % Change |
£ million | 2001
| 2002 | 2003
| 2004 | 2005
| 2004-05 |
|
UK Imports from Brazil | 1,328
| 1,415 | 1,512
| 1,581 | 1,771
| 12.0% |
UK Exports to Brazil | 814
| 888 | 829
| 792 | 840
| 6.1% |
|
|
UK Trade in Goods
£ million
| Jan-May
2005 | Jan-May
2006
|
|
UK Imports from Brazil | 665
| 745 |
UK Exports to Brazil | 293
| 348 |
|
4.2 Currently, around 92% of UK exports to Brazil are
manufactured goods. Top exports include organic chemicals, pharmaceutical
products, power generation machinery and equipment, professional
scientific instruments and apparatus, electrical machinery and
road vehicles. Brazil's main exports to the UK are meat and meat
preparations, foodstuffs for animals, pulp and paper, footwear,
cork and wood manufactures, tobacco and tobacco products, power
generation machinery and vegetables and fruit.
4.3 UK's trade and investment performance remains significantly
below its potential. UK has a share of some 6% of world trade
but by contrast the share of Brazilian trade is just under 2%.
This represents a significant under performance but highlights
the scale of the opportunity for growth that the Brazilian market
represents.
4.4 The UK's trade in services increased by 15% between
2004 and 2005.
|
UK Trade in Services |
| | | |
| % Change |
£ million | 2001
| 2002 | 2003
| 2004 | 2005
| 2004-05 |
|
UK Imports from Brazil | 231
| 251 | 176
| 219 | 263
| 20.1 |
UK Exports to Brazil | 382
| 313 | 326
| 307 | 353
| 15.0 |
|
4.5 The total new FDI in Brazil last year was some US$16
billion (compared to US$5 billion to India and US$61 billion to
China). According to the Brazilian Central Bank, Foreign Direct
Investment (FDI) inflows from the UK in 2005 amounted to 0.7%
of the total, behind the US with 21.5% but also behind France
with 6.7%, Germany with 5.9% and Japan with 3.6%. However the
UK remains, in global terms, the second largest foreign direct
investor overall. That the UK ranks well below our principal competitor
nations in terms of Brazilian FDI highlights the extent to which
the UK is under performing in one of the main growth markets for
FDI.
4.6 Although UK investment appears low it is likely that
the real figure is much higher. British companies investing in
Brazil often invest through third countries typically the Netherlands.
As can be seen from Table 6 in Annex C the Netherlands investment
figures for Brazil are unrealistically high. Household names such
as Astra Zeneca, British American Tobacco, BG, BP, Cadbury, Umbro,
GlaxoSmithKline, HSBC, ICI, Rio Tinto, Shell and Unilever are
a solid part of the Brazilian economy.
CHAPTER 5: BARRIERS
TO TRADE
AND INVESTMENT
IN BRAZIL
5.1 There are some practical obstacles to doing business
in Brazil (as detailed in Annex E). Furthermore, while Brazil
is in many ways a sophisticated market economy it is still highly
regulated and prey to bureaucratic blockages and the power of
vested interests (some of which have been enshrined in the constitution).
Brazil is also a relatively new entrant to world markets having
emerged from an inward looking and protectionist approach to trade
only in the early nineties. Some of the old protectionist instincts
remain, as do some of the regulations that impede the import of
goods and services perceived to represent a potential threat to
local interests (eg legal services and reinsurance).
CHAPTER 6: UKTI AND
BRAZIL
(a) Assistance available from UKTI to UK companies looking
to do business in Brazil
Services available to UK companies
6.1 UKTI's aim is to enhance the competitiveness of its
customers in the UK through overseas sales and investment. This
is achieved by assisting companies, in the main SMEs, with:
information and opportunities; and
For any market, customer demand is a key factor in the support
and services UKTI makes available.
6.2 Advice and support from UKTI's trade advisers in
the English regions can help companies develop export plans for
tackling markets and in conjunction with the teams overseas help
them establish themselves in markets such as Brazil.
6.3 UKTI also helps by providing information about the
market and opportunities that exist. Sales leads are the lifeblood
of any business. UKTI's overseas staff are always looking for
business opportunities. A typical example was a recent enquiry
by a small Brazilian company acting on behalf of Petrobras seeking
a supplier for valves for the oil and gas industry. This opportunity
was posted on the UKTI website for companies to access.
6.4 Support is also available for larger companies in
terms of lobbying where Ambassadors and senior members of the
Post play a crucial role in securing business for UK companies.
The UKTI team in Brazil has assisted several large companies in
this way.
6.5 UKTI in-market teams also produce sector reports
on opportunities in the market as well as specific tailored reports
for individual companies to identify potential partners, agents,
distributors or direct customers. Companies are charged for the
latter reports under the On line Market Introduction Service (OMIS).
6.6 To be a successful exporter companies need to spend
time in the market and Brazil is no different. UK Trade &
Investment can help UK businesses take part in overseas exhibitions
such as Rio Oil and Gas; and support companies visiting the market
through the Market Visit Support Scheme.
6.7 UKTI also supports a programme of sectoral missions
to and seminars in Brazil. A summary of the key sectors that UKTI
is focusing on follows. Annex F provides further detail.
Business Sectors (UKTI International Sectors Group)
6.8 As well as supporting companies on an individual
basis, UKTI also works with sectors of industry in promoting markets
for UKTI support. The following sectors of industry have regarded
Brazil as a priority market.
Priority Sectors
6.9 Aerospace: Brazil has one of the world's largest
aerospace companies in Embraer and a vibrant aircraft fleet covering
agricultural aircraft, air taxis and helicopters. The key to the
Brazilian market for UK companies is Embraer. Most of Embraer's
sales are overseas as is most of its supply chain mainly based
in the USA, Europe and Japan. UK content on Embraer aircraft is
very low (less than 2%) but the current relationships with existing
partners make it very difficult to displace the existing supply
chain for existing programmes. New programmes will demand a higher
level of local content (to meet the requirements of the Brazilian
Government) but will require overseas companies actively to invest
in the Brazilian based aerospace supply chain. Currently this
is unattractive to UK companies.
6.10 UKTI organised a series of Seminars in the UK in
February 2005 to make UK companies aware of the changes to the
policies of the Brazilian government and how this might impact
on Embraer. Embraer, the Brazilian Government and the Banco Nacional
de Desenvolvimento Economico e Social (BNDESthe Brazilian
Development Bank) took part in seminars held in London and in
Warrington. Over 50 UK companies attended. UKTI followed this
up with a mission to Brazilonly four companies engaged
in the programme which gave access to Embraer, BNDES and introduced
UK companies to indigenous companies already in the Brazilian
supply chain and European companies who had invested in Brazil.
The mission took place in October 2005. As a result of the low
take up to a very structured mission, the UKTI Aerospace Sector
Advisory Group demoted Brazil from being a priority sector for
Aerospace in November 2005. Annex F1 provides more detail on this
sector.
6.11 Financial Services: Brazil has been singled out
as one the potential key growth economies under the "BRIC"
projections, and has been targeted in UKTI's Financial Services
Market Strategy. However, it is perhaps the weakest of the candidates
in the group, with its ability to fulfill the promise of economic
growth being strongly dependent on the political willpower to
maintain a framework within which business can flourish. Annex
F2 provides more detail on this sector.
6.12 ICT: The strategy UKTI has adopted in this sector
is to develop a focused dialogue with one or two key Brazilian
companies. An example is CESAR (Recife Centre for Advanced Studies
and Systems). This is a private innovation institute that creates
products, processes, services and innovative companies using ICT.
The Centre has been talking to UK innovation institutions to explore
the potential for technology creation and its transference to
Brazil. This approach is being supported by a series of trade
missions in both directions. Annex F3 provides more detail on
this sector.
6.13 Life sciences: Brazil's strengths lie in its scientific
capabilities and the quality of the research being carried out
in the biotechnology clusters and universities. In addition to
this, the country has numerous assets, whether purely scientific
or based on the great biodiversity of its territory. Opportunities
exist for the UK to invest in Brazil, whether directly or through
partnerships with local Brazilian companies.
6.14 Brazil's research level is impressive, but technology
transfer is much less active than in the UK. The pharmaceutical
market has a current value of US$8.3 billion and a 12% compound
annual growth rate (CAGR) forecast to 2010. The vaccines market
of US$221 million in 2005 is still mainly publicly owned and has
tremendous expertise and production capabilities. The potential
for new vaccines is evidenced by the increasing involvement of
multinationals. Annex F4 provides more detail on this sector.
6.15 Oil and Gas: Brazil is a Priority A Market for UKTI
oil and gas trade development activity as agreed with the industry/government
International Oil & Gas Business Advisory Board.
6.16 Brazil is the largest energy market and has the
second largest oil reserves in South America. Brazil, the Gulf
of Mexico and West Africa are considered by industry the "golden
triangle" of deep water Exploration and Production (E&P),
a significant area of the UK's industry capability. The country
achieved net oil self-sufficiency in early 2006 as production
reached 1.7 million barrels of oil per day (bpd). The domestic
oil production of Petrobras, the national oil company, will grow
to 2.3 million bpd by 2010 and output from other operators should
add to this volume. In the same period the production of natural
gas should increase from the current 48 to 70 million cubic metres
per day. Petrobras' investment from 2007-11 will total U$87.1
billion, averaging US$17.4 billion per year of which 47% will
be for E&P. There will also be substantial investment in the
downstream area with more than US$8 billion being targeted for
a large revamp programme for all the existing refineries and two
new plants being considered. Another US$4.5 billion will be invested
to expand the pipeline network for natural gas. Annex F5 provides
more detail on this sector.
6.17 Environmental Technology: The environmental market
in Brazil is expected to reach US$4.9 billion by 2010. The market
is sophisticated and overseas companies must offer something new
to the market. Opportunities exist for UK companies offering innovative
technologies, services, and equipment.
6.18 The Government is looking at models for PPP to fund
numerous proposed sanitation projects. This will involve multi-million
dollar investments ($25 billion over 15 years is the usual quote),
but it will take some time for the regulatory framework to be
introduced. In the meantime, several states have introduced their
own legislation and frameworks, with PPP projects already under
development.
6.19 Investment in the environment sector in Brazil in
2006 is expected to grow at a faster rate than previous years,
reaching an estimated value of US$3.5 billion to US$4 billion
this year alone. This is, at least in part, due to an increase
in private sector investment (larger industries with reputations
to protect), with companies moving to new, more efficient and
environmentally friendly technologies. The following industry
sectors should be responsible for a larger share of total investments:
cement, pulp and paper, chemical and petrochemical and steel.
Expenditure on environment is most likely to be for equipment,
engineering and consulting services and instrumentation associated
with pollution control and cleanup projects. Annex F6 provides
more detail on this sector.
6.20 Healthcare: Brazil has the largest healthcare market
in Latin America, with over 7,000 hospitals, 280,000 doctors and
an annual spend of US$20 billionprivate and public combined.
It also has the largest medical devices market in Latin America,
with imports in excess of US$980 million and a total internal
market of almost US$2.8 billion. Expansion and sophistication
of private healthcare network allows for continuous technological
and managerial improvement of services, generating opportunities
for state-of-the-art medical products/services. The large local
medical devices/technology industry, comprised of over 500 companies,
generates substantial opportunities for joint-ventures, OEM supply,
technology transfer and outsourcing. Modernisation of Brazil's
communications network is encouraging IT projects in Healthcare,
varying from software development to telemedicine and e-health
training/services. Annex F7 provides more detail on this sector.
Inward Investment
6.21 Brazil has been identified as a potential source
of viable inward investment projects. The United Nations Conference
on Trade and Development (UNCTAD) has measured Brazil's outward
investment stock at around $50 billion. In addition, OCO Consulting
has identified activity in a number of key sectors including Financial
Services, Aerospace and ICT.
6.22 In the last six months UKTI has seen a marked increase
in potential projects from Brazilone of which involves
locating a European HQ in the UK. An inward mission into the UK
from Brazil is planned for November, where mobile content companies
will be targeted.
6.23 UKTI has identified potential areas of opportunity
in the Foreign Direct Investment (FDI) area and has committed
resource in 2006-07 to placing a team in Sao Paulo to further
explore these opportunities.
How UKTI delivers its services through Regional Teams and Devolved
Administrations
6.24 UKTI delivers advice and support on international
trade to companies in the English regions, and provides them with
access to UKTI's global network, through a network of nearly 40
International Trade Teams, provided typically by Chambers or Business
Link operators, employing between them around 380 International
Trade Advisers. In each region UKTI has an International Trade
Director who, with their regional core team, are co-located with
the Regional Development Agency (RDA), and who are responsible
for UKTI's strategy, delivery and stakeholder relationships in
the region.
6.25 UKTI operates as the RDAs' international trade arm.
This relationship reflects the importance of UKTI giving coherence
to regional and national demands on the overseas network. We work
in partnership with the RDAs on strategy and priorities through
a nationally-agreed Dual Key Framework (attached at Annex G (not
printed here)), and jointly signed-off delivery plans at regional
level. UKTI has a commitment in its 2006 Strategy to, by March
2008, have worked with the RDAs to review its international trade
operations in the regions.
6.26 A summary of the activity being undertaken by the
regions and devolved administrations in respect of Brazil is at
Annex H.
(b) UKTI and Brazilthe future
6.27 In July 2006 a new strategy was launched by UKTI
following the Chancellor's statement in the Budget. Requiring
UKTI to refocus resources on emerging markets, one of its main
objectives is to maximise UK's ability to win market share in
the new high growth economies such as Brazil. More than £5
million of UKTI resources is to be transferred from mature markets
to focus on emerging markets including Brazil where the UK needs
to increase its impact and take advantage of the shift in international
economic activity towards the emerging markets.
6.28 In recognition of the growing importance of Brazil
as an emerging market, UKTI has started to increase its activity
to promote the opportunities that exist in Brazil. The visit in
March of this year of President Lula during which a number of
key commercial events were organised acted as a catalyst to boost
bilateral trade and investment. At the end of the visit a joint
declaration was signed by President Lula and the Prime Minister
which included the following commitment:
"To maximise the potential for closer economic and commercial
links, we will establish a Joint Economic and Trade Committee
between our Governments."
6.29 The JETCO was established in May of this year following
the signing of the document at Annex D (not printed here)
by the Secretary of State for Trade and Industry and the Minister
of Development Industry and Foreign Trade, Brazil. The JETCO will
systematically examine why UK companies appear to under perform
in terms of trade and investment with Brazil. It will also seek
to agree joint strategies to tackle the perceived impediments
to bilateral trade and investment.
6.30 Memoranda of Understanding have also been signed
specifically for the energy and healthcare sectors.
(c) UKTI resources devoted to Brazil
Staff Resource
6.31 UKTI has representation in five citiesSao
Paulo (Commercial centre), Rio de Janeiro, Brasilia, Porto Alegre
and Recife. A total of approximately 32 work on UKTI business.
The cost is approximately £2.1 million.
6.32 There are three full time staff based in UKTI HQ
in London.
Finance for Programmes Relating to Brazil
6.33 The cost of UKTI's sector focused activity, trade
missions, exhibitions, seminars and other trade development activity
relating to Brazil during the last three years is detailed below.
|
£,000 | |
|
2004-05 | 2005-06
| 2006-07 |
|
365 | 490 |
288* |
|
* Expenditure already defrayed and committed.
|
CHAPTER 7: UKTI ACTIVITY
WITH OTHER
STAKEHOLDERS
Science and Technology
7.1 Sir David King and Dr Sergio Rezende, Brazilian Science
and Technology Minister, signed a UK/Brazil Joint Plan of Action
on Science, Technology and Innovation on 7 March during President
Lula's state visit. This represents an opportunity for both countries
to make real gains both in retaining our market edge in an increasingly
competitive and globalised environment, and in finding solutions
to social, environmental and economic problems.
7.2 The Plan of Action will promote co-operation and
encourage the development of joint scientific and technological
projects in areas of common interest, particularly in relation
to climate change, agriculture and health.
7.3 The Plan includes a Year of UK-Brazil Partnership
in Science through calendar 2007. Office of Science and Innovation
(OSI) and FCO (GOF Economic Governance programme) have agreed
to provide £150,000 each (split between the financial years).
Planning for the year is in hand in Brazil. Individual projects
and events will be run under the banner of the campaign by organisations
such as the Research Councils, the British Council and the Royal
Society. A very successful Brazil Day was held at the Royal Society
on 22-23 May as a precursor, with Sir David King and Rezende both
attending.
7.4 The UK has also committed to providing £50K
for a new UK:Brazil science networking fund. This would operate
in a similar way to other OSI networking schemes managed by the
Royal Society. We are awaiting confirmation of matched funding
from the Brazilian side.
Trade and Investment Climate
7.5 The Department for International Development (DFID)
believe that an improved investment climate in Brazil and its
greater insertion into global markets, including through increased
trade with the UK, could have positive, poverty reducing effects,
depending on the nature of the benefits and how they are distributed.
DFID is working with international financial institutions and
others to promote a better understanding of these issues in the
region and more pro-poor policy decisions relating to them.
7.6 DFID's Latin America Markets and International Trade
programme (£7.5 million) is aimed at delivering new knowledge
and strategies for poor people's access to domestic and international
markets that will help strengthen the operations of the World
Bank and Inter-American Development Bank. The programme is implemented
through trust fund resources at the two Banks as well as through
allocations of funds by DFID offices in the region, including
Brazil. Among other activities, the programme has supported work
by the International Finance Corporation (IFC), part of the World
Bank Group, to address regulatory barriers to formalisation of
businesses in the Sao Paulo municipality of Brazil.
7.7 In addition, DFID is developing a programme to promote
lesson sharing in the region on trade and poverty issues, whilst
it also contributes to thinking on Brazil's regional and global
role on trade agendas with a view to achieving poverty reduction
in Brazil and beyond.
Sustainable Development
7.8 The UK is establishing Sustainable Development (SD)
Dialogues with China, India, Brazil, Mexico and South Africa.
These are cross-departmental initiatives that provide an effective
mechanism to promote collaboration and exchange of good practice
on sustainable development and integrate sustainability in the
UK's bilateral relationship with these countries.
7.9 A joint statement on the UK-Brazil SD Dialogue was
signed during the State Visit by Margaret Beckett and Brazilian
Foreign Minister Amorim. The SD Dialogue will build on, and provide
a framework for, existing country level activities as well as
identify new areas of collaboration under six priority themes:
Natural Resource Protection & Sustainable
Management (including protecting biodiversity, tackling illegal
logging, and working together to support regional and international
measures on sustainable forest management);
Climate Change, and Energy for Sustainable
Development (through the Working Group on Climate Change).
Sustainable Consumption and Production.
Poverty and Inequality.
Capacity Building and Institutional Development.
Science for Sustainable Development.
7.10 The Dialogues are led by Defra but are supported
by other government departments, including FCO. Financial support
comes from Defra's WSSD Implementation Fund and the FCO's SD Programme
under the Global Opportunities Fund.
|