Can Brazil Conquer Africa’s Booming Markets?

By Arnout Nuijt

A recent article in The Economist gives an optimistic picture of Brazilian companies heading en masse for Africa’s booming economies, “laden with expertise and capital”, thus creating a new “Atlantic alliance” between Brazil and Africa. We hate to be critical, but is this really happening or is it wishful thinking?

Yes, Africa is booming and Brazil is so close and so well adapted to tropical circumstances, that a huge opportunity for doing business with African nations has arrived. Brazilian companies indeed should take advantage of Africa’s new wealthy middle classes, its plethora of mining opportunities and its own supply of innovative products fit for tropical circumstances, such as vehicles and household appliances. But let’s get back to the facts. Total Brazil trade with the world was 383 billion in 2010, of which Sub-Sahara Africa took a modest 3,18 %.

Yes, Brazil’s trade with Sub-Saharan Africa increased between 2000 and 2010 from U$2 billion to U$12 billion (there was a peak in 2008), with expectations of continuous growth in the coming years, the World Bank reports.

But is Chapter 5 of the World Bank report, in an overview of the current trade and investment trends in Sub-Saharan Africa that involve the Brazilian government and the private sector, the figures show a different story: “While there has been a rapid and significant growth in commercial interactions, they remain rather limited when compared with China’s role in Africa for example. The chapter therefore highlights the enormous opportunity for further interaction.”

So, it’s opportunities, not facts and those interactions have yet to come! Several of Brazil’s biggest companies operate in Africa, especially in the mining and construction sectors. They are the usual suspects, like Vale (with a huge investment in Mozambique’s coal for instance), Petrobras, Odebrecht (big in Angola’s construction boom) and a couple of other big construction firms. Embraer has sold some planes (to Kenya and Mozambique among others) and Marco Polo assembles buses in South Africa and Egypt. A dozen or so Brazilian SME’s appear to be active in Angola, according to the World Bank report.

Brazil can also be credited for opening 37 new embassies all over Africa, but that does not necessarily mean that economic cooperation is gearing up. Brazil has been opening new embassies all over the world and not just Africa, mainly as part of its lobby for obtaining a permanent seat on the UN’s Security Council. Those embassies in general are very small.

Nevertheless Brazil appears to have woken up to Africa’s opportunities. A spate of activities, such as seminars on Africa’s business opportunities, have taken place in the most positive and optimistic mood. It may have all started back in October 2011, when then Vale CEO Roger Agnelli proclaimed in London: “I am falling in love with Africa.” He noted that the continent was second only to Brazil in terms of iron-ore production potential and predicted that “Africa will be a completely different continent in five to ten years”. The good news is also that President Rousseff has followed in the footsteps of former President Lula in visiting a number of African states.

Meanwhile however the global crisis is taking its toll. Trade between Brazil and Africa has plummeted since 2008, its top year. Trade with Angola for instance fell from 4 billion in 2008 to just 1 billion in 2011. The global slowdown is also taking its toll on the internationalization strategies of Brazil’s biggest corporations. Vale has now halted a huge mining project in Guiné. Petrobras may pull out of its African projects altogether, as the company has to divert all of its resources into the extraction of the sub-salt oil off Brazil’s coast. Privately, Petrobras staff confide that its African adventures anyway were more of a political nature that sound business cases.

Taking a closer look at the nature of Brazil’s Africa trade it appears to be composed overwhelmingly of exports, as for instance Angolan trade figures show. A recent attempt to start up a shipping route between Fortaleza and São Vicente Island in Cape Verde (a great natural harbor and a possible hub for Brazilian goods) was postponed. The Brazilian vessel that was to operate on the route was booked full with cargo of no less than 23 Brazilian businessmen on the way in to Cape Verde, but none had booked any freight for the return leg of the journey. It can be a problem if Brazilian businessmen are only interested in selling their own products to Africa and not buying anything there.

There are authors that see Brazil as a counterweight to China’s presence in Africa. That may be wishful thinking indeed. If Brazil were to be pitted against China, it will find itself three steps behind the Asians to begin with. The China-Africa trade stood at around 166 billion USD in 2011, while in 2010 Brazil-Africa’s trade was just 12 billion USD. China’s investments in Africa may have reached 15 billion USD in 2011, with over 2000 companies active all over the continent. There are around one million Chinese in Africa, as opposed to maybe 50.000 Brazilians.

Many Chinese have really settled in Africa, becoming small business owners for example and trading with other Chinese in neighboring countries. Brazil has been sending mainly expatriates to Africa, for instance to Angola where at least some 25000 Brazilians reside at any given time. These however tend to live in their own neighborhoods and go back after a few years. In contrast, Angola is home now to around 100,000 Portuguese plus other Europeans, who work as professionals in Angolan companies alongside locals. Many of these immigrants have set up SME’s in the country too.

Brazil sends out few tourists to Africa. In fact there may be more African tourists these days in Brazil than vice versa. Airlines providing regular connections between Brazil and Africa are all African: SAA connects São Paulo to Johannesburg, TAAG connects Luanda to Rio and TACV links Cape Verde to Fortaleza. Where are TAM and Gol? Why don’t they start operating flights to Africa?

The problem is that Brazilians are hardly interested in Africa at all. The Brazilian public in general is focused – when it comes to holidaying, working, studying or buying real estate – on the US and Europe and that ‘s it. Yes, China, Japan and India have become more important to Brazilians as well, but it is harder to identify with those countries. The Middle East is another interesting area for Brazilians, also for business, since Brazil’s population has millions of descendants from immigrants of what are now Lebanon and Syria.

But Brazil has recently started exploring and honoring its African roots. Indeed, over half of its population is now classified as “black” or “brown” (of mixed-race descent). Business organizations now hope to use those facts when selling their products to Africans. But Africans who have traveled to Brazil have their doubts. They are certainly aware of the large numbers of descendants from their continent in Brazil, but wonder why they hardly ever meet black pilots, businessmen, politicians, doctors. ambassadors or even a black stewardess. Africans therefore do not always feel comfortable in Brazil.

Afro-Brazilians first need to have better opportunities in Brazil, before Brazil can show off its roots. And that may start happening now with the rise of the new middle classes, roughly half of which are black or brown, and the recent high profile nominations of two black judges to top positions.

So, what can realistically be done to improve business ties between Brazil and Africa? Can Brazil’s industries simply export their goods to Africa? That will be difficult. The Chinese and other Asians produce much cheaper and Brazilian goods can not really compete with Chinese imports on price alone. Brazilian industries have found out the same thing in their own country. Anyway competition in Africa will be strong and not just from China, but also from US and EU companies, from Arab countries as well as Turkey and India. But let’s not forget competition these days will come from Africans themselves too!

Brazil however has some good quality products, like trucks and buses (that are far better than their cheaper Asian rivals) and household appliances that can compete in Africa on quality, though maybe with a little help from Brazil’s tax authorities. Brazil’s manufacturers may need tax breaks for their exports to become succesful or else start producing in Africa, like Marco Polo is doing.

Brazil also still enjoys a very good reputation in Africa as an non-ideological supplier of technology, innovative agriculture and tropical medicine. Embrapa, Brazil’s top notch agribusiness research institute, can become a big player in Africa, helping Africans to develop their farming techniques. Other institutes may follow suit and may establish branches in Portuguese speaking Africa, like medicine faculties or the FGV business school, another top institute.

Brazilian private investment funds, maybe led by a future Africa-based subsidiary of its powerful state owned BNDES, may help develop Africa’s industries and other businesses and fund new infrastructure, bio fuels and agricultural projects.

Brazilian real estate investors are in a position to snap up good and relatively cheap real estate and hotel projects, for instance in Cape Verde’s booming tourism market. There European investors have pulled out or are holding back for a while. They could also breath air in other African countries’ real estate and tourism sectors, like South Africa’s or Mozambique’s. Of course, there is also a task for African countries to promote themselves and their business opportunities better in Brazil.

Brazil has another trump card with its excellent franchise industry. These may fill Africa’s new shopping malls with its own formulas of shops and restaurants, thus catering to Africa’s new middle classes, while at the same time giving African entrepreneurs themselves the chance to run their own businesses. Advantage for Brazil is that these chains will not only stimulate local production, but also need a steady supply of special goods from Brazil.

Big Brazilian companies in Africa so far have been excelling at hiring and training a very high percentage of locals, instead of sending their own masses of workers. Neither franchising nor investment will lead to a high number of new Brazilian expatriates too, but is that a bad thing? It means the presence of Brazil in Africa leaves little footprint (apart from the heavy “carbon footprint” of mining company Vale of course).

That may be very good news to Africans, who do not need another elephant to trample them in a big game of new influence spheres. Yes, it would be interesting to have counterweights to China, but Brazil is not really in that position. As we reasoned, its footprint on African soil will rather be light than heavy. But nevertheless, Brazil can make its mark, not just by developing the mining and construction sectors, but also in finance, research, technology, science and education, real estate, tourism, agriculture, franchising and small business development. This way, Brazil’s African relations will not look like China’s, but resemble the relations maintained by other developed countries, like the US and EU member states.

December 17th, 2012. All rights reserved by Brazil Weekly/Rotterdam Week.

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