Construction drives exports to Africa
Following the lead of Brazilian construction companies operating in the continent, domestic products of all kinds are being sold. The main obstacle is obtaining financing in order to do business.
São Paulo – Brazilian exports to Africa are strongly influenced by works being developed by Brazilian construction companies in the continent. Following the lead of these companies, machinery, equipment, vehicles, building material and other products are being shipped that are not directly linked to the industry, but end up finding the doors open.
Exhibition on Brazil in South Africa during the World Cup
According to the Foreign Trade secretary of the Brazilian Ministry of Development, Industry and Foreign Trade, Welber Barral, construction is the main driving force behind shipments of industrial products to the continent. “Services exports boost sales of products such as machinery and construction material,” he told ANBA.
Most of the products sold are industrialized goods. In the first half of this year, according to information supplied by the Ministry, revenues from exports from Brazil to Africa totalled US$ 3.8 billion, an 8.7% decline over the same period last year.
According to Barral, the impact was due to reduced sales of industry-related products, such as heavy vehicles and their parts, and aircraft. There was, on the other hand, strong growth in exports of agricultural products such as sugar, poultry and beef.
From 2003 to 2008, Brazilian exports to Africa grew steadily, having gone from US$ 2.9 billion to US$ 10.2 billion, and then dropping to US$ 8.7 billion last year because of the international financial crisis.
Construction work being undertaken by company Andrade Gutierrez in Algeria
"Commodity exports to Africa have grown a lot, so naturally the purchasing power has gone up and [the continent] started buying more,” said the vice president of the Brazilian Foreign Trade Association (AEB), José Augusto de Castro. Some African countries, such as Algeria and Nigeria, are major suppliers of oil to Brazil.
He added that the continent has a lower level of industrialization than other regions, which explains the diversification of Brazilian sales to Africa. Similar to Barral, Castro claimed that the work of construction companies has paved the way for sales of different products.
The executive mentioned the example of Equatorial Guinea, which the Brazilian president Luiz Inácio Lula da Silva visited last week. There, building company ARG, based in the state of Minas Gerais, is in charge of building roads, which opened up a market unknown to Brazilian businessmen until recently.
Road built by ARG in Equatorial Guinea
For the sake of illustration, sales to Guinea went from US$ 3.6 million in 2004 to US$ 45.4 million last year. Items shipped included poultry, dairy, tobacco and sugar, machinery, vehicles, equipment and construction material. “Everything changed just because one company entered the market,” said Castro.
And this is not the only case. Several Brazilian construction companies are present in Africa territory, such as Andrade Gutierrez, Odebrecht, Queiroz Galvão and Camargo Corrêa. The latter, for instance, not only has works underway, it also has investment in the continent’s cement industry and intends to increase them, according to an article published last Thursday (8th) on the Folha de S. Paulo newspaper.
Over the last few years, the government has been working to increase Brazilian presence in Africa, the main supporter of this policy being Lula himself. Despite the increased trade, the Brazilian effort towards African nations and other developing countries draws criticism from some sectors.
Lula and the Zambian president, Rupiah Banda, in his last trip to Africa
Castro, for instance, claims that the country has abandoned promotional actions targeting its leading trade partner, the United States. To him, the quest for the so-called “South-South cooperation” led the government to place political interests above commercial ones.
The government denies and claims that it operates in two paths, one leading to developing nations and the other to wealthy countries, so as to diversify the Brazilian export markets.
Opinions aside, the fact is that increased trade with developing countries has led new challenges to arise. The main obstacle facing those who export to Africa is credit, not due to lack of money, but because banks resist accepting the guarantees offered by importers. The exception is operations backed by commodities.
“Generally speaking, the problem is credit. Only now is Brazil having the experience of doing business with other developing countries. This calls for innovation, for using creativity,” said the secretary general of the Arab Brazilian Chamber of Commerce, Michel Alaby, who has been working in the sector for decades.
He cited the example of a Brazilian company that lost a big contract in Sudan recently due to lack of financing. The deal wound up in the hands of an Indian company.
The credit issue ends up giving a boost to Brazil’s main competitors in the African market, especially China. The raw material-hungry Chinese easily obtain credit to do business with Africa. Alaby also mentioned strong competition from India and Turkey.
Foreign trade professionals are hoping that the establishment of export credit agency Exim Brasil, a subsidiary of the Brazilian Development Bank (BNDES), should reduce the Brazilian handicap in this field. The government guarantees that the credit-granting process will be simpler than other operations conducted by the BNDES. It has not been implemented yet, so exporters are waiting to see whether the promise will be kept. (Read another article about business with Africa on ANBA tomorrow morning (13th))
*Translated by Gabriel Pomerancblum