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Commercial Opportunities in Brazil for U.S. Firms

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Brazil is the world’s seventh-largest economy and the United States’ ninth-largest merchandise trading partner, with two-way trade totaling nearly $72 billion last year. The U.S. is Brazil’s second-largest export market and its leading foreign investor, with an accumulated foreign direct investment stock in 2012 of $79 billion. Brazil has begun an ambitious program to draw in private capital and managerial expertise to upgrade the nation’s infrastructure. With this in mind, Joel Reynoso, commercial officer, and Patrick Levy, commercial specialist in charge of the architectural, construction and engineering sectors with the U.S. Embassy’s Consulate General in Rio de Janeiro, discussed these opportunities in a question-and-answer format.

Q: In Brazil, what are some trends, economic or otherwise, that U.S. companies should be aware of?

A: Brazil’s large and growing economy offers U.S. companies opportunities in many different industry sectors. Its large and fast-growing middle class is attracted to high-value goods and services. Furthermore, Brazil has a wealth of natural resources, such as water and oil and gas, which places the country on the right path to sustainable growth. However, the country’s investments in infrastructure have not kept pace with its economic growth over the past decade, which has impeded further economic growth. As a result, Brazil’s current government is ramping up investments in infrastructure, including in areas such as power generation, railroads, highways, airports, urban mobility and seaports.

 

Levy
The good news for U.S. companies is that many of these new infrastructure projects are being conducted under public-private partnerships and could require outside expertise. Recent airport concessions require private-sector bidders to have solid experience operating airports, prompting many of Brazil’s largest construction and engineering firms to find foreign partners. For example, a requirement for bidding on the recent concession for the Rio de Janeiro international airport (Galeão) stated that the winning consortium must have experience operating an airport with a minimum annual passenger count of 22 million. As a result, all Brazilian construction firms bidding did so in partnership with foreign firms. Also, more and more public and private entities are issuing international
Reynoso
requests for proposal, not because local companies are not capable of supplying the products and services needed for their projects but because strong local demand has inflated prices throughout the country. Brazil recognizes that, in order to continue growing effectively, it needs to bring in expertise and technology that is currently not available or is in short supply in Brazil. This is where U.S. companies can and do play a critical role.

Q: What kind of infrastructure, engineering and construction opportunities and projects are available?    

A:  Several. First, we will provide a brief overview. The Brazilian government has introduced incentives for infrastructure investment in the country and is planning to ease regulations in order to attract more investment. The infrastructure investment is estimated at approximately $400 billion over the coming years. This amount does not include investments already in place that are directly related to the upcoming World Cup and the 2016 Rio Olympic Games. As the population throughout Brazil continues to move to urban centers, we are seeing plans for constructing schools, hospitals, hotels and residential projects, both upscale and low-income housing. For example, in the city of Rio de Janeiro, which is hosting the 2016 Summer Olympics, three new state-of-the-art hospitals are being planned. According to the builders' association, SindusCon, civil construction in Brazil grew 4% in 2013. Below is a snapshot of some key infrastructure opportunities:

  • Roads, Highways and Ports

One of the primary goals is to ease the burden of transporting goods in the agricultural and commodities sectors. Currently, farmers in the center-west part of the country must transport their export products 1,200 miles south to ports in the states of São Paulo and Paraná. The Brazilian government recently announced that private-sector investors will compete for concessions to control approximately 4,500 miles of toll roads and 6,000 miles of railways. Since September 2013, the Brazilian government has auctioned four federal highways, and its Ministry of Transportation envisions attracting $18 billion in private investment into this sector. The ports sector is set to receive $23.5 billion in new private investment under Brazil’s Investment in Logistics program. It is expected that terminals at the Port of Santos and the northern state of Para will be the first auctioned under this program.

  • Airport Infrastructure

Concessions to renovate five of the largest airports in the country are also under way. A fast-growing Brazilian middle class that now exceeds well over 100 million people has led to greater demand for air travel and airport infrastructure. The international airports in the southeastern region alone, which includes São Paulo and Rio de Janeiro, represent more than 70% of the country’s total airport operational passenger demand. With more concessions in regional airports expected, current and future winners of airport concessions in Brazil will need to work with worldwide suppliers of services and technologies to expand and modernize Brazil’s airports.

  • Growing Opportunities in Brazil’s Northeast

While São Paulo and Rio de Janeiro continue to be the country’s primary business hubs, U.S. firms also should look to project opportunities in the growing northeastern part of the country. Pernambuco state recently held is first open bid for, exclusively, solar-energy projects, which closed successfully last December. This open bid resulted in the selection of six consortia to install nearly 123 megawatts of solar-energy capacity, about 10 times greater than what all of Brazil had installed by the end of 2013. Pernambuco is home to the region's industrial complex and the Port of Suape, with more than 100 companies in operation and another 25 in various stages of construction. Suape hosts the largest shipyard in the Southern Hemisphere and has two new shipyards under construction. Plans for future expansion in this state offer potential lucrative opportunities for U.S. firms. According to local business leaders, the government of Pernambuco plans to invest $20 billion over the next 10 years to develop 14 planned cities.

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