Annual Economic & Commercial Report

Brazilian Economy

The year 2002 was one of mixed fortunes for Brazil. The effect of the global slowdown was compounded by the severe devaluation of the Brazilian Real to approx. 3.5 to the USD by the end of the year (largely on account of political paranoia of the investment community which was nervous about the outcome of the November Presidential and Parliamentary Elections)

Foreign Direct Investment (FDI) was much lower at USD 16.5 billion compared to 2001 when it reached 22.45 billion.

The uncertainty in the financial markets and the devaluation of the Real also led to an outflow of USD 9.1 billion withdrawn by foreign and Brazilian firms and individuals from their current accounts.

In August 2002, the outgoing Brazilian Government negotiated a fresh 15-month loan package with the IMF, which agreed to provide a Line of Credit of USD 30 billion under certain conditions, mainly maintenance of primary fiscal surplus of at least 3.75% till 2005, with targets for inflation, reserves etc. The World Bank and the IADB also announced their intention to lend upto USD 7 billion to Brazil by end- 2003.

The uncertainty in the financial markets subsided somewhat with the announcement of the election of President Luis Inacio Lula De Silva of the left wing Workers Party (PT), who , even before being sworn in on 1 January, 2003 had calmed the markets with conciliatory statements and appointment of key personnel who enjoyed confidence of the international community.

The year ended with the lowest current account deficit since 1994 – USD 7.757 billion (1.67 % of GDP) as compared to USD 23.213 billion (4.55% of GDP) in 2001.

GDP growth in 2002 was estimated at 1.4% (1.42% in 2001). Inflation went out of control on account of devaluation of the Real, reaching 12.53% (7.67% in 2001). Government’s efforts to control inflation led it to hike up the basic (SELIC) interest rate to 25.5% in January, 2003.

The Gross Government debt (Federal Pension Funds, States and Municipalities) amounted to Reals 1,138 billion (75.3% of GDP). The Liquid Debt of the public sector in November, 2002 had reached 57.5% of GDP. The devaluation of the Real is largely responsible for the swelling of the public debt.

Globrazilisation:

The term, coined by a Brazilian economist, symbolizes Brazil's increasing role in the world economy, with the intensification of activity in the financial markets; liberalization of the commercial markets and privatization; negotiations in the WTO; and involvement in the issue of generic medicines and patents.

Brazil continued to play its role in the negotiations on the Free Trade Area of Americas (FTAA), all the while seeking to carve out a leading role in Latin America as a counterweight to the US, which it criticized openly for having imposed restrictive measures and tariffs on imports of steel, subsidies on agro products etc. Brazil is chairing an important committee at the FTAA talks and the new Brazilian Government has taken a conscious decision to negotiate and be a part of the FTAA process, while aggressively defending Brazilian interests therein.

MERCOSUL was also high on the agenda throughout the year, although there were pessimistic prospects for further integration, with the Brazilian economy just managing to keep its head above water in the face of the collapse of Argentinean economy and severe economic crises faced by Paraguay and Uruguay as a result. While the customs union managed to survive, further integration was hampered and several exceptions sought by the other 3 partners were demanded and granted by Brazil, which still seeks to consolidate MERCOSUL and integrate with its partners.

Brazil also commenced intensive negotiations for preferential trade accords with EU, South Africa, Mexico and Venezuela. Brazilian authorities made it clear that they sought lowering of barriers with EU as a counterweight to US, since trade with both constitutes about 25% of Brazil’s external trade.

Brazil successfully fought Canada on the issue of export credits for aircraft (Bombardier v/s Embraer) and proceeded to WTO against the US on the issue of steel, medicine patents and other issues.

Foreign Trade:

Brazil achieved a balance of trade surplus of USD 13.13 billion in 2002 (USD 2.651 billion in 2001) with exports at 60.362 billion and imports at 47.232 billion. The surplus was largely on account of diminution of imports by about 15% from USD 55.572 billion to 47.232 billion, while exports went up from USD 58.223 billion to USD 60.362 billion.

The service sector registered a deficit of USD 5.083 billion, compared to USD 7.749 billion in 2001.

Bilateral Trade

Bilateral trade between India and Brazil in 2002 reached a record USD 1.227 billion (828.09 million in 2001). Brazilian exports amounted to USD 653.6 million, giving Brazil a surplus of USD 80.35 million, the first since 1999. The bulk of Brazil’s exports constituted crude oil and related products (USD 333.4 million), and soya oil – crude & refined (USD 159 million). Other commodities included cotton, autoparts, sugar and inorganic chemicals.

India’s exports to Brazil in 2002 achieved a new record of USD 573.25 (USD 542.81 in 2001) a growth in dollar terms of 5.61%, and 35.15% in terms of Brazilian Real.

Imports from India constituted 1.214 % of total Brazilian imports ( 0.976% in 2001). Exports to India constituted 1.083 % of the total exports of Brazil in 2002 (0.49% in 2001).

India’s Exports : Refer Annexure – I

Petroleum Products

As in 2001, our single largest item of export was diesel oil – USD 275.31 million - in continuation of the contract between Reliance Petrochemicals and Petrobras, under which there have been monthly shipments of crude oil to India and diesel to Brazil.

Pharmaceuticals:

This growing area of our commercial interest in Brazil saw a pattern change with increase in sale of value added Indian formulations from USD 34.35 million (2001) to 50.5 million in 2002. There was a decrease in sale of organic chemicals (mainly bulk drugs) from USD 131.37 million in 2001 to USD 114.29 million in 2002.

2002 saw the entry of yet more Indian pharma companies, most selling bulk drugs, but several of which had their factories inspected and obtained GMP certification. The number of formulations registered by the Indian companies also went up significantly.

· The leading performer was Ranbaxy which has over 50 formulations registered;

· Strides (Arcolabs) Cellopharm inaugurated the first Indian factory in Brazil in September, 2002 in the port city of Victoria;

· Torrent Pharmaceuticals Limited launched its range of branded generics in August, 2002

· Aurobindo Pharma was poised by year-end to launch its formulations, after obtaining GMP certification.

· Zydus Cadila and IPCA managed to obtain GMP certification.

· Core/Claris, Sun Pharma, Hetero, Cipla, Dr. Reddy’s, Nicholas Piramal, Orchid, Lupin, Wockhardt and several smaller companies continued their on-going activities profitably.

Engineering & Related Products:

Electrical machinery and equipment/parts(Chapter 85) did very well amounting to USD 13.77 million.

Iron & Steel(Chapter 73) exports went up significantly from USD 1.99 million (2001) to 6.51 million.

Yet another significant item of export continued to be bicycle parts and accessories amounting to USD 6.15 million.

Textiles :

Exports in this sector, which had not fared well in earlier years, saw an increase of about 280% with exports going up from USD 6.93 million (2001) to USD 19.4 million (total of chapters 50-63). The most significant increase was in synthetic and artificial filaments which went up from 2.5 million in 2001 to 15.36 million (Chapter 54).

Dyes & Pigments (Chapter 32):

This sector saw very significant increase from USD 7.87 million in 2001 to 12.45 million.

Rubber (Chapter 40):

This sector also showed improvement with increase from USD 5.92 million (2001) to USD 6.83 million. It could do far better but for subsisting anti-dumping duty on Indian cycle tyres and Inmetro registration requirements of the Brazilian Government. The predominant item in this category was sheath contraceptives amounting to USD 4.77 million.

Software:

Tata Consultancy Services (TCS) launched its joint venture in September 2002 with a Brazilian company TBA, TCS holding 51%. The joint venture, which will work in conjunction with TCS’s offshore establishment in Uruguay, will provide software services from India and from their offices in Brasilia and Sao Paulo for Brazil and the entire region.

APTECH consolidated its foothold in Brazil by setting up a strategic partnership and appointing a master franchisee.

Zee Interactive Learning Systems (ZILS), a subsidiary of the Zee Group, established a collaboration with a southern Brazilian University, UNICA in Santa Catarina to translate and franchise its software.

Several other Indian companies including Prologix, Infodesk Manipal, NIIT, Tata Infotech and others concluded smaller contracts.

While statistics of the software exports are not available, we can estimate a flow of at least USD 25 million over the past year from services, outsourcing, etc.

Embraer :

The Brazilian aircraft manufacturer signed an Agreement with Jet Airways in London in July, 2002, to sell ten 78-seater aircraft for a value of USD 260 million, deliveries to commence from 2004. The company is also in conversation with Government of India for sale of five Legacy executive jets and other aircraft.

Ethanol:

The visit to India by Brazilian Commerce Minister Mr. Sergio Amaral and the visit to Brazil of Shri Ram Naik, Minister for Petroleum & Natural Gas, saw the conclusion of MoUs and related agreements on collaboration in production and transfer of technology in the area of ethanol, as India was to commence mixing ethanol with automobile fuel from January 2003. There were business delegations that visited and had discussions with Brazilian ethanol and machinery manufacturers. There were also expressions of interest by Indian companies in purchase of ethanol from Brazil.

Cattle Embryos:

The Brazilian Minister of Agriculture met with Ambassador of India in Brasilia in August 2002 and expressed the Brazilian Government’s interest in importing 15,000 cattle embryos from India over a period of 2 years. This policy, which provides an opportunity for Indian exports in this important area, shut off after the Brazilian Government imposed phytosanitary restrictions on import of Indian cattle in 1962, was under discussion with the Department of Animal Husbandry, Ministry of Agriculture.

Indian Presence in Brazil:

A list of Indian companies with joint ventures/subsidiaries/partnerships and other active in the market, is given at Annexure II.

The pharmaceutical companies have done exceedingly well and increased their presence in Brazil. Coming years will see yet further consolidation in this sector and Indian companies are expected to play an important role in the Brazilian pharmaceuticals market in the future.

The collaboration of M/s. Bajaj Auto with M/s. Kasinski failed to take off unfortunately, mainly due to differences between the collaborators regarding brand name. Kasinski’s interest in manufacture of Bajaj two wheelers also was held up as a result.

Several engineering companies such as Electrotherm, Thermax, Eastman Cycles, PEC, Bry Air, TAFE, Raybar and Birla Yamaha established and consolidated valuable contacts and increased their exports as a result. There was considerable interest in Indian handicrafts, and several outlets selling Indian arts and crafts as well as high quality textiles mushroomed all over Brazil, mainly in Sao Paulo and Rio de Janeiro. Indian handicrafts and garments companies – Nancy Craft, Indo-Brazil Imports, Mina India, Ganesh, and several Brazilian importers increased their purchases from India.

State Bank of India decided to close down its representative office in Sao Paulo with effect from December 2002.

Delegation Visits : (Refer to Annexure III)

The most prominent visit was that of Minister of Petroleum & Natural Gas, Shri Ram Naik who attended World Petroleum Congress in September 2002. Minister had meetings with Brazilian officials of the Ministry of Energy and discussed further collaboration in the area of ethanol.

On the Brazilian side, Minister of Development of Industry and Trade, Mr. Sergio Amaral led a delegation of 45 Brazilian businessmen to India, called on the Prime Minister and several Ministers and signed an MoU on collaboration with Minister of Petroleum & Natural Gas for Ethanol. Indian and Brazilian officials also inaugurated the Indo-Brazil Commercial Council which is to meet annually and will provide a valuable forum for exchange of ideas as well as help both governments in formulating policies to facilitate bilateral trade.

In August 2002, Secretary in the Ministry of Development Mr. Reginaldo Arcuri led a delegation of about 15 Brazilian businessmen and officials to further discuss the possibilities of collaboration in the area of ethanol.

Earlier in February 2002, the Brazilian Minister of Science & Technology Mr. R. Sardenberg made an official visit to India and had discussions with Minister of Science & Technology Mr. Murli Manohar Joshi and, during the visit to Bangalore, witnessed the signing of a bilateral MoU on collaboration in space-related activities.

Significant Events (Refer Annexure IV)

CGI, Sao Paulo organized India Tex – 2002, an exclusive Indian expo with participation of 37 Indian companies in the textile sector, headed by SRTEPC with the collaboration of Texprocil and other EPCs in the textile sector.

Important participants in fairs included CHEMEXIL which organized a 13-member delegation participating in FCE-Pharma 2002; Coir Board participated in Sao Paulo Supermarkets Convention, APAS – 2002.

The Consulate also organized participation by Brazilian businessmen in fairs in India including India-Tex; India-Soft; IHGF and other smaller events.

Indian Joint Ventures in Brazil

Pharmaceuticals

1. Dr. Reddy`s Laboratories-Instituto Bioquimico:

Dr. Reddy`s Farmaceutica do Brasil Ltda.
Rua Caramuru, 417, 4th andar, Cj. 44 Saude
04138-001 SP Sao Paulo Brazil
Tel. (0055-11) 5581 7707; fax: 5581 7708
E-mail: ravindra@terra.com.br; drreddys@terra.com.br
www.drreddys.com

2. Strides Arcolabs/Infabra/Cellofarm -

CELLOFARM
Av. Das Americas 8445, Sala 803, Barra da Tijuca
Rio de Janeiro RJ - CEP: 22793-080
Tel. (0055-21) 2487 6305
Fax: (0055-21) 2487 6309
E-mail: cellofarm@cellofarm.com.br

3. Aurobindo Pharmaceuticals Ltd.-

AB Farmo Quimica Ltda..
726, Av. Macuco, Floor No. 8-Moema
CEP: 04523-001 SP Brazil
Tel. (0055-11) 5054 6999
Fax: (0055-11) 5054 6868
E-mail: brasiloffice@aurobindo.com.br
premanand@aurobindo.com.br

4. Core Worldwide Ltd. -

Zeus Lifesciences Ltda.
Rua Estados Unidos, 242 - CEP: 01427-000
Jardim America, Sao Paulo, Brazil
Tel. (011) 3051 7888; fax: 3051 7800
E-mail: zeuslife@uol.com.br

5. Torrent Pharmaceuticals:

Torrent do Brasil Ltda.
Av. Dr. Chucri Zaidan, 920, 9th andar,
Sao Paulo
Tel. (011) 3048 4080
Fax: (011) 3048 4099
E-mail: torrent@torrent.com.br
Website: www.torrent.com.br

6. Ranbaxy Ltd.

Ranbaxy SP Medicamentos
Av. Das Americas, 1155/1201 to 1206
Barra Space Center - Barra da Tijuca
CEP: 22631-000 Rio de Janeiro RJ
Tel. (21) 2484 4588; Cell: 8111 1138
arunn@ranbaxybr.com.br

Engineering Sector

7. ELGITREAD India Ltd.

Elgitread (Brasil) Ltda.
Rua Antonio Carlos Lopes, 194 Vila Neide,
Lorena SP CEP: 12610-260 Brasil
Tel. (55-12) 553 2555; fax: 553 2539

8. Bajaj Auto Ltd. Akurdi, Pune.

Kasinski Fabricadora de Vehiculos Ltda.
COFAVE
Av. Pacaembu, 1886, Pacaembu 01234-000 SP
Sao Paulo, Brazil
Tel. 3872 8889; fax: 3862 9203

Software

9. Tata Consultancy Services, Mumbai

Tata Consultacy Services
TCS Brazil S.A.
Av. Paulista, 949, 2nd andar
01311-100 SP Sao Paulo, Brazil
Phone: (011) 3141 1740
Fax: (011) 3253-5690

10. Zee Interactive Learning Systems Ltd. (ZILS)

UNICA
Rua Salvatina Feliciana dos Santos 525,
Bairro Itacorubi - Florianopolis CEP: 88034-001
Tel./fax: (048) 334 6437

11. APTECH Ltd. -

A-Hand
Rua Roxo Moreira, 1076
13083-591 Campinas-SP
Phone/fax: 55-19-3289 4685

MASV Consultoria em TI
Av. Bosque de Saude, 782 CJ.143
CEP: 02316-000 SP Sao Paulo
Phone: 55-11-7854 6279

Annexure III

Important Visits during the Year 2002

1. A 2-member delegation from NIIT visited Brazil in April, 2002 for exploring possibilities of introducing their educational software in the Brazilian market.

2. A delegation of about 20 business houses from Gujarat in pharmaceuticals, engineering, steel etc. visited Sao Paulo and Rio de Janeiro from 19th to 30th May 2002 and held useful meetings.

3. A five-member delegation of the Gems & Jewellery Export Promotion Council (GJEPC) visited Brasilia in May 2002 head by Shri Sanjay Kothari, Chairman. They had meetings with Brazilian jewelers and importers.

4. Secretary(EAA), Ministry of External Affairs, New Delhi accompanied by Director(LAC), visited Brazil from 20th to 24th August for meetings in Brasilia.

5. Minister of Petroleum and Natural Gas, Shri Ram Naik, visited Rio de Janeiro from 1st to 4th September, 2002 to participate in World Petroleum Congress. He held meetings with officials of Brazil's Ministry of Energy.

6. An eight-member delegation from PHD Chamber of Commerce and Industry visited Sao Paulo, Curitiba and Rio de Janeiro from 13th to 19th October 2002 and had fruitful meetings with members of Federation of Industries of Sao Paulo and Parana and Commercial Association of Rio de Janeiro.

7. Secretary, Department of Information Technology, Shri Rajeeva Ratna Shah led a 7-member official and business delegation for bilateral discussions with the Brazilian authorities in the field of Information Technology.

8. A delegation of the Department of Space led by Dr. P.S. Goyal, Director, ISRO and two scientists and Consultant(Space), Embassy of India, Washington held meetings at the Brazilian Space Centre (INPE) and discussed bilateral cooperation (September 24-25).

Annexure IV

Important Events during the Year 2002

1. A 13-member delegation led by CAPEXIL visited Sao Paulo from 3-7 March 2002 for a Buyer-Seller Meet organized by ITPO and this Consulate.

2. A 10-member delegation led by Apparel Export Promotion Council visited Sao Paulo for a Buyer-Seller Meet from 27-29 March 2002 organised by this Consulate.

3. A Coir Board delegation led by Secretary, Ministry of Agro and Rural Industries visited Sao Paulo and Rio de Janeiro from 19 to 23 May 2002. The delegation participated in 18th Sao Paulo Supermarkets Convention- APAS 2002 - from 20 to 23 May 2002.

4. A 22-member delegation from Federation of Indian Exporters Organisation visited Sao Paulo and Rio de Janeiro from 4th to 7th June 2002 for Buyer-Seller Meets organized by this Consulate.

5. A five-member delegation from Council for Leather Exports visited Sao Paulo to participate in FRANCAL 2002 Fair. The Indian leather exporting companies had good meetings and made useful contacts.

6. Eight Indian companies participated in BRICOLAGE 2002 from 17 to 23 July 2003. The participation was organized by India Trade Promotion Organisation and products displayed were handicrafts, garments, home furnishings etc.

7. A 13-member delegation from CHEMEXCIL visited Sao Paulo from 28th July to 2nd August to participate in FCE Pharma 2002. Apart from CHEMEXCIL delegation, several other Indian pharma companies participated/visited Sao Paulo during the fair.

8. An-eight member delegation led by The Plastic Export Promotion Council Regional Director, Chennai, visited Sao Paulo to participate in ESCOLAR 2002, the main stationery items trade fair in Sao Paulo.

9. India-Tex 2002 - The Consulate in collaboration with Synthetic and Rayon Export Promotion Council organized India-Tex 2002 in Sao Paulo on 25-26 November 2002. The exhibition was organized at prestigious World Trade Center in Sao Paulo. SRTEPC led a delegation of 37 Indian companies in the textile sector to Brazil from 21st to 27th November 2002. Some officials of participating EPCs and Government bodies also accompanied the delegation. Nine companies dealing in yarn also visited Blumenau in South of Brazil on 22nd November for a Buyer-Seller Meeting organized by the Consulate. For the remaining companies a BSM in Sao Paulo was organized on 22nd November.