Annual Economic & Commercial Report – 2001

Brazilian Economy

           As per statistics of the Brazilian Central Bank, Brazil's GDP grew by 2.2% in 2001. Growth projection for 2002 is 2.5%. World Bank estimates Brazil`s GDP at US$ 751 billion. Inflation as 7.4% in 2001 which is expected to fall this year. The rate of Brazilian currency, Real, depreciated till October to an unprecedented level of 2.8 to a US dollar before surprisingly appreciating to end the year at approximately R$ 2.35.

           Industry is estimated to have grown at a rate of 1.6%, with primary industry at approx. 6.4%, civil construction at 0.8% and a negative growth in the energy generation sector of 2.5%.

           Total exports amounted to US$ 58.223 billion and imports US$ 55.58 billion, resulting in the first trade surplus since 1994, of US$ 2.643 billion. In the year 2000, Brazil had a trade deficit of US$ 748 million. Exports increased 5.7%, while imports decreased by 0.5% over 2000. The expectations are for a bigger trade surplus in 2002.

           A survey published by the prestigious Brazilian publication, Gazetta Mercantil, of 1000 large Latin American firms revealed that Brazil has the largest stock market in Latin America and 66 of the 100 largest Latin American companies on its bourse. Brazil also has 479 of the 1000 largest banks with the highest revenue of 38.88%. Of the 50 largest private companies in the report, 23 were Brazilian.

         Despite dire predictions mid-year, Brazil closed the year with foreign investment inflow of US$ 23 billion, still well short of the US$ 31 billion figure of the previous year.

 Export Performance

          India`s exports to Brazil doubled to achieve a total of US$ 542.795 million in the calendar year 2001, compared to US$ 271.286 million  in 2000. Brazilian exports to India also increased from US$ 217.404 million in 2000 to US$ 285.278 million, a growth of  about 32%.

           Imports from India constitute 0.98% of Brazil`s total imports, as against 0.49% of Brazil`s imports in year 2000. India`s share in Brazilian exports also increased from 0.39% in 2000 to 0.49% in 2001.

           Although a large section of our exports consisted of fuel oil,  from M/s Reliance  Petrochemicals to M/s Petrobras of Brazil, a contract which is expected to continue in this calendar year, export growth over the year 2000 in other areas was 27% (Refer Annexure I.)

   

Pharmaceuticals

 The entry into the market of Indian companies, Ranbaxy, Strides Arcolabs, Torrent, along with the existing companies like Core Health Care, Aurobindo Pharma, CIPLA, HETERO, Reddy`s Laboratories, Sun Pharma etc. enhanced the  exports of formulations and bulk drugs significantly. These figures are expected to grow further in 2002, with plans by all the existing companies who have set up joint ventures or their own operations here to expand, as well as anticipated entry of new players such as IPCA, Alembic, Gland Pharma, NATCO etc.

           A softening of the regulatory regime and the conducive atmosphere for marketing of generic formulations was taken appropriate advantage of by the Indian companies.

           In the area of bulk drugs, there has also been considerable growth and India is recognized as an important source of raw materials and semi-finished products by the pharmaceutical industry of Brazil.

   

Engineering Goods

         There was considerable growth in the export of bicycles and bicycle parts. The commencement of  assembly of kits  of Bajaj three-wheeler scooters in Manaus by the Brazilian venture  KASINSKI, marks the opening of the two and three wheeler market.

 

Indian companies in Brazil

         Apart from the pharmaceutical companies and M/s Bajaj Auto,  Indian companies that have established joint ventures or representation in Brazil, include  M/s Nancy Kraft, M/s Maharaja Exports, Indo-Brazil Imports (in garments and handicrafts), GEA Energy Systems, Thermax (air conditioners) and Elgitread (India) Ltd. (tyre retreading).  There are also some retail outlets run by non-resident Indians and Brazilians importing mainly garments, handicrafts, incense etc. from India, which did reasonably well during the year.

This Consulate has been emphasizing potential areas of our growth in software infrastructure and commodities, particularly tea and spices. Regrettably, the growth was not commensurate with the potential, as explained below.

 

Software

           A Memorandum of Understanding concluded by Electronic and Computer Software Export Promotion Council ( ESC) in 1999 with its counterpart in Sao Paulo, ASSESPRO, remained largely a dead letter. The MOU concluded by ESC in late 2000 with the Government of Santa Catarina under the aegis of the Governor of Santa Catarina, who had personally sponsored a project to base ESC in a software park, FUNCITEC, in his state, has not been implemented by ESC.

         Participation in Brazilian software trade fairs, the best method to promote our software growth, was insignificant. A visit late last year by a software delegation from the Brazilian Ministry of Science and Technology to India, pursuant to the MOU concluded during the visit of Minister of Information Technology in November 2000, and the finalization of the bilateral IT Task Force,  may help enhance the level of this cooperation in the coming year. (See also para on APTECH below)

 

Infrastructure

          Several enquiries for railway locomotives, tracks, sleepers, etc. went unheeded or unattended by Indian suppliers, despite repeated reminders, and the market was lost to the US, China etc.  In area of power generation, Indian companies were slow to take up the challenge of considerable short-fall in Brazilian electricity generation capacity, and the need for power generation equipment in general. An initiative was taken during the visit of Minister of Power, Shri Suresh Prabhu, in November 2001 and it is hoped that NTPC/BHEL will mount a joint effort to penetrate this lucrative market.

Tea

         There is considerable scope for enhancement of awareness of tea amongst Brazilians, who are largely coffee consuming, particularly in special and high value teas. Despite our best efforts, Tea Board did not participate in Expo India 2001 and do not seem to have made any effort to assess the potential of this market.

         Spices is another area of high potential, as revealed by a survey carried out by this Consulate in May 2001. The Spices Board and exporters have been slow in taking up the challenge of this market, which can be developed with persistent endeavour.

Delegation Visits

         The following visits by important Indian dignitaries served to consolidate the momentum generated in 1999 and 2000.

          A 14-member delegation led by the Minister of Petroleum and Natural Gas, Shri Ram Naik, visited Brazil from May 23-27, 2001 to study the use of ethanol and gasoline blend as a fuel for motor vehicles. The delegation visited Sao Paulo, Brasilia and Rio de Janeiro.

           A six-member delegation led by the Minister of Science  & Technology, HRD and Ocean Development, Prof. Murli Manohar Joshi, visited Brazil from 4-7 July 2001.  A Memorandum of Understanding was signed between India and Brazil on cooperation in the field of science and technology. The Minister also called on President Fernando Henrique Cardoso of Brazil.

           Minister of Power, Shri Suresh Prabhu, visited Brazil from 16^th to 20^th  October. He visited Rio de Janeiro, Sao Paulo and Manaus.

           Secretary, Department of Chemicals and Petrochemicals, Shri VN Kaul, visited Sao Paulo, Brasilia and Rio de Janeiro from April 9-12, 2001 to promote IndiaChem 2002. 

           During the visit of MOS(Commerce), Shri Rajiv Pratap Rudy to inaugurate Expo-India 2001 in September, the Brazilian government publicly stated its conviction that India has been selected as one of the six priority trading partners of Brazil along with US, UK, Japan, Germany and China. The Executive Secretary of CAMEX also pointed out that his government would soon nominate Brazilian representatives to the India Brazil Business Council.

Significant events

         Expo-India 2001 – September 25-29. The 5-day exclusive Indian fair saw the participation of 263 Indian business houses and government departments/agencies at the prestigious Centro Norte Expo Center, over an area of 5000 sq. mts.  The Expo was a tremendous success, generating wide publicity in the print and electronic media. About 16,000 visitors came to the fair, over the 5-day period; about 6000 of which listed themselves in various categories as business visitors. During the fair itself, business of approximately US$ 20 million is understood to have been generated in terms of firm orders, while more business was transacted soon after the fair by businessmen who stayed back.

         A welcome development in connection with Expo-India 2001, was the setting up of the Regional Office of the India Trade Promotion Organisation in Sao Paulo, which should contribute to the FOCUS LAC Programme significantly.  

          A 14-member delegation of Chemicals and Allied Products Export Promotion Council (CAPEXIL) visited Sao Paulo for  a buyer-seller meet and seminar from 13^th to 17^th March, 2001. The Seminar was organized by the Federation of Industries of Sao Paulo and the Consulate. The members had meetings with interested Brazilian businessmen over the following days.  Considerable scope was revealed in the area of tyres and recycled rubber as well as dyes and chemicals, among other items.                             

A 21-member delegation of Apparel Export Promotion Council visited Sao Paulo from 19 to 24 March, 2001 for  a BSM  organized by the Consulate.  There was a good turnout from the Brazilian side and sufficient interested generated for AEPC to mount a return visit in 2002.

         Electronics and Computer Software Export Promotion Council participated in Electronic America in May 2001 in Sao Paulo. This fair concentrates buyers and sellers for electronic components and related products.  Three Indian companies, manufacturing integrated circuits and related components and transistors, participated independently.

         Electronics and Computer Software Export Promotion Council organized Indian companies participation in ABRIN 2001, the international toy fair in Sao Paulo from 18-22 June 2001. Five companies participated in the Fair. There was considerable interest in Indian products and M/s Hanung Toys particularly secured valuable orders.

         CHEMEXIL led a delegation of pharmaceutical and chemical industry to participate in FCE Pharma – International Exhibition for suppliers to the pharmaceutical industry – in Sao Paulo from 24 to 26 July 2001.

         Export Promotion Council for Handicrafts led a 7-member delegation to Sao Paulo to participate in 23^rd  International Houseware & Gift Fair from 18 to 21 August 2001. The exporters made good contacts and the Council decided to participate in the fair in 2002 as well.

         South India Sugar Mills Association led a 12-member delegation of sugar and alcohol industry representatives to Brazil from 7 to 16 September 2001. The delegation visited Piracicaba and Ribeirao Preto in the State of Sao Paulo for discussions and to get first hand knowledge of sugar and alcohol industry in Brazil.

         Indian Institute of Management, Calcutta, led a 12-member study group from Steel Authority of India, NTPC, Indian Oil Corporation, HPCL, IPCL and Tata Refractories to Brazil from 12^th to 17^th October. The delegation had meetings with Petrobras, Federation of Industries in Sao Paulo and some consultancy firms.

         Three Indian exporters participated in Salao de Mulheres held in  Curitiba from December 7 to 16. The Indian companies did good business and made contacts for long term business operations in Brazil in sequin, cotton dresses, handicrafts, jewellery etc.  

         Two Indian companies participated in Fourth International Therapy Fair (Terepeutica), an annual event featuring natural medicinal and related products from 10^th to 14^th October 2001.

        Three Indian companies in the railway sector participated in the railway trade fair, Business on Rails, held from 15-17 October 2001 in Sao Paulo. No feedback was, however, received.

         APTECH Limited, the pioneer in educational software in India made a concerted thrust in the Brazilian market and in December finalized a Memorandum of Understanding with Mr. Rogerio Drummond Burnier Pessoa de Mello Filho, its master franchisee in Sao Paulo, Parana, Santa Catarina and Rio Grande do Sul areas. The contract is expected to yield considerable revenue for APTECH in the months and years to come.

         A 5-member delegation organized by Council for Leather Exports visited Sao Paulo from 12 to 14 December and held a Buyer-Seller Meet organized by this Consulate on 13th December. Members of the delegation had useful discussions and also met several business houses for discussions on items of Brazilian interest.

 

Brazilian delegations to India

         A 6-member delegation of sports goods industry in Brazil visited India in April 2001. Buyer Seller meets were organized by Sports Goods Export Promotion Council in Delhi and Jallandhar.

           Vice Governor of the southern State of Santa Catarina visited India in January/February 2001 with a strong delegation of software and pharmaceutical industry.

           President of ASSESSPRO, Association of Software Companies of Brazil, visited India in February 2001 and visited INDIASOFT 2001 and NASSCOM 2001.

           Representatives of Petrobras (Brazilian government oil company) visited India on several occasions for different purposes:

               -   technical discussions with Larsen & Toubro for reactors for Petrobras petrochemicals projects;

                -   to negotiate purchase of diesel oil and other fuel from India;

                -    Delegation of power engineers visited BHEL, Larsen & Toubro and Tata Power to examine possibilities of purchase of power generation equipment.

 

Surveys/Consultancies/Law Firms

          A comprehensive Pharma Survey was commissioned by the Consulate to get a systematic idea of the Brazilian market and regulatory environment for the benefit of our industry. This survey was finalised in the month of April 2001 and widely distributed among Indian pharmaceutical industry. The survey also contained detailed data on market prices, costs of registration, disease profile of Brazil etc.

          Spices survey was finalized in May 2001 and carefully outlined the potential for Indian spices in Brazil giving details of imports, prices, Brazilian distribution, procedure for registration for marketing etc. This was extensively distributed in India and brought to the attention of Spices Board.

         A two-member delegation from National Center for Trade    Information and EEPC visited Sao Paulo in February for doing market study in the field of engineering products.

              A two-member delegation from National Center for Trade Information and CHEMEXCIL visited Sao Paulo from 28-30 March 2001 to conduct market survey in the field of chemicals and dyes.

           Consulate subscribed to the data base of M/s Serasa, a credit-rating company which also carries out surveys on various industries for interested businessmen.

     Contacts were established with M/s Franceschini and Miranda; M/s  Moreira & Jorge Advogados and M/s Amaral Gurgel and Company, three reputed law firms which could serve the interests of Indian businessmen for various purposes such as setting up companies, registration of offices, legal representation in courts etc.

 

Data Base

 

     The website of the Consulate, www.indiaconsulate.org.br , was enhanced and updated with information relevant to Indian exporters. Separately current data base on Brazilian companies of potential interest to India was compiled during Expo-India 2001 and is available for in-depth information, as well as for use during visits by Indian delegations interested in contacting relevant Brazilian companies.

Trade Disputes

PET Film

       Despite repeated representations, the Brazilian authorities did not relax protectionist regulations introduced in July 2000, which imposed requirement of non-automatic import licenses subject to minimum import (FOB) price (approx. 20% over the prices Indian producers could supply at)  which later in the year became worse with the commencement of an anti-subsidy investigation against PET film exports from India (approx. US$ 5 million to Brazil in 2001, down from US$ 6.5 million in 2000). Eventually in December, notice was given to the Embassy in Brasilia and the Consulate in Sao Paulo that the Brazilian government had decided to commence an investigation into petition filed by the Brazilian  monopoly polyester film manufacturer, M/s Terphane Ltda, which alleges that unfair Indian government subsidies to Indian PET film producers and exporters had caused damage to the domestic industry. Throughout the year, Brazilian importers had to invoice imports at the “ non-declared” minimum import price of US$ 2.25 per kg as compared to the average price of US$ 1.70 to 1.80 per kg which was the normal Indian FOB price.

         The Trade Policy Division of Ministry of Commerce was examining the possibility of taking up with the Brazilian government the illegality of this policy even as the investigation commenced.

 

Jute Sacks

           Continued imposition of anti-dumping duty effectively shuts India off from the lucrative market, among others,  of 40 million bags for the coffee harvest this year, even as bilateral consultations in April 2001 in Geneva yielded no results. Ministry of Textiles received a format from the Brazilian government in July 2001, but no action was taken to provide information sought in this format to review the anti-dumping duty. At the instance of this Consulate, Ministry of Textiles and JMDC by year-end were reviewing the format and are expected to forward information requested, which may have some positive result, avoiding the need for Government of India to open a panel in the WTO for this purpose.

Cycle Tyres

           Anti-dumping duty imposed in 1998 also closed this lucrative market to Indian exporters. The CAPEXIL delegation which visited Sao Paulo in March 2001, was reminded that no representation had been made by Indian firms when the  investigation was conducted by the Brazilian authorities, and CAPEXIL was urged to coordinate with interested cycle tyre exporters to present a review petition on the subject, particularly since exporters from other countries were imposed far lower anti-dumping duties.

   

Sanitary and Psytosanitary Regulations

           Ban on import of cattle embryo continued despite representations to the Brazilian government. A visit by a delegation of the Department of Animal Husbandry in September did not change the situation. A Brazilian technical delegation is expected to visit Delhi in January 2002. Regulations for cosmetics and spice imports are relatively lenient.

Regulatory Measures

           The pharmaceutical industry has been under continuous vigilance by the Brazilian authorities.  Indian companies had to be very careful about all aspects of manufacture, pricing etc. While established companies such as Ranbaxy, Core Health Care, Strides Arcolabs did not seem to have too many complaints, new companies such as Torrent and Aurobindo faced  delays in getting the Brazilian authorities to visit their factories for the  mandatory inspections. Inmetro registration for tyre imports also made the process dilatory and expensive.

           Stringent rules for grant of work and residence permits restrained activities of Indian companies in Brazil. The Brazilian Embassy in Delhi also issued 5-year business visas very sparingly.

 

Conclusion

         Although India achieved considerable success with the doubling of its exports in 2001 over 2000, there is little room for complacency. A large volume of exports constituted a single commodity – fuel oil – which cannot be relied upon as a steady source of export income.

      Asian countries such as South Korea and China  continue to out-perform India in their exports to Brazil, although Indian exports overtook several European and Asian competitors, scoring nearly 1% of total Brazilian imports in 2001, despite a median depreciation of the Real of 25%. Full advantage needs to be taken of Brazil's interest in the Indian market to force open more areas of Brazilian market for Indian exports, particularly in the sectors of pharmaceuticals, engineering products, automobiles, tea, infrastructure, power generation equipment, software etc.

           An analysis has been made of the products which we need to focus on and is enclosed at Annexure II.

           The FOCUS-LAC programme deploys considerable resources, mainly in the hands of export promotion councils, industry chambers and federations.   These organizations frequently tend to delay their decisions in organizing delegations of exporters to visit Latin America. Eventually, what happens is that requests are made to visit Latin America towards the end of the financial year, which causes logistical and programming difficulties, apart from the fact that the January-February are major holiday months in Brazil.

           The best method to understand and exploit the Brazilian market is participation in Brazilian trade fairs. Unfortunately, not enough attention has been paid to this aspect by Indian business houses and EPCs. Since Brazil is our leading market in Latin America, EPCs etc. should focus their Latin American delegation visits around the most prominent trade fairs in or around Sao Paulo and preparations should commence at least four months in advance, with final list of delegations, profiles etc. available to the Consulate for translation, preparation of brochures etc. two months in advance.

           Invitations to Brazilian business houses for participation in Indian trade fairs, BSMs etc. should comprise full local hospitality, if possible, or at least the greater part of the expense.  Brazilian businessmen visiting India for such purposes should also be carefully treated and provided with interpreters. Too great an exposure to a large number of exporters will defeat the purpose, and concentration should be on one-to-one tie ups for Brazilian importers.

           EPCs, Chambers of Commerce, Federations of Industries etc. should update their data base on Brazil, if necessary by obtaining information from this Consulate and disseminating the same among their members/clients. Requests for contacts of suitable Indian companies exporting specific products should be immediately responded, in order not to lose valuable opportunities.

           It is imperative that businessmen give sufficient feed back to the officials of the Consulate to enable them to maintain suitable data base and to help these very businessmen in areas of their interest.