Last reviewed 17 March 2022
Latin America’s largest economy, Brazil holds immense long-term potential for investment and export as it matures and diversifies beyond commodities and other traditional industries.
Banking on Brazil
Famed for its soccer and its samba, Brazil has a proud cultural footprint that spans the globe. The largest country in South America, it is also an emerging economic giant with immense natural resources, and a country that is increasingly influential, both regionally and worldwide.
A rising power — it is one of the so-called BRIC economies (comprising Brazil, Russia, India and China) — its potential for trade, both now and in the longer-term, is simply immense. A Portuguese-speaking nation with a population of 210 million, Brazil maintains strong links with both the USA and the UK and has been keen to broaden its international trade partners in recent times.
As well as older, traditional European partners, like Portugal, that includes deepening ties not only with the English-speaking world, but also with China and others. It is also a key member of Mercosur, the region’s trade bloc, which groups it with Argentina, Uruguay, Paraguay and Venezuela.
This former Portuguese colony, which declared independence in 1822 — it celebrates its 200th anniversary this year — is also regarded as something of a marker in the climate change era, as home to much of the Amazon rainforest. The exploitation of this vast natural wilderness in recent decades by industries such as timber, mining and farming, has become a major cause for concern given the area’s vital significance as a climate regulator.
Indeed, Brazil’s unique natural and spectacular geographic diversity is perhaps matched only by its vibrant population, which comprises indigenous Americans, plus the descendants of African slaves and European settlers. Most of the major urban centres are dotted along the 7400km Atlantic coast, including the largest cities Sao Paulo and Rio de Janeiro, though the modern capital, Brasilia, is located inland.
While these cities boast glass-fronted high-rise buildings and all modern amenities poverty is still rife in Brazil, with a huge gap in living standards between rich and poor, though some headway has been made in recent decades as a result of an improved economy. As in other countries around the world, the impact of Covid-19 has eaten away at growth, but Brazil’s underlying prospects and potential remain as strong as ever.
Near-term predictions for gross domestic product (GDP) growth are modest: Fitch Ratings expects to see a deceleration in 2022 to just 0.5%. But others are a little more optimistic, with Brazil's government expecting to see private investment in infrastructure of around US$15 billion this year — up 95% from 2021, according to the economy ministry, which it hopes will help beat meagre market forecasts.
That’s against a challenging economic backdrop, with Banco Central do Brasil (BCB), the central bank, looking to tighten monetary policy more aggressively by raising interest rates. These hikes will weigh on growth while pushing up sovereign borrowing costs, according to analysts.
It means the government’s debt burden will climb in 2022, to around 83% of GDP, according to Fitch. At the same time, Brazil’s fundamentals will continue to attract the interest of international businesses. As well as its significance within South America, it is also one of the world's biggest democracies.
Then there are Brazil’s immense natural resources, including large deposits of diamonds, manganese, chromium, copper, bauxite and many other minerals, on top of its obvious timber and agricultural wealth. It is the world's leading producer of tin, iron ore and phosphate, and boasts a fast-growing offshore oil and gas industry producing almost three million barrels of crude per day
This offshore industry, driven by state oil company Petrobras, has been a gateway for many UK firms, including heavyweights like Shell and BP, who have offered a path for smaller British exporters to follow.
At the end of last year, Shell teamed up with Petrobras for another new project that will see the pair explore the Atapu prospect following a government auction of offshore blocks that netted around US$2 billion in fees. Other major UK names familiar in Brazil include Rolls-Royce and JCB and, in the financial services market, Experian and Barclays.
Total trade in goods and services between the UK and Brazil was worth £5.9 billion (US$7.7 billion) in the four quarters to the end of Q3 2021 — an increase of 7% over the same period a year earlier. The balance of trade is split fairly evenly between the two sides, with the main UK exports including mechanical power generators and general industrial machinery, medicinal and pharmaceutical products, beverages and chemicals.
In the other direction, Brazil’s chief exports to the UK comprise meat products, fruit and vegetables, plus metal ores and also mechanical power equipment. UK firms are also important providers of telecommunications and information services, as well as a multitude of financial, insurance and pension products.
Post-Brexit efforts to enhance bilateral trade are ongoing as part of the Brazil-UK Joint Economic and Trade Committee (Jetco), which also includes the establishment of a Joint Agricultural Committee to deal with sanitary and phytosanitary standards and other issues.
Importantly, Brazilians tend to have a favourable sentiment towards the UK, perhaps forged through decades of football ties (this is the land of Pele and Neymar, to name just two local superstars), but certainly compounded across an array of other cultural, political and economic areas. That includes tourism, according to the findings of Visit Britain, the agency tracking Brazilian visitors to the UK.
It estimates that about a quarter of a million Brazilians visited the UK in the run up to the Covid-19 outbreak. While that has almost certainly dropped off in the wake of the outbreak, the potential for recovery in tourism traffic in both directions is huge.
Some of Brazil’s famed tourist attractions include the colossal Christ the Redeemer statue and the Sugar Loaf, which provide an iconic backdrop to Rio de Janeiro. It is also the location for the world-famous annual Carnival extravaganza, although this too has been derailed by the pandemic, as well as a host of stunning beaches such as Copacabana and Ipanema.
Elsewhere, there is the mighty Amazon rainforest with its unlimited exploration potential, and Iguacu Falls at the border where Brazil meets Paraguay and Argentina. All the major European airlines fly to Brazil, including British Airways and Virgin Atlantic, with a flight time of around 11 hours and 40 minutes from London to Rio.
For the interior cities located deep within the Amazon, such as Manaus and Porto Velho, the time can be more than 18 hours, including connections. Besides the distance, another potential challenge facing both businesses and tourists is the language barrier with just 5% of Brazil’s population speaking English.
As well as long journeys between cities and states, where cultures can vary significantly, other challenges facing overseas firms include Brazil’s complex tax and regulatory systems. The country is ranked poorly by the World Bank’s ease of doing business index and stands at number 76 in the Transparency International corruption perception index.
Yet while Brazil may not be a clear starter market for new exporters, its long-term potential is truly immense. The government has identified infrastructure as a priority sector for boosting growth and sustainable economic development, which includes road and air transport, cargo logistics and energy.
The development of green finance is another emerging niche with high potential. The UK-Brazil Green Finance programme aims to tie in with net zero and deforestation initiatives and to link the expertise of the City of London with sustainable infrastructure opportunities in Brazil.
Water is another area ripe for investment. Currently, only four-fifths of the population have access to water supply, and less than half have modern sewerage collection systems.
The UK is also a strategic supplier to Brazil in sensitive industries like marine and defence. BAE Systems recently supplied three offshore patrol vessels, plus ancillary support services to the Brazilian Navy, as well as a manufacturing licence to enable further vessels of the same class to be constructed locally.
For UK exporters looking to explore the market, there is an active Brazilian Chamber of Commerce that has been working to nurture bilateral business links for over 80 years. There is support in specific industry areas as well.
The Energy Industries Council, for example, will be managing a UK Pavilion at the Rio Oil & Gas 2022 exhibition to be held in late September 2022. And, underlining Brazil’s increasingly global reach, the country now has over 100 trade offices located around the world in its embassies and consulates to provide assistance to companies wishing to invest in Brazil or import Brazilian products and services. For UK companies wishing to explore South America, Brazil is a must-visit.