Out of Brazil and Into Africa

SÃO PAULO — When France’s leading sugar producer Tereos wanted to establish a foothold in Mozambique two years ago, the company reached out to its Brazilian subsidiary, Açúcar Guarani, instead of turning to its own French experts.

Not only is Brazil the world’s largest sugar producer, Açúcar Guarani employees could also hit the ground running in Mozambique, a former colony of Portugal where Portuguese is the official language. Operations in Mozambique have flourished since, producing 70,000 tons of sugar in the most recent harvest.

Açúcar Guarani joins the growing stream of Brazilian companies turning to the African continent for trade and investment. This increasing heft of Brazilian corporate giants and smaller firms in Africa is boosted by a national strategy in which Brazilian President Luiz Inácio Lula da Silva has played a central role.

Intent on diversifying Brazilian markets and boosting Brazil’s clout with other developing nations, Lula laid the groundwork for business and diplomatic ties with a 2005 visit to West Africa. Since then, the president has toured Africa 10 times, visiting 20 countries, while the Foreign Ministry has opened 16 new embassies on the continent. In early July, Lula was a special guest at the African Union summit in Sirte, Libya.

Given that Brazil is seeking support for its bid to gain a permanent seat on the United Nations Security Council, no one rules out the country’s broader geopolitical goals as a motivation for cultivating Africa. Lula has played up historic ties between Brazil and Africa, making one of his first stops at Gorée Island, the departure point for thousands of Africans sold into slavery in the New World. But Brazil’s approach is also very focused on the bottom line.

Officials in Brasilia are eager for their country to have the kind of economic role that Europe, Japan and the United States have long played in the developing world.

“The continent is going through a process that is similar to what Brazil experienced decades ago,” said Miguel Jorge, minister of development, industry and foreign trade. “There are major opportunities to participate in the growth of African countries, through the transfer of technology and expertise.”

Africa’s economic growth rate is expected to slip to 2.3 percent in 2009, according to a forecast from the African Development Bank. But for five years the continent experienced an economic expansion that topped 5 percent annually, which contributed to a fivefold increase in trade flows between Brazil and sub-Saharan Africa since 2002.

Combined imports and exports rose from $5 billion in 2002 to $26 billion in 2008 and now account for 7 percent of Brazil’s total world trade. One-third of the trade with Africa is with oil-rich Nigeria. Rising oil imports are largely behind Brazil’s growing trade deficit with Africa, which ballooned from $312 million in 2002 to $5.6 billion in 2008.

Brazilian companies are especially active in Angola, another former Portuguese colony where some 100 Brazilian firms currently have operations and an estimated 25,000 Brazilians are living and working, according to Jorge.

Brazilian multinationals have been on the hunt for business opportunities in several parts of Africa. They range from veterans with a long experience on the continent, such as construction company Odebrecht, bus manufacturer Marcopolo and the state-managed Petrobras, as well as newcomers like the mining outfit Vale.

“Lula has made Africa part of his South-South strategy,” said Ruben Bisi, director of international business at Marcopolo, which is headquartered in Caxias do Sul in the state of Rio Grande do Sul. “He has actually contributed a great deal to such integration.”

Marcopolo, which manufactures the bodies of buses, was a pioneer in Africa. The company started exporting to Ghana almost 40 years ago. In 1999, it bought a manufacturing plant in South Africa where it recently doubled the capacity of its operations in anticipation of the 2010 World Cup soccer tournament there.

With an Egyptian partner, Marcopolo has established a joint venture, GB Buses, which expects to open a plant in Suez by the end of the year. It will serve the North African and Middle East markets.

The African market is “still in the early days” for Marcopolo, generating less than 10 percent of its $400 million in annual sales, Bisi said. But the expansion is part of the company’s strategy of diversification in order to reduce its dependence on South American markets.

“Africa may not be an emerging market as significant as the BRICs (Brazil, Russia, India and China) or what the Asian Tigers once were, but it has potential,” Bisi said.

“There are a lot of raw materials, an abundant workforce, and there should be a strong growth in demand in these countries,” he said. “There is still a lot to do.”

For some Brazilian companies, Africa’s lure is its wealth of natural resources. Rio de Janeiro-based Vale, the world’s largest iron ore producer, is investing $1.3 billion in a coal project in Mozambique.

“Africa is the next horizon in the industry of natural resources in the world,” said Roger Agnelli, president of Vale, at a March groundbreaking ceremony for the Moatize project. Vale plans to export its African coal output to Brazil, Asia, Europe and the Middle East.

The oil and gas industry is also betting heavily on West and North Africa, including Libya, which partially nationalized foreign oil interests in the early 1970s.

Petrobras plans to invest some $3 billion in Africa from now until 2013, mainly in Angola and Nigeria. Following last year’s discovery of huge reserves far below ultra-deep waters off the Brazilian coast, some experts believe similar deposits may exist along the West African coast.

But Lula himself has called on Brazilian business leaders to think beyond commodities.

“The time has come for Brazil to be bolder, more aggressive,” he said last April.

Africa is already part of Brazil’s worldwide offensive in agribusiness. Last June, Brazil promoted a so-called agro-solutions fair in Dakar, which resulted in contracts worth $18 million, with a potential to reach some $90 million if and when Senegal decides to set up an ethanol processing plant, according to Apex-Brasil, the country’s trade and investment promotion agency.

“We have moved toward an economic development-oriented policy, with an emphasis on cooperation and social development,” said Gilberto Lima, head of the international division at Apex-Brasil. “It took a long time for other countries to acknowledge Brazil as a provider of technology.”

Brazil has repeatedly said it is ready to transfer technology in electricity generation, port terminals and food processing – although the immediate priority is agribusiness.

A significant step was taken last year, when Embrapa, the Brazilian Agricultural Research Corporation, established an office in Accra, the capital of Ghana.

Experts at Embrapa facilities in Ghana and elsewhere conduct research on increasing agricultural productivity in a tropical environment familiar to the Brazilian scientists. At the same time, policymakers are pushing for the production of sugar cane ethanol in Africa.

Frédéric Gueisbuhler, an executive from São Paulo-based Ethanol Trading, said that the parliament in Ghana has approved the construction of one ethanol plant, while studies are underway for another 10 such projects across Africa.

“It is in Africa’s best interest to produce ethanol rather importing fuel for countries such as Senegal,” said Gueisbuhler, who recently visited Ghana.
Odebrecht, the global engineering and construction firm that won large infrastructure contracts to rebuild Angola after a devastating civil war, is already setting up an ethanol plant in that southern African country.

The Brazilian company Dedini also stands ready to supply equipment for the ethanol plant.

But not all companies are trying to expand the ethanol connections. Açúcar Guarani reported that it harvested 600,000 tons of sugar cane in Mozambique in the most recent harvest, but the company has no plans to produce ethanol there.

“We regard Africa favorably due to the cultural and geographic proximity and the great potential for consumption growth,” said Jacyr Costa, chief executive of Açúcar Guarani. One of the plusses of operating in Mozambique is that African sugar has preferential access to the European Union’s single market, he noted.

Brazilian businessmen find it relatively easy to do business in Africa, partly due to cultural ties as well as the shared language with a number of former Portuguese colonies. Nevertheless, Brazil was a relative latecomer to the region, compared to a country like China.

The lack of direct flights is a significant handicap. South African Airways offers daily flights from Rio and São Paulo to Johannesburg, but the air link between Brazil and Africa’s West coast is tenuous. Turkish Airlines has a twice-weekly stop over in Dakar since introducing a São Paulo – Istanbul route this year.

Regardless, Brazilians say they are committed to Africa for the long haul. “I want to sell a lot more to those who never bought from us in a continent that will have 700 million inhabitants within 25 years,” Lula said recently.

Lula has mentioned that once he leaves office, he would like to work to alleviate poverty in Africa, among other future projects. It will help that the Brazilian president has made so many friends on the African continent.