Brazil is more than the big cities, soybeans and gauchos. The Northern territories are rich on commodities.
BY WALTER T MOLANO
Most investors think about the metropolises of Sao Paulo and Rio de Janeiro when pondering about Brazil. They conjure up images of undulating soybeans in Mato Grosso. A team of gauchos rounding up herds of cattle in the state of Goias is another popular tableau. Or, they can envision the fleet of Petrobras drilling rigs perforating the ocean blue. The vast diversity of Brazil’s topography, geography and natural resources produce a dancing kaleidoscope of perceptions.
However, one image that rarely comes to mind is the cornucopia of wealth and opportunities that lie in Brazil’s northern territories. In actuality, the north represents 45 percent of the country’s landmass, although it is also the least inhabited region. It has less than 4 percent of Brazil’s population. Nevertheless, with most of the Amazon rainforest and the vast network of the Rio Negro, Solimoes and the Madeira Rivers, the north is a veritable treasure chest of commodities. The states of Amazonas and Para dominate the region, but there is also a panoply of smaller states, such as Acre, Amapa, Rondonia, Roraima and Tocantins.
Interestingly, the region is physically isolated from the rest of the country. The national highway reaches only as far as Belem. Communication with the rest of the north must be completed by either air or river. This provides an interesting challenge for the region, which tends to push up costs.
MANAUS: GLOBAL, BUT ISOLATED
It is also perplexing for the city of Manaus, which is the electronics and electro-domestic industrial hub of the country. Under tariff incentives that were established by the military dictatorship during the 1970s, the city was transformed into a free zone—thus allowing manufacturers to circumvent Brazil’s onerous trade barriers. A wide range of multinational companies from the United States, Europe and Asia set up assembly operations in the jungle city, giving the old rubber town a new lease on life. In the space of a few decades, Manaus’ population exploded ten-fold. However, it still remains an isolated outpost that is better interconnected with Venezuela and Colombia, rather than with the rest of Brazil. Sitting on the northern bank of the Amazon River, the national highway system cuts north into Boa Vista in Roraima and then on to Venezuela. Prior to the arrival of Hugo Chavez, Manuas enjoyed a booming trade with Venezuela--with electronics companies sending their wares to Caracas, and then on to ports of call in Colombia and the Caribbean. Today, most of the commerce is shipped by river to Belem and then onto other destinations within Mercosur.
While the state of Amazonas may be the jewel of the north, Para is its Wild West. Companhia Vale do Rio Doce (CVRD or Vale) was born during the heady days of World War II in the dusty hills of Minas Gerais, but the bulk of its current operations is located within the Carajas mine complex in the state of Para. The mine is literally a huge mound made of iron, gold, copper, nickel, alumina and bauxite that was converted into the largest iron ore mine in the world. Carajas holds 7.2 billion metric tons of proven and probable reserves. The site was accidently found during the 1960s, when a helicopter with surveyors from U.S. Steel was forced to land so they could refuel. The hill was completely barren and they found the iron content to be 66 percent, the highest of anywhere on the planet. The huge mineral deposits scattered throughout the state of Para is what gives it its Wild West characteristics. Armies of so-called “garimpeiros” dig and pan for gold, turning to lawless activities when their luck runs out. Tales of shootouts, vendettas and late night assaults of buses are commonplace in the empty badlands of rural Para.
BELO MONTE DAM
However, the most controversial development in the north is occurring just outside the town of Altamira, where a new hydroelectric complex is about to dam a major tributary of the Amazon River. The Belo Monte complex, also known as Kararao, on the Xingu River rivals China’s Three Gorges Dam and it will be the third largest hydro facility in the world. Like its Chinese counterpart, Belo Monte is very contentious. In addition to flooding hundreds of square miles of rainforest, displacing more than 20,000 people and affecting the region’s biodiversity, it is the desperate call of a developing nation starving for electricity. After decades of neglect and decay, the government needed to take desperate measures to attend to the ever growing needs of a more prosperous society. The electricity generated by the new hydro complex could spark life into the backwater states of Rondonia and Acre, thus allowing them to develop their bounty of natural resources.
Brazil’s north may hold only a sliver of the population, but it contains much of the country’s mineral and hydro resources. A concerted effort to modernize the region could transform it into one of the most dynamic engines of the Brazilian economy.
Walter Molano is head of research at BCP Securities.