Brazilian economy could harness success of Rio Olympics yet

Published 16/08/2016

Despite the political turmoil, the Zika virus, junk bond rating of its sovereign debt and its deepest recession in a century, Brazil still stands as one of the world’s largest economies – and one of the most important trading partners for Ireland in South America.

Back in 2009 when Rio de Janeiro was awarded the 2016 Olympics and the 2014 World Cup, the economy was looking forward to boom times. Commodity prices were skyrocketing and Brazil had just had its biggest oil discovery.

Enterprise Ireland identified Brazil as a key target market for Irish firms back in progressive years after 2009.

Major modernisation, infrastructure and development projects initiated as it prepared for the upcoming World Cup and Olympic Games, held huge business opportunities for Irish firms.

Enterprise Ireland underpinned its commitment to supporting Irish companies increase their exports to Brazil by opening a new office in Sao Paulo in 2010.

Many Irish companies took advantage of the growing opportunities. Louth company Suretank Ltd won a contract valued at €900,000 to supply its tanks and containers to the oil and gas exploration industry while Monaghan firm Combilift won contracts valued at €800,000 to supply its unique forklift trucks to Brazilian steel giant Gerdau.

Ireland’s manufactured goods exports rose rapidly in those early years before the economic turmoil took its toll and export sales contracted to €240m last year.

Doing business in Brazil requires intimate knowledge of the local environment, including both the direct as well as the indirect costs of doing business in Brazil – referred to as “Custo Brazil”.

Such costs are often related to distribution, government procedures, employee benefits, environmental laws, and a complex tax structure.

And there is a fine line between legal and illegal payment procedures as their aircraft manufacturer Embraer found out when investigated by US authorities as it moves to resolve a probe involving the Foreign Corrupt Practices Act, the company said earlier this year.

County Clare man, John Slattery was made president and CEO of Embraer Commercial Aviation last month and should provide some good introduction opportunities for companies in the sector.

The Olympics provides a showcase, albeit an expensive one with over €11bn spent to date on hosting in Rio, which so far has given a vibrant image of a well-organised economy capable of pulling out of its current recession and returning to a growth path.

The Real’s 17% advance against the US dollar is the biggest this year among 16 major currencies.

However , the buzz away from the Games is the ‘’tap & pay’’ generation in Brazil that does not like to stand in line or carry bags, and many times, knows the product better than the seller.

There is a burgeoning technology market, with cross-border e-commerce one of the most advanced globally.

This tech savvy sector which has been developing for some time now does not suffer from the ‘’Custo Brazil” malaise and has provided Irish services exporters opportunities particularly those in the digital space which have doubled their sales to the market over the past five years to €459 million last year.

Brazil has suffered boom-and-bust cycles and political instability since independence from Portugal in 1822.

Half its 2015 exports were raw products, so its prosperity is sensitive to the vagaries of the commodities markets. On paper, Brazil looks like a powerhouse. It’s the fifth-largest country in the world, by land mass and population.

Its offshore oil reserves include the Western Hemisphere’s biggest discovery since 1976. It has the second-largest iron ore reserves, is the second-largest producer of soybeans and third-largest of corn.

More so than Russian athletes, they should be given the benefit of the doubt that they can build on the success of the Olympics, return to stable government and stable economic growth.