Brazil’s nuts and bolts

Football, the world’s most famous statue of Jesus, carnivals, the Amazon jungle and river, and nuts … these are just a few of the things Brazil is known for around the world. In recent times, however, this list has grown to include a thriving motor manufacturing industry that services export markets across the globe.

Young football fans around the world idolise Pelé, Kaka and Ronaldinho, and are able to quote the years that Brazil won its record five FIFA Soccer World Cup victories. To achieve Brazilian ball-handling prowess is literally the pinnacle of young boys’ aspirations around the world, particularly come World Cup time.

Similarly, Rio de Janeiro, with its epic statute of the Catholic version of Jesus and its scintillating carnivals offers a unique blend of European Christianity and South American myth and mystery. As the largest country in South American, with both the biggest cities and population, Brazil is also the most prominent country in its continent – and by far the most active in international markets and affairs.

Despite the fact that Brazil has the sixth largest population in the world at approximately 148 million people (which is double what it was a mere 30 years ago), the size of the country equates to only 15 people per km2, although this is far higher in the crowded coastal cities, and sparse in the rural areas. Two-thirds of the population is concentrated along Brazil’s coast, with over 19 million based in São Paulo and 10 million in greater Rio.

What marks Brazil from every single other colonised South American and African country is the fact that, while Portuguese is naturally the dominant language in the previously Portuguese colony, the Brazilian dialect has actually become the dominant influence in the development of the Portuguese language, for the simple reason that Brazil has 15 times the population of Portugal and a much more dynamic linguistic environment.

What has really put Brazil on the map in terms of the global economy, however, is its burgeoning motor manufacturing sector. While there are a few motor manufacturing companies whose origins hail from Brazil (most notably bus body manufacturer Marcopolo), the country has become a manufacturing hub for the likes of Scania Truck and Bus, Mercedes-Benz, Busmark, MAN Truck and Bus, Volswagen Truck and Bus, Irizar, as well as a number of automotive manufacturers, including General Motors, Ford and Volkswagen.

While the global economic crisis has hurt the Brazilian economy as much as anywhere else in the world, 2008 saw an incredible influx of international investments into the South American country’s motor manufacturing sector.

In September 2008, Brazil was riding the crest of three years of torrid growth as local manufacturers spent billions of dollars to keep up with both local and international demand. Brazil was fast becoming the engineering hub for global car makers and looked set to attract US$23 billion (R184 billion) in investments between 2008 and 2012.

Why was Brazil becoming the new motoring mecca? Cheap and abundant labour mainly, but also a desire on the Brazilian government’s part to attract investments into the country, good geographical positioning between Europe, Africa and the United States (US), and a steadily growing local market as well.

Trucks, buses and cars manufactured in Brazil make a significant difference to export prices, particularly in countries such as South Africa where the exchange rate has hindered the import market. The decision made by Scania and Irizar, for example, to manufacture trucks and buses in Brazil has made their products far more affordable and accessible in many countries, particularly South Africa.

“Brazil is definitely a major part of the global chess game for the automotive industry,” says analyst Guido Vildozo of international consulting firm, Global Insight. “And that’s clearly reflected in the amount of investment that Brazil is getting.” With sales lagging in traditional markets such as the US, Europe and Japan, and once-promising regions such as China and India not living up to expectations, car makers began pouring money into Brazil.

US and European manufacturers, which have long dominated the Brazilian market, were leading the spending spree. In 2008, General Motors announced its intention to invest approximately US$3 billion (R24 billion) over the next five years as Brazil had become an engineering hub for the car manufacturer, as well as its third-largest market.

Ford planned to spend more than US$1.6 billion (R12.8 billion) over a four-year span on product development and to double capacity at its engine factory. Volkswagen announced it would invest approximately US$1.86 billion (R14.88 billion) in Brazil until 2011, where it currently sells more cars than it does in Germany.

However, the rush to invest in Brazil came just as the market began cooling. By August 2008, car and truck sales had already slumped 15.1% from an all-time high in July of that same year, suggesting that the country’s recent spike in interest rates had already started to affect the economy. Although, following a long run of breakneck growth, vehicle makers were quick to point out that a slowdown was only to be expected.

By November 2008, Brazilian motor manufacturers were suffering a 26% decline in sales, continuing the trend begun in August.

Nevertheless, 2008 was still a banner year for the top three international auto makers in Brazil, Volkswagen AG, Fiat SpA and General Motors, according to Fenabrave, Brazil’s national vehicle dealership association. By November sales for the year had reached 2.4 million units, 17.8% above the same period the previous year.

And, despite the fact that the Brazilian economy has continued to contract along with vehicle sales, confidence in the market remains.

According to Ihab Salib, head of international fixed-income at Pittsburgh-based Federated Investments, “There is a realisation that emerging-market countries, and some of the larger and more fiscally responsible emerging countries, such as Brazil, are likely to lead us out of this economic slump rather than the US,” he says. “The fundamentals in emerging countries look a lot better than the fundamentals in some of the developed countries.”

Which is good news for Brazil – and, of course, South Africa too, based on how many of our vehicles are the product of the Brazilian motor manufacturing sector.