Brazil’s natural resources make it a global competitor
Brazil is rich in natural resources and is a competitive market in this sector. It also has the potential to expand its manufacturing base to boost its exports.
Brazil’s exports expanded at a CAGR of 8% from 2001 to 2021. Despite a 5.4% drop in exports to USD 209bn in 2020, due to the pandemic, Brazil’s exports increased by 34.3% to USD 281bn in 2021, demonstrating the country’s strength as an export hub.
China, USA, Argentina, Netherlands, and Chile are the leading export destinations of Brazil, and they accounted for more than 50% of the country’s total exports in 2021. The major exports of Brazil were in the sectors of agriculture & forestry, as well as metals & minerals. These made up 40% and 27% of the total exports in 2021, respectively.
Discernible trends in the economic growth of Brazil
A large portion of the population and economic activity is concentrated in South-eastern Brazil, which includes the states of São Paulo, Rio de Janeiro, and Minas Gerais. These states have traditionally served as the engines of economic growth, chiefly through competitive industries, such as manufacturing, agricultural production, mining, and energy.
- Owing to the pandemic, Brazil’s exports dropped by roughly 5% in 2020, but quickly recovered with a positive export growth rate of over 34% in 2021, as economic activity resumed after the lifting of COVID-19 restrictions.
- From 2001 to 2021, exports expanded at a CAGR of roughly 8%: fuels had the highest CAGR of 16% during this time.
- In 2019, raw materials and intermediate goods made up 50% and 25% of Brazil’s total exports, respectively.
- The top three export sectors of this country are: agriculture & forestry (USD 113bn), metals & minerals (USD 77bn) and fuels (USD 38bn) with 40%, 27% and 14% share in Brazil’s total exports in 2021, respectively.
- In particular, iron ore (USD 45bn), soya beans (USD 39bn) and crude petroleum oil (USD 31bn) are the top 3 export products, and these comprised 41% of the total exports in 2021.
- The expansion in exports has been mostly driven by petroleum products and metal products.
- Since 2015, Brazil has enjoyed a trade surplus. It reached a decade-high of USD 61.4bn in 2021, an increase of USD 18.6bn compared to 2020. This trade surplus is the result of consistent export
Brazil’s imports drop, but exports show growth
In the second half of 2020, after the devastating first wave of COVID-19, Brazil witnessed a rebound in economic activity, but then subsequent waves of infection and surge in global inflation dampened the recovery process.After having recently come out of a recession for the second time in two years in the fourth quarter of 2021, Brazil’s economy faces weak private consumption growth. Consumer confidence is also subdued as inflation rises and unemployment remains high.
But despite these challenges, Brazil’s exports grew by 34% in 2021. For 2022, the government’s expectations are for an increase in exports of 1.4% to USD 284.3bn, while imports are expected to fall by 6.6% to USD 204.9bn. The government expects more moderate growth in global trade in 2022.
- Inflation in Brazil hit double digits – at 10.06% at the end of 2021 – a situation not seen since 2015, when the rate had climbed to 10.67% amid a deep economic recession.
- Brazil’s Gross Domestic Product (GDP) rose by 4.6% in 2021, wiping out the loss caused during the pandemic, when the economy shrank by 3.9% in 2020.
- Founded in 1991 to create a common market, MERCOSUR is a trade bloc in South America, which saw early successes, including a tenfold increase in trade within the bloc in its first decade. Argentina, Brazil, Paraguay, and Uruguay are full members, while Bolivia, Chile, Colombia, Ecuador, Guyana, Peru, and Suriname are associate members of MERCOSUR. They receive tariff reductions when trading with the full members, but do not enjoy full voting rights, or free access to their markets.
- Brazil, via Mercosur, is negotiating several Free Trade Agreement’s (FTAs), and have a completed one with the European Union, but that has not yet become active, as it has not been approved by the different Congresses. Its bilateral FTA with Chile went into effect from 25 January 2022.
- The S&P Global Brazil Manufacturing PMI was 54.2 in May 2022, pointing to the third straight month of expansion in factory activity, and at the fastest growth pace since September 2021. Since then, it has slightly changed to 54.0 in July 2022.
- Brazil is a global exporter of raw materials, which include iron ore, crude petroleum oil, and refined petroleum.
- The metals & minerals sector have also boosted Brazil’s exports with the highest annual export growth of 58%, followed by fuels (54%) in 2021.
- The Brazilian government has pushed initiatives to help and to support the SMEs (Small and Medium Enterprises) of the country. Brazil has updated its digital strategy to include initiatives aimed at increasing interactions with start-ups. According to the government, the idea is to integrate GovTech’s developing technology, work processes and agile solutions, which are intended to generate innovation and resource efficiency for the public sector to Brazil’s digital transformation efforts. The Brazilian government will introduce a framework to integrate civil servants leading digital transformation and the GovTech innovation ecosystem this year.
- In order to meet the target established at the 26th session of the Conference of the Parties (COP) 26, the Federal Government launched a program to encourage the production of biomethane and waste treatment in Brazilian cities and the countryside.
- Brazil’s economy is therefore expected to grow, due to its continuous export growth and its supportive government policies.
The worst of the economic storm may be over as markets reopen
Brazil is experiencing problems on several fronts at the moment: rising inflation, higher commodity prices, an increase in raw material prices, and the pandemic has not helped the situation. However, the economy is expected to recover speedily, as countries across the world are reopening, and the demand for manufactured goods is rising. This is a golden opportunity for Brazil to cater to the global rising demand for raw materials.
- With the rise in food inflation worldwide, Brazil is expected to benefit from its export portfolio, which comprises soybeans, corn, sugar, meat, and coffee. In effect from December 2021 to March 2022, Brazil exported some 2.5 million tons of wheat. This volume was unprecedented and was the result of an unusually bountiful harvest, and, more recently, from additional demand generated by the war between wheat exporters Ukraine and Russia. Brazilian rice exports (husk base) totalled 451.3 thousand tons during the first quarter of 2022, more than double of exports during the same period in 2021, when 207.7 thousand tons were shipped, reports the Brazilian Rice Industry Association (Abiarroz).
- However, disruptions to trading routes around the Black Sea and the Sea of Azov will likely increase logistical challenges, and this may result in delayed delivery of production goods and food items, such as transport equipment, fertilizer, and wheat. This will likely add to inflationary pressures for a host of durable and nondurable goods.
What this means for global supply chain managers
It would be wise to take advantage of the increased demand for raw materials (provided by Brazil) as a result of increased demand for manufactured goods globally.
It could be very advantageous to identify the industries and products in which Brazil has shown export potential, given its focus on exports of raw materials and agricultural products.
Supply chain managers should consider including Brazil in their procurement plans, and it could pay them to identify countries trading with Brazil (as well as Brazil itself) and to take advantage of its various trade agreements that are in place.
Year-on-year, the greatest increases in annual exports of 2021 from Brazil were by importers in Peru (up 85.2%), Chile (up 82.3%), India (up 66.4%), Portugal (up 61.2%), Singapore (up 58.6%), and South Korea (up 50.7%).