Brazilian Minister: Arabs are great opportunity

ANBA | 08/02/2010

Alexandre Rocha

The Brazilian minister of Development, Miguel Jorge, stated that the demand from businessmen interested in his ministry’s mission to the region is huge. The import tax on ethanol should drop.

São Paulo – The Brazilian minister of Development, Industry and Foreign Trade, Miguel Jorge, said this Monday (8th) that the Arab world offers “spectacular opportunities” in trade and investment. In an exclusive interview to ANBA, he reported that a large number of businessmen are interested in taking part in the ministry’s trade mission, scheduled for April.

Jorge meets with the board of directors of the Arab Brazilian Chamber (Photo: Sérgio Tomisaki/Agência Meios)

"There are approximately 100 businessmen. We started accepting enrolments on Wednesday last week, and on that same day I heard that nearly all positions were taken," said he, after attending luncheon with the board of the Arab Brazilian Chamber of Commerce, at the organization’s headquarters, in the city of São Paulo.

To him, Brazil is perfectly able to attract investment from the Arab world. "When you have one of the world’s largest populations of Arab descendents in your country and close political ties between your government and the Arab countries, then you meet all of the requirements for turning your country into an investment target," he declared, adding that large international investors regard Brazil as one of the world’s main hubs when it comes to attracting investment.

Jorge also claimed that he intends to promote other missions to the Arab world this year and announced that during a meeting scheduled for tomorrow, the Brazilian government’s Foreign Trade Board (Camex) should eliminate the Import Tax on ethanol, currently at 20%.

ANBA – What can we expect from the mission to the Middle East, to Egypt, Lebanon and Iran, due April?

Miguel Jorge – I believe that we can expect good contacts, good business opportunities. We are bringing along a large group of businessmen.

How many people?

There are around 100 businessmen. We opened enrolments last week, on Wednesday, and from what I heard, on that same day, nearly all positions were already taken. Further on we will need to select the applicants, but the number of enrolees was very high. As has been the case with all of [our] missions, by the way. This is our second mission to the Arab countries, because we have been to the Maghreb countries in January last year. We should have returned sooner, but [2009] was a difficult year.

Armed with last year’s experience and given the demand for this second mission, how do you rate the Arab countries compared with other markets that Brazil has been tapping into?

I believe that we have spectacular opportunities in the Arab League countries. For instance: last year [2009], in a year of crisis, Arab countries increased their share of Brazilian exports, and are now the fifth largest market for Brazilian products. Exports are touching on US$ 10 billion, an impressive figure. From 2002 until now, we have increased our business volume by 280%. It is symptomatic that we have achieved this in a year of crisis, because it goes to show that the region offers real possibilities for Brazilian companies. We have a lot of what Arab countries need: food, agricultural products, technology, industrialized products. We are also interested in products from Arab countries, such as commodities.

Closer ties have been established from the perspective of trade, sales have increased a lot, but how about the issue of attracting investment? How is it possible to attract more capital from the Arab world?

We have discussed that here [at the Arab Brazilian Chamber] today. I believe that the Chamber has a key role to play in order to help the country in that respect. [We discussed] how the organization might help this process of attracting investment from Arab League nations. One point is that closer ties have already been established between the Chamber and the Brazilian Export and Investment Promotion Agency (Apex) in order to better follow up with this process of attracting Arab investment into Brazil. Secondly, there are actions taken within the ministry itself, which yield results very quickly. I remember that, last year, as of our mission in January, we went to Libya and the deputy prime minister mentioned the intention of investing in Brazil. Four months later, he was in Brazil and announced a US$ 500 million investment in the agricultural sector, in important projects in the Northeast, alongside a large Brazilian company.

Has that investment already taken place?

Some of it has. It was not about US$ 500 million at once, it was a lengthy agricultural project, therefore a medium-term project. Another [important action] is to keep up with this investment attraction process, which should be done along with the ministry as well. An important matter is that even though oil prices are not that high, Arab countries have lots of cash to invest, and those countries have gone through a process of losing cash on investment last year, the year of the crisis. After the meltdown, assets were brutally reduced in Europe, the United States, virtually all over the world. Very few countries are safe to invest in, and surely one of those few countries is Brazil.

These large groups, large Arab funds, sovereign fund and otherwise, government funds, investment agencies, they have specialists, they are aware. Today, [Brazilian newspaper O Estado de S. Paulo] featured an interview with a leading North American investor (real estate mogul Sam Zell) in which he stated that the best place in the world to invest in nowadays is Brazil. He claimed that he already has US$ 500 million [invested in the country] and that he is going to invest a lot more. Therefore, there is a real opportunity for the country. Heavy Arab investment in Brazil has taken place in the past, but that was a long time ago. We have been away from those investments, and I think now is the time to resume them. When you have one of the world’s largest populations of Arab descendents in your country, and close political ties between your government and Arab countries, which have been established by president Lula’s administration, which has placed itself at full disposal for whatever it takes in order to build peace in the East, then you have all of the opportunities to make your country into an investment target. They need to choose where to invest in.

We have heard a lot about their interest in agriculture. How about other sectors, such as industry, is anything going on in that respect?

From what I know of Arab investors, when it comes to industry, they are usually minority investors in this , which is a conservative stance. It is harder to have control and the returns are long-term. Agricultural production is another matter, it is a strategic issue for Arab countries. Some Saudi princes with whom we met last year made that clear, they told president Lula they do not want to invest in agriculture in Brazil in order to sell here in Brazil, they want food supply sources. They need food. Thus, it would be much more effective to have them invest in agriculture in Brazil in order for us to be direct suppliers to those countries.

And what is the Brazilian government’s stance regarding the selling of land to foreigners?

Foreigners are not forbidden from buying land in Brazil. What we have are specific rules with regard to buying land at border regions, which is strictly forbidden. Another issue we are always inquired about is remittances of dividends, and some people are surprised when we tell them that remittances in Brazil are totally free.

How about the oil sector, the pre-salt, have you got news of Arab investors interested in the field?

Right now, what I am noticing is a very large movement of global oil prospecting and exploration suppliers, manufacturers of oil rigs, drill ships and other specialized oil and gas equipment. The large global companies that are [operating] there will surely be the ones that will be here in Brazil. Maybe due to the fact that Petrobras is the mother company, so to speak, to the pre-salt issue, Qatar has expressed interest in being a partner with Petrobras.

Do you intend to promote any other type of action geared towards the Middle East before the end of the year?

Yes, we are looking into other smaller, more specific missions to several Middle Eastern countries, and the minister is not the only one going to the Middle East. President [Lula] is headed there as well. The first trip will take place soon, he has a special relation with Middle Eastern countries, with the Arabs.

A free-trade agreement with the Gulf countries is being negotiated, and from what we have heard, it had gotten stuck on the petrochemical issue. The industry here in Brazil was somewhat resistant to the idea because it would open the Brazilian market to competition from the Gulf countries, which are strong in this industry. Now, the industry has become even more concentrated, with the purchase of Qattor. Are you aware of how the negotiation process is going?

Nothing has changed. The thing about these agreements, such as the one with the European Union and others, is that Brazil has ascribed priority to the Doha Round, and rightly so, I believe, because then it may have a wide-ranging agreement, and the Brazilian Ministry of Foreign Relations still seems to believe in the chance that there will be some kind of result. I guess that only when we have an epitaph written and a headstone will we start thinking of agreements of this type, bilateral agreements.

Regarding the economic stimulus actions taken by the government last year, now we have a different scenario, newspapers claim that the appreciation of the United States dollar is starting to drive up input prices and put pressure on inflation. Are there any new policies being devised, or the maintenance of existing ones, for stimulating production this year?

No, not for stimulating production. As for the dollar, which is currently equivalent to 2 reals (Brazilian currency), it is a fire vs. water deal. In the past, newspapers claimed that it was impossible to export with the dollar at that level [of depreciation], now they are starting to say that domestic production is facing problems [because of the appreciation of the United States currency]. It is evident that no upward or downward dollar-to-real rate fluctuation of this type is not going to be a problem. We are not talking about a 30% depreciation or a 30% appreciation overnight. This is a natural trend under a floating exchange rate policy, and the floating dollar will float, there is no other way, so no, we do not have any measures coming up. If on the one hand the dollar at 1.70 real creates problems for exporters, on the other hand it creates an advantage for domestic production, inputs are being imported, Christmas was better for many people, because codfish was cheaper, nuts were cheaper. Now, with this [current] dollar-to-real rate, the outlook for exports of several products improves. Therefore, the moment calls for calm, we cannot say that a dollar at this level is going to be pose problem to domestic production, or that it will drive up inflation. What can drive inflation up is too high a demand coupled with a reduced supply, which is certainly not going to happen because our production capacity is still quite significant. There is capacity for a surplus production in order to meet the demand, which I do not believe will remain as strong as it has during the period in which we had fiscal incentives either. The incentive for auto sales will be over and I believe that sales will return to their normal levels. So is the case with the so-called white-line appliances.

The government has been granting certain incentives to imports of inputs...

Our policy, which the government has always had, not only the current administration, but previous ones as well, is that for certain equipments, such as capital goods, etc. you temporarily lower taxes on imports of products, especially those that are not manufactured in Brazil. What is being addressed, in terms of Import Tax exemption, and which might have a stronger repercussion, is the case of ethanol, which will be discussed at the Foreign Trade Board (Camex) tomorrow and which should be passed. I, for instance, am for it, I think it is a chance for us to show that we do not fear competing on equal terms with other ethanol-producing countries. However, there are not any initiatives underway at the Camex, for instance, in order to exempt other types of inputs from taxes.

*Translated by Gabriel Pomerancblum
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