The Brazilian market appears more complex than ever, at least in the eyes of Swedish investors. The country’s economy is close to free-falling. At the same time, SAAB has struck its historic 4.68 billion-dollar-deal with the country’s government.
During 2015, Brazil had its credit rating cut to junk by two out of the three big credit rating agencies. In 2016, the economy is predicted to shrink by another 2.5 – 3 %. In other words, the future appears to be rather gloomy. The source for this situation lies in political misbehavior, corruption and a heavy reliance on raw materials.
Still, the contract between SAAB and Brazil holds promise to Swedish business wanting to establish in Latin America. According to Business Sweden, an organization with governmental funding and a mission to promote Swedish export, the deal will be active for 35-40 years. Presenting great opportunities for a wide range of Swedish companies outside the defense branch.
INSIGHT #1 Endurance and flexibility
Scania, the Swedish automotive manufacturer, established themselves in Brazil well over 50 years ago. Today, they own about 40 % of the market. The significant characteristics of the company’s operations are endurance and flexibility. In 2002, when the economic climate appeared equally melancholic, Scania dared to approach new segments, experiencing record-breaking orders in the following years.
Ever since independence in 1822, Brazil has suffered intense cycles of booms and busts. The country may not be the role model for an entirely healthy economy. Yet, tens of millions of people have been lifted out of serious poverty while a positive economic transformation has been ongoing since the early 90s.
INSIGHT #2 Generating trade
Access to science and technical know-how played an important role in realizing the deal. It made the transition from a raw material-dependent economy part of Brazils decision to buy. This dependency is highlighted as a cause for the crisis, and Brazil will be eager to invest in techniques and education to improve and transform its industry.
Countertrade between SAAB and Brazil reflecting the purchase is also part of the deal. This means increased communication between companies from the two countries, hopefully generating trade beyond what’s manifested in the actual deal.
INSIGHT #3 Public expectations
The Brazilian infrastructure is underdeveloped. Improvements are needed on all levels – roads, airports, railroads and energy supply. With a government in no position to spend money, there will surely be delays, but it won’t mean the end of investments. Public expectations are high, and projects will instead be handed to the private sector.
ABB is proof of the seemingly endless need for infrastructural development in the country. The company has been a key provider in numerous infrastructural projects throughout the 20th century.
In 2014 ABB began construction on the Rio Madeira-link – What is to be one of the world’s longest transmission links. This was followed by large orders from Casa dos Ventos in 2015, a leading company within renewable energy.
INSIGHT #4 A platform for more
Presence in the Brazilian market means more than fast access to the country itself, it is a key to the whole continent. Scania (among many others) use the country as a platform for their operations throughout the region. In fact, Sao Paulo is often called Sweden’s second largest industrial city.
Despite the economic downbeat. Especially when surrounding neighbors tackle much more fundamental issues. The fairly stable democracy combined with a huge domestic market is a winning combination.
The Economist, EKN, BloombergView, Business Sweden
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