The challenges of Rio Grande do Sul in the emerging nations era

Luciano D’Andrea

Luciano D’Andrea is International Relations and Foreign Trade manager of the Federation of Industries of the State of Rio Grande do Sul (FIERGS). He holds a Bachelor’s Degree in Business Management from Virginia Commonwealth University (VA) and a Master’s Degree in International Strategic Studies from the Federal University of Rio Grande do Sul (UFRGS).

In an interview to Panorama, Luciano D’Andrea comments on the current trends of the international environment, Brazil’s insertion into the global market and the activities of the BRICS — a group gathering Brazil, Russia, India, China and South Africa. Our interviewee also makes observations on the exporting sector of Rio Grande do Sul and on the activities of the Brazilian Development Bank (BNDES).

Panorama:The last two decades have been characterized by an intense geopolitical and economic dynamism in the globe. In this sense, there are several government and private research centers dedicated to a systemic analysis of the international scene. At the local level, what can be learned from these analyses for the decision-making process of private companies and government institutions?

Research into and analyses of political and economic data on the international scene are of key importance for any actor aiming at developing a global strategy and/or a particular form of relationship with other economic blocs or countries. Likewise, the study and the systemic framing of information are regarded as essential for a country that aspires to qualify and prepare its industry and trade for an increasingly competitive and globalized scenario. Knowledge is one of the central aspects of the decision-making process, both for government institutions and for private companies, but the organization framework of the government and private actors does not always allow for the collection and the analysis of strategic data. Therefore, diversifying agencies that produce knowledge and, especially, share intelligence through an accessible and transparent fashion is indispensable for the national or the local development, either collectively or individually. By understanding the international conjuncture, it becomes possible to set objectives, goals and fields of operation and also guide the strategic planning proccess and implement it in a safer and more assertive way.

Panorama:Besides the international protagonism of traditional actors, such as the United States, Europe and Japan, countries such as Brazil, China, Russia and India have been achieving international preeminence in various issues on the international agenda. How do you evaluate Brazil’s recent international presence? To what extent can this integration provide opportunities for Rio Grande do Sul?

Since the mid-1990s, the bilateral and multilateral relations of Brazil have been expanding, following a global process of international openness and consolidation of foreign relations driven by the end of the Cold War. In the last fifteen years, there has been a clear shift in the Brazilian foreign policy, and the country has been making political efforts to consolidate partnerships in Latin America, Asia and Africa. This new approach invests in multilateralism and in non-traditional markets with high potential. Altogether, this current foreign policy has been positive for the trade of goods and services with these nations and for new investment projects. Undoubtedly, China is the most prominent case, becoming the main trading partner of Brazil and of Rio Grande do Sul thanks to its extraordinary economic growth over the past decades and to its astonishing demand for commodity goods, such as iron ore, soybeans, meat, and other products that our country has to offer. On the other hand, imports from China have been of great concern for the Brazilian industry due to the flood of Chinese goods into the country, facilitated by the excessive overvaluation of the Brazilian Real in the last decade.  Thus, based on this scenario, we can conclude that China has strongly contributed to the overall positive trade balance of Brazil in recent years, but, on the other hand, has caused a huge deficit of more than a hundred billion in the balance of the manufactured goods in this period, given its exports of machinery, equipment and intermediate and consumer goods. In this paradoxical context of threats and opportunities, Rio Grande do Sul has been one of the most successful Brazilian states for offering products strongly demanded by the Chinese, especially soybeans, meat and tobacco. The exports of these commodities have also benefited from their high prices in the international market. Africa was the first origin of the state’s imports due to the Petrobrás (Refap[1]) purchase of fuel and derivatives, especially from Nigeria, Algeria and Angola. In 2014, the imports from Africa accounted for 23% of the state’s purchases, totaling US$3.52 billion. Therefore, the establishment of stronger ties with the other BRICS members has been positive due to their booming economic performance, which took place particularly between 2000 and 2008. However, while progress has been observed within the BRICS, a relative setback can be noticed between Brazil and the advanced markets, such as the U.S. and the European Union, whose markets remain as the backbone of the world economy, accounting for almost half of the global GDP. Right now, an effort to recover the interaction with these players through bilateral agreements and free trade as well as other initiatives have been outlined within the National Plan for Export issued by the Brazilian Ministry of Development, Industry and Foreign Trade on June 24, 2015.

[1] Refinaria Alberto Pasqualini, an oil refinery located in the State of Rio Grande do Sul.

Panorama: Notwithstanding the contradictions among the BRICS members, the group has been consolidating itself as a counterpoint to the current international system established in the post-World War II era (UN, WTO, World Bank and IMF). How do you evaluate the dynamism of this ongoing process?

A more cohesive action of the BRICS depends on central issues in political, economic and security terms. The position of the participating countries on these issues is considerably divergent due to their national interests, which follow opposite paths, thus hindering the political consolidation of the group. However, the increasing trade between these countries has been gaining more and more representation in the international scene and can be a facilitating vector of cooperation. Furthermore, the establishment of the BRICS Development Bank is somehow consistent with these countries’ strategy to reduce their dependence on funds and international banks controlled by the developed countries. Although the bloc still lacks a common established agenda — albeit bilateral agendas have been strengthening — the fact that countries with such representation in the world economy are gathering and willing to discuss joint guidelines is an important step towards their consolidation and strengthening through effective economic development actions.

Panorama: In 2014, the remaining BRICS countries accounted for around 27% of the state’s total exports. In your opinion, how can the state exporters and the local government defend their interests in the context of the BRICS negotiations?

Back to the question concerning the relevance of analyzing the international scene, it is necessary for both the government and the entrepreneurs to understand the potentialities that the BRICS market has to offer to Rio Grande do Sul. Studies on commercial and strategic intelligence can guide the companies’ perspective on the BRICS. Moreover, the government, by understanding both the local reality and the bloc itself, can develop an approach to defend the interests that are in line with the potentialities of the private sector, that is, agriculture, industry and services.

Panorama: Soybeans are the leading export products of Rio Grande do Sul, and China, South Korea, Vietnam, India and Thailand are the main purchasers of this commodity. Besides soybeans, tobacco, poultry, rice, leather and agricultural machinery are shipped to emerging countries in Africa, Asia and Latin America. How do you view the economic dynamics of these regions on the state’s exporting sector? What measures can the private sector and the local government take to increase the volume of the state’s exports to these countries?

It is true to say that Rio Grande do Sul meets the demands of the emerging markets in the south-south trade with its traditional range of products of the soybean complex, meat and tobacco. However, there is no doubt that there are innumerous opportunities for exporting other products to these countries. In order to intensify the dynamism of the exporting sector, it is mandatory to diversify the supply of products through the expansion of knowledge about the quick transformations that have been going on in terms of consumers’ habits and export needs in these markets. China, for instance, after years extensively importing basic products, such as food, iron ore and oil, is now not only demanding larger amounts of consumer goods, but is also being urged to provide wealthier and more demanding consumers with higher value-added goods. In this sense, in order to take advantage of this expanding consumer market not only in China, but also in other booming nations in the region, such as Vietnam, Malaysia and Thailand, the exporting sector of Rio Grande do Sul must be competitive and knowledgeable about the market and the specific characteristics of its respective industries. The introduction of free trade zones in China, for example, reflects the implementation of recent economic and financial reforms intended to boost the domestic consumption of imported products. The Chinese case opens new possibilities for higher value-added Brazilian items, such as premium food, for example. In relation to Latin America, a strategic market for manufactured products made in Brazil and in Rio Grande do Sul, the region must be urgently revitalized, improve its payment mechanisms and create effective means for the integration of high-value productive chains, focusing on productive specialization. Nevertheless, this region requires investments in infrastructure and logistics to reduce its foreign trade operating costs, so that it can catch up with other markets in terms of competitiveness, especially the Asian ones. Economic and political instabilities and recurring crises are also obstacles that governments and private companies must overcome.

Panorama: In the 21st century, Africa has stood out due to its high economic growth rates, in contrast to its poor performance in the previous decades. As many countries across the continent have been developing largely owing to agriculture, what can be done for Rio Grande do Sul to seize this opportunity and expand the sales of agricultural machinery to Africa?

Exports of agricultural machinery to Africa represent a very important niche to the state’s companies. According to 2015 data from the Brazilian Ministry for Development, Industry and Trade, 42% of the overall Brazilian exports to Africa consist of manufactured goods, and the level of technological intensity used in these products has risen in the last three years. Thus, Rio Grande do Sul may also take advantage of the idiosyncrasies in the process of agricultural development in Africa by adapting and designing equipment that can better suit its market needs. According to 2014 data from the International Labour Organization, agriculture in Africa can and must be boosted through integrated solutions involving industries, rural areas, and services. Another very important measure aiming at expanding this sector’s exports involves lines of credit provided by the government through the Banco do Brasil, directed primarily to the African countries that are granted funds for acquiring agricultural machinery and equipment made in Brazil. Therefore, the long experience of the government and the business community of Rio Grande do Sul along with the extension of lines of credit can serve as a competitive asset in the African market.

Panorama: In all the countries that have been successful in boosting their exports — such as the United States, Japan, Germany and China —, we notice the presence of a specialized bank to internationalize their national companies, in order to promote their investments and foreign sales. In what ways can the Brazilian Development Bank contribute to the integration of the national companies into the global market?

A bank dedicated to promoting international trade is a fundamental mechanism for increasing the Brazilian investments and exports abroad. The role of the Brazilian Development Bank in international trade involves both granting credit for the export-driven production of goods and services and for the overseas commercialization of Brazilian goods and services, providing special maturity dates, interest rates and payment conditions consonant with the size of the company. The Brazilian Development Bank also supports projects abroad, financing not only the acquisition of capital goods, but also the working capital of the companies. These policies expedite the opening of new markets, the insertion of Brazilian companies into global value chains and the growth of the Brazilian trade flow. Additionally, it is paramount to be up-to-date on the financial policies offered by the export credit agencies of other countries, such as the U.S. and Germany, to adjust the resources management of national funding to the level of the competition, allied with the real needs of the companies and their respective exporting profiles.