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COUNTRY BRIEFS


THE BILATERAL RELATIONSHIP

Australia opened its first diplomatic mission in Latin America in Brazil's former capital, Rio de Janeiro, in 1945. Brazil established a diplomatic presence in Canberra the following year. Today, Australian and Brazilian foreign and trade policy interests coincide in several important areas and the two countries cooperate multilaterally on issues of mutual interest including climate change, agricultural trade reform in the World Trade Organization (WTO) through the Cairns Group, and as members of the 'five interested parties' coalition (FIPs — with the US, European Community and India). We are also both members of the G20, the group of twenty major and emerging economies, which has been designated the premier forum for global economic cooperation. Brazil and Australia have a close working relationship in the G20. Reform of international financial institutions (such as the World Bank and IMF) to give developing countries a greater voice in these organisations is a shared G20 priority for Australia and Brazil.

Australia and Brazil hold senior officials' meetings every 1-2 years to exchange views on key bilateral, regional and multilateral issues. The most recent meeting was held in Brasilia in October 2010. On 27 August 2008 Australia and Brazil announced that an Enhanced Partnership would be developed to reflect growing interest in the broadening and deepening bilateral engagement. The Memorandum of Understanding for the Establishment of an Enhanced Partnership contains initiatives aimed at improving bilateral links, including education, science and technology and trade and investment as well as furthering multilateral and regional cooperation, was signed by Mr Rudd and Mr Celso Amorim, Brazilian Minister for External Affairs in New York on 21 September 2010.

Mr Rudd, Minister for Foreign Affairs, visited Brazil in December 2010 and also attended the Ministerial and Leaders' meetings of Mercosur which was held in Iguaçu. The then Minister for Trade, the Hon Simon Crean MP, visited Brazil on 20-24 April 2010, where he signed an Air Services Agreement with Brazil's Minister for External Affairs, Mr Celso Amorim. The then Minister for Foreign Affairs, the Hon Stephen Smith MP, visited Brazil on 24-26 August 2009. In April 2005, during a visit to Brazil by the former Minister for Education, Science and Training, Dr Brendan Nelson, Australia and Brazil signed a Memorandum of Understanding (MoU) on Education Cooperation. This followed an MoU on Science and Technology, signed in 2001, which established a joint cooperation program. In April 1998, an MoU on Sanitary Matters was signed by the Agriculture Ministers of Australia and Brazil to facilitate bilateral trade in agricultural products.

Mr Celso Amorim, visited Australia on 26-28 August 2008. In addition to the visit of Mr Amorim, in the past few years Australia has received a number of Brazilian official visitors, including the former Minister for Culture, Mr Gilberto Gil in 2004, the former Minister for Agriculture, Mr Robert Rodrigues in 2005 and a Brazilian Parliamentary mission in 2008.

We also participate in the CER-Mercosur Dialogue, bringing together Australia, New Zealand, Brazil, Argentina, Paraguay, and Uruguay, most recently in Uruguay in April 2010. The dialogue was established in 1996 as a mechanism to strengthen cooperation on global trade policy issues and to promote inter-regional trade and investment. Both Australia and Brazil are members of the Forum for East Asia-Latin America Cooperation (FEALAC) (http://www.fealac.org/) , which aims to increase and improve mutual understanding, political dialogue and cooperation among member states of East Asia and Latin America.

In addition to a strong trade and investment relationship, Australia and Brazil also have growing people-to-people links. The Australian education system is an increasingly attractive option for Brazilians. In 2009 there were more than 17,500 Brazilian student enrolments in Australian institutions including schools, universities, vocational education and training providers and English language colleges. Brazil is the largest source of students from Latin America studying in Australia. Brazil is also the largest Latin American market for visitors to Australia. In 2009, nearly 26,000 Brazilians visited Australia, while around 12,600 Australians visited Brazil.

Since the 1970s, a small but growing community of Brazilians have migrated to Australia. According to the 2006 census, close to 7,500 people living in Australia were born in Brazil, with a further 6,500 claiming Brazilian ancestry.

There are no direct flights between Australia and Brazil, although since November 2008 Qantas has operated a three times weekly direct flight between Sydney and Buenos Aires in Argentina. Qantas also operates onward services to destinations in South America via a code sharing agreement with Chile's LAN Airlines. Qantas has operated an office in São Paulo since 1999.

In 2001, the Australian Government announced the establishment of a Council on Australia Latin America Relations (COALAR) (http://www.dfat.gov.au/coalar/index.html). Since its inception, the Council has been active in promoting Latin America as a market for Australian exporters. It has supported a range of activities in Brazil, including cultural and trade promotion events.

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POLITICAL OVERVIEW

Background

Brazil achieved independence from Portugal in 1822. It is a federal republic composed of 26 states and a federal district, with three tiers of government. Each state has its own government structure mirroring that at the federal level, and there are over 5,500 municipal councils. Voting is universal and compulsory for all literate citizens from 18-70, and optional for those aged 16-17 and over 70, or who are illiterate. Under Brazil's Constitution, the president and vice president are elected on the same ticket by popular vote for four-year terms. The National Congress consists of the Federal Senate with 81 members serving eight year terms, and the Chamber of Deputies consisting of 513 members elected by proportional representation to serve four-year terms.

Brazil has traditionally been an inward-looking country, both politically and economically. However, throughout the 1990s, Brazilian foreign policy reflected a more internationalist approach under former Presidents Collor and Cardoso. Priority was given to relations with other Latin American countries. Former President Cardoso worked to promote Brazil's image as an important international player and regional power, and commenced a campaign to win a permanent seat for Brazil on the United Nations Security Council.

Brazil's outward-looking focus in foreign policy accelerated under President Luiz Inacio Lula da Silva, who projected Brazil as a leader in Latin America and emphasised the importance of Mercosur (Mercosul in Portuguese). The President has championed the rights of developing countries, and worked consistently to strengthen Brazil's ties with other major developing powers including China, India and South Africa. Brazil is also a driving force in the recently created Union of South American Nations (known as UNASUR).

As a leader in the developing world, Brazil has become a regular participant in global forums such as the World Economic Forum, the G8 and G20. Brazil hosted the G20 Finance Minister's Meeting in 2008.

Brazil has placed increased emphasis on reciprocity in trade negotiations. It has asserted that progress in the World Trade Organization and Doha Round negotiations will be contingent on concessions being offered by developed countries on agricultural subsidies.

President Lula's central policy focus was to improve living conditions for Brazil's poor while continuing the economic discipline of his predecessors. After taking office in 2003, he launched the Bolsa Família (Family Fund Program) which consolidated five income transfer programs to poor families. This program, which is managed by the Brazilian Ministry of Social Development, provides a stipend to parents to feed and clothe their children, provided they keep them at school and to take them for medical check-ups. The fund now reaches the poorest quarter of Brazil's population. According to Government estimates, 35 million Brazilians were lifted out of poverty between 2003 and 2010.

In the Presidential elections held in 2010, the Worker's Party candidate, Dilma Rousseff, Chief of Staff to former President Lula, (54 pct) beat Jose Serra of the Brazilian Social Democratic Party (PSDB) (46 pct) in the second round. Ms Rousseff was inaugurated as President on 1 January 2011 and her administration is expected to maintain a similar focus to that of former President Lula. President Rousseff was imprisoned and tortured by the military government in the 1970's and is likely to stress human rights, including through Brazilian foreign policy and the creation of a Truth Commission to investigate the activities of the military regime.

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ECONOMIC OVERVIEW

At a glance

For the latest economic data refer to the Brazil country fact sheet (PDF) (http://www.dfat.gov.au/geo/fs/braz.pdf).

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POLICY DIRECTIONS

Economic outlook

Possessing large and well-developed agricultural, mining, manufacturing and service sectors, Brazil's economy is now the seventh largest in the world with a GDP in 2010 of $US2,089billion - Australia was the world's 13th largest economy in 2009 at $US920billion.) With strong growth prospects in the short term, Brazil is expected to surpass the economies of France and the UK within the next few years.

Brazil's relatively low exposure to international trade limited the impact of the global economic downturn that emerged in late 2008. Global financial instability resulted in a contraction of GDP in 2009 of 0.2 per cent (down from 6.8 per cent growth in 2008). However, through resilient domestic demand and government stimulus measures Brazil's economy made a spectacular recovery in 2010 growing 7.5%, its fastest rate of economic growth in almost two decades. Yet while Brazil's rapid recovery from the global financial crisis has been a success story, growing inflationary pressures and infrastructure shortages could derail the country's long-term recovery. Containing the rate of inflation and easing infrastructure bottlenecks will be two of the greatest policy challenges facing the Government over the coming years.

Brazil continues to face considerable difficulties in implementing economic reforms, particularly in tax and business regulation. Judicial reform, improving education and fighting crime and corruption remain key challenges for the Government. In the longer term, Brazil will also need to invest heavily in infrastructure to sustain growth. Investments in roads (privatisation/modernisation of roads has been initiated), railways (railway privatisation has been resumed), ports and the energy sector are required.

Externally, the Southern Cone Common Market (known in Portuguese as Mercosul) is the most important economic grouping for Brazil. Mercosul was formed in 1991 by Brazil, Argentina, Paraguay and Uruguay. Under the Mercosul treaty, tariffs between members are lowered gradually on most products and common external tariffs are applied to non-members. Mercosul represents a market of almost 270 million people with a combined GDP in 2009 of more than US$1.8 trillion.

Bilateral economic and trade relationship

Australian economic engagement with Brazil has grown steadily since the mid-1990s, most notably in the mining, agribusiness and services sectors. Brazil is Australia's largest trading partner in South America, with two-way merchandise trade between Australia and Brazil totalling A$1.53 billion in 2009, a 46 per cent decrease on the previous year reflecting a significant reduction during the year in Australian coal sales to Brazil. Merchandise trade comprised exports of A$900 million to Brazil and imports of A$630 million from Brazil (refer Brazil country fact sheet (PDF) (http://www.dfat.gov.au/geo/fs/braz.pdf) ). Major exports to Brazil included coal, crude petroleum and chemicals. Major imports from Brazil included fruit juices, iron ore, coffee and passenger motor vehicles.

Opportunities exist for increased Australian trade and investment in areas such as information technology, biotechnology, transportation (rail and marine), telecommunications, banking and insurance, mining, water and waste water management, oil and gas, power, education, agribusiness, tourism and infrastructure. A growing number of Australian companies are now operating in Brazil, though a lack of mutual awareness remains an obstacle to expanding commercial ties.

Brazil is the world's largest ethanol producer and views Australia as one of its natural partners in the development of a global ethanol market. Brazilian interlocutors have held discussions on bio-fuels with previous Australian government ministers, the Queensland Government and Australian sugar industry representatives.

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MAJOR AUSTRALIAN INVESTMENT ACTIVITY

Mining and mining services

BHP- Billiton owns 50 per cent of the Samarco iron ore mine in Minas Gerais, and also conducts bauxite, oil and gas exploration in Brazil.

Troy Resources has 70 per cent ownership of the Sertão gold mine.

Mincom & Maptek provide information technology services and technical support for the mining sector.

GRD Minproc was awarded a $1.6 billion contract for engineering, procurement and construction management in the mining sector. This has prompted them to open corporate and project offices in Belo Horizonte in the state of Minas Gerais.

Orica has an industrial explosives plant in Brazil.

Mundo Minerals is operating its Engenho gold mine in Minas Gerais and is expected to deliver 30,000 ounces of gold per year from the second quarter of 2008.

In September 2007 Coffey International Limited acquired Brazilian mining sector consulting company Geoexplore Consultoria e Serviços Ltda.

Mirabela Nickel has explored and is now developing nickel and other base metal targets in Bahia, Sergipe and Tocatins, including the Santa Rita nickel sulphide project which is one of the world's largest.

A number of other Australian mining juniors have operations of various sizes and stages of development.

Ausenco has a project office in Belo Horizonte to provide engineering and project management solutions to the resources and energy sector.

Agribusiness

In May 2007, Nufarm Limited took 100 per cent ownership of Agripec (Brazil's largest locally owned crop protection company) after acquiring a 49.9 per cent stake in the company in 2004. Nufarm has stated its Agripec investment constitutes a key element of the company's expansion into Latin America.

Agrichem has a fertiliser production and distribution facility in Riberão Preto, São Paulo.

Interest exists from a number of Australian companies and institutions for investment in agricultural production including production of feedstock for biofuels generation.

Renewable energy

Pacific Hydro has 2 wind farms operational in the state of Paraiba in northeast Brazil with investments to date of approx $A200 million, generating renewable energy that is sold back to the grid. The company plans additional projects in the region.

Document management

Recall (Brambles) provides storage of documents in paper or electronic format in São Paulo.

Insurance services

QBE Brazil provides life and accident insurance.

Banking

Macquarie Group maintains a representative office in São Paulo to serve the agricultural commodities sectors in Latin America.

Other sectors

Chep (Brambles) has service centres throughout Brazil for its pallet and equipment handling systems.

Amcor PET Packaging has manufacturing and sales facilities in São Paulo and provides a range of beverage containers to industry.

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EXPORT OPPORTUNITIES

Agribusiness

Brazil applies a range of non-tariff measures (e.g. quarantine) that restrict the entry of agricultural products into its market. Australia continues to seek access improvement to the Brazilian market for agricultural goods including genetic materials, meat and dairy products and plant products.

Education and training

Brazil is the 5th most important globally. In April 2005, then Australian Minister for Education, Science and Training, Dr Brendan Nelson, and former Brazilian Minister for Education, Mr Tarso Genro, signed a Memorandum of Understanding (MoU) to increase bilateral education cooperation. The MoU provides a framework for Australian and Brazilian education and training institutions, students, teachers and officials to work together over the coming years.

Austrade has an education sector specialist based in São Paulo. Since 1 July 2010 Austrade has taken over responsibility for the marketing and promotion of Australian education internationally. The education sector specialist not only engages in promotional and outreach activities and liaises with local education agents, but also provides market intelligence and advice to Australian education and training providers interested in developing strategic and sustainable relationships with local counterparts.

Mining and minerals

Australian participation in the Brazilian mining industry is increasing. An Australian pavilion was organised by Austrade for the 2009 mining exhibition Exposibram, the biggest of its kind in Brazil. The exhibition was held in Belo Horizonte, the capital of the state of Minas Gerais.

Vale (formerly CVRD), Brazil's largest mining company and the second largest in the world, has recently announced a capital investment program of over US$1 billion: this offers a range of opportunities to Australian firms.

Austrade maintains a virtual office in Belo Horizonte with a primary focus on the mining sector.

Sports infrastructure

A number of opportunities are expected to be generated for Australian companies as a result of Brazil being awarded the 2014 FIFA World Cup and 2016 Rio Olympic Games, in design, planning, stadia construction and management, event planning, equipment and services and associated infrastructure in transportation.

Textile, clothing and footwear

Brazil shares Australia's passion for surf and outdoor activities. Australia's expertise in this regard presents strong opportunities for further trade and investment in alternative brands and innovative equipment. Surf and outdoor wear is part of an ongoing Austrade promotional program.

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CHANGES IN TRADE AND INVESTMENT CONDITIONS

Changes in trade conditions

Brazil's simple average Most Favoured Nation (MFN) applied tariff was 11.5 per cent in 2008, up from 10.4 per cent in 2004. Brazil reduced its highest duty rates from 55 per cent in 2004 to 35 per cent in 2008. Brazil has introduced a number of export finance, insurance and guarantee measures aimed at assisting producers and exporters to access credit. Brazil claims to have simplified its import licensing regime and expedited customs clearance procedures.

Changes in investment conditions

Brazil continues to liberalise its services sector, including telecommunications and financial services. The government has a reform agenda for the taxation system, social security, bankruptcy laws and other improvements in financial markets to reduce the cost of finance.

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TRADE SUCCESSES

Agribusiness

Australian companies have been successful in exporting animal genetics to Brazil, creating new opportunities in this market. Goat and sheep genetics are a promising sector with ongoing exports from Australia expected to complement existing shipments of bovine genetics.

Mining

The mining sector continues to generate successes with consulting services, extraction and processing technologies, and software leading the list of exports.

Manufacturing

Australian companies have also been successful in signing licensing agreements with Brazilian companies to offer lower-priced manufactured goods into Brazil and the Mercosur markets. Typical successes are technology products related to packaging or food processing.

Food and beverage

Australian wines have been keeping a consistent although small market share in the Brazilian market, mainly due to the large tax load that is imposed on wines (27% import duty, in addition to other taxes). The tax burden benefits indirectly the suppliers from Argentina and Chile, that are exempt of the import duty.

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Last Updated: March 2011

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