Brazil and Slovakia seek ways to grow together

EVEN though Brazil and Slovakia differ in size and are separated by a wide ocean, economic cooperation between the two countries is not as scanty as one might think. Both countries, each with strong automotive industries, want to move their economies forward with new enterprises that have higher added value and this can be an opportunity for more economic cooperation. Currently, bilateral trade is the primary economic tie between the countries but four companies with Brazilian capital also operate manufacturing facilities in Slovakia.

“Brazil is Slovakia’s most important partner in Latin America for economic and trade cooperation,” Dagmar Hlavatá, the head of the press department at the Economy Ministry, told The Slovak Spectator. “Brazil is Slovakia’s 26th biggest export partner and it purchases more Slovak products than countries like Portugal, Finland and Norway in Europe, as well as Canada.”

The Economy Ministry believes the economic cooperation between the two countries is currently good and even with some clear disadvantages such as the large distance separating the countries and the language barrier, the ministry expects that further economic ties will be developed.

“Brazil is a country with a developed economy and in addition to its large domestic consumption, it offers advanced industrial production ready to be expanded to the whole world,” Hlavatá stated. “This is why Brazilian direct investment in Slovakia is of such importance.”

Renato Pellegrini, the secretary-general of the Luso Brazilian Business Association (LBBA), believes economic cooperation between the countries at this time is suboptimal and can be improved.
“Most commercial items traded are of low or medium added value and the few direct investments are not diversified enough,” Pellegrini told The Slovak Spectator. “We believe, however, that economic cooperation between Brazil and Slovakia has substantial grounds for development in this decade.”

Pellegrini believes the burgeoning economic crisis in Europe will force European businesses to seek better ties beyond the common market and that Brazil’s rapidly growing demand will stimulate business with eurozone countries like Slovakia.

“At the same time, the strong fundamentals of the Slovak economy may encourage Brazilian companies to explore opportunities in the Slovak market and from it into other countries of central-eastern Europe, as asset prices tend to become attractive for foreign investors during an economic crisis,” Pellegrini added.

Pellegrini said that the increased level of bilateral trade and investment by Brazilian firms in Slovakia in recent years reflect a growing mutual awareness of business opportunities in both countries, but that there is much work still to be done.

“We are confident that a more intensive and systematic exchange of business information through both governmental and private channels is essential to promote bilateral opportunities between Brazil and Slovakia,” Pellegrini said. “The gap of information and the scarce institutional ties between the countries are some of the barriers to promotion of more effective bilateral economic cooperation.”

Bilateral trade grows

Bilateral trade between Brazil and Slovakia has improved significantly during the last decade, Vera Helena Marega from the department of commerce at the Brazilian Embassy in Bratislava told The Slovak Spectator. She reported that based on Brazilian statistical data foreign trade with Slovakia in 2000 represented only 0.009 percent of Brazil’s total imports and exports but in 2008, this had increased to 0.04 percent. Slovak products going to Brazil increased from 0.01 percent of the country's total imports in 2000 to 0.06 percent in 2008, but imports of Brazilian products into Slovakia remained level at 0.01 percent of the total over this time period. Marega noted that the foreign trade results for 2010 indicate that the Brazilian economy was more resilient than other economies during the financial and economic crisis.

“However, it is important to mention that Brazil exports mainly manufactured products to Slovakia, with basic products coming in second place,” Marega noted. “Moreover, the Brazilian statistics show a [trade] deficit in favour of Slovakia in bilateral commerce, something that is not reflected in the Slovak data. Therefore, in spite of the good results in recent years, there is still much room for improvement in bilateral commerce between Brazil and Slovakia.”

The Slovak Economy Ministry reported that Slovakia has reported a trade deficit for the last few years except in 2010, when Slovakia’s exports to Brazil tripled to €146 million and Slovakia reported a trade surplus with Brazil of €78.6 million. For the period from January to September 2011, the Economy Ministry reported €57.8 million in imports from Brazil and Slovak exports of €50.4 million, a trade deficit for Slovakia of €7.4 million.

Marega said that Brazilian data on bilateral commerce between the countries indicates that it is Brazil that has a trade deficit, specifying that from January to November 2011, total trade amounted to about €138.5 million and €93 million of that trade was of Slovak products imported into Brazil.

The majority of products traded between Brazil and Slovakia are manufactured items and Marega said that makes Slovakia an exception among the countries of central Europe but noted that this is primarily due to the strong automotive industries in each country as well as the presence of Brazilian companies in Slovakia.

“A study elaborated by APEX, the Brazilian Agency for Promotion of Exports and Investments in 2010-2011 reported that commerce in agricultural products is in decline while the industries with most potential would be tools, machinery, metal products, plastics, pharmaceuticals and chemicals,” she said.

Marega sees much room for improvement from both countries and believes lack of information is a primary obstacle to the development of better commercial relations and that other barriers such as language can and should be overcome.

“Brazil and Slovakia have much in common and could be much stronger partners not only in commerce but also by cooperating in science and technology, on the development of projects with high added value,” Marega said.

She sees the Brazilian embassy in Slovakia as having strategic importance in disseminating information about programmes and opportunities for investment and exchange of students, scientists and researchers.

The Economy Ministry believes participation by experts from Slovak institutions in programmes such as Brazil’s Science without Borders, in which Brazilian scientists and innovators will go abroad to gain experience and knowledge, may lead to better forms of economic cooperation.

“This programme creates a unique opportunity for Slovak companies, research centres and universities to develop economic cooperation with Brazil,” Hlavatá said.

Brazilian companies in Slovakia

Over the last decade Brazil has transformed itself into a country with huge economic and political influence. It is now the sixth largest economy in the world and has grown far beyond only exporting food commodities into a country with strategic investments in many economic sectors across the world.

The Economy Ministry highlighted the fact that statistics from the National Bank of Slovakia show that the inflow of direct foreign investments by Brazilian firms in Slovakia amounted to €516.4 million in 2009, the largest foreign investment made in Slovakia that year. Much of this investment was linked to the expansion of Embraco Slovakia, a producer of compressors for refrigerators and air conditioning units, as well as the arrival of subcontractors to the firm.

Currently, four companies with Brazilian capital are active in Slovakia while Embraco Slovakia, starting in 1998, has been here the longest.

“Embraco is one of the biggest foreign investments in the region,” Magera said. “It also brought three other successful investments projects to Slovakia.”

These three other investments are CRW Plásticos Slovakia, a producer of injection moulds for the plastics industry, Micro Juntas SK, which manufactures insulators and seals for compressors, and Rudolph Usinados SK, a metalworking and machine tool producer. All three companies are based in Spišská Nová Ves in the eastern region of Slovakia, an area that has traditionally had high unemployment. There are also two Brazilian companies trading in the food sector, according to Pellegrini of LBBA.

“An especially positive attribute of Brazilian investors in Slovakia is their willingness to place their projects in a region with an available and qualified labour force, meaning in the Spiš region,” Hlavatá said.

The unemployment rate in the Spišská Nová Ves district was 18.35 percent in November 2011 according to Slovakia’s Labour, Social Affairs and Family Centre.

The Slovak Investment and Trade Development Agency (SARIO) told The Slovak Spectator that the €185 million investment by Embraco is a good example that Slovakia can be attractive for Brazilian investors even if it is viewed as a very small country with a small domestic market.

“When a Brazilian company wants to keep its global competitiveness, then the location of Slovakia in the middle of Europe is one of the solutions,” Ľubomíra Gabrielová, the head of the marketing department at SARIO, told The Slovak Spectator, adding that Brazilian companies started opening production units abroad in the early 1990s.

Pellegrini agreed that as Brazilian companies become more international there is a competitive advantage to having a production facility or commercial office close to European customers.

“Located in the heart of central-eastern Europe, Slovakia is an attractive investment destination particularly for Brazilian companies with solid, long-term business relations with customers in this region,” Pellegrini stated. “Besides its strategic location, Slovakia offers other important assets to potential Brazilian investors, such as a qualified workforce and access to the common market and the economic cooperation and regional development mechanisms of the EU.”
Pellegrini added that synergy with already established Brazilian companies is another incentive for new investments in Slovakia.

SARIO sees huge prospects for economic cooperation with Brazil, especially in foreign trade. SARIO is cooperating with the Brazilian embassy as well as LBBA, with which it is now planning a roundtable event for those interested in Slovakia as an investment destination, Gabrielová told the Spectator.

In summarising SARIO’s activities in drawing Brazilian investments to Slovakia, Gabrielová cited the agency’s assistance to two Brazilian projects that came to Slovakia between 2002 and 2011 and created about 720 jobs from a combined investment of €18.5 million. But Gabrielová noted that SARIO does not have any current projects with Brazilian investors.

SARIO believes industrial production is the sector that currently has most potential to attract Brazilian investors but it does not rule out interest also coming from firms dealing with renewable energy sources and technologies, an important sector of the Brazilian economy.

Hlavatá also highlighted the participation of Slovak companies in investment projects in the Brazilian energy sector, while the Economy Ministry also sees prospects in the rubber industry and production of machinery.

In evaluating Brazilian investors’ interest in Slovakia, Marega stressed that countries within the EU are important commercial partners for Brazil, giving her quite optimistic expectations for future economic cooperation between Slovakia and Brazil.

“Many agreements are currently being negotiated between Brazil and the [EU] economic block to facilitate the entry of Brazilian products into the European market,” Marega said. “Slovakia is part of this market; therefore I expect that this will bring fruits also in the relationship between Brazil and Slovakia.”

She added that many other projects are under development, particularly in educational cooperation and commerce.

“Moreover, Slovakia, due to its strategic location in the region, may become an important entry point for Brazilian cooperation and Brazilian products, providing an exceptional opportunity for strengthening the Brazilian presence in eastern Europe,” Marega stated.

Pellegrini also hopes to see the development of more bilateral tourism.

“The 2014 FIFA World Cup and the 2016 Olympic Games in Brazil will help promote Brazilian travel destinations among Slovaks,” Pellegrini noted, adding that the strength of the Brazilian currency, the real, against the euro has also brought an increasing number of Brazilian tourists to central and eastern Europe.