A Study to Identify Key Sectors of Opportunity for Atlantic Canadian Firms in Brazil

Transcription

1 2011 A Study to Identify Key Sectors of Opportunity for Atlantic Canadian Firms in Brazil To Be Canada Inc Tuesday, May 03, 2011 Page i

2 Disclaimer This report provides an overview and guideline information and must not be relied on to cover specific situations. Application of the guideline will depend upon the individual circumstances for which professional advice must be obtained before making decisions, acting or refraining from acting on any of the information in this publication. We could offer our readers with help on how to apply the guidelines set out in this publication to their specific circumstances. No responsibility will be accepted for any liability or loss occurred to any person or entity acting or refraining from action as a result of any information in this document. ii P age

3 Executive Summary This report has been prepared for, The Canada-Atlantic Provinces Agreement on International Business Development (IBDA). The Governments of Newfoundland and Labrador, Nova Scotia, New Brunswick and Prince Edward Island are highly cognizant of changing dimensions of the global economy and are looking growing trade with newer economies. Atlantic Canadian businesses are also looking at expanding their operations and providing services to markets beyond developed economies such as the United States. Since Brazil is one such market, a study was conducted to identify the potential available to Atlantic Canadian businesses to export to Brazil in the nine identified sectors: 1. Information and communications technologies 2. Environmental technologies 3. Oil and gas equipment and services 4. Life sciences and biotechnology 5. Ocean technology 6. Aerospace, defense and security 7. Mining 8. Education 9. Food/ Seafood This report was created after reviewing vast amount of literature and information; relevant and useful articles were studied with a goal to provide companies with information in a userfriendly and succinct manner. The secondary research was supplemented and validated by primary research that included interviewing key stakeholders and business owners in Atlantic Canada and Brazil who provided valuable insights into the selected sectors and the Brazilian market. Refer to Appendix A for list of managers interviewed during primary research. The findings of this study validate the potential in the Brazilian market and possible opportunities available to Atlantic Canadian organizations in each of the indentified sectors. Information and Communications Technologies Atlantic Canadian firms have strength in and opportunities exist in the Brazilian market to provide technologies for the banking sector; security and privacy software and technology; iii P age

4 internet and data security; elearning and distance education technology; and gaming and mobile applications Environmental Technologies Atlantic Canadian sector strengths aligned to opportunities in the Brazilian market include water and wastewater treatment and water management technologies; equipment, machinery and technologies related to recycling of garbage and waste materials; site remediation systems; and technologies related to renewable energies. There are various projects in this sector funded by the Brazilian government as well as governments of other countries such as the US, UK and Canada. Moreover, Brazil also receives funding from the IDB and World Bank for environment sustainability initiatives. Oil and Gas Equipment and Services There are tremendous opportunities for Atlantic Canadian companies to supply equipment and services to the OGES sector in Brazil with both domestic and foreign oil and gas operators. However, many of these opportunities are with Petrobras and include Exploration and Production (E&P) critical equipment; critical services for E&P activities; and downstream segment (refineries, etc) critical equipment and services. Other opportunities in this sector are training and education services and innovative technologies related to the oil and gas sector. Life Sciences and Biotechnology Given Atlantic Canada s pioneering innovation there may be opportunities available for technology transfer specifically for the generic drug market and those related to tree improvement and "green technologies for forest pest protection. Nutraceuticals are also in high demand in the Brazilian market. There is a shortage of skilled workforce in the biotechnology industry providing opportunities for training and educational services. Ocean Technology Many of the opportunities available in the ocean technologies industry in Brazil are aligned to the strengths of Atlantic Canadian companies. These include acoustic systems and equipments, imaging and simulation, marine communications, instrumentation and information systems. Atlantic Canada s reputation and expertise in the ocean technologies sectors provides it with opportunities to collaborate with the public and private sectors for technology transfers. iv P age

5 Aerospace, Defense and Security There are many opportunities in the Aerospace, Defense and Security sector in Brazil and many of these demands can be met by Atlantic Canadian firms. This sector has two prominent opportunities; the first is in the parts, components and maintenance and repair overhaul for civil and military aircrafts. The second is providing technology, equipment and parts for internal security. Mining The presence of many Canadian companies in Brazil as well as Vale s sites in Newfoundland and Labrador offer many opportunities to leverage local relationships in order to enter the Brazilian market. In addition to equipment, services and software there are opportunities for Atlantic Companies currently working in support of local mining projects. Education The opportunities in the Brazilian education market include, English language courses, higher education, vocational and executive training and distance learning. There is also a need for contemporary curriculum design and content creation, technologies for elearning and virtual classrooms. Atlantic Canadian firms not only have strengths in higher education, English courses and distance learning but they are also highly respected globally and provide value for money. Food/ Seafood Atlantic Canadian companies can look for opportunities in the food market segments that are expected to grow in Brazil in the future. Some of the products that could be exported are potatoes, vegetables and fish (the salt fish market is growing in Brazil particularly Atlantic Cod). Furthermore, the report provides Atlantic Canadian business leaders with information on establishing and conducting business in Brazil and includes information on the Brazilian tax structure, import regulations and logistics, import programs, licensed custom brokers, government incentives, and foreign operation costs evaluation. Finally, the document provides critical information such as a list of professionals that can be contacted for services in Brazil, information on trade fairs and other useful information for business leaders exploring opportunities in Brazil. v P age

6 Contents Executive Summary... iii List of Tables... xi List of Figures... xii 1. Brazil An Overview Administrative Divisions Economic Overview Trade Relations Brazil s 2011 Index of Economic Freedom Cultural Facts Canada - Brazil Relations Atlantic Canadian Export Capabilities Information and Communications Technologies Introduction Subsectors Global Context The Brazilian ICT Sector Macroeconomic Environment SWOT Analysis Key Business Opportunities in Brazil Brazilian Industry Perspective The Atlantic Canadian ICT Sector Atlantic Canadian Industry Perspective Recommendations and Market Entry Strategies Environmental Technologies Introduction Subsectors Global Context The Brazilian Environmental Technologies Sector Macroeconomic Environment SWOT Analysis Key Business Opportunities in Brazil Brazilian Industry Perspective The Atlantic Canadian Environmental Technologies Sector Atlantic Canadian Industry Perspective Recommendations and Market Entry Strategies Oil and Gas Equipment and Services vi P age

7 6.1 Introduction Subsectors Global Context The Brazilian Oil and Gas Sector Macroeconomic Environment SWOT Analysis Key Business Opportunities in Brazil Brazilian Industry Perspective The Atlantic Canadian Oil and Gas Sector Atlantic Canadian Industry Perspective Recommendations and Market Entry Strategies Life Sciences and Biotechnology Introduction Subsectors Global Context The Brazilian Life Sciences and Biotechnology Sector Macroeconomic Environment SWOT Analysis Key Business Opportunities in Brazil Brazilian Industry Perspective The Atlantic Canadian Life Sciences and Biotechnology Sector Atlantic Canadian Industry Perspective Recommendations and Market Entry Strategies Ocean Technology Introduction Subsectors Global Market The Brazilian Ocean Technology Sector Macroeconomic Environment SWOT Analysis Key Business Opportunities in Brazil Brazilian Industry Perspective The Atlantic Canadian Ocean Technology Sector Atlantic Canadian Industry Perspective Recommendations and Market Entry Strategies Aerospace, Defense and Security Introduction Subsectors vii P age

8 9.3 Global Context The Brazilian Aerospace, Defense and Security Sector Macroeconomic Environment SWOT Analysis Key Opportunities in the Brazilian Market Brazilian Industry Perspective The Atlantic Canadian Aerospace, Defense and Security Sector Atlantic Canadian Industry Perspective Recommendations and Market Entry Strategies Mining Introduction Subsectors Global Market The Brazilian Mining Sector Macroeconomic Environment SWOT Analysis Key Business Opportunities in Brazil Brazilian Industry Perspective The Atlantic Canadian Mining Sector Atlantic Canadian Industry Perspective Recommendations and Market Entry Strategies Education Sector Introduction Subsectors Global Context The Brazilian Education Sector Macroeconomic Environment SWOT Analysis Key Opportunities in the Brazilian Market Brazilian Industry Perspective The Atlantic Canadian Education Sector Atlantic Canadian Industry Perspective Recommendations and Market Entry Strategies Food and Seafood Introduction Subsectors Global Context Brazilian Context viii P age

9 12.5 Macroeconomic Environment SWOT Analysis Key Business Opportunities in Brazil Brazilian Industry Perspective The Atlantic Canadian Food and Seafood Sector Atlantic Canadian Industry Perspective Recommendations and Market Entry Strategies Experiences in the Brazilian Market Canadian Export Experience Challenges of Entering the Brazilian Market Best Practices of Entering the Brazilian Market Establishing and Conducting Business in Brazil Establishing a Company in Brazil "Doing Business 2011: Making a Difference for Entrepreneurs" Government Agencies Tax Structure Corporate Federal, State and Municipal Taxes Payroll Tax and Deductions Import Regulations & Logistics Import Tariffs Foreign Cable and Satellite Duties Electronic Commerce Industrial Property Dispute Resolution Common Transportation Modes Import Programs Bonded Warehouse Licensed Custom Brokers Shipment Accounting, Reporting & Storage Government Incentives Corporate Investments Training Foreign Operation Costs Evaluation Interest Rates Land and Building Tax Premise - Commercial Rent / Cost of Land ix P age

10 Wages Skilled/ Unskilled Trade Labor Wages Professional Management Labor Working Capital Transportation Costs Insurance (Business) Office Expenses Depreciation Professional Fees Advertising Budgeting Financial Ratios by Industry / Sector Contact Information of Professional Service Providers Appendices Appendix "A" List of Companies Interviewed for Primary Research Sector Overview Atlantic Canada Sector Overview Brazil Canadian Firms with Experience in the Brazilian Market Appendix "B" Index of Economic Freedom Appendix "C" Atlantic Canadian Exports to Brazil Appendix "D" The Canadian Environmental Goods Model Appendix "E" - Oil reserves1, per location (onshore and off shore), by State Appendix F - Best Prospects for Foreign Suppliers with Petrobras Appendix G - Sales of Consumer Health Products by Sector Appendix "H" Canada s Ocean Technology Sectors Appendix I Starting a Business in Brazil Appendix J List of Companies Used for IRR Calculations Bibliography Endnotes x P age

11 List of Tables Table 1: Brazil's Trade Relations... 2 Table 2: Brazil World Economic Index... 3 Table 3: Market Values of the 13 largest green economies Table 4: Brazil's Environmental Goods & Services Table 5: NAICS Classification for Mining Table 6: Major Companies and their Planned Investments Table 7: Mineral Production by Province and Territory Table 8: Trading Across Borders Table 9: Federal Taxes in Brazil Table 10: State Taxes in Brazil Table 11: Municipal Taxes in Brazil Table 12: Income Tax Levels in Brazil Table 13: Social Security Contributions Table 14: PIS and COFINS Taxes Table 15: What to include in import applications Table 16: Tax Incentives in Free Trade Zone of MANUAS Table 17: Regional Incentives for the North and Northeast Region Table 18: Technological Innovation Incentive (R&D) Table 19: Special Regime for the Oil and Gas Industry Table 20: Special Regime for Infrastructure Development Table 21: Manufacture of IT and Automation Equipments Table 22: Benefits for employees in the Brazilian market Table 23: Types of Insurance Table 24: Return on Equity, ROE (percent) Table 25: Return on Assets, ROA (percent) Table 26: Sector Specific Financial Ratios - Average Table 27: Sector Specific Financial Ratios - Range xi P age

12 List of Figures Figure 1: Canada - Brazil Trade Balance... 5 Figure 2: Top 10 Country Exports in Figure 3: Atlantic Canada's Top 10 Export Industries... 7 Figure 4: Atlantic Canada - Brazil Trade Balance... 7 Figure 5: Global ICT Developments Figure 6: Percentage of Life Science Companies in Brazil by Sector Figure 7: Global Marine Industry Figure 8: Top Ten Mining Countries Figure 9: Brazil's Main Substances Exported Figure 10: Ease of Doing Business - Global Rank Figure 11: Median Salaries by City Figure 12: Median Salaries by Industry Figure 13: Median Salaries by Job xii P age

13 1. Brazil An Overview 1 2 Brazil is also known as the Federative Republic of Brazil and República Federativa do Brasil or Brasil in Portuguese. Brazil is located in Eastern South America, bordering the Atlantic Ocean and covers a total area of 8.5 million square kilometers. It is a federal republic and its capital is Brasilia. Portuguese is the official and most widely spoken language. Other less common languages include Spanish, German, Italian, Japanese, English, and various minor Amerindian languages. The standard time zone is GMT -3 hours and daylight saving time (1hr begins third Sunday in October; ends third Sunday in February). Eight-seven percent of its total population (201 million) is based in urban areas. Brazil s currency is the Real (R$) and the conversion rate is 1 Canadian dollar ($) = 1.7 Brazil Real (R$) Administrative Divisions Brazil has 26 states and 1 federal district* Acre Maranhao Rio de Janeiro Alagoas Mato Grosso Rio Grande do Norte Amapa Mato Grosso do Sul Rio Grande do Sul Amazonas Minas Gerais Rondonia Bahia Para Roraima Ceara Paraiba Santa Catarina Distrito Federal* Parana Sao Paulo Espirito Santo Pernambuco Sergipe Goias Piaui Tocantins 1.2 Economic Overview Brazil is the largest economy in South American and has enhanced its macroeconomic stability over the last decade. Much of its growth is fueled by the extensive growth in the agricultural, mining, manufacturing and services sectors. It was one of the first countries in the developing markets to recover from the recession. Export recovery enhanced GDP growth in 2010 supported by consumer and investor confidence. Foreign investors are attracted to the Page 1

14 Brazilian market because of its strong growth and high interest rates. This led to inflation of the currency and has prompted the government to raise certain taxes on foreign investments. 1.3 Trade Relations An overview of Brazil s trade relations are provided in Table 1: Brazil's Trade Relations. Table 1: Brazil's Trade Relations Exports Imports Value (2010 est.) US$199.7 billion US$187.7 billion Commodities Transport equipment Iron ore Soybeans Footwear Coffee Autos Machinery Electrical and transport equipment Chemical products Oil Automotive parts Electronics Trading Partners (2009) China percent US percent Argentina percent, Netherlands percent, Germany percent US percent China percent Argentina percent Germany 7.65 percent Japan 4.3 percent 1.4 Brazil s 2011 Index of Economic Freedom 4 The Index of economic freedom examines three fundamental principles of economic freedom empowerment of the individual, non-discrimination, and open competition. Brazil s economic freedom score is 56.3, making its economy the 113th freest in the 2011 Index. Its score is 0.7 point better than last year as a result of improvements in investment freedom and trade freedom. Brazil is ranked 21st out of 29 countries in the South and Central America/Caribbean region, and its overall score is below the regional and world averages. An 2 P age

15 overview of Brazil s scores of each dimension are provided in Table 2: Brazil World Economic Index Table 2: Brazil World Economic Index Economic Dimensions Score Change Business Freedom Trade Freedom Fiscal Freedom Government Spending Monetary Freedom Investment Freedom 50 5 Financial Freedom 50 no change Property Rights 50 no change Freedom from Corruption 37 2 Labor Freedom For a detailed explanation on each of these scores refer to Appendix "B" 1.5 Cultural Facts 5 Brazilian was very friendly when communicating with others, eye contact is expected and physical contact is accepted regardless of gender or relationship. Brazilians display their emotions openly however; it is not acceptable to display anger or to reprimand people publicly - especially in the workplace. Although Brazilians tend to be informal, business attire is preferable for both men and women. Bosses are generally addressed as Mr. or Mrs. (pronounced seng-or; seng-ora). Colleagues should initially be addressed formally too unless they indicate that using first names is appropriate. Punctuality is expected when arriving for work. However, meetings may start 10 to 40 minutes late. Time is seen as a sequence of events rather than chunks of hours or minutes therefore if a previous meeting is delayed it will impact the next one. There is flexibility of deadlines 3 Page

16 depending on the circumstances. However, if delays are expected these must be discussed with the relevant authorities at the earliest. Decisions are generally made at the top-levels of management. Employees at lower levels are assigned tasks and expected to comply with instructions. Regulations are very well defined and acquiescence is expected. Creativity or deviation from past reports or project designs is usually neither expected nor appreciated. Religion is not a significant factor in the workplace. However, class plays a big part in Brazilian society and the respect you receive could vary depending on the class you belong. Class differences are less prominent in the workplace unless there is a huge disparity of class between peers which could affect communication flow. Gender can sometimes be an issue especially in the inlands or along the northeast cost. Women are sometimes not taken seriously as equals. Building personal relationship with colleagues or clients before getting to business is essential as Brazil is a very social country. Personal relationships (connections or favors) can be very handy when certain projects are being threatened by bureaucracy; a request from one friend to another will help cross many hurdles that official communications are unable to resolve. Family relationships are important and personal relationships are created when clients or colleagues invite families to socialize with each other. Favors and preferential treatment are expected when personal relationships are established with colleagues, clients or employees. However, this is not the same as corruption or bribery. Preferential treatment is also received by those that come from a higher social class or those that are related to an influential family. 4 P age

17 2. Canada - Brazil Relations Canada and Brazil have enjoyed a cordial bilateral relationship over the years and have signed numerous agreements, treaties and memorandums of understanding. In November 2008, a Framework Agreement for Cooperation on Science, Technology and Innovation was signed to enhance bilateral cooperation in matchmaking activities, and improve industry-to-industry and industry-to-university collaboration on Research & Development. There have also been Memorandums of Understandings related to health, labour and sustainable development of metal and mineral. 6 See Figure 1 for Canada and Brazil s Trade Balance from 2006 to 2010 Figure 1: Canada - Brazil Trade Balance Canada - Brazil Trade Balance in Billions $4.00 $3.00 $2.00 $1.00 $- -$1.00 -$2.00 -$ $3.41 $3.36 $3.29 $2.58 $2.69 $2.58 $2.57 $1.33 $1.51 $1.60 -$0.11 -$0.98 -$0.72 -$2.08 -$1.85 Total Exports Total Imports Trade Balance Source: Industry Canada Trade Data Online In 2010, Canada s bilateral merchandise trade with Brazil was almost $5.85 billion. Canadian merchandise exports to Brazil increased by 62 percent to $2.57 billion. Canadian merchandise imports from Brazil were close to $3.3 billion in The chart above shows a trend in which the Canadian Exports have been rising steadily from 2006 expect in 2009 (due to the recession). However, 2010 figures indicate a rebound to pre-recession levels. Similarly, the negative trade balance has been declining. These trends are positive and indicate a possibility that more products and services being exported from Canada to Brazil in the future. 5 P age

18 3. Atlantic Canadian Export Capabilities Atlantic Canada withstood the global recession and has seen some recovery in Atlantic Canada s total exports for 2010 were $27 billion a 14 percent increase from As expected, the United States (US) is the largest importer of Atlantic Canadian products and services; importing almost 78 percent ($21 Billion) of total exports. Considering that developing countries such as Brazil, Russia, India and China (BRIC) have shown a sustained growth in international trade volume, it could be beneficial to invest time and effort in developing exports to these countries. See Figure 2 for Atlantic Canada s Top 10 export locations Figure 2: Top 10 Country Exports in 2010 Export Percentage in Top 10 Countries United States (U.S.) 1% 1% 1% 1% 1% 1% 0% 9% China Germany 3% Netherlands 3% United Kingdom (U.K.) Japan Spain India 79% Italy (includes Vatican City State) France (incl. Monaco, French Antilles) Others Atlantic Canada has specific export strengths especially in Petroleum refineries and oil and gas extraction. Atlantic Canada s top ten exports in 2010 are illustrated in Figure 3 6 P age

19 Figure 3: Atlantic Canada's Top 10 Export Industries Atlantic Canada Top 10 Exports Industries (CAD Billions) To learn about the Top 25 Industry exports from Atlantic Canada to Brazil for the past five (5) years refer to Appendix C. Exports from Atlantic Canada to Brazil have been increasing from 2006, except in These trends are positive and indicate a possibility of more products and services being exported from Atlantic Canada to Brazil. It is important to note that imports from Brazil in 2010 have jumped exponentially causing a negative trade balance of $ 442 million. However, this is due to imports of Crude Petroleum Oils and Oils Obtained from Bituminous Minerals (almost $ 549 million). See Figure 4 for Atlantic Canada and Brazil s Trade Balance. Figure 4: Atlantic Canada - Brazil Trade Balance Atlantic Canada - Brazil Trade Balance in Millions $800 $600 $400 $200 $- -$200 -$400 -$ $607 $117 $44 $72 $106 $52 $54 $130 $53 $77 $63 $70 $165 -$7 -$442 Total Exports Total Imports Trade Balance 7 P age

20 Sectors Overview in Brazil 8 P age

21 4. Information and Communications Technologies 4.1 Introduction The Information and Communication Technologies (ICT) Sector has had varying definitions and subsectors inclusions over the years. However, in the Canadian context, the ICT sector is defined as the combination of manufacturing and services industries, which electronically capture, transmit and display data and information Subsectors Prominent subsectors in the ICT Sector within Canada are: 9 ICT Manufacturing Commercial and Service Industry Machinery Manufacturing Computer and Peripheral Equipment Manufacturing Telephone Apparatus Manufacturing (Wired Communications Equipment) Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing Audio and Video Equipment Manufacturing Semiconductor and Other Electronic Component Manufacturing Navigational, Measuring, Medical and Control Instruments Manufacturing Communication and Energy Wire and Cable Manufacturing ICT Services Software Publishers Communications Services Data Processing, Hosting and Related Services Computer Systems Design and Related Services 4.3 Global Context The global Information Technology (IT) market reached US$ 1.3 trillion in According to the initial statistical findings of ABIBEE [Brazilian Electrical and Electronics Industry Association], 9 P age

22 the recent global financial crisis has contributed to the decline of worldwide revenues by 9 percent in the global ICT sector in ICT trends across the globe are similar to those in the Americas. Mobile subscriptions have overtaken fixed telephone line, which continue to decline. Surprising, mobile phone penetration in developing countries is much higher than that of developed countries. There is also an uptake in the adoption of broadband although not at the same pace as mobile cellular technology. 12 The Global ICT Development trends from are illustrated in Figure 5 Figure 5: Global ICT Developments Per 100 inhabitants The Brazilian ICT Sector Latin America s largest IT market is in Brazil with over 45 percent of the total investments in the region. Business Monitor International expects Brazil s ICT sector to grow at over 11 percent for the period Global ICT Developments, * Mobile cellular telephone subscriptions Internet users Fixed telephone lines Mobile broadband subscriptions Fixed broadband subscriptions *Estimates * Source: international Telecom Union In 2007, almost 2 percent of Brazil s GDP (US$ 24 billion) was invested in information technology; about half this amount (US$ 12.5 billion) was invested in computer hardware, US$ 8.5 billion in IT Services and US$ 3 billion in computer software. The growth in the IT sector has 10 P age

23 been supported by Brazil s economic stability; strong local currency and the ease with which loans are accessible. Spending in Brazil s mature IT market is divided evenly between software, hardware and services. The southeast region accounts for almost 60 percent of the expenditure whereas the northeast region accounts for only 8.3 percent. Government incentives have been responsible for the rapid growth and prosperity of the southern region especially the state of Parana. Small and medium companies represent 42 percent of the private investment in the sector and an increasing demand for hardware and services solutions is stimulating the development of the market. The domestic consumption of PCs, printers, digital cameras and mobile phones represents more than 20 percent of the Latin American market. The banking sector in Brazil has provided many business opportunities for the telecom services, IT and security providers. Banks are projected to continue to increase their IT spending and in 2007, the financial sector accounted for around 20 percent of national IT spending. Moreover, the banking sector is expected to invest heavily in infrastructure such as ATMs, branches, backoffice systems, technology investment and telecom expenses. Other sectors are also likely to benefit from new technologies such as digital certification, wireless LAN and mobile data transmission. The 2014 FIFA World Cup and 2016 Olympic Games are expected to be a catalyst for large investments in many sectors especially infrastructure which, in turn, is likely to benefit the IT sector as well. Software and Services are estimated to grow at an annual rate of 10 percent. Broadband subscribers are expected to increase to 22 million over the next five years which would represent a 10 percent penetration by Macroeconomic Environment Political Procurement of information technology goods are governed by Decree 1070 (1994), which provides preferential treatment to locally produced computer products. Moreover, the rules 11 Page

24 surrounding pricing and technology are complex and non transparent. In order for foreign investors to participate in contracts funded by multilateral development bankrolls they must have an established legal presence in Brazil Economic 17 The Brazilian government is spending heavily in ICT especially upgrades to government departments and e-governance. ICT is a large strategic focus in the Growth Acceleration Plan and government spending is likely to increase to US$ 23 billion by Between January and July 2009 the government had already spent about US$ 1 billion on ICT. Austrade s website reports that the Brazilian government has revised its high tariff rates and aligned its current rates to the GATT (General Agreement on Tariffs and Trade) which makes the Brazilian ICT sector more attractive and accessible to foreign investors. Some of the principal duties and taxes identified by Austrade include: Federal Import Tax most data communications equipment have import duties ranging from zero to 20 percent, some other equipment as high as 40 percent. IPI Industrial Products Tax a Federal Excise Tax levied on most domestic and imported manufactured goods. The current tax ranges from percent. ICMS Tax on Merchandise Circulation and Services a State Government value added tax applicable to both imports and domestic products and rendered services. The ICMS tax on imports is assessed ad valorem (according to value) on the cost, insurance and freight (CIF) value plus the Federal Import Tax plus IPI. In 2009, an agreement was signed through which close to 10,000 IT programmers would be trained and was expected to support over 100,000 jobs in the domestic software and services industry and an additional US$ 1 billion in revenue by Socio Cultural 18 There has been a marked increase in the usage of computers and the internet for personal and commercial purposes. As of 2008, Brazil reported more than 67 million internet users (up from 5 million in 2000). Business-to-business (B2B) e-commerce increased 10 percent from 2004 to 12 Page

25 2006 (9 percent to 19 percent), and business-to-consumer (B2C) sales increased approximately 4 percent in the same period (2.9 percent to 7.45 percent). The value of B2B transactions amounted to R$ billion in 2005, a 37 percent increase from Technological In the education sector the one-computer-per-student program is to be implemented supported by a US$ 50 million funding from Brazil s central bank. These funds are expected to help public schools buy low-cost portable computers as well as support infrastructure costs. The Brazilian government encourages investment in R & D and education in the ICT sector and has developed several ICT Clusters and Technology Parks. 20 Brazil is a very strong proponent of 'open source' software and the Brazilian government and state-run enterprises are increasing their support for open source and free software like Linux and phasing out the use of Windows. The government believes this will save money in the long run as well as support local developers. 21 A draft decree that would obligate federal department to change over to open source software has been under consideration and has received strong support from both the previous Brazilian President Lula and current President Dilma Rousseff SWOT Analysis Strengths Brazil is the largest markets in Latin America and also one of the fastest growing. The government has been investing heavily in the ICT sector and includes investment in computer hardware, IT services and computer software. Government incentives have also been responsible for the rapid growth of this sector. Domestic consumption of ICT goods and services are high and represent more than 20 percent of the Latin American market. Requirements of the banking industry and the upcoming games have further fuelled the growth of this sector. Retail channels are expanding due to the growing consumer segment fuelled by affordability. 13 P age

26 Furthermore, there is a federal plan to equip all elementary schools with computers indicating plenty of room for expansion. The mobile market is robust and benefits from healthy competition from domestic and international players. Lucrative contracts are being won as fixed-line and mobile operators seek to keep ahead of each other through investment and new services Weaknesses The PC penetration rate in Brazil is less than 25 percent and these numbers need to be improved in order for the industry to grow. There is also a lack of educated professionals in the IT segment as compared to developed countries and there is estimated to be a shortage of 17,000 trained professionals. Moreover, the predominant language in Brazil is Portuguese and therefore all software products and services need to be customized to meet local needs. The Brazilian government s affinity to 'open source' software may become an impediment for companies that have strengths with Microsoft technology Threats One of the major threats to the ICT industry is damage to infrastructure due to security concerns. Another significant threat comes from illegal and pirated software and counterfeit computers and notebooks. The gray market for computer hardware in Brazil reduced from 50 percent to 46.4 percent in 2007 whereas software piracy reduced by 1 percent to reach 59 percent. However, these are significantly large percentages and pose a serious threat to the sector Key Business Opportunities in Brazil There are several opportunities in the rural markets in the telecommunication, broadband, cable, and IPTV segments. New technologies such as triple-play and quad-play are becoming increasingly popular. In December 2007, 3G licenses were auctioned and there are opportunities to provide mobile services to areas that are not currently connected. 14 P age

27 Brazil also has huge communication market potential, with particular focus on the mobile segment, with the three largest mobile operators owned by foreign investors. The country already has 143 million mobile phone subscribers and the market continues to show strong growth. Moreover, several fixed lines and broadband operators are also owned by international telecom companies. There are also several opportunities for IT, telecom services and security providers in the banking industry. As cited by Austrade, the Research and Markets analyst firm reports, "Given their huge infrastructure and wide portfolio in terms of branches, ATMs, back-office systems, and Internet, the banking sector accounts for the largest share of total technology investment and telecom expenses". The financial industry is also expected to invest in new technologies such as IP-based solutions, digital certification and signature, wireless LAN, and mobile data transmission. Banking security applications are also in great demand given the growth of online banking Brazilian Industry Perspective According to stakeholders in the Brazilian market, the ICT market in Brazil is growing rapidly and the Brazilian government encourages open source and local production of software. However, the sector is mainly dominated by international companies and many Chinese companies are establishing factories in Brazil. Brazilian law limits international participation in communication and news companies to 20 percent foreign capital. This law could to be reviewed in With the advent of privacy, anti-piracy and anti spamming policies Brazilian consumers are looking for services that protect their privacy. Internet companies are now developing products and services to offer content such as news, music, videos, photos, statistics, games and applications for users. There are many opportunities available in the sector, such as hardware and software production. Canadian expertise could be used in games, content and film production, mobile application and software development. Canada is known as a good game developer and a huge video content producer. These companies could be great exporters for Brazilian portals. Canadian expertise can also be applicable in the creation of software for the communication 15 Page

28 sector. Aspects like intellectual assets, with experience in global technology projects, could improve the sector and Brazil could import the expertise to create more efficient software. Currently Brazilian companies import from the US because of lower costs and proximity to the Brazilian market. Some imports are also sourced from Asia, however these imports are not regular and the Asian companies that export tend to vary. Products or equipments that are imported are usually not made in Brazil. Moreover, the price of imported Asian products and equipment tend to be less expensive. Business leaders in the Brazilian ICT sector believe that the best way for Canadian companies to participate in this sector would be through partnerships and technology transfers. 4.8 The Atlantic Canadian ICT Sector The Atlantic Provinces Economic Council (APEC) reported in 2010 that Atlantic Canada's ICT industry grew nearly twice as fast as the overall economy between 2003 and 2008, contributing an estimated $2.65 billion to Atlantic Canada's GDP in Furthermore, the region s ICT industry employs over 32,000 individuals in over 2,000 firms. About 70 percent of the ICT employees work in urban areas such as Halifax, Saint John, Moncton, Fredericton, St. John s and Charlottetown. BellAliant, Eastlink and Rogers lead the telecommunication sector with almost 30 percent of all ICT employees in the Atlantic region. Longtail Studios and HB Studios are involved in software development and Keane, Research in Motion and Innovatia provide ICT services. Nautel and Rutter are the largest ICT manufacturers in the region. 26 Atlantic Canadian companies in the ICT sector perform various services such as security, e- learning, IT services, multimedia, geomatics, advanced technology and business solutions. Telecommunications infrastructures in Atlantic Canada are world class with 100 percent digital telecommunication network, high-speed digital links, broadband networks, and mobile and marine communications. Advanced research and development by universities, research institutes and the business world enhance the competiveness of the industry. CGI Group Inc. Canada s largest IT firm is 16 P age

29 headquartered in Moncton, New Brunswick and the University of New Brunswick s Computer Science Department is a national leader in IT and advanced software research. 27 Charlottetown, PEI currently has five companies classified under the Entertainment Software Industry and has strong support from the provincial government. The University of PEI is now offering a video game programming specialization and a digital art program. One of the largest companies in this sector is Other Ocean Interactive. 28 ACOA cites an Industry Canada report which states that, "From 1997 to 2004, the ICT industry in Atlantic Canada experienced an 11 percent Compounded Annual Growth Rate (CAGR) in exports and a 9.4 percent CAGR in employment in software and computer services. The highly skilled labour force has one of the lowest rates of turnover and absenteeism in North America." Atlantic Canadian Industry Perspective Business leaders interviewed in the ICT industry in Atlantic Canada believe Nova Scotia Business Inc has been promoting this sector greatly and has announced many investments in the sector. There has been a lot of consolidation with demand increasing across North America and the ICT industry is growing at nearly double the rate of the Canadian economy. New data privacy rules that apply to electronic records of individuals have driven this demand. Canada was a leader in this field, but the US, Israel and a few others have taken over recently. Exports include software and intellectual property, internet and information security, hardware, e-learning, gaming, and media and other web related services. Importers include the rest of North America especially the US, the UK, Australia, New Zealand, South America, the European Union (EU), China, other Asian countries, and a small amount from Africa. Competitive advantages in this industry include effectiveness and marketing support, talent stability, low turnover and a slight positive cost differential. Companies have the resources they need, are certified in Microsoft technology and are considered niche or specialty players. Some of the disadvantages include tax incentive programs in Atlantic Canada as they are not internationally significant. New Brunswick offers 15 percent whereas the Scientific Research 17 Page

30 and Experimental Development (SRED) tax credits in the US are 35 percent and in the UK percent. Some of the companies interviewed do export data, maritime and port securities whereas others have been reluctant to consider Brazil as an export destination because of the language barrier, cost of developing the market, logistical distances and need to develop local partners. Those that do have experience were introduced by Newfoundland Association of Technology Industries (NATI) and Department of Foreign Affairs and International Trade Canada (DFAIT), Canadian embassies and consulates, and Atlantic Canada Opportunities Agency (ACOA). Companies may be interested in outsourcing opportunities or targeted business initiatives. They believe there is a huge demand for modernization and would like the government to make more strategic investments. Some believe that promotion of services and services providers or export consultants who can help them with exports is as important as the funding provided. 4.9 Recommendations and Market Entry Strategies Atlantic Canadian firms have strength in and opportunities exist in the Brazilian market in the following segments: Telecommunications - mobile telephony, fixed lines and broadband especially the rural markets that are relatively untouched. The Cable and IPTV markets are also lucrative and growing. Software & security services especially in the banking and retail sectors. Computer hardware and networking infrastructure in the education industry. However, Atlantic Canadian companies should be selective in the opportunities they choose to pursue in this sector. There are high investments needed in infrastructure, knowledge of Portuguese is a requirement for software and content, the government prefers open source software and finally, the piracy and counterfeit market are highly prevalent. Despite these concerns, Atlantic Canadian companies could explore specific opportunities in these niche segments: 18 P age

31 Technologies for the Banking sector Security and Privacy software and technology Internet and data security elearning and distance education technology Gaming and mobile applications A long term perspective is important to succeed in the Brazilian market and companies must not expect results immediately. Atlantic Canadian firms will need to establish local presence either through resident partners or a subsidiary. Although establishing a local office is preferred, firms may also be able to appoint local agents, distributors or representatives. Local partners can be identified through matchmaking services and trade missions. Trade events are an excellent avenue to meet key Brazilian stakeholders in the ICT sector. 19 P age

32 5. Environmental Technologies 5.1 Introduction The environmental technology sector or "green economy" has seen increased awareness and focus in recent years as people, governments and companies have begun to implement sustainable business practices 30. This shift has come from increased social awareness of our effect on the environment as well as the continued strain on finite resources worldwide. Environmental technology, also called green-tech or clean-tech, is not clearly defined and encompasses many sectors. The two most traditionally used categories when classifying greentech is end-of pipe (EOP) and cleaner technologies. EOP refers to technology which makes existing technology more environmentally friendly, whereas cleaner technologies are focused on creating a new way of doing something which is more energy or environmentally efficient. For this report the focus will be on the sectors in the green-economy where either type of technology exists. 31 Traditionally, as green markets mature there is a shift from EOP investments to clean technology. 5.2 Subsectors The Environmental sector is a complex industry which includes a wide range of products, services and applications. To define and categorize this sector the report will use an international definition which was developed with Statistics Canada s Environmental Division. 32 The model divides activities into two different headings: Environmental Protection and Resource Management. The model also includes a section for those goods and services which fall under both categories. Refer to Appendix "D" to view an illustration of the model. Within each segment of the environmental sector, there are sub-sectors: Environmental Protection Protection of ambient air and climate, water protection, treatment, supply and conservation, waste management, remediation, protection of biodiversity and landscape, noise and vibration abatement, and other environmental protection services. Resource Management Management of natural resources, management of energy resources, and other environmental resource management activities. 20 Page

33 Combined Environmental Protection/Resource Management Environmental education and training, environmental policy and legislation, environmental research and development (or eco-innovation), environmental health and safety, environmental communications and public awareness, and other environmental services Global Context The Global market value for the green economy is estimated to be worth almost US$ 5.2 trillion. 34 The environmental sector fared quite well overall through the recent downturn as it was the focus of many countries stimulus plans. The environmental market continues to outgrow the market with the largest percentage of activity being in the alternative fuels and energy sector 35. It is estimated that by 2020 the market for providing clean and renewable energy alone could reach 1.9 trillion. 36 See Table 3 for Global Market values of green economies. Table 3: Market Values of the 13 largest green economies Market values of the 13 largest green economies Country Market Value % Global (US $ Billions) Total 1. United States $ 1, China $ Japan $ India $ Germany $ United Kingdom $ France $ Spain $ Italy $ Brazil $ Russian Federation $ Mexico $ Canada $ Source: (The Globe Foundation, 2010) 5.4 The Brazilian Environmental Technologies Sector The U.S. Department Of Commerce reports, "Environmental experts estimate that Brazil s environmental technologies market (including equipment, engineering / consulting services, 21 Page