Brazil, the largest market in South America, has been a lure for foreign investors for many years, and in the past decade, it has enjoyed good economic growth. But members of Germany's plastics and rubber machinery association, VDMA, are questioning if the industry should be cautious.
The Brazilian economy has had many “ups and downs,” and currently is going through a period of political and economic uncertainty, but at a VDMA conference looking at export targets, executives said it is a continuing market.
Wolfgang Schwarz of Bekum do Brasil, previously managing director of the subsidiary and now co-ordinator of its activities, described how blow molding machinery producer Bekum set up its Brazilian subsidiary in 1975.
Bekum had been urged to do so by a group of Brazilian packaging producers wishing to see blow molding machinery production in Brazil. This was an attractive proposition for Bekum, as the market for highly productive machinery was growing fast, while the market was very much protected against machinery imports.
The market became more open by 1994 and domestic production was shown to be uncompetitive compared with imported machinery. This was on account of high production costs associated with an unrealistic parity in the US dollar/Real exchange rate. Bekum was also confronted with a need to adapt its Brazilian-made machines to international standards, while facing increasing competition from Brazilian machinery competitors. At that time, Schwarz observed, “many staff left and formed their own companies – it has hurt us for some years.”
Despite exposure to the rise and fall of industrial fortunes in the country, Schwarz said Bekum do Brasil has managed to supply more than 1,600 machines since 1975 to customers in Brazil and elsewhere in Latin America.
Brazil's trade surplus fell 34.7 percent in 2013. A low overall economic growth of 1.82 percent in 2014, down from 2.28 percent in 2013, has come at a time when inflation has risen to 6 percent, compared to 3.64 percent in 2007.
Despite hype in the lead-up to the 2014 World Cup and the 2016 Olympic games, Schwarz says company and consumer confidence is sinking each month. The World Cup was considered to have brought more disadvantages than advantages to Brazil, which has been suffering the largest mass social unrest for 20 years, despite positive effects of the Bolsa Familia social program.
Brazilian imports of cheap blow molding machines from China have overtaken the volume of imports from Germany. Although machines made in Germany have a reputation for reliability and quality, Schwarz said “no one wants to pay for it. And dealing with the poor quality of local parts is a problem.” Nonetheless, in injection molding, Schwarz noted that Engel is a leader in its segment, despite its relatively high cost machines.
Plastics industry investors in Brazil face a difficult question. Schwarz said that despite a background that “seems macabre,” Brazil offers “fantastic market opportunities.” But the local subsidiary needs much attention, partly because of differences in attitude from the company's management.
As underlying conditions prevent phased entry into the market, company management should decide if the company already has the required resources to invest, and if not, to discard the idea of investing in Brazil, said Schwarz.
According to VDMA data, German plastics and rubber machinery producers exported machinery to the value of around 170 million euros ($213.3 million) to Brazil in 2013. This accounted for a 27.3 percent value share of the Brazilian market, compared with China at 22.7 percent, Italy 12.4 percent, the U.S. at 9.0 percent and France 8.9 percent. Of the 6.8 million metric tons of plastics consumed in Brazil in 2013, 48.9 percent went into packaging, 20.6 percent into construction and 5.4 percent into automotive applications.
