The Brazilian Dilemma
I believe you are aware that Brazil was discovered by the Portuguese in 1500. It was quite a discovery, because there were native people already living here. In fact, the Portuguese were sailing the sea to arrive at India, from where a number of products were imported, and just “stumbled” in South America in what is now Brazil.
I guess it is worth a bit of history. Portugal, whose area is roughly 1% of the size of its then latest colony, provided Brazil a natural tendency: explore agriculture (sugar cane and later coffee) and the open pit mining of gold and diamonds. The production of exportable products was neither economically feasible nor desirable. For this reason, only small industries with production for the domestic market were allowed. In 1785, any manufacturing in Brazil was banned – only agriculture and the extraction of minerals were allowed.
In 1808, however, Brazil’s luck changed. This year is considered the beginning of the industrialization in the country. This was because Napoleon Bonaparte, Emperor of the French, decided to invade Portugal. He considered it to be an ally of England, his most powerful enemy at the time. The then King of Portugal, Joao VI, was forced to abandon his kingdom and decided to travel to Brazil accompanied by all the royal court before the French troops invaded Lisbon, the kingdom’s capital.
You also know that Brazil has nearly half of South America’s area and the spoken language is Portuguese. The presence of the King of Portugal at that time explains the continental dimensions of Brazil. Several other countries compose the other half, where Spanish is the spoken language. Already in Rio de Janeiro where he set up his kingdom, one of the first measures of Joao VI was to institute the industrial freedom of Brazil. An important chapter for this was the opening of the harbors to free trade with everyone, which had previously been restricted to Portugal. In 1810, construction of the first Brazilian iron plant began. It is still considered the birthplace of the national steel industry. Their twin blast furnaces still exist today!
In 1822, Joao VI returned to Portugal, leaving the Brazilian throne with his son, Pedro I, who decreed the independence of Brazil in the same year and became the first Brazilian emperor. It is estimated that Brazil had around 5 million inhabitants at that time. In 1900, as a Republic, Brazil had 17 million inhabitants. In 1950, when the Brazilian automobile industry started, it had 52 million. The population of Brazil is currently more than 200 million people – a lot of consumers.
Brazilian soil is rich in minerals, including iron ore. It became necessary to forge and heat treat tools. The Brazilian steel industry expanded with the auto industry. Furnace manufacturers settled in Brazil. Small workshops and blacksmiths built by Italians, Germans and many other immigrants ended up becoming auto-parts suppliers.
Here is where the dilemma started. Despite producing nearly 5 million cars a year, auto suppliers (around 25 automakers) are consuming fewer heat-treated parts from Brazil. The parts are logically produced as complete systems (not just components) where the production scale pays off.
Brazil’s consumer market is not large enough to justify massive production of systems at a global level. So, these systems are imported fully assembled with parts heat treated abroad.
Revenues can be used to indicate the drop in locally produced parts. According to data reported by Sindipeças, the Brazilian Association of Automotive Components Manufacturers, sector revenues are more or less stable over the past four years while auto-parts imports grew more than 60%.
This sector is still waiting for the positive effect of globalization.