Latin America’s Star : Underdeveloped Brazil Shines as World Exporter

When a Massachusetts coffee roaster ordered a roasting machine from Ciro Lilla’s family factory here in 1982, other New England coffee dealers laughed.

“They joked about it,” Lilla said. “They asked, ‘How could you buy a machine from Brazil, when we export machines to them?’ ”

Since then, the Brazilian company has exported 10 roasting machines to the United States, building a reputation for quality at a bargain price.

“No one laughs any more when someone buys Brazilian equipment,” Lilla, 40, said in an interview.

Lilla’s roasting machines, angular contraptions of steel chambers and intricate mechanisms with price tags of $50,000 to $250,000, exemplify the kind of exporting success that makes Brazil a country to be taken seriously in the realm of international trade.

Manufactured Goods

Brazil’s exports set a monthly record $3.5 billion in August--more than double the annual value of its exports back in 1965.

In the 1960s, four-fifths of all Brazilian exports were raw materials such as coffee beans and cacao. Now, more than half are manufactured goods, including airplanes, automobiles, ships, military weapons and industrial machinery. An underdeveloped, agricultural country has become one of the world’s dozen biggest exporters and Latin America’s star, with foreign sales far surpassing those of oil-rich Mexico and Venezuela.

Brazil has been elbowing its way into areas that once were reserved to the major trading powers. While it competes with the United States on the world soybean market, it also sells orange juice concentrate, cars and commuter airliners on the U.S. market.

The aggressive expansion has led to trade conflicts with the United States, which accuses this country of using subsidies to lower prices unfairly of shoes, steel and many other products. Now, Brazil is turning the tables, accusing the United States of subsidizing soybean exports to squeeze Brazilian producers out of foreign markets.

Barriers Raised

Still, the most serious threat to continued export growth for Brazil is not trade sanctions or price competition, but a severe slump in industrial investment and a critical lag in advanced technology needed to make Brazilian manufactured products more competitive in quality.

Without expansion of its exports, economic analysts say, Brazil’s progress toward the goal of full industrial development may be blocked. On the other hand, if new injections of investment and technology prolong the export boom, this resource-rich country of 144 million people will emerge in the 1990s as a major player in the economic world.

In the 1950s, when Brazil mainly traded agricultural exports for industrial imports, the government began pushing a policy of import substitution, raising barriers against foreign products to protect new Brazilian industries from competition. Industrial growth surged.

In the 1970s, military rulers further restricted imports and fostered industrial exports by rewarding exporters with tax breaks, credits and rebates. The country also borrowed heavily to finance huge investments in energy, transportation and metal production. The resulting economic expansion came to be known as “the Brazilian miracle.”

In the 1980s, while growth has been less spectacular, exports have continued to make important if sporadic gains. Some of the export growth has resulted from efforts by businessmen, like Ciro Lilla, to keep sales up during slumps in the domestic economy.

Lilla said that amid Brazil’s current crisis, with inflation of more than 20% a month and economic growth near zero, he manages to keep his factory’s 150 employees busy only because about one-third of his sales are overseas.

Great Potential

“We are absolutely sure that the time will come when most of our sales will be exports,” he said.

With domestic demand weak, Brazilian exports have surged this year and are expected to reach an annual total of $32 billion, breaking a record of $27 billion set in 1984. Despite the growth, however, exports still will account for less than one-tenth of national economic production.

“That is very little for Brazil. The potential is much greater,” said Norberto Zadrozny, who was president of Brazil’s Foreign Trade Assn. for the past three years.

Sitting on a continent-sized territory and abundant natural resources, Brazil’s market economy is the world’s eighth largest. Because of its big and expanding domestic market, say economic experts, this country will never be an “export platform” like South Korea or Taiwan, where exports account for 40% or more of economic production. But even with 15% of its production in exports, Brazil would surpass South Korea’s foreign sales of $47 billion in 1987.

Need to Boost Savings

“To reach 15% would be ideal,” said Hugo Faria, an economist with Funcex, a private foundation that studies foreign trade.

But to set the stage for solid growth in exports, the Brazilian economy needs to increase savings and investments.

“The big strangulation point is a drop in investment,” Faria said.

Brazil exports capital to make payments on its $120-billion foreign debt, the civilian government is financially strapped, and businessmen are wary of investing amid the current economic crisis. Meanwhile, Brazilian industry is falling behind world standards in technology.

Paulo Protasio, president of the country’s national association of trading companies, said Brazil is falling behind in telecommunications, manpower skills, machinery, quality of materials and cost efficiency.

Closed Market

“Brazil needs desperately to modernize its industrial base,” Protasio said. “If we don’t, we are going to miss the boat.”

To modernize, Brazil must open its doors to imports, said Marcus Pratini de Moraes, the newly elected president of the Foreign Trade Assn. Government restrictions currently hold imports to little more than half of exports, producing a fat trade surplus but depriving industry of much technology not available in Brazil.

Some Brazilian industrialists enjoy operating in the closed market, protected from foreign competition, but most exporters are coming to realize that the protection will not help them abroad.

“We are almost as closed as Albania,” Pratini de Moraes complained. Nevertheless, he was optimistic about Brazil’s future on international markets. With enlightened government policies, he said, “Brazil will be a major trading power.”

In May, President Jose Sarney announced a new industrial policy that he said would allow more imports and encourage modernization.

A foreign banker, however, predicted that Sarney’s government will take measures to reduce exports over the next year rather than increase them. The government’s most urgent problem is inflation, and the export boom adds to inflationary pressures, the banker observed over a lunch of squid Provencal in a fancy Sao Paulo restaurant.

“I think exports are going to drop here and are going to drop fairly dramatically,” he said, adding that the government can easily stop growth by setting dollar exchange rates to make exporting less profitable.

Unfair Advantage

That would suit many American companies that have felt the squeeze of Brazilian competition on the U.S. market.

Low-priced Brazilian textiles, shoes, steel and other products have invaded the U.S. market during the past decade, provoking cries of unfair competition from U.S. manufacturers and unions. As a result, the U.S. government has placed restrictions on some imports from Brazil.

The United States also has threatened trade reprisals against Brazil because of Brazilian barriers against U.S.-made computer equipment and unauthorized copying of American pharmaceutical products.

At the same time, Brazil has complained that U.S. farm subsidies give American soybean and frozen chicken exporters an unfair advantage on foreign markets. Brazil is the world’s No. 2 exporter of soybean products, after the United States, and recently has become a major exporter of frozen chicken.

Because more than a quarter of Brazil’s growing exports go to the United States, trade friction between the two countries is to be expected. But a recent report by the Center for Strategic and International Studies in Washington said that “the rise of Brazil as a global power” requires adjustments in the U.S.-Brazilian relationship and new ways of dealing with the friction.

“Brazil has become too important for the United States to continue to ignore the widening gulf of understanding between the two nations,” the report said.