Eliezer Batista, Honorary Chairman of the Wise-men Group on the Japan-Brazil Strategic Economic Partnership

Aikawa:
The economic relation between Brazil and Japan has been stagnated over '80s-'90s, where Japan imports raw material from Brazil and Brazil imports machineries produced in Japan. On the other hand, the US and Europe have been establishing the horizontal division of production and connecting more in service sector. Under globalized economy, emerging China and other “world factories” are gaining ground on the conventional Japan-Brazil economic relationship. What is your recommendation or suggestion to revitalize the relationship of two countries responding to the rapid change of the world economy?

Batista:
Brazil has to continue exporting raw materials and commodities in order to continue capitalizing in raw materials as long as it has competitive advantage. However, it is also important to think in the future and concentrate to add value to the products, in order to avoid becoming a secondary important country. In that context, innovation will be important to become more competitive and the scientific and technological cooperation of Japan shall be stressed. In the '60s, '70s and beginning of '80s, the solid and friendly relation between Brazil and Japan was very positive. Some examples are CST, CVRD and Usiminas from which Brazil could learn a lot with Japan.

In the future there will be more scientific oriented new investments, more knowledge intensive investments in food, metals, forestry business where sophisticated products will be generated. Forestry business is considered as the item number one in Brazil to mitigate the negative effects of the global climate change and Brazil has the best condition to produce cheap forestry products. In biofuel, the cellulosic ethanol will be the future of the ethanol.

Aikawa:
What do you consider the challenges to realize the revitalization? Some Japanese companies still have bad memory of the Brazilian debt crisis in the 80'. However Brazil has executed structural reforms since then and is responding to the changes of the world. You are taking the initiative of the economic revitalization through various activities like Wisemenship Group, disseminating information about current situation of Brazil and recommending immediate actions.

Batista:
One problem that still needs to be solved in Brazil is related to the legislation. It needs to be modernized to improve the legal security. The rule of law state is important to make the rules very clear for the investors and offer guarantees for the foreign investors. However, Brazil has changed in the way of doing business and in the way of thinking. The new generation is much more prepared. In the past the selection of partner by the Japanese was not well done, so the bad experience faced by the Japanese was due to the association with wrong partners. Currently the advice of some banks and Brazilian authorities can support in the selection of good partners. Partners with social understanding and committed with sustainable and environmentally friendly development. The Brazilian macroeconomic situation is also very favorable now. Moreover it is the first time that the corruption in Brazil is being attacked in such a scale as it is now, involving all type of companies, authorities and Ministries. There is some big change also happening in the Brazilian judiciary system with more judicial intervention to combat corruption. The secret vote in the lower and upper house that was contributing to the corruption was eliminated to bring more transparency. Changes in Brazil are happening very slowly but it is the way how democracy works.

Aikawa:
What about Japan?

Batista: The Japanese evaluation and decision are very time-consuming process. Japanese is loosing market due to the delay in taking decisions. When the technological superiority is not so important it takes the risk of loosing business. There is also competition now coming from new source like China and Korea and this increase even more the risk of loosing opportunities. Currently the evaluation is in a very complicated matter, perhaps if change to a more simple matter can solve the problem.

Aikawa:
On the JBIC Report, Brazil is in the 7th position of the ranking of more attractive for foreign direct investment by the Japanese companies. Which sector would you recommend as a good investment opportunity?

Batista:
There is some niche in the Brazilian economy like the metals, mineral industries. We have the best quality and huge quantity of metals. In the case of aluminum, it has some needs of investment in power for its production from alumina. There is a good opportunity of investments in the nuclear power since Brazil has one of the largest reserves of uranium. Coal fired power plants are the examples of some new projects. Oil and natural gas also are right investments if you deal even in the exploration stage. Brazil is a big agriculture and forestry country where it is possible a competitive production of pulp and paper. Cooperation with Klabin (Brazilian largest paper producer) could increase the export of rayon to China and Japan. There also could be cooperation with Cenibra to supply pulp to the US market.

Other than natural resources oriented sectors, Brazil has big opportunity in shipping! Why the Japanese are not interested to invest in shipping business in Brazil? Brazil offers today probably the best opportunity in the world in terms of shipping (building and operation) with the huge export of raw-materials and commodities to the expanding international market that are located in the north hemisphere. Brazil and Japan can make cooperation on the shipping business to compete against Greeks, for example. Currently Mitsui has participation in costal navigation in Brazil, however the participation is still modest. Korea and China are entering in the shipyards, however the ship that is being built will have high cost. Therefore, Japanese companies can study a way to reduce the building cost. The president of BNDES said that the bank can provide all support for the development of shipping business in Brazil.

Another opportunity is Exploration and Prospection. Brazil has huge unknown territory excluding Minas Gerais, Espríto Santo and Goiás where German and Canadian companies are already investing in mining geology. The risk in exploration is much lower compared to other risks so Japanese companies should take risk on the exploration, and the more integrated are mining, metallurgy, the more profitable it becomes. Brazil needs a specialist in the related area like mining engineering, geology. In the case of oil and gas, Petrobras achieved success in exploration when they decided to go offshore in deep water exploration where they found big oil deposits. In the next 2 years, Brazil will become oil exporter.

Cooperation with scientific institutions like EMBRAPA and hospital like Sara Kubitchek has also a good opportunity. EMBRAPA is the best scientific institution on the tropical agriculture, so we can apply their know-how in Africa to develop mineral, metal and bio-energy sectors. German and Korean institutions are cooperating in biotechnology with Brazilian hospitals. The Japanese know how in medical instruments, robotic-surgery, medical equipments will be very useful. It is necessary to establish a link with Japanese institutions that have higher level of science to improve energy and medicine areas. Korea has signed a cooperation agreement with Campinas University (Unicamp) recently and is doing research together so they can acquire all project information.

Industry Cluster formation can be an innovation in the concept of business. The number of small and medium size companies in Brazil is not enough to cover the gaps left by the big companies. Japanese small companies concentrated in the best quality products can form a cluster of the inter-related companies to supply auto-parts to Toyota, for example. This cluster will have market in Brazil and can have support from BNDES.

Aikawa:
What would be a suggestion for the JBIC activities that is completing about 50 years in Brazil business?

Batista:
JBIC is one of the Japanese entities that has the best information about Brazil, has more contact with the Brazilian reality and that is working actively in the country. This could make JBIC the best instrument to improve the projects in Brazil and we can support by putting in contact with Brazilian institutions that are really interested to produce competitive products.

Furthermore, JBIC based on its worldwide industries knowledge can play an important role through advising successful business to other potential countries which needs productive investments.

The investment of Japan with the Brazilian companies in a third country like Africa can help to have more options than the Chinese are offering. The easy access to Africa and the language facilities in some countries where there are many people that speak Portuguese facilitates cooperation. Other South American countries are also interesting for investments. Currently 600 Brazilian companies are investing in Argentina, and also in Venezuela, Bolivia and Chile. Eastern Europe and Russia are also the regions that could have such investments. In the case of Russia the science application for the practical use can help in technological terms. The cooperation with the Southeast Asian countries like Malaysia, Indonesia, Thailand in agriculture can take advantage of the climate and soil conditions that are similar to the Brazilian ones. Indian industries are interested in “pinhão-manso” for the bioenergy sector supply and are investing in lands in Brazil. We can use the know-how coming from India to produce competitive products.

JBIC has a big potential which can create new business matching through its knowledge, that will contribute not only to Japanese companies but also to foreign partners.

Eliezer Batista

Born in 1924. Graduated from the Faculty of Civil Engineering and Architecture, Federal University of Technology of Parana. Joined the company, Companhia Vale do Rio Doce (CVRD), in 1949. Played a role in the construction of the Vitoria a Minas Railway. In 1961, appointed professor in the Faculty of Economics at the Federal University Espírito Santo, and Chairman of CVRD the same year. In 1962, appointed Minister of Mines and Energy. Became company president of Mineracoes Brasileiras Reunidas S.A. (MBR), an iron ore producer, in 1964. Reappointed Chairman of CVRD in 1979. Appointed Governor of the Strategic Project Bureau in 1992. Became the Brazilian head of the Japan-Brazil Council for the 21st Century in 2006. Currently represents Brazil as Honorary Chairman of the Wise-men Group on the Japan-Brazil Strategic Economic Partnership.

Taketoshi Aikawa

Chief Representative, JBIC Representative Office in Rio de Janeiro