Blood Brothers: the emergence of Brazil & Africa

Wednesday, 24 February 2010

Historical ties between Africa and Brazil date back many centuries, through the years of the African Diaspora and the Atlantic slave trade. From the 16th century, slaves were spirited away from Central and Western Africa across to North and South America to work as unpaid labour on sugar, coffee, cocoa and cotton plantations, as well as gold and silver mines.

Across the ocean, the African gene penetrated the Brazilian bloodline to such a degree that the Latin power is now home to the second largest black population in the world, outside of Nigeria. In fact, 90 million people within its population of 198 million claim direct African ancestry.

By the middle of the nineteenth century, many former slaves had returned to West Africa, becoming prosperous merchants and entrepreneurs. However Brazil kept a relatively low profile on African soil for the decades to come. In 1973, Brazil voted in favour of anti-colonialism measures in the United Nations, which prompted numerous bilateral trade agreements and Brazil's participation in the African Development Bank.

Brazilian exports to Africa jumped from $90.4 million in 1972 to $1.96 billion in 1981, while imports rose from $152.9 million to $1.98 billion.

Brazil placed huge value on its relationships with African countries, and with its political recognition came fervent commercial interest. Hard hit by the 1973 oil crisis, it developed a thirst for West African oil exports, and coupled with the diamonds and the vast, untapped potential of Africa, Brazilian firms flocked to the continent.

In 1983, President Figueiredo became the first Brazilian president to visit Africa. Soon after, Brazilian construction companies, like Odebrecht, took on a variety of hydroelectric and infrastructure projects, and mining firm Petrobrás signed contracts for oil exploration. Over the next twenty years, Brazil built many close relations with Portuguese-speaking (lusophone) African countries. This cultural, and thus competitive advantage has stood the test of time, and is still today an advantage leveraged by Brazilian companies.

The big hitters
Odebrecht's role in Angola was a much-debated one. Many claimed that the construction giant simply became an instrument of foreign policy for Brazil. Over time, Odebrecht began to embed itself in the Angolan socio-political fabric. Today, the company is regarded as an integral part of the political economy in Angola, and as a result, construction firms have long struggled to penetrate the region.

Vale, the second largest mining corporation in the world, is another huge Latin firm with its eye on Africa, including South Africa, Angola, the DRC, Zambia and Namibia. What started out as a state-owned steel and mining company is now a partially privatised giant leading the global production of iron-ore.

Lyal White, Research Associate at the South African Institute of International Affairs, says, "The reality is that these Brazilian firms are very astute in getting into difficult places and understanding very complex areas, because Brazil itself is a very difficult environment to work in. It's a huge country in terms of landmass; with 26 states, each of which operates under different laws, tariffs and barriers, and different rules and regulations. In that way, operating in Brazil is like operating in a continent of its own, and owing to that, its firms understand the African mentality and adjust to it well.

The transition and relation between politics, economics and commerce in Brazil is quite similar to that of Africa. For example, if you're going to do business in Africa, you'll need to woo the politicians, and it's exactly the same in Brazil. Between the correlations and the language compliment in countries like Angola and Mozambique, it makes a lot of sense."

Path to power
Brazil's path through the 80's was a troubled one. The transition from military dictatorship between 1985 and 1988 was plagued by political upheaval, outright public discontent, soaring inflation and a sinking GDP. The government proclaimed a new constitution in 1988, restoring civil and public rights, economic freedom and, through decentralising itself, empowered local and state governments.

The situation did not improve. Inflation flew higher while the economy all but crawled. Two separate administrations attempted to curtail the the economic fallout and failed; it was not until Fernando Henrique Cardoso became Minister of Treasury that things started to change. Cardoso was tasked with controling an average annual inflation rate of 764%. His astounding programme brought it back down to 6%, and in 1994 he was elected President of Brazil.

His government was credited with bringing economic stability back to the region. It was during his tenor that many state-owned companies were privatised, and sectors of industry became regulated, such as energy and oil.

Since 2000, Brazil has been booming. Social inequality is falling for the first time in generations - an ill that has plagued many African nations for as many decades as Brazil.

However, under its new leadership in the form of President Luíz Inácio Lula da Silva, Brazil is now richer in income per person than India, China or Russia. It accounts for over half of South America's population, as well as its wealth. The shift from embattled Latin nation to emerging global power has been relatively rapid, considering the levels it was at 15 years ago.

Lyal says, "Brazil capitalised on a fortuitous combination of factors, all at once - the right political leadership, Lula's creation of a middle class, the right policy frameworks and sequencing thereof, the commodities boom, serious attempts to weed out political corruption. Through all of this, since 2003, it has achieved its best period of economic growth in over 30 years.

This is where credit must go to Lula and his ‘social programmes', which really empowered the middle class. Different social programmes were tied together, which made them incredibly effective."

Lyal cites ‘Zero Hunger', which began in 2003. It combines dozens of social programmes, ranging from the construction of water tanks in dry regions to agricultural loans and food aid. But a key factor has been the ‘Family Purse' programme, which has since been adopted in several African and Latin American countries. Basically, each poor family receives R425 (R$102) on condition that their children are sent to school, and food is then distributed to some 37 million children while they are at school. Today, around 12.4 million families are a part of the Family Purse programme, which is almost a quarter of the population.

As a result of its programmes and reforms, between 2003 and 2008, 19.3 million Brazilians have moved out of poverty and 8.5 million formal jobs have been created. They began as small, localised efforts, yet these programmes have now become big organisations sponsored by the Presidency and bodies such as the United Nations Development Programme. These organisations are now partnering with African countries to try to replicate their successes.

Developing together
It would only be natural for Brazil and Africa, who share so much history, so many social, economic and political parallels, to share lessons in growth and development. The question is then, how does the African continent make the most of its relationship with Brazil?

"Development cooperation." says Lyal. "Development has many faces, but I believe it is a strategy designed to incorporate local economies into the global economy. Most African countries aren't able to do that yet, and the right development can bring those countries up to speed in terms of their knowledge, policymaking, thinking, practice and skills development. Most importantly, however, are the technology transfers. African markets still aren't competitive enough, and the development has to take the approach of making those countries more competitive."

By the end of 2007, 730 000 Brazilians were living with HIV - only half the number predicted a decade earlier. The HIV / AIDS mortality rate has fallen and the number of people who avoided hospital due to effective treatment saved over R15 billion ($2 billion) in medical costs between 1996 and 2004.

Lyal adds, "What the Brazilians have done on a provincial level - in scale - is widely applicable to the African scenarios. There is a lot of comparative work that can be done, work that crosscuts a variety of social and economic levels."

B vs C in the BRIC
China's path through Africa has been defined by its ‘no strings attached' policy. President Hu Jintao declared that six pillars would guide Sino-African relations, two of which are ‘non-interference', ‘economic assistance with limited political conditions'. While some African governments warm to this approach, others are finding it increasingly offensive.

While it may have been a do unto others strategy, China may need to adjust its approach. Accountability will become important, as will the appeasement of political players. Most importantly, it will need to appease the international community with its established rules of engagement as far as access to developing nations are concerned. Africa is starting to breed a little self-respect and is realising the value of accountability, something that Brazil has already mastered.

Brazil will never be able to do what China is doing in the construction arena. China sets the price, and will therefore dominate a price-driven market. If quality was driving, the scene might be entirely different. Brazil certainly believes it outshines China in the quality field, but it is winning contracts off the back of 40-year relationships. China has scale and cost, whereas Brazil understands Africa, which could soon provide the competitive advantage.

Lyal says, "Operating in Africa involves a great deal of risk and the operating climate is incredibly tough. There was a time when nobody wanted to go into the backwaters of Africa, and China jumped on it. The African leaders didn't have any options at that point - America wasn't interested and neither was Europe. Now, Africa is seeing there are others in the game and can weigh up its options. It has experienced the pros and cons of doing business with China, and can use that knowledge moving forward.

In Angola for example, Brazil has gained strong favour in certain parts of the country, and in time, as China becomes more aware of it, it may indeed spark something of a rivalry between the two nations."

Pick of the crop
Brazil has either built, or is building, a strong presence in a number of industries across Africa, most notably mining, construction, engineering, and biofuels. Although, it looks like energy infrastructure and biofuels could define the progress and future between Africa and Brazil.

Brazilian technology in hydroelectric dams is extremely advanced, having spent the past 40 - 50 years developing early Swedish technologies. To date Brazil has acquired vast global experience in building dams, and has recently launched the largest operational hydroelectric dam in the world, called Itaipu, between Brazil and Paraguay. In 2008 the plant generated a record 94.68 billion kilowatt-hours, supplying 90% of the energy consumed by Paraguay, and 19% of that consumed by Brazil.

Nevertheless, Brazil has now identified Africa as a potent breeding ground for biofuels, mainly due to the large potential for agricultural production. But there is one major stumbling block - food security. Basically, first generation biofuels rely on human food stocks such as corn, a staple African diet. The reality is that increased demand for biofuel will push up the price of corn, and in time, corn producers will need more land for fuel crops than food crops. Given that many African countries are already net-importers of food, this is a very sensitive topic. Owing to this, politicians hesitate to engage with the issue, despite the onset of global warming.

Brazil, on the other hand, has a 30-year-old ethanol fuel program based on the most efficient agricultural technology for sugarcane cultivation in the world. It is the second largest producer and world's largest exporter of ethanol fuel, producing 24.5 billion litres in 2008 (37.3% of the global thirst). The country is considered to have the world's first sustainable biofuels economy, and its sugarcane ethanol to be the most successful alternative fuel to date. There are no longer any light vehicles in Brazil running on pure gasoline - every single one has a flex-fuel engine that can run on ethanol or petrol. Furthermore, the Brazilian private sector offers major support to renewable energy, and considers biofuels one of its most attractive sectors for investment. Brazil has a lot to teach.

Drawing closer
Brazil is an undisputed emerging global power with a very bright future. In 2006, Brazil registered record values of foreign direct investment (FDI) flows from Brazilian firms abroad, and for the first time in history, outward FDI exceeded the inward flow. Petrobras, the Brazilian multinational and largest company headquartered in the Southern Hemisphere, discovered an ultra-deep oil field off the coast of Rio de Janeiro. At an estimated 8 billion barrels, it could transform the country into a major world exporter.

All of this alone, has come to light in the last four years. Brazil is coming into its own but with the upcoming presidential election, it will need to approach its future with caution and strength, in much the same way that Africa does. As its 10th largest trading partner (and counting), Brazil's growth hinges on its ability to nurture the strategic and commercial ties it shares with Africa. Spans of historical and cultural ties merely add to the competitive advantage held by Brazil in each of the lusophone countries.

Despite the multitude of parallels between Africa and Brazil, Africa too must decide how it will benefit best from the relationship. We have so many lessons to learn and opportunities to take, and not just from Brazil, but the BRICs as a whole.

Africa must look far into the future, as the short sightedness that has plagued the continent will run it into the ground. We need to recognise the value Africa holds in this emerging world and take ownership of it, and to do this, we must become proactive in our dealings with the BRIC nations. It is rare that two powers should share commonalities as Brazil and Africa do, and it presents an opportunity that will come only once in history.

By Andrew Black

Andrew Black is an Associate Editor of ISIZA - a magazine focussed on the development of Africa's built environment, including, among others, infrastructure, trade, skills and energy.