Brazil and Sweden: Bolstering innovation through trade partnerships

Brazil is one of the biggest and most important global markets, with the world’s seventh largest economy and an elevated status as one of the BRICS nations. However, the current economic slow-down and accompanying recession have turned the fortunes of the previously booming country.

The Brazilian Real has been in freefall and the country has officially entered a recession. Despite this slow-down, the industrial sector has been pretty steady even amid corruption scandals (like the state owned oil company Petrobras), and quite a few countries still see Brazil as an attractive trade partner.

One of them is Sweden. There are currently more than 220 Swedish companies present in Brazil (Electrolux, Volvo, Ericsson, ABB, Scania to name a few). The trade history between the two countries started in 1870s and has been comparatively long and uninterrupted – something that is quite surprisingly, given that many countries stop the trade with Brazil for various periods of time. Sweden, together with the USA, Germany and South Korea, is now one of four countries given priority for cooperation in respect of innovation;

Brazil is used as regional and global export base for Swedish companies with a well-integrated operation. Up to now, operations in Brazil have been advantageous, not only for the individual companies, but also for Sweden as a whole.

What has really been working for both countries is the symbiotic relationship for either industry and trade. Since labour costs are higher in Brazil than, for example, India and some parts of Asia – the purpose of Swedish companies manufacturing in Brazil is not to sell for the global market. Instead, Swedish companies chose to sell to the local market (Brazil). Being closer to the final consumer gave those companies the opportunity to know those consumer better, consequently being more successful in their product development and an increase in market shares. For example, motor vehicles are typical products produced in Brazil due to the high import duties.

Working around high import duties

Importing duties in Brazil are notoriously high and despite being reduced in several occasions, Brazil’s international trade is still heavily regulated, for example the import tax for a lorry in Brazil is 35% and it is also high for automotive components and other input goods and most of the purchases within the Swedish companies, such as castings, metal goods and all sorts of mechanical components come from other local factories around the Brazil. Only the more sophisticated products that can’t not be found locally are imported from Sweden, again the Brazilian high import duties plays a important role here.

The Brazil / Sweden trade relationship goes beyond manufactured products – both countries also invest in new technology collaborations. In November 2014, Brazilian energy company Itaipu Binacional and Swedish automotive company Scania signed an agreement for the development of technologies for the use of biogas. The project involves the International Centre for Renewable Energy-Biogas (CIBiogás-ER, developed by Itaipu and other 19 partner organizations), ITP Foundation and Granja Haacke, of Santa Helena (100 km from Foz do Iguaçu) – where biomethane used in the bionacional is produced, filtered and packed. Sweden always has been one of the pioneers for the use of biogas for urban mobility – and it aims to bring the same technology to Brazil.
Scania also presented for the first time in Brazil, a bus manufactured in Sweden, which meet the Euro 6 legal standard, considered one of the most modern vehicle of public transportation using both compressed natural gas and biomethane as fuel.

Scania bus biofuel

Scania bus powered by biogas

SAAB Gripen aircraft deal: a “game-changer”

In September 2015, Brazil purchased 36 aircrafts SAAB Gripen from Sweden. The deal paved the way to an extended motivation in innovation and industrial cooperation between the two countries. Not surprisingly, Brazil’s interest in Sweden has increased in past year and certainly the SAAB Gripen deal was a game-changer for their trade relationship.

The Gripen project was a major project with a large number of subcontractors and has already had some spin-off effects: the Swedish government has loaned around 40 million SEK (add value in USD?) to the Brazilian Air Force to arm the aircrafts. The loan not only will help the trade between Brazil and Sweden but also the trade between Brazil and other countries. For example, Brazil is to buy 70 missiles and Israeli bombs of high technology, and 14 tactical systems units for capture recognition of information for aircraft that will be used in the new Gripen fighters.

In the wake of the SAAB Gripen deal it emerged the Centro de Inovação Sueca-Brasileira (CISB), a coordinating “hub” for joint projects involving various companies, universities and public
stakeholders.

What’s next for Brazil and Sweden?

One aspect to watch out in the Brazil / Sweden relationship would be the organically growth of projects involving start-ups and the IT sector. The common denominator for these is the fact that they are based on more decentralised, network-based forms of organisation; which in some
Instances have consciously chosen to remain outside the established innovation structures. The IT sector is of central significance to Sweden and Brazil alike – according to a study published by ABES (Brazilian Association of Software Companies), the IT sector, which includes hardware, software and services, grew by 6.7% in Brazil in 2014, exceeding the world average, which stood at 4.4% and in 2015 is expected to reach 7.5%.

For the future, the prospects seem to be very promising for both countries, and experts believe the partnership will continue to grow and diversify in various sectors despite the Brazilian economic slow-down. The successful relationship between Brazil and Sweden is an example to all exporters and importers of the kinds of opportunities that exist all over the world if we look hard enough. Sometimes serious obstacles to trade such as recession and high tariffs, can be turned around to produce innovation through collaboration, benefiting everyone involved.

This article was originally feature on TradeReady.ca

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