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Poor logistics: problem for partnersip

Improve the transportation system is a priority for Brazil

With its towering red torii gate and graffiti of girls in kimonos, the neighbourhood of Liberdade in Sao Paulo looks like most Japanese outposts around the world. But over the past few years, packets of seaweed have been pushed aside to make room for Chinese noodles on supermarket shelves, and Mandarin voices now fill the crowded streets.It was mostly just the Japanese here before, but then the Chinese came and starting buying everything, says Jessica Chen, a Taiwanese shopkeeper in the district who moved to Brazil in 1982. It wont be long before China dominates the world, she says, laughing. It is not uncommon to hear people in Brazil talking about the growing Chinese presence in the country as an invasion.

Looking at the government’s foreign trade data, it is easy to understand why. Brazil sent $30.79bn of exports to China in 2010, almost 30 times as much as a decade earlier, when it exported only $1.09bn worth of goods. Over that 10-year period, imports from China also surged more than 20-fold to $25.60bn. Once a relatively obscure force in Brazil, China is now its biggest trading partner after knocking the US off the top spot in 2009. The speed at which trade between Brazil and China has grown is even more remarkable, considering the long journey those Chinese noodles had to undertake to reach Sao Paulo’s supermarkets. More than 10,000 miles apart, China and Brazil are separated by the Pacific Ocean and the Andes, one of the longest mountain ranges in the world. Brazil’s infrastructure is also creaking under the strain of the country’s rapid economic growth, presenting further difficulties for importers and exporters.The cost of logistics is huge in Brazil, says Richard Dubois, infrastructure partner at PwC in Sao Paulo. For example, it is more than three times as expensive to transport soyabeans, Brazils second-biggest export to China, overland in Brazil than it is in the US, he says.It is the same for almost every other commodity, he says, adding that the main problem is the lack of rail networks and the poor quality of roads. Brazils railways have seen some improvement since the national system was privatised in the late 1990s, but still only about a quarter of the country’s cargo transport went by rail last year, forcing exporters on to the roads.There is also the question of the bottlenecks at the ports,says Otavio Nese of the Project Management Institutes Brazil division. There has been a lack of investment as well as a lack of long-term planning.However, there are some exceptions to the poor state of Brazils transport infrastructure. Chinas insatiable demand for commodities has led some of the countrys more enterprising companies, and even the Chinese themselves, to take matters into their own hands. As a result, a handful of ambitious construction and infrastructure projects have sprung up across the country over the years, increasing pressure on the public sector to catch up.The exception to the high transport costs is iron ore, because Vale created its own railway and port infrastructure,says PwCs Mr Dubois. Vale, the worlds largest iron ore miner, has laid about 10,000km of track across nine of Brazils 26 states, and is now responsible for transporting about 16 per cent of Brazils total rail cargo. The Rio de Janeiro-based company has also built nine port terminals. Its Tubarao port complex in the south-east of the country is capable of moving 43,000 tons of iron ore an hour.

This month, Vale also announced that it had received delivery of the worlds largest iron ore carrier, a ship the length of about four football pitches, costing the company $748m and made in South Korea.

Eike Batista, Brazils richest man, together with Chinas Wuhan Iron & Steel and South Koreas Hyundai Heavy Industries, are also building Acu superport, which is set to be the largest in the Americas on completion. The project, off Rio de Janeiro, is expected to attract up to $40bn in total investment and should serve both miners and oil companies. Efforts are also being made to improve road networks. The inter-oceanic highway traversing Latin America east to west is expected to be completed this year, giving Brazil access for the first time to Pacific ports and helping to link the country closer to China and other Asian economies such as South Korea and India. Meanwhile, one of the favourite points of entry for Chinese goods coming into Brazil remains Manaus, the Amazonian city whose duty-free status helps keep costs low. The product arrives in pieces and then its assembled in the free-trade zone in Manaus to make the most of the tax exemptions,says Raphael Martello, an economist at Tendencias Consultoria in Sao Paulo. Most of the goods from China come in bits and then theyre assembled there. However, economists and environmentalists warn of the dangers of making too many sacrifices, as Brazil opens the doors to its new top trading partner. The low cost of many Chinese imported goods has been blamed for crushing some parts of Brazils domestic industry, while the new highway across Peru risks encouraging deforestation as it gives ranchers access to more of the forest. The challenge now for Brazils president, Dilma Rousseff, is to

find ways of making the most of Chinas demand for commodities while leaving a positive legacy for the country.Brazil has to watch carefully how this evolves, says Sergio Amaral, former minister of development, industry and foreign commerce.Its important we understand the contribution China is making to Brazil.


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