The largest nation of South America, Brazil is blessed with a large labour force (a population of 190m, with an average age of 28) and plentiful natural resources, including a range of metals, petroleum, and timber. For much of its history though, the country has been held back by economic turmoil, military intervention in politics and massive inequality. The last two governments, of the right wing President Cardoso and left wing President Lula, have established a strong democracy, brought inflation and debt under control, and set the country on the path for growth.
Healing a giant
Under President Fernando Henrique Cardoso (1995-2003), more than forty years of soaring inflation were brought under control, and the economy now performs well in comparison to many in the southern hemisphere. Another issue that has plagued the economy has been national debt. Cardoso’s successor, President Luis Igacia Lula da Silva, has received praise from economists here, stabilising debts at around half of GDP, and paying off $15.5bn of IMF loans (which were entered into by the Cardosa government in 2002, to avoid defaulting on its loans) two years early, at the end of 2005. Arnold Huerta, South American specialist for the US-based Association of Equipment Manufacturers (AEM), says, “Industry is doing much better. South American economies as a whole are a lot stronger, and more resilient to economic shocks from the US. A key factor is growth in exports to China. Also, much lower debt levels have helped.”
However, when looked at against the developed world, or other rising economies such as China, the country still punches below its weight. The national confederation of industry, the CNI, predicts in its 2006 report Brazilian Economy: Performance and Outlook that overall GDP growth for 2007 will be 3.4%. This compares poorly with both global GDP growth (5.1% in 2006) and with comparable economies of Russia (6.6%), India (8.5%) and China (10.5%).
Analysts blame this, in part, on high tax rates. At around 40% of GDP, these are similar to rates in developed nations. But government investment in capital projects, health and education has traditionally been low. In President Lula’s first year, state investments fell from almost 1% of GDP, to close to 0.3%.
Construction is one sector that is generating work: in 2006, 98,000 new construction workers were recruited. According to Brazilian sociologist and economic commentator Joelmir Beting, civil construction in Brazil will grow by more than 6% this year. The CNI makes a similar forecast, predicting 2007 construction growth of around 5%.
The strength of the construction sector, relative to the rest of the economy, can only be good for the crane sector. Over recent years, there have been a series of significant capital projects by private companies. ThyssenKrupp, for example, is currently spending EUR3bn building a new steel mill in Sepetiba, on the coast of Rio de Janeiro state.
Building growth
At the start of his second term in power, Lula promised a new infrastructure investment programme (abbreviated PAC in Portugese). The PAC promises to boost the country’s long-term development and to provide a glut of work for construction firms, through encouraging private investment, tilting state spending towards infrastructure development, and reducing bureaucratic and tax obstacles to growth.
Paulo Carvalho, technical director of tower crane specialists Locabens, says, “The economy in Brazil is stable and the government is promising investments in infrastructure. The PAC promises a lot of investment in residential apartments, particularly for poorer people, in water supply, electricity generation and other infrastructure projects. President Lula announced the PAC at the start of 2007. However, a lot of issues in the document haven’t been confirmed yet, and a lot has to be approved by congress.”
The PAC sets a growth target of 5% per year, across the economy. This is to be achieved through BRL504bn ($257.1bn) of investment over the three years to 2010, with BRL67.8bn ($34bn) coming from the federal government. The plan envisions the rest of the investment coming from private enterprise and state businesses, encouraged by legislative measures and permits, which are reliant on backing from congress and regional government bodies.
However, earlier this year, Paulo Bernardo, planning minister, admitted that the federal government was unlikely to meet its target for the year. This delay has already worried analysts, with one local expert warning Cranes Today that South American governments are quick to make promises, but slow to deliver.
Carvalho says, “Demand is good, but should be better. It should be better because the market is still waiting for the governmental infrastructure investments and some sectors need to grow in technology to start using more equipment. The economic growth could stop if the government doesn’t invest in electric energy generation as soon as possible.”
But private investment is still keeping construction growth strong. Carvalho continues, “Petrobras is very strong in oil platforms and gas line construction. There are several ethanol plants under construction. We have several dam projects, for example, but these are stuck because of environmental licences and legal discussions. Some of the biggest residential apartment contractors are doing very well in the stock market. In fact, the BOVESPA (São Paulo Stock Exchange) is in its best year ever.”
Alexander Boleslaw Biskupski, operational director of critical lift specialists Máquinas Bolbi, regularly works on Petrobras projects: “On one interesting job for Petrobras, we had to assemble hydraulic gantries in a tower 96m high, to lift a 60t flare tower. The hydraulic gantry assembly was itself a big challenge, and we also had to face strong wind in a big height. It was a risky work: if anything went wrong the risk of explosion was big, as we were in the middle of a petrochemical plant. The personnel had to be trained in safety for work at big heights and they also had to use masks to protect them against toxic gases. It was not possible to use a crane for this work, because of the height and also because of the available space to put a crane in.”
Safety, regulation, taxes
Like many developing countries, Brazil has a mixed record on safety. Carvalho says, “We have good regulation; not perfect, but good. The main problem in my opinion is that we don’t have enough government inspectors. There are some cultural problems too. The problem, not just here in South America, is that people follow rules if there are inspections, fines, and so on. But when there aren’t clear obligations, they don’t follow the rules. Far from the capital, there are less inspections, and more problems. We have a specific tower crane regulation NR18 – 18.14.24. According to the standards, all tower cranes need to be tested and verified by a mechanical engineer after commissioning. All checks and a list of mandatory safety devices are in the NR18 standard. In some cases it is necessary to have a third party certification.” Carvalho also leads the tower crane group for ALEC, the Brazilian plant hire association. “The association is working hard in standards updating, providing training and other events. ALEC is participating in all standard discussions and it is totally involved in safety matter discussions.”
The AEM’s Huerta says, “Insurance companies demand certifications for crane operators. Otherwise, regulation is low. The AEM is currently working on ISO standards for earth moving, and there may be pressure for this in cranes eventually.” With internationally-backed projects in oil, steel and mining playing such a large part in the sector, it’s not just local regulations that companies have to work with. Biskupski says, “Safety and environmental legislation requires evidence that the company takes care of the employee health and that the company does not pollute the environment. For Máquinas Bolbi to provide service to international companies, it has to work according to their procedures, as well as according to Brazilian legislation.”
Like China, Brazil protects its domestic manufacturers with import taxes. Madal Palfinger CEOHans Alois Schaeffer says, “The Brazilian machine and equipment industry is well developed, but needs a certain amount of protection to be attractive for new investment. This is given by import taxes for products similar to those made in Brazil. “
Locabens’s Carvalho says, “An important obstacle for our market is the taxation. The customs taxation for equipments is calculated over the ex-works price plus freight costs. On top of this we have taxes of more than 50% on some equipment. In some cases, where similar equipment isn’t available in Brazil, we can cut taxes on imports by around 15%.” These taxes impact most on companies which import goods that compete with local industry.
For César Schmidt, commercial director of Liebherr Brazil, this matters less, “Import tax is zero for our AT and crawler cranes: it effects companies selling ATs and truck cranes under 60t, as there are similar cranes already manufactured here.”
A Cunzolo Tadano at work Cunzolo Tadano
