How Brazil could unlock $84 billion in trade growth

I strongly believe that improving exports starts by clearly understanding which industries hold the biggest potential for improvement and which supply chain barriers should be prioritized.

Brazil’s annual trade growth exceeded 10% over the past two decades, but last year it dropped by 7%. The nation’s economy clearly has stalled, with GDP rising by only 0.1% in 2014. Getting the economy back on the right track may not be easy, but one major solution is to eliminate the key obstacles that limit exports in the industries with the greatest potential for improvement. This has been outlined in the recent World Economic Forum report on Enabling Trade in Brazil.

One step toward improving the situation is to reduce the cost to export. In 2014 it cost an average of more than  $2300 to ship a container from Brazil. That is 21% higher than the Brazil Tradecost of a similar container in South Asia and 5.5% higher than sub-Saharan Africa. Brazil can increase its participation in global value chains by reducing this and other hurdles to trade, such as streamlining the administrative processes that slow the flow of goods. Bringing just two key supply chain barriers – border administration and transport and communications infrastructure– even halfway to the world’s best practices could unlock $84 billion in Brazil.

We group the main barriers for trade in four dimensions: market access, border administration, infrastructure and business environment.

Brazil’s automotive industry could save $ 110 million in the cost of importing components used in the automotive manufacturing process if it reaches international cost benchmarks. Lowering those import costs would make it more competitive for companies to build cars for export given a portion of the imported components are used in the exported cars. In the re-export process, the government has provided companies with tax exemptions, but the process to obtain those exemptions is still complex, with too much detail required from companies and too many controls.

Automotive companies also would be better positioned to boost exports with clearer and faster import licensing procedures, – allowing them to operate with reduced inventory levels. Brazil could improve its competitiveness by more aggressively investing in new port terminals that make it faster and cheaper to export. Despite some improvement in the quality of services, logistics costs are high compared with many other countries. Finally, Brazil could benefit by establishing more bilateral agreements with other countries for automotive industry exports.

The same issues that inhibit exports in the automotive industry limit expansion in other sectors, too. As the second largest soy exporter in the world, Brazil has the potential to unlock more exports, through the removal of some bottlenecks in inland transportation that turn some soy areas in Brazil less competitive than the United States.

In a country the size of Brazil, the most efficient and effective way to spur exports will be to view trade barriers across the end-to-end value chain in the most important industries, and then tackle those barriers to make the industry competitive. Improving those particular industries sets the stage for improvements in others.

This blog was originally posted on the World Economic Forum Agenda.

Authors: Fernando Martins is Senior Partner with Bain & Company. Wolfgang Lehmacher is Head of Supply Chain and Transport Industries at the World Economic Forum.

Image: Baskets containing acai berries sit on the dock near the boats that brought them to Ver-o-Peso market in Belem January 11, 2012. REUTERS/Paulo Santos