BRAZIL

Brazil is the largest economy in Latin America and, with a GDP of approximately 1,5 trillion US dollars, is one of the most important emerging markets in the world. The country has a domestic market of 214 million inhabitants and is rich in natural resources.

Thanks to exports, mainly from the agricultural sector, the Brazilian economy managed a moderate recovery from the slump caused by the Covid 19 pandemic. However, building a new transport infrastructure, modernising the industrial sector and expanding renewable energies as well as fighting corruption remain important tasks in order to exploit the country’s enormous potential. There is high demand for innovative and sustainable solutions and new technologies across all sectors. The Industry 4.0 concept and financial services are gaining more and more importance. Moreover, a modern start-up culture is emerging, particularly in the megacities of São Paulo and Rio de Janeiro.

For Germany, Brazil has traditionally been the most important trading partner in South America, and it is the only country in Latin America with which it has maintained a strategic partnership since 2008. In 2019, the Brazilian-German trade volume was more than 17 billion Euro, with imports of German products totaling 10.2 billion Euro. This means that Germany ranks fourth among the most important supplier countries.

Moreover, German businesses based in Brazil generated high sales despite the pandemic. Against the backdrop of the war between Russia and Ukraine and the rise of international commodity prices, the geopolitical weight of Brazil is growing in an increasingly polarised world. The country is showing a tendency to move closer to countries importing food and energy.

According to the official discourse, the Brazilian government tries to further open the country to the idea of a stronger integration into productive value chains, to implement structural reforms in tax and labour law, and to reduce bureaucracy. So far, however, the promised reforms have not been delivered, despite the efforts of the liberal Minister of Economic Affairs, Paulo Gedes. These reforms could create a friendlier climate for international investors. In-depth cooperation with German companies and institutions could potentially offer added value for Brazil in the areas of environmental and climate protection, sustainable energy generation, e.g. through the use of green hydrogen, or in the development of Industry 4.0 concepts.

Brazil has traditionally taken a positive stance on international cooperation in multilateral formats and free trade, although it also tries to protect industrial products from competition. Also, its role within the WTO was not very constructive in the past. The absence of European and German investment has also induced Brazil to become very receptive to Chinese investment and interests, and to start looking for other multilateral forums (such as BRICS) at the start of the millennium already.

The dialogue on issues such as the environment, climate and biodiversity, energy, science and technology, and defence, for example, has deepened in recent years. There is also a mutual desire to cooperate more closely on more innovative issues such as cyber security, urbanisation, the circular economy and hydrogen technology.

A focus of German-Brasilian cooperation is the protection of tropical rain forests. These projects are funded by the Federal Ministry for Economic Cooperation and Development (BMZ) and the international climate initiative of the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) . In the country that is home to 60 percent of the world’s largest rain forest, however, the case that economic and ecological interests are not necessarily mutually exclusive must still be made. The Bolsonaro government is primarily focused on plans for further economic exploration of the Amazon region.

Brazil and Germany also have several bilateral cooperation programmes in the areas of energy security (German-Brazilian energy partnership), food and scientific development (The German Centres for Research and Innovation, DWIH). Initiatives such as these have fostered an environment for sharing experiences and are in line with the objectives proposed in the UN 2030 Agenda for sustainable development.

In trade and business, Brazil has endeavoured to increase its participation in global forums in which Germany is also actively involved (OECD, G20, UN). The historic conclusion of the agreement between the EU and the South American trade alliance, Mercosur, is a decisive success, after almost 20 years of negotiations. Its ratification, however, is still pending. Due to the war between Russia and Ukraine, promoting the agreement with the South American countries is becoming even more urgent, with a view to gaining access to the energy, food and raw material sectors.

The agreement between the South American trade bloc Mercosur and the EU would create the largest free trade area in the world, representing a population of more than 780 million and roughly 25% of global GDP. The planned elimination of 91 percent of customs duties on traded goods could produce annual savings of 4 billion Euros for European exporters alone. For Brazil, the agreement offers opportunities primarily for the agricultural industry. Beyond the importance for trade policy, the agreement is undoubtedly a (geo)-political signal for free trade, especially with respect to the two sometimes protectionist world powers, the US and China.

The potential for strengthening the partnership between Brazil and Germany is considerable, even beyond trade policy. The large distances and the lack of infrastructure are difficult conditions for manufacturing and lead to a concentration of most of the industrial and logistics parks in the south and southeast of the country. This is exemplified by the low utilisation of Brazilian river transport and the absence of a railway network. The solutions for addressing this lack of infrastructure and for fully integrating the other regions must in turn meet the requirements of low cost and minimal environmental impact. This is where German industry, a technological leader in many fields, could provide tailor-made solutions.

German-Brazilian scientific cooperation can also solve another structural problem facing both countries, namely the lack of skilled workers, which is a significant obstacle to innovation. Joint training and further training programs can help to increase the number of skilled workers.

The potential for digitising production processes lies in expanding the country’s connectivity and broadband infrastructure. It is not just a matter of providing mechanisms for transmitting information, but also of truly integrating the most distant regions into the Brazilian national production market. Germany can compensate for the lack of investment and technological capacities by contributing resources and expertise, and by expanding its participation in Brazilian economic development.

It would be in both countries’ interests to use other foreign policy instruments in addition to the traditional diplomatic channels. Intensified efforts by the German-Brazilian chambers of commerce, for example, would offer the opportunity of further expanding the footprint of German companies in urban centers in Brazil that have yet to be explored and that promise major potential.

The common ground in foreign policy, the efforts to strengthen rules-based free trade and a commitment to guaranteeing individual freedoms should be used to promote dialogue on sensitive issues, such as environmental protection and climate change, but also energy and food security. Cooperation in security policy is also needed, especially in fighting organised crime

Generally speaking, it is important not to isolate Brazil, as the most populous and economically strongest country in Latin America, but rather to invest in a long-term relationship. This is the only way in which not only regional problems, but especially global challenges can be managed jointly. For this purpose, a closer and deeper relationship to subnational units (federal states) would be important, in addition to intergovernmental consultations. Although Brazilian federalism is very centralised, some states and municipalities have secretariats for international relations that could serve as channels for implementing new cooperation agreements. This so-called “paradiplomacy“ could therefore be a tool for deepening the relations between Brazil and Germany.

Anja Czymmeck heads the KAS Office in Brazil.

Last update: 9 May 2022