World Economic Forum

How Brazil Could Unlock Billions in Trade Growth

Eliminating key obstacles that limit exports in the industries with the greatest potential for improvement could help Brazil's economy.

Par Fernando Martins and Wolfgang Lechmacher

First published on mai 12, 2015
min


The article originally appeared on the World Economic Forum. 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. We have outlined this in our recent report on Enabling Trade in Brazil. Export growth has long been a challenge for Brazil. Even during the decades of double-digit export growth, nearly half of the increase came from higher export prices, not in the exporting of more goods. 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 cost 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. Given industry complexity and trade-related issues, Brazil would be best-served to take a “horizontal” approach to spurring trade. This involves identifying industries that hold the highest potential for competitiveness, and taking an end-to-end view of the value chain in those industries to pinpoint the specific trade barriers that need to be addressed to allow the industry to reach a “tipping point” where it becomes competitive, thus enabling the flow of goods. When the Kenya government improved the Nairobi-Mombasa road and expanded the Mombasa port, it led to much-needed private sector investment by exporters and transporters. Investments in refrigerated containers and covered trucks, along with support for smallholder farms to acquire export certification, enabled Kenya to reach the tipping point at which it became profitable for the country’s enterprises to serve new European markets for its avocados. The approach helped Kenya triple its avocado exports. Read the full article on the World Economic Forum Fernando Martins is Senior Partner with Bain & Company. Wolfgang Lehmacher is Head of Supply Chain and Transport Industries at the World Economic Forum.

The article originally appeared on the World Economic Forum.

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. We have outlined this in our recent report on Enabling Trade in Brazil.

Export growth has long been a challenge for Brazil. Even during the decades of double-digit export growth, nearly half of the increase came from higher export prices, not in the exporting of more goods.

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 cost 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.

Given industry complexity and trade-related issues, Brazil would be best-served to take a “horizontal” approach to spurring trade. This involves identifying industries that hold the highest potential for competitiveness, and taking an end-to-end view of the value chain in those industries to pinpoint the specific trade barriers that need to be addressed to allow the industry to reach a “tipping point” where it becomes competitive, thus enabling the flow of goods. When the Kenya government improved the Nairobi-Mombasa road and expanded the Mombasa port, it led to much-needed private sector investment by exporters and transporters. Investments in refrigerated containers and covered trucks, along with support for smallholder farms to acquire export certification, enabled Kenya to reach the tipping point at which it became profitable for the country’s enterprises to serve new European markets for its avocados. The approach helped Kenya triple its avocado exports.

Read the full article on the World Economic Forum

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