Emerging Markets – Brazil: World Cup & Olympics catalyse infrastructure

Brazilian Soccer Museum

Brazil is simply too big to ignore. It’s the fifth-largest country in the world with a population of around 185 million people, and South America’s largest and most influential market. It has one of the world’s most rapidly developing economies and a GDP per head greater than either India or China.

With a broad and sophisticated industrial base, if a product or service is generally competitive in world markets it is also likely to sell well in Brazil. Now is its time. With not one but two major global sports events on the horizon, Brazil’s profile, culture and business opportunities are about to take-off.

For any fast-growing economy it seems that hosting a major sporting event is a must. Winning the FIFA World Cup 2014 and the 2016 Olympic Games in Rio de Janeiro provides a golden opportunity for Brazil to showcase itself alongside other BRIC nations (China, Olympics, 2008; India, Commonwealth Games, 2010; Russia, World Cup, 2018) in their ability to stage events on a world scale.

It has triggered diverse infrastructure projects in airports, railways, roads, urban transport, stadia, hotels and telecommunications, in turn demanding high levels of foreign investment. It all represents opportunities for av expertise, particularly in equipping and modernising stadia and in the rental and staging market

“The country is in a confident mood that the Games will catalyse infrastructure investment needed to support Brazil’s continuing development,” reports the UK’s Trade and Industry department. “With a government that is actively encouraging foreign investment, Brazil is one of the world’s increasingly attractive places to operate.”

Despite entering recession early in 2009, strong domestic consumption helped the economy recover quickly and the expectation is for a GDP growth over six per cent in 2010-11.

The key challenge is acknowledged to be expanding and improving urban transport systems. The UN’s World Tourism Organisation ranks the country 95th out of 130 in that regard. Most large Brazilian cities suffer from heavy congestion and as yet none of the major airports have a rail link to the city centre they serve.

Around £1.4bn will be invested in airports between 2010-2014. The government is committed to extending and improving the rail network, and the flagship Rio to São Paulo high-speed rail link will require £11bn of capex alone.

There’s a flagship investment programme aimed at stimulating infrastructure development and boosting economic expansion. The Accelerated Growth Plan (Programa de Aceleração do Crescimento – PAC) allocated around £200m between 2007 to 2010, with a second phase (PAC 2) of £325m between 2011 to 2014. For the period following 2014, the estimated investment is £350m.

Latin America accounts for just  four per cent (£1.8bn) of current global pro-av revenues. However, with the Middle East, it is also the fastest growing area with valuations of £2.63bn by the end of 2012 (source: Infocomm Global Market Study 2010).

In the region, pro-AV services are growing faster (10%) than products (9%) with services in installation/integration and maintenance driven by high demand for applications such as digital signage and videoconferencing.

There are few specialised pro-AV design and consulting firms in Latin America, and SI’s usually handle project design. Services are often bundled with hardware, and Latin American buyers tend not to appreciate the value of quality services, according to
Infocomm.

“Latin American buyers will often try to implement pro-AV products piecemeal rather than implementing a complete, integrated solution in the mistaken belief they can save money,” its report states.

The fastest growing customer segment in Brazil, as in most areas of Latin America, is education. However pro-AV is not, generally, being used effectively in the sector. Many vendors have expressed frustration that decision makers understand and in education don’t realise how to make the best use of av.

The hottest application sector is displays, which are projected to grow at a CAGR of 18% from 2009 to 2012. Display buyers, especially those purchasing ever-larger digital signage, are going for ever larger screen sizes, helping overall display market growth. HD and demand for digital signage in retail and supermarkets is helping to fuel growth. Meeting rooms are also starting to use large displays instead of projectors.

Brazil’s impending global prominence has forced av companies to stake out their territory. Sao Paulo and Rio aside, Brazil has another five cities with two-plus million populations, and a further 10 cities with populations of over one million.

Harman, for example, says it has ambitious plans for the Brazilian market. Since last year’s acquisition of loudspeaker manufacturer Electronica Selenium, it has invested £75m to expand production capacity and establish a new R&D centre.

“As Brazil emerges, the need for market-specific av solutions in medical imaging, fixed installation, touring and custom home integration becomes more pronounced,” says Blake Augsburger, Harman’s EVP and president of its professional division. “The Selenium acquisition was a great win for us. In addition to marketing Selenium products worldwide, we’re now also building other Harman products at the Selenium facilities in Brazil and enjoying an amazingly comprehensive channel and much better tax status now that we are building products indigenously.”

Harman Brazil is headquartered in Sao Paulo and it has an ISO 9001 certified manufacturing facility in Manaus.

“Brazil has many festivals that require tour-grade systems and there’s a strong worship market with an increasing need for professional sound systems.
Cabling specialist Optocore has also spied a business opportunity. It recently appointed Rio’s Sterling do Brasil as its strategic partner in the country.
Sterling is a reseller and integrator of products for signal transmission/reception, fibre optics, CATV, HDTV, IPTV and digital signage.

Expediting Optocore’s entry into the country will be the new ATA Carnet — an international customs document which allows the temporary import of professional equipment for events or trade fairs.

“We are acutely aware of the crucial role played by Optocore in major events such as the FIFA World Cup and Winter Olympics,” notes Sterling founder Nestor Almeida.

“The ATA Carnet will be perfect for the 2014 and 2016 events as the agreement means we can import large racks of equipment, knowing it can remain for a period of 12 months without being eligible for duty.”

Latin America’s biggest av trade fayre, AES Brazil Expo (17-19 May) showcases audio, video and lighting technology systems from exhibitors including Electrovoice, Yamaha, Playtech and Norton Audio.

The IVCA says it is examining a possible trade mission to Brazil but that a visit to Mexico is more likely to be first on the agenda.

MAJOR INFRASTRUCTURE PROJECTS

£10bn-£30bn in infrastructure investment ahead of 2016:

• £1.5bn stadia upgrades or new builds in 12 cities ahead of 2014
• 26km of transit bus corridors under construction in Rio
• A third terminal due in 2014 at Sao Paulo International to boost passenger capacity to 29 million
• £256m to upgrade ports where cruise ships could function as hotels. In addition the Brazilian National Development Bank (BNDES) has made £348m available to lend to private hotel projectsExpect a lot of red tape to cut through, as well as politics, as most of the investment is being made with public money.