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Below is a summary of the factors that inspired the creation of Conexão Malta Brasil.
Malta and Brazil - creating the connection
Brazil's sheer size, its economic growth in recent years and broad industry-base may provide some indications why governments and companies across the world are interested in making or deepening their trade and investment relations with Brazil.Of course, the Maltese market is relatively smaller when compared to many other markets. The question yet remains whether economic relations between Malta and Brazil are exploited to their fullest potential.
It would naturally be advantageous if Malta could, without further delay, attract further Brazilian investment into the country because, at a time when Brazil's economy is growing and inflation is high (generally making costs elsewhere lower), Brazilian companies are looking at tapping into foreign markets with attractive tax structures, geographical locations, cheap and/or skilled labour, etc.
Moreover, Brazil is reaching that level of growth where entry into foreign markets and mergers and acquisitions abroad are being conducted not only by Brazilian transnational corporations but also by smaller Brazilian businesses.
When in February, 2009, a Brazilian Delegation, consisting of 15 high-ranking government officials visited Malta, there were discussions about fostering trade and business relations between Brazil and Malta, with particular focus on the internationalisation of SMEs. However, Malta has still not succeeded in attracting enough Brazilian investment. And yet, Brazil, in many senses, has everything, and for this reason whatever Malta can offer may, in some way or other, be of interest to one or more Brazilian industry sector.
Below are some sectors which in the author's opinion should be considered as areas of focus that could attract Brazilian investments to Malta:
Tourism
The upper class population in Brazil, as well as the expanding middle class, are increasingly travelling to destinations outside their own country. This is also partially because, generally, costs are higher in Brazil for similar quality and products elsewhere. With a growing awareness about the huge potential for tourism development, several countries are already focusing their efforts in attracting Brazilian tourists. By contrast, the majority of Brazilians know little, if anything at all, about Malta. Yet, Malta may provide an attractive destination for Brazilian tourists, particularly because:
- Malta is practically crime-free; Brazil, on the other hand, has one of the highest crime rates in the world;
- Malta has a rich history and sites are in close proximity, whereas Brazil's history is mostly recent and distances are very large;
- There is a huge interest in Brazil about the Order of Malta and its legacy;
- The Maltese population speaks English. Whilst the majority of Brazilians are not fluent in English, this can be considered to be the language they speak best after Portuguese. Besides, there is also a growing interest in learning English;
- Malta is cheaper than Brasil and also generally cheaper than its European neighbours;
- Many Brazilians go on cruise trips in the Mediterranean;
- Malta is located in the middle of the Mediterranean sea, on the crossroads between Europe, Africa and the Middle East, with connections to several destinations.
English language courses
Some tourism agencies and language centers already promote Malta as a destination to learn English in some areas of Brazil. Still, Malta remains relatively unknown in many parts of Brazil.
Pharmaceuticals and medicine
The Brazilian pharmaceutical sector is the third largest in the Americas region, behind the USA and Canada; it ranks first in the Latin American region. Fuelled by increasing disposable income, pharmaceutical demand is expected to continue to rise in the 2013-2016 period.
Competition among the leading pharmacy chains is fierce, though recently the sector has seen more mergers. In September 2011, Drogaria Sao Paulo, the leader in the state of Sao Paulo, and Drogarias Pacheco, the leader in Rio de Janeiro, announced a merger, creating the largest pharmacy chain in Brazil, DPSP. This merger took place after the merger between Drogasil and Droga Raia, announced in August 2011, creating the second largest pharmacy chain, Raia Drogasil.
The "bolar exemption", that permits research on generic drugs before patent of original product expires, is permissible in Brazil and is therefore not so much a selling point for Malta. However, Brazilian pharmaceutical companies may be looking into research and development (R&D) collaborations or entry into new markets. The same applies for other areas in medicine.
Air travel and aviation
Latin American air travel is expected to grow by approximately 70% over the next two decades, driven by an above average economic growth rate of approximately 4% per year. The ongoing merger of Brazilian TAM and Chilean LAN, will result in LATAM, the biggest airline of the region, flying to 155 destinations in 23 countries with 40,000 members of staff.
Brazil’s aviation industry is now the third-largest in the world. Air travel in Brazil is on the rise as seen by the construction of six new regional airports and expansion on five others.
With over USD 20 billion (EUR 15 billion) in total orders for aircraft, Brazilian aircraft manufacturer Embraer has become one of the biggest plane builders in the world. Its offering of short-haul commercial aircraft, business jets and military aircraft at highly competitive prices has proven popular with customers worldwide. Embraer has also been experimenting with new bio-fuel technologies for aviation, which, from an environmental perspective, will keep the company ahead of others even on this level.
The sector of aviation in Malta has gained ground in recent years. Incentives and expertise exist in relation to registration of aircrafts in Malta, sale and purchase deals, aircraft chartering and leasing, the negotiations and drafting of aviation related services agreements (e.g. for maintenance and repair), bilateral air services agreements and regulation of airlines.
Financial services
The financial sector is the largest part of the Brazilian services sector. In its own right Malta too is gaining clout in the financial sector. With a reputable regulator and regulatory system, relatively low costs and a highly skilled workforce, foreign entities come to Malta with a view to re-domicile their companies, incorporate Cell Companies, and set up Collective Investment Schemes, amongst others.
In 2011, Malta-based FIMBank reached an agreement with the International Finance Corporation (IFC) and Brazilian bank BICBANCO, to invest in a new factoring joint venture in Brazil, whereby domestic and cross border factoring would be offered to Brazilian corporates and SMEs. The product, called BRASILFactors, is meant to fill up a financing gap insofar as SMEs in Brazil generally have limited access to funding and sophisticated trade solutions.
As may be seen from the above success story, a solid understanding of the Brazilian financial services market combined with strong knowledge about the benefits of the Maltese legal system, can lead to international collaborations offering attractive products and services.
The idea of Malta as an international hub for business
Odebrecht, Andrade Gutierrez and Queiroz Galvão are just a few examples of Brazilian companies with operations in Libya. The recent upheaval in the Maghreb following the Arab spring may lead to further democratisation of the region, but as of present political and economic re-organisation means that businesses have to cope amidst uncertainties and shortfalls.
Whilst Brazilian interests remain high in the region, it may be more convenient for Brazilian companies with operations in the area to have overseas sales and marketing offices, agencies and subsidiary companies, and, generally, all management, corporate services and business development, in countries with effective regulation, in close proximity and with good flight connections. It is therefore the author's opinion that Malta's image as an international hub for business should be promoted in Brazil and that Brazilian companies operating in Libya and North Africa should be specifically targeted as potential investors in Malta.
IT services
According to the
Brazilian IT trade body, the Brazilian IT market grew by 11% in 2011, with revenues reaching USD 112 billion. The Brazilian IT
sector currently employs 600,000 people. However, statistics suggest
that there was a shortage of about 75,000 skilled professionals in 2010 and
that the shortage is expected to reach 200,000 by 2013,
despite the number of universities offering IT courses and the number of
students following them.
There appears to be a problem not only with respect to number, but also quality. Supplier and user firms complain that many Brazilian IT professionals do not have the necessary skills to analyze business requirements, translate them into technical projects and deliver them.
Another problem is that Brazilian IT professionals do not appear to be very mobile, which is a problem for companies looking to recruit those located outside the major urban centers of São Paulo and Rio de Janeiro. Also increasingly mentioned as a major obstacle when it comes to hiring IT staff the lack of proficiency in English and other languages.
Finally, there are problems also relating to salaries. With not enough IT professionals to cater for the market, better IT professionals demand and are offered high wages which are not competitive with similar salaries abroad.
All the above problems are good reasons why Malta should focus on attracting Brazilian IT projects to Malta. Whilst India and China may be cheaper, Malta is more similar to Brazil in terms of business culture and lifestyle. Besides, the difference in time-zones is smaller.
Author's note: The above list is not exhaustive.
The joint venture agreement reached by FIMbank in 2011 (see above) is just one example of how Malta can partake in Brazil's success. With a skilled work force, an attractive regulatory system, and a strategic geographic position, amongst other things, Malta already provides competitive advantages in comparison to a lot of other European and Mediterranean countries.
However, Brazil is immense and Malta is but a speck on its map. Many Brazilians will have heard about the Order of Malta and will be interested in knowing more about the knights and Valletta. But few, if any, would know what Malta may offer in terms of tourism, education, or trade and investment.
The key to success is, therefore, more visibility: Malta's economic, as well as cultural and political, ties with Brazil need to be reinforced, and clear focus must be devoted to the right industries and sectors where the country can offer its expertise and skills to Brazil. Only then can Malta position itself as a prime trade and investment partner of Brazil.
The author of Conexão Malta Brasil, Maria Zammit, is a Maltese national living in Brasilia, Brazil, since 2011. She is a lawyer and the external consultant for Malta Enterprise (the official agency in Malta for investment promotion) in Brazil.
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