Brazil seeks to triumph in new Great Game for Africa

When Vale, the world’s largest iron ore miner, announced its latest foreign acquisition this month, no one was surprised by the location of the target company: Africa.

The $1.1bn offer for Metorex, a small Johannesburg-listed miner whose largest asset is a copper mine in the Democratic Republic of Congo, extends Brazil’s influence in a continent with which it has close historic and cultural ties.

So important has Africa become for companies such as Vale that the continent now accounts for half as much of Brazil’s international commerce as China.

“Brazil-China trade is today worth more than $50bn, while Africa as a whole is more than $25bn – so it’s significant in its own right,” says Brad Koen, the São Paulo-based managing director and global head of business development at South Africa’s Standard Bank.

Brazil’s courting of Africa is partly the result of tireless campaigning by the previous president Luiz Inácio Lula da Silva, who made countless trips there. The former leader pointed to the fact that Brazil has the second largest black population of any country in the world after Nigeria.

Brazil’s affinity with the continent also comes from its shared Portuguese colonial history with Lusophone Africa, particularly Angola and Mozambique, although the Latin American giant today does more business with Nigeria, Algeria and South Africa.

According to research by Standard Chartered Bank, Brazilian imports from Africa increased nearly 21 per cent to $3.25bn in January to March, against a year earlier, while exports rose 39.4 per cent to $2.55bn.

“The largest component of Brazilian exports [to Africa] has remained resource-based commodities [49 per cent],” says a report from the Office of the Special Advisor on Africa to the UN. Brazil, meanwhile, imports oil from Nigeria and Algeria, according to the 2009 report.

It says foreign direct investment by Brazil is concentrated among a few of its multinational companies. Petrobras, the state-owned oil company, invested $1.9bn in Nigeria in the coal, oil and natural gas sectors in 2005, and in 2007 made further investments in alternative energy. The same year, Vale spent about $700m on the coal, oil and natural gas sector in Mozambique.

In Mozambique, Vale is also working with Ode¬brecht, a Brazilian construction company, to develop coal reserves, as well as build a power station and construct rail and port infrastructure.

Odebrecht last year became the largest private sector employer in Angola, involved in food and ethanol production, offices, factories and supermarkets. Petrobras is also active in Angola, deploying its expertise in deep water drilling.
Andre Loes, chief economist at HSBC for Brazil, says the country’s largest construction groups were early movers in Africa.

Given Brazil’s history of economic volatility, its companies are more comfortable with the high degrees of uncertainty prevailing in many of these countries.

“Some of these countries had unstable, inflationary economies for a very long time,” says Mr Loes. “We are used to that of course, so the risk assessment is much easier for a Brazilian company.”

Brazil’s courting of Africa has a wider geopolitical context. It wants to be recognised as a world power, with positions such as a permanent seat on the UN Security Council. Africa is a natural vote bank.

Aside from Mr Lula’s visits, Brazil has also sought to build political influence in Africa through agricultural co-operation – the state-owned agribusiness research company Embrapa is active in Ghana – and other activities, such to fighting Aids.
Still, in spite of Brazil’s natural affinity with the continent, it faces serious competition from its deep-pocketed rival China, which has systematically targeted the continent with infrastructure investments in exchange for resources.

Indian private-sector companies are also fierce competitors, with New Delhi-based Bharti Airtel having snapped up one of the biggest telecom groups in Africa last year.

Against such emerging market juggernauts, Brazil will need to keep up not only its commercial onslaught on the continent but also its diplomatic offensive. President Dilma Rousseff will have no alternative but to follow her predecessor’s footsteps and take a flight east, if she wants to win the new Great Game under way on the African continent. In Africa, as in all emerging markets, face-to-face relationships are paramount.
“What happens on the political side, usually follows on the business side right away in Africa,” says Mr Koen.