JARAGUA DO SUL, BRAZIL, —
To hear Brazil's government tell it, businesses like Jamo Equipamentos should be booming.
With Brazil locked in its worst recession in three decades, the maker of heating equipment, like other exporters, should at least be enjoying a newfound competitive advantage: the plunge in the currency, which has lost a third of its value against the dollar this year.
A weaker Brazilian real makes Jamo's products cheaper in China, India and other foreign markets. Brazil's government hopes the company and other manufacturers will take advantage and drive an export-led economic recovery.
But a host of factors still hold exporters back, from a depreciation of currencies in many buyer markets to a reliance on imported raw materials to a global trade slump.
"It's only part of the equation," says Giovano Ghizoni, one of Jamo's founders in the small, southern state of Santa Catarina. He expects exports this year to account for about 20 percent of revenues, about the same as in the past few years.
"To say the currency will save us is just rhetoric," he says.
The rhetoric is increasingly common from President Dilma Rousseff's government, scrambling to find glimmers of good news as the economy shrinks an expected 3 percent or more this year.
"An expansion of exports is what will launch the resumption of our growth," Rousseff told state governors at a recent gathering in Brasília, the capital.
Export revenues slump
Problem is, export revenues have actually fallen about 16 percent this year, hurt by sharp declines in the price of commodities, like iron ore, soybeans and oil, that make up roughly half of Brazil's exports.
For manufactured goods, key to any export-fueled recovery, export revenues have fallen by 10 percent.
Global trade is now in its worst slump in decades. For the first time since the 1990s, the start of the recent era of globalization during which trade grew twice as fast as the world economy, trade is barely keeping up with even meager economic growth.
"Brazil is in for a surprise if it thinks now is a good time to increase exports," says Rubens Ricupero, an economist, former finance minister and former general secretary of a United Nations trade agency. "Even if it were suddenly as competitive as China, the global marketplace isn't buying."
Despite its huge commodities business, exports account for only about 11 percent of Brazil's economy — half the level in China and less than a quarter the level in exporting heavyweights like Germany and South Korea.
Economists blame a history of protectionist policies and dysfunctional regional trade deals that were designed over the past half-century to develop local industry but in fact had the reverse effect.
Coddled by high tariffs imposed on foreign rivals, Brazilian manufacturers have grown increasingly uncompetitive, all but a few settling for selling mediocre goods to a frustrated domestic marketplace. Many grew so inefficient that imported products, even with tariffs, ended up being better and more affordable.
As Mexico, China and other big developing countries hammered out ambitious trade deals with major economies, Brazil focused on South American blocs better known for political posturing than commerce.
"It's not realistic for Brazilian producers to expect to be able to suddenly compete," says Sergio Amaral, a former trade minister. "Global commerce has developed without them."
And now, Brazilian producers are grappling with higher costs imposed by Brazil's government.
Starved for revenue because of the recession, the government is rolling back tax breaks and hiking energy prices it had kept artificially low in recent years in a bid to spur growth. Many companies face electricity cost increases of up to 50 percent.
"With higher bills, companies are actually losing competitiveness," says Antonio Marcos Gavazzoni, finance secretary for Santa Catarina state. "No matter what happens with the exchange rate, any recovery is going to be slow."
Santa Catarina, nestled between the Atlantic Ocean and the northern tip of Argentina, is Brazil's fourth-richest state in terms of per-capita income.
With a diverse group of manufacturers and some of Brazil's newest, most efficient port facilities, it would be well poised to take advantage of an export boom.
At Jamo's headquarters in the small riverside city of Jaragua do Sul, workers assemble the induction heating devices the company tailor-makes for each of its thousands of clients, about 150 of them outside Brazil.
Though a cheaper real means it could indeed offer lower prices to foreign clients, the math isn't so simple. A steady decline in domestic manufacturing means the company has to import as much as 85 percent of the electronic components and other supplies it needs to assemble the heaters, compared with only about a third 15 years ago.
"Those costs have gone up," says Ghizoni. "A weaker real means we pay more for anything that we import."
Another headache is Brazil's infamous bureaucracy.
When company executives recently tried to attend a trade fair in Europe, Brazilian customs wanted to charge the company for catalogues and machinery models it hoped to take there as exhibits. When a foreign customer needed to rent one of its machines instead of buying it, the company had to pay import duties when it came back.
Nearby, a family-owned maker of plastic containers faces similar hurdles.
Industria de Plástico do Vale do Itajaí, known as Plasvale, tried to take advantage of the foreign currency shifts and sell to Colombia, the biggest South American neighbor to which it did not yet export.
But the Colombian peso is itself down 16 percent against the dollar this year and demand was weak.
"They have lost purchasing power, too," says Cesar Augusto Toscan, the company's export director.
Just east of Gaspar, the wide, muddy Itajaí-Açu River flows into the Atlantic port of Navegantes, one of Santa Catarina's three big maritime ports. Wharfs there one recent afternoon sat idle as two European vessels, their cargo already offloaded, waited for storms that had halted traffic to clear.
Port executives, watching both import and export volumes tumble, say they too are awaiting sunnier days. At the giant container terminal built there a decade ago by port-operator Portonave SA, volumes have fallen by 7 percent since the beginning of the year.
"Brazil has so much potential," says Osmari de Castilho Ribas, the terminal's director. "We should be far more connected to the world than we are."