Brazil’s Big Five in Africa

Brazil’s Big Five in Africa

Five Brazilian companies are particularly active in Africa and each is globally important in its own sector. They are mining giant Vale, Eletrobras in the power sector, oil company Petrobras, aircraft manufacturer Embraer and Odebrecht in the construction industry.

Companhia Vale do Rio Doce, usually known as Vale, is one of the three biggest mining companies in the world overall and the biggest in the iron ore industry. It is developing huge projects in its domestic market and so is not in Africa in order to gain access to strategic mineral reserves. Rather, Vale has identified opportunities in Mozambican coal and Guinean iron ore that it believes will generate a profit. The company will invest up to $20bn in Africa over the period 2012–17, making it one of the continent’s biggest investors from anywhere on the planet.

The company’s biggest commitment is its Moatize coal project in Tete Province in northwest Mozambique. It plans to produce 17m tons a year of metallurgical coal and 5m tons a year of thermal coal but production and export volumes are constrained by the lack of transport capacity in the country.

Even when planned new rail lines and port terminals are developed, there will be far more production capacity in Tete Province than they can handle. However, unlike other investors in the region, Vale is confident that it can achieve full production in the long term.

However, progress on Vale’s iron ore interests in Guinea is far more uncertain. A succession of unstable governments in the West African state have cast doubt over the validity of licences on the Simandou deposits. This has deterred development by Vale and the other firms involved, including on the required port and rail infrastructure.

More generally in Africa, however, investment by Vale can benefit other Brazilian companies, such as Odebrecht, because of the transport infrastructure required for mining projects.

Odebrecht is currently heavily reliant on its established operations in Angola, where it is the biggest private sector employer in the country with a workforce of more than 20,000. Brazilian companies have attracted a reputation for employing more Africans than their Chinese competitors.

Odebrecht’s projects in Angola range from luxury apartment blocks to the country’s first sizeable shopping centre and the Cambambe hydro scheme on the River Kwanza. Most recently, it completed improvements on the road between the port city of Benguela and the town of Baía Farta in late September at a cost of $92m.

Odebrecht is already making the most of the construction boom in Luanda, which it hopes will become more intense in the rest of the country. While the lack of infrastructure is often quoted as being the biggest disincentive to investment in the African continent, Brazil has many big construction companies with experience of working on both large and small projects.

Apart from Odebrecht, other Brazilian construction companies with a strong presence in Africa include Andrade Gutierrez and Camargo Correa.

Petroleo Brasileiro SA, or Petrobras as it is known, is also active in Angola. It has held equity in upstream consortia in the country for more than three decades but increased its investment in 2006 when it became the operator of three blocks.

It also produces oil in Libya and Nigeria and has assets in another 25 African countries. The company has particular experience that can be of use in Africa. The Gulf of Guinea and the Campos Basin off the coast of Brazil are part of same geological structure and are two of the three most important oil and gas deepwater areas in the world.

Petrobras has formed a joint venture with Banco BTG Pactual to pursue oil and gas projects in Africa. Subsidiaries held by Petrobras in a number of African companies will be rolled into the new company. A statement from the two new partners said: “This partnership between Petrobras and BTG Pactual represents a promising investment opportunity in E&P in Africa and will be the preferential vehicle of the two parties for new investments of such nature in the continent.”

Power company Centrais Elétricas Brasileiras SA (Eletrobras) is perhaps the least active of the big five to date but has set its sights on expansion in Africa.

As one of the world’s biggest hydroelectric power producers, it is currently assessing several potential jumbo hydro schemes in Africa but, as always, the development of the required transmission and distribution infrastructure could be the biggest obstacle.

Ruderico Ferraz Pimentel, the head of overseas operations said: “Currently, we have a MoU [memorandum of understanding] in place with the government of Nigeria, regarding feasibility studies in generation and transmission in the country. We are also analysing our participation in generation and transmission in the countries of Southern Africa, including Mozambique and South Africa. We are also interested in projects connected to the provision of universal electrification in this region, by exporting the benefits of the successful Brazilian experience from our Light for All programme.”


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Written by African Business Magazine

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