State Guides - Espírito Santo

Located in the south east of the country and bordering the states of Rio de Janeiro, Minas Gerais and Bahia – Espírito Santo is approximately the same size as Estonia is connected by the BR-101, BR-259, BR-262 and the BR-482 highways. The region’s main rivers are the Doce, the São Mateus and the Itapemirim and it has a largely tropical climate (with wet and dry seasons). The state largely consists of two landscapes: low levelled coastline and Serra highlands.

When the Portuguese claimed Brazil in the early 1500s, the area was granted to Coutinho family who held power for 140 years. With the Brazilian declaration of independence in 1822, the region was officially classed as a province until 1889 when upon the advent of the Republic, it was officially inaugurated as a state. The sugarcane industry was the main economic driver of the economy until the late 20th century when coffee became dominant with occasional gold rushes.

Today, one of the main advantages of the state’s location is the proximity to over 415 kilometres of coastline which is affirming its role as an important logistical hub of the country. The region not only possesses Brazil’s largest port complex but one of the most modern railroads in the country: the Vitória-Minas line. Other prominent industrial features include having the world’s largest iron ore pellet factory, a huge pulp exportation industry as well as being Latin America’s largest exporter of marble and granite. The state is also set to focus a lot of attention in the exploration of recent oil discoveries which could double the level of reserves to 5.2 billion barrels. Between 2003 and 2008, the capacity of state investment grew from 1 to 16 percent.

Below is a list of the top 50 largest companies in the state as at 2010 (compiled from data from the IBGE and local government statistics):
1) Fertilzantes Heringe (Chemicals and Petrochemicals)
2) Escelsa (Electrical Energy)
3) Águia Branca (Transportation and Logistics)
4) Chocolates Garoto (Alimentos)
5) Coimex (Holding Services)
6) Cotia Empreendimentos e Participações (Wholesale and Foreign Trade)
7) Sol Coqueria Tubarão (Metallurgy and Steel)
8) Banestes (Multiple Banks)
9) Cisa Trading (Wholesale and Foreign Trade)
10) Hispanobrás (Mining)
11) Nibrasco (Mining)
12) Brazil Trading (Wholesale and Foreign Trade)
13) Itabrasco (Mining)
14) Unicafé (Wholesale and Foreign Trade)
15) Eisa – Empresa Interagricola (Wholesale and Foreign Trade)
16) Kobrasco (Mining)
17) Tristão (Wholesale and Foreign Trade)
18) Tangará (Wholesale and Foreign Trade)
19) Viaçao Itapemirim (Transportation and Logistics)
20) Unimed Vitória (Medical Services)
21) Custódio Forzza (Retail Commerce)
22) Itabira Agro Industral (Mining)
23) Frisa – Frigorífico Rio Doce (Food)
24) Focus Têxtil (Wholesale and Foreign Trade)
25) Cesan (Water and Sanitation)
26) Rio Doce Café (Wholesale and Foreign Trade)
27) Eximbiz (Wholesale and Foreign Trade)
28) Hortigil Hortifruti (Retail Commerce)
29) Logistic Network Technology (Wholesale and Foreign Trade)
30) Target Training (Wholesale and Foreign Trade)
31) TCI Trading (Wholesale and Foreign Trade)
32) Columbia Trading (Wholesale and Foreign Trade)
33) RDG Aços do Brasil (Wholesale and Foreign Trade)
34) Perfilados Rio Doce (Metallurgy and Steel)
35) Nicchio Sobrinho Café Nicafé (Wholesale and Foreign Trade)
36) Terminal Vila Velha (TVV) (Transportation and Logistics)
37) Laminação de Cobre a Alumínio (Metallurgy and Steel)
38) Cedisa – Central de Aço (Metallurgy and Steel)
39) Comercial Motociclo (Wholesale and Foreign Trade)
40) Ducoco Alimentos (Food)
41) Buaiz (Food)
42) Real Café Solúvel do Brasil (Food)
43) Luz e Força Santa Maria (Electric Energy)
44) Mizu (Construction and Decorative Material)
45) Vila Porto International Business (Wholesale and Foreign Trade)
46) Nicchio Café Exportação e Importação (Wholesale and Foreign Trade)
47) Brametal (Metallurgy and Steel)
48) Biancogrês Cerâmica (Construction and Decorative Material)
49) Poltex – Polido Têxtil (Textiles)
50) Usina Paineiras (Sugar and Alcohol)

Over half of the state’s GDP is linked to foreign trade (it is recognised as being the most globalised state in the whole of Brazil) and there are four ports in the state’s capital: Tubarão, Praia Mole, Vitória and Vilha Velha as well as the Portocel, Ubu and Regência which are located along the 415 kilometre stretch of coast. The main exports are commodities including steel, iron ore, coffee and wood pulp in addition to other goods such as telecommunication appliances and automobiles. When commenting on the growth and future prospects of the state: governor Paulo Hartung stated in 2010: “whilst global trade links are considered important for the state’s growth – when the world falls into recession, Espírito Santo is hit harder than the rest of the country.” Indeed, after a period of solid growth, 2009 was a period which bought a shock to the system of many of the state’s industries. According to Severiano Alvarenga Imperial, president of the Espírito Santo Export and Import Trade Union (Sindiex Sindicato do Comércio Exportação Importação do Espírito Santo, Sindiex): “the biggest exporters and importers had to stop production, give collective vacations and even dismiss employees. This led to a significant reduction in the volume of goods sold.” It was also during this time that fiscal difficulties between the Brazilian states caused further problems – particularly with regards to the state-level of ICMS tax (Impostos Sobre Circulação de Mercadorias, value added tax) being imposed when exporting into the country’s largest economic state, São Paulo – an issue that was finally resolved in April 2010 to much relief. The silver lining of such events was that businesses began to increasingly diversify their produce and the state has become an important producer of fruit; has improved and diversified its livestock as well as making progress in forestry amongst others notable achievements. To assist with this process, the Espírito Santo Development (Banco do Desenvolvimento do Espírito Santo, BANDES) – which channels resources from the National BNDES and the state’s commercial bank BANESTES have collective resources in excess of R$ 7.5 billion which will be allocated to companies of various sizes.

A highly anticipated project is the expansion of the port of Vitória, which will receive part funding from the national Growth Acceleration Programme (Programa de Aceleração do Crescimento, PAC) and is widely expected to increase overall capacity by over 30 percent. According to Cláudio Loureiro, ports and institutional director of Log-in Logística Intermodal, who manage the terminal operations: “our studies demonstrate that the ports container capacity will increase from 200,000 to 550,000 within the next 15 years – particularly after the two new container loaders are installed.” Additionally, new ports in other parts of the state are being scheduled for completion within the next 10 years. The main one being in the Aracruz municipality – some 80 kilometres from Vitória which will have two terminals (both in Barra do Riacho) and will receive an investment of R$ 900 million for 14 metre deep container docks and large / cargo storage areas. The other terminal will be constructed by local company Imetame Metalmecânica and will serve Petrobras’ oil and gas activities (expected to be fully functional by 2014 with an investment of R$ 200 million in an area of 200,000m²). Ports to support Espírito Santo’s rising mining and steel industry will also be built in the next few years. Vale will inaugurate a specific port for the Companhia Siderúrgica Ubu’s (CSU) output in 2014 (located in Anchieta in the south). A purpose built port is also being constructed by the Minas Gerais based Ferrous company in the Presidente Kennedy municipality (in the far south of the state). The ‘super container’ port, whilst still in the planning and feasibility stages will, according to Márcio Felix State Development Secretary: “require investments of R$ 800 million and result in a sharp increase in the movement of containers from 300,000 to 1.2 million per year.”

Other future infrastructural investment looks set to continue to assist the state’s growth, with a new cycle of public and private funding largely focused in the mining, steel, gas and capital goods sectors – between R$ 60 and 65 billion is already earmarked (alongside the generation of over 50,000 employment positions). According to the State Development Department (Secretaria de Estado de Desenvolvimento, SEDES) and the Espírito Santo Industrial Development Institute (Instituto de Desenvolvimento Industrial do Espírito Santo, IDEIES) – by 2020, over R$ 130 billion will be invested in the private sector. President of IDEIES, Lucas Izoton in 2010 stated: “Espírito Santo has the potential for extremely rapid growth. We could double iron ore production in the next five years, for example.” Likewise, Izoton also expects a significant growth in the steel industry exemplified by both Vale and Arcelor Mittal are expanding in the state which looks set to increase production capacity to 40 million tons of steel (a nine million increase) by 2013.

Logistics companies have subsequently seen significant growth rates with Tegma Gestão (one of the largest companies in Brazil) reporting a 15.9 percent increase in state revenues between 2009 and 2010. Yet, despite registering a 25 percent revenue increase between 2009 and 2010, as explained by Wagner Chieppe of the Águia Branca transport and logistics group, difficulties still remain: “there is significant potential in the state, but unfortunately logistics infrastructure depends heavily on the federal government, both for projects and investments, which keep getting put off. This, in turn, has hampered business.” One example Chieppe refers to is the lack of adequate investment in two of the main highways that serve the state: the BR-101 and the BR-262. Another major challenge facing the state is adding value to production growth. According to Ramos: “nearly 30 percent of Brazils total exports is shipped from the ports of Espírito Santo, but they represent only 5 percent of the value of exports. The average price of our export ton is between US$ 150 and US$ 200, while in Santa Catarina, the ton of exported goods is worth between US$ 1,200 and $US 1,500.” Another issue is the localisation of most of the state’s industry along the coast and the need of more steps to be taken to expand into the region as a whole as well as to diversify produce (currently, 60 out of the 78 municipalities rely on family agriculture as the main economic activity with the remainder focused on industrial activity).

Whilst the economic links between Espírito Santo, Minas Gerais and Goiás have long been established, the activity between the states has been noted as being particularly slow. In 2007, sponsored by Vale, the governments of the three states along with industry leaders launched the Integrated Plan for Infrastructure (Plano Integrado de Infraestruturas) which has seen very little progress apart from a handful of private initiatives underway. The study accounted for the main production chains in the three states, namely: iron ore, pulp, steel, soya, coffee, coal, dairy produce, fuel, fertilizers, sugar / ethanol, bauxite and precious stones. As stated at length by Renato Casali Pavan, partner at Macrologística: “in these states, there is not much of a culture for strategic planning that takes into consideration physical, economic and social aspects. The trend is to merely draw up an action plan, usually short-term and within a state’s own borders, without a systematic vision or any consideration for what neighbouring states are doing, thus making transportation costs much higher. The Integrated Plan for Infrastructure ignores geo-political boundaries and focuses on the physical and economic integration of these three states and has, thus far, failed to fulfil the objective of identifying development axes formed by competitive transportation ties, using lower cost models as well as complementary energy and telecommunications infrastructure – this would considerably lower expenses, attract companies as well as boost employment and income.” The main bottleneck issues that were noted in Espírito Santo were: the poor standards of the railway between Patrocínio and Divinópolis in Serra do Tigre (Minas Gerais); the slow progress of the state’s port construction / improvements and the poor state of the highways.

There are several notable energy projects underway including new thermoelectric power plants, small hydroelectric plants and wind projects – which will enable the state to become fully self-sufficient whilst also increasing exports to other states in the south-east and north-east. Today, Espírito Santo has an installed capacity of 1,374 MW with a significantly higher demand of 2,200 MW (2,100 MW is imported leaving a surplus of 1,300 MW for emergency use). With the eight thermoelectric plants being completed between 2011 and 2013, the internal capacity will raise to 2,000 MW. The state’s energy matrix is further reinforced by the fact that it has the second highest level of natural gas reserves in Brazil – indeed Petrobras’ inauguration (March 2010) of the southeast-northeast gas pipeline looks set to open expansion opportunities for the state (the Gasene pipeline which connects Cacimbas in Espírito Santo to Catu in Bahia extends 1,387 kilometres with a transportation ability of 20 million cubic metres). According to Maria Paula Martins of the State Agency for Public Energy Services (Agência de Serviços Públicos de Energia do Estado do Espírito Santo, ANEP) in an interview with Valor newspaper: “in 2010, the capacity to transport gas stands at 18 million cubic metres, but production is well below this. With the thermal plants and industries looking to invest more, the state will be able to increase production and gain market share.” She goes on to state that: “if the national GDP grows by 4 percent, 4,000 MW will have to be added to the national grid – given that 70 percent of Brazil’s hydroelectric potential is in the north, which is rife with environmental barriers, natural gas plants may well become more prominent over the next few years. All the more so because thermoelectric plants can be constructed in less than two years – Espírito Santo will subsequently be able to receive investments in this segment, given its strategic position between the south-east and the north-east.” Another notable energy achievement of the state is the small hydro-electric industry – of which there are currently nine in the state (accounting for 12 percent of installed capacity). The most recent example was the Santa Fé plant which, when complete, will supply enough energy for a town of 100,000 inhabitants. The company – EDP – has established hydro-electricity operations in the state and firmly intends to expand. Whilst the wind power sector is significantly behind those of other Brazilian states, the recent commissioning of a state wind atlas and several projects in the planning stages is likely to see growth in this increasingly important energy source.

Possessing the status as being the country’s second largest oil and gas producer – as well as Petrobras – other companies such as Shell, OGX and American Anadarko are all investing heavily in the region. Petrobras’ own expansion plans include and investment of R$ 34 billion up until 2013 which, according to Robério Silva Ramos, general manager of production and exploration: “could grow even larger with the installation of projects to drill for oil in the pre-salt layer.” The industry was on the verge of closing down during the Collor administration producing little over 20,000 barrels a day, but it was changes in various regulatory policies – such as the introduction of auction system for exploring concessions, other private initiatives and the discoveries of large off shore reserves, namely the Parque das Baleias and the Golfinho – that led to what is being witnessed today. In 2009, Petrobras allocated 10 percent of its total spending via contracts awarded to 2,000 local suppliers and began a series of projects including the Capixaba FPSO (Floating Production Storage and Offloading) in the ongoing development of two of its pre-salt wells in the Cachalote and Baleia fields where capacity is expected to reach 100,000 daily barrels. The FPSO operations in the Jabarte field and the city of Vitória fields are also being initiated. Further pre-salt reserves found in the Baleia Franca, Baleia Azul and Jubarte fields are estimated to have volumes of up to 2 million barrels of oil and natural gas of which Petrobras have earmarked US$ 10.3 billion for the detailed exploration leading up to 2013. Shell have three major investments in the state with one of them being in current production: the Parque das Conchas with over 80,000 barrels being produced daily. OGX (part of Eike Batista’s EBX group) has concessionary rights over five blocks in the state and plans to drill its first wells in 2011 in partnership with Perenco (a French company).

In March 2010, Petrobras also announced plans for a fertilizer factory in the state to be located in Linhares in the north at a cost of R$ 2 billion. This investment has been considered landmark in the future growth of the chemicals industry – by-products of which will include: ammonia, urea, methanol, paint, glue, bleach and cosmetics. According to Fátima Giovanna Ferreira, economics and statistics director at the Brazilian Chemicals Industry Association (Associação Brasileira da Indústria Química, ABIQUIM): “Espírito Santo has a huge potential to develop into a chemicals and petrochemicals leader because it has both the solid fuel source of natural gas as well as the strategic position of being in south-eastern Brazil.” The ABIQUIM organisation have stated that the Canadian company Caneaus is investing US$ 39.3 million in the production of chlor-alkali and sodium chlorate for use in the paper / pulp sectors as well as for water treatment and various other uses. Other expansion examples in the sector include those of the Heringer (Brazil) and German multinational Evonik.

Espírito Santo is the country’s third largest wood pulp producer after São Paulo and Bahia with the leading organisation in the state being Fibria who have intentions of expanding the port close to which one of the their headquarters lies in the Aracruz municipality (with four new mooring facilities). In the same vicinity, the Portocel terminal, Brazil’s only specialised pulp-shipping port, is in the process of being reformed and expanded by 310,000m² – at a cost of R$ 250 million. According to mayor of Aracruz, Ademar Devens: “the expansion will create the conditions for as many as 100 new small and medium sized companies to open a branch in the municipality as well as a range of employment opportunities.”

Whilst witnessing a slowdown due to the effects of the global economic crisis, the state’s mining and metallurgy sectors are back on track – examples of which include Vale’s revised proposal for a new steel plant, to be constructed in the Anchieta municipality at a cost of US$ 7 billion; pelletizing plants in Tubarão and Anchieta (being built by Vale and Samarco respectively); a new metals plant to be built by Ferrous in the Presidente Kennedy region (which will have an ore pipeline of 400 kilometres originating at the Viga mine in Congonhas, Minas Gerais) and the planned installation of a cold rolling and galvanization line by Arcelor Mittal.

Due to the state’s strategic coastal location – the shipbuilding industry looks set for expansion with 10 major initiatives and support programmes in operation up to 2014 with R$ 2 billion scheduled for investment. According to state development secretary Márcio Félix Bezerra, Espírito Santo has the largest number of certified welders in Brazil with over 4,000 professionals. To support and encourage the industry, state-wide training programmes are in place as well as taxation incentives such as the deferred payment of the ICMS (value added tax) for companies acquiring machinery and equipment.

The housing market was another sector that took a hit during the economic crisis with most companies focused on selling their surplus stockpiles throughout 2009. In 2010, real estate companies are cautiously optimistic based on growing demand and the increased availability of mortgage finance. According to Juarez Gustavo Pascoal Soares, president of the Espírito Santo Real Estate Association (Associação Empresas do Mercado Imobiliário do Espírito Santo, ADEMI-ES): “the sector acted very responsibly and efficiently. While we were cutting new investments, there was an expansion in sales. As a result, we were able to reduce our stockpiles and there is enough demand to quickly absorb the new homes.” The next five years (2010-2015) are expected to see above average growth levels due to many of the similar reasons as with the rest of Brazil, complemented by a rising population attracted to opportunities of the region, particularly in Vitória and its neighbouring cities: Cariacica, Serra and Vila Velha. Lorenge, one of the leading developers of the state recently announced a revenue increase from R$ 85 to R$ 155 million between 2008 and 09 and forecasts revenues for 2010 to be in excess of R$ 265 million. Another major development group, Sá Cavalcante is also gearing for expansion with managing director of construction and incorporation, Victo de Sá Cavalcante stating: “our strategy is to seize the moment in Espírito Santo to launch products that combine our two strengths: the construction of shopping malls as well as the incorporation of residential and commercial real estate projects.”

The main airport that serves the state is the Eurico de Aguiar Salle which is located on over 5.2 million squared metres; currently receives over 2.5 million people per year and has an annual cargo capacity of 12,000 tons. The suspension of the airport construction work in 2008 by the Federal Audit Court (TCU) – due to suspicions of over-charging and embezzlement – has been considered a major bottleneck in the growth of several industries in the state.

Often referred to by Brazilians as a ‘mini-Rio’ – Espírito Santo is well served for tourist expansion with some features including the wide beaches, green spaces and magnificent city views as well as vast ranges of mountains (which cover 60 percent of the state territory) and the pleasant surroundings and friendliness of many of the municipalities. As at 2010, according to the State Tourism Department, the metropolitan area (consisting of Vitória, Vilha Velha, Serra, Cariacica, Guarapari, Viana and Fundão) can host a total of 11,400 guests and has an average occupancy rate of 95 percent during the week (which, somewhat oddly, dips by 4 to 5 percentage points at weekends). The same research also pointed to the flow of tourists in 2009 being 47 percent higher than in 2008 with revenues jumping by R$ 57 million as well as over 72 percent of visitors surveyed stating that their expectations had been exceeded.