State Guides - Rio Grande do Sul

Rio Grande do Sul is located in Brazil’s most southern point on the border of Uruguay (to the south), Argentina (to the west), Santa Catarina (to the north) and the Atlantic (to the east). The north consists of land similar to the south of São Paulo and large stretches of Paraná and Santa Catarina – in the form of elevated plateau; the west and the south are formed of massive stretches of grassland and are the locations of much of the state’s cattle raising activity; the east consists of the largest river systems of the state including the La Plata which drains westward into the Uruguay river.

In terms of its recent economic history, trade decreased considerably during the 1990s – largely due to issues of an overvalued exchange rate and the country’s recovery from the ‘lost decade’. Commercially, the arrival of Mercosur bought rapid changes to the state’s economy due to Porto Alegre being the only state of Brazil that borders two of its partner countries (Uruguay and Paraguay) as well as being very close to the Argentina border. The growth of the strategic partnership has continued to be developed in recent years – by the close 2010, Brazilian investments in Argentina will have reached US$ 5 billion for the year. Other important progressive steps for Mercosur include increased discussion with the EU with regards to bilateral trade agreements; participation in the World Trade Organization (WTO) and large scale involvement in the Free Trade Area of the Americas (FTAA).

It is the state’s strategic and credible location that has placed it in a strong position moving forward within Brazil’s future. According to Josué de Souza Barbosa, state development and international affairs secretary in a 2010 interview with Valor Magazine: “we will always be competitive because we have available land – an important item for any project – in addition to good logistics for Mercosur and a differentiated labour force.” Indeed, Rio Grande do Sul has been able to attract significant public and private investment which has, in turn, assisted its economic and social development. Public spending, in particular, has seen a massive jump from R$ 662 in 2009 to R$ 3.5 billion in 2010 (according to Governor Yeda Crusius). By the close of 2010, private investment will have reached R$ 43 billion with the development of over 200 projects and 68,000 employment positions. As an example, the port of Rio Grande will be in receipt of over R$ 3.8 billion assisting the shipbuilding, automotive, shipbuilding, furniture, metals, machinery, electronics, energy, chemicals / petrochemicals, logistics, rubber and related service sectors whilst generatiing of over 5,100 jobs.

It is this renewed capacity, according to state treasury secretary Ricardo Englert, that has restored business confidence after many years of stagnation. At the end of 2006, according to government statistics, Rio Grande do Sul had its steepest budget deficit, the highest debt among all of the states of Brazil as well as the lowest investment rate in the country. By 2008, the deficit disappeared and in 2009, despite the effects of the global economic crisis, forward thinking budget planning was able to be implemented which, according to the treasury secretary: “enabled us to know exactly where the money allocated for 2010 and beyond was to be invested – with balanced books and new investments, the state can resume its development.”

The Real Estate Market
As with many states of the country, whilst the Rio Grande do Sul real estate market was not immune to the effects of the recessionary period experienced in Brazil – it managed to bounce back fairly quickly to reach 2007 levels with the Sinduscon-RS (Sindicato da Indústria da Construção Civil do Estado de Rio Grande do Sul, Civil Construction Industry Union of Rio Grande do Sul State) stating that its construction and real estate index will comfortably reach a growth level of 7.5 percent by the close of 2010. The organisation also pointed to over 132,000 directly / indirectly related employment positions in the sector, a number that has grown by approximately 20,000 in 2010 alone. The Porto Alegre market has witnessed a rising amount of luxury style property valued at between R$ 150,000 and R$ 250,000 which have attracted the interest of the city’s rising middle and upper middle classes. The country’s leading developers – including MRV, Cyrela and Rossi – all have a presence in the state, with the predominance being in the capital city.

Top 50 Companies of Porto Alegre
Please see a list of the leading companies as at 2010 in terms of revenue as sourced by the Rio Grande do Sul Chamber of Commerce, the state government and Valor magazine.

1) Gerdau – Metallurgy and Steel
2) Alberto Pasqualini – Oil & Gas
3) Banrisul – Banking
4) Randon – Automobiles and Autoparts
5) Yara Brasil – Chemicals and Petrochemicals
6) Marcopolo – Automobiles and Autoparts
7) Lojas Renner – Retail Commerce
8) Rio Grande Energia – Electric Energy
9) CEEE Distribuição – Electric Energy
10) AES Sul – Electric Energy
11) Doux Frangosul – Food
12) Zaffari & Bourbon – Retail Commerce
13) SLC – Retail Commerce
14) Grendene – Textiles, Leather and Apparel
15) Dana – Metallurgy and Steel
16) Vonpar – Beverages and Tobacco
17) Bianchini – Food
18) Universal Leaf Tabacos– Beverages and Tobacco
19) Lojas Colombo – Retail Commerce
20) Corsan – Water and Sanitation
21) Zamprogna NSG – Metallurgy and Steel
22) Innova – Chemicals and Petrochemicals
23) Vipal – Plastics and Rubber
24) Panel Farmácias– Retail Commerce
25) RBS – Communications and Graphics
26) Moinhos Cruzeiro do Sul – Food
27) Josapar – Food
28) Refeições Puras – Specialised Services
29) Bansicredi – Banking
30) Agrale – Automobiles and Autoparts
31) Bom Gosto – Food
32) Continental Tobacco Alliance (CTA) – Beverages and Tobacco
33) Springer Carrier – Electrical and Electronic Goods
34) Stemac – Electrical and Electronic Goods
35) Petroquímica Triunfo – Chemicals and Petrochemicals
36) Refinaria de Petróleo Riograndense – Oil and Natural Gas
37) Forjas Taurus – Metallurgy and Steel
38) CEEE Geração e Transmissão – Electric Energy
39) TNT Mercúrio – Transportation and Logistics
40) Terra Networks Brazil – Information Technology
41) STIHL Ferramentas Motorizadas – Machinery and Equipment
42) ThyssenKrupp Elevadores – Machinery and Equipment
43) Petropar – Chemicals and Petrochemicals
44) AUES Uruguaiana – Electric Energy
45) Unimed Porto Alegre – Medical Services
46) Lojas Quero-Quero – Retail Commerce
47) Calçados Beiro Rio – Textiles, Leather and Apparel
48) Sulgás – Oil and Natural Gas
49) Cotrijal – Agriculture
50) Oleoplan – Food

Infrastructural Improvements / Credit / Tax Incentives
Infrastructural developments are also earmarked for development – particularly with regards to logistics and transport facilities, with some R$ 46 billion in private and public investment in 2010 alone on roads (the 13,000 kilometre network will be modernised); ports; waterways and airports (8 of the state’s 15 are being renovated) as well as significant improvements being made to the state’s irrigation systems to ensure that both family and industrial farms have access to clean water supplies.

Preparations for the World Cup 2014 are well underway and the state is taking the games particularly seriously with an estimated minimum of 150,000 visitors expected. The hotel industry is investing over R$ 50 million expanding the number of beds to 15,600 (from 13,000 today) and road and traffic infrastructure are also being improved in the city centre of Porto Alegre, budgeted at US$ 120 million with work slated for completion in 2013.

The state bank – Banrisul – is firmly intent on increasing its credit portfolio, an objective that was realised in 2007 with a R$ 800 million public share offering from the São Paulo stock exchange obtained in 2007 with a further R$ 226.8 million technology modernisation investment in 2009. According Paulo Franz, commercial director: “the 2007 offering allowed the bank to raise its operational capacity and also put it in a position to increase its lending operations.” For 2010, growth is expected to close at 25 percent with a total credit portfolio of R$ 16.7 billion – in 2009, companies accounted for 47.2 percent of its portfolio, whilst personal loans represented 52.8 percent. Franz is expected there to be significant expansion in corporate lending in the coming years.

In addition to this, the government has initiated a number of tax incentives to encourage business development and new investments with the major one being the FundoPen programme where companies can delay payment of the ICMS tax. According to state development and international affairs secretary, Josué de Souza Barbosa: “if a company makes the commitment to grow 30 percent per year, it will only pay 25 percent of ICMS.” The state government have pointed to the example of the Ford assembly plant in Guaíba which, after remaining dormant for several years, was resurrected and the region where it is based is now becoming increasingly industrialised and developed. Englert states: “we are receiving six companies who are going to invest $ 700 million and generate 1,800 jobs” (the companies are the Terex Corporation, Vipal-Fate, Andrita Supply, International Pet, Renobrax and Gaya). Additionally technology companies can also benefit from incentives such as the ‘HT Micro’ as well as specific favourable policies to encourage the ethanol industry.

Energy
The demand for energy is expected to grow at between 4.5 to 5 percent in the coming years with both public and private expansion plans reaching approximately the same level –some R$ 15 billion was spent between 2006 and 2010 including a significant overhaul of the electrical grid (with support of a US$ 300 million Inter-American Development Bank loan combined with investment from the state’s electrical company); a series of wind energy tenders / farm developments; thermoelectric power plants; natural gas; biomass; biodiesel and other ethanol related production plans. The majority of this investment – at approximately R$ 10.3 billion – has come from the private sector (R$ 1.2 billion in 2010). The state government, nevertheless, remains concerned as to the ability of the state to be able to keep up with demand – particularly as the industry continues to expand. Rio Grande do Sul still needs to import up to 60 percent of its consumed energy. According to Alexandre Porsse, state secretary of planning: “we believe that with the construction of new thermoelectric power plants and wind farms, as well as the development of new projects in these segments, we will be able to meet the growing demand.” A major issue facing the state is the problem of water shortages, particularly in the summer months – estimated by the irrigation and water secretary Rogério Ortiz Porto at costing almost R$ 2 million annually. In response, in 2010 1,200 rain water collection water tanks were installed with 3,500 cisterns spread throughout the stare.

Exports
The export trade industry is also expected to grow in the coming years and, according to Josué Barbosa, state secretary of Development and International Affairs: “from this year on, the profile of Rio Grande do Sul exporters will change, as we are seeing greater shipments of more sophisticated products.” Evidence from the first half of 2010 showed that exports had grown by 14 percent with the main products being paper / pulp (84 percent), chemicals (64 percent), vehicles (31.6 percent) and leather / footwear (23 percent). The most popular destinations, in order, for state exports are Argentina, the USA, Paraguay, China, Russia, the Netherlands, Germany, Italy, Chile, Spain, Uruguay and Saudi Arabia. According to president of Rio Grande do Sul State Industry Federation (Fiergs), Paulo Tigre in an interview with Valor magazine: “this progress should not be temporary and we’ll do what we did before the global economic crisis even better, either through advances in industrial design or complete innovation. Our new technological parks are being created the safe way, integrating university resources, private business and the government.” However, concerns remain about the state’s minimal involvement with the major commodities of prominence on the national agenda including oil and iron ore – although the soy and ethanol industry’s growth performance has been presenting encouraging signs. Imports have been growing rapidly which is largely in the form of machinery, equipment, raw and intermediate goods and therefore looked at positively to achieve higher production levels.

Retail
After a slight decline in 2009, the growth of the retail sector is back on track, expecting to reach 10 percent by the close of 2010 – representing 15 percent of the total GDP largely due to rising incomes, reduced unemployment and increased levels of credit. According to José Paulo Dornelles Cairoli, president of the Rio Grande do Sul Federation of Commerce and Service Association (Federação das Associações Comerciais e de Serviços do Rio Grande do Sul, FEDERASUL): “retail trade represents around 15 percent of the state’s GDP – until 2008 this curve was rising until 2009 when the sector reported a sharper decline than the average for other sectors. Now it is time to rise again.”

Supermarket industry leaders are also optimistic about the future particularly due to the fact that in 2009, 700,000 Gaúchos (residents of Rio Grande do Sul) benefitted from higher spending power by moving from the D & E classes into the C. According to Anthony Longo, president of the Gaúcho Association of Supermarkets (Associação Gaucha de Supermercados, AGAS): “there has been an increase in the customer base now with higher incomes and searching for more valuable and diversified products – which has led to a 8 percent growth in the supermarket sector in the last year which we expect to continue.”

Agribusiness
As the third largest producer of grains and having nationally prominent meat and dairy industries – business leaders in the sector are preparing for expansion in the form of modernisation, technological improvements, certification and detailed quality control measures. Estimated at R$ 203 billion, agribusiness represents 11.5 percent of state GDP; 30 percent of wealth generated and 60 percent of exports – producing a trade surplus of US$ 8.359 billion in 2009 (compared to US$ 5.765 billion for the overall trade balance). For 2010, despite heavy rainfall, harvest levels are hitting state records – according to the Brazilian National Food Supply Agency (Companhia Nacional de Abastecimento, CONAB) grain production for 2010 was at 24.01 million tons, an increase of 6.3 percent from 2009 and 137 percent more than in 1990. Agricultural production occupies 15.5 percent of Rio Grande do Sul’s land space. For the 2009/10 harvest, 9.54 million tonnes of soy; 6.9 million tonnes of rice; 5.282 million tonnes of corn and 1.806 million tonnes of wheat were produced. The government has been heavily involved in the development of modernised techniques to be implemented in the agribusiness industry mainly focused on improving animal health and quality control. The Department of Agriculture, Livestock, Fisheries and Food Supply (Secretaria de Agricultura, Pecuária, Pesca e Abastecimento, SEAPPA) is currently involved in a range of projects including supplying / developing computerised livestock control systems, service improvement of veterinary inspection agencies and other animal science technology – with an investment of over R$ 12 million with additional funding expected to develop the dairy industry specifically. Furthermore, the Animal Health Defence Development Fund (Fundo Estadual de Sanidade Animal, FUNDESA) has allocated finance of over R$ 16 to be used for the development of a state-wide livestock health and geo-referencing service. The Union of Milk and Dairy Production (Sindicato das Indústrias de Laticínio do Estado, SINDLAT) reported that an addition six companies have started business in the state in 2010 – now officially making it the largest production centre of Brazil (including Nestlé who have invested R$ 110 million in a factory which will produce 1.5 million litres of milk daily at full capacity).

Technology
The state’s technology industry has worked closely with the academic institutions to develop growth in the form of industry hubs – which, in turn, has attracted multinationals particularly from the IT and communication sectors. The Rio Grande do Sul Programme for Quality and Competitiveness (Programa Gaúcho da Qualidade e Produtividade, PGQP) has continued to be a state leader in developing innovation and effective technological management, operating in three sectors: private, public and the non-for-profit. A notable achievement of the PGQP has been its assistance in eliminating the state deficit as a result of detailed examination and reform of how to reduce expenditure and increase revenue.

In 2010, the state government has also released R$ 10 million to support the various the sectors including the expansion and consolidation of technology parks – such as the PGtec Technology Park Program; the Science and Technology Park of Planalto Médio (UPF), the Vale dos Sinos (Valetec), the Santa Maria (Tecnoparque), the Vale do Taquari (Fuvates) and the Regional Science and Technology Park (Unisc) as well as the initiation of the ´Innovation´ law, created in December 2009.

A particularly relevant project being undertaken is PGtec´s work in what will be a centre for the automation and engineering technology for Brazil´s pre-salt petroleum drilling plans. Some other notable examples of industry growth include Dell which has, since 2002, occupied two buildings at the University of Rio Grande do Sul within its science and technology park developing partnership with the Brazilian arms of Microsoft and Oracle. HT Micron (a joint venture partnership between South Koreas Hana Micron and Rio Grande do Sul’s Altus) are building a industrial plant in metropolitan Porto Alegre which will develop semiconductors, computers, automobile technology and other electronic products.

The Steel Industry
The growth of the steel sector that has been witnessed in Rio Grande do Sul since 2007 is largely due to a number of major acquisition and expansions, examples of which include international private equity company purchasing a controlled stage in pipe welding company Zamprogna and Gerdau’s expansion in the Charqueadas municipality prompted by its strategic location to General Motor’s unit in the metropolitan region of Porto Alegre as well as the growth of the shipbuilding industry. As the state is seeing a visible recovery in its agribusiness sector, the steel industry is also encouraged particularly in the Santa Rosa municipality where a significant amount of machinery will be needed to meet growing demand. In addition, the growing residential and commercial construction industry will certainly boost the demand for steel – particularly for the infrastructural plans underway in line with the 2014 World Cup, airport expansions, highway renovation / construction and housing projects such as the ‘Minha Casa, Minha Vida’.

Shipuilding Hub / Offshore Drilling Facilities
After a period of slow activity, the southern part of the state is witnessing a rapid growth rate as a result of the shipbuilding hub which has Petrobras as its main client. WTorre – one of the country’s leading commercial / industrial developers – have recently completed reformations to the dock which has established it as the largest in Brazil at 350 metres long and 135 metres wide (will be leased back from Petrobras). The 15 metre deep docking facilities enable two tankers with up to 300 tons of cargo to be present simultaneously. As at 2010, there are 30 companies installed in the vicinity of the dock with several others to be expected in the near future. A prominent example is the Engevix organisation who will build eight ships for Petrobras with an investment of over US$ 4 billion and 10,500 direct and employment positions. Wilson Sons, in partnership with Bunge and WTorre will also start construction another shipyard facility with a collective investment of R$ 660 million+.

Petrobras has its P-53 drilling offshore platform and two more in construction during the next 2 years. The P-55 – with an investment of US$ 1.65 billion – is currently being constructed in Pernambuco and, once completed (expected to be delivered by 2011), will enable the production of 180,000 barrels of oil and 6 million cubic metres per day – bringing some 3,500 jobs. The P-63 is being put together in Europe with an investment of $US 2.3 billion will excel the region as a significant producer of the country.

In terms of other industries operating within the shipbuilding district include woodchip recycling for bio-energy purposes, fertilizer production as well as supermarkets (including France’s Carrefour and Walmart) and two new hotels.

Oil and Natural Gas
The main operation with regards to oil and gas production is the Alberto Pasqualini Refinery (Refap, 70 percent owned by Petrobras) – which has undergone significant expansion in recent years particularly in the production of cleaner fuels with lower pollutant levels. According to Walter de Vitto, energy consultant from Tendências in a 2010 interview with Valor magazine: “investing in cleaner products improves the company’s image from the perspective of respecting the environment and expanding markets – for some, sales may be banned if fuels do not meet environmental norms and standards requiring lower pollutant emissions.” A new sulphur reducing hydro-treatment unit is set to be completed by 2011 and a further by 2013 – which will increase production by over 69,000 barrels per day. Petrobras are also set to announce further expansion plans beyond the completion of this project in the Rio Grande do Sul area as well as the Mercosur countries and the Caribbean.

Chemicals / Petro-chemicals
The main chemical / petro-chemical hub of the state is located in the Triunfo municipality and it is a sector which will is witnessing capacity-based investment in the form of new industrial units, renovations and the development of new materials. The largest company operating in the region is Braskem which, as a result of a R$ 1 billion investment will have a production capacity of 200,000 tons of environmentally friendly green ethylene per year (used for toys, plastic bags and utensils) – 80 percent of which will be exported to Asia and Europe (whilst not 100 percent biodegradeable – the product does reduce the use of fossil fuels and petroleum derivatives which helps to reduce greenhouse gases). Between R$ 100 and 150 million is being invested annually by the company for modernisation purposes, including more recently the construction of an ethanol drying plant and the renovation of its Santa Clara based logistics terminal. The company also produces polyethylene – of which production capacity by the end of 2010 will reach 1.28 million tons annually.

The Auto Industry
The state produces 67 percent of the country’s road cargo transport, 55 percent of the harvesters, 50 percent of buses / mini-buses, 8 percent of cars and 1 percent of trucks. The are now 576 domestic and international auto-related companies in operation including Randon, Guerra, Agrale, Comil, Vipal, Beobus, Semeato, DHB, Toyota, Pirelli, John Deere, AGCO and Dana – with annual revenues reaching US$ 13 billion (and rising) that employ over 78,000 people.

General Motors have announced what will be one of their largest investments in recent years with a R$ 2 billion expansion plan of its industrial complex in the Gravataí municipality (located some 300 kilometres from Porto Alegre). The factory already possesses the automaker’s most modern assembly line in the world and will further grow the agricultural machinery arm. With over 15 industrial units operating within the state, Dana expects growth levels to reach between 10 and 15 percent up until 2014.

Wood & Paper
Rio Grande do Sul has two large pulp factories and several paper factories. Whilst the local market plays an important role for this industry, it is mainly the international market that is of most interest which led to many companies suffer during the course of the economic financial crisis – resulting in a number of investment postponements and consolidations. Nevertheless, pulp from the region is considered to be of the highest quality and is globally recognised – as world economies begin their slow recovery, the industry is becoming more confident about the future. Prices have seen rises in 2010 (US$ 800 per ton, according to the Brazilian Association of Pulp and Paper, Associação Brasileira de Celulose e Papel, BRACELPA) which have been attributed to a number of reasons in addition to resumed demand, including the slowdown of Chilean output due to the earthquake in 2009. In terms of notable acquisitions, the CMPC group from Chile in 2009 purchased the Guaíba forestry unit from the Aracruz group for R$ 143 billion. The industry (which also includes Masisa, Fibraplec and Duratex) will invest over R$ 10.8 billion up until 2011.

The Furniture Industry
The main hub of Porto Alegre’s furniture production is located in the Bento Gonçalves municipality with over 298 plants including Italínea, SCA, Dell Anno, Todeschini, Criarae and Bentec. According to Ivo Cansam of the Rio Grande do Sul Association of Furniture Industries (Movergs): “the Gaúcho furniture industry’s strong points have always been its production and marketing” going on to point out that a significant amount of companies are investing in innovation, brand communication, communication, efficiency and quality to enable the country to remain a national leader. The Florense company have recently set a new standard by gaining ‘green company’ status and investing over R$ 40 million to double its capacity (the company is now located in the largest finishing centre in Brazil).

Footwear
Rio Grande do Sul’s footwear industry is also worth mentioning, responsible for 35 percent of national production and employing over 340,000 people within the state. As well as demand levels increasing, the federal decision to impose a US$ 13.85 tax on shoes imported from China has enabled the industry to grow solidly. With the majority of the industry happening in the west coast, new production lines are encouraging expansion with the aim of taking advantage of both the domestic and international markets – according to the Brazilian Footwear Industry Association (Abicalçados): “today companies are trying to maintain 60 to 70 percent at home and send the rest overseas, as a way to strengthen the brand and increase scale.” In 2009, 35.5 million pairs of shoes were exported bringing a revenue of US$ 765.8 million of the total US$ 1.3 billion total of the Brazilian industry.

Tourism
The Serra Gaúcha is the most visited region of the state for tourists, particularly in the winter months around Gramado (2.5 million annual visitors) Caxias do Sul and Bento Gonçalves (known as Brazil’s wine capitals). Other regions of tourism interest – apart from Porto Alegre – are:
- Missões, Carazinho, Passo Fundo, Erechim, Marcelino Ramos, Irai, Frederico Wesphalen, Ronda Alta, known for their hydromineral resorts;
- Arroio do Sal, Capão da Canoa, Cidreira, Imbé, Maquiné, Mostardas, Palmares do Sul, Osório, Torres, Três Cachoeiras and Xangri-lá – mountainous regions close to the Santa Catarina border;
- São Miguel das Missões, Santo Ângelo, Ijuí, Caibaté, Guarani das Missões, São Luiz Gonzaga, Santo Antônio das Missões, Augusto Pestana and Santa Rosa – historical regions where visitors can follow the path of settlers in the state;
- Rio Grande – the oldest city in the state;
- Mangueira, Taim, São Lourenço do Sul, Camaquã, Tapes and Jaguarão – ecological reserves, marshes, dunes and beaches;
- Santa Cruz do Sul, Lajeado, Venâncio Aires, Rio Pardo, Candelária, Montenegro and Taquari – valleys as well as traditional cultural events and fine cuisine.

Other Industry
An estimated R$ 200+ million is currently being invested in the construction of a semi-conductor assembly plant in the São Leopoldo municipality – in a joint venture partnership between Hana Micron from South Korea and Altus, a local company.

In the food and beverage industry, some notable examples of industry expansion is the expansion of of the juice company Monte Vêneto who will invest over R$ 12 million by the close of 2012 (in partnership with the Venezuelan development bank BANDES); the Languiri Coopeartive investing of R$ 33 million to open a meat packing plant with the majority of exports heading to Europe and AmBev’s plans to expand their Passo Fundo barley brewery which will enable production levels to increase by over 30 percent.