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New President Jair Bolsonaro will pose a real test for democracy in Brazil. What consequences will the election have on mechanical and plant engineering companies in the country?

By Thomas Junqueira Ayres Ulbrich

Brazil, the world's fifth-largest country with 207 million inhabitants, is a country of extremes. Drought in the north and floods in the south. Favelas right next door to the gated communities of the super-rich. The world’s highest number of plastic surgeons and hospitals in which patients die before they can see a doctor.

Some of these extremes played a decisive role in the recent presidential election. The high crime rate means that Brazilians have to cope with the daily fear of having a gun held to their head. 13 million unemployed people is a record, and the number of people living in poverty is growing all the time. The economy has been falling almost constantly for the last four years, and there are hardly any measures to put corruption in check.

Growing uncertainty

It is no wonder that people are worried. They are desperate for change - at any cost. Against this backdrop, it is hardly surprising that Brazil elected Jair Bolsonaro, a former military officer known for his extreme views. It was also a vote against the Workers’ Party that had shaped Brazil’s destiny for the last 13 years.

Executives at VDMA companies in Brazil will have been deeply concerned by some of Bolsonaro’s statements, but they have not given up hope for renewed optimism across the country. The last three years were anything but easy for the mechanical engineering sector in Brazil, with the political situation having effectively called a halt to any investment. Why buy machinery if the end customers cannot afford to buy the products made with it anyway? This was the mood up to now.

Difficult conditions for medium-sized industrial companies

There was almost no public investment during this period either. All the roads are heavily potholed and only around half of Brazilian homes have proper plumbing. The state is on the brink of bankruptcy, not least due to the government’s failure to modernize the completely antiquated pension system that allows some people to retire before they turn fifty.

"The conditions in the country are difficult for medium-sized industrial companies. And there is no way of knowing whether a president who freely admits to having no idea about economics can bring about fast improvement. But Brazil needs a strong democracy," says Ulrich Ackermann, Head of the VDMA Foreign Trade Department. Restarting the negotiations between the EU and Mercosur, in which Brazil plays the largest role, would therefore be a good step. A free trade agreement could boost trade with Brazil and stimulate the country’s economy at the same time.

High market potential

Many mechanical engineering companies are concerned about a huge investment backlog in their sector in Brazil. Following the presidential election, this is fueling hope that the investment climate might change quickly given different economic conditions, bringing significant economic growth as early as 2019. After all, the Brazilian market is as huge for mechanical engineering as the country itself - and this potential is only now being recognized in many fields. For example, only around 22,000 forklifts are currently sold in the largest country in South America every year. In Germany, the figure is almost ten times higher, with a population not even half the size. As soon as Brazil invests in modern logistics systems, the market volume could skyrocket.

Further information

VDMA Foreign Trade   |   VDMA Brazil

Thomas Junqueira Ayres Ulbrich, VDMA Brazil.