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November 08, 2012

Part 1: The Construction Industry in Brazil


By Janaina Gilsoul
BACC-SE Business Intelligence Specialist
in the Construction Industry




The Brazilian economy is growing exponentially, and most investors are aware of it; yet there is still a scarcity of information and resources on how and where to invest. As an architect with firsthand experience in both the private and government construction sectors in Brazil, I will be presenting to you in a series of articles what this particular industry has to offer today.

What I have witnessed in Brazil is a real boom in the construction industry; even during the ongoing global economic crisis. According to the Brazilian Institute of Geography and Statistics (IBGE), construction in Brazil has increased 11.6% in 2010, in comparison to other sectors with a lower average growth.

The boom in construction activities throughout Brazil is directly related to numerous factors such as government subsidies, the ease of access to bank loans, an increase in the middle-class buying power, a decrease in bureaucracy, the relief of taxes on industrialized products such as inputs materials, and also foreign direct investments. Analysts predict that the factors mentioned above are expected to continue benefiting this sector for a long period of time. The increased demand for construction services has created an augmented competitiveness among companies such as Odebrecht, Queiroz Galvao, Gafisa, Inpar, and many others. From 2007 to 2010 IBGE has calculated a 50.2% increase of active construction companies, as shown in Table 1 below:




Source: IBGE. Diretoria de Pesquisas. Coordenação de Indústrias. Pesquisa Anual de Indústria de Construção 2007 – 2010.

Following this further, the market has a huge potential for continued growth and development. It is a mistake to believe that this growth is close to reaching its peak. There is an increased demand for services, manpower and raw materials in the construction sector.

In 2010 I had the opportunity to work building affordable homes (social housings) for the Brazilian government. During this project we had trouble acquiring raw materials such as brick, cement, and even tile, for our construction sites. Our team was forced to establish partnerships with companies in various regions due to the lack of companies to provide raw materials in our area. Consequently, the cost of doing business increased in our project, which could have been diminished if companies were readily available in the area.

Another great opportunity is to invest in construction-waste recycling programs. Various cities throughout Brazil are reserving sites for construction waste management programs, and privately owned enterprises have seized this opportunity. The advantages are countless and the opportunity for profitability is immense.

Specialized services such as architects, engineers, and testing laboratories have so many ongoing demands that often they can't meet the deadlines. Profits are guaranteed for consulting firms that can introduce business solutions and use new accessible technologies to assist in increasing profit margins. The lack of skilled human capital is also a major problem in construction sites. Lately there has been an increase in unions and strikes across the country due to the lack of management proficiency. The Brazilian government has provided scholarships for students to study abroad and specialize in such fields, with an intent to change the current situation. In other words, we also need professionals specialized in this field.

In addition to the needs above, I must also mention that metal structures, and precast solutions, especially concrete walls and drywalls, are examples of good investment opportunities with virtually guaranteed returns. Below you will find a chart extracted from a survey done by IBGE from 2007 until 2010, which portrays an increase in revenue for various activities related to the construction field. Retail properties are the only exception of this growth, since the majority of sales are concentrated on new constructions. To access the complete IBGE survey (available only in Portuguese), please click here.

Table 2 – Gross revenue from construction industry per activities branches – Brazil 2007 to 2010



Source: IBGE. Diretoria de Pesquisas. Coordenação de Indústrias. Pesquisa Anual de Indústria de Construção 2007 – 2010.

On my next article I will be presenting a list of hosting cities for the Confederations Cup of 2013 and the FIFA World Cup of 2014. I will be discussing the pros and cons of the investment opportunities in each city, including my experiences in building one of the soccer stadiums for 2014.


The Brazilian-American Chamber of Commerce of the Southeast provides information, connection, and support for businesses interested in trade and investments between Brazil and the Southeastern United States.  For more information, contact us at info@bacc-ga.com and ask us about our membership opportunities.
 





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