Brazil’s Defense Industry Booms

By Dialogo
August 23, 2012

Brazil’s defense industry is booming, fueled by government incentives to modernize the country’s armed forces and develop a robust, export-oriented military industrial complex.

“Companies are happy. There is a willingness to grow and invest. Five years ago, it was the opposite,” said Carlos Pieratoni Gamboa, Vice President of the Brazilian Association of Defense and Security Equipment (Abimde) to AFP.

Abimde, which groups 170 companies, expects investments of $120 billion in the long-term, and by 2020, it plans to double the current 25,000 direct jobs it generates and increase annual exports from $1.7 billion to $4 billion.

Brazil, the world’s sixth largest economy, seeks to protect thousands of miles of border, and giant ocean oil reserves, ensuring security at the 2014 World Cup and the 2016 Olympic Games in Rio, and improve its performance in combating natural disasters.

Brazil, which in the 1980s was the world’s eighth largest arms exporter, today languishes in 30th place, according to industry reports. They still have the largest Armed Forces in the region, but they have been decimated by the lack of investment in equipment for more than two decades.

President Dilma Rousseff, went through moments of tension when promoting the creation of truth commission to probe rights abuses during the 1964-1985 military dictatorship. But she and her predecessor, Luiz Inácio Lula Da Silvia, also fostered the current boom in the industry by re-investing in equipment and underscoring the strategic importance of a domestic defense industry.

In 2008, Brazil launched a “national defense strategy” and this year, Rousseff approved an incentive plan to boost production and domestic purchases.

Brazil purchased submarines and helicopters from France provided that technology and production would be transferred to Brazilian territory; it revived a project to develop a nuclear submarine, and wants to start building it in 2016, and a government decision is awaited on awarding a multibillion dollar contract for 36 fighter jets.

“We need this industry because it is strategic for our sovereignty, because of the size of our territory, the length of our borders, and because we have been blessed with enormous wealth,” Rousseff has said.

The Brazilian defense market is already attracting international companies despite a world in crisis.

“There is a clear movement of foreign companies seeking partnerships with Brazilian counterparts,” a strategy which offers technology transfer to Brazil while foreigners gain access to government contracts that give priority to the domestic industry, Oswaldo Luiz Guimaraes, engineering manager at the Brazilian firm Jaragua, told AFP.

Jaragua, which is expanding its defense activities to take advantage of the momentum, has partnered with Italian firm Oto Melara to produce cannons in Brazil and set up a maintenance center for Latin America.

Brazil sees its neighbors and other emerging countries as natural markets, and has intensified its military and industrial cooperation with them.

Several Latin American projects, including the development of the new KC-390 military transport plane being developed by the Brazilian plane maker Embraer, consists of industries from Argentina, Chile and Colombia, who also plan to buy the aircraft.

This strategy wins customers in the country and contributes to a regional industry, while calming fears of a Brazilian military buildup, according to Nelson During, chief editor for the specialized website DefesaNet.

Brazil’s Flight Technologies company, which last weekend took part in the first defense industry show in Brazil, is reaping the benefits of this policy. It develops drones to protect the borders and has already sparked interest in neighboring countries, said its marketing manager Noli Kozenieski.

The defense budget of Brazil was 10th in the world in 2011, with $36.6 billion dollars, according to the International Institute for Strategic Studies (IISS), although more than 80% of its budget traditionally goes towards salaries. Many investments – such as the purchase of 36 fighter jets – have been postponed.

According to the Ministry of Defense, Brazil spends on defense 1.5% of the country’s GDP, less than some neighbors and major emerging countries.

“The situation is promising for the Brazilian industry, but challenges lie ahead,” During told AFP, stressing that the government must guarantee its planned investments in spite of the economic crisis.