|A world of opportunities
and challenges for Brazil
|“We have competed with several global companies.
Challenge always motivates us to do more”
|Written by Eliana Simonetti
Photos by Holanda Cavalcanti
Architect Francisco Valladares, Vice President of the Brazilian Association for Basic Infrastructure and Industries (Abdib) is about to mark his 27th anniversary with Construtora Norberto Odebrecht. He was one of the people chiefly responsible for Odebrecht’s first contract in Argentina: the Pichi-Picun-Leufú (PPL) hydroelectric plant, built in the 1980s. A great deal has changed since then, but service exports are still an unsung hero. The government still lacks the statistics needed to gauge the sector’s importance and set priorities. However, the need to physically integrate the South American continent promises to open up a vast range of opportunities for Brazilian exporters of engineering and construction services.
In this interview, Valladares, Responsible for Business Development at Construtora Norberto Odebrecht, outlines the current situation from his privileged standpoint as a participant and observer of the history of this economic segment. And he optimistically affirms that, “Our hallmark is perseverance and the pursuit of innovative solutions. The physical integration of South America is inevitable, but it won’t happen overnight. And it will require the active participation of the private sector.”
Odebrecht Informa – Odebrecht’s position as Brazil’s leading service exporter is important for the company and the country. Where can the biggest opportunities for exporting services be found right now?
Francisco Valladares – In the immediate term, they can be found in emerging nations, including Latin American countries. Apart from needing to improve their infrastructure, they are aware of the importance of physical regional integration. Political and diplomatic integration is no longer enough. This means that roads, railways and inland waterways must be built. As a result of physical integration, Brazilian products will be able to reach Pacific ports, and goods from the Andes will reach the Atlantic. In Brazil, this will create the need to solve infrastructure problems, particularly in the nation’s ports, which will receive massive amounts of cargo from neighboring countries.
OI – Are there any international agencies interested in financing such projects?
FV – They’re more than just interested – they’re committed to doing just that. The IADB (Inter-American Development Bank), the CAF (Andean Development Corporation) and the BNDES (Brazil’s National Economic and Social Development Bank) have all signed agreements guaranteeing that they will finance these projects.
OI – Do the more developed countries have a more positive attitude towards opening their doors to foreign companies?
FV – Experience has shown that the more developed nations historically are more familiar with imported products and services, but their infrastructure sectors are less demanding, all sectors are much more competitive, and they all have their own market protection mechanisms. Developing countries fear that a huge influx of imports will destroy their domestic markets. When that obstacle is overcome, another arises: the need for more financing. Therefore, apart from the technical aspects, the sale of engineering services involves different challenges in different regions.
OI – Odebrecht has a tradition of surmounting challenges – a history of perseverance. What is the advantage of embarking on complicated ventures?
FV – The fact is that we never quit in the face of adversities. On the contrary, our hallmark is perseverance and the pursuit of innovative solutions. We have competed with several global companies. Challenge always motivates us to do more. Like the financial market, the safest investments have the lowest yields. Those who seek the biggest challenges can get the best results.
OI – Could it be said that Odebrecht is currently giving preference to developing nations?
FV – It’s not a matter of preference. Working in the EU, for example, has its own unique characteristics and opportunities, because there are fewer infrastructure needs and the market is hugely competitive. On the other hand, developing countries have an enormous infrastructure deficit. The opportunities are there. The number of European, Asian and North American companies competing in this market shows that this is not just an option. Developing nations have needs in just about every infrastructure segment. From sewer systems to subway lines.
OI – What are the biggest obstacles the company faces in exporting services?
FV – They have to do with the need for faster and more flexible export promotion mechanisms from domestic financial agents – in other words, BNDES and Banco do Brasil.
OI – What are the prospects for progress in that area?
FV – Several government sectors are working hard to move forward, considering the international opportunities available and the technical quality of Brazilian engineering. We need a national policy that sets guidelines for the private sector’s efforts to export services. The role of government is to set an investment and financing policy for service exports, focusing on sectors a, b and c in regions x, y and z. This would save a great deal of time and effort.
OI – You represent Odebrecht in the Abdib, an association of Brazil’s basic industries. Is boosting Brazilian service exports a difficult job?
FV – Brazil currently has enough installed industrial capacity to meet the nation’s needs and export products as well. We can supply the Latin American market, and we have worked hard to expand it. A major reason for this is the opportunity to occupy an important space by introducing Brazilian equipment and services that will eventually require replacement parts, technological updates and maintenance.
OI – How much do you estimate Brazilian exports in general will grow when the physical integration of South America becomes a reality?
FV – There are no figures on that as yet, but when transportation is easier, the cost of exporting Brazilian goods to Asia will fall dramatically. In other words, exports of engineering services to build the infrastructure projects required to bring about regional integration will help make Brazilian products more competitive on the world market.
OI – Has receptivity to the service export program improved in recent years?
FV – Yes, it has. There is more awareness of the importance of that sector. But the government still doesn’t have statistics showing that service exports have created jobs, boosted exports of commodities and increased foreign exchange. Odebrecht has its own figures, but they don’t represent the entire sector. For example, we have no idea of the results generated through agreements to export a particular engineering service, in terms of exports of goods and other kinds of services. The data must be centralized. This is starting to happen under the direction of the Ministry of Industry and Foreign Trade. A Forum on Competitive Exports of Engineering Services has been created, and the IBGE (Brazilian Geographic and Statistical Institute) plans to develop a data-gathering mechanism that will furnish an accurate picture of specific projects and their impacts on the entire production chain. This will generate statistics that demonstrate the importance of this activity.
“We need a policy to set guidelines for service exports”
OI – Considering that you have been with the company for 27 years and taken part in pioneering projects in Argentina, Uruguay and Chile, do you feel that exporting services is easier or harder for Odebrecht nowadays?
FV – Odebrecht has gained a lot of experience and developed a great deal over that period, but the economy has also become more complex, and information has been disseminated around the globe. We are keeping pace with these changes. The market is much more competitive today. In the past, we dealt with well-known exporting blocs, and international competitors were mostly the same everywhere we worked. Now, things are much more scattered. That’s why it has become more important for the government to stay on top of these developments as a financial agent for these export activities.
OI – Is it impossible for companies to export engineering and construction services without financing? Is this true everywhere in the world?
FV – There are cases where financing is not required. That’s great when it happens. We are competitive, our prices are global, and we have won several contracts on these terms. But when a country or private-sector client requires financing; when price and managerial and technical expertise aren’t enough, and financing is also assessed, including schedules, payment conditions and interest rates, this factor can make or break a deal. For that reason, the world’s largest countries have their own export promotion agencies. Financing leverages markets. It is a key factor for boosting competitiveness. Of course, it isn’t the only one, but the fact is that the world’s top exporters, such as the US and Japan, have expeditious export promotion agencies. France, Spain and Germany have similar agents that work efficiently, aggressively and transparently. Take Spain, for example. It has a publicly stated government program for service exports. It even establishes the priority regions and actions to be carried out in order to attain its objectives.
OI – How is it that exports are growing in spite of problems related to agility and the existing financing policy in Brazil?
FV – Companies are developing business deals on their own initiative and requesting government financing so they can realize opportunities as they arise. In other words, the process is the reverse of what would naturally occur if the government had its own action programs in place.
OI – Is this due to a downturn in the domestic market? Are Brazilian businesses being forced to find clients in other countries?
FV – No, that’s not true at all. The world market has evolved, and private enterprise is taking over sectors that were once traditionally controlled by the State, which has changed the characteristics of government projects. Furthermore, companies are seeking to diversify the regions in which they operate to protect themselves from natural and cyclic economic variations. This means that companies are looking to work in different regions in order to maintain a more balanced situation, if not total stability, which would be the ideal.
OI – What was impeding the development of an integration plan for South America?
FV – Each country was always more interested in solving its own problems than focusing on regional issues. As the need for internationalization and globalization has grown, they have come to perceive that the region’s physical integration can help them solve local, individualized problems. That is how Iirsa, the South American Regional Integration Initiative, came about. Governments and multinational organizations have joined en masse.
OI – Is it acceptable for a South Korean contractor to go to Latin America to build a project, winning a tender against local businesses?
FV – Obviously it’s acceptable from their point of view. But from ours it’s not only unacceptable, it’s incomprehensible, because they are coming from the far side of the world, bringing equipment that is technically world-class and teams of technicians who would normally come at a higher cost. The explanation for this phenomenon is that their governments provide incentives that enable them to export services. It is also important to consider that the financing is provided in the exporting nation’s currency, but payments are always made in the universal currency, which is the US dollar. This means that this is a genuine source of foreign exchange for the country where the contracts are signed. It is a basic incentive that must not be overlooked.
OI – Does this mean that, in and of themselves, the financial transactions involved in engineering service exports are extremely positive?
FV – Analyzed in isolation, they are positive any way you look at them: they generate foreign exchange, jobs, technological development and taxes. And aside from being profitable, they have historically shown excellent liquidity. In fact, compared with most traditional exports, service exports financed by Brazil have higher liquidity and a much lower default rate.
OI – Do service exports open up markets for other Brazilian products?
FV – Service exports generate jobs, taxes and foreign exchange. Above all, they keep Brazilian technology up to date in order to stay globally competitive. This is extremely important, because technology has high value added. Today, we hear a great deal about the technologies developed in India and Pakistan. A short time ago, nobody would have dreamed that those countries would become technology exporters. In Brazil exports of engineering and construction services have to be viewed more broadly as exports of technologies, management and even human and cultural integration. Odebrecht has developed this kind of integration since we took the decision to establish a permanent presence in other countries rather than exploiting just one opportunity. It is important to understand that the exportation of one service is different from exports of products. Its multiplier effect is much greater. This is because when exporting a given service you not only sell the “product” but you “make it” in the place of delivery. Service exports should be seen as a source of national pride. It’s amazing to see how Brazilians react when they learn that high-technology projects were or are being built in other countries – including the First World – by Brazilian firms.
OI – What does it mean to export administration and management capacity? What is Odebrecht doing in that field?
FV – Our management and planned delegation system is the heart and soul of our technology because it works just as well in Brazil as in other countries. The senior officer responsible for a given country is delegated the power to be the company’s chief representative and can make real-time decisions together with the client. In addition to being a very important competitive edge, it bolsters local operations. The application of the Odebrecht Entrepreneurial Technology differentiates our company. A large part of our success in service exports is due to the presence and permanence of our philosophy.
“Our management and planned delegation system works just as well in
Brazil as in other countries. The application of the Odebrecht
Entrepreneurial Technology differentiates our company”
OI – What sort of E&C services does Odebrecht export?
FV – We have the technical expertise required to build a wide range of projects anywhere in the world. We have an extensive track record on several continents and in different environments, such as deserts, high altitudes and snow. We have surmounted challenges presented by nature and human behavior. All of this has made us a company with outstanding character.
OI – Are there many companies interested in venturing into other countries along with Odebrecht?
FV – Yes, there are. Without a doubt, Odebrecht has a successful track record in the field of service exports and long-standing partnerships. This not only makes our partners want to continue working with us but attracts other exporters too. If I were an exporter, I would certainly want to team up with Odebrecht to take my products wherever the Group is working.
OI – What sort of advantages does Odebrecht offer these exporters?
FV – Apart from the basics, which are necessary and commonplace, I would underscore loyalty, close working relationships and partnership in the constant pursuit of shared results.