Despite having an ambitious export agenda via the Texbrasil promotion programme, many companies in Brazil's textiles and apparel sector are more keenly focused on the domestic market where 200m consumers and economic growth beckon. Even foreign firms are getting in on the act too, as Jozef De Coster reports.

With a turnover of US$43bn in 2008, Brazil's textiles and apparel sector is the sixth largest in the world. It is a diversified industry, employing nearly 1.7m people and boasting strong textile and fashion clusters in several states.

Some of Brazil's textile companies, like Coteminas (home furnishings) and Vicunha (denim), are world players. And as far as beachwear, lingerie, jeans and children's wear are concerned, Brazil is recognised as a creative fashion leader.

The 2008 Werner International Labour Cost Comparison revealed that at US$3.41, the average cost per operator hour in Brazil's textile industry is only 20% that of the US.

The Brazilian textile and apparel federation ABIT and the export and investment promotion agency Apex-Brasil are tasked with implementing the sector's export strategy via the Texbrasil promotion programme.

They operate within an emerging economy that OECD, the Paris-based Organisation for Economic Cooperation & Development, forecasts might be the only one of 34 major economies that avoids recession in 2009.

Its GDP growth for this year is estimated at 1.5%, and follows several years where growth ran at 5%.

So, would it then be foolish to believe that within 5-10 years Brazil could rank in the top ten of the world's biggest textile and clothing exporters?

At first glance, no. But a closer look at the Brazilian textile and apparel sector shows the likelihood of this industry being a future export juggernaut are very slim, even non-existent.

Why? Here are some reasons. 

Industry focuses on domestic market
Taken as a whole, the Brazilian textile and apparel industry has neither an export tradition nor an export attitude.

Despite growing its exports by 30% in dollar terms from 2003 to 2007, they accounted for just 4% of total sector turnover in 2008.

And with exports of textile and apparel articles (not including cotton fibre) valued at US$1.75bn, Brazil is not yet listed among the world's Top 40 exporters of textile and clothing.

In addition, the majority of the 4,500 textile and 23,000 clothing producers in the country are SMEs who prefer to sell their goods to neighbouring Brazilian states. After all, Brazil is 35 times the size of the UK and is home to around 200m consumers.

Interviews at the recent Minas Trend Preview fashion event in Belo Horizonte revealed that most exhibiting companies don't export at all.

And those that do are likely to have been steered by ABIT and other organisations, and they mostly export only a small percentage of their production.

A recent study by Ernst & Young and FGV Projetos predicts that Brazil's share of the global market for manufactured goods, which presently stands at 1.1%, will be less than 1% in 2030.

And while the Brazilian economy is likely to continue growing at an average of 4% a year, domestic demand will in fact spur GDP growth.

According to Fernando Garcia of FGV Projetos, Brazilian exports of manufactured goods will be hampered by infrastructure bottlenecks, insufficient R&D, high energy prices and inflation.

The Brazilian fiscal system is indeed a real headache for the industry.

Aguinaldo Diniz Filho, president of ABIT, says that despite calls to the Government, textile and clothing products sold at retail carry a tax of 40-50% on their selling prices. 

It is also worth noting that according to WTO statistics, since 2003 Brazil's 'revealed comparative advantage' for textile fibres beats that of China. But for all other categories of textile and clothing products, China is far more competitive than Brazil.

In 2007, the Index of 'revealed comparative advantages' of the whole Chinese textile and clothing sector was actually five times higher than the corresponding Index for Brazil. 

The huge integrated polyester complex PetroquímicaSuape, a US$1.4bn project which has been under construction since early 2009 in the state of Pernambuco, will enhance the country's competitiveness in synthetics.

Imports are exploding
Compared to many other countries Brazil is, in relative terms, still a very modest importer of textile and clothing goods.

Comparing Brazilian textile and clothing imports in 2008 (US$3.8bn, without cotton fibre) with corresponding national consumption (US$45.1bn), shows that the share of imports is less than 8.5%.

Nevertheless, Roberto Prado, president of IEMI (Institute of Industrial Marketing Studies, São Paulo) says: "There's no doubt that the greatest challenge currently faced by the textile and clothing sector has been the accelerated growth of Brazilian imports of raw materials and finished goods."

From 2003 to 2007, Brazilian imports of fibres, textiles and manufactured textile products nearly tripled (from US$1.06bn to US$3.02bn).

During this period, especially the imports of yarns and threads (from US$33m to US$495m) and knitted fabrics (US$8.8m to US$255m) exploded.

In 2008, sector imports (without cotton fibre) increased by 31% in dollar value, from US$2,883m to US$3,776m.

During the first quarter of 2009, due to the global financial crisis, total Brazilian imports of textiles and clothing decreased by 37% in volume and 15% in US-dollar value.

However, clothing imports taken alone showed a startling increase, jumping by 75% to reach US$275m during the quarter.

According to ABIT, 72% of the 18,000 tons of imported clothing originated from China.

And some product categories, which were monitored until the end of 2008 under a China-Brazil agreement on Chinese self-control, showed a formidable increase: silk (+147%), knitted shirts (+236%), jackets (+260%), velvet (+805%). 

Retail sector attracts foreign investors
According to Fabrizio Broggini, of the consulting company Broggini do Brasil, the Brazilian market offers a faster return on investment than other BRIC markets, including China.

This is, he thinks, the main reason why foreign investors are showing an increasing interest in Brazil, mainly in sectors that cater to consumers in the CD socio-economic group.

Enrique Coppel, owner of the Mexican Coppel retail chain - which has more than 750 stores selling furniture, clothing, shoes and home electronics - is among several foreign retailers preparing to step into the Brazilian market. 

Carlos Ferreirinha, ex-president of Louis Vuitton in Brazil and now director of the consulting company MCF in São Paulo, argues that the current global crisis could be an advantage for Brazil.

He thinks that until now the big luxury goods players always favoured the US, European and Japanese markets.

But in order to stabilise their income, they now also have to look into emerging markets like Brazil.

"This can surely bring more investments to Brazil in the next years," Ferreirinha says.

In June 2009, a luxury goods mall with 80 shops, named Outlet Premium and operated by General Shopping, will open its doors in São Paulo, with international brands as Zegna, Diesel and Ralph Lauren. Also the top brand Hermes is reported to be making its first moves towards Brazil.

Euromonitor International, which provides global consumer market intelligence, estimates that from now to 2013 the Brazilian retail sector will grow by 24%, while corresponding growth for the whole of Latin America will be limited to 18%.

In the meantime, some foreign retailers are already doing very well in Brazil.

In 2008, C&A gave domestic clothing retailers a beating by being the first retail brand Brazilians thought of when questioned by magazine Folha.

Compared with C&A's 11% recall, domestic clothing retail chains lagged behind: Pernambucanas (5%), Marisa (4%), Renner (3%), and Riachuelo (3%).

The Dutch multinational, which has some 150 shops in more than 60 Brazilian cities, puts its success down to a smart mix of competitive prices and high impact marketing - including campaigns fronted by famous fashion models like Gisele Bündchen, Daniela Sarahyba and Fernanda Lima.