Focus: Brazil's Defense Industry Booms

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 determination to grow and invest," said Carlos Pieratoni Gamboa, vice-president of the Brazilian Association of Defense and Security Equipment. "Five years ago, it was the opposite."

The association, which includes 170 companies, hopes to invest $120 billion over the long term, planning to double the current 25,000 direct jobs it generates and boost annual export sales from $1.7 billion to $4 billion.

Brazil, the world's sixth-largest economy, was ranked as the world's eighth-largest arms exporter in the 1980s but today languishes in 30th place, according to industry experts.

Brazil still boasts the biggest armed forces in the region, although they have been considerably weakened by a lack of investment in equipment for more than two decades.

Strategic Importance

President Dilma Rousseff, like her predecessor Luiz Inacio Lula da Silva, has gone head-to-head with the armed forces over the establishment of a truth commission to probe rights abuses during the 1964-1985 military dictatorship.

But the two also helped fuel the current boom by investing in equipment and underscoring the strategic importance of a domestic defense industry in line with a national defense strategy unveiled in 2008.

This year, Rousseff approved incentives to boost production and domestic purchases, and Brazil has bought conventional submarines and helicopters from France, insisting on technology transfer and assembly on its territory.

It also resurrected a plan to develop, beginning in 2016, its first nuclear-powered fast-attack submarine.

And a government decision is awaited on awarding a multibillion-dollar contract for 36 fighter jets. The Rafale, made by French firm Dassault Aviation SA (IW 1000/727), is competing against Boeing Co.'s (IW 1000/53) F/A-18 Super Hornet and Swedish manufacturer Saab AB's (IW 1000/943) Gripen jet for the contract.

"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 [natural] wealth," Rousseff has said.

Foreign Suitors

The Brazilian defense market is attracting foreign interest despite the world economic slowdown.

"There is a clear movement of foreign firms seeking partnerships with Brazilian counterparts," a strategy that 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 has been boosting its defense activities, launched a joint venture with the Italian firm Oto Melara to produce cannons in Brazil and set up a maintenance center for Latin America.

Neighboring Opportunities

Brazil sees its neighbors and other emerging countries as natural markets for its products and has stepped up military and industrial cooperation with them.

Joint projects include the new KC-390 military-transport plane being developed by Brazil's top planemaker, Embraer SA (IW 1000/702), with partners from Argentina, Chile and Colombia -- which also plan to buy the aircraft.

This strategy provides Brazil with customers while allaying fears of a Brazilian military buildup, according to Nelson During, chief editor of the country's respected defense website DefesaNet.

Brazil's Flight Technologies company, which last weekend took part in the first defense-industry show in Brasilia, 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.

Last year, Brazil's defense budget reached $36.6 billion, the world's 10th-largest, according to the International Institute for Strategic Studies.
But more than 80% of this budget is traditionally earmarked for salaries and many investments -- such as the contract for the 36 fighter jets -- have been postponed.

The government says roughly 1.5% of the country's GDP goes to defense, much less than in several neighboring countries and major emerging powers.

"The situation is promising for the Brazilian industry but challenges lie ahead," During said, emphasizing that the government must guarantee its planned investments in spite of the economic crisis.