SPONSORED ARTICLE
BRAZIL
cost in relation to the gross salary, besides all the regulatory burdens repre- sented by a substantial amount of information to be provided on a regular basis to the Ministry of Labour.
Still concerning labour, finding qualified personnel is yet another issue
to be tackled. The need for work force ranges from highly qualified profes- sionals such as engineers, to others like welders, planners and assemblers. The lack of well-trained people makes the Brazilian industry more costly, less qualified and therefore uncompetitive in light of international stan- dards, which still encourages many companies to acquire or charter vessels abroad (specially in Asia), despite the risk of facing penalties for not meeting local content requirements.
Are there any tax incentives or special schemes for financing ship- builders in the country? Brazilian shipyards are entitled to important tax benefits, such as exemp- tions of the Import Tax (‘II’ in the Portuguese acronym) and Tax on Man- ufactured Products (‘IPI’ in the Portuguese acronym), and reduction of tax rates to zero in case of social contributions (PIS and Cofins) whenever they purchase parts and components destined to conservation, modernisation, refurbishment and conversion of vessels that own a REB registration with the Maritime Court. The same benefit can be extended to vessels under construction if they own a Pré-REB registration.
In relation to financing, most of the funding for the naval sector in Brazil Furthermore, the shipyards must face the tight deadlines required by the
operators of the oil industry in view of the pressure to accelerate the pro- duction of oil and natural gas in the country.
Another important and time-consuming aspect to be considered is ex-
cessive regulation. Red tape is a long-term issue in Brazil and it is no differ- ent when it comes to the bureaucracy involved with all the steps for the final achievement of the ready-to-use status of a vessel. The difficulties comprise a significant range of areas.
In terms of regulation, the Brazilian legal system provides for registration
in several different public bodies. One of the required registrations is the Construction License, to be requested before an entity especially accredited before the Maritime Court, an organ linked to the Navy Command. The property of the ship for some kind of vessels is registered before the same Maritime Court. In order to enjoy tax benefits for the operation of the ship, another registration before the same Maritime Court is required, called Spe- cial Brazilian Register (‘REB’, in the Portuguese acronym). The REB, in turn, has a previous and optional version allowing the shipyard to derive tax benefits during the construction of a vessel, called Previous Special Brazilian Register (‘Pré-REB’ in the Portuguese acronym).
The issuing of such registrations demands numerous documents of sev-
eral natures, and the whole procedure can take months. It is important for investors interested in the Brazilian shipbuilding sector to understand the dynamics so as to avoid unexpected situations and to make sure that all the related contracts provide protection against the red tape factor, especially when considering liabilities and loss of profit.
Labour issues should also be considered carefully. Being a heavy user of
labour force, the shipbuilding industry might face considerable labour costs and also difficulties involving unions. According to a recent research by the Brazilian National Confederation of Industries (‘CNI’ in the Portuguese acronym), the cost of a Brazilian employee can reach an additional 183%
Regarding the port sector, what is the current scenario in the country? The port sector is going through a major regulatory change in Brazil. Over the last decade, the country has experienced positive growth and economic
ENERGY & INFRASTRUCTURE | LATIN AMERICA 2013 41
comes from public sources. There is a public fund called Merchant Marine Fund (‘FMM’), managed by the Brazilian Development Bank (‘BNDES’) and formed by revenues from a tax collected on domestic or international operation involving freights performed in Brazilian ports. The tax is called Freight Additional for the Renovation of the Merchant Marine (‘AFRMM’) and it was created to support the development of the Brazilian merchant marine and of the Brazilian naval repairing and construction industry. Most of the shipyards and vessels currently under construction in Brazil are funded by the FMM.
What are the key growth sectors and market opportunities? The Brazilian shipping sector is a land of good opportunities. As mentioned earlier, the oil & gas sector is more appealing than ever as a result of the huge investments in offshore infrastructure expected in the next years. The current scarcity opens a market for several different kinds of embarkations, such as FPSOs, FPUs, drillships, tankers, offshore support vessels, and also for services and equipment providers for the naval industry. Companies with local content might have advantages when the client is bound by national content requirements, but such market reserve should not be an obstacle for business in Brazil given the current scarcity of qualified providers, a cir- cumstance that opens a generous market also for products and services from abroad. As an example, according to the Brazilian Agency for Waterway Transportation (‘ANTAQ’), the expenses in Brazil with the charter of foreign offshore vessels summed $3 billion in 2012, a 22.8% increase in comparison to the 2011 figure. Due to the slow development of Brazilian shipyards and the urgent need for quick results in terms of exploration and production of oil and natural gas, companies are seeking suppliers elsewhere.
The naval sector in Brazil is also expected to grow in regard to coastal
navigation due to the currently unsustainable situation of Brazilian road- ways, which account for most of the load transportation in Brazil. A change in navigation rules in Brazil is under discussion in the Brazilian National Congress, which currently only allows ships bearing the Brazilian flag to perform coastal navigation (foreign ships are only allowed under a charter agreement for a Brazilian navigation company, in certain situations). This would open the market to international navigation companies and would represent a significant blow to the Brazilian shipping sector.
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