Environmental Technologies Industries

Environmental Technologies Industries

Market Plans

Brazil Environmental Export Market Plan

I. Introduction: The Market for Environmental Technologies

Brazil presents significant opportunities in many environmental submarkets. In descending order of importance these are: water and wastewater; industrial and hazardous waste treatment, solid waste disposal, and air pollution control. Pollution prevention is a potentially large market, but is only in its formative stages.

Total Market and Potential
Due to constantly evolving regulatory requirements and lack of reliable published market data, estimates of the total market and potential vary widely. For example, a report prepared for the U.S. Agency for International Development (USAID) estimated the 1992 market at $1.76 billion for equipment and services. The U.S. Department of Commerce’s U.S. and Foreign Commercial Service (US&FCS) in Brazil reported that the aggregate Brazilian environmental technologies market in 1993 was $1.0 billion and estimated the total market at $20 billion over the next five to ten years. What is clear, however, is that Brazil represents the largest environmental technologies market in Latin America.
It is important to distinguish between equipment sales and the environmental service market. Equipment sales have been flat or even decreasing over the past several years as government expenditures have dropped, and the private sector has not increased its purchases to offset this decline. For example, companies producing equipment for sewage treatment were operating at only 60 percent of capacity in the first half of 1995, and air pollution equipment manufacturers were operating at 50 percent of capacity. Specifically, the delays in the Tietê River cleanup project had a marked negative impact on the industry.
The future looks considerably brighter, as new major cleanup projects are under way or are expected to start shortly. A consensus on growth projections over the next five years ranges from 5 to 10 percent annually for equipment and from 10 to 15 percent for environmental services, including consulting. Monthly sales increases for wastewater equipment manufacturers during May - August 1995 averaged about 10 percent. All sales information was provided by the national environmental and sanitation equipment trade association (Departamento Nacional de Equipamentos de Saneamento Basico de Ambiental or DESAN).
It is important to point out that Brazil’s sheer size makes country-wide generalizations difficult. The great bulk of the private sector environmental business opportunities lie in southern Brazil. In particular, the states of São Paulo, Rio de Janeiro, southern Minas Gerais, Paraná and Rio Grande do Sul. While northeastern Brazil has even more serious public health problems and lack of basic sanitation services than the southern part of the country, opportunities in the north will lie almost exclusively with multilateral development bank financed projects. Industrialization is largely limited in northeastern Brazil to urban centers such as Salvador (state of Bahia) and Recife (state of Pernambuco) and is on a much smaller scale than that of southern Brazil.
The following table contains available market size estimates from U.S. Government sources:

	Source	Total Market ($ Millions)	Import Market ($ Millions)	Data Year
Pollution Control Equipment	US&FCS	294	42	1995
Waste Recycling Market	US&FCS	263	27	1994
Wastewater and Sewage Treatment Equipment	US&FCS	130	N/A	1994
Air Pollution Control Equipment	US&FCS	100	N/A	1994
Industrial Wastewater Technologies and Services	US&FCS	N/A	60	1995
Environmental Engineering and Consulting Services	US&FCS	64	20	1995
Sludge and Solid Wastes Treatment Equipment	US&FCS	50	N/A	1994
Clean Technologies Equipment	DOC-ITA	30	N/A	1994
All Environmental Equipment and Services	AID	1,015	N/A	1992

Market Characteristics and Dynamics
The Brazilian environmental technologies market is substantially different from the U.S. market in terms of market drivers. U.S. environmental companies are used to looking toward enforcement and a complex regulatory system as the main market drivers. While enforcement does play a role in shaping the Brazilian environmental technologies market, particularly in the key state of São Paulo, and while enforcement is in general becoming stricter nationwide, other factors are also of great importance.
The top five market drivers are the following:

International environmental standards. These are imposed by multilateral development banks lending to the Brazilian public sector and by many multinational companies on their Brazilian subsidiaries. ISO 14000 standards are also becoming important.
Basic unmet needs in water supply and sanitation services. These are now being recognized as priority issues by public officials.
Increasingly strict enforcement. Regulatory agencies such as the federal Brazilian Environmental Institute (IBAMA) at the federal level and the Environmental Sanitation Technology Company (CETESB) in the state of São Paulo have implemented aggressive new enforcement programs targeted at industries that fail to comply with standards.
Public image. There is a growing environmental consciousness within Brazil, and becoming known as a “green” company is increasingly important in many industrial sectors.
Expected sharply higher costs for water. Industry is expecting higher taxes for water usage.

As Brazil’s economy expands and living standards increase, environmental opportunities of all kinds will increase. It is no coincidence that São Paulo, Brazil’s wealthiest and most populous state, has the biggest environmental technologies market and the most aggressive environmental enforcement agency. The market will expand not only because of the general correlation between economic growth and environmental protection in the developing world, but also because Brazil’s increasingly stable democratic system is allowing citizens to make known their demands for an improved environment. The absence of government censorship also allows Brazilian television and the press to regularly report on important environmental issues and thereby help to develop a growing environmental consciousness.

Multilateral Development Bank Financed Projects
It is useful to draw a distinction between the massive multilateral development bank (MDB) financed projects, which have a long history in Brazil, and the new, smaller wastewater concession projects which are expected to become important in parts of southern Brazil in the immediate future.
Brazil has historically been a major recipient of World Bank and Inter-American Development Bank (IDB) assistance in the funding of a broad range of infrastructure projects, including environmental projects. These projects, typically with a value exceeding $200 million, are publicly bid via international tenders and, therefore, represent significant opportunities for U.S. firms which closely monitor them. While large, well-established U.S. environmental firms have secured contracts or subcontracts on many of these projects, there are also opportunities for small firms with a specific expertise.
However, an alternate approach is being implemented for the first time in Brazil which allows for an expanded private sector role and which has the potential to attract a substantial amount of private sector investment. This is the concession or build-operate-transfer (BOT) modality, which has already been applied in municipal wastewater projects in São Paulo state. The specifics of two concession projects will be discussed, but it is important to emphasize the main differences between concession projects and MDB projects.
A typical wastewater concession project is structured through the grant of a long-term concession (10 to 20 years) by the municipality in question to a qualified company or consortium of companies with all the capabilities to finance, design, construct, manage, and operate the wastewater plant for the term of the concession. The concession holder is paid during the term of the concession by service fees charged to the individual household users. Arranging the financing for such projects (typically in the range of $20 million and higher) is a challenge, given that Brazil has not achieved an investment grade rating from the international rating agencies. The legal basis for municipal water and wastewater concessions was established by the 1995 adoption of a federal Concession Law for Public Services, which authorizes municipalities to create their own regulations to implement specific concession projects.
U.S. environmental firms which are looking to participate in this emerging market will have to adopt a completely new approach to business development. Rather than simply marketing their environmental engineering expertise, they will have to join forces with financing institutions, Brazilian construction firms and other joint venture partners, and experts in international business development. Only by creating such a strong consortium to bid on selected projects will U.S. firms be able to compete against the powerful French and British water companies which are positioning themselves as this market opens up.

U.S. Market Share
Because of Brazil’s relatively large and sophisticated industrial base, its strong universities, and its history of engineering expertise, the country provides a surprisingly high percentage of its environmental equipment and services. Exact statistics are impossible to come by, but a reasonable estimate is that between 80 and 90 percent of all environmental goods and services destined for Brazilian end-users have been of domestic origin.
For example, the São Paulo state environmental protection agency Environmental and Sanitation Technology Company reports that 85 to 90 percent of 1,200 recently proposed industrial wastewater pre-treatment systems for the Tietê River cleanup were of domestic production. Also, the many capable Brazilian environmental consulting firms have almost total control over the active environmental impact study market and over environmental permitting. Brazilian firms sometimes seek specialized assistance on certain matters from U.S. environmental firms or consultants, but they generally possess the experience and knowledge of local conditions to generate high quality work product.
According to the US&FCS, of the estimated $60 million import market for industrial wastewater treatment technology and services, U.S. firms have an estimated 60 percent market share, followed by the French at 25 percent and the Japanese at 10 percent.
However, it is somewhat misleading to talk only of domestic production and foreign production. It is estimated that some 120 companies operate in the Brazilian environmental technologies sector. Many of these companies, particularly the medium- and large-size companies, have entered into licensing, technology transfer, or other agreements with foreign firms. Joint ventures are often created to manufacture specific products. The US&FCS staff in São Paulo estimates that 35 to 40 percent of these agreements are with U.S. firms.

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