V Winner Post #10 - Brazilian Industries - Continued

HEALTH CARE
Brazil's major health authority is the Ministry of Health (MOH). The ministry is involved in a host of activities, including the provision and regulation of health services. The decentralization of the country's medical system has given more autonomy to states and cities in the planning and control of local health care programs. The SUS, (Sistema Unico de Saude - Unified Health System), was created to transfer hospital products procurement to the states and municipalities.
About 120 million people are reported to depend exclusively on public health care, provided through state, municipal, and private contracted hospitals throughout the country. Despite strong social security financing for health care, serious disparities remain among regions and different income groups. The Government of Brazil wishes to improve the capability of its health system by rehabilitating and re-equipping its decaying SUS, and has launched a project named REFORSUS. The project is assisted by the World Bank and during the next three years, altogether a sum of USD 650 million will be directed to hospital equipment investments.
About 35 million people are currently covered by private health insurance which ensures them the possibility to use otherwise extremely expensive private health services. The insurance is usually paid by the employer and typically covers the rest of the family, too. The number of insured people is expected to increase to nearly 50 million as a result of the constantly growing standard of living. Currently a portion of 90% of the medical device sector market is formed by private hospitals.

All health care products, including equipment, must be registered at the Brazilian Ministry of Health prior to commercialization. Also, ISO 9000 certificate is considered to be mandatory, and a FDA certificate usually helps to gain reliability in the market. The imported products must be innovative, ergonomic and of high quality as domestic medical equipment production also exists. The bidding process for the public sector goes strictly according to predefined general rules set by the government. Private sector marketing is similar to marketing to any private company.
The role of a qualified, on-site Brazilian agent is extremely important in gaining access to end-users of imported medical equipment. Personal visits to directors of surgery centers, who make the purchasing recommendations, are considered essential. Direct mail and advertising campaigns in specialized publications may also be effective, in addition to exhibiting at specific trade events/surgical congresses or catalog shows. The annual Hospitalar seminar held in June in São Paulo is the biggest event of the market, gathering nearly 40,000 visitors yearly.

The products which should have the best long-term prospects in Brazil are medical imaging equipment, electro-diagnostic apparatus, and technologically advanced disposable medical products, and implants/prostheses. In the pharmaceutical sector, long-term prospects for over-the-counter (OTC) drugs and vitamins are excellent because of the high cost of private medical assistance and a growing trend toward home treatment. The medical equipment market is growing at a rate of nearly 20%; meanwhile the import toll for these products is decreasing from 14%. Consequently, the Brazilian healthcare market will be one of the most interesting in the world in the near future.

CHEMICAL SECTOR

Chemical Industries
Brazil's chemical and petrochemical sectors are ranked the eighth largest in the world, the current market being about USD 11 billion. Total production of chemicals and petrochemicals is estimated at 23 million tons. There is a large repressed demand in the area of agricultural chemicals. Trade liberalization is forcing the Brazilian chemical industry to upgrade efficiency and pricing of its production. Import duties, which reached 80 percent in 1990, are now at an average of 20 percent. The chemicals and plastics industry is responsible for around 15.7% of Brazil's manufacturing directly and indirectly, and contributed 3.6% of Brazil's GDP in 1996. The sector will continue growing at a rate of 8%-15%.

Fine Chemicals
The Brazilian Fine Chemicals Association estimates the market for the fine chemicals segment at USD 8 billion, representing 3.2% of the world market of USD 256 billion. The fine chemicals industry is new, with most investments made in the last decade. Technologically, the fine chemicals sector is among the most developed of the Brazilian economy and it has operational costs from 50 to 70 percent lower that its competitors worldwide. The domestic fine chemicals sector employs 134,000 persons. The pharmaceutical and pharmo-chemicals sub sectors alone employ over 100,000 persons.

There are approximately 600 fine chemical companies in Brazil - 80% of which are Brazilian owned. However, foreign companies maintain a dominant market share in most sub sectors. The participation of Brazilian firms in terms of sales varies from 10 to 30 percent of the total market except in the area of catalysts, where the Brazilian companies are responsible for 80% of total sales.

Major foreign groups in Brazil are Hoechst, Sandoz, ICI, Bayer, Union Carbide, Henkel, Dow and Akzo. Among the Brazilian companies are Ultra Quimica, Getec, Aquatec, IQT and Bann. The US is a leading importer with a 32% share, followed by Germany (17%) and Switzerland (12%).
The pharmaceutical industry is responsible for 33% of the imports of fine chemicals and 21% consist of agricultural chemicals. Other sectors (food additives, plastics, lubricants, pigments, cleaning products and fragrances and essences) are responsible for 46% of imports.

Industrial Inorganic Chemicals

The market for the inorganic chemicals segment reached USD 2.6 billion in 1994, with imports accounting for USD 428 million. The US supplies 29% of the inorganic chemicals import market, followed by Surinam (9%), and Germany (7%). The sector comprises about 260 companies, producing over 300 different products. International firms manufacturing in Brazil include Dow, DuPont, Monsanto, Union Carbide, and Rohm & Haas. These companies together employ more than 150,000 workers and have annual sales of about USD 14 billion. The Brazilian domestic market is large and it is expected to grow at a steady rate of 4 percent annually according to the Chemical Industry Association.

The major end-users of inorganic chemicals are Brazilian industry and agriculture. Industrial inorganic chemicals generally serve as major inputs to a wide range of industries. As such, they are used in products for agriculture and in numerous sectors of Brazilian industry, particularly textiles, plastics, pharmaceuticals, paints and varnishes, and the chemical industry itself.

Inorganic chemicals are sold in Brazil through an established network of distributors, manufacturers of complementary products acting as distributors, and direct sales from the manufacturer to industrial end-users. Direct sales are normally aimed at large industrial plants. Distributors often have in-house packaging operations to supply small and medium-size clients, and these in-house operations usually result in high price mark-ups. The larger distributors usually have branches throughout the country, particularly in the main consumption areas. Brazilian distributors, for the most part, represent local and foreign companies, and deal with a wide variety of products. The appointment of a well-known distributor who already handles the products of major companies is highly re-commended, as it provides the support for maintaining a steady market presence in Brazil.

Petrochemicals

The state owned company Petrograd has been granted exclusive rights for oil exploration and production. Petrobrás quickly set about identifying commercially viable oil deposits to become a self-sustaining, large-scale enterprise. By the early 1990's, spurred on by the world's first oil crisis in the 1970's, Brazil had more than tripled its oil production, reaching in July 1994 a record of 736,322 barrels per day.

It also became self-sufficient as regards refining. Brazil's petrochemical industry has experienced rapid expansion. Currently, Brazil has three petrochemical complexes, located in the states of Bahia (northeast), Rio Grande do Sul (south) and São Paulo (Southeast) with an overall total ethylene production capacity of 1.4 million tons per year.

Pharmaceuticals

Brazil has a powerful medicine manufacturing sector. At the beginning of 1993, about 1,300 pharmaceutical drugs were produced by 177 companies and 400 drug producing laboratories. Most are situated in the southeast of the country. Although 80% of the laboratories are Brazilian owned, they account for only 25% of pharmaceutical sales.

The government hopes to reduce pharmaceutical retail prices by promoting production in state-owned laboratories, which are operating at 50% capacity on average. The domestic production industry is dependent on the purchase of foreign active ingredients and raw materials. Three-quarters of the inputs are imported.

The value of imports to Brazil totaled USD 734 million in 1994, up 49% from 1993. Many of the products are imported by Brazilian subsidiaries of foreign MNCs. Leading sources of imports include Germany, Switzerland, Japan, the United States, and Belgium.

According to the president of the ABIFARMA trade association, the size of the pharmaceutical market at the retail level is USD 8.4 billion. The pharmaceutical research firm PMSI valued the size of the market (ex-factory prices) at USD 4.6 billion in 1994. At either level, Brazil is one of the fifteen largest markets in the world. Despite its size, per capita spending on medicine is only about USD 13 annually. Brazilians are becoming more health conscious and they are jogging, dieting, and consuming vitamins and health products. The growth of pharmaceutical consumption in Brazil tends to be correlated with the growth rate of the economy as a whole .Prescription drugs comprise 85% of the market, with OTCs making up the remaining 15%. Owing to the absence of patent protection, there is differentiation between brand name prescription and generic prescription drugs in Brazil (although usually several brands of similar drugs are available). The share of the market held by OTCs is projected to rise over the next few years. In particular, non-chemical remedies including herbal products are increasing in importance. Sales of pharmaceuticals are currently allowed only in registered pharmacies, although it is hoped that OTCs will soon be made available in supermarkets. There are more than 40,000 pharmacies in Brazil. Pharmacists are very important in the consumer purchasing process, as even OTCs are sold behind the counter.

Drugs that can be sold without prescription include vitamins, tonics, analgesics, digestive remedies, liver remedies, topical first aid products, herbal and homeopathic products, oral hygiene products, laxatives, chest rubs and inhalations, nasal sprays, topical contraceptives, and several other product types. Leading types of OTCs include brands of dipironas, C- vitamins, analgesics, anti-diarrhea, and cough and cold rubs.Brazilian prices for pharmaceuticals are among the lowest in the world . After many complaints of "abusive pricing" made by the Brazil government against pharmaceutical companies, the companies agreed to keep increases in prices at or close to the economy's inflation level. As a means to reduce prices, the Brazilian government is promoting more direct distribution channels; mark-ups represented 42% of the retail price paid by Brazilian consumers in 1992. Government and industry have also introduced a new price index, which resulted in about an 18% decline in prices


CHARACTERISTICS OF THE CHEMICAL INDUSTRY IN BRAZIL

- The Brazilian chemical industry consists mainly of producing large-scale units, intensive in capital, technology and raw materials
- The industry operates near the limits of the installed capacity
- The industry employs specialized and highly skilled manpower with the highest salaries in Brazilian industry.