VZCZCXRO9447
RR RUEHAO RUEHRG
DE RUEHCV #3561/01 3411852
ZNR UUUUU ZZH
R 071852Z DEC 06
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 7228
INFO RUEHAC/AMEMBASSY ASUNCION 0738
RUEHBO/AMEMBASSY BOGOTA 7155
RUEHBR/AMEMBASSY BRASILIA 5837
RUEHBU/AMEMBASSY BUENOS AIRES 1530
RUEHLP/AMEMBASSY LA PAZ 2424
RUEHPE/AMEMBASSY LIMA 0679
RUEHMN/AMEMBASSY MONTEVIDEO 0886
RUEHQT/AMEMBASSY QUITO 2510
RUEHSG/AMEMBASSY SANTIAGO 3841
RUEHAO/AMCONSUL CURACAO 1081
RUEHGL/AMCONSUL GUAYAQUIL 0726
RUEHRG/AMCONSUL RECIFE 0006
RUEHRI/AMCONSUL RIO DE JANEIRO 0152
RUEHSO/AMCONSUL SAO PAULO 0074
RHEHNSC/NSC WASHDC
RUEHRC/DEPT OF AGRICULTURE USD FAS
RUCPDOC/DEPT OF COMMERCE

UNCLAS SECTION 01 OF 02 CARACAS 003561 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
TREASURY FOR KLINGENSMITH AND NGRANT 
COMMERCE FOR 4431/MAC/WH/MCAMERON 
NSC FOR DTOMLINSON 
HQ SOUTHCOM ALSO FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON ETRD VE
SUBJECT: BRAZILIAN FIRMS SAMBA ALL THE WAY TO THE BANK 
 
REF: CARACAS 3413 
 
¶1. (SBU) SUMMARY: Venezuelan-Brazilian trade is expected to 
reach USD 4 billion this year, representing a 60 percent 
increase over 2005.  This increase is consistent with 
Venezuela's import boom and with the growing relationship 
between the two countries.  Brazilian firms also seem to be 
winning more than their share of large infrastructure 
contracts.  In concert with deepening political ties 
represented, inter alia, by Venezuela joining Mercosur, 
President Lula da Silva's public endorsement of Chavez and 
Chavez's post election victory lap to Brazil and beyond; 
Brazilian firms and exporters, for now at least, are sitting 
in the sweet spot.  END SUMMARY. 
 
¶2. (U) Venezuelan-Brazilian trade reached USD 3.5 billion 
(USD 3 billion in imports from Brazil and USD 500 million in 
exports to Brazil) as of October 2006, and is expected to 
close the year near the USD 4 billion mark.  This would 
represent a USD 1.5 billion (60 percent) increase over 
bilateral trade in 2005 and over a 100 percent increase since 
¶2000.  In addition, the balance of trade has shifted 
dramatically from a Venezuelan surplus in 2000 of USD 576 
million to an expected USD 3.2 billion Brazilian surplus by 
the end of 2006.  Venezuelan exports to Brazil consist 
primarily of petroleum derivatives (fuel, plastics, 
fertilizer, etc.) whereas the array of Brazilian goods 
imported to Venezuela continues to grow, from agricultural 
products to arms.  Brazilian state-owned arms manufacturer 
Imbel recently announced the sale of 5,350 9mm pistols to 
Venezuela.  Brazil's largest export to Venezuela so far in 
2006 has been cell phone equipment, followed by automobile 
parts and chicken. 
 
¶3. (SBU) Brazilian President Lula da Silva's endorsement of 
Chavez's re-election bid (reftel A) at the opening 
celebration for the second bridge over the Orinoco river 
(connecting the Brazil-Venezuela highway) seemed a diplomatic 
faux pas, but really it was simply good business.  The bridge 
was built by the Brazilian construction firm Odebrecht and 
financed by Brazil's development bank (BNDES).  It reportedly 
cost Venezuela between USD 1.1 and 1.2 billion (reportedly 40 
percent over budget) and plans are already underway for 
bridge number 3.  (Note: While Odebrecht also "won" the 
contract for the 3rd bridge, so far as we can tell there was 
no bidding process.  End Note.)  Brazilian firms have also 
been very successful in winning other major infrastructure 
projects in Venezuela, including the replacement for the 
collapsed bridge on the highway from the airport in La Guaira 
to Caracas.  (Note:  The BRV initially tried to rebuild the 
bridge itself and only turned to an outside contractor in 
mid-2006.  The BRV claims the bridge will be open for 
business in Spring of 2007.  End Note).  Odebrecht is also 
the main contractor for Lines 3 and 4 of the Caracas metro. 
 
¶4. (U) The Brazilian state-owned oil company, Petrobras, has 
increased cooperation with PDVSA and a joint project is 
underway to build a refinery in Pernambuco, Brazil, that is 
expected to cost between USD 2.5 and 2.8 billion.  When 
completed, the refinery will be the first in Brazil capable 
of refining Venezuela's brand of heavy crude, with a capacity 
of 200,000 barrels a day.  Petrobras is also certifying 
extra-heavy crude reserves in the Orinoco belt in eastern 
Venezuela and may well take part in any tender for future 
extraction. 
 
¶5. (U) Venezuela's entrance to Mercosur and departure from 
CAN and the G-3 group (Mexico, Colombia, and Venezuela)  will 
give the Brazilians additional advantages by lowering tariffs 
 
CARACAS 00003561  002 OF 002 
 
 
and trade barriers, while increasing them for competitors in 
other countries in the region.  This will not occur 
overnight, however as Andean Community trade preferences are 
set to continue for another 4-plus years, and Venezuela has 
yet to even negotiate the specific product line market access 
terms for its Mercosur accession.  (Note: It remains to be 
seen the effect on actual companies that export to Venezuela, 
as many are large multinational firms which have branches in 
Mercosur countries and will be able to shift their production 
for the Venezuelan market.  End Note.) 
 
¶6. (SBU) At a recent meeting with a representative of the 
Venezuelan-Brazilian Chamber of Commerce (CAVENBRA), the 
representative insisted that many of the recent successes of 
Brazilian firms were actually years in the making and the 
result of sustained effort rather than political favoritism. 
He observed, for example, that Odebrecht had been in 
Venezuela for 10 years before it received its first major 
contract and that many Brazilian firms successes come from 
their ability to approach the BRV with package deals that 
include financing from Brazil's development bank.  (Comment: 
Our contact was very sensitive to the perception that they 
were taking business away from other countries and repeatedly 
stressed that in recent years they had become better 
competitors and were not succeeding as a result of political 
favoritism.  While Brazilian companies in general have become 
more pronounced overseas in recent years, the rate of 
increase for trade and the startling success in winning major 
infrastructure projects since Chavez took office make it seem 
unlikely that they became so competitive overnight.  End 
Comment.) 
 
¶7. (SBU) While Brazilian contractors are garnering major 
projects, few Brazilian businesses are investing in Venezuela 
long term.  In a trend seen throughout the private sector, 
firms are delaying investment and reducing capital spending. 
(Note: Foreign Direct Investment (FDI) to Venezuela has 
amounted to a paltry USD 75 million through August of 2006, 
as compared to USD 900 million for all of 2005.  End Note.) 
In addition, Brazilian firms seem to have similar complaints 
as the business community in general, including an 
incompetent bureaucracy and oppressive regulations.  As an 
example, the representative of CAVENBRA noted that Brazil's 
attempts to import soy beans to Venezuela have been stymied 
by a slow import approval process at the Ministry of 
Agriculture, which has left trucks sitting at the border with 
rotting produce. 
 
¶8. (SBU) COMMENT: Fueled by the oil windfall, Venezuelan 
government spending and imports are at all-time highs and 
many companies are reaping the benefits of this massive 
spending.  The creation (both existing and planned/imagined) 
of regional entities and mega-projects such as Telesur, a 
Bank of the South, the gas pipeline of the south, the train 
of the south, etc. are political decisions by Chavez to 
project himself regionally.  Brazilian firms probably 
represent some of the few regional firms with the breadth and 
depth of experience to complete many of the planned massive 
infrastructure projects.  At the same time, the opening up of 
Brazil's north west, home to 40 million people, gives Brazil 
a geographical advantage over many competitors in the 
Venezuelan marketplace.  It seems very likely that 
Brazilian-Venezuelan commercial ties will continue to grow in 
the near term, as Brazilian firms ride the economic gravy 
train and that the Brazilians will continue to make 
significant economic inroads, thanks to Chavez's focus on 
deepening south-south ties. END COMMENT. 
 
WHITAKER