VZCZCXRO1856
RR RUEHDU RUEHMR RUEHRN
DE RUEHSA #0908/01 1211119
ZNY CCCCC ZZH
R 301119Z APR 08
FM AMEMBASSY PRETORIA
TO RUEHC/SECSTATE WASHDC 4298
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 PRETORIA 000908 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 04/24/2018 
TAGS: ECON ETRD EINV BR SF
SUBJECT: SOUTH AFRICA-BRAZIL TRADE: THE WEAKEST LINK IN 
IBSA? 
 
REF: A. 08 PRETORIA 589 
     ¶B. 07 PRETORIA 3772 
     ¶C. 08 PRETORIA 774 
     ¶D. 07 PRETORIA 554 
     ¶E. 07 PRETORIA 569 
 
Classified By: Economic Counselor Perry Ball for reasons 1.4(b) and (d) 
 
 ¶1.  (U)  Summary.  Brazil and South Africa's economic 
relations, although growing, are still comparatively small. 
South Africa and Brazil have already formed the trilateral 
India-Brazil-South Africa (IBSA) Forum, established closer 
trade ties through the Southern African Customs Union 
(SACU)-Mercosur preferential tQe agreement, and conducted 
negotiations for years on a more comprehensive free trade 
agreement.  However, statistics reveal that South Africa and 
Brazil's trade relations remain rather static and follow an 
unchanging pattern. Trade with Brazil constituted 1.3 percent 
of South Africa's total exports and 1.8 percent of total 
imports.  The recent trade growth can be partially attributed 
to increasing prices in commodities, which constitute a large 
portion of South Africa's exports, rather than increased 
volume or diversity of products.  Foreign investment is 
impeded by cultural differences with only 12 South Africa 
companies residing in Brazil and one major Brazilian company 
in South Africa.  While Brazil is considered one of the key 
countries for South-South Cooperation, until South Africa 
concludes free trade agreement negotiations with Mercosur and 
develops stronger and more diversified trade ties under IBSA, 
its economic relations with Brazil will continue to trail its 
other southern partners, such as India and China.  End 
Summary. 
 
---------------------------- 
TRADE PATTERN REMAINS STATIC 
---------------------------- 
 
¶2.  (C)  To date, Brazil and South Africa's economic 
relations, although growing, are still comparatively small. 
The rhetoric from the heads of state during the 
India-Brazil-South Africa (IBSA) Forum's Joint Declaration 
made in October 2007 could lead to the belief that the three 
countries were experiencing record-breaking trade relations 
and were ready to embark towards the next step of their 
envisaged trade relations: trilateral trade negotiations. 
South Africa and Brazil have already formed the trilateral 
IBSA, established trade ties through the SACU-Mercosur 
preferential trade agreement, and conducted negotiations for 
years on a more comprehensive free trade agreement.  However, 
trade statistics reveal that while India-South Africa trade 
is expanding at exponential rates (Ref A), South Africa and 
Brazil's trade relations remain rather static and follow an 
unchanging pattern. 
 
¶3.  (U)  According to Department of Trade and Industry (DTI) 
data, Brazil was ranked 21st for exports and 13th for imports 
in 2007.  Trade with Brazil constituted 1.3 percent of South 
Africa's total exports and 1.8 percent of total imports. 
Trade between the two countries over the last four years was 
as follows (in millions USD): 
 
                  South Africa/Brazil Trade 
                  2004   2005   2006   2007 
SA Exports         242    320    406    526 
SA Imports         994   1312   1386   1662 
Total Trade       1236   1632   1792   2188 
Trade balance     -752   -992   -980  -1135 
 
¶4.  (U)  Trade growth in recent years can be partially 
attributable to increasing prices in commodities, which 
constitute a large portion of South Africa's exports.  Trade 
data shows that in 2007 South Africa's exports grew 25.9 
percent and imports 19.9 percent.  Exports to Brazil are 
dominated by base metals (44 percent), mineral products (30 
percent), chemicals (12 percent) and machinery (12 percent). 
Qpercent), chemicals (12 percent) and machinery (12 percent). 
As with exports, imports from Brazil have remained the same 
over the last four years with the majority consisting of 
original equipment components (26 percent), machinery and 
mechanical appliances (16 percent), animal products (14 
percent), and automobiles and automobile parts (11 percent). 
 
 
¶5.  (C)  DTI Americas Manager Cobs Pillay told Trade and 
Investment Officer that the South African government was 
first focusing on the Indian market before it expanded into 
Brazil, despite SACU's preferential trade agreement with the 
Mercosur countries.  DTI Deputy Director Iqbal Sharma said 
that South Africa was dedicated to finalizing a free trade 
agreement with India before it embarked on trilateral 
negotiations or further enhanced its trade relations with 
Brazil.  Sharma noted that South Africa, poised equidistantly 
between Brazil and India, was hoping to cash in on this 
 
PRETORIA 00000908  002 OF 002 
 
 
geographical position as India-Brazil trade grew stronger. 
Southern African Institute of International Affairs (SAIIA) 
researcher Phil Alves previously informed Trade and 
Investment Officer that the preferential trade agreement was 
limited to tariff reductions on inconsequential product lines 
that did not impact either countries' current trade.  Because 
of this, the agreement had failed to develop greater and more 
varied trade relations.  According to Alves, a more robust 
free trade agreement was required to enhance the bilateral 
trade relations.  SACU and Mercosur held their the 12th 
negotiating session on the free trade agreement in April 
¶2008.  SACU is experiencing the same difficulties in 
finalizing this agreement as it did with the U.S. Free Trade 
Agreement and, more recently, the European Union Economic 
Partnership Agreement.  The Mercosur agreement still has not 
been concluded. 
 
¶6.  (C)  According to SAIIA's report "South-South Economic 
Co-operation: The India-Brazil-South Africa Case," which was 
based on a survey of South African businesses trading or 
investing in Brazil, additional constraints to trade that 
still need to be remedied include tariff peaks and tariff 
escalation on finished goods, restrictions on importation of 
a variety of machinery and clothing, red tape, anti-dumping 
regulations, and high import costs.  DTI's internal report on 
Brazilian trade relations also cites high import costs, along 
with numerous non-tariff measures, such as registration 
requirements for foreign products.  The import costs include 
a 25 percent tax on the cost of freight if transported by 
sea, and an average import duty of 17 percent, as well as 
expensive clearing, port and handling costs.  Pillay noted 
that cultural and linguistic difference have stymied both 
trade and investment.  Lastly, DTI's report cites 
diversification of export sectors as "crucial to overcome the 
inert growth of beneficiated products." 
 
------------------------------------------- 
INVESTMENT HAMPERED BY CULTURAL DIFFERENCES 
------------------------------------------- 
 
¶7.  (C)  Based on figures supplied to DTI by the Brazilian 
Central Bank, South Africa currently has 3.69 million USD in 
foreign investment stock in Brazil.  There are 12 known South 
African companies with operations in Brazil mainly in mining, 
finances, IT, steel, chemicals, and beverages.  SA companies 
operating in Brazil include Banco Standard de Investimentos 
SA, AngloGold, Alexander Forbes Financial Services, Dex 
Brasil, Barham Financial Services, Macsteel International, 
NOSA, and Volcano Agroscience.  According to Pillay, DTI is 
only aware of one major Brazilian company operating in South 
Africa: the Marco Polo Bus Company.  A major Brazilian mining 
group, Vale, according to press reports, is preparing an 
offer of up to 90 billion USD for the world's sixth largest 
mining operation, Xstrata of South Africa. 
 
¶8.  (C)  Pillay commented that cultural differences are the 
greatest impediment to investment.  SAIIA reported that 
"forty percent of the spokespersons of SA companies active in 
Brazil noted they had been overwhelmed by the "completely 
alien and different" Brazilian business culture, compounded 
by the wide linguistic divide."  Despite these differences, 
both countries are looking for avenues to enhance investment. 
 For example, Pillay, following a trade mission to Brazil in 
2007, was courting Brazilian sugar cane growers to expand 
their operations to the KwaZuluNatal area of South Africa. 
 
------- 
COMMENT 
------- 
 
¶9.  (U)  This is one cable among a series on South Africa's 
Q9.  (U)  This is one cable among a series on South Africa's 
relations with the BRIC countries and IBSA.  As reported 
reftels, South Africa has shifted its policies to actively 
pursue stronger economic relations with its southern partners 
as part of its promotion of South-South Cooperation.  While 
Brazil is considered one of the key countries for South-South 
Cooperation, until South Africa concludes the free trade 
agreement with Mercosur and develops stronger and more 
diversified trade ties under IBSA, its economic relations 
with Brazil will continue to trail other southern partners, 
such as India and China. 
BALL