BMI's Executive Summary

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In Q407, Defence Minister Nelson Jobim announced that there would be a major increase in Brazil's defence procurement budget – from US$3.6bn this year to US$5.6bn next year. In 2008-2011, total budgeted procurements will be US$10bn higher than they have been previously. This announcement represents a very important development for Brazil's defence industries and, indeed, for the overall security environment in South America. In particular, it illustrates a change in priorities on the part of the administration of President Luiz Inácio Lula da Silva. Previously, Lula's administration – like its predecessors – had not placed a great importance on defence spending. At around 1.5% of GDP, spending has been low by world standards. In part because of the antagonism towards Lula's Partido dos Trabalhadores (PT) of the military regimes that ruled Brazil prior to the mid-1980s, relations between the administration and the armed forces have been cool. Most recently, the military has endured opprobrium because of the mismanagement of Brazil's civil aviation sector, for which it is responsible.

We have revised our projections to take account of the increase in defence spending through the 2008- 2012 forecast period. At this stage, it seems that spending as a percentage of GDP will remain broadly unchanged. However, spending will definitely increase from the current level (about 6%) as a percentage of government spending. We have also assumed that manpower within Brazil's armed services will rise by about 2% annually. Exactly how the additional money is to be spent is something that should become clearer through Q108. Early indications are that the government will revive plans, dating back to 2002, for a nuclear-powered submarine and 12 new jet fighters.

In essence, Lula's administration is taking advantage of a boom in future revenues from the massive Tupi offshore oilfield to lift the combat capability of Brazil's armed forces after years of underinvestment. Brazil is, therefore, a late entrant to the recent defence spending boom in South America. The governments of Chile and Venezuela have been able to increase defence spending because of burgeoning revenues from copper and oil respectively. Colombia has received substantial military assistance and funding from the US.

To a greater extent than the other countries in the region, Brazil is home to substantial indigenous armaments companies that can participate in the re-equipping of the armed forces. Nelson Jobim has asked the Brazilian Congress to change the rules for military purchases, in order to allow the government to 'develop an industrial defence policy'. It is therefore reasonable to expect that Brazilian companies will be significant beneficiaries of the increased spending. Meanwhile, the Brazilian companies will continue to export – particularly to developing countries who see their products as offering good value for money.

Chapter 1 - Executive Summary

SWOT Analysis

Brazil Political SWOT

Brazil Security SWOT

Brazil Defence Industry SWOT

Brazil Economic SWOT

Chapter 2 - Political Overview

Domestic Political Outlook

Big Win For Lula, But Reform Outlook Still Uncertain

How Much Clout Will Lula Have?

Deadlock Ahead In The Legislature?

Failing To Break The Barrier

External Political Outlook

Gas Wars

Chapter 3 - Security Risk Analysis

BMI’s Security Ratings

Risk Ratings

Table: Regional Risk Ratings

Table: State Terrorism Vulnerability Index

Regional Security: Latin America

US-Latin America Relations

Narcotics and Security

Brazil Security Risk Ratings

Brazil Conflict Risk

Brazil Terrorism Risk

Brazil Physical Safety Risk

Chapter 4 - Security Overview

Internal Security Situation

Amazon Basin

The Landless Movement

Gun Crime And Violence

Corruption

External Security Situation

Table: Brazil Regional Insurgent Groups

Regional Instabilities

Bilateral Relations

Brazil-Paraguay Relations

Brazil-Argentina Relations

Chapter 5 - Military Structure & Defence Industry

Armed Forces

Regional Armed Forces (including conscripted) 2006

International Deployment

Table Foreign Deployments

Weapons Of Mass Destruction

Market Overview

Arms Trade Overview

Imports

Exports

Industry Trends & Developments

Table: Key Players – Brazil Defence Sector

Procurement Trends & Developments

Chapter 6 - Industry Forecast Scenario

Table: Brazil Defence Forecasts

Table: Brazil Defence Expenditure Forecasts

Chapter 7 - Macroeconomic Forecast

Table: Economic Activity - Historical Data And Forecasts

Chapter 8 - Company Profiles

Embraer

AVIBRAS Indústria Aerospacial SA

Chapter 9 - BMI Forecast Modelling

How we generate our industry forecasts

Defence Industry

Sources

Chapter 10 - Appendix A: Risk Ratings Methodology

Conflict Risk Methodology

Terrorism Risk Methodology

Physical Safety Risk Methodology

Overall Risk Rating

State Vulnerability Index Methodology

Competitive Landscape for Latin America Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's Latin America Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: