As the largest country in South America with the fastest-growing GDP, Brazil is garnering a lot of interest from defense contractors worldwide. Raw growth aside, two major events are driving the immediate expansion of Brazil’s defense capabilities – The 2014 World Cup, and the 2016 Summer Olympics. Both events are forcing Brazil to modernize its national C4I (Command, Control, Computers, Communications, Intelligence) systems as well as provide ground-based security to the sports venues and population centers. Add to that the expansion of the Brazilian Navy and a pending fourth-generation fighter buy, and the Brazil looks like it’s shaping up to be one of the most lucrative markets of the next decade. That said, foreign suppliers looking to expand in Brazil should be prepared to innovate as many of the traditional opportunities have either been spoken for or have disappeared almost entirely.
Brazilian defense spending, while growing very quickly in the immediate time frame, is driven by five large projects – a fourth-generation fighter buy (F-X2), the joint development and purchase of nuclear submarines from France (the SDP – Submarine Development Program), and – most notably – an expansive program to modernize military capabilities in preparation for the Olympics and World Cup. Olympic preparations are likely to be broken down into three main components: radar upgrades, communications equipment and upgrades, and defensive security platforms.
The most immediate spending projects are comprised of the preparations for the 2014 World Cup and 2016 Summer Olympics. With the entire world sending its elite athletes to one region to compete, there is an obvious requirement to keep the involved sports venues as safe as possible from any number of threats. For Brazil, that means significant modernization of its military in terms of C4I capabilities, and less so on new vehicle purchases. Much of the new work will be centered on unifying military communications, though there will be some investment in air defenses. We have already seen purchases in this vein, with orders of Russian Pantsir S-1’s, Igla 9K38 (SA-18 Grouse) surface to air missiles, and German Flakpanzer Gepards.
Brazilian defense spending is still growing outside of the immediate pressures to secure sports venues, but the focus is different.Brazilian defense spending is still growing outside of the immediate pressures to secure sports venues, but the focus is different. Brazil’s traditional security concern lies in its coastline and maritime resources, and Brazilian defense spending clearly reflects that. The Navy is expanding its coastal defense fleet with patrol vessels while simultaneously funding the Submarine Development Program (SDP). The SDP is a longer-term program extending through 2047, and is projected to increase the size of Brazil’s submarine fleet by 26 vessels upon completion. Brazilian land forces are not the focus of much investment right now, largely because Brazil does not face significant threats from the interior. State-of-the-art tanks, long a symbol of an advanced military, are not really a priority for the Brazilian military, which instead opts to field a large contingent of APC’s and small- to medium-sized tactical vehicles. They fit Brazil’s mission requirements perfectly – namely interior security and border protection, with an emphasis on mobility over armor and firepower. Brazil already has a large number of M113’s in their inventory, along with a sizeable complement of EE-9 Cascavel and EE-11 Urutu APC’s. The platforms market is certainly a source of future opportunities, but there are already some key players who will not be easy to dislodge.
Brazil’s industrial prowess and capability for domestic production make for some stiff competition to those interested in securing contracts. Embraer maintains a significant presence in the market for aircraft, while Engesa has a similar foothold in medium-sized tactical vehicles. With strong performance records and the home field advantage, Brazilian firms are often awarded contracts without equal consideration of their foreign competitors. It is by no means an insurmountable obstacle for the foreign supplier, but it is a market reality that warrants forewarning. Despite its manufacturing capabilities, Brazil has yet to attempt the domestic production of the most expensive and technologically advanced platforms, preferring instead to purchase main battle tanks (Leopard), fourth generation fighter jets (F-X2, final model yet-to-be-decided), aircraft carriers (the former French Clemenceau), and submarines (Type 209 Scorpene and Barracuda class). Foreign suppliers now face a twofold challenge in breaking into those markets – the requirements for those major categories have been filled, albeit with older equipment, and the foreseeable security environment has shifted away from where investing in state-of-the-art platform purchases across the board would make sense. The Brazilian defense market is clearly growing, but addressable opportunities will likely take a little more effort to find.
Platforms are largely spoken for, but the market for modifications and upgrades has yet to be defined.So where are the markets to be watching for genuinely accessible opportunities? Platforms are largely spoken for, but the market for modifications and upgrades has yet to be defined. The M113 series of vehicles is robust and still perfectly suitable for frontline service but it is aging and, as happens with constant technological advancement, will always be in need of communications and electronics modernizations (along these lines BAE has been upgrading them to the M113A2 Mk1 configuration). This will likely be typical of many of the older platforms in the Brazilian land forces which were purchased before the economy really began to expand. Likewise, as the Navy expands and modernizes it will also encounter similar projects with its older ships. Markets for entirely new systems are opening in Brazil as well. The sheer size and inaccessibility of a large portion of the country – particularly the Amazon regions –has long been a weak point for Brazilian security, but is now a driver for industry. Brazil’s concerns over border and resource security lend themselves to continued heavy investment in ISR capabilities, whether in the form of UAVs or electronic infrastructure and surveillance (SISFRON and SISGAZ must be mentioned here but require a blog entry all their own). To be clear, this market will likely be impacted in the immediate time frame by the security preparations, though those are likely to generate opportunities of their own.
In an ideal world, the preparations for the Olympics and World Cup would flawlessly integrate military communications and unify Brazilian ISR and C4 capabilities. Of course, very little in this world works perfectly, and these expansive preparations are unlikely to escape the difficult realities of implementing national modernization. This will likely generate further opportunities in C4I support and maintenance in both the immediate and long-term time frame, as the same systems used for national event security are rolled into the greater national security apparatus. Once the Olympics and World Cup are over, Brazilian defense spending will certainly experience a cooling period but continue to grow in the long term as Brazil expands its naval presence.
Firms looking for new clients should look to Brazil for opportunities. It is not a land of blank checks or speedy decision-making, but there is certainly cause for optimism. As the country expands and modernizes, new and accessible openings will undoubtedly arise, though regional competition and budget trends can to be a challenge. Brazil’s domestic concerns and positioning in the world economy are liable to drive healthy growth in defense spending for years to come, and with no real allegiance to one region’s producers or another, every market player should be paying attention.