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Manaus Free Zone seeks a trade outlet
Journal of Commerce / January 5, 2000

By Larry Luxner

MANAUS, Brazil -- The Manaus Free Zone -- the largest industrial park of its kind in South America -- was created in 1967 in order to boost the economy of Brazil's Amazon region. But its remote location, far from ocean shipping lanes, is putting the zone at a disadvantage.

Recently, the Brazilian government extended tax and other fiscal incentives that were to expire in 1998 to 2013. A proposal is now being discussed in Brasilia to extend those further to 2023. That gives the Manaus Free Zone some breathing room, but not much, given the increased competition from Brazil's Mercosur neighbors.

"We're trying to substitute imported components for those manufactured locally. This way we'll have a self-sufficient industry in order to compete in the new global economy," says investment consultant Hernan Valenzuela. "Now we're competitive only in Latin America."

Valenzuela, interviewed in his Manaus office, told The Journal of Commerce that the free zone is home to 300 companies employing 38,000 people. The largest of those are Phillips, Goldstar, Honda, Panasonic and Samsung -- not to mention Xerox, Harley Davidson, Sharp and Eastman Kodak.

Last month, Xerox do Brasil announced it would invest $12 million to manufacture printer cartridges at its Manaus facility. The new plant will be able to produce 10 million units per year, all of it for export. Xerox already makes five million cartridges annually, and plans to begin assembly of two new printer models in Manaus next year. Xerox do Brasil expects to end the year with sales of $1.6 billion, slightly less than the $1.7 billion posted in 1998.

Meanwhile, Chinese manufacturer Gree will spend $20 million on an air-conditioner factory in the Manaus Free Zone. The company plans to launch its equipment onto the market by next April, with plans to produce 50,000 units in the first year, reaching 200,000 units in the second year. Gree will compete with market leader Multibras (40% market share), Springer Carrier and Electrolux.

But to really make Manaus competitive, transportation costs must be brought down, says Valenzuela. "We're studying new routes to get our products to market, mainly one more route to the Caribbean, the other to the Pacific by way of Peru."

At the moment, free-zone officials are trying to get the European Union to speed up completion of a road linking Boa Vista, Brazil, to Georgetown, Guyana, on the Caribbean coast.

"This will give us one more channel to access the Atlantic, cutting the time for transporting on the Amazon River by five days," says Valenzuela. "Containers now leave for Amapa to the Atlantic, meaning it takes 20 days to get to Miami. With this new road, it'll be 15 days or less."

Valenzuela, a Colombian who has lived in Manaus for the past 16 years, says the new highway -- being financed by the EU's European Development Fund -- is preferable to a highway completed last year linking Boa Vista to Ciudad Bolivar, Venezuela.

"The route to Guyana is better for us," he says, "because the Venezuelan alternative costs more and involves more bureaucracy."

Paving a 450-kilometer section of that road from the Brazilian-Guyanese border to the town of Linden could cost between $40 million and $50 million. That's according to Eric Cook, project director at Lawgibb, a British engineering consultancy that's working in partnership with Greek firm ADK.

"The EU is funding a study to look at upgrading the main north-south route in Guyana," Cook said in a phone interview from London. "The primary purpose of this is to improve integration within the country and promote regional development in the Rupununi area of Guyana. The second spinoff from this is an improve road will provide opportunities for cross-border trade with Brazil, and a possibile alternative route for imports and exports from Manaus."

"Yet at the moment, it's not even an all-weather road, it's just a track that gets washed out in the rainy season," said Cook. "There is no traffic going that way. Physically, it would be a shorter distance. Time, cost and security are the three factors. At the moment, Manaus exports nothing through the ports of Venezuela, because they find it's just not competitive on any of those counts. They believe that transit through Guyana would be easier, but until they've got a route they can actually use, nobody knows."

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