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Military Industry

Since the early twentieth century, the armed forces have pursued the goal of weapons self-sufficiency. Their intention was never to develop a large arsenal but to have the technical capability to produce the arms needed for Brazil's military. During World War I, the large navy was cut off from resupply of big gun shells and became a paper navy, thus reinforcing the drive for self-sufficiency. The rapid industrialization that took place after 1930 provided the infrastructure necessary for developing an arms industry.

After World War II, Brazil developed a steel mill at Volta Redonda, in Rio de Janeiro State, and quickly became the largest steel producer in Latin America. In 1954 Brazil began manufacturing its first automatic pistols. The earliest armored personnel carriers (APCs) produced by Brazil, in the 1960s, benefited directly from some of the technology developed by Brazil's dynamic automotive industry. Brazil's push for nationalization of the computer-related industry in the 1970s also began with the navy, which could not decipher the "black box" computerized range-finding and firing mechanisms on the British frigates they had purchased, and did not want to be dependent on imported maintenance.

In the 1950s, Brazil set up the precursor to the Aerospace Technical Center (Centro Técnico Aeroespacial--CTA). Located in São José dos Campos, the CTA became the focal point for the arms industry. The CTA has trained a generation of engineers through its technical institute, the Aeronautical Technology Institute (Instituto Tecnológico da Aeronáutica--ITA). In 1986 it was estimated that 60 percent of 800 Embraer engineers had graduated from the ITA.

Brazil's three largest arms firms were established in the 1960s. Avibrás Aerospace Industry (Avibrás Indústria Aeroespacial S.A.--Avibrás) was established in 1961; Engesa, in 1963; and Embraer, in 1969. It was only in the subsequent period, from 1977 through 1988, that the three firms began to export arms on a large scale. In addition an estimated 350 firms are involved directly or indirectly in the arms production process in Brazil.

By 1980 Brazil had become a net exporter of arms. On the demand side, the rapid success resulted from a growing need in the developing world for armaments. On the supply side, Brazil's arms exports were designed for developing world markets and were noted for their high quality, easy maintenance, good performance in adverse conditions, and low cost. The product line was broad and came to include ammunition, grenades, mines, armored personnel vehicles, patrol boats, navy patrol planes, turboprop trainers, tanks, and subsonic jet fighters.

In the early 1980s, Brazil emerged as one of the leading armaments exporters in the developing world. From 1985 to 1989, it was the eleventh largest exporter of arms. Brazil exported arms to at least forty-two countries, in all regions of the world. By far the largest regional market was the Middle East, to which Brazil sold approximately 50 percent of its arms from 1977 through 1988. According to an estimate by the Stockholm International Peace Research Institute (SIPRI), 40 percent of all Brazilian arms transfers from 1985 to 1989 went to Iraq.

Brazil's arms industry nearly collapsed after 1988, as a result of the termination of the Iran-Iraq War (1980-88), a reduction in world demand for armaments, and the decline in state support for the industry. In early 1990, the two major manufacturers, Engesa and Avibrás, filed for bankruptcy.

By late 1994, it appeared that Brazil's arms industry would not disappear completely. It was unlikely, however, that it would return to the robust form of the mid-1980s. Avibrás had paid off a substantial portion of its debt and was seeking ways to convert much of its production to civilian products. Engesa had been dismembered; some of its companies were sold to private interests, and its ordnance-related companies were taken over by the state and integrated with Imbel. Embraer was privatized in December 1994, and despite significant financial difficulties, it rolled out the new jet commuter plane prototype EMB-145 in 1995.

On 18 December 2008, President Lula signed the National Defense Strategy, concluding a fifteen month drafting exercise. The document was principally drafted by Minister for Strategic Planning Roberto Mangabeira Unger, and it provides a security policy framework that places defense in the context of the government's broader goal of national development. The strategy paper's most important goal for defense industry is to use the need to modernize the armed forces to acquire new technologies with applications for national development. To do so, the Government of Brazil is encouraged to offer tax incentives and legal benefits to these industries (tax and financing benefits are already provided under the May 2008 Industrial Policy). Unger also clearly states that commercial considerations, i.e. increased trade, must be considered subordinate to the country's "strategic interest." Therefore, efficient use of resources and deployment of effective military capabilities are less important than stimulating domestic defense industries which are optimistically viewed as having future export potential. According to the strategy, industrial partnerships with non-Brazilian entities are advantageous as a means to reduce dependence on foreign purchase -- when the main role in the partnership is played by the Brazilian side.

In exchange for support for the growth of defense industries, the strategy proposes that the central government gain "special powers" over such industries, including through so-called "golden share" arrangements - government vetoes over designated corporate actions. Several press reports carried the story that the MOD would be seeking special taxes on private businesses that are perceived as benefiting from security (e.g. Petrobras) to pay the costs of their defense, but such a proposal was not included in the final document.




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