In the state of São Paulo, the city of Franca turns out 94,000 pairs per day, mainly men’s shoes geared towards the big wholesalers and the overseas market. The need to trim costs, however, in order to compete in a globalized market, is forcing manufacturers to pay more attention to the fiscal incentives offered by the various state governments, not to mention reduced labor expenses. Currently the states in the Northeast are offering bigger tax breaks, easier credit facilities and substantially lower labor costs and are consequently attracting many established firms away from Rio Grande do Sul and São Paulo.

Azaléia (RS) is Brazil’s leading producer and among the five largest in the world, heading the national women’s shoe rankings with a market share of 15%. Samello (SP) leads the men’s market and ships 40% of production abroad. Ortopé heads the children’s niche in the whole of Latin America, followed by Klin.

Annual per capita consumption is around 2.5 pairs.

Next year, we expect a repeat performance for two main reasons: a) October last’s Fiscal Stabilization Program envisages cuts in the Brazil in Action and Special Export programs; and b) the increase in CPMF and Cofins duty will raise the so-called cost of Brazil factor built in to our foreign shipments. Portugal and Spain are also likely to join China and Italy in the list of our closest US competitors. European producers are improving their own competitiveness and reducing costs by outsourcing leatherwork to Asian firms and opening factories in countries where labor is cheaper. Consequently, exports are likely to suffer at both the middle-market and bottom-end levels. In addition, although we cannot possibly ignore the world’s biggest consumption center, the over-dependence on a single market may imply risks since the global crisis raises the specter of protectionist barriers. Although shipments to Mercosur continue to move up year after year, they will not be able to offset a significant American shrinkage, even with the reduction of the intra-bloc import tariff from 7% to zero in 1999.