The potential market comprises 55 million children of up to 14 years, although only 30 million are actual consumers, largely due to the country’s uneven distribution of wealth.

Since 1990, the industry has suffered brutal competition from Asia, mainly from Chinese products shipped through Hong Kong. Since Chinese labor costs are minimal, prices are extremely low.

Many firms have opted to combine local production with imports, resorting to the latter whenever costs are particularly attractive. In 1994, foreign-made articles accounted for 15% of Estrela’s sales, 2% of Tec Toy’s, 10% of Glasslite’s and 10% of Lego’s.

Imports accounted for 18% of the Brazilian toy market in 1994, versus a massive 90% in Argentina and 70% in Chile.

Although exports are negligible overall, Estrela (the local leader) ships to the USA, Argentina, Chile and Europe. In order to do so, it has managed to cut costs by 50% over the last two years.

The adoption of import safeguards has at least given the industry a certain amount of breathing space in order to boost its competitiveness vis-à-vis the overseas producers. However, we believe the targets demanded in exchange by the Ministry of Trade & Industry make the medium and long-term outlook an exceedingly gloomy one.

Nevertheless, Abrinq (the manufacturers’ association) is distinctly upbeat, at least over the current year, estimating annual sales of R$ 860 million, 5% up on 1997, output of 202 million items (+12%), a 17.3% slide in imports, a 22.2% rise in exports and an average decline of 10% in prices. We ourselves are not so optimistic. We expect revenue to move up by between 2% and 3% only, given the economic slow-down and the consequent drop in consumption, not to mention the fall in prices. In addition, the fiscal package adopted after the Asian crisis has led to a strong surge in unemployment, forcing consumers to reroute their money towards essentials, of which toys are not considered a part.

The hope that more down-market products and cheaper prices may boost sales may also be frustrated this year, since the C and D socio-economic groups, the target of this attempt by the manufacturers to boost takings, are precisely those worst hit by such problems as unemployment and therefore most likely to suspend, or at least postpone, this type of purchase. Yet another point is that, even though prices are on the way down, the share of imports in producers’ revenue is still moving up. We believe Abrinq’s estimated decline is as exaggerated as its export increase forecast. Thus the safeguards do not appear to be working and we expect a period of severe suffering when tariffs are reduced to 20% in the year 2000.