| Textile, footwear, furniture and IT are those sectors whose international and domestic competitiveness has been severely hurt due to the real appreciation. Especially export performance has suffered as prices have become increasingly uncompetitive in international markets. On August 2nd 2011 the government unveiled plans to prop up businesses in those sectors: The `Brasil Maior´ [Bigger Brazil] programme includes tax breaks worth R$ 25 billion [US$ 16 billion] over the next two years, including abolition of a 20% payroll tax for the labour-intensive industries mainly hurt by the stronger real. The State Development Bank BNDS will provide additional loans worth 7 billion R$ [US$ 4.4 billion] to the affected local producers. At the same time new export incentives [e.g. a new export financing facility] and tougher import controls and anti-dumping measures [mainly aimed at cheaper products from China] have been announced. At public procurement activities local suppliers will be preferred against [even up to 25% cheaper] foreign competition. Chemicals and petrochemicals The sectors turnover increased 13% year-on-year in 2010, and is expected to record another high growth rate this year, mainly due to higher demand from main buyer industries. Despite surging chemicals imports demand for domestically produced basic chemicals and processed products remains high, and Crédito y Caución expects this good performance to continue into 2012, as robust economic growth and industrial production will further drive demand for chemicals. Construction and construction materials Brazilian construction output increased 11% in 2010 and is expected to grow further this year, albeit at a lower level. The continued upswing is due to the governments Program to Accelerate Growth [PAC], which has led to increased investments in infrastructure upgrades, combined with city modernization schemes for the 2014 World Cup and the 2016 Olympic Games in Rio. Funding for stadiums construction alone amounts to R$ 6 billion [US$ 3.8 billion, and the hospitality industry plans building investments worth R$ 2.4 billion [US$ 1.5 billion]. The State Development Bank BNDES announced in February 2011 investments worth R$ 3.3 trillion in projects related to industry, civil construction and infrastructure for the period between 2011 and 2014. The continuation of the Minha Casa, Minha Vida [My House, My Life] public housing program in 2011, which will deliver about 2 million new homes until 2014. Also, the administration of Sao Paulo announced in February 2011 that it will provide subsidies to constructions companies by reducing the ICMS tax [a tax on goods and services] on building materials. Sao Paulo also plans to increase the number of dwellings built in the state. Due to high demand the construction materials sector recorded a capacity utilisation rate of 87% in March 2011, a level considered critical by the industry as it could lead to supply difficulties, mainly in the cement subsector. The lack of staff and skilled workforce [engineers] prevents further expansion in this sector. Mechanical engineering The sector has benefited greatly from the investment in capital goods made by other industries to meet growing domestic demand, as a result of which orders are increasing and companies in this sector are profitable and financial strong. The growing demand for Brazilian commodities such as cellulose and iron ore has also proved a boost to mechanical engineering, creating demand for technologically advanced extraction machinery. Turnover increased by 10.3% to R$ 70.7 billion in 2010, and is expected to grow 6% this year due to robust domestic growth rates and higher investment in infrastructure in preparation for the World Cup in 2014 and Olympic Games in 2016. However, the high interest rates affect businesses´ financing costs and the credit lines used to buy machinery and equipment. At the same time the gradual R$ appreciation real has favored machine imports, especially of high tech goods and equipment, while at the same time foreign demand for consequently more expensive Brazilian machinery has decreased. Steel/metals Domestic consumption and major infrastructure projects promise a positive outlook for the steel sector. Production of crude steel is projected to increase by 13% year-on-year in 2011, to around 37 million tons, mainly as a result of investment in infrastructure. In general, steel companies have a good profile of equity strength. With the positive trend and continuing high demand in the steel trade sector, most companies have healthy order books and liquidity. Like other sectors the Brazilian steel industry has begun to suffer from the R$ appreciation against the US$, with some Brazilian steel consumers turning to cheaper imports - mainly from China, India and Russia. If this continues, some Brazilian steelmakers will see a rise in their inventory levels which they will then have to sell at below cost price, with an impact on their income and profit. | 
