Is Brazil Safe?

I hear this question pretty frequently.  I also hear the question: Is Tijuana safe and sometimes I hear that from Brazilians.  So what can we say when a night club fire in the interior of Rio Grande do Sul killed some 250 predominantly young people yesterday.  I guess it is not that safe.  Certainly Brazil has standards and fire marshals but the problem is that enforcement is weak.  I am sure the night club has to get an inspection before opening but it is possible that greed led to overcrowding and disaster in an eminently preventable situation.

What about crime?  There are several ongoing discussions on LinkedIn and elsewhere.  Is Rio safe now that the UPPs have been set up?  Has crime risen in Sao Paulo as the UPPs drove gang leadership to Paulista turf?  I am not sure what the current State Department recommendation states about Brazil.  Probably, as bureaucracy must be they urge caution and perhaps more when you go on the increasingly popular favela tours.

I cannot be too cynical here, but the advice to avoid Rolex watches (even imitations) and fancy jewelry has always made sense to me.  I don’t really respect the sometime ostentatious nature of rich Brazilians or the so-called naiveté of foreigners sometimes feigning they no better.

In developing societies with weak institutional structures and gross inequalities, there will be different levels and different perceptions of safety and street crime.  If you are going to Compton, with your bling, I suggest you should know what you are doing.  Likewise in Brazil.

Take care, be alert, be simple, be street wise if you can.  If you cannot then have your driver chose the armored car and make sure your body guards are close.

Corruption and Business in Brazil

It is well known that Brazil does not have a stellar ranking for clean business dealings.  Oftentimes, newcomers are confused by what seems to be obscure maneuvers.  The figure of the Brazilian expediter or “despachante” has an almost folkloric character.  If you want to renew your driver’s license, register a newly purchased property or get a customs release, you will probably meet and sometimes use the services of this expert.  Typically, the professional despachante is well versed in both the formal law as related to say customs but also, due to his day to day labor,  has friends and contacts that help move the process along.  Is this corruption?  Not usually, but you need to on the look out for questionable or dubious requests, as well as unreal promises.  The bureaucratic and patrimonial traditions inherited from the Portuguese and perfected over hundreds of years by the Brazilians are extremely sophisticated.  Convoluted and complex requirements, regulations and “catch-22s” abound.  In a traditional and person based, relationship based society, the despachante or expediter performs a valuable function.  As society modernizes and becomes more complex, the demands for equal treatment and transparency come into conflict with norms,  regulations, and instructions that initially set out to protect society but often resulted in the defense of specific groups, sometimes private, with their particular interests. The need to bend or break rules in this system opened the doors to opportunities for corrupt practices.

During the military governments, press censorship and the containment of civil society also contributed to untoward practices.  Dishonest deals could be made and often they would not come to light.  Currently, the past decade of economic stabilization and relatively rapid growth also created (some might say necessitated) new and irresistible demands to get things accomplished outside the strictures and formalities of the dense legal and bureaucratic systems.  Newly minted members of Congress and new entrants into the state bureaucracy seized opportunities with only the slightest of moral qualms and justifications.  Much money breeds much temptation.  This is not only a Brazilian problem and certainly seems to by equally present on Wall Street, especially in the absence of weak oversight.

Brazil’s institutional structure is improving gradually.  The growing middle class values fairness, openness and honest dealings.  So there is much frustration but also demands for improvements.  Does it happen overnight.  No it takes a long time and consistent work and pressure.  We sense we know where to go but perfection can be the enemy of the good.

 

Brazilian Dilemmas in 2013

Well 2013 has not started yet in Brazil.  We have to wait until after Carnaval and everybody gets back from summer vacation.  Although it interesting to note that more serious, typically private schools, are starting their school year before Carnaval.

Among many talking heads and a lot of serious commentators, there is not a lot of optimism about macro economic growth for 2013.  While Guido Mantega predicted 4% for last year the number came in at less than 1%.  The fear is that the trend will continue.  The Brazilians government has been talking up spending but in reality it is also being restrained by the fears and realities of inflation.  Typically, government projects are over budget and behind schedule.  Inefficient use of public funds places a serious drag on the economy.  Consumer spending which the government has promoted with vigor over the past 6 to 7 years through the loosening of credit also appears to have reach its limit as an economic driver.

Nevertheless, on the ground, people who have servants are paying them historically high wages with benefits are historically high per diems without benefits.  This money is feeding into the consumer market and it seems to me that either through under-reporting or tax evasion a lot of this activity is not accounted for.  It used to be that the informal economy represented, with some guess work, something like 30 percent of the formal economy.  So if Brazil has a world ranked no. GDP at some 2.5 trillion, add on another 800 billion (roughly 30%) and Brazil easily passes Britain and again become no. 5.

Everyone will tell you there is money in Brazil and when you are out about you see it.  But if society only very slowly increases its productivity through better and more universal education and learning, then things could start moving sideways for a long time.  I am actually optimistic.  I see the demand and see people who want to make a serious effort to meet demands.  The dilemma is to face up to needed reforms in education, social security especially public pensions, tax reform which in turn depends on political reform.

Things change.  Sarney will pass as Brazil’s military dictatorship passed.  There is vibrancy beyond the difficulties.

 

 

 

 

 

Ethanol in the US and Brazil

I just read an article that states US ethanol prices are lower than Brazil ethanol prices and that Brazil has created difficulties for the import of ethanol from the US.  If I remember correctly, up until a little over a year ago, the US had a surcharge tariff of approximately 54 US cents per gallon on the Brazilian product.  The surcharge went away but it seems that it was no longer needed as the US improved its production costs.  In Brazil, on the other hand, production of ethanol has been falling and the industry has been complaining about their costs.  As gasoline prices have been kept low as a means of controlling inflation and to gain political support, this is another factor depressing the demand for the sugar cane based product.

Here is the link to the article:http://brazilportal.wordpress.com/2013/01/18/end-all-trade-barriers/

 

 

Real Brazil and Brazil day to day

Brazil is a curious country, sometimes more curious than a lot of other places.  It has an image and promotes it but always in an effective manner with the desired results.  Guido Mantegna the economic czar (Ministro de Fazenda), for example, stated that Brazil would grow at 4 percent during 2012.  Official data now show that the economy actually grew less than 1 percent.  A lot of people are distrustful.  Nevertheless, if you are on the ground in Brazil it appears that the economy is growing and growing more than the official statistic. 

There are numerous blogs, press reports and critics who say that Brazil is headed for an extended period of low growth an high inflation.  An example is the article in The Economist this week.

Personally, our feeling and experience is that a business will grow (or shrink) independent of the macro economy.  Obviously, there are linkages but few businesses perform at the average or at the rate of the overall economy. 

Traditionally, we move in Brazil between peaks of optimism and pessimism.  Right now we are in the optimistic phase and a lot of businesses are still doing quite well.  Unemployment remains at a near all time low and the new consumers are in the market.  They may not be paying all their bills but they are paying something.  That’s typical and it has been typical for a long time.