Brazil That Works

Recently, the Economist put America That Works on its cover. In Brazil, the news magazines often get tired of reporting on the latest scandals and do the same thing. In fact, my namesake, Stephen Kanitz, used to have a blog called O Brasil que da certo. (The Brazil that comes out right.)

Curitiba (capital of Parana State with around 2 million residents) is often used as an example for forward-thinking urban planning and transportation thanks to the ideas of Mayor Jaime Lerner (Curitiba’s former mayor who went on to become governor of the state of Parana) and his well-oiled PR machine. The 60-plus mid-size cities with population of more than 250 thousand but less than a million are pointed out as the destination alternatives for those overburdened by traffic jams, noise, pollution and reputation for violence in the larger metro areas. Florianopolis (capital of Santa Catarina, with about 500 thousand people) is well known as a tourist destination and for having good beaches and a reasonable standard of living.

In terms of education, USP (University of Sao Paulo) is ranked in the top 200 best schools of higher education. More specifically, USP and other universities have top level professors and researchers in myriad fields. Google, for example, looked at the productivity of my alma mater UFMG (Universidade Federal de Minas Gerais), especially its Computer Science and decided to establish its main Latin American engineering center there. Likewise FAAP (Fundacao Armando Alvares Penteado) and FDC (Fundacao Dom Cabral) have top-rated management and business programs.

Brazilian agriculture excels in certain areas and EMBRAPA (Empresa Brasileira de Pesquisa Agropecuaria) has had perhaps its most notable success in doing the basic research that has transformed Brazil’s center west into a major agricultural region in just the last 25 years. This has propelled Brazil into a leadership position in the production of soybeans and other agricultural commodities. Brazil’s forest sector has also grown into the world’s fourth largest producer of pulp for paper, tissue and other uses from planted eucalyptus stands.

Business wise, major privately owned Brazilian corporations are successful internationally. Odebrecht and its Braskem subsidiary stand out for their successful operations in many countries around the world, including the United States. Brazilian construction companies build major roads, dams, and civil works in both the developing and the so called developed world.

Given the complexity of doing business in Brazil, successful executives forged in Brazil find management positions with relative ease outside of the country. Brazilian executives, such as Eike Batista, have gained fame and notoriety but other executives, less prominent in the press have been perhaps more successful. Examples include Jorge Paulo Lemann and his partners Marcel Herrmann Telles and Carlos Alberto Sicupira who purchased Burger King, Heinz, and Budweiser as well as purportedly teaching the ropes of Brazil to Warren Buffet.

There are many more examples of a “Brazil That Works”. In fact, I like to say that Brazil has at least one paragon of excellence in every field. Roberta Close is one of the best examples…haha!

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Rio Close Olympic Stadium

Rio’s mayor announced this week the indefinite closing of the Estadio Joao Havelange, popularly known as the Engenhao.  The stadium was inaugurated in 2007 for the Pan American games and has been used regularly since then for football (soccer for Americans) and concerts.  After only 6 years of use, the stadium appears much older and run down. The main problem is that the roof could collapse given the right combination of wind and temperatures.  As things tend to fall down and kill people in Brazil, witness the hillsides in the rains and the collapsing building in downtown Rio. Mayor Paes’ decision, while not popular, is most certainly correct and prudent.

The international press, as it is wont to do, is reporting this as a major embarrassment to the local Olympic Committee, the city and the country as a whole.  The Brazilian press, on the other hand, is pretty much taking this in stride.  There are reports that it could be fixed in a matter of months.  There are comments that we still have over 3 years to the games, so no big deal.  In the meantime, the public sector and Clube Botafogo de Futbol e  Regatas, (literally a rowing club morphed into a football team) are left holding the bag.  After the first construction company dropped out alleging it could not finish the project in time, the Odebrecht Consortium took over but demanded it could be held responsible for project defects such as the problems with the roof that now have caused the closure.  So the public sector, read City of Rio, will pay the duck (pagar o pato, as we say in Portuguese.)  Botafogo is on the hook for rent and the loss of revenue since the stadium can not be used.

When the stadium was finished in 2007, there were many complaints about a shoddy finish and cosmetic defects.  Now the place could fall down.  Some will blame the PT, some will blame the PMDB party, which has run Rio.  But in the end, it is just Brazil.  Hopefully, and in all likelihood, the thing will get fixed in time for the Olympic Athletic Competition.  It may be done as a jeitinho brasileiro but it actually could get done right.  The old struggle between the modern and the archaic in the Brazilian context.

 

Predictions: Brazilian Macro Economy 2013

As we near the end of the first quarter, there are various and sundry predictions as to how the Brazilian economy will perform. Brazilians love diminutives and superlatives. Last year Guido Mantega (do you want to say who he is for the more uninitiated) predicted 4 percent growth. When growth came in at .9 percent, Brazilians started referring to the PIBinho or “paltry” GNP. (Superlatives on the other hand as in “mulherao” and “jogao” are best reserved beautiful women and great football (soccer) games.)

Mantega again predicted 4 percent growth for this year. Most banks and non-government economists are less optimistic. Dow Jones reported an economic consensus of 3.3% in December 2012. And for the month of March, HSBC is forecasting 2.6 percent. Other noted economists, such as former Finance Minister Paulo Roberto Haddad, have stated that 2013 is likely to look a lot like 2012. While President Dilma has promised to invest through the PAC program (The Accelerated Growth Plan), these investments have already been allocated or the funds are slow to appear. As of today, only 2 of the 12 World Cup sites are ready and the government has given up on having a bullet train before the Cup and even on major airport improvements by confessing its lack of resources and handing over the most important ones (Rio (Galeao), Sao Paulo (Cumbica), Belo Horizonte (Confins) and Brasilia to private initiative.

Dilma will run for reelection next year. As people have very short term memories, she may be saving her powder for a drive in 2014 just as Brazil is playing superlative football, we hope. Investing this year runs the risk of stoking inflation. Currently Brazil’s Central Bank interest rate is at an all time low of 7.5 percent. But inflation is also rising without a compensating increase in savings and investment. Petrobras, while promising to maintain its ambitious investment plans, has been able to meet production needs. Gasoline prices have been held back and negatively affect the cash flow of Petrobras and other oil companies.
Dilma has promised a gasoline price hike. She also fears the impact on inflation and her popularity. Her intervention in the electric energy sector, while popular on the street and in the manufacturing sector, seriously threatens the balance sheets of energy producers and distributors and their stocks (some such as CEMIG and CFL, listed on the NYSE, have seen their market value drop significantly.

In the long term, things look good for Brazil. It has everything. But there are short term challenges, including the need to find appropriate growth (AND DISTRIBUTE THAT GROWTH?) with distribution model (All of which present policy makers and politicians with hard choices today as the country seeks to define its future.

American Winter, Brazilian Summer

HBO will show American Winter next week.  The film is directed by Emmy Award winners, Joe and Harry Gantz.  They follow people in Portland, Oregon and attempt to put a human face on the Great US Recession by using Portland, micro-brew, tony- and-specialty coffee Oregon as a template for the deep and lasting impact of the crisis on families and children.  So basically not Detroit or south Chicago.  The film reminds me of the Brazilian summer.  When it is summer in the northern hemisphere, it is winter in the southern half of the world.  Metaphorically, Brazil continues to be boosted, and in some ways, rightly so.  However, as I have mentioned in previous blogs, not everything is as it appears, especially when related to Brazil.  Just as the view of the US from a distance is also distorted and even the picture portrayed in the new film is only a static representation.  Statistically, the US economy is entering year 4 of growth after the recession.  The trouble is growth has been weak, geographically specific and has only very slowly fed into growth in the labor market.  Unemployment (officially) is still 7.6 percent.

In Brazil, President Dilma has continued and expanded the social programs (Bolsa Familia, Minha Casa, Minha Vida) and the theme of her government has been no more misery in a rich country.  While progress has been made, anyone with first hand knowledge of Brazil knows that it has been uneven and that government films or portrayals of Brazil’s summer are certainly open to criticism.  Much remains to be done.  From my perspective, the major issue and challenge in 2013 is: How can Brazil maintain low unemployment with low growth?  Logic seems to dictate that low growth should lead to layoffs and higher unemployment.  So far, at least officially, and more important, anecdotally, sectors such as housing and infra-structure construction are having a hard time finding labor.  So just as in the US, things in Brazil are not simple.

The end of the recession four years ago did not give us the feeling of opportunity and improvement in the US.  The slowing of growth in Brazil has not yet affected employment there.

Surviving the recession has been a serious trial for many here.  Day-to-day life, finding a job, earning an adequate income, getting back and forth without having to deal with the potholes and the bandidos continues to be a challenge in Brazil.

Still, California is beautiful and I love Rio.

Security in Brazil

Recently a close relative with roots in Brazil traveled there after not having been in the country for a couple of decades.  Before going, he seemed to express a certain amount of trepidation about personal security issues.  Basically, I reassured him not to worry, but to me attentive and street smart just as one might be in San Francisco, Los Angeles or New York.

Thinking about it again, I wonder if my advice might not have been a bit cavalier.  Brazil with a 100 million people less than the US has many, many more deaths by firearms.  True, most of the deaths, as in the US are gang related and occur in or near the slums.  On the other hand, when in Brazil we always try to be aware of our surroundings and, unlike where I live everything has to be tied down, locked up, chained and protected.  Otherwise, the expectation is that whatever will not be there when you return.  Brazilians like to say that opportunity makes the thief.  As a result, the mentality is to not offer any opportunity at all.  So don’t leave things in the car.  Don’t leave the car unattended or unlocked.  Always check over your shoulder because the kid hustling up next to you may want your wallet.  My wife, for example, has concerns about petty thievery on the street and most other women that I know do as well.

Another situation is when you visit an office building or even a friend’s apartment.  At the office, you must show an identification, have your picture taken, get a badge, go through security and use the badge as your means of exit.  The elevators tend to be quite modern and you have access only to the floor to which the door person gave you authorization.

How about when you go to the bank?  Piece of cake.  The security checks you out to make sure you have business.  Before you walk through a circular security door of bullet proof glass, you need to put all of your metal belongings in a locker or stuff them in a security box under the guard’s watchful eyes.  Most of the time you will be on tape.  That is also true of when you go to visit your friend.  The elevator has a security camera so make sure you are not picking your nose or inappropriately touching yourself or your neighbor. 

Do Brazilians care about this stuff?  No, not a bit.  In fact, we find it somewhat comforting although we also know that when the “arrastao” comes, it doesn’t really make any difference.  We just live with it and our fatalism goes on its normal automatic pilot.

 

 

Will Brazil miss President Chavez?

President Dilma made the expected and diplomatic statement of condolence and attended the funeral with Lula, the shadow President.  The question is, aside from the tears for the Bolivarian socialist President of Venezuela, how much he will actually be missed.  For the promises of investments in Brazil and participation in Mercosur, quite honestly, not that much.  But as someone who smoothed the way for Brazilian construction companies, the upcoming period of uncertainty may present some problems.  Chavez never came through on his investments in the Petrobras refinery in Pernambuco, but, I think, the Brazilians never sincerely believed that he would or at least on the scale required.  On the other hand, the infra-structure projects in Caracas and elsewhere in Venezuela have been great.  With an upcoming election, a new administration and a possible reordering of priorities, Dilma’s presence in Caracas makes more than diplomatic sense.  Several billion dollars of building projects from the metro, to roads and bridges are on the line and Brazil’s international construction industry, by no means socialist itself, knows how be pragmatic within the bounds of South American populist politics.  There may be a certain distaste for Chavez’s style, but Lula and Dilma can easily go along with the game.  It was interesting though to see Lula give a speech about Venezuela’s need for more transparency and greater democracy.

The important thing that goes neglected is real and sincere draw of Chavez’s personality, his discourse and his populism.  While the middle class and the intellectuals proclaim disdain and ponder how much damage Chavez has wreaked upon the Venezuelan economy, the masses are tearfully saying farewell to the “dearly departed”.  Chavez was democratically elected and that should not be forgotten.  Chavez incorporated the petulance of the perceived “rights denied” of the Venezuelan population.  Ever since the discovery and major production of oil some 70 years, the people have been told how rich they are and how rich they should.  Somehow, the wealth never trickled down.  Chavez began a reversal of this situation but state driven and so called “socialist” political economy has not led to savings, investments and productivity.  So Venezuela still has a lot of oil wealth but the economy is not productive, the opposition is ineffective, and the new administration will need to prove its competence and redefine the rules of the game.  This process and the probable restructuring of who gets what will, in the end, determine how much Brazil misses Hugo.

Boosting investment: Where will it come from?

The article, “Brazil to boost investment” pasted below was published by Sinapress and copied/posted by the Information Company of Seattle. Certainly, it is well known that Brazil’s savings and investment rates have been comparably low and well below China’s forced savings rate. Brazil currently invests less than 20% of GDP. Part of this comes from the deep rooted tradition of spending now because of inflation and another part come from fear associated with a preference to moving savings offshore and trying to escape the whims of the government and the voracious tax appetite of the state. The attempt to boost investment, while welcome, is problematic because the private sector is waiting on the public sector to lead and the public sector has its hands tied because of lack surplus. Government discretionary spending is limited. Basically, all tax revenues are already allocated to debt service, social security, social programs and other budgetary commitments. The so called PAC has not taken off because the investments are not there. If the government tries to increase spending it will only generate more inflation which is already very close to upper end of the target range.

It would be great if Dilma can work some magic….but it looks tough.

Brazil to boost investment to 25 pct of GDP: President

Posted by infoadmin

Brazil’s President Dilma Rousseff said on Wednesday the government seeks to boost total investment to 25 percent of gross domestic product (GDP).

“We have made a huge effort in infrastructure and we want this effort to pay off, (and) it is impossible to continue transporting minerals and grains only via highways,” Rousseff told a meeting of the Economic and Social Development Council (CDES) in Brasilia.

She also said the government plans to announce new tax cuts to stimulate investment.

At the same meeting, Fernando Pimetel, Brazil’s development, industry and trade minister, said the investment in Brazil should grow 30 percent by 2016, or reach 3.8 trillion reals (1.9 trillion U.S. dollars) over the three-year period, driven by infrastructure and industry sectors.

“We are convinced that in 2013 and in the next few years, there will be growth in investment in infrastructure, industry and other sectors as well,” he said.

The current investment rate of South America’s largest economy stands at around 20 percent of the GDP, according to Brazil’s Finance Ministry.

Economists in Brazil say the country is about to hit a bottleneck of economic expansion and needs to bolster investment to accelerate growth.

Pimentel indicated that the government is providing solutions to boosting economic growth, and now it needs businessmen to jump on the bandwagon.

The government earlier announced several measures to increase the competitiveness of the Brazilian industry by improving efficiency of transportation and logistics networks.

Brazil’s GDP growth registered a tepid 0.7 percent from January to September last year, and the full year growth would not exceed 1 percent, analysts say.

Source: Sina English