I met with the US Ambassador to Brazil during a series of meetings and conferences last week.
The Honorable Liliana Ayalde, a career diplomat and the successor to Thomas Shannon, spent most of the week in California, something that is fairly rare. During the meetings, the Ambassador stressed an increasing interest in California-Brazil business. Typically, California looks to Asia and Brazilian businesses have focused more on the eastern seaboard and Florida – New York connections.
As such, the US Ambassador usually visits Washington, New York and Miami and California is not usually on the agenda. Ms. Ayalde’s visit was heartening from a business perspective. She noted that Brazilians, while still favoring Miami and New York, are beginning to visit the west coast more, especially Las Vegas and California.
Ayalde stated that Brazil is a “must be there” market, that it is the 7th largest economy with a GDP of close to 3 trillion, and that almost all of the 500 largest US corporations have a presence in Brazil. She also noted that Brazil is a challenging place to do business, that there is corruption as evidenced by the Petrobras scandal and that Brazil faces a particularly difficult year or two of negative economic growth. However, she emphasized, correctly, that investment in Brazil should be thought of as a long-term endeavor.
I asked about the ongoing impact of the U.S. National Security Administration’s electronic spying in Brazil. Ayalde said she arrived just as this spying scandal was becoming public and that it certainly created what she called an “unfortunate chapter”. The most noted consequence, of course, was the “postponement” of Dilma’s state dinner with Obama. More seriously, Ayalde noted that the spying put on ice practically all “political engagement” and that the situation is only now being resolved. She noted that Vice President Biden attended Dilma’s inauguration and held a high level meeting where Dilma stated her intention to get the Brazil-US relationship “back on track”. The US continues to have of largest share of foreign direct investment in Brazil and now stands a chance of regaining its first place position as a trading partner given the slow down in China and the decline of commodity prices.
Backing up this emphasis on economic exchange, Ambassador Ayalde was accompanied by Brian Brisson, the Senior Commercial Officer at the US Embassy in Brasilia. Brisson noted that the US Department of Commerce has specialists in Brazil working in over 30 priority areas for trade and investment.
The combination of the decrease in commodity prices and the contraction of the Brazilian economy has led to renewed interest in attracting U.S. investments and to promoting Brazilian exports to the U.S. When the Brazilian Real was between 1.8 and 2.3 to the dollar, U.S. importers found Brazilian products uncompetitive. With the exchange rate at 3 Reais to the dollar and perhaps heading higher, Brazilian firms, out of necessity, are hoping to gain a new toehold in America, especially given the weakness in the Brazilian market.
It is well known that Brazil is inward looking and has been underrepresented in international commerce given the size of its economy. Brazil’s bureaucracy, protectionism and high internal profit margins justify this posture when times are good. But when the economy takes a downturn, Brazilian companies need to look abroad.
Overall, Brazil’s protectionist barriers ,have made it comfortable for foreign companies once they are established there. They have also benefited Brazilian manufacturers by shielding them from cheap imports. The problem is that the cosseted manufacturers have not had to compete and improve. The multinational sector in Brazil often uses old technologies to meet the low quality requirements of the domestic Brazilian market. Brazilians know this and love to flock to the US to purchase all types of goods which are at the technological forefront. U.S. products also have excellent quality and very attractive prices compared to what is available in Brazil.
Brazil’s market has opened, but the opening has only been partial and halting. Unfortunately, there is no consensus on where the economy should be heading and Dilma and the PT, as well as the opposition, seem incapable of coming up with a new vision. This is perhaps Brazil’s greatest problem. It is one that Ambassador Ayalde can only hope to fathom. Her interest is to understand the political situation, maintain a favorable environment for US investors in Brazil and promote US products and interests in Brazil. Hopefully, she will succeed.
On the Brazilian side, it remains to be seen how well Dilma and the PT can reconcile their world view with that of their U.S. partner. It is likely that Finance Minister Levy, who the ambassador described as “well received”, has the role of dragging Brazil kicking and screaming into the “reality” of the global capital markets to the dismay of the ideologues in the Brazilian Workers Party.
The author with Ambassador Liliana Ayalde in Southern California.