So, You Want to do Business and Live in Brazil?

A young Frenchwoman, Gwendoline de Ganay, recently published an insightful and popular piece in the Pulse section of Linked In. Her article was quite balanced and sober about Brazil recognizing the depth of the crisis but also expressing optimism in Brazil’s youth, the amplitude and impact of social media, the growing environmental awareness, an openness to new technologies and the presence of a strong entrepreneurial dynamic. Commentators on her article also picked up on the theme and further noted Brazil’s openness to foreigners and the skills that they sometimes bring and can apply in Brazil.

This got me thinking about why I live abroad, why I moved from Brazil, why I still do business there and whether I want my children and grandchildren to live there. I confess that I am old enough to collect my Brazilian INSS (social security) and thus my experience (which comes partially with time) is perhaps a bit more extensive than Ms. de Ganay’s. I believe she is in her 20’s and thus in the “sweet spot” for taking advantage of much of what Brazil has to offer on many levels. I imagine that she may be single and childless. Moreover, since she has a consultancy in Brazil, she has successfully navigated the immigration system and has gotten either her Brazilian permanent residency or citizenship. Armed with the right spirit, great ideas and even a relatively small savings many opportunities can be found. In other words, the optimism and energy of youth run counter position to the “been there done that” cynicism of age.

Again, I really like her article and optimism but let’s look a bit more closely at some of the points that she raises:

  • The crisis in real, as Ganay states, but there is no end in sight because the crisis is more political in nature than economic. The problem is not Finance Minister Levy, but one of not having enough political leadership and support to legitimize any option that is taken. The best macro alternative at this point seems to be putting up with Dilma and the PT by hoping to “muddle through” until the 2018 presidential election. On the level of business, the only alternative is to batten down the hatches and keep working as creatively as possible. Taxes and inflation will go up and interest rates will too. So it is a long and hard challenge.
  • Ganay and many commentators point out the positive advance in Brazil’s justice system and the Federal Police. Supporters of the PT note that Brazil has never pursued corruption investigations so effectively and persistently. This is true but it does not really mean much in terms of the day to day functioning of the justice system on an individual level. The system is still very creaky and sluggish and subject to pressures of all types. I personally find it somewhat perplexing that individuals such as Marcelo Odebrecht and other top business leaders have been effectively denied habeus corpus. While there may be ample justification based on evidence, I find the precedent unnerving. The Ministry of Justice can pretty much arbitrarily deny release from prison based on prosecutorial opinion before judgment in court. Is that really an advance?
  • Ganay points to Brazil’s young population that is eager to learn and adapt. Indeed, she is correct but Brazil’s population is aging quickly and the demographic bonus will be gone in a generation. Brazil’s current fiscal crisis is due in great part to the social security system and especially the built in advantages for federal government employees. Constitutionally protected mandates allow protected federal employees to retire early and with incomes of over 20 thousand reais. Brazil cannot afford this and the aging population will increase the demands in the private sector as well; even though the INSS payments are capped at perhaps only 20% of the retirement benefits of those most fortunate federal employees. As to learning and adaptation, Brazilians do indeed see education as the major means for advancement but it is often more in the direction of having a formal degree rather than actually knowing and performing. Formalism prevails in spite of some advances in non-traditional learning via the Internet.
  • Brazilians are receptive to new technologies and are using social media for commerce. Internet business is indeed growing by leaps and bounds but it is still restricted to those who can afford to actually make purchases. The credit-based expansion cycle of the economy is over and currently something like 40% of the population is in arrears with their accounts. This will become a vicious cycle until the economy improves.
  • Ganay briefly mentions that Brazilians have an entrepreneurial mindset. I would love to agree with this and do see some indications of its emergence but only on a limited scale. My generation grew up aspiring to work in Brazil’s public sector and the present ratio of candidates to spaces in the public “concursos” proves the continuity of this old mentality. I have written elsewhere that the Brazilian state no longer has capacity for absorption so people need to fend for themselves. I question her statistic on the 75% survival rate of new enterprises. Although she does not cite a source, I imagine this comes from the relatively new statutes on micro-enterprise. It may reflect failure to close a “micro-empresa” rather than successfully operating one.
  • Brazilians are responsive to new business models. Yes, the middle class loves to imitate and emulate the USA and Europe.   Thus UBER, AirBnB and similar “sharing” start-ups enjoy initial success. However they soon butt up against the “Brazilian reality” and the reaction of entrenched interests. In my hometown (Belo Horizonte), there have already been cases where taxi drivers have beaten up UBER passengers. And AirBnB landlords pretty much want to have foreign visitors as they do not trust fellow Brazilians.
  • Ganay affirms that many sectors still perform well and she lists hospitality, food, cosmetics, musical instruments and pet and vet products. I think she is largely correct. Fundamentally, Brazil’s rigid and status conscious system favors any endeavor that allows for class or status confirmation and ascent. Thus kinky haired women purchase straightening, pivetes will strip middle class kids of their Nikes and while there might not be enough good food at home, it always nice to be seen consuming something in the bar or restaurant of the moment even if it is the cheapest thing on the menu.
  • Finally Ganay notes the greening of Brazil and openness to sustainable development. So plastic bags are banned in Sao Paulo but has Brazil become cleaner? What does Ipanema look like after Carnaval? Didn’t Rio City Hall come up with the exquisite idea of allowing people to pee on the streets behind a “discreet” barricade? Yes, Brazil has amazing resources for green energy just as did the Pro-Alcool program. Unfortunately, parochial political interests and short-sighted policy have failed to adequately develop the potential. Good programs start, falter and move ahead only haltingly.

I too am optimistic about Brazil. I know how to live there. I know the street language and have some ginga, but I am concerned about my American grandchildren born to their Brazilian parents but still totally innocent about where their roots may be. Is the option of living in a gated community in a walled Brazilian metropolis and going to private, elitist school better than public school and the suburbs in the US? Is it better to be brought up in the “shopping” or is it better to be in the heart of the beast of production and consumption in the USA? Do I worry about young people, gangs, drugs, violence and war more in the US? These are all tough questions for me.

In my 20’s, Brazil was wonderful with its exuberance of touching and embracing, its wealth of opportunity, its openness to those with a bit of competence. How does this change with age and with experience?

Unfortunately, Brazilians and their money are flowing once again to Miami. I resent this as a failure of my generation but can I condemn it?

Here is the link to Ms. Ganay’s post:

https://www.linkedin.com/pulse/what-people-dont-tell-you-brazilian-crisis-from-ground-de-ganay?deepLinkCommentId=6061336004487299072&anchorTime=1445135117661&trk=hb_ntf_MEGAPHONE_LIKE_TOP_LEVEL_COMMENT

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Circulos Grandes, Pequenos e Viciosos

Na esfera de negócios, na vida profissional, nas relações de amizade e ate’ na família construímos círculos. Temos os círculos pequenos e mais íntimos e aqueles maiores e mais amplos. As vezes os círculos entrelaçam mas as vezes os círculos se fecham.

Vendo a situação política e os problemas de governança e legitimidade, temo que os círculos de quem esta no governo ou na oposição estão se fechando. Dilma, por ultimo, parece estar numa postura totalmente defensiva. Traduzido para o inglês, diríamos que: “She has circled the wagons” para se defender dos ataques dos bárbaros que a cercam por todos os lados.

Mas o circulo da oposição não e’ menos fechado. Os Tucanos em seus atos e votos, não dão trégua, mas curiosamente não apóiam as soluções que eram do PSBD na campanha eleitoral. Por que? Falta liderança ou querem como insinua o PT o pior para o pais e um eventual mudança de legitimidade duvidosa?

Na esfera do debate entre “opinion makers” e aqueles que influem na política,, era de se esperar a existência de um círculo maior e mais abrangente. Entretanto, parece que tanto jornalistas, quanto intelectuais estão enquadrados em pequenos círculos ou talvez casulos de identificação partidária ou idelologica. E os que estão fora do quadro partidário, parecem não ter audiência. Quem e’ que pode superar o quadro? Na luta contra a ditadura militar, intelectuais, políticos, militantes e cidadãos uniram-se contra a falta de liberdade de imprensa, o constrangimento político e a repressão militar. E de fato a movimentação de um círculo muito amplo conseguiu a volta da democracia e do processo eleitoral dentro da legalidade. Enfim, as instituições ainda que imperfeitas obtiveram sucesso.

Neste momento, dentro da tempestuosa recessão, da perda de legitimidade do governo, da corrupção desenfreada e da confusão política aonde não se sabe quem apóia quem, o pais corre sérios riscos para as instituições.

Então, como e’ que fica para o empresário e para o trabalhador? O noticiário da TV, as manchetes dos jornais e a rotina diária contribuem para uma postura defensiva e conservadora. O empresário pensa que não pode investir porque a economia esta’ mal. O empregado teme por seu emprego pelo mesmo motivo.   O circulo vicioso ronda, apesar dos esforços individuais.   Como escapar?

Me parece que a resposta e’ igual para todos. Quanto a Presidente, ela teria que assumir a responsabilidade decisória. Infelizmente, as ultimas interpretações são que Dilma já abdicou a favor de Lula e do PMDB em troca de pouco ou nada. Ela deveria estar pressionando a saída de Cunha mas teme que o Presidente da Câmara revide com a abertura do processo de impeachment. De fora, todo o processo e’ convoluta, entediante e enrolado. Ninguém entende direito e poucos na realidade querem entender as minúcias. O que se quer e’ simples – um governo que governe de uma forma transparente e que não leiloe ministérios e cargos.

Quanto aos empresários, querem e’ um quadro de previsibilidade, com perspectivas de melhora. Quem tem um produto, quer um mercado para o mesmo. Paga os impostos a contragosto e sabe que a política da mordida fiscal vai continuar mas gostaria de pensar que não vai piorar. Por outro lado, o empresário também quer que as políticas funcionem. Se ha proteção que protege, se ha incentivos que façam     sentido e que sejam aproveitáveis.

Da mesma forma para o trabalhador, ele quer a carteira assinada, o acesso a saúde e a oferta de educação para os filhos. Se for demitido, quer os direitos trabalhistas inclusive rescisão, FGTS e acesso a qualquer programa social. Não são coisas tão difíceis. O quadro institucional já existe. Ainda e especialmente para o trabalhador e’ importante que o governo controle a inflação. O salário e’ pago mensalmente e se a inflação for de1% ao mês, em um ano já se foram bem mais de 10% do poder de compra. Ai esta’ outra vez, o circulo vicioso.

A construção do circulo virtuoso (oposto ao vicioso) depende de atos individuais e também de um quadro institucional que favoreça responsabilidades e ações corretas. Ao longo das ultimas décadas, o pais progrediu em certos setores. Acesso ao INSS, por exemplo, tem sido bastante razoável para a maioria. (Isso e’ claro sem levantar a lebre dos aposentados pelo setor privado vis a vis os avantajados do setor publico). Houveram progressos sociais com os governos Petistas. Não se pode e nem deve negar. O problema e’ retomar o progresso quando o modelo Lulista já se esgotou. Individualmente, ha que se ponderar como agir. Ao nível político, a administração publica deve se antecipar e dar o exemplo.

Atualmente, o exemplo e de impasse e de defesas de interesse imediatos. Assim o circulo vicioso provavelmente continuara por mais tempo, ate’ atingir o fundo do poço. Talvez isso coincida com a eleição de 2018, quando o Brasil terá então, nova oportunidade de definir melhor seu rumo.

Bay Brazil 2015 – Bridging Brazil and Silicon Valley

The fourth annual Bay Brazil Congress was held last week at the Stanford Research Institue (SRI) in Menlo Park just a few miles from the Stanford University campus. Without a doubt, Bay Brazil has transformed this annual meeting into one of the best and most important Brazil business events in the US and certainly the premier one on the West Coast. Here is the link to the event program (http://us7.campaign-archive1.com/?u=b2b9ee63cc4b3a2161844bbcc&id=719a038a97&e=83cc0ea5bf) and Bay Brazil’s Facebook page that has pictures and commentary: (https://www.facebook.com/baybrazil?fref=ts)

The impact of the event goes beyond CVs of the speakers. What is really important is that the participants are actually doing business in Brazil. Given the current situation of negativism derived from the weak administration of President Dilma Rousseff and the still unfolding series of corruption scandals ranging from oil and energy to banking and finance, the companies represented at Bay Brazil prove that in spite of the difficult environment it is possible to operate in Brazil, grow and prosper without having to grease endless palms. In spite of the recession, sectors of the Brazilian economy are growing and these include: the rapid expansion of all forms of information technology in social networking, education, health care, hospitality, personal care, beauty and sports. Brazil is still on the stage after the made for TV success of the World Cup and now for Rio’s Olympic Games starting in less than a year from now.

The participants, even the government representatives, were sober and did not white wash Brazil’s problems. Everyone recognized the issues: Standard and Poor did downgrade Brazil to junk status. Inflation is running way ahead of the targeted 4.5 to 6.5 percent per year and the economy may shrink over 2 percent this year and again in 2016. The President is threatened with impeachment and Congress is a dysfunctional mess faced with the unhappy and unhealthy challenge of raising taxes and cutting spending. Beyond this, corruption in business dealings has become too pervasive and too common. Finally and perhaps most importantly, Brazil is floundering in defining how much freedom the private sector should have, the role of the state and the extent of its intervention in the economy.   Not knowing the rules and the government’s direction generates an uncertain climate not at all favorable for planning and investing.

However, even with the problems Brazil will come back and those who invest now will be positioned to their advantage. The wealth that Brazil has gained since monetary stabilization is undeniable. The demand of 200 million potential consumers is too big to ignore. The Brazilian aspirations in consumption as demonstrated by its middle class filling the shopping center of Miami can again be rechanneled to the domestic market. And more importantly, young Brazilian entrepreneurs in the IT sector and others are striving with great success in creating new businesses along the model of Silicon Valley. Two start up sessions with a wide range of new businesses paid testimony to the emerging levels of entrepreneurship independent of government support.

I would summarize the take away from Bay Brazil in two categories: the good and the bad.

GOOD

Young Brazilians have leveraged their education and access to internet technology not only for consumption but also for developing new businesses in the absence of enough accessible alternatives in the current job market. Lack of jobs forces some to become entrepreneurial.

Brazilian X-Gens and Millenials are looking to use Linked In (22 million Brazilian users) and alternative forms of gaining knowledge available on the internet to promote their careers and businesses.

There is a thriving start up culture in the country and Sao Paulo is the 12th largest start up hub in the world.

Brazilians want to develop businesses in Brazil for the Brazilian market.

Those in business, just like those with jobs, must get up every morning and strive for success in the market or to add value at work. This activity takes place somewhat independent of the socio-economic environment.

There are many disruptive technologies that can easily take root in Brazil. AirBnB has been cited as an example for becoming an “official” housing provider during the Rio Olympics as there are simply not enough hotel rooms available to meet the demands of such a major event. Uber, another disruptive application, has developed a significant presence in Brazil but is now being battled by taxi drivers with the support of their unions and local government officials.

BAD

Brazil’s crisis is visible on all levels creating angst and a milieu favorable to brain drain.

Start up capital is expensive and limited and more so now in the recession.

Entrepreneurial Brazilians often realize that their ideas have an equal or better reception abroad and thus many Brazilians are willing to pull up stakes. Many of the panelists at Bay Brazil are Brazilian transplants achieving success more easily in the USA.

Given the risks in Brazil, both foreign and native Brazilian investors are put off and would rather move their resources abroad.

Finally, Magarise Correa, Bay Brazil’s President and her staff, with their hard work and organization, deserve kudos for meeting their objective of bridging Brazil and Silicon Valley by bringing together seasoned business people, investment bankers, high ranking diplomats, venture capitalists, start ups, lawyers, accountants, consultants and academics in a relaxed, cordial and productive atmosphere for a day where Brazil’s potential and challenges can be objectively understood and acted upon.