Brazil: Muddy Waters, Green Shoots, No Flowers

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Everyone pretty much agrees that Brazil is going through another major crisis.  There is less agreement as to if and when the crisis will achieve some sort of resolution.  Personally in my experience in Brazil since the early 60’s, I cannot remember a time when Brazil was not in crisis.  We have an ongoing process of ebbs and flows dating back to discovery.  There are many explanations ranging from bureaucratic fatalism associated with the Portuguese crown, the geopolitical one derived from Brazil’s less favorable locational aspects, the racial one that blames Brazil’s underdevelopment on its ethnic mix, the political explanation derived from the lack of tradition in participation and voting, the economics due to lack of savings and investment, the educational narrative that notes the lack of functional literacy or the historic one that combines all of the above and more.  Each of these brings something to understanding but still the crises are never resolved and only change a bit in players and personalities.

With all of this, Brazilians remain generally optimistic, happy and compare their country in favorable terms to other places.  For most, Brazil remains the best place to be born and to live.  Even those that participate in the diaspora want to eventually return when things improve.  So how do we reconcile this contradiction?  In spite of violence, mayhem, disorganization, gross inequality, open thievery and poverty, Brazilians still affirm that life is good.  In spite of the recession, now extending to year 3 from 2015 to possibly 2018, Brazil still ranks in the top 10 economies worldwide as measured by GDP having dropped from 6 to 9 in the ranking.  Even so  wealth and wealth creating potential abound.

Amazingly to some, back some 30 plus years, Brazil was in a similar situation.  Jose Sarney (PMDB) was president, supported by Congressman Temer and his colleagues.  Formal unemployment was around 17%, the direct elections movement has lost its chance in 1985 but achieved the open elections of 1989 resulting in Fernando Collor’s election and Lula’s first presidential defeat.  Inflation was higher than that Venezuela’s is now topping 1000% per year.  Like Temer, Collor was called to the carpet on accusations of gross corruption.  Unlike Temer, Collor had no base in Congress and was impeached.  Although Collor had more charisma than Temer, he also failed on the economic front and his different attempts at controlling inflation are remembered with contempt and derision.  Collor’s impeachment in 1992 placed his VP Itamar Franco in the presidency and led to Fernando Henrique Cardoso (FHC) becoming Finance Minister and the implementation of the Plano Real.

In the subsequent elections, FHC trounced Lula two times.  But Cardoso’s second term was made possible by satisfying the venality of Congress (it had to vote a Constitutional amendment allowing a second term).  While the Congressional penchant for the buy off had long existed and had been condoned by the military governments and greatly enhanced by Sarney, FHC also drank from the tainted cup of expediency and now stands accused of having committed the original sin.  In this Cardoso just followed the long tradition of what he has described as “A Arte da Politica” but it is really the dirty business of sausage making, (now “nobly” carried on by JBS, the world’s largest meat processor, thanks to the generosity of Lula, Dilma and the national champion policy which started back with the military governments.)

Things change but remain the same. What goes around comes around.  Can Brazil break the cycle of miracle years followed by crisis.  Can it the country go beyond boom and bust?  My answer is an optimistic yes.  And here is my prediction, no matter how foolhardy.  Today’s Congressional vote allows Temer to survive until the 2018 elections.  The field in 2018 will include the new and the old.  Most likely, the old will win.  It could be Lula if he is not in jail or it could even be the rightist Bolsonaro the messianic ex-military Congressman who sings the praises the military and disdains minorities.  It really does not matter in the long run.  The important fact is to hold the election, gradually renew Congress, put up with whoever is elected and gradually reconstruct civil society based on meeting basic social demands in education, health, and basic sanitation.

This Congress has decided to protect itself by protecting Temer.  The President, in turn, has promised reforms and continues with in their pursuit to maintain a bit of legitimacy bestowed by the market, if no one else.  Given the horse trading that has taken place in order to keep power, it is likely that any further reforms will be more symbolic than real.  The government has already gone beyond its spending cap for this year and now is raising taxes.  Temer will end his mandate as one of Brazil’s most unpopular figures.  Clearly he desires power, is venal and shameless in his own perpetuation.  Still, there no immediate obvious better alternative.  Dilma’s impeachment solved nothing and further surrendered power to corrupt politicians.  Her one virtue was that she allowed and did not block investigations.  Temer has less personal virtue but certainly is a better political wheeler and dealer.  On the positive side though his administration at least opened space for social security, labor and spending reforms.  To all but the most obtuse, there is recognition for this need.  Delfim Neto, now the ranking academic conservative economist is not optimistic but suggests that the “least bad solution” is to let Temer “end his mission and postpone the proceedings” until there is a new administration in place on Jan. 1, 2019.

Brazil continues it herky-jerky halting progress.  In spite of the poor governance, things will gradually improve but the rate will depend heavily on how and if people decide to get involved.  The opportunities are many in civil society and even in the political realm as Temer and cohorts eventually die off.

 

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Institute of the Americas: XXVI La Jolla Energy Conference

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Since the early nineties, the Institute of the Americas at the University of California, San Diego campus has promoted an energy dialog bringing together top level executives, academics, consultants, hands on practitioners and journalists.  The exchange of information is always enlightening and the President and the staff of the Institute, especially Jeremy Martin, deserve kudos for promoting and organizing this important two-day meeting.

Here is the link to the event with the list of topics and of the distinguished speakers and panelists: https://www.iamericas.org/lajolla/

This year’s meeting could hardly have taken place at a better time.  The political economic crisis in Venezuela is ongoing, Brazil is in the midst of its second impeachment or presidential change in less than a year, Argentina’s new administration is seeking a more open and market oriented path for the use of its extensive oil/gas resources and suddenly, the small and often neglected Guyana is facing a surfeit of riches with the recent discovery of major offshore reserves.

The picture at the beginning of this text is of the panel: Brazil’s Energy Reset. On the left is Paulo Sotero, a journalist by trade and the Director of the Brazil Institute at the Woodrow Wilson International Center in Washington, D.C.  Seated with him are Rafael Ferreira of the state sponsored Energy Research Office and Andre Regra of Brazil’s regulatory ANP (Agencia Nacional do Petroleo).  Jay Thorseth, a Latin American Director for British Petroleum is between Andre and Rafael.

The perspectives from Brazil panel were quite representative of the other discussion at the Conference.  While each country has its particularities, representatives of the public sector, the private sector and academia or journalists showed unique perspectives.  Both Andre and Ricardo, for example, emphasized the reset of Brazil’s energy sector and hued pretty much to the government narrative.  Implicit in their presentations was the shift from a nationalistic PT (Brazilian Labor Party) perspective to greater market openness.  Both noted Brazil’s resumption of oil field auctions and the reduction of local content requirement that had previously put off many international investors and oil companies.  Jay Thorseth of BP, while polite and diplomatic, presented the private sector’s perspective, emphasizing the need for market realism.  Thorseth said governments need to favor foreign companies to be competitive and to access to capital, technology, knowledge and skills.  Auction and participation terms need to take into account Brazil’s need to be an attractive destination world-wide in terms of cost, profit and royalty payments.  If there are better deals elsewhere, then it is likely that the big oil companies or the so-called majors will favor these over a restricted Brazilian market.

Paulo Sotero started by remembering his previous writing on the major crisis and downfall of Brazil’s economic and political system.  This reminder, while obvious, became something of the elephant in the room.  Presenters with government ties were loath to recognize that their initiatives toward opening the energy sector depend not only on technocratic criteria but also on politics.  Thus, when Brazil’s President Temer departs, his replacement will reorder the chairs in the oil sector and in public companies like Petrobras and others in energy production and distribution.  Likewise in Mexico, President Pena Neto is in the last year of his term and essentially a lame duck.  If AMLO (Andres Manuel Lopez Obrador), a popular figure on Mexico’s left, is elected, Mexico’s energy reset will also certainly have a different orientation.   Representatives from Mexico’s public companies emphasized change in legislation in the hope of ongoing modernization and expansion of both oil and gas exploration and distribution in partnership with the private sector.  Optimistically speaking, resource nationalism is seemingly buried, but in Latin America it often rises phoenix like.  Private sector players must always be worried about institutional weakness as regulations and norms or the lack thereof thwart intentions.  Governments and businesses want to mobilize Latin America’s ample energy resources but this depends on the modernization, increased transparency, and durability of the rules of the game.  And these rules, in spite of promised advances, are still being negotiated.

The Conference provided a lot of detail on resources, processes, government action and private company plans.  The major discovery of oil in Guyana certainly will impact markets and already directly affects Venezuela and Brazil.

Finally, the presenters noted that even for traditional oil and gas players, alternative energy is now mainstream and has great significance and unlimited potential for development.  Nevertheless, petroleum and its derivatives will be the major source of energy for their economies for at least another generation.

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Foreign Direct Investment in Brazil

Below is a short article published today (Jan 25, 2017)in the international edition of Valor. Some of the questions that come to mind are:

What sectors are receiving the largest inflows?  I would think most likely petroleum exploration with the loosening of restrictions.  The primary sector also is important with the growth of soybeans and large investments in eucaliptus for the pulp industry.

Where are these flows coming from?  China promised 10 billion but the Chinese are notoriously slow in fulfilling their promises.  What companies and countries are the source?  The US has the largest stock of accumulated FDI

Finally, as noted in the article, FDI in Brazil, in spite of uncertainty, recession, political crisis, disease, accidents, death and decline, keeps growing.  Someone must be thinking long term.

FDI reaches record 4.4% of GDP despite recession and political crisis

Recession, impeachment, political crisis, and corruption scandals have not affected the flow of foreign direct investment into the country, which ended 2016 at $78.9 billion, or the record level of 4.37% of GDP. The investment inflow, spread across various sectors of the economy, financed easily the current account deficit, which stood at $23.5 billion, or 1.3 percent of GDP. “This shows that direct investments have specific characteristics, linked to long-term decision and could be maintained even in years of weak economic activity,” said Fernando Rocha, head of Central Bank’s Economic Department. For 2017, the forecast is of $75 billion in FDI, or 3.82% of GDP. 

Article from Valor International Edition, Jan. 25, 2017

Grading my Brazil Predictions for 2016

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Optimistic Dilma in 2016 – Photo by Roberto Stuckert Filho

 

Some readers have followed, not necessarily religiously, this blog since it went public in January of 2013. Comments have generally been gracious and insightful.

As long-time readers know, I do a New Year’s prediction for how Brazil will fare over the coming 12 months. As part of this, it’s only fair to go back and assess what I got right and wrong. I’m giving my 2016 predictions a gentlemanly B-. Here, for verification, is the link to those year-old predictions: https://allabroadconsulting.wordpress.com/2016/01/01/brazil-predictions-for-2016/

My biggest 2016 prediction mistake was stating outright that President Dilma would not be impeached. I sincerely believed that she could and would marshal the political forces necessary for her survival. Instead, she went down with hardly a whimper and with little or no political or economic support. . A worsening recession, growing unemployment and above all, her indecisiveness in the economic sphere and her disconnect from Congress ultimately doomed her. Her incompetence and distance even from her own party showed her lack of political skill and desire to save her presidency.

While I missed on Dilma, I predicted correctly Cunha’s (former President of House and the main force in Congress behind the impeachment) ouster and Renan Calheiro’s survival (as the President of the Senate). Mr. Calheiros has indeed prevailed but notably weakened and will soon lose the presidency of the Senate. The new President, Michel Temer, has kept his distance from Calheiros preferring other cronies instead. In my predictions, I did not mention Temer (as I did not think he would actually take over) and I should have looked at his ambitions more closely.

On the economy, like most everyone, I correctly anticipated the continued recession but also expected the cycle to reach bottom by the end of the year and naturally perk up from there. It now appears that the upswing may not begin until the second or third quarter of 2017. The recession, the major increase in unemployment and the consequent lack of demand has kept inflation relatively low. I had expected inflation (again with Dilma) to hit or top 10% due to her maneuvering to please supporters. President Temer has pushed a cap on spending through Congress and this along with lack of demand has held inflation to around 6.5% in 2017 with a current tendency to fall. Brazil’s Central Bank is predicting inflation of less than 5% in 2017. While the official numbers appear reasonable, the impact of price increases certainly feels higher and more worrisome on the street.

Speaking of worrisome, Brazil is mastering the art of year-end crises. It used to be mudslides with summer rains creating havoc. These were largely man made catastrophes because of unregulated and uncontrolled development of unsafe areas. Because the deadly slides were associated with the seasonal downpours, they could be blamed on nature. Similarly, Zika was the New Year concern from 2015 to 16 when thousands of cases appeared and hundreds of babies were born with microcephaly. In this case, nature again was blamed but Brazilians also know that mosquitoes breed and propagate due to a lack of basic infrastructure and sanitation. By August and the Olympics, the pandemic was no longer an international threat and Brazil, as I predicted, successfully held the Games. Of course, the major beneficiaries were not the people of Rio but instead NBC and the Olympic Committee. Rio is now bankrupt and many of the so-called Olympics improvements are rapidly falling into disrepair. This 2017 New Year disaster cannot be blamed on nature but must be laid at the heart of the contradictions inherent in Brazil’s barbaric inequality and violent past. Prison riots in the first days of the year have caused well over 100 deaths and the government seems paralyzed in how to address the gangs that control the prisons, their historically abhorrent (mis)management, and the Justice system itself that operates willy-nilly and condemns the poor, black and powerless. The rebellions and deaths show the bankruptcy of the government and paradoxically the strength for those who have nothing to lose and know that life is cheap. The gangs rule in the absence of any other intervening power.

Last year, I also mentioned the continuity of the corruption investigations and, especially the Lava Jato (Car Wash) with its revelations of unprecedented bribery and the chummy network of exchanges between construction companies, politicians and political nominees positioned to take bribes and distribute contracts favoring the “empreiteiras” (construction companies) and their political allies.   Again, thinking that Dilma would hold on to power, I imagined the extension of the investigations to other areas such as the National Development Bank (BNDES) and more specific projects like the transposition of the San Francisco River. Indeed, there has been mention in this direction but no action. Instead, the Temer government sought to quietly dismantle the main investigations and it has only been through strong public pressure within Brazil and from abroad including the US Department of Justice that the prosecutions actually survive.

Interestingly as predicted, Brazil continues to receive massive amounts of FDI (Foreign Direct Investment) some 69 billion in 2016. Some of this money is going into the primary sector for land purchases, soybean and pulp plantations. Other sectors are less clear, with industry in decline, the money is likely going to opportunistic acquisitions in manufacturing or processing (i.e. the Petrobras sale of the notorious costly refinery in Pernambuco negotiated recently for 10 cents to the dollar. Other investments are going into education, services, distribution and logistics. Still these have not sufficed to revive the economy. More money is starting to come from China but the Chinese still lack confidence in how to deal with Brazil.

Unfortunately, Dilma’s ouster is still yielding negative returns for Brazil’s institutions. While she was bad, her replacement has not improved the economic situation, slowed the firings, enhanced productive investments or inspired confidence. Dilma, though apparently personally honest, could or would not govern.   President Temer’s rectitude is perhaps less certain. His government is corrupt and weak but more politically adept in dealing with the venal politicians in Congress. Hopefully, the electoral court will not have time to disqualify the Dilma/Temer slate, which would force Temer out and the indirect election of a new interim president who would have filler role to the elections of 2018. If this happens, it will further confuse the public and inhibit the possible emergence of candidates not tied to corrupt schemes or past malfeasance.

Pulling off the Olympics and winning the missing gold medal for the first time in futbol* were the high points, and now Brazil continues to flounder but such is the world in 2017.

*The Olympic gold medal was only major soccer title that Brazil had never won.

Como matar a borboleta-azul: Uma crônica da era Dilma de Monica Baumgarten de Bolle, Comentarios de All Abroad Consulting-Steve Scheibe

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Acabo de ler o novo livro de Monica de Bolle.  Monica é pesquisadora senior do Peterson Institute for International Economics vinculado a John Hopkins University.  Ela também traduziu a edição brasileira do livro Capital de Thomas Piketty.  Ademais escreve blogs e colunas, enfim uma economista que publica bastante, sendo bem visível na mídia social.  Enfim, a autora reúne experiência e competência.  Recentemente, surgiram comentários na mídia que ela poderia integrar o Ministério (Planejamento?) do Presidente Temer.

Borboleta é um resumo dos anos Dilma, principalmente os erros econômicos (e em menor grau) políticos do segundo mandato.  Como uma pessoa muito bem lida, Monica conta a historia usando analogias e paralelos literários.  Assim a destruição da borboleta azul [1] representa a metáfora do período final do governo PT no poder.

Como Monica de Bolle vem acompanhando de perto (mesmo em Washington) a economia brasileira, ela usou blogs e artigos publicados como a espinha dorsal do livro.  Olhando a sequencia dos artigos que ela integra bem no livro, pode-se ver que ela já enxergava onde a economia iria chegar e as consequências politicas para a Presidente Dilma.  Um desastre pré-anunciado.

A autora enfatiza que Borboleta não é um tratado econômico “repleto de gráficos”, mas sua apresentação de uma historia cujo determinante fundamental foi a insistência da governante em não reconhecer seus erros e falhas inerentes em sua visão econômica e também politica.  Enfim, de acordo com a autora, a Presidente Dilma não foi inteligente e insistia em executar as regras da estupidez humana, na expectativa de obter um resultado diferente através repetição insistente das mesmas medidas que estavam dando errado.

Às vezes, para o leigo, e difícil distinguir com precisão as escolas e as matrizes que guiam um economista acadêmico como Monica de Bolle.  Creio, contudo, que se a grosso modo separamos ortodoxos e heterodoxos, Monica se situa no campo do liberalismo tradicional onde o mercado deve ser o determinante principal e não o estado intervencionista.  A Presidente Dilma, é claro, está no lado fazendo parte daqueles que desconfiam do mercado principalmente na situação de um pais em desenvolvimento e com um elevado grau de dependência de fatores externos.  Então, a grosso modo, Monica insiste em criticar Dilma por suas intervenções equivocadas enquanto que Dilma diz que está (ou estava) defendendo o pais e os menos favorecidos e marginalizados, que conquistaram um novo espaço com as medidas econômicas e sociais implementadas pelo governo do Lula e continuadas por ela.  Crise na opinião dela não seria por sua culpa, mas provocados pelas forcas retrogradas no Brasil, principalmente os financistas e rentistas e também pela crise do capitalismo mundo a fora.

Assim enquanto os ortodoxos pregavam austeridade, Dilma, Manteiga, e Nelson Barbosa promoviam a nova Matriz Econômica que visava a implementação de medidas anticíclicas de origem, a meu ver, Keynesiana.  Monica de Bolle não perdoa o que ela vê como prepotência da Presidenta.  Dilma depois de reeleita e mesmo com um Joaquim Levy na Fazenda insiste em uma politica fiscal insustentável e que resulta nas “pedaladas” fiscais, que eventualmente foram a justificativa, prima face, de sua degola.

Monica mostra passo a passo ao longo dos capítulos os anos 2011 até o impeachment em 2016, onde a triste figura de uma “Presidenta” se perde a partir da crise americana e europeia de 2008, que segundo Lula, tratava-se de uma “marolinha” no Brasil.  Ela e seu fiel escudeiro Ministro Mantega procuraram utilizar todas as alavancas para lidar com o fim do modelo Lulista, e também dos impactos do QE (quantitative easing) americano, do impacto na inflação, dos juros, das reservas, dos investimentos/poupança e da politica fiscal.  Mexe aqui, mexe ali e a economia continua encolhendo ate chegar a atual recessão e o quase inevitável impeachment.  De acordo com a avaliação no seu livro, Dilma, Mantega, Trombini e por Nelson Barbosa não acertaram nenhuma.

Embora o livro de Monica seja para o publico geral, não achei a leitura assim tão fácil já que ela introduz termos técnicos como dominância fiscal, erros de macro prudência e razoes de variação cambial.  Não são exatamente termos de fácil compreensão principalmente na forma que inter-relacionam.

As criticas à Dilma e seus (des) governos são diretas e sempre com embasamento nos resultados produzidos.   O governo da Dilma não teve uma politica econômica coerente e faltou habilidade em lidar com o Congresso e partidos políticos.  Ela interviu demais, descontrolando os indicadores e sinais do mercado. Por isto, ela acabou inspirando desconfiança, e como politica, foi antipática e teimosa, conseguindo desagradar gregos e troianos inclusive no seu PT.

Ate aí, tudo bem e representa o consenso pôs impeachment.  Mas a questão que emerge e que precisa de resposta é a seguinte:

Além do receituário liberal (austeridade, controle de gastos, menor intervenção, menos burocracia), o que faltou? No Brasil, o peso da cultura e do estado gigantesco nunca deixou os liberais a vontade.   Está surgindo no Brasil um vetor libertário, mas é´ algo meio estranho no contexto.  O Movimento Brasil Livre (MBL) e afins parecem mais uma minoria contestadora, querendo acabar com a corrupção, do que um movimento a favor do livre mercado.  Estes grupos parecem mais modismos vindos de fora, e não constituem um partido e/ou forma durável de representação.

Sucesso politico no Brasil depende tradicionalmente de populismo, e com políticos populistas no poder é praticamente impossível adotar as soluções de mercado que os ortodoxos como a Monica advogam.  O problema de desenvolvimento no Brasil acaba sendo não um problema de soltar o mercado e seus mecanismos, mas em resolver o quebra cabeça politico para poder soltar as chamadas forcas produtivas.  Mas as instituições são fracas, os partidos são veículos de promoção individual, ou apenas agrupamentos que buscam ganhos próprios e individuais ao modo do PMDB.  O PT em seus documentos e cartas seria um belo partido socialista, mas as ações individuais de seus principais membros denunciam qualquer feição socialista em nome do avanço individual encoberto em uma retorica social.

Mas a questão não é só´ político-econômica.  Recentemente, um outro economista, Alexandre Rands Barros, lançou o livro Roots of Brazilian Economic Backwardness (Elsevier, 2016) publicado em inglês.  Este sim é um tratado cheio de gráficos e tabelas, podendo assustar até os experts.  Mas basicamente Barros argumenta, diferente de Monica, que o atraso relativo do Brasil vem do problema histórico de formação de capital humano.  Quer dizer que mesmo se o Brasil operasse de acordo com as expectativas de economistas ortodoxos, ainda assim estaria atrasado.

Creio que o argumento de Barros não é novo e estudiosos como Claudio de Moura Castro e Simon Schwartzman, entre outros, tem pautado no mesmo sentido.

Sem entrar nos méritos acadêmicos, o que me parece interessante e misterioso no Brasil, é tentar entender como uma sociedade, com a herança de escravidão, racismo, corrupção, desigualdade, ignorância cultivada, elites distantes e arrogantes e um povo sofrido ainda consegue existir.  Como é que o Brasil ainda não entrou numa guerra civil aberta?  O que é o super-bond que segura?  Apesar do estado e sociedade em situação de falência, o Brasil ainda possui uma atração como um lugar que encanta pela beleza do povo, pela cultura, pelo potencial e até, pasmem, pela cordialidade.  O povo ainda se declara otimista e feliz.  Como? Por que?

Monica de Bolle, economista ilustre e excelente contadora de casos talvez esteja trabalhando numa historia ou conto, com final feliz, que venha a ajudar esclarecer o mistério.  Assim espero.

[1] Quando cheguei ao Brasil no inicio da década de 60, a bandeja com as asas encrustadas era um “souvenir” de praxe e demonstrava a abundancia do “exótico”.

Elections and Democracy in Brazil

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Brazil’s first round of municipal elections was completed on Sunday, October 2nd and there were no major surprises.  Lula’s PT party took a drubbing and the results were somewhat favorable to President Michel Temer’s government although the PMDB did not win, show or place in any of Brazil’s top 3 electoral zones (Sao Paulo, Rio de Janeiro and Belo Horizonte).

Brazil’s mix of the advanced and the archaic certainly comes out in voting.  The vote count was done by computers minutes after the polls closed but those elected succeeded not so much because of their brilliance, competence or party affiliation but instead because of their personal appeal. Marcelo Crivella, an evangelical songster placed first for the run off in Rio. The well-known soccer player Joao Leite came in first in Belo Horizonte and faces the second around against the former president the favorite home futbol team.   Joao Doria, elected outright in Sao Paulo, aside from being a millionaire publicist is also an ex-TV personality who used to host a program analogous to Trump’s Apprentice.  Examples of entertainment and popular culture mixed with politics much like in the USA.  Globalization of politics is all around.

As in North America, wealth, name recognition and being able to convincingly pitch what the people want to hear are important to winning elections.  Still Brazil is different.  In the US there are only two major parties and two “want to be’s” (Libertarian and Green) while in Brazil there are over 35 parties with a complex system of summing party votes to favor a slate and to gain resources.  Republicans and Democrats diverge on social causes, sexual equality, women rights and climate change but in Brazil party separation at the municipal level is not based on programs but on the person.  In Sao Paulo, Lula’s favorite Fernando Haddad tried to walk a thin line between leftist PT politics and efficient spending and use of resources.  In doing so he lost the vote of the poor, which wound up diluted.  Doria was elected in the first round with over 50% of the vote compared to some only some 17% for the PT incumbent.

In Brazil, voting is required by law.  Suffrage has now been extended to 16 year olds as compared to the existence in the 20th century of literacy, age and gender requirements which helped preserve the primacy of the white patriarchy.  Today, Brazilians recognize themselves as a mixed race society and only 48% of the population self describes itself as white, yet over 70% of the elected mayors and council members are Caucasian men.  Traditions are strong and difficult to break.   In the run up to the first round, there were over 20 political assassinations.  Some of these were vindictive small town type feuds but many were related to the drug trade and the preservation of gang influence and territory.  This is a major area of concern in Rio and other big cities.  The situation is not yet like Mexico where the narco-cartels control whole towns and outlying areas but it is something that could occur with the weakening reach of the state.

Elections are important in Brazil and the process and campaigns in the election cycle are important civic activities.  Voting contributes to building civic society and institutions.  These municipal elections were the first where corporate contributions to campaign financing have been prohibited.  In theory, the process is becoming more “democratic” but the prevailing levels of education and the influence of the broadcast media still strongly impact the public perception of the candidates.  Moreover, Brazilian politics reflects the overall level of critical thinking and debate in society.  Certainly, important information on the candidates, their backgrounds and their programs are available and debate is intense and widespread.  People vote their interests based on information and perception.  The effort to be informed and to think is undoubtedly cumbersome and time consuming.   In a situation where people are working long hours to meet ends meet and have little time and cynical view of politicians, the challenges of building institutions and civil society are immense.  But, in the end, it is better to have elections, have voters and the whole process, but at the same time patience with the results.

The short term impact is pretty much business as usual in Brazil.  Populism, personalities and personal contacts and special relationships permeate the system. There are no new or exciting faces readily apparent for the future.   Politics as the means for ordering power still has its draw.  Individuals and organizations strive to promote ideas and interests through the political process and this is particularly important at the local level where streets need to be fixed, sanitation services need to be installed, schools need to function, streets need to be policed and growth needs to be guided.  In the long run, electoral participation should build political institutions.  Former President Dilma Rousseff’s successor, President Temer’s party had the largest number of candidates but the PSDB was more successful in getting people elected. And while the PSDB came out as winners overall, the party is seriously divided between its more social democratic branch and the more conservative elements elected in the city of Sao Paulo.

Brazil needs a political reform to reduce the number of parties and to make them more representative.  Whether Congress can come to this same conclusion remains to be seen and the next big political test will be the general election in 2018.  Given the current situation with a President of questionable legitimacy, it is unlikely thatany major political reforms will take place until after 2018 vote.  At this point, the jockeying is on to see who can emerge as a viable candidate.  President Temer should be ineligible in two years, but if he achieves legitimacy through economic success, the Brazilian politicians can likely find a way to qualify him.  Lula, while under indictment on various corruption charges still is the most charismatic and electorally popular figure.  The PSDB will have the nearly impossible task of finding a unity candidate with the ongoing competition involving Aecio Neves, Jose Serra, and Geraldo Alckmin.  Marina Silva, who came in third with a surprisingly strong showing in 2014 is currently floundering.  Personalities prevail over programs as the Brazilian system gradually evolves with each cycle.

BayBrazil 5.0 – Challenges and Progress in the XXI Century

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Margarise Correa and her excellent group successfully brought off the Fifth Annual BayBrazil Start Up Conference at the Google Campus in Mountain View on Friday, Sept. 16. Here is the link to the program and speakers. http://www.baybrazilconference.org/#new-page

Most new companies and organizations close their doors before reaching year 5 and Bay Brazil deserves kudos for this milestone. With this track record of success, BayBrazil has a bright future. Like the past conferences, attendance was in the hundreds with executives, decision makers, representatives of start-ups, venture capitalists, investment bankers, attorneys and business consultants from both Brazil and the USA.  There were many repeat attendees and there seemed to be an increased contingency of Brazilians flying to the Bay Area for the event.

An interesting thing about the start up culture is its optimism and vibrancy. So, I was not surprised to hear that Brazil was “bottoming out”, “improving”, reaching “critical mass” for new business growth and VC support. However there is also a bit of isolation and groupthink and it is a bit of stretch to learn that “Everyone in Brazil wants to be an entrepreneur” as one very optimistic speaker stated. In reality, people in Brazil still recognize that the best job is a state sinecure and surveys show that 85% of the secondary level students hope to work in the public sector. Obviously, this dependency on the state reduces the pool of entrepreneurs. Still Brazil is large and many want to create their own opportunities especially as people recognize the limitations and the restrictions of being tied to the government.

While working in a challenging environment, BayBrazil bridges and creates space for a blend of cultural contacts among established and new entrepreneurs with different backgrounds, challenges and stories. This alone makes the event worthwhile and fascinating. Innovative and smart Brazilians look to the examples in Silicon Valley and the valley reciprocates by attracting good thinkers and innovators who recognize that Brazil is too big to ignore.   Every year, the conference demonstrates that Facebook, Linked In, Uber, Snapchat, Alibaba, Instagram, Google and many, many other, large and small, are connected to Brazil for its size, growth, potential and human resources. Bay Brazil’s program was replete with executives and operators leading these companies not only in Brazil, but also in the USA and the rest of the world. In this sense, there truly is a bridge between Silicon Valley companies and start-ups in Sao Paulo, Rio, Belo Horizonte and other Brazilian places.   Face to face interaction at the congress offers opportunity and incentive to Brazilians and provides access to knowledge, capital and an environment favorable to new endeavors.

Brazil, in spite of the ongoing recession, continues to lead the venture capital market. According to the Latin American Venture Capital Association (LAVCA) there were 39 deals with outlays of 110 million in 2015. LAVCA’s Julie Ruvolo, as well as the other VC panelists, noted the main areas are: finance, online retail, logistics, health, agricultural and IT services. Certainly, there were Brazilian and international companies present at the conference in each of these areas.

In the context of Brazil’s recession of the last years, the seminar showcased two fantastic success stories: Beleza Natural and Wine.com.br. Both of these companies had their start in the mid-90’s and are great examples of resilience demonstrating strong growth to date in spite of the crisis and environment of malaise. Beleza Natural identified early on a niche market focusing on beauty services and products for women of African descent. Because of Brazil’s social hierarchy and the perceived benefits of “whitening”, Beleza Natural innovated by emphasizing how women of color can be themselves and is naturally beautiful by valuing their hair and styles without necessarily making concessions to the dominant cultural model. Beleza Natural focused on top level customer service for a clientele that is typically treated poorly in the traditional retail beauty and hair treatment sector  By rolling out the red carpet to black and brown women and by valuing the lower rings of Brazil’s consumption ladder, the company created and dominates a market other companies failed to see.

Wine.com.br also followed a counter intuitive plan by perceiving that wine had a totally elitist and very limited consumer group in Brazil. Spirits and beer represented until recently almost 99% of Brazil alcoholic beverage market. The owners of Wine believed that per capita consumption of wine could double and triple with the appropriate marketing emphasis and strategy. So the company popularized wine drinking by making the beverage accessible, fun and much less snobbish.

Wine.com.br cut out the middlemen by using the Internet to sell and then structured an innovative and tightly run technology driven logistics system. Beleza Natural also recognized the role of Internet and mobile phones with related apps in communicating its inviting and open business strategy to attract new middle class consumers of color. Both companies have sales of around 100 million US dollars per year and their revenues to continue to grow at a very healthy pace. Certainly these stories inspired the audience and gave heart to the possibilities and potentialities latent in the Brazilian market.

Rogerio Salume, the principal of Wine stated correctly regarding Brazil, “We are a crisis.” But his success, the achievements of Beleza Natural and the ongoing hard work of BayBrazil in promoting Brazil in Silicon Valley, California and beyond all show how good ideas and hard work can create and overcome. The stories presented at BayBrazil bode well for the future and confirm the vision that Magarise and BayBrazil have consistently promoted over the past 5 years.