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.

 

 

 

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Going to the Rio Olympics: A Few Suggestions

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I have my tickets and I hope you do too. Brazil expects some 200,000 Americans and perhaps some 500,000 guests for the Games. That’s a lot of people and represents a substantial amount of money for Rio and Brazil.

If you are a permanent resident of Brazil, here is the site for purchasing tickets. (https://ingressos.rio2016.com/) There are a few tickets left. Just as in the World Cup, tour companies, ticket hackers and businesses jumped in early and scarfed up most of the seats either for corporate rewards and prestige or for future resale with a nice mark up.

If you are a US resident, here is the site for purchasing tickets. (https://www.cosport.com/) According to the Rio Olympic Organizing Committee, there is only one official ticket outlet. Nevertheless, if you Google ‘Olympic tickets’ there are hundreds of possibilities. A great majority offers legitimate tickets but a word of caution is always good.

Brazil is in the midst of a major political crisis accompanied by an economic depression. By August, when the games start, Brazil will be in its third year of negative growth and rising inflation.   It is also well known that street crime in Brazil is as bad and sometimes worse than New Orleans, Chicago or Baltimore. If you are fearful of nighttime escapades in those downtowns, you might want to think about how you are going calm your nerves in Rio’s urban jungle. Tourists can be prey, especially if you have a tendency to make yourself a mark. My recommendation is to leave the expensive watches, gold jewelry and other portable and more ostentatious valuables at home and go out with a group. Everyone in Brazil has a cell phone or two, so that is not a big deal but if you are careless your iPhone 6 might disappear and “find my phone” will not provide a remedy.

Adding injury to insult, Brazil is also the epicenter of the Zika crisis. This latest epidemic comes as the country finishes preparations for the games. Some sensationalists have proposed cancelling the games but, on the other hand, Carnaval has just ended and millions of revelers in shorts, bustiers, bikinis and flip-flops hit the streets in defiance of the aedes aegyptius mosquito. While real, Zika appears to be another of the many health worries in a shrinking and interconnected world. In the past, we have feared Ebola, chicken-driven influenza, Chikungunya, SARS, and a host of others. Zika creates panic because of its possible association with the occurrence of microcephalia. While the true impacts of the disease are still unfolding, it seems that Zika may be, in reality, less harmful in scale than say dengue fever or malaria, which follow the same transmission path.

So assuming you have tickets or can obtain them and you have gotten past the health, security, economic/social/political tension, you still need to find a place to stay. If you are with an organized tour group, most likely hotel reservations have been secured. If not, you may have trouble. Rio has lots of hotels but accommodations meeting international standards are lacking. All of the hotel rooms will be full and the Rio Olympic Committee has struck a deal with AirBnB in order to make up for the shortage. The issue with AirBnB will of course be location and if the accommodations actually meet the expectations of the traveler. Rio is a big city spread out along hundreds of kilometers of coast and mountains. So if you don’t know the neighborhoods and routes, you could wind up in the wrong place. Last year, drug dealers and bandits fatally shot a couple that accidentally drove into the gang lord’s turf attempting to follow instructions with a GPS application. Aside from possible danger, roads are normally clogged and traffic flows slowly.   Just as an example, from the Windsor Hotel in Copacabana/Leme to the Olympic Village, it is only about 12 miles. This trip could take as little as 25 minutes or as long as a couple of hours.   Also what are you going to do if inhabitants of Rocinha, a favela community that sits abreast of the route, decide to shut down the roadway as has happened in the past?

Getting around physically and maneuvering the cultural challenges of a big Latin American city are important considerations.  Buy hey, it is the Olympics and Rio.  Once you are there, aside from the sports events, Rio has lots and lots of attractions. The physical beauty is spectacular and trips to Corcovado and Pao de Acucar are almost minimum requirements for photo ops. Pedra da Gavea, Tijuca Forest and the Botanical Gardens are also high on the list of places to see and this, of course, goes without mentioning the beaches. But again remember to plan.  During the Games, waiting for the trams that take you up to Corcovado or Sugar Loaf may involve lines of more than 3 to 4 hours. No fun!

Eating, drinking, and hanging out are basic parts of Carioca (residents of Rio) life. But as a gringo, how do you know where to go? Obviously, there are tour guides, Yelp, books, magazines and more information than you can process on the Internet. Still, it is best to find and hang out with locals who can make recommendations and engage in these activities with you. So with 6 months to go, it is time to build your network through social media and see whom you might find compatible.

For people in the know and people with reliable contacts and set ups, the Games are going to be very special and an amazing amount of fun. But if you arrive and you are not well prepared, then the logistics and the confusion of Rio may sap away all your energy and you could come away feeling bad. Plan, be flexible and enjoy the Brazilians, the fun and the Games.

Boa Sorte or Good Luck!!!

 

Post Election-Hangover and Hope

Let’s look at our behavior just prior to and after the recent presidential election in Brazil. The campaign was quite acrimonius and partisans on both sides contributed to “tabloidization” of the discourse.  Some of this continues as the PTistas lean on the supposed right wingers (real ones, too) for their snide remarks and  discrimination (some real, some alleged) against the nordestinos.  The Tucanos continue to cling to the moralization discourse and group Dilma, Lula and their acolytes in the broad classification of self-serving thievery.  I suppose all of this is to be expected.

Independent of the “wicked” accusations flying back and forth, business goes on and decisions are being made on a daily basis.  We like to say that new administrations in Brazil shake the coconut trees and all the monkeys pretty much fall off their branches, only to scramble up again in the hope of achieving a higher posting or at least maintaining position.  So, new ministers and new staff will be appointed with the required jockeying and justifications.  It remains to be seen if Dilma will have the political fortitude to promote a reform that would reduce the number of Ministries and hopefully reduce federal expenditures.

Dilma has repeated the hackneyed rhetoric of bringing everyone together.  In reality, we know that this is not likely to happen.  She is not a unifying figure nor does she have a program.  Nonetheless, Dilma seeks to leave a legacy.  Moreover, her mentor, Lula, currently hints at wanting to run for president again in 2018, when he will be 73.  Given the tight margin of this year’s race, a strong performance by the PT will be needed to justify another 4 years in power.  It is interesting to compare Bahia and Minas.  Aecio lost Minas and the campaign staff has been held responsible.  As the native son, he should have carried the state, especially as he was trying to make hay with his supposed 90% approval rating on leaving the governorship.  Fernando Pimentel, Dilma’s former Minister of Development, Industry and Commerce (MDIC) easily defeated Pimenta da Veiga for Minas governor.  Veiga admittedly was a weak candidate and in retrospect it is a bit hard to fathom the choice.  In a previous blog, I stated that perhaps Aecio was lucky to lose as he does not have to face the negative economic tide that Dilma has had a hand in creating.  However, by not carrying Minas, his position is totally subject to the PT line: Quem conhece Aecio, nao vota nele (Those who know him, don’t vote for him).

Bahia, on the other hand – our neighboring state to the north and east – also has solid political traditions.   After years of domination by the traditional oligarchy (Antonio Carlos Magalhaes and family), a younger generation of leftist and populists have emerged.  Gilberto Gil, the musician is one example but he supported Marina in the first round.  More important is Jacques Wagner who was governor and helped elect his successor, Ruy Costa.  Wagner, in turn, is being vented as the new president of Petrobras and one who can clean up the company and move it from the crime pages back to a successful business story.  Independently, or under the tutelage of Wagner, Costa has promised to reduce the number of State Secretaries and to work in a very transparent fashion.  Moreover, Dilma, reportedly is resting after a busy campaign at the Aratu Naval Base in Bahia and meeting with Wagner.   So, given his success in Bahia, possible handover of Petrobras, and favorable support, he becomes an alternative candidate in PT should Lula’s health fail.  While Wagner came out of the oil workers union, he has never been considered a radical and has praised Lula for favoring both rich and poor while at the same time extending recognition to the PSDB for achieving economic stability and fiscal responsibility.  So if Wagner has Dilma’s ear and can maneuver within the PT, he mail be able to rival Aecio in 2018.  It is almost certain that Dilma will use combating corruption as her shield against economic criticism and resurrecting Petrobras with Wagner at the helm may be her strong suit.

Much is unpredictable, but it is certain that 2015 will be a major challenge and the question is how Dilma will select her friends and allies to attempt to meet her responsibilities.

 

Brazil: The eternal question….What the heck are we doing and where are we going?

January has been an interesting month for Brazil.  Hot, humid summer rains and floods, but so far less devastating than in years past.

2014 is an important year for Brazil not only because it will host the World Soccer Cup but also because of the upcoming presidential elections in the fall.

Brazil already is attracting much more international attention. The spotlight will become brighter once the Winter Olympics end in Russia on Feb. 23.  Dilma and Manteiga have been drilled at Davos and the journalists and curious keep probing.

So where is Brazil headed?

There are a bunch of immediate economic issues and these include the declining balance of payments, a fall for the first time in a decade of Brazil’s international reserves, rising interest rates, slow growth, industrial decline, inflation and the threats of a loss of investment status.  While all these threats are real,  none are new.  The threats are challenging. But they can all be addressed. Since it is an election year and Brazil still needs to finish preparations for the World Cup and the Olympics, it is highly unlikely that the government will be able to reverse any of the negative trends this year.  It is more likely to be “belly pushing” (empurrando com a barriga) until the end of the year.  On Dec. 31, 2014, people will be wishing Happy 2016 as 2015 will be a very tough year of adjustments.

Ok that is a lot the negative and/or challenging stuff.  Let’s look at the other side.

It is highly unlikely that the credit agencies will risk a downgrade of Brazil in an election year with Dilma’s victory almost certain.  The agencies, in my opinion, do not have the grit or chutzpah to make such a move.  Foreign capital continues to look at Brazil in the long term and while the political parties and institutions are weak, the political system, the press and civil society are all vibrant.  The new middle class is finding its way to the shopping centers still and eventually the shopping center owners will recognize that those weird people (a sort pseudo nouveau riche) actually do have some spending power and they will be welcomed in shopping centers once reserved for the old elite.   In the meantime, Brazil’s upper and middle classes will find more and more ways to separate themselves so as to maintain their peculiar need for status.

The constant drumbeat to improve public services and reduce corruption and the need to meet, in some fashion, the demand for basic needs is slowly and gradually leading to some improvement.

Witness Rio. Security in Rio, in spite of recent set backs, has improved significantly from say 2005.  Much needs to be done and Brazil’s annual murder rate still equals the number of U.S. servicemen who lost their lives in Vietnam, i.e 40000 plus violent deaths.

It is well known that the PAC (economic acceleration programs) have not achieved their goals, but some improvements are under way.  It is just how things work in Brazil.  It is unfortunate that the opposition, mainly the PSDB, cannot find a coherent discourse.  The only thing they say is that country needs to be less corrupt and more efficient.  Since the Tucanos have their scandals and their administrations have not been notably more efficient than the PT (Lula’s Workers Party), they don’t stand a chance in the presidential election.  While Dilma has little charisma, neither do the opposition candidates.  So the wait is until 2018, when there will be a real election and maybe even the possible return of Lula.

So basically, people are going to keep working, investors are going to keep investing (especially foreigners with vision) and hopefully the low levels of unemployment will continue, not so much through job creation in manufacturing, but through micro and mini entrepreneurship.  Some manifestation of this is the rapid spread of all type of franchising, numerous beauty salons, the proliferation of massagistas and “personal” services, the rapid spread of lots of information (much of it bad, but some good) through the internet and the inherent optimism (tempered by corresponding pessimism) that drives the Brazilian psyche.

God is a Brazilian, but we are a devil of a people.

When it rains, it pours….Bad news in Brazil….

This has been a complicated week for Brazil:

Neymar was sold to Barcelona, the Selecao tied England at home, at Maracana 2×2, the economy continues to be on the skids and, I suppose, the bad of the bad: President Dilma had to cozy up with VP Joe Biden.

Topic by topic:

Maracana was made available only at the last minute when a judge’s order had to be overturned so that the unfinished stadium could be released for safe use by spectators.  The game was fun and complaints about the lack of completion were pretty much taken in stride.  Even FIFA had to acquiesce and accept the fact Brazil will have substantial completion of stadiums and infra-structure on its own terms.  By the way, I think a lot of people are hoping to make money with the World Cup but, of course, all of the major tasks have been pretty much allocated.

On to the economy, where Brazil has reversed its interest rate cuts with two quick increases and the SELIC is back to 8% (still historically low by Brazilian standards).  The measures were taken by the Central Bank and with Dilma’s apparent blessing as the polls show her numbers declining as inflation goes up.  Certainly, inflation has been outside the acceptable band and may now come down again to the target range.

The problem is the effect on consumers and producers.  With the cost of money rising, will people continue to consume and will industry recover?  So far the signs are not good.  The weaker real though may help increase some manufactured products on the export market but the Real is at 2.1 and still significantly overvalued.  Brazil’s trade surplus is declining to historic low levels and may even turn into a deficit.  Brazil’s Central Bank predicts GNP will show another decline with growth tagged at 2.9% or less for 2013.  Personally, I think it is going to be less.

Slow growth had to complimented by Joe Biden’s smile (a bit amarelo) as he made the now obligatory visit to the favela and finally brought Obama’s personal invitation to Dilma to the state dinner.  She barely made it in before Putin. I suppose Brazil does still have a better reputation than Russia.

Biden spouted off typical platitudes and hyperbole, saying that trade between Brazil and the US could reach 400 to 500 billion in a couple of years.  Good luck. Brazil has potential (eternal potential) but it only traded a little more than 60 billion with the US last year and the US is still protectionist in the agricultural world, the one area where Brazil has shown brightly in the last couple of years in spite of all the infra-structure problems and custo Brasil.

Biden’s security in the favelas looked worried as did the Brazilian special forces.  Not sure that is a normal or good sign.  Security in Brazil and specifically “na Cidade Maravilhosa” (read: Rio de Janeiro) remains a big concern and the international papers will pick on this issue any time an American woman get raped or a German tourist gets shot as we recently saw.

I don’t want to end on a bad or pessimistic note.  Actually, the clouds perhaps presage a bright future and the Confederations Cup will be a great success as Brazil gradually makes progress in its own way and at its own pace.  Things really are much better than they were during the military governments (1964-1985).  We have a vibrant democracy, a generally free press, economic growth (slow and retarded) and slowly decreasing inequality.

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.