Few and Far Between

You will have noticed that my posts have gotten less regular and less frequent - well, it will not improve - I will start assuming a new international assignment soon, which will divert much of my (spare) attention to the new job.

However, as a "wrap-up" of the past few years, I have gotten the opportunity to present my experience in Brazil at the GIZ in Bonn.

If you are interested, you are welcome to show up for my presentation (in German). Save the date:

Vortrag: Land der Zukunft? Erfahrung eines Deutschen Managers in Brasilien
Datum/Uhrzeit: 29.11.2009 (Dienstag), 19h30

Ort: Gesellschaft für Internationale Zusammenarbeit (GIZ), Friedrich-Ebert-Allee 40, 53113 Bonn


Flyer Vorderseite und Rückseite.

China 4 - 0 Brazil

When Brazil was competitive

I know that I am exagerating when I say that Brazil is only competitive in football (soccer) - even though they have recently lost a friendly against Germany. 

However, after this loss they decided to cancel all "classics" (games against top teams) and only play against teams such as Ghana, Guinea and others. A recent game against Argentina in the Roca Cup ended 0-0 - the rematch will be at the end of this month.

Unfortunately this reaction is very exemplary for a Brazilian behavior style. Recently, imported cars have been flooding into the country - especially Hyundai has been very succesful and is even in the process of building a huge plant. On the lower end, the Chinese companies JAC and Chery have entered the country with a bang and riding on a weak USD, opening dealerships and advertising heavily - both are also planning on building plants. And on the upper end, Jaguar, BMW (also planning a plant), Audi, and even Mini have been extremely succesful catering to the wealthy. What was the reaction of the government?: Slap on (even) more taxes on imported cars (i.e. outside of Mercosul) and cars with less than 65% local content (local producers have 45 day grace period). This will raise the average price of most cars not qualifying for exemption by 25% or more, thus killing off the efforts of many of the new emergents. This will not help the Brazilian car industry which already sells expensive and mediocre cars - ask a Brazilian for his opinion the best that is locally produced and he will, without a blink of the eye tell you: Omega!

Where was I? Competitiveness: The World Economic Forum has released their latest competitiveness index and, surprise surprise, Brazil did not showcase well. And this is not related to the companies itself - although there are also weakness there. Brazil finished overall in 53rd place (of 142), better by 5 positions since the last time and on par with India (56th), but way behind China (26th). What drags down Brazil are

"[...] the lagging quality of its overall infrastructure (104th) despite its Growth Acceleration Programme (PAC), its macroeconomic imbalances (115th), the poor overall quality of its educational system (115th), the rigidities in its labor market (121st), and insufficient progress to boost competition (132nd) are areas of increasing concern."

Brazil is saved by market size (10th) - but even business environment (31st), financial markets (40th), technological adoption (44th) and innovation (47) are only midfield.

So overall, Brazil has improved but still is far from being a future leader and if we look very closely, indicators under strong governmental influence perform much poorer than those which are driven by the private sector... Drive on the local roads, fly into any airport, try to hire somebody with an intermediate level of English-speaking skills (or try to fire them later!) and you will know why.

Well, at least Brazil is still better than Argentina in competitiveness. Argentina is currently ranked 85th.

BTW, the top 10 this year were Switzerland, Singapore, Sweden, Finland, United States, Germany, Netherlands, Denmark, Japan, and United Kingdom.

Groundhog Day in Brazil

No, this is Barcelona airport (and yes, it is in operation)

I came back from Spain last weekend and came through two airports there: Palma and Barcelona. Both are huge and whereas Palma is a bit old, it is still fairly efficient and even sports valet parking. Barcelona by contrast is a modern, efficient and great airport to fly into and out of or to connect through: Transit is fast, waiting times short, with a great shopping area and a pretty good Spanair lounge.

Then I flew into Guarulhos and noticed how much there still is to do...But the airport claims to be ready for the world cup, with a MOP (Modulo Operacional Provisiorio, i.e. a provisional terminal). I was also "lucky" to experience this MOP on a business trip this week: Whoever has flown through many of these RyanAir airports in Europe will be able to picture this well: A very simple structure with many chairs and a small counter which sells semblances of food - if you are willing to fork out 3.00USD for a bottle of water - has the charm of a bus station. Oh yes, my flight also left late and came back late the next day... And I also did not find a parking space, I did what everybody does. As there is no alternative and the generous 3000 spaces are never enough...

What else is new this week?

• The minister of tourism quit after allegations of corruption - that is number 5 this year. The new minister (also from the PMDB) has named his number one priority getting ready for the world cup. Sounds like Groundhog Day to me.
• A new hobby of thieves, blowing up ATMs, seems to be catching on. This week, the 500th (yes, five hundred) ATM was blown up trying to get some easy money. Unfortunately for the culprits, the money was tainted with special ink, as is the case of most ATM if they are tampered with. The Civil Police is searching chemical industries in the whole region for possible losses of chemical products used to make explosives... 500 ATM, that is alot of explosive in just 9 months...
• Inflation is expected to hit around 7.5% this year, and GDP growth should not surpass 3.5%
• The USD hit a 12-month high vs the BRL - this will help exports and possibly slow down some speculative capital inflows
• To protect the Brazilian car industry, the government has increased the IPI (a tax) for small cars with no Brazilian components to 35% (up from 7%)
• Construction Workers at the 2014 World Cup Stadiums in Rio and Belo Horizonte have been on strike (B.H. sind this week, Rio since September 1)

Looks like the last couple months will not be boring. ;-)

UPDATE 17.09.2011: According to the Infraero website, the MOP in Guarulhos is not temporary, but can be used "for a very long time, if required".

Bad Apples

Sometimes I get carried away... such as when I spread the news that Foxconn was building an Apple ipad factory in Brazil. I was even so foolish to provide a location for the factory.


Well, once again this is a Brazilian Novela: Apparently, the Foxconn-Factory will produce something else (Cell Phones, not from Apple) and will only build the 12bn R$ factory, if the state-owned development bank BNDES becomes a MAJORITY partner...


Looks like this project will not fly - at least, as the blogger at veja correctly states: No Brazilian ipads for Christmas.

Most Expensive Expat Destination in the World

Mercer brings out a reputed cost of living survey for expats once a year and this year, Brazil showed up prominently in the top positions:

10. São Paulo
12. Rio de Janeiro
34. Brasília

If you compare this to New York (33.), then this is quite an achievement. Expats in Brazil will surely agree with these rankings, especially when considering the positions the cities were in last year (21., 29. 70. respectively). Luanda in Angola remains the leader in 1st (1st in 2010 too).

Now what surprised me is the ranking of xpatulator: São Paulo in second, Rio in sixth and Brasília in seventh... talking about of expensive places to live in...

Doing Business with the help of the police

Foto by Federico Stevani

Here is a "great story" of a friend - He told it to me just told me a few days ago - it sounds more like a bad Hollywood movie, but is real:

He, like many Brazilians is heavily invested in the property market and had a storefront he was renting out. One day he got an offer from a guy wanting to open a bakery. They struck a deal that the baker would not pay the first months rent but would heavily invest in upgrading the place.

On day 10 of the second month the rent was not paid, nor the property taxes, nor the condominium fees. My friend called the baker who gave a lame excuse but paid the next day.

On day 10 of the third month the rent wasn't paid again. This time my friend could not talk to the baker, checked around for him but could not find him anywhere. So he contacted a lawyer and told him to solve it.

All of this lead to only limited success and the bakery remained open but the baker was never there and the rent was not paid... for several months in a row.

This friend of mine also had a buddy that worked at Garra, an elite unit of the civil police (with a reputation of being pretty violent). They played football together and one evening after a game and during beers, my friend told his police buddy about this. The buddy got interested and asked more questions and my friend told him all he knew about the case, including that he also knew that the baker had a daughter that studied medicine at the XYZ-university. "A daughter at the XYZ-University, eh?" the cop asked... "Ok, don't worry about your baker anymore."

Eight days later the rent, property taxes, condominium fees and overdue interest of the whole period was paid... and the key was returned in an envelope into my friend's mailbox. The bakery was vacated but painted beforehand and left in pristine condition, with a brand new hardwood floor.

My friend did not ask the cop what happened - he did not want to know and has not asked since. However, what he does know is that most likely has a debt somewhere and hopes that he never has to pay up.

BTW: To get a feeling about what police means, check google for what you get when you search for "policia" and "brasil". Then compare it when you search for "polizei" and "deutschland".

The Asian Perspective on Brazil

"Brazil will gain a place as a significant player in the multi-polar international system taking shape since the end of the Cold War simply on the basis of its economic size and material capabilities. However, its potential to influence international outcomes is likelyto be determined more by the capacity of the country’s elites to identify and harness qualitative assets associated with its stable and democratic governance than by any hardpower assets."

This introduction belongs to an article published in Asian Perspective in 2007. What is interesting is that this is a view of Brazil from the position of other emerging economies and not Europe or the US. The article highlights all the material advantages Brazil has - but these have been mentioned elsewhere.

What is more interesting is that Brazil is placed as a "soft power", i.e. it may shape politics due to its close ties to the western world, it's sheer size and it's focus for decades on economic integration - in the region and globally. Rather than going for global domination, Brazil has sought to find it's place as a partner.

The early participation in peace-keeping missions (such as Haiti), it's hosting of the Earth Summit in Rio in 1992 and it's vast (currently) non-quantifiable ressources of Oxygen and Water give it additional clout, especially if it continues to play by these rules.

The article finishes with what has to be done and it highlights the weaknesses in (too) big government and inefficiency, inequality, lack of education, high taxation and poor rate of investment. However, if overcome, Brazil would be set to become a true BRIC.

Yes, Brazil still has enormous opportunities and recently I had a long discussion with my wife and we came to the (very German) conclusion that the only impediment that Brazil was not "there" yet (or close to there) was that the country was tripping over it's own feet and that it had not yet defined what "there" was. The potential exists and opportunities are huge and Brazil has advanced greatly over the past decades - but the elemental challenges still have not been reliably adressed: Education, Inequality, Taxation, Infrastructure and Bureaucracy.

C is for Corruption: The Car Dealer

Nice car, if you can get it to market.

Having been in Brazil for a few years now and never having lost contact between the early 90s and now, when I was out of the country, I have several accounts of corruption cases which have not made it into the media (yet), which I will will be posting. The first one, was The Paper Company.

This one is The Car Dealer:

A large German car producer wants to expand it's market footprint. Brazilians are all over Audi, BMW, Mercedes and Porsche and all you have to do is setup a storefront - advertisment and financing is usually not necessary. Many pay in cash or charge it to Amex, they just want the damn thing.

The problem was that in the northeast a dealer wanted to do everything the correct way: Get all the documents properly, make sure the site got licensed, hire all employees correctly, etc. The guy was not German, but he actually was one of the correct Brazilian business men I so much admire as they maintain their moral standards in an... let's say "adverse" environment.

This dealer had everything together, except for the operating license which was issued by the mayor's office of the medium-sized town. And the mayor wanted to get a car for free to issue the license. The dealer refused and the license was not issued. The dealer tried all legal loopholes he could find... to no avail. He got pressured from future customers, from friends and from the big German car company that wanted to sell cars in this town, and was willing to bend rules - but he did not give in.

Eventually, the mayor must have had pity, or the mayor lost the election - but the dealer did not pay up... and got the license... a few years after he applied for it.

Time for a bullet update

Not really a fast train in another BRIC country

In my post at the end of last year I was very skeptical about the bullet train engineering and auctioning process. So where are we now? The April 29 date for receiving the documentation of bidders war postponed to the end of July, when it was cancelled.

The current situation is now that the bidding is to be divided into two parts: technology and operator in the first part and construction in the second part.

The two phases of bidding are to start in September or October (whatever that means) but the schedule is to remain unchanged with construction beginning in 2013 and the whole project not costing more than 20bn USD. At the rate the USD is falling, I may even believe the latter part... but 2013 is just around the corner - especially if the bidding gets delayed for another year.

But after that it can get accelerated - biddings for the World Cup can already be kept in partial secrecy so that the evil press and public doesn't snoop around too much. Why not expand to the bullet train?

BTW: No bids have been received yet - must be one hell of an interesting project in the Country of the Future.

C is for Corruption: The Ministers

You can trust me, really!

Actually, I wanted to continue my series of first-hand stories on corruption but this breaking news is too good to be left aside:

Wagner Rossi, Minister of Agriculture, has just left Dilma's government - he is minister number 4 to go due to corruption charges. Who were the other three?

1. Antonio Palocci, "Home Affairs" whose net wealth miraculously increased twenty-fold from 2006 to 2010. He had already been forced out in a corruption scandal during the Lula government in 2006 - some people never learn.

2. Alfredo Nascimento, "Transportation", accused by Veja Magazine of organizing a true corruption structure in all public transport biddings. Nascimento had been minsiter for two terms under Lula too.

3. Nelson Jobim, "Defense", after calling fellow government colleagues "idiots" and after stating that he had voted in José Serra in the 2010 presidential bid. Jobim had been in the Lula government since 2007.

And why did Rossi leave? He was accused of receiving and distributing huge sums of money in public auctions, embezzlement and of flying around in the private jet of a company that won one of the biddings. He was also accused of electoral fraud, which resulted in, among other things, of throwing away several tons of food staples. He was NOT a minister under Lula, but did command the powerful Companhia Nacional de Abastecimento, charged with stabilizing seed, fertilizer and food demand for the poorer parts of the society.

This does not throw a lot of good light on Lula.

Linklist of the week

For lack of time to actually write something, at least my latest reading list:

• Website focusing on infrastructure investments for the world cup: http://www.copa2014.org.br/en/infrastructure/
• Should you speak some Portuguese, 20% salary increases in a year in many professional categories. Nice article in Exame: http://exame.abril.com.br/carreira/noticias/salarios-aumentam-mais-de-20-em-um-ano-diz-robert-half
• Brazil still is not the berth of intellectualism. The JiaoTong University has released it's latest ranking and Brazil is not in the top 100: http://www.arwu.org/index.jsp (The top 20 contain two British, one Japanese and 17 US Universities)
  

Difficult to Digest Big Mac

Source: The Economist

The Economist released its latest Big Mac Index Study last weekend and, at least for those in Brazil or with very intensive contact to Brazil, the result is not a surprise. The Big Mac Index, according to the newspaper can be described as follows:

Burgernomics is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a burger) in any two countries.

If we apply this to Brazil and look at the chart above, we will see that according to this index, the BRL is overvalued against the USD by ca. 50%. Now this is fairly imprecise, as the Index does not show the relationship to GDP per person. The Economist recognized this and adjusted for GDP per person... and now the BRL seems even more overvalued...

Now I did study economics and although I have been outside of my field for quite a while, I believe that such a strong disconnect (BTW, also for Argentina) implies four things:

1. The Big Mac Index is flawed (not likely),
2. the Brazilian average GDP is set to rise to the level of the USA in a short timeframe (desireable but not likely), or
3. that the BRL is in for a huge devaluation...
4. or inflation within the next few months.

There is of course a further possibility: That the current scenario simply shows a temporary disconnect of several economic factors caused by fear of a destabilization of US and European economies, that several countries are threatened by defaults or at least rating downgrades and a flight to "safe harbors", such as Brazil is occuring.

I find it hard to believe that any of the four... five factors can explain the current scenario - but given the size of the gap I believe we are in for one severe indigestion.

The R-Word?

The last few months have been very strange. As mentioned in the "about me" section, I work for a chemicals company and while we are in specialty chemicals, many of our suppliers and market partners also are in a broad range of chemical commodities.

What is strange is that while everybody keeps talking about Brazil being the country of the future and with growth opportunities everywhere, we, our market partners and suppliers have started to feel something weakening. While raw materials have spiralled out of control around the world, the favorable exchange rate has kept imports somewhat in check - so raw material costs are not on the levels of the rest of the world. Thus, the lack of demand cannot really be based on cost, or at least not fully. So consumer demand is still also up and capital inflows have remained strong?

To check if it really is just my neck of the woods, I have consulted people in the automotive industry: Demand is down... And I have checked my favorite indicator: Diapers. Diapers is not something that you stop buying just because the economy is down - in fact, it probably would be one of the last things that you would stop buying... yet even here a huge diaper producer in Brazil has told suppliers to slow down on deliveries... Is consumer demand weakening?

As the central bank has hinted that interest rates may start falling soon (after all, the 12.5% already are the maximum level that the bank wanted to reach... in December) and that commodity prices have peaked... and capital inflows have been mainly due to high real interest rates, and not so much to invest in the country.

I would not call it a recession - there is just too much business activity going on, but the economy continues on the brink of overheating, especially in real estate. Infrastructure is not keeping up to the demand, and the creaking is becoming visible on all ends. If consumers start balking too - and consumer indebtness has gone up strongly in 2011 - then the economy may be in trouble.

I would not go long on the BOVESPA if I were you...

C is for Corruption

Let us hope he showered

Transparency International publishes an annual corruption perceptions index, where "the degree to which corruption is perceived to exist among public officials and politicians" (TI.org) is measured. A non-corrupt country gets a 10, a corrupt country gets 1. In 2010, ranked first in the list is Denmark with a 9.3. Last on the list is Somalia with 1.1. Brazil is 69th, between Romania and Bulgaria, at a 3.7... improved from 4.0 since 2002.

Alot has changed, especially in the private sector, with more multinationals coming into the country, bringing higher compliance standards in and with Brazilian companies also adapting, often because of compliance codes, but also because of better fiscal controls, such as with the electronic centralized invoicing system nfe: nota fiscal eletronica.

In politics, corruption still is a major issue, such in the Escândalo do Mensalão no Distrito Federal, where the then governor of Brasília José Roberto Arruda was accused of (and subsequently arrested for) siphoning off on significant sums of governmental funds to companies and political companions. What made this case spectacular is that Arruda filmed several of these money hand-overs (as depicted above) - but it is not singular.

But also in the private sector, corruption is still a problem. Having been in Brazil for a few years now and never having lost contact between the early 90s and now, when I was out of the country, I have several accounts of corruption cases which have not made it into the media (yet), which I will post in the next few weeks.

But let us start with a juicy one - to protect those involved, I have anonymized each case:

The Paper Company

A major paper company wanted to install a new factory in one of the poorest states in the Northeast of Brazil. Because the company wanted to have the local political buy-in, they decided to meet with the governor to discuss the licensing and subsequent construction - for this, the president of the company flew in. In the first meeting, the governor clearly stated that no license would be emited unless an upfront payment would be made. This upfront payment was to be a deposit into a personal account of the governor and the value was a significant 6-digit value. Infuriated, the paper company president left the governor's palace and instructed to shutdown all non-crucial activity in the state immediately. The new factory will be built a few kilometers down the road... in the state next door.

Queues in Brazil

The befriended blog Expatbrazil has a nice post on one of the marvels of Brazil: Queues!

Brazil, Country of the Present

Copyright Infringement?

It's funny what googling "Brazil, Country of the Present" will show you. Along with this site, a presentation from HSBC for one of their funds. The presentation carries this title and is from January, 2011 - the news is spreading.

The presentation itself is more of a sales pitch than any real information, but feel free to download it here, while it lasts.

Disclaimer: Providing a link to this document is not an offer or invitation to make an application to invest in this fund. All statutory requirements concerning impartiality of financial analysis are unaffected. A prohibition of trading concerning mentioned financial products before publishing this document (“front running”) does not exist. This document replaces neither a professional investment advice nor a relevant public prospectus or any actual semi-annual and annual reports. It is not an offer for subscription.

:-)

Ash and Fog

Made it!

The volcanic ash cloud from unpronouncable Icelandic volcanoes appears to have become a regular phenomenon in Europe. Well, welcome to the club. In São Paulo the winter is approaching and with it the regular phenomenon of fog. Fog is so intense in the Guarulhos Airport area (THE major airport) that the airport regularly closes during fall and winter mornings. This morning was another case - I have two colleagues flying in and both were diverted to Campinas airport, where they are hanging around now before they get sent back to São Paulo - immigration in Campinas is, for some odd reason I do not understand, not possible.

I wonder what the considerations were, when the military junta decided to build the major airgateway into São Paulo in the foggy hole of Guarulhos in the 80s...

But there is really interesting news too: Emirates has asked the governmental airport administrator INFRAERO permission to start using the A380 on their Dubai-São Paulo flights starting December. Their 777-300ER are at 90+% capacity (just like most other airlines heading down here) and they would like to cram in more people. Apparently this could work, if one of the taxi runways were closed during landing and take-off (the A380 seems to have a veeeery large wingspan) and if some adjustments for parking positions were made (for example by scrapping old VASP 727 rotting away on the airport). Infraero has not given a final position yet. Apparently Lufthansa, Air France and Singapore Airlines (which just recently took up Singapore-Barcelona-São Paulo) have also inquired about A380 capacity in GRU. Immigration, which is hell on earth already today, is likely to get worse.

P.S. Emirates will also be flying Dubai-Rio starting in 2012, so the selection of routes into Brazil is expanding.

The World Cup and a Lack of Sense of Urgency

Yes, pretty it is, but will it be ready by 2014?
Source: Copa2014.org.br

The never-ending story: The World Cup. There is a current blog entry on veja.com.br, coinciding with this weeks cover story. Veja did a fairly simple, if simplistic calculation: How much has been spent so far, how much time until the World Cup, so when will the stadiums get done?

The answer: All but one will be finished AFTER the World Cup.

Stadium	Budget	Spent to date	Conclusion Run-Rate
Corinthians (SP)	R$ 1bn	Zero	Never
A. das Dunas (RN)	R$ 400m	Zero	Never
A. da Baixada (PR)	R$ 220m	Zero	Never
Maracanã (RJ)	R$ 957m	R$ 26m	2038
Arena Pernambuco	R$ 532m	R$ 60m	2025
Arena Amazônia	R$ 499,5m	R$ 30m	2024
Mineirão (MG)	R$ 666m	R$ 86,6m	2020
Nacional (DF)	R$ 670m	R$ 45m	2021
Arena (MT)	R$ 355m	R$ 48m	2017
Beira Rio (RS)	R$ 290m	R$ 30m	2017
Fonte Nova (GO)	R$ 591m	R$ 99,9m	2015
Castelão (CE)	R$ 519 milhões	R$ 80m	2013 (October)

Source: Veja Magazine

Is this likely? Probably not. Is this possible? At least for a few of the stadiums, it is starting to seem that way. Why so? Well, apart from a Brazilian lack of sense of urgency (which can drive the German author of this blog mad at times), aparently, there have been some problems with planning. The Brasilia stadium, for example, was planned without grass, seats and illumination (so it will cost more). In the Maracana stadium, the construction company found that the concrete structure was rotten only after tearing out the seats (what a surprise, considering the stadium was completed for the 1950 World Cup on the run and probably not much has been invested since - also here, more will be spent... and it will take a wee longer).

The blog is worth a read, and the issue is worth buying, as it also contains a bunch or pretty pictures of what stadiums should not look like three years before the cup... The first part of the solution will probably be to throw so much money at the construction, to get them finished on time. This has worked in the past: The 2007 Pan American Games were suffering from the same problem, until the government decided to "invest" a bit more in the last six months prior to the games. The result: An overspend of R$3.6bn - instead of R$400m, the cost went up to R$4bn. The second part of the solution will be to reduce the amount of venues from twelve to... 8 or less. Bookmark this page. I am betting on the exit of Manaus, Natal and Curitiba - and Sampa will not host the opening game.

Now, the only question (apart from the many above) is: Where will the 2013 Confederations Cup be held? Oh, and let us not talk about airports this time...

P.S. There even is an official (?) site or the Itaquerão (São Paulo Stadium depicted above): http://www.itaquerao.com/  - But the bandwidth has been exceeded... so Error 509 for you...

Trade War Between Brazil and Argentina?

Rivalry... not only on the pitch

The current situation is not what the former presidents Raúl Alfonsín (Argentina) and José Sarney (Brazil) had in mind, when they signed the PICE (Programa de Integração e Cooperação Econômica Argentina-Brasil), commonly heralded as the precursor of the South American free-trade market Mercosur. At the time, the program even proposed a common currency, the Gaucho...

The situation has become rough. Argentina is not known for freedom of trade - it frequently figures in the list of countries with the most trade barriers and of the least free capital flows. However, this has usually been limited to evil empires such as the USA and China. But things have become more serious with Argentinas most important trade partner, Brazil.

Argentina exports 2bn USD of foodstuffs to Brazil, but Brazil also exports 500m of foodstuffs the other way around. So when Argentina started raising barriers in foodstuffs, Brazil retaliated. Things then escalated to the point when, last week, Brazil stopped emiting automatic licenses for automobiles from "neighboring countries", affecting Argentina strongly. Since then, each import process requires a separate license. Hundreds of cars are stuck at the border, awaiting licenses to be emitted.

The trade barriers today between both countries already affect, food, shoes and clothing, some machinery, some chemicals and more to come.

Alessandro Teixeira, Development Minister in Brazil and the Industry Secretary in Argentina, Eduardo Bianchi, have scheduled a meeting to discuss on how to proceed... and possibly try to figure out how all of this really started - the situation is pretty botched up and is affecting a high demand of imported goods in Brazil (due to a cheap USD and strong Real) adversely. If the situation escalates, which it surely may, large industry sections may continue to be affected.

1000km of traffic jam... every day

Lies, nothing but lies...

(Picture by: Mariordo Mario Roberto Duran Ortiz/Leticia Ferreira)

I just read that in 2010, Germany had a total of 400.000km of registered traffic jams. I am not really sure how those were computed, but I assume they took the maximum length per occurence. This would then amount to a total of 1095km per day. The automobile club ADAC, the voice of all German drivers, advocates building more and better streets, claiming the situation to be unbearable.

Clearly, nobody from the ADAC has ever been to São Paulo. On any single day at any single time, please feel free to visit the website of Apontador/Maplink, which, in a partnership with the Radio Station Sulamerica (specialized in traffic reports and affiliated to the insurance broker ING), will show you a picture that would make the Germans gasp.

On a normal day, before and after rush hours the website will register between 150 and 200km of traffic jams. In the mornings and evenings, the length can easily double. So, if we take morning, noon and evening as separate incidents, we also get 1000km of traffic jams a day... just in the metro area of São Paulo.


Personally, although I don't feel that way, I can be considered lucky: I have a 33km commute and it takes me 45-60min in the morning and 60-70min in the evening, putting my average speed at about 35-40km/h. The average in São Paulo is below 20km/h. The reason for my "luck" is that of my 33km, I have 29km on 2-4 lane expressways and drive against the flow (I live in town and work outside). Nevertheless, awful situations occur: A few weeks ago, like every morning, I left home at 6:25 - and I arrived at work at 10:40...

Time Magazine ran this nice article a few years ago, and every single word is true. Recently, I had a meeting scheduled for 9:00 on Avendida Paulista (downtown) and I live in the southern zone, ca. 18km away from there. I decided to play it safe and left home at 7:30. At 9:00 I was sitting inside a McDonald's, reading a newspaper and sipping a cappuccino after calling to the meeting and telling them I could not make it (nobody was upset, everybody understood the reason). I had simply given up

Why all of this? Road infrastructure is a mess, public transportation is not even close to adequate (I have seen small towns in Germany with a subway network of similar extension to the one in Sampa) and the amount of cars is amazing. The city of 11m people of has a total of 7m registered vehicles, of which 5.1m are passenger cars... and 1000 additional ones are added every day...

The Shame of Being the World’s 7th Largest Economy 2011,

Worth a read: (Article from Brazzil Magazine, written by Professor Cristovam Buarque Monday [I would vote for him!], 18 April 2011)

In the 19th century, Victor Hugo refused to shake hands with Pedro II, the emperor of Brazil, because he was the ruler of a country living comfortably with slavery. Today, Victor Hugo would not shake the hand of a Brazilian to congratulate him for achieving seventh position among the international economic powers while living so comfortably with the surrounding social tragedy.

Continue here at ExpatBrazil

BRIC(S) - Why South Africa?

I don't get it. Brazil, Russia, India and China all make sense from any perspective (and were coined in the original Goldman Sachs acronym). But South Africa? South Africa is not in the top GDP nations now and will not be in 2050. South Africa has no important industry to mention, no significant impact on geopolitics and does not fit in any major KPI. Even Jim O'Neill, who "invented" the BRIC doesn't see why this makes sense.

Therefore I see only two reasons why South Africa is now in the club, and not Mexico, Turkey or Indonesia (in my humble opinion far more suitable for the group).

1. The BRIC(S) need a foothold in Africa... or China wants to ensure that it's major target for foreign direct investments is covered by a strategic partner. (That is what O'Neill also believes) But if we are talking geopolitics Indonesia, Mexico and Turkey make at least as much sense.

2. BRICS sounds much better than BRICI, BRICT or BRIMC.

But I will not get sidetracked any further... back to Brazil.

Now official: Airports will not be ready for the World Cup

Reality today... and in 2014... and in 2016...

The renown (governmental) institute IPEA has now confirmed what most realists have known for a while: The airports will not be ready for the World Cup in 2014. Notable exemptions are Curitiba and Tom Jobim in Rio.

While the Minister for Civil Aviation (a brand new ministry) Wagner Bittencourt still claims that the timeplan is "adequate", he seems to be in denial, ignoring the IPEA data.

Experts have long advocated the privatisation of the airports to ensure that infrastructure grows ahead of (or at least with) deman - but the government remains stubborn that airports remain a national interest and thus must be state operated. Now it is too late...

Of the 13 airports under construction and modernisation, 9 will not be ready by 2014... among these the unimportant Sampa Guarulhos, Salvador and Brasília. And what is worse, these will not be ready for the 2016 olympics (Only Porto Alegre and Belo Horizonte will be) - so do not plan any extensive travel outside of sporting events in 2014 or 2016.

This blog, as one of many sources, has repeatedly highlighted that there is a huge risk of the aiports, most specifically Guarulhos not being ready for the World Cup 2014, nor the Olympics in 2016. And this is not only based on other news sources or what I hear and read. I fly in and out of Guarulhos at least once a month and just recently signs have gone up announcing the modernisation and expansion of the security area and passport controls... Unfortunately, as in many cases, it will take a long time until something starts happening - but the renderings on the posters look nice.

Oh, and to add to the troubles, the Itaquera Stadium in Sampa, which apparently should host matches during the World Cup (if they ever get construction started), will not be ready for the Confederations Cup in 2013.

And I will not even get started on any bullet train discussion - this is just sad.

Growth in Europe Meets Growth in Brazil

Maybe not enough capacity in the future...

 Photograph from Hyougushi at http://flickr.com/photos/71481771@N00/397656432

Last week I met with a few fellow (German) expats for drinks in Vila Madalena and during the evening we found out that of the six people at the table, four had been on the same flight coming in from Munich two days before.

It is pretty amazing. Just about a year or so ago, Lufthansa flights from Germany were full, but not to the point of bursting. This has clearly changed. On my flight to Germany about two weeks ago, they transported two passengers on the jump seat... on the way back, same thing. In addition, at least four people were downgraded, frustrating my upgrade attempt.

Lufthansa already has daily flights from MUC and FRA to GRU and will also take on FRA to RIO this October. In addition, TAM also flies daily to FRA from GRU and RIO. I believe that this will not be enough - I have heard rumors of taking in a 747 for the MUC-GRU instead of the A340, which would offer another 70 pax seats (the A380 will never fly the route as GRU is barely equipped to receive a normal 747). I have also heard a rumor of DUS-GRU and of TAM taking on GRU-ZRH in addition to the daily Swiss flight.

If you consider the amount of German companies in Brazil and the growth both countries are going through, the Lufthansa-Exec responsible for South America clearly has a "good Problem" on his hand right now... The only frustrating thing about all of this, is that all flights will go through the GRU and GIG gateways... clearly a disaster.

Crisis, what crisis?

PS, Korean Air apparently read my post about Hyundai ;-) and is increasing the frequency of flights between Seoul, Los Angeles and São Paulo. Thanks, http://expatbrazil.wordpress.com/.

ipad to be produced in Brazil

Now this is interesting news. According to market rumors, Apple is planning a billion dollar investment in a factory in Brazil to produce, among other things, the ipad 2... And there is more than a rumor to it. I know where the site is located... on the freeway (between Jundiaí and Indaiatuba) that I often take on weekends to a nice hotel fazenda. In the past months I had wondered about a huge building sporting the Foxconn-Logo on the side, but stupid me never considered that this might be for Apple.

Surely there is a huge fiscal and financial incentive involved, in addition to an ipad costing half of what it would if it had to be imported, thus making it accessible to a much larger part of the Brazilian population. Currently, the ipad sells for an eyewatering USD1000 in Brazil.

Apparently production is to start in November. If this is true, then the price for ipads in Brazil will fall by half and Brazil will have a nice hightech toy to export. The only problem about the export is that the ipads will have to pass through the Guarulhos or Viracopos Airports or the Santos Port. But let that be our worry when the time arrives.

Apple-afficionados, get ready...

Gentlemen, start your engines

Brazil has a long history of a local vehicle manufacturing industry. In the 50s, Toyota built the famous Bandeirante, then in the 60s Volkswagen setup a factory to build the Kombi and then Fusca. And it went on from there. Today, the assortment is broad with Nissan, Renault, Peugeot, Citroën, Honda, Hyundai, Chrysler and Audi producing locally on their own or in partnerships, apart from the established VW, GM, Ford and Fiat. The only local company producing is Troller, which builds jeeps said to master any terrain.

But the latest coup is from Hyundai. Already with an OEM in the Goias state (with CAOA), the Korean firm is now setting up shop in Piracicaba (roughly 100km from Sampa) with a factory that will be the largest outside of Korea. Next year, up to 3000 Korean expats are said to start coming there to prepare all the engineering work and production setup. Hyundai will overtake Ford as 5th largest producer in Brazil in 2013 and already today has 3% of the market - the plant, a total investment of 600m USD, will boost this growth. Local business is already excited: Real estate prices have shot up since the announcement last year and even a golf course is under construction to accomodate Korean Execs.


The investment makes so much sense because importing to Brazil is prohibitively expensive. Duties are 35%, local taxes another 60%, plus fees means that the local price will be roughly double of what a car costs abroad. If Hyundai can keep a part of this money in its own pocket and keep growing like they have, this will mean great business.

In addition, more local manufacturing will help the Brazilian economy further diversify away from commodities - even if under the current exchange rate scenario, importing is so cheap.

World Cup Troubles

Let Us Hope there are no second thoughts about this

To make it quick: The 2014 World Cup is in trouble. A report to be released these days (today?) will put a green light on the stadium construction of Belo Horizonte. Full Stop. All other stadiums will receive a yellow light for progress - except for Natal and São Paulo, where construction hasn't even begun. To be honest, I still do not know where and how the São Paulo stadium should be built.

The second part of the bad news is that almost all infrastructure to support the world cup (airports, roads, subway, etc.) will receive at least a yellow light. The "grand plan" for São Paulo is expected to be to block all access roads to and from stadiums and major hotel districts to allow soccer fans to get to and from the games - killing off the rest of the city.

The third part of the bad news is that, contrary to initial official news, almost no private money will be used for infrastructure and stadium construction. The required money is estimated to be a total of ca. 10 billion Euros, of which 7.2 billion Euros alone are for airport infrastructure projects. The available 147m EUR from the private sector are from soccer clubs used to build or refurbish their own stadiums. In other words, the tax payer will pay for 98.5% of the cost. Good job.

The fourth part of the bad news is that the world cup will be in roughly 1200 days.

The fifth and final part is that at least six stadiums with infrastructure need to be ready in 835 days - for the confederations cup...

EDIT AND UPDATE: Since last year, costs for stadium construction have already gone up, on average, by 57% according to AFP. Top cost increases were registered in Salvador, at 170%.

Cooked Inflation

Everybody in South America talks about the understated inflation in Argentina. The government claims it to be 10%, but it most likely is 20+%...

Now I have seen life in Sao Paulo get more expensive over the past months. My unrepresentative list goes like this:

- Club Monthly Fees: 13.6%
- Picanha at my grocer: 45%
- Taxi fare: +28%
- Milk: +8%
- Private School: +12%
- Real estate: Do not even mention it...

Official inflation is only aroung 5-6% but prices have been creeping up beyond, mostly food - possibly a bi-product of commodity inflation. Official numbers are not confirmed at the levels above... yet. With commodity prices soaring all around the world, more is likely to come, but I am worried that there may be much more already here in the country.

My fears have been "confirmed" with two pieces of news I came across recently: This week's Veja magazine, which is running a (non-representative and somewhat populist) special and The Economist, which has compiled a Big Mac implied inflation index. This index puts inflation in Brazil at n+4%, so more around 10%... Keep your eyes and ears open.

EDIT: Where you look, more news. Here from the Brazil Institute.

Dilma meets Cristina

midiacon.com.br

Dilma on her first trip abroad - to Argentina, to meet her countertype, Cristina de Kirchner. Both large countries of Latin America are new ruled by women.

Top executive salaries are paid in... São Paulo

The Economist, January 27, 2011

This week's The Economist is running an article on a market study on executive pay. In Brazil, specifically, São Paulo, pay is highest, with generous bonuses to boot - coupled with extremely high taxes, this makes hiring executive professionals daunting. Even without the real valorization, São Paulo is an expensive place to hire top-execs, when you get them.

In addition, a befriended Blog (Expat American in Brazil) confirms what I have also noticed: Scarce local labor (especially on a high level) is starting to make an export of labor from other countries an option - in addition to trying to get Brazilian Expats abroad to return to Brazil.

Recycling Paradise

According to one number, the citizens of the city of Sao Paulo produce 17.000 tons of trash every day. Other estimates put the garbage at up to 3.5kg per capita per day, a whopping 40.000 tons.

Regardless of the exact amount, a mere 1% of this gets recycled, compared with 23% in Curitiba. Cities in Germany have a minimum of 35%, most much more.

One would think that there are not enough incentives for this, right? I do not think so. Thousands of people make a living, collecting recyclable waste and bringing this to cooperatives that re-process the material. Usually, these are very poor people that pull their carts, paper and plastic piled high - more fortunate drive around with ramshackle cars and trucks, collecting what they can. And the returns are not so bad. Carton sells for R$0,50, Clear plastic for R$1,00 and Aluminum for up to R$3,00.

Let's do the math. Assuming Sao Paulo could elevate the recyclingquote to 20%, at least 3400 tons per day would be recycled - 1.2m tons per year, at a value of at least 620m BRL.

And while I do this math, Sao Paulo is forced to export trash, as all city landfills are full and the only incinerration plant IN THE COUNTRY is still in construction.

I smell a pretty solid business plan. (no pun intended)

Bring us your money!

11.25%

The Brazilian Central Bank raised the interest rate by 0.5% to 11.25% in yesterday's meeting. This puts the government in a difficult situation: They raised inflow taxes, then they twisted December numbers to make borrowing more expensive without raising interest, but now had to do someting.

Brazil continues with the highest real interest rate in the world, at 5.5%. Second place is... Australia, with a mere 1.9%.

And the analyst buzz is that interest rates will continue climbing, peaking around 12.25% at year end. I smell inflation:

For Portuguese-Readers: http://economia.estadao.com.br/noticias/not_51686.htm

Farm of the Future

Last year, The Economist ran an article on Brazil's "Agricultural Miracle". Hank Pellisier ran a digest of this article and a few others and condensed it in "Brazil: Future Farm of the Planet?".

It's well worth a read. Just to show you some of the potential in this country, here are some facts Hank dug up about Brazil's agricultural ranking:

Chickens: 1st in the world, 41% of export market share
Coffee: 1st in the world, 27% of export market
Orange juice: 1st in the world, 82% of export market
Soybeans: 1st in the world, 38% of export market
Beef: 1st in the world, 26% of export market
Sugar: 1st in the world, 39% of export market
Ethanol: 1st in the world, 52% of export market
Tobacco: 2nd in the world, 17% of export market
Bananas: 2nd in the world, behind India
Pork: 3rd in the world, 15% of export market
Corn: 3rd in the world (behind USA and Argentina)
Black pepper: 3rd in the world (behind Vietnam and Indonesia)
Cotton: 5th in the world (USA is the leader)

OHMYGODITSRAINING

The title is probably offensive to some, but I just was treated to a piece on the news channel Globo News about how the rain caused all these horrible mudslides in Rio with all those deaths.

I am in Brazil for in the third year and I do recall hearing the same in the past. Thanks to google news, I can check if I am halucinating. A search for "chuva deslizamento", classified by date brings up, in no particular order, a few news articles:

• January 2007
• January 2008
• January 2009
• January 2010, lots of em, no search required

And, what should be done about it? Right: an alert system for natural disasters is supposed to be set up within four years. I wonder what that is supposed to be good for? According to CBN radio, about 150.000 people live in endangered areas in the city of Sao Paulo alone. A bit of proper planning and zoning would surely help - but that probably requires too much... well, planning - and does not make up for some nice emergency government meetings.

And don't think that it is only the poor getting affected. I currently have a view on a pending disaster in my back yard. The first picture is from December 18 of last year - observe the last site which carved out a piece of the hill.

And now look at the picture below, taken last week.

It probably would be a good idea for somebody from the city to take a look at the site - in the interest of those living in the 24 floor building on top of the hill.