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.