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.