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.

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.

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.

Currency War: The Next Battle

In Brazil, the hot topic continues to be the strong BRL vs the USD - even after a formula one weekend, a new president and creaking infrastructure.

Prior to the G20 Summit, The Exchange War has become a commonplace buzzword in the economic and business press, and is creeping into the common news.

In Exame, a business magazine, "weapons" in the currency war are being prepared by the Brazilian government including even higher duty rates for capital inflows (today at 6%) and charging capital gains taxes from foreign investors (a ghost of the past). But all these weapons are currently on hold until after the G20 meeting in Seoul. Keep your eyes open...