Brazil’s Bet on Foreign Entrepreneurs

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OZY

Believe it or not, the Silicon Valley isn’t the only force of gravity in the tech startup world that’s sucking up talent. A ways south of the Rio Grande, some of Latin America’s biggest cities are starting to buzz with the same entrepreneurial fervor that the Bay Area is famous for. According to LAVCA — a group that tracks private investment across Latin America — private equity groups and venture capital firms invested $8.9 billion in Latin America in 2013, marking a $1 billion increase since 2012.

Since the early 2000s, Brazil’s economy had been riding a growing economic wave, thanks largely to reforms led by its former Socialist president, Luiz Inácio ”Lula” da Silva. When Lula left office, Brazil’s economy was growing at a rate of 7.5 percent. Continue reading on Ozy…

 

ECLAC Proposes Structural Reforms to Latin American Economies

Commodities are sweet little things in Latin America. Indeed, Brazil should be excited then, because recent weather data helped forecast a strong coffee crop and high prices for 2013. For Brazil and its neighbors, the past decade has seen a thumping commodities boom thanks to China’s appetite for industrialization. One might think the region’s leaders would be smiling and kicking back, enjoying the good old decade.

But they are not.

Instead serious faces worn by leaders and representatives of Latin American and Caribbean states turned toward El Salvador, where a dramatic pivot in economic policy for the region was discussed last week. The reason for serious attention is because ECLAC, a UN economic policy organization, introduced a proposal detailing a range of structural changes to Latin American economies that intend to defend against looming external business cycle shocks with new productivity reforms, which aim to bring high-value-added industry to the region. The idea here is to close the region’s painfully wide wealth gap.

Soy, oil, minerals and coffee, it seems, are no longer hot kitsch.

“History suggests that developing countries that have succeeded in converging with the more advanced countries have done so through the accumulation of technological capacity, innovation and knowledge, not on the basis of rents from natural resources,” ECLAC told Reuters.

ECLAC (Economic Commission for Latin America and the Caribbean) holds a summit every other year, where its representatives discuss economic policy for the region. This year, the structural proposal emerged from a concern that over-specialization on low-productivity commodities and emphasis on import-substitution action has put a drag on the region’s economic performance dating back to the 1970s.

ECLAC means well. And its proposal sounds good in theory. Latin American states wrestle with wealth inequality and a new model for encouraging productivity and capacity building could contribute to closing the gap between rich and poor. One of the region’s biggest challenges, however, is how to agree on a proposal like this. For a roster of states obeying increasingly polarized political postures, there will likely be a handful of states, such as Brazil, Colombia, Chile and Mexico, that have an appetite for the UN’s new economic proposal. Others however, like Venezuela, Cuba and even Argentina, might just as well chew it up and spit it out as if it were a bitter seed.

Under the Stress of Development, Brazil Re-thinks Immigration

Petar Rusev, a member of the 1920s Bulgarian communist party, transformed himself and his name when he arrived in Brazil in the 1930s after fleeing political persecution. Petar became Pedro, Rusev became Rousseff, and the Bulgarian emigré started what would eventually turn out to be a successful career as a lawyer and entrepreneur. The newly made Bulgarian-turned-Brazilian met a schoolteacher from Minas Gerais and by 1947 their daughter, Dilma, was born. Dilma Rousseff, the current President of Brazil, is this immigrant’s daughter.

Brazil has a tradition of welcoming immigrants of Mr. Rusev’s sort. Since gaining independence in 1822, Brazil, much like the US, has played host to immigrants from Europe, Japan and Africa. In the 1970s it opened its arms to a throng of Lebanese, Syrian and Palestinian political refugees.

Now though, in the wake of recent growth (in 2010 GDP struck 7.5%), Brazil is itching for professional talent from beyond its borders. And immigration and its lively history is not cutting it.

Reuters reports that Brazil lacks an estimated 20,000 engineers per year to keep up with its infrastructure projects. The shortage of talent is reportedly one of the reasons why Vale, a mining behemoth, has created an ambitious training program for new engineers. The mining company’s hiccup has also slowed down Foxconn’s $12bn USD investment to jump-start manufacturing iPads in Brazil.

According to Reuters, Ricardo Paes de Barros, a strategist for President Rousseff’s office, said that proposals are in the mix to attract foreign professionals and lift the proportion of professionals from abroad up to a goal of 3% from the current 0.3%.

The problem that anxious Brazil and its eager guests face is time. Time is of the essence, especially in sectors like oil & gas, where demands are immediate. To secure work in Brazil companies must justify the absence of equivalent talent in Brazil. Additionally, the Brazilian Ministry of Work sets hiring quotas, which ensure that for every foreigner hired, two Brazilians must be hired. It is by many accounts a byzantine web of bureaucracy, and even though navigating it is possible, it takes time.

Luiz Fernando Alouche, an immigration lawyer with the Almeida Advogados firm in Sao Paulo told Reuters, “hiring a foreigner in Brazil is complicated. It takes a lot of bureaucracy, time and uncertainty regarding whether it will be granted.”

It seems that there are two fronts where Brazil has to hurry. One is the matter of its bureaucratic jungle gym. Foreign professionals could very well be attracted to the country’s economic buoyancy and promise, but until Brazil relaxes its bureaucracy, the best will be scared away over the high potential loss of time.

Another is the matter of education policy, which arguably helped contribute to Brazil’s talent problem in the first place. Rousseff’s Science without Borders project, which was designed to send 100,000 Brazilians to study abroad at some of the world’s best universities, shows that the thinking about Brazil’s talent squeeze is there. The scale and the timing, however, might not be.

D’Artagnan’s Three Musketeers: Venezuela Joins Mercosur

The Urupema, a high performance glider manufactured by Embraer, flies, 1971. (Source: centrohistoricoembraer.com.br)

In 1971, somewhere inside a polished set of newly constructed hangars in São José dos Campos, Brazil,  you might have found a group of men huddled around the manufacturing blue prints for Embraer’s high performance glider, the Urupema, whose plan to start production ignited in response to an order filed by a club of Brazilian aeronauts. Today, nearly 18,000 employees generate $1.15m USD for Embraer in a competition for representing Brazil as one of the world’s top-performing airline manufacturers. Venezuela’s Hugo Chavez, then, must command a mighty appetite for aeronautical performance, because the country he leads just purchased 190 of Embraer’s winged marvels. Hugo wants to be in the club too.

And now he is.

Thanks to Mercosur’s low tariff policies enjoyed by its members, the $270m USD deal between Brazil and Venezuela will be free of a 35% mark up on goods and services imported from member countries. That’s because after waiting since 2006, Venezuela has finally become a member of  Mercosur. Venezuela’s addition makes the trade zone the world’s 5th largest economy in terms of GDP, boosting GDP to 3.3bn USD, according to the Argentina Independent, an English online newspaper based in Buenos Aires.

How the block formed came about in 1991 when a group of South American states ratified a series of trade agreements that Brazil and Argentina had already begun practicing. This was called the Treaty of Asunción and by the final hour of their congress Mercosur was born. Mercosur originally intended to increase the strength of trade amongst emerging South American nations. Its original premise was that member states would act as a group of democracies that encourage liberal trade policies in the region. The idea was that Mercosur would be founded on the same model as the European Union. But now, according to some analysts, the group of states seem to neglect their original purpose for unifying. According to The Economist Mercosur now behaves more like a political union whose policies serve to guard member states against the free trade interests of the US.

Chavez says that the addition of Venezuela is a “perfect equation,” reports La Nación, an Argentine newspaper. Indeed Venezuela’s entrance makes for a nice little financial numbers game. Venezuela is scheduled to benefit thoroughly as it will be able to access sales in Brazil and Argentina for oil, which accounts for 95% of GDP and  constitutes 40% of the Venezuela’s budgeted revenue. Trade is not the only motivation, however. Chavez, whose fragile socialist experiment depends almost singularly on oil exports, also looks to Mercosur to bolster his swashbuckling political rhetoric. According to a Reuters report, Chavez announced that “Mercosur is, without a doubt, the most powerful engine that exists to preserve our independence,” referring to a renaissance of Bolívarian nationalism practiced by Chávez and his followers.

Outsiders fear, however, that Venezuela’s membership will only complicate the problems from which Mercosur already suffers, like its flimsy decision-making process, and instead promote further migration away from the group’s original goals. Mercosur faces internal troubles too. According to The Council on Foreign Relations the block still struggles with the question of how to manage unbalanced productivity and dissonant economic policies among participants. Argentina recently blocked trade with several members and even prompted Brazil to respond with its own set of barriers.

For the short term, it looks like Chavez and Venezuela will benefit from the deal in true political fashion by having a new checklist of successes to present to Venezuelan voters come elections in October, 2012.

But for those who view the trade block as a potential boon for commodities like oil and soy, the loose strings that hold together Mercosur’s democratic processes and its clumsily aligned economic policies will only appear to grow more knotted. The reason why Mercosur abandonded Paraguay is because it agreed that Paraguay violated the block’s “democracy clause.” However, admitting Venezuela, who recently backed out of the Inter-American Council on Human Rights, as a replacement doesn’t say much in favor of democracy. Financial Times’ Richard Lapper says that Mercosur’s main duo – Argentina and Brazil – continue to be focused on economic issues. Even if they are, it might be tough to see them clearly through Chavez thick clouds of talk and promise.

Dear Brazil, Meet Haitian Diaspora

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A tent camp in Port-au-Prince where Haitians prepare to leave for Brazil.

After passing through five countries using planes and buses, and sometimes bribes, Haitians arrived in droves at a small Amazonian town in Brazil near the Bolivian border. Prejudice toward Haitians is alive, but not universal in Brazil. But the obstacles of difference are no matter for some Haitians. New arrivals study Spanish and Portuguese in an attempt to acclimate. On one side of the dilemma Brazilian authorities are feeling overwhelmed by the struggle to absorb the diaspora that has landed on their doorstep. But on the other side of it they should feel a touch of pride. Haitians have chosen Brazil as their destination because they are looking for work, and that is what Brazil’s growing economy offers right now.