For many years a common refrain in Brazil was that it was the country of tomorrow, but that tomorrow never seemed to arrive. This rather cynical view was based on a history that always seemed to keep the aspirations of the Brazilian people just out of reach. Brazil, a country rich in natural resources, a diverse populace, excellent ports and harbors and strategically positioned in South America could never quite turn the corner. The grandiose plans of numerous military regimes ended in consistent failure. At the time the military plan for growth was called an economic miracle and in fact on the surface it appeared to be so, exploiting vast natural resources and a large labor pool Brazil did become Latin Americas leading economic power by the 1970s. However growth came with a price.
Like all centrally planned economic development projects the Brazilian miracle was fraught with corruption, poor allocation of capital resources and a lack of cost/benefit analysis. Examples abound but a telling case can be seen in the transportation system of Brazil. With a land mass that exceeds that of the continental United States Brazil required a transport infrastructure that allowed for long distance low cost transportation. The logical choice would have been rail, however in what may have been collusion with the automotive industry the military government decided to build thousands of miles of roads of which only 10% are paved. The long-term cost to the Brazilian economy is difficult to calculate but noting the fact that road transport costs are 2-3 times greater than rail and that over 90% of transport in Brazil is by road compared to 55% in the United States, suffice it to say that the impact has not been positive. In addition the military attempted to foster the development of infant industries by closing the economy to many imports. This had a devastating affect on the development of technology; telecommunications and transportation just to name a few.When Brazilians finally achieved a democratically elected government the past seemed only to repeat itself.
The country entered the nineties with declining real growth, an inflation rate of over 1000%, an unserviceable foreign debt of $122 billion and a lack of policy direction. In addition, the economy remained highly regulated, inward looking, and protected by substantial trade and investment barriers. The democratically elected Collor government did launch an aggressive plan to modernize and reinvigorate the economy, stabilize prices, and deregulate industry while concurrently opening the economy up to foreign competition. However President Collor was forced to resign under the cloud of major corruption scandal and for Brazil tomorrow seemed once again out of reach. Fortunately for Brazil Collor’s successor appointed an extremely competent finance minister by the name of Fernando Henrique Cardoso. Under his guidance Brazil’s most successful stabilization plan was launched known as Plano Real, that called for a new currency, the Real, which was launched on July 1st 1994. As President of Brazil, Cardoso has implemented dramatic market reforms within the Brazilian economy. During the past eight years his administration has brought inflation under control achieving a rate of less than 8% a year, privatized the majority of State owned enterprises, deregulated the economy, initiated public sector and fiscal reform, eliminated barriers to foreign investment, and embarked on a campaign to dramatically reduce crime and corruption within both the government and private sector.
The results have been telling; foreign direct investment has increased dramatically to over $30 billion in 2000, a trade surplus of over $5 billion is forecasted for this year, telecommunications and transportation systems have undergone major overhauls and the standard of living has improved dramatically for millions of Brazilians. Our firm believes that Tomorrow may have finally arrived for Brazil. Major challenges still exist and need to be addressed. These include wide disparities in income, a lack of primary and technical education infrastructure, environmental problems and a lack of access to quality public healthcare. While not discounting these challenges we believe that a window of opportunity has opened for both American companies looking to gain a presence in Brazil and for Brazilian companies looking to move beyond their own domestic market. In assessing Brazilian companies we believe it is important to focus less on sectors and more on management, product and processes. As with most Latin American countries the Brazilian economy is still dominated by the family owned business.
Many of these are extremely well run and highly competitive, other are not and without good management they will be destined to failure. Products and processes are of equal importance; many Brazilian products are of higher quality or have a unique nature that makes them extremely valuable to the global market. In addition many Brazilian companies have developed processes in many cases out of necessity that are equal to or superior to there North American counterparts. Our firm has made investments in or acts as advisors to a number of such companies.
These include: A major CRM, Call Center and telemarketing company that has now entered into a joint-venture with a leading North American provider of these services. The result will be the rapid two-way transfer of technology, processes and clients setting the stage for a merger that will give the North American Company a significant presence in Latin America. Recently several partners from our firm spent a weekend touring coffee farms in Brazil and as a result we are now acting as investor and advisor to a coffee consortium that will develop a branded high-end specialty coffee for the North American and European market.
Always with an eye on form our firm has entered into discussions with a leading cotour house in Brazil that has world-class design and production facilities. The objective a joint venture with a leading cotour house in North America that could lead to a co-branded line and two-way access to the relevant markets of both houses. Linking these three disparate projects is one common theme, world-class Brazilian companies and products ready for tomorrow’s world.
Yes, we believe that tomorrow has arrived for Brazil and we are anxious to see what tomorrow will bring. And for those American companies that have not yet entered the Brazilian market we would only say that tomorrow is not forever!