On the Cusp of Good....and Bad?

A very good morning to you and many thanks for joining us, once more, for the weekly post; though I departed from the norm with two posts last week, when some new reports triggered the grey/gray matter and led to a second offering.

The most recent posts, 'A Token Neon Road Sign or a Genuine Change of Direction', and, 'Hers to Lose', underscored the importance of the year ahead.  2014 could be, should be a big one for Brazil.  This vast, amazing country with its engaging people, fascinating culture and huge potential is seen by many as being on the cusp of great things.  The auction of oil rights, most notably of the Libra field recently (R$15Bn/$7Bn to start), and of major concessions such as the nation's leading airports (Sao Paulo's Guarulhos, R$16Bn/$9Bn, Belo Horizonte, R$1.82Bn/$0.8Bn , Brasilia, R$4.51/$2.6Bn and Rio de Janeiro at R$19.6/$8.3Bn) are intended to raise hundreds of billions of Reais for the country; the target for road, rail, ports and airport concessions is R$212Bn.  While the winning bid for the Libra field was right on the minimum required, the winning bid for Guarulhos was five times the minimum and for Rio was four times the minimum.  Add to those numbers the fact that concession agreements have been written to ensure the Brazilian Government receives significant shares of all profits and to ensure leading roles for Brazilian companies in exploitation and development and we get some feel for the revenue that President Dilma Rousseff expects to receive from the auctions and resulting Private-Public Partnerships/Initiatives (PPPs or PPIs).

Notwithstanding the significant doubts about the short to mid term future of the Brazilian economy and the factors that militate against inward investment (including a tortuous and punishing tax system, high infrastructure and utilities costs and endemic corruption), there has also been some good news on that front.  This week has seen the Jaguar Land Rover group announce a new plant in Brazil, at a cost of R$1Bn/$437m, following similar moves by Daimler owned Mercedes-Benz and Volkswagen (VAG) owned Audi.  In the case of these auto companies, the Brazilian Government warned of a pending increase in vehicle import duties and unveiled a series of tax breaks for car makers who increase their investment in the country.  These factors, combined with the huge market potential in Brazil and more widely in South America outweighed other significant disincentives to investing in the country.

The above sounds good and should empower the Government to live up to promises, made in the wake of the nationwide protests of June, to address the chronic condition of many social services and improve the woeful quality of life of so many tens of millions of its people (though many doubt the potential for economic recovery, noting the impact of supply side constraints, policies that result in excessive demand, extremely high levels of domestic credit, inflation etc).  It has to hoped that such corrections in this immensely imbalanced and unequal society will at least create the conditions to arrest and reverse what may be a decline into bad, difficult and dangerous times in a number of parts of the country.

Let us look just 30 minutes flying time to my South, to Salvador, as an example.  (please note, I do not own the copyright to phots used herein and all such were taken from public sites - if you own any of those used, just let me know and I shall remove them)..........

Salvador de Bahia, the capital of Bahia State, liberally salted with Baroque architectural gems and home to the gorgeous historic centre, the Pelourinho.  It is known as an international tourist hot spot with a stunning harbour, gorgeous, inviting golden beaches and boasts luxury apartment blocks, international quality shopping centres/malls with all the major names and a huge industrial park on its outskirts comprising cutting edge plants.  It is home to the Carnaval that most Brazilians aspire to attend; unlike the international, somewhat Broadway like events in Rio or Sao Paulo.  Yet this City of around 3 million people (some put it much higher, just depends where you draw your line) is an example of the social and moral decay that is plaguing

many areas of Brazil.  Six and a half years ago, we were on the verge of taking up residence in Salvador, which has many advantages for the immigrant European, but were discouraged from so doing by the rising tide of crime even then.  Salvador is now regarded by many as the murder capital of the country, with more murders than Sao Paulo which is many times its size.  Antonio Riserio, a writer and historian, recently penned an interesting but sad piece on the once lovely City, saying that the 'middle class live in fear'.  Not only is the murder rate high, the nature of the crimes seems to be more savage of late, with some murder victims found with their heads severed.

Moving South, to Rio de Janeiro, recent days have seen the peace of the luxury, world famous beaches of Ipanema and Copacabana shattered by tsunamis of crime, waves of youths sweeping the golden sands at speed grabbing and snatching any and everything they can.

Whereas Salvador is called the country's murder capital by some, cities such as Marceio and Joa Pessoa actually have higher per capita murder rates and are reported as feeling even more threatened and tense.  In the capital of Bahia it is understood that a boom in Crack Cocaine use has spurned the current increase in crime, and violent crime in particular, and we are given to understand that drugs are highlighted as the cause of much of the crime across the country.

As and when (or, if a non-believer, IF) the money flows and the Government finds itself in a position to impact upon and improve the quality of life of its people, let us hope that there will be some coherent, holistic planning that will view that life quality as a whole, recognising the complexity of the social problems facing Brazil and the need for a multi-discipline, multi-departmental coordinated response.  From housing through health, transport through education, job creation to policing and much more there is serious work to be done if Brazil is not to risk sliding toward social third world status at the very time it is becoming a first word economic power.....31.6% of those living in favelas and other officially classified 'poor communities' earn less than half the minimum wage, compared to 13.8% outside those areas, and 14.7% outside those areas have taken at least one higher education course compared to only 1.6% in the favelas.

Much to be done, and we have to hope that the opportunity to make a difference that will result from oil and infrastructure auctions and the promised economic recovery will not be frittered away.

Thanks very much for joining me, today.  The next planned post will be a week from today and may be on policing; in light of some recent new reporting on the subject.  I hope you will consider joining me then.

Dave

Hers to Lose....?

A very good morning to you.  I trust the week has treated you as it should and that a grand weekend stretches out ahead.

I decided to throw a very short second post out there, this week, after reading some articles about 2014 and the year's Presidential election.

A recent Ibope Poll showed President Dilma Rousseff winning one first round vote scenario for next October's election by a significant margin, polling 43% compared to her nearest rival at 14%.  All other first round scenarios also showed her winning easily.  All second round scenarios returned President Dilma as the victor with at least a 19 point lead.

The poll results rather suggest that the election is President Dilma's to lose....but is it really that cut and dried?

So much of what is important to the electorate and what brought them onto the streets last June comes back to money and the economy, the practical ability to deliver what the people are (rightly, in my view) demanding; not all, by ANY means, but a good deal, including tackling inflation and delivering quality social services to all groups within society.

Two much used political sayings come to mind.  Firstly, Harold Wilson's phrase that, 'a week is a long time in politics' (UK Prime Minister 1964-70 and 1974-76) and then James Carville's 'it's the economy, stupid' which he coined during President Bill Clinton's successful 1992 Campaign (Carville was a strategist for Pres Clinton and coined 'the economy, stupid' as a bullet point for Campaign workers, though the variation 'it's the economy, stupid' is more commonly used now).

If a week was a long time for Harold Wilson, then the year we have to run to the Brazilian election is one hell of a long time....particularly with the economy on the verge of either a recovery, or of further troubles that could condemn Brazil to struggle through the economic mire of very low investment, low growth, inflation, currency depreciation and other ills for years.  As much of the 2014 campaign is likely to be about the economy, or about social problems, the resolution of which will be largely dependant on a buoyant economy delivering sustained growth, Carville's bullet point is still right on the money.

As a result, one cannot help but be concerned by the run of articles in such as the Economist and from Forbes, Reuters and Bloomberg that raise serous doubts about the ability of the Brazilian Government to correctly grasp what is needed to arrest the decline of Brazil's once vaunted economy and relaunch it in more robust and sustainable form.  Most recently, Bloomberg reported that investors had 'never been more pessimistic' about President Dilma's policies and her ability to return the economy to the heady days of recent years.  Reuters had previously suggested that the medicine to cure Brazil's economic ills would have to include lower wages and increased unemployment....but doubted that any President would prescribe such medicine in an election year and Forbes has made similar observations..  The article went on to suggest that failure to do what is necessary next year may result in the illness turning from a short, sharp cold to a chronic malady.

Currently, the Government is holding to the prediction that inflation will be within the target band by the end of the year (the average for emerging markets is around 5%, but Brazil has been nearer to 6%) and recently announced a further reduction in the unemployment rate for October, hitting a 10 month low of 5.2% from 5.4% in September.  The official tone is hopeful, even confident, but they must be seen to actually deliver increased, stable growth that will act as the enabler for so much else that is needed and has been promised.

The balance between electorally popular policies and necessary measures to recover the economy (addressing supply side constraints and policies that produce excessive demand as well as acting to attract investment etc) will be a difficult one for President Dilma in an election year....even if she is resting on an apparent cushion of a double figure points lead over her nearest Presidential rival; and this is without weighing the potential impact of issues such as the potential for further civil protest, the need to be seen to fight endemic corruption, the need to reform policing (about which, more in the next post I think) etc.

With seemingly no credible rival, the election may be President Dilma's to lose......but......

Thanks for looking in on the Blog today.  I trust I have made some sense in my struggle with economic issues; I am anything but an economist!

The next post should be on Wednesday and I hope you will look in again then.

Dave

Best Laid Plans........

Well, despite efforts to the contrary, it seems that other demands on my time are going to force my Inside Brazil Blog to be slimmed down from a rigid three posts a week to about one a week.

HUGE thanks to you for your support in popping in to read my efforts to this point and particularly to the two people who have left comments over the weeks.  I do hope you will continue to look in, from time to time, to peruse the weekly posts and, if my situation changes, I shall hope to return to a more regular service.

Sincere thanks to you and I shall catch you next week.

Dave

Normal Service Resumed Wednesday

Hi All.

If you looked in last Friday or today, expecting me to have resumed normal service after a period of absence my sincere apologies.

My travel plans became somewhat manic and the return to home turf was equally demanding and, as a result, I shall return to the normal schedule for this Blog (Mon, Wed and Fri) on Wed this week.

Thanks and catch you then.

A Brief Pause

Hi....and if you have looked in for the latest post I have to apologies and beg your indulgence.

I am away from my home base on travels which are not leaving me time to keep up to date with posts!

The next post on this Blog should be Friday 08 November, after which things should be back to normal.

Huge apologies, but I have no option but to break normal service.

Dave