The Need for an Infrastructure Bank in the United States

An infrastructure bank in the United States is sorely needed and long overdue.  Infrastructure is the backbone of the economy in any country, including ours.  It helps drive economic growth and development as well.  From railroads to bridges and from highways to airports, infrastructure refurbishment and growth in the U.S. would make us a stronger and more vibrant nation.  It would also assist in creating jobs, many jobs.  While we lead the world in numerous categories, we seem to have forgotten about the importance of infrastructure – at least on some level.  Aging structures and lack of ample coverage can place the economy in peril.  A cooperative scenario between the public and private sectors is ideal, whether on a PPP basis (“Public Private Partnership”) or other.  Even though we may not be entirely familiar with the day-to-day functioning of an actual infrastructure bank, we should explore the establishment of one so that we can experience more sustained growth over long periods of time.

Various countries have had infrastructure banks at the center of their economic models.   These banks have succeeded on differing levels, according to the specific needs of each country, as well as the other factors influencing development in this sector.  Nonetheless, one can argue that a whole host of countries have been able to infuse public infrastructure money in a way that has helped those regions of the world to advance.  By the same token, an infrastructure bank or infrastructure fund is not new to us in the United States either.  Public-private financing cooperation on large-scale infrastructure development projects has been achieved on some of the most significant rescue efforts in history.  In fact, in October 2013 the New York Times noted the following:

We used similar vehicles to reconstruct poor countries after World War II, through the World Bank. Likewise, we rebuilt post-war Europe with the Marshall Plan. After the tsunami hit South Asia in 2004, we turned to infrastructure banks, as we did after the earthquake in Haiti in 2010.  There’s nothing new about leveraging private capital to rebuild at home. In the United States, post-Revolution Massachusetts found itself mired in debt but needing an infusion of money to rebuild. Private capital was brought in. Similarly after the Civil War, it was Lincoln’s Transcontinental Railroad that was to unite the country from shore to shore. We rebuilt New Orleans after Hurricane Katrina with a mix of public and private capital.  (October 1, 2013, NYTimes.com, “A National Bank with One Goal: Infrastructure”).

 Likewise, President Barack Obama has stated that this is a priority for our long-term economic prosperity.  Others such as Senator Mark Warner of Virginia have been staunch proponents of the creation of an infrastructure fund as well.  In fact, Senator Warner, a conservatively oriented Democrat with significant private sector experience, recently revived a bill to set a new financing authority in motion.  In November 2013, a blog entitled TheHill.com, reported:

 Sens. Mark Warner (D-Va.) and Roy Blunt (R-Mo.) are reviving a push to create a national infrastructure funding bank in a new bill he unveiled on Thursday. Warner and Blunt’s bill would create a “infrastructure financing authority” that would receive $10 billion in initial funding, his office said. The infrastructure funding would be used as leverage to lure private sector investments that could reap as much as $300 billion in new transportation projects, according to Warner’s office.  The measure has been dubbed the Building and Renewing Infrastructure for Development and Growth in Employment (BRIDGE) Act.

Aptly dubbed “The BRIDGE Act,” this new funding authority would help to make an infrastructure financing entity a reality.  By the same token, though, it may not go far enough.  Granted, this has been a source of debate in Congress, and both reasonable and unreasonable minds have disagreed on the form and function of this new authority.  However, we must be courageous so as to establish something new and innovative that will have a lasting positive impact on our society.

As a result, I would advocate the creation of an actual infrastructure bank and not just an infrastructure authority.  Next, the infrastructure bank needs to be properly funded by Congress.  While private participation on projects is needed, private money is expensive, short-term oriented and cautious.  As many prominent financing experts have said, ‘government money is the cheapest money.’  In this case – believe it or not – government money is also the best money.  Even though I am not a proponent of big government, and I am probably more fiscally conservative than many of my colleagues, this is one situation in which government money is imperative.

The creation of a new infrastructure bank should have at least $50 billion in funding, as Senator John Kerry (now Secretary of State) and Senator Kay Hutchison of Texas proposed in 2011.  Actually, my proposal is that we fund the new bank to the tune of $100 billion initially.  Why? Because large infrastructure projects require big money and because the government will make a return on its investment (albeit after a longer period of time).  Also, this is one of the instances where government must take the lead.  Not only is the government’s money the cheapest, but it is also the most secure in many ways.  In this unique circumstance, government infrastructure money can be the most aggressive and risk-friendly.  Private capital has shorter windows and more limiting parameters in terms of ROI.  However, by working together, the public sector can help the private sector and vice-versa.

I applaud and commend Senator Mark Warner on his effort and I believe that we need to support him and others in the creation of a true infrastructure bank.  There are many viable models out there, including the Brazilian infrastructure bank, BNDES.  We also have history in this area, as noted above.  Then, too, there was TARP, the Troubled Asset Relief Program in 2008/2009.  While TARP was greeted with a large degree skepticism (and perhaps rightfully so), it was later considered to be an important capital injection into a failing economy – an ever-so-important global economy.  The U.S. model can be new, exciting and innovative.  It can utilize equity positions as opposed to strict debt, and it can be a demonstration to the world that we – as Americans – still have a desire and appetite to improve the economy at home and abroad on a large scale.  Most importantly, we can stimulate and enhance the overall standard of living in our country on many levels and create new jobs.  With courage and integrity, we can make this work.

The author, Antonio J. Soave, is the Chairman & CEO of Capistrano Global Advisory Services (CGA), an international joint venture, strategic alliance and M&A consulting firm.  He is also a member of the International Advisory Board of the United States Institute of Peace (USIP), an independent, nonpartisan institution established and funded by Congress to increase the nation’s capacity to manage international conflict without violence.  He is the founder and former Editor-in-Chief of the Journal of International Law & Practice at the Detroit College of Law (now Michigan State University).  He has a BA in International Studies from The American University (Washington, DC), a Juris Doctor (law degree) from the Detroit College of Law, and a L.L.M. (Master’s of Law) in International Law from the University of San Diego.  For more of Antonio’s writings, go to his blog at www.AntonioSoave.com.

Detroit will Return to its Glory Days

As odd as it may seem to outsiders, I am very proud of my native city of Detroit.  Being born and raised on the “East Side,” and having gone to school and church at the Assumption Grotto Catholic Parish near Six Mile and Gratiot, I have fond memories of my childhood neighborhood.  Granted, I am about to turn 50 years old soon, but it was not that long ago in the grand scheme of things.  At that time – that is, the late 60s and 70s – Detroit was a bustling and robust city.  Notwithstanding the effects of “white flight” in the post riot era, Detroiters took great pride in their surroundings.  My family lived in a lower, working class area that was primarily ethnic Italian, Polish and Ukrainian, and I had friends from all walks of life.  Our neighborhood had a classic “corner store and meat-market” known as Biondo’s.  The kids would congregate outside to eat candy and play hockey, and the moms would go inside to buy their daily goods.  There was a park down the street as well.  There are many people in my age range who are attached to this sort of nostalgia and would like to work for a return to those glory days.  I have no doubt that the city of Detroit can and will re-emerge.

As noted above, Detroit has great history and heritage.  This cannot simply be shoved aside and disregarded.  And just because many have moved out to the burbs and even out of state does not mean it is not important to have a notable city at the heart of the metro area.  In fact, many would argue that the city and its image are part and parcel of an overall rebuilding process.  Much of this has been in progress for years.  From the Illitch family holdings through entities such as the Red Wings and Tigers, to the Ford family and their team, the Detroit Lions, the city center is still an integral part of the infrastructure and pulse of Metro Detroit.  A lot more, however, has left the city.  The great Hudson’s building and its aura are now a foggy memory, as is the spectacular train station.  Shopping along Michigan Avenue has long been shifted to Oakland and Macomb County-based malls.   Yet there are many of us who still desire a true and profound connection with Downtown Detroit and its vicinity.

There are a lot of people like me who talk about these elements in corporate corridors, on airplanes, and during sporting events.  The nostalgia is palpable and the longing is sincere.  For me, those feelings run deep.  My father helped build the Renaissance Center as a construction foreman and I later worked at the Ren Cen as a law clerk.  I attended the Detroit College of Law (currently housed within Michigan State University in Lansing) and called Downtown Detroit my primary stomping grounds from 1988 to 1992.  I canvassed parts of the city for the first black Gubernatorial candidate, Bill Lucas in 1986.  Alongside my colleagues, I dreamed of helping to make Detroit great again.  Some of that remains in me, as it does in others.  Much of it, however, has been lost.  Unfortunately, my law school (along with its century-old tradition) has been demolished.  Granted, it sat where Comerica Field is today.  I suppose it is better to have the Tigers drawing folks.  But it is still important to maintain some of these great traditions that were inextricably linked to the City.  Both are possible.  We can indeed maintain and promote tradition while rebuilding parts of the City.

So, perhaps there are ways to restore a good deal of the original greatness to Detroit.  I, for one, believe that there are some good plans on the table.  With a new mayor and an active governor, and with city activists working endlessly, new and substantive rebuilding programs are in sight.  There is a big light at the end of the tunnel, and it is not just the light in the “Windsor Tunnel.”  It is the light on the Detroit side, the side that has represented industrial growth and prosperity for much of the world via the auto business over the past several decades.  It is the light that celebrates our old neighborhoods, churches, stores and communities, as well as our sports teams.  It is the light that gives us hope and conviction that a new day is dawning and that many good things are yet to come.  We have history, we have courage, we have strength and – most of all – we have faith.  Detroit will return and will be better than ever. 

 

The author, Antonio J. Soave, is a native of Detroit, Michigan.  He is presently the Chairman & CEO of Capistrano Global Advisory Services (CGA), an international joint venture, strategic alliance and M&A consulting firm.  He is also a member of the International Advisory Board of the United States Institute of Peace (USIP), an independent, nonpartisan institution established and funded by Congress to increase the nation’s capacity to manage international conflict without violence.  He is a graduate of Notre Dame High School in Harper Woods, Michigan, and a former high school All American athlete in the sport of soccer.  He has a BA in International Studies from The American University (Washington, DC), a Juris Doctor (law degree) from the Detroit College of Law, and a L.L.M. (Master’s of Law) in International Law from the University of San Diego.  For more of Antonio’s writings, go to his blog at www.AntonioSoave.com.

The Ten Economic and Social Resolutions for our Country: Simplify in 2014

If you’re anything like me, I am thoroughly confused by all the rhetoric in Washington.  As usual, many politicians and bureaucrats engage in an extensive game of word crafting, double talk, skewing terms and phrases, and embellishing the facts.   We wonder why we don’t have movement in the nation’s capital.  When added to the barrage of special interests and other factors that are too numerous, onerous and egregious to mention, it becomes a virtual mess.  That is what we have today – a mess.

When considering this as a backdrop, it is very difficult to agree on anything.  However, one strategy still remains: simplify.  Yes, simplify, simplify and simplify.  This can serve us well as a nation in 2014.  One of our overwhelming tasks is to create jobs and attempt to provide opportunity for those less fortunate.  This is a good and noble cause.  How we go about it, though, can differ dramatically.  Don’t worry, there is hope, as implausible as it may seem (and notwithstanding everything just mentioned).

So, with the Feast of the Epiphany and the apparent influence of the three wise men – sages and magi, that is – I have felt inspired to share a message of simplicity.  It’s probably because I cannot follow things that are too complex.  To cope, I simplify.  These are a few steps we may wish to consider for 2014:

1.  Provide incentives to and for entrepreneurs: This is the backbone of future development in our country.  Let us provide real incentives for these entrepreneurs to flourish.  Create a Small Business Administration (SBA) that is easy to understand and that has funds that are easy to access for entrepreneurs and other small business people that demonstrate good ideas and responsible approaches.

2.  Cut business taxes, don’t raise them: Here, too, incentives are imperative.  If we want real and sustainable job growth, we cannot penalize business.  Rather, give businesses a real reason to create jobs.  Simply look at states that have incentives of this nature and see how they perform.  Raising taxes will only result in stagnation and animosity, not willingness to create jobs and take risk.

3.  Healthcare only for those in most need: Only provide national healthcare for those in greatest hardship – those that can truly and clearly demonstrate a need.  At the same time, make it illegal for insurance companies to refuse coverage for pre-existing conditions and other key aspects that allow these private entities to avoid payment or coverage.

4.  Encourage religious principles, do not assault them: Families are the lifeblood of this nation.  Religion and faith are founding elements and principles of this country.  We should remember that from a Constitutional perspective, it is not freedom from religion, but freedom of religion.  Don’t declare war on religion; rather embrace and encourage the good and honorable behavior that is commensurate with true faith.

5.  Institute a flat-tax system: This approach will generate more revenue for the country, just ask smart people such as Malcolm Forbes.  This is the only “fair” way to approach it.  Eliminate the current bureaucracy associated with tax collection and assessment, and create a flat tax of 25% across the board – no exceptions, exemptions or loopholes for individuals or corporations.  Only those making less than $25,000 will not have to pay taxes.

6.  Don’t spend more than you have: As my grandmother told me, don’t spend more than have.  Save and don’t overspend.  At the end of the day, someone must pay.  Cut the federal budget by eliminating “pork barreling” first.  Cut all unnecessary budget items, including federal agencies that serve no real purpose.

7.  Eliminate overreaching and excessive lending practices (i.e.; usury):  If we are serious about restoring wealth in America, then we will eliminate mortgages with excessively compounded interest rates and excessive APR (Annualized Percentage Rate).  This is a “usurious” lending practice that usurps wealth from the lower and middle classes, and does not allow them to move forward and/or gain real equity in their largest asset: a home.  By the way, the excessive charging of interest also hurts business.

8.  No handouts, but opportunity: Extensive welfare systems kill ingenuity, self-respect and human dignity.  Only provide assistance where it is truly needed.  By and large, let’s take care of the children by giving them food, shelter and education.  They are not responsible for this situation; rather, they inherited it (by no doing of their own).  By the same token, assist those adults in need while encouraging them to become self-sustaining and contributing members of society.  They will thank you – an themselves – in the long run.

9.  Encourage charitable giving, not the opposite: We are a generous country and a wonderful people.  We should not “cap” or discourage or penalize people or companies for true charitable donations to noteworthy causes.  In fact, it should be just the opposite.  This sort of giving helps so many in need and it allows private citizens to assist in ways that are otherwise impossible and/or implausible for government.

10.  Be a “good” country by encouraging moral standards and principles: As de Tocqueville noted, ‘America will cease to be great when she ceases to be good.’  As archaic and outdated as it may seem, we need to return to our roots and our common base of decency, morality, respect, integrity and honor.  These are just a few of the elements and aspects that characterized and defined this great nation.  They are also foundational ingredients and components that have made us great.

Well, at the risk of being accused of oversimplifying, these are a few guiding principles that we may wish to employ in 2014.  I suppose that I am also old-fashioned and nostalgic, and I believe in the fundamental goodness of this nation.  To me, “God, family and country” still mean a lot, even if it is not politically correct for me to say that anymore.  We can reclaim this great land, but we need to have courage – and faith – to do so.  May God bless you and your families in 2014.  And yes, God bless America!

* The author, Antonio J. Soave, is the Chairman & CEO of Capistrano Global Advisory Services (CGA), an international joint venture, strategic alliance and foreign market expansion firm headquartered in Overland Park, Kansas. He is also the Chairman of the International Business Council, a national non-profit that spreads of mission of “peace through commerce.”  Mr. Soave has a BA in International Studies from The American University (Washington, DC), a Juris Doctor from Michigan State University and a L.L.M. (Master’s of Law) in International Law from the University of San Diego.  He is the founder and former Editor-in-Chief of the Journal of International Law and Practice (Detroit College of Law – Michigan State University), as well as the co-founder and former Publisher of the Journal of International Business (Benedictine College).

Qatar 2022 FIFA World Cup: Does it Make Sense to Consider Joining with Neighbors in the UAE?

There is no doubt that Qatar has the ability and wherewithal to host a successful World Cup in 2022.  It is the wealthiest country in the world on a per capita basis.  It is a wonderfully sophisticated and advanced nation.  It is a very important regional ally for the western world.  It invests heavily in education and infrastructure.   It has a world-class airline.  And, it is one of the largest exporters of natural gas in the world.  So, Qatar will certainly be able to stage a spectacular and impressive FIFA event.  However, does it behoove the country and FIFA to consider expanding World Cup 2022 to another neighboring venue for some of its games?

Planning for a World Cup in the sport of soccer is obviously a monumental task.  Some countries do it better than others.  Everything from security and local culture to weather and geography come into play (and a whole lot more).  In Qatar, some of these factors are quite important and pronounced.  To begin with, the hot and often stifling climate in the summer months makes it almost impossible to play a soccer match in daytime hours.   The smaller geographic footprint of the country create challenges in terms of the overbuilding of large soccer stadiums that can be only be utilized for one single event period.  Even if those stadiums are later disassembled and repurposed in sub-Saharan Africa – a noble pursuit by the way – the logistics will be overwhelming and incredibly expensive.  Added to all of this is the challenge of infrastructure.  Building a metro/subway rail system to service stadiums in outlying areas that may not be used amply after 2022 will be another sizable task.   All of this leads us to the consideration of including other countries in the Gulf Cooperation Council (“GCC”) Region such as the UAE.

As home to the highly touted city-states of Abu Dhabi and Dubai, and the venue for mega developments such as the Burj Khalifa, Palm Islands and Masdar City, the United Arab Emirates may prove to be an ideal partner to host some of the Qatar 2022 matches.  This, as most soccer fans will say, is not unprecedented.  When Japan and Korea joined forces for the 2002 FIFA World Cup, it served as an attractive and sensible combination of venues and locations.   When it was suspected that Mexico might get the nod for that particular World Cup event, the two Asian countries combined so as to make 2002 a great success.  There are obvious differences here (i.e., Qatar has already been awarded the World Cup for 2022), but the concept is still applicable.  The UAE has a variety of professional soccer venues that are already attractive and could be available.  One is the home of the Al Jazira Soccer Club in Abu Dhabi.  It is a beautiful site for international soccer and it just hosted the FIFA U-17 World Cup.  It comes complete with adjacent training facilities, a sports hotel on its premises, and plenty of good food.  To top it off, Abu Dhabi and Dubai are only about a 45-minute flight from Doha, quite easy for an international soccer team to do. 

By considering staging some of the games in neighboring Abu Dhabi and Dubai, Qatar would be able to relieve some of its pressure and burden with respect to the games.  They could focus on building four great stadiums with retractable roofs and ample air conditioning instead of eight.  They could design their Transit Oriented Development (“TOD”) plan in a way that would address the specific demands of the growing country even in a post World Cup era.  They would not have to disassemble or leave empty large stadiums that would be difficult to move abroad or fill for domestic competition.  Qatar could receive additional public relations accolades from involving their neighbors in the region, as well as applause from spectators that might enjoy seeing both countries.  Additional revenue may even be spurred for hotels and airlines as fans shuttle between different venues.  And even though money may not be a concern, it could represent a real financial savings for Qatar.   Doing it this way could also mean keeping the games in July instead of attempting to shift to January because of the intense heat.

In summary, Qatar is a remarkable and marvelous country.  The people are among the most hospitable, sophisticated and productive in the world.  Their commitment to education and healthcare are second to none.  Their global reach through entities such as Qatar Foundation and the Al Jazeera television network is astonishing.  They have, indeed, accomplished a great deal.  By the same token, they may wish to seriously consider sharing some of the burden (and subsequent praise) of the World Cup with their neighbors to the south.  Although it may detract a bit from Qatar’s overall image vis-à-vis this specific event, it could be welcomed on a variety of other fronts.  I believe that it may represent a tremendous win-win for the global community at large. 

The author, Antonio J. Soave, is the Chairman & CEO of Capistrano Global Advisory Services (CGA), an international joint venture, strategic alliance and foreign market expansion firm headquartered in Overland Park, Kansas.  He travels to and works in the Middle East on a frequent and continuous basis.  He is a former high school All American athlete in the sport of soccer and a former co-owner of the USISL pro soccer franchise, the Detroit Wheels.  Mr. Soave has a BA in International Studies from The American University (Washington, DC), a Juris Doctor (law degree) from Michigan State University and a L.L.M. (Master’s of Law) in International Law from the University of San Diego. 

Brazil: Economic Growth Forecasts Rise for 2014

Brazil’s amazing growth a few years ago excited a lot of business people globally.  It almost seemed as if the new Brazilian economic engine would not stop.  But, like many things similar in nature, there was an ending point – perhaps too abrupt for most.   Brazil seemed to be at the pinnacle of all good things to come.  It was known to have discovered one of the most significant offshore pre-salt oil reserves on the planet; it was aggressively churning out everything from iron ore to soy beans, and from chickens to corn; more Brazilians were advancing to the middle class than ever before; it was improving its infrastructure in select areas; and, it was home to the best-recognized eco-system in the world.  It was even hosting two of the most prestigious sporting events to ever take place: the World Cup in 2014 and the Olympics in 2016.  If that wasn’t enough, Pope Francis made his inaugural Latin American debut in Rio this past summer.  In essence, it was entering the developed world with force.

When Brazil screeched to a halt at about 1% annual growth, a lot of folks jumped off the bandwagon and decided that Brazil was doomed.   New stories of corruption and mismanagement seemed to permeate the daily airwaves.  Brazil’s wealthiest individual, Eike Batista, saw his pot of gold disappear over night on the stock market as people lost trust in his growing oil empire, EBX/OSX and several of his other companies ending in Xs.  Some, however, insisted that Brazil was hitting a snag and it was destined to recover.  And now, signs of improvement are starting to emerge.  According to Reuters, economists “raised their forecasts for Brazil’s growth in 2013 to 2.4 % from 2.35% previously.”1  Most analysts are expecting this number to remain the same and/or grow next year – the year Brazil hosts soccer enthusiasts for the FIFA World Cup.  And to the relief of most financial activists, inflation will stay at a stable 5.9% (from 5.85%).  For the land once associated with hyperinflation, this is not altogether bad news.

Other leading economic indicators are stable as well.  The exchange rate for the Brazilian real vis-à-vis the US dollar seems to have reached a level that is more favorable for Brazilian exports.  The current rate also helps with direct foreign investment (DFI), an important indicator for Brazil at this stage.  Interest rates for this part of the world are reasonable at 9.75% and industrial output is promising at about 2.65% for 2014.

Interestingly enough, the Xinhua Chinese news agency reported growth in 2014 to possibly reach 4%, even though this number seems overly optimistic.  The agency says:

The Brazilian government has forecast 4 percent growth in gross domestic product (GDP) and a target primary public-sector surplus of 2.1 percent in 2014.  Finance Minister Guido Mantega said meeting the projections, contained in the proposed 2014 budget sent to Congress Thursday, depended on economic activities in Europe and the United States.  Mantega admitted the 4 percent forecast was long-range and ambitious, given the problematic international economic climate, but said the figures would be revised again at the beginning of 2014.

Source: Xinhua.net / August 29, 2013

Even Banco Santander, the Spanish bank that is very active in Brazil, seems optimistic for 2014, but to a lesser degree than the Brazilian government (as noted above by the statements of Minister Mantega).  They cite GDP expanding 3% year over year in the second quarter of 2013 and retail sales growing 6% year over year in July as positives moving forward, but their forecast for 2014 remains fixed at 1.7%.   Bank executives were quoted as saying:

In terms of growth, the impact of much better-than-expected figures coupled with an increased probability of a modest recovery in business and consumer confidence have led us to adjust our forecast for GDP growth this year to 2.3% from 2%.  (2)

However, they also went on to note:

The outlook for 2014, on the other hand, remains characterized by significant challenges and unavoidable macroeconomic adjustments. Inflation is still expected to be 6.5%, which may require another round of policy tightening to start at the end of the year. We continue to see the Brazilian currency weakening toward BRL2.55/USD (per dollar), with GDP growth likely bearing the burden of the macroeconomic adjustment that we see as inevitable in the near term. In this sense, we maintain our 1.7% forecast for next year. (3)

Overall, the Capistrano Global/CGA view is optimistic and our internal sources call for 2.2% economic growth in 2014.  We cite the upcoming World Cup and Olympic games as factors for continued improvements in infrastructure, as well as a more stable exchange rate that will assist in Brazilian pricing abroad.  Still, Brazil will continue to have high internal demand in the form of consumer spending, but not at an uncontrolled rate.  So, inflation should remain at its current level and direct foreign investment should increase.  Brazil is a good bet in today’s world, among the best in the developing world.  Let’s not forget that Brazil is still one of the world’s largest and most significant economies, and it is rife with natural resources.  That is not likely to end any time soon.

End Notes:

1.  Reuters

Economic Forecasts for 2013/2014 – Brazil

(pct)                               2013                            2014

-                                       previous   new         previous  new

-                                       forecast    forecast  forecast   forecast

Consumer inflation   5.82           5.82          5.85          5.90

Exchange rate             2.36           2.35          2.40          2.40

Interest rate                9.75           9.75          9.75          9.75

GDP growth                 2.35           2.40          2.28          2.22

Industrial output       2.10           2.12          3.00          2.65

·      Source: Reuters / “Economists raise Brazil 2013 GDP growth forecast to 2.4 pct”

2. Goldman Sachs / Banco Santander

Banco Santander Raises Brazil 2013 Expansion Forecasts; Sees Challenges For 2014

By Rogerio Jelmayer

SAO PAULO–Economists at the Brazilian subsidiary of Spanish bank Banco Santander SA (SAN.MC) raised their outlook for economic expansion this year in Brazil, Latin America’s largest country, following a better-than-expected second quarter but highlighted remain challenges for the economy for the next year.

“There have been some positive surprises with Brazilian growth, with [gross domestic product] expanding 3.3% year over year in the second quarter and retail sales growing 6% year over years in July,” the bank’s economist team said.

“In terms of growth, the impact of much better-than-expected figures coupled with an increased probability of a modest recovery in business and consumer confidence have led us to adjust our forecast for GDP growth this year to 2.3% from 2%,” it said.

Despite the better forecast for this year, the bank pointed some challenges for Brazil’s economy for the next year, mainly due to inflationary pressures.

“The outlook for 2014, on the other hand, remains characterized by significant challenges and unavoidable macroeconomic adjustments. Inflation is still expected to be 6.5%, which may require another round of policy tightening to start at the end of the year. We continue to see the Brazilian currency weakening toward BRL2.55/USD (per dollar), with GDP growth likely bearing the burden of the macroeconomic adjustment that we see as inevitable in the near term. In this sense, we maintain our 1.7% forecast for next year,” Santander said.

The bank’s economist team is expecting the Selic rate to end this year at 9.5% and the central bank to increase the rate to 11% in the next year to try to contain inflationary pressures. The Selic rate is currently at 9%.

3. Ibid

America the Good: A Contemporary Reflection on a Historical Commentary – An Applause for Dr. Ben Carson

I had the distinct pleasure of attending an event featuring Dr. Ben Carson as a keynote speaker a few weeks ago in Kansas City.  Born in Detroit, Michigan and raised in a poor family, Dr. Carson went on to become the head of neurosurgery at Johns Hopkins.  Today, he appears frequently as a commentator on Fox News.  Dr. Carson gave an impressive talk about sustaining a pro-life stance, as well as providing a rendition about the status and condition of our great nation.  At the end of his speech, Dr. Carson quoted a famous French philosopher from the 1800s, Alexis de Tocqueville.  Citing Mr. de Tocqueville, Dr. Carson stated, “America is great because America is good.”  Hence it would follow that once America ceases to be good, it will also cease to be great.  Of all the elements that go into building a great nation, “goodness” was considered the leader.  Perhaps we should heed this advice.

So, what does it mean to be good?  In my mind it means the following: morals, principles, integrity, honesty, respect, dignity, justice and compassion.   Goodness is exemplified in conducting one’s life properly.  It incorporates elements of faith and responsibility, family and commitment.  It also includes a conviction about the foundational aspects that made this country exceptional.  The Merriam-Webster officially notes these terms as synonyms for goodness:

Characterdecencymoralityhonestyintegrityprobityrectituderighteousness,
rightnessuprightnessvirtuevirtuousness

Even though we live in a world that seems to increasingly advocate “relativism,” there is a fairly objective notion and standard attributable to “goodness.”  And when connecting this concept to faith and religion, Easton’s Bible Dictionary says that “goodness in man is not a mere passive quality, but the deliberate preference of right to wrong, the firm and persistent resistance of all moral evil, and the choosing and following of all moral good.”  It follows, then, that there needs to be a ‘deliberate preference of right to wrong’ so as to maintain a given position and a posture of goodness, for that implies an environment of morality, decency and virtue.  One could reasonably argue that we, as a nation, have drifted far off track with respect to goodness.

Even if it may seem hokey and nostalgic, and at the risk of being accused of pontificating, I believe that we can return to a base that once defined this country.  That is a base of goodness and morality.  That does not mean that we did not or will not make mistakes, because we are all human.  Mistakes happen and we are all fallible.  Thanks be to God, we can ask forgiveness.  I know that I am constantly in need of that grace and mercy that is only afforded by our Creator.  By the same token and if we strive for a certain moral position (as defined above), we can move toward the restoration of the foundational principles of this nation – principles outlined in the writings of the Founding Fathers.

Dr. Carson is indeed impressive.  He is as eloquent as he is bright.  He is as direct as he is genuine.  Having come from a poor family in Detroit (my own city of origin), his story of rising through the ranks and becoming one of the world’s most notable neurosurgeons is nothing short of amazing and miraculous.  It is – indeed – a story of which we can be proud as Americans.  For his life and testimony underscore what it means to be a great citizen and to support the principles upon which this country was founded. Just in case you were wondering about his achievements, Dr. Carson is acknowledged for his successful separation of conjoined twins at the head while practicing neurosurgery.  Yes, he is a brain surgeon and his achievements are extensive and sizeable.

I consider Dr. Carson to be a great American and a wonderful example to all of us.  He is courageous enough to share his thoughts about what can be done for the restoration of this country as a true beacon of light.  He is idealistic and hopeful that we can return to greatness.  By the same token, he is not overly optimistic.  He understands that it will take real work to get there.  It will not only take more education, but better education.  It will not just mean a little sacrifice, but a lot of sacrifice.  It will not be a scenario of handouts, but a situation of helping hands.  Moreover, it will take great fortitude and prayer for those of us in the silent majority to stand up and reclaim our country.  May God bless America.

“America is great because she is good. If America ceases to be good, America will cease to be great.”

Alexis de Tocqueville

What’s the Deal with Rail in Brazil? Are there any Projects Worth Exploring for U.S. Companies?

Most people and entities involved in exploring the railroad business in Brazil have a similar question: What is going on there?  I am often asked, ‘Is there any real business there worth exploring?’  With the on-again, off-again nature of the rail industry in Brazil, as well as the many underlying problems and issues – from wide gauge to narrow gauge, and from indecision on funding to indecisiveness of location, the Brazilians are still moving forward.  Now, it may not be in a way that American companies like or desire, but there is some activity – at least on the heavy haul side.  Given the natural affinity and likeness between Brazil and the United States (even if we don’t immediately recognize it), it is imperative for U.S. companies to continue to push for business in the land of the Carioca.  

Brazil is home to nearly 200 million people and its land mass is nearly as large as the contiguous United States.  It is rich in everything from iron ore to soybeans and from oil to corn.  Brazil is a leader and innovator in many other fields and areas as well, not the least of which include food processing, biofuels, alternative energy and the pulp & paper industry.  Brazil also has some of the brightest minds in the hemisphere.  It is a hard-working nation that is on the cusp of becoming a true economic global power with which to be reckoned.  In fact, it is already the sixth largest in the world in terms of nominal GDP.  It will host next year’s World Cup, and from the performance of World Youth Day and the Confederation’s Cup this year, it will do a darn good job.  It will follow with the Olympics in 2016 and its prospects are great (despite the economic naysayers).  However, one big challenge – apart from the onerous tax structure – is the transportation of goods.  It is too high and needs a dramatic overhaul. 

The good news is that Brazil is attempting to improve its heavy haul footprint.  On a recent trip to Brazil, I met with some procurement managers for large companies involved in the rail business.  I discovered that one of the country’s premier contractors, Camargo Correa, has been awarded a large contract from Vale (the mining giant).  While Brazil has some very capable and competent railroad experts, there is still a shortage of actual work experience in terms of completing heavy haul lines in recent years.  There have been examples of other lines for the iron ore industry with companies such as CSN in the north of the country (in Fortaleza via the TransNordestina project), but work has been sporadic and disconnected to some degree.  Not helping the matter is the fact that the government engineering organization for rail, VALEC, has had its shake-ups and restructuring in recent years.  Still, there is great promise for the expansion of heavy haul in Brazil. 

But as Americans, we should keep in mind that heavy haul expertise and experience is plentiful in the U.S.  Given that as a backdrop, the Brazilians continue to defer to AAR (American Association of Railroads) and AREMA (American Railway Engineering and Maintenance of Way Association) for their standards.  Safety, cost-effectiveness, efficiency and environmental compliance are just a few of the positive and even extraordinary elements associated with the AAR.  AREMA’s mission is as follows: the development and advancement of both technical and practical knowledge and recommended practices pertaining to the design, construction and maintenance of railway infrastructure.  Notwithstanding a strong European lobby, as well as effective penetration on the rolling stock side by the Chinese and Koreans, the affinity between the U.S. and Brazil rings loudly.  By the same token, we – as Americans – should be aggressively present in the market so as to take advantage of the natural and complimentary elements between our two countries.

When going to Brazil we should keep this in mind: The resemblance between the two countries in terms of natural resources and abundance is striking, regardless of the language barrier.  The key points to success are patience, continuity and integration.  We need to understand and accept that things work a bit differently in Brazil, even if there are the natural affinities (to which we have made reference in this article).  However, persistence is fundamental.  It helps to have an actual and tangible presence in Brazil, as well as to keep that presence consistent over the course of a few years.  In this way, we – as Americans – convey our seriousness and commitment to the market.  Why should we do this?  Because Brazil is worth the investment, at least in the long run.  But, that is not something that many of our companies like to hear.  Having said that, it is worth exploring in more detail.

According to Hamilton Freitas, the former CEO of the Rio Metro system and a current partner with the high profile and well-respected law firm of Bastos-Tigre, the situation is quite pronounced with respect to the necessity for a better rail system in Brazil.  He says:

Brazil is realizing that railroad is the best option for cargo transportation (with better prices).  This also can take many trucks from highways and improve urban mobility.  Everybody in the country is thinking about rail. This topic is on President Dilma’s agenda as a priority.

Following this line of thought, here are some of the details of an upcoming heavy haul project that could be of interest to U.S.-based rail contractors and related companies.  This is information that we have obtained through credible sources, but it may have changed somewhat in recent days.  Nonetheless, this will serve as an indication of the general size and scope of a $1.5 billion project that is 890 kilometers in length.

Project Size and Scope from Maraba’ to Para’: 

  1. It is 890 kilometers long
  2. It goes from Sao Luis in Maranhao to Maraba’ in the state of Para’
  3. It is a 1.6 gauge heavy haul line
  4. There is an existing line throughout with double rail at various intervals; this project would complete the “duplication” or “doubling” so that a dual track would exist throughout
  5. The General Contractor is Camargo Correa and the owner is Vale (the large mining company)
  6. It is all ballast; ties and rail will be provided by Vale
  7. The ties are concrete
  8. The budget is $1.5 billion US

 It is our belief Camargo Correa is now considering a wide variety of U.S. suppliers.   Additionally, Camargo Correa may still be seeking specialized rail equipment.  It is understood that companies such as Placer and Harsco have been consulted, but there is still a lot of room for market entry.  Nevertheless, time is precious and short.  So, anyone wishing to make an impact on this project should be in motion very soon.  

Apart from the Camargo Correa-Vale project, there are others of import.  Attorney Freitas (referenced above), along with his senior partners, Heitor Bastos-Tigre and Luciano Campeo, note the following:

We also have Salvador’s metro project that will soon be announced in the paper.  Salvador is the capital of the state of Bahia in the northeast of the country.  Another rail project that will be announced later this year is a railroad between Açailândia (state of Maranhão) and Barcarena (state of Para’), also in the north of the country.  It is just 457 kilometers of railway out of a total of 11,000 kilometers that the Federal Government intends to release for bid in the country.  In the south we have the project of the Coastal Railroad in the State of Santa Catarina (250 kilometers). In the southeast of the country, in the city of Belo Horizonte (state of Minas Gerais), there is a proposed project to have a railroad encircling the city (130 kilometers).  So, there is much work to be done.

Mr. Bastos-Tigre, the senior partner of the firm that carries his name, goes on to stress the necessity of finding the right partner in Brazil.  To him, that is an imperative component of becoming a viable player in Brazil’s growing rail sector.  He says, “Having the right partner in Brazil can present a great opportunity for U.S. companies in this area.”  In essence, there is a lot of available work in the rail industry in Brazil, and American companies are an ideal fit.  It is simply a matter of figuring out the proper mode of entry.

Generally speaking, market entry in the railroad sector in Brazil is up to us.  They (the Brazilians) are very receptive to our involvement, but they would like to see a real, long-term commitment.  They know our expertise in terms of heavy haul and they just want to verify that we have the staying power and commitment to see it through.  Do we have the patience, persistence and foresight to take advantage of it?  I believe it is worth the challenge.

Good News for Fracking: Clean Water is Possible

Images of protesters wearing t-shirts that proudly display the “No Fracking” symbols are prevalent on the Internet.  The notion that fracking is harmful to the planet seems pervasive.  Fracking, otherwise more formally known as hydraulic fracturing, is sometimes defined as follows: it is the process of drilling and injecting fluid into the ground at a high pressure in order to fracture shale rocks to release natural gas inside (according to www. DangersOfFracking.com).  This activist website also states, “Each gas well requires an average of 400 tanker trucks to carry water and supplies to and from the site.”  Furthermore (and again according to the site), “It takes 1-8 million gallons of water to complete each fracturing job.”  It is thought that there are more than 500,000 active gas wells in the United States.  The claim is that chemically harmful water in fracking “leaches out” to contaminate nearby groundwater, thereby affecting drinking water.  So, if this is correct, is there any hope?

A scientific breakthrough seems to have occurred with a company in Stockton, California.  That company, American Micro Detection Systems (“AMDS”), has developed two innovative products that detect both harmful metals and harmful chemicals to the parts per billion level.  For those of us who are not scientific (i.e., the author of this article), that is a very precise and unprecedented level of detection.  The company has two devices to assist with potentially contaminated fracking water: REX and ToxicAlert.  REX is dedicated to the detection of metals, while Toxic Alert identifies chemicals.  REX is currently being manufactured and distributed, while ToxicAlert is expected to be on the market very soon.  According to AMDS’s execs, REX and Toxic Alert have the following attributes:

AMDS’s units allow companies to detect toxic metals and other hazardous chemicals in water.  This is done in a cost-effective and efficient manner, using one of the specialized devices produced exclusively by AMDS.  In essence, AMDS manufactures innovative and state-of-the-art water analysis instrumentation that allows for autonomous monitoring of fluid flow streams at the source of interest.  

So, when translated into laymen’s terms, this means that fracking companies can quickly, effectively and efficiently identify any harmful and/or disturbing anomalies in the water that has been used for fracking.  That water can then be separated between the “good water” and “bad water.”  The bad water can be treated on site or off site, and the good water can be reused.  Again, the key is to clearly identify any and all potentially harmful contaminants.  AMDS does this in an incredibly sophisticated and detailed manner, leaving very little – if anything – to chance.  The use of these two systems will permit fracking companies to evaluate water on site and for a very low price, while allowing concerned citizens to be more at ease.

For more information about AMDS, feel free to visit their website at http://www.amdsinc.com.

Plastics Sector Alive and Well in Brazil: A Quick Automotive and Transportation Perspective – “RIM” Identified

According to most analysts, the plastics sector is growing by leaps and bounds in the burgeoning Brazilian economy.  The acquisition of Sunoco Chemicals in the United States by Braskem of Brazil has assisted in creating the number one producer of thermo-plastic resins in the Americas.  This has not only positioned Braskem to become an even larger and more significant venture partner of Petrobras, but it has also solidified a growing role for the huge construction concern in the region, Odebrecht.  According to an online Odebrecht newsletter, ‘Braskem is jointly owned by Odebrecht and Petrobras, and Odebrecht has a 50.1% share of voting stock in Braskem.’  But not only the big players are advancing in this sector, the small and mid-sized companies are on the rise as well, many in the automotive and transportation arenas.

In 2007, the Massachusetts Office of International Trade and Investment (“MOITI”) noted the following about the Brazilian Plastics Industry: 

With a population estimated at 184 million inhabitants, Brazil’s per capita plastic consumption was approximately 25 kilos in 2006, or almost 2 kilos higher than in 2001. The Brazilian plastic supply chain is renowned for its high technology as well as for the qualification of its human resources. It is composed of Petrobras (national oil producer), 3 Naphtha-based Petrochemical Complexes, 1 Natural Gas-based Petrochemical Complex, 14 Thermoplastic Resin Producers and over 8,000 plastic converters nationwide.  With more than 8 thousand plastic transformation companies, it is an important market for plastic production machine/equipment and related products including molds, sensors, controls, hot runners, industrial automation, plastics raw materials, etc.

Notwithstanding this news, however, Brazil still imports much more plastic than it exports.  When analyzing the views of most industrial sector experts, this does not make much sense, especially when considering that Brazil is an oil-exporting nation.  In June of 2010, the President of the National Association of Plastics Industries, ABIPLAST, stated that Brazil must “consolidate” in order to have a greater effect and impact on the world stage.  In fact, the Latino Business Review reported:

Jose Ricardo Roriz, the president of the Brazilian national association of plastic industries Abiplast, recently told news sources, the industry, which is comprised of 11,200 companies throughout the country, has been working to increase its export levels, but over the last two years, it has run a deficit of close to one billion American dollars.

Last year, according to various news sources, Brazil’s output of plastic products totaled 5.19 Mt, up one percent from 2008, generating revenues of 35.9 billion reais ($19.6 billion American dollars). Reports stated that Brazil’s apparent consumption reached 5.38 Mt, a 1.6 percent increase.

·      Source: Latino Business Review, A. Verdin, June 2010

To hone in and reflect on the foreign presence in the Brazilian auto industry, many international plastics-oriented companies continue to spread their influence.  Arburg Limitada do Brasil, the Brazilian subsidiary of a large German manufacturer of plastic injection molding machines, became a “top supplier” of Delphi in South America in 2010.  It was also recently reported that U.S.-based Ampacet, the world’s leading supplier of color and additive masterbatches, plans to expand significantly into Brazil in 2011.   But while a plethora of other U.S. and international companies make-up a large part of the landscape in the Brazilian plastics industry, mid-sized Brazilian-bred entities are quickly emerging.  Those companies include the likes of Plasticos Maua’ and Tapevel, just to mention a few.  As a result, we decided to take a closer look for ourselves.

After extensive research, personal interviews and on-site visits to some of the leading companies, our firm has developed a quick snapshot of some of the primary automotive plastics suppliers in Brazil.  This list is certainly not exhaustive in nature, and it merely represents a sampling of both Brazilian-led and foreign-owned companies in the transportation arena.  The following is a select group that appear on our radar screen and that we have chosen to highlight: 

a.     Plasticos Maua’: Located in the Santo Andre’ Region of Sao Paulo, this company that specializes in plastic injection molding is one of the foremost leaders in terms of its internal production machinery, overall organization and product mix.  It is considered one of the best in the region.  Its principal owner is well into his 70s, but he is astute and clever, and understands the business from the bottom up.  Plasticos is currently quoting on an extensive roof rack system for Ford of Brazil.  The company is Brazilian owned and is considered financially sound.  (Our internal market intelligence tells us that Plasticos has been approached by various foreign-owned entities as an acquisition target, but has thus far refused.)

b.     Tapevel: This company, with plastic injection molding facilities in the states of Parana’ and Sao Paulo, is a supplier to FIAT, GM of Brazil, VW of South America and others.  It is both an OE and aftermarket supplier, manufacturing soft covers, roof racks, sports pedals and body kits.  It is a company eager to expand and grow, and its mid-aged and highly motivated CEO has great vision.  Tapevel is Brazilian owned and could be an ideal partner for a U.S. entity looking to enter the Brazilian market.  (Our internal market intelligence indicates that Tapevel could be a great potential joint venture partner for a U.S. firm.)

c.      Seeber Fastplas: Part of the Rochling Plastics Group in Germany, Seeber Fastplas (located on three sites in Sorocaba, Diadema and Sao Jose dos Campos in Sao Paulo, Brazil) is a powerhouse in terms of the local manufacturing of plastic components for the automotive and transportation industries.  It makes engine air intakes, interior air intakes, controllable air guides, lightweight fluid pumps and much more.  Fastplas is considered one of the best in Brazil.

d.     Mueller Mineira: Purchased in 2009 by Magneti Marelli of Italy (a divison of FIAT), Mueller is considered a diversified, high-quality producer of plastics components.  In the light and heavy truck markets, it manufacturers plastic sun visors, shelves, glove boxes and front grills.  Mueller has an extensive client list, not the least of which are Iveco, Scania Truck, Volvo, GM and Ford.  Mueller is believed to be one of the most advanced plastics technologies suppliers in the Brazilian marketplace. 

e.     Plascar Group: Plascar is a publicly traded company on the Brazilian stock exchange.  Its principal owners are Permali do Brasil and Maxima (institutional investors).  It possesses “Woodstock” technology (along with other technologies) and it makes door panels and package trays, as well as a variety of other components.  Some of the other products it manufactures include: bumpers for GM do Brasil, GM Argentina, Renault, Scania, Toyota and Volkswagen; instrument panels for FIAT, Iveco, MAN and Mercedes Benz; and, rearview mirrors for Renault in Brazil.  The company has 2,600 employees, 200 of which are engineers.  Plascar is located in Jundai, Sao Paulo.  In late 2010, Plascar acquired 100% of Plastal S.A. in Descartes, Argentina.

Entities such as Fastplas are also known as leaders in the field of reaction injection molding (“RIM”) and reinforced reaction injection molding (“RRIM”) in Brazil.  It is reported that Fastplas has a significant relationship with Volkswagen as well.  In fact, Dagoberto Capuzzo, the Engineering Manager of Fastplas, said his department had to develop more than one hundred projects, all different parts, for immediate production. “From these pieces, much is [with] RIM or RRIM, processes in which we specialize,” he says.

Although the use of rigid polyurethane is less widely used in automobiles and trucks in Brazil (certainly less than flexible polyurethane), rigid polyurethane has evolved in South America.  It now plays a leading role in reinforced plastic parts manufactured via the RIM process.  Other companies such as Jetpol are developing airfoils and are putting their faith in the RIM process.  According to Bidi da Silva Junior, the director of Jetpol, he says:

Our expertise comes from developing fenders on RIM for bikes such as the Twister 250, but already we have news for 2006 with the same process and new products.

A leading plastics industry study in Brazil goes on to say the following:

The company [Jetpol], which also makes parts for RIM and RRIM (especially for Mercedes-Benz), but focuses much of parts production in whole or in rigid polyurethane integral skin in the form of knobs for buses, trucks and passenger vehicles, seal fenders, tops, arm-rests, door knobs, etc.

In the same study, Klaus Dieter Schnur, the Director of Blitz Plastics added, “No matter the process or the desired characteristics for the final piece, any piece for automotive application requires a high technical level of production.  In the general case of using polyurethane, consider that the material is being increasingly used.”

From a car production perspective, automakers in Brazil “have been blessed by a combination of new models, lower credit costs and a tax cut, which combined to take 7.4 percent off the sticker price of popular car models.”  (People’s Daily Online, October 2009).  Brazil also sold over 3 million units of motor vehicles in 2009, and the country posted its single best car month ever with a record-breaking sale of 308,718 vehicles in September of 2009.  (Ibid).  Meanwhile, ANFAVEA, the Brazilian National Association of Motor Vehicle Manufacturers, noted that overall car production in Brazil increased 14.3% in 2010.  ANFAVEA also expects vehicle sales to top 3.7 million units in 2011. 

Whether it is in automotive, heavy truck or food packaging, Brazil is not to be underestimated when it comes to plastics.  The country is known to consume several billions of dollars of plastics each year, and that number is growing rapidly.  Given the upcoming World Cup in 2014 and the Olympics in 2016, there is no slowdown in sight for Brazil.  Brazilian companies are also on the cutting edge of new versions of “bio-plastics,” soon to hit the market with great enthusiasm.  Keep your eyes focused on Brazil as we jump into the next decade.

What’s Next for Brazil? Slowing Growth, Yet Prosperous

The clouds float gently atop the city today as it prepares for the arrival of Pope Francis.  The magnificent Sugar Loaf Mountain – Pao de Acucar – peers over the bay as it hovers majestically above Rio’s citizens.  It is winter vacation for the country’s students and everything is moving just a little slower than usual.  Translated: there is less traffic than normal.  Perhaps it is the expectation of the first Latin American pope that will descend upon this wonderfully endowed city in a few days, or maybe it is just that the Confederation’s Cup is now over and the Brazilian national team (a Selecao Brasileira) was victorious over an otherwise undefeated Spain.  In any event, Rio is in full force and poised to welcome the world.  Despite the challenges that the country faces in infrastructure, taxes and political uncertainty, it is still thriving.

Economic indicators for the country are not as good as originally expected in 2013 and next year is shaping up to be lackluster as well.  There seems to be a general sense of disappointment with President Dilma, and official – as well as unofficial – corruption is still present.  Critics even tell me that President Dilma has backed off of pressing for more reforms for fears that skeletons may emerge from the closet of former populist president, Lula – a president that she served prior to getting the nod to lead the country.  Notwithstanding all of this, the country is somehow thriving and it performed admirably during the FIFA soccer Confederation’s Cup just weeks ago, with little to no major delays or significant issues.  As one friend told me yesterday, ‘there were some long lines and the tickets were expensive, but many of my friends attended the matches and those experiences were both positive and enjoyable.’  Even considering Brazil’s challenges and maladies, it is still capable and competent.  It is still a country that is rich and replete with hope, generosity and hospitality.

Like many countries (including those us of living in the U.S.), Brazil is a country of contradiction.  The oxymoronic references are plentiful: It is rich and poor, urban and rural, hospitable and dangerous – all at the same time.  It has succeeded at avoiding the hyperinflation days of the 80s, but it is still very expensive to live here.  Prices in the Jardins District of Sao Paulo for instance can be as high as $1,000 per square foot.  A new pair of Nike tennis shoes in Rio or Curitiba or Porto Alegre could cost as much as $350.  A replica soccer shirt for one of the popular Brazilian futebol teams fetch beyond $120.  In essence, it is very, very expensive to live here.  It is no wonder that so many Brazilians take frequent shopping excursions to Miami, New York, Houston and Dallas.  It is cheaper to pay for a round-trip plane ticket and stock up on American goods than it is to travel a few miles from home to make a major purchase.  This is good for the U.S. (and the Chinese who supply much of what we sell in our stores), but it is not necessarily good for the Brazilians.

One of the major responses from the Dilma government has been to somewhat vilify the United States and blame the U.S. for a fiscal policy that is hurting Brazil.  But Brazilian taxes are exorbitant and largely unjustifiable.  The complicated tax regime in the beautiful land of the Carioca often forces people to find loopholes and shortcuts.  The money collected by the government is not placed into infrastructure quickly enough, so key elements such as transportation tend to be extremely expensive.  This scenario discourages business investment and encourages capital flight – both with the individual consumer as well as with the large companies.  Still (and reflecting on the earlier comments about contradiction), margins are high for companies that choose to operate here.  The Brazilian consumer is probably among the most active in the world.  Brazilians continue to spend despite the price hikes and constant increases.  We in the United State understand some of this as we now witness and experience some of the highest corporate tax rates in the developed world.  Nonetheless, Brazil’s scenario is a bit more visible and pronounced – at least arguably.

But Brazil has promise and optimism.  Some of this is inherent to the generally joyful citizens that inhabit the country, while some is also attributable to large holdings of iron ore, nickel, copper, oil & gas.  Brazil still has some of the most expansive and fertile agricultural areas on the planet.  One simply need to tour the endless sugar cane plantations and corn fields to get an idea.  Brazil is even known to be feeding China with chickens from the state of Parana’, and it is being courted by various countries in the Middle East to ensure some degree of food security there as well.  Brazil produces some of the most impressive amounts of hydro energy on the planet, supplying much of Latin America.  To top it off, Brazil is home to the World Cup in 2014 and the Olympics in 2016.

Having said all of this, Brazil’s most important asset is in its young people.  I have found young executives in the country to be highly competent, well educated and hard working.  Most also speak of a true love for their country, often referred to as ‘saudade’ when a Brazilian is out of his/her homeland (roughly translated as ‘a longing for one’s country’).  There seems to be a deep-seeded desire to improve living conditions for the poor, create employment and implement long lasting social reform.  At the same time, Brazilians have a wonderfully ingrained entrepreneurial spirit and they are indelibly creative.  Younger Brazilian executives tend to be very attentive to detail and they have a profound understanding of the tasks they are performing at work and for companies.  They are, indeed, the future of this country.

So, what does this all mean?  From my perspective, Brazil will continue to grow.  Walking the streets, touring factories and speaking with business people makes clear to me that business is growing, even with all the challenges.  Tower cranes are everywhere and jackhammers are pounding.  The streets are bustling and people flock to the malls.  Restaurants are full, cars are being sold and oil is being drilled.  Agricultural lands are productive and iron ore is being mined.  The general population is increasing its buying power and more citizens are entering the middle class each and every day.  New homes are selling and demand remains high.  Planes are full and business is bustling.  Based on all of this, as well as some very convincing empirical data, my guess is that Brazil will continue to grow over the course of the next several years.  There may not be the “trickle down” that was originally desired, but the country will find a way to consistently renew itself.  Hats off to Brazil.