Last month I was in Brazil and wrote a post addressing the “leisure” part
of the trip. Refer here. Towards the end of the post, I promised to share more about the culture
of the country later, which I will do today.
of the trip. Refer here. Towards the end of the post, I promised to share more about the culture
of the country later, which I will do today.
Most contents of this post are contributed
by the views of my Brazilian colleagues/ associates and also from what I
already know about Brazil several years back. As a matter of fact, I cannot
guarantee that some information may be biased or even not factual. Of course I
did verify some information from the net. Yet, nothing beats the experience of
being there and hearing from locals. This is so different from just reading from
the net or watching over TV alone, from the beginning.
by the views of my Brazilian colleagues/ associates and also from what I
already know about Brazil several years back. As a matter of fact, I cannot
guarantee that some information may be biased or even not factual. Of course I
did verify some information from the net. Yet, nothing beats the experience of
being there and hearing from locals. This is so different from just reading from
the net or watching over TV alone, from the beginning.
Presidential Election & Economic Woes
I will start with last weekend Presidential Election. Incumbent Dilma
Rousseff was elected into her second four year term. Brazil budget deficit
worsens under Ms Rosseff’s government whose fiscal policy comprised of public
spending and tax cuts to boost economy. The government continues to face
daunting task to tame high inflation (>6.5%), attract investments and revive
lacklustre economic growth (<1% ).
Rousseff was elected into her second four year term. Brazil budget deficit
worsens under Ms Rosseff’s government whose fiscal policy comprised of public
spending and tax cuts to boost economy. The government continues to face
daunting task to tame high inflation (>6.5%), attract investments and revive
lacklustre economic growth (<1% ).
Brazilian market suffered 4.5% on the first day after the election
result. In particular, scandal plagued- state-owned oil giant Petrobras viewed as a victim under Rouseff’s interventionist approach,
fell 12% in share price on Monday. Many attributed Rousseff’s win from her
welfare policy to the poor. Majority of her winning votes came from about 40%
of Brazil’s 200 million people with household income of <US$700 a
month.
result. In particular, scandal plagued- state-owned oil giant Petrobras viewed as a victim under Rouseff’s interventionist approach,
fell 12% in share price on Monday. Many attributed Rousseff’s win from her
welfare policy to the poor. Majority of her winning votes came from about 40%
of Brazil’s 200 million people with household income of <US$700 a
month.
Safety Problems
The biggest problem of Brazil is safety. One colleague is considering
shifting to USA because of the safety of the country. I was told that after the
World cup, more and more mafia migrated to the city area and crime rates
escalated. Below two real life examples told to me while I was in Brazil.
shifting to USA because of the safety of the country. I was told that after the
World cup, more and more mafia migrated to the city area and crime rates
escalated. Below two real life examples told to me while I was in Brazil.
Real Life Case 1 – Kidnapped
A business associate local Brazillian told me that half year ago, he was
waiting to fetch his son from school. While waiting in his car, kidnappers
approach him with gun pointing at him. The kidnappers boarded his car and
direct him to drive to an ATM. All money was withdrawn and in return the
kidnappers gave him 20 Brazil Reals (S$10) to take taxi.
waiting to fetch his son from school. While waiting in his car, kidnappers
approach him with gun pointing at him. The kidnappers boarded his car and
direct him to drive to an ATM. All money was withdrawn and in return the
kidnappers gave him 20 Brazil Reals (S$10) to take taxi.
Real Life Case 2 – Robbed and Shot
My colleague’s friend, an expatriate working in Brazil was shot. The
victim was at a road junction halted by traffic lights. Robbers approached with
a gun, and hijacked his car. It is natural that he chased his stolen car afterwards.
Tragically, the chase let to a gunshot killing the victim.
victim was at a road junction halted by traffic lights. Robbers approached with
a gun, and hijacked his car. It is natural that he chased his stolen car afterwards.
Tragically, the chase let to a gunshot killing the victim.
Corruption
Corruption alone costs Brazil almost $41 billion a year. One high
profile scandal this year comes from state own oil company Petrobras, with employees
alleging receiving $139mil of bribes from Dutch FPSO supplier SBM. The US$66bil
road project and millions more poured for the 2014 World cup and 2016 Olympics
also raised many eyebrows. Corruption is a major problem most developing
countries faced. Brazil’s “BRIC”’s counterpart China is doing their utmost to
curb corruption lately and Brazil had already follow suit earlier in order to
have a more efficient government. President
Dilma Rousseff adopted a strong stance against corruption in government. From
2003 to 2012, the federal auditor’s office charge and fired more than 4,000 employees with most
stemming from charges of corruption and dishonesty.
profile scandal this year comes from state own oil company Petrobras, with employees
alleging receiving $139mil of bribes from Dutch FPSO supplier SBM. The US$66bil
road project and millions more poured for the 2014 World cup and 2016 Olympics
also raised many eyebrows. Corruption is a major problem most developing
countries faced. Brazil’s “BRIC”’s counterpart China is doing their utmost to
curb corruption lately and Brazil had already follow suit earlier in order to
have a more efficient government. President
Dilma Rousseff adopted a strong stance against corruption in government. From
2003 to 2012, the federal auditor’s office charge and fired more than 4,000 employees with most
stemming from charges of corruption and dishonesty.
Income & Housing Cost
I was told that Middle class educated employee earn about US$3k per
month in Rio. Housing cost is about US$150k for a 100 sqm flat, taking 20 year government
loan at 6% interest p.a. Private interest is 12%.
month in Rio. Housing cost is about US$150k for a 100 sqm flat, taking 20 year government
loan at 6% interest p.a. Private interest is 12%.
Healthcare & Education
Public healthcare and Education is free, but quality is below mediocre.
Most middle class or affluent Brazilians have private health care coverage and
send their kids to private schools.
Most middle class or affluent Brazilians have private health care coverage and
send their kids to private schools.
Complex Tax Structure
Tax is very high and the structure is complicated. This makes doing business
in Brazil not the easiest, especially for new foreign companies. Profits can
easily be wiped without proper understanding of the country’s tax laws.
in Brazil not the easiest, especially for new foreign companies. Profits can
easily be wiped without proper understanding of the country’s tax laws.
Local Content Issues
There are also local content criteria in most businesses, which make the
employment of locals, buying from local suppliers and fabricating within the
country mandatory.
employment of locals, buying from local suppliers and fabricating within the
country mandatory.
For instance, Petrobras opened a tender for a Rig to be built in Brazil
with e.g. 80% local content criteria. Let’s say Rig builder Keppel Fels Brazil
was awarded the contract. This means that the newbuild rig is required to have
80% of materials, labour or equipment purchased/fabricated within Brazil.
Specialized equipment that cannot be sourced within Brazil can receive a waiver
from the local content requirement.
with e.g. 80% local content criteria. Let’s say Rig builder Keppel Fels Brazil
was awarded the contract. This means that the newbuild rig is required to have
80% of materials, labour or equipment purchased/fabricated within Brazil.
Specialized equipment that cannot be sourced within Brazil can receive a waiver
from the local content requirement.
This is an injection measure to attract foreign direct investments and
create jobs. But bear in mind that Brazil had grown at an astounding rate in
the last ten years. Specifically, after the massive discovery of deepwater oil,
Petrobras had invested billions of new vessels, equipment, and technology.
create jobs. But bear in mind that Brazil had grown at an astounding rate in
the last ten years. Specifically, after the massive discovery of deepwater oil,
Petrobras had invested billions of new vessels, equipment, and technology.
Can the local workforce catch up with the pace of growth? Had the
country spend enough on education (at its core) to prepare for the future? Not
a mere 10 years but 50 years ahead.
country spend enough on education (at its core) to prepare for the future? Not
a mere 10 years but 50 years ahead.
The answer is “NO”, as there were inadequate training and major projects
run into delays and cost budget burst. Brazil oil production flattened out
after years of increases and Petrobras became the most indebted oil company in
the world.
run into delays and cost budget burst. Brazil oil production flattened out
after years of increases and Petrobras became the most indebted oil company in
the world.
A Country of Resources
Despite the problems faced, Brazil is the largest national economy in
Latin America with abundant natural resources, such as oil, coffee, iron ore,
steel, silver, copper etc. Aside from natural resources, food in Brazil is also
very cheap due to the country producing lots of meat such as chicken, beef etc.
I was told that “1 kg of chicken cost
US$1 in Rio”.
Latin America with abundant natural resources, such as oil, coffee, iron ore,
steel, silver, copper etc. Aside from natural resources, food in Brazil is also
very cheap due to the country producing lots of meat such as chicken, beef etc.
I was told that “1 kg of chicken cost
US$1 in Rio”.
It is also exporter of footwear “Havaianas” which is Portuguese for
“Hawaiians”. It started in 1962 meant to be a shoe for the poor people made of
rubber. I bought one pair of flip flops there too.
“Hawaiians”. It started in 1962 meant to be a shoe for the poor people made of
rubber. I bought one pair of flip flops there too.
Rolf’s View
Everyone in Brazil knows that Brazil wanted to be “World Best” in lots
of things. Petrobras wanted to be the number 1 oil company, hence non-stop “drilling”
depleting existing oil fields, rather than slowly and sequentially dish out oil
production. Maintenance of oil field is often neglected which many industry
people doubt the extended life of the oil field.
of things. Petrobras wanted to be the number 1 oil company, hence non-stop “drilling”
depleting existing oil fields, rather than slowly and sequentially dish out oil
production. Maintenance of oil field is often neglected which many industry
people doubt the extended life of the oil field.
After hosting the World Cup this year, there will be 2016 Olympics.
Another indication of typical Brazil’s eagerness to show the world, that they
are capable of hosting two largest sporting events on this planet within a
short space of time. I was driven past
the Olympic village and it appears that it is still in preliminary construction
stage with not many workers around. To think that 2016 is not too far away from
today!
Another indication of typical Brazil’s eagerness to show the world, that they
are capable of hosting two largest sporting events on this planet within a
short space of time. I was driven past
the Olympic village and it appears that it is still in preliminary construction
stage with not many workers around. To think that 2016 is not too far away from
today!
While there are many areas need to be improved, Brazil is a beautiful
country with beautiful people. It is by far, one of my favourite countries
visited too. Within the “BRIC”, I ranked Brazil second in potential after
China. It has better infrastructure than India, and less corrupted than Russia.
In fact, corruption in Russia remains “not a
problem, but a business”.
country with beautiful people. It is by far, one of my favourite countries
visited too. Within the “BRIC”, I ranked Brazil second in potential after
China. It has better infrastructure than India, and less corrupted than Russia.
In fact, corruption in Russia remains “not a
problem, but a business”.
I hope that Brazil can do well and increased her contributions to the
world economy in a sustained manner. The future is still bright.
world economy in a sustained manner. The future is still bright.
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Hi Rolf
Thanks for sharing on the south american continent.
I know almost nuts about brazil economy other than the fact that they are part of bric, used to hv a lot of optimism in the past but hv somewhat died off due to lower growth expectations of the many things you mentioned., corruption etc.
Hi B,
Thanks for the comment. 🙂
Anyway Brazil is too far away from us. However if you invest in funds (emerging) then probably you need to know more. I remember I was strongly recommended to buy a fund many years back and Brazil is the selling point.
Rolf
Thank you for the insight on Brazil situation. Companies like Semb Corp Marine and Vard are having problems establishing their yards there, with the latter facing tax issues, unskilled workers, operational efficiency and many more cost overruns. I feel that until their gov decide to clean up their act, Brazil remain a rough unpolished gem and will ever fulfill their potential.
Hi Anonymous,
Thanks for the comments. You are absolutely spot on. Cost overrun is so common. Not only for foreign establishments in Brazil, but local Brazilian company. Actually Sembmarine and Vard are still not too bad if you consider Brazilian company OSX (shipyard also) already filed for Bankruptcy earlier.
In particular, Keppel did very well in Brazil with BrasFELS. I heard a friend who was stationed in BrasFELS for 5 years before. The focus in Training and Development is core reason of the more success over its compatriots.
Rolf
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