This is a review of a paper written by Saïd Farhat for several customers of Semprel, his lobbying company. Farhat prepared it in English for the benefit of his clients who couldn't speak Portuguese but have huge interests in Brazil. A longtime Federal civil servant, Farhat began his career with the Brazilian Geographical and Statistical Institute (IBGE), in the country's remote Northwestern territory of Acre, now a full-fledged State (IBGE is Brazil's census bureau).
When he was done with the IBGE, he joined a major Brazilian advertising company where he designed and directed public opinion surveys and later managed agency offices in London and elsewhere. After a stint as an executive of the Vision Publishing Group, he acquired its Visão magazine whose publisher and editor he became; several of his editorials earned him the animosity of the Army brass at a difficult time of the military dictatorship (that ruled Brazil from 1964 to 1983).
With the sale of Visão, Farhat felt free to offer his remarkable social and political talents to a presidential candidate, General João Batista Figueiredo as a PR adviser. He managed to change radically Figueiredo's image, carving for him a civilian niche and placing him much closer to the Brazilian electorate. When Figueiredo was elected, the last Army general to serve as president, Farhat was appointed Minister of Communications and did a commendable job, but again got on the wrong side of the armed forces which forced his resignation. After a brief political and unsuccessful fling as a candidate to the Senate from Acre State, Farhat established semprel.
Brazil has the fourth or fifth largest land area [3.3 million square miles] in the world, depending on how you compute and place the territories of the former USSR. Its population is over 160 million. According to estimates of the UN Food and Agricultural Organization (FAO), Brazil produced 75 million tons of grains in 1994. It has 129 million acres under cultivation, 431 million acres in grazing lands, and 348 million acres in usable land.
In 1994, the Gross Domestic Product (GDP) of Brazil was 450 billion dollars, of which $249 billion (55.3%) was generated by trade and services, $156 billion (34.6%) by manufactures, and $45 billion (10%) by agriculture. However, as Farhat points out, the overall GDP per capita $4.630 is practically meaningless because of the catastrophic differences between North and South, or more specifically SE Brazil, and NE Brazil. In a comparison between the States of São Paulo and Pernambuco (which is fairly prosperous in NE terms) São Paulo takes the lion's share with a $4,630 GDP per capita, while Pernambuco's is $1500. São Paulo has 5.6 million cars and Pernambuco 601,000. The average monthly wage of a Paulista worker is just over $1000, while his/her Pernambucano counterpart makes $175. The countrywide average salary is $650 per month.
Brazil, Farhat points out, is "not one, but several countries." He goes on to focus on this point by lining up data from a UNICEF state-by-state study based on the 1991 census and referring to children's conditions of survival and the percentages of the children in those conditions over the total child population between the ages from 0 to 6.
Extreme cases of (1) children in worst survival conditions are: Maranhão 73%, São Paulo 0.9%; (2) children in midpoint conditions: Maranhão 10.8%, São Paulo 6.3%; and (3) children in better conditions: Maranhão, 13.9%, São Paulo 92.8%.
Thus, the author argues, it is easy to see why most businessmen, both domestic and foreign, tend to pick up the Southeast and the South, the Brazilian areas with the highest incomes, markets, buying power, and "well-to-do" consumer habits. The resulting concentration of job opportunities "further aggravates the immense gap between the two Brazils."
In a country where the richest 10 percent of the population own 48 percent of the GDP, as against only 12 percent of the GDP in the hands of 50 percent of the population, it is easy to estimate that 14 percent of the Gross Domestic Product is held by the richest 1 percent of the population.
Farhat does not mention it but, like in the US, politicians in Brazil show little political will to change the picture, balance the scales of compassion, really solve the country's many and extremely serious problems. Besides their concern with their own economic interests and their anxiety over reelection, their approach is Marie Antoinette's: "They have no bread? Let them it cake!"
In the absence of a desire to weld the country together, a task that the author believes would take two generations, the 10 million Brazilians now living "well below the poverty line" can only expect to put up with "poverty, poor health, a shorter life span, and fewer opportunities to improve the quality of their lives."
Then comes the clincher: "This [situation is] further aggravated by the fact that the rich pay low or virtually no taxes whilst the poor carry the heaviest tax burden, principally disguised as `indirect' taxes on consumption, taxes on salaries, and other forms of work compensation. Let's hope Republican Congresspeople in Washington don't hear of this"
As a result, the essay goes on, "the rich local and regional markets...will become richer and richer, while the rest of Brazil...may get poorer and poorer." The rich local and regional markets are defined as São Paulo City and State, the States of Minas Gerais, Rio de Janeiro, Paraná, Santa Catarina and Rio Grande do Sul, with the possible addition... of Mato Grosso do Sul."
But not everything is bad
On the positive side, Farhat points out, there has been a sizable downswing of 15.15 percent in population growth, from 38.87 in 1980 to 12.72 percent in 1990. This may have happened because of a decrease in the rate of fertility: from 4 children per 100 women over 15 in 1980, to 3,7 in 1985 to 2.7 in 1990. Simultaneously, infant mortality rates also declined from 65.8 per thousand live births in 1980 to 51.6 per thousand in 1990. In addition, life expectancy at birth grew from 41 years in 1940 to 62 years in 1980 to 65 years in 1990, raising the age of Brazilians in general. Seniors over 60 years, who were 1.7 million (4.1%) in 1940 now are 10.9 million or 7.4 percent of a much larger population. On the other hand, food production increased significantly from 56.1 million tons of grains in 1990 to 75.2 million tons in 1994, 34.% in five years.
Highlights:
In 1940, feeding each city dweller required the joint effort of 2.5 farmers; nowadays, each farmer feeds 3.6 city dwellers.
From 1982 to 1992, the total cultivated area fell by 30 percent but production of certain grains, in tons per acre, increased by 14.9 percent.
In 12 months of stability and inflation (after the "inflation industry taps" were practically turned off by the present administration) the minimum monthly wage, considered a "basic reference" for work compensation, jumped from $68.93 in July 1994 to $108.46 in June 1995, for a 67.4% gain. Inflation fell from an average of 43% a month in the first half of 1994 (about 5/7,000% inflation per year) to 25/30% in 95, and is still decreasing.
The basic food basket (enough to feed a family of four for a month) costs the same as one year ago, or a little less.
Because the family wage as a unit has gone up, and keeps going up, "those who were not eating now can think of eating," said a Northeastern worker. And the workforce has kept relatively peaceful, although unemployment rose from 3.8% in January 1988 to 4.5% in May 1995.
Government-owned companies formerly operating in the red have been sold. Many are now making money and paying taxes.
After the quake that followed the Mexico financial crisis, Brazilian reserves are recouping and now reach over $40 billion in ready cash.
Positive foreign investments added up to $2.4 billion in the twelve-month period ending May 1995 (Central Bank data).
The per capita GDP in constant value currency grew by 10.9 percent between the first quarter of 1990 and the second quarter of 1995.
Actual GDPs, which were $35.5 billion in 1970, $444.2 billion in 1993, and $456 billion in 1994, are projected to reach $500 billion in 1995.
Manufacture of motor vehicles increased from 966.7 K in 1985 to 1.58 million in 1994 a 63,4 percent difference, turning Brazil into the 9th largest automotive manufacturer in the world, following the UK with 1.6 million but ahead of Italy with 1.53 million.
Energy consumption by industry has risen from 50.2 K tEP (equivalent to tons of oil) in 1983 to 71.5 K tEP in 1993 an increase of 29.8%.
In 10 years, the foreign trade of Brazil accounted for $521.8 billion, with a surplus of $129.3 billion. If recent trends persist, Brazilian foreign trade will reach $150 billion a year by 2000/01, with $75 billion a year in export and basically the same amount in imports.
Economists forecast that if the performance of the last 10 years holds as an acceptable yardstick, and new opportunities are added at the present pace, the historical growth level of Brazil GDP should be approximately 7 or 8 percent a year, as it was in the 70's.
The present projection is for some $25 billion to be invested in new money over the coming years. Likely attractive fields include automotive, that has caught the eye of Peugeot and Renault from France, Honda and Toyota from Japan, ASIA, Hyundai, and KIA from Korea, Scania from Sweden, Ford and GM from the US. Retail and fast food are being considered by Carrefour from France, as well as Arby's, Kentucky Fried Chicken, McDonald's, and Wal-Mart from the US.
Food and beverages beckoning to Brazilian corporations such as Antarctica and Brahma, Unilever from the UK, Coca-Cola, Gatorade, Pepsi, Procter & Gamble from the US. Computer hard and software are being considered by Samsung and Goldstar from Korea, Apple, Compaq, IBM, and Microsoft from the US. In the heavy industry and equipment sector there is interest from Bosch/Siemens from Germany, Philips from the Netherlands, ABB-Asea/Brown-Bovery from Sweden/Switzerland, Alcoa and GE lighting from the US. Several hundred other smaller companies and conglomerates are also willing to invest in Brazil.
Among other fields now wide open to native and foreign investment in infrastructure are communications (telephones, nationwide and local networks, electronic hardware, satellite services), mail (messenger, courier, and other services), mining, natural gas, petroleum and derivatives, rail (equipment and service).
The rise of double-salary families is expected to bust open the Brazilian markets for home appliances (automatic refrigerators, time-controlled gas ovens, microwave ovens, dishwashers, washing machines and dryers, small kitchen and personal appliances, cars, computers, peripherals, and software, utility vehicles, RV's, motor cycles and scooters, camping equipment, boats, holiday travel, tour packages, hotel and catering, tour buses, cable TV, interactive TV and radio, etc.
The increasing modernization of households in big cities is already putting a premium on good skilled domestic servants. Middle-class couples are learning fast to pick up the slack although begrudgingly, and missing the hard-working, diligent Marias of yesteryear. Commercial laundries, Laundromats, and dry-cleaning establishments will make many Chinese rich.
Many of the reforms in the pipeline, says Farhat, including several requiring amendments to the Constitution, are expected to end discrimination favoring companies established under Brazilian law, no matter the national source of their capital.
The new legislation is expected to: abolish government monopoly in communications and allow private competition with the existing state-owned systems; open the mining sector to private capitals, both native and foreign: allow foreign ships in Brazil to provide coastal passenger and freight services; abolish the States monopoly in the distribution of natural gas for residential and industrial uses; open oil prospecting, exploiting, hauling, processing, to private interests both Brazilian and foreign and grant them licenses to import and export crude, subproducts, and derivatives; change the domestic banking laws and regulations to permit foreign capital banking corporations to operate commercial banks and render a full range of financial services; change the tax laws to permit "access to individual banking records" in specific cases and circumstances.
Already in consideration by the Brazilian Congress are bills aiming to: reform social security and allow participation of private companies and schemes; levy a "health tax" on each bank deposit or withdrawal; allow foreign corporations to operate hospitals, offer health insurance and kindred services; prune the vast Federal bureaucracy and give sizable rewards for improved efficiency in the State and county management.
The net result of all the proposed changes is to allow "regular taxpayers" to pay lower personal taxes; rein in into the system all the now virtually "exempt" rich people, thus broadening the country's tax base; raise the income tax for those on the higher brackets and simultaneously cut corporate taxes, including payroll taxes; emphasize direct taxation, shifting the tax burden to consumers, with relief for producers. Many of these measures, Farhat warns, will be fiercely opposed in Congress.
He ends his monograph saying that the coming years will be exciting ones for those companies who know Brazil from experience and realize that the country "is an excellent base to manufacture, perform services, buy and sell world-wide," provided they have the "intelligence to see, the managerial skills to plan and perform," as well as the valor to risk, the confidence to experiment, the know-how to find the right solutions, and the staying power to reap the fruit of their investment and labors.
