Wednesday’s plane crash that resulted in the death of Brazilian Presidential Candidate Eduardo Campos is a tragedy. Though Campos had been third in the polls there was some indication that his position was improving and even if he lost it was very likely that he would have ultimately become one of the more significant Brazilian politicians. As things stand now there is a great deal of speculation as to how his death will affect the race but the reality is that no one really knows. What we can do is develop scenarios that serve as models to help us predict what could come in a world that can change quickly. One possible scenario would be that Campos’s running mate Marina Silva will run. Though it would currently appear that Dilma Rousseff is favored to win reelection it does not hurt to question some of the challenges that Silva would face if she ran in and won October’s elections especially as she is viewed in some quarters as being unpredictable and some argue that the policies of a President Silva would be anti-business and negatively impact the economic development of the country. These concerns are not unjustified. That said, if she were to win the election it does not change the fact that she would be governing Brazil which is a landmass that has some developmental challenges that relate directly to geography.
The reality is that the richest counties in the world do not just have a surplus of natural resources and arable land which provide the wealth to develop substantial human capital and infrastructure. The richest countries also have favorable geography. By this I mean most of these states have well developed maritime and riverian port systems, are situated at latitudes that affords them enough of a growing season to feed their population, and have the bulk of their territory in temperate, relatively flat lands (1). Brazil does fairly well with the first two conditions but relatively poorly with the third.
It is usually more expensive to build and maintain infrastructure in the tropics. It is not a surprise that Northern Brazil has historically been the poorest part of the country as the cost of building the requisite infrastructure to promote economic development has caused that region to lag behind the more prosperous south. A wealth gap has resulted in northerners moving to seek opportunity in the south while a lack of facilities have caused many of these migrants to settle in favelas where they do not always find the opportunity that they sought. This has served as a cause of social unrest in the past. Developing the Northern states of Brazil (which is where Silva and the recently deceased Campos hail from) and the infrastructure of the country in general is a strategic imperative for Brasilia. In recent years we have seen significant investment in improving southern port facilities in Vitória and Santos while in April northern port complexes in Miritituba and Barcarena were opened. The latter will reduce traffic in southern ports and will benefit from the expansion of the Panama Canal and the eventual construction of the Nicaragua Canal. Developments such as these have environmental consequences which Silva opposes but, if managed properly, they could provide economic opportunities that could help poorer communities some of whom would be part of her constituency. Silva has been in politics too long to be ignorant of this reality and naïve enough about its implications.
The reality is that winning October’s Presidential Election will only give the victor the powers of the head of state of the Federative Republic of Brazil it will not give them the ability to overcome the geographic challenges which the country faces. The difference between the candidates will be how they respond to these obstacles given the political, social and economic constraints that they face. If Marina Silva were to run and was elected she would not be able to rule by decree. It is not unreasonable to think that if elected Silva would pursue more environmentally friendly policies than her opponents would and that she might not be as business friendly. That said, it also must be noted that as a democratically elected leader she would have to take into account the aspirations of the Brazilian population as whole if she wishes to stay in power and not see some of her potential accomplishments undone in the event that she was not reelected.
As things stand now economic development usually results in a degree of environmental degradation. This reality is something that Silva has raised concerns about. Would President Silva have luxury to be as vocal about such issues as she has been in the past? After all, it is a lot easier to be an opposition candidate than a head of state. There are countless examples of politicians who behaved very differently than people expected when they assumed office. Certainly, former Brazilian President Lula is such an example. As things stand now it is too early to know if Silva will run in let alone win October’s election. That said, if she were to win it needs to be understood that she would face the same geographic and economic constraints that her opponents would face as well as a variety of other limitations that political and social realities would impose upon her. This reality would influence how she responds. After all, there is often a huge difference between doing what you want to do and doing what you actually can do. Reconciling her environmental concerns, the economic challenges that Brazil’s geography imposes that can only be ameliorated with some environmental cost, and the aspiration of the Brazilian population for a higher standard of living which could result from such developments would be a major challenge for Silva. It is likely, that if elected, she would have to make compromises. What these compromises would be remains to be seen.
1. There are some exceptions here. For example, Singapore does not meet these requirements. However the state’s relatively small population, location near one of the most important shipping lanes in the world, and the fact that the city-state is small and thus requires less infrastructure than larger states makes it a unique case.
Showing posts with label Brazil. Show all posts
Showing posts with label Brazil. Show all posts
Friday, August 15, 2014
Friday, July 11, 2014
The Potential Impact of a BRICS Development Bank on Argentina
From July 14th to July16th Brazil will host the 6th Summit of Heads of State and of Government of BRICS. This meeting will likely see the emergence of a BRICS Development Bank that will serve as an alternative to the World Bank, which the BRICS see as too heavily oriented towards Western interests. Though the idea for such a bank has been discussed since 2012 the impact of the Federal Reserve’s tapering on countries such as India and South Africa, Chinese unease over the fluctuation of the US dollar, and the challenges that Russia is facing due to its actions in Ukraine have accelerated this project. One country that could benefit from a BRICS Development Bank is Argentina.
Russia has invited Argentina to the BRICS summit and is supporting the possibility of Argentina joining the organization. This can been seen as part of Moscow's effort to generate good will in order to increase trade and enhance its presence in Latin America. To achieve this end Russia has also canceled 90% of Cuba’s $35 million debt and backed Brazil for a permanent seat on the United Nations’ Security Council. If Argentina joined BRICS, or at least had access to capital from the BRICS Development Bank, it could greatly benefit the country. The reality is that due to the default of 2001 Argentina is a relatively risky place to invest and has struggled to attract capital since the default. Access to the BRICS Development Bank combined with Russia’s efforts to build good will in Latin America via trade and investment could help Argentina attract the capital it so desperately needs.
Argentina will likely seek funding to improve their ports from either the Russians or the BRICS Development Bank. As things stand now the expansion of the Panama Canal and the creation of the Nicaragua Canal will likely make Argentine exports such as soy less competitive as compared to comparable US and Brazilian exports. The latter countries are both closer to the canals and have or are developing their infrastructure to capitalize on this shift in global shipping. The Brazilians in particular have been very active in developing their ports and improving transport from the interior to the coast. Argentina does not want to be left behind. In a worse case scenario the Argentines could find themselves dependent on Brazilian ports thus reducing profits from their exports while enriching their regional rival.
If Argentina is able to attract the capital it needs to be competitive on the global market it could help the country rehabilitate itself economically. A shift to a leadership that is more business friendly could facilitate this process though it is important to note that any attempt for the country to become more economically sustainable would presumably result in cuts to social spending which would likely lead to social instability and a heightening of political risk. That said, Argentines are tired of the country's economic decline and are no doubt acutely aware of how neighboring Uruguay has been flourishing due to its relatively pro-business policies. Argentina has seen political instability in the past. If Buenos Aires can attract capital and survive whatever unrest results from potential economic reforms we could see the country return to the level of economic development that its geography and resource base should afford it.
Russia has invited Argentina to the BRICS summit and is supporting the possibility of Argentina joining the organization. This can been seen as part of Moscow's effort to generate good will in order to increase trade and enhance its presence in Latin America. To achieve this end Russia has also canceled 90% of Cuba’s $35 million debt and backed Brazil for a permanent seat on the United Nations’ Security Council. If Argentina joined BRICS, or at least had access to capital from the BRICS Development Bank, it could greatly benefit the country. The reality is that due to the default of 2001 Argentina is a relatively risky place to invest and has struggled to attract capital since the default. Access to the BRICS Development Bank combined with Russia’s efforts to build good will in Latin America via trade and investment could help Argentina attract the capital it so desperately needs.
Argentina will likely seek funding to improve their ports from either the Russians or the BRICS Development Bank. As things stand now the expansion of the Panama Canal and the creation of the Nicaragua Canal will likely make Argentine exports such as soy less competitive as compared to comparable US and Brazilian exports. The latter countries are both closer to the canals and have or are developing their infrastructure to capitalize on this shift in global shipping. The Brazilians in particular have been very active in developing their ports and improving transport from the interior to the coast. Argentina does not want to be left behind. In a worse case scenario the Argentines could find themselves dependent on Brazilian ports thus reducing profits from their exports while enriching their regional rival.
If Argentina is able to attract the capital it needs to be competitive on the global market it could help the country rehabilitate itself economically. A shift to a leadership that is more business friendly could facilitate this process though it is important to note that any attempt for the country to become more economically sustainable would presumably result in cuts to social spending which would likely lead to social instability and a heightening of political risk. That said, Argentines are tired of the country's economic decline and are no doubt acutely aware of how neighboring Uruguay has been flourishing due to its relatively pro-business policies. Argentina has seen political instability in the past. If Buenos Aires can attract capital and survive whatever unrest results from potential economic reforms we could see the country return to the level of economic development that its geography and resource base should afford it.
Friday, January 31, 2014
Will Improvements in Brazilian Infrastructure Marginalize Argentina?
Argentina is a country that is relatively poor due to policy rather than a lack of resources and easy access to global markets. Though the 2015 presidential election could bring an administration with more pro business policies to power it is important to note that such a shift will not necessarily result in a major influx of capital as issues related to the development of infrastructure could still hinder the country’s development. Infrastructure and investment go hand in hand as capital is less likely to flow into countries that lack adequate facilities. The 2001-2002 Argentine default and the seizure of Repsol’s majority stake in YPF (a settlement may have been reached but a precedent has also been set) will also make investors wary of financing construction. This is not to say that there will be no investment. After all there is some foreign investment aimed at developing the Vaca Muerta shale reserves and Argentina’s hydropower resources. The reality though is that risk increases the cost of capital so the projects that do get funded will likely be on terms that are less favorable to the Argentines than they otherwise would be thus reducing the total funds that can be put towards development.
Improved infrastructure in other parts of the Americas could make Argentine exports less competitive. Argentina is the third largest soy producer in the world after the Brazil and the United States. The expansion of the Panama Canal could make the later two exporters more competitive when shipping soybeans to Asian markets. In addition to this Brazil is attempting to invest $27 billion to improve its infrastructure with the goal of quadrupling Brazilian exports by 2030. Brazil became the largest exporter of soy in 2013 despite its poor infrastructure. Projects such as the development of the Amazonian port of Santarem would make the country even more competitive. Though Brazil has its own share of political and economic issues we have seen that auctions privatizing Brazilian highways, airports and ports are proving to be fairly effective in attracting capital to the country. If Brazil continues to develop and Argentina continues to stagnate it will be difficult for the later to develop infrastructure that is competitive with Brazil. The Argentines could find themselves in a position where they might have to ship some of their goods via Brazilian ports. This would eat into Argentina's profits resulting in less capital for the country to invest in itself.
To truly develop countries have to move beyond being exporters of raw commodities whose prices fluctuate dramatically. Such as shift requires investment and the development of infrastructure such as power plants, adequate port facilities, and internal transport network. Funding such projects is challenging given Argentina’s track record and economic policies. As we have seen competition and the need to rely on foreign ports could further weaken the country and limit the amounts of capital that it can bring to develop its infrastructure. This vicious cycle is a situation that will need to be monitored closely. The increasing demand for agricultural commodities and Argentina’s geographic location will allow it to profit from its resources. That said, a country profiting off of its resources and a country developing to its full potential is not the same thing.
Improved infrastructure in other parts of the Americas could make Argentine exports less competitive. Argentina is the third largest soy producer in the world after the Brazil and the United States. The expansion of the Panama Canal could make the later two exporters more competitive when shipping soybeans to Asian markets. In addition to this Brazil is attempting to invest $27 billion to improve its infrastructure with the goal of quadrupling Brazilian exports by 2030. Brazil became the largest exporter of soy in 2013 despite its poor infrastructure. Projects such as the development of the Amazonian port of Santarem would make the country even more competitive. Though Brazil has its own share of political and economic issues we have seen that auctions privatizing Brazilian highways, airports and ports are proving to be fairly effective in attracting capital to the country. If Brazil continues to develop and Argentina continues to stagnate it will be difficult for the later to develop infrastructure that is competitive with Brazil. The Argentines could find themselves in a position where they might have to ship some of their goods via Brazilian ports. This would eat into Argentina's profits resulting in less capital for the country to invest in itself.
To truly develop countries have to move beyond being exporters of raw commodities whose prices fluctuate dramatically. Such as shift requires investment and the development of infrastructure such as power plants, adequate port facilities, and internal transport network. Funding such projects is challenging given Argentina’s track record and economic policies. As we have seen competition and the need to rely on foreign ports could further weaken the country and limit the amounts of capital that it can bring to develop its infrastructure. This vicious cycle is a situation that will need to be monitored closely. The increasing demand for agricultural commodities and Argentina’s geographic location will allow it to profit from its resources. That said, a country profiting off of its resources and a country developing to its full potential is not the same thing.
Friday, January 10, 2014
Is Foreign Investment Helping to Undermine the Stability of Mozambique?
This week Japanese President Shinzo Abe will visit Mozambique to discuss a variety of issues related to energy and agriculture. The trip, the first African visit from a Japanese premier in eight years, highlights the growing importance of Africa to Tokyo as Japan competes with China for influence on the continent. Abe is expected to announce $577 in loans for road construction which will help further develop the Mozambican mining industry. Mozambique has developed rapidly since the 1992 Peace Treaty which ended years of civil war. The country now has the potential to be an important exporter of agricultural goods and LNG. Mozambique’s location on the Indian Ocean also situates it in an area where it can easily service Asian markets whose demands for food and energy are ever increasing. Ensuring access to these resources is one of the primary purposes of Abe’s visit. What Japan, and the world, needs to understand is that Mozambique is facing increased internal instability and some of the agricultural deals that Abe will likely be discussing have the potential to further exacerbate tensions.
Mozambique attained independence in 1974 and almost immediately fell into a state of civil war which pitted the Marxist Frelimo against the anti-Communist Renamo. A peace deal was brokered in 1992. Since this time a great deal of development has occurred in the country, however, in October 2013 Renamo renounced the 1992 Peace Treaty. This action clearly endangers political stability. On Wednesday January 9th Renamo killed six members of the Mozambican Riot Police. In addition to this they have also reestablished a base in Nhamunde in the Southeast of the country. Renamo’s activity in Northern Mozambique has also disrupted mining operations for companies such as Rio Tinto. It is unlikely that they will cease their activities anytime soon. In fact if October’s general election is unfavorable to Renamo further instability could result. If they can generate support from the local population the situation could deteriorate further.
In theory Renamo could exploit discontent against agricultural deals which have deprived local populations of their land. This action is of course subject to how they treat the local people. Renamo has a history of recruiting child soldiers and committing atrocities against local populations. Neither action is the sort of policy that wins the hearts and minds of a population nor do people forget groups that have subjected them to such abuse. Due to past precedent it would be dangerous to assume that Renamo would be able to gain local support, however, projecting what might happen if they pursued such a plan (and were relatively successful) is a worthwhile undertaking. After all, there is a great deal of discontent against deals that benefit foreigners and Maputo at the expense of the locals. One such program is ProSavana. This program will likely be discussed during Abe’s visit as the Japanese have invested a great deal in it.
ProSavana is a joint undertaking between the Ministry of Agriculture of Mozambique (MINAG) and Local Government, the Japan International Cooperation Agency (JICA), and the Brazilian Cooperation Agency (ABC). Per ProSavana’s website the organization seeks to:
Vision
Improve the livelihood of inhabitants of Nacala Corridor through inclusive and sustainable agricultural and regional development.
Missions
1. Improve and modernise agriculture to increase productivity and production, and diversify agricultural production.
2. Create employment through agricultural investment and establishment of a supply chain.
Objective
Create new agricultural development models, taking into account the natural environment and socio-economic aspects, and seeking market-orientated agricultural/rural/regional development with a competitive edge.
Essentially, ProSavana is trying to replicate the success that Brazil had in increasing agricultural output in its Cerrado region. The Cerrado is similar to Northern Mozambique’s Nacala Corridor in terms of agricultural potential. On the surface this intent sounds positive, however, the program has led to the displacement of local farmers. There is also evidence that people who have official land usage certificates are being displaced by agribusiness. There is little evidence that their complaints have led to any real resolution. A key factor that differentiates the Nacala Corridor from Brazil’s Cerrado region is that the population density is significantly higher in the Nacala Corridor thus more people are impacted by development. This means that there could be a larger pool of individuals who feel that they have no other course of action than insurgency.
In theory foreign investment could be positive for the populations of places such as the Nacala Corridor. For example, if a company comes in and dramatically increases agricultural yield while providing jobs and training the firm could contribute to local food security and provide economic opportunity while turning a profit and exporting the extra food to countries with less agricultural output. This is a win-win situation and there certainly are cases where this model is being effectively employed. The problem is that there are other situations where displacement and the concomitant removal of livelihoods are the norm. Cases like these generate distrust and make it more difficult to negotiate positive land deals. On one hand governments are in part to blame. For example, there have been cases where companies have negotiated a deal for unoccupied land only to find villages complete with postal service (a pretty clear indication that the government knew that the settlement existed). One the other hand businesses have a responsibility to understand the local conditions in place in which they intend to invest. After all, the failure to understand local conditions can harm businesses.
Anyone investing in agriculture needs to recognize that if land is arable it is safe to assume that someone is occupying it. If no settlements exist there probably is a very good reason for this. This reason needs to be determined in order to ensure that it can not come back to harm the company. Such damages can take numerous forms. For example, sabotage can be an issue. The negative PR that depriving a people of their livelihoods is also never welcome. Security concerns can also impact production. In some cases a situation occurs in which a political group can turn the discontent of the broader population to their advantage at the expense of the private sector. This is the exact circumstance that Renamo could theoretically exploit. The potential for any of these problems is something that companies need to gauge. After all, the negative PR that results from taking peoples’ land combined with lost profits due to suspended operations is not good for business?
Mozambique attained independence in 1974 and almost immediately fell into a state of civil war which pitted the Marxist Frelimo against the anti-Communist Renamo. A peace deal was brokered in 1992. Since this time a great deal of development has occurred in the country, however, in October 2013 Renamo renounced the 1992 Peace Treaty. This action clearly endangers political stability. On Wednesday January 9th Renamo killed six members of the Mozambican Riot Police. In addition to this they have also reestablished a base in Nhamunde in the Southeast of the country. Renamo’s activity in Northern Mozambique has also disrupted mining operations for companies such as Rio Tinto. It is unlikely that they will cease their activities anytime soon. In fact if October’s general election is unfavorable to Renamo further instability could result. If they can generate support from the local population the situation could deteriorate further.
In theory Renamo could exploit discontent against agricultural deals which have deprived local populations of their land. This action is of course subject to how they treat the local people. Renamo has a history of recruiting child soldiers and committing atrocities against local populations. Neither action is the sort of policy that wins the hearts and minds of a population nor do people forget groups that have subjected them to such abuse. Due to past precedent it would be dangerous to assume that Renamo would be able to gain local support, however, projecting what might happen if they pursued such a plan (and were relatively successful) is a worthwhile undertaking. After all, there is a great deal of discontent against deals that benefit foreigners and Maputo at the expense of the locals. One such program is ProSavana. This program will likely be discussed during Abe’s visit as the Japanese have invested a great deal in it.
ProSavana is a joint undertaking between the Ministry of Agriculture of Mozambique (MINAG) and Local Government, the Japan International Cooperation Agency (JICA), and the Brazilian Cooperation Agency (ABC). Per ProSavana’s website the organization seeks to:
Improve the livelihood of inhabitants of Nacala Corridor through inclusive and sustainable agricultural and regional development.
Missions
1. Improve and modernise agriculture to increase productivity and production, and diversify agricultural production.
2. Create employment through agricultural investment and establishment of a supply chain.
Objective
Create new agricultural development models, taking into account the natural environment and socio-economic aspects, and seeking market-orientated agricultural/rural/regional development with a competitive edge.
Essentially, ProSavana is trying to replicate the success that Brazil had in increasing agricultural output in its Cerrado region. The Cerrado is similar to Northern Mozambique’s Nacala Corridor in terms of agricultural potential. On the surface this intent sounds positive, however, the program has led to the displacement of local farmers. There is also evidence that people who have official land usage certificates are being displaced by agribusiness. There is little evidence that their complaints have led to any real resolution. A key factor that differentiates the Nacala Corridor from Brazil’s Cerrado region is that the population density is significantly higher in the Nacala Corridor thus more people are impacted by development. This means that there could be a larger pool of individuals who feel that they have no other course of action than insurgency.
In theory foreign investment could be positive for the populations of places such as the Nacala Corridor. For example, if a company comes in and dramatically increases agricultural yield while providing jobs and training the firm could contribute to local food security and provide economic opportunity while turning a profit and exporting the extra food to countries with less agricultural output. This is a win-win situation and there certainly are cases where this model is being effectively employed. The problem is that there are other situations where displacement and the concomitant removal of livelihoods are the norm. Cases like these generate distrust and make it more difficult to negotiate positive land deals. On one hand governments are in part to blame. For example, there have been cases where companies have negotiated a deal for unoccupied land only to find villages complete with postal service (a pretty clear indication that the government knew that the settlement existed). One the other hand businesses have a responsibility to understand the local conditions in place in which they intend to invest. After all, the failure to understand local conditions can harm businesses.
Anyone investing in agriculture needs to recognize that if land is arable it is safe to assume that someone is occupying it. If no settlements exist there probably is a very good reason for this. This reason needs to be determined in order to ensure that it can not come back to harm the company. Such damages can take numerous forms. For example, sabotage can be an issue. The negative PR that depriving a people of their livelihoods is also never welcome. Security concerns can also impact production. In some cases a situation occurs in which a political group can turn the discontent of the broader population to their advantage at the expense of the private sector. This is the exact circumstance that Renamo could theoretically exploit. The potential for any of these problems is something that companies need to gauge. After all, the negative PR that results from taking peoples’ land combined with lost profits due to suspended operations is not good for business?
Friday, November 22, 2013
Brazil as a Testing Ground for Cleantech
Monday’s successful conclusion of the A-3 Energy Auction in which Brazil sold wind development rights worth $1.5bn serves as reminder that Brazil is as a model for sustainable development. Even some failures in the Brazilian renewable energy sector can be seen more as projects whose time have not yet come. For example, the solar energy projects that were up for auction on Monday went unsold due to prices that did not provide an adequate return on investment. Though this might appear as a failure the fact that these projects were included in the auction for the first time indicates that Brazil feels that there is a market for them. It is not unreasonable to think that these projects will sell in the foreseeable future. The emergence of the Sustainability Network (an opposition party that has recently partnered with the Socialist Party and will likely have increased political clout even if they do not win the election in 2014) also indicates that increased support for renewable projects is likely.
The success of Monday's auction is a positive sign when compared to set backs in oil projects. The Pre-Salt (deep-water oilfields) auction on October 21st was a disappointment. Only 11 firms participated compared to 71 firms in the previous auction. In the end the Libra deep-water field was auctioned off to a consortium dominated by state run Petrobras but also representing, Royal Dutch/Shell, Total, China National Petroleum Corp., and China National Offshore Oil Corp. No American energy companies bid. In fact the consortium's bid was the only offer and it only provided Brazil with minimum profits (41.65%). The auction was also met with protest from unions and other stakeholders who resented natural resources being sold to "foreign capital" at "fire sale" prices.
The focus on sustainable development that will come as the Sustainability Network gains political power combined with the foreign investment which Brazil's energy auctions bring in could result in projects that might serve as templates which could be exported. It is important to note that Brazil's diverse ecosystems allow for many different types of projects to be developed and fine tuned. For this reason the country can be viewed as a testing ground where developments in Cleantech should be monitored closely.
The success of Monday's auction is a positive sign when compared to set backs in oil projects. The Pre-Salt (deep-water oilfields) auction on October 21st was a disappointment. Only 11 firms participated compared to 71 firms in the previous auction. In the end the Libra deep-water field was auctioned off to a consortium dominated by state run Petrobras but also representing, Royal Dutch/Shell, Total, China National Petroleum Corp., and China National Offshore Oil Corp. No American energy companies bid. In fact the consortium's bid was the only offer and it only provided Brazil with minimum profits (41.65%). The auction was also met with protest from unions and other stakeholders who resented natural resources being sold to "foreign capital" at "fire sale" prices.
The focus on sustainable development that will come as the Sustainability Network gains political power combined with the foreign investment which Brazil's energy auctions bring in could result in projects that might serve as templates which could be exported. It is important to note that Brazil's diverse ecosystems allow for many different types of projects to be developed and fine tuned. For this reason the country can be viewed as a testing ground where developments in Cleantech should be monitored closely.
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