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By James Stranko
Contents • • • • • Who are Brazil’s standard bearers? Whither Itamaraty and the Executive? A True Brazilian Multinational: is Vale becoming a BRIC itself? Is BNDES doing more to promote Brand Brasil than Itamaraty? Conclusion and Policy Recommendations
Who are Brazil’s standard bearers?
When U.S. President Barack Obama offered his highest praise and support for Brazil’s continuing rise in his joint press conference with Brazilian President Dilma Rousseff, his southern counterpart could not help but insert a few barbs into what was otherwise a gracious speech. Obama’s words sanguinely weaved their way through comparisons of the two nations’ colonial history, the countries’ common commitment to democracy, and soccer rivalry references. Dilma instead followed the usual pleasantries with a call to “tratar de nossas contradições”. She then continued on to speak about the reform of international institutions, the need for the U.S. to eliminate domestic agricultural subsidies, and her desire for Brazil to play a greater role in multilateral negotiations.1
Whether this was just a way for Dilma to push back a PT audience accusing complicity to the American agenda or a way to reinforce serious policy divides, the moment showed Dilma in a confident stride—a leader who knows her time is arriving. Brazil’s government and private sector, be it via its national development bank BNDES lending more in Latin America than the World Bank or an Olympic bid team that beat out a number of powerful favorites (including Obama’s home city), is stepping out. But who in this group is stepping up?
The more interesting conversations of the state visit likely took place behind the scenes, with negotiations from American trading partners and executives increasingly frustrated with the U.S.’s falling position in the bilateral trade league tables. But it is not just what
Obama Rousseff, 19 March 2011
they were talking about that would have been telling, rather it is who they were approaching to address their policy issues. With Brazilian business maturing, while growing domestically and internationally, it is increasingly carrying the Brazilian flag with it as it goes abroad. This brings serious implications for an executive branch and foreign ministry increasingly less in control of its overseas agenda—as well as for Brazil’s continued internationalization and brand building abroad. These companies are, in many cases, pioneers and standard-bearers in Brazil’s interaction with the world.
Brazil is unique in the context of other BRICs like China and Russia in that it is a market economy that has come to eschew the centrally controlled enterprise model. Yet following a complex privatization process and years of commercial success, the state still maintains an active participation in large formerly state-controlled enterprises. For the Brazilian government, striking a balance between public shareholding has been difficult and is increasingly creating awkward moments for the government. It also begs the question of who is running the agenda? And as leaders like Dilma Rouseff and Antonio Patriota, Brazil’s Minister of External Relations continue to exude the confidence the world saw in Obama’s state visit—are they also losing a level of control over the message? Or perhaps are they risking a breach in the independence and business savvy that have made Brazil’s internationally-focused companies so successful in the first place?
Through the example of Vale, and the interplay the state via Itamaraty and BNDES, this paper will explore the stress points and opportunities that have arisen in these complicated relationships. Employing first-hand interviews conducted with officials from the London
office BNDES and an international relations analyst at Vale, it will also focus on how this is having an impact on Brand Brazil and foreign policy priorities and will conclude with six concrete policy recommendations for Itamaraty.
Whither Itamaraty and the Executive?
The Ministro de Relações Exteriores (Itamaraty) possesses a world-class force of diplomats that work in Brazil’s extensive consular network, but until recently, Itamaraty could have been described as a “sleepy” place.2 This means that the international politics and trade issues that Brazil faces in 2011 and beyond are challenging the old guard of diplomats and consular staff. They face the daunting task of defining a global Brazilian foreign policy for the first time in issues that may not be of immediate relevance to Brazil. The task to approach more gingerly, though, is establishing policy and procedures that keep up with the agile, mobile private sector in their actions abroad.
In the past, Itamaraty possessed a certain “monopoly of information” over international disputes and broader Brazilian policy in international relations.3 The presence of homegrown multinationals, however, has challenged this dominance because their increasingly important business interests create foreign policy priorities for them. Further complicating the matter are state-controlled or state-led companies that officially must pit public sector goals against private sector business realities. Itamaraty can even trip up businesses like Petrobras with top-notch management experienced in walking the public2 3
Isacson, full text Marques, 3
private tightrope—such as when Evo Morales threatened to nationalize Petrobras holdings in Bolivia. According to U.S. government correspondence, Itamaraty’s reaction was muted, and to the chagrin of Petrobras “it took over a year since the May 1, 2006 surprise nationalization decree for the Brazilian Government to begin to show signs of a stiffer spine”.4
This episode aside, the best recent example of this complicated relationship between state control, internationalization, and policy confusion comes in the form of Companhia Vale do Rio Doce (Vale). Vale has been one of the most successful Brazilian companies abroad while facing a crescendo of pressure at home to repatriate its success and use its international advantage to create Brazilian jobs. Vale, a company borne out of state-led industrial policy, proves how quickly the public-private relationship can turn from symbiotic to dysfunctional. As an example, in 2010, President Lula Da Silva invited Vale CEO Roger Agnelli to join him on a state visit to the Mozambique to highlight the investment Vale and Brazil were making together in that country’s coal-mining sector.5 By 2011, Agnelli was being forced out of his position by a Brazilian government miffed at the company’s lack of domestic investment.6
Vale’s case is not, of course, a unique instance in which government has been a part of the internationalization of Brazilian business. The idea of “national champions”— businesses (such as aviation giant Embraer) that are likely to raise the profile of Brazilian production
US State Department Cables, 2007-05-10 Grudgings, full text 6 Pearson, full text
abroad—has accompanied institutions like the BNDES as it expanded credit to Brazilian business large and small. The difference with new actors like Vale, though, is the “push” factor, or the fact that international capital markets are leading the way in internationalization with the government reacting instead of provoking these changes. This trend is challenging Itamaraty’s traditional monopoly of information and its established control over raising the profile of trade and trade related issues. These are areas where the private sector has been particularly critical of Itamaraty inaction over the years, but now businesses may be getting what they want and the balance may shift to a more active policy that interferes in the market.7
A True Brazilian Multinational: is Vale becoming a BRIC itself?
"These are well-run, profitable companies that don't need us meddling in their affairs," -José Mendonça Filho, a Brazilian congressman who summoned Mr. Mantega to testify about the [political ousting of Roger Agnelli from Vale]. 8 Companhia Vale do Rio Doce is brooding with confidence and capital as it continues its international expansion. By the beginning of April 2011, when the company signaled plans to acquire South African miner Metorex, Vale was already experienced in the sensitive world of international acquisitions (from its acquisition of Canada’s INCO and Australia’s AMCI, among others) and was about to enter the even more sensitive world of mining in the Democratic Republic of the Congo. Since its privatization in 1997, company grown to rank alongside the world’s largest mining and resources companies, like Anglo-Australian
Marques, 22 Wall Street Journal,
companies Rio Tinto and BHP Billiton. But as it becomes more audacious in its acquisitions, Vale’s business creeps into the more politically tumultuous territory that has plagued Rio Tinto and BHP’s operations for years.
In one sense, Vale’s acquisition picture is purely strategic: potash in Canada gives the company a lucrative market for one of the world’s most sought after commodities in the most stable of countries; copper in the Congo fills an important gap in Vale’s mining profile; coal production in Mozambique is inexpensive. In another sense, their role is expanding the footprint of Brazil abroad and directly or indirectly furthering key policy priorities.9 Vale’s INCO operation in Canada expands commercial cooperation in the Americas and uses that position to curry favor in a country increasingly closed to foreign direct investment in natural resources; in the Congo Vale is creating an alternative source of export copper to help challenge Chile’s state-owned monopoly (CODELCO) on production; in Mozambique the company fosters luso-friendly trade links while heading China off at the pass.
Vale may not be able to entirely attribute its current success to its birth as a former stateowned enterprise working in a strategic field, but there are clear signs that these origins affected Vale’s approach to growth. Established principally to process Brazil’s vast iron ore establish greater control of domestic natural resources, Brazil’s brand of ISI and later privatization allowed Vale to look abroad after privatization to market their comparative advantages and scale up their operations. According to Edmund Amann, “the Vale case
Grudgings, full text
demonstrates…how competencies established in the domestic sphere under an inwardoriented industrialization strategy can later be deployed to good effect internationally”.10 The broader question is whether the state has fostered this process or if the internationalization process has happened because the state lessened its involvement.
Now that it is all grown up, the interplay between Vale and the Brazilian government can be trying at times. Almost like an old colonist whose colony has grown more powerful, Itamaraty and domestic politicians struggle to weigh free market values alongside state corporate interests. Vale, in turn, has had to deal with this dynamic—possibly taking advantage of it—by being ahead of the government in many relevant areas in the countries where they operate. This shows up in everyday business decisions, including in 2008 when Vale ordered 12 large iron ore carriers with Jiangsu Rongsheng Heavy Industries, one of China’s largest shipbuilders. This simple sourcing transaction irked a government that has been looking to Vale to repatriate its know-how and international experience to foster industrial growth within Brazil.11
While Vale has a reasonably solid reputation, industry issues like labor rights, work conditions and environmental degradation are endemic to mining operations. Vale operates in a space that can implicate Brazil’s government if conflicts and disputes escalate. In Canada, Vale action to counter creeping Canadian resource nationalism in its large operation Vale Inco took the form of intense lobbying at the provincial and national level, and a campaign wholly out of the hands of Brazil’s foreign policy establishment. And
Amann, 12 Murphy, full text
according to one analyst in Vale’s international relations department, who spoke with me on the condition of anonymity, there are many instances where they are “many steps ahead” of Itamaraty in their dealings with foreign governments. Particularly in Asia, “Vale’s actions set the agenda” and create challenges for a diplomatic staff that are not experienced in the new types of relationships that companies are forming.12 It is still not clear how the Brazilian government’s attitude towards Vale will evolve after the replacement of Roger Agnelli, but it is clear that the company is not waiting for Itamaraty to weigh in on its disputes and brand-building activity abroad.
The BNDES—is it doing more than Itamaraty and Dilma to boost Marca Brasil?
“Não acho que o BNDES precise ter esse tamanho. Se você tiver só o BNDES, o nível de risco vai ficando cada vez maior em cima dele. Outra coisa: o BNDES não vai ter capital para fazer frente a toda a demanda.” -Dilma Rousseff, in an interview with Estado de São Paulo13 In an interview I conducted with Jaime Gornsztejn, the head of the BNDES office in London and his visiting colleague Valdimir de Souza from Rio de Janeiro, it was easy to see the challenges of coordinating policy even in a state-owned organization. According to Gornsztejn, BNDES opened an office in London two years ago to take advantage of the growing interest in the country and to expand the view on Brazil beyond commodities. He is confident that British and European investors are getting to know Brazil and he feels that
Vale International Relations, Interview Estado de São Paulo, interview
there is a significant amount of interest in diversifying FDI flows into manufacturing and other major sectors—but further prodding revealed a whiff of frustration around BNDES’s relationship with Itamaraty.
De Souza also showed a level of moderated skepticism towards the working relationship of BNDES and Itamaraty, saying that in the recent past, “there was no communication…and neither party knew what the other was doing—creating problems for one another”. Particularly egregious, he said, were ambassadors in lower-income countries in South America that would make promises of BNDES financing that would not necessarily pass muster with the bank. It apparently took time to communicate that BNDES was not simply giving away money. Be that as it may, part of the issue is that the BNDES “does not consider itself to be representative of the whole government”. De Souza admits how this may be a problem, but that it also gives “protection from departments that might have other priorities”.
But with internationalization key to BNDES’s success and continued growth, the line between national interest and pure investment interest can be difficult to draw. According to Gornsztejn and de Souza, “there was a big discussion in both 2002 and 2005” within the bank as to what “national interest” meant in the context of BNDES’s continued internationalization. While a case-by-case analysis, the law applying to them does not “go into detail about what we can and what we cannot do…‘national interest’ is written just like that. So when a company comes to us, our concern is whether we can get that project financed, so we look at how good the project is and how we can defend it to the bank. But
[with other parts of government] there is still a strong national interest question present”— even though the BNDES cannot always interpret what that means.
The BNDES, of course, faces questions abroad, with some accusing the BNDES of going too far to promote Brazilian suppliers overseas.14 Odebrecht, a Brazilian multinational in the infrastructure sector, can count on cheap financing from the BNDES when bidding for projects or concessions across South America and around the world, and this support often makes them more competitive than pure free-market operators.15 In a world of cheap Chinese state capital to compete against and a strong real though, the cheap capital can make the difference between winning and losing contracts.
But just as importantly, BNDES still faces questions at home as it continues to expand operations—de Souza fears that Brazilian companies along with state and municipal governments see internationalization as “exporting jobs and supporting companies abroad but not investing in Brazil”. He continues, “We have done studies on internationalization and accept that getting Brazilian companies to go abroad is good for the economy…but within Brazil we still have not had this discussion”.16 Like Vale’s experience with Roger Agnelli, the national interest question is starting to have repercussions on the independence of Brazilian business (and even branches of its own government) to create value abroad. The discord is also creating a piecemeal national investment brand—a clear departure from what its partners in Asia and elsewhere can offer investors.
Economist, Full Text Cabello, lecture 16 De Souza, interview
Conclusion and Recommendations
Branding, particularly for a country in flux like Brazil, transcends the realm of marketeers or advertising executives. It is present in every business transaction, every tourist visit, and every diplomatic exchange. At a time when Brazilian business is expanding, and its political clout is increasing, the efforts to create a message around what Brazil can offer is key to strengthening inward investor confidence and building up a strong brand for its products and companies around the world.
With a world-leading development bank, a professional foreign service, and pioneer international industries like Vale, Brazil should be exceptionally well placed to strengthen its outward expansion and, in the process, consolidate Brazil’s brand. The country’s “national champions” (Embraer as an example) alongside the organic, private businesses like Odebrecht that have made their mark abroad are increasingly what “marca Brasil” looks like. Their actions are setting the tone and establishing a reputation for all Brazilian business, and the relations that they have with Itamaraty are coming to define what type of landscape other Brazilian companies might face as they set up shop abroad.
As we have seen through the private-sector example of Vale, both Itamaraty and BNDES are facing changing landscapes that could create conflict in further private sector internationalization. Democracy is messy and bureaucratic supervision of dynamic companies in a democracy can engender conflict. But the real challenge is avoiding the
“halfway house” effect where the state’s lack of involvement allows well-oiled private companies to expand but consequently restrict their activities because they are not acting in the interests of the state. This is a point when Brazil’s foreign service must decide what role it will play in the world—does it ally to political interests? Does it act solely in the executive’s definition of national interest? And finally, does it defend commercial or political clients?
The last question will be a crucial one, and Itamaraty cannot neglect its role as trade promotion agent and as a potential motor of growth for the Brazilian economy. Are Brazilian interest rates doing the same job now? Potentially. But Itamaraty has extensive networks to boost Brazil’s trade profile abroad and carry the flag of Brazilian innovation and economic ascendancy in a way it has been up until recently loath to do.17
Despite this, Brazil has managed privatization of its major state industries in a way that has created value for the state, for shareholders, and for society as a whole—certainly more so than most of its Latin American counterparts (save Chile). In other fractious democracies in the region that embarked on large privatization projects, the results have been messy (Bolivia), topsy-turvy (Argentina), or rent-seeking (Mexico). But perhaps Latin Americanists too often fall into the trap of grouping Brazil with its regional partners.
Given its larger emerging-market competitors, and in particular the BRICS, the division seems clear: Brazil’s privatization example for a large emerging power is a pluralistic but
orderly (in contrast with India), supervised but not micromanaged (in contrast with China), transparent and market-oriented (in contrast with Russia) and easily scalable to world-class size (unlike South Africa). But increasingly, the aggressive presence of the BNDES (particularly in the region) alongside the meddling of the central government in cases like Vale’s, are creating confusion over exactly what type of public-private dynamic Brazil is aiming for.
There is little doubt that Brazil possesses the necessary tools to promote its business at a global scale, the question is around how the tools work together and collaborate to create a unified message. The BNDES and Itamaraty can have a conflictive relationship; particularly around foreign accusations that Brazilian private sector uses BNDES unfairly to gain cheap capital for foreign expansion or questions of what constitutes ‘national interest’. Itamaraty, in turn, may have different priorities for Brazilian businesses looking to create controversial business abroad. Still, businesses are clients of Itamaraty, and it is plausible that in the near future the foreign ministry may become progressively obsolete in its current form as it looks to regulate the business of pioneering multinationals.
Concluding this paper are six recommendations that could help facilitate the relationship between Itamaraty and the other public and private sector groups while promoting the interests of both sectors.
Recommendations for Itamaraty – Building Brand Brazil
1) Hire advisors from Brazilian multinationals: More than anything, Itamaraty must attract advisors from Brazil’s largest foreign-oriented companies. This would allow the ministry to understand large Brazilian businesses from the inside, and more importantly what their pressures and reward mechanisms look like, so as to effectively design policy that fits a national agenda while securing support from these large businesses.
2) Clearly communicate the role of the BNDES: As a democratic institution, the BNDES needs to clear the air abroad on its increasing international role in financing the expansion of Brazilian business. The government should not put the brakes what has been a very positive run for BNDES but it must understand what its model is and what pressures this places in recipient markets.
3) Foster internal sector knowledge: Corporate international affairs offices are growing, along with the demand for foreign contractors to navigate government relations. Itamaraty should be allotting resources to selecting foreign service officers with experience or training in fields related Brazil’s major industries (such as geologists, engineers, and business managers).
4) Boast about 2014 and 2016: The Brazilian government organizing committee for the 2014 World Cup and the 2016 Olympics must make Brand Brazil a priority—not just in showy, Beijing-style fanfare but rather in the Brazil that it wants to construct beyond the
Olympics and the World Cup. It should emphasize the role that Brazilian business plays in the world-class building projects and the organization of one of the world’s largest events.
5) Hire foreigners: Reform key labor policies that restrict most foreign hiring at places like Petrobras or the BNDES. Investment promotion agencies like UK Trade and Investment have been using a local hire strategy for years to get closer to markets. This is not to say that Petrobras or the Bank should favor foreigners over Brazilians but it should mean that the badly-needed trained workforce that Brazilian companies keep complaining should be at closer reach than they are now.
6) Boast Brazil’s exceptionalism within Latin America: Do not neglect the complementary nature of Brazil’s powerhouses: (eg: airplane manufacturing, oil, mining, industrial services, etc) to underscore the seriousness of Brazilian business and the long history of private and public excellence that sets Brazil apart from the region. Investors, often looking at the region as a whole, will see even more clearly what sets Brazil apart and makes its true competitors global BRICs instead of its neighbors.
Amann, Edmund, “Technology, Public Policy, and the Emergence of Brazilian Multinationals”, in Lael Brainard and Leonardo Martinez-Diaz (eds.), Brazil as an Economic Superpower? Understanding Brazil’s Changing Role in the Global Economy (Washington, D.C.: Brookings Institution Press) "BRAZIL: PETROBRAS AND GOB RESPOND TO BOLIVIAN OIL SECTOR DECREE." US State Dept. Cables. 10 May 2007. Web. 1 Apr. 2011. <http://cablesearch.org/cable/view.php?id=07BRASILIA833>. Brazilian Multinational Corporations and Foreign Policy. Proc. of Brazilian Studies Association Tenth International Conference Brasilia, July 22 – 24, 2010, Brasilia, Brazil. Joseph Marques, 22 July 2010. Web. <http://www.google.com/url?sa=t&source=web&cd=6&ved=0CD4QFjAF&url=htt p%3A%2F%2Fsitemason.vanderbilt.edu%2Ffiles%2FjMWna8%2FJoseph%2520 Marques.doc&ei=Hr6rTYS5HYOJ0QGvkqj5CA&usg=AFQjCNEwKkY8zL9MjI K6aqhCMdgK8jPHEw>. "Brazil's Presidential Campaign: In Lula's Footsteps | The Economist." The Economist World News, Politics, Economics, Business & Finance. 1 July 2010. Web. 16 Apr. 2011. <http://www.economist.com/node/16486525?story_id=16486525>. Cabello, Richard. "Ruta Del Sol - A Colombian Highway." Lecture, Organization and Regulation of Infrastructure. SAIS, Washington, DC. 14 Apr. 2011. Lecture.
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Gornsztejn, Jaime, and Valdimir De Souza. "BNDES - Internationalization Interview / London." Personal interview. 25 Mar. 2011. Grudgings, Stuart, and Jon Herskovitz. "Brazil's Lula Ends Final African Tour with New Deals | News by Country | Reuters." Reuters.com. Reuters, 08 July 2010. Web. 30 Mar. 2011. <http://af.reuters.com/article/kenyaNews/idAFLDE6671Q420100708?sp=true>. Inter American Development Bank. Integration and Trade Sector. Office of Outreach and Partnerships. Vale – Brazil’s Iron Fist. By Lourdes Casanova. Apr. 2009. Web. <http://www.iadb.org/intal/intalcdi/PE/2009/03415.pdf>. Murphy, Peter. "Pres. Lula Says Vale Should Buy Brazilian Ships | Reuters." Business & Financial News, Breaking US & International News | Reuters.com. Reuters, 11 Sept. 2009. Web. 1 Apr. 2011. <http://www.reuters.com/article/2009/09/11/valelula-ships-idUSN1145976620090911>. "Obama and Brazilian President Dilma Rousseff Deliver Remarks in Brasilia, Brazil | In Obama's Words | The Washington Post." The Washington Post: National, World & D.C. Area News and Headlines - Washingtonpost.com. 19 Mar. 2011. Web. 20 Mar. 2011. <http://projects.washingtonpost.com/obama-speeches/speech/592/>. Pearson, Samantha. "Vale Chief Forced out after Brazilian Pressure." Financial Times. Financial Times, 1 Apr. 2011. Web. 10 Apr. 2011. <http://www.ft.com/cms/s/0/c4f7cddc-5c6e-11e0-8f4800144feab49a.html#axzz1JsQlPDn2>.
Prada, Paulo. "Brazil's Push to Oust Vale's CEO Reflects Trend - WSJ.com." Business News & Financial News - The Wall Street Journal - Wsj.com. 25 Mar. 2011. Web. 24 Mar. 2011. <http://online.wsj.com/article/SB1000142405274870442580457622123229172613 2.html>. "Vale International Relations Department." Telephone interview. 20 Feb. 2011.
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