Brazilian Ambassador for the UK, Roberto Jaguaribe says “foreign investment has to generate national empowerment, skills and employment”, increasing the basis of production and competitiveness
By Guilherme Reis
The international perception of Brazil, and how the country stands in the process of globalisation has been in the spotlight this year with events that led to the formation of a wide range of interpretations. From the country’s ability to host the World Cup to the choice of the new President, there were plenty of arguments pointing out the best paths toward the development of the world’s seventh largest economy. An economy that, now is facing a lower external growth, with the risk of stagnation, while maintaining enviable rates in relation to employment, increasing wages and reducing inequality compared with some developed countries.
For a greater understanding about the role Brazil plays in the world today and to open a wider dialogue with all those who see the country a vast portfolio of opportunities, Brasil Observer interviewed Brazil’s Ambassador for the UK, Roberto Jaguaribe. Conducted before the runoff election which re-elected President Dilma Rousseff to four more years in office, the conversation revolved around bilateral relations between Brazilians and British, passing through the challenges of development in emerging countries and the Latin American integration.
This interview was conducted in London before the runoff election which re-elected Brazil’s President Dilma Rousseff (Photo: Rômulo Seitenfus)
What is the focus of the Brazilian Embassy in London?
Like any Embassy of Brazil in the world, we have some permanent goals. The most obvious to us is to broaden, strengthen and deepen bilateral ties with the UK. So we cannot lose sight of some elements. First of all, the relevance of the bilateral relationship. Second, the understanding of Britain as a major global actor. Third, the multiple facets that London features and that are not necessary and directly linked to the British government, as it has its own dimension.
Obviously this year for Brazil is different, so we had different focuses. We first had the World Cup, which generated huge expectations and a lot of tension about what was going to happen. The embassy was very dedicated to rationalise this debate and show that there was a more than adequate preparation for the event. Second we are in an election year, which generate different demands and questions.
How do elections affect your work?
It creates an internal demand for coordination of a series of elements and also an expectation of greater knowledge and understanding of Brazil. Obviously, the Embassy is not here to address a specific political action, but to clarify elements in relation to Brazil, which gains more visibility because of the elections.
But I wanted to talk about Brazil’s insertion on the world. I think this is a key issue and one must understand that the insertion of a country on the world is only effective if it is consequent and coherent. Consequent with reliable, established and solid foreign policy. Coherent with the internal projection of your own country. Foreign policy of any country cannot have a very sharp dissonance between what the country is in terms of culture, vocation, nature, size, problems and challenges. All has to be addresses in foreign policy.
Brazil is a country that embraces diversity and welcomes others. Whether you are visiting Brazil for a short time or long-term immigration, you are integrated. Within this multicultural landscape, we have a major Western tradition that makes us feel ease in dialogue with our closest neighbours and also with traditional partners such as Europe and the United States.
On the other hand, Brazil is a developing country, an emerging country that needs to meet numerous challenges and problems ahead. This puts us in a position of enormous understanding about the problems and challenges that other emerging countries have. So, along with this other group of countries, we share a lot of interests and wills. So we put ourselves simultaneously in these two worlds, traditional western countries and emerging ones. I do not see any contradiction in that. Our development challenges are very similar to those found in our neighbours, but also in African countries, Asia and elsewhere in the world. Then we create conditions terms of affinity, closeness and understanding with a very large group of countries.
A third element is that for many years Brazil has developed an independent foreign policy. We do not join the position of any other country automatically. Brazil has no allies, instead Brazil has friends. So Brazil creates affinities with most countries and tries to generate a policy to approach, always with independence. And within that logic is necessary to maintain a certain high standard to gain reliability.
There is a consensus that for Brazil to enter into a new cycle of development it is necessary to increase investments significantly, including attracting foreign capital. Do you think the country is doing enough efforts in this direction?
Brazil is a country of great attractiveness for foreign investment. And regardless of certain cyclical variations, it remains attractive. In recent years the flow of investments in Brazil has been very important, which does not mean we have no problems. The level of internal investment in Brazilian economy is down, close to 16%, and historically we have had higher levels. But Brazil remains attractive for investments and certainly depends on the Embassy promoting the attractiveness of these investments. We have host events here with the former Ministry of Civil House, Gleisi Hoffmann, presenting investments packages in infrastructure, and the Communications Minister Paulo Bernardo, for the issue of 4G technology. We often make smaller meetings on various types of investments. And every year we do a big event for attracting investments in the oil and gas sector, which is certainly the sector that is most developed.
What do investors need to be successful in Brazil?
Brazil has been open to investment for many years. So you first need an understanding of Brazil. I think it is important to establish appropriate partnerships and create a building scheme in the country. What do I mean by that? Brazil is not in the market to stay pure making purchases; is in the global market to empowerment and development. To technology absorption; increase industrial production and capacity. So it’s not exclusively a purchase wholesale, but rather a matter of form the basis of production and competitiveness. One must understand that this is the goal of the investment that we desire. Foreign investment has to generate national development, skills and employment.
The reciprocal path is also important for the country, like the internationalisation of Brazilian companies…
Certainly. Brazil was the second largest foreign investor in the European Union in 2013, behind only the United States. There are Brazilian companies that are increasingly becoming global in sectors like energy, mining, steel, distribution, services, computer… There is a growing number of Brazilian companies seeking global space. And the truth is that to be competitive at home, it is now necessary to be competitive abroad.
But there are still many complaints in Brazil towards the competitiveness of Brazilian companies…
There are elements that need to be addressed, and they are being attacked, but they still need a lot of internal efforts to be overcome and improve the competitiveness of certain productive sectors in Brazil. We have the famous ‘Brazil costs’, related to bureaucracy, waste, infrastructure deficiency… There are many elements that require a significant effort to overcome.
Is there an unnecessary clash between state and market?
This happens in all countries of the world. The perception today is more important than reality, because it has become the reality. So it’s important to transmit a receptivity signal to ensure reciprocity. Brazil has a very old history of absorbing foreign capital, but the relationship has changed because the importance of the country has changed and Brazil is no longer a country that wants to buy ready-made packages. Brazil aims to empower itself, aims that the investments have convergence towards domestic production, employment generation and increase productive capacity. This is a process that many companies are already doing and will continue.
Has the crisis damaged the external perception of Brazil?
The financial crisis has generated different forms of assessment and investment, with greater caution. Today investors are cautious around the world, holding a little over their investment capabilities. There is a greater risk aversion. But I have no doubt that looking at the issue on the required form and with a long term view Brazil is one of the most attractive countries on the world. We have favourable demographics, natural resources, stable democratic environment, important institutional solidification, extraordinary production capacity in agribusiness sector, clean energy matrix, availability of various sources of energy. All long term elements indicate great attractiveness of Brazil.
What risks are present in Brazil?
The risk is the lack of growth. In Brazil, there is a growing understanding that to be based solely on the ability to expand the consumption of the middle class is no longer enough. This will continue and it is important to continue, but it must be extended to other aspects, because by itself is not enough to sustain growth and social mobility. There are also concerns about inflationary issues, but the Central Bank has acted to prevent the escape of the inflation.
Is there a danger that the focus on Brazil in relation to the other BRICS countries has taken the South American integration out of focus?
I do not think that’s true. The number one priority of Brazil’s foreign policy is with our neighbourhood, which I think is right and natural. The progress of Brazil must be the progress of our neighbours and vice versa. But Brazil is a country of such great size that ends up turning into a natural global actor. So the creation of other groups that strengthen us in the international arena is of great importance, and the BRICS is one of them.
What is Brazil doing to progress the trade agreement that between Mercosur and the European Union?
The problem of making an agreement between two blocks that assemble more than 30 countries is that it needs the support of all of them. Of course this is dragging on too long, with claims that Argentina’s foot dragging, that Brazil itself was not encouraged, but the truth is that Brazil is determined, the Brazilian industry is very interested in that and the government certainly is too. We cannot make a deal just because it’s a deal. We need an agreement with real meaning, which bring important achievements, tangible benefits. I have no doubt that this agreement will come out.
In the Latin American environment, what is necessary to overcome the apparent discrepancies between the Pacific Alliance and Mercosur?
Mercosur is an effective institutional reality. The Pacific Alliance is a projection of countries that have no borders among themselves, they have no immediate natural physical integration, but they have a unity of purpose that I find commendable. I see no incompatibility between the two blocks. I think ending the gap between both is natural.
According to the US diplomat Arturo Valenzuela, Mercosur would be more of a customs union, while the Pacific Alliance would be more market-driven…
Obviously this is a personal opinion. The same could be said of the Pacific Alliance, which is an alliance of ideological strand of countries seeking a more liberal approach. But I do not believe it is like that. I believe it is a genuine interest of convergence, to enhance the participation of these countries in the world. Mercosur is much more than the Pacific Alliance in terms of construction and in terms of reality. But I do not see any need to maintain a distance. Brazil has a notion that the integration of South America is the main goal. Our central goal of integration is the strengthening of Unasur.
NOTES AND INFORMATION
- In 2013, the UK was the 12th trading partner of Brazil in terms of exports and 15th in terms of imports. From 2003 to 2013, Brazilian exports to the UK increased by almost 120%. Brazilian imports also showed large increases in recent years and in 2013 rose by just over 7%. The trade balance showed a surplus for Brazil last year of £304 million – with total bilateral trade of £4.81billion, almost 4% lower than in 2012. Brazilian exports to the UK are diverse although the raw materials and semi-manufactured products have greater prominence. Brazilian imports from the United Kingdom are predominantly cwntered on factors of production and capital goods.
- Brazil had an 8% increase in the flow of Foreign Direct Investment (FDI) between January and August 2014, reaching well over £26 billion, reported the Economic Commission for Latin America and the Caribbean. Official estimates indicate that annual revenue from Brazil this year will be similar to that recorded in the previous year, which ended 2013 with over £40 billion. This growth happened in a downturn scenario in the region as a whole. The flow of FDI in 13 countries in Latin America and the Caribbean fell 23% during the first half of 2014 compared to the same period of 2013, reaching a total of only £52 billion. Brazil in 2014 received half of the total value of FDI in these countries of Latin America and the Caribbean.
- The internationalisation of Brazilian companies grew 1.6% in 2013, according to a survey prepared by the Dom Cabral Foundation. The ranking represents a sample of Brazilian multinationals who agreed to participate. The survey is done annually and takes into account the data of assets, revenues and employees of these companies abroad. The survey showed that 65.1% of companies plan to expand their operations in markets where they already operate abroad. Other 44.4% plan to enter new countries in 2014, numbers that have been repeated in previous surveys. South America leads with 75.8% of Brazilian multinationals with physical presence in the region, followed by North America (66.7%) and Europe (54.6%).
- Brazil was the second largest investor in the European Union in 2013, behind only the United States. The list has a large US leadership (£245 billion), followed by Brazil (£16 billion), Switzerland (£14 billion), Japan (£8 billion), Hong Kong and Russia (both £6 billion). In 2013, the top destination for investment from the European Union was also the United States (£124 billion), followed by Offshore financial centres (£31 000 billion), Brazil (£28 billion), Switzerland (£19 billion), Hong Kong (£8 billion) and China (£6 billion). In the general framework, foreign direct investment of the 28 countries of the European Union (EU28) for the rest of the world has reached £266 billion last year, while investment from the rest of the world in the EU28 was £256 billion.
- In July 2014, the governments of Brazil, Russia, India, China and South Africa signed the agreement that created the BRICS Development Bank, an institution that will finance infrastructure projects and development. The new bank will have an initial authorised capital of US$ 100 billion (£63 billion). Arrangement has also created the Contingent Reserves, with an initial amount of another US$ 100 billion. The arrangement will act as a “cushion of safety” and will be an additional mechanism to others that already exist, such as the IMF (International Monetary Fund). Together, the five BRICS countries represent 46% of world population and 18% of the world GDP. In ten years, trade between them has increased 922%, from £17 billion in 2002 to £173 billion in 2012.
- In 2013, members of the Pacific Alliance (Mexico, Peru, Chile, Colombia and Costa Rica) had a combined economic growth of 5%, with trade between them growing 1.3% over the previous year. Mercosur (Brazil, Argentina, Venezuela, Uruguay and Paraguay) had a combined growth of 2.9%, with a reduction of trade among its member countries on the order of 9.4%. For 2014, according to a survey of US investment bank Morgan Stanley is predicting that growth in the Pacific Alliance of GDP is 4.25%; Mercosur, up 1.9%. The Pacific Alliance now represents half of the region’s exports, despite a combined GDP totalling less than two-thirds of Mercosur.
