IXP – The Brazilian Rendezvous

Contemporary global economic parlance has an acronym “BRIC” referring to four large emerging countries deemed to be at a similar stage of economic growth. While China and India are often referred to as the engines for world GDP growth, it is the “B” within the BRIC that holds some of the world’s largest agricultural, petroleum and mining reserves. Having lived mostly in Asia and Europe, I was naturally thrilled to get a spot on the Brazilian IXP, structured to provide an indelible perspective of agri, bio-fuels and commodity sectors in the largest economy of South America.

The IXP began at Rio de Janeiro, a city well known for its fine beaches and tourist spots. Our first field visit, however, was to a favela or a shantytown on a hill overlooking the rich Rio neighbourhood. Favelas are mostly inhabited by those living at the bottom of the economic pyramid. Brazil is reported to have over the last decade, pulled over 30 million persons, out of poverty. The per capita monthly income generated by an inhabitant of the favela we visited was about $300, nearly ten times the World Bank’s definition of income at the poverty line. The government together with the private sector and civil society has dedicated resources to not only improve infrastructure, but also to increase education and reduce crime within such favelas. This visit was to understand Brazil’s approach to tacking poverty – very different from that seen in other BRIC nations. Our next major visit was to the headquarters (HQ) of Vale, the world’s largest iron-ore producer. The opportunity to get a glimpse of the intricacies in Vale’s mining businesses together with its commodity hedging strategy was very educational. The following two days were spent at the Petrobras University, the central learning centre of Petrobras, one of the largest National Oil Companies in the world. In addition to understanding the organisational and governance issues facing the learning centre, sideline conversations with the Petrobras leadership team provided an in-depth insight into the company’s diverse and growing energy business. Our final visit was to BioRio, a biotechnology startup. Interaction with the founder highlighted the opportunities and challenges for entrepreneurs in Brazil.

After six enjoyable days at Rio, which included social outings to the Cristo Redentor, Sugarloaf and Rio Scenarium, we left our hotel facing the Copacabana beach to Brasilia, the capital city of Brazil.

Brasilia was inaugurated in 1960 in the central area of the country resulting in the construction of City houses the Brazilian Congress, Senate, Supreme Court, various Ministries and Government Offices. The suburban regions of Brasilia are home to some of the largest farms and cooperatives in the country. The visits to EMBRAPA agricultural research centre and the 15000 hectare Wehrmann agri farm highlighted the comparative advantage Brazil has in farming, particularly in soybean and sugarcane cultivation. With year round crop production, low cost labour and abundant water/power supply, Brazil has managed to achieve a cost per bushel lower than even what some of the most mechanized farms in the USA have achieved. This comparative advantage has spilled-over to biofuel and biodiesel production, which has made Brazil the world’s largest exporter of ethanol. Our stay in Brasilia culminated with a visit to the Itamaraty (Ministry of Foreign Affairs), where we had an opportunity to interact with a senior ministry official on Brazil’s foreign policy.

Our next destination was the sprawling and lively city of Sao Paulo. With 15 million inhabitants, and countless restaurants and entertainment options, the city never sleeps. The first day was spent on a Real Markets project, where we could interact with both representatives from the Harvard David Rockefeller Centre and local students to delve deeper into specific areas of interest such as alternative fuels and the stock market. Field trips at Sao Paulo included a visit to BioCapital, one of Brazil’s largest biofuel manufacturers, followed by a visit to Estre a large scale waste management/renewable energy company. Both these visits showcased the cross fertilization of innovative technology and modern management practices in creating sustainable energy solutions.

Admittedly, Brazil does have longstanding problems, which include inadequate infrastructure, high cost of borrowing, heavy tax burden and the relatively higher price of energy, all of which drive up the costs of industrial production. Further, the relative roles of entrepreneurship and innovation in increasing the productive capacity and poverty alleviation are not clear.

Nonetheless, it would only be fair to recognise Brazil as one of the most advantaged countries in the world. It vindicates the popular notion that with the right institutions and leadership for sustained periods of time, the sky is the limit for what such well-endowed countries can hope to achieve.

January 31, 2011
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