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Bring the Brains Back

Bring the Brains Back

The strength of the real, and lower tariffs among other
things, are making Brazil a world-class importer. And Brazilians are enjoying
their new role. With more American ports offering service to Brazil, rates
should continue to fall, offering greater opportunities for U.S. exporters.
On the other side, distribution continues to be a big problem.
By Juliet Kong

It has never been easier to import in Brazil. Better shipping schedules
and rates, availability of financing, automated Customs releases through
a new computerized system called Siscomex, infrastructure developments
have all helped to improve the way imports flow into the country, and the
tendency is for things to get even better.

Brazil is importing like never before as a result of generally lower
tariffs and reduced non-tariff barriers, as well as the strength of the
Brazilian currency relative to the dollar. In 1996, the country imported
over $53 billion in products, a huge increase over the $15.9 billion imported
in 1990, when then President Fernando Collor de Mello first started the
process of trade liberalization.

With business booming, the Brazilian waters are crowded with steamship
lines chasing a slice of the trade pie. Major ocean carriers like Cho Yang,
Hanjin Lines and Maersk Lines have entered the market lately. Others, like
Companhia Marítima Nacional and Columbus Line have greatly enhanced
their services between the U.S. and South America. As sailing schedules
become even more frequent, and more American ports begin offering services
to Brazil, rates should continue to fall, offering greater opportunities
for U.S. exporters sending cargo to Brazil.

For air cargo, the scenario is the same. While Varig and VASP continue
to serve a wide range of points between the U.S. and Brazil, other cargo
carriers like Polar Air, Tower Air and American International are proposing
a massive increase in capacity on the already well served São Paulo
market, as well as Manaus, the capital of Amazonas state.

Obtaining financing for imports has become easier for Brazilian traders.
Bradesco, the biggest private bank in the country, financed 248% more in
1996 than in the previous year. According to Antônio Bórnia,
executive vice-president of Bradesco, "This reflects the growth of
imports. Just look at the trade deficit ($5.539 billion in 1996) and you
will understand." Financing international trade was a major investment
for the Brazilian banks in 1996 and will continue to be so in 1997.

To implement the import operations, starting on January 1, 1997, the
Secretariat of Foreign Trade’s computerized trade documentation system
— Siscomex (Sistema Integrado de Comércio Exterior — International
Trade Integrated System) — was set up in Brazil.

This computerized system was first started in 1993 to control the exportation
flow, and has greatly reduced the paperwork that slowed the process of
releasing cargo leaving the country. Siscomex now attempts to bring uniformity
to the import procedures, to improve Customs, administrative and exchange
controls, to reduce the costs related to the import operations as well
as to speed the release of cargo by automatically filing, registering and
processing all import licenses, besides linking all this to the Central
Bank databank for exchange and collection purposes.

"Nowadays, the import process is much faster, mainly after the
initial problems were overcome, " says Samuel Nebenzahl, executive
secretary for the ABTI (Brazilian Association of International Carriers).
He admits that in the first weeks after Siscomex was established, the biggest
problems were caused by the lack of preparation of importers, exporters
and customs brokers who did not believe that this sophisticated computerized
system was really going to start operating overnight. In time, he expects
that the reduction in wait for the release of imported goods will be 50%.

Of course the import process in Brazil is not without its share of difficulties.
Due to box-handling capabilities at many ports, distribution in Brazil
is still a problem. At the Port of Santos, for example, in addition to
limited berthing space, there is a lack of equipment to make efficient
transfers from ship to rail or truck. Adding to the problem, the government
strictly requires that Customs physically inspect all loads, congesting
the ports even more. Also, the costs to move containers at most Brazilian
ports is very high. For example, at the port of Rio de Janeiro, it costs
$550 to move a container, whereas in Jacksonville, USA, the average is
$200.

However, the Law of Port Modernization, which passed in February 1993,
mandating that the ports decentralize its administration, incorporate users
in port councils and permit the formation of labor pools to diminish restrictive
work practices, is already making progress in improving port conditions.
"We can say, for sure, that the privately owned terminals have a cost
reduction of 50%," says Sérgio Barroso, vice-president of Cargill,
a private-owned terminal in Santos. The savings are so significant that
Barroso has already announced the construction of a terminal for sugar
that will involve investments in the order of $35 million. This terminal
will be ready by the end of 1997 and will move one million tons of sugar.

The costs to move goods by land are equally high, and the conditions
of the roads are precarious at many places. The distance between São
Paulo and Santos is 45 miles through the mountain range of Serra do Mar.
For one container to get from one city to the other, the cost is between
$500 and $750. It’s the same price charged for the 450-mile trip between
Hamburg and Frankfurt in Germany. To change that, the Brazilian government
passed the Federal Concession Law in February 1995. It requires all services
provided by the public sector to be open to concession. If the law is followed,
foreign firms will eventually be able to bid on all projects of transportation.

Already, a number of transport projects are underway to improve distribution
in Brazil. The Tietê-Paraná Waterway project, for example,
involves 465 miles of primary waterways and 340 miles of secondary stretches
that will allow the multimodal transport of goods in large scale between
the agricultural land in the southeast and center-west with transportation
links in São Paulo and Santos.

The "Mercosul Waterway " will improve the flow of cargo through
the Brazilian borders by providing good navigation conditions for 1250
miles between Itaipu and Buenos Aires. Many railroad projects are also
under development, like the Center-East Railroad at Unaí-Pirapora,
and the Bauru-Corumbá Railroad between the Bolivian border and the
Brazilian Center West.

In the short term, importing in Brazil will continue to increase. The
growing need for raw materials, infrastructure and consumer goods that
the country cannot produce internally guarantees a steady increase in imports
over at least the next five years. In addition, the high cost of manufacturing
in Brazil continues to make importing a less expensive alternative. For
all these reasons, imports should continue to outstrip exports in Brazil’s
near future, making this a boom time for American and other foreign firms
exporting to Brazil.

Bring the Brains Back

César Vasconcelos

People have been asking: "How is the Mercosul doing?" The
reply is, "Splendid, thanks." Free trade and democracy are no
longer just buzzwords. Nowadays it has become a common place rather than
the exception in Latin America. We are living in a historical moment indeed.
With the exception of communist Cuba, we never had it so good. Throughout
Latin America, economic stability and prosperity are no longer a farfetched
dream. The result of these historical times can be accurately measured
and quantified. Regional differences have been put aside, and mutual cooperation
has now become a tangible reality.

The main objective of Mercosul is the free movement of people, goods,
and services. In addition to these trade liberalization measures, the Mercosul
treaty entails the lifting of tariffs and duties between the Mercosul members.
In order to qualify for the 0% tariff rule, the products traded by the
Mercosul members must have a nationalization content of 60%. Another important
rule of the Mercosul treaty is the educational integration, with school
diplomas being valid in all member states. A dentist who has graduated
from the University of Argentina, for example, can now practice his trade
in Brazil under the Mercosul integration approach.

Visas and passports are a thing of the past. They are no longer necessary
and people are free to find work in whatever place he/she sees fit. Additionally,
Portuguese has become a mandatory foreign language in Argentina, Paraguay
and Uruguay. Conversely, Brazilian students are now supposed to learn Spanish
in the classroom. All of this has set the stage for a true integration
in the region similar to the European Common Market.

Comprising Argentina, Paraguay, Uruguay and Brazil, the Southern Common
Market, known as Mercosul in Brazil and Mercosur in the other countries,
represents a population of 190 million people and covers an area of 12
million square kilometers. The total combined Gross Domestic Product (GDP)
of these nations is approximately $715 billion. Brazil is the dominant
economic force of the region. With an estimated GDP for 1994 of $500 billion
and a population of 155 million inhabitants, Brazil’s economy is by far
the largest.

Argentina comes in second with a GDP of $255 billion and a population
of 33 million people. Argentina’s economy has been posting an impressive
8% annual growth rate. Paraguay has 4.6 million inhabitants and a GDP of
$6.8 billion. Uruguay has only 3.1 million inhabitants, and a GDP of $11.4
billion. What Uruguay lacks in geographical size, it more than makes up
for in other significant areas. The country has a bustling economy making
it an important international financial center . With a highly dynamic
economy, and its strategic location, Uruguay is a perfect gateway for products
flowing between Brazil and Argentina and or Paraguay.

The Free Trade Zones created before 1994 can fortunately operate normally
under the Mercosul. Nevertheless, new Free Trade Zones are no longer allowed
amongst the member nations. The total economic integration of Latin American
in a free trade block will have far reaching implications for years to
come. This wave of trade liberalization will no doubt require specialized
labor. Jobs, a worldwide rarity, are expected to be created in vast numbers.
Fortunately for the region, they have realized that the only way they can
catch up and prosper in these competitive global economic times is by joining
forces.

There are many well-qualified people who have left Latin America during
the troubled 80s — they call it the Lost Decade in Brazil. This brain exodus
was a terrible loss to Latin America. The good news is that these exiles
are anxiously waiting for the right opportunity to return. The time has
arrived for Latin America to bring all this talent back home. These now
seasoned Latin Americans will bring with them knowledge and precious professional
experience acquired abroad. They can help their countries become a formidable
competitor in the global economy. For the sake of the region, let’s hope
that Latin America will seize the moment.

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