Brazil: Challenges and Opportunities in the New Global Scenario

Keynote Speakers:

• Clifford Sobel, Ambassador of the US to Brazil
• Ivan Ramalho, Vice Minister, Development, Industry and Foreign Trade of Brazil

Welcoming Remarks:

• Elcio Aníbal de Lucca, Chairman of the Board, Movimento Brasil Competitivo
• Susan Segal, President and CEO, Americas Society/Council of the Americas

Conference Panelists:

• John Welch, Chief International Economist, Banco Itaú BBA
• Alan Thompson, Managing Director, Temasek
• Juan Carlos Felix, Director, The Carlyle Group
• Eric Farnsworth, Vice President, AS/COA
• Marvin Odum, President Shell Oil; Executive Vice President for Americas Exploration & Production
• Roberto Rodrigues, Co-Chair, Inter-American Ethanol Commission
• Eleazar de Carvalho Filho, Founding Partner, Iposeira Capital
• John Wilcox, Chairman Sodali, Ltd. GWM Group
• Mauro Rodrigues da Cunha, Partner and Head of Equities, Mauá Investimentos
• Roberto Civita, Chairman and CEO,  Grupo Abril
• Luiz Furlan, Chairman of the Board, Sadia S.A.

Summary

The Americas Society and Council of the Americas hosted their 6th São Paulo Conference, “Brazil: Challenges and Opportunities in the New Global Scenario” on June 9th, 2009. The conference, co-organized with Movimento Brasil Competitivo (MBC), examined a number of topics, including the current state of the Brazilian economy, prospects for growth in light of the crisis, energy and climate change initiatives, the U.S.-Brazilian relationship, and corporate governance in Brazil and abroad.

Among the speakers and panelists were current and former government ministers, economists, investors, and senior-level executives, who cited the economic and social progress made over the past decade in Brazil. Conference speakers outlined the challenges ahead on the path out of the global financial crisis.

Remarks by Ivan Ramalho, Vice-Minister, Development, Industry and Foreign Trade of Brazil

Vice Minister Ivan Ramalho spoke on Brazilian trade, saying growth decelerated because of the global financial crisis. He provided an explanation for China’s recent leapfrogging of the United States as Brazil’s main trade partner: The United States imports more manufactured goods relative to primary goods than China and demand for primary goods is more stable during a recession. As such, the minister predicts the United States and Argentina will regain their former status of being Brazil’s largest trading partners.

Minister Ramalho went on to describe the importance of diversifying the country’s export mix (primary goods constitute about 30 percent) and its trading partners, including new efforts to increase trade with African countries. He concluded with the government’s goal to reach a level of 1.25 percent of global exports to cement its position among the world’s 30 top exporters.

Economic Prospects and Investment Opportunities in Brazil and Latin America

The conference’s first panel offered an outlook for Latin America and Brazil’s economic and investment situation in the current global environment. For Itaú BBA’s John Welch, countries such as Brazil, Chile, Peru, Colombia, and Mexico that made economic reforms have good economic prospects and stand as solid candidates for investment capital. Brazil in particular did its homework, making the Central Bank more responsive and the financial sector more flexible and strongly capitalized. Also, good fiscal policy for the past 10 years allowed the implementation of countercyclical policies to help weather the current storm.

The Carlyle Group’s Juan Carlos Felix explained that many opportunities exist for private equity developments in Brazil because of both the good economic prospects and the fledgling state of the industry. Challenges persist, such as educating and explaining the benefits of private equity, but Felix remains confident that the conditions for development are present.

Explaining Temasek’s decision to invest in Brazil, Alan Thompson discussed the transformation of Brazil’s economy. A growing and sustainable middle class with appetite for consumption forms the basis of their investment strategy, as consumption will be the engine for growth. Thompson said consumption along with competitiveness will drive business in the region. In his view, challenges for Brazil include improvements in infrastructure and technology as well as the simplification of a complicated tax structure. But he concluded with optimism about the future.

Roundtable: Energy and Climate Change

The International Biofuels Commission’s Roberto Rodrigues and Shell’s Marvin Odum spoke of the important role that biofuels play in reducing carbon emissions and mitigating global warming. Rejecting the notion that the prices of food and fuel are connected and that sugarcane production will destroy the Amazon, Rodrigues said that nothing except political will hinders the creation of a global market for biofuels. The speakers agreed that government-to-government cooperation, particularly between Brazil and the United States, remains critical for meeting growing energy demand and mitigating climate change. Looking ahead to the Copenhagen Climate Change Conference in December 2009, Odum said priorities should include a transparent definition of the lifecycle of biofuels, elimination of trade barriers, and harmonization of climate mitigation systems. He said that the United States and Brazil could serve as models for the rest of the world in these areas. “If you speak the truth, you will convince people,” said Rodrigues.

Roundtable: Corporate Governance

Iposeira Capital’s Eleazar de Carvalho Filho led Sodali’s John Wilcox and the Instituto Brasileiro de Governança Corporativa’s Mauro Rodrigues da Cunha into a discussion of the current state of corporate governance in Brazil and its historical precedents domestically and abroad. Wilcox explained that best practices were quite rigid in the past and aimed at a very rigid corporate structure, generally of dispersed ownership. Other structures such as family ownership were looked upon by U.S. investors as inferior, but now they are simply seen as different. Wilcox went on to outline the changes in perception of the subject, saying: “Issues of corporate governance are not issues of compliance anymore, they are issues of strategy.” Under this new understanding, boards of directors will engage more deeply with their companies, addressing remuneration, for example—a topic Wilcox believes has been dealt with only superficially by boards.

Da Cunha discussed the ideal role of a board of directors, explaining that fiduciary duties need to be better understood. “A board member represents the entire shareholder base,” he said, instead of a minority shareholder group, for example. Da Cunha also addressed difficulties inherent to Brazil, such as the ease with which legal entities can be disregarded, undermining the purpose of the limited liability company. He also said that “radical corporate democracy” exists wherein a perhaps too-small ownership block can call for shareholder meetings, thus wielding excessive power.

Both speakers concluded that further progress should be accomplished in light of the crisis. The glaring failures in risk management that produced the current global downturn should provide excellent motivation for further involvement by shareholders and boards as their representatives.

Remarks by Roberto Civita, Chairman and CEO, Grupo Abril and Clifford Sobel, Ambassador of the U.S. to Brazil

The Abril Group’s Roberto Civita and U.S. Ambassador to Brazil Clifford Sobel spoke about Brazil’s emergence as a global leader and emphasized the importance of bilateral cooperation to address global challenges and promote prosperity. Civita pointed out that Brazil has seen the emergence of a socioeconomic class of consumers over the last decade, and credited the political stability initiated by former President Fernando Henrique Cardoso and continued by President Luiz Inácio Lula da Silva. He highlighted the involvement of government, private enterprise, and volunteers in improving education, which he called the single most important factor for the next generation in Brazil. Sobel said Brazil will serve as a “platform for growth for years to come.” He encouraged stakeholders to stay engaged as Brazil continues to develop in strength and influence.

Remarks by Luiz Furlan, Chairman of the Board, Sadia S.A.

In an interview with AS/COA’s Susan Segal, Sadia S.A.’s Luiz Furlan spoke on the consolidation of markets in Brazil, especially in light of the merger between Sadia and Perdigão into the giant Brazil Foods. In Mr. Furlan’s view, large Brazilian multinationals are crucial to the country’s regional and global leadership role, extending the country’s reach and influence through an increase in exports to help diversify the economy.