Tag Archive: economy


Why Brazilians are so optimistic these days? The inhabitants of the largest economy of Latin America were always seen as having a very positive vision of life, buy now they seem to be overoptimistic. The well-known BBC presenter Robin Lustic went to Brazil to find out what makes them so happy: “For millions of them, the past few years have brought greater wealth, more jobs – and with them, it seems, more happiness. In four years’ time, Rio will host the World Cup final, and two years later, in 2016, the Olympic Games. What more could anyone want?” – says him, adding: “Over the past decade, average income for the least well-off in Brazil has risen by more than 70 per cent. For the richest, incomes have risen by just 11 per cent. As a result, the gap between the rich and the poor has narrowed. Between 2003 and 2008, more than 30 million people were lifted out of poverty.”

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Photo by Pedro Kirilos/Riotur

By VICTORIA GOMELSKY, from The New York Times

 

Rio is expected to attract billions in public and private investment over the next few years.

RIO DE JANEIRO — On Alexandra Daly’s most recent visit here in May, she was booked into a hotel across the street from the most happening stretch of Ipanema beach. The perk, however, proved irrelevant. Ms. Daly had not bothered to pack a bikini.

“I had nine meetings in one day,” said Ms. Daly, a hedge fund marketer, whose London-based company, AA Advisors, works with about 35 major Brazilian investors. “I don’t even have days like that in New York. When you’re talking about Rio, people think of samba, Sugar Loaf mountain and the beach — not the billion-dollar investment industry.”

The conventional view of Brazil’s two largest cities is that São Paulo, with its banks, commerce and industry, got the brains, while Rio, with miles of crescent-shaped beaches, Carnival revelers and picturesque bay, got the looks. But the truth is that the “Marvelous City,” as Rio is known, is increasingly a serious destination for business travelers.

Brazil’s growing standing among global financiers is one explanation. Poised to become the world’s fifth-largest economy by 2016, the country has emerged from recession virtually unscathed, earning the envy of its Group of 20 cohorts.

São Paulo is the center of the boom. But Rio brings plenty of opportunities to the table, not only with its core oil and natural gas businesses, but also in financial services, technology and telecommunications.

An August 2009 study, “Decision: Rio Investments 2010-2012,” published by the Rio de Janeiro State Federation of Industries, predicted that public and private investment would pump $60.3 billion into the state over the next three years, not counting the additional $14.2 billion budgeted for the 2016 Olympic Games.

“I would dare to say that, probably, we have the biggest concentration of billion dollars in investment per square kilometer in the world,” said Cristiano Prado, the author of the industry federation’s study. “And more will come together with the Olympic Games in the next years.”

Not since 1808, when the Portuguese monarchy sailed into Guanabara Bay, fleeing Lisbon ahead of Napoleon’s army, has Rio seen such a spectacular influx of wealth. And not since 1960, when Rio ceded its capital status to Brasília, setting off an exodus of businesses and a half-century of urban decline, have Cariocas, as Rio’s residents are called, had a reason to believe the wealth would return.

“There is hope that with a government that is more pro-business, more things will happen in Rio,” said Ronaldo Veirano, founding partner of Veirano Advogados, a Rio-based law firm that worked on the federation’s study. “Hotel chains are now thinking seriously about their capacity and authorities are investing in infrastructure. I don’t think Rio will ever be another São Paulo but I think it could recover some of its glamour.”

The most conspicuous hurdle is an epic crime problem that has branded Rio one of the world’s most dangerous cities. On Oct. 17, for example, drug-trafficking gangs inside a favela, or slum, shot down a police helicopter in a series of clashes that left three police officers and at least 23 others dead.

Government leaders are eager to project a different image to the business community. “Clearly, the model we have is Barcelona,” said Felipe Góes, Mayor Eduardo Paes’s secretary of development.

Like the Spanish city, which cleaned up in time to be host for the 1992 Olympics, Rio hopes to reinvent itself for the Games. Presiding over the transformation is the billionaire Eike Batista, a mining magnate whose EBX Group has interests in real estate, energy, oil and tourism.

One of Batista’s pet projects is the deluxe restoration of the venerable Hotel Gloria, a 1920s landmark five minutes from the city center, where two of the largest corporate players in Brazil, Petrobras and Vale, still have their headquarters. The opening of the refurbished hotel is planned for 2011.

Other hoteliers have taken notice. Rio’s grandest property, the 86-year-old Copacabana Palace, introduced its sleek new Bar do Copa in March.

Meanwhile, the two-year-old Hotel Fasano in Ipanema boasts the stylish Baretto-Londra Bar designed by Philippe Starck.

Another newcomer is the year-old Hotel Santa Teresa, set in an acre of gardens in the artsy, hilltop enclave of the same name, just 10 minutes from downtown but far away in atmosphere.

“The advantage is we have only 44 rooms, 4,000 square meters and 150 tropical trees on the property,” the general manager, Mark Birchall, said. “You feel almost as if you’re in the mountains.”

In general, Rio’s accommodation capacity, currently 28,000 hotel rooms, is expanding at the rate of 1,000 rooms a year, said Paulo Senise, executive director of the Rio Convention & Visitors Bureau.

“The idea is to increase that to 1,500 to 2,000 per year for a total addition of 14,000 hotel rooms by the Olympics,” Mr. Senise said.

Overcoming its reputation as a parochial party town looks to be Rio’s biggest challenge domestically. In São Paulo, the locals, known as Paulistas, have long derided Rio for its supposed lack of sophistication. Many recent visitors, however, insist that Rio offers plenty of fashionable dining and nightlife options, from the baroque antiquarian bars and clubs of Lapa, near downtown, to the posh beach cafes of Ipanema, Leblon, and Barra da Tijuca.

“In terms of service, you are not lacking in Rio at all,” said Ted Rogers, a Washington-based venture capitalist who has done business in Rio since 2006 and blogs about it at http://www.vc-brazil.com. “I’d argue that the way the city is laid out, you have easier access to the places you want to go than in São Paulo.”

International access is set to improve Dec. 15, when US Airways begins direct service to Rio from its hub in Charlotte, North Carolina, the largest banking headquarters in the United States after New York City.

For all its current mojo, however, Rio faces one inescapable deterrent to sober-suited business development. Riotur, the government-owned tourist office, spells it out in its colorful introductory guide: “It is very difficult for anyone who visits Rio to resist the appeal of its 86 kilometers of beaches.”

That is more than 50 miles of beaches.

Mr. Rogers, for one, doesn’t even try. He said his best business days began with a run on the beach, followed by a quick swim. The routine, he said, puts him “in a relaxed but energized mind-set.”

“It’s hard to stress about business when on the beach in Rio,” he said, as he planned a return trip to the city at the end of October. “And by the end of the weekend, it is equally hard not to feel rejuvenated.”

World Out of Balance

International travel by world leaders is mainly about making symbolic gestures. Nobody expects President Obama to come back from China with major new agreements, on economic policy or anything else.
Photo by Fred R. Conrad/The New York Times

But let’s hope that when the cameras aren’t rolling Mr. Obama and his hosts engage in some frank talk about currency policy. For the problem of international trade imbalances is about to get substantially worse. And there’s a potentially ugly confrontation looming unless China mends its ways.

Some background: Most of the world’s major currencies “float” against one another. That is, their relative values move up or down depending on market forces. That doesn’t necessarily mean that governments pursue pure hands-off policies: countries sometimes limit capital outflows when there’s a run on their currency (as Iceland did last year) or take steps to discourage hot-money inflows when they fear that speculators love their economies not wisely but too well (which is what Brazil is doing right now). But these days most nations try to keep the value of their currency in line with long-term economic fundamentals.

China is the great exception. Despite huge trade surpluses and the desire of many investors to buy into this fast-growing economy — forces that should have strengthened the renminbi, China’s currency — Chinese authorities have kept that currency persistently weak. They’ve done this mainly by trading renminbi for dollars, which they have accumulated in vast quantities.

And in recent months China has carried out what amounts to a beggar-thy-neighbor devaluation, keeping the yuan-dollar exchange rate fixed even as the dollar has fallen sharply against other major currencies. This has given Chinese exporters a growing competitive advantage over their rivals, especially producers in other developing countries.

What makes China’s currency policy especially problematic is the depressed state of the world economy. Cheap money and fiscal stimulus seem to have averted a second Great Depression. But policy makers haven’t been able to generate enough spending, public or private, to make progress against mass unemployment. And China’s weak-currency policy exacerbates the problem, in effect siphoning much-needed demand away from the rest of the world into the pockets of artificially competitive Chinese exporters.

But why do I say that this problem is about to get much worse? Because for the past year the true scale of the China problem has been masked by temporary factors. Looking forward, we can expect to see both China’s trade surplus and America’s trade deficit surge.

That, at any rate, is the argument made in a new paper by Richard Baldwin and Daria Taglioni of the Graduate Institute, Geneva. As they note, trade imbalances, both China’s surplus and America’s deficit, have recently been much smaller than they were a few years ago. But, they argue, “these global imbalance improvements are mostly illusory — the transitory side effect of the greatest trade collapse the world has ever seen.”

Indeed, the 2008-9 plunge in world trade was one for the record books. What it mainly reflected was the fact that modern trade is dominated by sales of durable manufactured goods — and in the face of severe financial crisis and its attendant uncertainty, both consumers and corporations postponed purchases of anything that wasn’t needed immediately. How did this reduce the U.S. trade deficit? Imports of goods like automobiles collapsed; so did some U.S. exports; but because we came into the crisis importing much more than we exported, the net effect was a smaller trade gap.

But with the financial crisis abating, this process is going into reverse. Last week’s U.S. trade report showed a sharp increase in the trade deficit between August and September. And there will be many more reports along those lines.

So picture this: month after month of headlines juxtaposing soaring U.S. trade deficits and Chinese trade surpluses with the suffering of unemployed American workers. If I were the Chinese government, I’d be really worried about that prospect.

Unfortunately, the Chinese don’t seem to get it: rather than face up to the need to change their currency policy, they’ve taken to lecturing the United States, telling us to raise interest rates and curb fiscal deficits — that is, to make our unemployment problem even worse.

And I’m not sure the Obama administration gets it, either. The administration’s statements on Chinese currency policy seem pro forma, lacking any sense of urgency.

That needs to change. I don’t begrudge Mr. Obama the banquets and the photo ops; they’re part of his job. But behind the scenes he better be warning the Chinese that they’re playing a dangerous game.