Steven Bipes is the Executive Director of the Brazil-U.S. Business Council. Mr. Bipes is responsible for developing, promoting, and executing programs and policy that seeks to advance trade and investment between the United States and Brazil. Established in 1976, the Brazil-U.S. Business Council’s goal was to create understanding and advance the major business priorities between the United States and Brazil. We spoke to Mr. Bipes about some of the opportunities and challenges faced by Steven both nations.
Can you tell us a bit about what the Brazil–U.S. Business Council is and what they aim to do?
The Brazil-U.S. Business Council is the premier business advocacy organization dedicated to strengthening the economic and commercial relationship between the two countries. The U.S. section of the Council represents the majority of top 100 U.S. companies with investment or business in Brazil. The Council was created to foster understanding between the two countries and advance the priorities of the bilateral business sector.
Why should we be excited about Brazil?
Brazil’s burgeoning market, fast economic growth and opportunities for U.S. companies are the main reasons to be excited about Brazil. In one decade, about 20 million Brazilians have been raised from poverty and 36 million entered the middle class, now comprised of around 60% of the country’s population. Moreover, the country is growing fast – Brazil’s economy expanded by 7.5% in 2010 – and offers an incredible number of opportunities for U.S. companies, from the 2014 World Cup and 2016 Olympics to the “pre-salt” oil discoveries.
We read a lot about Americans investing in emerging markets such as Brazil, but we don’t hear enough about how much money businesses in emerging markets are investing in the United States. Firstly, how much capital is making its way into the American markets from Brazil, and what can be done to increase that investment?
The relationship between the two countries has undergone a significant transformation in the past two decades. Around 20 years ago, the United States helped Brazil restructure its sovereign debt through schemes such as the Brady Plan. 15 years ago, even after Brazil’s currency stabilization in 1994 with the Real Plan, the United States still played a significant role in protecting Brazil from contagion of external shocks, such as the 1997 Asian Crisis and the 1998 Russian Crisis. During this time, U.S. investment in Brazil far outweighed Brazilian capital in the United States. In less than a decade, however, this situation has in fact disappeared. Although the U.S. is still a major investor in the South American giant, Brazil is today among the top five financers of U.S. debt, and Brazilian companies are investing billions throughout the 50 U.S. states – from banks and aircraft manufacturing in Florida, to textiles and apparel in the Carolinas, to chemicals in New England and beef in Colorado. Few Americans know that Budweiser and Burger King are actually controlled by Brazilians!
IN ONE DECADE, ABOUT 20
MILLION BRAZILIANS HAVE
BEEN RAISED FROM POVERTY…
With the World Cup arguably being the most important sporting event in the world just over the horizon, what are some of the opportunities that American businesses might have there?
There is a wealth of opportunities for U.S. companies in Brazil. However, these opportunities can only be tapped with a thorough understanding of the Brazilian economic model and culture. Brazil’s model differs greatly from the U.S. In Brazil, state intervention in the economy is higher and the government has a more pronounced role. As Sergio Lazzarini, a renowned Brazilian scholar and feature of the Council’s November Brazil Forum, defined it, Brazil has a “capitalism of ties,” or high cross ownership ties between domestic owners and groups with participation of central owners associated with the government. For U.S. companies to fully seize the opportunities in the Brazilian market, they need to understand this model and adapt accordingly. The Council strongly believes that an understanding of the Brazilian economic and business model is imperative to furthering the economic and commercial relationship between both countries. Partnerships with Brazilian companies are a key way of taking advantage of the opportunities available in the country and in other regions with Brazilian companies.
We have seen a significant appreciation of the Brazilian Real against the dollar, which should make American exports cheaper in Brazil. What industries in the U.S. are well positioned to benefit from this fact?
Actually, the Real has slightly depreciated in the past few weeks, thus removing some pressure from Brazilian manufacturing but also making U.S. exports more expensive. In theory, all U.S. sectors are positioned to benefit from an appreciated Real but, in practice, many will face tariff and non-tariff barriers in the country, particularly in the regulatory space. Some barriers are disguised protectionism, but a significant amount is the consequence of a different economic model. Some barriers can be removed and the Brazil-U.S. Business Council helps U.S. companies do so, while others are less flexible, and companies must adapt to the domestic environment. Those that have managed to do so are thriving.
There have been some recent hiccups in the U.S.- Brazil commercial relationship. The sanctions placed on the U.S. by Brazil for what they see as illegal subsidies paid to U.S. cotton growers has some far reaching effects. What is being done to iron out the differences, and should Americans vying to break into the Brazilian market be worried?
First of all, to set the record straight, no sanction was ever implemented. In 2009, the World Trade Organization (WTO) authorized Brazil to impose nearly $1 billion in trade retaliation against U.S. goods and intellectual property rights due to the United States’ non-compliance with international trade rules regulating cottonrelated agricultural subsidies. Fortunately, this retaliation was not implemented because the two governments crafted a temporary agreement in 2010 that created a framework for them to deal with the U.S. compliance with WTO rules process, which is extremely complex as it involves both the U.S. Administration and Congress. Th e Brazil-U.S. Business Council assisted both governments to achieve this agreement and has been actively working through the Brazil Trade Action Coalition (BRAZTAC) to avoid the dismantlement of the agreement and the implementation of sanctions. In the medium term, Congress will have two opportunities to address this issue by either removing or substantially changing the subsidies programs: through the Joint Select Committee on Deficit Reduction action and, more importantly, in the context of the 2012 Farm Bill. Nevertheless, the WTO case is definitely not an impediment for further business with Brazil.
BRAZIL HAS AN EXTREMELY
WARM CULTURE THAT PRAISES
HOSPITALITY AND INCLUSIVITY.
What are some of the immediate benefits and pitfalls of doing business in Brazil? What are some of the things that American business people may enjoy or find frustrating in Brazil?
On the one hand, the main challenges to doing business in Brazil involve understanding the business environment and culture. For instance, it is normally assumed that Brazilians speak Spanish; however, Portuguese is Brazil’s official language. Although this is an innocent mistake, it can seriously hamper business ties in such a relationship-oriented country like Brazil. Additionally, Brazil has a business association-centric model that privileges top-down structures instead of the U.S. grassroots model. Brazil is also a process-driven country with a corresponding level of red tape and complexity of tax and regulatory systems. On the other hand, there is much to be gained by working in or with Brazil. Brazil has an extremely warm culture that praises hospitality and inclusivity. It also has probably one of the most creative classes of entrepreneurs in the world.
In essence, the first tip to a U.S. company going to Brazil would be “change gears!” There, meetings and processes take time and business might seem more complicated at first, but once connected to local networks and understanding the local customs and model, business opportunities abound.
Security is also an issue that keeps coming up in conversations about Brazil. What are some steps that Americans need to take before embarking on business travels in Brazil?
Brazil is a rich, although still very unequal, country. As in many parts of the emerging world, it suffers from violence. U.S. business travelers and tourists generally go to the large urban conglomerates, such as Sao Paulo, Rio de Janeiro, Brasilia, Salvador and Recife, which are not extremely different from major U.S. cities, such as New York or Los Angeles. Violence in Brazil is, however, more apparent because of the developing nature of the country. Th e main advice for Americans in Brazil is “be reasonable and ask locals.” Local knowledge on do’s and don’ts is certainly much more effective than anything else.
What is the government doing to crack down on intellectual property theft?
Intellectual property rights issues do affect the main sectors of the Brazilian economy, but the government is very active in ensuring these rights and stimulating innovation. Th e country has a fairly robust legal and regulatory framework and has been actively increasing its enforcement activities. Th ere is a widespread perception in the Brazilian private and public sectors that the weak protection of intellectual property rights hinders economic development, consumer safety, public health and innovation. Th e Brazil-U.S. Business Council is proud to work with its local partners in the manufacturing and service sectors to advance this agenda and reduce disagreement between the U.S. and Brazil in the intellectual property sphere.
Where do you see U.S.-Brazilian trade in the next decade?
Th e next decade holds a substantial increase in the depth and scope of the bilateral relationship, accompanied by a surge in the trade of goods, services, capital and knowledge. In addition, everything indicates that an increase in crossborder investment will occur as companies from both countries expand their supply chain in both directions. I also anticipate a larger energy trade relationship between both countries, whether in renewables such as biofuels and wind turbines, or in non-renewables such as oil, liquefied natural gas and coal. Finally, I believe there is a growing trend for trilateral cooperation between Brazil and the United States, especially in food and energy, where the efffthorts of both countries are complimentary. Together, they can better feed and supply reliable energy to the world.