Pages

Wednesday, September 21, 2011

Massive Brasilian Investments And Influence In Brasil


Foreign relations: Brazilian influence grows ever stronger

From a distance, the huge statue of Jesus that gazes out at the Pacific on Lima’s seafront appears identical to the more famous Christ the Redeemer in Rio de Janeiro that overlooks the Atlantic. It is almost the same size, and Christ’s arms are outstretched in almost the same way.
The resemblance is no accident. The 36m-high Cristo del Pacífico statue was sculpted in Brazil, and its $1m cost was almost entirely met by Odebrecht, the Brazilian construction company.
More importantly, the statue, which was inaugurated on June 29 this year, is a symbol of Brazil’s growing presence in South America’s fastest growing big economy. It is also a reminder of why Brazil’s presence in Peru is increasing so quickly: China.
“In the 20th century, the world economy was all about the Atlantic,” says Miguel Veja Alvear, head of the Brazil-Peru chamber of commerce in Lima. “In the 21st century, it’s all about the Pacific: more than half of all global trade is there.”
The statue is one of a number of projects under way as part of Brazil’s “strategic alliance” with Peru. This is designed to bring their economies close together and provide a commercial bridge for Brazil into the Pacific on the back of Peru’s free-trade agreements with China, South Korea and the US.
The initiative dates back to 2005 under former Peruvian president Alejandro Toledo, when Luiz Inácio Lula da Silva was his Brazilian counterpart. It continued under Peru’s next president, Alan García. But it is under their successors – Ollanta Humala in Peru and Dilma Rousseff in Brazil – that the alliance is likely to take off.
“Over the past 10 years, there have been more presidential meetings between Peru and Brazil than over the previous 180,” says Mr Veja approvingly.
Three vast infrastructure projects, largely financed with subsidised funding from BNDES, Brazil’s state-owned development bank, are planned that will link – by canal, road and train – Brazilian markets to Peru’s Pacific ports and thence Asia. The southernmost one, the Interoceanic highway, built by Odebrecht, is almost complete.
Meanwhile, Brazil’s Votorantim Metais, the mining company, has purchased zinc mines as well as Cajamarquilla, Peru’s biggest refinery. Vale, another mining company, operates a phosphates concession in northern Peru.Petrobras, the state-controlled oil company, has investment plans. AndGerdau bought Peru’s biggest steel plant in 2006 and says it plans to invest $120m over the next three years.
The idea behind the alliance is simple: Brazil provides technology and investment. Some $15bn of Brazilian investment is pouring in, compared with the $10bn that China is due to invest, although that is still less than total US or Spanish investment.
In return, Peru can offer labour and market access. The early results have been startling: bilateral trade has increased sevenfold in just six years to $3.4bn.
Nonetheless, Brazil’s growing presence worries many Peruvians. Brazil may enjoy a cuddly image in Lima, thanks to its football and carnival, and its social-democratic economic model, now apparently being copied by Mr Humala, is seductive in a country where more than a third of the population lives in poverty.
Yet many Peruvians are asking whether they really want their country to be “Brazilianised” – and not without reason: in the past 10 years, Peru’s economic growth has been higher and poverty has fallen faster than in Brazil.
As one letter-writer to Peru’s La República newspaper has pointed out, when it comes to the World Bank’s annual Doing Business report, Peru ranked second among Latin American countries, in the number 36 spot globally, while Brazil was 127th out of 183.
Another problem is the environment. Brazilian utility companies have been exploring the possibility of building hydroelectric plants along the border. Understandably, local inhabitants wonder why their communities should be flooded to send electricity elsewhere.
“Brazil is very important to Peru,” says Rafael Roncagliolo, Peru’s new foreign minister, who describes his approach as “absolutely pragmatic” and as focused on “strengthening regional ties”.
He adds: “Nonetheless, while there are many opportunities, there are also problems and threats. One problem is the need to remove commercial barriers and tariffs. One threat is drugs: we don’t want to have the same supply relationship with Brazil as Mexico does with the US.”
Peru is currently the world’s largest producer of cocaine and Brazil – a rising consumer in its own right – is increasingly an important onward shipment point to Europe’s fast-growing market for illegal drugs.
Whatever the concerns, it appears that the links are only going to get stronger, especially if Brazil’s early courtship of Mr Humala is anything to go by.
Political image-makers from Brazil’s Partido dos Trabalhadores (Workers’ party) advised Mr Humala on campaigning strategy and tactics. After he won the election, the first visit Mr Humala made as president was to Brasília.
What is most extraordinary is that perhaps no country other than Brazil would have been able to get away with the same strategy. It would have been unthinkable for Venezuela or the US, for example, to have played a similar role in Peru without a huge outcry.
It speaks to the might of Brazilian “soft power” – and the country’s huge gravitational pull on a continent where it accounts for half the landmass and its neighbours cannot help but spin into its orbit.
Copyright The Financial Times Limited 2011. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.