GERMANY IS WILLING TO INVEST IN BRAZIL AFTER STRUCTURAL REFORMS

Photo: Roberto Stuckert Filho

Photo: Roberto Stuckert Filho

Opinion: Professor Alfredo Valladão, Paris School of International Affairs (PSIA – Sciences Po) and president of the Advisory Board of EUBrasil

Chancellor Angela Merkel’s visit to Brazil had already been planned for a long time. However, this time she decided to forget about “top level” talks and their bland final press releases.

Accompanied by 19 ministers and secretaries of state but no entrepreneurs, Merkel did not cross the Atlantic to please Dilma Rousseff or exchange pleasantries and platitudes. Her goal was to convey two perfectly clear messages. German entrepreneurs are interested in investing more in Brazil, particularly the ambitious logistics investment programme that Brasilia is desperately trying to sell to international investors. But Germany’s Deputy Minister of Finance was keen to make clear that this would not happen if there wasn’t a “more interesting framework”, i.e. legal certainty, decent, predictable tax laws, regulation of contracts to ensure investment and a return for companies willing to face the “Brazilian risk”.

In other words, if Brazil wants foreign capital to start solving the country’s competitiveness problems, the Brazilian government will have a lot of homework to do – deep structural reforms accompanied by a modernization blitz. The German delegation also made it clear that they were willing to talk and help the Brazilians along this rocky path.

It is no coincidence that the German chancellor decided to turn this formal visit into a political and economic offensive. Germany is increasingly worried about the future of its own economy. The German model, which has worked so well in recent years, is based on the resounding success of its exports, especially high-quality industrial products. Foreign sales represent 50% of GDP, which is pretty impressive for a large, mature, developed country with no oil or other raw materials. In fact, Germany has been the largest exporter in the world since the beginning of the year. Without such vibrant foreign trade, this “German miracle” could well go down the drain. The problem is that the latest signs from the global economy are not auspicious.

More than half of German exports go to other EU members. However, the European market has been virtually stagnant since the 2008 crisis. Recent signs show that some European regions and sectors are beginning to emerge from this slump, but there is still a long way to go before we see a more dynamic Europe. In fact, apart from the effects of the crisis, the increasingly irreversible transition to a new production model based on digital technologies is causing a structural decline in demand. European consumers are still essential, but they will not be the silver bullet that saves German exports.

News from the “emerging” markets is not good either. Mercedes, BMW and Audi are already crying over the end of the good times at the Chinese party. Today, it is clear that China has hit the wall and the bonanza is over. The Chinese economy is falling apart, with financial and real estate bubbles bursting, and taking many other Asian economies with it. Russia, another great market for Germany and totally dependent on oil and gas market prices, is on its way down the slippery slope into recession. Only the United States continues to underpin the rise of German trade.

In this gloomy picture, Brazil can be good business. Almost all major German companies have already been operating in the country for decades and the Brazilian private consumers still represent more than 60% of the Chinese market. More than anything, the country urgently needs modern infrastructure. The opportunities for the German economy are therefore particularly juicy. But only if Brasilia is able to consistently upgrade public policies, regulations, rules on internal competition, guarantees for investments, an efficient justice system for businesses, its energy model, education and so forth. For the German leaders, a democratic country with a western culture such as Brazil has more chances than other emerging countries to get out of the hole and find a niche in the new global economy. In addition, the current deep Brazilian economic and political crisis is a good opportunity to come up with some new ideas, advice and pledges of assistance. It would not be the first time that Angela Merkel and her 19 ministers had managed it.