Macro Levels Trends – Brazil – Latin America: WEF 2018 : Infrastructure

Given the importance of Brazil's domestic geo-economic expansion, investment-auto-motives has tentatively explored the topic of regional and national planning.

With obvious interest in the lessons learned from the West, from the chaotic expansion of Medieval times, the grande re-planning of the early to mid Enlightenment period (ie Wren's London, Haussmann's Paris) and throughout the 19^th and 20^th centuries with the rise of properly planned but still humanistic and organic 'balanced environments' per the Garden Cities ideology and its contrast to the geo-metric and harsher Modernist approach seen with post-WW2 'New Towns', aswell as the Post-Modernist efforts to once again create blended multi-use environs to ensure 24/7 activity.

All aspects seen as infusing the archetypical EM Mega-City.

And of course also lightly viewed have been the experiences of Brazil's and others efforts to create anew, from Kubitchek's Brasilia (which sought a co-axial of 'modernist monumentalism' and 'humanistic habitation), to the recent efforts toward fully fledged eco-cities such as the UAE's Masdar.

Yet cities old and new, and separate industrial-service centres from ports to business parks, all require physical and digital connectivity between and within.

But beyond this typically regional-centric approach, investment-auto-motives believes that – after the chaotic rise of olde-worlde AM environments in which the urban battled the rural leading to innate planning compromises, Brazil given its scale and remaining potential could be the first country to become sensitively 'nationally re-planned' at the distinct physical and digital levels and crucially at their own 'co-axial intersect'.

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The extremely important issue of infrastructure was addressed by a small but informed panel, drawn from diverse investor and operator backgrounds.

As previously [investment-auto-motives' comments follow in parenthesis paragraphs].

The Panel:

Joe Leahy – Chair – FT Journalist

Georgina Baker – VP Int. Finance Corp. (LatAm-Caribbean/Europe/Central Asia)

Joe Kaeser – CEO and President of Siemans AG

Rodolfo Spielmann – Head of LatAm – CPP Investment Board (Canada)

Marianna Luz – Head of Embraer Foundation & Head of Sustainability at Embrear Aerospace

The session started with a small joke about the time taken in traffic to reach the summit, and mention of the fact that Brazil itself is the paradox of small clusterings of great infrastructure – typical of specifically dedicated satellite towns – against the broad backdrop of far poorer regional and national infrastructure.

“Overall Brazil's infrastructure is quite 'patchy', the WEF's rankings illustrating Brazilian infrastructure at 73^rd against its overall rating at 80^th. Look closely at the topic and its ranking is increased thanks to string availability of flights and telephone services. But roads, ports and railroads actually rank beyond 100.

The first question posed...

“How can a high quality, high-resilient 'pipeline' of infrastructure be financed?”

Georgina Baker -

“The IFC has been operating in Brazil/LatAm for many years, but recently we've been looking to see how to involve the private sector, namely institutional investors...and so created a programme for 3 large insurance companies whereby each provides $0.5bn to follow IFC's own investments. This based upon the recognition that certain areas/sectors were to be avoided. This was a big deal for such companies that known OECD Infrastructure well, but not elsewhere, so 'nervous' about EM markets. So when alongside IFC much more comfortable.

[The apparent 'ignorance' of such highly regarded and well resourced insurance companies is surprising, given the 'maturity' of many EM markets over the last 25 years, and the enormous current and future pensions obligations to their largely (high payout) European client-base. It was assumed that though historically conservative, these firms would be more advanced regards EM differentiation and understanding than they appear; though obviously very mindful of specifics of national and regional socio-economic and so political instability ].

“For the most interesting thing was the 'demonstration effect', where they can come with us into certain markets...and once done with us they will do it on their own and bring others behind them; and that is the most fundamental breakthrough that we've had. They too can do that.

Joe Kaeser -

“To attract such infrastructure needs a plan and that plan must be set forth by the government. What is my Energy Agenda?, Mobility Agenda?...How to efficiently transport people and goods?...and the financing will come because there is so much money in the world, and all the large institutionals are dying to invest. But there has to be a plan for Localisation, Innovation, Social Development, and that has been the recent 'Brazilian Challenge' whilst (the gov't) has been busy with other things.

China has a plan and its been expanding throughout Asia and Europe with the 'One-Belt' initiative.

India has a plan, even if Modi has faced some problems. So the BRIC 'tail-end' works well, but the front (Brazil, Russia) needs to catch up. Hence our signing of an agreement with us and the Brazilian Gov't very recently to develop the country. How can OEMs help with localising and efficiency...and then they will come...because investing in infrastructure causes inflation (and so growth). And that's what you what in pension funds' assets [AUM].

So we need a plan for Brazil. It will bring [further] industrialisation because Brazil has an interesting 'token' above and beyond 220m people and young people etc; Brazil's got natural resources. So Brazil sits at the very beginning of any industrial value-chain, and you build the next level of the value-chain.

[This has been well understood for over a century, and shown to have been prominent in the attraction of FDI since the 1920s with Ford, GM, Chrysler and later in the 1950s Volkswagen, and 1960s Renault, Simca and the effective domestic JV that was Alfa-Romeo/FNM. So whilst hardly a new notion, well worth repeating given the enormous commercial 'activity span' Brazil can undertake. Herein we see that it is well placed to be the physical provider and later digital provider of 'the Internet of Things'.

“Germany cannot do that...so we look elsewhere...and the Government must put the plan in place”.

The Chair restates the importance of the MoU between Siemans and Brazil, then brings in another

Rodolfo Spielmann -

“We are LatAm infrastructure investors with roughly $6bn invested, starting in Chile in 2006 with assests still owned today...then into Peru and Mexico and last year within Energy in Brazil. This is just scratching the surface regards what's needed There are good examples to study, such as Australia, which did 3 things well:

1. Create a pipeline of scalable projects, beyond the short-term and bringing together different Ministries (Transportation, Natural Environment, Finance, Planning and Energy)..all behind a common agenda...across different sectors across different industries...one common goal far into the future. Its got to be the conviction of the whole political class across political parties.

2. These assets have to be available in a 'de-risked' manner, typically not 'green-field' which includes too many risks during the initial development phase. So we like brown-fields, which become brown from green after perhaps only 2-3 years, and we stay thereafter for decades. For those companies, they then receive our money and that allows them to develop the next set of projects. They have a higher return, but based on higher risk of course. And that's a nice concept of how to use different pools of capital for different phases.

3. Stable Regulatory Environment. This doesn't always happen and needs strong independent regulatory bodies (little influenced by political schisms).

“These 3 items are easily said, but difficult and necessary to act on...the 'guiding lights' to see in EMs'.

“As per the 'infrastructure pipeline' their can be different financing sources...(capital markets listed) privatisation, or new concessions, or specific co-party private treaties, asset sales by State Owned Companies (eg Petrobras). And of course there's the new development 'green-fields'.

[This illustrates the 3 investment rules CPP operates within, but there are obviously a plethora of other analytical macro and micro economic measures and broad PESTEL analysis, each with different model weightings, and most likely attempts at 'scenario analysis'. In effect 'investment safety' per country by country variations in trend continuums between 'diminished-socialism' (eg Cuba) and much increased 'free-enterprise' (eg Mexico) so as to gauge operational risks and if very necessary plans for country or sector exit].

“To give a example in Chile, we have an investment in a Toll Road company, and within that company there is a potential new projects department which evaluates where potential new infrastructure could be created. A presentation is given to the government and then an open Tender to interested Operators. There is the possibility that the originating corporation may not win that Tender, in which case they are compensated for the costs of drawing-up the concept plans and schedules. So there is incesntive for private parties to propose projects even if they might not win the contract.

Mariella Luz -

“As regards the 'infrastructure pipeline' I begin with the sustainable part of it, especially aboout the need for retrofitting and upgrading and yes that needs finance. We have been developing sustainability commitments between government and industry to make such processes possible, and bring the efficiency we need to these processes.

“Within aviation there's obviously potential for much, with specific potential in air traffic and control systems. You (to Leahy) spoke about the problems in getting here, but that's a problem we all face as passengers on a flight when forced to circle above the airport...that's about infrastructure...and that delay affects both the person directly and the environment [ie burning fuel] and so has a sustainability impact. By overcoming such problems we could have a more cost effective airport, more energy efficiency and greater well-being. So its about sustainable development and equitable services.

The Chair asks why investors might be nervous about EM projects...”what are the reasons?”

Georgina Baker -

“If you know how to operate within OECD markets but unfamiliar with others, you may not know how to assess Credit Risk, Market Returns, Asset Allocation. Its easier to stay where you are. But if you partner with IFC [implicity familiar because of 'boots on the ground'] we help look after that money because its a shared risk. Whether Mozambique, Angola or Brazil, these are risks we understand well. Governmental and institutional stability is key, and there has been instabiility, but the 'we' has always been there.

“We say to those (the big pension groups) providing $0.5bn...'let's imagine if you had invested 5 years ago or 2 years ago? And we played-out what their portfolio would have looked like. We invest slivers over time and projects, so its not like putting big lumps at risk in one or two projects. But if you have a portfolio of say 80 projects in 30 countries the risk is minimised. Unlike my panel colleague who invests in already performing brown-field, we invest in green-field where risks are higher but that is our strength. We deploy Performance Standards that include Sustainability to ensure conservative client companies will not be exposed to too much risk and won't be on the newspaper headlines.

[The raison d'etre of IFC's existence is indeed to quell large institutional fears about EM issues, so it seeks to offer confidence about individual country knowledge, the need to de-risk an infrastructure portfolio via holdings spread, the need to drip-feed investment on a phase by phase basis so as to both support the project and indeed limit exposure if macro or micro problems occur and recognition of the great CSR obligation upon societally important pensions and insurance institutions.

As such the answer was expectantly formulaic and a partial PR exercise for IFC, but illustrates to the uninitiated about how the accrued paper and cash profits such large institutions hold, and a portion of the current payments received (the 'float') from AM countries are channelled toward EM regions].

The Chair asks Spielmann if CPP's “brown-field” development mantra is sacrosanct?

Rodolfo Spielmann -

“Its a little more nuanced than that...we will expose ourselves to a fraction of the available green-field, but we don't for now invest completely in a singular project. Our method is to focus on brown-fields and asset-recycling so providing capital to others for the next green-field and we become interest when that becomes 'brown-ish'. But our Chilean experience [because of the format of the regulatory/policy system that encourages forward planning] means we have a broader appreciation that pure brown-field.

Joe Kaeser -

“This is all about opportunity...and greenfield often requires a public-private approach. The best outcome is an alliance between government, finance and constructor-operator (or constructor them operator). Then you have the knowledge to execute either as brown-field of green-field, a regulatory body that ensures the investment climate remains comfortable. Hence my words earlier, there's got to be an economic development plan that extends over the lifecycles of governments and that of the general economy.

“Across LatAm, Chile appears to be ahead of the crowd, with Argentina still fluctuating, and Brazil at the beginning of a new era. It could well take off if a public-private investment mentality prevails; since both private enterprise and indeed state firms are effectively waiting for permission with eagerness. So I am comfortable with the the capabilities, spirit and power of this country. But there is a lack of a long-term vision and plan.

“But it's also about SME's too build them up, so we have a broad base of economic development, not just a few Petrobras or Embraer etc. And that needs a plan, and 'everyone will come'.

The Chair interests by highlighting the instability that creates ever changing plans, such as the Energy law about electricity

“Yes, but the customers don't change and so you have to have sustainable, reliable, affordable electrical power....and everyone talks about 'automation' and 'the internest of things' but its all crap if you don't have electrical power and reliable logistics. It all becomes ludicrous if you can't beuild a factory in a meaningful way.

“And as for the energy debate...Brazil had renewable energy before people even used the term, which is Hydro...which works even if the sun doesn't shine and the wind doesn't blow.

[Kaeser effectively puts things into perspective about the importance of Hydro-electric power to Brazillian activity. This recognised since the late 19^th century and vital to the regional planning that underpinned the FDI efforts to attract FIAT manufacturing investment in the late 1960s].

“The issue now is climate change, and that effects waterflow and quantities. And the attractiveness of investing comes with efficiency...asset management. We have to make it happen and not talk so much about what could have happened or should have happened.

The Chair asks about the “bottle-neck” challenges

“It took time in Germany to convene a stable government, but here in Brazil I hope it happens quicker because we need firm government plans and multi-stakeholder discussions regards a B2G (Business to Government) and a G2G plan. Come with a 20Gigabite plan, a 5000 Km grid optimisation plan, a 10,000km roads plan, an urban mobility plan. Its not rocket science to put railcars underground and make traffic work.

“And contain the root causes of inflation, interest rates can be raised but it will kill the economy if the root cause of that inflation is inefficient operations (so necessitating higher transactional costs). The time taken to get goods to the customer is key, and if a large percentage of food is rotting en route to the end user it raises the price of the received goods even more. All this has nothing to do with interest rates, but about efficiency.

It's about a convergent approach to get it done, and there's enough money.

Georgina Baker -

“It's easy to say there's enough money, but the majority of that money comes from the government and it must rationalise its infrastructure spending versus its national indebtedness.

[This is a central point since invariably the onus to retain national sovereignty means typicaly a far greater portion of funds originates from government. And – as illustrated in previous weblog posts - Brazil currently has a higher Debt to GDP ratio than its BRIC peers.

However, arguably though not as economically powerful as India or China, it is arguably further advanced regards its general economic base as a consequence of its full value-chain – thus is a much advanced EM.

This suggests that with greater value creation capabilities it could maintain or expand its national debt levels to finance the obviously much needed infrastructure projects that would serve all the country and especially long since under appreciated inland regions.

A well considered balancing act between maintained national debt and perhaps greater new private investment than the historical norm, would be the best path forward].

Joe Kaeser -

“I wouldn't expect the government to solve everything and especially the problems of the private sector. There has to be a long lifecycle framework that allows the private sector to invest. I'd be happy to invest a billion Euros tomorrow if I had a roadmap, and that billion would be matched over again by private equity or pensions company anywhere in the world. That becomes a ten billion Euro fund but there has to be a framework to allow the private sector to get on with the operational task of making it happen.

Rodolfo Speilmann -

“I agree, conventional infrastructure offers much, almost all sub-sectors profitable in themselves, the exceptions being marginal projects such as certain green-energy - like solar -which means marginal returns presently and so discouraging. We've just taken on wind-farms beyond airports and ports. It is profitable.

“Together, institutional funds and Sovereign Wealth Funds amount to $7 trillion of investments, and yes most are government bonds, but we have long horizons regards (infrastructure) equity. Our partner is a pension fund and we are still receiving both new funds (for AUM) and the (dividend and capital) returns, both of which need to be re-invested.

“So its less the availability of capital and much more prescient the availability of projects.

Joe Kaser -

“The common thread between all the countries which are expanding and developing is that they have a solid infrastructure plan to do so, such as a target to install 10 Gigawatts over 5 years; and then they went to auctions (Contract Tender Auctions)

“So how about we (addressing Spielmann) present such as plan for NE Brazil: 5 GigaWatss at 3 cents per KW/H ? This is 'putting the potato on the fork' as they say. You need to be clear, specific, precise and not just try to save the world by talking.

The Chair highlighted the fact that Brazil has had plans, such as Dilmar's 'Growth Acceleration Plan', but they change. And there's BNDS [the government owned lending institution, whose remit has altered recently to become more commercial and long-termist]. Inflation is low at the moment but it could be a cyclical low. How to solve that problem? [ie BNDS's slow transformation into an as yet unclear entity].

[investment-auto-motives previously provided a very detailed graphic of how BNDS historically fitted into the country's top-down financing structure alongside its prime educational-research centres; to provide overview of the 'privatisation potential' on a sector and company basis].

Rodolfo Spielmann -

“BNDS has changed to align to market rates [not the deliberate low-rate loan provider it previously was], and not necessarily fund the big national champions that can access international finance. So it could finance the botttle-neck projects such as green-field, or 'frontier' new companies, or SME long-term financing. That could be the vision, similar to the German Re-Construction after WW2.

“But the long-term finance has to come from international investors, and that $7 trillion doesn't include Insurance, Banks and Private Equity could provide. And the capital markets themselves can be further developed, with Infrastructure Debentures slowly growing in volumes. Then the government need not put much money in, just provide tax incentives and other similar policies.

Joe Kaeser -

“You must be sure about the 'take-up' by such parties to 'close the loop' and crystallise the process. There are thosands of examples around the world.

Georgina Baker -

“But you also need to be assured of the strength of the local financial and legal systems.

The Pru (Prudential) has been working on this for 20 years so that foreign investors are treated the same as local investors; access to the same tax regime etc.

And thus far in LatAm over 30 projects in the Transport sector achieved recently because FDI at last believed they would be treated exactly the same.

[The issue about local market strength is critical, since this effectively both underpins and is affected by the modus operandi of the national/regional legal system.

Also, China's recent announcement regards the opening-up of its auto-sector to FDI – without the need for a JV Chinese partner firm five years from now – appears an important milestone for the BRICs (presently excluding Russia) and CIVETS etc, and should encourage further sector and FDI liberalisation].

“We need to move away from 'just having a plan'. If just planning was the problem it would have been solved by now. It must be recognised [for all the positive chatter] that many EM projects are not viewed by OECD-based institutions as 'investment grade'. The regulatory regime of the institutional investor is important. My experiences of working with French and German investors is that their own domestic regulations require that all their investments worldwide be 'investment grade'. Most EM projects do not meet this criteria, so you have to bridge that gap.

Joe Kaeser -

“But doesn't having a plan also mean knowing how to run your country? This including the legal system meet international dispute standards. This is what I mean by plan.

[This was not made explicit or implicit previously, and it took Ms Baker's comments about a lax or problematic or unenforceable regulatory - critically important issues – over half an hour into the discussion. This is the EM problem between the ever amazing potential and the historical economic pitfalls and now much of these tamed, the present-day real-world business environment.

Bodies such as the UK DTI's International Trade agency promote the potential of EMs – such as LatAm expansion for Land Rover – but in the rush for BREXIT expansion also seemingly gloss-over the potential for down the road problems when invested in the region].

Mariella Luz -

“In our sector we do have plans, such as that managed by UNOCA (the UN Organisation for Civil Aviation) which illustrates that infrastructure will be the base for any future innovation or technologies in the sector. So UNOCA has been promoting the need for PPPs (Public-Private Partnerships).

“And looking at Brazil, we (Embraer) are as producers of regional aircraft looking to expand regional airports and overall (national and international traffic) integration. Given the size of the countries population, its demographics, the potential economic expansion rates etc, we need more airports. The reality compared to the LatAm region is that Brazil is under par [ie under even reletive capacity regards necessary passenger air travel and air-freight. There's enormous potential and great need, and the stakeholders are in discussions; so the plan is there.

The Chair mentions the importance of Sustainability, and then opens the debate to the audience.

One member :

“We read a lot about Chinese investments in Brazil, which I believe is mostly the electrical sector, so what do the Chinese know that you don't or vice versa? And previously the Chinese bought things, but are now major players. Help us understand what the Chinese are doing?

Georgina Baker -

“Its about 'risk-appetite'...they come from EM and understand EM and have a different [ie higher and more long term] risk appetite to other investors. Able to put a lot of money to work and understand the risk-reward function because [having been through similar themselves] they understand the risk.

“The previous example I mentioned was begun by PBOC (People's Bank of China) with a $3bn initial stake via IFC, and they did the same with the Inter-American Development Bank and DBRD and others. That money enabled IFC to build its [project portfolio] platform so they have an enormous amount of money, they can work and have a commensurate risk-appetite. That's my opinion.

Joe Kaeser -

“I understand markets better, but (the Chinese stakes) could also be a strategic interest. And I would say this is so for Brazil and Africa – their global view of things. China views developed economies like Australia but sees greater potential in still developing regions of LatAm and Africa. They can bring a lot of money and get strategic interest in return

“The Chinese are very smart, long-term orientated and don't talk much...and if they do they think first, and then act. They have a plan but its not by the quarter, year or decade, their plan is about the long-view. If you talk to Chinese companies and leaders they posit that the last 200 years was a minor aberration of their long-term global development. Think about this and you understand why they've been so interested in agriculture and natural resources, especially so given their G2G remit.

“Financial investors obviously need a far shorter term view, whilst Strategics like us are in the middle. So the Chinese position requires much consideration by our sector so as not to be left with a single option.

[This simple, recognised but vitally under-appreciated aspect of the global economic dynamic over the last 2 decades; at least as covered by the media. Africa's initial welcoming of the Chinese to generate trade and build infrastructure (rail, road, telecoms, schools) has latterly seen greater disquiet amongst African locals as the once small-time newcomer local Chinese trader has started to monopolise local and regional small and medium size agricultural production, such as higher value poultry farming and trading. Able to access greater finance possibilities from home, the Chinese sought to achieve scale production and sales to dislodge what were generations-old and very separate African chicken farmers and traders.

This increasing disquiet has latterly led to some African governments actively encouraging the return of the old European 'colonists' to both partially protect domestic SME activities and to obtain higher competitive bid prices for land or goods between the Chinese and other foreign interests].

Rodolfo Speilmann -

“There are different types of Chinese investors of course, Strategic vs Institutional, and the latter think like us given their own business remits. What we need to understand are the Chinese SOEs, since we need to team-up with them. And that will only grow and is a new-reality and a learning process.

“And I would concur...they are very studious, laborious in understanding an industry, and not quick in arriving at conclusions. So the picture presented is that of long-term interest, not just financial results.

Mariella Luz -

“The Chinese have a huge interest in Aerospace, with long business cycles of 15-20 years and major potential on both sides of the Pacific and Atlantic, with whole sector interests from manufacturing industrialisation to aircraft production to airport infrastructure.

Another audience from S&P Global member asks :

“Much said about the Regulatory framework, but what about Governance and how to improve that Governance?”

Georgina Baker -

“From the IFC perspective the issues of Environment, Social and Governance must meet standards. But its a journey with all clients and so seek to reach the best standards in corporate governance. As an economic development body it's integral. We recognise they may not be there when we invest but ensure that they are created within a short time.

Rodolfo Speilmann -

“For us Compliance is almost a 'gateway' item that is non-negotiable. Governance is negotiable but Compliance is not. Controls do evolve, but they are key to any long-term investment, Governance and Transparency are related to the business culture, Compliance in Brazil today given ever greater importance on company boards, with many external advisors able to assist. So a big push to to increase that. But the core values have to be in place initially, then you can formulise it. As per Governance, the independence of boards, the qualification of boards, there's a whole set of items being applied.

“And that's part of our value-addition, to bring institutional standards to our invested companies.

The Chair asks “how do you convince FDI investors about Brazil, after 'Lavo Jato' and the construction sector debacle?”

Rodolfo Speilmann -

“We are working constantly to explain the context of Brazil and the medium and long-term. Brazil has improved...5 to 10 years ago it was looking good at the surface, but was rotten inside. Maybe I exaggerate to make the point, but now we see just how rotten it was and is being addressed. Now we are taking out the 'cancer' and its taking time for the patient to cure.

“What is vital is that the cure must come through institutions, not some central Polit Bureau, but from the multitude of individual but aligned investment influences. There would have been good investments 10 years ago, but without the clarity [and so higher risk]. Today there is more transparency, but it is an onward journey for Brazil.

The Chair then asks about the compliance paradox of the great problems for infrastructure companies in obtaining Environment Compliance Licences, yet the build process still creating environmental damage. “What can be done?”

Mariella Luz -

“Compliance is here to stay and that's a good thing for every company and government. As an industry (Aerospace) we are focused on the environment worldwide, so not a Brazil basis or Embraer basis. It's about complete systems not individuality, with global processes and solutions.

“The sector states that by 2050 it will reduce its CO2 emissions by fifty percent from the base-line of 2005. This done through a 4 pillar strategy: Technology, Logistics, Infrastructure, Marketplace.

[This did not directly answer the question about Brazil's compliance paradox in infrastructure building. If known, some site specific examples would have been very useful, or indeed a glimpse into Embraer's future technology strategy that better integrates airplane and airport through energy and digital.

Instead, given the different development paths each EM country is on and the different airport and airplane infrastructures needed (eg primative 'bussing' STOL locations in mountainous or forested areas vs a regional airport vs greenfield major international sites per the A380 vs high-volume passenger transfer locations for mid-size jets) the 'global systemic' answer whilst partly true is also too simplistic.

Each airport and helipad development is essentially categorised and so must both share certain characteristics whilst also very different; so making each effectively a template of a model type.

This needs to be better explained to the investment community so ensure specific enviromental regulatory compliances are created as fair per type, and are eventually met by the infrastructure builder-operator at completion and in use].

The Chair asks the audience for a question:

Member from American Tower Corp..

“Could the panel comment on the Telecom-Information-Communications infrastructure...the state of things and bridging the gaps there?”

[None seem too keen to answer, possibly illustrating their unfamiliarity with the subject}.

Mariella Luz -

“We have a project with the Brazilian government, Embraer and Intelbras as partner, to build a satellite, with first launch in French-Guiana last year, and has both civilian and defence purposes.

The gentleman from American Tower Corp states:

“Theres significant under-investment at present, if you look at all these infrastructures much will depend upon communications connectivity to bring efficiencies and productivities etc...I think there's a gap, the discussion rarely had en mass, instead led by certain companies. This needs to come under any long-term vision plan.

Joe Kaeser -

“I agree...infrastructure is about connectivity, the 4^th Industrial Revolution, the Internet of Things...none will work without it. 4G looks great (at the symposium site) but what about the suburbs? And so questions about autonomous driving without connectivity. Without it theres no progress on exchanging data to optimise things.

The Chair prompts about the 'Digital Alliance':

Joe Kaeser -

“Of course...its central...we don't talk about how great software and cyberspace is, but to merge the physical world with the virtual world. And that's what many people forget when they talk about the next generation of manufacturing, engineering, industrialisation.

“Some people try to make us believe there's no physical world anymore, there's no molecules and its all cyber-based, but there is wood and plastic and chocolate and cars and carpets and what-have-you.

“Connecting the physical world with the capabilities of simulation and analytics and bring that knowledge generated in the virtual world back into the physical processes...that's the recipe – whether flying aircraft or connecting people etc etc.

“And similarly, teaching the young that the physical world is not out of fashion, infact the physical becomes a better world because its enabled by the virtual world, not the other way around. So train them about man-machine interfaces and its not the old oily-greasy stuff anymore. You work with your brain and your hands together.

“Because if we don't get the next generation to believe about the 4^th Industrial Revolution, there will be a different alternative revolution with burning cars, not self driving cars. IT industrialisation has split society and we don't want to split it further apart.

“We need to re-integrate society via infrastructure before the rhetoric of a complete IT society. If people don't understand they are scared, and they prefer their [very necessary] safe [ie personally controlled] circumstances. Technology is not the hold-up...its society's perspective. Hence the importance of society's leaders.

The Chair sums-up with:

1. The desire of intermediate bridge companies to bring institutional investors in EM regions

2. The need for an Economic Development Plan (meaningful and far reaching)

3. Such Plans must endure across political and business cycles.

4. The possible lead of the airline industry in Sustainable Development and Use.

To End -

A general interpretation of 'Building Brazil' by investment-auto-motives...

Brazil's own osmosis of its innate value systems has through its history been 'bi-polar'. The very different influences of the obviously Latin and erratic Portuguese in the early years  of 17^th/18^th century trading, then partially countered by the far more puritanical German and Japanese immigrants in the 19^th century; whilst the British trading influence was fluctuational in the period, with both long-termist projects and 'get-rich quick' efforts. By the early 20^th century the Americans were the driving force with a similar 'Anglo-American' mindset. The post-WW2 era saw the massive influence of Volkswagen and the Germans, then the Italians with FNM and FIAT in the 1970s.

Each development era then set a mark upon the psyche of all social classes, whether that be selfishness and exploitation of the moment, or building toward a better unified future. It has been the tension between the more evident Latin and the less obvious but powerful Tuetonic, that rules the mindset of Brazil.

The very closely-knit German immigrants (of simple, Lutherian background) soon realised that to avoid innate problems and so prosper in their own way they had to quite literally separate themselves from the worst elements of Latin culture, and so quintessentially German towns like Blumenau and Pomerode were built as enclaves.

Obviously, the Latin influence over Brazil has been far greater given the mostly Portuguese roots of the establishment, but herein again in a schism between the archetypes of the old trans-Atlantic 'trader' (dealing to be 'in for the kill') and colonialist (setting out plans for the long-term). And one influence undermines the other.

To see Brazil prosper over the long-term and fulfil its potential, the Teutonic influence must return.

It was seen in the socio-economic and cultural transformation of the Sao Bernardo de Campo area when VW Fusca production imported German values, with logical rationality balancing Latin intuition and emotion.

With that marriage of mind and spirit physically manifested in the 2D 'co-axial' building-plan of Brasilia.

The future of Brazil with the digital dimension reaching up to 'the cloud'...is now 'tri-axial' and a fully 3D future maximising mind and spirit – echoed as industry and the arts with e-enablement - offers much  21st century potential.

Macro Levels Trends – Brazil – Latin America: WEF 2018 : Leadership

The second discussion panel discussed the idea of' 'A New Era of Leadership', recognising that - beyond stalwart the domestic devotees of high profile “powerful men” such as Putin (Russia), Erdogan (Turkey) and to a lesser extend the 'soft-power' of Modi (India) and Xi Jinping (China) - much of the global public had become either somewhat or wholly disenchanted with the state of progressive democracies.

The USA's politics today viewed by Americans and other nationalities as a derisory pantomime throughout the Presidential elections, with what was then only the bombastic theatre of Washington today increasingly writ-large over world politics, from trade protectionism to the (seen as necessary) restrengthening of the 'Atlantic Relationship' per Russian border activities and Syrian affairs, and so seemingly the role NATO beyond the auspices of the UN.

The central issue that emerges and appears ever less opaque, is that historically a nation's citizenry would be largely united behind what it considered at best good leadership that had come from the masses, (eg Roosevelt, Eisenhower) to whom they could connect, to at worst adept leadership supported by good advisors (Nixon, Ford, Bush Jnr) through which America could indeed operate as the 'Free World's' policeman.

Yet today, the fact that national unity in many western nations has cleanly divided into the 'progressive left' and 'retrogressive right' because of the influence of the overt left-leaning mass-media and so enormous middle-nation reaction (with little centre-ground), it means that any notional 'people's mandate' is effectively lost.

So although the machinery of democracy still operates, the 'theatrical politics' itself (having grown over the last two decades arguably since the 'spin' of Blair's Britain) with today's use of TV personalities ((Trump and potentially Oprah) appears ever more divorced from serving the people, even if that be the façade. Instead increasing numbers of people appear to think, politics only serves the totems of corporate advantage and the egos of the political classes.

Hence the people have begun to become disinterested because of the lack of true representation and hence mistrust of career politicians and the media-machine.

It is this increasingly obvious state of affairs that prompted the Latin American WEF 2018 discussion about 'Leadership'.

Once again, the observations by investment-auto-motives are provided within [the square parenthesis].

A New Era of Leadership -

Chaired by Andres Velasco, (Ex Finance Minister for Chile) the panellists consisted of :

Candido Bracher - Deputy Chairman of Banco Itau

Paul Bulcke - Chairman of Nestle

Maria Christina Frias - Journalist

Alejandro Ramerez - Entertainment Sector Businessman

Luiza Trajano - Chairwoman of Magazine Luiza (Retail)

Ngaire Woods - Lavatnik School of Gov't Oxford

The Chair 'got the ball rolling' with mention of a Chilean survey which asked who do people admire the most?

The answer returned was the 42% most admired soap opera actors.

[NB with the inference that admiration translates to potential for credible leadership, it obviously appears utterly surreal (indeed wholly 'societally-dismorphic') to any persons of basic appreciation about the qualities for political leadership. Yet given the modern age of the screen-derived political persona (eg Reagan to Schwarzenegger to Oprah) unfortunately wholly 'proven' and so believable that a well screen-crafted public persona moves into the political arena.

But this should come with a public health warning, it is indeed a very real possibility that the public rise of 'female empowerment' tied with 'LGBTQ empowerment' through marches, en mass 'pink-sash' charity events and flash-mobs, could indeed create such overwhelming voter popularity for an apparent 'humanistic saviour' (such as Oprah) that the door to national tyranny could be easily opened and not so easily closed, once the 'god-head's' edicts started to grow. Thus more potential for a dystopian 'Big Sister' than the archetypical Orwellian 'Big Brother' seen with Stalin, Mao etc].

Thereafter, the order of Chile's most admired was: football-players, journalists...then in the middle ground the general sense of accomplishment and expertise were economists and academics...and at the very bottom union leaders, business people, church leaders and politicians.

[When a nation has become so 'socially-inversed' that pretend characters and drama plot lines become a closer fit with the public's mindset than their real-world leaders, it highlights a very severe problem, but of course a great populist solution regards 'ready-made' next era leaders].

The Chair states :

“We live at a time in Latin America were trust in politicians, institutions and democracy is 'way down'”...” where new dimensions are appearing (ie more females)”...”but let us not kid ourselves, since we are still far from leadership that truly represents the broad diversity of our societies”.

“Other challenges includes the news cycle and (leaders) being watched 24 hours a day”...”Populism waning in some countries but rising in others (ie USA)”....”a time to regain sustained economic growth”...”and so these are the enormous challenges for leaders”.

So as posed to the panellists the answers were:

A. Rameirez -

Unfortunately the beginning of his answer was inaudible, but went on to likewise cite from another survey in a major Mexican newspaper which highlighted the low levels of general trust...

“all institutions have eroded their credibility...but in general order, the best retained are universities, the church, the army....then in the centre: human rights commission, printed media, business organisations....and the lowest: the banks, TV, the Supreme Court, Senate, House of Representatives, the police, union leaders and political parties....things have gotten appreciably worse”.

To provide a worldwide perspective he cited another survey by the Pure Research Centre which spanned 50 countries, and indicated that when compared to conditions fifty years previously. 88% of Vietnamese, Indians and S.Koreans stated that they were noticeably better-off . But at the bottom of the list was Latin America, when only 38% Brazilians believed they were better-off.; whilst in Peru and Colombia only about 28% believed so...Mexico showed 13%, and Venezuela came last with 10%.

The question Rameriz poses is that why should this be so when in many regards the quality of life and standards of life is so much better for many per per capita income, life expectancy, illiteracy, infant mortality, even extreme poverty.

“I believe this has to do with a cognitive dissonence between reality and perception, this stemming from the rule of law...with only 8% of the world's population we have 40% of the homicides...and of the 50 most violent cities, 42 are in Latin America. This has to do with a failed drug policy over last fifty years...its not working. Mexico has seen many Reforms (that should assist the economy) but the continued perceptions of corruption and violence given a low Presidential approval rating.”

“In this context people are willing to vote for the unknown, and that's what we face right now...candidates that promise much with little substantive economic, political and public policy understanding and tools, indeed even retrogressive in places. The threat that advancements will be undone to return to economic nationalism”.

To counter this: “The business community can work on 2 fronts: support the rule of law, and inclusive growth. For many years attention was focused upon the macro-economic (inflation etc), but did not do enough for those left behind”.

[The Mexican example highlights that even with the substantive economic growth of the last two decades in mid-level value activities – progressing from earlier 1960s'70s Bracero Programme and seen with the 1990s/2000s Maquiladora Programme and much else – and so very visible improvement for the middle-aged and elderly to see, the feeling appears to be that whilst more are living the appearance of the American (consumeristic) Dream, because of added economic pressures, and the result of increased necessary and voluntary social separation life feels more 'exposed'. This even more so during downturns when unemployment grows, crime increases and the individual feels at greater risk].

The Chair highlighted the role of the Free Press, which has massive historical importance in LatAm, but also now suffers from issues such as 'fake news' and increasing commercial pressures regards audience sizes, constant rolling-news etc. 
“Where do we go from now, especially to reconcile the need for maturity and long-termism vs the short-term demands?”.

Frias : “this has always existed, way before the internet, and illustrates a maturing of broadcast news, so a learning curve. But the duopoly that is Google and Facebook controls the flow of information and society should not 'delegate' to those not supportive of democracy, who don't have the expertise to see well investigated news, method, criteria and credibility. This is the importance of professional journalist”.

Chair - “As per the rule of law, Brazil has seen some companies flout this, what can be done?”

Luiza Trajano -

“We do need a Free Press, but one that actually properly reports on the issues at hand, not focus upon the trivia such as what shoes are being worn – as has been my experience”.

“Business founders often need to be completely absorbed with the start-up of their enterprise, ad so social issues are not considered, but as a firm ages so its social responsibilities expand. This not easy to achieve but glad its on the agenda. With a more equitable society we will see better results. I came from a family background where the commercial knowledge specifics were not overtly important (pointing to professionalism criticisms by her company auditors). Business cannot take the place of the government but 60% of our (Brazilian) population earn less than 2000 Reals, with some migrant Chinese women bussed around for 4 hours per day. So companies must become aware. And young consumers are now ethically aware and that impacts your bottom line. I belive in the Free Press and my shoes!”.

[This did not answer the set question but instead purported what has become 'Director's Diatribe' regards ethical business, the role of the press etc. A very stilted answer not helped by the need for cross-panel translation.

From an external perspective, it seems that Trajano is not of the same calibre as the rest of the mixed gender panel. Instead, she seemingly elevated to that of business head in the same way as Oprah was: a woman of the people who, as well as evident self-drive, was also 'made successful' to befit the modern ideal of the entrepreneurial woman. Gaining from the Brazilian rise of the consumer through the 1990s and 2000s; and with public exposure in part for self interest and in part so as to encourage others to both consume and to enter the business world.

To focus upon such aspects that were out of context to the question and topic of debate - such as her auditor's criticisms and her shoes (even if humorously) - illustrates what may be LatAm's biggest problem: the educational divide between the 'Old Guard' Establishment and the obvious push of 'democratized entrepreneurialism' which ironically backs a few high profile public faces. The capability-gap especially obvious when compared to the innate 'rounded' capabilities of a well educated and hard-won career rise of the archetype 'corporate (wo)man' or indeed even the under-appreciated devout 'corporate manderine'.

The good entrepreneur needs to learn at least thrice as fast as the corporate person, so it does raise questions when such a no doubt nice but seemingly relatively inept person gains (or is given by others) such a social position and public voice].

The Chair asks the Brazilian banker about what can be done to assist the national recovery, and how the banking sector can regain its credibility...

[Before answering, Bracher commiserates about the death of the rights activist Marielle Franco.

She has criticised the actions of the military police in fevella's, and specifically the death of a young man, who was somehow caught-up in the ongoing hard-hitting war by the authorities on drugs and fevella originated crime.

Obviously, the major problem for the authorities is the paradox of dealing with ethnicity 'diversity' issues and protection of rights, whilst also recognising that crime inevitably stems from people in such neighbourhoods, who themselves may be hiding behind their 'ethnic diversity' and indeed using formally organised protest groups to do so in order to claim apparent righteousness and apparent innocence – the deleiberately created and very paradoxical 'guilty-victim' syndrome or 'cry-bully' that inhabits so much of the far left in many nations today].

Bracher continues -

“we are starting the biggest crisis seen in decades, in 2 years we lost 8% of GDP, something never seen before. But we grew 1% last year and this year we are pushing 3% growth. The health of the banking sector is pivotal in the growth of an economy. To do so sustainably means both 'bottom-line' growth which itself is only made possible by appreciating the bigger stakeholder picture and the long-term. This means understanding the 'journey' of clients, from the opening of a current account to vehicle and property loans etc; trying to solve their problems. Good business leaders should be able to listen to their 'constituents'. The 'technology gap' has created an income divide between those who are IT literate and those who are not, yet that IT has also allowed us to better communicate and listen to people. Leaders today must commit themselves to resolving society's needs.

“As per banks, there are two approaches: the short term and the longer term structural reforms needed. The parallel is the managing of a country like a company. Banks can be 'loved' but requires much consideration to ensure that all banking 'contact points' ensure positive interaction and the inevitable negative experiences are as small as possible. So, remain humble for continuous improvement.

[The 3^rd Industrial Revolution mated to the IT-centric 4^th].

“Also recognise that financing large companies provides for ever more widespread job creation.

[It should be recognised by those outside of LatAm that an estimated 55% of the region's employment is within the general spheres of the 'Black Economy', so the subject of formal economic inclusion is obviously of major interest to LatAm economists and policy-makers]

The Chair addresses Ngaire Woods about the manner in which experts have been derised by the public, seen as either inept or no longer independent [this perspective prompted by the agenda-pushed UEA climate change debacle]. “What may be done to reverse this, and how to instil in under-graduate technocrats the sense of a professional mission?”

Woods -

“We [at Oxford's Blavetnik Centre} believe its far bigger than about technocrats but about politicians, as seen by elections wherein people voted against the Establishment, whether France, Italy, Chile, the UK Brexit vote, etc. This is a huge warning signal to every democracy about what's going wrong. We want to know why such popularism has grown, and its not because people are stupid.

“The 3 lessons :

1) People suffering socio-economically listen to those politicians who understand. This (basic expectation has been lost by politicians who use PR, focus groups, online surveys, etc to 'lead' and 'respond' and that is not listening. France's Macron won because he had people ask the public what they cared about (ie not traditional canvassing).

2) Communication – the simple meaningful messages “Make America Great”, “Take Back Control” etc do not have to be simplistic. Taking the time to make complex issues simplified and intuitive.

3) What is the 'transformative vision' that centre-point politics need?

I find it astounding that when 60% of Brazilians are hardly making ends meet, that politicians are still focused on balancing the budget and inflation. It's sensible, but that's not a vision that mobilises people; and that's the task of business leaders and public-policy setters to demand of politicians.

Woods again invokes the UK's post-WW2, the “Attlee Vision” that kick-started its economy and achieved better social well-being.

“So what's the vision today? Leaders have a big task in front of them to create a vision, mobilise the populace and achieve that vision.

[The great concern, given the raft of problems being faced by the supposed 'elite' regards the problematic confluence of still sluggish economies, the angry masses, the technology gap and its critics, and vitally the chasm between 'good news stories and statistics' and the reality on the ground, is that each leadership community looks to each-other to solve the innately big problems whilst still serving itself, so creating a game of 'pass the (problem) parcel' with accordent criticism of the other sides: Governments vs MNCs vs Populist Leaders...and so an ever-circular argument].

The Chair highlights the point that too much time is spent pronouncing about the instruments of public policy, not the goals. And to alter the direction of debate he asks Paul Bulcke (an MNC leader) about the somewhat damaged reputation of MNCs and yet also important their roles toward creating a better society; with acknowledging the local (typically BRICs+) criticism of 'importing foreign values'.

“How can MNCs be purveyors of better practices, especially regards the labour market?

Bulcke -

“First let me refer to the 'admired' rankings previously and the high scores of actors etc. This is not in direct contrast to any criticism of MNC's but politics.

As per 'leadership', let me quote an old Chinese philosopher “we are not only responsible for what we do, but also responsible for what we do not do”. Given that the title of this forum is 'Turning Point', if we (all leaders) don't take the right turn (especially for LatAm) (ie become “responsible for not doing” the right things) that would be bad.

“Leadership is not about time/tenure, but what you pass on the next leader and the long-term. This especially so in LatAm where 6 elections offer the chance for the right turn. Strong institutions, structural reforms...everyone knows what has to be done, yet it is not done because of short-termism. (The recent trend toward) Populism is formulating simply what the others did not do. The idea of inclusiveness is an anathema when you did not care for the biggest part of the population. In an age of new global growth LatAm is very well placed [per the full industrial and commercial value chain], with the 'democratic dividend' of a young population that can be deployed over the next 20-25 years...so a unique opportunity regionally.

“Leadership is required, not simply politics, along with integration of the continent, so looking beyond the Asia-Pacific west and Euro-African east. As for companies, they will be judged on what they do not, as well as do. Beyond shareholder and to stakeholders since economic activity is inevitably linked to society. In Nestle “shared values” to intersect in a positive way.

“We at Nestle have been here for 100 years, and we are in countries that offer little in the short term and only make sense in the long term. We look to all involved: consumers, suppliers, farmers...thst is leadership. But we will be criticised; as a high tree we ctach more wind; but don't hide-away, engage and explain as we try to do.

The Chair raises the topic of Populism again, highlighting the problem that many Brazilians live on BRL2000 ($600 per month), so we need some solutions. And asks of the panel “what will you (personally) do to overcome the 'societal disconnect'?

[The fact that there was such a reticence to answer, highlights the size of the problem and the way in which no 'leader' wishes to be held accountable for their promises].

The answers that eventually came was the normative ideology of CSR and 'corporate citizenship', shaping a bold vision, being critical when public policy is failing and being more constructive. Also the observation that big election campaign promises are, after election, are watered-down or forgotten...the country needs to be 'vaccinated' against such lies and false pledges. Leaders need to both listen and be inspirational, give hope but carefully (ie managed with capability) since (in Brazil) the policies about homes for the poor and foreign-study student grants were shown to be worthless.

The Chair highlights similar past experiences of unkept promises in Argentina and Peru - “a pretty common habit” - and then opens up questions from the audience.

Audience Questions -

A person from Caracas, Venezuela, for Ngaire Woods “How to get leaders to connect with the people, their 'soul”.

NG - “we need a new model, we thought it would be purely from economic growth, but worker-share of that growth is less than ever, and outsourcing and robot threats add more concern. The economic data supports the mass feelings of anxiousness. I like mention of the soul, because this is about dignity, not just economics. The populism appeals to people's self-worth, identity...so the new 'compact' has to be not just 'redistribution' (of wealth) (eg Universal Income proposition) but 'dignity' hence the 1945 UK model.

Another audience member from the new start-up arena regards food safety [after the Brazilian Beef scandal] asks “how large companies deal with a new generation of young leaders from start-ups?”

Bracher answers “at Banco Itau we deal with over 200 start-ups, our posture is that of curiosity and learning, we finance many to initially understand how they work in structure and intra-cooperation, and so we seek to mimic that. The old management theories of organigrams are being altered, things being more organic less organigram. So a changed mindset in HR, from individual performance to collective performance. Innovations comes from cooperation.

Bulcher says “society will be transformed in this way. It does not go against established companies, so we embrace youth and its new philosophies. LatAm is a 'young' continent so we muct embrace.

An audience member from Chile says “Given the interconnect between society and companies, what would you choose, social influence from a 'leader' (as per the political slant) or a manager (as per the corporate)?”

Ngaire Woods

“Leaders have to be able to forge the vision and mobilise the people; people mobilise when they feel they are creating it”.

Luiza Trajano

“I would like to add that leaders take people further than they thought....its about hearts, minds and pockets...in their hearts when they feel the strategy is true, from their minds they participate regardless of their level, and their pockets is about sharing profit with employees. The pocket the most important dimension.

[What ever Trajano's actual business acumen, this does at least demonstrate she has an understanding that for those whose lives are massively constricted, all the rhetoric is meaningless, what matters is society's and corporations' demonstrated fairness regards the spread of wealth].

Thus, it is easily recognised by both inference and directly stated facts, that the term 'Leadership' from whatever quarter (corporate, political, social) only becomes meaningful and applicable to the masses when they actually see improvement in their own lives.

Many, though no all, of the 'elite' seem to believe that the term 'leadership' is a broadly applicable term relevant to their job description, and often see it as a badge of honour for past achievements of climbing the slippery pole of the organisational hierarchy.

And that includes the very necessary focus of such a typically demanding position of ensuring ROI and EPS, top-line growth and either running an expansionary yet simulateneously lean corporate machine, or endeavouring to generate a company turnaround toward a better future.

All admirable goals and far harder than the majority of staff and middle and lower management will ever understand.

The best leaders (as stated by some) seek to create a true societal difference, when one is so desperately required – as the Cadbury's, Hershey's, Leverhulmes and Henry Ford sought to do.

Each recognised their calling to make a better world, from model villages to improve the housing conditions and aspirations of factory workers, to the introduction of the then enormous $5-a-day pay increase to not only help create an additional captive market for Ford cars, but to ensure the basics of food and housing could be bought so that individuals and families could be relived of the very detrimental effects of poverty and actually grow themselves to become moralistic Americans.

Lastly, perhaps an excerpt from the legendary film 'Lawrence of Arabia' tells all.

During the  anti-Ottoman Arab  Revolt the idealistic Major T.E. Lawrence effectively asks the nomadic, tent-dwelling leader why his people love him so much?

 "I am a river to my people” (in terms of providing for their needs and instilling their dreams).

(Thankfully the Arabs and Turks have long since been able to see beyond yesteryear conflicts and - beyond the unfortunate Syrian hotspot - and seek a brighter 'progressive-conservative' Middle-Eastern future.).

Yet the sentiment remains as true today as then, and it should be a motto upon which all leadership is built.

All Latin America leaders alike must realise today, that to avert yet more anger-led mass unease, or indeed the possibility of new people's revolutions, they must become as unified, stolid, inter-connected as the sources, tributaries and main channel of the Amazon River.

They must become the convincing model for betterment and display how the 'sources' of self-discipline, health, education and morality leads to a river mouth of individualistic and national strength.