BRICS Business Magazine English Edition No.2(6) by MEDIACRAT

The World and BRAZIL · RUSSIA · INDIA · CHINA · SOUTH AFRICA

BUSINESS MAGAZINE

Enrique

Peña Nieto The Mexican Puzzle 10 influential Latin Americans Mario Vargas Llosa examines technology and culture Melinda Gates shares thoughts on farming Panama and Nicaragua and their dueling canals

OPINION

Melinda Gates Adair Turner Yu Yongding L AT I N A M E R I C A

Mario Vargas Llosa Enrique Pe単a Nieto Petr Fradkov Boris Ivanov Oliver Stuenkel Vladimir Vasiliev BUSINESS

Mikhail Pogosyan Oleg Budargin Ndubuisi Ekekwe Nzube Ufodike

“If this river does not originate in the Terrestrial Paradise, it comes and flows from a land of infinite size to the south, of which we have no knowledge as yet…” reads a passage from Christopher Columbus’ letter to the Spanish king and queen, in which the explorer speaks of the Orinoco River, signaling his arrival not to another island, but to another continent. Over 500 years have elapsed since the admiral’s third voyage, yet the world is still discovering South or, more precisely, Latin America. Trade turnover, measured in billions and thousands of joint enterprises set up by other emerging-market countries in Mexico, Brazil, Chile, Argentina, Venezuela, Peru, and Colombia, must be duly acknowledged as a serious achievement. At the same time, however, this pales in comparison to the capabilities offered by Latin America, its markets, capital, ideas, and people. As is often the case, we lack knowledge and, likely, decisiveness – but you cannot have one without the other. The fact that major corporations have already rolled out operations in the territories Columbus discovered knowing nothing about Mercosur import tariffs is hardly a laughing matter. Of course, it cannot be said that the outside world is to blame for all of the unimplemented projects rather than Latin America itself. Willingness to collaborate must be continually confirmed by actions. Analyzing how others perceive you is also crucial. Yet our task for the immediate future is to once again discover Latin America. We have long extolled its virtues as a recreation destination, but it is time to embrace its business potential. Ruben Vardanian, Chairman of the Editorial Board of BRICS Business Magazine

Chairman of the Editorial Board Ruben Vardanian

BUSINESS MAGA ZINE

Photos and illustrations by: AP/Fotolink, All Over Press, East News, MEDIACRAT, Reuters, ITAR-TASS, RIA Novosti Cover photo: Christopher Morris/VII/Corbis Registered as № ФС77-51070. 19,000 copies. BRICS Business Magazine is a registered trademark of MEDIACRAT. © 2014 MEDIACRAT. All rights reserved. No part of this publication may be reproduced or transmitted in any language, in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage or retrieval system, without written permission. The views expressed in the articles are the authors’ and not necessarily those of BRICS Business Magazine. Every effort has been made to represent faithfully the views of all contributors and interviewees. The publisher accepts no responsibility for the content of advertising materials, errors, omissions, or the consequences thereof. WWW.BRICSMAGA ZINE.COM

Executive Editor Evgeny Arabkin

Creative Director Igor Borisenko

Deputy Editorial Director Tatiana Tkachuk

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Senior Editors Vladimir Volkov, Valeriya Khamraeva Managing Editor Julia Kalinina Sub-editors Ekaterina Litonina (Chief), Irina Kuznetsova

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Proofreaders Anna Simonian, Ekaterina Ospennikova, Marina Panfilova Translators Alexandre Ponomarev (into English), Victor Bereznoi (into Portuguese), Yang Jin (into Mandarin), Alexandre Bakaev (into Russian) Copy Editor Jessica Topacio Long Business Development Director Alexei Medvedev International Relations Director Xavier Ronot Senior Business Development Manager Denis Ilyashov Business Development Managers Nadezhda Leonova, Artem Sliusarenko Commercial Director Garry Jilavian Ad Sales Director Maria Filippova Client Relations Director Daria Figurkina Marketing Director Madina Besolova Senior Ad Sales Manager Ekaterina Dvorovaya Advertising Agency Relations Manager Karina Petrova Sales Coordinator Nika Kireeva

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Publisher Arman Jilavian 4

Mario Vargas Llosa

Aníbal Gaviria

Willie Li

writer, recipient of the 2010 Nobel Prize in Literature

Mayor of Medellín, Colombia

Deputy Head of Nantong Sijian Construction Group

Enrique Peña Nieto

Vladimir Vasiliev

Jamie B. Gelbtuch

President of Mexico

ballet master, choreographer, theatre director and actor

MBA, PMP, founder and principal consultant at Cultural Mixology

Co-Chair of the Bill & Melinda Gates Foundation

Yu Yongding

Pr anjal Shar ma Consulting Editor at Businessworld

Mikhail Pogosyan

former President of the China Society of World Economics

Melinda Gates

President of the United Aircraft Corporation

Ndubuisi Ekekwe Pierre Casse

Oleg Budargin Director General, Rosseti

Professor at the SKOLKOVO Moscow School of Management

Founder of the African Institution of Technology

Nzube Ufodike Gazmend Haxhia Leonel Fernández former President of the Dominican Republic

Petr Fr adkov CEO at EXIAR

President of Albania Experience

Adair Turner

Serge Hoffmann

former Chairman of the United Kingdom’s Financial Services Authority

Partner at Bain & Company in Hong Kong

Boris Ivanov Managing Director of GPB Global Resources

Pavel K azaryan

Pierre-Laurent Wetli

Director of the Escola Bolshoi

Partner at Bain & Company in Moscow

Oliver Stuenkel Assistant Professor of International Relations at the Getulio Vargas Foundation (FGV) in São Paulo and the author of the Post-Western World blog

Director of Amoo Venture Capital Advisory, Co-founder of place4BRICS

K aren Kostanian Head of EEMEA Energy Research and Head of Russian Equity Research at BofA Merrill Lynch

EXPERTS AND CONTRIBUTORS

CONTENTS

№.2(6), 2014

If China eases restrictions on cross-border capital flows, an unexpected shock could trigger largescale capital flight, bringing down the entire financial system. Given this, it is vital that China maintains controls over short-term cross-border capital flows in the foreseeable future.

OPINION

10 14 18 20 22 26

The Gender Gap Melinda Gates The Perils of Financial Freedom Adair Turner Taming the China Bears Yu Yongding How Can We Wage a Real War on Corruption? Pranjal Sharma Fostering Sustainability Pierre Casse, Gazmend Haxhia The Win-Win Gas Game Karen Kostanian

L AT I N A M E R I C A

In this extraordinarily changed world, liberty ends up playing an essential role in peaceful coexistence. We do not have a clear idea of the effects of this technological revolution, which is accompanied by a collapse of all values and beliefs. We no longer know what is good and what is bad, what is beautiful or ugly. These categories are no longer accepted in the great cultural centers. Relativism is now so generalized that humanity’s greatest conquest, liberty, could unexpectedly begin to disappear. We face the possibility of a revival of the authoritarian and totalitarian tradition, but in its modern manifestation, the collapse of what culture has achieved throughout history.

30 34 36 38 44 50 56 58 64 68 72

Money or Happiness? Osip Shor The Time Has Come to Take a Closer Look at Each Other Petr Fradkov On Doing Business in South America Boris Ivanov The Pact for Prosperity Leaders of Influence Oliver Stuenkel Fiestas, Siestas, and Mañana Jamie B. Gelbtuch The Next Generation of Latin America’s Top Fortunes Carlos Tromben The War of Canals Vladimir Volkov Inside Medellín Harriet Alexander Mario Vargas Llosa: Technology is Killing the Very Idea of Culture Nelson Fredy Padilla Castro Vladimir Vasiliev: “Now it seems hard to believe, but I immediately found myself trusting him and agreed.”

BUSINESS

76 80 84 90 94 96 102

A Common Cause Eurasia’s Smart Networks Learning the Art of Friendship Billions Online A Trap for Africa Digital Continent New Lagoon

Oleg Budargin Serge Hoffmann, Pierre-Laurent Wetli Ndubuisi Ekekwe Nzube Ufodike Monty Munford

72 C U LT U R E

106

The Truth About the Tiger Mother’s Family

Kira Cochrane

OPINION

Melinda Gates ——

The Gender Gap African politicians should recognize the role of women farmers as key economic partners. Otherwise, the entire continent runs the risk of ending up on the losing side.

In fact, agriculture offers the continent its best opportunity to turn a vicious cycle of poverty into a virtuous cycle of development. That is why leaders and policymakers from across the continent have declared 2014 Africa’s Year of Agriculture and Food Security. Joyce’s story is relevant for another reason, too. She is important to Africa’s future not only because she is a farmer, but also because she is a woman. At the Gates Foundation, I spend a lot of my time understanding the many ways that women and girls drive development forward: by investing in their children’s nutrition, basic health, and education – and also by providing farm labor. What I am now learning is that if Africa hopes to spark an agricultural transformation, countries will first need to remove one of the main barriers holding the sector back: a pervasive gender gap. This gap is not about the number of women farmers. In fact, roughly half of Africa’s farmers are women. The gap is one of productivity. Across the continent, farms controlled by women tend to produce less per hectare than farms controlled by men. The world has had evidence of this gender gap since at least 2011, but only limited data about its scope, shape, and causes. To help us better understand the problem, the World Bank and the ONE Campaign

Africa’s GDP is now growing faster than any other continent’s. When many people think about the engines driving that growth, they imagine commodities like oil, gold, and cocoa, or maybe industries like banking and telecommunications. I think of a woman named Joyce Sandir. Joyce is a farmer who grows bananas, vegetables, and maize on a small plot of land in rural Tanzania. When I met her in 2012, she had just harvested her first crop of maize grown from a seed specifically adapted for Tanzania’s climate. Even during a bad crop year that caused many of Joyce’s vegetables to wither and die, her maize crop flourished. Without it, her family might have risked going hungry. Instead, the maize harvest ensured that Joyce’s family had enough to eat – and even enough extra income for Joyce to pay her children’s school fees. As Joyce’s story demonstrates, agriculture is crucial to Africa’s future. Farmers make up 70% of Africa’s workforce. They are the foundation of its economy, and the key to triggering its broader growth. Research shows that increasing agricultural productivity is the most effective way to reduce poverty in sub-Saharan Africa. Melinda Gates is Co-Chair of the Bill & Melinda Gates Foundation. 10

OPINION

Fortunately, the new data do not just map the complexity and depth of the problem; they also point to concrete opportunities to develop genderresponsive policies that will help unlock the promise of all of Africa’s farmers. In some places, that may mean teaching agricultural extension workers how to make their messages more relevant to female audiences, or encouraging them to visit when women are most likely to be at home. In other places, it may mean increasing women’s access to markets, or introducing labor-saving tools to help them get the highest yield from their land. It may also require establishing community childcare centers, so that women farmers have the option to spend more time farming. In every case, it will require African policymakers to start recognizing women farmers as the essential economic partners that they are. This June, leaders from all over Africa will meet in Malabo, Equatorial Guinea, to set the agenda for agricultural policy in the next decade. If Africa’s agricultural sector is to achieve its promise – and if Africa’s economic growth is to continue – policymakers should take into account the needs of farmers like Joyce. Hers is a success story that can – and must – be replicated across the continent.

recently conducted an unprecedented analysis of the challenges facing women farmers. Their report highlights one stark fact from the start: the gender gap is real, and in some cases it is extreme. When we compare male and female farmers with similar land sizes across similar settings, the productivity gap can be as high as 66%, as it is in Niger. Previously, experts believed that women’s farms produced less because women have less access to inputs like fertilizer, water, and even information. But we now know that the story is much more complicated. With the new data in hand, we can see that, surprisingly, the productivity gap persists even when women have equal access to inputs. The precise reasons vary from country to country – but many of them stem from entrenched cultural norms that prevent women from reaching their full potential. For example, the report found that women face obstacles mobilizing the labor they need to help their farms flourish. Women usually have more childcare and household responsibilities than men, which make it difficult for them to devote as much time to farm work, or even to supervise hired labor. The problem is compounded by the fact that women are also likely to have less income to hire laborers in the first place. 12

At the Gates Foundation, I spend a lot of my time understanding the many ways that women and girls drive development forward: by investing in their children’s nutrition, basic health, and education – and also by providing farm labor. What I am now learning is that if Africa hopes to spark an agricultural transformation, countries will first need to remove one of the main barriers holding the sector back: a pervasive gender gap

OPINION

Adair Turner ——

The Perils of Financial Freedom

has led to significant wasted investment in heavy industry, real estate, and urban infrastructure, and leaves China facing the challenge of deleveraging and working out bad debts. In many areas, improved market discipline does have an important role to play in addressing the structural causes of imbalance. Wasteful construction investment is encouraged by the under-pricing of rural land. The lack of a normal ownership relationship between the central government and state-owned enterprises (SOEs) allows the latter to pay minimal dividends and over-invest in business expansion. Caps on interest rates on bank deposits result in household savers supplying a large subsidy to corporate borrowers. And SOEs have better access to credit from stateowned banks than private companies do. But the belief that financial liberalization will provide an easy route to a balanced and stable economy is a delusion, as Japan’s experience in the 1980s illustrates. As Joe Studwell argues persuasively in his book How Asia Works, neither Japan nor South Korea based its successful economic development on free markets in credit supply; instead, they relied on the deliberate direction of credit toward industrial development rather than real estate or consumption. When Japan relaxed constraints on its banking system in the 1980s, the result was an enormous real-estate boom and subsequent bust, followed by two decades of slow growth and deflation. China’s per capita income is still only about a quarter of Japan’s in 1990; it would be a tragedy if it suffered a similar setback before completing the path to developed-country living standards.

Back in 2007, China’s then-prime minister, Wen Jiabao, famously described his country’s economy as “unstable, unbalances, uncoordinated, and unsustainable.” Today, the imbalance remains, with the economy too focused on investment and too dependent on credit. China’s current leadership is committed to building a more balanced model, and believes that the market must play a “decisive role” in achieving that. But, while stronger market discipline is needed in some areas, Chinese officials should be under no illusion that free markets are a panacea for the financial sector. Indeed, China’s current economic imbalances partly reflect the dangers created by competition in credit markets. Even before the 2008 global financial crisis, China’s annual investment/GDP ratio was running at an exceptionally high 40%, and economists were calling for a transition to more consumption-led growth. But the huge credit stimulus introduced in 2009 drove the economy further in the opposite direction. The investment ratio rose to 47% by 2012, and construction now accounts for 30% of all output. Total credit has risen from 130% of GDP to 200%, with both bank loans and ‘shadow bank’ credit expanding rapidly. Both China and the global economy benefited from that stimulus, which helped prop up overall demand in dangerously deflationary times. But it Adair Turner is former Chairman of the United Kingdom’s Financial Services Authority, member of the UK’s Financial Policy Committee and the House of Lords. 14

The Chinese authorities bank on liberalisation of financial markets, seeing this as a way to overcome the economic threats that are plaguing the country. However, free markets are capable of quickly bringing about an even more acute crisis in the country compared to what the world was facing back in 2008.

The new face of a new world He is young. He thinks he is small and insignificant. But he is not. He is growing bigger and stronger, everyday. Soon he will be a leader at the forefront on economic policy, business and politics. His decisions will change lives, industries, communities, Africa and the world. And he will not be alone. He will have an entire continent with him. A continent with the resources, minerals, political stability, human potential, technology and backing of BRICS â&#x20AC;&#x201C; the 5 fastest growing economies in the world. And with all this to help grow this young man and his ambitious generation, we think maybe itâ&#x20AC;&#x2122;s time you change the way you see Africa. Because Africa and its people, are the future.

South Africa. Your African growth story starts here.

OPINION

By the early 2020s, China’s GDP will be $20 trillion. If the credit/GDP ratio reaches 250% by then, total loans and debt securities would equal $50 trillion, which is more than three times the total of US mortgage debt in 2008

reflect higher risk weights for real estate lending than banks’ private assessments of credit risks suggest are appropriate. The People’s Bank of China should maintain reserve requirements for commercial banks to contain credit creation, rather than reject them as old-fashioned, as occurred in the advanced economies in the decades before 2008. Credit provision by shadow banks needs to be tightly regulated. The credit cycle is too important to be left to free markets. China thus faces a difficult challenge. It must undergo a transition not to the Western model that produced the 2008 crisis, but to an entirely new model that combines elements of market discipline with strong public-policy constraints. How smoothly that transition occurs matters for the whole world. By the early 2020s, China’s GDP will be $20 trillion. If the credit/GDP ratio reaches 250% by then, total loans and debt securities would equal $50 trillion, which is more than three times the total of US mortgage debt in 2008. Today, much of that debt represents claims within the state sector – owed, for instance, by SOEs to state-owned banks. But, as the private sector develops, SOEs are subjected to hard budget constraints, and the external capital account is opened, this huge credit mountain will create increasing global financial vulnerability. One hopes that the Chinese authorities understand the dangers as well as the benefits of free financial markets better than advanced-economy policymakers did ahead of the 2008 crisis. If not, another crisis – far more severe than the last – may become inevitable.

One striking feature of the Chinese economy, however, is that real estate and urban infrastructure development – high-rise housing, grand transport projects, convention centers, sports stadiums, and museums – already play a far more important role than they did in Japan and South Korea at comparable stages of economic development. This reflects the interaction of two distinctively Chinese factors and one inherent feature of all banking systems. The first Chinese factor is the authorities’ focus on ‘urbanization’ as an end in itself, rather than as a byproduct of industrialization. The second is China’s decentralized approach to economic development, with strong competition between regions and cities often focusing on prestigious urban infrastructure projects. The universal feature in this mix is the fact that banks everywhere can create private credit, money, and purchasing power that did not previously exist, and they have a natural bias, if not constrained by public policy, to allocate it to fund real-estate developments, which drive rising land prices. These factors will drive construction booms and busts even if obvious market distortions are removed and market discipline is tightened. The pre-crisis Irish and Spanish banking systems proved just as capable as Chinese state-owned banks at funding excessive real-estate construction. So, even as China introduces greater market discipline to a largely positive effect, it must plan to constrain credit creation with policy tools that were missing in the advanced economies before the 2008 crisis. Caps on loan-to-value or loan-toincome ratios on real-estate loans should be used aggressively. Capital requirements for banks should 16

OPINION

Yu Yongding ——

Taming the China Bears Is today’s China truly teetering on the verge of a crisis, as Western experts would lead us to believe? BRICS Business Magazine offers you a look at the situation through the eyes of one of the People’s Republic’s leading economists.

pointless, given that the assumptions underpinning them will invariably change. Consider China’s high leverage ratio, which many argue will be a key factor in causing a crisis. After all, they contend, developing countries that have experienced a large-scale credit boom have all ended up facing a credit crisis and a hard economic landing. But several specific factors must be accounted for in assessing whether this is China’s fate. While China’s debt-to-GDP ratio is very high, the same is true in many successful East Asian economies such as Taiwan, Singapore, South Korea, Thailand, and Malaysia. And China’s saving rate is much higher. Ceteris paribus, the higher the saving rate, the less likely it is that a high debt-to-GDP ratio will trigger a financial crisis. In fact, China’s high debt-to-GDP ratio is, to a large extent, a result of its simultaneously high saving and investment rates. And, while the inability to repay loans can contribute to a high debt burden, the nonperforming-loan (NPL) ratio for China’s major banks stands at less than 1%. If, based on these considerations, one concludes that China’s debt-to-GDP ratio does constitute a substantial threat to its financial stability, there remains the question of whether a crisis is likely to occur. Only when all of the specific linkages between a high debt burden and the onset of

The market is always in search of a story, and investors, it seems, think they have found a new one this year in China. The country’s growth slowdown and mounting financial risks have spurred a growing wave of pessimism, with economists worldwide warning of an impending crash. But dire predictions for China have abounded for the last 30 years, and not one has materialized. Are today’s really so different? The short answer is no. Like the predictions of the past, today’s warnings are based on historical precedents and universal indicators against which China, with its unique economic features, simply cannot be judged accurately. The bottom line is that the complexity and distinctiveness of China’s economy mean that assessing its current state and performance requires a detail-oriented analysis that accounts for as many offsetting factors as possible. Predictions are largely Yu Yongding is former President of the China Society of World Economics and Director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. He has also served as a member of the Monetary Policy Committee of the People’s Bank of China, and as a member of the Advisory Committee of National Planning of the Commission of National Development and Reform of the PRC. 18

Taming the China Bears

China’s real-estate price bubble is often named as a likely catalyst for a crisis. But how such a downturn would unfold is far from certain. Let us assume that the real-estate bubble has burst. In China, there are no subprime mortgages, and the down payment on the purchase price required to qualify for financing can exceed 50%. Given that property prices are unlikely to fall by such a large margin, the bubble’s collapse would not bring down China’s banks. Even if real-estate prices fell by more than 50%, commercial banks could survive – not least because mortgages account for only about 20% of banks’ total assets

That remains a highly unlikely scenario. China’s banking system does face risks stemming from a maturity mismatch between loans and deposits. But the mismatch is less severe than some observers believe. In fact, the average term of deposits in China’s banks is about nine months, while mediumand long-term loans account for just over half of total outstanding credit. A more salient threat would arise if the government pursued too much capital-account liberalization too fast. If China eases restrictions on cross-border capital flows, an unexpected shock could trigger large-scale capital flight, bringing down the entire financial system. Given this, it is vital that China maintains controls over shortterm cross-border capital flows in the foreseeable future. Likewise, the Chinese government must address a fundamental contradiction. Monetary interest rates have increased steadily, owing to rampant regulatory arbitrage (whereby banks find loopholes that enable them to avoid unfavorable rules) and the fragmentation of the credit market, while return on capital has fallen rapidly because of overcapacity. If the Chinese government fails to reverse this trend, a financial crisis – in one form or another – will become inevitable. But, given the authorities’ broad scope for policy intervention, the crash will not come anytime soon – if it comes at all.

a financial crisis have been identified can one draw even a tentative conclusion about that. China’s real-estate price bubble is often named as a likely catalyst for a crisis. But how such a downturn would unfold is far from certain. Let us assume that the real-estate bubble has burst. In China, there are no subprime mortgages, and the down payment on the purchase price required to qualify for financing can exceed 50%. Given that property prices are unlikely to fall by such a large margin, the bubble’s collapse would not bring down China’s banks. Even if real-estate prices fell by more than 50%, commercial banks could survive – not least because mortgages account for only about 20% of banks’ total assets. At the same time, plummeting prices would attract new homebuyers in major cities, causing the market to stabilize. And China’s recently announced urbanization strategy should ensure that cities’ demographic structure supports intrinsic demand. If that were not enough to ward off disaster, the government could purchase unsold properties and use them for social housing. Moreover, if necessary, banks could recover funds by selling collateral. As a last resort, the government could step in, as it did in the late 1990s and early 2000s, to remove NPLs from banks’ balance sheets. Indeed, China has a massive war chest of foreignexchange reserves that it would not hesitate to use to inject capital into commercial banks. No.2(6), 2014

OPINION

Pranjal Sharma ——

How Can We Wage a Real War on Corruption? Every global body of note has been talking about anti-corruption issues for years. There are strict laws and penalties in most countries. There are several international conventions against bribery. The United Nations, the World Bank, and the Organization for Economic Co-operation and Development, to name only a few, have taken a public stand against corruption. The youngest global organization, the G20, has been championing the cause of anti-corruption policies. Even the corresponding industry group, the B20, has supported transparency measures. Despite this, the world remains as corrupt as ever, if not more so. Transparency International’s Global Corruption Barometer 2013 does not indicate any increase in transparency. There have been some battles and skirmishes, but the real war on corruption is yet to begin. The reason for this is simple: It appears that honesty comes at a cost that no one wants to bear. Corporations shy away from transparency, believing it may hurt their interests. Everyone wants someone else to be honest first. Governments, politicians, and business leaders can’t stop talking about it, but few want to start doing something about it. Besides, according to the corruption barometer, government agencies and private corporations are perceived to be the most corrupt. So what can be done to convert talk into action? What can be done to prod organizations, leaders, and institutions to draw their swords on corruption? Naming and shaming, for one. Governments and industry bodies should start publicly identifying

organizations and individuals who are caught in bribery cases. Often, industry links anti-corruption activity with investor sentiment. If governments act tough, industry says, investments will fall. Instead of bringing best practices to new markets, global companies are being accused of undermining laws. Leaders and officials in Mongolia say privately that multinational corporations are deploying a worrying combination of muscle, charm, and bribery to get lucrative contracts. Industry leaders have to give up this attitude. They must come together and ensure that companies do not focus on competitive corruption. Those who are out of line should be exposed. From crooked cartels, we need to build clean coalitions. But it’s not down to the private sector alone: governments should create policies that reduce the scope of corruption. When India auctioned 2G spectrum in an opaque manner in 2008, it resulted in a multibillion-dollar scandal that scalped a minister and senior officials. Many telecom companies lost their licenses to operate. Quick to learn from the fiasco, the 3G spectrum allocation, which earned billions for the government, was held through an open online auction. There was not a whisper of corruption. A political party borne from an anti-corruption movement that ruled Delhi, the capital of India. This Aam Aadmi Party (AAP), or common person party, launched helplines for citizens to report corruption in government and private organizations. Similar steps are being considered in other cities across the world. Governments and industries in all countries have to move from promises to action. From a conspiracy of silence, the war on corruption needs the cacophony of exposure.

Pranjal Sharma is Consulting Editor at Businessworld. He was a participant at the World Economic Forum Annual Meeting 2014. You can follow him on Twitter @pranjalsharma. 20

Does the war against corruption lack integrity? Are we transparent about our intentions to be honest? It does not seem so.

OPINION

Pierre Casse Gazmend Haxhia ——

Fostering Sustainability Is it a new hip trend? A good investment idea? Or is it a system capable of saving the human race? Today the notion of sustainability is interpreted too broadly. Pierre Casse and Gazmend Haxhia talk about what it really means and share their experience of implementing sustainable projects, citing Albania as an example.

level, few authorities can afford to ignore the need for coherent environmental management policies. The simple truth is that ordinary people are worried about the future of the world in which we live. We cannot deny the facts before us. Many of the business models we depend upon were designed in an age when we thought the earth’s natural resources were infinite. Entire industries grew around the assumption that the natural resources sustaining our survival were inexhaustible. Nevertheless, the disappearance of forests, the depletion of the fish stock, the erosion of the earth’s ozone, and the contamination of fragile ecosystems and our water supply tell a different story. Perhaps the strongest evidence comes from the gradual change in weather patterns across the globe. With respect to trends, the following should be taken into consideration: • The growth in the global population, and issues arising from a demographic shift, cannot be ignored;

This is the dawn of a new age. We have come to realize that the world is a much smaller place then we had previously thought. In the 21st century ‘global village,’ we are all interconnected and increasingly interdependent. As the global population continues to expand, we must face the fact that the earth’s natural resources are finite. It is as if we fell off a cliff and have been falling for some time, but now we can suddenly see the ground looming below us. The urgency to act becomes greater as the base of the cliff grows closer. Will we have the courage to make the critical decisions? Where is the leadership we need? With respect to the environment, thankfully, initiatives have been both top-down and bottomup. On the supranational level, the World Business Council for Sustainable Development, the United Nations Environmental Program, and the World Economic Forum in Davos are highlighting the need to ensure that sustainability is a key consideration on the global agenda. On the national

Pierre Casse is Professor at SKOLKOVO

Gazmend Haxhia is Professor at SKOLKOVO

Moscow School of Management and

Chairman of the Pierre Casse

President of Albania Experience, Co-

Foundation (Belgium).

Founder and Lecturer, Polis University (Tirana, Albania). 22

Fostering Sustainability

Sustainability has only recently ‘come into vogue,’ and still faces the challenge of proving its importance. Some people resent what they see as fear mongering. We are told that unless we act now, we will leave a terrible legacy for future generations. But should not we have contingencies in place in case the worst-case scenario is accurate?

• The ongoing development of a ‘triple bottom line strategy’ comprising three key pillars is still a work-in-progress; • Economic prosperity; • Social equity; • Environmental protection; • Sound decision-making on a range of issues related to sustainable development is slow in implementation; and • The use of measurement tools, such as environmental assessment, life-cycle audits, and the like, have not yet become established in the leaderships’ mindset to make an impact. Our world is evolving faster than our powers of understanding, and since we have no means of anticipating the future with any degree of certainty, it behooves us to craft strategies that will aim to create a more sustainable world for future generations. No.2(6), 2014

We have seen recent moves in the right direction. One such example is Albania’s Cement Sustainability Initiative, related to the TITAN ANTEA green field project. This involved using a green area for the construction of a new cement production facility and the development of two new quarries for producing the main raw materials for the operation. The project, which was funded by EBRD and IFC, is considered a category ‘A’ initiative by the funding 23

OPINION

institutions. An Environmental and Social Impact Assessment (ESIA) was conducted with a focus on Environmental Impact Assessment Studies and Quarry Management Plans. An additional example involves Albanian Banking Institutions, including BKT, PROCREDIT, and CREDINS, that offer credits to homeowners who use sustainable power; different international partners subsidize the attractive rates. Some business leaders understand that to be successful in today’s environment, the business model must appeal not only to the market but also to the wider community and society as a whole. Some leaders in the field today already include the challenge of ‘environmental stewardship’ in their business agendas, thereby inspiring their employees towards a higher purpose in life. On 22 November 2013, a group of Albanian business leaders championed a grassroots initiative called Clean Albania. Employees from a variety of organizations, including companies owned by Gazmend Haxhia (co-author of this article), organized a plan of action in which they took time off work to clean city streets. The businessmen hope this initiative will lead to similar actions and will promote a sense of mutual responsibility.

• There are those skeptics who claim that there are too many inconsistencies in the evidence. There is a need for a unified central reference point or a body of consistent evidence on sustainability. • There is an imbalance between the interests of first world societies and the needs of the third world. Sustainability requires a global strategy. THE LEADERSHIP CHALLENGE

If leaders from the public and private sectors are serious about the ‘cause,’ they must: 1. Improve the communication process. Delivering the sustainability message is one of their main leadership responsibilities. Leaders need to tailor the message to different audiences so that it is an easily understandable and accurate reflection of the facts. An emphasis should be placed on the effects of inaction. Being ‘proactive’ and factual is the key to mobilizing people. 2. Create incentives. Leaders should create and implement special initiatives that capture the hearts and minds of all those involved. Sustainability is an opportunity for them to show that they are committed citizens who have the stamina, courage, and intellect to make a difference. Leaders from all sectors, countries, and disciplines must learn how to accept differences and create positive attitudes based on unity and accountability. They must be role models, helping societies to reinvent themselves. Sustainability is the first step in developing awareness of the consequences of our actions on each other and the world. It is about taking responsibility for our actions and becoming the masters of our destiny.

SUSTAINABILITY: IS IT SUFFICIENTLY APPEALING?

Sustainability has only recently ‘come into vogue,’ and still faces the challenge of proving its importance. Let us consider some of the barriers we need to overcome: • The word itself is vague and open to interpretation. We need to clarify and promote understanding in a strategic and systematic way. • It is perceived as a fad. But can we afford not to recognize its importance? • Many cynics believe that it is just another moneymaking scam. Private sector initiatives, like the aforementioned Albanian examples, will lead to a better sense of the issues and how to deal with them. • Some people resent what they see as fear mongering. We are told that unless we act now, we will leave a terrible legacy for future generations. But should not we have contingencies in place in case the worst-case scenario is accurate? 24

Fostering Sustainability

MEASURING YOUR SUSTAINABILIT Y MINDSET Please answer the following questions with a ‘yes’ or ‘no.’ Be as honest as possible while answering.

DO YOU BELIEVE THAT…

YES

…sustainability is a serious issue?

…we must consider the impact of our actions on people and the environment and take responsibility for these actions?

…there is urgency in some key areas?

…businesses must play active roles in the implementation of sustainability initiatives?

…a new type of leadership is required to make it happen?

…many people are quite naïve about the issue?

…long-term survival will depend on our short-term decisions?

…doing nothing to sustain our survival is foolish?

…everybody must take actions to promote sustainability?

10.

…to ignore the challenge of sustainability is irresponsible? NUMBER OF ‘YES’ ANSWERS:

√

DEBRIEFING If you answered ‘yes’ to more than seven of the questions above, you are either in the sustainability field or you have a passion for the subject. There is a good chance that you monitor sustainability trends closely, support sustainability initiatives, and understand that we have no choice. If you answered ‘yes’ to between four and six of the questions above, there is a good chance that you acknowledge the existence and importance of sustainability, but that you are also aware of the costs involved, the resistance from some interest groups, and political procrastination. If you answered ‘yes’ to between one and three of the questions above, you are not there yet. Perhaps you have some good reasons not to be, but think about it – are you missing something that could adversely affect future generations?

No.2(6), 2014

OPINION

The Win-Win Gas Game K aren Kostanian The $400 billion gas supply deal signed in May by Russia’s Gazprom and China’s CNPC will bring long-term benefits to both countries. Not only does it secure the resource-hungry Beijing a major source of cleaner fuel, but it also opens up the world’s most promising energy market to Moscow, enabling it to ease its dependence on hydrocarbon exports to Europe and drill in remote territories of the Far East.

across the border. Yet Russia and China have been unsuccessful in negotiating Russian pipeline gas deliveries for more than a decade. Russia’s enormous resource base remained dormant as the country concentrated its energy efforts on delivering gas, oil, and refined products to the Western markets. Meanwhile, China’s rapid economic expansion was increasingly reliant on coal-fired electricity, wreaking havoc on the country’s environment. The long-awaited gas contract was finally signed by Russia’s state-owned monopoly Gazprom and

Scanning the vast expanse of Russia’s Far East and East Siberia on a world map, it is easy to make a connection between the region’s huge hydrocarbon reserves and the energy-hungry Asian markets Karen Kostanian is Head of EEMEA Energy Research and Head of Russian Equity Research at BofA Merrill Lynch.

The Win-Win Gas Game

China National Petroleum Corporation (CNPC) on 21 May during Russian President Vladimir Putin’s visit to China. “This is the biggest contract in the history of the gas sector of the former USSR,” said Putin, after the agreement was signed in Shanghai, citing Chinese friends as hard negotiators. “Through mutual compromise we managed to reach not only acceptable, but rather satisfactory, terms on this contract for both sides. Both sides were in the end pleased by the compromise reached on price and other terms.” No pricing details were announced beyond the fact that it will bring Russia $400 billion in revenue on supplies of 1 trillion cubic meters of gas for 30 years to China via a new Eastern pipeline linking the two countries. The pricing was estimated to be between $350-390/Mcm, which is widely believed to be hovering around Gazprom’s break-even point of delivering gas to China’s gates. To make the contract work, the Russian government may cancel the mineral extraction tax rate for the fields that will supply gas to China. For now, the ends seem to justify the means. The contract appears to mark a fundamental shift in cooperation between both countries, and a pivot to the East in Russia’s energy strategy. More importantly, it is evident that both countries have nothing to lose and everything to gain from rapid expansion in energy cooperation.

The demand for gas in China has already doubled over the past five years and even under most conservative assumptions, it is now expected to triple by 2030. Estimates suggest that even with increases in imports of LNG, Central Asian gas, the development of domestic unconventional resources, and deliveries of 38bcm of Russian gas, China will still face a shortage by 2030

12 10

A – actual data E – estimate

8 6 4 2

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: Company reports; BofA Merrill Lynch Global Research.

Energy deals between Russia and China

CHINA: MEETING THE DEMAND

One clear reason for China’s plunge into the gas game with Russia is demand, which is facing exponential growth that cannot be met by its own resources. For almost a decade, Beijing subsidized domestic gas prices to encourage diversification of its coal-heavy energy balance, which allowed local gas resources to cover consumption and keep prices low. But in recent years, conventional resources were unable to keep up with exponential growth in demand. Thus, China was forced to turn to more expensive sources of imported gas from Central Asia and liquefied natural gas (LNG). Its own unconventional gas deposits, besides being expensive to develop, have so far failed to yield significant results. Faced with growing demand and a depleted resource base, the Chinese government is gradually phasing out subsidies for domestic gas. As such, No.2(6), 2014

PetroChina’s Natural Gas average sales price

($/mcf)

Year

Deal

2004

Rosneft-CNPC five-year oil deal

2006

Sinopec buys stake in Udmurtneft

2007

Gazprom Eastern Gas program adopted

2009

Rosneft/Transneft/CNPC sign a 20 year oil deal via ESPO, $25 billion loan

2013

CNPC and Gazprom sign MOU for Eastern route CNPC farms in into Yamal LNG

CNPC considers farming into offshore acreage CNPC acquires 49% stake in Taas-Yuryak license 2014

2014 Gazprom-CNPC 30-year gas deal

Source: Woodmac.

Rosneft CNPC sign 20 year $270 billion loan, $60-70 billion prepayment

OPINION

on renewable energy and additional gas capacity to decrease coal’s share in the country’s energy balance. However, the demand for gas in China has already doubled over the past five years and even under most conservative assumptions, it is now expected to triple by 2030. Estimates suggest that even with increases in imports of LNG, Central Asian gas, the development of domestic unconventional resources, and deliveries of 38bcm of Russian gas, China will still face a shortage by 2030.

One clear reason for China’s plunge into the gas game with Russia is demand, which is facing exponential growth that can’t be met by its own resources. For almost a decade, Beijing subsidized domestic gas prices to encourage diversification of its coal-heavy energy balance, which allowed local gas resources to cover consumption and keep prices low. But in recent years, conventional resources were unable to keep up with exponential growth in demand

pricing for domestic gas increased by three-fold in the past five years, reaching an export parity level for imported gas in 2014. The current gas price of almost $13/mmbtu is similar to prices that Gazprom charges its European customers. Domestic pricing in China now fulfills Russia’s fundamental demand for similar pricing between China’s and Europe’s gas deliveries. China’s explosive economic growth has also wreaked havoc on its environment. Smog from coal burning electricity plants now regularly covers cities in some parts of the country and puts a severe strain on the country’s water supply. The country’s Premier declared that the smog in the cities is “nature’s red light” against unchecked development. Late last year, the government introduced sweeping legislation to its environmental regulation and committed $280 billion to clean up pollution. The new plan focuses

RUSSIA: OPENING UP THE RESOURCE BASE

The contract positions Russia well to further increase its exports to China. The opportunity looks like a windfall for Moscow in many ways, as it helps to supply China’s ever-increasing appetite for energy. One obvious benefit of the deal is the need to develop the Far East. Russia’s extensive gas resources in East Siberia and the Far East were unused for decades. While the regions cover a vast area, they are home to only around 10 million people. Domestic demand cannot justify the development of these resources and building pipelines to the West or to LNG terminals is proving to be prohibitively expensive. While initial pricing for piped gas to China might not seem financially lucrative to Gazprom, it will allow Russia to monetize its resource base, meet domestic demand in the East, provide gas to its

Scenario analysis – Chinese gas import requirement by 2020 (bcm)

Low case

Base case

High case

2020 China gas consumption (% 2016-20 CAGR)

320 9

350 11

380 13

2020 China gas supply (a + b + c) Domestic conventional gas (a) Imports – Pipeline (b) Turkmenistan Russia Myanmar Imports – LNG (c)

280 132 115 65 38 12 33

2020 China gas shortage Unconventional gas 2020 additional import requirement

40 25 15

70 25 45

100 25 75

The Win-Win Gas Game

Current and potential Russian energy exports to Asia (Mtoe)

120

600

100

500

400 300

Source: Woodmaс.

60 40 20 0

2010

2012

2014

2016 2018

200

Gas

Electricity

Coal

G CA

.0 -9

(

1 20

E 30

550

)

600 350 380

210 230

100 108

2020 2022 2024

Oil

2018

2020

2022

2024

Source: NDRC, Ministry of Land and Resources,BofA Merrill Lynch Global Research estimates.

China’s explosive economic growth has wreaked havoc on its environment. Smog from coal burning electricity plants now regularly covers cities in some parts of the country and puts a severe strain on the country’s water supply

LNG plant in Vladivostok, jumpstart economic growth in the Far East, and replenish state and regional budgets. Another benefit is Russia’s need to diversify its energy markets. The Russian domestic gas market remains severely oversupplied. The 200809 crisis saw demand plunge both in Russia and its only export market, Western Europe. The recent political spat between the West and Russia over Ukraine is also forcing Europeans to rethink their dependence on Russian gas deliveries. Russia, in turn, is being forced to increasingly look to the Eastern markets and LNG to solve domestic oversupply and diversify away from Western European markets. In fact, the Russian gas deal follows on the footsteps of multi-billion dollar deals already signed with China by Russian oil companies which committed to deliver as much as 20% of their future output to China (up from the current 6%) by 2025. With the launch of the Eastern Siberia-Pacific Ocean oil pipeline in 2009, and its expansion in 2012, Russian energy giants such as Rosneft and Transneft successfully installed the infrastructure and routed parts of their existing oil output to Asia. Rosneft’s unprecedented $270 billion, 20year oil delivery deal with CNPC in 2013 now requires the development of East Siberian and Far Eastern oil fields. No.2(6), 2014

China gas consumption expectations

(bcm)

It is no surprise then that realizing the importance of the Eastern direction, the Russian government implemented a sweeping taxation reform to allow the development of Russia’s Eastern energy resources. To support the development of the Far East and East Siberian fields, the Russian government developed and passed into law in 2013 several tax breaks, including on East Siberian greenfield projects, tight oil developments, and offshore oil fields. The new laws dramatically lowered the marginal tax rates for new oil barrels and, according to our estimates, significantly raised the profitability of potential new projects. The evolution of thinking is also evident on the Russian corporate level. Once protective of their resource base, Russian companies are now allowing Chinese conglomerates to get minority stakes in upstream projects. With the new gas deal in place, we now expect that energy cooperation between China and Russia will quadruple from 30Mtoe in 2013 to nearly 120Mtoe by 2025 as Russia attaches increasing importance to the Eastern direction. This is clearly a win-win situation for both Russia and China. 29

L ATIN AMERICA

Money or Happiness? Osip Shor Until recently, most Latin Americans answering this question would not hesitate to choose happiness. However, after a decade of unprecedented economic growth, locals in this region seem to have reached the conclusion that one does not necessarily preclude the other.

than anywhere else. For instance, according to a 2012 Gallup poll involving 150,000 personal interviews in 148 countries, as many as eight Latin American and Caribbean nations ranked in the top ten happiest countries in the world, with Panama being the clear front-runner. Another nation on the list is Guatemala, whose story speaks volumes. Guatemalans have stayed cheerful, even after a thirty-year civil war that

In a world gone crazy over money, this may come across as an inexplicable paradox, but the fact remains that Latin America is the planetâ&#x20AC;&#x2122;s undisputed happiness champion â&#x20AC;&#x201C; even though it lacks the ability to scale the heights of international wealth and social development rankings. Any methodological errors are ruled out here, and opinion polls confirm that joie de vivre permeates the hearts and minds of people living there far more 30

Money or Happiness?

was followed by the rampant crime, violence, and gangland killings of the 1990s. In fact, the country still has one of the highest murder rates in the world. “In Guatemala, it’s a culture of friendly people who are always smiling,” said Luz Castillo, a 30-year-old surfing instructor. “Despite all the problems that we’re facing, we’re surrounded by natural beauty that lets us get away from it all.” Even informal research has shown similar results. Travel app Jetpac City Guides calculated the number of smiling people in Instagram photos this spring – it turned out that the country with the largest and most frequent smiles was Brazil. This idea was confirmed by hard data indicators as well, like in the Happy Planet Index (HPI) – this measures the ability of countries to produce long, happy, and sustainable lives for its inhabitants, based on factors like life expectancy, experienced well-being, and ecological footprint. If the summands are changed around, the resulting sum total of happiness becomes even greater – as many as nine Latin American countries are among the HPI top ten, with Costa Rica in the lead. However, does it mean that poverty in Latin America goes hand in hand with happiness? If such a nexus were to exist, it would not manifest itself in such a straightforward way. At any rate, even the last decade’s unprecedented economic boom and subsequent reduction in poverty rates – between 2002 and 2010, the number of Latin Americans living below the poverty line dropped from 243.9 million (46.1% of the total population) to 160.6 million (27.6% of the population) – did not affect the optimism that Latin Americans are so famous for. Be that as it may, the balance of happiness and well being in the region may shift significantly in the near future; it appears that Latin America is determined to weather the crisis and continue to grow richer.

Researchers point out that one of the major sources of increased productivity could be achieved if the region were to drastically reduce its ‘twilight economy’ share, which is estimated at 40% to 60%, depending on the country. As a recent report by McKinsey shows, productivity in the informal sector falls far behind modern production

Professor of Public Policy from Harvard Kennedy School and Director of the Center on Energy and the Environment (IESA). “In contrast to previous booms, more commodities and more countries experienced a windfall, lasting longer than any previous episode. However, not all countries benefited equally.” Indeed, the growing commodity-derived revenues fuelled unprecedented growth in Latin America and the Caribbean; between 2004 and 2011 the region’s GDP climbed by 4.3% annually. Countries such as Peru and Colombia, which managed to carry out efficient reforms and benefited greatly from the opening up of their commodity sectors to foreign investors, L ATIN AMERICA AND THE CARIBBEAN REGIONAL INDICATORS GNI per capita, Atlas method (current $)

8.327

9.070

(2011)

(2012) GDP growth (annual %)

4.3

2.9

(2011)

(2012)

Population, total (millions)

DIVERSIF Y OR DIE

It is an open secret that economic successes experienced by most countries in the region over the last decade were largely due to the growing prices for raw materials on the world commodity markets. “Latin America’s gains from this commodity boom fall only behind the Middle East oil exporting region,” said Francisco J. Monaldi, Visiting No.2(6), 2014

422.3

581.4

(1990)

(2012)

Poverty headcount ratio at $1.25 a day (PPP) (% of population)

12.2

5.5

(1990)

(2010)

L ATIN AMERICA

“History seems to suggest that without a more diversified economy, stronger capabilities, and higher quality human capital, the recent growth acceleration [in Latin America] would not be sustainable,” noted Monaldi. Researchers point out that one of the major sources of increased productivity could be achieved if the region were to drastically reduce its ‘twilight economy’ share, which is estimated at 40% to 60%, depending on the country. Productivity in the informal sector falls far behind modern production performance indicators as is clearly shown in a McKinsey report entitled A tale of two Mexicos: Growth and prosperity in a twospeed economy and published in March. “Two-speed Mexico means that within our country, we have two distinctive economies, say modern and traditional sector, and they are both moving in opposite directions. And as a consequence we have created an average, which is resulting in low productivity growth in our economy. And the gap is actually growing,” said a co-author of the research, director in McKinsey’s Mexico City office Eduardo Bolio. The expert believes that Mexico’s largest national corporations have shown on average a 5.8% increase in productivity since 1999. Conversely, this indicator has dropped by 6.5% for small and medium-size enterprises operating in the country’s informal economy. While a quarter of a century ago, productivity in the ‘traditional economy’ equaled on average 28% of that shown by the best contemporary production enterprises, now the figure is barely over 8%. As a result, Mexico’s productivity today remains at a mere 0.8%, which limits the country’s economic growth potential, estimated at the year’s end to be as little as 2%. McKinsey calculated that if the government wishes to achieve its Central Bank target growth figure of 3.5%, productivity needs to at least triple.

THE GAP IN PRODUCTIVIT Y BET WEEN SMALL AND L ARGE ENTERPRISES IN MEXICO CONTINUES TO WIDEN Small

Medium-size

Large

(≤10 employees)

(11–500 employees)

(>500 employees) 44

1999

2009

1999

2009

1999

2009

Productivity in Mexico, Added value per employee, $, thousands

-6.5

+1.0

+5.8

Productivity, CARG (Aggregate annual growth rate) 1999–2009, % 42

2009

1999

Employment rate, % Source: Censo Económico for 2009 and 1999, Mexico’s Instituto Nacional de Estadística y Geografía (INEGI); calculations by McKinsey Global Institute.

showed staggering 7% growth rates rivaled only by China. Lately, however, this rosy outlook has become somewhat bleaker for the Latin American economic miracle. A cyclical fall in demand for most commodities, which continued over the last two to three years, slowed down economic growth in the region to a mere 2.6% in 2013. While this situation certainly falls short of a crisis, the jury is still out on whether the countries in the region would be able to continue their dynamic development when the commodity boom finally becomes a thing of the past. Experts believe that the answer would largely depend on whether Latin America would be able to diversify its economy and increase its productivity. That would require structural reforms to improve the investment climate and the quality of the labor force.

RIGHT TO L ABOR

Apart from the universally known institutional reform, this struggle to ‘legalize’ the region’s economy should also place greater emphasis on domestic transformation – including improved regulatory mechanisms, as well as reform of tax and labor legislation that remains highly inflexible today and impedes the creation of 32

Money or Happiness?

Apart from the universally known institutional reform, the struggle to ‘legalize’ the region’s economy should also place greater emphasis on domestic transformation – including improved regulatory mechanisms, as well as reform of tax and labor legislation that remains highly inflexible today and impedes the creation of full-time jobs, forcing employees to seek better fortunes in the informal sector

full-time jobs, forcing employees to seek better fortunes in the ‘twilight economy,’ noted McKinsey. This objective has become increasingly topical for the vast majority of Latin American countries that chose to neglect these issues while riding the wave of economic boom. “Important determinants of informal markets, such as tax and regulatory burdens, corruption, red tape, law and order, bureaucracy quality, and education have barely improved in many countries over the last decade,” said Guillermo Vuletin, an Assistant Professor in the Department of Economics at Colby College and a fellow in the Global-CERES Economic and Social Policy in Latin America Initiative. He calls upon local governments to take a more proactive stance on reforms in all of these sectors to efficiently and fully integrate the entire marginalized segment into their countries’ labor force. Moreover, modernization of their labor markets is a key No.2(6), 2014

element in paving the way to broader vital domestic transformations designed to boost economic growth. “The above mentioned reforms would help increase productivity and investment opportunities which would, ultimately, allow the region to achieve long-term sustainable economic prosperity with economic inclusion,” believes Vuletin. Whether this would make the people of Latin America happier remains to be seen in future rankings. 33

L ATIN AMERICA

The Time Has Come to Take a Closer Look at Each Other Petr Fr adkov Much could still be done to strengthen Russia’s ties with Latin America. Indeed, despite the fact that mutual trade has more than doubled over the last 10 years and now exceeds $19 billion, the current volume of gross trade accounts for just a tiny fraction of Russia’s international trade.

business missions, forums, and conferences do go some way towards successfully establishing entrepreneurial partnerships. However, a more comprehensive approach requires more to be done in terms of providing up-todate information on invitations to tender, as well as an efficient communication policy regarding the benefits of the regional customs, tax, and political regimes. The Instituto Bering-Bellingshausen para las Américas (IBBA) was recently established in Montevideo. One of its objectives is to facilitate access to Latin American markets for Russian companies. A major assembly and conference is scheduled to take place in the city this July. We are greatly looking forward to seeing the results of this endeavor. The ability to offer a competitive proposal is equally important when it comes to strengthening trade and economic relations – specifically, a comprehensive package to provide financing and cover risks. This will allow every partner in a transaction – be they the buyer, seller, or bank – to feel at ease. Insurance is one such component of this package. We, like our colleagues from national export credit agencies in other countries, provide protection against commercial and political risks. In fact, international projects with other export credit agencies account for over 10% of EXIAR’s total insurance operations. In these scenarios, a Russian organization is insured by our agency, while their partner is insured by the agency of their respective country. This way, all the risks related to a particular project are covered. For the first time this year, the St. Petersburg International Economic Forum featured a session dedicated to boosting cooperation between Russia and Latin America. This will soon be followed by government-level discussions. I do not doubt that we will soon be taking a major step forward in our relations. All that is required is that we take a closer look at each other.

WHERE ARE WE NOW?

There is no doubting the fact that over the next few years, Latin American markets will become immensely appealing to Russian businesses. Currently, experts estimate that potential investments could exceed $25 billion. In addition, all the prerequisites to expand cooperation across a range of sectors are already in place. Earmarked industries include energy, automotive, aviation, geological exploration, medicine, and IT, amongst others. EXIAR’s project portfolio reflects these mutual trade interests. Over a relatively short period of time, the agency has signed 25 insurance agreements for Russian shipments to Venezuela, Colombia, Cuba, Mexico, and Peru worth a total of over $100 million. Inter RAO, Zarubezhtsvetmet, RUSELPROM Trading House, and Ivekta are just some of the Russian exporters to have benefited from the agency’s support. The agency has completed a number of major projects, including insuring deliveries of Sukhoi Superjet 100 aircraft to Mexico. There are currently 41 projects worth a total of approximately $2.3 billion in the works. These will involve insuring shipments of power engineering products, chemicals, radio electronics, and electrical goods, as well as aviation and automotive equipment to Argentina, Uruguay, Brazil, Peru, Ecuador, Guatemala, and Chile. WHAT NEEDS TO BE DONE?

A successful trade partnership is always founded on competitive strengths and information. Russia has not always been able to sufficiently coordinate efforts to enter new markets and gain a foothold in them. Of course, Petr Fradkov is CEO at EXIAR. He participated in the St. Petersburg International Economic Forum 2014.

L ATIN AMERICA

On Doing Business in South America Boris Ivanov If it seems like Venezuela wouldn’t be a good country to launch a large project, you may want to learn more about the place.

will not let me explore the subtle differences between the various South American conditions and attitudes, so I will note the single overarching feature: partnership. One cannot stress enough the importance of trust and mutual support in international business. For Russians and South Americans, occasional political and national risks are features of life. There is not a rulebook for every step you take in international business, and therefore the people accompanying you on this voyage become your ultimate insurance and safety network. I say this not in some abstract way, but rather from direct experience through my company’s oil project in Venezuela. Our joint venture, revitalizing the Bachaquero Tierra and Lagunillas Tierra oil fields, is about to enter into its third year of production, delivering about 70,000 barrels of oil to international markets each day. In March 2011, GPB Global Resources, a specialized holding company engaged in oil and gas and mineral projects worldwide, started the negotiation process to form a joint venture with Venezuelan PDVSA. Today, JV Petrozamora is a company with over 1.4 billion barrels of reserves and $1 billion in funding. It only takes a glance at the headlines to realize that both Russia and Venezuela have gone through a lot since then, but Petrozamora has been developing steadily. Fellow businesspeople know what it takes to launch large scale international projects. Through thick and thin, our Venezuelan partners have consistently delivered on their share of our challenging work. We are just one of many Russian companies that have come to South America searching for opportunities. We all know we shall stay regardless of what happens because on this continent, we can trust our partners.

When I was growing up in the Soviet Union, our image of South America was that of a faraway land with unfamiliar colors – a tropical paradise full of revolutionary spirit. In the simplistic logic of Cold War stereotyping, it was the “good part of the Americas,” where millions of people were supposedly living through a revolutionary struggle for socialism. In that sense, South America had the image of a place “where it was all happening now.” Decades have passed and the world has entered a new millennium. Since those early student days, the needs of business sent me to various destinations around the globe. More than 10 years ago, I visited South America for the first time – and it was a striking experience. We live worlds apart, in climates that have hardly anything in common, and have histories as distant and unrelated as can be. Yet we share a common spirit. Despite the distance and different lifestyles, our environments have shaped us into likeminded people. One could write a thesis on the origins of this commonality citing the ups and downs of economic cycles, the at times wild ride of national politics, perhaps the common line of sight developed by playing soccer, or maybe some profound genetic effect produced in equal measure by tropical fruit and Russian caviar. What matters to businesspeople is the fact that there is this similarity, and therein lies the basis for partnership. Partnership is paramount to both Russians and South Americans. The limitations of a column Boris Ivanov is Managing Director of GPB Global Resources. He participated in the St. Petersburg International Economic Forum 2014. 36

L ATIN AMERICA

The Pact for Prosperity After roughly one year in office, Mexican President Enrique Peña Nieto still has a lot to do about his state’s full-fledged transformation agenda. It was established by the Pact for Mexico, an agreement signed in December 2012 by the state’s major political forces. In a panel discussion with former Dominican Republic President Leonel Fernández at the World Economic Forum on Latin America held in Panama this April, President Peña Nieto discussed the role the reforms will play in boosting Mexico’s economic growth and their impact on the entire region’s prosperity.

Leonel Fernández: I would say this is a memorable moment to talk about the achievements during the first year of your presidency with your reform package. It is very interesting because four years ago, in 2010, Mexico was celebrating its independence bicentennial, which marked the creation of the nation state. It also coincided with the hundred-year celebration of the Mexican Revolution and the Constitution of Mexico, which introduced a social component for governance. Later, it was mentioned by your

party, the Institutional Revolutionary Party (PRI), which had ruled for 71 years, that some sort of political alternance was needed, which started to happen. Now the PRI is back in power with you with a very important reform agenda for the transformation of the country. You have accomplished the Pact for Mexico, a pact that has five key points divided into 95 commitments. And I would like you, President Peña Nieto, to talk to us about how the Pact for Mexico will bring about social, economic, and cultural transformation in your country. 38

The Pact for Prosperity

Enrique Peña Nieto: Thank you very much, Mr. President. Let me share with you what is happening in Mexico. Mexico is a country that has been consolidating its democracy in the past decades. Few countries, in Latin America or the rest of the world, can boast of the same economic, political, and social stability that we have had since 1934. Living in this increasingly consolidated democratic climate, Mexico is a country that is now more diverse and more pluralistic. It is a country where all voices are recognized and represented within the different arenas of the political sphere. This allowed political democratic mobility in 2010 after roughly 70 years of rule by one political party – my party, the PRI – in Mexico. So we had political alternance. We had two administrations beginning in 2000, and in 2012, the party I represent won the presidential election again. Regardless, the country’s political reality is very different from when we had hegemony in the government. Now we have plural, diverse participation of political forces. Within this context, it was fundamental to establish conditions that would allow the country to change, to affect structural changes that would make it possible for Mexico to attain greater developmental growth in the upcoming years. This is what gave rise to the Pact for Mexico you mentioned. The Pact for Mexico is nothing more than an agreement of political wills between the government and the main political forces in the country. We agreed jointly to an agenda of structural changes that the country had postponed for years, and it was fundamental to undertake it within the framework of the Pact for Mexico. The pact has provided Mexico with important structural changes that I would like to address. First, there was the labor reform in the transition period - from the end of the previous government’s tenure to the beginning of mine. It is a reform that makes Mexico’s labor market more flexible and opens up hiring opportunities – especially for women and young people who, with little experience, may have greater ease in joining the workforce. From there, we enacted reforms on a consensual basis. One is the reform to improve the quality of education. Now, the challenge is to ensure its quality, and that is the goal of education No.2(6), 2014

In regards to energy issues, first, it is very clear in last year’s reform that the ownership of the hydrocarbons is and shall be Mexico’s. However, we are open to the possibility of allowing the private sector to participate in the exploitation of this. The Mexican state-owned oil monopoly Pemex has established conditions to allow for greater capacity and bolstering of it

reform in Mexico. It is not only done by altering constitutional order, but also through secondary legislation. We all know Mexico has macroeconomic stability with low inflation and interest rates. However, you have faced economic growth challenges. How do the Pact for Mexico and your government intend to launch economic competitiveness and economic growth? I think there have been several ways, including the ones that I listed, whose fundamental goal is for Mexico to achieve greater economic growth. Because the truth is that even though Mexico had had a positive economic growth rate – on average 2.4% per year in the past few years – it was below its potential. Even so, it is in contrast with other regional economies that have experienced far superior growth. Facing this potential, there are reforms that will certainly influence economic growth for Mexico. I’ll list some. First is telecommunications reform, which is intended to open the sector up to greater competition, to achieve digital inclusion, which is indeed a challenge today, and to ensure the entire population can enjoy these services in any part of the country. Then there is an economic competence reform, which intends to fine monopolies and establish optimal conditions within a legal framework to promote greater economic competition. Financial reform will basically target achieving more credit to promote small- and medium-size businesses. There is fiscal reform that is directed at bolstering the economic capacity of the state and its governments, and also to lessen dependency on oil revenues. And there is energy reform, which is perhaps the most important, which was achieved within a sphere in which no legal modifications had been introduced in at least 50 years. It will 39

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up the areas that will be developed. Certainly in the beginning of the next year, they will establish and open up another round to establish the possibility of participation by the private sector. I mean a mechanism by which the ownership by the Mexican state prevails over hydrocarbons. But it also generates mechanisms for the private sector to participate, based on the success of other countries, especially in the Latin American region. Here, I can mention countries such as Brazil and Colombia, which undertook structural changes in this sphere to achieve greater yields in the energy sector. Why is this such a relevant reform? Because today we observe the world, the global map when it comes to energy production, and see that it has changed. Today we see that the North America, particularly the United States, has achieved greater self-sufficiency in energy matters. They now have new sources for exploitation, especially shale gas, and this has created a more competitive market. This forces Mexico to undertake structural changes to be in conditions of greater competitiveness. Otherwise, we will be losing investment opportunities in our country. I must repeat that the purpose of this reform is for energy supplies to be cheaper in order for Mexico to be more competitive, making it easier to generate more jobs and create greater economic growth in our country. Mr. President, regarding the energy reform, we are talking about oil, natural gas, and electricity sector reforms. But you also added the fact that there is shale gas. This, perhaps, requires a new regulation because it is a new element. How can there be participation in the reform of the electricity sector and what regulations have you thought of regarding shale gas? That is exactly what Congress is debating. As soon as the initiative is present to secondary legislation to maintain the spirit of the constitutional reform that has taken place in the energy sector, how can we translate this into secondary legislation ensures that Mexico will maintain ownership over hydrocarbons? And, second, as also established in the Constitution, what mechanisms will there be to speed up exploitation of other energy-generating resources like shale gas?

also become the most important element for Mexico’s economic growth, job creation, and regional development. This energy reform will make it possible to have greater competition and exploitation of new energy sources, especially clean energies. It also ensures – and this is an important goal of this reform – that Mexico, its population, and its small- and medium-size companies, which once generated the most jobs in the country, will have access to energy supplies at better prices. This in turn will make our country more competitive. I believe that this is the most important transcendental reform that Mexico has achieved within the reform agenda we have just spoken about. Right now, Congress is debating several of these issues. The reforms have taken place within the constitutional framework, but now Congress is taking care of enacting secondary legislation to ensure implementation of these reforms. As you indicated earlier, Mexico will continue to own hydrocarbons, and therefore the reform is not a privatization. How can a private sector participate in the reforms, especially the ones in the energy and the telecommunication sectors? As to the telecommunications sector, the reform primarily establishes that there will be a regulatory body that will open up more competition. There will be more television stations. We currently have two, and an additional one owned by the Mexican state. There will be more, and this will open up competition. Will there be foreign direct investment there? There will be foreign direct investment in terms of the percentage corresponding to reciprocity with other countries where the original capital comes from. In regards to energy issues, first, it is very clear in last year’s reform that the ownership of the hydrocarbons is and shall be Mexico’s. However, we are open to the possibility of allowing the private sector to participate in the exploitation of this. [The Mexican state-owned oil monopoly] Pemex has established conditions to allow for greater capacity and bolstering of it. This will open up participation regarding hydrocarbon and energy sources to this effect. A regulatory body will be created and it will first establish a zero round in which Pemex sets 40

The Pact for Prosperity

Mexico is an extremely diverse country. It is a privileged country because it contains nearly 10% of the the world’s biodiversity. It is a country with many species that you can’t find elsewhere. That is a part of our natural wealth

And in matters of electrical energy, the same as in oil, a regulatory body has been created to promote the participation of the private sector in taking advantage of the federal authorities’ distribution networks so that energy can be distributed to more regions of the country. And, more importantly, to ensure that electric power is cheaper. At the end of the day, the Federal Electricity Commission will be the main energygenerating body, but the private sector might also become an energy co-generator. In Mexico, we do electricity co-generation, but this benefit essentially reaches only those who have the financial capacity to generate electric power. But small- and medium-size businesses and the major users don’t see the benefits of being able to generate more energy with economic mechanisms at a lower cost and achieve the result of paying less for electric energy. No.2(6), 2014

Mexico has to become more competitive, and the reform regarding energy is aiming for this goal. I mean ensuring that energy is cheaper in Mexico so that hydrocarbon exploitation may become more competitive. I mean for our country to develop an industry with greater technology, and the innovative capacity to compete in Mexico and simultaneously generate more energy with the participation of the private sector. This reform also makes sure that this benefits all Mexicans, especially small- and medium-size businesses, which are the ones that generate the most employment in our country. 41

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The energy reform will become the most important element for Mexico’s economic growth, job creation, and regional development. It will make it possible to have greater competition and exploitation of new energy sources, especially clean energies. It also ensures – and this is an important goal of this reform – that Mexico, its population, and its small- and medium-size companies, which once generated the most jobs in the country, will have access to energy supplies at better prices

of vehicles in the world. We have been advancing in the aerospace industry, thereby becoming the sixth largest provider for the United States in this field. And without a doubt, our trade with North America has grown. I can say the same about other specialized industries where we hold a prominent place. We are the main producer and exporter of TVs, plasmas, and electrical appliances. So Mexico has been effectively building and creating a platform for its economic growth based on becoming a logistical center due to our geographic location. This position allows us to participate in different markets and to make our state a platform for other countries’ participation so they can access those other markets. Mexico has free-trade agreements that provide the opportunity to access a billionperson market. To illustrate it with an example, our colleges graduate about 100,000 engineers per year, which doesn’t happen in other countries. This gives you an idea of what we are focusing on in developing our country’s economic growth. Mexico has been following this line for a few years. It is the same path we continue to take and promote. Today, we work to ensure that, as a result of educational reform, we will have the skills, and our students the capabilities, to incorporate ourselves into this specialized labor market that has been built in Mexico. And also to ensure that they break away with the tradition of [the assembly of imported component parts for re-export], which are jobs that perhaps are not well compensated. So today we are working to generate better paying, higher quality jobs, and this demands greater specialization from our graduates. The path is really to enter these very competitive markets that Mexico has prepared and continues to prepare for.

A FAITHFUL PROMOTER OF FREE TRADE

Looking at Mexico’s development model, when you analyze the situation of Latin America in the last 10 years, you speak about this bonanza we have had. We had a lot of raw resource exports to China, but there is also manufacturing in Mexico. There is high technology, software, aerospace, and the automotive industry tied to the US economy. How do you view the sustainability of a Mexican economic model that is based on a capital-intensive approach? I think that the right path, which Mexico followed and must continue to follow, is to be a great promoter of free trade. We are perhaps the most open country in Latin America with the agreements we have with different regions and countries around the world. Consequently, this has generated the structural changes to increase other countries’ competitiveness and to allow for a greater capacity of our own Mexican-made production, which would allow us to compete in other markets. What I can say about Mexico is that we are a country that, without a doubt, has been incorporating and has achieved greater development in different areas, such as specialized manufacturing. For example, we are the eighth largest producer and the fourth largest exporter 42

The Pact for Prosperity

wealth of roughly $1.3 trillion per year. It is also a member of the G20, which is a source of pride for all Latin Americans. How do you visualize Mexico’s new role as a global actor? Its ties to Central America and the Caribbean, to all of Latin America? What can we expect from your mandate for Mexico as a global actor? For Mexico, and especially for the government that I am honored to lead, there are five main priorities. One of them is for Mexico to fully assume its global responsibility. I have been working to that end, first by trying to forge closer ties with our neighbors in Central America and the Caribbean, as well as with the rest of Latin America. I believe this is confirmed in the diplomatic relationships that we have been working on. This is ratified by the meetings I have held with presidents of Latin American and the Caribbean states. I mean determination of mechanisms for greater cooperation. Also, Mexico is a country that is clearly committed to international law. We are a country that is committed to sustainability and respect for the environment. Next, I must say that Mexico is an extremely diverse country. It is a privileged country because it contains nearly 10% of the world’s diversity. It is a country with many species that you can’t find elsewhere. That is a part of our natural wealth. Mexico is committed to the fight against global warming. Our own contribution to global warming could be less. It is only 1%, however. Mexico has assumed its own legislation in several of its public policies to make a commitment to sustainability and respect for the environment. We want to be a leader in this effort. At the end of the day, scientists have recognized that this is happening because of human beings. Sadly, we have affected our environment and Mexico has assumed its responsibility in facing this phenomenon. Mexico shows solidarity toward the course of human kind. It has shown solidarity in the fight for nuclear disarmament, to efforts looking for peaceful solutions to conflicts everywhere in the world. Born out of this conviction of respect to the principles written in our Constitution, Mexico shall continue to work consistently. And of course assume its responsibility within the order and peace we want for the whole world.

As the role of Mexico in the Pacific Alliance opens up new perspectives, what will Mexico’s participation in the trans-Atlantic partnership be if it involves North America, the United States, and Europe? How will that impact your country? That is in total agreement with Mexico’s vision of being a faithful promoter of free trade. That is why our country is so open to the world. This position is completely in line with the agreements that have already been signed and the Pacific Alliance, which is one of the most recent innovative agreements that we entered with three other Latin American countries, namely Chile, Peru, and Colombia. It allows us to have an integrated market, not just for a flow of goods and for trade, but also for transit of people and to share capital markets – and also to make this greater integration platform a more competitive platform to launch, to enter the Asia-Pacific market. A market that without a doubt for the last few years has been growing faster and has been experiencing greater development than other regions of the world. And we want to participate in it with those countries that believe in free trade. So the Pacific Alliance, we believe, promotes the integration of member countries, those who eventually might join it because they are consistent with principles that inspire this Pacific Alliance agreement, which is in the process of being ratified by the countries’ legislative congresses, and after this consolidation will enter the Asia-Pacific market. We also participated in negotiations for the Trans-Pacific Partnership (TPP) with some of the countries that already participate in the Pacific Alliance. That is another mechanism for integration of American countries with the AsiaPacific region. That probably has a lot of potential. Within this negotiating table, Mexico currently participates with great enthusiasm and with full conviction that this mechanism shall materialize as quickly as possible. Mexico has committed to support this agreement, reaffirming a position of openness that we want to continue. President Peña Nieto, Mexico has traditionally played a very active role on the international scene. It is the second most important economy in Latin America with a capacity of generating No.2(6), 2014

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LEADERS OF INFLUENCE Oliver Stuenkel They might not be as visible outside of Latin America, but these 10 leaders are shaping one of the youngest and most dynamic parts of the world. BRICS Business Magazine presents a selection of 10 influential individuals in the region, unsung ambassadors who are determining the face of modern-day Latin America.

Oliver Stuenkel is Assistant Professor of International Relations at the Getúlio Vargas Foundation (FGV) in São Paulo and the author of the Post-Western World blog.

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Leaders of Influence

JOSÉ MUJICA President of Uruguay

MARINA SILVA Brazilian activist and environmentalist

José Mujica, or ‘Pepe’ to his countrymen, may be the leader of one of South America’s smallest countries – Uruguay has less than 4 million inhabitants – but since taking office in 2010, he has become famous across the continent. The 79-year-old president is especially popular with the younger generation, many of whom have become disillusioned with the ruling political classes. They consider him to be a new type of politician – humble, frank, and admirably self-deprecating. The president lives in a small cottage, drives himself to work in an old Volkswagen Beetle, and gives most of his salary away – because, he says, he “doesn’t need that much.” This has been appealing to people in a region blighted by large-scale corruption while millions still live in poverty. Yet Mujica says that those who consider him poor fail to understand the meaning of wealth. “I’m not poor. The poorest is the one who needs a lot to live,” he says. His story is impressive: a former guerilla under military dictatorship, Mujica spent 14 years in a military prison, much of that in solitary confinement. On the policy side, Mujica has proven to be courageous and innovative, most notably by legalizing marijuana to combat drug trafficking and the violence that ensues from it. The move will give the state a major role in the legal production, distribution, and sale of the drug. In other countries, only ex-presidents have been bold enough to support similar policies. Mujica will not run for a second term, but his legacy is certain to be lasting in the region.

Politics in Brazil, Latin America’s largest country, is increasingly influenced by a growing group of voters who do not believe any of the established parties can address the nation’s most pressing challenges. Recent protest movements have been directed not at the government per se, but against the political system itself. Marina Silva, a 56-year-old environmental activist, is seen by many as one of the few actors capable of bringing change. Though she has served as a senator and as the Minister of the Environment under Lula, Silva is still considered a political outsider, not yet corrupted by the power game in Brasília. Therefore, many were shocked when she recently announced that she would be joining Eduardo Campos, a presidential candidate who is generally thought to be part of the establishment. It remains to be seen if she will be able to convince her supporters, most of whom are young and educated, to vote for Campos. Irrespective of the result, Marina Silva remains an important figure in a political system that faces a profound crisis of legitimacy. Despite positioning herself above the political fray, Marina Silva often proves to be highly divisive. Popular among elites concerned about the environment, she is hated by progressives for her conservative views on same-sex marriage, making her difficult to categorize in a political environment still organized along the lines of left and right. At a time when Brazilian politics is as unpredictable as ever, Marina Silva is certain to play a key role.

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OSCAR VILHENA Brazilian lawyer and human rights activist

YOANI SANCHEZ Cuban human rights blogger

Brazil transitioned to democracy 25 years ago, but the public is still debating how to deepen the quality of its democracy. In identifying the many important challenges Brazil still faces, Oscar Vilhena – a law professor, human rights lawyer, public intellectual, and activist – has played a crucial role. He recently pointed out that the unacceptable levels of violence in Brazilian society impose constraints on the country’s democracy, which contributed to a more focused discussion of the problem during the election campaign. Vilhena also founded the human rights NGO Conectas, which has transformed the debate on rights issues in Brazil. In several neighboring countries, similar organizations have sprung up, monitoring governments on issues such as police violence, prison conditions, and environmental standards. Conectas became the first organization to regularly challenge the Brazilian government’s human rights record in international affairs, thus helping to globalize Brazil’s public discussion and forcing the Foreign Ministry to explain its strategy. In Brazil’s quest to establish a stronger global presence, people like Vilhena are indispensable.

While Cuba begins to open its economy and slowly allow private enterprise to emerge, the government continues to limit freedom of speech and remains intolerant of dissidents. Latin America’s political leaders are reluctant to criticize the Castro regime as Cuba is still seen as a victim of an unjust and exaggerated US economic embargo. Younger generations across Latin America, which do not remember a young Fidel Castro, are increasingly critical of the way the Cuban government treats its citizens. One of the most influential voices in the anti-Castro camp has been Yoani Sánchez, a 38-year-old blogger who frequently writes about the hardships Cuban citizens endure. Her Generation Y blog has gained an international audience and turned her into a symbol of the resistance. After years of frustrated attempts by Sánchez, the Cuban government finally allowed her to travel abroad. However, on a recent visit to Brazil, she was faced by pro-Castro activists who accused her of acting on behalf of the United States, reflecting that Latin America remains ambivalent toward the role of human rights and democracy in Cuba. One of Sánchez’s recent blog projects, 14 y medio, was blocked by the Cuban government hours after it was launched. No matter how Cuban politics evolve in the next few years, Yoani Sánchez is bound to play a role. 46

Leaders of Influence

ALESSANDRO CARLUCCI Brazil, CEO of Natura Cosméticos

CAMILA VALLEJO Chilean student leader and Congresswoman for the Communist Party

“Natura is not an NGO,” says the 48-year-old Alessandro Carlucci, CEO of one of Latin America’s leading cosmetics firms. The company he leads seeks to make money, of course, but few businessmen take the issues of sustainability and social responsibility as seriously as he does, integrating them into all of Natura’s activities. Unlike other businesses, many of which consider Natura’s strategy to be nothing more than a marketing ploy, Carlucci regards sustainability as a long-term investment and a way to strengthen ties with clients and the community. Carlucci is not the only leading executive in the company who believes in these ideas – Guilherme Leal, co-chairman of the Board of Directors, was the vice-presidential candidate on the Green Party ticket in 2010. Carlucci has been crucial in institutionalizing Natura’s unusual practices, even when the company faced economic headwinds and was forced to delay its global expansion. Natura’s dedication to their core mission has earned it a reputation as one of the best companies in Brazil, and made it one of the most sought-after places to work for recent university graduates. In addition to his focus on sustainability, Carlucci has successfully started Natura’s online sales, which led Forbes to select Natura as one of the world’s 25 most innovative companies.

Camila Vallejo, 26, was largely unknown only a few years ago. But the president of the University of Chile Student Federation and main spokesperson of the Confederation of Chilean Students became a symbol of the 2011 Chilean student protests. Though leaders of movements elsewhere in Latin America were largely opposed to the political system, Vallejo took a controversial step – she entered formal politics and joined the Communist Party. The bet paid off – in 2013, Vallejo was elected to represent the 26th District of La Florida with more than 43% of the votes, one of the highest victory margins of that election. While many protest leaders around the world would consider joining formal politics to be an act of treason, Vallejo believed that in order to change the system one had to first become part of it. Vallejo is considered to be the most influential communist personality of recent years in Chile, and she has received considerable global attention. Her fundamental challenge now is to show that she is able to influence politics not only from the outside, as she did during the protests, but also from inside the political system. Vallejo may not succeed in parliament, but she is likely to remain in the center of the public debate for years to come.

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ROBERTO AZEVÊDO Brazilian, Director-General of the World Trade Organization

JOAQUIM BARBOSA Brazil’s first black Supreme Court judge

It is no small feat for a Supreme Court Justice to be selected by Time Magazine as one of the 100 Most Influential People in the World, yet this is exactly what happened for Joaquim Barbosa in 2013. The Chief Justice of Brazil’s Supreme Federal Court became a symbol of the country’s fight against corruption after convicting a number of leading politicians and sentencing them to jail. The rulings marked a profound change in Brazilian politics, which had formerly been marked by impunity and a notion that no politician would ever have to answer for his misdeeds. The popular Barbosa wisely rejected requests to run for President, a move that would have undermined the credibility of the judiciary. Barbosa’s decision to challenge Brazil’s powerful set off revolutions in other areas as well. The convictions have restored many people’s faith in politics, especially among youths. Moreover, as elite politicians prepared to go to prison, several leading lawmakers and policymakers began to express outrage over the conditions inmates face. This led to a long-overdue domestic debate about the state of Brazil’s prisons, often thought to be among the least humane in the world. Barbosa, 59, who became Brazil’s first black Supreme Court judge in 2003, plans to retire, but his trailblazing career will surely continue to positively influence his country.

When Roberto Azevêdo was announced to succeed Pascal Lamy as the World Trade Organization’s Director General, some considered the position “the worst job in the world.” The multilateral trade system had been paralyzed for years, and chances to resuscitate it looked slim. Additionally, the 56-year-old Azevêdo had been looked down on by some as the poor countries’ candidate, coming from an overly protectionist Brazil. But Azevêdo was undaunted, and has already achieved the seemingly impossible. In December 2013, a deal to boost global trade was approved by the 159 members of the World Trade Organization (WTO) for the first time in nearly two decades, keeping alive the possibility that a broader agreement could be reached in the future. At the ceremony, after the marathon trade agreement meeting in Bali, Azevêdo shed tears of relief and joy. There is still a long road ahead to a broad agreement, and there are many obstacles to overcome. But for now, Azevêdo has taken the first important step – he has revived the credibility of the organization. Specialists agree that if there is one person to save multilateral trade, it is Brazil’s Roberto Azevêdo.

Leaders of Influence

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CARLOS ALBERTO DOS SANTOS CRUZ Incumbent force commander of MONUSCO mission in Congo

A XEL KICILLOF Minister of Economy of Argentina

In a country that has often been on the brink of financial collapse, the Ministry of the Economy is perhaps the most important job. Late last year, after recovering from injury, President Kirchner appointed Axel Kicillof, a 42-year-old radical and left-wing academic, to the position. Kicillof had been a deputy minister before that, but was already seen as the real power in the Ministry for some time. He was the driving force behind highly controversial policy decisions, such as the nationalization of the energy company YPF in 2012 and the tightening of foreign-exchange controls. Despite the undeniable deterioration of the balance of payments and a fall in the foreign reserves due to increasing external competitiveness, the Minister has consistently denied that Argentina has an inflation problem. Yet his supporters argue that his focus is rightly on the poor, and that recent increases in welfare benefits are unfairly criticized by a prejudiced elite. It will be interesting to see whether these unorthodox economic policies can lead Argentina out of the economic crisis.

Since May 2013, General Santos Cruz, 61, has been the incumbent force commander of MONUSCO mission in Congo, the largest UN peacekeeping force in the world. Previously, this Brazilian was the commander of the United Nations peacekeeping mission in Haiti. Both missions have been extremely challenging and seek to establish peace in regions that have suffered from violence and instability for years. The UN mission in the Democratic Republic of Congo is particularly important because rather than keeping the peace, its soldiers are charged with actively pursuing aggressors – a new model that has come under global scrutiny. Its main purpose – protecting civilians in the region – is fiendishly difficult, as rebel movements hide in vast territories that are virtually impossible to control. The mission has been among the most criticized in the world, and its performance will strongly influence global opinion on how far the international community can go to protect populations in conflict. Time will tell whether the general can truly help bring peace to one of the most war-ravaged regions in the world. Over the past year, Santos Cruz has become a celebrity in Brazil – in part because so few Brazilians, and even Latin Americans, occupy leading positions in the international system. No.2(6), 2014

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Fiestas, Siestas, and Ma単ana Jamie B. Gelbtuch People often have the idea that Latin America is one homogeneous environment. Yet the vibrant and varied countries in the region have just as many differences as they do similarities. Each culture has particular geographic, historical, political, and economic backgrounds that have combined to make them the way that they are today.

Fiestas, Siestas, and Mañana

Jamie B. Gelbtuch, MBA, PMP, is founder and principal consultant of Cultural Mixology, which designs, delivers, and facilitates cultural coaching and training programs in international environments.

and were mainly based on education, politics, and physical appearance. When asked how others perceive their culture, the most common responses were “mixed,” “diverse,” “informal,” “European,” and “having North and South American influences.” While words like “happy” and “humor” came up repeatedly in the top five values, Brazilians surveyed also called attention to the idea that, “People think Brazil is a huge party and a big mess, very focused on Carnival.” Many respondents cautioned that a love of soccer, samba, and Carnival means neither that Brazilians are carefree nor that those things apply to an entire culture. Mexicans focused a lot on roots, frequently making reference to a rich history and indigenous influences. One-third of respondents identified regional differences as best seen between the North and the South. The North was described as “modern and rich,” the central area as “traditional and powerful,” and the South as “traditionally poor.” The top three words used to describe Mexican culture were: diverse, multicultural, and mestizo. Mexicans were also, however, keenly aware of many contradicting cultural perceptions. One respondent cited a “relaxed, but violent culture” while another talked about “seeming lazy” compared to the US and the classic stereotype of “the ‘little Indian’ leaning against a cactus, sleeping.” Argentines talked about perceptions by focusing largely on issues of identity, both internally and externally. Two-thirds of respondents said that differences in Argentina are best seen between the capital, Buenos Aires, and all other areas, and are primarily reflected in speech, immigrant influence, and economic development. While one respondent said that Argentina is very centralized and “a country represented culturally, politically, and socially by its capital,” Argentines were also very cognizant of external perceptions and the fact that Argentina is “perceived differently in relation

The stereotypes still abound: fiestas, siestas, and mañana. Searching for information on the cultural differences among Latin America’s more than twenty countries is a surprisingly challenging task. The most common answers look at language – the dominance of Spanish, and then the words within the Spanish language that can almost instantaneously identify a speaker’s country of origin such as mande and güey in Mexico, che and vos in Argentina, or cachai and huevón in Chile. However, culture is complex. What we see on the surface is a reflection of deeper, underlying forces that shape a country and its people. Generalizations are generally important. They help us wrap our minds around sizeable geographic areas, large groups of people, and broadly applicable ideas. Certainly the countries of Latin America share many cultural facets: most gained independence from colonial powers between 1810 and 1822, speak Spanish, and observe Catholicism. It is common for people to highly value relationships, take a polychronic view of time, and emphasize physical contact as an important part of non-verbal communication. What may be more interesting and critical for success, however, is to understand how insiders view the region’s countries as distinct rather than how outsiders view the region as a whole. Cultural Mixology recently surveyed 250 natives from six Latin American countries to get an insider’s view on language, influences and perceptions, regional differences, values, formality, punctuality, and food. Here is some of what they had to say: GENERAL PERCEPTIONS

In Brazil, there was a big emphasis on internal diversity. One respondent stated “There are seven countries in one.” Fifty-eight percent of Brazilians said that regional differences were most evident between the North and the South, No.2(6), 2014

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according to major cities such as Bogotá, Barranquilla, Calí, and Medellín, and seen most starkly in speech, cultural traditions, physical appearance, and economic situations. One person commented that Colombians are perceived as “serious and cold if they are from Bogotá, partiers if they are from the coast.” Words such as “welcoming,” “friendly,” “happy,” and “culturally rich” were contrasted with “dangerous,” “drug dealers,” “cocaine,” and “corruption” when describing perceptions. The country’s acute awareness of this gap can be seen in a recent Colombian tourism campaign slogan: “Colombia, the only risk is that you’ll want to stay.”

to the rest of Latin America.” Strong European influences and immigration patterns that are reflected in lighter skin colors than other countries in the region with greater indigenous populations were linked to the perception that Argentines “are not true Hispanics.” Words such as “superior,” “distinct,” and “egotistical” were the most common responses characterizing these views. Chileans approached the question of perceptions with a strong emphasis on character. Similar to the way Argentines viewed regional differences, 71% of Chilean respondents indicated that differences in Chile are mostly between the capital, Santiago, and all other areas. “Everything happens in Santiago.” Differences were linked to time (Santiago was viewed as faster-paced with tighter work schedules versus free time), resources (presence and availability of hospitals, businesses, banks, and universities), and general development and opportunity. Chileans used words such as “conservative,” “cold,” “reserved,” and “serious,” to talk about how they feel their culture is perceived. At the same time, there was an emphasis on Chile’s “progressive and successful economy” (it ranks highest of all Latin American countries, excluding Puerto Rico, on the World Economic Forum’s Global Competitiveness Index for 2013-2014 and 34th globally), and the “friendly,” “supportive,” and “caring” nature of people. Costa Ricans used the most positive terminology of all six countries surveyed when asked about perceptions of their culture and people. Words such as “peaceful,” “open,” “polite,” “happy,” and of course the infamous “pura vida” (defined loosely as “everything is cool” and used in a wide range of circumstances such as a greeting, a character trait, an affirmation of well-being, or a confirmation of understanding) came up time and again. Top values cited were “peace” (Costa Rica has had no army since 1948), “family and friends,” and “nature/environment.” Additionally, many Costa Ricans commented on the country and its culture in relation to the rest of Latin America. One respondent noted that, “The strong influence from the United States as well as the minimal connection to other Latin American countries make people perceive Costa Rica as alienated.” In Colombia, respondents viewed the culture as segregated. Regional differences were divided

WHAT OUTSIDERS DON’T KNOW

When asked what outsiders don’t know about Brazil, much of the focus shifted to business. Responses included the fact that there are many large, private high-t'echnology companies in the country, that Brazilians can be skilled negotiators, and that first names can be common in business meetings, an important difference from other South American countries such as Colombia or Chile where a higher degree of formality prevails. Mexicans focused on misperceptions. For example, the often widespread confusion that Mexico’s Independence Day is celebrated on 5 May (it is in fact 16 September) or that there is nothing more to Mexico than “tequila, Corona, and the beach.” Mexicans highlighted the variety of cultures within their own country and that even classic foods (e.g., tacos, mole, tamales, and pozole) are made differently in different regions. Despite a fear of being perceived as “barbaric,” “dangerous,” and “corrupt,” Mexicans emphasized a strong commitment to “family,” “friendship,” and a “hope for a better future.” Argentine respondents continued with the theme of identity influences when asked this question. They talked about the importance of the gauchos (and traditions of cooking asado, which is directly linked to gaucho customs), the Italian influence on culture (almost half of the population are estimated to have ties to Italian descent), and the effects of European roots on the people. One person noted, “So-called ‘Latin culture’ is closer to the North of South America or Central American than Argentinean. Our 52

Fiestas, Siestas, and Mañana

culture, as well as our architecture, the progressive spirit of our people, etc., is closer to European culture.” A common theme in Chileans’ answers to this question was society. As one person commented, “It seems like a pretty open society, but it isn’t.” Chileans, similar to Argentines, frequently remarked that Chile is more like the US and Europe than other countries in Latin America. There was an emphasis on the level of education and knowledge of arts and literature that distinguishes their country from others in the region. Another frequent comment Chileans made was related to language and expressions particular to Chilean Spanish, many of which are derived from the influence of the native indigenous languages Quechua and Mapudungun. No.2(6), 2014

Costa Ricans emphasized that many outsiders are surprised by elements of daily interactions. A frequently cited case was the fact that, “The word ‘no’ is rarely used.” Costa Ricans take 53

L ATIN AMERICA

things personally, and “every comment, positive or negative, affects us.” Courtesy, saving face, and maintaining relationships are key factors for cultural success. Other surprises for outsiders were linked to “tardiness” and “excessive relaxation.” While life in Costa Rica may move at a relatively slow pace and emphasize a work-life balance, it is still considered among the more punctual countries in the region. Colombians felt that the main thing outsiders don’t know is that not everything is related to drugs and violence. For example, Colombia produces flowers and emeralds and Colombians are very entrepreneurial. It is the birthplace of the Lasik eye surgery technique and the pacemaker. Geographically speaking, “Many do not know there are three satellite islands in the Caribbean Sea (San Andrés, Providencia, and Santa Catalina) that belong to Colombia.”

Several years ago, the Pew Global Attitudes Project conducted a survey in which it asked whether people agreed that, “Most people in society are trustworthy.” They found that the percentage of people who agreed with that statement was 46% in Mexico, 42% in Argentina, 35% in Brazil, and 29% in Chile

When it comes to social functions, it could almost be considered rude to arrive on time as your host or hostess would likely not be ready. Distinctions must be made between functions that revolve around a meal (30 minutes late as a general rule) and those that are simply social gatherings (one to two hours late as a general rule). Our respondents agreed, with 56% of Mexicans, 55% of Costa Ricans, 43% of Argentines, 62% of Colombians, 83% of Chileans, and 36% of Brazilians saying it is acceptable to arrive at least 30 minutes late for a social event. However, work is another story. When asked about arriving on time for work in the morning, 73% of Argentines and Costa Ricans said it was expected to arrive to work no more than 10 minutes late; 71% of Colombians, 66% of Chileans, 63% of Brazilians, and 53% of Mexicans said the same.

FORMALITY

The degree of formality that is appropriate in social and business contexts can be a great differentiator across cultures. Using a definition of formality that included the degree to which titles, forms of politeness, and social protocol and rules were employed, we asked survey respondents to rank their countries as “informal,” “moderately formal,” or “formal.” The results showed that Colombians highly value formality, ranking above any other Latin American country in the survey. Ninety-three percent of respondents believe that Colombia is moderately or very formal. Moving further down the spectrum, a clear majority of Mexicans (65%) said that Mexico is a moderately formal culture. Interestingly, Argentines and Costa Ricans both overwhelmingly straddled the line between moderately formal and informal with 96% and 86% respectively saying that their cultures are moderately formal or informal. Finally, 81% of Brazilians viewed their culture as informal.

EMOTIONS AND TRUST

One of the keys to truly understanding any culture lies in finding ways to understand and connect with its people, with emotions and trust being two of the critical components in the relationship-building process. Several research studies have looked at these factors in countries across the world and can be used to highlight additional similarities and differences in Latin America. EMOTIONS

One of the most interesting findings from the 2013 Gallup poll on positive emotions is that, “Of the 10 countries in the world with the highest percentages experiencing all of these positive emotions, all but one of them (Denmark) is in Latin America.” This has been linked, at least partially, to the fact that it is culturally common in the region to focus on many positive aspects of life, including the importance of family and relationships.

PUNCTUALITY

Mañana has been jokingly defined as “anytime between tomorrow and never.” Despite common labels of the region having a mañana culture, many do not take into account the role that context plays. 54

Fiestas, Siestas, and Mañana

Positive Experience Index Scores (based on the 2013 Gallup survey) shows how Latin American countries stack up against one another.

Positive Experience Index Scores

COUNTRY

SCORE

Paraguay

TRUST

Panama

Guatemala

Nicaragua

Ecuador

Costa Rica

Colombia

Honduras

Venezuela

El Salvador

Chile

Argentina

Dominican Republic

Uruguay

Mexico

Peru

Bolivia

Brazil

The concept of trust can be assessed on several different levels, including the degree to which we trust people from our culture and the amount of trust that we place in our country’s government, institutions, and systems. Regardless, most studies show that trust in a culture is related to income equality and corruption levels – the lower the level of income equality, the higher the level of corruption, hence a lower level of trust in society overall. Several years ago, the Pew Global Attitudes Project conducted a survey in which it asked whether people agreed that, “Most people in society are trustworthy.” They found that the percentage of people who agreed with that statement was 46% in Mexico, 42% in Argentina, 35% in Brazil, and 29% in Chile (Costa Rica and Colombia were not included). Another study, conducted in 2013 by The Reputation Institute, asked 27,000 consumers in G8 countries about 50 countries around the world to determine those countries’ overall reputation, whether the respondents had a “good feeling” about the countries, whether they admired and respected the countries, and whether they trusted the countries. All Latin American countries included in the survey scored in the poor to weak range (see “Reputation Level”).

Source: Gallup.

Reputation Level

COUNTRY SCORE Brazil

57.8

LOCALS AND OUTSIDERS

Peru

54.9

Puerto Rico

51.5

Chile

51.0

Argentina

50.2

Mexico

47.0

Haiti

45.8

Venezuela

45.5

Bolivia

43.7

Colombia

37.8

As one anonymous respondent aptly pointed out, “Those outside Latin America perceive all Latin American countries equally; they can’t distinguish whether they are from Argentina, Chile, Peru, Colombia, etc.” When cultural patterns are only slightly different, as is often the case with countries within a region such as Latin America, it can be harder to see the variations than when comparing countries that are more obviously distinct. It is easy to fall into the trap of thinking that shared language equals shared values equals shared behaviors. However, understanding how insiders view the region’s countries as distinct rather than how outsiders view the region as a whole is a critical factor for success.

Scale: Poor (0-40), Weak (41-60), Moderate (61-70), Strong (71-80), Excellent (81-100) Source: The Reputation Institute. No.2(6), 2014

L ATIN AMERICA

Carlos Tromben Looking at the heirs of Latin America’s major business families, it is the best and worst of times – but it is just about time for them to take charge.

Sun King himself. Forbes magazine once dubbed him the Mexican Medici. His family cared little for the arts. His grandfather, Vicente López Resines, founded La Costeña, Mexico’s biggest canned condiments and pickles label. His father, Eugenio López Rodea, runs Jumex, the firm he founded in 1961, today Latin America’s biggest juice producer, with annual sales of over $1 billion and exports to 16 countries. Eugenio had scant interest in juice or condiments.

Eugenio López Alonso remembers the day they took him to visit the palace at Versailles. He was seven, and while other kids that age may have aspired to be astronauts, he began to dream of becoming Louis XIV. Forty years on, the sole heir to Mexico’s Jumex fruit juice empire has become his country’s great patron of the arts, much like the Marlene Jaggi contributed to the report in São Paulo, Camilo Olarte in Mexico City, and Luis Mendoza in Santiago. 56

Carlos Tromben / America Economia, Worldcrunch

The Next Generation of Latin America’s Top Fortunes

On his 22nd birthday, his father said he could have any present he wanted, and he chose a work of art. Then came an art gallery in Los Angeles. By 2001, he had a collection of 1,485 pieces valued at $80 million, the core of what would become the Jumex collection. In the next decade, Eugenio became Latin America’s most important patron and collector, most recently opening the five-floor Jumex museum in Mexico City.

Horst Paulmann has written down ‘the important things’ about running a retail business in a little black book, and is reluctant to let anyone participate in running his holdings. Indeed, he systematically thwarted his eldest son Manfred’s management initiatives in Chile and Argentina, until Manfred resigned his positions and vowed never again to work there while his father was president

on their good name and reputation. This has happened with the Servitjes, heirs to Bimbo bread and pastries, while observers are closely watching the succession to Mexican telecommunications magnate Carlos Slim, who has already delegated top posts to each of his three sons. Brazil’s Votorantime industrial group now has dozens of third and fourth-generation heirs aged between 18 and 35. In 2001, CEO Antonio Ermírio de Moraes, a grandson of the firm’s founder, decided before retiring that family could only take management positions if they had a proven track record of hard work elsewhere. That policy led some younger members of the clan to become entrepreneurs in their own right, like the 27-year-old Antonio Ermírio de Moraes Neto, founder of the ‘philanthropic’ investment fund Vox Capital. Founders can write down testaments to lay out how their firms should be run one day, but will the ‘family pact’ last? Horst Paulmann has written that his three children – Peter, Heike, and Manfred – must form a tripartite board to resolve company issues by majority decisions. In this case at least, the three siblings are said to be close. The Jumex museum opened on 19 November, its inauguration costing a cool $3 million. Eugenio arrived late – three hours late – as is his custom, though 1,500 guests were treated to 1,000 bottles of Moët & Chandon and enjoyed walking on stairs covered with gold leaf. Eugenio López Alonso’s Versailles now houses works by Damien Hirst, Jeff Koons, and Cy Twombly, among other artists. His father and cousin, meanwhile, work every day to ensure Jumex is not swallowed, like some rivals, by a global drinks giant like Coca-Cola. Unfair? Possibly, but to each his own, and the López family seems happy with these lines of succession.

WHEN THE PATRIARCH RETIRES

López Alonso is an extreme case, but illustrates well the public perception of heirs as fascinating, desirable, almost culled-from-fiction personalities. They are also the object of study by management experts who ask: are they good businessmen? Should they enter management, or should such positions go to professionals without blood ties to the founding patriarch? A study on transitions in family firms by Maximiliano Fernández, Alexander Guzmán, and María Andrea Trujillo of the University of the Andes Management School found that outside management was a boost to productivity. Still, there is no consensus on the question. Competence and market power acquired by founders are also cited as key productivity factors, alongside the complexity a business acquires in time. Family transitions can, however, come with internecine rivalries and personality clashes. The Costa Rican academic Esteban Brenes notes the problems that come with those founders who want to run their empires to a ripe old age, hindering the rise of competent successors. A case in point, the Paulmanns of Chile. Horst Paulmann, the 78-year-old founder of a retail empire with interests in five Latin American countries is described as domineering. He has written down ‘the important things’ about running a retail business in a little black book, and is reluctant to let anyone participate in running his holdings. Indeed, he systematically thwarted his eldest son Manfred’s management initiatives in Chile and Argentina, until Manfred resigned his positions and vowed never again to work there while his father was president. BAPTISM OF FIRE

In certain conditions, heirs can increase their firms’ profits – for example, if they can cash in No.2(6), 2014

L ATIN AMERICA

The War of Canals Vladimir Volkov Panama and Nicaragua will be able to take over the most vital transit corridor in the global trade between the West and the East as early as the end of the next decade. Whether this will become reality depends on the success of the ambitious construction projects and the modernization of maritime transport canals promoted by the local authorities. Competition between them will also decide the distribution of profits derived from the transit of goods through these routes, the level of which is likely to reach $1.4 trillion by 2030.

The War of Canals

Wednesday, 23 April, turned out to be a red-letter day for 70,000 construction workers in Panama, but not because it was a holiday – the reason lay elsewhere. It was on this date that national trade union Suntracs led its members on an indefinite strike demanding that the government improve working conditions and increase wages by 20%. Saul Mendez, Secretary General of Suntracs, stated at the time that such a raise would be fair as it was in keeping with revenue growth in the construction industry. Suntracs’ action affected many construction sites, chief among them the country’s most ambitious infrastructure construction project – the reconstruction of the Panama Canal. The monotonous howling of dozens of cranes tirelessly hoisting tons of iron, sand, and concrete, and feeding the insatiable appetite of a gigantic pit that stretched for dozens of miles; the revving turbo engines of quarry trucks and the clunking tracks of powerful bulldozers tossing scoopfuls of heavy coastal soil; the humming and buzzing of a motly army of construction workers with their bright yellow vests and helmets – all of these sights and sounds suddenly ground to a halt and were reduced to dead silence. “The Panama Canal expansion project is completely paralyzed,” Mendez stated that day. The ‘April paralysis,’ which afflicted the project that had been initially envisaged to significantly strengthen Panama’s hand in the battle over global maritime trade flows, was hardly the first of its kind. Back in February, the operations had been interrupted for as long as two weeks following the Panama Canal Authority’s (ACP) refusal to meet the demands of its main contractor – Grupo Unidos por el Canal (GUPC), an international consortium comprising Spain’s Sacyr Vallehermoso, Italy’s Impregilo, Belgium’s Jan De Nul, and Panama’s own Constructora Urbana – to increase the project appropriations by $1.6 billion on top of the original contracted budget of $3.1 billion. At that time, GUPC said that their claims were motivated by the inevitable new expenditures resulting from errors in technical documentation and construction cost estimates that had been deliberately undervalued by the Canal Authority. In response, ACP accused GUPC of attempting to blackmail the authorities. “From the very outset I’d like to make it perfectly clear that blackmail No.2(6), 2014

will not affect our stance. Our company – the canal operator – intends to meet all of the project deadlines. It needs to be fully completed by 2015, with or without the Spanish consortium,” stated Jorge Quijano, Panama Canal Administrator. They managed to partially resume the operations only on 21 February following a round of difficult and emotionally charged negotiations between ACP and GUPC that resulted in a compromise: an agreement was reached to invest an additional $100 million into the reconstruction project and refer the outstanding dispute to an international court of arbitration. The Canal Administration’s frustration and exasperation underlying its implacable position cannot be explained just by their reluctance to pay a single cent on top of what is otherwise an exceedingly costly project with a price tag of $5.25 billion. Officials are clearly concerned that the canal reconstruction project, which started in the summer of 2009 and is already exactly one year behind the original schedule, might be delayed even further. In the meantime, every minute counts – any delay is not only likely to cause the government of Panama additional costs and loss of profits, but the authorities also run the risk of forfeiting their potential market share that is already coveted by the competition. 59

L ATIN AMERICA

+4% 6,351

story of the Erikoussa tanker that had to pay a record sum of $220,400 for the right to sail through the canal ahead of a queue of 90 ships has long become a textbook example. Had the ship owners in question chosen to follow the standard procedure, they would have only had to part with $13,400. In addition, the limitations resulting from the size of lock gates and the depth of the waterway restrict the Panama Canal’s capacity to Panamax class ships (965 by 106 feet), which are rather average in size given today’s standards. Based on the aforementioned considerations, ship owners have in recent years increasingly favored alternative routes, including the Suez Canal and the Strait of Malacca, even in the face of greater distances and the risk of piracy. The expansion of the Canal was designed specifically to address both these problems, and should double its throughput capacity while increasing revenues two- to four-fold. According to the approved plans, two new three-chamber, 1,400-foot locks are to be built, one on each side of the Canal. They will connect both new and existing navigation channels, which will be expanded and deepened. All of these measures combined will enable the Canal to accommodate a more modern class of ships, Post-Panamax, including several types of super tankers and container ships that are likely to account for the lion’s share of the increase in maritime traffic in the foreseeable future. All of the logic underlying the development of global trade in recent years seems to point to that conclusion. During the global economic boom between 2000 and 2008, it grew by 12% annually on average. The recent crisis slowed this dynamic, and by the end of 2013, the global commodity turnover reached a record $19.9 trillion. The share of maritime traffic that had historically fluctuated between 75% and 90% exceeded 9 billion tons. The structure of maritime trade was also changing. Due to the high growth rate of cargo traffic between the largest Asian markets and their partners in the Americas and Europe, the share of long-distance routes has been steadily on the rise in recent years. In particular, they accounted for as much as 27% of all maritime container traffic in 2011. Major operators’ desire to service these

Global maritime trade, 2002–2012 (Millions of tons)

p.a.

6,673

7,125

7,434

34%

7,785

8,103

8,317

8,725

9,101

7,965

32%

33%

32% 32% 11% 10% 10% 9% 9% 10% 9% 12% 12% 10% 10% 11% 11% 9%

34%

33%

35% 36% 9% 9% 38% 9% 8% 9% 9% 8% 8% 16% 13% 14% 14% 15% 16% 15% 15% 16% 11% 12%

СAGR*, %, 2002–2012

3 6 9 8

Crude/oil

Iron ore

Containers

Coal

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

35% 35% 35% 35% 34% 33% 32% 33% 31% 30% 29%

Other

СAGR – Compound annual growth rate.

Source: World Trade Orgnization.

TIME FOR POST-PANAMAX

In fiscal year 2013 (that ended on 30 September), the cargo traffic routed through the Panama Canal fell 4.1% down to 320 million tons. “The downturn mostly has to do with the loss of US grain cargo to Argentina, which uses an alternate route,” explained Jorge Quijano in an interview to Seatrade Global. The amount of commission charged for the same period remained at the previous year’s level and totaled $1.85 billion. However, a drop in revenues could only be avoided thanks to a new commission structure approved by the Panamanian authorities in the summer of 2012, which saw an increase in fees from 1% to 7% for the transportation of selected categories of cargoes. Time and again it has proven something that remains an open secret – the capacity of the hundred-year-old Panama Canal has reached its limit. Given its present shape, the 81-kilometer long transportation system connecting the Pacific and the Atlantic oceans is capable of accommodating up to 35 ships per day on average. The actual demand is much greater, meaning that the wait time can take weeks. The 60

The War of Canals

routes with maximum efficiency led to more demand for larger ships. Since 1996, the tonnage of international container flagships has tripled from 6,000 TEU (the twenty-foot equivalent unit, an inexact unit of cargo capacity often used to describe the capacity of a standard 20-foot-long container) to 18,000 TEU for the newest Maersk Triple E class ships. In the foreseeable future, these trends are likely to persist. According to current forecasts, maritime traffic will continue to grow between 3% and 4% annually until the end of the current decade. As the “Chinese miracle” continues and the US economy remains on the path to recovery, long-haul routes are likely to account for the bulk of the increase in cargo traffic. By extension, the tonnage of cargo ships is expected to increase as well, as confirmed by growing investments into corresponding port infrastructure. The Panama Canal expansion project was designed with these prospects in mind. If the operations do not stumble into another schedule overrun, the Canal will be able to accommodate Post-Panamax container ships with the capacity 2

The HKND Group estimates that fuel savings made possible by using ships with larger tonnage to service long-haul routes through the Nicaragua channel are going to be quite significant. For instance, the distance between Shanghai and Baltimore through NIGC would be approximately 4,000 kilometers shorter than through the Suez Canal and 7,500 kilometers shorter compared to sailing around the Cape of Good Hope. Given the current price of fuel for medium size container ships, the total savings are estimated at $500,000 and $1 million, respectively. If ships with larger tonnage are used, the costs per TEU will be $110 and $327 lower for the first and the second alternative routes, respectively, mainly thanks to fuel savings

of up to 13,000 TEU. However, even these giants will soon have to fight for a place under the sun in the face of tough competition from veritable dreadnoughts – the Super-Post Panamax class ships. Today, these already account for one-tenth of the tonnage carried by the global container fleet, and forecasts show that this figure is only likely to grow in the future. However, the size of these ships is so

Iron ore passages and trade routes, 2012

А А

East coast of Canada to Asia Canadian exports to Asia represent 2% of global seaborn iron ore trade

TOTAL WORLD SEABORN TRADE

1,150 mln tons

East coast of South-America to Asia Brazilian exports to Asia represent 20% of the seaborn trade No.2(6), 2014

Main exporters

Non-addressable routes

Main importers

Addressable routes 61

Source: ISSB, HKND.

Most of the ore is mined in Ontario and Quebec and exported from the East coast to either Europe or Asia

L ATIN AMERICA

length and capacity. The new canal will even be able to accommodate Super-Post Panamax class ships, which would certainly redefine all transit routes in the region. “The project has great potential and is capable of changing the global trade landscape and yielding great economic and social dividends for Nicaragua, its neighbors, and all of Latin America. It is designed for the transit of raw materials such as oil, liquefied natural gas, and steel from the United States to Asia, or iron ore from Brazil,” explained Ronald MacLean-Abaroa, representative of the HKND group, during a press conference last year. “Today, there is a great need for a new state-of-theart canal capable of complementing the Panama Canal capacity and accommodating large ships.” The ambitious construction project, with an estimated price tag of $40 billion, is scheduled for completion within the tightest possible deadlines. The first ship could pass through NIGC in December 2019, just five years after construction began. In another ten years, the project will be completed in full. Such a pace may seem unrealistic considering the scope of challenges faced by the concession holders. Many skeptics point to some unprecedented technical difficulties and enormous costs of the project that also envisages the creation of two free trade zones, construction of two deep water ports, a railway, an international airport, and an oil pipeline, doubting that HKND would be able to raise the required financing and attract the requisite expertise. A separate issue that the NIGC organizers had to face was a legal collision between the laws governing the project and the country’s constitution. In particular, what seems to be at stake here is a de facto expropriation of community-owned lands and property along the canal site, as well as assigning HKND concession rights to use large chunks of the adjacent territory on a long-term basis and free of charge. Critics of the project are concerned that this might compromise the local communities and even deprive the country of a part of its sovereignty. “It’s like there’s an unwritten slogan: ‘The canal at any cost,’” notes Manuel Ortega Hegg, Vice President of Nicaragua’s Academy of Sciences. More than thirty complaints have already been lodged in this respect with the Supreme Court of Nicaragua.

Projected routes of the Nicaragua Canal

Possible routes

Nicaragua MANAGUA

Escondido River Lake Nicaragua

The Pacific Ocean

Oyate River

The Caribbean Sea

Projected main route

Cayman Rock Venado Island Punta Gorda San Juan de Nicaragua

Brito San Carlos

Nicaragua Canal

Depth, m

Length, km

Immersion, m

286

Panama Canal

18,3

15,2

Suez Canal

19,8

195

large that they will not be able to navigate through the Panama Canal even after the reconstruction project is completed. AT ANY COST

This particular circumstance along with the stellar prospects demonstrated by the global market were undoubtedly taken on board in Managua when the decision was made to launch a project to build the Nicaragua Interoceanic Grand Canal (NIGC) that could seriously weaken the hand of its Panamanian competitor in the battle for transit flows in the region. The project was formally started in summer of 2012 when the Nicaraguan parliament adopted a special law to determine the legal status of the future canal and the ways to administer it. In the fall of the same year, the exclusive right to develop and manage NIGC based on a 50-year concession was awarded to China’s HK Nicaragua Canal Development Investment. According to the blueprint, the new transport system will be more than three times the size of the Panama Canal (265 kilometers long, 250 meters wide, and 22 meters deep) both in terms of its 62

The War of Canals

TEU Million

Total containership fleet capacity

Maersk sets world record by ordering 12,500 TEU ship

Avg TEU

CAGR 2006–2013, %

Share, %

SuperPostpanamax

13,355

67.3

10.3

Suez Canal (SC)

Post-Panamax

8,097

11.5

37.4

New Panama Canal (NPC)

Panamax

4,402

8.8

27.0

PC, SC, NPC

Subpanamax

1,720

5.5

20.9

PC, SC, NPC

Feedermax

958

3.8

4.3

PC, SC, NPC

14 12 10

Post-Panamax ships aceeding 5,000–5,300 TEUs introduced in 1995

Transit possibility

6 Note: Super-Postpanamax is 12,000+ TEU, Post-Panamax is 5,30012,000 TEU, Panamax is 3,000-5,300 TEU, Subpanamax – 1,0003,000 TEU. Panamax is generally stated as 4,800 TEU, but advances in shipbuilding technology have allowed larger TEU ships to practically transit (up to 5,300 TEU).

4 2

1981

1995

2006

2013

Source: Clarkson Research Services, 2013.

Ultimately, it is the environmentalists who speak the loudest against the construction of the Nicaragua Canal. Their greatest concerns have to do with the fate of the Nicaragua Lake, slated to accommodate around 80 kilometers of NIGC. There is a risk that the construction may destroy the ecosystem of this unique body of water, which is a potential drinking water source and national security priority site. Is there enough room for everyone? Up until now, HKND has responded to these concerns by saying that it is confident of its own capabilities. The company has already retained the services of the leading international consulting and engineering companies to work on the project, including McKinsey & Company and China Railway Construction Corporation – they have been called upon to help build the most efficient financial and engineering model to make the project easier to understand and more attractive to the community of investors. Nobody at HKND seems to doubt that there will be plenty of willing investors in the project. “Our negotiations with international investors have been moving along rather smoothly all this time. We have already reached agreements with some of them,” said HKND CEO Wang Jing in an interview published last October in South China Morning Post. The Nicaraguan authorities have a tremendous vested interest in seeing the project through to its No.2(6), 2014

successful completion, and should therefore help to alleviate legal risks and sort out environmental issues. By as early as 2015, the government expects to receive canal revenue that could boost GDP growth by as much as 15%, and even double it by 2018. For the country ranked among the poorest in Central America, this is quite significant. The commission that the Nicaraguan state budget is expected to cash in will also grow over time. According to the agreement with the HKND Group, the company will pay around $10 million each year into the country’s budget. Furthermore, ten years into the Canal operations, Nicaragua stands to receive a 10% stake in the Canal management company and is slated to become a full proprietor in 100 years. At this stage, the Nicaraguan authorities prefer to talk not as much about the competition between these two projects as about a healthy synergy, claiming that there would be enough room in the prospective market to go around for everyone. The HKND Group estimates that by 2030, the aggregate trade routed through the Panama and Nicaragua Canals will grow 240%, while the aggregate cost of transit cargoes is expected to exceed $1.4 trillion per year, which is likely to make this corridor one of the most pivotal trade routes in the world. All of it means that the invisible war waged over the distribution of these revenues is going to get even fiercer and its outcome is being decided right now. 63

Inside Medellín How Pablo Escobar’s hometown hopes to become South America’s ‘Silicon Valley’ Harriet Alexander Medellín was once the world’s most murderous city, famed for cocaine cartels and death squads. But now it is putting its business acumen to good use, and reinventing itself as a thriving tech hub.

Colombia’s second city – and the hometown of Pablo Escobar, the biggest drug lord in history – is a dynamic place, home to 2.5 million people

If there is one thing that the people of Medellín can pride themselves on, it is that they are good at business. 64

Harriet Alexander / The Sunday Telegraph / The Interview People

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Inside Medellín

living in a wide Andean valley, where the pleasant subtropical climate has earned it the title ‘City of the Eternal Spring.’ It bustles with innovation, drive, and ingenuity. “But sometimes,” admits Aníbal Gaviria, the mayor of Medellín, “we’ve been business leaders in the wrong sense.” At the height of what is referred to as ‘the dark days,’ Medellín was the centre of an illicit empire that supplied 80% of all America’s cocaine – making Escobar, until he was shot dead by the city’s police in 1993, the second-richest man in the world, with an estimated fortune of $30 billion. The vast global business carried an equally huge human cost. At the peak of Escobar’s reign, in 1991, the murder rate was 381 per 100,000 people. To put that into context, the most violent city on the planet today, San Pedro Sula, in Honduras, has a murder rate half of that – 187 per 100,000 inhabitants. Simply stepping outside your front door was an enormous risk – children were not allowed to play outside, and when your relations left home for work in the morning you never knew if they would return that evening. People were being shot dead in daylight across the city in a terrifying settling of scores that almost wiped out a generation of young men, and saw thousands of innocent people murdered by mistake. And yet from the ashes of that hellish concrete jungle a new city is rising. “We hit absolute rock bottom,” admits Juan Esteban Sosa Posada, a consultant at the city’s investment promotion agency. “So we were able to start again from scratch.” Medellín is restyling itself as ‘South America’s Silicon Valley’ – a tech hub, and a centre for innovation and science. The city has initiated a series of incentives to bring start-ups to a cluster of new hubs along the Medellín River, with a programme of tax incentives, logistical support, and government pledges. And it appears to be paying off. Hewlett-Packard has based their entire Latin America services centre here, while Kimberly-Clark and Pipeline Studios – a Canadian animation company – are among the big names to have moved in. In March, Medellín was named ‘Innovation City of the Year’ by a group of organisations No.2(6), 2014

The centre provides a ‘landing programme’ for companies wishing to base themselves in the city – a ready office space with internet connections and electricity included, for a monthly rent of $23 per square metre, plus a 100% tax break for the first 10 years. Initially the scheme was aimed at foreign start-ups, with the idea being that companies can settle in Medellín, then leave the Ruta N nest to locate themselves in their own offices

led by investment bank Citigroup – beating off competition from fellow finalists New York and Tel Aviv. “Now we’re combating the cancer,” said Gaviria, whose brother was murdered by criminal gangs. “We’re still fighting for the reputation of Medellín. Because today it’s not the most violent city in the world. It’s the most innovative.” As the security situation in the country improves, Colombia has seen investment flood in. The country predicts a 5.1% growth rate in 2014, with its economy based largely on oil, coal, coffee, tourism, and flowers. The United States remains the largest single foreign investor, but Britain is second and has set a bilateral trade and investment target of $6.8 billion by 2020. The 2015 target of $3 billion has already been met, one year early. In Medellín, the heart of this transformation is the Ruta N complex in the north of the city – a cluster of offices which, when completed, will occupy 150 hectares and become the largest tech hub in Latin America. Such zones, says Paulina Villa, director of the Medellín Innovation District, either emerge naturally – as with Silicon Valley – or are created, as with those in Barcelona and Singapore. Medellín’s hub is the latter – an ultra-modern series of glass buildings, close to the city’s botanical gardens, and surrounded by tropical flowers. Outside, beyond the parasols and café tables, sit rows of bicycles, the city’s equivalent of London’s so-called ‘Boris Bikes,’ a recent innovation. Inside the brushed concrete building, the open plan office with its exposed pipework and lime green chairs is framed by climbing tropical vines on the windows. 65

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At the height of what is referred to as ‘the dark days,’ Medellín was the centre of an illicit empire that supplied 80% of all America’s cocaine – making Escobar, until he was shot dead by the city’s police in 1993, the second-richest man in the world, with an estimated fortune of $30 billion

Quotes from Steve Jobs are inscribed on the walls, as a focused army of 20-something designers lounge on beanbags, working on their MacBooks with headphones firmly plugged in. “Ruta N is like the first mammal in the land of the dinosaurs,” says Villa. “The dinosaurs do not yet know their time is over.” The centre has been funded by the local government, which imposes a levy of between 30% to 50% on profits of Empresas Públicas de Medellín – the state-run company that owns the city’s water, energy, communications, and waste processing facilities. Of that charge, 7% will be used to finance ‘innovation’ – which means that this year $20 million is to be spent on such schemes. 66

Directors of the centre point out that business running costs are 38% cheaper than in the Colombian capital, Bogotá, and that they are able to draw on an educated, youthful workforce. The regional government has set up initiatives such as an inter-school ‘programming marathon’ contest and the ‘Vivero del Software,’ a software ‘Greenhouse,’ which aims to nurture blossoming tech talent, offering free programming lessons for 14 to 18-year-old students. “We realised we had to do something to combat unemployment,” said Villa. “So for the past few years, we have been training our next generation. And now we’re providing the work. “Textile manufacturing and food production were traditionally big industries here – but they weren’t scaleable. So we had to make the quantum leap – and that’s Ruta N.” The centre provides a ‘landing programme’ for companies wishing to base themselves in the city – a ready office space with internet connections and electricity included, for a monthly rent of $23 per square metre, plus a 100% tax break for the first 10 years. Initially the scheme was aimed at foreign startups, with the idea being that companies can settle in Medellín, then leave the Ruta N nest to locate themselves in their own offices. The office was filled in the first six months – “there were so many in there we were jumping out of the windows!” said Villa – and currently houses 32 companies, with 803 employees. So far the scheme has attracted businesses from as far afield as Spain, Chile, Brazil, and the United States. Irish firm Pitch Bull, which connects entrepreneurs with investors, arrived in the city seven months ago. “Medellín has the environment we need, and networking opportunities that don’t exist in Bogotá,” said Jose Yances, chief technical officer for Pitch Bull. “The foreign companies improve the professionalism of the existing start-ups, while they benefit from lower operating costs and easy links to government and universities. Mexico is our biggest market, but Colombia had the best offer, and the best young talent pool.” Esteban Elejaide Jaramillo, 22, is one such recruit.

Inside Medellín

High up in his skyscraper office, with spectacular views of the sprawling city and the Andes Mountains, Gaviria, the 48-year-old mayor of the city, has heard these criticisms before. But he insists he is proud of his city’s transformation from murder capital to start-up magnet. “We’re not innovating for innovation’s sake,” he said. “We’re not talking about exploring the sea bed or going to Antarctica. We’re using technology to attract business and create jobs, and thus to improve the lives of the people who live here. “We’re trying to end the vicious circle.” Gaviria’s government, he says, is investing more in IT than any other city in Colombia – 0.4% of their budget, rising to 1% by 2017. “That’s a lot higher than the Latin American average.” And he claims that innovations such as the building of a library in the midst of one of the worst comunas, connecting poor communities to the internet and the creation of cable car services into the most impoverished areas – to enable the poor to come into the city for work – are reducing inequality and restoring hope. Does it bother him that Medellín is yet to shake off the association with Pablo Escobar? “It’s more important to you on the outside than us living here,” he said. “I’ve never paid much attention to it. And anyway, the morbid fascination will always be there. People still go to Chicago for Al Capone tours.” But what about the legacy of violence? Gaviria’s brother Guillermo, then regional governor, was kidnapped by the left-wing militant group FARC during a peace march in 2002, and held hostage in the mountains for a year. He was killed in a botched rescue attempt. Has his brother’s death changed his political priorities? “Unfortunately, I am not alone in having lost someone,” he said slowly. “I’m not anything special. He was special. He is my inspiration. “There is still violence, still inequality here – no one can deny that,” he said. “But now there is light at the end of the tunnel. We do it for them.”

“If you’d have told me two years ago I’d be able to work as an app designer in Medellín, I’d have laughed,” said the graphic design graduate. “I thought my work here would be limited to business cards and fliers.” A year ago he started work with a 13-man team at Blokwise, which specialises in video games and apps, and has won contracts from the Cartoon Network and Turner Group, among others. He was part of a team that recently designed television network TNT’s app for the Oscars. “I’m really proud that I’m now able to do this in my own country. We do feel like pioneers. But there’s a lot of improvisation – there’s no guidebook for this.” Villa speaks about the need for ‘magnets and anchors’ at Ruta N – to draw companies to the hub, and then to keep them there. “It has been difficult, and it will continue to be difficult,” she admits. “It’s a generational change; we are starting at the bottom, with the youngest learning about technology. “We are encouraging incubators, bringing in lawyers specialised in intellectual property, and encouraging seed capital. But we’re getting there. “This is Latin America’s decade,” she said. “The future is ours.” But in Medellín, the past is never far away. The murder rate may have fallen 80% from its peak, but there were still 920 violent deaths in the city last year – a rate of 38 per 100,000 people. In the UK, the figure was 1.2. And the poverty and inequality that provide such fertile ground for criminal minds remains stubbornly attached to the slums on the hillsides. As The Sunday Telegraph drove up to the shining glass and steel Ruta N complex, the road was blocked by protesters – with one man hoisting himself on to a cross, ‘crucifying’ himself while wearing a sign round his neck reading: “I’m dying for a house.” The celebrity drug lords may have gone, but the trade continues, with turf wars being fought in the slums between rival gangs. And up in the ‘comunas’ – the hillside shanty towns – amid the rough red brick dwellings was a string of graffitied slogans: “Medellín Innovation: Misery and fear.” No.2(6), 2014

Nelson Fredy Padilla Castro / El Espectador / The Interview People

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Mario Vargas Llosa: Technology is Killing the Very Idea of Culture

Mario Vargas Llosa

Technology is Killing the Very Idea of Culture Nelson Fredy Padilla Castro Shaping a demanding and dissatisfied society that would not let itself be manipulated – this is the main objective of culture according to Mario Vargas Llosa, recipient of the 2010 Nobel Prize in Literature. He always has a couple of kind words to spare when it comes to modern-day Latin America, its enterprising middle class, and even politicians. However, as the conversation drifts towards culture that has transformed itself into entertainment – it gets more complicated.

aspirations of First Lady Nadine Heredia as his fitting successor. He has spoken in favor of a proposed law to allow civil union between homosexuals and another to decriminalize abortion in Peru, and welcomed the legalization of marijuana in Uruguay. When Vargas Llosa speaks, he is heard, both here and throughout Latin America. Colombia is of particular interest to him, as is Venezuela.

It is no small feat to manage to interview Mario Vargas Llosa. I was put on a waiting list in 2009 when I first contacted his assistant Fiorella Battistini, saying I wanted to discuss the importance of theater in his novels. He seemed to become even less accessible after 2010 when he won the Nobel Prize for literature. “I am asked for so many interviews I’d have to devote my entire life to them,” he says. But I finally scored the prized opportunity to speak with the 78-year-old, with the interview taking place on 11 April as Vargas Llosa was preparing to head the Peruvian delegation to the Bogotá Book Fair later that month. (It would turn out to be just one week before the death of fellow South American literary legend, Gabriel García Márquez. The two were friends until a falling out in the 1970s that included a fistfight. Vargas Llosa brushed off a question during the interview about García Márquez, but after the Colombian’s death, he said, “A great writer has died.”) We spoke on the sixth floor of his residence in Lima, with views onto the gray expanse of the Pacific Ocean. He spends summers on this arid coastline, and the rest of the year in Madrid, London, or New York. Politically, he hovers between center and right; he has backed the policies of Peru’s centrist President Ollanta Humala and promoted the presidential No.2(6), 2014

EL ESPECTADOR: What have all the many revolutions done for Latin America? VARGAS LLOSA: The revolutions have left us with many dead, injured, a lot of poverty. They have quite notably delayed the modernization process, and unfortunately left us with a residue of grudges and buried violence. All this has delayed, but not impeded, the democratic culture finally taking root. I think the process is today a reality in Latin America. It is deficient because we are still carrying memories of a time when people thought you could bring about social justice with bullets, guerrillas, bombs, terrorism, and kidnapping. Today the problems are of another kind. In a country like Colombia, I have the impression that the problem is much less political and more to do with artificial interests present there, which use the guerrilla and ideological vocabulary when all there 69

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is behind them are mafia groups, cartels and drug trafficking. Don’t you think there has been an evident increase in the gap between the rich and the poor? One only has to go the edges of cities like Lima or Bogotá. No. I don’t think that is true. Let’s say there are great inequalities, but the central fact about Latin America is not that, but the growth of the middle classes. There may be inequalities but in a positive, not negative sense, because there is more wealth. In Peru’s case, the popular classes may be proving themselves to be more dynamic in creating firms and jobs than the prosperous sector. That explains our countries’ relative stability now compared to the past. How do you see the peace process undertaken by the government of President Juan Manuel Santos with FARC (Revolutionary Armed Forces of Colombia) in Cuba? Behind these talks, I see the search for a more or less honorable way out, although I personally have my doubts that it will be successful because it seems to me that there is a very large disconnect. Now if a solution does come and it means the surrender of the guerrillas, it would be welcome. Who believes in the Cuban model these days? Cuba itself is looking for more discreet ways of not being Cuba. Your essay The Civilization of the Spectacle captures the cultural reality we live in now, but it leaves one with the impression of your defending the status of an intellectual aristocracy against the mass culture that has become popular through the Internet, say, or social networking websites. Why? There are people who believe that the great audiovisual revolution of our time is for the first time creating a democratic culture. I do not think that is true; what has created this phenomenon is information reaching everyone for the first time, or reaching a formerly inconceivable number of people. I accept this and believe there are many positive elements, like the increasing difficulty of imposing censorship. Technology destroys censorship systems, and that is very positive. But it is a mistake to confuse culture with information. Culture was always and will always be elitist. Hierarchies and differentiation of specialized areas are disappearing and there is an idea today

Relativism is now so generalized that humanity’s greatest conquest, liberty, could unexpectedly begin to disappear. We face the possibility of a revival of the authoritarian and totalitarian tradition, but in its modern manifestation, the collapse of what culture has achieved throughout history

that everything is culture, or nothing is culture. This has created an enormous confusion that is depriving culture of its natural function, which was to create critical and dissatisfied citizens who would not let themselves be manipulated. There is a passivity and conformism now derived from this hugely idealized technology as a cultural pseudo-product. And I think that has serious consequences for society, liberty, and democracy. If culture becomes entertainment and starts to compete with soap operas or the circus, I think that Orwell’s nightmare may start to materialize, with a world filled with top specialists and highly informed but soulless individuals being manipulated by powers that control technology. A supposed scientific revolution that could take us toward dictatorship. Gao Xingjian, China’s first Nobel Prize winner, recently declared at the Bilbao Festival of Letters that our current crisis is not just economic and financial, but also social and intellectual, because we have become stuck in the ideologies of the 20th century. He said intellectuals from across the world should set in motion a new way of thinking, or a new Renaissance. What should the premise of this 21st Renaissance be? In this extraordinarily changed world, liberty ends up playing an essential role in peaceful coexistence. We do not have a clear idea of the effects of this technological revolution, which is accompanied by a collapse of all values and beliefs. We no longer know what is good and what is bad, what is beautiful or ugly. These categories are no longer accepted in the great cultural centers. Relativism is now so generalized that humanity’s greatest conquest, liberty, could unexpectedly begin to disappear. We face the possibility of a revival of the authoritarian and totalitarian tradition, but in its modern manifestation, the collapse of what culture has achieved throughout history. 70

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Vladimir Vasiliev

“Now it seems hard to believe, but I immediately found myself trusting him and agreed.” When the idea to set up a Bolshoi ballet school in Brazil first came about, Vladimir Vasiliev was Artistic Director of the Bolshoi Theatre. It was he who decided to open the first and only Bolshoi ballet school outside of Russia. At BRICS Business Magazine’s request, he agreed to share his emotional account of the project.

I do not think that any of us present at the birth of the Bolshoi Theatre School in Brazil in March 2000 could have ever imagined that the artistic life of our baby would fly faster than a meteor. We barely managed to blink before we found ourselves on the verge of its fifteenth anniversary. For ordinary people, this age would be tantamount

to adolescence, but for artists who dedicate their lives to professional dancing, it means a coming of age. Ours is the art of the young, and the work of this wonderful ballet school in Joinville only goes to prove this idea. It all started back in what is now considered the end of the last century – somewhere between the 72

Now it seems hard to believe, but I immediately found myself trusting him and agreed.

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second and the third millennium – with an idea born in the minds of those who dedicated their boundless love to classical dancing, and the art of the Bolshoi Theatre in particular. In 1998, when I held the office of the Bolshoi Theatre’s General and Artistic Director, I was approached by Alexander Bogatyrev, the Director of our Dance Company and a former dancer at the Bolshoi Theatre, who said that the mayor of Joinville had submitted a proposal to open a Bolshoi Theatre ballet school in his city. Back then, it hardly came as a surprise; we used to receive several proposals of this sort each year from different countries. Obviously, the renown of our theatre was attractive, and not just for artistic reasons. Usually, ideas to open Bolshoi schools were presented as commercial projects and would come from metropolises and capitals; this time around, however, it was from a small town that I knew virtually nothing about. As an artist, I had toured Brazil several times, but never had a chance to visit Joinville. Credit should be given to Alexander (Sasha) Bogatyrev’s eloquence and his fervent desire to convince me. It was obvious to me that he strongly believed that the idea was brilliant and that everything would come together just fine. It was impossible not to believe him. Moreover, I highly valued his professionalism and knowledge, which is why I decided not to say ‘no’ from the outset and to familiarize myself with the proposal and all of its details. It was with this in mind that the same mayor who was so taken with the idea of opening a Russian ballet school flew to Moscow from Joinville to meet me. He spoke of plans that were so ambitious that if it weren’t for his remarkable personality, I would have had grave doubts as to whether they were feasible. However, it was obvious to me from the very first glance that I was dealing with an extraordinary person – with someone who was energetic and proactive, whose word was his bond, someone who had no doubt whatsoever that everything would work out exactly as he promised. It was Luiz Enrique da Silveira – an outstanding politician not just because whatever he said was as good as done, but also because he himself had an incredibly artistic personality. He loved art in the highest sense of the word and wished for this noble art to come to his native town. It was at that time that I learned about his admiration of the Bolshoi Theatre’s Russian ballet school and that he wanted

The ‘Bolshoi’ school in Joinville is unique both in terms of its scale and social significance. I do not know of any other school in the world that would offer a repertoire consisting of the three toughest classical ballets: The Nutcracker, Giselle, and Don Quixote

to replicate its every minute detail. Now it seems hard to believe, but I immediately found myself trusting him and agreed to found a Bolshoi Theatre school in Joinville, subject to specific and explicit terms and conditions. We had little time left to build the new school – just over a year. A great deal of organizational work remained to be accomplished; we also needed to select the teachers and other staff and students. After everything was said and done, the most amazing part of the idea to open the school was its social vector – the school was supposed to bring in talented children from poor and struggling families and give them a chance to study for free. During the initial screening process, we looked at nearly 9,000 kids and admitted about 250 of them. When our group of managers and artists from the Bolshoi Theatre flew to Joinville, we could not even imagine the great surprise they had in store for us. When we disembarked from the plane in Joinville, we were totally amazed by what we saw. On the tarmac, we were greeted by joyful music and a sea of 73

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the very first time. I can see their first teachers. My hat goes off to all of those teachers and mentors who invested their experience, their hearts, and souls into these children. I am positive that our graduates will continue to bring joy to our audiences with their art, their attitude toward the profession, their integrity, and their highest level of artistic skill. There is a substantial amount of my own efforts in each and every one of them, and this fact alone means that my life and my work have not been in vain. Just like many of those who stood by at the creation of this school, I have much to be proud of. Today, our children have lived up to our efforts and aspirations, and our concerns have paid off. The school is not resting on the laurels of its previous triumphs though; it is getting stronger year after year. The curriculum includes not just classical ballet – modern dance is also broadly represented. I am always happy to meet both teachers and students. Working with them makes me stronger and more confident of the future. However, there is one thing that still bothers me after all these years, that still keeps me awake at night. When we were in the midst of creating the school, one of the conditions was that it must have its own theatre where the graduates of the Bolshoi Theatre School could work. However, that still remains to be accomplished. Year in and year out, the School’s graduates join the ranks of various ballet companies in the world’s most famous theatres, including the Bolshoi in Moscow. Their work takes them to different countries, but I would like them to stay here and practice their art in their home country that gave them the wonderful gift of their profession. What is remarkable is that the great Brazilian architect Niemeyer already created a fantastic ‘cosmic’ design for a complex that could accommodate both a theater and the Bolshoi Theatre School. I would very much like to live long enough to see the day when this great master’s idea comes to life and the doors of a Joinville ballet theatre open wide to all audiences wishing to see the beautiful art of dancing, which would find a way into their hearts and minds without any need for translation. I would very much like to see the day when students from different generations – who went on to become artists dancing in different corners of the world – come together in Joinville and open a new chapter in the town’s cultural life. They would make all of Brazil proud and, God willing, the rest of the world too.

flowers basking in the welcoming, Brazilian sun, as well as many neatly combed children wearing stylish uniforms; these were the first students of the new ballet school. Leaving the airport, we saw banners and posters all around town advertising the opening of the school and the gala concert with performances by Bolshoi Theatre artists – all organized to commemorate the event. Yet the greatest surprise waited for us when we reached the school’s building, located in the Centreventos complex. All of the guests from the Bolshoi were invited to determine whether the school was ready to start a new academic year and operate using the Bolshoi’s unique Russian methodology, which involves eight years of study, in addition to many other extracurricular disciplines such as music and drawing classes, history, popular character dances, and drama. The school also offered professional medical services for students who were about to face serious physical challenges. I could not believe I was watching it unfold in front of my eyes; the school created a perfect environment for studies and rehearsals. Chief among this splendor were five spacious rehearsal rooms (something found in only a select few of the largest schools in the world) that were named after the great ballet masters of the past: Vaslav Nijinsky, Anna Pavlova, Galina Ulanova, Asaf Messerer, and Alexander Bogatyrev (to our great sadness, he passed away before the school was opened). To this day, whenever I am asked about the ‘Bolshoi’ school in Joinville, I respond by saying that this institution is unique both in terms of its scale and social significance. It is also unique in that I do not know of any other school in the world that would master and offer a repertoire consisting of the three toughest classical ballets: The Nutcracker, Giselle, and Don Quixote. But they do not draw the line there – every time I come to Joinville, I am happy to see that the school continues to evolve. Patrons of the school have helped it over the years, and include large Brazilian companies. I would like for Russian energy corporations beginning to operate on the Brazilian market to also join this wonderful project. After all, it would offer a great opportunity to meet new partners and interact with Brazilian colleagues on a whole new level. Now as I cast my mind back to the time when the school was taking baby steps to its first small victories and challenges, I instantly see the faces of the little girls and boys who entered these spacious halls for 74

Now it seems hard to believe, but I immediately found myself trusting him and agreed.

OF COURSE IT IS RUSSIAN… NO DOUBT IT IS BRAZILIAN… Pavel Kazaryan When two parties are fascinated by a common cause that is greater than anything else, even cultural differences change from barriers to stepping-stones.

The Bolshoi Theatre School in Brazil represents the largest Russian-Brazilian culture and education project. In 2013 alone, it organized more than 70 performances in most Brazilian states, as well as in Paraguay, Austria, and Switzerland. It also selected 20 boys and 20 girls out of more than 4,000 children across Brazil to be its first-year students. This makes it difficult for me to briefly summarize the organization’s work. I will begin with a very telling story about the school. Last year, we decided to improve the teacher’s lounge by replacing some of the old furniture that we had bought back in 2000 when the school was founded. As is commonly done in Brazil, we called a meeting so everyone could share their opinions on the matter. It was a split vote – our Brazilian faculty members wanted to change absolutely everything: replace white cabinets and sofas with brightly colored furniture, move everything around, and hang new pictures and posters. Pavel Kazaryan is Director of the Escola Bolshoi.

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Quite conversely, their Russian counterparts wanted to buy new furniture that looked exactly the same as the old furniture and leave everything in place. Naturally, a compromise was found. However, this story is very interesting, and indicative of the similarities and differences between the Russian and Brazilian cultures. There is no doubt that the school is Brazilian. It is young, daring, and hot-tempered, with emotions going overboard even in seemingly innocuous situations. And of course it is also Russian – complete with the discipline, grandeur, and traditions of the Bolshoi Theatre’s wonderful heritage and famous dancers and teachers. In the end, it is mutual respect and a symbiotic relationship between the two cultures that provide the unique recipe for success at the Bolshoi Theatre School in Brazil. I am certain that all Russians would be delighted to know of the Joinville staff and students’ high regard and gratitude of Russia, our ballet, and our culture. Just recently, I met a small boy walking through the school’s halls trying

to learn phrases in Russian with a smartphone app. Indeed, who would have believed that a girl born in a provincial town in the Southwest of Brazil would end up in Vladivostok working at the Primorsky Opera and Ballet Theatre? Or that three Brazilians would go on to join a very small group of foreign nationals working for the world’s best ballet company at the Bolshoi Theatre in Moscow? Who would have thought that graduates of the school would work all over the world, from small-time schools in Australia and South Africa to corps-de-ballet at the American Ballet Theatre? Or that Russian teachers who settled down in America would call to thank their classmates – the Russian teachers who trained such quality artists in Joinville? Ballet is undoubtedly a part of Russia’s identity, its trademark. Perhaps the greatest upside is that anyone who decides to learn to dance inevitably and irreversibly falls in love with the Russian culture, watching old archive recordings or videos of modern Russian ballet stars – Joinville, Santa Catarina, Brazil is the living proof.

BUSINESS

A Common Cause Competition in the global aircraft-building market is no longer limited to individual countries, but has grown into massive international alliances and transnational corporations. Mikhail Pogosyan, President of the United Aircraft Corporation (UAC), believes that for BRICS countries to become prominent players in the industry, it would behoove them to combine their efforts, competencies, and resources. In an interview with BRICS Business Magazine, Pogosyan discusses how Russia is building partnerships with other BRICS countries in the aircraft industry.

Today, all of the BRICS countries are pursuing their own aircraft-building programs. What prospects do you see in this industry and what role will it play in the development of our respective economies? Aircraft building is a key industry in that it not only develops state-of-the-art products and

technologies, but it also acts as a catalyst for the development of new technologies in other sectors such as the automotive industry, construction, and others. Our industry has a seven-fold multiplier effect, which means that for every dollar invested in the aircraft industry, you ultimately stand to make $7. Everyone understands this very well, which 76

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Are you happy with your joint progress on this project? Completely. I might have been happier if we had moved along at a somewhat faster pace, but our joint work on military equipment and large-scale projects has always entailed certain time costs. Nevertheless, in the long term, such programs give us the opportunity to strengthen our position in this market, and this always makes the wait worth our while. However, I would like to emphasize that we have not had any difficulties with our Indian partners. After so many years of working together, we have learned how to overcome any hurdle. The whole idea behind joint projects is to find a compromise in the interests of all stakeholders. What lies at the heart of this synergy? And more specifically, how far is Russia prepared to go in transferring technologies to India? Our shared interest is to combine our technologies and resources as well as to up the mass production volume of our product in order to meet each partner’s requirements and promote our product in third-country markets. On the one hand, it involves joint financing, and on the other hand, capitalizing on the potential that both of us can offer. For instance, this applies to engineering, science, and technology. I would say that India’s computer industry is very advanced. However, it is important to realize that our joint work on new products is not just a significant but also a necessary step in advancing our cooperation. It also means that we will be able to retain our industry position in the long run. We want to be a leading international player. Today, competition does not boil down to individual countries – it comes down to large international corporations. If we truly want to create competitive products, we need to join forces. Joining forces with our colleagues from the BRICS countries is a smart way to develop and modernize the aircraft-building industry. In this respect, India offers one of the greatest examples of how it can be done – the country has undergone the full cycle from licensed production to joint design and development. What can you say about your joint work with China? We have also had positive experiences working with China, specifically on military aircraft building

is precisely why aircraft building is one of the key priorities for the BRICS countries that are proactive in advancing and developing their economies. Is this merely a stated objective or a true priority? It is a true priority. Without exception, all of the BRICS countries have active aircraft-building programs. China focuses primarily on civil aircraft such as the ARJ-21 and C919, both of which hold a great deal of promise, and pursues a large number of military programs. India runs a whole range of joint projects with Russia, including the future fifth generation fighter jet and the Multi-Purpose Transport Aircraft (MPTA), and it has a license to produce the Su-30MKI fighter jet. On top of that, it runs a number of its own programs, including building training aircraft. In Brazil, Embraer remains one of the industry leaders and blazes a trail for the nation’s entire economy. South Africa has Denel Aviation, a company that manufactures helicopters based on designs developed in-house. In Russia, aircraft building is a key industry, which is why this sector has a special status in all of the BRICS countries. It should provide the impetus for the development of other sectors. India holds a special place in the military and technological cooperation between Russia and the BRICS countries. Could you talk a bit more about the fifth generation fighter jet that is bringing cooperation between these two countries to a whole new level? India has been our strategic partner for many decades. Indeed, we implement a broad range of joint programs. While in the past they mostly boiled down to licensed production that involved specialists from India, today we are graduating from delivering ready-made products and licensed manufacturing to joint development and designs. This is a whole new level of cooperation. As I mentioned before, we are now running two such projects in partnership with Hindustan Aeronautics Limited, including the MultiPurpose Transport Aircraft and the fifth generation aircraft complex. In the latter case, we have finished the preliminary design stage and are now negotiating a contract to launch the fullscale design and development of this aircraft. No.2(6), 2014

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for this contract was certainly the competitive advantage that our aircraft offer. Interjet is one of the largest airlines in Mexico, carrying around 8 million passengers per year. The company bills itself as a low-cost airline that offers a high level of comfort. The SSJ100 is particularly well suited to meet these requirements. In addition, it offers great economy in terms of operational performance – its operating costs are approximately 10% lower than the competition. Furthermore, the SSJ100 and its control systems offer a high level of in-flight safety and are reliable during takeoff and landing. We also offered attractive terms of financing under this deal. Russia’s Vnesheconombank provided financing in the framework of an international syndicate that included Deutsche Bank and Natixis. Insurance coverage was provided by Russia’s EXIAR, Italy’s SACE, and France’s Coface. Finally, our bid was structured to include an extensive package of aftersales services. To sum it up, what won the Mexican contract was an integrated product that included the SSJ100 jet, a competitive financing package, and aftersales support. Interjet has already been operating our aircraft for a year and their experience shows that they made the right choice. Today, we are working on converting the option to build 10 more aircraft. One way or another, stakes are very high when it comes to competition in the regional aircraft sector. In the short term, the SSJ100 will have to compete with several new products, including the Brazilian Embraer 190E2, the ARJ-21 from China’s COMAC, and the Bombardier C Series. What do you think your competitive edge will be? Even if we look at some very promising products offered by Canadian and Brazilian companies, the SSJ100 already offers a competitive edge when it comes to operating expenses – it is 5% and 9% cheaper on a per flight basis than the E190E2 and the Bombardier CS100, respectively. What also plays a key role is that our aircraft is already on the market, as opposed to the abovementioned models, and we are continuing to grow its production. The release of the C Series, on the other hand, is delayed until 2015 due to numerous schedule overruns and the E190E2 is not expected

with the Su-27 fighter jet. We are also trying to boost our cooperation on civil and transport aviation. Last May, we signed a memorandum with the Commercial Aircraft Corporation of China (COMAC) to launch the joint development of a wide-body, long-haul aircraft; these agreements were the result of two years of joint work. As I mentioned, we are fully aware that in today’s world competitive hardware can only be built by strategic alliances. We are certain that this joint project will be able to compete successfully on the global market. What underlies this certainty? The new aircraft will not duplicate similar products existing in other countries. The key to success on this project is to channel our respective resources and efforts to create a product that is 15-20% better than anything our competitors can offer. Have you already reached an understanding as to how the roles are going to be shared in this alliance? This will be a joint project based on both Russian and Chinese engineering solutions and on technologies developed by third parties. That is why we will decide at a later stage what specific systems are going to look like from a technical standpoint. One thing is clear – from the very outset, we are targeting the international market and the new aircraft will be fully in line with the requirements of that market. Apart from China, which Asian-Pacific countries interest you? We are also cooperating closely with Vietnam, Indonesia, and Malaysia. This cooperation mostly covers military programs, but in the long run, we have our eye on civil aviation as well. What are your prospects in Latin America? Latin America is a promising market. We have already gained some traction in that our military equipment is used in a number of countries in this region. The first breakthrough in the civil aviation segment came when we signed a contract with Mexico’s Interjet to produce 20 SSJ100 regional jetliners with an option to build 10 more. We already shipped the first aircraft last year. How did your prepare for this deal and what was the key to your victory? The main factor that laid the groundwork 78

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BRICS BUSINESS MAGAZINE DOSSIER In 2013, UAC’s revenue went up 29% to reach 220 billion rubles ($6.4 billion), and gross profit increased by 23.7% to reach 44.4 billion rubles ($1.3 billion). The Corporation produced 125 aircraft. As of early 2014, UAC’s portfolio of confirmed orders had a total of 653 units, including 278 civil, 311 military, 40 transport, and 24 specialized aircraft.

United Aircraft Corporation (UAC) is Russia’s largest producer of civil and military aircraft, including such product families as Sukhoi, Ilyushin, Tupolev, Yakovlev, and Beriev. The company is the principal developer of the Advanced Front-Line Aviation Complex (AFLAC) fifth generation fighter jet, as well as developer and producer of the SSJ100 regional aircraft family and short haul MS-21 planes.

of MS-21 short haul jetliners with a design that includes a range of state-of-the-art composite materials. Over the next 20 years, demand is estimated to reach around 20,000 aircraft – our goal is to capture 5% of this market. As for our narrow body fleet, our joint estimates with COMAC show that between 2023 and 2042, nearly 8,000 units will be purchased across the globe. With our new product slated for release after 2025, our goal is to capture 10% of this sector. UAC’s overall strategy is to ensure the company’s presence in virtually all market segments and to become one of the leading players in the industry. Let me reiterate that in today’s economy, it is virtually impossible to go it alone. That is why when it comes to the aircraft industry, it is vital for all of the BRICS countries to interact and build joint ventures. Only together can we build planes that meet the highest requirements of the global markets, and in so doing, take our rightful place among the leading industrialized nations.

to arrive until 2018. As for the ARJ21, the Chinese aircraft is currently going through a certification process. I would also add that we are already running a large-scale program to upgrade the SSJ100, which should improve its fuel efficiency edge by nearly 5%. Going forward, we plan to continue to compete successfully. How do your plans dovetail with the prospects in the aviation market? Today’s air transportation growth rate is ahead of the global economy by about 5-6% per year, and we have no reason to believe that this trend is about to change. Short and medium haul aircraft with 60 to 120 seats still offer great prospects. By 2020, their global sales are estimated to reach six thousand units, out of which our projected share is going to be 17-18%. However, we are still seeing the greatest demand for narrow body aircraft with over 120 seats. To fill this niche, we are going to offer a new family No.2(6), 2014

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Eurasia’s Smart Networks Oleg Budargin A reliable, economically efficient, and sustainable electrical power supply is a key strategic objective for any modern economy. The fastest way to address this issue is to integrate power grids from different countries based on the ‘smart grids’ concept and technology seen across Eurasia. The two largest BRICS countries – Russia and China – are perfectly capable of undertaking a joint project of this kind, and should do so as soon as possible.

Eurasia’s Smart Networks

SPECIAL EMPHASIS ON TECHNOLOGIES In addition to the economics of building energy bridges between Eurasian countries, and the resulting international integration of grid assets, one must also factor in a multitude of technological parameters, including the need to: • Ensure compatibility of data, exchange protocols, and other technical information pertaining to energy bridge operation in neighboring states; • Create an environment conducive to transmitting the requisite amount of electrical power while guaranteeing 100% reverse capabilities for the energy bridge, depending on current market requirements and the market value of electrical power; • Strive to deploy highly-reliable electrical and technical equipment that meets common technical requirements, as well as DC transmission technologies with a state-of-the-art semiconductor element base; and • Provide reserve power sources to account for possible breakdowns or disruptions in the operations of selected power elements. Considering the magnitude of technological and organizational challenges, the conclusion is fairly obvious: International energy bridges will be impossible unless countries develop and agree to common technical standards governing the design and operations of common grid assets. After all, smart grids are not viable when they operate on a single voltage or in an isolated region. The full potential of such projects can only be realized if they are implemented on a continent-wide scale.

Oleg Budargin is Director General, Rosseti OJSC.

Strengthening collaboration and expand ing energy cooperation between BRICS countries is currently one of Russia’s most important objectives. Given today’s ever-changing economic environment, there is no doubt that new tools need to be identified to improve the efficiency of power systems. Russia’s key objective in its cooperation with nearby BRICS nations is to ensure energy security – both for itself and its partners. Achieving this would presuppose greater diversification of export energy markets based on long-term supplies of energy resources, integration into global power systems, development of a legal framework underlying international energy cooperation, the exchange of experience and technologies, and joint research to boost innovations, energy efficiency, energy conservation, and the development of renewable energy sources. Achieving greater traction with respect to energy integration does not mean waiting for a favorable economic environment. National energy companies may independently adopt roadmaps to optimize efforts while continuing along a path of cooperation with the investment community. The very existence of such roadmaps – spelling out specific strategy-implementation steps, as well as goals and potential stakeholder benefits – may also provide an additional impetus for these governments to expedite decision-making processes and take this integration to another level. The many benefits of such an integration are numerous. This energy undertaking would be an opportunity to develop joint innovations and projects. It would also create an environment that encouraged and fostered competition, which would subsequently push energy companies to fight harder for their consumers and increase demand for new technologies. Both areas would be especially topical in today’s energy sector with No.2(6), 2014

its deficit of innovative developments, particularly when it comes to long-distance electrical power transmissions or minimizing losses. It is important to note that integration processes are extremely vital for ensuring sustainable and reliable energy supplies – not just when it comes to national or regional markets, but on a continental scale as well. It is worth noting that the Eurasian space that comprises the largest BRICS economies, those being Russia’s and China’s, could already implement energy integration projects as several regional operations of this sort are already in place. 81

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A modern energy system in any country represents a relatively complex and wellprotected mechanism operating in line with national standards, norms, and protocols. Depending on the history of the local energy sector, energy generation may comprise various elements, including hydropower plants, thermal power plants, or RES (renewable energy sources) power plants. The balance between energy production and consumption is maintained by automated management systems, which form the basis of each country’s smart grid system. As a rule, each has its own distinct traits and differences. Holding different countries to one common standard would require efficient energy bridges connecting national energy systems or energy clusters, as well as hardware and software integration compatibility. Today the need to build new, high-quality energy bridges in Eurasia seems to be universally accepted. It is primarily dictated by the growing demand for electricity, especially because the areas with the largest capacities for energy generation are far removed from the key consumption centers. A possible solution would be to install technological trans border links, which would facilitate the exchange of power between countries. This would address the problem of divergent standards, and enable countries to integrate power systems with different nominal frequencies and quality requirements by way of a direct current. Russia already has a successful track record when it comes to such interactions – the direct current link in Vyborg, which was built in the Soviet era, exports electrical power to neighboring Finland.

AN ENERGY BRIDGE TO THE FUTURE

Our own professional analysis also shows that there is no viable alternative to international energy system integration. This conclusion is based on, among other things, the premise that isolated energy companies (even major national operators) could find their own capabilities and resources insufficient, particularly in simultaneously ensuring sustainable operations and energy infrastructure development. Integration should be based on state-of-the-art technologies, including smart grids. The ability to successfully create and operate the latter is directly predicated on the size of the territory in which they are deployed. Notably, the experience of Rosseti (Russia’s largest electricity transmission and distribution grid company) in Russia’s regions proves that building smart grids in closed energy systems yields little efficiency. Conversely, the greater the area allocated for smart grids, the higher the probability that these systems will operate successfully.

In particular, the cooperation between Rosseti OJSC and the State Grid Corporation of China (SGC) provides for plans to build and overhaul MRSK Siberia OJSC power grids located in the Zabaykalsky Krai, the Republic of Buryatia, the Republic of Khakassia, and the Tuva Republic. Currently, a preliminary list of investment projects in the region has been identified. All of these projects are self-sustainable due to lower operating costs, reduced losses, and increased net electricity output. The Chinese party is currently working out the terms that will govern the cooperation between Rosseti OJSC and SGC, including proposals on possible organizational forms to frame this interaction.

SET SAIL FOR CHINA

In the post-Soviet era, Russia’s most recent international power system integration project was born with the launch of a strategic cooperation between Rosseti and the State Grid Corporation of China (the People’s Republic’s largest power grid enterprise). The underlying agreement was signed by the Russian and Chinese heads of state at a meeting that took place in Shanghai last May. The document stipulates that cooperation between the two companies will focus primarily on improving operational safety and sustainable power grid development, and upgrading the power 82

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grid complexes in both nations. Furthermore, the agreement provides for the deployment of innovative technologies, equipment, and best international practices designed to improve the efficiency, reliability, and safety of power grid infrastructure. In particular, the agreement provides that the parties would jointly explore the possibility of building ultra high voltage AC/DC transmission lines, as well as an ultra high voltage underground substation in Russia. The plan also provides for joint technical research with projects connecting RES to power grids, as well as looking into the possibility of creating a Eurasian energy bridge. Finally, the parties are slated to exchange knowledge based on their experience in building and applying state-of-the-art technologies, and in developing smart grids and charging stations. Overall, expanding interaction and building ties with their Chinese partners has become one of the Russian energy sector’s key priorities as it strives to develop international cooperation. But as important as that is, it is but a first step toward a single Eurasian energy space to be shared by the No.2(6), 2014

Integration should be based on state-of-the-art technologies, including smart grids. The ability to successfully create and operate the latter is directly predicated on the size of the territory in which they are deployed. Notably, the experience of Rosseti (Russia’s largest electricity transmission and distribution grid company) in Russia’s regions proves that building smart grids in closed energy systems yields little efficiency. Conversely, the greater the area allocated for smart grids, the higher the probability that these systems will operate successfully

leading members of the BRICS community and future member nations. By and large, Russia’s energy policy has always formed an inalienable part of the country’s security policy, as well as that of its neighbors. It has already become a reliable energy resource supplier and a global trading partner, and it is striving to achieve even greater integration with global energy markets. The launch of such a targeted dialogue on energy integration in the BRICS arena is an efficient way to achieve these objectives. 83

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Learning the Art of Friendship Despite a litany of prophecies from renowned economists threatening a new crisis, the Chinese market still remains attractive to foreign companies, and largely unexplored. But what do the Chinese themselves think about foreigners? And what sort of insider tips could be beneficial to foreign players? BRICS Business Magazine discussed these questions with Willie Li, Deputy Head of Nantong Sijian Construction Group – a company with a turnover measured in billions of dollars that built tens of millions of square meters of real estate. He gladly agreed to share his expertise and insights.

Mr. Li, do you believe that the idea of venturing into business in China is still popular among foreign companies? And how have the trends in this area developed over the recent years? I remember that after the 3rd Plenary Session of the 11th Central Committee of the Communist

Party of China (CPC), foreign investors led by overseas Chinese began to invest in mainland China, starting with the processing industry in eastern coastal cities, which were represented by Shenzhen. After Chairman Deng Xiaoping’s southern tour speeches, the 14th National Congress of the CPC 84

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in investors’ home countries. There are several major changes. Firstly, since the beginning of reform and opening up, family companies and specialized companies in niche areas have replaced Fortune 500 companies and industry leaders as main investors. Secondly, investment purpose has shifted from seeking low cost labor to seizing the market. Thirdly, more investment has gone to technology-intensive enterprises instead of laborintensive enterprises. The recent 3rd Plenary Session of the 18th CPC Central Committee confirmed further reforms, established the reform leading group, and expanded transformation so that China’s economy will see further development. And we learned of the ‘Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform.’ The 35-year history of reform and opening up has proven that the market in China is enjoying a strong growth trajectory. Furthermore, the middle class, which numbers over 300 million, will keep growing. This could be a huge consumption and talent market. China aims to double its 2010 per capita income by 2020. How would you describe the specific requirements and idiosyncrasies of doing business in China? Is there anything an entrepreneur should keep in mind when entering the market? If you want to invest in China, you need to rely on government authorities – especially the CPC and government leaders’ guidance and support. To better understand the market, you need to make friends; nothing can beat you if you have friends who are always behind you. You could hire professionals, liaise with local government authorities, maintain communication with upstream and downstream firms, and join relevant industry associations. You will benefit significantly from bringing along excellent cultural ideas, technologies, and resources, and combining them with China’s current conditions. Picking up bad habits here will lead to nothing. Foreign-funded enterprises are often exposed by the media for problems related to quality, tax evasion, and illegal employment. For instance, Foxconn employees jumped off a building and Honda employees went on strike. These incidents led to suspicion of labor systems in foreign-funded companies, which had a negative

confirmed the aim of establishing a socialist market economy system, which led to the rapid expansion of foreign investment in China. Yangtze River Delta and Pearl River Delta represented the places attracting foreign capital at that time when new technology was introduced and infrastructure and service industries began to pick up. In 1997, the same year that I first came to Shanghai, the 15th National Congress of the CPC established the diversified-ownership economy, allowing for the shareholding system to exist alongside a mixed economy. That was a golden time for foreign capital expansion. In 2001, China joined the World Trade Organization (WTO). This gave rise to a fair, just, and open market competition environment. Thereafter, foreign funded enterprises were able to enjoy the same treatment as national enterprises; discrimination and restriction in market access were eliminated. The past decade brought rapid economic growth and an increase in per capita income. The driving force of overall foreign investment shifted from the original low cost to the current high consumption market. Thus, foreign investment in China gradually moved from the general manufacturing industry to consumer goods and service industries. Even in the manufacturing industry, foreign capital has shifted toward high and new technologies. Recently, the State Council officially approved the establishment of the China (Shanghai) Pilot Free-Trade Zone (FTZ). This is an innovation in the economic opening up model, and incentivizes companies in high-end manufacturing, processing, trade, and warehousing logistics to locate themselves in the FTZ. If successfully implemented, this initiative would allow foreign capital to enter industries that used to be monopolized or had a high approval threshold. We think this will bring us new business opportunities. Nowadays, an increasing number of foreigners are coming to invest in China. Especially in recent years, I have seen more and more foreign investors and less and less usable land in Shanghai. Over the past few years, I have to say that there have been plenty of changes to overseas investment here in China. That is due to many factors such as government policies, cost, development of local private companies, and an economic decline No.2(6), 2014

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the Eastern part it is more difficult. The Central and Western parts of China are underdeveloped and quite in need of investment, so policies are more favorable and the market there is more promising. In the East, it is very well developed; the market entry threshold is high, with fewer preferential policies and less of a demographic dividend. In first and second tier cities, there is an abundance of information and talent. There are government services, simplified procedures, and many consulting companies. Investors should seek advice as much as they can, according to the characteristics of the industry. They could speak with successful foreign investors in China, and learn about best practices. The investment environment now is much better and has greater opportunities. Government authorities welcome newcomers and provide a friendly business environment and effective guidance to help these newcomers in the right direction. However, there are still many areas that need increased investor input, like protection of IPR, bridging the gap in language, culture, and ways of thinking, as well as dealing with flexible market conditions. Investment costs are rising for those who want to start a business here. Foreign companies without unique, competitive products and services will find it difficult to establish themselves in the Chinese market. What industries in China are the most popular among foreign investors and businessmen? And what industry is suffering from not enough foreign investment? The most popular is definitely the service industry. But I have also seen a lot of investment in the manufacturing industry, like in machinery, auto parts, electronics, and others like pharmaceuticals, food, daily necessities and others related to people’s livelihood. Additionally, more foreign-funded restaurants and department stores are coming to China. But we hardly see any foreign capital in municipal facility construction, real estate, financial investment, energy, communication, etc. It seems that no overseas capital has come to elderly care yet. Some industries are government-monopolized, but with better policies, foreign investment could also gradually penetrate these industries. This is mainly affected by government policies and personal connections. It should be said that this trend did

impact on them. Foreign investors need to keep these things in mind and make sure preventive measures have been taken and company systems are improved. They need to establish a good corporate image along with strong corporate social responsibility. Talking about laws, how difficult is it for a foreigner to start a business in China? As for the legal aspect, I’m not an expert in that field, so I am unable to give professional advice there. In general, foreign investors should abide by Chinese laws to avoid difficulties. What is more, they will need support from higher level local and central governments. This will avoid the phenomenon in China: ‘I can’t make you successful, but I can make you unsuccessful!’ Overseas investors are mostly from countries with better social and legal systems. Perhaps they think there will be no legal risks as long as they do not violate the law. In fact, legal risks can be caused by many complex factors such as changes to the legal environment, unexpected events, the actions of third parties, other external factors, and illegal employee behavior. Some foreign companies have no legal professionals to recognize and respond to these legal risks. Or misunderstandings occur because of differences in culture, laws, etc. Some foreign enterprises continue using their own management system after entering the Chinese market, and that has legal risks as well. Improper management styles with Chinese employees or improper handling of issues can also lead to other legal risks. Here, stability is of overriding importance, and people tend to protect vulnerable groups when dealing with labor disputes. My suggestion is to hire consultants and lawyers with experience in China so as to avoid legal risks. In addition, as things can be lost in translation, it is quite important for contracts of any form to make clear which language shall prevail in the event of a dispute. As for foreign investors in China, my advice is to make their corporate social responsibilities clear, establish a good corporate image, and enhance legal risk prevention measures. Which regions of the Chinese market are more attractive for newcomers? For newcomers, it would be easier to invest in the Central and Western regions, while in 86

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Localization is an absolute requirement if you want to invest in China. Localized thinking, business models, and cooperation models are all necessary. People must have a clear understanding of the investment environment in China if they want to do business here. Nowadays, China is no longer a country that welcomes low-end manufacturing or labor-intensive enterprises. Companies whose secret weapon is still low costs are not suitable for China anymore

speaking, it would be best if both sides could fulfill their obligations and take advantage of their own strengths. Objectively, foreign companies have corporate management expertise as their advantage, or hold a certain valuable core technology. On the Chinese side, our strength is a full understanding of the local market, support and assistance from government authorities, and personal connections. As far as we are concerned, what I expect is a long-term strategic partnership. The main criterion is that you must have great products. Take one of our projects as an example, the George Fisher project in Suzhou – from Suzhou Industrial Park to Kunshan, from Phase I to Phase IV, from new projects to expansion projects – we have maintained a long-term, friendly cooperation based on trust. As for the ideal overseas partners, I am lucky that my clients are all wonderful. There have been disputes, misunderstandings, and moments when we could not stand each other, but we always have mutual respect and mutual support. Our differences and disputes were resolved based on long-standing friendships and we remained friends afterwards. I think the luckiest thing for me is to encounter this kind of precious cooperation. The foreign companies that I’ve worked with always communicate with full transparency and strive for mutual trust. Even if it is just a bid, they will clarify that it does not necessarily mean they will give the project to us. Also, they never consider themselves superior to us. What they expect is to complete a project by working together. From the very beginning of the bidding process, counterparts from both parties start to sit down and discuss how to proceed and how to solve problems through joint efforts, as well as how to optimize schemes. During the process of cooperation, both sides are on an equal footing. I believe that is the most important aspect – only a project done with your whole heart will be

not go through big changes in the last 15 years, but I believe more sectors will gradually open up. My advice is to refer to our new administration’s related regulations, especially information about the 3rd Plenary Session this year and CCTV news. All of this will give investors a better understanding of the latest policies and trends, and increase the possibility of seizing opportunities. What does the Chinese market expect from foreign businessman? Foreign investment is one of the three engines of China’s economic development and will definitely win respect and support. Investment by overseas entrepreneurs is very welcome here, especially by local government officials. It is especially welcome in development zones. Those government officials will provide support and guidance, coordinate between companies and the local authorities, and assist with tax breaks. A sound investment environment will bring economic benefits and encourage a good employment environment. I think this is long-term friendly and will lead to mutually beneficial cooperation. First, our market aspires to entice overseas entrepreneurs to bring more high-tech processes to China. These could include more techniques that promote our rapid development such as biological, medical, and environmental protection-related technologies, as well as the introduction of lifestyle-related designs, e.g., clothing, food, and art. The Chinese market will absolutely hope for the localization of foreign-invested enterprises, which could retain their advanced overseas management style while integrating into the Chinese culture. What business partnerships is China looking for? What are the criteria for an ideal foreign partner setting up a business in China? Do you have any real-life examples? As for what business partnerships China is looking for, I think people from different industries will have different opinions. Generally No.2(6), 2014

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a good project. Similarly, only the partner that works with his whole heart is a true partner. What is the attitude among Chinese businesses towards foreign managers? Do they welcome business competition of this sort? With constant in-depth reform of China’s market economy, our business community has become increasingly open and free. It should be said that the Chinese business community, myself included, welcomes foreign managers to complement us or add to our tech and capital strength. We like this kind of fair and healthy business competition; it will bring more vitality and momentum. It should be said that the pressure coming from healthy competition is the driving force of development, so the business community here will not object to some healthy competition. As for the overseas executives, we always respect them. Their advanced expertise and self-motivation are worth learning. In this golden time for the Chinese market, I’m convinced that excellent business models will be created through mutual respect of Eastern and Western cultures to finally reach a common ground. China is a hospitable nation – as our proverb goes: ‘Isn’t it a delight to have friends coming from afar!’ What is the definition of success to a foreigner on the Chinese market? The best entrepreneurs should be those whose companies have earned a good reputation, and become high quality companies that contribute to social and human development. Only after that will society begin to see who is running those businesses. No matter if it is a foreign or a domestic company, the biggest success comes from mutual benefit and cooperation. Success means profits for the company, making good friends, and long-term development. Success should mean becoming leaders among overseas entrepreneurs in China. Both the overseas and the domestic sides should be humble and seek mutually beneficial cooperation rather than defeating the opponent, which causes severe damage to both sides. Both sides should remain both competitors and friends, and seek joint progress by enhancing each other’s strengths. Nowadays, why not spend the time that you used to find enemies to think about how to find good partners and start creative

The Chinese market entices overseas entrepreneurs to bring more high-tech processes. These could include more techniques that promote our rapid development such as biological, medical, and environmental protection-related technologies, as well as the introduction of lifestyle-related designs, e.g., clothing, food, and art

cooperation strategies, and then bring excellent service to consumers? Chinese culture values hard work, courage, wisdom, and hospitality. We welcome competitors who are also friends, and we wish them success and mutual progress. Do many foreigners achieve success? Do you have any data about the amount of businessmen who come to China with the idea of setting up a business and were ultimately successful? It should be said that the majority of foreign investors here are successful, significantly contributing to the development of our local companies and serving as good references for us. But I am unable to provide any specific data on this. Many companies from Japan, Europe, and America that I have worked with have strong growth trajectories. I also know of many companies that were successful here, but were not as successful in other countries or even their home countries. Of course, entrance into the Chinese market does not guarantee success. That requires smart leadership, localized development strategies, and excellent management. I also know of some foreign-funded companies that have been in China for more than a decade without any significant business expansion. They themselves are aware of this problem, but suffer from failing to find the right people or are unable to make the right decision at the right time. Do you have any advice that you would give to a businessman who decided to enter the Chinese market? At present, resources have been quite stable and mature in China’s first and second tier cities. Foreign entrepreneurs could first get to know local enterprises through various platforms, and then exchange ideas with each other. This will help solidify plans and goals. 88

Learning the Art of Friendship

The key is to combine the best elements of foreign cultures with China’s, and to develop by seizing opportunities in an emerging economy with a huge consumption market. It is now or never! In your opinion, are there any cultural stereotypes about China and the Chinese work ethic that you would consider harmful? Ten years ago, Chinese laws were not well developed. As there were a lot of market opportunities, business owners might have resorted to some questionable methods to maximize profits, both for their personal gain and for the survival of their companies. In recent years, with the gradual improvement of market mechanisms, the investment environment has become increasingly friendly. But currently, there are still some phenomena that need to be improved – for example, serious corruption. The market is not well regulated in some places – people do not always abide by the law and law enforcement is not strict enough, monopoly is a serious problem, and there are collisions between Eastern and Western cultures. For instance, many Chinese corruption cases involve foreign-funded companies like the bribery incidents of Siemens, Lucent, Rio Tinto, and Avon. All these cases have shown that foreign companies boasting strict management can actually be hard-hit by bribery, just like in the GSK bribery incident that occurred recently. I think all of these incidents have reflected the aforementioned problems and defects. Foreign companies have to be extremely careful if they hire local Chinese executives, as some individuals have terrible professional and personal ethics, which will harm the whole company’s interests. Those companies have to be aware that some government authorities are difficult to deal with, have unreasonably high thresholds, or that people there can be quite arrogant and unfriendly. But China’s current anti-corruption initiative is stronger than ever before, so the market will improve with better regulation, as the current trend shows. With further economic opening up to the world, Chinese and foreign companies will be better, and Eastern and Western cultures and management philosophies will be better integrated. I believe foreign investors will grow and thrive in this healthier environment.

My suggestion is that you be strong in both technology and personality – you need to make friends and broaden channels, you need to establish partnerships, and you need to maintain good relationships with government authority leaders. Localization is an absolute requirement if you want to invest in China. Localized thinking, business models, and cooperation models are all necessary. People must have a clear understanding of the investment environment in China if they want to do business here. Nowadays, China is no longer a country that welcomes low-end manufacturing or labor-intensive enterprises. Companies whose secret weapon is still low costs are not suitable for China anymore. Plus, the investment environment here is flexible and fast changing, which requires a quick response and flexible strategies. In addition to exclusively foreign-funded enterprises, they could also consider joint ventures. This would help them more quickly learn about the Chinese mentality and integrate into the Chinese business culture. Their business could expand into the Chinese business partner’s channels while they provide the Chinese partner with technical support and management improvement. Thus, both sides could benefit from one another and develop simultaneously. If it is about large-scale enterprises, they’ll talk about cooperation through formal negotiations; if it is about small-scale or personal business, I would suggest that both the foreign and Chinese parties start cooperation with a specific, earlystage project. Then, according to resources, a joint venture investment could be considered after a mutual understanding is established. After joining the WTO, China’s economy has continued opening up and integrating into the international economy. Thus, it has become easier for foreign capital to flow into the Chinese market. In addition to the ever-popular secondary industry, foreign funds could also flow into the financial and securities sectors, as well as other industries. As the Chinese market continues to mature, what follows is improved regulation and increasing labor costs, environmental protection, and other requirements. All this requires foreign companies to enhance their strengths and discover real opportunities. No.2(6), 2014

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Billions Online Serge Hoffmann and Pierre-Laurent Wetli Last year will enter history as the year when China surpassed the United States and became the largest e-commerce market in the world. Serge Hoffman and Pierre Laurent Vetli paint the profile of a typical Chinese online shopper and provide insights on how this consumer trend can make businesses money.

The year 2013 will be remembered as the one in which China surpassed the US as the world’s largest digital retail market. Each year delivers impressive growth as China’s shoppers heartily embrace e-commerce. Online sales are expected to continue on their amazing trajectory, reaching 3.3 trillion yuan by 2015. To better understand how Chinese consumers shop and purchase online – and the implications for retailers and brands – Bain & Company surveyed more than 1,300 online shoppers across China. Among our findings are that Chinese shoppers have been more willing than those in other markets to use their smartphones to make purchases, and that they are comfortable with third-party payments and online banking. But perhaps most important, we learned that digital retailing now is the major influence on their actual purchasing decisions. In a surprising finding, more than half of those surveyed said that, regardless of where they end up making the purchase – online or in the physical store – they browse websites and make price comparisons before they buy. Such distinctive behavior is reflected in the quick popularity of Etao, a website that allows consumers to compare prices and then quickly navigate to the e-store offering the best one. And nearly 70% of shoppers who bought online first went to a physical store to see the product and make their selection. Because Chinese shoppers move easily between physical stores and online options, online sites support brick-and-mortar store sales, and vice versa.

HOW CHINA’S ONLINE SHOPPERS ARE DIFFERENT

Chinese shoppers are coming into sharper focus: ŦŦ Instead of showing exclusive loyalty to a single brand, in most categories they tend to choose from multiple brands for the same need or occasion. They not only tend to buy multiple brands, but they also buy from different e-commerce stores. ŦŦ They are bargain hunters. Half of those surveyed said price was the number one reason for going online. ŦŦ More than 60% of surveyed shoppers said they relied on smartphones to browse or buy products. ŦŦ They purchase massive numbers of products on overseas sites – for lower prices, or when they have health concerns, or when they want to ensure a product is genuine. ŦŦ They usually start shopping online with inexpensive apparel like t-shirts and then move on to bigger-ticket categories. PURE PLAYS DOMINATE

As it explodes, China’s digital market is also making a dramatic shift from consumerto-consumer (C2C) sites like Taobao – which introduced shoppers to online buying – to business-to-consumer (B2C) sites like Tmall, which respondents told us they trust more than consumer sites. Tmall, where the majority of China’s B2C purchases take place, has deftly shaped online retailing in China.

Serge Hoffmann is Partner at Bain

Pierre-Laurent Wetli is Partner at

& Company in Hong Kong, Consumer

Bain & Company in Moscow,

Products and Retail practice.

Consumer Products and Retail practice.

Billions Online

The digital density of a category differs by its characteristics

Mid digital density

Low digital density

Low

Standardized/able to be described clearly • Standardized product • Easy to depict and compare with photo and numbers • Need for touch and feel • If credible and dominant brands exist Convenience • Ship to assigned destination • Weight and size • Ease of purchasing elsewhere Number of SKUs

High

Consumer needs

High digital density

Home care and personal care* Packaged food and beverage*

Books and video Apparel

Home appliances

Category’s e-commerce size

Consumer electronics

Mom and baby

Cosmetics and skincare Low

RMB ~150B

High

Players’ ability to deliver: • Feasibility of supply chain at reasonable cost • Change and return to possibility • The willingness of existing brick-and-mortar retailers and brand owners to get online

This can be a good indicator for brick-and-mortar players to think about the reasonable omnichannel investment for their category

* Size of ‘packaged food and beverage‘ and ‘home and personal care‘ are illustrative only. Source: Bain & Company.

Online-only pure plays lead the market over omni-channel retailers – those with both a physical and online presence. Four factors contribute to a pure play’s success: 1. Building scale for the price sensitive. Winners create enough scale to allow them to offer lower prices. But scale alone won’t suffice without a winning value proposition. 2. Streamlining the assortment and price for a differentiated portfolio. Some pure plays win by offering a well-priced product portfolio that differentiates them from the pack, focusing on areas such as luxury fashions or mothers and infants. Redbaby and Blue Nile adopted this approach, which led to their early success. 3. Honing a profitable business model. Companies need to have the resources to invest iin areas such as infrastructure and marketing and to cover losses for a long time as they build scale. 4. Creating a strong supply chain. Yihaodian built a sophisticated, self-owned supply chain to handle the complex grocery category. It invested heavily to build an in-house delivery capability to serve the unique needs of grocery distribution, with logistics centers in key markets and an in-house delivery team to serve core cities. No.(6), 2014

THE OMNI-CHANNEL PROMISE

While pure plays dominate, the opportunities are huge for omni-channel merchants. Given its scale and ability to deliver enormous traffic, Tmall serves as a good entry option for brickand-mortar retailers or brands that want to get shoppers comfortable with the experience of buying online. Then retailers can focus on convincing shoppers to make purchases on their own sites. Like their pure play counterparts, omni-channel merchants – retailers and brands alike – need to master some key factors for success: 1. Investing early. Leaders stay ahead by having a clear vision and a strategy that allows them to be the first to invest, either growing organically or making key acquisitions. Most successful brick-and-mortar retailers scale up their digital businesses within two years, and they prepare their organizations for rapid change. Having an early start was critical for Suning, China’s largest omni-channel retailer, in building a digital presence that enhanced its physical operations. The strategy called for developing a user-friendly website with rich content and a heavy technology investment to ensure seamless online and in-store fulfillment. Over time, it expanded categories 91

BUSINESS

online, in its stores and on mobile applications. Suning worked to fully integrate its digital and store channels. By 2012, the retailer had solidified its leadership as the number-two B2C online player. Having an early start was critical. 2. Building a dedicated digital team. A successful team incorporates digital capabilities into different functions. At the outset, the team is often separate from the rest of the organization. After Suning set up its omnichannel vision it established a separate digital team—an independent operation with a highly entrepreneurial culture. 3. Investing in a world-class website. Companies work with third-party website developers to speed the process. Apparel brand and retailer Uniqlo outsourced development for both its official Uniqlo site and another on Tmall. Web giant Taobao provides the ordering and payment systems. Such outsourcing accelerated Uniqlo’s online launch by tapping partners’. 4. Expertly managing assortments and price. Some apparel companies feature a full range of items with prices in line with those in its physical stores. But brands also use sites such as Jingdong (also known as jd.com) to offer lowerprice deals on a limited variety of products. Retailers must master the art of using pricing and merchandising to differentiate themselves from pure plays. 5. Developing a seamless cross-channel experience. Winners create an enriched shopping experience by integrating their online, mobile, and social-media presence and taking full advantage of their stores. For example, they can allow shoppers to return online purchases to a nearby store. Or shoppers can check a store’s inventory online or log onto a terminal in a store to make a purchase. The bottom line is straightforward: As digital retailing sweeps China, brick-and-mortar retailers and brands are well positioned to exploit a tremendous opportunity. But they need to act quickly and thoughtfully to wed offline and online strengths. Otherwise, they risk becoming irrelevant over time.

THE TMALL PHENOMENON As retailers and brands frame their strategies, they can’ t minimize the importance of Tmall, the dominant site where the majority of China’s B2C purchases take place. Tmall generated revenues of RMB 180 billion in 2012, and the site has deftly shaped online retailing in China. Consider its iconic 11.11 digital retail event, in which shoppers are offered up to 50% discounts on most products. The single 24-hour period in November fully delivered 7% of Tmall’s annual revenues in 2012, according to company reports. By the end of the day, 213 million unique visitors had logged on, the company reported, accounting for 106 million transactions. A presence on Tmall is critical for any merchant trying to establish a foothold with China’s online shoppers. Given its scale and ability to deliver enormous traffic, Tmall serves as a good entry option for brick-and-mortar retailers or brands that want to get shoppers comfortable with the experience of buying online. Then retailers can focus on convincing shoppers to make purchases on their own sites. Trouble is, our survey found that consumers often confuse flagship stores on Tmall with retailers’ own e-commerce sites. The challenge is to clearly differentiate the retailer’s e-store from its Tmall offering. Ultimately, Tmall helps everybody grow, and fast. Its 11-11 digital holiday creates a halo effect that makes those 24 hours an exciting time for all online retailers in China.

BUSINESS

A Trap for Africa Ndubuisi Ekekwe Internet and mobile communications may seem like a door to the future, but today they present a roadblock that may impede the development of an entire continent.

information societies – made up of electronically linked citizens, companies, and states – will certainly be driven by the capabilities that ICT provides. In both the private and public sectors, the penetration of ICT has been positive in Africa. Expectedly, governments have responded by anchoring most of their socio-economic development plans on ICT. Technology policy has since morphed into ICT policy with the creation of ICT cabinet positions in most African countries. The argument is that ICT is the pathway upon which government can deliver better services to the citizens. Accordingly, budgets at federal and local levels have been expanded for ICT. Africa needs ICT-driven productivity in its economy as it integrates people, processes, and tools more efficiently. Yet the continent must

In Africa, information and communi cation technology (ICT) is playing a key role in redesigning the structure of the economy. ICT is enabling new lifestyles and business methods by harnessing the ubiquity of mobile phones in the region. From banking to farming and from education to entertainment, its effects are visible as it drives more efficient business processes across industrial sectors. The African Union agenda to transform the continent into a knowledge economy comprising networks of Ndubuisi Ekekwe is Founder of the non-profit African Institution of Technology.

A Trap for Africa

Africa must find ways to overcome its history of adopting technologies with no plans for adaptation or transfer. From the diamond mines in South Africa to the crude oil rigs in Nigeria, GDP across Africa is dependent on foreign companies – the continent lacks the local competence to harness its own resources despite decades of participation. A continent that offers more mobile apps for agricultural competitions than for new farming techniques must examine its priorities

learn how to configure routers, the creators of the platforms like iOS (Apple), Android (Google), and microchips (Qualcomm) control the ecosystems. That is why you must renew, re-purchase, and relicense seasonably at the downstream level. Africa cannot bridge the ICT gap with the Western world through ICT importation – ICT is a by-product of many other technologies like semiconductors, microelectronics, and metallurgy. In nearly all advanced countries, there is a carefully executed master plan with government intervention programs that stimulate the areas where private sectors seldom lead. The US funded MOSIS through DARPA, which enabled private companies, universities, and research labs to drive innovations in integrated circuit designs by removing the burdens to own and operate expensive foundries. The Europractice program, funded by the European Commission, is the European equivalent. Many other governments – including Canada, Brazil, Russia, and China – have similar programs. Africa needs to understand that invitation letters to Intel and Qualcomm will not replace their salesmen with their designers. Only policies focusing on education, training, and infrastructural development will make that transformation possible. The continent needs to tap into more than just its ICT abilities. In Nigeria, my non-profit – with the support of the Tony Elumelu Foundation – is mapping the innovation ecosystem. It is very possible that Nigeria has the latent potential to become a leader in this area if it can compete on the creative side. It is knowledge like this that can lead to economic improvement if governments pay attention to non-ICT ventures.

look further than ICT if it wants an economy that will be competitive and to be a destination where top global technology companies will open offices to create innovations, not merely to expand sales networks. The continent must find ways to overcome its history of adopting technologies with no plans for adaptation or transfer. From the diamond mines in South Africa to the crude oil rigs in Nigeria, GDP across Africa is dependent on foreign companies – the continent lacks the local competence to harness its own resources despite decades of participation. A continent that offers more mobile apps for agricultural competitions than for new farming techniques must examine its priorities. Africa needs to look at countries that have developed strong, creative ICT capabilities. In these countries, they build up both the downstream and the upstream levels of technology. They create a massive knowledge base in the upstream level, which serves as a platform, and then use the downstream elements to distribute them. When nations focus solely on the downstream, they will never have the ability to transition to the upstream where core innovations are actually being created. When our graduates toil to make mobile apps and No.2(6), 2014

BUSINESS

Digital Continent Nzube Ufodike Africa is on the verge of an online revolution, and the first stage is already underway. Businesses, especially international ones, stand a great chance of striking gold if they can get in on this trend now.

In terms of numbers, the growth forecast is staggering. In 2013, Internet penetration within the continent stood at 16%; by 2025, this is expected to have risen to 50%. This translates to a rise from 167 million Internet users in 2013 to an estimated 600 million users by 2025. To put that into perspective, the online consumer market will roughly quadruple in size over the next 12 years. This equates to a rise in the Internet’s contribution to GDP (iGDP) from $18 billion to $300 billion. Such rapid economic growth will inevitably increase global and domestic interest from companies looking to tap into the growth of new users and their online global brand preferences. While there is value in examining and reviewing the continent as a whole, it is also important to understand how individual markets will develop, and at what pace. Ethiopia and Senegal are a case in point. On one side of the spectrum is Ethiopia with an iGDP of 0.6%. On the other hand, Senegal’s iGDP stands at 3.3%, which is much closer to that of developed economies. The McKinsey report suggests that Africa’s iGDP as a whole could accelerate to 5-6%, which would be on par with Taiwan, the UK, and Sweden. Just achieving this would be a success story for Africa, but some forecast that iGDP could grow by 10% to reach $300 billion by 2025. This forecast would produce a corresponding effect on online private consumption, increasing it to $154 billion across the continent by 2015. Although such forecasts provide a very positive

Africa, the world’s second largest and second most populous continent, is entering a digital revolution, which is as complex as it is exciting. Propelled by social, economic, and political changes, this transition goes hand in hand with a move towards urbanization. However, these are not the only factors driving the emergence of the digital economy. It is important to examine and analyze Africa’s path towards digitalization and focus upon the economic changes and future opportunities likely to arise from it. In doing so, the findings of a McKinsey & Company 2013 report, Lions go digital: The Internet’s transformative potential in Africa, (referred to hereafter as The McKinsey report) is quite helpful. CURRENT AND EXPECTED GROWTH

The potential of the African continent cannot be underestimated. In order to understand this, it is imperative to understand the continent’s current socio-economic status. The McKinsey report suggests that despite Africa’s current underutilization of technology and its suppressed Internet capacity, this is set to shift significantly in the coming two decades.

Nzube Ufodike is Director of Amoo Venture Capital Advisory, Co-Founder of place4BRICS.

Digital Continent

indication of growth, this will not be achieved on its own. At present, public expenditure on Internet access is approximately $3 per capita. However, on the basis of current proposed information and communications technology (ICT) strategies across Africa, public expenditure exceeds $150 per capita. Although this level of investment would still lag behind developed nations, it would exceed that of Brazil. If this were to be achieved, it would stimulate and act as a catalyst for private sector investment and underpin an upsurge from the current $2.45 per capita to $52 per capita.

African tech start-ups, such as Jobberman, moWoza, and Rekindle, are demonstrating a level of sophistication akin to their Western counterparts. This has ignited investment in incubator and start-up networks, resulting in tech ecosystems comparable to those in developed economies. The most notable are Cameroon’s ActivSpaces, Ghana’s MEST, Kenya’s iHub, Liberia’s iLabLiberia, Nigeria’s Wennovation Hub, and South Africa’s JoziHub

countries’ digital growth will be driven almost exclusively, in the short term at least, by private consumption, while in others, the main catalyst will be Business Process Operations (BPO). That said, the continent as a whole is entering a perfect storm in terms of its transition, with a number of key factors taking place.

DRIVERS OF THE TRANSITION

It would be unwise to generalize the attributes of the African economy given the various stages of economic development in each nation. Some No.2(6), 2014

BUSINESS

For the first time in modern history, the increase in surplus income will create a unique opportunity for millions of Africans to engage with, innovate, and spend money on digital technology. This has already happened with the basic smartphone – prices have now dropped below a $100 tipping point, allowing low cost mobile technology access to the masses. Thirdly, there is the entrepreneurial culture. This has emerged as a driving force behind innovation and has also fueled economic development. Thus, the expansion of the Internet has become a launch pad for entrepreneurs and their new innovations. African tech start-ups, such as Jobberman, moWoza, and Rekindle, are demonstrating a level of sophistication akin to their Western

Firstly, there is the demographic advantage. Africa is the world’s most youthful continent with 200 million people between the ages of 15 and 25. This demographic is widely recognized as early adopters of technology. Young people are also receptive to social network engagement, which would mean that the predictions of Internet penetration discussed above are by no means an unrealizable prospect. Secondly, it is necessary to consider the significant increase in incomes. Within a decade, incomes are expected to exceed $5,000 in 128 million households. That income level is the threshold at which households begin to spend half of their income on items other than food – i.e., the advent of a disposable income.

Government information systems online, %

Government departments online, %

Internet use within companies, Index, 0–7

High-speed Internet penetration, % of population

Algeria

103

4.1

0.39

2.5

3.1

Angola

0.6

0.49

0.1

3.4

Cameroon

–

0.6

0.01

4.6

Côte d’Ivoire

–

3.9

Egypt

115

12.2

0.37

1.8

4.6

Ethiopia

0.9

0.40

0.8

3.6

Ghana

100

1.6

0.43

0.2

4.5

Kenya

2.0

0.73

5.0

Morocco

120

5.1

0.50

1.6

4.5

Mozambique

–

0.4

–

0.1

4.5

Nigeria

6.6

0.04

0.1

4.5

Senegal

0.7

0.44

0.6

5.3

South Africa

135

6.3

0.49

1.5

5.3

Tanzania

–

0.7

–

3.8

Online retail penetration, %

Urban Internet penetration, % of population

Facebook users, Millions

Internet penetration, % of population

Mobile penetration, % of population

Penetration and usage vary widely across the continent (data from 2012)

1. Not adjusted for individuals who may own more than one SIM card and may have been counted multiple times. 2. Fixed line only. Source: Internet World Stats; International Telecommunications Union statistical database, 2012; World Economic Forum Global Information technology report 2012; Euromonitor; World Economic Forum Global competitiveness report; McKinsey Global Institute analysis. 98

Digital Continent

counterparts. This has ignited investment in incubator and start-up networks, resulting in tech ecosystems comparable to those in developed economies. The most notable are Cameroon’s ActivSpaces, Ghana’s MEST, Kenya’s iHub, Liberia’s iLabLiberia, Nigeria’s Wennovation Hub, and South Africa’s JoziHub. Global players, such as Microsoft, have moved quickly to form partnerships with leading African incubators to support start-ups. Google has also been active in helping to provide low cost, high-speed wireless broadband in South Africa. On a more basic level, Kenyan non-profit Ushahidi has been developing a device to overcome the pervasive lack of reliable Internet connectivity. This is done via their innovative device, BRCK, which has the ability to switch between power sources and networks seamlessly. An attribute these start-ups all share is ambition – many desire to expand and develop beyond their home country and the African continent. Some of the emerging companies are truly ‘micro-multinationals,’ whose ability to utilize current technology and reach a global audience and market is unparalleled. Fourthly, the above factors have led to a corresponding increase in investment, with Africa undergoing both a deal flow and value transformation. On the ground, local angel investor and venture capital networks are taking shape; they are inspiring confidence in global investors, who are starting to see Africa as a desirable investment haven offering impressive returns. The final key factor is urbanization. Internet access will increase from its current 40% to 50% by 2030, and will be complemented by infrastructural advancement through private and public expenditure, which will increase Internet speeds. Government initiatives and strategic national visions have been instrumental in digitalizing Africa. Following investment from the Kenyan Government, Google Chairman Eric Schmidt commented, “Nairobi has emerged as a serious tech hub and may become the African leader.” Last year, the Rockefeller Foundation hosted a meeting in New York focusing on the economic opportunities arising from Africa’s digital No.2(6), 2014

Senegal and Kenya are leading the way on the continent

iGDP by country, 2012

Sweden

6.3

United Kingdom

5.4

Taiwan

5.4

South Korea

4.6

Malaysia

4.1

The Internet’s contribution to GDP (iGDP) is much lower in Africa, % of GDP, 2012

3.7

3.4х 3.7

Africa

Emerging countries

Developed economies

1.1

3.9

United States

3.8

Senegal

3.3

India

3.2

Germany

3.2

France

3.1

Kenya

2.9

Canada

2.7

China

2.6

Morocco

2.3

Argentina

2.2

Italy

1.7

Mozambique

1.6

Brazil

1.5

South Africa

1.4

Côte d’Ivoire

1.3

Tanzania

1.3

Cameroon

1.2

Ghana

1.1

Mexico

1.0

Egypt

1.0

Vietnam

0.9

Turkey

0.9

Russia 0.8 Algeria

0.5

1.1

Nigeria

0.5

1.5

Ethiopia 0.6 Angola

0.5

iGDP adjusted for oil revenues.

Japan 4.0 Hungary

1.2

1. GDP appraised by expenditure method, with a share of each category attributed to the Internet. 2. Aspiring countries data is from 2010. Sourse: Gartner; IHS Global Insight; Organization for Economic Cooperation and Development; International Telecommunication Union; International Data Corporation; World Health Organization; ICD Research; iConsumer US 2012; Euromonitor; H2 Gambling Capital; PhoCusWright; Pyramid Research; UNESCO; McKinsey Global Institute analysis. 99

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Africa lags behind other regions in education

INDICATOR

Access

Quality

METRIC

Enrollment rates Enrollment rates in: primary (net) secondary (net) tertiary (gross)

Student-teacher ratio Average number of students per teacher (in primary school)

Africa

-69%

94 88

Asia 54

23 -24%

Europe

The Americas

76 38

-35%

75 40

-35%

1. Data from 2010. 2. Asia includes the Middle East and Oceanic countries; the Americas includes North America, South America, and the Caribbean. Source: World Bank; McKinsey Global Institute analysis.

transition. One significant theme was capturing the outsourcing market, which is worth an estimated $512 billion. Until recently, this was a market that Africa was unable to substantively tap into. Developed nations outsourcing to developing nations can save up to 40%. If Africa were able to fully realize its potential, youth incomes could rise by 200%, with a similar effect on education and future opportunities. SECTOR SPECIFIC ANALYSIS

The effects of digitalization will be profound, with particular benefits in the following sectors: Finance. Given that only one-fourth of the adult population in sub-Saharan Africa has a bank account, the growing penetration of Internet and technology will have an unprecedented effect on financial inclusion. This can already be seen with the success of companies such as M-Pesa, a mobile phone-based money transfer and microfinancing 100

service. Digitalization will apply a downward pressure on transaction costs, encouraging micro trades and stimulating growth. If forecasts are accurate and technological advances continue along current trends, 60% of Africans will have access to banking services by 2025, and more than 90% will be using e-wallets for daily transactions. Financial inclusion will be a driving force behind economic development and could facilitate a boom in e-commerce. For instance, m-Shwari and m-Kesho, both of the M-Pesa suite of products, provide access to savings and insurance and micro-credit facilities respectively via mobile phones. Education. Digitalization will remove physical barriers and make education more accessible. Digital tools will also empower individuals to take charge of their own educational needs by delivering instant access to educational resources, enhanced teacher training, and improved learning outcomes. Health. The sheer size of Africa has often been cited as an obstacle to health services. With only 1.1Â doctors per 1,000 patients and 2.7 nurses per 1,000 patients, providing healthcare is a major problem. It is envisaged that technology will allow users to interact online with healthcare service providers so that centralized services become more efficient and effective. Some benefits can already be seen with mPedigree, a company that seeks to reduce product counterfeiting. Consumers in West Africa can now send an SMS to verify if the medicines they are about to purchase are fakes. It is estimated that aÂ technology-driven healthcare system could save Africa between $84 billion and $188 billion per year. Retail. Traditional forms of retail in Africa have suffered and remained undeveloped. But e-commerce, bolstered by financial inclusion, could replace traditional retail shops by offering a new shopping experience in terms of choice, quality, and cost. Online retailers can often offer customers savings of approximately 10% compared to traditional stores. Agriculture. Digital tools will provide this industry with the necessary data to drive growth, efficiency, and economies of scale. The Internet will provide access to data on weather, crop selection, and pest control, and enable users to make informed decisions on land management.

Digital Continent

INDICATOR METRIC

Africa lags behind other regions on key health indicators

Life expectancy of the population at birth

Under-5 mortality rate

Maternal mortality rate

Life expectancy of the population at birth (years)

Number of deaths of children under five, per 1,000 live births

Number of deaths of mothers, per 100,000 births

Africa

Asia

Europe

The

AIDS prevalence

Health-care workers

Percent of the population aged 15-49 with HIV/ AIDS

Workers per 1,000 persons

354

1.1

5.2

2.7 1.6

0.3

Doctors Nurses

4.0 3.3

0.3

7.5 1.5

0.9

3.2

Americas -14%

-67%

-76%

1. Life expectancy, under-5 mortality rates, and AIDS prevalence

-83%

+31%

+17%

2. Asia includes the Middle East and Oceanic countries;

data from 2010; maternal motarlity data from 2008.

the Americas includes North America, South America, and the Caribbean.

Source: World Bank; World Health Organization; McKinsey Global Institute analysis.

Consequently, this will reduce costs for both businesses and consumers.

Furthermore, it is likely to lead to access to new markets and reduce food prices. The African Development Bank Group has calculated that growth in the agricultural sector is twice as effective at reducing poverty than growth in any other sector. A leader in this sector is the Ethiopia Commodity Exchange (ECX), which has leveraged technology to create an efficient modern trading system. The ECX, set up five years ago, is now the largest commodity exchange in Africa.

THE FUTURE

The economic prospects outlined above will inspire confidence. However, this should be considered within the landscape of inherent uncertainty risks. Although forecasts of economic growth are based on data and empirical evidence, they are by no means guaranteed. In order for predictions to be achieved, the following conditions must be met: 1. Network Infrastructure must continue to develop and the cost of devices must continue to fall or remain stable; 2. Access to capital must increase; 3. ICT strategies must be developed to accommodate security of servers and online transactions; 4. A strong ecosystem must be developed; and 5. Government initiatives must have a coherent vision and political foresight.

MACRO BENEFITS

MGI Research found that Internet maturity correlates with higher living standards and has a positive effect on healthcare, education, and social mobility. The digital economy will also result in increases in productivity. As costs come down, access to cloud computing, secure storage, enhanced software, email, and enterprise systems (such as payroll and billing) will become commonplace. No.2(6), 2014

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New Lagoon Monty Munford

banks. It survives because of an international money wire service called Dahabshiil, which allows the global Somaliland diaspora to send money back to the country. It also has crystal-clear mobile coverage and a buoyant mobile sector of five operators. Across the continent in West Africa, the cities of Lagos in Nigeria and Accra in Ghana are becoming mini-Silicon Valleys as, thanks to government support, clusters of start-up tech companies are forming and attracting big international investment. “Technology has enabled a new generation of creators and innovators emerging from the African continent to come up with inventive ideas that solve local problems,” says Rudy De Waele, CEO and co-founder of Nyota Media, an agency for African entrepreneurs. “The tools to do so have never been more accessible and lowcost in tech history and [they have] created new possibilities for African talent to start any project of their dreams.” Africa has a long way to go to change the minds and attitudes of those who worry about starving on Ethiopian Airlines flights, but the notion of Africa as hungry is changing – it is not hungry for food, but hungry for success, as these three profiles prove.

Air stewardesses in Addis Ababa are always happy to talk about their work for Ethiopian Airlines. They tell of passengers who board the aircraft and ask, “Will there be any food on the flight?” believing that the country’s 1983-85 famine is a permanent feature of the country’s existence. Ethiopia is actually a verdant and pastoral country, but such stories highlight the misconceptions about Africa that persist in defining a continent. Three decades on and a lot has changed. Africa is continuing to throw off its post-colonial cloak to become the world’s fastest-growing group of economies. The reason for much of this explosive growth is the mobile phone and the internet. According to analyst ABI, in 2012, 76.4% of Africans owned a mobile phone. That’s 821 million out of a population of more than a billion people; this mobile penetration rate almost certainly surpassed 80% in 2013. This revolution has created extraordinary things. In Kenya, a mobile money service set up in 2007, known as M-Pesa, accounted for more than 31% of Kenya’s GDP across more than 19 million customers by 2012. Somaliland is an unrecognized (but democratic) country between Ethiopia and Somalia that has no 102

Monty Munford / The Independent / The Interview People

The consumer technology boom is no longer restricted to San Francisco. Monty Munford meets three African entrepreneurs who are breaking boundaries across their continent.

New Lagoon

GHANA JASON BOSSMAN

Jason Bossman has a great surname. As the founder of Ghanaian mobile ad start-up AdsBrook, it might be handy when it comes to making deals. His company is based in the country’s capital, Accra, but this is not Bossman’s home town; he didn’t come to Ghana until he was in his late teens, after growing up in New York. When I met him at a bar in Lagos last year, his stories of the mischief he got caught up in when young perhaps vindicate his parents’ decision to take the family back to the homeland. “My memories of growing up in Harlem have grown fuzzy over time, but I distinctly remember a few things from my childhood: the apartment buildings where we lived, blaring music from street corners, facing-off with school bullies, and other criminal temptations. “I have three brothers and sisters and our parents tried to instill in us from a young age good, solid, Christian values. The desire to bring up their kids with strong African and Christian morals would have been seriously put to the test in that particular environment – East Harlem in the late 1990s. I’m not surprised my folks decided to move us back,” he says. It must have been tough for a New York kid to leave his friends and relocate at that age. “When we arrived in our home country, the last thing I expected was that I would grow to love the life I would eventually have over here. What did greet me, though, was a big culture shock. As used as I was to the American – no, the New York – way of living, I ruffled many feathers with my attitude, that to me was normal, everyday stuff. “It took up to my second year of university for me to begin to appreciate the simplicity of life in Ghana and to develop what was to later become the driving force to build an advertising business through Ghana and across Africa,” he says. Bossman points to Ghana’s reputation as a politically stable country as a good place to do

business, but it is the strong investment support by entities such as the Accra-based Meltwater Entrepreneurial School of Technology that is just as crucial. They provided the $45,000 in start-up seed financing that gave Bossman and AdsBrook the boost needed to start a network of channels for advertisers to operate mobile and online campaigns. Founded in early 2012, the company is already making a profit and beginning to roll out outside Ghana. “Starting a business in Ghana is ideal for a startup, because the country is well connected to most of the key locations – but with all things being equal, good start-up companies should be able to flourish anywhere. “For me, staying focused on the dream, and living that dream one day at a time, is mostly what has helped me out of many a daunting situation. Like many other entrepreneurs before us, we are simply trying to make a small piece of our world better, hoping that eventually our pieces of the puzzle will come together to make a whole,” he says.

“When we arrived in our home country, the last thing I expected was that I would grow to love the life I would eventually have over here. What did greet me, though, was a big culture shock. As used as I was to the American – no, the New York – way of living, I ruffled many feathers with my attitude, that to me was normal, everyday stuff” No.2(6), 2014

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The AIM Group in Tanzania was founded in Dar es Salaam by three siblings: Nadeem Juma, Shaista Juma, and Hafiz Juma. The company initially focused on infrastructure deployments that made use of digital content such as interactive kiosks, motion-controlled projections, and installations. It is now involved in a number of projects, including the Dar es Salaam International Academy and Efulusi Africa, a research and development company for mobile payment solutions. “We are fifth-generation Tanzanians – we can trace our roots in the country to at least 1890, Juma tells me. “We are of Indian descent and make up a minority of Indian Tanzanians, who have a complicated history in themselves.” Juma studied in New York before co-founding Efulusi Africa in 2004, a company that deployed the first mobile banking platform in Tanzania. Then, in 2011, he created the AIM Group. In the past 18 months, the company has grown from a team of three to 25. This success apart, the tech environment in Tanzania is still emerging compared to its neighbor, Kenya, which attracts money, investment, and development by IT behemoths such as IBM. The company’s recent launch of IBM Research-Africa, in Nairobi, is the company’s 12th global laboratory and the first commercial research lab on the continent. Juma recognizes that Kenya is ahead of Tanzania in tech and economic development. “As a Tanzanian, I probably shouldn’t be saying this,

but we definitely face stiff competition from Kenya that has begun the process of creating a culture for innovation. It also has a much more educated working population, so you will often see Kenyans in management positions in Tanzania,” he says. But Tanzania is also putting itself on the international stage through events such as the highly influential TEDx talks that have proliferated around the world. Juma was instrumental in setting up the first TEDxDar event in 2010. “It is one of the most satisfying experiences I’ve ever had,” he says. “Economically, Tanzania is in a transitional space. Like everywhere else on the continent we are as caught up in the hype of ‘Africa rising,’ it being the next hotbed for growth, the ‘final frontier,’ and all the rest of the conventional rhetoric about investment in the region,” he concludes.

“As a Tanzanian, I probably shouldn’t be saying this, but we definitely face stiff competition from Kenya that has begun the process of creating a culture for innovation. It also has a much more educated working population, so you will often see Kenyans in management positions in Tanzania” 104

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NIGERIA TOMI DAVIES

Tomi Davies is an old-timer. A businessman who has worked for FTSE 100 companies in the UK, the US, and Africa, as well as developing the UK government’s award-winning DirectGov website. He commutes between Lagos and London, and in Nigeria he sits on the board of some of its biggest companies. He also led the Nigerian involvement in the One Laptop Per Child (OLPC) initiative and invests in local startups. “Nigeria has 160 million people with more than 100 million of them using mobile phones daily,” he tells me. “You can see the market potential here. You cannot have a 100-milliondevice market with local demand that won’t inspire innovation,” he says. Davies became interested in Nigeria when the military handed over power to the people in 1999, and he began a series of investments that began with comics, before catching the mobile wave and moving on to seed investment for Nigerian companies. “About a decade ago, just after Nigeria became a democratic country again, a South African friend of mine came up with the idea of a fantasy football league comic, called Supa Strikas.” The idea later blossomed into an animated series shown in 30 countries and by the Disney channel. In 2012, Davies was also one of the co-founders of the Lagos Angel Network that was set up to

provide availability of seed funding for local companies. A group of senior industry executives now invest anything from $6,000-60,000 into startups in the Lagos area. The network started out with a quarterly Dragons’ Den-style pitch event, and now meets monthly for a dinner, during which companies make speed pitches and have the opportunity to meet potential investors. Davies is also confident that the emerging Silicon Valley-style cluster of tech companies will thrive with increased government support. “Silicon Lagoon [Lagos means lagoon] has just been given a boost by the state government with a right-of-way grant to lay fiber all around the city. This project will fuel an already indefatigable entrepreneurial tech environment,” he says.

“Nigeria has 160 million people with more than 100 million of them using mobile phones daily. You can see the market potential here. You cannot have a 100-million-device market with local demand that won’t inspire innovation”

No.2(6), 2014

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The Truth About the Tiger Mother’s Family Kir a Cochr ane

her work, this is obvious. In the living room of her family’s large New York apartment, light streaming through the windows, she is every bit the effusive, encouraging professor, just what you’d expect from someone who has won a teaching award for her work at Yale Law School. Rubenfeld, also a Yale law professor and bestselling author (his thriller The Interpretation of Murder reached No. 1 in the UK), is quite different. Where she is enthusiastic, he is dry and sardonic; where she is clearly keen to ace this interview, he is witty, but much more guarded. His suspicion isn’t surprising. “Jed’s so much more sensible and prudent,” says Chua. “I kept saying: ‘I don’t think this book is going to be controversial, because it has so many studies in it …’ But Jed said: ‘Amy, it’s going to be controversial!’” “She kept imagining it wouldn’t be,” says Rubenfeld. “She felt like the last [book] wouldn’t be either, so …” He lets this notion linger a second. Chua’s memoir might have been more nuanced and self-satirising than some critics suggested,

Amy Chua has been accused of many things – a cruel approach to parenting, gratuitous use of cultural stereotypes, a talent for sensationalism – but cowardice isn’t one of them. She provoked uproar with her 2011 memoir, Battle Hymn of the Tiger Mother, charting her unbending rules for raising her daughters, and spent two years dealing with the fallout, including death threats, racial slurs, and pitchfork-waving calls for her arrest on child-abuse charges. She might, therefore, have been expected to take an easier road with her follow-up. Instead, she and her husband, Jed Rubenfeld, have written The Triple Package, which is devoted to one of the most inflammatory subjects imaginable – why some cultural groups soar ahead in the US (while others, by implication, fail). The book charts how three specific qualities, which they argue are essential to success, are passed down through the generations, often through the family. Chua has said she just wants to be liked, that she doesn’t aim to be controversial, and in person, if not 106

Kira Cochrane / The Guardian / The Interview People

Amy Chua’s account of her strict parenting caused uproar. As her latest book promises to be just as controversial, she and her husband defend their beliefs.

The Truth About the Tiger Mother’s Family

but the firestorm it prompted was completely predictable. It began with a list of child-rearing edicts, including the fact that the couple’s daughters, Sophia and Lulu, were never allowed to attend a sleepover, get any grade less than an A, fail to come first in any class except gym and drama, and had to play the piano or violin. No exceptions, no excuses. It continued through the time she called Sophia “garbage,” and threatened to burn her soft toys. They were pushed to spend so much time practising musical instruments that Rubenfeld once found Sophia’s teeth marks in the piano. With The Triple Package, says Rubenfeld: “I said, the first headlines are going to be that we’re racist, and it’s ridiculous, because the book is the opposite. Nothing to do with skin colour, groups from every possible skin colour, religious and racial background … Nothing to do with genetics. But I said, ‘You’ll see, they’re going to say that, just to be sensational.’” Rubenfeld’s prediction proved accurate again. The book began generating controversy before it was even published, with an article in the New York Post last month calling it “a series of shock-arguments wrapped in self-help tropes and it’s meant to do what racist arguments do: scare people.” That article was headlined “Tiger Mom: Some cultural groups are superior,” an echo of the Wall Street Journal headline that whipped up such a storm around her memoir: “Why Chinese mothers are superior.” Much of the anger around Chua derives from this idea that she considers herself and her culture better than all others – in her memoir she played constantly on perceived differences between Chinese and western parents, tapping into deep anxiety and insecurity about a rising China and the slide of the west. Ideas of superiority are central to her new book too, but she says she hopes after reading The Triple Package, people “don’t think we’re saying some groups are [inherently] better.” She points to the book’s subtitle, “how three unlikely traits explain the rise and fall of cultural groups in America,” and stresses the rise and fall element. The couple are providing “a snapshot of who is doing well right now,” she says. “Twenty years from now it could be somebody different … The big thing for us is – I think we say this – anyone from any background, any ethnicity, can have these qualities. It’s just that if you’re in certain groups, it’s almost like the odds are higher.” No.2(6), 2014

People made fun of Amy’s accent and her looks while she was growing up. “I was an ugly kid, with glasses and braces, and English was my second language, and I remember people saying, ‘Ha, ha, slanty eyes.’ And my mother had a very strong sense of ethnic pride, which was, like: ‘Why do you care what these kids are making fun of you about? We come from the most ancient civilisation, China invented all these things, we have a high culture, who cares what they think?’ So that’s what we call this ethnic armour”

Part of the reason for the changing fortunes of some groups, she says, is the immigrant arc, which suggests first-generation immigrants tend to have exceptional drive, a quality passed on to their kids, “but once you get to the third generation, they’re exactly the same as other Americans. So it’s very dynamic.” As the daughter of Chinese immigrants herself, it was precisely this third generation lapse that Chua was trying to avoid in bringing up her own daughters. In Battle Hymn …, she writes that she was determined “not to raise a soft, entitled child – not to let my family fall.” The Triple Package identifies eight groups that are particularly successful in the US at the moment – Indian, Chinese, Iranian, Lebanese, Nigerian, and Cuban groups, along with Mormons and Jewish people. The couple’s definition of success has riled some readers, revolving, as it does, around the bald data of income and education levels. “We looked at the US census, these income measures,” says Chua, “so very materialistic senses of success, but we’re not saying this is the only way – this doesn’t mean happiness, you know?” Still, for those wishing to be rich and academically successful, the book defines three essential traits that contribute to drive, all passed down at least partly through the family. The first is a superiority complex, the sense that your particular group is exceptional. This belief, “can be religious,” they write, “as in the case of Mormons. It can be rooted in a story about the magnificence of your people’s history and civilisation, as in the case of Chinese or Persians.” They’re aware how dangerous this quality can be – ambivalence surrounds all the triple-package qualities. “Group superiority is the stuff of racism, colonialism, imperialism, Nazism,” they continue. “Yet every one of America’s extremely successful groups fosters a belief in its own superiority.” 107

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“This idea of high expectations,” she says. “The message that my parents sent was definitely, ‘You can be the best student, you are amazing,’ but instead of the more western thing, which is, ‘and we just want you to feel great about yourself ’ they’re like ‘but you haven’t done well enough yet!’ There were very high expectations, and also a big insecurity, in that when my parents came to the US they literally had nothing. I mean, they couldn’t afford heat in Boston, which is colder than London, you know? So it was like, you need to be a good student, because otherwise we may not be able to survive.” When it came to impulse control, she watched her father, a scientist and renowned expert in chaos theory, work until three every morning, “so they didn’t even have to tell me. I used to wake up and my dad was always working.” (Now in his late 70s, her father is still taking up international fellowships, and flying all around the world giving talks.) People made fun of her accent and her looks while she was growing up. “I was an ugly kid, with glasses and braces, and English was my second language, and I remember people saying, ‘Ha, ha, slanty eyes.’ And my mother had a very strong sense of ethnic pride, which was, like: ‘Why do you care what these kids are making fun of you about? We come from the most ancient civilisation, China invented all these things, we have a high culture, who cares what they think?’ So that’s what we call this ethnic armour.” Rubenfeld says he couldn’t have been raised more differently. His grandparents were Jewish immigrants, and his parents, both brought up in Orthodox families in smalltown Pennsylvania, rebelled against their upbringing, and were much more liberal and permissive with their own children. Still, he also grew up watching his father, a psychotherapist, work until 3am. “I would say that my dad was very much what we describe in the book,” he says, “because he was an immigrant’s kid, and very driven, and had this insecurity of the kind we’re describing.” Rubenfeld jokes that he provided the insecurity portion of the book, before talking more seriously about one of the problems associated with the triple package – they have a whole chapter on the pathologies associated with the three traits. “I know that I am unhappier,” he says, “because I always feel like whatever I’ve done is not good enough.

The second essential quality – insecurity – might seem contradictory, but apparently provides the grit in the oyster. “Everyone is probably insecure in one way or another,” they write, “but some groups are more prone to it than others. To be an immigrant is almost by definition to be insecure.” They note that the idea of insecurity as a lever of success is anathema in western society, and that, “the greatest anathema of all would be parents working to instil insecurity in their children. Yet insecurity runs deep in every one of America’s most successful groups, and these groups not only suffer from insecurity; they tend, consciously or unconsciously, to promote it.” Finally, the third quality is impulse control, which they define as the ability to resist temptation. “Against the background of a relatively permissive America,” they write, “some groups decidedly place greater emphasis on impulse control than others.” They write that, while there is now a tendency to romanticise childhood, to see it as a time, ideally, of unfettered happiness, “every one of America’s most successful groups takes a very different view of childhood and of impulse control in general, inculcating habits of discipline from an early age – at least they did so when they were on the rise.” The book is a strange mix. It seems too simplistic to be taken seriously as an academic theory, too dry to fit into the usual notion of a popular ideas book. Much of the deep uneasiness in reading it comes not from what is said about the eight groups in question, but what is unsaid about the hundreds of others. If impulse control is a key marker of success, for instance, then there is an obvious and ugly implication that other groups are simply undisciplined. It seems likely that many groups share the same roster of qualities as the most successful ones – but undermined by a much more difficult history and a different fabric of discrimination. The couple do acknowledge this in the book, and in person, but it feels as if this side of the analysis doesn’t go deep enough. At times, the book reads most obviously as a defence of the tiger parenting Chua espoused in her memoir. She says they didn’t think of it in this way, but that its message is completely consistent with Battle Hymn …, in that it highlights the positive side of inculcating extreme drive – and the negatives. I ask whether she comes from a triple-package background and she says: “One hundred per cent.” How would she define this? 108

The Truth About the Tiger Mother’s Family

It doesn’t matter what I do – so that’s painful, and I worry that I’ve communicated that to my kids.” When Chua published Battle Hymn …, critics noted Rubenfeld’s absence from the book – an absence he had encouraged. This led to questions about how supportive he was of her parenting techniques, and today he says when she started using them he was shocked. But he clearly respected her approach. “That’s not how I was raised, and if I had been a single parent, my kids would probably just be garbage men or something like that. But when I saw her instincts, I was very much in favour of them, because my parents were a little too permissive.” I ask in what way, and he says he wishes his parents had made him learn a musical instrument. Instead, he was given a choice, “between violin lessons or tennis lessons, and I picked tennis, but we didn’t really follow through with that either.” It has to be said, his parents’ approach doesn’t seem to have worked out too shabbily for him. He felt very bad for his wife when the memoir was published, “because she was getting dragged through so many ridiculous accusations, and people didn’t understand – because, in part, she left this out of her book – how much her kids love her. They didn’t understand how much she loves her kids. They didn’t know about the four of us in bed watching TV or reading books, how often we just had fun together. I knew Amy could take it, but I felt bad because the kids were being insulted in the media, so I wanted to hack into the accounts of all the people who were saying that, and go and find them, and do something illegal to them.” Their kids took it all in their stride though. Rubenfeld says he was searching online, “to see what people are saying, and they’re like, ‘Why are you doing that? We don’t care what people are saying!’” Sophia is currently at Harvard and Lulu was recently accepted at Yale. The member of the family who seems to care most about the backlash is Chua; understandably, given that she was the prime target, but surprisingly, given her image. She says she keeps the hate mail she’s received in an email folder entitled “Do not look,” and as a new round has started coming in, she has stuck to this rule. In light of that, it’s surprising she’s put her head above the parapet with this new book – she can’t No.2(6), 2014

The Triple Package identifies eight groups that are particularly successful in the US at the moment – Indian, Chinese, Iranian, Lebanese, Nigerian, and Cuban groups, along with Mormons and Jewish people. The couple’s definition of success has riled some readers, revolving, as it does, around the bald data of income and education levels

really have been oblivious to the likely reaction. Although in her memoir and her new book, Chua traces some of the problems with what could be called, almost interchangeably, triple-package or tiger parenting, there is no doubt she is essentially in favour of it. “Self-control, discipline, resilience,” she says. “I got that from my parents. I remember once, I got rejected. I was trying to get a professor job, and I applied to, like, 500 places, and I think I got 500 rejections, and I called my dad and said: ‘I don’t think I can be a professor.’ He said: ‘Wait, how many rejections did you get?’ And I said ‘500.’ And he said: ‘You got 500 rejections, and you want to give up? You think that’s a LOT?!’” Love her or hate her, she won’t give up. 109

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概述在墨西哥，巴西，智利，阿根廷，委内瑞拉，秘鲁和哥伦比亚有成千上万的发展中国家成立的合资企业，它们能完成数十亿美元的贸易额，这是个名副其实的壮举。尽管这跟整个拉丁美洲地区的商机相比并不值得一提，无论是市场，投资，规划还是劳动力。通常情况下，导致这样的结果是因为国际投资者们对于拉美地区缺乏了解和认识，同时也可能缺乏投资的勇气。而认知和勇气，作为投资的不二法门，缺一不可，金砖国家商业杂志编委会主席鲁本瓦尔达尼扬如是说道。当然本期杂志大致的大部分篇幅会重点细数跟那些在拉丁美洲没有开发起来的项目，这些项目之所以没能达成，责任都在其他的国家，因为拉美地区的国家时时刻刻都在用实际行动证明他们的合作诚意。繁荣发展公约墨西哥正在进行体质改革，以加强自身在各个领域的竞争力，提高教育质量和水平，促进经济增长。但这些只是由总统恩里克•佩尼亚•涅托制定的国家大规模改革计划《墨西哥公约》的一小部分。在墨西哥领袖赴任一年后的巴拿马拉丁美洲世界经济论坛上，他就在与多米尼加共和国前总统莱昂内尔•费尔南德斯的讨论环节上讲述了墨西哥的改革之路目前取得的成就，遇到的问题和未来的目标。最有影响力的领袖：你应该熟知的10位拉美人可能他们在自己的国家之外不被人们所熟知。但是他们的手中却握着足以操纵数百万人命运的权利。金砖国家商业杂志给您介绍拉丁美洲最具影响力的10位非官方大使。巴尔加斯•略萨：“科技扼杀了文化思想” 在这个欲求不满的社会，人们已经失去了对它的掌控。2010年诺贝尔文学奖得主巴尔加斯•略萨一针见血的挑明了文化面临的困境。在他的好朋友加夫列尔•加西亚• 马尔克斯辞世后不久，巴尔加斯•略萨接受了金砖国家商业杂志的专访，同我们一起分享他对于拉美地区目前的改革，贫富差距以及当今时代那些曾经的文学经典的看法和观点。性别问题为了尽快使非洲走上可持续发展的道路，当地的政客们必须积极拉拢女性公民投身到这一过程中，但这目前是无法实现的。比如说，承认女农场主是自己的主要经济伙伴。如若不然，等待着非洲大陆的只有失败。比尔及梅林达•盖茨基金会的联合主席梅琳达•盖茨在自己的专栏中如是说道。

BRICS Business Magazine thanks correspondent of China International in Moscow Yang Jin for the translation into Mandarin. 110

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SUMÁRIO Billhões de dolares em volumes de negócios, milhares de empresas mistas que operam no México, Brasil, Chile, Argentina, Venezuela, Peru e Colômbia, criadas em conjunto com outros países emergentes – tudo isto já é um grande êxito, se bem que muito menor em comparação com as grandíssimas oportunidades potenciais que oferecem os países da América Latina com os seus mercados, capitais, ideias e recursos humanos riquíssimos. Como é frequentemente o caso, os investidores internacionais carecem de conhecimento local e, talvez, de vontade e determinação para poderem ser bastante ativos no continente latinoamericano. Além disso, um não funciona sem o outro, conforme nota Ruben Vardanian, Redator-Chefe da revista BRICS Business Magazine. Não seria justo, porém, culpar o resto do mundo em vez de os países do continente mesmo por todos os projetos infelizmente não realizados na América Latina, sendo este continente o foco principal desta edição. A vontade de cooperar deve ser constantemente confirmada com actos concretos por todos os intervenientes. UM PACTO E M NOME DA PROSPERIDADE O México vai realizar reformas estruturais, aumentar a concorrência em muitas áreas, melhorar a qualidade da educação e acelerar o crescimento econômico. Estas são apenas algumas dos muitos itens do “Pacto por México” – uma estratégia de reformas promovida pelo presidente mexicano Enrique Peña Nieto. Um ano após eleição, o líder mexicano analiza o progresso atingido, as metas e os objetivos de novas mudanças ainda a alcançar na sua discussão com o ex-presidente da República Dominicana, Leonel Fernández, no Fórum Econômico Mundial sobre América Latina que teve lugar no Panamá. OS LÍDE RES QUE FAZE M A DIFERENÇA: AS DEZ PESSOAS L ATINOAMERICANAS MAIS INFLUE NTES QUE TODO O MUNDO PRECISA DE CONHECER Talvez estas pessoas não sejam tão visíveis fora da sua região, mas o poder que têm em suas mãos, não necessàriamente um poder “duro”, estende-se a milhões de pessoas. A BRICS Business Magazine apresenta hoje dez dos latinoamericanos mais influentes que são, por assim dizer, “enviados especiais informais” do continente que todo o mundo deve conhecer. MARIO VARGAS LLOSA: “AS NOVAS TECNOLOGIAS ESTÃO MATANDO O CONCEITO MESMO DA CULTUR A” Moldar uma sociedade exigente e cheia de aspirações que não se deixe ser manipulada – é nisso que consiste a tarefa principal da cultura, segundo crê o ganhador do Prêmio Nobel de Literatura em 2010 Mario Vargas Llosa. O clássico da literatura latino-americana compartilha suas visões e pensamentos com os leitores da nossa revista logo após a morte de seu amigo, Gabriel Garcia Marquez. Na sua entrevista, o escritor conta-nos da riqueza e pobreza que ficam tão perto uma de outra, das realidades culturais do nosso tempo e se a América Latina mais ganhou ou perdeu no resulado das muitas revoluções que experimentou durante a sua história. DISPARIDADES E NTRE O HOME M E A MULHER NA ÁFRICA Para facilitar uma transição mais rápida possível da África rumo ao desenvolvimento sustentável, os políticos do continente devem dar mais poder à parte feminina da população que até agora tem sido pràticamente excluida deste processo. Por exemplo, através de inclusão e reconhecimento das mulheres agricultoras como seus principais parceiros econômicos. Caso contrário, o continente africano vai inevitàvelmente acabar por fracassar, segundo afirma em sua coluna Melinda Gates, a co-presidente da Fundação Bill & Melinda Gates.

BRICS Business Magazine thanks Victor Bereznoi for the translation into Portuguese. No.2(6), 2014

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Wire Transfer Economy Every year, Latin Americans working in the United States wire tens of billions of dollars back to their home countries. Unfortunately, these enormous resources are not used very efficiently. Irrational financial behavior seems to be one of the main culprits.

have a bank account in the United States. Only every third recipient of these remittances back home appears to have a bank account. Experts from the MIF believe that these behavioral stereotypes significantly undermine both the financial sustainability of Latin American migrant workers in the United States and the prospects of improving their well being in the long-term. They also negatively affect the financial standing of their families, communities, and entire regions of their home countries, for which these remittances are the main source of income. Needless to say, this money could be used more effectively to reduce poverty, boost regional development, and enable the recipients to better invest in their health and education, as well as improve their housing conditions and businesses. A shift in behavioral stereotypes should become a state policy objective. After all, the amount of money at stake is huge – in 2012, Latin American migrant workers in the United States accounted for more that $61 billion in wire transfers back to their home countries.

This conclusion was reached by the Multilateral Investment Fund (MIF) of the InterAmerican Development Bank following a survey of 2,000 Latin American migrant workers living in the five largest US cities. The main conclusions of the survey, “Economic Status and Remittance Behavior Among Latin American and Caribbean Migrants in the Post-Recession Period,” could be summarized as follows: Cross-border remittances going to the eight countries included in the survey – Colombia, Dominican Republic, El Salvador, Guatemala, Haiti, Honduras, Jamaica, and Mexico – have grown by 12% since 2009. According to the MIF, economic conditions for migrant workers have improved to some extent, although their situation still remains vulnerable in terms of income, savings, and debt levels. Even though two-thirds of those polled by the MIF confirmed that they maintained savings, the vast majority of migrants did so informally, thereby missing out on the opportunities, products, and services offered by modern banking. Furthermore, nearly 60% of those polled stated that they did not

Growth Rate of Migrant Remittances to Latin America and the Caribbean (%), 2001-2012

Andean Caribbean

Central America

Southern Cone

Mexico

10 5 0 -5

2002

2003

2004

2005

2006

2007

2008

-10 -15

112

2009

2010

201 1

201 2