The Chartered Insurance Institute (CII) has had links with its Brazilian counterpart, the Fundação Escola Nacional de Seguros (FUNENSEG) for the last ten years, so when the opportunity arose of a British Government-backed education mission to Brazil, it was too good an opportunity to miss.
The Brazilian economy has experienced a roller-coaster ride during the last ten years. Only now are there strong signs of economic stability, which are having knock-on effects throughout the region.
Since early 1994 Brazil has implemented a successful stabilization program, the “Plano Real”. It started with the Real at parity with the dollar.
In January 1999 the Real was devalued by 40%. After the initial inflation rise and drop in economic confidence, devaluation is regarded as a temporary setback for Brazil. A fresh agreement with the International Monetary Fund (IMF) and a new central bank president are beginning to reverse any pessimistic views of the country. Some investors now believe inflation will be lower than originally expected and the risk of government debt has receded significantly. However, there has been some concern that the government is not keeping to its privatization timetable.
Projected economic figures for 2000 are: GDP per capita - US$3,623; GNP real growth - 3.8%; inflation - 7.7%; foreign debt - US$250bn. E-commerce is in its infancy but growing. Brazil accounts for 60% of all e-commerce in Latin America. There are currently 4.5 million users with Internet access but it is projected that this number will double by 2003.
Brazil now ranks eighth in the world in terms of GDP. Its per capita income in 1998 was around US$4,800, making it a bona fide member of the World Bank's “upper-middle income” category, comparable to countries like South Africa, Hungary and Mexico. Although during the latter part of 1997 and 1998 the Brazilian government attempted to defend the Real against market pressure, it eventually abandoned its efforts and allowed the currency to float on 15 January 1999. The subsequent fall of the exchange rate was mainly the result of continued outflows of financial capital resulting from the belief that the fiscal and current account deficits were unsustainable.
Since devaluation there has been a much stronger level of recovery than had been anticipated. By early May last year the Real had gained value to R1.65 against the dollar from a low point of R2.15 on 3 March.
As a direct result of this recovery, economic analysts revised their predictions by announcing that the 1999 recession would turn out to be much shallower than originally forecast, with the contraction in GDP projected at just 0.9% for the year.
With the unexpected limited inflationary impact of the devaluation, the authorities cut the overnight interest rate from 42% on 25 March to 23.5% on 19 May. Although international trade with Brazil slowed during 1999 the growth potential of the market remains strong.
A privatization program has been in operation since 1991. Widening trade deficits forced Brazil to sell off some of its state-owned companies. In 1997 the privatization program escalated with the sale of the Companhia Vale do Rio Doce mining company. A number of electricity distribution companies were sold off during 1996, mainly to foreign dominated consortia. The privatization of the electricity industry is increasingly urgent because of rapidly increasing demand from consumers - demand is increasing at double the rate of economic growth - and expansion will take place in new power stations and transmission systems. The Brazilian electricity company Electrobras told the market in 1999 that it plans to invest US$472 million in Lightpar (a company owned by Eletrobras) to turn it into a data transmission company with forecast annual revenues of $300 million.
Three years ago laws were passed confirming the new framework of the oil industry. The last of the state-owned railway networks was sold off and privatization of the steel sector has now been completed, while the country's ports system has been deregulated.
It is anticipated that the insurance industry will undergo privatization during the latter part of 2000.
Opportunities: not for the faint-hearted
Brazil is not a short-term market; it requires commitment and investment.
Nationally there is recognition of the need to upgrade and modernize its system of vocational education. There is awareness within the Ministry of Education of the various vocational models on offer in Europe. The British NVQ and SVQ system is becoming better known and respected and a home-grown version is likely to be developed.
There are opportunities for providing training, know-how, materials and consultancy services. A large training and re-training program is underway, supported by funded reform programs. Accessing companies based in Brazil is a good way of establishing wider relations.
General opportunities can be summarised as follows:
In the last three years there has been a major change in corporate culture in Brazil. The opening of the domestic market to the outside world has forced local companies to face competition and to look for overseas markets. Companies and employees now accept that staff require enhanced skills, including English. The demand for business-related courses is therefore increasing. A Trade Partners UK economic report has identified 17 high priority sectors. Among these are financial services, business services and education.
My visit in June was as a participant on a Vocational Education and Training (VET) tour organized by British Training International (BTI), which is the UK's center for co-ordinating information about VET, National Vocational Qualifications, etc. BTI provides advice for countries wanting to adapt elements of the UK's vocational education model in order to reform their own vocational training and education systems, using quality assured provision and expertise. The CII has its own National Training Organisation, the Insurance and Related Financial Services (NTO), so the VET tour afforded the opportunity of presenting the range of qualifications available from the CII as well as making contact with our counterparts at FUNENSEG.
At the moment in Brazil there exists a huge demand for internationally recognized professional qualifications across all sectors of commerce, industry and education. For example, the other tour participants came from the university, tourism, software engineering and English language teaching sectors, among others.
The Brazilian economy is buoyant. A recent financial report identified eight countries that are emerging as leading economies in the developing world - Brazil featured prominently. When carrying out business in the country it is important to remember that it requires patience and commitment. It should not be regarded as an easy market to crack.
In South America as a whole the “big six” economic powers are Mexico, Venezuela, Colombia, Chile, Argentina and Brazil with Brazil being by far the most important and the economic powerhouse of the region. São Paulo state itself accounts for some 50% of Brazil's economic and industrial output.
With 60,000 companies, São Paulo has the largest industrial complex in Latin America, greater than the whole of Argentina. It is also the main commercial and financial center in Brazil. As well as accounting for half the country's industrial output, São Paulo state is the source of 42% of all manufacturing.
The state of São Paulo has privatized most of its companies in the oil and energy sector. The gas distribution company, COMGAS, was privatized with British Gas/Shell in 1999.
Over half of the country's banks are based there including a number of British banks (HSBC, Barclays, Lloyds TSB). Several merchant banks are also represented in the city. Jardine Lloyd Thompson, RSA, AXA and CGU all have a presence in the city of São Paulo.
Rio de Janeiro
The state of Rio de Janeiro is the third largest in the country. The financial and other service sectors, as well as industry, underpin the state's economy. It is the country's second most important financial center.
The city of Rio, with a population of 10 million, was formerly the federal capital. Roughly one third of Brazil's import trade passes through the port.
In Rio the CII is working with the Fundação Getúlio Vargas (FGV), a graduate level college specializing in business administration, economics and finance.
It is the Brazilian equivalent of London Business School and will act as an academic partner with the CII on any future joint educational ventures.
Top of the discussion agenda was the development of a localized version of the CII's Certificate of Insurance Practice (CIP), the international dimension and work of the CII, client-based courses, the examination structure and the scope of the training the CII can provide.
There is immense interest in Brazil in a localized Portuguese CIP qualification and given the emphasis on a knowledge-based economy it appears likely that a sizeable number of students will want to proceed to full Associateship (ACII) and Fellowship (FCII) status.
The seat of government was officially moved from Rio to Brasília in 1960. The Legislature, Judiciary and Executive are all based in the federal capital. The population is 1.7 million.
One of the interesting points that emerged in discussions is that while the infrastructure in Brazil appears on the surface to be very advanced, the financial, banking and insurance systems are still fairly undeveloped. For example, in the entire country there is only one organization from which house buyers can borrow money - and that one organization is government-controlled. There is still much to be done in the insurance sector in Brazil. Most Brazilians think of insurance in terms of insuring their cars and possibly have a limited understanding of health insurance. There is little concept of insuring individual property, life insurance or pensions provision. The insurance industry is moving away from public to private ownership especially in the areas of life insurance, pensions and medical and it is anticipated there will be significant expansion in contents and property insurance.
Although the population is about 170 million, it should be borne in mind that a large proportion of that number live on or below the poverty line, so the maximum potential insurance buying population is approximately 65 million. (There exists in Brazil the concept of “BelIndia” - the notion that Brazil is really two countries, one that equates to the wealth and GNP of a country like Belgium, the other which equates to the living standards of the majority of people living in India).
So what's in the pipeline? Clearly there is plenty of work to be done both in terms of assisting in the general development of the insurance industry and in providing specific training and education. We are discussing the provision of a series of CII seminars to be delivered over the course of next year and the development of a localized version of the CII's Certificate of Insurance Practice qualification, to be delivered in Portuguese. Arrangements for a number of events are in progress and we shall provide a listing of future activity in Global Reinsurance in due course.
Carl Woolf is new projects and promotions executive, College and International Division, at the Chartered Insurance Institute.