AMBASSADOR SOBEL MEETS WITH PRIVATE SECTOR IN SAO PAULO

UNCLAS SECTION 01 OF 03 SAO PAULO 001082

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E.O. 12958: N/A
TAGS: ECON ETRD EINV EFIN EAGR EAID BR
SUBJECT: AMBASSADOR SOBEL MEETS WITH PRIVATE SECTOR IN SAO PAULO


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SUMMARY
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1. (U) Ambassador Sobel met with various business leaders and
organizations during his September 26-28 visit to Sao Paulo.
Septels report on Ambassador Sobel's meetings on education during
this visit and his inauguration of a USAID-sponsored development
project. The leader of an important industrial think tank (IEDI)
told him that the GoB was listening more to industry's concern than
in the past. On the margins of this meeting, the Ambassador met
briefly with the Finance Minister. At an informal dinner, the
leaders of many U.S. companies reported that business has been good,
but a few reported a difficult year. The head of Cargill told him
that Brazil's competitive advantage in ethanol production is
disappearing. Council members of the Brazil Competitiveness
Movement (MBC) stressed the need to improve government efficiency in
Brazil to address institutional weaknesses and reduce bureaucracy.
In all his meetings, the Ambassador stressed the importance of
partnerships and advocated closer engagement and cooperation. END
SUMMARY.

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JOSUE GOMES DA SILVA
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2. (U) Ambassador Sobel, accompanied by Econoff, met September 26
with Josue Gomes da Silva, President of Coteminas, one of the
largest textile manufacturing companies in Brazil, and son of Vice
President Jose Alencar. Coteminas is one of the world's lowest-cost
textile producers (thread, semi-finished and finished fabrics, home
textiles, clothing) with reported 2005 sales of USD 500 million and
a work force of 12,000. The group owns 13 manufacturing mills
located mostly in northern Brazil. This year, Coteminas merged with
US-based Springs Industries to create Springs Global, the world's
largest manufacturer and supplier of home furnishings.


3. (U) Da Silva is also the president of several economic and
industry-related research institutes, among them the Institute for
Studies of Industrial Development (IEDI). IEDI is composed of 45
presidents, owners and majority shareholders of various companies.
IEDI confers with similar organizations such as the Sao Paulo state
Federation of Industries (FIESP) on industrial issues. The
Ambassador questioned several of the board members present on the
response of the Brazilian Government to their industrial needs and
concerns. The initial response was that there was no major change;
however, Da Silva added that at least the government is now
listening to them seriously. The general consensus was that
international trading is a recent phenomenon of the last 20 years,
and it is now the role of government to create the appropriate
infrastructure for continued growth and expansion.


4. (U) The IEDI board had a prior meeting with the Minister of
Finance, Mr. Guido Mantega. Upon the Ambassador's arrival, he had
the opportunity to exchange a few words informally with the Finance
Minister as well. Da Silva is of the opinion that Minister Mantega
is completely aligned with the philosophy of IEDI, supporting
production, more growth, better trade practices, and "common sense"
for industry.


5. (U) In further conversation with Da Silva, the Ambassador
discussed the Brazilian Competitiveness Movement (MBC - see paras
16-17) and the need for both U.S. and Brazilian companies to meet,
engage and strategize on corporate responsibility programs. Da
Silva concurred and agreed to produce shortly a list of
approximately 10 company leaders for a future dinner party to be
hosted by the Ambassador.


SAO PAULO 00001082 002 OF 003


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PAULISTA DINNER GROUP
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6. (U) The Ambassador had dinner September 26 with members of the
Paulista dinner group. This is an informal association of Sao Paulo
businessmen heading American companies "organized for social and
business information purposes." Many of the members have regional
responsibilities as well. In contrast with Amcham, this group does
not have working groups and does not take formal positions on
issues, preferring to keep a low profile. However, many members
exchange ideas on how to approach the GoB on issues that affect
their companies' interests. There are 15 members, including the
Consul General. While the Group informally selects its members
(normally on a two-year rotational basis),it tries to maintain a
balance among different sectors.


7. (U) The members present were generally upbeat in their
assessment of the current situation and future growth prospects,
despite the difficult business climate that they face in Brazil.
Colgate Palmolive's representative said 2006 would likely be the
company's best year ever in Brazil. Similarly, 3M reported that
2005 was a record year for the company and predicted another good
year in 2006. GE Brazil reported 40% growth in 2005 and 24% growth
during the first half of this year. While GE expects solid growth
for the next several years, there is concern beyond that due to
Brazil's serious infrastructure problems.


8. (U) Ford noted that 2005 was the company's best year in Brazil
since starting operations in 1919. Much of this growth is due to
the popularity of Ford's flex-fuel models, which now account for 70%
of sales volume. Caterpillar reported that 2005 was also its best
year in Brazil and that this year looks even better, mostly due to
booming exports to the U.S., Europe and the Middle East. Citibank's
chief said the bank is in the midst of a major expansion that will
double the number of branch offices in Brazil. This reflects
Brazil's growing consumer finance market.


9. (SBU) On the other hand, Eli Lilly indicated that the
pharmaceutical sector has been flat, in part due to government price
controls. Prisma Energy (recently bought by Ashmore Energy) also
sounded a sour note, expressing concern about possible energy
shortages in Brazil in 2009-10. Much will hinge on government
improvements in the regulatory environment, along with weather; if
there is a prolonged drought, the country could face a serious
energy crisis.


10. (U) The Ambassador stressed the importance of corporate social
responsibility (CSR),adding that Mission Brazil could help U.S.
companies showcase their CSR programs. He also noted that the
Embassy and Consulate Sao Paulo planned to host a CSR roundtable in
Sao Paulo on October 18, which would explore ways in which the
Embassy and Consulates could work together on CSR issues. (NOTE:
Most of the companies represented in the Paulista dinner group have
been invited to participate in the CSR roundtable. END NOTE.)


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CARGILL
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11. (U) Ambassador Sobel, accompanied by Agricultural Trade Office
Director, met with Sergio Barroso on September 27. Barroso has
been President of Cargill Agricola, S.A. for eight years.
Discussion focused on the keys to Brazil's competitiveness in
agriculture and prospects for national and regional growth in
ethanol production.


SAO PAULO 00001082 003 OF 003



12. (U) Ambassador Sobel began by asking Barroso what the keys are
to Brazilian agricultural competitiveness. Barroso responded that
they include land, climate and production know-how. He noted that
low labor costs and social conditions were also important. Barroso
went on at some length to stress that Brazilian know-how and
technology are extremely advanced for sectors such as soy and sugar
production, but lag behind for production of other crops, such as
corn.


13. (U) On the subject of sugarcane production and ethanol, Barroso
credited recent production gains to better cultivation techniques
and fertilizer applications. He also reminded the Ambassador not to
discount the importance of sugar to cane producers, noting that
sugar is currently more remunerative than ethanol, and that with
increased land prices in Brazil and more efficient production
practices in the U.S., Brazil's competitive advantage in ethanol
production is disappearing.


14. (SBU) In response to inquiries from the Ambassador, Barroso
expressed skepticism about the entry of Petrobras into ethanol
production and marketing, while acknowledging that the industry has
built a reputation for itself as an unreliable supplier. Barroso
further noted that outside of Brazil and the U.S., he has seen few
solid opportunities for investment in the biofuels sector. He
promised to recommend participants for a roundtable on ethanol that
the Ambassador plans to convene.

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BRAZILIAN COMPETITIVENESS MOVEMENT COUNCIL MEETING
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15. (SBU) Ambassador Sobel also attended a meeting September 27
with the Brazilian Competitiveness Movement Council (MBC). Founded
in 2001, MBC is a Brazilian non-profit organization that aims to
improve the competitiveness of the private and public sectors.
Among the meeting participants were Jorge Gerdau Johannpeter,
founder of MBC and President of Brazil's largest steel company
(Note: Gerdau has been invited to participate in a second term Lula
administration. End Note),and the directors from General Electric,
Merck Sharp and Dohme, Beckton Dickenson, American Express,
Petrobras, Odebrech, and Suzano. Ambassador Sobel, in his remarks,
stressed the importance of partnerships as a means of sharing
experiences and ideas. In particular, Ambassador Sobel expressed
the Embassy's interest in furthering its cooperation with MBC.


16. (U) Following the Ambassador's remarks, several MBC Council
members commented on the need to improve government efficiency in
Brazil. They referred to the World Economic Forum Global
Competitiveness Report launched earlier that day, in which Brazil
dropped nine positions mainly as a result of its weak institutional
environment, bureaucracy, red tape, and corruption. They also
discussed, education, particularly the need to further cooperation
between businesses and universities. Several ideas came to the
fore, including an MBC-U.S. Council on Competitiveness joint
conference in 2007, and the possibility of connecting the MBC to the
U.S. President's Council of Advisors on Science and Technology
(PCAST). The Ambassador asked the MBC Council members to reflect on
these ideas and proposed to continue discussion in a meeting - yet
to be scheduled - in Brasilia.


17. (U) This cable was coordinated with Embassy Brasilia, and was
cleared by Ambassador Sobel.

MCMULLEN