THE BLOG

Recession, Falklands Complicate Business Ties With Brazil

02/25/2015 12:15 pm ET | Updated Apr 25, 2015

Hoping to improve its flagging reputation in major financial markets Brazil is putting a business-to-business spin on this week's Brazil-UK strategic dialogue in London.

But the most strategic issue facing foreign secretary Phillip Hammond and Brazil's new Minister for external relations Mauro Vieira is the business of war.

Brasilia steadfastly supports Buenos Aires in its claim of sovereignty over the Falkland Islands (Islas Malvinas).

Viera was ambassador to Buenos Aires for six years. Hammond, a former defense secretary, is well aware of Britain's strategic issues including the Falklands and alleged electronic surveillance of foreign leaders like Brazil's president Dilma Rousseff by GCHQ "five eyes" partners that have been buzzed up by The Guardian and elsewhere.

Although president Dilma's Workers Party government has been weakened considerably by losing its majority in congress even her political enemies see opposition to London's policy as an opportunity to promote Brazil as a champion of anti-imperialism and nonaligned power.

Economic reality offers more telling evidence. Brazil's lackluster economy is a heartbeat from recession and budget cuts by a new neoliberal finance minister have sparked a wave of street protests and road rage on the information highway.

These machinations don't alleviate the water and power shortages that make the new foreign direct investment support Brazil desires from London markets problematic.

Ironically, The Economist and the Financial Times both predicted these problems on the eve of Brazil's presidential campaign last year.

Presidential debates avoided these key issues, providing instead a platform for ugly, American-style negative campaigning that actually helped undermine international confidence in Brazil's economic future.

Brazil generates 75% of its energy from hydroelectric plants. But the worst droughts in over half a century have reduced electricity generation and power costs have escalated hurting new entrants in the middle income consumer economy the most.

The telenovela of energy and water woes doesn't end there.

A deal with Chinese state companies to build an Ultra High Voltage (UHV)transmission system to move what was projected as cheaply generated electricity from the huge Belo Monte project in the Amazon to the industrialized southwest faces a major delay over Beijing's demand that workers imported from China do the majority of the construction.

As a result, Brazil is relying on imported-- and expensive-- electricity from Argentina, and natural gas from Nigeria and Equitorial Guinea as stopgap solutions. According to energy newsletter Platts, Brazil's imports of LNG were up 28% in 2014 and could go higher this year.

With Brazil's infrastructure currently unable to unload the LNG at her own ports carriers must offload at the Argentine port of Bahia Blanca where the gas is transmitted to the frontier via pipeline and transshipped across the border to Brazil, reinforcing a growing energy codependence between the two nations.

Education may provide the guiding light for the problematic London-Brasilia relationship.

For two generations most Brazilian diplomats have received english language training from a school in Brasilia operated by British expatriates.

More tha 10,000 Brazilians attend university in Britain and president Dilma's "Science Without Borders" program would like that number to increase.

Then too, Brazil is starting to experience a "brain drain" with growing numbers of young and educated prefering to live in societies that put more emphasis on individualism, entrepreneurship and a less agitated daily lifestyle. Some British politicians, and football fans, not keen on immigration are concerned about a Brazilian clone of Earl's Court in London

Even if the Falklands (Malvinas) imbroglio stays in the background of the strategic talks it's likely that their outcome, like the recent G-20 meeting in Australia, will produce a sugar coated agreement to disagree.