SAO PAULO ECONOMIC AND ESTH ROUND-UP, OCTOBER 15-30, 2009

UNCLASSIFIED,FOR OFFICIAL USE ONLY UNCLAS SECTION 01 OF 02 SAO PAULO 000650 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON, ENRG, PGOV, ELAB, EFIN, EAGR, SENV, BR SUBJECT: SAO PAULO ECONOMIC AND ESTH ROUND-UP, OCTOBER 15-30, 2009 1. (U) SUMMARY: Below is the first in a new series of biweekly economic round-up cables from Consulate General Sao Paulo. This cable covers the period of October 15-30, 2009. The purpose of the new series is to highlight economic, energy, environmental, transportation, and science and technology developments in the Sao Paulo Consular District that are not covered by broader reporting. END SUMMARY. Creation of world's second largest sugar cane processor --------------------------------------------- ---------- 2. (U) On October 27, the Brazilian unit of French commodities group Louis Dreyfus took over Brazilian firm Santelisa Vale to create the world's second largest sugar cane processor. The merger is the latest in a growing consolidation trend in the Brazilian ethanol market (septel). The new venture, called LDC-SEV, will control 13 sugar and ethanol plants and have annual cane crushing capacity of 40 million tons, second only to Brazilian industry leader Cosan. Dreyfus and a group of financial partners pledged $460 million to the venture and will hold a 60 percent stake, Santelisa Vale shareholders will have 18 percent, third party investors 9 percent and the remaining 13 percent will be in the hands of Goldman Sachs and Brazil's state-run development bank BNDES. While LDC-SEV Chief Executive Bruno Melcher publicly stated that local cane output in Brazil must increase by 30 million tons per year to meet growing sugar and ethanol demand, he indicated that LDC-SEV would allocate initial investments to raising mills' electrical cogeneration capacity. He said new investments to boost sugar and ethanol production capacity would come later, including through possibly building new mills. Labor Market's Positive Trends ------------------------------ 3. (U) According to a study by Brazil's economic research institute IPEA, over the last 17 years Brazil has reduced the number of children in the labor market twice as fast as the global average. The study indicates that in 1992, 13 percent of Brazilian children between 5 and 14 years old were working. The rate fell to 5 percent in 2008, which represents 3 million children leaving the labor market. While IPEA statistics indicate that 1.7 million children between the ages of 5 and 14 are still working in Brazil, the World Labor Organization predicts Brazil will completely eliminate child labor (5 to 9 year-olds) within two years. Brazil's Real Appreciation Likely to Resume ------------------------------------------- 4. (SBU) Following the GoB's October 21 re-imposition of the IOF financial tax (reftel), Brazil's currency depreciated nearly 4 percent in the first week of implementation. Banking experts and local Central Bank contacts in Sao Paulo attribute much of the decline to the recent fall in global markets. Looking ahead, Sao Paulo-based Central Bank Economist Alexandre Pundek told Econoffs that the Real will likely appreciate over the next 6 to 12 months due to Brazil's investment pipeline, continued high carry yields, expectations of accelerating growth and rate increases in 2010, and low financial risk. Meanwhile, in a recent survey, nearly two-thirds of foreign investors reported the IOF will have either no effect or is very unlikely to affect their portfolio investment in Brazil. SAO PAULO 00000650 002 OF 002 Brazilian Analysts & FTC Commissioner Examine Anti-Trust Policy --------------------------------------------- ------------------ 5. (U) In an October 15-16 international conference organized by Brazil's Administrative Counsel for Economic Defense (CADE), public and private sector representatives discussed efforts to modernize Brazilian competition and anti-trust policy. Panels, which included participation by U.S. Federal Trade Commissioner William Kovacic, examined regulation in several sectors including telecommunications, banking, intellectual Property, as a means for promoting commerce and competition. Experts agreed that Brazilian laws regulations are in need of revision, especially in regards to innovation and the commercialization of new technologies. Participants also identified longstanding national industrial policies, agricultural subsidies, sector "agreements" granting special immunities, as competition challenges and a source of higher consumer prices. In addition to sharing the United States' experience with competition policy in the conference, FTC Commissioner Kovacic gave an interview published in leading business daily Valor Economico. Sao Paulo Authorities Push Sustainable Logging --------------------------------------------- - 6. (SBU) On October 30, Department of Justice Senior Trial Attorney for Environmental Crimes Richard Udell met with Sao Paulo environmental and logging authorities to discuss amendments to the Lacey Act. The Sao Paulo State Secretariat of Environment highlighted its Cadmadeira program, which has reduced illegal logging through commercial incentives and intercepted 8 million tons of illegally harvested wood through transparent point-of-origin information. Brazilian environmental legislator Fabio Feldmann said Brazilian NGOs could help provide evidence of illegal logging necessary for prosecution under the Lacey Act. State prosecutors and industry representatives told Udell that more focus is being given to environmental crimes, but said more effective enforcement mechanisms were needed nationally to prosecute crimes and clarify legal obligations for legitimate loggers. White