Spain Investing Heavily in Brazil.

Brazil is one of the few places in Latin America that Spain didn't seize and colonize, but you wouldn't know it from the neon green public telephone kiosks on most street corners in this sprawling metropolis.

They're identical to phone booths across Madrid owned by Spain's Telefonica SA, which staged the modern day version of a Brazilian conquest in 1998, shelling out $5 billion for one of the country's biggest state-owned fixed line operators. Other Spanish companies weren't far behind, snapping up banks, utilities and luxury hotels.

A courtship is under way aimed at bringing even more Spanish money to South America's largest economy and strengthening Spain's position as the largest foreign investor in Brazil after the United States.

Leading the campaign are Spain's prime minister, the country's popular crown prince and Spanish and Brazilian executives who speak different languages but manage to close deals using a makeshift cross between Portuguese and Spanish dubbed "Portunol."

While new Spanish investment plunged in Brazil with the election of the country's first leftist leader in 2002, it's making a comeback and Spaniards are betting they can profit now that President Luiz Inacio Lula da Silva seems to be steering the country on a market-friendly path toward slow, sustainable growth.

Fresh Spanish investment could come from companies keen on profiting from Brazil's plans to build new highways, bridges and ports to improve its shaky infrastructure and boost exports ranging from manufactured goods to agricultural products.

At an investment conference last month aimed at increasing ties between Spanish and Brazilian executives, a third of the Spaniards participating represented engineering and construction firms.

"They've been building in Spain and around the world," said Pedro Mejia, Spain's minister of commerce and tourism. "This could be seen as the base for a new wave of investments in Brazil."

Spanish engineering executive Ricardo Fortuoso, visiting Brazil for the first time, was wide-eyed as he considered the problems he could make money solving in Sao Paulo: Crumbling skyscrapers, axle-busting potholes in wealthy neighborhoods, street flooding caused by drainage incapable of handling torrential summer downpours, and traffic jams stretching miles at all hours.

"Sao Paulo seems a little bit abandoned," Martin said in between interviews to line up a Brazilian partner to help his firm, 1A Ingenieros, wade through the country's cumbersome regulations and bureaucracy. "Brazil is a country with great potential where there's a lot of work to do on infrastructure."

Wagner Borges, the Brazilian owner of a company specializing in stone flooring products, was trolling the conference for Spanish partners.

"Spain's a leader in this business," he said. "Their companies are big and I'm small, but we've got low-cost labor so we could work out an export deal."

Driving Spain's interest in Brazil home, Spanish Prime Minister Jose Luis Rodriguez Zapatero visited in January, promising new investment to build on what Spain started in the late 1990s, spurred by a wave of privatizations of Brazilian state-owned companies. He opened a new consulate in a former mansion in a fashionable Sao Paulo neighborhood, promising help for small and medium size Spanish businesses in Brazil, since multinational companies are already well-entrenched.

Spain's Prince Felipe de Borbon y Grecia of Asturias followed, opening the investment conference and saying Spain wants to be a preferred partner in Brazil's modernization plans.

While the conference was under way, Brazil's state-run oil company Petroleo Brasileiro SA confirmed negotiations for a joint venture with Spanish-Argentine energy group Repsol YPF SA to explore a giant natural gas field off the coast of southern Brazil.

Analysts said the United States should take notice of the effort by Spain to woo Brazil. While no one expects Spain to surpass the United States as Brazil's biggest foreign investor, the Spanish push is likely to pay off with greater access to Brazil's markets.

"Brazilians are very grateful for whatever respect is shown for their institutions," said Riordan Roett, director of Western Hemisphere studies at Johns Hopkins University in Washington, D.C. "Spaniards have realized Brazil is a much lower risk place for business than it was two or three years ago, and they want to get in early."

Spanish companies have an edge for future investment in Brazil because they started buying companies in the 1990s and stuck with their investments in the country even when the economy nose-dived over fears Silva would default on its debt, sending the nation into an economic meltdown.

"The first thing they do is they get the right management team in place, local people running the business," said Luiz Muniz, who heads the investment bank Rothschild Brasil. "It is a Spanish company with Brazilian people running it."

Making deals happen in Brazil can be easier for Spaniards than it is for other foreign business executives in part because of strong ties between Brazil and Spain.

"We've got a lot in common," said Fortuoso, the engineering executive. "The languages are similar, the religion (predominantly Roman Catholic) is the same and it's Latin culture."

But Spain's Elcano Royal Institute, founded by Prince Felipe, warns that the country's increasing investment in Brazil and other South American countries is risky given the region's history of volatile economic swings. And Spain will also face stiff competition, particularly from China, a major consumer of Brazilian agricultural and mining products, as it works with Brazil to revamp its infrastructure and ensure prompt export deliveries.

China's president was welcomed in Brazil last November, and clinched a deal with the Brazilians to help build a $1 billion natural gas pipeline.

Spain's Brazilian investments "will be overwhelmed by China," Roett predicted. "Over the next few years, China will be going in big time."

[Source: Associated Press by Forbes, 06Mar05]

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