VZCZCXYZ0012
RR RUEHWEB

DE RUEHBR #0102/01 0331214
ZNR UUUUU ZZH
R 021213Z FEB 10
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 0399
INFO RUEHBR/AMEMBASSY BRASILIA
RUEHRG/AMCONSUL RECIFE
RUEHRI/AMCONSUL RIO DE JANEIRO
RUEHSO/AMCONSUL SAO PAULO

UNCLAS BRASILIA 000102 
 
SENSITIVE 
SIPDIS 
DEPARTMENT OF COMMERCE FOR LFUSSELL AND ADRISCOLL 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB OPIC COM USTR EAID PREL BR
SUBJECT: BRAZIL: ONE NORTHEAST STATE TRIES TO CATCH THE SOUTH 
 
REF: 09 RECIFE 65; 09 BRASILIA 347 
 
¶1.  (U) Summary: The development challenges facing the Brazilian 
northeast state of Piaui are representative of the difficult issues 
Brazil's poorest regions must overcome to achieve the level of 
prosperity in the country's southern regions.  Despite economic 
growth rates over the past several years comparable to those of the 
south and southeast, Piaui and the northeast's per capita incomes 
remain many times lower than those of the southern states.  A 
recently expanded Piaui state International Relations Coordination 
Office and a global-minded governor are focused on closing the gap 
with the attraction of more international and domestic investment 
to Piaui.  Unfortunately, the state's most recent efforts in this 
regard reveal significant challenges.  Even the domestic investment 
community in Brazil, not to mention the international investor, 
remains largely unaware of the opportunities that exist in Piaui, 
and significant infrastructure and human capital deficiencies 
dissuade those investors that do consider projects in the state. 
End Summary. 
 
BRAZIL'S NORTH-SOUTH DIVIDE 
 
¶2.  (U) The per capita income in Brazil's northeast is just $7,000 
Reais ($3,900 USD - less than the per capita incomes in Honduras 
and Guatemala), and the population of 50 million people in the 
northeast is 10 million more than that of Central America.  In 
contrast, the 78 million Brazilians in the prosperous southeast 
earn per capita income of over $19,500 Reais ($10,800 USD).  The 
3.1 million people in the state of Piaui have the lowest per capita 
income of Brazil's 26 states, less than $5,000 Reais ($2,800 USD). 
This level of income puts the citizens of Piaui roughly on par with 
the poorest nations in Latin America, and earning less than a 
quarter of what a typical Brazilian from Sao Paulo state makes.  In 
2008, Piaui recorded total GDP of $14.9 billion Reais ($8.3 billion 
USD), or just 0.5 percent of the Brazilian economy.  The service 
sector represents 60 percent of Piaui output, with half of that 
amount derived from government.  Industry represents approximately 
27 percent and agriculture approximately 13 percent. 
 
¶3.  (U) Despite bright spots like the state of Pernambuco's 
Industrial complex at the Port of Suape (Ref A), Brazilian and 
international Investment has not poured into Piaui and the 
northeast, but remains concentrated in the southern regions. 
Brazilian Central Bank foreign direct investment (FDI) data back to 
1995, for example, shows only a very gradual proportional shift 
away from the traditionally-favored investment targets in the south 
and southeast.  In 1995, 96 percent of FDI to Brazil flowed to the 
south and southeast.  In 2000, the south and southeast attracted 94 
percent of FDI, and by 2005, they were still grabbing 90 percent. 
Between 1995 and 2005, the northeast went from two to five percent 
of FDI share.  The FDI data also reveal that the southern states 
are successful in attracting a greater share of FDI than their 
proportional share of GDP.  For example, the south and southeast 
states comprise approximately 73 percent of the national GDP, but 
capture 90 percent of FDI.  In contrast, the northeast states make 
up about 13 percent of national GDP, but only attract five percent 
of FDI. 
 
PIAUI STATE GOVERNMENT ORGANIZES TO ATTRACT INTERNATIONAL 
INVESTMENT 
 
¶4.  (U) In December 2009, the recently expanded International 
Relations Coordination Office of Piaui, which now includes seven 
people, hosted a conference in Piaui's capital Teresina themed to 
help the local business community attract more international 
investment.  Second-term Piaui Governor Wellington Dias (PT - 
Workers Party) , who had just returned from an official Brazilian 
delegation to court investors in Germany, Greece, and England, 
provided opening remarks focused on the advantages of the 
internationalization of Piaui.  The governor was followed by 
speakers and panelists representing the Brazilian Ministry of 
Tourism, the Piaui Office of Tourism, an international attorney 
from Sao Paulo, and representatives from the Piaui business 
community.  Econoff was invited to participate and delivered a 
presentation on USG partnership opportunities available through the 
Foreign Commercial Service, USTDA, and Ex-Im Bank.  While the 
audience included Piaui state officials, business leaders, and 
university international relations students, organizers had 
expected a stronger showing of local private firms capable of 
building international partnerships.  The conference and Econoff 
visit to Teresina revealed the significant development challenges 
that exist in a poor Brazilian northeast state like Piaui. 
 
OPPORTUNITIES 
 
¶5.  (U) According to most conference attendees, continued 
infrastructure development will have the greatest impact on 
attracting additional investment to Piaui.  Improved 
infrastructure, especially transportation lines over road and rail 
connecting Piaui's cities and ports, will also facilitate organic 
growth within the state.  The introduction of free-trade or export 
processing zones (ZPE's), currently operating in the cities of 
Parnaiba and Pavussu, can also lower the cost of trade in Piaui and 
increase the level of domestic and international commerce flowing 
through the state.  Once in place, government and business leaders 
expect Piaui's infrastructure should benefit the state's most 
important development opportunities, especially mineral and mining, 
fishing, agriculture, and tourism.  For instance, improved 
infrastructure is expected to greatly benefit agriculture in the 
southern part of the state where newly introduced technologies are 
already supporting greater soy and cotton production. 
Infrastructure development is also assisting Piaui attract interest 
and investment to another promising economic opportunity: dimension 
stones, opals, and primary minerals. 
 
LACK OF INFRASTRUCTURE 
 
¶6.  (U) Despite some progress, Piaui suffers from the familiar 
problem in Brazil of deficient infrastructure.  Governor Dias rates 
infrastructure development a priority, just behind his top concern 
of education.  Piaui has received funds from Brazil's growth 
acceleration infrastructure program (PAC) (Ref B), and renovations 
have been completed at the Parnaiba airport on Piaui's coast. 
Governor Dias said that he envisions Parnaiba's geographically 
strategic location, where flights to Miami or Lisbon take just six 
hours, will make it a future air cargo hub in Brazil.  Dias also 
highlighted planned rail improvements and 5,800 km. of ongoing 
asphalt road paving to link Piaui's major cities. 
 
¶7.  (SBU) The Piaui State Secretary of Tourism Silvio Leite, 
however, shared with Econoff that inadequate infrastructure still 
remains the largest obstacle to bringing visitors to Piaui.  Roads 
linking to some of the world's largest concentrations of rock 
paintings dating back 50,000 years, many of them inside UNESCO 
World Heritage Site Serra da Capivara National Park, require 
significant improvement to support additional visitors.  Piaui also 
has a short but impressive coastline containing an ecologically 
diverse collection of rivers, lagoons, dunes and beaches, most all 
of which remain outside the reach of even the most adventurous 
traveler.  Finally, Leite lamented that Piaui has a long way to go 
to inform international visitors and Brazilians alike of these 
archeological and natural tourist attractions in the state. 
 
¶8.  (SBU) The private sector business community is also 
dissatisfied with the condition of Piaui's infrastructure, and says 
the Piaui state government is not doing enough to fulfill its 
infrastructure development obligations.  Manuel Arrey, a Piaui 
business leader, who grows and exports nuts, produces leather, and 
runs hotels in the state, explained at the conference that many 
entrepreneurs pursuing investment in Piaui eventually end up 
disengaging when the state government fails to comply with 
infrastructure commitments tied to the project.  Carlos Brasil, of 
the International Relations Coordination Office, privately 
confirmed the state's poor record complying with infrastructure 
assurances.  He told Econoff that at a recent Piaui Department of 
Development and Infrastructure meeting state officials brainstormed 
why many firms were backing out of projects in the state.  The 
overriding consensus among the group was that the state bureaucracy 
and lack of progress on infrastructure projects were to blame. 
 
LACK OF OUTSIDE KNOWLEDGE OF PIAUI 
 
¶9.  (SBU) International attorney and law professor from Sao Paulo, 
Larissa Teixeira, echoed Leite's comments describing a lack of 
knowledge about Piaui, but in connection to business and investment 
opportunities.  She told Econoff that most Brazilians only know 
Piaui as the poorest state in the country, and international 
investors familiar with Sao Paulo and Rio de Janeiro have not even 
heard of the state.  Teixeira said she represents a Brazilian fish 
farmer who is now in the final stages of opening operations in the 
neighboring states of Bahia or Pernambuco.  Despite Piaui's cheaper 
land costs and abundance of water resources, her clients refused to 
seriously consider the state, because, according to Teixeira, they 
were unable to imagine the state as anything else but a desolate 
region of the country. 
 
LACK OF COMPETENCE AND HUMAN CAPITAL 
 
¶10.  (SBU) Carlos Morais, who has been active in Partners of the 
 
Americas cooperative relationship between Piaui and Nebraska, 
described a series of frustrating U.S. - Brazilian business 
relationships that failed to materialize due, according to Morais, 
to a lack of competent Brazilian partners in Piaui.  While in 
Nebraska, as a member of the Midwestern International Trade 
Association (MITA), Morais said American firms complained of time 
management issues, scheduling delays, and missed commitments when 
working with counterparts in Piaui.  Teixeira also highlighted a 
lack of qualified local partners for larger foreign firms 
considering investment in Piaui.  She told Econoff that Piaui firms 
are reticent to engage with large foreign entities, and the state 
needs to build a stronger track record of successful Piaui - 
foreign investor partnerships to build confidence for both the 
Piaui prospective local partners and foreign firms. 
 
COMMENT 
 
¶11. (SBU) If the whole of Brazil is to achieve the increasingly 
impressive levels of prosperity of the country's south and 
southeast, traditionally less-developed regions in the northeast 
must attain higher than national levels of growth.  Otherwise, the 
income divide and related disparities will remain.  Piaui, the 
poorest state of the northeast, is not entirely reflective of the 
northeast region, where some notable investment activity is taking 
place, especially in the Suape port and adjacent industrial area in 
Pernambuco.  That said, the Piaui experience reveals a number of 
challenges the northeast needs to overcome, notably: poor 
infrastructure, a lack of outside knowledge of the opportunities, 
and a lack of competency among government and local partners. 
Mission Brazil will pursue additional positive engagement with 
Piaui and will specifically look to address human capital needs 
through promotion of Public Diplomacy international visitor 
opportunities, and to address social and economic development needs 
through Department grant initiatives.  End Comment. 
 
¶12.  (U) This cable was cleared/coordinated with Consulate Recife. 
KUBISKE