Author Archives: Bruno Mariotto Jubran

About Bruno Mariotto Jubran

Internacionalista, Pesquisador da FEE International Affairs Researcher at the FEE.

The global clashes over oil and their impacts on Brazil

Lucas Kerr de Oliveira is an adjunct professor at the Federal University of Latin American Integration (UNILA), Doctor of Political Science and MA in International Relations from the Federal University of Rio Grande do Sul (UFRGS). He is the coordinator of the Center for Strategic Studies, Geopolitics and Regional Integration at UNILA (Neegi) and associate researcher at the Center for International Studies on Government (Cegov), the South American Institute of Policy and Strategy (Isape) and the Brazilian Center for Strategy and International Relations (Nerint).

In an interview to Panorama, Lucas Kerr de Oliveira evaluates the centrality of China in world oil demand and underlines the key variables to understand the sector. He gives his opinion on the economic action strategies of Petrobras and states that the losses of the most acute Brazilian energy crisis in 2001 are still at stake. Oliveira shares his views on the policies of the Brazilian interim government regarding the energy sector and discusses the factors that have exacerbated the economic crisis in the country since 2015, after the fall in oil prices. For our interviewee, rather than an energy resource, oil is a means to boost development and provide security for a nation.

 

Panorama: For the conventional view, the sharp drop in oil prices is a question of demand, namely, the decrease of the Chinese “appetite” for this raw material. How do you see this matter?

The reduction in expectations of the Chinese growth can be considered a central variable to explain the current dynamics of global energy, including the current cycle of low oil prices, although it is just one of the many variables involved in this process. First, it is worth mentioning that China has increased its share in world energy consumption over the past three decades, standing as the largest global consumer of energy since 2009, when it surpassed the total consumption in the United States. In 2013, China surpassed the consumption of all Europe and the former Soviet Union combined, including Russia. Currently the Chinese energy consumption corresponds to 23% of the total consumption of world primary energy and should reach 25% by 2035. In other words, for the next 20 years China will match the same fraction of world energy consumption that the U.S. recorded between 1980 and 2000. From 1990 to 2011, China quadrupled its total primary energy consumption and also quadrupled oil consumption, reaching almost the same growth rate in coal consumption. From 2013 to 2014, we already noticed a reduction in the growth pace, thus averaging just over 5% a year between 2005 and 2015. In 2015, with Gross Domestic Product (GDP) growth at 7%, the growth in energy demand in China was only 1.5%, while the increase in oil consumption was 6.3%, representing half of the total global demand growth in 2015, which was 1.9 million barrels. It was expected that China could not keep this pace of expansion forever, especially due to the global economic crisis, which reduced the growth of the major partners of China, such as the U.S., Japan, the BRICS group (Brazil, Russia, India, China and South Africa), the Association of Southeast Asian Nations (Asean) and the European Union. Currently, China accounts for 13% of the world’s oil consumption, about 12 million barrels of oil per day (mb/d), equivalent to just over 60% of the 18 million consumed by the U.S. For all that, China is today a central actor for any scenario projections concerning the growth of global energy consumption.

Moreover, the current international context and the deepening of the political and economic crisis in the European Union largely reinforce the expectations that global energy demand will not expand significantly in the short term, especially as the crisis begins to affect most directly the emerging countries, including the BRICS. In addition, the growing expectations of expansion of oil drilling in new offshore areas (such as the Pre-Salt layer) and the prospects of an increasing share of alternative energy sources to oil, including renewable but also other fossil fuels, such as gas and shale oil, will further extend the prospects for enhanced energy supply in the short term.

Therefore, it is worth mentioning that variables such as demand and supply or inter-enterprise competition are not the only ones that matter to understand the oil industry. Oil is a variable that is directly related to international inter-state competition. This is because the control over the major oil reserves, as well as over the infrastructure of flow, refining and distribution of oil and oil products, consists of an important source not only of income, but also of power and influence for the world’s great powers. Largely, conserving the structures that control the global oil market is directly tied to the political and military influence that the United States still exerts, ranging from the leverage on important countries and oil-exporting regions, to the influence in the decision-making process involving investments in oil prospecting, including the control over the reinvestment of petrodollars, as the prices and sale continue to be held in dollars. And it is precisely the set of key strategic capabilities of the U.S. — the ability to support its allies, to project military force and to settle conflicts — that enables it to control much of the oil sector and the global monetary system. In other words, the political-military power ultimately continues as the main pillar of what still remains of the U.S. hegemony.

 

Panorama: The regulatory framework of Petrobras combines different strategies of economic activity: it is a publicly traded company, but it is also owned by the Brazilian state (50% + 1). What are the main advantages and disadvantages of such arrangement for the industry?

 

Petrobras was founded in 1953 already as a partially publicly traded company[1], but 90% of its shares were under state control. The idea of keeping the state as the major shareholder has always been connected to the search for more national sovereignty and autonomy in the exploitation of natural strategic resources such as oil, especially given the need to cope with the pressures and the interests of the largest European and American oil corporations. From the 1950s to the 1980s, such formula was crucial for the effort of Petrobras along the strategy of national energy security, which was shaped to provide logistic support for the major Brazilian strategy, which was based on industrialization and national development. In that process, Petrobras played a crucial role to enable the internalization of the decision-making processes of energy and oil sectors, enhancing the capacity of planning and national control over the exploitation of our own oil wealth. Throughout this process, there has been a slow reduction in the percentage of the state ownership of the company’s shares, but the state continued to be the majority shareholder. Petrobras was fulfilling its historic mission, significantly reducing energy insecurity in the country, diminishing the country’s dependence on imported oil and making Brazil virtually self-sufficient in refining products.

However, in the 1990s, as part of an extreme change in domestic politics, the country abandoned the grand strategy, which until then focused on a more autonomous international integration through national development. In such a context, Petrobras was dismantled, and without any strategic vision, state-owned refineries were separately sold, rather than transformed into a single large unit specialized in petrochemicals. As a result, Petrobras suffered serious restrictions to expand investments and was eventually partially privatized, with shares being sold at a very bad time and well below the actual market value. The result was the reduction of the national state control over Petrobras’ shares to only 32%, compared to a foreign ownership that reached more than 30%.

In this sense, the relinquishment of the energy sector to foreign interests was not restricted to Petrobras, but reached the entire national energy sector, with the sale of strategic infrastructure of generation and distribution of energy to foreign groups. Among the results of the renouncement of these strategic industries to foreign and domestic groups that had no commitment to national development and seek only short-term profit, was the loss of the long-term planning capacity, which is a very important feature in this industry. The ability of taking sovereign decisions on energy matters was handed over to allegedly more “efficient” forces of the market. The most visible outcome of this process was that Brazil suffered the biggest energy crisis in its history, which led to compulsory rationing of energy in 2001, known as “blackout”. The damages of that process are until today a topic of discussion, but considering the impacts then inflicted on industrial output, GDP shrinkage and rising unemployment, we can say that the losses were virtually incalculable.

Since 2003, we have seen a slow recovery of energy planning, which is key for the reconstruction of a national development strategy. The resumption of investments in the energy sector, through the resumption of both the construction of small and large hydroelectric power plants and Petrobras’ investments, was decisive in boosting the economic growth cycle along the following decade. The growth of Petrobras’ investments enabled it to become one of the international giants in the oil industry (peaking as the 4th largest company in the world in 2010), with investments in dozens of countries, besides the recovery of investments in Brazil, making the discovery of huge oil reserves in the pre-salt layer possible.

To have an idea of how important this process has been, it is interesting to note that restoring the capacity to plan and to make decisions in the energy sector has ensured, for example, a high level of oil self-sufficiency. It has also re-enabled Petrobras to use its purchasing power to revive the domestic shipbuilding industry, which has been achieved in less than a decade after the resumption of a minimally planned development strategy. Still considering the energy question, the adoption of local content policies in other sectors, such as wind power, has also been very positive, boosting the machinery and equipment business, such as the wind turbines sector.

Finally, it is interesting to point out that after 2010 the capitalization of Petrobras allowed again the expansion of the state’s share in the ownership of the company (to 46.9%). It ensured the preservation of the investments required to explore the pre-salt layer, which currently accounts for more than 1 million barrels of oil extracted per day. In the same environment, the “New Petroleum Law” has enabled to overcome the limits of the concession system by creating a hybrid system in Brazil, which holds auctions through the concessions system in high-risk areas, but also applies the production sharing system, which it is much more advantageous for Brazil in low-risk areas such as in the pre-salt. The sharing system, by ensuring a 30% share and control of blocks for Petrobras, in fact, means the ability to control the exploitation of national oil wealth, and also the prospects of consolidating the local content policy in the long run.

 

Panorama: Given the maintenance of oil prices at a low level and the financial difficulties faced by Petrobras, is it possible that this business model will be revised in the near future to ensure greater participation of private or foreign companies?

Hardly prices will remain so low for too long. It is more likely that current prices will gradually recover over the next two or three years, as it occurred in the last cycles of significant price drops. However, the timing of that recovery will depend on many factors, namely the pace of resumption of global economic growth, especially in emerging countries such as the BRICS and, also, the increase in the volume of oil consumption in China and the U.S. Another influencing issue is the prospect of change in the export policy of the members of the Organization of the Petroleum Exporting Countries (OPEC) and the escalation or the stabilization of the conflict regarding the proxy war between Saudi Arabia and Iran in the Syrian civil war and the western Iraq, involving the Islamic State.

Thus, the cycles of drop in oil prices in 2009-10 and 2014-16 had a significant and direct impact on the investment capacity of Petrobras, which has been even worsened in a context of cuts in government spending and severe political instability. In this context, the weakening of more nationalist policies in energy affairs favors local and foreign antinational sentiments, which advocate the revision of the sharing model and the restoration of the concession system for exploiting the pre-salt. These pressures are already present and integrated into the discussions on the law changes approved by the Senate earlier this year, removing the guarantee of national control in the exploitation of pre-salt blocks, which Petrobras was expected to perform.

Although the current government is interim, thus temporary, there is a clear inclination to proceed with permanent changes, regardless of the negative impacts that may exist. Unfortunately, it seems that an old terminology that summarizes the major lines in dispute on the national political scene in two great antagonistic political and ideological forces still applies: the “nationalists” and the “entreguistas”[2]. The interim government seems strongly inclined to adopt submissive policies in strategic sectors including oil exploration. Among the symptoms of that stance, we highlight the predisposition of the current government to hand over the most profitable assets of Petrobras in an accelerated process of privatization that can cause incalculable long-term damage for the capacity of energy planning of the government, that is, these effects are clearly contrary to the national interest.

 

 

Panorama: Some regions of Brazil, which until recently were economically less developed, have witnessed a significant and relatively rapid progress with the activation of Petrobras’ investments throughout the 2000s. In the case of Rio Grande, a city in the southern State of Rio Grande do Sul, the company’s purchases strongly boosted the local shipbuilding sector, which, between 2010 and 2014, hired nearly 7,000 employees. Given the revision of the investment policy of Petrobras, what are the possible impacts for this region, in your view?

Petrobras’ decision to prioritize the acquisitions of ships and oil platforms in the country through a policy of “local content” was primarily responsible for the revival of the Brazilian shipbuilding industry. There is talk of revival because during the neoliberal decade of the 1990s our shipbuilding industry, which was among the five largest in the world in the 1980s, was literally “wiped off the map.” In 2000, what was left of the Brazilian shipbuilding industry employed only about 2,000 workers. In 2003, the administration of President Lula decided to change this situation with the local content policy for purchases of ships and oil platforms for Petrobras, launching the Mobilization Program of Oil and Natural Gas Industry (Prominp). Although the program struggled to raise the percentage of national high-tech content, it was enough to enable the Brazilian shipbuilding industry to rise from the ashes, regaining its position among global leaders, employing over 80,000 workers in 2013-14. Until then, Petrobras kept its accelerated investments and Brazil seemed to avoid significant consequences of the global economic crisis. It is no coincidence that in 2013 President Dilma reached her highest approval ratings, which surpassed those of President Lula.

However, the economic crisis began to affect Brazil more directly from 2015 on. The fall in oil prices, which reached US$ 30 a barrel, has deeply affected the investment expectations of the oil industry all over the world. But Petrobras has been hit harder, and has started to reduce its investments, thus affecting the shipbuilding industry.

Among the factors that have worsened the economic crisis, we draw attention to the corruption scandals involving several politicians of the government coalition and big national companies, including Petrobras and the largest contractors in the country. The judicial operation named as “Operation Car Wash” has provoked the paralysis of the main Brazilian contractors, as well as the interruption of many of the ongoing public works, resulting in a serious crisis over the construction sector of the country, eventually intensifying the economic and social crisis. In that context, we witnessed a strong re-articulation of the opposition with the participation of sectors hitherto allied with the government and the establishment of a serious political crisis. Among the main results, we observe the deepening economic crisis and the political-institutional breakdown that led to the replacement of the elected government with an interim administration.

In this process, Petrobras was constrained to reconsider its investment plans, especially taking into account the unstable political environment and the economic crisis. The interim government has further performed the policy of spending cuts in Petrobras’ investments, foreseeing more significant reductions in future investments. This year alone, the construction of 11 new oil tankers was cancelled, many shipyards went bankrupt all over the country and the production of some oil platforms has been transferred to foreign shipyards. In Rio Grande, platforms that were already commissioned had their contracts cancelled and more than half of the jobs in the local shipbuilding industry have already disappeared. However, the resumption of Petrobras’ investments in the purchase of ships and platforms will depend on both the pace of the recovery in oil prices (which may take about two years to stabilize) and on the outcome of the current political crisis in the country. If the result is favorable to the company and the local content policy, the recovery of investments in ships and platforms should take place in the coming years, that is, it tends to be slower and more gradual than the ideal for the shipbuilding industry.

[1]  The Portuguese designation for this kind of corporation is Sociedade Anônima (S.A.).

[2]  Entreguista, a term widely used in the Brazilian political debate, is pejoratively applied to advocates of the free market regime in strategic sectors. The term comes from the notion of handing over (in Portuguese entregar) a state-owned company to the foreign capital.

Oil as a strategic resource: from global to local

Oil has been the most exploited energy source in the world since the mid-20th century, by boosting the so-called “second industrial revolution” and thus becoming the driving force for the expansion of industries and of the production of machinery and vehicles, and for the technological innovations in the period. Currently, the resource remains central in almost all regions of the world and may maintain that position over the next decades, although the share of alternative energy sources, renewable or not, has been increasing in the global energy matrix.

In this issue of Panorama Internacional, we reflect on this theme, which is as ubiquitous as relevant in the globe, with very diverse local impacts. Given the diversity and the comprehensiveness of this topic, we do not intend to exhaust discussions or even to provide definitive answers to intricate questions. On the contrary, such complexity enables the development of multidisciplinary and multilevel investigations on the subject, which is so relevant for public officials, private sector entrepreneurs, researchers, students and other stakeholders.

Although petroleum has aroused interest uninterruptedly for decades, it is relevant to point out some of the motivations to highlight this topic at this time. First, at the national level, the discussion about the regime of oil exploitation often takes too simplistic shapes, for instance, on what the best form to exploit it is, either under state control or by opening up the sector to private competition. This debate, which has been accompanying the very existence of the government-owned Petrobras since the 1950s, resumes when the company is in adverse situations, especially in a financial point of view, as nowadays. Second, the fall in oil prices, a noticeable trend since mid-2014, has generated quite contradictory impacts in many regions of the world. The effects are not homogeneous for each region, comprising exporters and importers. As for the exporters, some of them, such as Saudi Arabia, managed to enhance their share in the global market. On the other hand, some importers, aiming at reducing costs and obtaining a certain relief in their current accounts, might lose the incentive to invest in alternative and/or local energy sources, thus increasing their external vulnerability in the medium and long term.

Readers will notice an understanding common to all texts that the topic of the debate cannot be simplified to an accounting relation of cost-benefit in a given period. In this case, the discussion should start from the assumption that petroleum, while it remains an important global energy source, should be perceived as a strategic resource to provide energy security for a given nation, to be an instrument of power in the global geopolitics, to acquire means to boost economic development, to mitigate social and interregional inequalities, to enable technological enhancement, among other uses.

The array of the articles in this issue exhibits a certain logic, from the global context towards local problems. Our starting point is an analysis by researcher Ricardo F. Leães about the dynamics of global oil flows and the strategy of some of its key players. The author stresses that, beyond the movements in the demand side, such as the decrease in the “Chinese appetite,” as emphasized on the conventional wisdom, we should also bear in mind the structure on the supply side. Two movements may be helpful to understand the ongoing changes in this context: (a) the reduction of energy vulnerability of the United States, which has been expanding internal oil production and acquiring it from more reliable sources, especially Canada; (b) the role of Saudi Arabia, which has shown interest in keeping prices below U$50 a barrel, possibly to harm actual and potential competitors, particularly Russia and Iran. The continuity of this situation may broaden the room for maneuver of Saudi Arabia and other Gulf monarchies, but might harm most global exporters, and even induce importers to increase their oil dependence and to decrease their interest in alternative energy sources.

Concerning Latin America, Thomas Fiori develops a comparative examination of oil property regimes in four nations, three of which are more industrialized economies (Argentina, Brazil, Mexico), and the fourth (Venezuela) is a leading global producer of oil. The author seeks to show that the sector, at least among the selected cases, is not limited to a logic of increasing revenues and reducing costs. It is also necessary to understand some aspects of policy and international security, such as sensitivity (which refers to the susceptibility of a given system to external shocks) and vulnerability (which is the responsiveness or adaptation to external shocks). Thus, the states strive not only to minimize their costs, but also to reduce their external vulnerability, which explains the many possibilities of solving the relationship between state and market, regarding the control of oil property.

In the domestic realm, Cecilia R. Hoff explores the relevance of Petrobras for the Brazilian economy, despite the economic crisis in the country. In addition to the relevance of its size, the company has significantly increased its contribution to the variable gross fixed capital formation after the crisis of 2008. The author also brings up a relevant fact: the company’s physical production has increased, despite the financial difficulties and the Brazilian economic crisis. In addition, the state-owned enterprise has sought to dampen price volatility in the international market, thus ensuring that domestic prices do not oscillate at the same frequency, reducing the impact on inflation. So far, the economic crisis has played a role to resize or even to suspend several relevant projects, and at the same time the company has been impelled to focus on some activities regarded as essential, such as the exploitation of the pre-salt layer oil fields.

Finally, researchers Cesar S. Conceição and Roberto P. da Rocha scrutinize the investment policies of Petrobras and their effects on the shipbuilding sector in Rio Grande, in the southernmost region of the State of Rio Grande do Sul. They put forward the hypothesis that certain government policies in the first decade of the current century, particularly the reactivation of investments in the oil sector, have led to the development of some sectors in that region, such as shipbuilding, equipment and components for ships, as well as platforms for offshore oil exploration and production. They present some of the results of such activity in the labor market of the local shipbuilding sector in the early 2010s, but also point to a reversal of this trend since 2015. In this essay, which has an intertextuality with Hoff’s, the authors conclude that the increasing difficulties of the cash flow of the company since 2014 have caused a retraction in its activities and investments, endangering the continuity of the remarkable progress of the naval industry in Rio Grande in recent years.

The interviewee of the current issue is Lucas K. de Oliveira, Associate Professor of International Relations at the Federal University for Latin American Integration (UNILA) and researcher at the Center of Studies on Government (Cegov). He has developed research on energy security issues and conflicts in oil producing regions. He points out the existence of a constant clash between the great powers over the control not only of oil production, but also of its distribution and its revenues, and makes some comments on the consequences for Brazil.

Enjoy your reading!

The prevailing discourse on the Syrian Civil War as an aggravating factor in the refugee issue

The humanitarian crisis in Syria is one of the most prominent issues of the international agenda, given the huge amount of people forced to abandon their homes due to the civil war that has been raging the country since 2011. Generically speaking, it is stated that the humanitarian crisis has been triggered by the crackdown of dictator Bashar al-Assad, who has never been indeed willing to dialogue with the opposition. This perspective, although empirically true, is not enough to understand the extension of the problem, which is more multifaceted than it appears to be. In this paper, we will seek to show that the construction of this reductionist Manichean narrative by the United States and their allies in Europe and in the Middle East not only has proved to be misleading, but has also contributed to deteriorate the humanitarian situation by conceding power, tacitly and concretely, to fundamentalist organizations. Furthermore, our goal is to show that the main active governments in the conflict, which helped to increase the flow of expatriates, have been reluctant to shelter war refugees.

The Syrian Civil War is a local outcome of a broader phenomenon in the regional context, the Arab Spring, in which authoritarian governments were impelled to react to mass demonstrations nourished by demands that were as comprehensive as complex. According to the most widespread and heralded narrative by the U.S. government and in large news agencies, the Syrian government, by then, felt pushed by its own people demanding for democratization. From this perspective, Syria would be divided between the oppressive government forces and a pro-democracy opposition taking up arms for a fair cause.

In this view, it was common to distinguish the two main rival groups in the conflict. On one side, the repression forces of dictator Assad sought to suppress any manifestation against the government and to maintain the supremacy of his family, which has been in power in the country since 1971. On the other, the so-called “freedom fighters”, led by the Free Syrian Army (FSA), aimed to overthrow a despotic government, increasing support from public opinion. Thus, as Assad intensified repression to contain the internal pressures, groups willing to use weapons to overthrow him prospered, on the grounds of establishing democracy in the country. Indeed, soon it became clear that the assessment on Assad was justified, as his government did not avoid resorting to the most violent measures to suppress opposition, fostering a broad movement of internal and external displacement of the Syrian population.

However, contrary to what might seem, the situation in Syria could never be simplified to a dichotomy between an authoritarian regime and its democratic opponents. In fact, the Free Syrian Army was overrated by international analysts, both in terms of size and commitment to defend democracy. It soon became evident that this group was much smaller than announced and that its members controlled sparse and tiny regions. In addition, fundamentalist organizations such as Al-Nusra Front and the Islamic State (Daesh) were, in reality, the main opponents of Assad, thus weakening the hypothesis that if the Syrian President was deposed, democratic institutions would quickly flourish. Despite these issues, the United States and its allies in Europe and in the Middle East — including France, the UK, Turkey and Saudi Arabia — have remained faithful to the idea that it was necessary to remove Assad in order to end the civil war and to start a coalition government.

The unyielding stance of the United States proved to be decisive for the continuity of the conflict in Syria as it gave, in practice, “green light” for al-Nusra and Daesh, which were advancing by leaps and bounds. Under the guise of defending the moderate rebels, the anti-Assad fundamentalists were given a “blind eye”, hoping that their victory would strengthen the FSA. However, the result was the opposite: the success of fundamentalists further depleted the ranks of the FSA. Given the fact that many of the fighters who switched sides had been trained by the United States, we observe not an advance of democratic groups, but rather the strengthening of the fundamentalists, who have been relying on U.S. weaponry. Thus, pessimism among Syrian citizens increased, as they no longer hoped for a quick end to the civil war and were forced to flee not only from the government, but also from the al-Nusra and the Daesh.

We note, therefore, that those countries that consider Assad’s fall as a primary goal for Syria not only have failed to promote democracy, but have also toughened fundamentalist movements, thus intensifying pressure on the Syrians, who found themselves forced to leave their country. Probably the situation would have been even worse if the UN Security Council had approved a military intervention in Syria, as wished President Barack Obama in 2013. This initiative would have been tragic for the country’s population, given the fact that most of its inhabitants live in areas under Assad government’s control. The purpose of Obama, ultimately, was to bomb the most populated areas of Syria, which would likely increase the number of refugees and contribute to the expansion of the territory controlled by Daesh and by al-Nusra and even to strengthen popular support for such groups.

One of the central features of the Syrian crisis is the high number of people driven from their homes, around 11 million people by December 2015, according to the High Commissioner of the United Nations for Refugees (UNHCR) [1], representing almost half of the national population at the beginning of the conflict in 2011. The majority remained in Syria (6.6 million), while the number of refugees in other countries was around 4.3 million. Nearly 90% of the refugees in other countries have moved to the neighboring nations of Syria, notably Turkey (about 2.2 million, or nearly half of all refugees abroad), Lebanon (about 1.2 million, representing an increase of nearly 30% the population of that country), Jordan (630,000), Iraq (250,000) and Egypt (130,000). A share of just over 10% of Syrian refugees abroad has sought protection in Europe, especially in Serbia (275,000) and Germany (185,000).

Germany’s position in relation to the refugees has been dubious and irresolute. In August 2015, the German Government announced that it would no longer apply the Dublin Agreement, under which asylum seekers in the European Union (EU) must remain in the country through which they entered. In practice, the treaty is a burden on the poorest states of the continent — the main gateway for refugees — and allows rich countries to deport migrants who reach their territory. Paradoxically, however, Germany has proposed, within the EU, a package of €3 billion to Turkey in order to contain refugee flow into Europe. Between the lines, it was inferred that a “favorable” conduct of Turkey could accelerate its membership process into the EU. To make matters worse, in November, Germany announced that it would enforce the Dublin Agreement again, burying the hopes that the country would lead a policy of open doors to Syrian refugees.

texto-2-figura-1-eng

It is significant that, with the important exception of Turkey, several countries that have been actively involved in the conflict are not among the main receivers of war refugees, in particular the United States, which sheltered only 2,234 Syrian refugees until December 2015[2]. France has received 8,894 refugees[3], while Russia has welcome, officially, about 2,000 Syrian citizens in this condition in its territory[4]. Iran has limited itself to providing material assistance without registering significant incursions of Syrian refugees in its territory. The Gulf monarchies, some of which are crucial supporters of several rebel groups opposed to Assad, have been even more reluctant to receive refugees. Leaders of Saudi Arabia, Qatar, Kuwait and the UAE have limited themselves to extend the residence period for Syrian nationals already established in those countries[5]. This phenomenon is serious not only due to the participation of these monarchies in the conflict, but also because they are the countries of the region that exhibit the best financial conditions for hosting the refugees.

After four years of civil war, the outlook for Syria and its refugees remains adverse, to the extent that most of the country’s territory remains under the control of fundamentalists, although the most densely populated regions remain under the firm grip of Assad. Moreover, the absence of a feasible democratic alternative to Assad’s government intensifies the obstacles for stability in Syria, because the U.S. and its allies, although not offering a solution, insist on a regime change in that country, without bearing the costs involved in the intake and assistance regarding war refugees. Under such circumstances, there is an impasse, as the government and the fundamentalists are the most significant political forces in Syria, meaning that it is hard to fight them simultaneously. Indeed, Syria shows that the confrontation with the local government has not fostered a democratic solution, but rather generated a power vacuum that is quickly filled by fundamentalists, just as happened in Iraq and Libya. This scenario is detrimental to the Syrian population, who has little choice but to swell the contingent of refugees.

 

[1]   UNITED NATIONS HIGH COMMISSIONER FOR REFUGEES. 2015 UNHCR country operations profile — Syrian Arab Republic. 2015. Retrieved from on Dec. 30, 2015.

[2]    UNITED STATES OF AMERICA. Department of State. Myths and Facts: Resettling Syrian Refugees. 2015. Retrieved from on Dec. 30, 2015.

[3]    UNITED NATIONS HIGH COMMISSIONER FOR REFUGEES. Europe: Syrian Asylum Applications. 2015. Retrieved from on Dec. 30, 2015.

[4]    Россия приютила 2 тысячи беженцев из Сирии. Газета.Ру. 2015. Retrieved from on Dec. 30, 2015.

[In English: Russia has sheltered 2,000 refugees from Syria. Gazeta.ru.]

[5]   MARTINEZ, M. Syrian refugees: which countries welcome them, which ones don’t. Retrieved from <http://edition.cnn.com/2015/09/09/world/welcome-syrian-refugees-countries/> on Dec. 30, 2015.

Mercosur: far beyond the economic integration

In 2016, the Southern Common Market (Mercosur) celebrates its 25th anniversary amid uncertainty and criticism in Brazil and speculations about its extinction. Among the main alleged reasons for such a pessimistic view is, firstly, the bloc’s ineffectiveness in promoting closer economic ties between the countries; secondly, the persisting losses to Brazil; and, finally, the structural constraints when conducting negotiations with other countries or blocs.

Although criticism of Mercosur is pertinent, it is noteworthy to stress that integration should be more broadly viewed and issues beyond trade should also be considered. Although highly relevant, trade is not the only object of regional integration, which also involves security, culture and education. Moreover, the bloc has progressed at different paces in each sector, similarly to other regional integration mechanisms, including the European Union (EU).

Regarding the first criticism, the bloc is said to have failed in promoting economic integration among its member countries and the recent drop in intra-bloc trade, at least in relative terms, has been highlighted. The main reason seems to be the protectionist attitude of the Government of Argentina. In fact, both for Brazil and the State of Rio Grande do Sul, the Mercosur countries have significantly reduced their share in recent years due to the exceptional performance of exports to China.

However, stating that Mercosur has been ineffective or has lost its relevance is not totally true, especially when the historical data are expanded. Despite sharing borders which extend for more than 1,200km, Brazil and Argentina, until the 1990s, lacked relevant and lasting economic cooperation. For decades, Brazil’s main trade partners were the United States and West Germany. Moreover, the dynamics of bilateral relations between Brazil and Argentina has always been marked by ephemeral cooperation initiatives and the persistence of a rivalry logic.

The figure below shows that bilateral trade between Brazil and Argentina reached historic levels after the creation of Mercosur in 1991. In addition, a rise in trade can also be traced back to the early 1960s, which was subsequently discontinued. The creation of the Latin American Free Trade Association (LAFTA), a tripartite initiative between Brazil, Argentina and Mexico, explains that inflection. However, as governments lacked interest in maintaining the project, regional trade turned back to previous standards, which can be a warning to the proposers of the dissolution of Mercosur.

Share of Argentina in Brazilian foreign trade — 1953-2013

Mercosur was a path for the consolidation of multi-sectoral efforts of rapprochement between Brazil and Argentina initiated by the end of the Brazilian civil-military dictatorship. Actually, moments of greater optimism can be outlined, such as in the early 1990s, during the formalization of the bloc, as well as other critical phases, such as the devaluation of the real (the Brazilian currency) in 1999, which deeply disappointed the other Mercosur members, and shortly after that, when Argentina experienced a severe economic and social crisis. The recent stagnation in terms of value of trade flows certainly causes apprehension, but it is worth observing that the imposition of import quotas on Brazilian products by the Government of Argentina is a measure of trade protection in accordance with the rules of the World Trade Organization (WTO) in case a sudden surge in imports harms a given sector of the economy or its balance of payments, if proved the causal nexuses between them.

Beyond the trade issue, an institutional framework has been gradually established for implementing cooperation projects in several issues such as policy, education, culture, security, among others. In addition, the institution of the democracy clause by means of the Ushuaia Protocol (1998), and more recently the creation of the Mercosur Parliament, denotes the political commitment of governments to the democratic values and institutions, bringing together citizens in a more effective fashion. Although the deadline for parliamentary elections by direct vote has been extended to 2020, in Paraguay two elections have already been held (2008 and 2012).

Regarding the issue of costs, “mercopessimists” assert that Brazil is the most affected nation in the bloc. However, it should be noted that in many of the cases of formation of regional coalitions, the most powerful nations (in economic, political or military terms) are the proponents of regional integration initiatives, such as in the Franco-German condominium in the EU, Russia in the Eurasian Union, the United States in the North American Free Trade Agreement (NAFTA) and China in the negotiations of the Comprehensive Economic Partnership for East Asia. In all these cases, larger nations have granted some tangible or immediate advantages to smaller partners so as to increase the attractiveness of the bloc. For example, in the European Community and in Mercosur, the headquarters of the integration mechanisms lay outside the territory of the major nations: Brussels (Belgium) and Montevideo (Uruguay), respectively, attend to this function.

The benefits or concessions directed to smaller countries in any process of economic integration is usually explained by the fact that the economies of these countries, in many cases, lack the degree of competitiveness of the enterprises of the larger ones, which typically operate on a much larger scale and can explore opportunities faster than their counterparts. Another argument advanced by Uruguayan and Paraguayan politicians and negotiators is that their countries are more prone to trade diversion after the imposition of a common external tariff. According to this view, smaller countries tend to be more damaged, because their economies are normally more dependent on foreign trade than those of the bigger ones.

Adhering as minority partners, the more fragile nations in economic, demographic or territorial terms need to rely on tangible and immediate benefits to bring to bear their participation in the regional integration project. In the case of Mercosur, it is observed that the main political gains could only be obtained by Brazil, the only one that can rise to a global player status. If the integration process is proven to be successful, the Brazilian companies would be the most favored ones, Brazil would be a global power and in a better position to own a permanent seat at the United Nations Security Council. Therefore, it is expected that the actor with higher stakes in Mercosur should bear a greater part of its costs, in order to mitigate regional disparities and promote intra-bloc economic growth. It is not reasonable to imagine that Uruguayans, Paraguayans, Venezuelans and Argentines would desire to take part in a group led by Brazilians without obtaining material advantages in return.

A third set of criticism argues that Mercosur has hampered negotiations of trade agreements with other countries or blocs because of alleged low willingness of some of its members to strengthen relations with other countries. From this perspective, Brazil should abandon its regional commitments and alone conduct negotiations with the European Union and the United States. However, in this case, a complex yet common dilemma in international politics can be pointed out. Actually, it is possible to admit that any agreement between Brazil and the European Union may be more comprehensive in terms of content, but it is also likely that its terms will be more unequal than those of an agreement between blocs. The bargaining power tends to be higher when its actors prefer acting together to negotiating separately, but it is also likely that the final agreement will exhibit a more limited thematic scope.

This way, the 25 years of existence of Mercosur should be evaluated concurrently from both political and economic perspectives, considering their synergies. Analyzing its dimensions separately means viewing it as the individualized strategies adopted by each of its members in a zero-sum game. Although the economic dimension of Mercosur has been used as a gauge of its success due to how easy it is to measure the volumes and values ​​of its trade flows, it is imperative to highlight that any economic agreement is preceded by some sort of political understanding to mitigate the differences inherent in the integration process. For this reason, the political dimension of integration in Mercosur plays an important role. As its institutions are consolidated as integration and conflict resolution forums in the different areas of their respective governments, opportunities are created both to reduce costs and to increase the gains from the integration between its member countries.

The developing countries on Rio Grande do Sul’s trade radar: the case of agricultural machinery

It is common to analyze the insertion of the State of Rio Grande do Sul in the global economy by taking into account topics such as its exporting partners — Argentina, China and the United States, not necessarily in this order — and the traded goods — soybeans and its products, meat (beef, pork and chicken), tobacco and chemicals. Although an increase (or maintenance) in the economic flows to these destinations and in these sectors is desirable, it is convenient to explore the opportunities in countries with high potential of economic growth in the next decades: the developing or emerging markets, especially those in southern Asia and in Sub-Saharan Africa.

Graph 1 - Share of countries and blocs in the exports of Rio Grande do Sul — 2003-14

Currently, most exports of Rio Grande do Sul are already directed to developing and emerging countries, thus following the trend of Brazilian exports, as shown in Graph 1. According to data from the Economics and Statistics Foundation (FEE), exports to the other four BRICS members (China, India, Russia and South Africa) and to the remaining Latin American countries comprised, in 2014, more than half of the state’s total exports (the proportions were 27.2% and 23.8% respectively). If other developing countries in Africa, Asia and the Middle East are considered, this proportion will certainly increase. The developed world — North America (9.2%), Europe (16.8%) and Japan (1.22%) — remains relevant, but its share has reduced over the last two decades.

Characterizing the current trade with emerging countries in general lines is a complicated task, as we can observe differing patterns for each geographical area. While soybeans and its products predominate in the commerce with East Asian partners (China, India, South Korea and Vietnam), in Africa and in bordering countries of Brazil, the export basket is more diversified. In the case of Rio Grande do Sul’s exports to Argentina, for instance, in spite of recent fluctuations and restrictions, products of medium and high added value, such as agricultural machinery, transport vehicles, industrial inputs and chemicals, are still relevant. When it comes to African and Middle East nations, other sectors are more salient, as the case of meat products to Angola (roughly US$108 million in 2014, or almost 54% of exports to that country), tobacco to Indonesia (47% of the basket to the country), and rice to Cuba (45% of the basket), according to statistics from the Brazilian Ministry of Development, Industry and Foreign Trade (MDIC).

An observation of this recent trade dynamics should not undermine the considerable potential of intensifying the trade with most emerging countries. The expectations about the broadening of agricultural frontiers in Latin America and in Africa offer, at the same time, opportunities and challenges to the insertion of the state in the global economy. African and other Latin American markets are competitors of Rio Grande do Sul as producers and exporters of soybeans and corn and also partners as importers of agricultural machinery. This may be not only a very profitable niche for the local companies and entrepreneurs, but also a convenient solution for the risk of excessive commoditization of state exports in recent times.

Graph 2 Composition of Rio Grande do Sul’s exports of agricultural machinery by destination — 2003-14

Currently, African and Latin American countries purchase 92% of Rio Grande do Sul’s exports of agricultural machinery, as can be seen in Graph 2. This figure is even more significant when we bear in mind that it was only 72% in 2005. Such process is in line with a wider movement within the Brazilian commercial policy over recent years, focused on the expansion of economic activities in emerging markets. With respect to the agricultural machinery industry, such strategy provides an additional demand for the industrial sectors of Rio Grande do Sul which have been struggling to compete in foreign markets. As the primary sector is still predominant in most of Latin America and Africa, the state’s industry may restore its share within the state’s exports.

In Africa, Ethiopia, Chad, Mozambique and Rwanda are among the top ten countries in economic growth rates in the 21st century. Unlike Angola and Nigeria, they are not rich in mineral resources and have prospered thanks to agriculture. Placed in the earliest stages of development, these nations still need machinery to expand their rural production, which represents a significant room for the economy of Rio Grande do Sul.  In fact, the Brazilian government signed an agreement in 2013 aimed at financing exports of agricultural machinery to Africa, through the Financing Program for Exports (Proex). Such measure is part of the international More Food Program, whose purpose is to promote the development of agriculture in Africa. Finally, the line of credit offered by the Brazilian National Bank for Economic and Social Development (BNDES) for exports-driven and non-agricultural products can be used by the state industry interested in exporting to Africa.

Furthermore, among Latin American countries, we highlight Bolivia and Paraguay, whose economic growth rates have been sound due to the expansion of family farming and to the advance of soybeans cultivation respectively. These processes have been influencing the state industry, which increased its sales to Bolivian and Paraguayan farmers. Concerning Paraguay, the strong presence of Brazilian-origin farmers (many of which, born in Rio Grande do Sul) strengthens the ties between the rural production in that country and the state’s industry of agricultural machinery. In addition, the increase in exports to Venezuela, despite its acute economic crisis, is probably a consequence of the accession of that country to the Southern Common Market (Mercosur), an initiative supported by many Brazilian industrial groups. Argentina has been an exception to the norm: its protectionist stance on trade, more visible after 2009, has induced a stark reduction of 56% on local sales from 2007 to 2013.

Economic and Trade promotion overseas, in contrast to the political and diplomatic relations, is not an exclusive competence of federal authorities. States and city authorities may — and are expected to — encourage local business beyond the borders of the nation. Actually, the activity of subnational governments in global economy has become more and more common, which operates, in most cases, as a complement to the national diplomatic bodies, or as a link between the latter and the business community. The forging of economic ties of Rio Grande do Sul with nations and regions traditionally underrated within the state trade outlook meets the interest of society and reinforces the current Brazilian foreign policy.