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Follow the money


In all the coverage of Brazil and the World Cup in the UK media – and at times it’s felt overwhelming, even to those of us who have longed argued that the world’s media comes close to ignoring the world’s fifth largest  country – one important theme has been completely overlooked. And, for those with eyes to see it, it’s an issue that has been very evident. Demolition work for World Cup credit: Jimmy ChalkThere was a great deal of coverage over whether or not the new stadiums would be finished on time, something that the press has gone quiet on, now that the matches so far have gone off without any major hitch. But little attention was paid to the companies that were benefiting from Brazil’s spending frenzy. Commentators have nicknamed Brazil’s four largest construction companies – Odebrecht, OAS, Camargo Corrêa and  Andrade Gutierrez – the Four Sisters, following the example of Enrico Mattei,  then-head of the Italian state oil company Eni, who in the 1950s coined the term Seven Sisters to describe the cartel of oil companies who dominated the global petroleum industry. According to research carried out by LAB partner Pública, Brazil’s Four Sisters have won most of the work in all ten of the biggest infrastructure contracts awarded for the World Cup and the Olympics. The work includes the rebuilding of the Maracanã stadium, the construction of the Olympic Park and Line 4 of the Rio Metro. These ten contracts were worth almost R$30bn (£8bn). Odebrecht is the champion: it won a large share of all eight of the ten contracts. OAS and Andrade Gutierrez came joint second, with a strong presence in six of the ten contracts. For further details, in Portuguese, go to Pública’s website. Often it seems that the cake is being divided up between the big boys. The names of the same four companies turn up with monotonous regularity in the awards for work in Brazil’s vast scheme for hydroelectric dam expansion in the Amazon. And again the names rotate. The way the cake has been divided between the Four Sisters has, not surprisingly, raised suspicions among some economists. Paulo Furquim, a former member of the Administrative Council of Economic Defence (CADE), the body that enacts Brazil’s anti-trust legislation, commented: “These situations with big projects, particularly the formation of consortia and alternating winners, provide considerable evidence of the existence of a cartel. Additional evidence of over-billing gives us a sufficient motive for an investigation.” Indeed, investigations were carried out with respect to the São Paulo metro, with the companies forced to pay the authorities compensation of R$2.5bn (£670m). But there is little to suggest that the system itself has been reformed, with many believing that the cartel is still alive and well.

Harsh critic

One of the most vociferous critics of the power of the construction companies is Célio Bermann, an energy specialist and lecturer in energy and the environment at the University of São Paulo. He believes that there is an unholy alliance between construction companies and politicians. “The engine behind the system is public money, particularly during the construction period. That’s the time when money flows, fortunes are made”, said Bermann in a recent interview. And, he added, both parties benefit, with the construction companies winning lucrative dam-building contracts and the politicians gaining generous hand-outs at election time. According to data from Brazil’s Court of Electoral Accounts, the four biggest contributors to electoral campaigns between 2002 and 2012 were construction companies. Paradoxically, the development of these big powerful companies was deliberately sought by left-of-centre President Lula during his terms in office (2003-2012). He thought that Brazil would only be able to compete successfully on the world market if it created its own multinationals, every bit as powerful as those found in the industrialised countries. He once said that Brazil needed the equivalent of South Korea’s chaebols. One of the main ways in which he achieved this was beefing up the power of the country’s state-owned development bank, the BNDES. The amount BNDES lent each year increased from R$35.10bn (£9.3bn) in 2003 to R$168.40bn (£44.6bn) in 2010. As a result, annual disbursements are today worth more than twice the combined expenditures of the World Bank and the Inter-American Development Bank. And over half of these loans regularly go to no more than 12 companies. Today Brazil has some of the largest construction companies in the world. But, predictably enough, the risk of cartelisation has grown and, with every large political party dependent on these companies for electoral funding, it is hard to see how the genie can be put back the bottle. CADE was expanded and strengthened in 2012 but it still faces a huge challenge. One of the themes that emerged in the massive TV coverage of Brazil in the run-up to the World Cup was the shocking level of inequality in the country, at times apparently jumping out of the screen against the wishes of the documentary-maker. With the favelas located cheek by jowl with the rich areas in Rio, it is impossible to visit the city and not see it. We would have had different coverage, I suspect, if the film-makers had gone to São Paulo, where the favelas are more conveniently hidden from public view. But no-one asked why it has been so difficult for a left-of-centre government, now in power for over a decade, to tackle this pressing issue. They should have followed that corny but still useful adage – follow the money. Even though the PT governments have taken effective measures to redistribute income to the poorest sectors, they have also created a system that is feeding inequality. It is a worrying development.

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