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Rt. Hon. Lord Mandelson, First Secretary of State, Secretary of State for Business, Innovation & Skills, Lord President of the Council
FIESP Event, Sao Paulo, Brazil, 25 March 2009
It’s good to be here. Usually at an event like this I stand up and I talk about how strong our trade relationship is, and how we can keep business booming. Well I want to do a version of that today, but of course the reality is that for many of us, business isn’t booming. Business is tough. Tougher than it has been for a long time.
Whether it is the contraction in credit, or the fall in commodity prices, or the general impact of a global slump in growth and demand, this crisis is hurting everybody. It’s a huge testament to the dynamism and momentum of Brazil’s economic renewal that the situation here, while of concern to you all, is not as serious as in many other countries. But out there in many of Brazil’s vital export markets in the region, the US or Europe there is a crisis of demand that is inevitably being felt here. We have talked a lot over the last few years of the possible decoupling of the emerging economies. Well, the last year has reminded us how coupled we are.
The reality is that the only way out of a global downturn is a return to confidence. Confidence that we can act collectively to fix the global banking system and restore the flow of credit, including vital trade credit finance. Confidence that we can learn the lessons and finally adapt the machinery of global economic governance to a totally transformed global economy – which, means, by the way, changing the balance of influence in global institutions to reflect the growing power of Brazil and the other emerging economies. Confidence in the future – because that is what a lot of the psychology of economic growth boils down to.
And that is my basic message today. In Brazil and Britain we have to recognise our strengths as well as our vulnerabilities. I don’t want to downplay how tough the next year or two is going to be. But fifteen years ago a global financial downturn on this scale would have left Brazil with a currency crisis and a collapsing economy. Economic stability and reform has put Brazil in a strong position to weather the crisis.
The shorthand in Europe is often to describe Brazil as an agricultural trade powerhouse. But of course, not only is Brazil the world’s biggest exporter of bio-ethanol, beef, chicken and coffee but it’s also among the world’s biggest producers and exporters of passenger jets and satellites. And it has the best science base in the world outside of the G8 into the bargain.
Britain is also fundamentally strong, not least because of a decade of reform that has given the UK the most open and flexible product and labour markets in the world. And a commitment to free trade and open investment that has made it one of the most dynamic economies in the world. The UK has attracted more foreign investment than any other European country over the last ten years precisely because it has set out to build one of the best and most productive investment climates in the world.
It is true, of course, that our large financial services sector was exposed to a global crisis that began with a serious failure in global credit markets. But the City remains fundamentally strong and it will continue to be a global hub for financial services, even if it’s not fashionable to say it in British politics right now.
As a major global exporter we are also feeling the sharp contraction in global demand, especially for big ticket consumer goods like cars. But the crisis of demand is being felt everywhere, including here in Brazil.
For all the talk of the credit crisis revealing the weaknesses of ‘Anglo-Saxon’ capitalism, the credit crunch has not put in question the basic value of flexible and competitive markets as the foundation of growth. It certainly hasn’t undermined the argument that a business environment that promotes enterprise and entrepreneurship should be something that we see as the basis of a strong economy and society.
Perhaps most importantly, the crisis hasn’t put in question the basic importance of open trade and open investment in driving our individual economies and the global economy. When we held our G20 business summit in London last week and we heard from business representatives from Ethiopia to the US this was the one point on which there was no disagreement whatsoever. And they were frank enough to recognise that defending open trade and investment at a time like this is a challenge for businesses as much as governments.
So we have the right foundations in Britain and Brazil. The right focus on reform. The right commitment to open trade. Our challenge is to recognise where we can do more, where we can build on those foundations to ensure that when the upturn comes, Britain and Brazil are positioned to reap the benefits. So I’d end by setting out what I see as three big challenges for businesses and government in strengthening the commercial ties between our countries.
The first is simply continuing to focus on how we can make it easier to do business in our respective markets. I’ve been careful to preface this by saying how much I admire the commitment to stability and reform in Brazil over the last ten years, and regulation of the banking sector has helped greatly in the current crisis. But the fact remains that Brazil can still be a very challenging country to do business in – ranked 125Th in the world for ease of doing business by the World Bank. The red tape that implies is a problem for this audience as much as any British business. In particular, I think, making it quick and easy to set up and shut down companies is vital for effective entrepreneurship as is offering real support to nurture new and innovative businesses. These kinds of measures have made a big difference in the UK and they could make a real difference here. So, I think we have something of a joint agenda there!
I also accept that we in the UK and Europe should always be checking to ensure that we are not putting unnecessary regulatory burdens on importers or investors. We’ve made better regulation an integral part of how we govern in the UK and we have had quite a lot of success in making sure that Brussels thinks the same way.
In this respect the work we do together through the Joint Economic and Trade Committee has been invaluable. In the two and a half years that it has operated we’ve shared a huge amount of business and public sector expertise and I’m looking forward to the next meeting in September.
Second, I want to make the trade relations between Brazil and Britain an integral part of our return to confidence. British-Brazilian trade topped three billion pounds for the first time ever in 2007, and four billion pounds in 2008. It is a trading relationship that goes back a long way. This year marks 50 years since Rolls Royce first established here.
Other British companies like Cadbury, HSBC, GKN, De La Rue, BG Group, Whitefox and numerous advertising agencies have also invested billions in Brazil and they are here for the long term too. As Brazil continues to grow, and establishes itself as a global investor on the same scale that it has in Latin America, the UK will be an important and attractive partner for investment, a centre of European financial services and a gateway to the huge European single market.
We also share the interesting link of being two countries that are both hosting major global sporting events in the 2012 Olympics and the 2014 Football World Cup. We also both have aspirations for the 2016 Olympics in the case of Rio and the 2018 World Cup in the case of England. Just as importantly, it is now clear that we will be delivering these events in the face of tight budget pressures. Whether we are talking about renovating stadiums to FIFA standards, or preparing for the huge logistical and security challenges of such events, I’m sure that the UK has experience and expertise to offer here.
Finally, I noted before the strength of the Brazilian science base, and this is something you share with the UK. We both recognise that our science bases will be critical to defining our comparative advantages in a global economy. We are both committed to a public role in fostering brilliant research and in commercialising that research.
We both have plenty to learn from each other. Whether that means British scientists learning from Brazilian farm scientists or deep sea engineers. Or Brazilian researchers tapping into the UK’s strengths in green technologies or life sciences or advanced manufacturing research. Sometimes it’s as simple as looking at how the UK has made a success of the basic concept of the science park, with its clusters of innovative businesses to spark off against each other. UK Universities are now working with their Brazilian counterparts to commercialise Brazilian patented technologies such as green industrial lubricants. UK innovation companies are also keen to use Brazil as a gateway to the Americas for the commercialisation of UK
So, three priorities: red tape, trade and investment, science and technology. Nothing very radical there perhaps, but the stuff of a modern trade and investment relationship in a globalised economy.
As I started by saying, this is a difficult time for many, if not most, businesses here and in the UK. We have a hard road ahead in rebuilding credit and demand, in fixing financial regulation and economic governance to make a repeat of 2007-8 impossible. That will be the core of the work we launch at the London Summit next week. The road back to confidence starts there.
But it also starts in the recognition of success as well as the attempt to fix failure. There is a huge amount in our global future to be confident in, here and in the UK. Business has to take the lead in expressing that. I hope that Brazil and Britain will continue to embody it.