Brazil, Cuba & Venezuela.

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Souza Cruz: growing alongside Brazil • One of the five most powerful groups in Brazil, commemorates its centenary by opening in Rio Grande do Sul the largest cutting-edge cigarette factory in Latin America, and whose importance has embraced governors and entrepreneurs in a climate of confidence which, four months into the Workers Party government, ranges from the particular to the general

BY GABRIEL MOLINA

PORTO ALEGRE.- The centenary of the powerful Souza Cruz (SC) cigarette company has had an unexpected result: the coming together of the federal government and Brazilians of one state with an entrepreneurial interest, which has revealed itself as a common one, and goes far further.

Statements from key Brazilian representatives at the opening of the giant cigarette factory in this city, coinciding with the company’s centenary, opened up promising prospects. Flavio de Andrade, president of Souza Cruz; Germano Ribotto, governor of Rio Grande do Sul, from the opposition PMDB; and PT leader Jacques Wagner, minister of Labor and Employment, characterized - at least for now - a distinct dynamic in the Brazilian political process, given the chaos created in Venezuela on account of the conflict between the government and the entrepreneurs federation, allied to foreign forces and the opposition, still fresh in people’s memory.

Lula apologized for not attending as he had to receive President Chávez in Pernambuco for a six-hour meeting that day, involving 10 Brazilian and eight Venezuelan ministers; the presidents of PetroBras and the PVDSA; Jarbas Vasconcelos (PMDB), the governor of Pernambuco; and Joao Julio of the PT, the mayor of Recife.

“How I envy you,” Chávez told Lula, according to the Zero Hora daily, “because with the political radicalization in Venezuela, it’s almost impossible to meet with governors.”

The project for the new plant was initiated in 1997, in the capital of Rio Grande do Sul, with Antoni Britto, then governor of the state, who fought hard for its construction there. Ovidio Dutra, the current government minister of the cities, continued its work. The project was finally inaugurated during the term of the third governor, Germano Rigotto.

BRITISH AMERICAN TOBACCO PRESIDENT PREFERS CUBAN CIGARS

At a lively press conference given by Andrade, accompanied by Milton Cabral and Constantino Mendoca, vice president and executive director, respectively, on the eve of the inauguration, the industrialist announced that the next morning, April 26, the Souza Cruz Company would celebrate its 100th anniversary by inaugurating Latin America’s most modern tobacco plant in the Cachoeirinha municipality, 30 kilometers from Porto Alegre, capital of Río Grande do Sur.

Martin Broughton, president of the British American Tobacco (BAT), informed the press at the inaugural reception that the new plant is the world’s largest and most modern tobacco production center.

In response to criticisms concerning smoking, Broughton commented that he never smokes cigarettes, only cigars. He enjoys a Cuban cigar at night after a good meal and believes in the Group’s public statement that smoking is a personal matter.

Flavio de Andrade spoke to journalists of his firm’s plans and the difficulties he has had to confront. For example, he underscored the company’s losses due to fraudulent brands coming out of Asian countries. Since 1998, the company has also incurred losses due to contraband from Paraguay and Uruguay. A third of the 150 billion cigarettes sold annually in the country are illegal. For this very reason, not only have producers been hit hard, to the tune of $466 million USD, but so has the state. In the final analysis, smugglers have out-maneuvered the tax office and reduced its income.

On the other hand, the high taxes recommended by the World Health Organization to reduce consumption have produced a doubling of cigarette prices over the last three years. Andrade pointed out that raising taxes doesn’t really solve the health problem associated with smoking, but rather forces consumers to buy the product at lower prices on the black market. Nevertheless, Brazil has displaced the United States as the world’s main cigarette exporter. In 2002, Brazil exported 472 million tons, 26% of Brazil’s export total, in comparison with 185 million tons from the United States, also hit by price rises.

He added the counterbalance to tax increases in Brazil would be to facilitate beneficial negotiations and operations for the Rio Grande do Sul government and the S.C.

THE TREASURY AND PRIVATE ENTERPRISE NEED TO FIGHT CONTRABAND TOGETHER

Andrade also explained the difficulties the company is facing in making an complementary investment of a further 500 million reales (more than $166 million USD), along with federal and state aid, to construct a research center in Rio Grande do Sul. The institution will constitute one of the British corporation’s four most important world research centers.

The recent inauguration of the project in Cachoeirinha, an underdeveloped town in Porto Alegre, involved state participation through the now defunct Enterprises Operation Fund. A new form of investment funding is currently being debated in the Legislative Assembly, which only renounces one part of the future taxation recipe, such as rates on the circulation of merchandise and services.

That aid would serve as an example of the beneficial operations mentioned, given that the new plant’s original project, involving an increased production capacity of 80-100 billion cigarettes annually, was reduced to 45 billion due the previously discussed economic problems. Only a successful campaign against contraband, added Andrade, can bring product production capacity up to its original figure, as there are currently idle capacities in the cigarette-manufacturing complex.

SOUSA CRUZ SUPPORTS LULA PLAN TO PAY TREASURY OVER HALF OF PROFITS

Souza Cruz’s president opened the lavish celebration for 2,000 guests by describing negotiations in progress with Governor Irgotto regarding the awaited funding as “very advanced.” While he left his audience in suspense on their reach, he did reiterate his denouncement of contraband, which he called disloyal competition. He highlighted how profits garnered from the taxes collected by the Treasury could be invested in schools, housing and hospitals.

Financial statistics offered by SC on the tax issue are impressive. As one of the top five private Brazilian enterprises, SC makes over 6.1 billion reales annually (some $2 billion USD), of which 3.3 billion goes to the Treasury, over half. The firm employs 4,500 people directly, and 380,000 indirectly.

Andrade noted the common interests between his company and those of the Brazilian government, such as the fight against illegality soon be initiated by the government. He supported Lula’s calls to advance both taxation and social and educational reforms and observed that the new government’s program for combating illegalities is a positive sign that should lead to a higher income from tax, more jobs, more security for Brazilian industry and increased guarantees for consumers. He added that the Zero Hunger Program requires the backing of all Brazilians and revealed that Souza Cruz plans to donate 1,200 tons of food per year, while noting that the recent election results are renewing hopes of seeing Brazil shine once again in the international scenario.

“We going to make the impossible possible, as Lula says,” he stated emphatically.

The SC president likewise referred to the group’s concern for the environment, confirmed by the decision to use only 10% of the project surface area for actual factory space taking up only 208 hectares. The remaining area will be used for an ecological park dedicated to regional wildlife preservation.

In his speech, Germano Rigotto, the Rio Grande do Sul governor alluded to by Andrade, stated that he would not measure efforts to transform Souza Cruz’s intentions into reality in his state. He added that the decision would lend continuity to the logic of recent investments by the group in the country.

He also lauded community integration by the SC group, its social and educational programs, highlighting the chain as one of the best articulated and consolidated within the state, operating directly with 45,000 families of small gaucho farmers.

For Rigotto, one of his government’s main actions consists in strengthening existing productive chains and organizing new ones “as a way of overcoming difficulties, integrating efforts, destroying obstacles and promoting a fair repartition of operational results.”

GOVERNORS CAN HELP CONSIDERABLY IN THE TRANSFORMATION OF SOCIETY

Rigotto added that he has reinforced his defense of the tax reforms proposed by the federal government, a position to be transmitted to Lula by his labor and employment minister, present at the act. Just before, he stated to the press that state governors could play a large role in aiding the president in the transformation of society.

In his speech, he added that the tax reform mechanism would be used in terms of the investment in question as soon as possible. He also stated that actions are being integrated among federal and state public ministries, as well as both security apparatuses, to combat piracy and contraband.

In a brief interview with Granma International, Rigotto characterized as attractive economic and social relations between Cuba and Rio Grande do Sul a veritable country in extension, population and resources, and asked Andrade to arrange a possible trip to Cuba.

In relation to the federal giant, Brazil, Minister Jacques Wagner also evaluated for Granma International the theme of Cuba, a country he has visited various times, affirming that the relations of friendship and affection with the Cuban people open up wide-ranging prospects of increasing economic and trade relations.

Addressing the opening event, Wagner highlighted the importance of having attained such an important project, initiated by the state governor in 1997 and concluded by another governor from a different political party, which he described as a display of democratic stability.

On behalf of the Brazilian president, Wagner greeted the president of the British Tobacco Company’s administration council, thanked Andrade for his public commitment to the Zero Hunger Program and expressed his desire for greater support from the SC for this and other social programs.

He also reiterated the government’s commitment to combating contraband cigarettes, drinks and other illegalities.

“I want to give you the good news that the factory’s expansion will be necessary when the fight against contraband begins to show results,” he concluded.

TRUST REPLACING FEAR

In light of the elections four months ago, bringing to power the first leftist politician in Brazil, the events at Porto Alegre represent a tangible climate of trust, as opposed to fear, by the private sector in relation to investment.

Mainstream newspaper headlines have reported on the strength of the Brazilian currency, calling it an excellent sign. At the end of April, the real rose to three to the U.S. dollar.

On April 16, the U.S. news agency AP affirmed from Sao Paulo that hardly anyone now believes that the Brazilian economy will become uncontrollable like that of neighboring country Argentina. It added that last year, the situation in Brazil came close to doing so when investors’ fears over the possibility that da Silva would gain the presidency made the local currency fall by 35% against the dollar, encouraging national and international investors to withdraw thousands and thousands of dollars from the country. The dispatch continued by describing how even the International Monetary Fund is praising the former trade union leader.

However, the agency noted that two-digit inflation continues to be a prime problem for investors and industrial leaders in the state of São Paulo.

No matter what, Lula is facing an imposing challenge. The Economist states that the president has been obliged to modify government employees’ pensions perceived by some as the most generous in the world. Lula is seeking a consensus for tax and other reforms that some persons in his own ranks are unsure of.

Organized crime - fed by fabulous sums from drug trafficking - has declared war in reprisal for the anti-corruption measures.

The authorities have named Fernandinho Baira-Mar as responsible for planting explosives in Rio. He is running his drugs business from prison, using a cell phone. After he was transferred to a higher-security prison, two judges were assassinated in March: Antonio José Machadao Dias from Sao Paulo and Alexandre Martins de Castro, from Espirito Santo.

Meanwhile, observers note how Brazil has taken on a role that corresponds to its importance, filling the vacuum that others have left empty. It is to be hoped that entrepreneurs and the opposition comprehend what the Souza Cruz president described as “a new government that is prioritizing important structural and social reforms that are creating an environment of hope of living better days for millions of Brazilians, when all sectors of society appreciate and act on the calls being made of us by the President of the Republic.”

It should not be forgotten that the South American giant is saddled with a foreign debt of $230 billion USD. This year, Brazil has to pay $45 billion USD in exorbitant interest rates that were originally set at 6.2% but have now reached 24% per year. The steps that Lula takes have to be balanced ones. This Souza Cruz centenary, in the words of its president Flavio de Andrade, “born in Rio de Janeiro but with a Gaucho heart,” was impressive and I admired the organizational level, free from any failings. The only thing that I missed was not having seen and heard any samba. Not even that created especially for the occasion by Gilberto Silva. I had to settle for seeing good Irish rock Beatles-style at the Cardápio Cherry Blues. I hope that this isn’t symbolic.

• SOUZA Cruz is one of the five largest private groups in Brazil. Its work not only encompasses cigar manufacture but also the production and marketing of cigarettes. Since 1994, it has been associated with international group British American Tobacco (BAT), the world’s second largest cigarette company. BAT has branches in more than 180 countries, leading the field in 50 of them. Its portfolio includes over 300 brands and the group has 80,000-plus employees worldwide.

BRASCUBA’s operations continue to grow

• AT a press conference on April 24, Granma International asked about Souza Cruz’ joint venture with Cuba. Flavio de Andrade, president of the Brazilian consortium since 1996, explained that BRASCUBA is an important cooperation project for companies in both countries and was initiated in 1998. The quality of raw material - Cuba’s famous tobacco - is responsible for a large part of the project’s success.

Brazil guarantees the quality, quantity and price of these black tobacco cigarettes, he affirmed.

De Andrade expressed his satisfaction with these business arrangements, during the course of which he has visited the island on various occasions. He informed that operations in Cuba associated with established brands such as Popular, Romeo y Julieta and Hollywood are continuing to grow and Cohiba and Vega have recently joined the list of brands.

The BRASCUBA board of directors was represented at the celebration by a delegation comprising José Berikes, Adolfo Suárez, Brazil and Cuban vice presidents, respectively; Osvaldo Encarnación, vice president of the Tobacco Entrepreneurial Group (TABACUBA); and this Granma International correspondent.

The Brazilian press highlighted the participation of the group, which traveled especially from Havana for the celebrations. •

Venezuelan-Brazilian refinery

• IN the third meeting this year of Presidents Chávez and Lula, they agreed to establish a refinery in northeastern Brazil and undertake oil prospecting in the South American giant.

Brazil’s National Economic and Social Development Bank is to finance exports of goods and services to Venezuela, with a credit of one billion U.S. dollars, guaranteed by importing Venezuelan oil. An additional $50 million USD credit guarantees the purchasing of food and medicine for Venezuela.

At the bilateral summit, Lula announced that there would be a meeting on the Free Trade Area of the Americas (FTAA) with neighboring countries, adding that it was necessary “to move ahead, taking into account the level of development found in the hemisphere’s countries.”