LEAD 2000

60 Minutes - Brazil's Booming Economy

2010-12-16T06:52:00.000+02:00

By Mely Lerman, December 16th, 2010

Two years after Morgan Stanley declared that the Brazilian econonmy will shrink it seems the reality is stronger than the American previsions (or should I say wishful thinking). Brazil has proven that all those preaching the Chicago school theories to save Latin America have been wrong. The Brazilian way was to invest on people. It was the purchasing power of the poor put the economy into gear. This is the big secret of Brazil's success.
17 years ago Fernando Henrique Cardoso (then Ministry of Finance) started the Plano Real. The moment he stopped the inflation it tripled the buying power of the poor people. They just didn't have the tools to cope with the incredible inflationary rate. The purchasing power increased and the effected the whole economy. It improved the job market, improving the econoomy further.
But then there was Lula.
Lula in his eight years accelarated this process with anti-poverty scheme that, in fact, turned to be financial injections to the whole country development. Zero Hunger, Bolsa Familia (that pays a monthly stipend per child attending school) and many development programs came aside with an increasing minimum wage.
60 minutes took a glance at the Brazilian economy. Superficial but interesting.

The Future Arrived Yesterday

2010-06-24T22:25:00.000+03:00

By Mely Lerman, June 24, 2010

Yesterday I heard people speaking about Brazil as a World power.
For us Brazilians, Brazil was always “o país do futuro”. The nation of the future.
Yesterday it was already future.
I am following Brazil growing up since 1992 (the first time I went back after running for my life from the hands of the dictatorship). At the start of the 90s Brazil was a country with people dying in the streets. Since then I have been working in Brazil from time to time and could feel the changes through the years. The same places people were dying from extreme poverty twenty years ago you can see people with happy faces and well dressed (not Christian Dior but well dressed).
When you come from outside you can feel the changes already in the airport but the Brazilians (at least most of my friends and my cousins) are always telling me how Brazil is not going well.
I did not hear from any of them some historical and general perspective. They always stick to some detail to explain to me why Lula is not doing sufficient or why Lula is doing too much.
I would like them to be with me yesterday at the Tel Aviv University. It was a business meeting about opportunities in Brazil. Not a big event sponsored by embassies and governmental agencies. On the contrary, it was a very down-to-earth event with lawyers explaining about taxes in Brazil, business talks and a lot of graphs.

http://video.tau.ac.il/Lectures/Management/MIT/2010/23_06/

It started with people talking about the possibilities of joint ventures, taxes, how to invest, taxes again, Mercosur, and bit by bit it went into a crescendo. The last speakers were people who told about their experience working with Brazilians – a guy that went through the whole process of the establishment of GVT till the selling of the company for 4.8 billion dollars, a small startup very successful in bringing some kind of communications to areas such as the state of Acre and the third one was a guy from Babylon.
They were Israelis speaking about Brazil with more emotion and empathy than the Brazilians themselves. They talk business but they showed a lot of admiration for the work of the regulator, the way of Brazilians doing business, that you can trust the Brazilian partner and Brazilians at large. They talked about crime in the streets. They all talked about the taxes but explained that in time it is possible to understand how to live with it (you just need excellent accountants). All of them assured the forum that he never was in a position that he needed to pay bribery.

The last one, the guy from Babylon at a certain point explained to all: It is not like Switzerland or France. It is not like England. It is like the United States and China. It is a WORLD POWER!
That’s it, Folks. Finally, the future has arrived. Brazil is the country of the present.

I never fought with anybody

2010-03-17T07:44:00.002+02:00

By Mely Lerman, March 17th, 2010

The day before yesterday I had the opportunity to be on the King David Hotel on a business seminar “Brazil-Israel: Free Trade and New Business Opportunities”.

The main show was, of course, President Lula and I’ll get to it in a second. I just want to refer to a fact that for me was very peculiar: the Israeli press did not cover the event. They wrote about it, and there were again one or two articles about “the Brazilian economic miracle” and they reported that Netanyahu said something about constructions in Jerusalem in his “welcome Lula” speech and that the Israeli foreign minister boycotted the visit.

The Israeli press, like the whole Israeli business community did not understand till today the importance of Brazil in the future of the World economy. For almost a year I tried to start a business bringing software companies from Israel to Brazil. Nobody was interested in investing on marketing themselves in Brazil. Their focus is, till today, the US. They don’t understand the paradigm has changed. Part of it is pure ignorance. Many Israeli businessmen just don’t read newspapers. But mostly it is cognitive dissonance: America has always been the Israeli dream and they are not ready yet to part from it and, on the other side, the image they have of Brazil is of crime, corruption, and carnival in the slums.

They are not ready yet to the future.

No doubt the visit and the agreement between Israel and Mercosur will change a little bit of it but, judging from the press coverage, it will take time.

Now, to the Presidente.

President Lula spoke from written pages but at a certain point he look at us and said: “I’ll leave the protocol!” and put the pages apart. And then Lula (not the president) spoke.

He looked at Peres and said: “I never fought with anybody” (in Potuguese it sounds better: “Nunca briguei com ninguém”)

“In all my life, I never fought with anybody” – he said again. I had disagreements, and many disputes. I have a very difficult party and we had our confrontations but I never fought with anybody.”

“Hugo Morales was elected in Bolivia. We helped him. “- I don’t know if this declaration is compliant with the non intervention diplomatic principle but that is what he said. “We helped him to get elected and what is the first thing he does?” – And then a pause. “He took the Petrobrás from us. We helped him and he took the Petrobrás. A lot of people in Brazil wanted us to go and fight with Bolívia. There were even talks about intervention. But I said no. I remembered my roots. No way will a Brazilian metalúrgico (ironmaster) fight against a Bolivian Indian. I said to my colleagues – it is their gas. I went there and made a pact with the Bolivians”.

“They got their gas and we made business with them”

He drinked a little water and continued: “And then a bishop was elected president in Paraguai. Same thing occurred. Again we went there and signed agreements. Today we are the best friends. Brazilians don’t want to be rich and all the countries around us to be poor. We want that everything will be fine for everybody.”

“When I was elected I went to visit President Bush. It was February 2002. The Iraq war did not start yet but in his mind he was already at war. He talked only about the war. I told him – Mr. President, I have only one war – the war against poverty in my country. I was elected in a platform against the American policy. None in South America can be elected unless he is anti-American. I came from the left. Everybody thought and expected that I will fight America. And you see” - and he looked at Peres and then to all of us –“Bush already finished his career and I am going to finish mine and we did not fight even once”.

“There is no need to fight”, he finished.

Peres looked at him and smiled indicating he understood the message. Did he really?

Split

2009-11-05T14:08:00.000+02:00

We decided to split LEAD2000's blog into LEAD2000, a generic blog and LEAD2000 Life Insurance that is dedicated to issues of Life Insurance and Pensions (or Annuities).

The Funny Thing in Life Insurance 1- The Mayonnaise, Yuck

2009-10-31T13:04:00.001+02:00

By Mely Lerman, October 31, 2009
In Holland instead of ketchup they put mayonnaise on the french fries, in France they have PERP, in Israel they have Adif and in Brazil they have lottery...
The funny thing in Life Insurance and Pensios are the little differences. Vincent in Pulp Fiction should be an insurance broker: according to him the funniest thing about Europe is the little differences. (see the whole excerpt at the end of this blog). It is exciting to learn the little differences in the different retirement and life insurance plans. It crosses countries and companies in the same countries. Even in those days of globalization, even in face of the efforts for standartization of the Europen Union from one side and the OECD from another, every Life Insurance company is a whole culture in itself.
The basis for everything is one: the actuarial mathematics. What actuaries and regulators do with this is another thing.
There are some products that gain popularity all over th World - the American IRA, Universal Life, the Chilean Pension Model, Unit Link and other.
However, most of the time companies are lauching completely different products almost every day and even the similar products receive a local color.
In Europe, for example, there is a real need for some standard in life insurance and pensions in order to facilitate the mobility of workers from one country to the other. But if somebody compares the employers savings of England to the one in Greece it will be very difficult to find something in common. In Brussels they are trying to put some order on things but, in fact, every country develops its own products completely with no synchronization with the others. The PERP in France (2005) has absolutely no similar product in Europe. The same is possible to say about the Riester pension in Germany.

In those blogs - The Little Differences in Life Insurance - I am going to describe some of those little differences that I know. I would be grateful if anybody out there wants to contribute.
I have no intent to criticize, nor to analyse the social implications or any other second intentions.
Like Vincent I just thing those little differences are funny.

Vincent:.....but you know the funniest thing about Europe is?
Jules: What?
Vincent: It's the little differences. I mean, they got the same sh*t over there that they got here, but it's just, it's just their's a little different
Jules: Example
Vincent: Alright, well you can walk into a movie theater in Amsterdam, and buy a beer. And I don't mean just like no paper cup, I'm talking about a glass of beer. And in Paris, you can buy a beer in McDonald's. And you know what they call uh...a Quarter Pounder with Cheese in Paris?
Jules: They don't call it a Quarter Pounder with Cheese?
Vincent: nah man they got the metric system, they wouldn't know what the a quarter pounder is
Jules: Then what do they call it?
Vincent: They call it, uh, Royale with Cheese
Jules: Royale with Cheese?
Vincent: That's right
Jules: What do they call a Big Mac?
Vincent: A Big Mac is a Big Mac, but they call it Le Big Mac
Jules: Le Big Mac, (laughs) what do they call a Whopper?
Vincent: I don't know, I didn't go into
Burger King.....You know what they put on french fries in Holland instead of ketchup?
Jules: What?
Vincent: Mayonnaise
Jules: Damn
Vincent: I seen them do it man, they
f**ckin drown them in that sh*t
Jules: Yuck

Brazilian Bancassurance Incredible Numbers

2009-10-23T07:55:00.003+02:00

By Mely Lerman, October 23, 2009

Even a superficial glimpse at the Brazilian insurance market will expose the incredible development of the sector – the volumes are increasingly growing at unbelievable rates. The insurance market grew 17% in 2007, 18% in 2008 and despite the world crisis the expected growth in 2009 is 15%.

The volume of Life Insurance premium is today more than 10 times the volume in 2000. Based on the numbers of Swiss Re I draw a comparison graph between the premium volumes of Brazil (in red and the US (in blue). The index of both is 100 for 1999.

The US volume for 2008 is still 25 times the Brazilian but is even so there is something impressive on the Brazilian market development. The main reason is, of course, the growth of the whole Brazilian economy and the improvement of the purchasing power of the poor.

But there is another reason for this development: bancassurance.

Bancassurance in Brazil succeeded to bring insurance to places and people that never saw a broker in their lives. The atmosphere was favorable: there was no regulations limitation to cross ownership between banks and insurance companies and the banks possess a great number of low income customers and proved to be excellent channels for insurance.

Recently the Brazilian Magazine EXAME published an interesting reportage about the competitive bancassurance market in Brazil. There was a lot of interesting numbers in the article - some of them left me really astonished:

Insurance is the responsible for 34 % of the invoicing volumes of Bradesco (one of the largest private banks in Brazil)
According to the American Bank Insurance Market Research Group (BIMRG), 80% of the profit of the Brazilian banks came from their insurance companies
The share of bancassurance in the market share is 55 % (lower than Italy, Spain and France but greater than any other American country – Columbia is 15% and the US is 2 %)
The administration cost for bancassurance is 16% of the premium and 19 % for the others

Rio 2016

2009-10-17T13:47:00.050+02:00

By Mely Lerman, October 17, 2009

Rio de Janeiro was chosen to be the site of the World Cup in 2014 and the Olympiad in 2016. Those choices are not disconnected to the increasing economic and political influence of Brazil. Brazil is in a positive roll for years. The last economic crisis brought this new Brazil to the attention of the World and the International Olympic Committee choice was, in fact, the recognition of the continuous strengthening of the country.
Those events will also be a major factor in the Brazilian economy from now on and the fade out will take years. It is not only the infrastructural investment in the pre-Games period and even not the revenues the events will bring.
It will brand Brazil as an economic superpower.
The consequences will be a huge push to the Brazilians' self esteem and to the economy of their country.

Spain (Barcelona 1992) and South Korea (Seoul 1998) got out of the Olympic Games as completely different countries in the eyes of the World and in the eyes of themselves. In 1964 the Olympics helped Japan to arise from the wrecks of the World War II into economic prosperity. Beijing 2008 caused China to finish 5000 years of isolationism.
This is not automatic.
On the other side, Greece lost a great opportunity with the Athens games in 2004.
The main difference is that Spain, Japan and China were ready for the challenge. It reflected in the attitude of the government and the people. They wanted to succeed.
Brazil, too, will do everything to make those events unforgettable experiences. The Carnival we saw in Copacabana and the tears in the eyes of Lula brought a new meaning to the selection of Brazil.

Nevertheless, Brazil

2009-03-28T13:46:00.000+03:00

By Mely Lerman, March 28, 2009

Brazil and the Crisis
The B of the BRIC, Brazil was supposed to be one of the strongest economies of the World.
Suddenly, the Crisis teetered all prophecies. In one year, Bovespa went down more than thirty percent and all the analysts revised their predictions for 2009 Brazilian economic growth.
Some analysts (such as Morgan Stanley) are even talking about the shrinking of the Brazilian economy.
Right now the Brazilian Central Bank works under the assumption of 3.2 percent growth in 2009, Lula and the Brazilian government are talking about 4 % growth and Economist's prediction is of 0.6 %.

Veja
The Brazilian magazine Veja published some reasons to be confident in Brazil's future:
1. 200 billion untouched dollars reserve
2. Competent and regulated banks with low risk policies
3. No real state bubble
4. Strong internal market and increasing buying power of the population
5. Green power
6. Political stability
7. Economic stability
8. Largest exporter of food of the world, which ensures large external sales
9. Diversified external market
10. The same forecasts predicting World stagnation are estimating growth for Brazil
They touched important issues and the whole article is very well founded and interesting. Even so, Brazil is not the only country in the World with political and economy stability in the World. Neither is the only one with serious bank policies. So what makes Brazil unique? What causes this country to be an Oasis in the current World crisis?
Brazil also has serious problems to solve: government expenses, the well known problems of political corruption and the very organized, fearless and arrogant organized crime.

What makes Brazil Unique?

The points of Veja are important but there is more: Brazilians know how to manage a crisis.
The experience has teached them. Brazil has been in and out crisis for the last sixty years. It is dificult to explain but a crisis does not really affect the daily routines in Brazil. Some people get fired, some get richer, other die from cold and faim and life continues (or not).
In 1999, I was in Rio on January 15th. In one day the dollar went from 1 point something to more than two reais. For some time the governement has insisted on a policy of strong real but on this day they decided not contain the currency anymore and let it go free, with no governamental intervensions. In any other country people would go mad. I have been interacting with people the whole day, working and shopping and nobody mentioned anything. I was surprised that I received a very good rate for my dollars and the Visa did not work at one shop.
That was it. Nobody even talked about it. Only at the end of the day I heard it on the news.
It is not that the Brazilians are calm – from time to time they have proved they can rebel and put fire on things. They look at crisis in general as a problem to solve.
Today, the whole state of mind found throughout the World is in total contrast with the business as usual attitude in the streets of Brazil.
The crisis also did not impact their lives so much. Ask any taxi driver in Tel Aviv they will tell you that business is down to half of the volume. I asked Brazilian taxi drivers the same question last week and they all told me that they are not affected by the crisis.

The attitude is very important confronting a crisis, but Brazil's strongest point is the internal market.

Increasing Buying Power of the Population
No doubt the development of China brought Brazil a lot of benefits and export of goods increased in the last years and contributed to the Brazilian success. But the external market is only 14 percent of the Brazilian GDP. The price of commodities and the volume of export affect the economy but that is the proportion - 14 percent.
The internal market is the the main reason of the Brazilian growth.
The politics of the economy brought wealth to the people. It caused an incredible development and will continue to be the main factor of the continuation of this process.
In 1992, I was in Belo Horizonte and saw real misery in the faces of the people. My cousin told me she was afraid to live there – "I was born here and I lived here all my life but I am afraid to go to the center of the city".
Today in the same place you can see people well dressed and healthy faces. It is not Zurich and they are not wearing Prada but it is a completely different scene.
It started with the Plano Real. Fernando Henrique Cardoso, as the minister of the treasure, pratically stopped the inflation. In the subsequent years the poor layers of the population more than triplicate their buying power. It not only helped their situation – it brought a revival for the whole economy.
Fernando Henrique Cardoso was elected president and after him Lula. He continued Fernando Henrique's policy but emphacized the strengthening of the working class.
They are political adversaries but in a conversation in the Tel Aviv University Fernando Henrique told the audience that "Lula continued my policies. He hates when somebody says it. But he was more successful than me spreading wealth. I am impressed with his success".
The Brazilian governement is fighting poverty and using the event as a tool of developing the whole economy. The increasing number of people joining the middle class and the continuous improvement of their lives is the core of Brazil's success. This process had not stopped. On the contrary, not only projects such as Bolsa Familia and the Growth Acceleration Program (started on 2007) continue but also the governement started investing on infrastructure programs and accelarating the housing building.

Concluding
The crisis has slowed Brazil, but it has not stopped its growth. Only time will tell us if the economy will shrink or it will growth 4 % like Lula says.
I and more than 80% of the Brazilians are betting on Lula.

2008-03-29T12:37:00.000+03:00

Israel: The Greenhouse of Insurance Software

published on POLICY - TEL AVIV RE 05/2007

After so many success stories in the software industry, Israelis are recognized today as important players also in the software dedicated to the Insurance Industry. There is a growing interest in Israeli companies such as FIS, Sapiens and Idit.
Many analysts ask me about the reasons that brought Israel to be so strong in Insurance. After all, Israel is very small in the Insurance Industry.

Israel is Small
Paradoxically, that is the main factor: Israel, being so small created the right environment for ventures, for a more risk taken approach. It is easier to decide and to build a new software system for a company with 500,000 policies than for a company with ten million policies. The risk, the logistics, the analysis, the project size and scope – everything is simpler.
Till the year 2000, Israelis built hundreds of insurance projects. Israeli companies were changing their whole system every five to eight years.

Israel is Complex
Another strong reason is the fact that the structure of the Insurance in Israel is very complex.
Everybody thinks that their insurance is the more complex in the World: the English Pension Simplification is not so simple, the Swiss are sure that their regulations are the most difficult in the World, and the French regulators really know how to complicate things. Around the Globe, Insurance is not an easy Industry.
Even so, Israel is more complicated: Actuaries arrived to Israel from all over the World and they brought with them the complexities from their original countries.

The Inflation
Another ingredient to the Israeli insurance complexity was the enormous inflation that dominated the economic and financial from the sixties till the nineties. Israelis needed to deal with money in real terms and that create a unique expertise and a sharp ability to deal and understand financial packages.
Those factors had another effect: no international company is willing to compete in Israel. The Israeli Insurance companies are, in fact, a captive market to the Israeli software companies.
The Players
FIS was the pioneer. The company was founded in the seventies and at middle nineties they got to the UK market. Since then they have been steadily growing. They deal mainly with Life Insurance and they are at CNP, AXA, Swiss Life, Aegon, Royal London Group, Scottish Widows, Ethniki Insurance, Delta Loyd, Rogostrek and many more.
Sapiens is a veteran in the software scene but a newcomer into Insurance. The decision to turn the company dedicated to the insurance domain was taken five years ago. Since them they developed software packages marketed as INSIGHT and they cover Life & Pensions, Reinsurance and General Insurance (INSIGHT P&C). Sapiens is strongly present all over the World with branches in UK, US and Japan.
Idit acts in the General Insurance domain. They started in the Direct Insurance Company in Israel and today they are present in Belgium, Netherlands, Poland and China.
Others companies dealing with Insurance in Israel are Comtec, Ness, the Israeli branch of EDS and other smaller companies.

The Future
It is not easy and probably it will be increasingly difficult to compete with giants such as Accenture, SAP and CSC. However, Insurance is getting very demanding in software resources and Tata and other Indian companies are the main menace.
The Indians are the big headache of the Israelis. They are good, they are fast, they are cheap and they have infinite resources.
Insurance, however, demands expertise. It will take years to the Indians to catch the Israelis experience.
I believe that in the next years we are going to see increasing Israeli-Indian collaborations.
That will be the win-win key to the international market.

Mely Lerman
Mely Lerman is the General Manager of LEAD Software Consultants 2000 LTD (www.lead2000.biz). His expertise is Life Insurance software and he has experience of more than thirty years working in Israel, UK, France, Germany, Switzerland and Brazil.