Brazil's highly successful privatization of its Santos container terminal this week underscores anew the value of freeing commerce from the shackles of dusty, inefficient bureaucrats - particularly operations that directly affect international trade. The sell-off also underscores why U.S. long-term interests lie in expanding, not reducing, trade and investment with Latin America at a time when narrow-minded U.S. voices seek to weaken those links.
The Port of Santos has a reputation for sticky-fingered officials and hopeless inefficiency. Still, its excellent location and proximity to Brazilian markets always offered enormous potential in the right hands.Just how much potential came as a surprise, however. Its dedicated Tecon container terminal was expected to fetch $100 million. On Wednesday, a consortium led by Brazilian transport giant Multiterminais bid a whopping $243 million, outbidding global rivals like P&O Terminals and Stevedoring Services of America.
The sale follows successful port sell-offs in Mexico, Venezuela, Uruguay, Argentina and Central America, further underscoring the region's commitment to port reform.
Still, the new owners won't have it easy. Figures leaked before the sale showed 60 longshoremen earned more in June than the port authority president, while the port handles just 12 containers an hour - at a cost of $580 each - compared with 22 per hour and $150 in Buenos Aires.
Still, sell-offs elsewhere suggest there is plenty of waterlogged fat to squeeze out. Shortly after Santos' Terminal 37 privatized it was outpacing Tecon's container handling performance - without using container cranes. And Uruguay's Montevideo saw its per-pallet cost drop to $5 from $14 under private owners.
The biggest impediment to regional port reform has been labor unions. For centuries, Latin ports were controlled by plantation owners who dictated the terms. More recently, governments have run the show under strong political pressure from organized labor. A third revolution now under way shifts control to private owners, once again fundamentally altering labor's role.
A recent report by the U.N. Economic Commission for Latin America and the Caribbean concludes that subsidies and labor monopolies are increasingly counterproductive for unions.
Blistering global competition now ensures that every link in the distribution chain is hotly contested. With manufacturers and buyers able to quickly relocate or source elsewhere, port workers must effectively compete globally. This ties their future to productivity gains and market-opening innovations, not resistance. Employers, meanwhile, must recognize that motivated, well-trained workers offer a crucial competitive edge.
Brazil has embraced globalization wholeheartedly. In just 15 years, it has dropped its 'we must make what we use' protectionism and opened markets. Still, anti-foreigner biases can still undermine transparency. And government must further refine its role as an objective regulator, protector and antitrust enforcer rather than a lead actor.
Ports are of course just one sector of Brazil's economy. But they are an extremely strategic sector whose liberation can benefit the entire economy. Brazil's bid to pare its current account deficit and prevent a speculative currency run argues for more competitive exports - and more efficient ports.
This week's successful Tecon sell-off further underscores Brazil's broader potential - and provides a huge reason why Washington must become more, not less, engaged in the region. The administration has backed off a Hemispheric free trade area and struggles to win fast-track authority. It should take its cue from business. U.S.-Brazil trade has risen sharply since 1994 with Americans accounting for 45 percent of all foreign ownership in Brazilian privatization projects.
Expanding trade, starting at the port, is a no-brainer.