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BRAZIL: The Expensive Seduction of Volkswagen

Arnaldo Cesar

RIO DE JANEIRO, Jul 7 1995 (IPS) - On Wednesday of next week, the Brazilian city of Resende will announce a major coup: that it has withstood a challenge from other sites in the Southern Common Market (Mercosur) and ensnared Volkswagen to build a factory.

The German transnational will build its 250 million dollar plant in Resende, half way between Rio de Janeiro and Sao Paulo, Brazil. Its production line will make trucks and buses for worldwide export.

To attract Volkswagen, Resende – which is in Rio de Janeiro state – faced stiff competition from Sao Carlos, in the state of Sao Paulo.

It got the nod by making Volkswagen an offer the company could not refuse. Reports here say Rio de Janeiro state offered tax exemption – five years from provincial taxes, and 15 from municipal ones – free land, public funding for infrastructure projects, and exclusive terminals in the local ports.

That free land is estimated to be worth 20 million dollars. Road, port and telecommunications improvements will cost the provincial government some 50 million dollars. The whole offer is estimated to be worth in the region of 300 million dollars to Volkswagen.

The nearby town of Angra dos Reis, one of the most beautiful tourist attractions in Brazil, has also offered Volkswagen a plot of land for the company’s Entertainment Centre.

Initially, both Rio de Janeiro and Sao Paulo offered fiscal and transport stimuli, since state winning the contract would also be securing benefits for many local towns.

“I’ve been taking Prozac (an antidepressive drug) by the bottleful as a result of this project,” said Rio de Janeiro Secretary of Industry and Commerce, Ronaldo Cezar Coelho describing the intensity of the battle.

Meanwhile, Volkswagen has promised to create 5,000 jobs at the plant, and another 20,000 indirectly linked to the project. These figures do not include the spare parts industry which will no doubt be attracted to the region.

The new factory is expected to have a turnover of 1.8 billion dollars per year, a figure equal to three percent of the overall gross domestic product of Rio de Janeiro State.

State officials say economic growth in the province will actually be far more widespread than this, as the automobile industry invariably spawns a great variety of businesses and jobs.

Volkswagen’s Corporate Vice President in Brazil, Miguel Jorge, who was closely involved in the choice of site, said Resende could become a model for large scale investments in Brazil and the entire Mercosur region.

Now that this battle is over, the ground is being prepared for competition over another Volkswagen motor plant, and a Renault factory.

The Renault plan will mean billion dollar investments. It may be established in Rio Grande do Sul or Santa Catarina, the southernmost states of Brazil, though Argentina and Uruguay are also ready to fight.

Meanwhile the two Brazilian states are gearing up for a fight. Rio Grande has gone as far as hiring the former president of Volkswagen Brazil, Wolfgang Sauer to support their case, at a cost of between 20-30,000 dollars.

However, the fight is far from over. Other competitors are not prepared to give in easily. “The Volkswagen factory is the first assembly plant to come to Rio, but we want more,” said Provincial Governor Marcello Alencar.

 
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