Brazil Blocks Dow Expansion

Responding to intense pressure from domestic producers, the Brazilian government in June rejected Dow Chemical's bid to expand its petrochemical production in the country.

For three years, Dow has been seeking approval for a wholly-owned facility in Bahia, projected by Dow to cost U.S. $174 million and produce $875 million in exports over a 10-year period. The government tentatively approved the project earlier in the year, but rescinded the decision when local petrochemical producers, fearing that Dow would use the new facility to flood the local market, mounted a campaign against the investment. "We thought we had done everything necessary, then the whole thing blew up," said Ned Brand, a Dow spokesman.

The Brazilian government and local business had urged Dow to join in a three-way joint venture at Bahia, but Dow, accustomed to sole 'ownership operations, refused to comply. The ensuing uproar and subsequent rejection of Dow's plans reflect a "new nationalism," according to Sylvia Ann Hewlett, a Brazil expert at Barnard University. "Domestic business is trying to win some of the small stakes in key sectors of the economy, which now include petrochemicals."

This resurgent nationalism was evident in the response of Mas Getulia Lamartine, head of Befiex, the government agency which regulates foreign investment. Lamartine reportedly was furious that Dow was not complying with conditions Befiex established earlier this year. He particularly objected to Dow's refusal to form a partnership with domestic petrochemical businesses, and to- Dow's apparent disregard for a Befiex condition prohibiting Dow from enlarging its share of the soda market.

The Dow Chemical incident may have involved more than simply a flexing of Brazilian muscle. Prior to the decision, some of Brazil's leading newspapers charged Dow with influence peddling, implicating General Gobery do Coto e Silva, one of the top three or four policy makers in the country. General Gobery, director of Dow Brazil from the late 1960's to 1974, has been suspected of using his government post to assist his former employers in obtaining a profitable business venture. Dow has categorically denied , the charges, and the government has declined to investigate the claims. Whatever their veracity, the allegations apparently played a part in convincing the Brazilian government to refuse Dow the contract.

Brazil's new nationalism differs from its previous form, Hewlett observed, in that currently, Brazil's government and local business are pursuing concrete, rather than rhetorical gains. They "are after a bigger slice of the action and a bigger return. -This nationalism, although not as flamboyant as the one in the 60's, is concerned over the big questions of power and profits."