BUSINESS

Canada-Brazil Spying Allegations Could Be 'Major Set Back' For Business, Professor Says

10/07/2013 04:28 EDT | Updated 01/23/2014 06:58 EST
OTTAWA - Allegations Canadian spies targeted Brazil's Mines and Energy Ministry could cast a cloud over tens of billions of annual trade and investment between the two countries.

Brazil President Dilma Rousseff recently cancelled a scheduled state visit to the United States over similar allegations, Maxwell Cameron, a political science professor at the University of British Columbia, said Monday.

"She is now demanding an explanation from the Canadian government," he said.

"I think we're in hot water here and this is a major set back for the whole policy with respect to Latin America that this government has been pursuing."

The report on Brazil's Globo television on Sunday night said the metadata of phone calls and emails from and to the Brazilian ministry were targeted by the Communications Security Establishment Canada.

The Canadian government has declined to comment. But the Brazilian president said Monday it appeared to be an act of industrial espionage and summoned the Canadian ambassador to explain.

Foreign direct investment by Brazil in Canada totalled $15.8 billion last year, while Canadian direct investment in Brazil was $9.8 billion.

Canadian exports to Brazil amounted to nearly $2.6 billion, while imports from Brazil were nearly $4 billion.

That trade relationship remains strong, Raul Papaleo, president of the Brazil-Canada Chamber of Commerce, said Monday.

"The diplomats in service here, they're saying to the Brazilian government that Canada is one of the best, if not the best place to have bilateral business," Papaleo said.

However, Cameron suggested the allegations, based on documents leaked by former U.S. National Security Agency contractor Edward Snowden, will make it more difficult for Canada to improve its relationship.

He said the countries fought a long running battle between Bombardier and Embraer over subsidies for the South American regional jet builder.

"The effort to put behind us commercial competition and establish firmer and broader relationships with Brazil are drastically set back by these revelations," Cameron said.

Prime Minister Stephen Harper visited Brazil in August 2011 when he announced an air transport agreement as well as a Canada-Brazil CEO forum, co-chaired by Scotiabank chief executive Rick Waugh and Vale chief executive Murilo Ferreira.

Canada's history of investment in Brazil dates back more than a century.

What would become Brascan, and then Brookfield Asset Management, first invested in a tramway system in Sao Paulo in 1899 before it became a major player in power generation and utilities in the South American country.

But in recent years, more Brazilian reals have headed north than Canadian loonies flying south.

The largest investment by a Brazilian company in Canada was the purchase of Inco by Vale in 2006 that helped make it one of the world's largest nickel producers.

The deal for the Canadian miner was one of the biggest takeovers of a Canadian corporate household name and prompted much hand wringing about foreign ownership.

Brazilian brewer Ambev also owns Labatt, Brazilian industrial conglomerate Votorantim Group owns St. Marys Cement and Brazilian steelmaker Gerdau owns mills in Ontario and Manitoba.

Meanwhile, some 500 Canadian companies are active in Brazil including more than 50 in the mining sector.

Brookfield Asset Management manages some $16 billion in assets in Brazil including real estate, infrastructure, private equity, agriculture and timberland assets in addition to financial services.

Yamana Gold also has the Jacobina, Fazenda Brasileiro and Chapada gold mines in the country as well as several other projects under development.

Earlier this year, the Canada Pension Plan Investment Board signed a US$480-million deal to acquire a 27.6 interest in Brazil's Aliansce Shopping Centers S.A.

The deal built on a real estate portfolio in Brazil valued at more than C$900 million.

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