Kristen Rupert, Executive Director of AIM’s International Business Council, is accompanying Governor Deval Patrick and a group of business executives and state economic development officials on an innovation economy development mission to Brazil. The following is based on her reports from the scene.

Massachusetts business and political leaders spent Tuesday and Wednesday discussing science, research, financial services and other economic growth drivers with their counterparts in the sprawling city of São Paulo.

The Massachusetts delegation began its day Tuesday by visiting the São Paulo Foundation (FAPESP), the primary state agency overseeing funding of research and scholarships.  For nearly five decades, 1 percent of the State of Sao Paulo’s annual revenues have gone to FAPESP.  This $500 million annually supports thousands of scholarships and research programs in energy, biodiversity and public health.

Brazilian officials said that the commonwealth’s collaborative model, which encourages universities, corporations and government to work together to create new companies, new technologies and new discoveries, is a model they would like to duplicate in São Paulo.  Some partnerships and spin-offs already are occurring, despite the fact that venture capital is still in its infancy in Brazil.

In the afternoon, executives from AIM member companies EMC, Microsoft and Fidelity were part of a small group invited to Microsoft Brazil headquarters to meet with local technology leaders from corporations, business trade associations, and the entrepreneur community. Brazil ranks fifth globally in Internet use, tenth in broadband penetration, third in purchases of personal computers, and seventh in IT investment.   Technology jobs in São Paulo alone are approaching a million.

Huge opportunities exist in Brazil for Massachusetts companies in the IT sector.  Rapid growth of the middle class translates to increased demand for technology. Microsoft just opened, in Brazil, its first X-Box (gaming) manufacturing facility outside of China.  Brazil will host the World Cup in 2014 and the Olympics in 2016, presenting additional IT opportunities in areas such as security/authentication, health, defense, data storage, and infrastructure. Taxes on R&D and software are currently high, but the Brazilian government is studying the issue and weighing the benefits and risks of tax decreases.

São Paulo is huge city with 20 million people—the fifth largest city in the world.  It has scores of skyscrapers, lots of traffic, and a constant haze over the city because of air pollution.  São Paulo is the economic engine of Brazil, generating 34 percent of Gross Domestic Product and 45 percent of Brazil’s PhDs.

In the evening, the trade mission delegation attended a reception, hosted by Liberty Mutual local partner Liberty Seguros, for alumni and friends of Massachusetts colleges and universities living in Brazil.  Nearly 200 alumni and friends connected with business leaders from Brazil and exchanged contact information.

On Wednesday morning, AIM and Fidelity accompanied Governor Patrick and his party to a meeting with Governor Geraldo Alckmin of São Paulo state. The art in the Governor’s Palace, ranging from folk art to murals to oils and sculpture is magnificent. The small group discussed common interests and challenges—skilled labor, improvements to K-12 and technical education, diversified industries, and innovation.  The groups also discussed opportunities for collaboration between Massachusetts and São Paulo.

Education remains an ongoing theme of the trade mission.

Brazil, with a fast-growing population and an expanding economy, needs to improve its education at all levels. Employment is keeping pace with the growth of the workforce – unemployment is very low – and technical workers especially are in short supply. There’s a system here similar to community college in United States, where students get technical degrees and go right to work. Ninety five percent get hired before graduation.

In the afternoon session on financial services, hosted at Santander (parent of Sovereign Bank), one panelist remarked that the three most critical issues for financial services for Brazil are education, education, education.

UMass signed several agreements in the course of this mission, formalizing work that has been going on for some time.  One in Brasilia with Embrapa, the Brazilian agricultural research agency, involves collaboration with Brazilian universities to develop ways to grow foods in the US that are familiar to immigrants.  Another is an agreement regarding dual degree doctoral programs between UMass Dartmouth and the University of São Paulo.

In addition, UMass, Boston University, Harvard and Northeastern, among other institutions, will participate in the Santander-sponsored TOP USA-Massachusetts Program, which will fund seven projects per year for faculty, post-doctorate and graduate students to study at partner universities in each country.

The financial services sector in Brazil is emerging rapidly. A stable and well-capitalized banking system is an asset that makes Brazil attractive for foreign investment. It is a low-leveraged country with relatively little debt and credit, and not much of a secondary market.  The real estate sector strong – some think too strong. Asset management is growing quickly, although saving for retirement is still uncommon; that could changes as more people get into middle class.

Investment professionals see Brazil as great opportunity, with its diversity of industries, sound fiscal and debt management, oil reserves and growing middle class. Public policy changes and private sector initiatives are making the climate more attractive for foreign investment.

In addition to education, Brazil has notable needs in the area of infrastructure development, including all forms of transportation – roads, airports, trains, buses – as well as hotels and other amenities. Economic growth and the emergence of a large middle class are the long-term drivers of these needs, but they will become particularly acute as Brazil hosts the World Cup (2014) and Olympic Games (2016).