Foxconn's Brazil plans in trouble

A $12 billion plan by Foxconn to build iPads in Brazil is in trouble as negotiations broke down over tax breaks and the fact that Brazil has a lack of skilled labour.

According to Reuters, the plan to open a Foxconn plant was announced by President Dilma Rousseff during an official visit to China. It was seen as a sign of growing economic ties with Asia, and proof that Brazil was moving up the value added manufacturing chain.

Factories back home were a little shocked. For years they have been facing high taxes, an overvalued currency and a lack of qualified workers due to poor education and a tight labour market.

The start date for production was first set for July, then delayed to November and now it has been put on hold completely.

According to the government,  Foxconn is making “crazy demands” for tax breaks and other special treatment. Foxconn is saying nothing.

According to the Folha de S.Paulo newspaper funding for the Foxconn project from the BNDES state development bank was in danger of being withdrawn.

If it all goes tits up, the deal it could become symbolic of Brazil’s struggle to meet high growth expectations this year. After expanding 7.5 percent last year, the economy is now forecast to grow just 3.5 percent in 2011.

Part of the problem is that there are high taxes, bad infrastructure and a shallow labour pool in Brazil. At the same time Brazil’s consumer market is considered under-served.

Part of this is because the high cost of imports means an iPad 2 is nearly twice the cost of what it is in the US.