Brazil’s $12 billion Plan To Make iPads ‘In Doubt’ (EWZ, EWZS, AAPL)

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October 2, 2011 9:14pm NYSE:EWZ NYSE:EWZS

Larry Levinson: A $12 billion project to have Apple Inc. contractor Foxconn produce the computer company’s iconic iPads in Brazil is running into trouble over tax breaks, labor shortages and infrastructure problems.

The project, unveiled by President Dilma Rousseff in April during a visit to China, is running into difficult negotiations between the contractor and the government, Reuters reported.


“The talks have been very difficult, and the project for a Brazilian iPad is in doubt,” one official told Reuters. “(Foxconn) is making crazy demands” for tax breaks and other special treatment, the official added.

Several calls to a representative for Foxconn (FXCNY) in Brazil were not immediately returned, Reuters said.

A failure of the project could tarnish Brazil’s image as a burgeoning economic power just as it seeks to move up the chain in adding value to products that pass through the country.

The economy grew a world-beating 7.5% last year, though some forecasts say it will slow to only 3.5% in 2011. The country’s expansion has led to inflation and high interest rates, although the nation’s central bank may be poised to cut rates again when it meets in October.

Issues that must be solved include a small pool of skilled labor, delays at Brazilian customs, the country’s generally poor infrastructure and the need to find a local partner for Taiwanese Foxconn, which builds many of Apple’s (NASDAQ:AAPL) products.

“We’re dealing with a lot of issues, like the (Taiwanese) trying to figure out how to do business in Brazil … and Brazil figuring out how to produce these complicated products,” a second government official told Reuters.

Brazil is already struggling to meet its plan to spend $1 trillion to improve airports and other facilities as part of plans to host the World Cup in 2014 and the Summer Olympics in 2016.

The expected start date for production was first set for July, then delayed to November. Now, it is unclear whether the project will ever get off the ground, Reuters said.

Any big industrial win for Brazil should sooner or later be reflected in the performance of the country’s large-cap or small-cap stocks, embodied by funds like iShares MSCI Brazil Index ETF (NYSE:EWZ) and iShares MSCI Brazil Small Cap Index ETF (NYSE:EWZS), respectively:

Written By Larry Levinson From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

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