Brazil's Silicon Valley has its own reasons to rejoice as the centre of an IT explosion unlike that of any other emerging economy, with B2B and B2C sectors that Americans and Europeans can only dream of

Eduardo Nader points with evident satisfaction to his shiny new computer monitor. Every few minutes a new line appears across the screen. A bus company asks about a certain type of windscreen wiper, a building firm requests a quote for a roof, a cosmetics concern is looking to purchase a new machine to pack its products. When supplier and purchaser reach agreement, the line on Mr Nader's screen turns red and he is a few pence richer. This process is repeated about 3,000 times a day. On the electronic marketplace Mr Nader's 280 paying customers have access to a good 17,000 suppliers.

"If we were in the US or Europe, I'd be a millionaire by now," he laughs. Instead, the offices of the founder and head of Mercado Eletrônico are in the Vila Olímpia district of São Paulo, Brazil. He has no reason to complain, however: Forrester Research has calculated that the B2B sector worldwide will be worth $1,133.9bn (£785.8bn) this year, with $4.4bn (£3bn) of that coming from Brazil, with that figure rising to $59.4bn (£41bn) by 2004.

Brazil is thus the market leader in Latin America. And this positive forecast is not limited to the B2B sector. Experts are quite simply amazed at the boom in modern information technologies taking place in this emerging economy. The Brazilians had a good laugh at the US in the weeks following the presidential elections, for example, when the state of Florida was debating whether "pregnant chads" should be counted or not.

When Brazilian president Fernando Enrique Cardoso took office in 1998, a quarter of the electorate had voted electronically. The mayoral elections in November were conducted completely electronically. Tax declarations via the internet have been commonplace since as far back as 1997, and the status of applications to public authorities can be checked at home on the computer. Brazilians have even begun exporting their experience with electronic accounting to Germany - a positive side effect of galloping inflation since the mid-1980s - with the consultants DBA opening an office last year near Frankfurt.

In 1998, Latin America's largest and most populous country (165m inhabitants) could boast the third-highest number of internet users in the world. Market researchers Media Metrix say that some 9m Brazilians today have access to the worldwide web; and there are 12m Brazilian websites, with 2,000 new domains being registered every month, according to the ministry of science and technology. Political analyst Christiano German, who researches Brazil's progress in the information era, predicts that in the medium term the country could have as many as 30m internauts (regular internet users); in other words, the majority of the 20 per cent of wealthy Brazilians who enjoy a western European standard of living.

This, naturally, is the target group of online commercial suppliers such as Antonio Bonchristiano, CEO of the internet department store Submarino, which was founded in November 1999. He claims to have seen 220,000 customers pass through his virtual doors and just under 2,000 orders per day in the first business year - and, he says, the figure is growing. Although Mr Bonchristiano is reluctant to give details of sales figures, the relatively disappointing results for B2C in Europe and the US don't seem to worry him.

B2C fills a huge gap

Mr Bonchristiano believes that the situation in Latin America is completely different from that of the rest of the world, and ideal for his company. "The infrastructure in rural areas is a disaster. There are no good bookshops, no music shops, nothing. B2C provides all these things." Moreover, Brazilians are pragmatic: "They are much less mistrustful of technical innovations than consumers in the US and Europe," he says.

Pragmatism has also helped Brazil to become a leader in information technologies. The military, which ruled the country from 1964 to 1985, was already aware of the future importance of the computer sector. Although the attempt to develop a national computer industry through the imposition of heavy import duties in the 1980s failed, this protectionism had a positive side.

Brazil has an impressive pool of computer experts who were able to help other countries when the Y2K problem hit the headlines in the run-up to the year 2000. The Brazilian telecommunications and computer industry has an annual turnover of some $50bn (£34.6bn). The government in Brasília continues to promote the IT industry, which, by virtue of computer legislation passed in 1991, can enjoy a variety of tax benefits until the year 2013 at least. Brazil also invests 1.2 per cent of its GDP in research and development, which is more than the rest of Latin America put together.

However, the real breakthrough came in July 1998, with the privatisation of the state telephone company Telebrás, which opened the way for Brazilians to get on the internet. "Before the privatisation of the telecoms sector, even a simple telephone line was a luxury that cost more than a car," recalls Mr German. Two-year waiting lists were not unusual. Today there are no fewer than 34 regional and national suppliers competing for customers. In the first 18 months following privatisation alone, 7.6m new telephone lines were installed. There are now more than 30m. On average a connection today costs e16.50 (£10.50). The number of mobile phones has also risen impressively, from 600,000 in 1997 to 24m today. Mobile phones are the most convenient solution in Brazil, particularly in the thinly populated and inaccessible regions of northern Brazil, and networks cost half as much as conventional telephone lines.

When Eduardo Nader and his brother Marcos presented their idea for Mercado Eletrônico to companies for the first time in 1994, they met with blank expressions. "To speak of the internet at that time was like talking about aeroplanes 200 years ago. We had an incredible amount of explaining to do. Very few companies had computers and people didn't even know how to use a mouse."

According to Media Metrix, some 2.5 per cent of Brazilians have a PC at home today and 72.6 per cent of these have internet access.

A bit of Belgium and a lot of India

But the social and geographical differences are huge. The word "Belindia" - a little bit of Belgium and a lot of India - is a good way of describing the country's socio-economic heterogeneity. Some 40 per cent of the poorest Brazilians earn just 7 per cent of the country's revenue, while 10 per cent of the richest account for 50.6 per cent. According to official statistics, 46m people live on less than 70 reals (e38/£24) a month. A computer with internet access is clearly out of their reach.

"Modern information technologies harbour the risk of intensifying social differences but they also have the potential of enabling more people to share in economic growth," stresses Ronaldo Mota Sardenberg, minister of science and technology.

If the nova economia is to have the success that Brazil hopes for, computer and internet companies will not be able to concentrate solely on the better-off. They will also need more labour and expertise. The 200 largest companies in this sector employed 154,000 people in 1999. Some 12,000 IT specialists graduate from Brazil's universities every year, half as many as in the US but impressive nonetheless. "But the demand for both skilled and unskilled labour is much greater," says Mr Sardenberg. In December 1999 his ministry therefore launched the Programa Sociedade da Informa (Information Society Programme).

A total of 3.4bn reals (e1.9bn/£1.2bn) has been invested with a view to providing internet service for all Brazilians by 2003. Schools, community centres and public authorities will be thoroughly networked and computer courses will be offered even in the favelas, or shantytowns.

Brazil's Silicon Valley

No fewer than 20 per cent of the degrees and doctorates in electrical and computer engineering in Brazil are awarded by the prestigious State University of Campinas (Unicamp), a city with 900,000 inhabitants situated 100km north-west of São Paulo. The Brazilian press call the city Vale do Silício - Silicon Valley. In the city centre, BMW and Mercedes dealers feature top-of-the range vehicles in their display windows. Close by, in the affluent high-rises, the cost of a 200 sq m apartment is $1m (£693,000). The view from the penthouse looks on to the city's huge Mormon temple. But the real holy places in Campinas are to be found elsewhere, and they have names like Motorola, IBM, Compaq, Lucent or Nortel. Some 900 telecommunications and IT companies have offices in the region and investments in the last three years ran to about $900m (£623.7m). Last year Campinas was one of only two Latin American cities to feature among the 46 high-tech centres in the world chosen by Wired magazine. The second was São Paulo.

Until the end of 1999, Renato Toi was based in Campinas with his company Zetax, working on the development of telephone exchanges. Then Lucent bought up the competition and made an offer to Mr Toi and his partners to move to Miami. The others accepted, but Mr Toi remained in the city where he had studied. Since May, the 38-year-old has been working as a backer and consultant for five different start-ups. Venture capital companies such as his Venture Labs are few and far between in Brazil. "There is no venture capital tradition here," says consultant Ivan Moura Campos. "In the US you can go broke without it necessarily having an adverse effect on your future prospects. That's not the case here." In many cases start-ups have no guaranteed funds for the second financing phase. Eduardo Nader had to go begging to friends and relatives when he wanted to set up Mercado Eletrônico.

It was not until early 2000 that GP Investimentos and CVC/Opportunity came along, with $27m (£18.7m) in tow. "More venture capital is required to stop Brazilian IT specialists from moving abroad - or to persuade them to come back here," insists Mr Toi. "As long as the cash flow continues to dribble, innovative companies will find it difficult to start up," agrees Mr Sardenberg. Channels were recently opened to ease the investment of international funds in Brazilian businesses - but the disappointing performance of share prices on the new markets has made investment companies cautious.

The German Connection - investment in Brazil read

Email Karin Finkenzeller at finkenzeller.karin@ftd.de