Brazil’s iPhone investment falls short on promises of jobs, lower prices

Updated: 00:00 GMT, Jan 1, 1970 | Published: 10:33 GMT, Apr 13, 2015 |

The Brazilian iPhone was meant to mark a new era. When Taiwan’s Foxconn Technology Group agreed in April 2011 to make Apple products here, President Dilma Rousseff and her advisers promised that up to $12 billion in investments over six years would transform the Brazilian technology sector, putting it on the cutting edge of touch screen development. A new supply chain would be created, generating high-quality jobs and bringing down prices of the coveted gadgets. Four years later, none of that has come true.

Foxconn has created only a small fraction of the 100,000 jobs that the government projected, and most of the work is in low-skill assembly. There is little sign that it has catalyzed Brazil’s technology sector or created much of a local supply chain.  The iPhones now rolling off an assembly line near São Paulo, the only ones in the world made outside China, carry a retail price tag of nearly $1,000 for a 32-gigabyte iPhone 5S without a contract – among the highest prices in the world and about twice what they sell for in the U.S.

That Brazil has so little to show for the Foxconn investment underscores the shortcomings of its industrial policy, defined by costly tax incentives that have driven a widening government budget deficit without spurring growth. The economy currently hovers close to recession and the productivity of Brazil’s workforce is stagnant.

Apple Inc’s (AAPL.O) iPhone sales in Brazil have still been rising. Wholesale shipments increased more than 40 percent to 2.9 million last year, according to research firm Gartner.  Apple declined to comment for this story. Representatives for the Brazilian government and Foxconn declined to comment on why the investment fell so far short of initial projections. With wages rising quickly in China, home to most of its 1.3 million employees, Foxconn is trying to control costs by using more robotics and expanding its global footprint to make more electronics in markets where they are sold.

But navigating politics and managing expectations beyond China has been tricky for Foxconn, whose flagship listed unit is Hon Hai Precision Industry Co Ltd (2317.TW).  For instance, Indonesia’s government has said for years that Foxconn would invest up to $10 billion, but plans remain in limbo due to political snags. [ID:nL3N0L111A] In Brazil as in Indonesia, politicians and government officials were the ones making the big forecasts after conversations with Foxconn, which has been more circumspect in its own public statements and projections.