High-tech Turnaround.

Brazil's cacao capital, laid low by a bitter harvest, bounces back with computers.

A SMALL CHOCOLATE STORE AND A cocoa museum are among the few remaining legacies of king cacao in Ilheus, a 150,000-population town in Brazil's northeastern Bahia state. Once the cacao capital of the world, the town could only sit and watch as the vicious witch's broom disease [vassoura de bruja] ripped out its roots in the early 1990s, leaving shriveled leaves and rotten fruit in its wake.

Cacao production plummeted from 410,000 tons per year in the mid-1980s to less than one-quarter of that figure. Desperate for a solution, regional and local leaders offered tax breaks to establish a high-tech industrial park--and international firms have come calling. Tiny Ilheus has successfully traded chocolate for high tech; it is now the third-largest computer producer in Brazil, and a model for other troubled towns in the region.

Sales for the zone are projected to reach US$420 million this year, up from $300 million last year. The Ilheus tech boom has brought in 2,100 new jobs; an additional 2,900 are expected by 2003.

Cocoa chips. The first--and still largest--company to set up shop in Ilheus is Microtec, a subsidiary of the Miami-based Vitech America, which found refuge in an abandoned cocoa-processing plant. Today, instead of chocolate bars, thousands of computers emerge from the plant. Twenty-four other technology companies now call Ilheus home and another 11 are headed that way.

Brazilian Netgate, for example, came to Ilheus 3 years ago, plowed $4 million into a new plant and now produces motherboards, fax/modems and other basic elements for computers. By next year, it hopes to triple its sales to $30 million, says Jose Carvalho, president of the company. He says shipping priority goods by ground transport out of sleepy Ilheus is still a problem due to slow and irregular traffic. Yet, by and large, the free zone has been a success, thanks mostly, he says, to the political will of state government leaders.

Waytec, another domestic company, moved its operations from southern Minas Gerais state to Ilheus two years ago. The firm now assembles 15,000 monitors per month for big-name brands like Unisys and for Brazil's Bradesco bank. Daniel Rodriguez, industrial director, expects sales to grow by an annual 15% from $27 million this year.

"We have room for everybody," says Antonio Cesar Costa Zugaib, the town's municipal development secretary. "The tax benefits are not geographically limited."

Tax-subsidized 'tecnopolis.' In this rural part of Brazil, Ilheus' tax subsidy policy stands out. A white paper on the town's economic future reads like a free-market textbook. "In the near future, we will transform Ilheus into a tecnopolis," it boldly states. "A digital, information economy is a factor of differentiation to obtain competitiveness in other sectors, especially in an increasingly globalized world."

Important to the town's success has been carefully cultivated public support, built through information seminars and workshops. Certainly, the severity of the cacao crisis helped build enthusiasm for new economic alternatives.

But bringing business to Ilheus has not been without difficulties, in part because of the shortage of trained labor. "We had to teach people the difference between a microchip and a coconut," says George St. Laurent III, Microtec president. "The first couple of years are a challenge. It's definitely not a turnkey project." In response, state and city governments set up a host of education programs, training technicians and secretaries for the incoming firms. There's also a move afoot to expand the airport and streamline customs.

Despite its remoteness, St. Laurent says the town has the necessary basic infrastructure and is well located. It helps that Ilheus is halfway between the fast-growing markets of the northeast and the large consumer markets of the southeast. "That is a key advantage," says St. Laurent. "You can't set up a place like this in the middle of the jungle."

Doing business in small-town Brazil also means less red tape than that faced by companies in bureaucracy-heavy Sao Paulo or Rio de Janeiro. Companies enjoy lower labor costs, almost no traffic jams and fewer problems with crime. These benefits far outweigh the drawbacks of being away from business centers, says St. Laurent.

In the middle of 2003, some of Microtec's tax breaks expire. St. Laurent says his company will seek to have them extended but, even if they aren't, Ilheus remains appealing. "The [tax] issue is important but it doesn't make or break our business," he says.

Ilheus--and its former cacao workers--are counting on other industrialists to feel the same.