May 02, 2022

BENCHMARK INTEREST RATE EXPECTED TO INCREASE TO 12.75%

There is unanimous expectation that this week the Central Bank’s Monetary Policy Committee (Copom) will raise the Selic, Brazil’s benchmark interest rate, by 100 basis points, to 12.75%. However, if the decision itself gives signs of predictability, the communication to be adopted by the monetary authority has been widely discussed among market agents, as well as Copom’s next steps, considering that interest rates are already at high levels, but also that current inflation remain relentless and that medium term inflationary expectations continue to move away from the targets.

A survey carried out by Valor between April 27 and 29 shows that, of the 99 institutions surveyed, all of them project that the Selic rate will be raised to 12.75% next Wednesday. The unanimity seen in the expectations for May, however, opens space for division in the market as to the end of the cycle. Of the total, 25 institutions believe that the cycle will already come to an end this week, while 74 see further action ahead, with the basic interest rate entering the 13% range. As for the end of the year, the median of the projections indicates the Selic at 13.25%, but 23 institutions project a higher rate.

To most of the market, a residual adjustment of 50 basis points in the Selic in June is necessary, as the de-anchoring in the medium-term inflation expectations has become more accentuated. If, before the March meeting, the survey carried out by Valor indicated inflation at 6.5% this year and 3.8% in 2023, now the scenario is even more challenging. The midpoint of the expectations collected last week, after the release of the April reading of mid-month reading for inflation index IPCA-15, shows inflation at 7.72% at the end of the year and 4% at the end of 2023.

Thus, the communication from the monetary authority about the way ahead is key for market participants at this moment. Since the beginning of the cycle of Selic hikes in March 2021, Copom has opted to give guidance to market participants on what it foresees for the next meeting. In the last meeting, in March, and in subsequent events, the committee reinforced that it saw the Selic at 12.75% as adequate at the end of the cycle. However, the market has moved to higher numbers as inflationary pressures have continued to escalate.

Thus, in this meeting, a good part of the market believes the Copom is expected to change its communication strategy and leave its next steps open, without committing to a decision in June. “This is a Central Bank that traditionally opts for greater assertiveness in its communication, but considering the stage of the cycle, we think that this statement can be less emphatic in relation to future steps, leaving open the possibility of an additional hike in June, even if of a smaller magnitude,” says Roberto Secemski, CFO for Brazil at Barclays.

A similar scenario is defended by ARX Investimentos CFO, Elisa Machado, when reminding that the inflationary process shows contamination of the entire dynamic part of inflation, especially the nuclei linked to services, which continue to grow. It is worth pointing out that the IPCA-15 of April had a diffusion growth to 78.7%, which scared market participants, even with the indicator below the consensus expectations of players.

“We have a war going on, which can still have an impact on commodity prices; an inflationary process that still shows contamination; besides the whole issue of bottlenecks and the ‘zero Covid’ policy in China, which does not contribute to diminish this situation,” emphasizes Ms. Machado, whose baseline scenario points to Brazil´s benchmark inflation index IPCA at 4.5% in 2023. So, although she emphasizes that the interest rate hike was “significant”, since the Selic went to 11.75% from 2%, the economist points out that the monetary authority needs to gain degrees of freedom in its communication.

“Given all this degree of uncertainty, the choice is likely to be for flexibility. This is not the time to lose degrees of freedom, but rather to gain it. It would be the most appropriate”, she argues. Ms. Machado also notes that the external scenario requires concern, since, even with the monetary tightening cycles announced in developed markets, the projected real interest rates are still negative or close to zero, which would require attention to possible adjustments ahead. On Friday, the 10-year U.S. real interest rate closed the trading session at just 0.01%.

“At this moment, facing so much uncertainty regarding the inflationary process abroad and in Brazil, doubts about the geopolitical impact, Fed raising interest rates and the Covid outbreak in China, it makes sense for the Central Bank to keep at least a gap open [for additional adjustments in the Selic],” argues the superintendent of macroeconomic research at Santander, Maurício Oreng. “The door is closing, but I believe they will keep a gap open for some eventuality.”

Mr. Oreng believes that Copom should use the statement to reinforce the idea that the cycle is nearing its end. Thus, for him, it is possible that the committee will indicate what it foresees for the June meeting. “Historically, the pattern of the Central Bank has been to give more signals about the next decision. I tend to think that they are going to signal a 50 bp hike and say that [the cycle] is nearing the end, perhaps placing more emphasis, but I don´t expect they will set in stone the last hike will be in June,” he says.

With the increase in inflation expectations since the March meeting, to 4% from 3.7%, Mr. Oreng says that by incorporating this movement in the preliminary calculations made by Santander, even with a slightly more appreciated exchange rate, the tendency is to have an increase in the Central Bank’s projection for the IPCA in 2023, given the important weight of expectations in the authority’s model.

“With that, the trend is not to follow the plan of stopping interest rate hikes now. We are expecting the Central Bank to adjust this plan for the June meeting,” says Mr. Oreng, “And if we are correct in our estimate, it might signal something like a 50 bp hike in June.”

Vinland Capital CFO Aurélio Bicalho follows the same line, also expecting Copom to signal a rise in interest rates in June. “Being coherent with the conditions that the Central Bank itself has set, my understanding is that it should come with a communication that there will be an additional gradual or smaller adjustment,” he points out.

In trying to summarize the evolution of the macroeconomic scenario since March, Mr. Bicalho notes that expectations have risen; current inflation has evolved in a worse way; the international scenario has demanded caution in the face of Fed tightening; and the fiscal side, although with no major news, continues to present risks.

He also believes that Copom’s inflation projections will rise, in a scenario of a still asymmetric balance of risks. “And in paragraph 18 of the minutes [of the March meeting], the Copom says that if the scenario was closer to 3.4% inflation in 2023, the assessment was that the cycle should be even more contractionary,” he says.

The economist emphasizes that the evolution of inflation expectations is an even more important factor than if there were a worsening in the Central Bank’s projection due to oil prices. “It is a warning sign that inflation may become more persistent and more detached from the target,” he argues. And it is based on this scenario that Mr. Bicalho evaluates that Copom will signal an interest rate hike in June.

At GAP Asset, the fact that the Central Bank has had a posture of giving guidance on the next steps gives support to the possibility of maintaining this strategy in this week’s meeting. “I think the Central Bank is expected to signal something and the most likely is to actually stop the cycle or give another 50 bp hike. I think delivering another 50 bp increase is the most likely scenario,” says Anna Reis, partner and economist at GAP Asset.

(Gabriel Roca contributed to this story)

Source: Valor International

https://valorinternational.globo.com/

May 02, 2022

PRESSURE ON PRODUCTION CHAINS MAKE COMPANIES CHANGE STRATEGY

The disarticulation of the productive chains is imposing new challenges to companies, which are already looking for alternatives and changing strategies to maintain the production rhythm without compromising profit margins.

The strong global demand for components, the war between Russia and Ukraine, the escalating international freight prices, the volatility of the exchange rate and commodities, and the lockdown in China have created a nebulous scenario of uncertainties.

Companies already weigh down on stocks, bet on the regionalization of value chains, on the expansion of the number of partners and on increasingly verticalized production. André Clark, senior vice president for the Siemens Energy hub in Latin America and general manager of Siemens Energy Brazil, says that there is no visibility as to when exactly this will settle down to a new level.

“Currently, international global supply chains are facing profound setbacks. This system, which was designed for decades to be ultra-efficient and integrated, is having to adapt to abrupt plant closures due to Covid, logistical challenges due to war, and many other problems,” he says.

Within this scenario, and especially when it comes to energy assets, Mr. Clark points to a trend of investment in the concept of nearshoring, that is, a regionalization of value chains.

“It’s a change in value chain strategy to reduce volatility, both in value chains and also in currencies, because when you create costs in the same currency in that you serve the market, your risks are lower. At Siemens Energy that is what we are doing, trying to bring supplies closer together and decreasing dependence on large transports, such as container transports,” he says.

The company used to import from Germany all the insulating materials for equipment aimed at the power transmission market. Now, in addition to this alternative, the manufacturer is developing partnerships with domestic companies to supply the demand. The same happens with cooling systems, for which Siemens Energy is buying locally.

Leandro Barreto, partner at Solve Shipping, speaks about the impact of congestion in Asian ports and the difficulty to move products on the Brazil-Asia route. The cost of freight is around $2,600 a container, impacting the viability of the shipment of commodities and contributing to the rise of global inflation.

“As the world has not managed to put an end to the queues and congestion in the yards of the main ports of the world, we are entering the peak cargo season with a good part of the world’s supply capacity stuck. And this should remain throughout 2022,” says Mr. Barreto.

In these situations, Ricardo Lee, modernization sales head at Voith Hydro Latin America, says the company uses the strategy of looking for goods and services in other countries that have more competitive conditions.

“We use the global sourcing strategy, relying on the team work of the Voith Group. Our intercompany planning has increased internal production between plants around the world. This way, we are able to secure deliveries to customers.

In 2021, Vestas installed about 2 gigawatts of capacity in Brazil and to maintain this pace, the wind turbine manufacturer seeks close partners. The Danish company has a manufacturing unit in the Northeast region of Brazil and has a network of direct local suppliers, integrated to the global structure.

Eduardo Ricotte, Vestas CEO in Latin America, says the company is working to duplicate suppliers in more sensitive areas, with long-term contracts and fixed capacity to prevent delays from reoccurring.

“We have inputs imported from Denmark, we have a local supply chain with more than 80 suppliers that we developed over the years, and we do all the assembly in Ceará, which is closer to the wind farms,” he says. Vestas also has a plant in Mexico for its regionalization strategy.

WEG, based in Santa Catarina, reinforced strategic stocks of raw materials and sought suppliers in several geographies since the first signs of disruption in the development chain. The verticalization of the production process also brought relief.

“In the short term, we have no concerns. We reinforced our strategic inventories throughout 2021. Obviously, this had a price, which was to put working capital into the inventory line beyond our needs, but it gives us a certain comfort at this time of uncertainty. WEG is supplied at this moment for deliveries, but if this lasts, it may cause concern down the road,” says CFO André Rodrigues.

Another point of attention for the executive is the lockdown in China, since the Asian country is one of WEG’s main markets. “And while there is this policy of zero Covid in China, the world’s global supply chain will be under pressure. On the other hand, our verticalized production model is a competitive advantage,” evaluates Mr. Rodrigues.

There is still a large imbalance in the price of commodities, which make up a significant part of the cost structure of companies, says PSR consulting company CEO Luiz Barroso.

“For the industry, there are still three complicated factors. One is the balance between supply and demand for energy, which impacts the price of commodities, and is exacerbated by the war in Ukraine. Second is that prices of raw materials and inputs for the production chain have also increased. And, in Brazil, we have all this under the impact of an exchange rate that is very volatile. This has halted some operations and brought new elements of uncertainty to the table”.

Source: Valor International

https://valorinternational.globo.com/

May 03, 2022

5G TECHNOLOGY TO DRIVE AUTOMATION, AI IN BRAZIL

In addition to the expansion of telecommunications infrastructure like antennas and cables, the digitalization of society and the advent of 5G wireless technology will also require “invisible” services including network management and automation, with intensive use of artificial intelligence – the ability of machines to interpret data and learn. The demand for these products is already increasing, sources from this market told Valor.

The telecommunications products and services sector has room for a “gigantic” growth, according to Ranier Souza, director of engineering at Cisco Brazil.

A survey by the company found that 95% of network changes in 27 countries, including Brazil, are executed manually, which results in operating costs two to three times higher than the expenses with automation.

According to IDC, considering the years 2021-2022, 5G technology will generate the equivalent of $2.7 billion in new business involving technologies such as artificial intelligence, virtual and augmented reality, internet of things, cloud, security, and robotics.

One company that already perceives the segment’s expansion is Infovista, which projects a revenue growth of at least 50% in Brazil and Latin America. Michel Araujo, the firm’s vice president for Latin America, explains that 5G will increase the need for network automation. “In the case of a self-driving car, for example, which heavily relies on the new technology, if there is a problem that interferes in the communication cycle from the cell tower to the infrastructure of the carrier, including how the vehicle is receiving the information, this process must be automatically reviewed, diagnosed and re-established in an automated way,” he said.

Paris-based Infovista develops solutions that automatically prevent and repair problems in the network cycle. The solutions are primarily provided to carriers so they can serve corporate customers on an individualized basis, but there are also deals with businesses in general. “5G is nothing without control,” Mr. Araújo said.

The network management solutions allow a greater spread of the carriers’ signal, which brings investment gains, because the biggest expenses of the telcos are with antennas – especially because 5G has greater capacity but less coverage, which requires a larger number of base transceiver stations. Companies are also expected to save money because automation requires lean operation teams, although they need knowledge of artificial intelligence.

The Infovista executive stressed that the new technology will enable the fourth industrial revolution, with thousands of devices connected to networks including agricultural, industrial and smart city sensors.

There is also the concept of digital twins, virtual representations in real time of objects, processes and systems, which will allow a mining company, for example, to have bases in several different locations, with many connected devices. “Imagine how this company will be able to control, visualize, diagnose and make repairs within this model? It will need automation. This is the challenge,” Mr. Araújo said.

Another company in this segment is Logicalis, which emerged in the United Kingdom in 1997. According to Rodrigo Parreira, the firm’s chief executive for Latin America, the platforms for network management are old and manual operations still play a prominent role. “There are control rooms with dozens of employees sitting around, looking, trying to identify problems within carriers,” he said.

With 5G technology, which will increase the amount of data transmitted over telephone networks, it will be necessary to quickly identify the root cause of any failures. That’s why automation is important, says Mr. Parreira.

Logicalis does not focus so much on developing solutions. Instead, it works installing and maintaining the systems inside carriers and companies. According to Mr. Parreira, growth in this segment is likely to speed up in coming months in tandem with the implementation of 5G in the country. “We are working hard in this field and we are looking closely at this new transition, including some ongoing projects and initiatives, such as a partnership with IBM for cloud computing management,” he said.

For the executive, the 5G auction was meant to “shake up” the market, enabling the arrival of new providers, who will need to invest and build networks in the coming years.

Mr. Souza, with Cisco, said that the need to avoid manual tasks is inevitable and imminent, with increasingly leaner structures. He points out that the digital security field also needs automation. “In the past, when a new virus appeared, updating networks took a long time. Today, what used to take days happens in minutes. If there is no robust automation and detection solution, with artificial intelligence, a company can quickly fall victim to ransomware,” he said. According to Cisco’s global survey, 39% of the technologies used by organizations are outdated.

According to him, “a very large number of tasks are still manual and there is room to grow, which is already happening. Pandemic and increased digitalization, as well as 5G, accelerate this process.”

Eduardo Tude, a consultant at Teleco, sees further growth potential for the next few years as 5G reaches Brazilian cities. “Carriers are activating their networks and services. There will be more tests this year, not something massive. 5G has all the consumer part, but it came to enable a new type of services for companies,” he said.

Source: Valor International

https://valorinternational.globo.com/

May 04, 2022

BRAZIL WILL ASK WTO MEMBERS TO BREAK MORE PATENTS AFTER COVID EFFORTS

Brazilian delegation has prepared proposal to extend the flexibility that may eventually be agreed upon against Covid-19 — Foto: Tânia Rêgo/Agência Brasil

Brazil will propose that flexibilities for patent breaking and technology transfer for the production of anti-Covid vaccines be extended to medicines and treatments against tropical and endemic diseases, sources say. The proposal will be formally presented to the more than 160 members of the World Trade Organization (WTO) next week.

The so-called Quad – the European Union (EU), the United States, India, and South Africa – has defined an agreement to facilitate the breaking of patents to combat Covid-19, which will continue to be negotiated now with the other countries. But this comes at a time when the pandemic has already slowed in several countries.

Africa’s largest anti-Covid vaccine factory is downsizing due to a lack of demand for doses. India’s Serum Institute, the world’s largest vaccine producer, stopped manufacturing Covishield, its version of the Oxford/AstraZeneca vaccine, last December, claiming it had 200 million doses in stock, as reported by Financial Times.

At the WTO, the agreement text limits “eligible members” to developing countries and only to those that exported less than 10% of the world’s Covid-19 vaccine sales in 2021. Brazil considers that it will be eligible, all the more so because it does not even appear on the list of exporters.

Now, ahead of the conference of trade ministers scheduled for June in Geneva, the Brazilian delegation has prepared a proposal to extend the flexibility that may eventually be agreed upon against Covid-19.

“Technology and know-how transfer are important tools for building capacities to combat Covid-19 and beyond,” the Brazilian text says. “Transfer of technology initiatives designed for Covid-19 can and should be used to create capabilities for other health emergencies, particularly those endemic to developing countries and that receive less attention from global research and development frameworks.”

Thus, for Brazil, the use of TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights) flexibilities, voluntary licensing agreements and other solutions involving intellectual property rights “must be accompanied by a political commitment to support initiatives to transfer technology and know-how to developing countries to combat not only Covid-19, but also other health crises.”

The Brazilian government argues that one lesson learned from the Covid-19 pandemic is that inequity in access to health products, notably vaccines, therapies and diagnostics, and unequal capacities among countries to prevent and respond to a health emergency are a threat to all. “Addressing these inequities and capacity imbalances will amount to ensuring that the world as a whole will be safer and better prepared to face other health crises,” the text says.

It notes that, alongside Covid-19, other health emergencies place a heavy burden on the developing world and inflict devastating health, social and economic consequences. It mentions estimates that tuberculosis, malaria and HIV/AIDS will have caused more than 2.8 million deaths by 2020, mainly in developing countries. The WHO estimates that neglected tropical diseases affect the health and livelihoods of more than 1.5 billion people around the world.

“Encouraging medical research and development for diseases that disproportionately affect people in developing countries is a particular challenge,” the Brazilian text says. It mentions a 2015 analysis, which found that poverty-related and neglected diseases account for 14% of the global disease burden, but attract only 1.3% of global research and development spending.

The conclusion is that the trade and health initiative at the WTO should not be indifferent to these issues. “The scope of the WTO discussions must be broad enough to consider not only abstract future health threats, but also current endemic challenges and poverty-related diseases in the context of the developing world. In other words, the discussions need to respond to other health emergencies,” the text adds.

Brazil recalls that the transfer and dissemination of technology is a central objective of the multilateral trade system inscribed in the TRIPS Agreement. This document recognizes, in its objectives and principles (articles 7 and 8), that the protection and enforcement of intellectual property rights must contribute to the promotion of technological innovation and to the transfer and dissemination of technology. The agreement also created a legal obligation for developed countries to provide incentives to companies and institutions in their territories to promote and encourage technology transfer to the least developed countries to enable them to create a sound and viable technological base.

A balanced and comprehensive outcome on trade and health at the WTO should recognize and incorporate this perspective, the Brazilian delegation says. According to a source, the Brazilian proposal has been well-received by other countries.

Source: Valor international

https://valorinternational.globo.com/.

May 06, 2022

PETROBRAS EXCEEDS EXPECTATIONS WITH PROFIT OF R$44BN

Oil prices, higher export volumes, lower costs in liquefied natural gas (LNG) imports and higher margins in diesel oil sales made Petrobras’s profit grow 38 times – or 3,718% – in the first quarter, to R$44.56 billion, compared with R$1.17 billion in the same period of 2021.

In a message delivered with the results, CEO José Mauro Coelho said the results between January and March reflect a “healthy company.” He also recalled that the company paid taxes to the federal government, states and municipalities equivalent to one and a half times the value of its net profit.

The company also highlighted, in a statement about the quarter’s results, that it disbursed almost R$70 billion in taxes, royalties and other payments to the federal government, states and municipalities in the first three months of the year.

The board of Petrobras approved, in a meeting held Thursday, the distribution of dividends in the amount of R$3.7155 per preferred and common share in circulation. According to the company, the total value is around R$48.5 billion.

Of the total, R$3.1387 are interim dividends referring to the remuneration paid in advance to the shareholders relative to the fiscal year 2022.

In addition, R$0.5767 per share will be paid as retained earnings included in the 2021 earnings report.

The dividends will be paid in two installments of R$1.8577, on June 20 and July 20. Shareholders who were listed on May 23 at B3 will be entitled to the dividend.

In the case of holders of depositary receipts (ADRs) on the New York Stock Exchange, the installments will be paid on June 27 and July 27. As of May 24, the shares in both markets will be negotiated without the right to the dividend.

Petrobras says that the dividend is in line with its remuneration policy, which establishes that the company can distribute 60% of the difference between operating cash flow and investments if gross debt is less than $65 billion.

Source: Valor international

https://valorinternational.globo.com/.

May 09, 2022

FINANCIAL INVESTMENT BOOSTS REVENUES OF STATES, CAPITAL CITIES

The combination of higher revenue flow, driven by surprising growth in tax collection, cash availability and rising interest rates raised the income from financial investments by states and municipalities in the most recent period. These revenues totaled R$17.7 billion considering states and state capitals in the 12 months through February. This is more than two times, in real terms, the amount seen in the previous period – R$7.8 billion. In relation to the 12-month period through February 2020, the pre-pandemic period, the real increase is 25%.

With the hike in Brazil’s benchmark interest rate Selic last Wednesday, to 12.75%, and still high cash availability, revenues are expected to increase even more this year given the expected lengthening of the monetary tightening cycle to tackle inflation.

In the case of capital cities, which totaled income revenue of R$3.9 billion in the 12 months through February, the amount is equivalent to 8.5% of service tax ISS revenue collected in the same period. The amount is less representative for states. There were R$13.8 billion, or little more than 2% of sales tax ICMS. This tax is the most important one for states, with the largest collection in the Brazilian tax system, equivalent to 7.6% of the GDP in 2021.

“We are going to see revenue from financial investments rise even more this year,” said Juliana Damasceno, an economist with Tendências and an associate researcher at Fundação Getulio Vargas. The increase in the 12 months through February this year reflects the strong monetary tightening cycle last year, when the Selic was escalating, she said. “In 2022, we already have a double-digit interest rate,” she said. This will lead to income revenue growth, even though we no longer have the same help from the revenue cycle, which advanced over the past year with some economic growth, but with “a very strong contribution from inflation.”

As for the capital cities, there was also a gradual pickup in services after the sharp decline in 2020 under the impact of the Covid-19 pandemic, she said. The scenario was conducive to improved revenue flow and greater cash availability.

The cycle of interest rate hikes and revenue growth have the “same root, which is the rise in inflation,” Ms. Damasceno said. “We shouldn’t celebrate fiscal adjustment because of inflation or because of the medicine used to fight it, which is high interest rates. We know the harmful effect that the lengthening of the monetary tightening cycle has on the economy,” she said, citing the effect on consumer spending and household indebtedness amid a very critical social situation.

The data on income from financial investments were collected by Valor based on state reports submitted to the National Treasury Secretariat. The revenues received were considered, adjusted by Brazil’s official inflation index IPCA in the 12-month periods to February 2020 and 2021.

Most municipalities are likely to benefit from the higher Selic on revenues from investments, said Giovanna Victer, Secretary of Finance of Salvador and chair of the national forum of municipal secretaries of Finance within the National Front of Mayors (FNP). Those in debt are the exception because the higher interest rates and inflation increases the debt service. In the capital city of Bahia, according to the fiscal reports, these revenues totaled R$130.2 million in the 12 months through February, almost three times, in real terms, the amount reported in the previous 12-month period (R$45.5 million) and up 7% from the 12-months period through February 2020.

Among capital cities, São Paulo stands out. Brazil’s most populous city totaled R$1.6 billion in revenue with income from financial investments in 12 months to February this year, compared with R$517.8 million in the previous 12 months. The city also saw an increase of 93.3% compared with the period from March 2019 to February 2020.

The great advantage of those revenues is that they are not earmarked, said George Santoro, who was Finance Secretary of Alagoas until May 4. The revenues are mostly free and are not subject to the constitutional allocations for health and education. One exception is revenue from the Fund for Maintenance and Development of Basic Education (Fundeb) and some other transfers. In these cases, the investments follow more limited rules and the earnings are earmarked for the same purpose as the funds that gave rise to them.

According to the fiscal reports from Alagoas, the revenue with income from investments in the state totaled R$251.7 million in the 12 months through February, compared with R$73.8 million in the previous 12 months. In relation to the same period to February 2020, the increase was 70.3%.

Felipe Salto, Secretary of Finance of the State of São Paulo, says that the funds are likely to help execute investments planned for this year. The higher revenue from financial investments results from the increase in tax collection thanks to the state’s economic growth, he said, which made possible a cash availability of R$34 billion. According to the state reports, these revenues totaled R$3.1 billion in the 12 months through February 2022, almost four times the amount seen in the previous period (R$802.41 million) and two times the amount collected through February 2020 (R$ 1.63 billion) in real terms.

“This income is important, but it is not a trend in the medium term,” he said, considering the broader factors that contributed to the higher collection in 2021. He recalled that last year the collection of ICMS rose 17% year over year, in real terms. The perspective for this year is of “much milder growth,” between 3% and 4% in real terms.

In addition to the cyclical nature that led to the growth in revenues of the subnational entities, Ms. Damasceno said states must know that inflation and interest benefit revenues at first, but then take a toll on expenses. “The scenario provokes pressures for adjustments not only of servants, as we have seen since the beginning of the year but also of suppliers.” The effect on spending, she said, can happen more in the medium and long term. “You can’t get there in debt and have spent all that revenue. There may be a delay, but this adjustment will happen,” she said.

Ms. Victer, from Salvador, agrees that although revenues still reflect a recovery in the service sector, the picture is not one of tranquility, and caution is necessary in order not to commit “seasonal and temporary” resources with permanent expenses.

The more recent scenario of better revenue flow has led the states to better invest funds, Mr. Santoro said. One challenge, however, is the limitations of the public power to tap financial instruments. He recalled that early last year, the state held a bidding process to get a better return on investments for about R$400 million in cash surpluses.

The call for bids imposed several restrictions on the participating institutions, such as net worth and other indicators, the former secretary said. The winner, he recalled, was a private-sector bank that offered yields above 110% of the interbank deposit rate (CDI). The State Prosecutor General’s Office, however, understood that the government was prevented from contracting with private-sector institutions. State-owned banks, he said, offered at the time 95% of the CDI. The issue was taken to the Economy Ministry, in search of more flexible rules, but there was no success, which led the state to contract other financial investments with state-run banks.

After announcing the possibility of paying the property tax IPTU with cryptocurrencies as of 2023, the City of Rio de Janeiro is now studying investments in this new asset.

In a note, the Rio de Janeiro Finance Secretariat told Valor that the city mulls “a cryptocurrency investment policy and a governance model for decision-making.” According to the note, a Municipal Committee of Investments in Cryptocurrencies will be created to refine the methodology. The municipality also said that in March it reached a cash balance of R$9 billion, the result of a cost-cutting effort, expense containment and structuring measures, such as the new fiscal regime and a tax overhaul.

Source: Valor international

https://valorinternational.globo.com/.

May 09, 2022

PROJECTIONS FOR ACTIVITY IN 2022 IMPROVE DESPITE INFLATION

The analysts’ mood with the Brazilian economy this year has improved, in the wake not only of a higher-than-projected carry over from 2021 to 2022, but also of stronger current data for the first and second quarter. The assessment is that the first half of the year will be positive, despite the discomfort with rising inflation, due to the recovery of employment, the normalization of services and the extra drive to consumption and credit with government measures. For the second half of the year, however, when the effects of monetary policy on activity should become clear, a falling GDP are expected. In addition, estimates for growth in 2023 waned throughout the year.

The Focus survey’s median of expectations for the 2022 GDP went to 0.7% from 0.3% at the beginning of the year – but there were projections of recession. Financial institutions have promoted revisions to numbers closer to 1%, as did Safra (to 0.8% from 0.2%) and Barclays (to 1% from 0.3%) last week. “Retail trade and agriculture have contributed to economic activity in the first quarter of 2022, proving more positive than anticipated,” says Safra, raising its GDP estimate for the period to 0.7% from 0.3%.

The still ongoing normalization of services – especially those provided to households, but also government services – will be a “big driver” for this year’s GDP, especially in the first quarter, points out Wether Vervloet, economist at ACE Capital. The company, who came to project contraction of 0.5% for the 2022 GDP at the turn of the year, now forecasts a 1.5% growth, with 1.1% in the first quarter and 0.6% in the second. “The data that has been coming out over the year has also been strong.”

The S&P Global service sector Purchasing Manager’s Index (PMI), for example, reported its highest growth in 15 years in April and helped push the private sector manufacturing index (composite PMI) to the highest since October 2007, despite the slowdown in manufacturing, which is not expected to make a very favorable contribution to 2022 GDP.

Last Friday, Itaú raised its projection for inflation in 2022 to 8.5% from 7.5%, but kept the GDP at 1%. According to the team led by Mario Mesquita, the rise in commodities, fiscal stimulus and the reopening of the economy are contributing positively, and the first half is expected to be “robust”.

The expectation is 1% for the GDP in the first quarter and 0.6% in the second, “but our daily indicators at the end of the first quarter (with a relevant statistical carry over effect for the following quarter) and the beginning of the second quarter (data from April) indicate a risk of increase of this projection,” Itaú says.

Economists are also warning about employment. “The latest data on the labor market, together with the improvement in some confidence indicators, confirms more dynamism in consumption/services in the coming months,” writes Roberto Secemski, chief economist for Brazil at Barclays.

The effect of measures since the turn of the year, such as the 10.2% hike of the minimum wage and the expansion of cash-transfer program Auxílio Brasil, which replaced Bolsa Família, may have been underestimated at first, according to Rodrigo Nishida, economist with LCA Consultores. Add to that policies for this year – within the electoral logic, he notes – such as the access to the Workers’ Severance Fund (FGTS) and bringing forward the payment of 13th salary, a year-end bonus, for retired people, as well as the apparent dissaving of families.

Igor Velecico, chief economist at Genoa Capital, adds that the increases in the state civil service’s wages and the appreciation of the exchange rate, in relation to the beginning of the year, also have an effect on the available income of families. And, in his assessment, credit is still expanding at strong rates. “It is a little more resistant,” he says.

Genoa, which has also projected a 0.5% contraction for the 2022 GDP, now expects a 1.5% increase, and Mr. Velecico indicates that a range up to 2% seems adequate. Fernando Honorato, chief economist at Bradesco, projects 1% for the GDP in 2022, but also did not rule out, during an event, the chance of reaching 2%.

More cautious, Silvia Matos, coordinator of the Macro Bulletin of the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), maintains the GDP growth projection for 2022 at 0.6% and says she will be surprised with an advance very close to 1% in the first quarter — the FGV Ibre expects 0.4%. “There was a certain bad mood, I never had recession [for 2022]. But the drivers for maintaining growth in the year are weak, services should lose steam, there is very high inflation eroding purchasing power,” she says.

Mr. Nishida, who for now projects the 2022 GDP at 0.7%, says he shares the feeling that activity is stronger, at least in the short term. “But we are a little wary of revising too much upward. It’s still a complicated scenario, with several shocks. Internationally, you have the war and, recently, circulation restrictions in China, which threaten to make supply chains worse again.”

The effect of the strong cycle of interest rate hikes underway since March 2021 is also expected to affect growth in 2023. The projections for next year’s GDP expansion went to the current 1% from 1.8% at the end of December 2022.

Source: Valor international

https://valorinternational.globo.com/.

May 11, 2022

SOY EXPORTS EXPECTED TO REACH RECORD $58BN

With upward revisions, especially regarding prices, the Brazilian Association of Vegetable Oil Industries (Abiove) started to project the revenue of soy exports (beans, meal and oil) at $57.953 billion in 2022. The record amount is $6.51 billion higher than what was forecast by the association in March and, if materialized, will represent an increase of 20.7% year over year.

For soybeans, Abiove now estimates revenues of $46.32 billion, resulting from shipments of 77.2 million tonnes at an average price of $600 per tonne. The previous calculations indicated $41.181 billion (77.7 million tonnes at $530 per tonne). In 2021, revenues totaled $38.636 billion (86.108 million tonnes at $449 per tonne).

As for soy meal, the current scenario for 2022 indicates $8.51 billion in revenues, with sales of 18.3 million tonnes and an average price of $465 per tonne. In March, Abiove estimated revenues of $8.052 billion (18.3 million tonnes at $440 per tonne). Last year, the amount reached $7.37 billion (17.21 million tonnes at $428 per tonne).

For oil, Abiove revised its projection for export revenues to $3.123 billion, the result of 1.8 million tonnes shipped at $1,735 per tonne. In March, the projections indicated $2.21 billion (1.7 million tonnes at $1,300 per tonne). Last year, import revenues totaled $2.017 billion (1.651 million tonnes at $1,222 per tonne).

The price adjustments are in line with the curves seen in the international market since the beginning of the year and confirm analysts’ assessments that there should be no significant drops in the coming months, in view of the lower grain supply in Brazil, Argentina, and Paraguay due to weather problems, the effects of the war in Ukraine on the wheat and corn markets, and heated demand in India.

The trend of increasing the planted area in the United States in the 2022/23 season has not been enough to bring prices down. Brazil is the global leader in production and exports of soybeans, followed by the U.S.

Also in the new report it released on Tuesday, Abiove adjusted its estimate for the 2021/22 soybean harvest in Brazil to 125.4 million tonnes, 9.7% less than in 2020/21. Processing this year was maintained at 48 million tonnes, just above 2021, with production of 36.685 million tonnes of meal and 9.7 million tonnes of oil.

Source: Valor international

https://valorinternational.globo.com/.

May 11, 2022

RETAIL SALES BETTER THAN EXPECTED IN Q1 DESPITE RISING RATES, INFLATION

The reopening of the economy, a low base of comparison and a stable unemployment rate combined with the use of savings and a rising average income helped retailers to achieve better-than-expected results in the first quarter. Although measures such as the authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts can help in the short term, economists say that during the year factors such as inflation, high interest rates and household indebtedness are expected to hinder recovery.

According to the Monthly Survey of Trade (PMC) released Tuesday by the Brazilian Institute of Geography and Statistics (IBGE), the volume of restricted retail sales in the country rose 1% in March, compared to February, the third consecutive positive rate in the seasonally adjusted series, after 2.3% in January and 1.3% in February. In the expanded retail sector, which includes sales of vehicles and motorcycles, their parts and construction materials, the sales volume rose 0.7% in March compared with February. In the first quarter, the restricted retail sales volume advanced 1.9% against the fourth quarter, the first quarterly rise since the second quarter of 2021 (2.2%).

The March results, as well as that of the two previous months, surprised positively. For March, the median of the estimates collected by Valor Data from 30 consultancies and financial firms indicated an increase of 0.4% in the restricted retail sales volume, seasonally adjusted, against February. The range of projections was from -0.2% to +1.3%.

Cristiano Santos, manager of the survey, observes that, despite the positive trajectory of the retail market in the beginning of 2022, the performance is heterogeneous and only four out of 10 activities have recovered the sales volume observed before the pandemic.

“You have a number of factors influencing the first quarter. The main one is a very low base of comparison [December 2021], which ends up boosting some sectors. The unemployment rate was stable compared to the fourth quarter of last year,” Mr. Santos said. “The other point is that the average income grew 1.5% from one quarter to the next. So this increase of 1.9% in retail has to do with the real average growth of income,” he added.

Inflation held back the industry, he said. Mr. Santos points out the difference between the performance of retail revenue compared to volume. The nominal revenue of the restricted retail market rose 2.9% in March against February, but the increase in volume was lower, of 1%. In three activities, he points out, the inflation effect is higher: fuels and lubricants, hypermarkets and supermarkets, and fabrics, clothing and footwear.

For Lucas Rocca, economist at LCA, the higher-than-expected trajectory of retail in the first quarter is due to the use of savings accumulated mainly since the second half of 2020. In the first three months, he points out, expanded retail was up 1.1% from the previous quarter, seasonally adjusted. This leads to a statistical carryover for the next three months of 1.2% for the expanded retail, also on the margin, seasonally adjusted.

This, plus the effects of programs such as the authorization to withdraw funds from FGTS accounts and bringing forward the payment of 13th salary (a year-end bonus) for retired people, he says, is likely to still drive retail in the second quarter. In the second half of the year, however, he evaluates, the level of savings is expected to fall and there will also be a greater effect of the broader scenario. He expects a slowdown in the volume of retail sales due to real income pressured by factors such as inflation, high interest rates and household indebtedness.

Claudio Considera, a researcher at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre/FGV), has a similar view. For him, the March performance was influenced by the easing of social-distancing measures, with masks no longer required and a “feeling of the end of the pandemic,” with shopping, along with face-to-face leisure activities. The figures for March, however, is unlikely to continue as inflation, the high unemployment rates and rising interest rates are expected to impact items whose sales require credit, such as furniture and appliances.

Source: Valor international

https://valorinternational.globo.com/

May 11, 2022

KIMBERLY-CLARK EXPANDS OPERATIONS TO EXPORT FROM BRAZIL

Kimberly-Clark, the U.S.-based maker of personal care and household cleaning products, is expanding operations in Brazil in order to turn the country into the company’s innovation hub and main exporter for the Latin American market. “All Brazilian plants will produce items to be exported by the end of this year,” Gonzalo Uribe, the chief executive for Latin America, told Valor.

Since 2020, the owner of brands Intimus, Neve and Huggies is investing in capacity expansion, equipment, installation of new technologies and construction of an increasingly local raw material supply network. It also foresees sustainability targets, such as using 25% recycled plastics in packaging and reducing non-renewable fibers by 50%. The investment totals $120 million, one third of which will be injected this year.

“Brazil is our most important market in Latin America. It is one pillar of the company’s organic growth,” said Mr. Uribe. Earlier this month, the Colombian executive made his first visit to Brazil since taking office, bringing the entire management team from the region to follow the plans to strengthen the operation.

Brazil is one of Kimberly-Clark’s 10 largest operations worldwide, with 4,000 employees. In the first quarter, Mr. Uribe said, the sales of the Brazilian operation grew by double digits. Globally, the sales of the U.S-based multinational grew 7% year over year, to $5.09 billion, but operating income fell 10%, the same contraction as net income, which stood at $535 million.

“Margins are typically lower in the first quarter, but they are starting to show some recovery,” Mr. Uribe said. The cost of goods sold was 13% higher in the quarter, but, according to him, analyses and data point to an improvement this year.

During his visit to the country, he closely followed the changes in the Suzano plant, São Paulo. With the investments, the unit started producing 200 million diapers per month and automated the production of wet wipes. “Our entire production line is digitalized, with data every second on how the production is going, how much material we are consuming, how our products are in terms of quality,” Mr. Uribe said. Besides the local market, the unit already supplies Chile, Peru, Bolivia and Argentina.

But the allocation of funds includes the company’s other two plants, in Mogi das Cruzes (São Paulo) and Camaçari (Bahia). One brand that will have more products made in Brazil is Intimus. Today, some items in its portfolio come from Asia. They will be produced at the plant in Bahia, both to meet the domestic market and to export, at first, to Chile and Peru. The company expects the production to supply the entire region in the coming years.

The growth of domestic production also benefits product lines driven by the change in consumption habits during the pandemic, as is the case of the product Scott Duramax. At the beginning of the second half, the conversion line focused on local production will start operating, replacing the current import operation from Colombia. The product will be made in the Mogi das Cruzes plant. The local output is expected to grow 40% in the first year of operation.

The expansion plan also includes the use of local raw materials, a strategy that gained prominence after global supply chain disruptions caused by the pandemic. Almost all the inputs are Brazilian or imported by local suppliers, the executive said. “Verticalization and local production become more important and necessary, besides being a competitive advantage versus imports,” he said, citing advantages like the more guaranteed supply and the reduction of freight costs.

The Colombian executive believes that the moment is one of rearrangement of the global industry – not only for Kimberly-Clark. “It is an opportunity for Brazil to export even more to Latin America and the world. This is also happening in Mexico and Colombia. Latin American markets must take advantage of this trend.”

Source: Valor International

https://valorinternational.globo.com/

May 13, 2022

ENEL GREEN POWER TO BUILD NEW WIND FARM

Enel Green Power, the renewable energy arm of Italy’s Enel, has started to build a 348-megawatt wind farm in Bahia as part of its investment plan in clean power. The plan is to install a solar farm and a battery system in the future so that the venture becomes hybrid. Located in the municipalities of Umburanas, Morro do Chapéu and Ourolândia, the wind farm will have investments of R$2.5 billion and will consist of 81 wind turbines, all already contracted with Nordex Acciona.

Power generation will be intended for the free market. Becoming hybrid, however, still depends on the definition of technical regulations — rules for hybrid farms were approved last year — but Enel is already ready for this step, said Roberta Bonomi, head of Enel Green Power in Brazil. The company is also ready to expand if demand for power in the free market remains high, she told Valor.

Ms. Bonomi pointed out that not only Aroeira, but all the company’s plants are being considered for hybrid operation, with solar plants or storage systems. At the first moment, clean and cheap energy development was the focus in the country, and now, with the possibility of working with hybrid power plants, the company seeks a solution for the intermittency of wind and solar.

“Considering that the country has a large hydroelectric capacity, which is the natural batteries of the electrical system, [systems of] batteries would be the perfect way to achieve stability,” she said. She points out that wind and solar complement each other at the peak of operation — wind generates more electricity at night — and batteries, today more competitive, will add stability. “This will allow us to take even more advantage of the Northeast region’s resources and increase the system’s capacity,” Ms. Bonomi said.

In the free market, it is possible to choose the power supplier, and decarbonization, as a rule, has led many companies to seek renewable generation as a way to meet the goals of reducing greenhouse gas emissions. Even with the effects of war and a more adverse economic scenario, Enel Green Power’s plans for Brazil are maintained. “The energy transition is a movement that cannot stop,” the executive said.

She commented that energy transition, and an eventual acceleration in this process, places more responsibility on the companies in the industry and forces them to have a broader look at issues related to sustainability, especially because they are increasingly seen as driving a less carbonized energy.

Bahia, she exemplifies, is a state where the company has been active since 2011 and is considered key for the company since 40% of Enel Green Power’s total 4.7 GW of installed capacity is in the state. For the implementation of the new farm, the company is negotiating with the authorities so that local professionals keep 50% of the 1,200 direct jobs to be generated. In the world, the company has accelerated the goal of zero carbon, which has to be reached in 2040, 10 years before the initial target, and wants to leave the coal-fired generation business by 2026.

As for offshore wind power, an offshore installation technology that is at the center of debates in the power industry, Ms. Bonomi says that the company is not yet considering entering this segment because it is still more expensive than onshore plants.

She pointed out that wind farms are close to the coast in Brazil, which means a very high cost for the benefits that would be obtained by the source. Another reason is that the country still has large tracts of land and potential for onshore plants, which is not the case in other countries.

For her, the source can make sense in the future, but the ideal would be to let other countries advance in the development of offshore generation, even as a way to reduce implementation costs. “At this moment, it doesn’t make sense to invest in Brazil in a technology that is more expensive. Our main goal is to reduce the bill for the final consumer.”

Source: Valor International

https://valorinternational.globo.com/

 

May 16, 2022

FINTECHS MAKE NUMBER OF FINANCIAL INSTITUTIONS GROW

The intense innovation process experienced in recent years has created a fertile ground for the digitalization of financial services and products. In this context, after six years in decline, the number of financial institutions grew again in 2019, a movement that gained traction amid the Covid-19 pandemic. In February, according to the last data released by the Central Bank, the country had 649 banks, fintechs and finance companies, 15% more than in 2019.

The growth was driven by the boom of fintechs and digital banks. Payment institutions, for example, more than doubled in the period and went to 43 in February this year from 19 in 2019. Direct lending and person-to-person lending companies, meanwhile — which are credit fintechs — went to 78 from 15 in the same period, up 420%. This increase reverses the trend seen between 2013 and 2018, when the industry shrank. In the period, the number of financial institutions fell by 11%.

The number of banks, however, remained stable and reached the lowest number in 2018, with 171. In February 2022, there were 177, the same number registered in 2013 and in the last two years. When including cooperatives and consortium administrators, the total number of participants in the financial system rises to 1,648, up 1.16% compared to 2019.

In March 2021, the Central Bank changed the rules for payment institutions, which may explain part of the growth of companies authorized by the monetary authority in this segment. With the change, those fintechs need to apply for authorization before setting up the business. Before, non-regulated institutions could operate until they reached R$500 million a year in transactions and only then would ask for approval.

“To create a fintech after March 2021, one needs to request authorization from day zero. That is why we have seen the increase in authorized institutions, and we will see exponential growth this year and next. The institutions that already existed before the new norm and were not authorized are still able to operate, but the there is a decreasing order of volume until 2023, when all of them will need authorization,” says Marcelo Martins, head of the Brazilian Association of Fintechs (ABFintechs) and CEO of the payment company Iniciador.

Although they have grown in number, fintechs are still not very expressive in the credit market. To a large extent, this is because large banks can receive demand deposits (in current accounts) and lend those resources, a dynamic known as leverage.

Payment institutions, which offer simpler digital accounts, cannot provide financing with customers’ money, as can credit fintechs, which must use their own capital.

“New fintechs certainly help in the deconcentration of the industry, as end users have more options. It is one of the main measures for the dilution [of the segment]. As the concentration is still very large — more than 85% of financial services are held by five banks — the result is that you can’t realize it immediately,” points out the president of ABFintechs, Diego Pérez.

The executive points out that, in the payments market, the presence of those new institutions is more relevant. “Pix boosted a lot the access of small entrants, because a fintech has the same computational, availability, and financial settlement capacity as a large bank, because the structure is maintained by the Central Bank itself,” says Mr. Pérez.

Source: Valor International

https://valorinternational.globo.com/

 

May 18, 2022

INVESTMENT BOOM DRIVEN BY PRIVATE SECTOR

The surge in Brazil’s investment rate between 2016 and 2021, to 19.2% from 15.5% of the GDP, is due entirely to the increase in the private sector’s slice, whose rate rose to 17.5% from 13.6% of the GDP in the period, while public investments shrunk to 1.64% from 1.93%, the same level as the previous two years. The estimates for 2020 and 2021 are from the Center for Capital Market Studies at the Economic Research Institute Foundation (Cemec-Fipe), based on data from the Applied Economics Research Institute (IPEA), the National Accounts of the Brazilian Institute of Geography and Statistics (IBGE) and the National Treasury.

Cemec recalls that, since 2018, investment rates reflect the impacts of oil rig accounting criteria, in addition to changes in relative prices of gross fixed capital formation (GFCF) and the GDP in the period. “Cleaning up” the data from these effects, based also on a paper by economist Gilberto Borça published in Valor, Cemec estimates that the private investment rate, in relation to GDP, rose 2.9 percentage points between 2016 and 2021, above the 2.7 points growth of the total rate.

Three-quarters of this increase occurred between 2019 and 2021, when the private investment rate, with adjustment, advanced two percentage points of the GDP. At that time, Cemec notes, the growth rate of the GFCF index reached 8% per year, almost double of what was seen in the entire period from 2016 to 2021 (4.5% per year), despite a sharp drop in 2020. “My interpretation is that this is an investment recovery cycle that began after the recession started in 2014, in 2016-2017, was interrupted by the pandemic shock in 2020, but then recovered strongly,” Cemec’s coordinator Carlos Antonio Rocca said.

The study suggests that the increase in private investment has been concentrated in agribusiness and the construction industry. In the period from 2016 to 2021, the physical production of agricultural capital goods and their parts grew 3.9% and 7.3% per year, respectively, only below the capital goods for the construction industry, whose production advanced 11% per year.

This performance was strengthened in the 2019 to 2021 period, rising to more than 18% per year in the case of agricultural capital goods and parts, and to 16.6% among construction capital goods. The housing industry was favored recently by household spending on renovation and maintenance in the pandemic and, mainly, by falling interest rates and the drop in financing costs for construction and selling of residential properties. The production and investments in agriculture had a strong incentive from the increases in prices of agricultural commodities and the exchange rate, says Cemec.

Mr. Rocca – who, at Cemec, closely follows public companies in Brazil – also notes that since 2018 the rate of return on total capital invested by these companies was very close to the weighted average cost of capital, but in 2021, this rate of return has improved a lot. “The relevance of these data is that one of the important elements for making the decision to invest is to knowing how the return on this invested capital will be,” explains Mr. Rocca.

Given the financial constraints on public investment, there has indeed been an effort by the government to adopt a privatization and concessions agenda as an alternative, said Manoel Pires, coordinator of the Fiscal Policy Observatory at Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV). But there are also, he says, some statistical and/or temporary effects that help explain the recent boost in private investment.

Besides the internalization of the oil rigs, which do not present new investments, Mr. Pires notes that the inflation of investment goods was higher than that of the GDP. “When you take the value of investment and divide it by the GDP, the investment rate goes up, but the price effect is not exactly new investment,” he says.

Looking ahead, Mr. Pires says that with the rise in interest rates, the trend is that construction, for example, will no longer be such a strong factor in the growth of private investment. Another element that may have helped explain the higher rates, according to him, is that many businesses needed to invest to adapt to the pandemic and continue producing, what could tend to create a temporary effect of increased investment. “We will have to wait a bit to better evaluate the trend, but these questions serve to say that it is difficult to see we are living a new cycle of investments with the information we have now, that can raise the growth of the economy,” he ponders.

In a recent report, Inter B. Consultoria, headed by economist Claudio Frischtak, said that Brazil still invests little in infrastructure specifically. “In recent years, less than 2% of the GDP – and we have not gone beyond 1.73% in 2021,” he said, projecting 1.71% for 2022. Inter B. sees room for more public investment in infrastructure – which is expected to decline to 0.57% of the GDP in 2022 from 0.59% of GDP in 2021, the consulting firm estimated – provided it is based on a government reform that creates fiscal space for a responsible expansion of resources, with “a new governance, with better planning, and less discretion.”

Source: Valor International

https://valorinternational.globo.com/

 

May 23, 2022

INVESTMENT BOOM DRIVEN BY PRIVATE SECTOR

The advancement of vocational education to 40% or 50% of the places offered in high schools, from 10% now, is a strategy that can contribute to the country’s development, with increased productivity, reduced inequality, and increased opportunities for young people, experts say. Considered “revolutionary” by some, this path requires time and needs to be on the country’s agenda, with the participation of leaders from the public sector and also from companies.

Guilherme Lichand, a professor of economics at the University of Zurich, believes that it is necessary to change the way vocational education is seen in Brazil.

“There is a vision in Brazil that vocational education is inferior. People desire higher education, and see the vocational education as something for those who didn’t get there. This is not the case in Europe, where more than half of population choose vocational education and only 20% or 30% go to the university,” he said.

Brazil follows the U.S. model, in which only higher education seems suitable, he said. “This is not desirable. There are no jobs for that. Just look at the enormous student loan debt that [U.S. President Joe] Biden had to forgive. In Brazil, we will have a similar problem in 10 years.”

The view that vocational education is subservient to industry and geared exclusively to training labor is mistaken, said Olavo Nogueira Filho, the executive director of NGO Todos pela Educação.

“The key is to do it with quality. Offering vocational and technological education makes it possible to raise the quality of high school, which, besides facilitating the insertion of young people into productive activities, also makes it possible for them to continue their studies throughout their lives. It is not a second-choice option.”

For him, the data from developed European countries show this. In countries that are members of the Organization for Economic Cooperation and Development (OECD), on average 40% of high school places are connected to vocational and technological education, said Mr. Nogueira Filho. In Brazil, he compares, this rate is around 11%, and in Latin America, 20%.

Expanding the share of vocational education in the country is a strategy that can be carried out together with more investments in higher education, he added.

Examples show that vocational and technological education integrated to high school becomes much more effective when it comes to the students’ interest. He says that one challenge of high school is precisely to be attractive to young people, with an education suited to their reality.

Mr. Lichand, who has a PhD in political economy from Harvard University, points out that there are great challenges to migrate from a system that offers vocational education to 10% of high school students to one that offers it 50% of students. It is necessary, he says, to discuss how to do this on the necessary scale and how to aim for the right country model.

Since 80% of the students in Brazil’s basic education are in public schools, certainly the public sector will have a huge challenge and will need to decide what vocational education will be, whether there will be purchases of vocational education systems, Mr. Lichand.

“But we need more. It is necessary to define a country agenda and make a pact involving the public and private sectors.” In the European model, Mr. Lichand said, vocational education includes theoretical classes and also practical experience in industrial companies. “You need experience in the field and that’s why you need to partner with companies. You need to expand with quality even if the private sector accounts for part of it. The key is to understand how to certify, monitor and evaluate to ensure high-quality training, not cheap labor.”

The fields and curricula, argues Mr. Lichand, must be defined together with the companies. For the professor, the ideal time to build this would be 10 years, with companies committing to finance it in some way.

There are two major challenges in this process, he points out. Convincing the business community that the student is not cheap labor and convincing the school that the curriculum must be discussed according to the companies’ needs. “If this pact can be built, it could be the best of all worlds. There will be people trained who fit perfectly with what the industry needs. Today we have situations where there are unemployed people and companies that can’t fill vacancies.”

The private sector, says the professor, is not organized for this because it doesn’t see that it also needs to lead this process. It is not just a problem for public education. For him, it is necessary to have a national leadership in the public sector shared with business leadership as well. Without a pact, it will not work, he said, as shown by European experiences. It is a process that must involve society as a whole, with multiple leaderships.

“It could be revolutionary. Cash-transfer policies have already helped improve inequality indicators in some periods in Brazil. But low productivity is something that seems insoluble in the country. Vocational education could improve these indicators.”

Source: Valor International

https://valorinternational.globo.com/