Brazil’s jobless rate drops to 12.4 pct in quarter through June

Brazil’s unemployment rate declined more than expected in the quarter ending in June, a sign that an underwhelming economic recovery is finally trickling down to workers.

The jobless rate fell to 12.4 percent from 13.1 percent in the three months through March, government statistics agency IBGE said on Tuesday. Economists polled by Reuters expected a median 12.6 percent rate.

Yet off-the-books employment accounted for nearly all gains, highlighting how the labor market bounceback still has a long way to go. Off-the-books workers do not enjoy paid holidays, scheduled pay raises and other worker benefits.

Formal employment, meanwhile, was nearly unchanged, keeping a lid on price pressures. Wages remained flat when adjusted for inflation, IBGE said.

This should allow the central bank to keep interest rates at an all-time low for a long time even after product shortages stemming from a nationwide truckers’ strike pushed up inflation.

A recent Reuters survey showed the strike had curbed the outlook for economic growth this year by nearly one percentage point, but only temporarily drove up prices.

Source: Reuters

Brazil June fiscal deficit slightly larger than expected

Brazil’s fiscal deficit in June was slightly above expectations, central bank data showed on Monday, highlighting the government’s struggles to improve its budget balance.

The public sector, comprised of the central government, local governments and state enterprises, posted a deficit of 13.491 billion reais ($3.6 billion) before interest payments, compared with a median forecast of 13.15 billion reais. Gross public sector debt was equal to 77.2 percent of gross domestic product, slightly above a consensus estimate of 77.1 percent.

Source: Reuters

Brazil’s Banco Bradesco beats profit estimates on lower provisions

Brazil’s second largest private lender Banco Bradesco SA beat second quarter net income estimates on Thursday, as loan-loss provisions declined amid Brazil’s slow economic recovery.

Bradesco reported recurring net income, which excludes one-time items, of 5.161 billion reais ($1.4 billion), above a Reuters consensus estimate of 5.056 billion reais and 9.7 percent higher than a year earlier.

Fewer bad loans helped Bradesco’s profit. Loan-loss provision expenses totaled 3.437 billion reais in the second quarter, down 36.1 percent from a year earlier. The 90-day default ratio also declined 0.5 percentage point in the quarter, to 3.9 percent.

As Bradesco predicts fewer problems with bad loans, the bank set a new target for loan-loss provisions in 2018. It predicted losses between 13 billion reais and 16 billion reais from low-quality assets, down from the previous target between 16 billion reais and 19 billion reais.

Bradesco also forecast lower insurance premium underwriting in 2018, although insurance gains boosted Bradesco’s profits in the quarter. New targets aim at a 2 percent to 6 percent growth in premiums, while the bank had previously forecast between 4 percent and 8 percent growth.

The bank sped up loan book growth, which increased by 6 percent in the quarter and reached 515.6 billion reais. In a securities filing, Bradesco said corporate loans grew at a faster pace, although the Brazilian economy is still struggling to bounce back from a recession.

Fee income grew 8.3 percent on the previous year, to 8.1 billion reais, helping to boost profit in the quarter.

The bank’s recurring return on equity dropped 0.2 percent in the quarter, to 18.4 percent.

Source: Reuters

Brics members’ low investment in JSE points to limited economic ties

SA’s links with its fellow Brics members – Brazil, Russia, India and China – have grown exponentially since the country gained membership status in this association of leading emerging economies in 2010. At least that would appear to be the view of government officials and policy makers. But there is one area of conspicuous silence in the Brics agenda — the stock markets.

If the rationale for the formation of the Brics is primarily economic coalition, as it was and is still being argued to be, what concrete evidence is there for growing economic ties? This is especially so for SA, which was a relative latecomer and is the smallest of the economies. Has confidence in SA filtered through to the private sectors of Brazil, Russia, India and China since Pretoria’s entry into the club?

Paying attention to the private sector is an important metric not only for the purposes of measuring the Brics in economic terms (as originally envisioned by Goldman Sachs economist Jim O’Neill), but also as a measurement of the extent to which the relationship has taken on a life of its own and outgrown the relatively top-down political nudging, which can sometimes feel like an arranged marriage.

In fact, the spontaneous and decentralised nature of stock market investment can be taken as a better reflection of the actual confidence levels placed by the Brics countries in SA than the proposed Brics rating agency, which might, as is the nature of ratings agencies in general, miss the mark due to its sometimes arbitrary approach.

Indian and Chinese multinational corporations are blessed with immense capital and are in a position to make investments and acquisitions, provided the prospective market is bullish enough. But how have South African companies been faring? What have the trends been in recent years, particularly regarding the JSE?

With more than 379 domestic listed companies and 800 instruments such as derivatives with an average daily turnover of more than R6bn, the JSE ought to be ripe for cross-Brics investment. This should be all the more so since in 2011 the seven Brics country stock exchanges agreed on a cross-listing benchmark equity index for derivatives — a mechanism for their investors to keep abreast of the general trends in one another’s top performers (those listed on the Top 40 Index in the case of the JSE), and purchase them in their home countries.

As SA has a low savings-to-GDP ratio of 19.5%, foreign investment is needed to compensate for the domestic shortfall in capital. Foreign capital invested in the South African economy amounts to about 49% of GDP. This percentage is exceeded in some of the bigger stocks on the JSE and in October 2017 foreign investment comprised about 38% of JSE-listed company ownership.

Within individual companies the average share of foreign ownership has risen from 30% in 2008, and in the JSE Top 40 only eight companies, mainly the smaller ones, are more than 75% owned by South Africans. The Brics countries have made their presence felt, but it is an underwhelming one relative to their size.

Only three companies from Brics countries made dents worth noting. In August 2015 Chinese group Gold One acquired about 19.96% of JSE-listed Sibanye Gold, becoming the single largest shareholder in the company. The composition of Sibanye’s Chinese shareholder is interesting; being a consortium, the partners include private and government-linked financiers, such as Long March Capital and China Development Bank.

An early example of India-derived investment via the JSE after SA’s entry to the Brics grouping was the listing of Oakbay Resources and Energy, which was listed in 2014. However, the company soon became embroiled in controversy due to a wave of disclosures and allegations regarding “state capture” and the Gupta family’s dealings with SA’s political elite, including former president Jacob Zuma. In June 2017 the company suspended its listing on the stock market due to mounting pressure from its bankers and its auditors abandoning ship.

However, in 2017 Indian billionaire Anil Agarwal also bought an 11% stake in Anglo American for £1.2bn, making him the second largest shareholder in the group. He followed this up with a $1.5bn investment, which resulted in a total 20% ownership share.

Anglo American also did its bit for Brics commercial integration when in 2014 it made its first shipment of iron ore from the Minas-Rio project in Minas Gerais and Rio de Janeiro in the southeast of Brazil that it wholly owns through its Iron Ore Brazil subsidiary.

Further strengthening the Brics commercial web, the operation’s primary consumer is China. But crucially, although Anglo American was founded in SA, it shifted its primary listing to the London Stock Exchange in 1999 and now maintains only a secondary listing on the JSE.

Minas-Rio was also not really so much a result of Brics alignment, as exploration started there in 2009, prior to SA becoming a member.

From the Industrial and Commercial Bank of China’s stake in Standard Bank, acquired in 2007, to Gold One’s stake in Sibanye, most of the Brics investments in corporate SA have been in line with the traditional alignment between SA and China that predates and transcends their Brics membership, with China being SA’s principal export and import partner.

In addition to China, for SA the main source of investment in JSE-listed companies has been western financiers, particularly the UK. Similarly, hundreds of other companies in Brics countries have recently listed on US and European stock markets.

One of the reasons for the lacklustre influx of Brics country investment in the JSE is SA’s lack of tech companies and tech start-ups, which have been drawing international investment in other countries.

Another important factor has been a reported lack of international investor confidence in the country in its years under the Zuma-led government, which further disinclined foreign investment in the JSE, which grew by just 7% in the period. Crucially, SA’s Brics membership has spanned the entirety of the Zuma presidency.

Rather counterintuitively, however, South African companies have been leading in investing in other Brics-domiciled companies. Though the private sectors of the Brics countries have made investments of their own in JSE-listed companies, these are barely to the expected level. They are much larger economies — the Shanghai Stock Exchange is the fourth largest stock market by market cap at about $4-trillion — and as such SA’s relative leadership in private sector investments in listed companies in the Brics countries indicates an enormous disproportionality. This is after almost a decade of membership.

If SA’s aim is mainly political association with “rising powers” in a multilateral world, Pretoria is closer to its goal than when it first set about trying to achieve it. But if one of the markers of Brics inclusion for SA is a self-propelled level of investment outside official prodding and political encouragement, it has a long way to go.

Source: Business Live

More Business Projects needed to Drive Brazil, Russia, India, China and South Africa (BRICS) Economic Cooperation – Minister Davies

The Minister of Trade and Industry, Dr Rob Davies says more business-to-business projects are needed to drive economic cooperation amongst BRICS countries that include Brazil, Russia, India, China and South Africa. Minister Davies was speaking during the investments opportunities session on the first day of the 6th annual meeting of BRICS Business Council that is taking place in Durban until tomorrow.

“It is important to emphasise that we need to identify many more practical business-to-business projects for implementation as a way of driving forward our economic cooperation and intra-BRICS business cooperation. BRICS as a block is of strategic importance in the current global environment that we find ourselves in today. We have entered a period of turbulence in the global trading system,” said Davies.

He attributed the turbulence to the largest and most powerful economy of the world which he said was raising tariffs in violation of a whole lot of trade agreements or arrangements they may have with different countries, and doing it on a discriminatory basis in violation of the World Trade Organisation principles.

“These actions are accompanied by growing disdain for multilateralism and global trade rules. I think at the end of the day this is all about setting a call for a rebalancing of the global trade environment to the perceived advantage of the individual country and without any sense whatsoever of being in the interest of the global economy, inclusive development or anything of that sort,” stressed Davies.

He added that the global world economic environment was also characterised by the 4th Industrial Revolution which will have far-reaching implications and impact.

“The presence of these new technologies that are already here is going to be felt exponentially and disruptively across the world. The artificial intelligence and all of the new technologies are happening in the context of the world where there is huge inequality and the winner-takes-all markets.  We need to work together and support each other to ensure that these technologies achieve their positive potential to increase global productivity and create a better life for many citizens of the world,” appealed Davies.

He emphasised that BRICS had become an incredibly important and strategic institution as a third of the world’s population resides in the BRICS countries and the block contributes 22% of the world’s Gross Domestic Product.

Davies also said South Africa’s trade relations with other BRICS states had increased significantly to the extent that China had become SA’s number one trading partner in the world as a source of imports and a destination of exports.

“India is in the top six while Russia and Brazil are lower down but have come up very significantly from where they used to be. If you look at our investment relationship, we can see that there has been less progress in regard to what we have recorded. The inflow of BRICS investments into the South African economy between 2003 and 2017 is nearly US$18bn, On the positive side there have been 189 projects that have created 36 850 jobs. That is a significant figure. But between 2001 and 2016 South Africa invested US$68 billion in other BRICS countries,” said Davies.

Source: African News-Room

BRICS buildup meetings help summit deliver

The BRICS Summit is largely an international relations conference that brings together the heads of states of the five BRICS nations -Brazil, Russia, India, China and South Africa. The annual ritual takes place in the same fashion as the G20 wherein BRICS members come together to pledge economic and political commitments to each other.

We seem to have come to accept that the world functions through multipolar, bilateral and multilateral institutions to facilitate economic, political and social hegemonic agenda. And for this reason, the talk about whether BRICS is relevant and if it will last seems to be slowly fading away.

At the same time, the Bretton Woods institutions seem to be facing a continuous crisis of credibility and relevance despite being originally intended to be all inclusive and unbiased in addressing global economic and political interests. This further strengthens the relevance of alternative commons like BRICS.

The BRICS presidency and the hosting of the summit is rotational among member states. The eighth BRICS Summit took place in Goa, India in 2016 and the ninth one was hosted by China in Xiamen in 2017. This year 2018 the presidency of BRICS falls on South Africa for the second time (first in 2013), and the summit takes place in Johannesburg between July 25 and 27.

The build-up to the BRICS heads of states summit is a series of meetings of various role players who pave the way by negotiating trade, economic, security and political agreements. Some among these agreements would form the resolutions of the BRICS summit to be endorsed and signed off by the heads of states.

There is a full annual schedule of meetings of BRICS stakeholders that includes various government ministries, academic conferences, business forums and civil society meetings. Among the series of these precursor meetings worth mentioning is the BRICS Academic Forum that took place in Johannesburg between May 28 and 31. The meeting of the BRICS Foreign Ministers took place on June 4 in Pretoria. The civil society (Civil BRICS) summit took place from June 25 to 26 in Johannesburg and the BRICS Network University conference at Stellenbosch, South Africa between July 5 and 7, 2018.

The theme of the Academic Forum was “Envisioning inclusive development through a socially responsive economy.” Although the forum made numerous recommendations, two are noteworthy.

The first is important as it responds to the current global economic upheavals. It observed that global economic growth and prosperity are not inclusive and beneficial to all nations. The recommendation is for strengthening commitment by BRICS to multilateral rules-based economic practices embodied in the WTO. There is a strong repudiation of unilateralism seen in recent days that is likely to spark trade wars.

The second observation is that the status of women has not significantly improved over the years in comparison to that of men irrespective of global economic growth. The Academic Forum recommended the establishment of a Forum on Women’s Inclusion to champion women’s economic and social rights. Equally so, the United Nations has attempted to address women’s status through its UN Women directorate with a not-so-significant impact.

The meeting of the Foreign Ministers which took place in Pretoria, South Africa celebrated a decade of BRICS and reiterated commitment to implementing the historic outcomes and resolutions of the BRICS summits. The theme of the 10th BRICS in South Africa is “Collaboration for inclusive growth and shared prosperity in the 4th industrial revolution.”

The ministers reiterated the call for outreach and to extend BRICS cooperation with other developing and emerging economies. South Africa’s two-pronged outreach approach through the 10th summit (BRICS-Africa Dialogue and the BRICS Plus cooperation) was praised.

The ministers also endorsed once more the importance and relevance of the UN as a multilateral institution that should be strengthened for more effective and efficient implementation of the mandates conferred upon it.

The theme of the BRICS Network University conference was “Unlocking BRICS Universities’ Partnerships: Postgraduate Education Opportunities and Challenges.”

It is hoped that more cooperation between the BRICS nations will be strengthened and the historic North-South/South-North patterns of culture and knowledge exchange and production will slowly give way to South-South cooperation.

Of interest is strengthening cooperation in the areas of mutual interest and global importance – energy, computer science, information security, ecology, climate change, water resources and pollution treatment, among others.

As a norm, the BRICS summit does not deviate much from resolutions taken by the series of BRICS forums and meetings that precede it. It is also expected that the BRICS summit will sound the relevant alarm bells in respect of among others the current global economic trade wars, the Middle East wars, international and European migration problems, the fourth industrial revolution and jobless growth economies.

What is of importance however among the BRICS nation states and their citizens is proof that resolutions are implemented and that there are tangible economic and political benefits derived from them.

Source: Global Times

Volkswagen to furlough 1,000 workers in Brazil as sales slow: union

Volkswagen AG (VOWG_p.DE) will furlough about 1,000 workers at its largest factory in Brazil, union representatives said on Thursday, due to weaker economic growth and slumping exports to Argentina.

The month-long furlough will start Aug. 21 at the VW plant in Sao Bernardo do Campo, on the outskirts of Sao Paulo, according to the local metalworkers union.

The factory produces the Jetta, Saveiro and Polo models, along with its Virtus sedan variant, and employs about 8,000 workers.
The news was first reported by newspaper O Estado De S. Paulo on Thursday. A Volkswagen representative declined to comment immediately on the matter.

A truckers’ strike in late May took the wind out of a gradual economic recovery in Brazil, weighing on domestic demand. Slower sales in Mexico and Argentina also led Brazilian automaker group Anfavea to scrap a forecast for exports to grow this year.

Furloughs are common as an alternative to costly job cuts in Brazil’s auto industry, allowing carmakers to trim production and payroll more easily when demand softens.

Source: Reuters

Brazil M&A seen slowing in run-up to presidential election

Bankers and lawyers expect the pipeline of big deals in Brazil to shrink in coming months as financial and strategic acquirers avoid taking risks due to market volatility during a presidential campaign and doubts about the economy’s recovery.

The total value of deals in the first half of the year fell 26 percent from the same period in 2017, to $26.3 billion, according to Thomson Reuters data.

Less than three months ahead of the October vote, the presidential race is still wide open, with a third or more of voters undecided.

Leading candidates have been vague about their economic proposals, raising concerns about whether the next government will carry on with economic reforms proposed by unpopular President Michel Temer.

Excluding the largest deal of 2017 — the $21 billion conversion of shares of miner Vale SA into a single class of stock — M&A activity rose 84 percent in the period compared to a year earlier.

“Market volatility during most of the first half was not as high as it is now, so it did not have much impact on the level of activity,” said Alessandro Zema, Morgan Stanley’s head of investment banking in Brazil.

The largest transactions of 2018 so far have been driven by industry consolidation in search of cost savings, Zema added. He cited the acquisition of pulpmaker Fibria Celulose SA by rival Suzano Papel Celulose e Papel SA and the takeover of for-profit education company Somos Educação SA by rival Kroton Educacional SA.

Cross-border deals have also featured Brazilian companies expanding into neighboring countries to avoid harsher antitrust scrutiny at home, where antitrust watchdog Cade blocked recent deals in education and oil and gas.

Raízen Energia SA, a joint venture between Brazil’s Cosan SA and Royal Dutch Shell Plc acquired Shell’s downstream operations in Argentina, including a network of gas stations and a refinery, for $1 billion.

The investment banking unit of Itaú Unibanco Holding SA was the most active by total value of deals, considering only Brazilian targets. Morgan Stanley, which advised the Raízen acquisition, led the ranking of deals with any Brazilian involvement.

ON THE SIDELINES

Buyout firms have also moved to the sidelines this year, as volatility in currency markets lowered the odds of obtaining strong returns in dollars on new investments.

According to data by Brazilian capital markets industry association Anbima, the percentage of deals in which buyout firms participated in the first quarter was around 3 percent, well below the 15 percent of the total deals last year.

“It’s much harder to predict investment returns when the exchange rate is so volatile,” said Itaú BBA’s M&A managing director Eduardo Guimarães.

Mario Malta, a board member of the Brazilian private equity group AbvCap who represents buyout firms, said volatile markets are also curbing initial public offerings, which are the most common exit strategy for investment firms. As a result, some 28 billion reais ($7.3 billion) are tied up in these funds.

The only large deal announced last quarter by a private equity firm was Advent International’s acquisition of the Brazilian unit of Walmart Inc. Although Advent did not pay Walmart, it committed to millions of dollars of investments in the stores.

Bankers expect other large deals, such as the acquisition of petrochemical producer Braskem SA by LyondellBasell Industries NV, to close this year.

“Some of the largest deals are progressing well, we see a larger effect of the volatility on global deal value next year,” said Bruno Amaral, head of mergers and acquisitions at Banco BTG Pactual SA, which got the most mandates in the first half of the year.

Source: Reuters

Brazilian Companies Fear 2018 Already a ‘Lost Year’

Although economists see the poor indicators disclosed after the truck drivers’ strike as something less disastrous that they had expected, their opinion is not shared by the so-called real economy.

Restaurant owners, , and the industry have reviewed their projections for the end of the year as they believe that part of the losses they had after the strike cannot be recovered. They fear that the damage done to the reliability of businessmen and consumers will last for a long time.

The service sector, which closed the cycle of studies that assess the effects of the truck drivers’ stoppage on the main sectors of the economy, declined by 3.8% in May in comparison to April – it is the worst performance since the figures were first recorded, in 2011.

The industry also fell to the level of 2003. “We feel very frustrated,” says José Velloso, the executive president of the Brazilian Association of Machinery and Equipment.

Business owners in the neighborhood of Bom Retiro, São Paulo, an important fashion center which supplies retail sellers of the entire country, have conservative perspectives.

Their stocks are smaller as they believe that the coming months cannot bring big sales, says Nelson Tranquez, the president of the Bom Retiro Chamber of Shop Owners Directors.

In the retail market, the truckers’ strike frustrated expectations of a recovery in sales which actually had already been losing momentum in the first quarter of the year.

“In April and May, we hoped that we would recover; however the truck drivers’ strike made this recovery even slower and affected all the sectors – in addition to the Soccer World Cup, which has never been much of a support for commerce,” says Luís Augusto Ildefonso, the president of Alshop (Association of Shopping Mall Stores).

For the second half of the year, the elections are seen as yet another element of instability. “They will raise uncertainty regarding consumption because the scenario is undefined; there is no expectation that one of the candidates might help the economy recover by carrying out the necessary reforms,” says Ildefonso.

Source: Folha de S. Paulo

US–China Trade War May Benefit Brazilian Soybeans

China has recently unveiled measures against imports from the US as a response to the tariffs imposed on Chinese goods by the Trump administration. The ripples of this trade dispute have reached the Brazilian economy, especially after the increase in the demand for soybeans, one of the US products curbed by China.

Specialists believe that this contention—a result of US President Donald Trump’s protectionist policy—may come to the benefit of some Brazilian industries in the short run, but later on may prove detrimental to the global economy.

Felippe Serigatti, a researcher at the Agribusiness Center of the Getúlio Vargas Foundation, believes that the issue may lead to a lower economic growth in both nations, which would reverberate in other countries as a result. “This is good neither for Brazil nor for the global economy as a whole. It’s a game with no winners.”

Serigatti argues that Brazilian soybeans may profit more quickly from the current state of affairs by serving the Chinese demand, but added that this could undermine the balance with other international partners.  The price of soybeans in Brazil had been sinking below its rate at the Chicago Stock Exchange, which favors its export to China, but could make the price incompatible with the European market, he went on to explain.

“If soybeans in Brazil get pricier, the soybean meal shipped from here will become more expensive, so our price becomes less competitive in Europe. This may come in handy for US soybean meal, as soy is cheaper over there,” Serigatti noted.

A no-win situation

Ambassador Rubens Barbosa, who served in Washington in the early 2000s, agrees that the aggravation of such a contentious landscape would be harmful for everybody. “The price of commodities will rise, affecting everyone, including Brazil. A trade war of such magnitude also brings along with it reduced economic growth and weaker foreign trade,” he recently said on TV Brasil.

In the view of Charles Tang, head of the Brazil–China Chamber of Commerce and Industry, countries like Brazil, Argentina, and Australia should help meeting China’s demand, but this imbalance is likely to harm the global economy over time.

Brazil is the biggest exporter of soybeans to China, he noted. “The US exported some 40 million tons, and Brazil some 50 million. To replace the supply from the US, it would be necessary to nearly double Brazil’s exports,” he pointed out. “The important thing is that China has for the first time understood that the supply from the US is unstable and that this instability is hazardous,” he said.

Competitiveness

Rogério Araújo, Planning and Intelligence Coordinator with the Brazilian Industrial Development Agency (ABDI), linked to the country’s Ministry of Industry, Foreign Trade, and Services, notes that Brazil is ready to seize the opportunities created by the China–US dispute, further claiming, however, that investment is key to making material progress in the market.

“We can achieve that by boosting investment in innovation and in a productive sector that’s been on the rise all across the world—a sector closely related to the digital economy—industry 4.0,” he said.

French daily Le Monde referred to Brazil as “the great winner” in the tariff war waged by the US and China. Brazilian soybean exports are said to benefit from the scenario, and the price of the product in the country is reported to have surpassed the rate at the Chicago Stock Exchange. The Wall Street Journal also mentions Brazil as the actor immediately benefited by the current goings-on, but notes that the country does not produce soybeans enough to feed all of China by itself.

Source: Eurasia Review