5 principles of sustainable agriculture, according to FAO

Representatives of the federal government and the private sector said on Wednesday, in an online event at the World Trade Organization (WTO), that Brazil wants to lead sustainable trade and agricultural production. The push is a reaction to the international perception that the country is the bad guy in the environmental field amid signals sent by the Bolsonaro administration.

The Brazilian Trade and Investment Promotion Agency (Apex-Brasil) and the Brazilian mission to the WTO organized a seminar on the country’s agricultural production at the entity’s Public Forum, which takes place this week with the participation of NGOs, universities and government representatives.

Brazil’s ambassador to the WTO, Alexandre Parola, started the debate saying “Brazil is an agroenvironmental powerhouse” by any measure and standard. In 2020, agribusiness accounted for almost half of Brazil’s exports (48%). From January to August this year, the sector’s shipments yielded $84 billion, according to the National Confederation of Agriculture (CNA), and the total could reach $120 billion in 2021, according to one participant in the event.

Mr. Parola also cited Jair Bolsonaro’s speech at this year’s UN General Assembly, when the Brazilian president said that “our modern, sustainable low-carbon agriculture feeds more than 1 billion people in the world using only 8% of the national territory.”

“No country in the world has environmental legislation as comprehensive as Brazil,” Mr. Parola said. “Our Forest Code should serve as an example for other countries.” Mr. Bolsonaro’s speech at the UN as a whole was criticized because of distorted or false data on several topics.

According to Mr. Parola, it is also necessary to avoid old and new trade barriers and measures, including subsidies and sanitary and technical issues, “which can be arbitrary, disguised and cause unjustifiable restrictions to international trade.” For him, Brazil “is ready to lead the sustainable future of international trade and agricultural production.”

Marcos Jank, an agribusiness specialist and a professor at business school Insper, was the debate’s moderator. He highlighted the importance of the relationship between sustainable agriculture and trade. He recalled that Brazil is accused of being an environmental nemesis due to the high level of deforestation, but highlighted that the country is an example of high productivity, renewable energy and forest agreement. Mr. Jank pointed out that 98% of Brazilian soy production is not linked to deforestation in the Amazon.

Marcello Brito, president of the Brazilian Agribusiness Association (Abag), called on foreigners to get to know the Brazilian agriculture, because Brazil will be responsible for an even greater share of the global food supply in the future. Mr. Britto noted that by 2030 Asia will account for 60% of the consumption of the middle class globally. And that this will affect trade and food production. He highlighted that while Europe emphasizes sustainability, China and several other countries focus on food security.

For Juliana Lopes, head of sustainability at Amaggi, one of Brazil’s largest grain producer and processing company, the traceability of products can help point out where the production is better from the environmental standpoint as well. She mentioned a study that shows that Brazilian soy and corn have a low environmental footprint (including emissions with inputs, storage and transportation), and that emissions in soy production are twice as low as those of Ukraine and Canada for the delivery of the product in Europe. Brazilian cotton, on the other hand, have emissions 2.5 times lower in relation to the American product, according to her.

Ligia Dutra, director of international relations at CNA, and Orlando Ribeiro, secretary of international affairs at the Ministry of Agriculture, cited the importance of reforming the rules of global agricultural trade. According to them, the gigantic domestic subsidies offered by rich countries to their farmers, including in Europe, are an example of unsustainable production.

Source: Valor international


Petrobras aprova programa social de R$ 300 mi de subsídio gás de cozinha

Two years after the agreement between the Administrative Council for Economic Defense (CADE) and Petrobras to eliminate anticompetitive practices in the natural gas market, six industry trade groups formally pointed out several problems in the fulfilling of commitments assumed by the state-owned company and asked the antitrust regulator for new measures to ensure competition in the sector.

The adoption of the Cease and Desist Agreement (TCC), in July 2019, was one of the pillars of the New Gas Market announced by the government. At the time, Economy Minister Paulo Guedes promised a “shock of cheap energy” and spoke of a drop of up to 40% in the prices of this input to industry.

In addition to more emblematic measures, such as the sale of Petrobras’s stakes in transport pipelines and state gas distribution companies, the agreement provided for several less conspicuous obligations.

This group of associations says Petrobras maintains a posture that limits the effects of the TCC in reducing barriers and removing difficulties for its competitors in the market.

“The persistence of difficulties in achieving the objectives of competition, transparency and efficiency in all natural gas chains is noted, as well as in monitoring the effective fulfilment of the commitments assumed by Petrobras,” says an excerpt of the document, sent on Tuesday to CADE and seen by Valor.

The document is signed by lawyers representing Abrace (association of power-intensive industries), Anace (other large electricity consumers), Abiquim (chemicals), Abal (aluminum), Abividro (glass manufacturers) and Abpip (independent oil and gas producers).

In their view, three restrictions or barriers still hinder the development of the market and contradict the most important premises of the agreement.

First, there is evidence of “discriminatory practices” in the access of producers to so-called natural gas processing units (UPGNs). According to the document, Petrobras imposes prices incompatible with the market and make inflexibility demands for the use of this infrastructure, which are considered unfeasible with a market in the initial process of maturation.

The trade groups maintain that Petrobras does not provide drafts of the contracts, conducts negotiations with interested parties in a slow manner, belatedly raises conditions that could have been presented since the beginning of the negotiations, raises questions of a technical nature without the necessary transparency for third parties to contest, does not properly disclose information on terms, quantities, cost methodology, deadlines. One of the main conflicts has been access to the UPGN Guamaré (State of Rio Grande do Norte).

Second, Petrobras has completed the sale of its two large transport pipeline networks — TAG (to the French group Engie) and NTS (to Brookfield) — helping the chain’s deverticalization. However, even with these new controlling shareholders, Petrobras maintains a capacity reserve for the use of the pipelines.

The associations claim that sector players are not aware of the terms, do not know what capacity will be offered in the market (considering Petrobras’s “leftovers”), nor when will this occur. Without a minimum of predictability, according to the trade associations, there will be no competition.

Third, the “architecture” of Petrobras’s gas supply contracts with state distributors makes it difficult or prevents, in practice, the change of supplier. In these contracts, Petrobras imposes minimum gas withdrawals obligations without any flexibility for smaller or larger withdrawals, according to the document. If they buy less, they will have to pay the same way.

Sought for comment, Petrobras stated that it is fulfilling “all commitments” established in the agreement signed with CADE in 2019. “Including anticipating deadlines, contributing to the development of an open, competitive and sustainable gas market in the country,” the company said.

“According to a statement released to the market on September 21, the company structured and published a website on the actions in progress related to the opening of the market and on the fulfilment of the TCC commitments. Also noteworthy is the recent milestone, yesterday [Wednesday], for the signing of contracts for leasing the LNG Terminal in Bahia,” Petrobras told Valor in a note.

Source: Valor international


E-commerce e Varejo | LinkedIn

The number of formal jobs increased in August, according to data from the General Register of Employed and Unemployed Workers (Caged), released Wednesday by the Ministry of Labor and Social Security.

The services and commerce sectors have driven job generation fueled by eased restrictions. Yet economists warn that Brazil is unlikely to keep generating jobs at this level in the coming months and next year.

Brazil’s labor market saw net generation of 372,265 jobs in August, the result of 1,810,434 new hires and 1,438,169 layoffs, Caged data show.

The result came above the highest projections compiled by Valor Data with 16 consultancies and financial firms, of 351,000 new jobs. The result is also better than that reported in the same month last year, of 242,543 jobs.

There were job openings in all five sectors of the economy. The balance was positive in agriculture (9,232), general industry (72,694), construction (32,005), commerce (77,769) and services (180,660).

Rodolfo Margato, an economist at XP, pointed out the result of the services sector. “Since May, the tertiary sector reported robust balances, and this should continue in the coming months,” he said.

But the data released on Wednesday should be viewed with caution, economists say. According to Cosmo Donato, an economist at LCA Consultores, considering seasonally adjusted data, formal job generation lost steam: there were 296,200 new jobs in August compared with 331,600 in July.

The government maintains the goal of generating 2.5 million jobs by December, said Onyx Lorenzoni, minister of Labor and Social Security.

“The year-to-date figures cheer us up, bring hope,” he said. “The economic recovery Brazil has been experiencing is extremely sustainable.” He said he expects a continuity in the generation of formal jobs in the country.

Yet Mr. Donato, with LCA Consultores, said the creation of new formal jobs is likely to slow down by the end of the year and more so in 2022, when the federal government’s Emergency Benefit for Income and Employment Preservation (BEm), a job protection program, ends.

LCA expects hiring to reach 200,000 by the end of the year, and the number of contracts with provisional job guarantees due to the BEm to rise to 2 million as early as September from 2.77 million in August.

“This year is expected to end with 3 million jobs generated. But we expect around 1 million for 2022, in line with growth closer to potential,” the economist said. The consulting company foresees GDP growth of 4.8% in 2021 and 1.7% in 2022.

For 2022, there are important challenges to the recovery of employment, said Tiago Barreira, an economist at consultancy iDados. “We expect a deceleration due to greater economic uncertainty, with factors such as the electricity crisis, faster inflation, weaker activity and higher interest rates, in addition to fiscal uncertainties,” he said.

The August Caged figures hide a difficult recovery of employment in Brazil, said Daniel Duque, an economist at Fundação Getulio Vargas (FGV/Ibre).

Mr. Duque compares the Caged results to the Continuous National Household Sample Survey (Pnad Contínua), which shows a gloomier landscape. “We see an increase in the number of informal jobs, many of which self-employed workers. The number of self-employed is higher than before the pandemic,” he said. “The overall employment landscape is much weaker and with income well below the pre-pandemic level.”

Source: Valor international


Economic Expansion Images, Stock Photos & Vectors | Shutterstock

The economic downturn caused by the coronavirus pandemic hit states in different ways in 2020, and recovery this year was also felt differently in each one. Now, projections show GDP growth should be less heterogeneous among the Brazilian regions next year, especially because economic expansion will be more challenging for all of them.

The emergency aid paid to informal workers was an important exit door for the economy of many states last year, especially the poorest ones, located in the North and Northeast regions, while in 2021 the recovery of the services industry stands out, favoring states with greater weight in the sector, such as São Paulo, said Sergio Vale, chief economist at MB Associados. “For 2022, however, the recovery of services should have a smaller impact because inflation is starting to spread.”

Commodity inflation this year, recalls Mr. Vale, has helped some states regionally, but services inflation is harmful to everyone and more difficult to lose steam. “Just remember that, even with a 7% contraction in two years, in 2015 and 2016, services inflation dropped to 6.5% at the end of 2016 from just 8.3% at the end of 2014. It was necessary another major recession, last year, to bring these prices to around 1%, but that happened because there was an unprecedented slowdown in consumption in this sector, and even so there was inflation.”

Although the pandemic has affected the entire country, the regions have absorbed the economic impacts in different ways, not least due to the lack of a clear and unified direction from the federal government on how to conduct policies, said Paulo Eduardo Pereira, an economist with 4E Consultoria. “Each municipality, each state acted for itself. Some regions were more impacted than others. In the same way, the recovery movement in 2021 takes place in a more heterogeneous way, but 2022 should not be so unequal,” he says.

In 4E’s view, the Northeast region should lead the growth next year, with the GDP expanding 2.3%, compared with Brazil’s average of 1.3%. After a 5.6% drop in 2020, also above the 4.1% contraction of the Brazilian GDP, and in the last position among regions in 2021 (estimate of 2%, compared to 4.9% at the national level), the Northeast region is expected to still have room for recovery in 2022.

According to Mr. Pereira, the region is expected to benefit greatly from the services and tourism resumption in the second half of the year, with room to extrapolate to next year, although, in Brazil as a whole, the growth in services should be smaller in 2022 (1.4%) than in 2021 (4.3%), as vaccination advances and the economic reopening momentum dissipates. The Northeast region, however, had the biggest drop (-7.4%) in services in 2020 and is expected to grow 1.9% in 2021, below the national average, but may increase 2.7% in 2022, according to 4E.

In the Northeast, GDP growth in 2021 and 2022 will not be enough, however, to recover the pre-pandemic level (2019), from which it would still be 1.6% below, estimates the consultancy. All other regions will have surpassed, by 2021, their respective pre-Covid levels, and should see a slowdown in activity next year.

The South, which drives this year’s regional growth with a 6.9% rise, according to 4E projections, should still see the second biggest advance in 2022, but slower, at 1.4%. Earlier this year, however, the outlook for the South region was even more optimistic, but it got worse in the wake of weather adversities that hampered some crops and the persistence of industry bottlenecks, factors that should continue in 2022.

The lack of inputs in some production chains affect costs and bring uncertainty to the industry, which impacts the states with a strong manufacturing industry component in the North, such as Amazonas, and in the Southeast, such as São Paulo, points out Mr. Pereira. 4E projects a 0.5% increase for the Brazilian industry in 2022, with the Southeast, for example, even below that (0.3%). The region still feels the impacts on agriculture this year and next, and the Southeast GDP should go to an increase of 1.2% in 2022 from 5.5% in 2021.

As for São Paulo, Brazil’s largest regional economy, updated projections from Fundação Seade indicate an average increase of 7.2% for the state’s GDP in 2021, compared to 4.9% for Brazil, and 2% in 2022. “What is setting São Paulo apart in 2021 is the services sector,” said Regina Marinho, an analyst at Seade. A deceleration in 2022 is expected because of the higher basis of comparison, she said.

The North, the only region that managed to sustain a positive GDP in 2020 (0.3%) and that should grow 3.1% this year, would be in the last position in 2022, with a growth of only 0.7%, followed by the Central-West (0.8%). The North benefits from the new agricultural frontier and the extractive industry, which had a good performance so far, but is a strong uncertainty factor for 2022, according to Mr. Pereira.

The price of iron ore has recently dropped significantly and there is instability in the large Chinese consumer market.

On the more conservative side, MB projects an increase of 0.4% for the Brazilian GDP. As for states, estimates range from 0.2% for Rio de Janeiro and Pernambuco to up to 2.4% for Acre and 2.2% for Piauí. Estimates for Goiás and Alagoas points to rates above 1.7% and 1.5%, respectively.

Mr. Vale notes that, if the projected scenario comes to materialize, few states will have a reasonable growth from 2020 to 2022. Most will have an average performance similar to that of Brazil, that is, a GDP growth of only 0.8% in the period. Meanwhile, he compares, the world will have grown 7.5%, which is a picture of the failure we are experiencing, according to Mr. Vale.

Source: Valor international


Mercosur countries sign digital trade deal - Murray Advogados

Brazil’s Economy Minister Paulo Guedes said Brazil will continue to attempt to make changes in Mercosur. The Brazilian government, he declared, has sought to “modernize” the economic bloc, but has met resistance from Argentina. The bloc is formed by Brazil, Argentina, Uruguay, and Paraguay.

“Our position is a step forward. We are not going to leave Mercosur. But we will not accept Mercosur as an ideological tool. Mercosur has a crystal-clear proposal: to be a platform for the integration of the global economy. If it fails to deliver, we will modernize it. Like it or leave it,” he said, while participating Monday (17) in the event Brazil Wants More, promoted by the International Chamber of Commerce.

Brazil has proposed a ten percent reduction in the common external tariff for all goods, whereas Argentina advocates that only a portion of the products should be affected. “We will not budge from our stance. And it seems that Argentina is firm in a position contrary to ours,” Guedes declared regarding the bloc’s internal disputes.

Disagreements also include the way decisions are made within the bloc. As it stands today, all decisions are made following consensus among all four member nations. “Unanimity is required in making change to Mercosur, and they turn this into vetoes. In fact, three members are willing to modernize Mercosur: Brazil, Paraguay, and Uruguay. Argentina is facing a really special, delicate moment, and we understand that,” the minister remarked.


Concerning Brazil’s economic policy, Guedes once again advocated efforts to privatize state-run companies as one of the guiding axes in long-term goals. “To go ahead with  privatization: Petrobras, Banco do Brasil. Everyone’s getting in line, being sold, and this is turned into social dividends,” he pointed out.

The minister further noted that, in the last two years and a half, privatizations added up to R$ 240 billion. Guedes’s expectation is that the sale of major state-controlled firms—like Eletrobras and Correios—are approved. “The plan is to transform the Brazilian state: to rely more on private investment and speed up destatization,” he went on to say.

Translation: Fabrício Ferreira –  Edition: Denise Griesinger

Source: Agência Brasil


Central Bank of Brazil - Wikipedia

The Central Bank’s Monetary Policy Committee (Copom) concluded, at a meeting last week, that increases of 100 basis points in the Brazil’s benchmark interest rate Selic to a “significantly restrictive level” are the best strategy to meet inflation targets, according to the minutes of that meeting, released on Tuesday.

Under pressure to intensify the interest rate hike from the market, which fears the abandoning of the 2022 inflation target, the Copom simulated what will happen if the Selic increases by 100 bp at each meeting, but with the rate ending the tightening cycle at higher levels. It concludes that, at this rate, it is possible to meet next year’s target.

The “Copom concluded that, at this moment, maintaining the current pace of adjustment coupled with the extension of the magnitude of the process of monetary tightening to a significantly restrictive level is the most appropriate strategy for assuring the convergence of inflation to the 2022 and 2023 targets,” it stated.

Last week, the committee unanimously raised the Selic rate to 6.25% per year from 5.25% per year, also stating that it foresees a new increase of 100 bp at the October meeting. Many in the market advocated a stronger rise of 125 bp or even 150 bp.

The minutes state that the Copom evaluated in the meeting “the costs and benefits of accelerating the pace of interest rate hikes,” choosing to keep the current pace in the end.

The committee concluded, in first place, that the current stage of the adjustment cycle is “characterized by an already effectively tightening monetary policy.” This would be “evidenced” in the difference between expectations for the Selic rate and inflation trajectories “over the relevant monetary policy horizon.”

The relevant horizon currently includes 2022 and, to a lesser extent, 2023 – years for which inflation targets are respectively 3.5% and 3.25%. Before the meeting, the market projected that the Selic would be raised to 8.5% by February 2022, remaining at this level until the end of the year.

In its analysis of whether to speed up the monetary tightening, the Copom also made simulations “with interest rate hikes” that maintain the current pace of adjustment, but “assume different terminal rates.” This simulations, according to the Copom, “suggest that the current pace of adjustment is sufficient to reach a significantly restrictive level and to ensure the convergence of inflation to the target in 2022, even considering the asymmetry of the balance of risks.”

Finally, in its decision process to maintain the rises at 100 bp, the committee considered the “weight of volatile items in the revisions of short-term inflation projections and the uniqueness of the post-pandemic economic readjustment process.” For the Copom, these factors “reinforce the benefit of accumulating more information about the state of the economy and the persistence of existing shocks.”

In the wording used in the minutes, the Copom inflation projection for 2022, at 3.7%, is “slightly above the target.” The 2023 projection, at 3.2%, is “around the target,” set at 3.25%. But the committee highlighted the danger of inflation exceeding these rates, since the so-called balance of risks for inflation is asymmetric to the downside, due to uncertainties in fiscal policy.

This justifies, according to the committee, a “more restrictive” Selic trajectory than the one used in the baseline scenario, which projects inflation at 3.7% in 2022 and 3.2% in 2023.

Regarding the labor market, the committee’s assessment is that three factors indicate a recovery: a decline in the unemployment rate; workforce growth; and the growth of the employed population. Even so, the labor force and the employed population are still at levels “considerably lower than those observed before the pandemic,” which suggests that there is “remaining gap in the labor market.”

The Copom also admitted “difficulties in assessing the real status of the labor market” due to the differences between the two main indicators: Continuous National Household Sample Survey (Pnad Contínua) and the New General Register of Employed and Unemployed Workers (Caged).

In the case of economic activity, the Central Bank considers that the second-quarter GDP had a result “slightly better than expected.” But that number “was followed by more negative high-frequency releases, albeit evolving favorably.”

Even so, the monetary authority maintained its forecast of a “robust recovery” in the second half of the year, as the effects of the advance in vaccination are felt “more broadly.”

For next year, the Central Bank sees three factors that should benefit economic growth: the continuation of the resumption of the labor market and services, “even if to a lesser extent than previously anticipated”; the performance of sectors “less dependent on the business cycle,” such as agriculture and the extractive industry; the “remaining effects” of the normalization of the economy as “the health crisis recedes.”

Finally, regarding the external scenario, the Copom repeated the message of the statement released after the meeting: the picture is still “favorable for emerging markets,” but “markets discussions regarding inflationary risks in advanced economies” may make it “challenging.”

Source: Valor international


As Hurricanes Bear Down, Lock Down Your Financial Emergency Kit | FINRA.org

Amidst the difficulties in enabling the creation of Auxílio Brasil, a cash-transfer program that will replace Bolsa Família, a federal government source confirmed to Valor that the possibility of extending the emergency aid payments until April 2022 is under study, but there is no final decision yet.

“Studies always exist. We are making an assessment, but there is no definition,” said a government assistant who is monitoring the negotiations. The alternative began to be analyzed in the midst of the impasse to find a solution to the payment of court-ordered debts known as “precatórios” and the difficulties to pass the income tax reform in the Senate.

The measure, however, is not well accepted in the Economy Ministry, where the idea faces “strong resistance,” National Treasury Secretary Jeferson Bittencourt said.

He pondered that emergency aid was created in a context of mobility restriction of people, difficulty in earning income and under the impact of the pandemic, with high levels of infection and deaths. “We are moving towards much more positive numbers,” said the secretary.

The secretary also ruled out the payment of the emergency aid extension as an extraordinary credit. For this, it would need to meet three requirements: relevance, urgency and unpredictability.

The high unemployment rates, which have been used as an argument for the extension of the aid, meet the first two criteria, but cannot be classified as unpredictable, explained Mr. Bittencourt. The unpredictability is related to the impossibility of including an expense in the budget law, and the 2022 bill is making its way in the National Congress.

The economy is recovering, he said. But there is the “discomfort” of a portion of the population not yet benefiting from it. According to the secretary, “serenity” is needed to deal with structural issues with structural measures. “An extraordinary treatment is not the most appropriate,” he said. “We have to understand what are exceptional periods and what are structural problems.”

He also stated that the project that allows the government to use the income tax overhaul, still making its way in Congress, to compensate for the creation of Auxílio Brasil does not reduce the obstacles of the Fiscal Responsibility Law (LRF) to create mandatory expenses.

“There is no chance of the [Auxílio Brasil] program being created before the compensatory measure is in effect. What regulates this is the fifth paragraph of article 17 of the LRF, which is not being changed,” he said. The bill was approved on Monday by Congress.

Mr. Bittencourt said that the approved change only allowed the income tax bill to start making its way in Congress before the provisional measure (MP) that creates the new cash-transfer program. According to him, the restriction in the Budget Guidelines Law (LDO), which stated that compensation could not come from measures still being analyzed by the Congress, was intended to prevent it from being taken advantage of.

Source: Valor international


Unigel | Nosso negócio é a química

Unigel, the largest producer of acrylics, styrenics and nitrogen fertilizers in Latin America, and Casa dos Ventos have just signed a 20-year power purchase agreement valued at more than R$1 billion. The Brazilian petrochemical company’s first agreement to use wind power enables the construction of the 360-megawatt Babilônia Sul project in Bahia.

Unigel’s CEO Roberto Noronha told Valor the contract will ensure that “an important part” of the electricity used comes from renewable sources as the group is focused on reducing carbon emissions by 200,000 tonnes a year. “Sustainability has become a prerequisite to analyzing any project,” the executive said.

Unigel did not reveal the power contracted with Casa dos Ventos because it is about to launch an IPO. The wind farm complex in Bahia will get around R$2 billion in investments and the agreement provides for the eventual acquisition of a stake. This way, the petrochemical company will be able to become a partner and a self-producer of electricity, ensuring supply and even more competitive costs.

The contract with the petrochemical company will come into force in 2024 and replace part of the electricity from non-renewable sources currently used in its operations. Unigel’s power generation mix includes electric power and natural gas, in addition to the steam generated at its sulfuric acid production unit at the Camaçari Complex, in Bahia.

Mr. Noronha said the agreement with Casa dos Ventos is strategic, since it puts the company “on the path to achieving its goal of having a relevant part of power consumed from renewable sources.”

After investing R$500 million to resume operations in two fertilizer plants leased from Petrobras in Bahia and Sergipe, Unigel announced a few weeks ago that it will invest in the country’s first green ammonia plant in Camaçari.

The unit, which is expected to start operating by the end of 2022, will require more renewable power to obtain ammonia from hydrogen (from water) and nitrogen from the air. According to Mr. Noronha, the company is looking at new opportunities for contracting wind and solar power.

As for Casa dos Ventos, the new partnership drives the development of the project in Bahia. The construction work began this month, and the wind turbines have already been purchased from Vestas.

The Babilônia Sul project will involve five specific purpose companies and is already in search of new contracts, said Lucas Araripe, head of new businesses at Casa dos Ventos.

Source: Valor international


The debt market – which has been one of the main supports of the economic recovery – is beginning to show signs that it may be at a turning point. With the end of the emergency programs implemented last year, the balance of credit for companies has been falling for seven months in a row. The stock for families is still growing robustly, but with inflation and interest rates on the rise and the projections for activity losing strength, analysts say that this segment should also start to lose strength.

The slowdown should not be abrupt and there is no mention of a contraction, but it is one more element in a less optimistic scenario.

The interest rates charged by banks reached the highest value in 16 months in August, reflecting the monetary tightening by the Central Bank, which increased the cost of funding for financial institutions. The average rate on credit operations reached 21.1% per year, with an increase both in loans to individuals and to companies.

This month, however, the banking spread did not go up – as a matter of fact, it had a slight decrease, from 14.6% per year to 14.5% per year. Usually, interest rate hikes by the Central Bank also cause an increase in spreads, since monetary tightening is followed by a slowdown in the economy and greater risk of default.

In free credit, in which the rates are freely defined by the market, there was an increase of 1 percentage point in the rate charged by banks, from 28.9% per year to 29.9% per year. The free credit reflects more the monetary tightening cycles than the directed credit, whose rates went up to 7.9% per year from 7.6%.

“The increase in interest rates charged by banks is consistent with the evolution of the economy’s benchmark interest rate,” said the head of the Central Bank’s statistics department, Fernando Rocha. “The total banking spread was stable, which means that the interest charged by banks is rising in the same proportion as banks’ funding costs.”

In August, the average cost of banks’ funding rose to 6.6% per year, up from 5.8% per year in July. In free credit, the cost of funding jumped to 8.2% per year from 7.2% per year.

According to Everton Gonçalves, superintendent of the economic advisory services of the Brazilian Association of Banks (ABBC), the slowdown in credit may become worse in the coming months, as the demand from consumers cannot offset the sharp reduction in the demand from businesses. “The expectation is for a firm deceleration of credit in the remainder of this year and 2022 may be even worse. The recovery scenario is threatened, with fears about inflation, rising interest rates, internal and external uncertainties.

According to Rubens Sardenberg, chief economist at the Brazilian Federation of Banks (Febraban), it is not yet possible to speak of a sharp slowdown in credit, but there must be accommodation. “There may be a decrease in the growth rate, but it is still not possible to say that there will be a stronger slowdown. We can´t imagine credit is insensitive to deterioration in the economic activity scenario, but a more significant retreat will only happen if there is, in fact, a stronger deterioration.”

The Central Bank increased the basic interest rate from 4.25% p.a. to 5.25% p.a. in the beginning of August. The cost of funding to banks is based on the future interest curve of the market, which, in turn, reflects the expectation of new interest rate hikes by the Central Bank in the future.

Of the 21 lines of credit to companies monitored by the Central Bank, 17 had higher interest rates and 4 were stable or reduced. Among individuals, the high rates covered 8 of the 10 lines surveyed by the monetary authority.

“The cycle of rapid adjustment of the Selic rate is not being reflected, in the same proportion, in credit costs, indicating an important contraction in bank spreads and, potentially, allocative gains derived from microeconomic changes that have occurred in recent years, such as more competition and positive registration,” says BRCG in a report for clients.

The stock of credit in the economy increased 1.5% in August, reaching R$ 4.335 trillion. The operations with individuals are accelerating, with an advance of 1.9% in the month. The growth rate in 12 months in operations with families rose to 18.8%, a good advance in comparison to the 10.9% observed in January.

In the case of companies, however, there is a deceleration. In August, operations grew 1%. In the period of 12 months, the expansion rate reaches 12.2%, presenting a real growth, considering the inflation of 9.7% in the period, measured by the Broad Consumer Price Index (IPCA). But at the beginning of the year, credit to companies grew more strongly, with a rate of 23%.

“This may have been a first impact on the pace of concession of the current phase of increases in the Selic policy interest rate by the monetary authority, since the end of the first quarter of 2021, in response to rising inflation. It is worth mentioning that as of mid-June the Central Bank intensified its interest rate hikes from 0.75 basis points to 100 basis points,” says the Institute for Industrial Development Studies (Ieadi) in a note. “It is a movement that tends to discourage the expansion of credit in the coming months, especially in the free segment, which has been showing greater dynamism in 2021,” it adds.

Mr. Rocha says that this deceleration has two reasons. First, loans taken by companies during the pandemic are leaving the calculation base. Large companies took out large volumes of loans to cope with a feared liquidity squeeze. In addition, the government has created some new targeted credit lines to maintain funding sources especially for small and medium-sized companies.

Another reason for the less buoyant bank credit market is that large companies this year have started borrowing again in the capital markets. The raising of funds through debt securities increased 23.1% this year.

A consequence of this is that among the large companies, bank credit grew by only 3%. Among micro, small and medium-sized companies, the expansion rate was 26.7%.

The seasonally adjusted concessions of credit to companies, on the other hand, had a retraction of 2.1% in August. Mr. Rocha explained that the drop is due to the one-time increase of more than 50% that occurred in July in the operations of Pronampe, a line directed to small companies, in the resumption of the program. In August, credit to companies returned to its previous trend.

The Credit Suisse analysts point out that private banks continue to lead credit concession and that the improvement in the mix, with the advance of lines of credit with higher interest rates, is already starting to be reflected in the spreads. “It is important to note that the resumption of revolving retail credit lines has already helped to offset the impact of the drop in directed credit spreads (mainly real estate).

Source: Valor international


Saneamento básico em foco – CFA

Regional basic sanitation auctions are moving forward despite political difficulties in forming blocks by state. Six more concessions are expected for the next six months in Alagoas, Ceará (two each), Rio de Janeiro and Rio Grande do Sul (in the capital city Porto Alegre), with a combined investment of R$16.4 billion.

The two lots in the state of Alagoas, expected to be tendered on December 13, will be the first formed after the approval of the new legal framework – the studies in Rio de Janeiro, Porto Alegre and Ceará are still the legacy of the first wave of projects of the development bank.

Besides them, the BNDES is also preparing to start structuring at least five other auctions, in the states of Paraíba (with two blocks), Sergipe, Rondônia and in the Jequitinhonha region, in Minas Gerais.

In Sergipe and Rondônia, this will be the second attempt to get the projects off the drawing board. In 2018, BNDES hired consultants to conduct studies for the state governments, but the projects were abandoned due to a lack of interest from states.

There are still doubts in Rondônia about the feasibility of a concession, which depends on the capital city Porto Velho’s city hall joining the effort – which is not guaranteed. Even so, BNDES is expected to do the studies anyway betting that the project will materialize, said Cleverson Aroeira, head of partnership structuring at the state-owned bank.

In Minas Gerais, the preparation of a specific project for the Jequitinhonha region should run independently of another one making its way through the bank: the studies for the privatization of water utility Copasa. The region has relatively lower rates of supply than others in the state.

Despite the long list of scheduled sanitation auctions across the country, there is still plenty of room for new projects. So far, 78 regional blocks have been created by states and 47 are waiting for approval, according to a survey by Abcon, the private-sector water and sewage utilities association.

The blocks are a requirement of the new sanitation law. Not all of these blocks will be turned into concessions, but the high number suggests there is potential for the coming years.

There are two major difficulties in transforming the blocks into contracts. The first is political negotiation between municipalities and states, especially to guarantee that larger, more profitable municipalities will join, because the blocks are structured in a way so the most profitable cities offset investments in loss-making places. In some cases, without the largest cities, there is the risk of a regional project becoming economically unfeasible.

Acre is one example. BNDES had already been structuring a regional block in the state for years. Earlier this year, the project ground to a halt due to the decision of capital city Rio Branco to abandon the block. Rio Branco’s new mayor, Tião Bocalom (Progressive Party, PP), announced that the capital city would be in charge of the service. As a result, the contract is unlikely to be signed.

“The great obstacle of the regional blocks is the political one, is to get all the players to think together,” said André Freire, a partner at law firm Mattos Filho.

Another important challenge is the governance of the blocks, said Percy Soares Neto, executive director of Abcon. “The question is how states and cities could organize to make important decisions,” he said. They have to decide, for instance, the weight of each one’s vote, how to share concessions obtained in auctions and where to invest.

The matter is already being analyzed by the Federal Supreme Court (STF) in lawsuits questioning the governance of the metropolitan region of Maceió, Alagoas, whose concession was won by BRK Ambiental in September 2020. Municipalities and parties opposed to the state government are questioning in court the fact that the concession’s fixed payment, of R$2 billion, was set aside for the state. They also criticize the decision-making process, in which the state government has excessive weight.

National Secretary of Basic Sanitation Pedro Maranhão downplayed the clash in Alagoas, saying it is a one-off case for being the first project of its kind auctioned. According to him, the situation was different from that of other regional blocks as there were larger transfers to other municipalities involved.

For Rodrigo Bertoccelli, a partner at law firm Felsberg Advogados, it is important for regional sanitation projects that the Supreme Court issue an opinion as soon as possible on the constitutionality of these arrangements and the limits of municipalities and states to give legal security to form the blocks.

Despite the challenges, the perception is that several regional blocks will be converted into concessions within a medium term, according to Luis Felipe Valerim, a Law professor at Fundação Getulio Vargas and a partner at XVV Advogados. “If we think in a timeframe of three to five years, there is an important pipeline of projects being born.”

Source: Valor international