Economists review contribution of agriculture to GDP

Minus 23.9 per cent: In falling GDP, Agriculture output is only positive | Business News – India TV

The contribution of agriculture – considered by economists as a pillar of the economic activity this year – to Brazilian GDP is now seen as a question mark due to the excessive rainfall in some regions and drought in others. The prevailing view is that the sector will have a positive 2022, but not as good as previously expected, which is driving downward revisions.

This week’s change in BNP Paribas’s forecast for Brazil’s GDP this year, which went to -0.5% from +0.5%, includes a revision in the agro GDP to 1.5% from around 5%, said Gustavo Arruda, head of research for Latin America at the bank. “We were quite surprised, it changed very fast.” He estimates that agriculture directly took 0.2 percentage point from its GDP projection. Considering indirect effects — on the industry, for example, as tractors play an important role in car production, Mr. Arruda says — the negative impact could be closer to 0.3 pp.

Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV) still maintains a positive total GDP for 2022, but has adjusted the estimate to 0.6% from 0.7% because, among other things, the revision of agricultural growth to 3.5% from 5%.

Barclays, which revised its projection for the Brazilian GDP in 2021 to 4.3% from 4.5%, kept its forecast at 0.3% for 2022, but says it is monitoring potential negative risks. Among them, in addition to the omicron variant, Roberto Secemski, the bank’s chief economist for Brazil, cites “extreme heat and drought conditions in southern Brazil threatening soybean and corn production, which normally lead agricultural gains in the first quarter of each year.”

Under the natural phenomenon La Niña like now, the typical impacts are exactly drought in southern Brazil and rainfall in the Northeast region, said César Castro, an agro specialist at Itaú BBA. “In 2021, the effects of La Niña were milder.”

In Brazil, Mr. Castro said, the bulk of the grain crop comes first from soybeans in the Cerrado region and then from the second yearly crop of corn, which is sowed now and harvested just before the middle of the year. In the South region, where the drought is very severe, however, the picture of “more soy, less corn” is a little different. There, the first corn crop alone may already total between 25 million and 30 million tonnes, while corn’s second crop could reach 80 million. “Those 30 million are suffering a lot,” the analyst says.

As a result, he said, the projections for Brazil’s first corn crop face downward revisions of up to 5 million tonnes, while the soybean crop is now expected to shrink by around 10 million tonnes. “Everything regarding soybeans is happening now,” Mr. Castro said, noting that Paraná and Mato Grosso do Sul, the most relevant states for planting, are also suffering with the drought.

Even though the first corn crop is less representative in Brazil, it has the important role of “creating a cushion” until the middle of the year for the demand of livestock, Mr. Castro said. “A big part of the corn issue in Brazil is solved in the second half of the year. Last year, there was a huge harvest loss, which meant that the cushion is very short. So, we are going to have a regional problem.”

Based on worsened estimates, Itaú Unibanco, which used to calculate an agriculture GDP growth in 2022 close to 5%, now foresees between 1% and 2.5%. “There is still uncertainty about how the IBGE revision will be,” said Luka Barbosa, an economist with the bank, mentioning Brazil’s statistics agency. In any case, the changes in projections for the agribusiness makes Itaú more comfortable with its estimate for the economy in general. “Before, we saw this strong agro GDP in 2022 as an upside risk to our projection of -0.5% for Brazil’s GDP. Now, we are much less worried,” he said.

Corn and soybeans crops under pressure led Itaú to revise its preliminary projection for this first quarter’s GDP to 0.4% from 0.7% — the number fell a bit more, to 0.3%, after considering additional data from other sectors. “It is still a positive first quarter, because of agribusiness, but less than before,” Mr. Barbosa said.

In its last report, on January 11, the National Supply Company (Conab) cut almost 7 million tonnes from its forecast for the grain harvest, to 284.39 million tonnes, which would still be a record number. These data, however, refer to the week to December 18, and further downward revisions are expected to occur, said Cristiano Oliveira, chief economist at Banco Fibra.

His projection for agriculture in the GDP, which was once of 4% growth, is now at 2.5%. This value is enough to put the Brazilian GDP very close to zero, but, taking into account the most recent information on some crops, Mr. Oliveira says he sees a slightly negative bias for the Brazilian economy in 2022.

Despite the importance of agribusiness for the Brazilian economy, it represents something close to 5% of the GDP, Mr. Oliveira said. “There is a chain, where the participation of agribusiness is greater. But, for the purposes of IBGE’s calculation of the GDP, this would be included in industry and services,” he said. Therefore, he says that one cannot “blame” agribusiness in case the GDP becomes negative this year.

Rabobank has been working for some time with a more conservative forecast for agriculture GDP in 2022, up 3.5%, coming from an expected drop of 0.5% in 2021, said Mauricio Une, the bank’s chief economist. “We are comfortable [with the projection]. With that, we have a total GDP this year around 0.6%,” he said.

In the soybean crop, for example, the projection is of a certain stability: 140 million tonnes, compared to 137 million tonnes last year, according to Mr. Une. “We still have a good year despite the drought. There is some support, which we have to monitor”, he said. Mr. Castro, with Itaú BBA, projects a soybean crop around 135 million tonnes. “We expected a slightly higher production than in 2021, but it’s still a reasonable number.”

Other crops, such as sugarcane and coffee, and cattle raising are likely to perform well, said Mr. Oliveira, with Fibra. Mr. Une notes that coffee is on a positive biennial basis in 2022 — the strongest harvest takes place every two years. “Last year, we saw frosts affecting coffee seedlings. For this year, we expect a recovery to 63.5 million this year from 57 million bags in 2021.”

The difficulties faced by corn tend to dissipate throughout the year, Mr. Castro said. If it is planted in the right window for soybeans, until the end of February, it creates a great chance of not suffering from drought or frost, the analyst said. “Since soybeans are being harvested and the weather outlook is relatively good from now on, we think there are conditions for the second yearly crop returning to normality,” Mr. Castro said. He projects 116 million tonnes of corn for 2022, compared to 87 million in 2021.

Mr. Oliveira, with Fibra, said that the second yearly crop of corn may benefit from stronger market prices. Prices for corn on Brazilian stock exchange B3 have remained at a relatively high level, as well as international values, said Mr. Une. “As much as there is this drop in volume expectations, we have a holding price,” says the Rabobank economist.

In the view of Mr. Arruda, with BNP Paribas, the behavior of the second yearly crop of corn, both in terms of damage by the drought and the increase in the cost of inputs, will be key to understand the dynamics of the year. “Agricultural margins will still be historically consistent, but well below 2021, because costs have risen too much, especially those of fertilizers and chemicals,” Mr. Castro said. Lower profits in agriculture reduce some of the “irrigation” that the sector manages to pass on to the GDP in the form of investments and hiring, Itaú’s analysts say.

Source: Valor international

https://valorinternational.globo.com/

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Brazil vows again to eliminate tax on financial transactions to join OECD

OECD - Fórum Mundial de Bioeconomia

Brazil had already promised — in 2020 — to eliminate the Tax on Financial Transactions (IOF) in the discussions at the Organization for Economic Cooperation and Development (OECD). This tax, in any case, would not be an obstacle for Brazil to start membership negotiations, but certainly its elimination will facilitate the country’s adaptation to the entity’s rules, according to sources consulted by Valor.

Economy minister Paulo Guedes said Wednesday that the OECD invitation to Brazil was made possible after the Congress passed the Foreign Exchange Law at the end of last year. It allowed the Secretariat of Federal Revenue to commit to reducing IOF on international flows. And it also committed to do this in a letter sent last week to the OECD.

The Secretary of International Affairs of the Economy Ministry, Erivaldo Gomes, said: “In fact, it is not necessary to remove the IOF to start the accession process. But it is necessary to enter the codes of capital liberalization and invisible transactions, and to complete the accession process.”

In 2017, Brazil asked to join the OECD. At the same time, it anticipated and asked for accession to the Capital Movement Liberalization and Current Transactions Codes. These standards allow, for applying countries, gradual progress toward liberalization of capital, investment, and services, with an expectation of improvement in the business environment.

The OECD Investment Committee then created a specific group and analyzed policies in Brazil that were considered relevant to the accession to both codes. This group then mentioned the IOF, seen as discriminatory. Applying countries can have a list of exceptions, but those cannot be very different from the ones of other countries belonging to the entity.

In the discussions, it was agreed that Brazil would not eliminate the IOF but would zero the rates starting from a schedule that would begin in 2021. The measure was pending approval of the foreign exchange law in Congress. What Mr. Guedes did last week was to reaffirm this promise. With this, the Investment Committee will be able to finish its report on Brazil.

The report will go to the OECD board. Then, Brazil will approve the decree on the IOF, and the committee finally decides whether to approve Brazil’s treaty accession to the two codes. All of this happens in a process that is independent of OECD accession, but which in practice is essential for the country’s acceptance by the entity.

Mr. Gomes notes that the IOF on foreign exchange generates some distortions in economic transactions abroad, negatively affecting domestic and foreign investors, as well as citizens.

“One of the distortions condemned by the OECD and the IMF is multiple exchange rates, that is, different exchange rates for different transactions,” says the secretary, noting that the IOF has five rates for different types of exchange operations.

According to Mr. Gomes, this taxation “discourages and/or increases the cost of investments in Brazil since the mere flow of resources are punished with taxes before they produce any economic result.”

He notes that the OECD codes do not allow the use of this type of measure that is considered discriminatory, “but allow the use of macroprudential regulatory measures that are non-discriminatory.”

Source: Valor international

https://valorinternational.globo.com/

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India leaves door open for settlement in sugar dispute with Brazil

India loses WTO dispute over sugar subsidies; set to file an appeal | Business Standard News

India left the door open on Tuesday to seek a negotiated solution with Brazil, Australia and Guatemala over its subsidies that have an impact on the international sugar market and were condemned by a panel of the World Trade Organization.

In December, the WTO published the panel’s decision, which found that New Delhi massively increased subsidy to the sugar sector and reintroduced a floor price that led to production exceeding domestic demand. And it defined that the Indian government has to modify these measures to comply with international rules.

The dispute was part of Tuesday’s agenda of the Dispute Settlement Body, led by the delegations of Brazil, Australia and Guatemala, after India appealed against its defeat — a formality that, in practice, blocks the victory of the three countries.

Brazil, Australia and Guatemala noted that the panel concurred with virtually all of the grievances presented, and regretted that India had “appeal into the void” and left the case with no prospect of resolution in the short term. It is because the Appellate Body, which normally has seven judges, is now empty, because of the block made by the U.S. to the appointment of new arbitrators.

By appealing into the void, India is, in effect, free to maintain the policies condemned by the WTO. India does not participate in an entity’s 25-member parallel mechanism to resolve its disputes.

In its intervention Tuesday at the WTO, Brazil once again complained that the condemned Indian policies cause damage to Brazilian producers, regretted the Indian reaction of appealing into the void Appellate Body and reiterated the willingness that a solution be quickly adopted for India to respect the decisions of the panel.

The Indian delegation answered, criticizing several legal aspects of the decision taken by the panelists. But it left the “door open,” in the expression of one negotiator, to seek a negotiated solution. The point is whether it will move from rhetoric to effective negotiation.

The government of India continues to be under strong pressure from its producers not to change minimum price policies that end up encouraging an increase in production, part of which is diverted to the international market, bringing down prices. Indians have increased their share of the global sugar trade thanks to subsidies.

The Brazilian government has a Provisional Measure ready, which remains in the Chief of Staff Office, by which the federal government may retaliate proportionally and unilaterally, in cases of victories in WTO disputes, when the losing country makes the so-called “appeal into the void.” India is an obvious target.

Source: Valor international

https://valorinternational.globo.com/

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Government picks admiral as new head of Itaipu

João Francisco Ferreira — Foto: Divulgação
João Francisco Ferreira — Foto: Divulgação

Admiral Anatalício Risden Junior will be the new Brazilian director-general of Itaipu Binacional. The military takes the place of the retired general João Francisco Ferreira, who resigned on Tuesday. The information was first reported by Valor and later confirmed by Binacional.

Sources in the electric sector consulted by Valor informed that his position was being negotiated by center-right parties that wanted to have a say, and Mr. Ferreira had anticipated his resignation to avoid wear and tear. The name of the substitute has yet to be evaluated by the board of Eletrobras, Brazil’s main power utility Eletrobras.

The confirmation, however, must be officially published on the Daily Gazette. Mr. Risden has a degree in Naval Sciences, is 62 years old, was born in Curitiba (Paraná), and served for more than 40 years of active duty in the Navy.

The announcement of Mr. Ferreira’s departure was made to advisors, assistants and directors. The military is reticent and prefers not to stay during the transition period because, according to him, he no longer sees any sense in making decisions knowing that he will not stay.

Mr. Ferreira took over the command of Binacional in April 2021, replacing the also General Joaquim Silva e Luna, who held the post for two years and today is the CEO of Petrobras after being appointed by President Jair Bolsonaro.

Source: Valor international

https://valorinternational.globo.com/

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Carrefour may be forced to sell 11 stores to merge with BIG

Carrefour (CRFB3) compra Grupo Big e dispara na Bolsa

Antitrust watchdog CADE greenlighted the purchase of BIG by Carrefour provided that part of the stores of the chain bought is sold. There are 11 stores on the list of recommendations for divestment, according to an agreement between Carrefour and CADE.

The term of the Merger Control Agreement (ACC) signed foresees structural measures related to the competitive behavior to be adopted by Carrefour. In addition to the sale of supermarkets, hypermarkets and cash-and-carry stores, the proposal defines commitments related to non-competition and the economic maintenance of the stores until the effective transfer.

BIG has 388 stores and, in a statement released Tuesday, Carrefour highlighted, without providing figures, that the closings are less than 10% of the total base, and lower than initially unveiled by the CADE. Carrefour also says that the proposal is yet to be evaluated by the CADE’s court by June 2022, if the board decides to use the maximum deadline.

The CADE’s analysis indicates that there are no competition concerns in the wholesale distribution and gas station markets. In the retail and cash-and-carry segment, the antitrust watchdog removed competitive risks in most relevant markets, but for a small portion, it says that there are not enough elements to rule out the likelihood of companies exercising market power.

The eleven units listed by CADE could be sold by Carrefour are located in Rio Grande do Sul, Ceará and Pernambuco. The South and Northeast regions have 82% of BIG’s points. According to the list, in Gravataí (Rio Grande do Sul) are the Nacional supermarket, the BIG hypermarket and a Maxxi cash-and-carry store. In Juazeiro do Norte, Ceará, the hypermarket BIG Bompreço and the cash-and-carry store Maxxi appear on the list.

In Olinda, Pernambuco, the hypermarket BIG Bompreço is on the list. In Recife, in the same state, hypermarket Walmart Caxangá and hypermarket Walmart Casa Forte may be sold.

In Santa Maria, in the same state, the hypermarket BIG Nossa Senhora de Lourdes may be sold, while in Viamão, the hypermarket BIG Santa Cecília and the cash-and-carry store Maxxi may have the same fate.

The market expectation is that the value per asset will be below the ceiling of R$50 million paid in store purchases by funds in recent years.

Amounts in this range have been disbursed for stores in places like São Paulo and Rio de Janeiro. Carrefour declined to comment.

“We can buy if CADE really makes the decision, but the best units are in the Northeast region, because it is harder to find good locations in these capitals,” says the manager of a fund focused on retail properties said. Another source recalled that the South region doesn’t have as much demand for real estate now. “In Gravataí and Santa Maria, for example, it is not difficult to find well-located land,” said this source.

“There are cases of companies that ‘keep’ a lot of assets in regions that they know can be targeted by CADE. They keep these businesses on their feet, without much money, until the sale is approved”, the head of a cash-and-carry chain that competes with Maxxi said.

One point raised by an executive of another fund is limitations to be defined by the CADE. He recalled that, in order to maintain the level of regional competition, buyers may have to continue with the food retail activity in these locations for a certain period.

In the market today, the scenario is of companies leaving the hypermarket sector, while investments have been basically focused on cash and carry. GPA, owner of Extra, sold 71 hypermarket stores to Assaí for R$4 billion three months ago). Cash-and-carry stores and small supermarkets have been leading the organic expansion.

Among wholesalers, there is a greater number of deals being closed, and of companies with cash – despite the fact that many have already disbursed a large sum of money in acquisitions and openings since 2019, including Assaí, Fort (Pereira group) and Muffato group.

Real estate funds are likely to have the appetite to make bids as they could buy the stores and rent them. This is not a very long list as there are two main active players in the sector. One is the FII SuccesPar Varejo, which acquired nine stores from GPA between 2019 and 2020 and closed one of the largest recent deals among funds – the purchase of 17 properties, including buildings and land, from the same group for R$1.2 billion in October.

In another deal, in September 2020, two funds from TRX Gestora de Recursos agreed to buy 11 GPA stores for R$233.6 million.

Despite the worsening of the market environment since the end of last year, an executive sees room for attracting new resources focused on segments with proven return potential, considering the performance delivered in the portfolios.

Source: Valor international

https://valorinternational.globo.com/

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Brazil stock market sees strong inflow of foreigners

The battle for listings and stock market reforms: evolution or revolution? | International Financial Law Review

The macroeconomic challenges and uncertainties brought by the presidential elections this year have not prevented the arrival of a substantial amount of funds from foreign investors in the Brazilian stock market, which has ensured positive returns for the Ibovespa in 2022, unlike the New York markets. By January 21, the net inflow of foreign funds into the B3 secondary market had reached R$20.1 billion, the highest since January of last year, when inflows totaled R$23.6 billion.

Representatives of foreign firms told Valor, however, that they don’t see better fundamentals here and that external factors, including the monetary tightening led by the U.S. Federal Reserve and more optimistic prospects for commodities, explain the flow. Those factors, they say, have increased global demand for assets in emerging countries.

The dynamics has been helping Ibovespa to outperform peers from developed markets. While Brazil’s benchmark stock index rose 5.13% in 2022, the S&P 500 fell 8.6%.

Juliano Arruda, head of Latin American equities at Goldman Sachs, said that last year the global equity funds raised about $950 billion – an unprecedented amount – and Brazil ended up benefiting. This year, equity funds are still raising funds and, by mid-January there were about $67 billion of inflows in products of this type around the world.

“The difference is that, with the repricing of interest rates in the U.S. driven by a more hawkish Federal Reserve, there is an outflow of resources from the United States and record flows to emerging markets,” Mr. Arruda said.

Another factor expanding the demand for emerging market stocks, especially Latin American, is the favorable wind for commodities in 2022. While the main oil benchmarks are up more than 10% for the year, iron ore sees gains of the same magnitude.

“About $15 billion has flowed into emerging markets in the last three weeks, roughly in a distribution of 80% to equities and 20% to debt. Latin American equity markets have done especially well – probably in the wake of the strong start to the year for commodities, as well as signs that China is ready to start boosting its economy after resetting its strategy last year,” said Chris Turner and Francesco Pesole, strategists at ING.

According to David Beker, head of Brazil and Latin America Economics at Bank of America, there is greater optimism about the growth of China today and this benefits companies related to the dynamics of the Asian country, especially Vale. The mining company – which have a weight of nearly 15% in Ibovespa – is up 7.8% in 2022.

“The more attractive price levels we saw at the end of the year, the weakened real and less political noise probably also helped,” Mr. Beker said.

In the view of Esteban Polidura, head of products for the Americas at Julius Baer, there is a gradual rotation from growth – share classes that have high future growth prospects built into their prices, typically found in the technology sector – to value companies, which have cheaper multiples and are typically from the financial and basic materials sectors.

This is because, he said, higher interest rates tend to impact growth stocks more than any other type of stock. “I would link the flow precisely to a global shift to value stocks and Brazil is a good example of a market that is now perceived as value. However, we need to wait to see whether this will be lasting or not. It will depend a lot on Fed signals, and one must also monitor how the global appetite for risk will be,” he said. Still, according to Mr. Polidura, it is key to follow the elections in Brazil, which are likely to increase the volatility of local assets.

For Mr. Beker, with BofA, it will be difficult for the Ibovespa or the emerging markets to continue to see a better performance than the developed markets as interest rates go up in the U.S. “On the other hand, this rise in the basic materials and energy sectors may continue to benefit us, as we saw at the beginning of the year,” he said.

From the local standpoint, nothing justifies a great improvement in local fundamentals, said Mr. Arruda, from Goldman Sachs. “This will only change when we have more visibility regarding the elections,” he said.

He also mentions the possibility of this flow reversing course. As the United States face tightened financial conditions, including falling stock markets and rising interest rates, at some point the Federal Reserve could signal a pause in the monetary tightening cycle. “The flow from growth to value and from developed to emerging can be reversed if the Fed slows down the pace,” he said.

Robert Davy, emerging markets fund manager at Schroders, has a more constructive view regarding the local market, based on the perspective that the monetary tightening cycle started early in Brazil, which can be advantageous for local risk assets.

“In 2021, the country suffered with inflation and the consequent cycle of high interest rates. In 2022, the rest of the world will look at the same issues, while Brazil has already started this process. So, we may still have, this year, inflation falling and a reversal of interest rates, which would put Brazil in a great position,” he said.

The view is similar to that of Emy Shayo Cherman, J.P. Morgan’s strategist for Latin America and Brazil. According to her, the country seems to be well advanced in the monetary tightening cycle, which means an advantage relative to other emerging economies.

“In principle, this flow is likely to continue. The multiples of the shares have risen in recent days, but are still quite discounted and we have the impression that the downward revision of profits has also begun to stabilize,” she said.

According to her, the earnings season ahead will be very important to define how sustainable is this foreign flow. “I think that on the macroeconomic side, nobody expects big improvements; the expectation here is just that the peak of inflation is behind us,” the strategist said.

Mr. Davy, with Schroders, said he is not too scared about the upcoming presidential election. He says the polls have given clear indications of who the new president will be, and it remains for the market to wait and see how the new government will build its policies.

“I was already working with emerging markets in 2002, when Lula first won,” he said, citing former president Luiz Inácio Lula da Silva (2003-2010), which is a presidential candidate again this year and is ahead in the polls. “We were tense and some local analysts calmed us down, saying that his administration would be better than expected.” He added: “The result seems clear now. We just need to understand what will happen with the state-owned companies, the country’s fiscal policy, the dynamics between [Brazilian Development Bank] BNDES and private-sector banks.”

Frederico Sampaio, chief investment officer of equities at Franklin Templeton in Brazil, also says that foreign investments are not explained by an improvement in the fundamentals of national assets. For him, the flow is a direct consequence of the low prices of local stocks, a move that was driven by withdrawals from investment funds since the end of last year.

“When the Selic was at 2% a year, even hedge funds focused their funds on the stock market. Now we are seeing the reversal of this, often forced by investor withdrawal. It is a brutal change that does not speak to the fundamentals of the companies. The macro has even changed, but there was not such a big revision in the companies’ results to justify this”, he says.

He cites the example of digital retail and technology stocks so cheap that managed to rise this year in sessions in which interest rates were advancing strongly. Despite higher interest rates and some disappointing results, the devaluation of these stocks was so “bizarre” that it opened space for “less obvious” trading moves, he said.

From here on out, however, Brazil depends on Brazil, Mr. Sampaio said. “Moves out there have impacts here, but the long term depends more on what is done at the local level. The country and the market need a positive growth perspective, and the problem is that, again, we haven’t managed to put in place the necessary structural changes to get to this point,” he said.

Source: Valor international

https://valorinternational.globo.com/

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Petrobras becomes asset in presidential campaigns

Política de Bolsonaro tornou Petrobras mais vulnerável a crises – RBA

The privatization of Petrobras and the future of its fuel prices promise to be recurrent issues in this year’s political agenda. The reactions of the main presidential hopefuls to the increase announced by the state-owned company in the prices of diesel and gasoline this month give the tone of what to expect in the debate — which will probably go beyond the presidential race and contaminate campaigns for governor.

Jair Bolsonaro (Liberal Party, PL) enters 2022 in campaign for reelection, but under pressure from fuel inflation — an issue that is dear to truck drivers, the government’s base of support, but which affects society in general. After facing increases of 46.5% in the price of gasoline, 45.6% in diesel and 35.8% in bottled gas in 2021, according to data from the National Petroleum Agency (ANP), the Brazilian consumer deals, again, with the prospect of more expensive products this year.

The appreciation of oil — tied to the depreciation of the Real against the dollar — is expected to help keep the debate about fuel prices in evidence. In 2018, the truckers strike had already put the issue in the spotlight and agitated the electoral race that year. This time, the inflation of oil products emerges as a trump card to be exploited by Mr. Bolsonaro’s opposition. During his first three years in office, the president created a gas subsidy for low-income families, but was unable to find a solution to stop the increase in diesel and gasoline prices in Brazil.

The discussion about prices is followed by the debate about the social role and potential privatization of Petrobras. Mr. Bolsonaro often tries to dodge the political cost of higher fuel prices by claiming he has no control over the state-owned company’s prices. When reacting to the 8% increase in diesel and 4.85% increase in gasoline announced by the company this month, the president said: “If I could, I would get rid of Petrobras.” It was not the first time he signaled his interest in privatizing the company. In November, he called the state-owned oil company a “monster” and spoke openly of his interest in privatizing it. The agenda is welcomed by the government’s economic team but has never advanced in practice, just as it never did in other administrations that considered it.

Mr. Bolsonaro’s favorable position towards the sale of the company contrasts with the nationalist discourse that the president himself came to assume in the first half of 2021. Unhappy then with the prices practiced by the state-owned company, he interfered by removing the CEO of the company. To justify the change and the demand for a “more social look” at the oil behemoth, he resorted to a famous slogan: “O Petróleo é nosso” (Oil is ours) — which goes back to the marketing campaign for the creation of Petrobras, in the 1950s.

The privatization of the oil company promises to be polarized: former judge Sérgio Moro (Podemos) has already taken a stand in favor of deepening the privatization agenda, although he has already said, at the end of 2021, that the Petrobras case requires studies. João Doria (Brazilian Social Democratic Party, PSDB), governor of São Paulo, advocates for a model in which the state-owned company is divided and privatized, in sequence, in slices, in order to avoid the formation of a private monopoly in the country.

On the other side of the debate, Luiz Inácio Lula da Silva (Workers Party, PT) said last week that privatizations such as those of Eletrobras and Petrobras assets may be reviewed if he is elected. According to him, it is important that “serious people, when trying to buy Brazilian state-run companies that have been privatized, take into account that we will change governments and we [a hypothetical PT government] will rediscuss this.”

The state-owned Petrobras is also a topic dear to Ciro Gomes (Democratic Labor Party, PDT), who has even aired on social media a series of videos with his plans for the company and, like Mr. Lula da Silva, sees the oil giant as an inducer of the country’s economic development. He has even promised to buy back shares from private investors, in order to give the company a more state-oriented profile.

Petrobras is 68 years old and has been managed, throughout its history, by groups with different economic thoughts. It is a mixed economy company, controlled by the federal government, but 63.25% of its capital is in the hands of investors. The dichotomy between pursuing profitability and serving public interests is reflected in the company’s own bylaws, which state that it is governed by the rules of private law, but may, provided it is reimbursed for it, assume commitments “under conditions different from those of the private sector.”

In the debate about the social role of Petrobras, the company (under the administration of General Joaquim Silva e Luna) responded to criticism about the high fuel prices with a significant increase in dividends, under the justification that the greatest contribution that the state-owned company can give to society is to remain financially healthy and pay taxes and dividends to the state, so that it can then execute public policies with the money received. In total, Petrobras paid $27 billion in dividends to the federal government in 2021.

Even after President Bolsonaro’s intervention in the command of Petrobras, in 2021, the company – under the administration of Mr. Silva e Luna, a general handpicked by the president, reduced the frequency of hikes, but without changing, in essence, the alignment to international prices. The risks regarding changes in the governance of the oil company – under the current or future administrations – have never left the radar of the financial market, even though, due to the high dividends paid, the company now enjoys prestige among investors.

The fact that Messrs. Lula da Silva and Moro are candidates this year may put Petrobras’s corruption scandals brought to the fore by Operation Car Wash at the center of the campaigns. Mr. Lula da Silva was convicted precisely by Mr. Moro, then a judge, for passive corruption and money laundering. Mr. Lula da Silva was imprisoned for 580 days, between 2018 and 2019. The convictions were later overturned by the Federal Supreme Court (STF) in 2021, and the former president regained his political rights. In a preview of this debate, in December, Mr. Lula da Silva said that Car Wash “almost broke Petrobras.” Mr. Moro stroke back, saying that “what damaged Petrobras and the country was the stealing during the PT government.”

Messrs. Gomes and Doria also try to position themselves in the so-called third way and took advantage of Petrobras’s recent price adjustment to share their plans. Mr. Gomes said he intends to end the “criminal” price policy of the state-owned company, based on the alignment to the import parity price. In the case of diesel, for example, he proposes replacing the current model with a pricing policy that reflects Petrobras’s average production costs, the price of diesel in the Gulf of Mexico and the export price of Brazilian diesel. Mr. Lula da Silva has also said, by the end of 2021, that he intends to end the international parity of oil products.

Mr. Doria is in favor of creating a stabilization fund to dampen the upward movements. The mechanism would be financed with resources from the private sector. The creation of a fund of this type (financed with a tax on oil exports, in this case) is currently being considered in the Senate. The bill provides for taxing oil exports and displeases the sector.

Chamber of Deputies Speaker Rodrigo Pacheco (Democrats, DEM), who also intends to run for president, has promised to put the project on the agenda in February. In 2021, Mr. Pacheco was a central character in talks with governors in the decision of the states to freeze in November, for 90 days, the sales tax ICMS rate on oil products.

During the last few years, Mr. Bolsonaro has fought with the governors about who is to blame for the inflation of oil products. The president often blames state taxes for the rise.

The ICMS accounts, on average, for 26% of the final price of gasoline and 15% of diesel. Petrobras prices, in the refineries, correspond to 34% of the final price of gasoline and 55% of diesel. The current form of ICMS collection acts in a pro-cyclical manner as it helps to make oil products more expensive at times when they are skyrocketing at the pumps. The Chamber passed a law in 2021 according to which, in practice, the ICMS tax would no longer have this pro-cyclical character, but the bill has stalled in the Senate.

The dispute between Mr. Bolsonaro and the governors will continue in 2022. The states announced their intention to unfreeze the ICMS rate after Petrobras announced the hike earlier this month. The president reacted and pressured the governors again by defending a constitutional amendment that would allow the government to zero federal taxes on fuel, temporarily, without the need to present a source of compensation, as provided in the Fiscal Responsibility Law. The idea is that the states would also be authorized to do the same with the ICMS.

The proposal, however, is encountering resistance among governors, given the fiscal crisis in the states. In addition, there are doubts about the effectiveness of the measure — which has already been tested between March and April 2021, when Mr. Bolsonaro zeroed federal taxes on diesel, but saw prices rise anyway.

Source: Valor international

https://valorinternational.globo.com/

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OECD calls for reduced deforestation in Brazil

Mathias Cormann — Foto: Herve Cortinat/OECD
Mathias Cormann — Foto: Herve Cortinat/OECD

The Organization for Economic Cooperation and Development (OECD) on Tuesday invited Brazil to open membership discussions — but has imposed conditions: effective protection of the environment and action on climate, including halting deforestation, as well as the fight against corruption. The invitation to Brazil and five other countries — Argentina, Peru, Romania, Bulgaria, and Croatia — was approved by consensus by the 38 members of the OECD.

The invitation for talks come five years after Brasília formally requested membership – which has become a priority for the country’s foreign policy. It is a victory for Brazilian diplomacy, since the expectation in Europe was that this would hardly happen before the November 2022 presidential elections, due to the “great reticence” of some members towards President Jair Bolsonaro. France joined the consensus by signaling that it will be “demanding and vigilant” in negotiations with Brazil, according to European sources.

The OECD’s approval means just that — starting negotiations. The entity sent a letter to President Bolsonaro on Tuesday. And the understanding in the organization’s circles is that the country that responds first — confirming commitments to OECD values — starts the process first. In fact, there seems to be some concern that one or the other will take longer. The current government of Argentina may have some difficulty with capital controls, for example, notes one source.

Negotiations could take three to five years for the country to complete the process of compliance with the OECD’s 253 legal instruments. The invitation for membership will come after the negotiations, so not before 2025.

In a statement released early Tuesday evening, OECD Secretary-General Mathias Cormann said the process for acceptance as a member will include a strict and in-depth assessment by more than 20 technical committees of the candidate country’s alignment with OECD standards, policies and practices. As a result of those technical reviews — and prior to any invitation to candidate countries to join the organization as members — changes in the candidate country legislation, policy and practices will be required to align them with OECD standards and best practices, thus serving as a powerful catalyst for reform.

“Brazil has intensified its participation in the OECD since the request for accession [in 2017] and now we are well prepared to move forward,” said the Brazilian ambassador to the entity, Carlos Márcio Cozendey.

Last week, the Minister of Economy, Paulo Guedes, sent a letter to the OECD assuring commitment that Brazil will comply with the codes of capital liberalization and invisible transactions, the entity’s two main instruments in the economic aspect. This move strengthened “Brazil’s credentials” to finally receive the invitation, according to a government source. In any case, the parallel process in the OECD Council of Ministers was already underway. None of the other five candidate countries for membership has even begun the process of binding to the organization’s required codes.

These codes allow aspiring countries to make gradual progress toward liberalization of capital, investment, and services, with expectations of an improved business environment. And, according to sources, before sending the liberalization and intangibles codes to Congress, the government needs to comply with those requirements.

In Brazil, the new foreign exchange law has been approved. Being part of the OECD means having greater contact and more convergence with international best practices, as well as a boost to the domestic reform agenda, according to the government’s evaluation. But the OECD itself signaled that the candidates should commit themselves to other priority issues.

“The OECD invitation translates the international recognition for the agenda of structural economic reforms led by Minister Guedes and supported by President Bolsonaro,” said the Secretary of International Affairs of the Ministry of Economy, Erivaldo Gomes. “At the same time, it stresses the importance of following up on those reforms, especially the tax overhaul, a necessary condition to complete the process of joining the organization.”

For the National Confederation of Industry (CNI), this is “an extremely important step for the Brazilian productive sector,” which will serve as an impetus to leverage important reforms, increase the competitiveness of industry, and foster more sustainable growth in the country.

Brazil has been a key partner of the OECD since 2012 and formally applied to join the group in 2017. It is also admittedly the candidate country most convergent with the organization’s legal instruments — and the country most engaged with the organization’s committees and working groups, integrating discussions in more than 30 instances.

Source: Valor international

https://valorinternational.globo.com/

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Stone exports from Brazil to Arabs up 59%

Brazilian stone exports grew 39% - Agência de Notícias Brasil-Árabe

São Paulo – Exports of ornamental stones from Brazil to the Arab countries were up 59% in 2021 year on year, grossing approximately USD 10 million. Despite not being one of the top destinations of Brazilian ornamental rocks, the industry is optimistic with the result of sales to the region, industry group Centrorochas reported.

The top Arab buyers of rocks from Brazil last year were the United Arab Emirates with a 48.3% share, Lybia at 30.4%, Qatar at 9.4%, Algeria at 4.8%, and Iraq at 2.5%. The rates take into account the total shipments to Arab markets.

“The Arab market is strategic for Brazil in regard with exports, given the potential and the high consumption of ornamental rocks in the region. It’s a priority market of It’s Natural – Brazilian Natural Stone, a project that we carry out in partnership with Apex-Brazil. We believe this region holds an extremely  large potential, and we’re working on actions to strengthen the brand. An example was participating in The Big 5 202. Brazil is among the top ornamental stone suppliers in the world and has increasingly stood out in the supply of finished products, serving big projects across the world,” Centrorochas Tales Machado was quoted as saying in a statement.

Overall exports

Ornamental stone exports from Brazil posted an all-time record in 2021, topping pre-pandemic levels. Revenue reached USD 1.34 billion. Last year, 2.4 million tonnes of rocks were exported from Brazil to 132 countries in five continents, up 35.5% year on year.

One of the reasons is a higher confidence of businesspeople in exporting their products following the signing of an industry agreement between Centrorochas and the Brazilian Trade and Investment Promotion Agency (Apex-Brazil). The entities developed the project It’s Natural – Brazilian Natural Stone, which currently supports around 140 firms by encouraging exports.

The United States ranked first as the top consumer of rocks from Brazil at 62.7%, followed by China at 11.5%, Italy at 6.5%, and Mexico at 3.8%. These four countries are part of the eight target market pointed by the industry projects. The others are the UAE, India, United Kingdom, and Russia

“In a year with serious logistical difficulties, the country’s stone industry hit an all-time high. The credibility of Centrorochas among businesspeople, together with a milder situation of the pandemic in the second half of 2021, the development of actions of the industry project and the resumption of the global construction industry, contributed to this increase. We topped by almost USD 40 million our largest revenue up to then, which had been seen in 2013,” Tales Machado was quoted as saying.

“The year of 2021 was full of challenges, but together we knew how to turn them into opportunities and victories. It’s rewarding to see that our partnership with the ornamental stone industry produced record-high exports, thus creating more jobs and revenue to thousands of Brazilian families,” Apex-Brasil president Augusto Pestana said in a statement.

Source: NewsNow

https://www.newsnow.co.uk/h/Business+&+Finance/Economy/International/Brazil

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Brazil changes visa rules to attract digital nomads

Biz Center

The Brazilian government has amended immigration rules to grant temporary visas to professionals working remotely in a bid to attract well-paid individuals to contribute to the country’s economy.

Announced today (24), the measures establish an initial one-year visa, which can be renewed for an equal period. According to justice secretary and head of the National Immigration Council, José Vicente Santini, the new regulations are expected to boost local tourism and respond to global trends.

“Digital nomads’ salaries come from external sources, and the resources these immigrants bring can boost the national economy. This is an important step for Brazil to promote one of the world’s most modern working models,” he said.

Professionals can apply for the digital nomad visa at any Brazilian consular office, presenting proof of their remote worker status and documents such as an employment contract with an international organization and health insurance and evidence of availability means of subsistence in Brazil.

On the other hand, the increase of Brazilian remote workers taking up jobs with foreign employers has been a concern for the sector. The Federation of Associations of Brazilian Information Technology Companies (Assespro) launched a manifesto today calling for public policies to prevent a “labor blackout” of skilled tech professionals.

According to the trade body, the growing demand for IT experts globally and the acceleration of remote working has contributed to many experienced professionals being hired by companies abroad, without having to emigrate, in a phenomenon described as a “virtual brain drain”.

The association warned that best available estimates indicate that Brazil’s shortage of skilled professionals is expected to grow to 450,000 within three years. It added that the lack of strategies and policies from central government to support innovation and skills creation has been discussed since 2018. Still, the scenario remains unchanged in terms of strategy, while execution has become increasingly unviable due to the various budget cuts suffered by the Ministry of Science, Technology and Innovation in recent years.

Stressing the real possibility that Brazil may lose a significant amount of its technology experts to employers overseas, Assespro urged government leaders to “urgently unite to implement public policies that prevent this catastrophic situation.” It added the issue of skills shortages is the greatest challenge the sector has faced in the trade body’s 45-year history.

“Innovation processes arise from the existence of problems. Given the size of this problem, however, the collective action of all the actors involved is essential”, the manifesto noted.

Source: NewsNow

https://www.newsnow.co.uk/h/Business+&+Finance/Economy/International/Brazil

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