With the sale of non-strategic assets, Gerdau will define the allocation of new investments
19/01/2024
Gustavo Werneck — Foto: Carol Carquejeiro/Valor
In a move to focus on strategic assets, particularly in Brazil, the U.S., Mexico and Canada, Gerdau announced on Wednesday (16) the sale of its stake in the Diaco and Gerdau Metaldom joint ventures to Inicia, a group that was already a partner in these two companies, for $325 million.
“We want to be in relevant countries for the long term. Gerdau has been in 13 countries and is now in seven,” said Gustavo Werneck, Gerdau’s chairman. With operations in Colombia, the Dominican Republic, Panama, and Costa Rica, the divested companies have long steel production units with production capacities of 360,000 tonnes in the melt shop and 1,250,000 tonnes in the rolling mill, a business considered of little relevance to the company’s overall results.
“The funds [from the sale] will be used for the company to look for other investment alternatives. In our opinion, these funds should be better invested in Brazil, Mexico, the United States and Canada,” the executive said.
In that sense, the steelmaker’s board of directors has asked the management team to define the future allocation of Gerdau’s investments. “The question is: where is the best place to invest? Brazil or Mexico, which is growing very fast and is part of the nearshoring movement? I think Brazil is missing that opportunity.”
With Chinese steel imports, Brazil has also lost competitiveness in the steel sector, and this scenario has worried the chain, according to the executive. “Investors looking at the sector have questioned what the country’s growth path will be.”
The sector has been highly critical of the Brazilian government for not erecting barriers to protect domestic steel. “Brazil used to be a major aluminum producer, but that important segment of the industry has been destroyed. Will Brazil destroy its steel industry as well?”
With operations in Argentina, the Brazilian steelmaker doesn’t intend to leave the neighboring country despite its economic instability. “There are countries, like Argentina and Peru itself, that have experienced great political difficulties in recent years that are very relevant to us.”
On his first visit to the World Economic Forum in Davos, the executive offered a positive assessment of the event for the company’s networking, but shares the opinion of businesspeople attending the forum that the Brazilian delegation fell short this year due to the lack of representatives from the country’s economic team.
“I think we missed an important opportunity. Brazil is the largest delegation in South America, it has the largest number of companies, so it’s contradictory to be the largest delegation and not have the largest representation. The Argentine government attended the event with its economic team.”
For the executive, the country was praised in the environmental field. “Minister Marina Silva is a global reference in sustainability.”
Mr. Werneck believes that the energy transition, a banner that Brazil is defending, is an important issue, but it is still necessary to understand how to finance the investments planned for this new industrial movement.
Brazilian retailers, industrial companies go to the Supreme Court to denounce tax inequality
19/01/2024
Data obtained by Valor show that from August to December 2023, after the start of the Remessa Conforme program—Portuguese for “compliant shipments,” which established new import rules for orders up to $50—tax revenues reached R$700.5 million, an increase of about 122% over the same period last year.
The issue of tax collection is gaining momentum at a time when one of the most important aspects of the program—the tax relief of international online marketplaces that participate in the program—is before the Federal Supreme Court (STF). Brazilian retailers and industrial companies are challenging the lack of tax equality between local and foreign companies.
Remessa Conforme was defined in a decree issued by the Ministry of Finance and has been in effect since August 1. It grants tax and customs benefits to foreign online platforms, such as exemption from the 60% import tax, as long as they source their shipments in Brazil. However, a sales tax, the ICMS, is still levied at 17%.
The data is part of a survey by Brazil’s Federal Revenue and shows that despite the tax break, there has been an increase in revenue due to an increase in the number of statements for shipments over $50 that are taxed—one of the goals of the tax authorities with the change.
Valor has also learned that the increase in revenue may reflect an improvement in the inspection of products entering Brazil. The tax authorities have been working on this in recent months. However, shopkeepers can still try to circumvent the rules by making statements of more expensive products as if they cost less than $50 (to obtain the exemption). However, the Federal Revenue detects the wrongdoing in these cases and charges a 60% tax.
Remessa Conforme involves voluntary compliance by businesses, so shopkeepers who do not comply will not get advanced customs clearance on sales up to $50. And they still have to pay 60% tax, plus 17% ICMS—which also increases the tax revenue. Currently, AliExpress, Shein, Shopee, and Mercado Libre have joined the model (Amazon is still implementing it).
According to the data obtained, from August to December 2022, only 2.4% of all postal shipments were reported, and in 2023, the percentage increased to just over 60%. Of this 60%, 44% were statements registered through the Remessa Conforme mechanism. The Ministry of Finance declined to comment on these figures.
From August to December, ICMS collection reached R$120 million, 10 times more than the previous year. Import taxes amounted to R$580 million, an increase of 92%.
With the new rules and early local sourcing of shipments, the Federal Revenue is increasing controls and trying to reduce fraud—the main reason for the change in rules.
There is a perception in the government that shopkeepers hosted on the platforms are falsifying data about the sender of orders to fall into the only category that was exempt from tax until August —that of person-to-person sales. Since August, the exemption also applies to shipments from foreign companies.
Local retailers, Brazilian industrial companies, and foreign online platforms have already spoken out in favor of the program, saying it tackles the problem of fraud and creates workable rules for imports. Since 2021, a series of meetings have been held with economic institutions and the tax authorities to draft the program.
The disagreements between the parties were therefore never about Remessa Conforme but about the idea of linking the model to an import tax break—something that was not discussed before the changes were announced.
This aspect of tax collection is becoming more important today, because among the alternatives for increasing tax revenue that the government is analyzing in the search for a balanced budget this year is the inclusion of this revenue from imports.
This could be further strengthened with the definition of a rate and the end of the exemption in 2024. The Ministry of Finance has discussed a rate between 17% and 20%, which could be as high as 28% on packages sent. The issue is under discussion at the ministry. There is a possibility of a staggered increase over the year, sources say.
The problem is that since there has been no definition of a rate so far—the public debate on the subject began in April 2023—the Confederations of Commerce and Industry (CNC and CNI) filed a direct action of unconstitutionality with the STF on Wednesday night, alleging a lack of tax equality.
The local chains claim to pay more than 100% tax on the production chain and the sale of goods. The Ministry of Finance was aware of this move by the CNC and CNI before the announcement, as Valor reported on Thursday.
The federal government has yet to define its line of defense in the lawsuit, but the initial reading is that Remessa Conforme already tackles the main problems identified by the sectors.
In the government’s view, Valor found out, with Remessa Conforme, the Federal Revenue already has control over small shipments entering Brazil. Therefore, it would already limit any wrongdoings, and the platforms that have joined are fulfilling the requirements to be within the new rules.
The companies argue in their petition that acts numbered 1,804/80 and 8,032/90 establish an exemption only for individuals for non-commercial international shipments. Therefore, they do not apply to shipments by companies as defined in the Ministry of Finance’s regulation. According to the companies, this definition is contrary to the law.
However, a source calls into question this point made by the associations. He said that wrongdoings existed before the program, with businesses posing as individuals to send packages into the country without paying taxes. He also claims that the zero tax rate was a decision by a minister who had the power to set it.
The Federal Attorney General’s Office (AGU) is still waiting to be asked to act in the case, based on the line of defense to be drawn with the rest of the government. The case was sent to STF’s Justice Cármen Lúcia on Thursday.
In the past few months, the discussion about the definition of a zero import tax has been growing among national retailers because of the risks that it could bring to the business, in the opinion of national companies. They claim that the entry of goods, especially from Asia, under these conditions poses a risk to local job creation and may not comply with Brazilian health monitoring standards.
The issue was the focus of a presentation by retailers at the last meeting of the Council for Sustainable Economic and Social Development (CDESS) with President Lula in December.
*Por Adriana Mattos, Jéssica Sant’Ana, Guilherme Pimenta — São Paulo, Brasília
Power company seeks to raise funds for expansion by placing shares in Brazil and abroad
19/01/2024
Energisa, the company that controls power distributors in 11 Brazilian states, is preparing a new stock offering, as reported Thursday by Valor’s business website Pipeline. The operation, announced the day after Inter Bank raised $161.9 million in the United States, aims to attract around R$2 billion to invest in business expansion.
The company said that it is still working on the documentation “with a view to possibly conducting a public offering for the primary distribution of common and preferred shares.” The plan is to conduct the offering in Brazil, but also to seek international placements. The preliminary schedule foresees a launch after the close of trading on Friday.
Energisa has appointed as coordinators the banks Itaú BBA, leader of the operation, Bank of America (BofA), Bradesco BBI, BTG Pactual, Citi, J.P. Morgan, and Scotiabank Brasil, which are carrying out “preparatory work” to define the viability and terms of the offer.
According to the company, if the operation goes ahead, the controlling shareholder Gipar should accompany the capital increase in proportion to its stake of approximately 27.7%.
The company points out that the effective completion of the offer “is subject, among other factors beyond the company’s control, to market conditions, obtaining the necessary approvals, including the respective applicable corporate approvals, procedures with financial institutions inherent to this type of operation at the stage it is at, and the effective interest of investors.”
On Wednesday, Inter surprised the market with the announcement of the first follow-on share offering of the year by a Brazilian company. The bank raised $161.9 million after pricing the shares at $4.4, a discount of 3.08% from the day’s close.
According to sources familiar with the matter, the aim of Inter’s offering was to attract international funds to its shareholder base. When Inter moved to Nasdaq from B3 in June 2022, it didn’t do an IPO in the U.S., so its shareholder base remained essentially local funds. After a year and a half and with the bank’s results improving, a “tactical” offer could help attract other classes of investors and improve the liquidity of the stock.
Given the size of Inter’s offering, with average checks of around $15 million, the bank aimed to attract up to 10 new funds to its base. The idea, sources say, was to bring in a mix of U.S. and European funds, some long only, some focused on the technology sector, and some on emerging markets. With more liquidity and different classes of investors, Inter should see less volatility in its stock, making it more attractive to other classes of investors.
*Por Maria Luíza Filgueiras, Mariana Ribeiro, Álvaro Campos — São Paulo
Earlier this year, Ibama suspended foliar application of fipronil in the country after reports increased
01/17/2024
Marcelo Ribeiro — Foto: Arquivo Pessoal
The loss of nearly 400 hives in one fell swoop last January was the trigger for beekeeper Marcelo Francisco Ribeiro of Jacuí, in the south of Minas Gerais, to file the first complaint with his region’s environmental authorities about a problem he has been facing for at least five years.
“I arrived at the first box and was shocked to see the pile of dead bees. I went to the second, to the third, around the whole apiary, and there was only one hive with live bees,” he recalls. The results of the analysis carried out at the Biological Institute of São Paulo showed the presence of 35 different pesticide active ingredients, the main ones being fipronil, thiamethoxam, and propanil.
Although there are no organized statistics on honeybee deaths in the country, the perception of defense agencies and the government itself is that they have increased in recent years, especially since 2012. “This is not an isolated case in one state. There are reports in São Paulo, Bahia, Minas Gerais, Mato Grosso do Sul, Santa Catarina, northern Minas Gerais, there are cases of mass death in most of the main states of the country,” said the president of the NGO Bee or not to be, Daniel Gonçalves.
The mass death of bees is not necessarily a novelty in beekeeping. “It has always happened, but never in such large numbers. We used to lose one hive per apiary, two at the most, but it’s increased too much in the last five years,” said the beekeeper. Across the country, the increase has been linked to the popularization of fipronil, an insecticide registered in Brazil since 1994 but whose patent expired in 2008, paving the way for new formulations.
In Minas Gerais alone, about a thousand hives have been lost in one year, according to Rosangela Muniz, deputy director of Ibama’s Environmental Quality Department. Earlier this year, the agency suspended foliar application of fipronil across the state as a precautionary measure. “In several cases of bee deaths that have been analyzed, fipronil is the active ingredient that appears most often. We don’t have that percentage, but we do have several reports and studies,” he notes.
Although all reports collected by the state agricultural defense services are sent to the Ministry of Agriculture, the ministry claims to have no statistics on the problem. Between 2013 and 2015, the NGO Bee or Not to Be collected self-reported data from producers who lost hives due to mass bee deaths. In a year and a half, there were 300 incidents, more than 80% of which linked to pesticide contamination.
“Of course, we weren’t able to analyze all these cases, but it was undoubtedly a very important first survey,” said Mr. Gonçalves.
In São Paulo, work carried out by the manager of the State Bee Health Program (PESAB) of the State Agricultural Defense Coordination, Renata Taveira, analyzed the results of laboratory tests of the 62 reports of bee mortality received by the agency between 2020 and 2022, and found that of this total, 49 were related to pesticide poisoning, with fipronil being the active ingredient most frequently found: 63% of the cases.
“Notifications are increasing, and we know that in reality the mortality rate is much higher,” said Ms. Taveira. In 2023, it is estimated that the state will have recorded around 50 reports of bee mortality—in 2022, there were 39 reports.
In addition to the problem itself, greater awareness among beekeepers is cited as one of the factors behind the increase in reports. In Mato Grosso, according to the Agricultural Defense Institute (Indea), there were 45 notifications in 2023, of which 13 were for poisoning. In 2022, there were five reports.
“What’s significant is that, due to other notifiable diseases, we started several campaigns to get producers to come to Indea, and this may have affected this number of cases,” said the agency’s Animal Health Defense Coordinator, João Marcelo Brandini Néspoli.
Given the evidence of damage to beekeeping, Ibama has initiated a process to re-evaluate fipronil in 2022. “It is already understood that when the pollinator [bee] is affected in this way, there is a greater ecological risk associated with the use of this active ingredient. If you kill the bee in this way, you are certainly affecting other organisms in the fauna,” said Rosangela Muniz.
Following a precautionary suspension of foliar use of fipronil in Brazil, Ibama is not ruling out the possibility of more stringent restrictions on the active ingredient in the future, when the re-evaluation period for the substance comes to an end. “The re-evaluation process started a year ago and this was a precautionary measure. We thought it would be good to suspend foliar use of fipronil, but in the end Ibama usually restricts uses and crops even more,” said Ms. Muniz.
The Chinese company, which generated revenues of $61.7 billion in 2023, launched its first model as a sedan
01/17/2024
Chinese company BYD’s assembly line in Hefei: the company had produced 6 million vehicles by last year — Foto: Costfoto/NurPhoto via Getty Images
A visit to BYD’s headquarters in Shenzhen, China, often begins unconventionally. Just beyond the entrance to a vast showroom, encased by glass walls, are two machines, each holding a battery. These machines ignite the batteries, demonstrating their durability. The employee explains that the battery that withstands the flames is used in BYD vehicles, which, in 2023, became the world’s largest electric car manufacturer. The other battery, quickly consumed by fire, is said to be typical of other brands.
This dramatic demonstration is part of BYD’s narrative, a company with a history stretching back almost 28 years and revenues of $61.7 billion in the previous year. Founded in 1995, BYD initially produced batteries for cell phones, a venture initiated by Wang Chuanfu, a chemist with a specialization in battery technology. At 29, Mr. Chuanfu capitalized on the burgeoning cell phone trend, establishing a battery factory in Shenzhen’s Kuichong industrial subdistrict, an epicenter of innovation.
Like a museum, the showroom chronicles the journey of BYD and its reserved founder through photographs and informative displays. BYD’s breakthrough came in 2000 when it began supplying lithium batteries to Motorola, later expanding to serve Nokia, Ericsson, and Samsung.
In 2002, BYD, standing for “Build Your Dreams,” went public on the Hong Kong Stock Exchange. The following year, Mr. Chuanfu, now chairman, realized his ambition to venture into vehicle production, with a sedan as the company’s inaugural model.
In 2008, a significant development occurred as American billionaire Warren Buffett invested $232 million to acquire shares in BYD, priced at $1 each at the time. Fourteen years later, when Mr. Buffett’s holding company Berkshire Hathaway started selling these shares, their value had surged to $35 each.
BYD entered the bus segment in 2009, producing its first electric bus in the subsequent year. In 2012, the company established a bus manufacturing facility in Campinas, in the Brazilian state of São Paulo. In 2016, it ventured into monorail production in China, a technology soon to become familiar to residents of São Paulo. By the close of 2024, BYD aims to deliver the first vehicles for use on the 17-Ouro line in São Paulo.
Alongside its automotive pursuits, BYD maintains a battery production presence, with a Manaus facility supplying the bus line in Campinas. The company also produces solar panels, emphasizing that it extends beyond the scope of a vehicle manufacturer.
The year 2023 marked BYD’s establishment in Bahia. The former Ford factory in Camaçari will transition to producing electric cars and plug-in hybrids, including a hybrid pickup truck fueled by ethanol. Plans to expand and modernize the Brazilian factory are set to start in February. BYD’s director, Marcelo Schneider, announced an expansion of the initial labor force recruitment from 5,000 to 10,000 workers. The first stage of investment is projected to amount to R$3 billion.
In Shenzhen, BYD employees take pride in their contribution to the fight against COVID-19. Throughout the pandemic, the production of protective masks against the coronavirus not only saved lives but also secured the salaries of BYD employees in China, where the majority of the company’s 750,000-strong workforce resides.
When the global population was compelled into social isolation, BYD swiftly mobilized its engineering team to develop masks, a scarce commodity at the time. Remarkably, the project was completed in just three days. BYD emerged as a major mask producer, with ongoing sales, including in Brazil.
With 90,000 engineers on board, BYD anticipates reaching 100,000 by year-end, a testament to its commitment to innovation. Rows of patents acquired by BYD adorn a vast wall in the showroom at its Shenzhen headquarters, attesting to the company’s dedication to research and development, with 11,000 daily patent applications.
BYD’s achievements are colossal in every dimension. In vehicle manufacturing, it took 13 years to produce its first million units. A mere year and a half later, that number surged to three million, followed by an additional million within nine months. By 2023, the company had surpassed the milestone of six million vehicles produced.
The showroom’s car display area showcases compact models featuring whimsical animal-inspired names like the Dolphin. Notably, the Dolphin Mini, set to launch in Brazil in February, is called the Seagle in China.
Outside, it’s time to witness a car that offers a unique driving experience. Introduced to the Chinese market in September, the Yangwang U8 model, a sizable SUV, can rotate a full 360 degrees on its own axis.
However, BYD’s management is most eager to gauge the reaction of Brazilian visitors to the Dolphin Mini. Jolin Zhang, the director of the American sales division, joins in to generate excitement, stating, “This car is compact but exceptionally roomy inside. It’s ideally suited for Brazil.”
Shift to free market and incentives for specific segments, such as distributed generation, pose threats to payment capacity
01/17/2024
Luiz Eduardo Barata — Foto: Leo Pinheiro/Valor
In Brazil, the total subsidies on electricity bills have doubled over the past five years. From 2018 to 2023, the annual cumulative amount surged from R$18.8 billion to R$37.4 billion, according to data from the “subsidiômetro,” a National Electricity Agency (ANEEL) tracking tool. Such increase in subsidies, primarily levied through the Electricity Development Account (CDE), has been a concern for industry experts.
Recent warnings highlight the potential collapse of the payment system. Key among the sectoral charges, which are designed to subsidize electricity bill discounts, the CDE encompasses various initiatives, including the social tariff (a special discounted rate designed to make essential services more affordable for low-income households), universalization programs (initiatives aimed at ensuring that all citizens have access to basic services, regardless of their location or economic status), and the procurement of diesel or fuel oil for power plants not connected to the national grid. In 2023, the CDE’s budget sanctioned by Aneel was R$34.99 billion. The budget for the current year is yet to be approved, but an estimated figure of R$37.17 billion has been proposed.
The escalating subsidies are challenging the financial stability of the captive market, which primarily consists of traditional distributors, that is, consumers who do not have the option to choose their electricity supplier and are therefore “captive” to a single local utility provider. Luiz Eduardo Barata, president of the National Front for the Defense of Electricity Consumers, warns, “If comprehensive measures are not implemented soon, we could face a severe crisis by 2026 or 2027.”
In 2023, the highest subsidy allocation was for mitigating the operational costs of thermal power plants in isolated systems, amounting to R$10.3 billion. This was followed by expenditures for incentivized sources (R$10 billion), distributed generation (R$7.1 billion), and discounts for low-income households under the Social Tariff program (R$5.2 billion).
Experts are concerned about the imbalance in expenditure distribution within the sector and question the validity of maintaining certain benefits. They attribute many adverse effects to outdated regulations, recent market changes, and technical decisions made by Congress.
The same experts caution that the situation could deteriorate further with the introduction of new subsidies. Proposals for extending economic incentives for sector groups, potentially adding nearly R$30 billion annually to electricity bills, were included in the draft legal framework for offshore wind generation at the year’s end.
Mr. Barata, a former director-general of the Operator of the National Electricity System (ONS) and president of the Electricity Trading Chamber (CCEE), notes the trend of consumers shifting from distributor contracts to electricity traders in the free market, which allows them to choose their supplier. Due to legislative loopholes, this shift exempts consumers from paying certain obligatory charges in the captive market, some of which ensure supply quality.
Mr. Barata notes that in 2024, “almost everyone could choose the free market,” except for residential consumers. He warns that if a crisis arises, the government’s response must extend beyond localized actions, in contrast to the approach taken during the 2001 electricity rationing. That period was marked by strategic adjustments aimed at attracting investments to improve regional interconnections and expand thermal power plant contracts, vital for ensuring the reliability of the power supply. Mr. Barata now anticipates that the current perceived imbalances might necessitate broader restructuring, echoing the reforms of 1992. “The companies were on the brink of bankruptcy, and billions of dollars had to be injected into the sector, which led to the creation of the Eliseu Resende Act.”
In 2023, despite Congress making headway in discussions on modernizing the sector through Bill 414/21, the Minister of Mines and Energy, Alexandre Silveira, has committed to proposing a comprehensive sector reform through a provisional presidential decree. Economist Elena Landau, known for her role in privatizations during the Fernando Henrique Cardoso administration, argues for passing Bill 414 and deferring further improvements. She suggests the government should convene a sector-wide debate, resisting the urge to draft a new legal framework single-handedly “inside the cabinet.” Ms. Landau believes her suggested approach could protect the new law from becoming a “zombie project,” a term she uses for parliamentary amendments that attempt to establish substantial subsidies for financing gas pipelines through electricity bills.
Jerson Kelman, a former director of ANEEL and the National Water Agency (ANA), recently discussed the potential for a “bubble burst” in Brazil’s electricity market in an article on the Energia Brasil portal. He explains that this can happen in a “poorly regulated” sector that induces market players into a “euphoria of immediate gains.” Mr. Kelman points specifically to the advantageous position of DG (Distributed Generation) consumers, who generate part of their electricity, benefiting from reduced distributor consumption and a discount for contributing the excess to the power grid. He estimates that the subsidy for DG is, on average, 14 times higher than that for a family on the Social Tariff. Generally, DG is adopted by middle-class consumers or companies able to invest in solar panel systems.
In a statement to Valor, Mr. Kelman, who previously led Light and Sabesp, reaffirmed his stance. He draws parallels between Brazil’s electricity sector situation and the American mortgage bond market scenario that led to the 2008 financial crisis, where certain groups favored short-term gains at the expense of medium and long-term systemic consequences.
Marcos Madureira, president of the Brazilian Association of Electricity Distributors (ABRADEE), identifies at least two factors contributing to higher tariffs in the regulated market. One is the surplus power bought in long-term contracts, some lasting until 2050, which raises costs and encourages migration to the free market. The other is the increasing adoption of distributed generation under special conditions, without sharing the expenses for maintaining the distribution network.
“Distributors are burdened with more expensive electricity, which they cannot reallocate in the market. This results in higher electricity prices for the remaining consumers. It’s what we call a death spiral, as the increased cost is borne by an ever-decreasing group of consumers,” Mr. Madureira cautioned.
In response to inquiries, the Ministry of Mines and Energy stated that the “issue of subsidies is a critical one for the ministry, which is actively working to limit the growth of these costs for consumers.”
Smaller base, agriculture, investment, and public sector actions explain higher growth in these regions, study shows
01/17/2024
Angelo Ozelame — Foto: Divulgação
The total wage bill of Brazilian households is expected to grow more in the North, Northeast, and Central-West regions than in the Southeast and South of the country in the coming years, according to a study by Tendências Consultoria entitled “Classes of Income and Consumption in Brazil: 2023-2033.” The study takes into account the real total wages, excluding inflation.
In the period from 2023 to 2027, the consultancy forecasts that the Brazilian total wages will grow by 3.4% per year. The rates are expected to be 4.6% in the North and 4.1% in the Northeast and Central-West. The same pattern appears in the estimates for the period from 2028 to 2033, when the North (4.1%), the Northeast (4%), and the Central-West (3.9%) are expected to report a greater annual increase in total wages than the South (3%) and the Southeast (3.3%) of the country.
It is not unusual for the country’s total wages to grow at different rates in the five major regions. Experts point to several factors in this scenario of uneven growth of total income from a regional perspective.
The head of the study, Tendências’s economist Lucas Assis, said that the regions with the fastest growth in total wages benefit from a smaller base, which makes growth easier than in areas that are already consolidated, but that each of them also has specific reasons for the movement.
In the Northeast, the outlook is for increased public and private investment. The return of the Growth Acceleration Program (PAC) tends to benefit the region, he said, as does the expansion of production capacity in several sectors, especially oil and gas.
“If in 2022 and 2023 total wages in the Northeast benefited from income transfer programs and increases in the minimum wage, in the coming years the main influences will be public and private investment, which may benefit the local labor market. No further expansion of transfer programs is expected,” he said.
In the North, the boost will come from public administration—with a significant presence in the local GDP—and the concession of highways and ports. The maturation of investments in the iron ore mining industry will also play a role. “With the reduction of logistical hurdles, the region is also expected to attract investment,” he added.
Agriculture, in turn, is behind the income growth expected for the Central-West, said Mr. Assis. “The Central West is the country’s main agricultural frontier and will continue to grow over the next decade. Reducing transportation bottlenecks will further stimulate production in the region,” he said.
In the Central-West, this faster pace of income growth will be sustained by people like Ângelo Ozelame and Daniel Latorraca. They are part of the AgriHub network of entrepreneurs, linked to the Mato Grosso Federation of Agriculture and Livestock (Famato). They show the spread of agribusiness in the economy. Mr. Ozelame is the founder of Escola Agro—a school with courses aimed at agribusiness suppliers—and Lucro Rural—a financial management platform for agribusiness, working in the commercial, financial, and tax areas. The 34-year-old comes from a family of small farmers in Espumoso, Rio Grande do Sul state, has a degree in Agronomy from the Federal University of Pelotas (UFPel), and worked for several years as an analyst at the Mato Grosso Institute of Agricultural Economics (Imea) in Cuiabá, the state capital.
He opened Escola Agro while he was still employed, but a year later, in 2018, he began to dedicate himself fully to the business. In 2020, he opened a second business. His income is now 10 times higher than before he became a businessperson, he said. In 2023, Lucro Rural ended the year with six times more customers than the previous year, as well as R$25 billion in invoices processed in customer service. “More than the financial aspect, I’ve gained a lot of knowledge. The potential of the sector is huge, not only because of the growth prospects for agribusiness but also because of its financial and tax complexity. We help producers make decisions from the front gate, on the economic side,” said Mr. Ozelame.
Economist Daniel Latorraca saw financial services as an opportunity to work with agribusiness. He founded Creditares, a company that presents itself as a financial services hub for rural producers through financial advisors, the so-called “agrobankers.” The platform currently offers loans and will expand its portfolio to include insurance and hedging tools for operations on the futures market. “I have been following the evolution of agriculture and its impact on the economy in recent years, especially in Mato Grosso. So much so that I was encouraged to take the plunge. In my spreadsheets, agribusiness will continue to grow. If it is going to grow, it is going to need more credit,” said Mr. Latorraca.
However, this more significant income growth in the Northeast, North, and Central-West does not mean a reduction in regional inequalities in the country, said Mr. Assis. This is because the total wages of the Southeast and the South will continue to grow. “Regional disparities are likely to persist for at least the next decade. Even though the most vulnerable regions are experiencing greater income growth than the Southeast and South, the latter regions are also growing. As all regions grow, regional inequality is likely to remain big,” he said.
The regional dynamic of faster income growth in the Northeast, North, and Central-West goes hand in hand with faster income growth in the higher income classes than in the D/E class, according to the Tendências Consultoria study. This is because the economic recovery tends to benefit the richest, who also benefit from returns on investments, rents, and corporate profits.
For 2024, the consultancy predicts an increase of 2.9% in the country’s total wages. While in classes D/E this variation is 1.4%, the pace is over 3% in the other classes: A (3.2%), B (3.4%), and C (3.6%). Between 2023 and 2027, the average annual growth in classes D/E is 2.2%, half of the 4.4% of class A. Since there are no official criteria in the country for defining income classes, Tendências uses the following parameters: class A (monthly household income of more than R$24,200), B (between R$7,800 and R$24,200), C (between R$3,200 and R$7,800) and classes D/E (up to R$3,200).
In the analysis of class A, Mr. Assis said that there is an impact both from the increase in the average income of this group and from the increase in the number of households at the top of the pyramid, reflecting migration from other classes. At the other end of the spectrum, classes D/E, no major change in income transfer programs is expected to affect the ability of the total wages to expand. “In the long run, the higher income classes should still lead this income growth. There is an expected migration of households from the lower classes to the higher ones, but it’s still a very slow process,” said Mr. Assis.
Mr. Assis highlighted the difference between now and the 2000s, when there was a rapid rise of the poorest and an increase in the middle class. “This last decade in Brazil has been marked by two negative shocks: the recession of 2015/2016, and the pandemic. So, this growth in the next few years is a positive scenario compared to the last decade, but it’s different from the 2000s,” he said.
KPMG Report: $111 billion awaits capital calls from global management companies, recovery likely postponed to 2025
01/16/2024
Daniel Malandrin — Foto: Rogerio Vieira/Valor
In 2023, high-interest rates and macroeconomic uncertainties severely affected the venture capital sector, leading to a consecutive annual decline in Brazil’s startup investments. A survey commissioned by Valor and conducted by Sling Hub, a data intelligence platform for the sector, revealed a 39% decrease in investments last year, a decline slightly less than the 41% experienced across Latin America.
A KPMG report reveals that investors have committed $111 billion globally to management companies, pending allocation to startups. Daniel Malandrin, KPMG’s lead venture capital and innovation partner, attributes the move to increased risk aversion, leading to greater selectivity among asset managers and investors who now favor larger, profit-generating companies. He forecasts a challenging 2024, with many startups struggling and investors remaining cautious.
Mr. Malandrin predicts a continued rise in startup failures due to funding challenges in 2024. The start of monetary easing in the United States, a key driver for the market, remains uncertain.
In December, Distrito, an innovation platform, reported that 60% of venture capital fund managers do not anticipate a return to pre-crisis activity levels in the sector for over 18 months.
Oscar Decotelli, CEO of DXA Invest, which manages R$1 billion in “growth equity” funds—a blend of venture capital and private equity—noted that companies that weathered 2023 have emerged stronger into 2024, having slashed costs and enhanced efficiency. He also noted a significant reduction in financial needs, with companies now requiring only R$0.30 for every real they needed at the beginning of last year. However, Mr. Decotelli anticipates that investor interest in both startups and established companies will only pick up in the latter half of the year.
Mr. Decotelli points to uncertainties in both international and domestic markets as major influences on investment decisions. In the United States, the anticipated decline in inflation due to rising interest rates has been offset by signs of a resilient economy, delaying expectations of rate cuts. In Brazil, initial concerns over fiscal policy have eased following government measures. Despite high-interest rates in 2022, which saw a robust influx of startups, Mr. Decotelli describes 2023 as a “double negative” year, where companies struggled to sell products or raise capital for operations, marking it the most challenging year in the past decade.
Additionally, the early 2023 credit crisis, influenced by Americanas and Light, led to costlier financing and significant declines in funding through capital markets and bank lending. Mr. Decotelli highlights the plight of small companies with innovative products, which started the year hopeful for capital to grow or maintain operations but failed to secure funding.
The Distrito survey reveals that 35.7% of asset managers experienced negative impacts on their operations during the crisis. In comparison, 11.1% seized opportunities, such as purchasing assets at reduced prices. Mr. Malandrin from KPMG remarks, “Managers who have successfully raised funds in the past two years are now ideally positioned for negotiating with promising startups in need of growth capital.” He emphasized the need for investors to recognize the adequacy of the risk premium in venture capital for the sector’s recovery.
The KPMG executive highlights that the recent widespread increase in interest rates marks a major macroeconomic shift unprecedented in a decade of venture capital. “Until 2022, the remarkable productivity gains of startups didn’t impede investments due to the surplus of capital. The focus was on growth at any cost, followed by profitability.” However, he notes, there is a heightened demand for results due to competition with U.S. interest rates. Previously, venture capital investments were estimated to yield a 12% annual return in dollars; that has now decreased to a 7% differential with the U.S. prime rate at 5%.
Data from the Brazilian Private Equity and Venture Capital Association (ABVCAP) indicates a partial recovery in the third quarter of 2023. Venture capital funds invested R$1.9 billion across 62 rounds, a 19% increase from the R$1.6 billion invested between April and June of the same year. However, the number of deals decreased by 16%. Compared to the third quarter of 2022, there was a 29.6% reduction in the invested amount and a 66% decrease in the total number of transactions.
Mr. Malandrin from KPMG explains that the current trend of investing more money in fewer startups, particularly larger ones on the path to profitability, is due to increased selectivity. He emphasizes that this trend is not a structural but a cyclical change, likening it to a temporary memory that might fade with new technologies and managerial approaches. “Nevertheless, it represents a significant learning opportunity for the entire industry,” he added.
Globally, KPMG data indicates that the volume of transactions fell to its lowest since the fourth quarter of 2018. In the second quarter of 2023, the volume was $81.4 billion across 9,563 transactions, which decreased to $77.05 billion in 7,434 transactions in the third quarter. That represents a 5.35% drop in value and a 23% decrease in the number of deals.
In Brazil, fintechs garnered the most investment in 2023. The Sling Hub survey reports that 54% of the country’s transactions involved fintech companies, up from 43% in 2021 and 45% in 2022. João Ventura, founder and CEO of Sling Hub, attributes the increase to large funding rounds during the year.
Mr. Ventura highlights significant transactions such as fintech Meutudo’s announcement of a new R$2 billion FIDC—a fixed-income investment backed by receivables such as trade assets, checks, and car loans—managed and administered by BTG Pactual Asset, focusing on social security (INSS) payroll loans. Another notable investment was Citi’s $466 million infusion into Mercado Pago, which was aimed at expanding its credit operations in Brazil and Mexico. “We haven’t seen operations of this magnitude for quite some time,” Mr. Ventura remarked. According to KPMG, Brazil currently boasts 13,300 active startups, with fintechs constituting 11% of these enterprises.
According to newspaper O Globo, an agreement between the two companies is being negotiated
01/16/2024
Leandro Pinto — Foto: Divulgação
The possible acquisition of the Mantiqueira Group, one of the country’s largest egg producers, by JBS, as reported by daily newspaper O Globo, is a strategic move that aligns with JBS’s multi-protein strategy, according to analysts and industry sources.
Negotiations between the two companies are currently underway, as reported by journalist Lauro Jardim in his Sunday column. Notably, in such discussions, there is a possibility that Mantiqueira’s founder, Leandro Pinto, may retain a partnership in the company even following the sale.
When contacted by Valor, Mr. Pinto refuted the information, while JBS was not immediately available for comment.
An insider disclosed that rumors about JBS’s interest in Mantiqueira began circulating in mid-December. In the insider’s opinion, Mantiqueira has been signaling its readiness for a potential acquisition, citing its acquisition of Toca Orgânicos, investments in cage-free production, and the rebranding of the Mantiqueira label as Happy Eggs.
“In the past three years, if you observe Mantiqueira’s actions, it appears that Leandro [Pinto] is dressing up the bride. On the other side, there seems to be a groom in need of a partner,” commented the insider.
In an initial evaluation, Leonardo Alencar, an analyst at XP Investimentos, expressed his belief that JBS’s acquisition of an egg company would be advantageous. Diversifying its protein offerings helps mitigate the impact of market fluctuations in each sector on the company’s financial performance. Additionally, it could open doors to a sector that thrives during periods of increased demand for affordable food and evolving global consumption patterns.
An industry source concurred that JBS’s potential entry into the egg sector would enhance its diversification, considering the company’s prominence in other protein markets. The source also noted that the global outlook for the egg segment appears highly promising.
However, the XP analyst pointed out that the acquisition of Mantiqueira alone might not significantly alter JBS’s overall trajectory. “It would only make sense if it were the first step in a larger strategy. Everything indicates that JBS aims to maintain financial prudence and focus on the dual listing process, which may not be the ideal time for acquisitions.”
Opinions differ on whether the recent termination of the agreement to sell a portion of Eldorado Celulose to the Indonesian group Paper Excellence could impact the potential acquisition in the short term. J&F Investimentos, the holding company of the Batista family, which controls JBS, announced the cancellation of the deal and the return of R$3.7 billion. Industry insiders suggest that Mantiqueira’s market value may fall short of the Batista family’s expectations.
*Por José Florentino, Nayara Figueiredo — São Paulo
Total revenues, which include transfers, fell in the first 10 months of 2023 compared with the same period in 2022
01/16/2024
Renata dos Santos — Foto: Ricardo Ledo/Valor
Even with the gain considered exceptional in 2021 and part of 2022, states’ revenue fell last year not only compared to the previous year but also to 2019, the period before the Covid-19 pandemic and also the first year of the previous governors’ terms.
From January to October 2023, the latest data available, revenues from taxes, fees, and contributions from the total of 26 states and the Federal District amounted to R$553.45 billion, 6.7% lower in real terms than in 2022 and 3.4% lower than in 2019. Although still 11.3% higher in real terms than in 2019, aggregate current revenue for 2023, which totaled R$954.9 billion, also deteriorated compared to 2022, with a decline of 3.1%. Aggregate revenues include transfers that states receive from the federal government.
As revenues fell, current expenditures increased by 3.9% in real terms in 2023 compared to the previous year, also from January to October. Personnel costs, which account for 58% of state governments’ current expenditures, rose by 5.2%.
The data up to October show the outlook before the advance payment in 2023 of the compensation for sales tax ICMS losses, which will not be paid by the federal government to states and municipalities until 2024. These funds were transferred to regional governments in November and December and helped improve the outlook at the end of 2023, according to representatives of state governments.
The data on realized revenues and liquidated expenses were collected by Valor from the fiscal reports submitted by the states to the National Treasury Secretariat. The figures for 2019 and 2022 were updated by the benchmark inflation index IPCA to October 2023.
For Gabriel Leal de Barros, economist and partner at Ryo Asset, the outlook shows that concerns about the states’ fiscal adjustment are back on the radar. The issue was sidelined during the pandemic and then, with the positive commodity shocks, in 2021 and part of 2022. “The issue of the states’ revenue base is back on the table,” he said.
According to the data, the drop in own revenue from January to October 2023 compared to the same period of the previous year occurred in 11 of the 27 entities. The drop in current income affected 16 of them. What is striking, says Mr. Leal de Barros, is the drop in revenue in the southeastern states, because they were hit hard by the ICMS cut imposed on the states in 2022. States with significant relative tax revenues, such as São Paulo and Minas Gerais, did not increase the standard tax rate, as did most of the Northeastern states. In these states, own revenues are more representative in the composition of revenues. According to the survey, current revenues in São Paulo and Minas Gerais fell by 7.3% and 3.4%, respectively, in real terms, from January to October compared to the same period in 2022.
The data collected shows that the Northeastern states’ revenue was stable in real terms compared to 2022, and the decrease in current revenue was only 0.7%. In the Central-West, own-source revenue was also virtually stable, with a 0.1% increase in real terms and a 2.2% decrease in current revenue. The North experienced a 7% increase in its revenue and a 2% increase in current revenue.
The largest losses were in the Southeast, which saw a 12.7 percent drop in own resources and a 6.7% drop in current resources. No state in the region raised the modal ICMS rate in 2023. In the South, the loss was 1.8% in own revenue, but there was a 1.4% increase in current revenue. Among the southern states, only Paraná increased the standard ICMS rate to 19% in 2023, up from 18% in 2022. At the end of last year, the state passed a law to raise it again in 2024, to 19.5%. At the end of 2023, the Rio Grande do Sul government even proposed to increase the rate from 17% to 19.5% in 2024, but the project was withdrawn due to difficulties in getting it approved by the state legislative assembly.
The figures show that the increase in the modal tax rate by the states was not enough to compensate for the loss of revenue from the aggregate, said Mr. Leal de Barros of Ryo Asset. The states that increased the tax rate, he explains, are less representative when looking at the overall fiscal picture of state entities. Data from the reports show that the four southeastern states account for 52.5% of the total revenue of the five regions and 45.2% of the current revenue.
The move to increase the modal tax rate came in response to supplementary laws 192/2022 and 194/2022. Approved in 2022, amid the presidential election campaign, the two laws imposed changes that resulted in rate reductions and changes to the ICMS calculation base in the telecommunications, electricity, and fuel sectors, considered the “blue chips” of tax collection.
The states’ loss of revenue was challenged in court and resulted in an agreement for the federal government to compensate states and municipalities for their loss of the tax, as 25% of the ICMS revenue is transferred by the state government to the respective municipalities. The agreement set a schedule for payments in 2023 and 2024 and in some cases 2025. Last year, however, the federal government made the scheduled transfer and also front-loaded the payments to be made in 2024. The advance payments were made in November and December.
According to Mr. Leal de Barros, the revenue from the compensations probably contributed to the state’s accounts being in the black in 2023. However, the revenue was temporary and 2024 is expected to be a year of economic slowdown, with a major fiscal challenge for the federal government.
The final text of the tax reform, the economist pointed out, had no provision that considered the average ICMS revenue from 2024 to 2028 as part of the criteria for distributing the future tax on goods and services (IBS), the new tax created by the reform and which will be collected by the states and municipalities. “The debate on how to compensate for the loss of the ICMS tax base will probably be part of the discussions on the tax reform regulations.”
The Rio Grande do Sul government said that the ICMS reduction imposed in 2022 continues to have an impact on its revenues, and to maintain regular payments and investments and overcome accumulated liabilities, the state needs to restore revenue levels. Part of the losses have been compensated, the state government said in a statement, but still not enough to restore the previous situation. The government has proposed “a review of tax benefits that will be implemented with caution to guarantee and maintain the competitiveness of the state, combining it with the need to seek a model of sustainability in the short, medium, and long term, especially in light of the changes in the tax reform,” the note said.
From January to October 2023, the state’s revenue fell by 2.4% compared to the same period in 2022, but with a 3.9% increase in current revenue and a 5.1% increase in current expenditure. The state government said that the data for 2023 are still being finalized, but Rio Grande do Sul maintains its budget surplus as a result of management measures, privatization, and the effects of the so-called Fiscal Recovery Regime, a mechanism created in 2017 to provide tools for struggling states to adjust their accounts.
Alagoas is among the states with an increase in revenue in 2023. The state’s revenue increased by 8.1% from January to October 2023 compared to the same months of the previous year. Current revenues increased by 3.2%. Renata dos Santos, Finance Secretary of Alagoas, said that the state’s revenue will end 2023 with a real growth between 10% and 12%. She said that a special ICMS installment plan also contributed to this revenue at the end of the year. The recovery, she said, was also helped by the increase in the modal ICMS rate to 19% in 2023 from 17%, along with changes in the state’s tax collection structure. The state’s tax revenue was favored in 2023 by the real increase in the minimum wage and the cash-transfer program Bolsa Família, which benefited a significant part of the Alagoas population and “turned into consumption.”
For 2024, she said, the idea is “to begin in balance,” and that’s why the state is already taking measures to contain current expenditures “to mitigate the pressure that may come from the municipal elections.” Revenues are expected to grow by 2% in real terms this year compared to 2023, while expenditures will remain at the same level in nominal terms.
In Pará, revenues also increased by 13.8% and current revenues by 3.5%. According to the state’s secretary of Finance, René Sousa Júnior, this reflects the increase in the modal ICMS rate from 17% to 19% in 2023 and the good performance of the mining sector, which does not generate tax revenue from exports but brings dynamism to local activity. Driven by hikes such as the teachers’ salary floor, the state’s personnel costs accelerated, rising by 11.9% in 2023 compared to 2022. Current expenditure increased by 9.8% from January to October. According to the secretary, the accounts were adjusted in 2023, with an important contribution from the compensation of ICMS losses by the federal government. According to Mr. Sousa Júnior, the state received a total of R$600 million in compensation in 2023, of which approximately R$200 million was related to the year itself.
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/P/7/LuG74mSCyjTlBEorD44A/040523-20gerdau-20016.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/T/Q/QWLWYlSJA7BnvZe1bDnw/abelha-foto2-20-281-29.jpeg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/6/9/F2oNNJQzqsA2r8uIAlhg/gettyimages-1716417169.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/P/4/AQoXk5RMGoCGRuNL0zIw/luiz-eduardo-barata-leo-pinheiro-valor.png)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/r/X/DZFWtVSXmxjXlcOH9aXg/angelo-2.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/t/C/7iBvibTyq7jUVanvRnTw/040124danielmalandrin025.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2022/d/s/WPdBppQNq4ATfcAEsh2Q/leandro-lorena01.jpg)
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2024/6/b/C2rcN5SJAl5OFzTjaMNQ/210923renatasantos01.jpg)