Asian brands gain ground in Brazil with new marketing playbook

Chinese, Japanese, South Korean companies reshape consumer expectations in Brazil

 

 

 

 

TV Globo correspondent Sônia Bridi speaks at Conexão CMO event, hosted by Globo and Valor — Foto: Flavio Rodrigues/Divulgação
TV Globo correspondent Sônia Bridi speaks at Conexão CMO event, hosted by Globo and Valor — Photo: Flavio Rodrigues/Divulgação

A focus on product innovation, heavy investment in advertising, and playful marketing campaigns are among the cultural characteristics of East Asian companies helping them win over Brazilian consumers in sectors such as cosmetics, automobiles, beverages, and services.

The growing influence of East Asia also represents a business opportunity for Brazilian brands, according to a study titled “Asia in Motion,” presented on Thursday (12) at Conexão CMO, an event organized by Globo and Valor for marketing executives. “This trend has significant influence on the advertising market,” said Eliseu Barreira, Globo’s director of strategy and business intelligence, at the event. “The arrival of these new competitors, with different approaches to innovation, positioning, and communication, is also changing competitive dynamics and creating new benchmarks for companies from all backgrounds,” he added. Over the past 12 months, Chinese, Japanese, and South Korean companies spent R$3.2 billion on advertising in Brazil, a 16% increase from the previous year, Barreira noted.

Making products tangible, rather than simply promoting an idea or concept, is one of the distinctive features of East Asian brands’ advertising campaigns compared with those of Western companies, said Bruno Pompeu, a professor at the University of São Paulo’s School of Communications and Arts (ECA-USP) and coordinator of Casa Semio.

“Asian brands always keep the product at the center. You could talk only about a technological innovation, but it is important to remember that the product itself exists in the real world. That is something entirely new for people who were almost imagining that consumption was becoming dematerialized,” Pompeu said while presenting the study.

Another notable feature is the media strategy adopted by Asian cosmetics brands. “We found that they have built their audiences on social media, but they continue to invest heavily in points of sale, brand activation and what are traditionally considered conventional media,” the professor said. “They have a much more sophisticated understanding of how different media channels work together than we sometimes see here.”

Brazil is among the world’s 10 largest consumers of South Korean cosmetics. Brazilian imports of personal care, perfumery, and cosmetics products from South Korea nearly tripled in three years, reaching $34.6 million in 2025, according to the Brazilian Association of the Personal Hygiene, Perfumery, and Cosmetics Industry (Abihpec).

South Korean K-pop is a prominent example of how culture and consumption can be integrated, gaining widespread popularity in Brazil, as have Asian television dramas, commonly known as doramas. The Japanese adaptation of the word “drama” was added to the Portuguese-language dictionary in 2023.

The production values of East Asian television dramas have helped popularize the format, said journalist, author, and TV Globo special correspondent Sônia Bridi during a panel discussion at the event. Investments in culture and education in South Korea and China are examples of the pragmatic approach adopted by those countries’ governments, she said.

“South Korea invested in K-pop and K-drama production in the same way a country invests in a strategic industry such as oil production or the manufacturing of phones and televisions. In other words, there is a government-led strategy to project the country’s image abroad,” the journalist and documentary filmmaker said.

Bridi lived in Beijing for two years, from 2005 to 2006, where she and her husband, cinematographer Paulo Zero, established TV Globo’s first bureau in Asia. She recounted the experience in her 2008 book, “Laowai: Histórias de uma repórter brasileira na China” [literally, stories of a Brazilian reporter in China].

China’s innovation process initially involved copying products, but the country has since evolved, Bridi noted. She recalled deciding to buy a pickup truck from a Chinese brand that at the time was imitating a Western model. When a problem arose involving the jack mounting point, the company fixed it with a block of wood. “It was a great lesson for me—not about China’s backwardness, but about the Chinese ability to find solutions to problems,” the journalist said.

“Today I drive a fully electric car packed with technology, made by the same brand I bought from in China. I think that anecdote shows how, in 20 years, a company can go from imitating another brand, and not even doing a very good job of it, to becoming an innovative global brand,” Bridi said.

Collectivism is also a strong feature of East Asian cultures, including in education. Having followed the development of Chinese universities and their partnerships with American and European institutions, the documentary filmmaker noted that the choice of university major is also part of the government’s planning in China. “They have a lot of influence over what you study. It is not about what you want to be in life, but what the country needs,” she said. “Chinese leaders, for example, tend to come from polytechnic universities, while Western leaders are more likely to have studied law.”

A strong commitment to consumers is another important aspect of Chinese business culture. “In China, when you become someone’s customer, you become a friend, and they have an obligation to help you with any problem you may have,” Bridi said. The expansion of Chinese automakers in Brazil was also highlighted in the analysis of East Asian brands. Pompeu cited a BYD campaign that brought together 30 critics of the brand to test a new vehicle, borrowing the format of a public grilling that has become popular on social media. “They brought in 30 people who said they hated the brand and created a radio ad saying: ‘If you’re a BYD hater, watch out, because the new car is going to win you over,’” the professor said. “In the West, you don’t address your future customers as people who hate you. That is not the only way to approach consumers, but it suggests building a more candid relationship with them,” he said.

From January through October, Chinese brands accounted for 19.12% of passenger car and light commercial vehicle sales in Brazil, according to data from the National Federation of Motor Vehicle Distribution (Fenabrave).

(Bianca Guilherme contributed to this report)

*By Daniela Braun — São Paulo

Source: Valoar International

https://valorinternational.globo.com/

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Banco do Brasil faces one of its worst farm credit crises, CEO says

Bank’s profit plunges 66.5% in Q3, sending shares down 8.35% as analysts raise concerns over capital levels

 

 

 

Banco do Brasil CEO Tarciana Medeiros acknowledged Thursday (Nov. 12) that the lender is facing one of the most severe periods of credit risk in its agricultural portfolio in more than 200 years of history. The crisis drove a 66.5% drop in third-quarter profit, sending the bank’s shares down 8.35% to R$15.48 and fueling analysts’ concerns about pressure on its capital position.

Medeiros sought to temper those concerns, stressing that Banco do Brasil’s business extends well beyond agriculture and that its net interest income remains strong. Still, there are few clear signs that earnings have bottomed out. The deterioration in agricultural credit forced the bank to set aside R$21.23 billion in provisions for loan losses between July and September.

The executive–who is considered unlikely to remain in her position during the next term of President Luiz Inácio Lula da Silva (Workers’ Party, PT)–insisted that Banco do Brasil (BB) had not been caught off guard and had been taking steps to address the agricultural crisis for nearly two years.

“As early as the first quarter of 2025, when we identified an unprecedented deviation from our expectations for timely payments in agriculture, we decided to suspend our guidance. When we reinstated it in the second quarter of 2025, we gave you a full assessment of what we were seeing at the time. As Brazil’s leading agricultural lender, we were the first to identify this trend as unusual,” Medeiros said.

Agricultural defaults

The bank’s agricultural loan delinquencies are “concentrated among medium-sized and large borrowers in soybean farming, corn production and cattle ranching, particularly in the Center-West,” Medeiros said.

Some of these producers deliberately failed to repay or renegotiate their debts even after the bank contacted them, behavior she described as “moral hazard.” BB also identified borrowers who appeared to be holding off on payments while awaiting the outcome of the elections.

“Last year, I pointed out that these defaults were a recent development among customers who had always paid on time. [Some] 85% of these customers became delinquent starting in 2024. Our response was intensive. We introduced a resilience matrix for new lending, reviewed our entire collateral framework, added fiduciary liens and completely overhauled our collections and recovery process.”

Under provisional presidential decree 1,376, the bank renegotiated R$13.4 billion in debt, falling short of the R$30 billion it had considered achievable.

Medeiros said BB had stepped up legal action and issued more than 20,000 out-of-court notices. Of the producers who received them, 24% subsequently contacted the bank to bring their accounts into good standing.

The lender also plans to begin selling portfolios of loans classified as losses to outside investors. Until now, such transactions had largely been conducted in bulk with Ativos S.A., a company owned by BB.

“We expect to gain traction very quickly,” Medeiros said.

Congress approved legislation converting the provisional decree into law this week. BB is awaiting presidential approval and any potential vetoes before assessing its impact, but sees the legislation as another opportunity to restructure troubled loans.

“For those who need help, there is a solution. […] For those who refuse to negotiate and do not pay, the response is debt collection,” she said.

Capital pressures

BB’s third-quarter net profit of R$1.27 billion heightened analysts’ concerns about the bank’s capital position.

Chief Financial Officer Geovanne Tobias acknowledged that those concerns “are legitimate” but said the lender had been closely monitoring the situation and taking action.

BB has identified more than 15 potential measures involving regulatory and corporate matters, although Tobias did not provide details.

“We naturally expect capital to strengthen organically as earnings improve throughout 2027.”

The bank projects a common equity Tier 1 (CET1) capital ratio of 10.5% at the end of next year. The ratio stood at 10.8% in September, down from 11.16% a year earlier.

Chief Risk Officer Felipe Prince said BB is not considering a scenario in which its capital ratio falls below 10%.

“The target is tight at 10.5%. We would like to be delivering 11%, but we are not working with a level below 10%,” Prince said.

To preserve capital, BB announced that it would cut its dividend payout ratio this year from 30% to the regulatory minimum of 25%. It also set a 25% payout ratio for 2027, provided that doing so remains consistent with its capital projections.

Tobias also mentioned the possibility of initial public offerings (IPOs) for companies within the BB group. Prince, however, said potential IPO proceeds were not included in the bank’s 2027 capital projections and would represent an additional benefit if they materialized.

Tax credits

Another measure under consideration involves converting deferred tax assets (DTAs) into presumed tax credits under an existing legal provision.

“The payment will be made by the Treasury, on its own timetable,” Tobias said.

The bank has between R$12 billion and R$14 billion in deferred tax assets eligible for conversion into presumed tax credits.

Tobias initially suggested the measure could boost the bank’s capital ratio by 1.2 percentage points, potentially as early as 2027. BB’s investor relations team later clarified that the estimated benefit would materialize over several years rather than entirely in 2027.

Analysts said the third-quarter results were significantly worse than expected, with continued credit deterioration raising doubts about when the bank might begin to recover.

Citi identified asset quality as the main concern, citing little evidence so far of a turning point.

“Overall, we see the quarter as clearly negative: earnings fell short of our already depressed expectations, asset quality deterioration continues to outweigh revenue resilience, and capital remains constrained. Importantly, the results still give us little reason to believe that credit trends have reached a turning point,” Citi’s analyst team wrote.

Tarciana Medeiros — Foto: Divulgação
                                                                                                                             Tarciana Medeiros — Photo: Divulgação

*By Lais Godinhoand Álvaro Campos, Valor — São Paulo
Source: Valor International
https://valorinternational.globo.com/

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Supreme Court rejects delay to shorter workweek rollout

Justice Flávio Dino allows more flexibility in scheduling days off and temporarily waives overtime pay for shifts of up to eight hours and 24 minutes

 

 

Brazilian Supreme Court Justice Flávio Dino rejected a request from retail, wholesale and manufacturing groups to delay the implementation of new working-hour rules that will end the six-day workweek under Constitutional Amendment 141. However, in a preliminary injunction, he allowed employers greater flexibility in scheduling days off, provided the arrangements are established through collective bargaining agreements.

The amendment reduces the standard workweek from 44 to 40 hours without cutting pay and guarantees two paid days off per week. The weekly limit will initially fall to 42 hours on Dec. 16 before dropping to 40 hours a year later.

In addition to easing restrictions on rest days, Dino ruled that during the transition period, which runs through Dec. 15, 2027, employers without collective bargaining agreements may spread the 42-hour workweek over five days, under a 5×2 schedule, with shifts of up to eight hours and 24 minutes without triggering overtime pay. Under Brazil’s Consolidation of Labor Laws (CLT), work exceeding eight hours a day normally requires overtime compensation.

The injunction, which must still be reviewed by the full Supreme Court, was issued in response to constitutional challenges filed by the National Confederation of Commerce in Goods, Services and Tourism (CNC) and the National Confederation of Industry (CNI). Both organizations had sought additional time to comply with the new rules (ADI 8041 and ADI 8042).

Flexibility on days off

On rest periods, Dino ruled that collective bargaining agreements may override the weekly requirement of two days off and the monthly requirement of eight days off. Employers could therefore grant just one day off in a given week, provided they preserve the eight monthly rest days. Under the injunction, even those eight days could be taken at a later date.

Retail and wholesale representatives raised the issue during a public hearing Tuesday (Nov. 10), citing the demands of the Christmas and New Year holiday season. In his ruling, Dino also pointed to other sectors that could be affected, including agriculture, where working schedules depend on planting and harvesting cycles; tourism and hospitality, which experience seasonal peaks; and offshore operations aboard vessels and platforms. Oil workers, for example, may work rotations of 90 days offshore followed by 90 days off.

“I believe these limits may be adjusted through collective bargaining agreements, provided the full entitlement to two paid weekly rest periods is preserved, even if their use is deferred,” Dino wrote.

The justice also granted unions and employers an additional 90 days, starting Dec. 16, to renegotiate any reciprocal concessions in existing collective bargaining agreements that may need to be revised because provisions conflicting with Amendment 141 will no longer be valid.

During that period, he said, a failure to reach a new agreement does not, in itself, justify eliminating previously negotiated concessions or changing them unilaterally.

Another significant provision gives Congress 180 days to regulate special working arrangements and establish implementation rules for microenterprises and small businesses. Dino also set a 180-day deadline for adapting public contracts to the new working-hour requirements, shortening the original one-year period.

Legal certainty during the transition

Labor law specialists say the decision to maintain the implementation timetable leaves companies facing a “very challenging” situation. Still, they believe the flexibility over rest days, the temporary authorization of eight-hour-and-24-minute shifts and the additional time for collective bargaining provide greater legal certainty during the transition.

Marcello Burle, a partner at law firm Martorelli Advogados, said the ruling offers “indispensable operational relief” by preventing companies from immediately accumulating overtime liabilities if they fail to conclude collective bargaining agreements by December.

“The injunction neutralizes the risk of bargaining deadlocks at the turn of the year and gives companies the predictability they need to redesign shifts and rebalance their collective agreements in an economically rational way during the first quarter of 2027,” Burle said.

Danilo Masko, of law firm Briganti Advogados, also highlighted the exemption from overtime pay for the additional 24 minutes worked each day.

“This prevents labor liabilities from arising solely because negotiations are taking longer,” he said, stressing that the provision is temporary and applies only to this specific situation, rather than granting blanket permission to extend working hours.

Because Dino’s ruling still requires approval by the full Supreme Court, Masko recommends that employers carefully document their new work schedules.

He also noted that the Supreme Court left the distribution of rest days to collective bargaining, without imposing weekly or monthly limits.

“However, the two paid weekly rest periods remain untouchable.”

José Eymard Loguercio, a partner at law firm LBS Advogados, which represents the Unified Workers’ Central (CUT), said preserving the timetable for reducing working hours was important. However, he warned that the flexibility granted for rest days “could create more problems than it solves” because the exemption was defined too broadly.

“The constitutional rule is mandatory. Any exception should be permitted only in exceptional circumstances justified by an inability to comply,” Loguercio said.

Flávio Dino — Foto: Rosinei Coutinho/STF
                                                                                                                          Flávio Dino — Photo: Rosinei Coutinho/STF

*By Beatriz Olivon, Valor — Brasilia
Source: Valor International
https://valorinternational.globo.com/

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The New Selective Tax (IS) Provisional Measure No. 1,399/2026.

 

As part of the ongoing implementation of Brazil’s tax reform, the Federal Government issued Provisional Measure No. 1,399/2026, which sets out the rules governing the application of the Selective Tax (IS) and establishes the applicable rates.

The new tax, introduced by Constitutional Amendment No. 132/2023, will apply to motor vehicles, aircraft, watercraft, cigarettes and other smoking products, alcoholic beverages, sugar-sweetened beverages, and betting and lottery activities. The Provisional Measure also governs the taxation of extracted mineral products, which will be subject to a zero rate in 2027.

The Selective Tax serves a regulatory purpose by seeking to discourage the consumption and production of goods that are harmful to health and the environment. It has therefore become known as the “sin tax.”

Effective Date and Tax Rates

The Provisional Measure provides for the tax provisions to take effect on 2 February 2027, subject to the constitutional 90-day waiting period. Its progress through the National Congress warrants attention, particularly because proposed amendments may alter the text during the legislative process for its conversion into law.

The main rates provided for 2027 are 2.6% for sugar-sweetened beverages, 4.2% for malt beer, 8% to 24% for other alcoholic beverages, 66.7% plus BRL 3.50 per 20 cigarettes, 37.5% for other smoking products, 0.5% for betting and lottery activities, 6.8% for aircraft, and 12% for motorized watercraft. Passenger cars are subject to a base rate of 6.3%, which may be adjusted based on technical and environmental criteria. The measure also provides for zero or reduced rates for certain vehicles, aircraft, and watercraft, as well as tax relief for small producers of alcoholic beverages.

Tax Assessment and Compliance

The Provisional Measure sets out procedures for assisted tax assessment by the Brazilian Federal Revenue Service, formal acknowledgment of tax liabilities, and discharge of those liabilities through payment, split payment, or offset. It also establishes specific rules for imports. These provisions will require businesses to review and adapt their tax processes, internal controls, and tax risk management practices.

By Edson Colnaghi Neves, PhD

November 2026

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Philippine import suspension worries Brazil’s pork industry

Hog farmers fear a cash crunch, while meat processors expect pressure on profit margins

 

 

— Foto: Eliária Andrade
— Photo: Eliária Andrade

Suspension of pork imports by the Philippines, announced on Monday (9), is expected to drain cash from Brazilian hog farmers and erode profit margins at exporting companies, Valor has learned.

The Asian country’s decision, which follows mounting pressure on prices from imports that have hurt local producers, targets Brazil’s largest foreign market for pork. The surge in imports is believed to have depressed prices for domestically produced pork in the Philippines, with Brazil among the country’s leading suppliers.

With shipments to the Philippines halted, Brazilian hog farmers are expected to incur even greater losses from pork sales. They are already selling meat below production costs in the country’s main producing regions.

“We are currently operating at a loss. The cost of producing a kilogram is around R$6.30 to R$6.40, while sales prices have ranged from R$5.20 to R$6.00 per kilogram, depending on payment terms and the region of the state,” said Losevânio Luiz de Lorenzi, president of the Santa Catarina Association of Hog Farmers (ACCS). Santa Catarina is Brazil’s largest pork-producing state and exports to the Philippines.

The industry had been posting at least two consecutive years of strong results, largely driven by increased purchases from the Philippine market. Through October, the country accounted for 26% of Brazilian pork exports.

“In 2024 and 2025, we had good margins. Producers were able to make up for some of the losses from the previous crisis and get their finances back on track. Now we’re facing another squeeze,” Lorenzi said. He and the rest of the industry hope a delegation led by President Luiz Inácio Lula da Silva will return from the Philippines next week with news of a resumption of purchases after the 60-day period announced by the local government.

Exporters believe other markets could absorb some of the volume originally destined for the Philippines, but they expect a turbulent period, with profit margins coming under pressure.

“Pork is under pressure worldwide. We have markets where we can sell, but at lower prices. So this will naturally affect margins,” JBS global CEO Gilberto Tomazoni said during a conference call on the company’s third-quarter results. “But if we consider all of Seara’s revenues, the live hog business has the smallest impact compared with our other business lines.”

Wesley Batista Filho, who heads JBS’s U.S. operations and is expected to succeed Tomazoni as global CEO in 2027, also pointed to abundant global pork supplies during the conference call. He noted that the U.S. Department of Agriculture (USDA) forecasts a decline in global pork production in 2027, roughly matching this year’s increase.

“The most competitive countries will gain market share, while the less efficient ones will lose it. Globally, we will see an adjustment, but we must remember that the hog production cycle is shorter than the cattle cycle,” Batista Filho said, referring to the time it takes an animal to reach slaughter weight. He said he did not expect the current global pork supply situation to reverse completely by early in the second half of 2027, but indicated that ongoing production cuts should lead to a more favorable price environment.

A representative of another Brazilian pork exporter said the Philippines still lacks the capacity to produce enough pork to meet domestic demand and is therefore expected to continue importing. Brazil remains a competitive sourcing option for the country.

“In 2025, I visited a slaughterhouse in the Philippines that was operating at 40% of its slaughter capacity because there were not enough animals available. In September this year, the same plant was operating at 60% capacity because domestic supply had not recovered. This crisis in Brazil will be temporary,” said the executive, who declined to be identified.

*By Cassiano Ribeiro and Clarice Couto, Globo Rural — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Embraer eyes major aircraft deals in India and U.S.

Planemaker pursues commercial jet and KC-390 sales in both markets, while working to improve margins in commercial aviation

 

 

Francisco Gomes Neto, CEO of Embraer — Foto: Gabriel Reis/Valor
Francisco Gomes Neto, CEO of Embraer — Photo: Gabriel Reis/Valor

Embraer is taking an optimistic view of two major ongoing sales campaigns in India and the United States. According to CEO Francisco Gomes Neto, the company’s confidence is tempered by its recognition that competition in both markets is fierce.

The Brazilian planemaker reported third-quarter revenue of R$12.1 billion, up 11% year over year and a record for the period. Net income attributable to controlling shareholders, however, fell 41%, to R$366.7 million, reflecting higher financial expenses related to the mark-to-market valuation of shares under its long-term incentive plan, as well as taxes during the period. Operationally, the company continued to see strong demand for its jets.

India is one of Embraer’s biggest bets, as it negotiates the sale of commercial and defense aircraft to the country. According to a Reuters report, IndiGo, India’s largest airline, is in talks to buy 100 Embraer jets, with options for an additional 50. The aircraft manufacturer said it does not comment on ongoing negotiations.

Embraer has been expanding its investments in India in recent years. In 2025, the group opened an office in the country and signed agreements with local parts manufacturers. These companies will help supply Embraer’s plants in Brazil and could become production partners in India, depending on the outcome of negotiations there.

“We are optimistic and realistic at the same time. We believe we have the best product [the KC-390]. But the competition will come down to price. The same applies to the commercial aviation business. We have a strong case for winning in India, but we understand the challenges,” Gomes Neto told Valor.

On the commercial aviation front, the Indian government has shown strong interest in promoting regional air travel through a program known as UDAN, which offers tax and infrastructure incentives. In March 2026, it announced a new version of the program aimed at developing 100 airports using existing airstrips that are not currently served by commercial airlines. The new phase will involve an investment of 121.59 billion Indian rupees (about R$6.3 billion) over eight years.

Embraer has indicated that, if it receives orders by the end of this year, it can deliver the first aircraft by the end of 2028. The company also said that, if it secures orders for at least 200 aircraft, it could consider bringing a commercial jet production line to India. That would be the first E-Jet production line outside Brazil.

Another ongoing campaign involves the sale of the KC-390 to the Indian government, which has launched a procurement process for 40 to 80 aircraft. According to reports in the Indian press, final bids were initially due this month, but some groups requested an extension, and the deadline was pushed back to January. Embraer’s main competitors include Lockheed Martin, the manufacturer of the C-130 Hercules.

In the United States, Embraer is also negotiating the sale of the KC-390 to the government. Unlike in India, however, there is no formal procurement process underway. Seeking to gain access to the market, the Brazilian planemaker has partnered with Northrop Grumman to adapt the KC-390 to meet the requirements of the U.S. Air Force and allied forces.

According to Gomes Neto, the third-quarter results’ highlight was growth across all of the company’s business units. “This diversification across segments creates important synergies and helps us navigate different market dynamics,” he said. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) totaled R$1.63 billion in the quarter, compared with R$1.276 billion a year earlier. The EBITDA margin increased by 1.8 percentage points, to 13.5%. Embraer raised its forecasts for net revenue and cash flow for the year.

One challenge that remains is the complex supply chain, with delays affecting parts such as engines and fuselage components. According to the executive, parts availability in the first nine months of this year improved by 25% compared with the same period last year. “Some problems shift from one area to another. We are in a better position in executive aviation. Commercial aviation is more challenging. Will we solve everything next year? No. But we are increasing production every year,” Gomes Neto said.

The executive also highlighted efforts to improve the commercial aviation business profitability. Initially, Embraer’s E2 aircraft operated on tight margins because of discounts, and the market questioned whether the E2 program would succeed. “That was the question, and it is no longer a question. Sales in 2025 and 2026 have made it clear that the aircraft delivers benefits. We ended September with a backlog of $15.8 billion in the commercial aviation business alone. Now the focus is on improving profitability by renegotiating older contracts signed during the pandemic. We are also reviewing the division’s cost structure,” he said.

The commercial aviation division currently has an operating margin of about 2%, and the goal is to raise it to 5% by 2028.

*By Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Governing coalition weighs fiscal adjustment of up to R$80bn

Plan is to maintain the 2027 primary balance target and signal improvement through 2030

 

 

 

The Brazilian Congress building
The Brazilian Congress building — Photo: Carlos Moura/Agência Senado

The government’s congressional coalition is expected to introduce a package of fiscal adjustment measures in coordination with the federal government’s economic team. The aim is to achieve an adjustment of between R$70 billion and R$80 billion in 2027 while maintaining the primary balance target for next year. The government also wants to improve the trajectory of public finances through 2030 by raising primary surplus targets.

For 2027, the package seeks to ensure compliance with the midpoint of the fiscal target, corresponding to an actual primary surplus of R$8.5 billion, after accounting for court-ordered payments (precatórios) and the portion of defense spending excluded from the target calculation. Under the official methodology, which excludes these expenditures, the midpoint of the target is 0.5% of GDP, equivalent to R$73.2 billion.

The proposal is also expected to maintain the primary surplus target of 1% of GDP in 2028 and raise the targets from 1.25% to 1.5% in 2029 and from 1.5% to 1.75% in 2030, compared with the figures set out in the Budget Guidelines Bill. The goal is to accelerate fiscal improvement, slow the growth of public debt and enable a sustainable reduction in interest rates.

Discussions on the package began Monday (9) with Senate President Davi Alcolumbre (Brazil Union, UB, of Amapá). The plan is for the first part of the package to be introduced through a supplementary bill (PLP) addressing rural insurance.

On Tuesday, Alcolumbre said Senator Jaques Wagner (Workers’ Party, PT, Bahia), the government’s leader in the Senate, is expected to introduce the bill next week. Negotiations are being led by Wagner, Senator Eduardo Braga (Brazilian Democratic Movement, MDB, Amazonas), Senator Teresa Leitão (PT of Pernambuco), Finance Minister Dario Durigan, and Planning and Budget Minister Bruno Moretti.

One of the proposed measures would authorize the government to pursue the midpoint of the primary balance target, rather than being required to execute the budget only up to the lower limit of the target range. In addition, to ensure compliance with fiscal rules, the bill is expected to expand by 20% the pool of budget expenditures subject to spending freezes, including mandatory expenses that could become eligible for cuts.

The package is also expected to introduce a trigger mechanism to lower the spending growth ceiling established under the fiscal framework if spending freezes become necessary to meet the target. Another measure would make permanent the mechanism that excludes extraordinary oil revenues from Net Current Revenue, the benchmark used to calculate the constitutionally mandated minimum level of health spending.

The government is also considering submitting a proposed constitutional amendment (PEC) to complement the adjustment package. The aim is to establish mechanisms to contain the growth of mandatory spending and gradually improve public accounts over the coming years.

For now, the economic team does not intend to propose a broad relaxation of the constitutional spending earmarks or delink the Continuous Cash Benefit (BPC) from the minimum wage. Another possible adjustment measure is a further reduction in tax incentives. However, it has not yet been decided whether this will be included in the initial package.

*By Murillo Camarotto and Giordanna Neves — Brasília

Source: Valor International

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Fiscal overhaul focused on spending quality could free up to 2.8% of GDP

Imbalances can be corrected through robust measures without affecting programs over 10 years, Insper’s Sergio Firpo says

 

 

 

Economist Sergio Firpo, coordinator of Insper’s Public Spending Quality Observatory — Foto: Rogerio Vieira/Valor
Economist Sergio Firpo, coordinator of Insper’s Public Spending Quality Observatory — Photo: Rogerio Vieira/Valor

An adjustment to correct imbalances in public accounts can be both robust and avoid undermining programs that make Brazil’s budget more progressive, says economist Sergio Firpo, coordinator of Insper’s Public Spending Quality Observatory. On Tuesday (10), he is releasing a study containing 30 proposals that, taken together, would free up R$353 billion a year for the federal government, equivalent to 2.78% of GDP, once the measures have reached full implementation, after approximately 10 years.

The package proposed by the economist includes measures such as a comprehensive review of tax expenditures (R$40.5 billion), limiting congressional budget amendments to 0.25% of primary expenditure (R$39.8 billion), raising the minimum retirement age for women, rural workers, and survivors’ pension beneficiaries (R$101.6 billion), and eliminating personal income tax deductions for healthcare, education, and dependents (R$38.3 billion).

“If you are concerned only about fiscal issues, some of these measures are effective, such as reducing the size of Bolsa Família to pre-pandemic levels. But that does not necessarily improve people’s lives or the efficiency of public spending. Some of them, if implemented, would actually worsen spending quality,” explains Firpo, who served as secretary for Monitoring and Evaluation of Public Policies at the Ministry of Planning and Budget (MPO) from 2023 to 2025.

 

“Obviously, how much of this comes to fruition is a political question. My analysis focused on allocating public resources from the perspective of those who need them most,” he says. The study, available on the observatory’s website, approaches fiscal adjustment over a 10-year horizon, with savings increasing over time and thereby softening the impact of many of the measures listed.

The proposals are divided into seven thematic areas: fiscal rules, accounting for savings equivalent to 0.45% of GDP after excluding potential overlaps with other measures, revenue-sharing arrangements with states and municipalities, and other deductions; social security (0.97%); labor and social assistance (0.45%); public-sector personnel (0.26%); education, healthcare, and housing (0.19%); tax expenditures (0.63%); and subsidies (0.03%). From this total, Firpo deducts 0.2 percentage point, as a conservative measure, to account for the reversal of the increase in the Tax on Financial Transactions (IOF) and the return of oil revenues to the minimum funding level for healthcare.

There are also two subsidies that do not affect the primary balance (which excludes interest expenses) but do have a financial impact: eliminating subsidized credit provided by the Brazilian Development Bank (BNDES), the Funding Authority for Studies and Projects (Finep), and the Constitutional Financing Funds (FCF), as well as ending the implicit subsidy embedded in the Student Financing Fund (Fies). These measures would improve the nominal balance by 0.25 percentage point of GDP.

Of the estimated gross savings generated by the selected package, 35.4% would come from measures affecting the top of Brazil’s income distribution or those earning above the median. In addition to the measures already mentioned, these include proposals such as ending the personal income tax exemption on retirement benefits and pensions received by people with serious illnesses (R$10.2 billion), limiting interest on equity payments (R$10 billion), and enforcing the public-sector salary cap while eliminating excessive compensation (R$10.2 billion).

By contrast, 13.9% of the savings would come from measures affecting middle- and lower-income groups, including a series of reviews and tighter eligibility rules for social programs, such as reassessments for disability benefits (R$9.9 billion), the Continuous Cash Benefit (BPC) for people with disabilities (R$15.2 billion), and the closed-season fishing benefit (R$2 billion).

Pool of proposals

 

The 30 measures included in Firpo’s package were selected from a pool of 44 proposals that have circulated over the past two years, originating from the government itself, academia, research centers, and the financial market. Some were also developed by Firpo. Taken together, the original proposals would generate R$910.1 billion in savings, or 7.17% of GDP.

The innovation lies in the way he narrowed down the selection, applying an analytical criterion that prioritizes cuts to underperforming policies while preserving those with better evaluations. Broadly speaking, the exercise assigns each measure a score from zero to 10 based on five criteria: effectiveness, efficiency, overlap with other policies, distributional effects, and sustainability. The proposals are also classified according to the strength of the available evaluation evidence for each policy. Measures scoring below the group average are then discarded.

Of the 38 proposals that passed this screening process, six were ultimately excluded because their effects depend heavily on the final design adopted by policymakers or because they are mutually exclusive. Eliminating the wage bonus, for example, would generate R$22.3 billion in savings and was selected over proposals to merge the benefit with other programs.

Two other proposals do not generate spending savings. This category includes reducing the ceiling for real growth (above inflation) in expenditures under Brazil’s fiscal framework from 2.5% to 1.5%, a measure currently under consideration by President Luiz Inácio Lula da Silva’s economic team.

In Firpo’s calculations, this is because of a key assumption adopted in the simulations: revenue grows by 2% a year in real terms. Since current rules allow spending to grow by 70% of primary revenue growth, the resulting increase would be 1.4%, still below the proposed new ceiling.

Although it would not generate savings under the assumptions adopted, the change would have two positive effects, the economist says. First, it would prevent years of stronger revenue growth from translating into permanent spending increases. For example, revenue growth of 3.6% in a given year would allow spending to increase by just 1.5%, rather than the current 2.5%.

Second, it would reduce the potential fiscal space available for new spending. “One concern behind the adjustment is precisely to prevent the fiscal space created from being filled by other expenditures. For example, if funds are left over from congressional amendments but are then used for other spending, the adjustment is undermined,” he explains. “By lowering the ceiling, the available fiscal space also becomes smaller.”ç.;;;

The economist favors even lower ceilings for real spending growth, provided they do not affect priority expenditures. “And there is no point in lowering that ceiling if mandatory spending continues to grow unchecked. That would only squeeze discretionary spending,” he adds.

The six measures whose impact depends heavily on the final political design include issues such as restoring payroll taxes, changing the constitutionally mandated minimum level of healthcare spending, and revising the minimum wage adjustment rule.

Although the final package does not include a specific rule for the minimum wage, the economist outlines possible scenarios based on assumptions currently being discussed publicly. If the existing rule remains in place—with real increases limited to the fiscal framework’s 2.5% ceiling—the package would continue to generate savings equivalent to 2.78% of GDP. If the ceiling for real spending growth were lowered to 1.5%, savings would rise to 2.92% of GDP. If real minimum wage increases were capped at 1%, as economist Manoel Pires advocates, savings would reach 3.11%. And if the policy were limited to inflation adjustments alone, they would climb to 3.49%.

Decoupling under debate

 

Regarding the proposal to decouple retirement benefits from the minimum wage, there is debate over whether the measure would violate one of the Constitution’s entrenched clauses, which cannot be abolished through constitutional amendments. Some analysts believe it may be possible to circumvent this restriction. Firpo adopts the opposing interpretation in his proposal and therefore leaves the measure out. “Ideally, there should be different minimum benefit levels for the labor market, social security, and social assistance. But the Constitution links everything to the minimum wage. So there is no point in considering that,” he says.

Brazil’s demographic trends underpin the decision to freeze education spending in real terms, but not healthcare spending. In the case of education, the country’s declining birth rate justifies the choice. At the same time, Firpo notes that federal spending in the sector is partially protected by the expansion of Fundeb, Brazil’s basic education funding fund.

“Higher education is the sector that would be adversely affected. But part of that impact could be offset by charging tuition for undergraduate students whose household per capita income exceeds two minimum wages,” he argues.

 

According to the World Bank, 65% of students at federal universities belonged to the wealthiest 40% of the population in 2017. Meanwhile, tuition fees charged under the proposed model would preserve free access for approximately three-quarters of students in public higher education, according to Firpo’s own calculations.

In healthcare, demographic trends point in the opposite direction, with an aging population. Another factor is that healthcare spending is rising worldwide because of technological advances. Firpo therefore argues that spending should be allowed to continue growing, but under a revised rule.

“I support decoupling it from Net Current Revenue [RCL]. We could consider something like the Extended National Consumer Price Index [IPCA] plus some additional percentage increase. After all, under the current system, spending is procyclical: during recessions, perhaps precisely when the sector is most needed, fewer resources are available,” he explains.

In addition to listing the measures, Firpo’s study outlines the legislative path required for each proposal and estimates how much they could save if constitutional amendments and lower-level regulations took effect in 2027, while ordinary and complementary laws were approved in 2028. By 2029, two years after implementation began, the package would generate savings equivalent to 0.72 percentage point of primary spending. Five years after implementation began, in 2032, that figure would reach 1.79 percentage points. By the tenth year, in 2037, it would amount to 2.74 percentage points, close to the package’s maximum projected impact.

He also calculates the cost of delays. If approval of the measures were postponed by one year, primary balance savings in 2029 would fall to 0.16 percentage point of GDP and reach 1.60 percentage points in 2032. With a two-year delay, the savings would amount to 0.05 percentage point and 1.41 percentage points of GDP, respectively.

“The problem is that the longer fiscal adjustment is delayed, the more emergency measures are needed. More spending freezes, budget contingencies, phased implementation, and last-minute cash-flow savings. It means a supplier you decide not to hire, a construction project that is never completed… And that also affects the quality of public policy,” Firpo says.

“That is my biggest concern. Fiscal adjustment cannot simply be ignored. The longer it is postponed, the higher interest rates rise, the worse household debt becomes, and the greater the pressure to adjust. But making it under pressure is a recipe for lower quality. So it is better to have a plan and avoid significantly affecting the public services and policies being provided,” he adds.

*By Marcelo Osakabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Viridis advances funding plans with rare earths deal for Europe

Offtake agreement with Solvay guarantees cash flow from Brazilian project, helping secure loans

 

 

 

 

Rafael Moreno — Foto: Divulgação
Rafael Moreno — Photo: Divulgação

Australian mining company Viridis signed a rare earths offtake agreement on Wednesday (November 4) to supply material from its project in Minas Gerais to Belgian chemicals company Solvay’s plant in La Rochelle, France. The seven-year deal is expected to begin with shipments in 2028 and ensures the miner will have a source of cash flow once operations start. The project requires an investment of $449 million (R$2.4 billion at the current exchange rate) and is still in the pre-production stage.

The agreement is important because it will serve as a guarantee for banks with which the miner is in talks to secure loans—a challenging but crucial step for projects that have yet to begin production. “If you don’t have guaranteed cash coming in, nobody wants to lend you money,” Rafael Moreno, Viridis’s CEO, told Valor. “We wouldn’t exist in 2030 if we couldn’t secure the offtake agreement; without it we can’t get financing,” he added.

The miner’s project is part of Brazil’s nascent rare earths industry and is considered one of the next developments likely to begin operating. The only rare earths mine currently in commercial operation in the country belongs to Mineração Serra Verde, which was sold this year to U.S.-based USA Rare Earth.

Viridis’s project is located in the Poços de Caldas Alkaline Complex, a geological formation associated with an ancient volcano in Minas Gerais. The area is also home to a rare earths project owned by another Australian company, Meteoric Resources, which has planned investments of $498 million (R$2.7 billion). Last month, Meteoric announced its sale to Lynas in a deal valued at R$3.5 billion.

The partnership between the Australian miner and the Belgian chemicals company, announced on Wednesday, comes as Western countries seek to break China’s dominance of the rare earths supply chain. Refining, one of the industry’s most complex stages, remains largely concentrated in China.

Solvay’s plant in France, Europe’s first industrial-scale rare earths processing facility and one of the largest outside China, will refine Viridis’s rare earth carbonates—an intermediate product from the mineral processing stage—and turn them into individual oxides with industrial applications.

Under the agreement, Viridis will supply Solvay with at least approximately 70% of its output of light rare earths neodymium and praseodymium, as well as the heavy rare earths dysprosium and terbium. Solvay will also have a right of first offer on the remaining production. The miner expects to produce a total of 2,960 tonnes of rare earth oxides contained in carbonates annually.

The Belgian chemicals company will also license its technology and support Viridis in producing the carbonates. “The agreement allows us to move further down the processing chain in Brazil, as we are bringing its solvent extraction technology to the country,” Moreno said.

Viridis plans to back the project with a capital structure comprising 70% debt and 30% equity. It secured the equity portion in August, raising $154 million (R$843.4 million). The amount includes the company’s own cash, investment commitments from global asset manager One Investment Management (OneIM) and institutional investors, including unnamed Brazilian investors, as well as advance funding commitments from Brazilian asset managers ORE and Régia Capital.

Securing most of the remaining investment through debt remains the company’s biggest challenge. Viridis has already received formal support from export credit agencies in France, Australia, and Canada. It said it is also in talks with European lenders, including the European Investment Bank (EIB), and three Brazilian banks, among them the Brazilian Development Bank (BNDES).

“The EIB has visited the project in Brazil several times, and they are strong supporters of the venture,” Moreno said. “Even with the banks we are talking to, including BNDES, if there is no guaranteed cash coming in, nobody will lend you money,” he added. In September, the company announced it had secured R$77.5 million in financing from the Brazilian development bank for its pilot plant.

The project’s final investment decision still depends on completing the debt financing package and obtaining an installation license from Minas Gerais’s environmental agency. Viridis expects the permit to be issued by December or January 2027.

Asked whether Lynas’s acquisition of Meteoric could pave the way for a wave of consolidation and whether Viridis itself would consider a merger or sale, Moreno said the deal validates Brazilian projects but stressed that the company’s priority is to remain independent until production begins. “If consolidation becomes the best option for shareholders, we will consider it. But for now, our entire focus is on production, and we have no plans for a change of control,” he said.

Moreno also praised Brazil’s National Policy on Critical and Strategic Minerals (PNMCE), enacted in September to accelerate investment in the sector. The policy is due to be fully regulated by December. The executive said he was not concerned that the Solvay agreement, which already commits more than two-thirds of the project’s output to Europe, might raise concerns within the federal government.

“The day they do that [intervene], not another dollar will come into Brazil. I think they understand that, so I’m not worried. Expectations are clear, and we are doing what was asked of us: bringing processing technology into the country,” he said. “Besides, there isn’t even domestic demand for this material at the moment. So even if I sell the remaining 30%—which we will probably do in Brazil—where would it go?” he added.

*By Michael Esquer — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Petrobras seeks transition period to understand tax reform

CEO Magda Chambriard said oil company is submitting questions and proposed transition period during which no fines would be imposed

 

 

 

Magda Chambriard — Foto: Leo Pinheiro/Valor
Magda Chambriard — Photo: Leo Pinheiro/Valor

Petrobras CEO Magda Chambriard said on Monday (9) that the state-owned oil company had submitted questions regarding the tax reform to the Ministry of Finance, whose implementation will be phased in across the country.

Speaking at a legal conference at the Rio de Janeiro State School of Magistracy (Emerj), she said the company had raised concerns and questions about the tax reform, while several provisions are set to take effect beginning in 2027. In light of this, Chambriard said Petrobras had proposed to the Ministry the adoption of a transition period during which fines would not be imposed, allowing companies time to understand the changes.

The executive did not provide examples of the specific questions submitted but noted that uncertainties create room for risks, particularly when considering the company’s operations across different Brazilian states. “We do not really know what will happen [when the tax reform comes into effect]. We are taking risks, and risk is priced in,” she said.

However, Chambriard indicated that some of the company’s questions concern ICMS, a state-level tax, and the cumulative taxation of the levy. She emphasized that Petrobras paid a total of R$278 billion in federal and state taxes last year.

In her remarks, Chambriard highlighted the split payment mechanism, a new provision that separates the amounts corresponding to the new taxes (IBS and CBS) when a commercial transaction is financially settled. The mechanism would allow tax credits to be reimbursed more quickly.

According to her, the tax reform shifts ICMS revenue collection from producing states to consumer states. “When we look at a refinery, for example, we see ICMS being paid to the producing state on inputs, energy, and services.”

Chambriard added that the questions also concern how tax credits will be reimbursed. “This is an issue that will come up alongside the single-phase taxation system and the tax reform. We need to discuss this matter.” During her participation in the event, Chambriard referred to a “fiscal reform,” but Petrobras subsequently clarified that her remarks concerned the tax reform.

“There will be a period during which two tax systems will coexist, which will certainly generate various questions. Companies in general, including and especially Petrobras, have concerns about how this transition will take place. Initially, we believe that any differences in interpretation should not result in potential fines, but rather in constructive dialogue aimed at reaching a common understanding,” CEO Magda Chambriard said in a clarification.

Energy security

 

Chambriard emphasized that renewable energy must “move forward in parallel” with oil production to ensure energy security, reiterating the need for Brazil to pursue a just energy transition.

The executive stated that Petrobras is an energy company, that it was responsible for developing the country’s first onshore wind farm, and that renewable energy “must be affordable for society.”

The Petrobras CEO also pointed out that, during geopolitical conflicts, Brazil maintained stable diesel and gasoline prices and supplies, whereas other countries introduced measures to curb consumption of these fuels. She noted, for example, that diesel in the United States is currently costing “R$9 or R$10.”

*By Fábio Couto — Rio de Janeiro

Source: Valor International

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