Jurists expect a younger replacement for Justice Barroso

Justice’s early retirement gives President Lula another opportunity to appoint an ally to Brazil’s Supreme Court

 

 

 

10/10/2025

The three frontrunners to succeed Justice Luís Roberto Barroso on Brazil’s Supreme Court—Bruno Dantas, minister at the Federal Court of Accounts (TCU); Attorney General Jorge Messias; and Senator Rodrigo Pacheco (Social Democratic Party, PSD, of Minas Gerais)—are all considered well qualified for the position, according to jurists and lawyers interviewed by Valor. Mr. Barroso announced on Thursday (9) that he will leave the court after 12 years.

Constitutional law professor and attorney Lênio Streck said Mr. Barroso’s retirement opens the way for President Lula to nominate someone who could remain on the court for roughly two decades. “One key factor is appointing someone younger, and that’s exactly what Lula will do—I have no doubt. The president will choose a highly aligned, organic candidate,” Mr. Streck said, pointing to Mr. Messias as the favorite.

According to Mr. Streck, naming either Mr. Pacheco or Mr. Dantas would steer the choice toward a more political discussion, something the government is likely to avoid.

For Roberto Dias, a professor of law at FGV Direito SP, the ideal profile to replace Mr. Barroso would resemble that of current Chief Justice Edson Fachin: “A justice who speaks primarily through court opinions, avoids political circles, and reinforces the perception of impartiality at the Supreme Court, especially at a time when the court continues to face fierce criticism.”

Mr. Dias noted that while the leading contenders meet constitutional requirements of “impeccable reputation and distinguished legal expertise,” they are closely tied to politics. He argued that Mr. Lula should instead consider appointing a woman, preferably a Black woman, to promote greater representation on the court.

“In the Supreme Court’s composition, people with diverse perspectives are essential to forming more consistent decisions that reflect the diversity and pluralism enshrined in the Federal Constitution,” he said.

Criminal law expert and PUC-SP professor Conrado Gontijo agreed that Mr. Messias, Mr. Pacheco, and Mr. Dantas possess undeniable legal credentials, having held important positions throughout their careers.

Mr. Gontijo said Mr. Barroso played a central role in key democratic debates during his tenure at the Supreme Court, fulfilling with “absolute rigor” the constitutional mission entrusted to the court’s justices. During Mr. Barroso’s tenure as chief justice, he added, the court faced enormous and unprecedented challenges, including “serious and unfounded attacks.” “His unwavering defense of the Constitution and all it represents was vital to preserving Brazil’s institutional framework,” Mr. Gontijo said.

Attorney Antônio Carlos de Almeida Castro, known as Kakay, praised Mr. Barroso’s performance as both justice and president of the Supreme Court, as well as his leadership of the Superior Electoral Court (TSE). “The open confrontation initiated by [then-President] Bolsonaro, who insulted and vilified him, shows that Barroso was on the right side and that he clearly unsettled the far-right faction in power at the time,” Mr. Castro said.

Mr. Streck divided Mr. Barroso’s Supreme Court stint into two distinct phases. In the first, the justice supported Car Wash Operation, the now questioned anti-corruption task force, adopting a more “punitive” stance. In the second, particularly over the past two years, during his presidency, Mr. Barroso became a key defender of democracy as the Supreme Court came under attack from the Bolsonarist movement.

Throughout his tenure, Mr. Streck emphasized, Mr. Barroso consistently acted in defense of the Constitution and individual rights. He cast votes advancing social rights for minorities, Indigenous peoples, racial quotas, and same-sex marriage, even while maintaining a more liberal stance on labor reform.

“This duality defined Mr. Barroso’s legacy on the court, as a justice who, while once punitive in criminal matters, will be remembered for his steadfast defense of minorities and fundamental rights,” Mr. Streck concluded.

*By Rafael Rosas and Jessica Alexandra — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/

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Payment of Dividends: Changes in Taxation.

Payment of Dividends: Changes in Taxation.

 

By Edmo Colnaghi Neves (PhD).

 

The taxation of dividend payments is about to change. Currently, dividend distributions are exempt from income tax; however, earlier this month (October 2025), the Brazilian House of Representatives approved a bill that introduces taxation on such payments.

This change may significantly impact foreign capital invested in Brazil.

Brazil adopts a bicameral legislative system; therefore, the bill must also be approved by the Federal Senate.

Under the constitutional principle of anterioridade (non-retroactivity and prior notice of tax laws), in order for the new rules to take effect in 2026, the bill must be approved by both Houses of Congress and sanctioned by the President of the Republic by December 31, 2025.

The proposed legislation is part of the same bill that establishes income tax exemption for individuals earning up to BRL 5,000.00 per month, among several other measures, and has therefore drawn the attention of the entire nation at the close of this year.

According to the bill, as of 2026, dividend payments made by the same legal entity to the same individual in any given month exceeding BRL 50,000.00 will be subject to a 10% withholding tax at source. The tax will also apply when the total annual amount of such income — including dividends, interest, and rental income — exceeds BRL 600,000.00.

This represents a major shift in the Brazilian tax framework, which is expected to be approved by Congress and to take effect as of 2026. It will require affected parties to gain an in-depth understanding of the proposed changes, consider alternative provisions of the bill, and engage in careful tax, corporate, and estate planning.

October 2025

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Federal Police say methanol crisis could be linked to fuel fraud

Director-General Andrei Rodrigues says probe entered phase of interagency cooperation with state forensic units

 

 

10/09/2025 

The director-general of Brazil’s Federal Police, Andrei Rodrigues, said on Wednesday (8) that the ongoing investigation into the contamination of alcoholic beverages with methanol may be connected to a major fuel fraud uncovered recently by the Federal Police.

“There is a possible connection with the previous operation on fuel adulteration, especially since the methanol’s port of entry was Paranaguá. It probably involved some criminal organization,” Mr. Rodrigues told reporters at the Ministry of Justice and Public Security headquarters.

He added that the investigation is now in a “phase of cooperation,” particularly in the forensic area, through a national integrated system that brings together Federal Police experts and state forensic police.

“We are combining efforts to gain access to materials seized by other police agencies, as well as to our own seizures, so that everything can be sent for forensic analysis,” he explained.

On September 29, the Federal Police started investigating a series of methanol poisoning cases in São Paulo. The move followed suspicions that the incidents could be linked to organized crime groups and to the recent fuel fraud probes.

The investigation was launched at the request of Justice and Public Security Minister Ricardo Lewandowski, who said Tuesday (7) that the Federal Police joined the case because authorities cannot rule out the possibility that the contamination represents a “national problem.”

According to the minister, the suspected criminal involvement may not necessarily involve the country’s well-known prison factions, but rather an organization operating specifically in the illicit alcohol production and beverage falsification trades.

*By Maira Escardovelli — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Congress kills financial tax bill amid early 2026 election clash

Government accuses São Paulo governor of pushing centrist parties to block measure; lawmakers remove it from agenda

 

 

 

10/09/2025

Just a week after a major win with the approval of the income tax reform, the Brazilian government suffered a significant setback in Congress on Wednesday (9) as lawmakers rejected a provisional presidential decree that sought to tax financial investments and tighten spending.

Throughout the day, leaders from the powerful centrist bloc known as the Centrão—including state governors—mobilized to rally opposition to the bill, which the government had expected would raise R$31.5 billion in revenue and generate R$15 billion in savings by 2026. The presidential palace attempted to mount a response but was ultimately defeated in an unusual manner.

The measure was effectively shelved when the Lower House passed, by 251 votes to 193, a motion to remove the bill from the agenda. This type of procedural motion is voted on before discussion of the bill’s content and, if approved, delays the vote. Because the provisional decree was set to expire on Wednesday, it was permanently dropped.

President Luiz Inácio Lula da Silva reacted on social media, arguing that the measure aimed to correct tax distortions. “Blocking this correction is a vote against balanced public finances and tax fairness. What’s behind this decision is a bet that Brazil will collect less revenue to restrict public policies and social programs that benefit millions. It’s a move against Brazil,” he wrote.

The likelihood of defeat had become clearer the day before, when Congressman Carlos Zarattini of the Workers’ Party (São Paulo) struggled to get his report approved by a joint congressional committee. After intense negotiations and revisions, which cost the government an estimated R$3 billion in revenue, the report was approved by just one vote. Citing the razor-thin result, Mr. Zarattini accused centrist parties of breaking a deal, singling out the Republicans, Brazil Union, the Progressive Party (PP), and the agribusiness caucus for voting against the bill.

House Speaker Hugo Motta (Republicans Party, Paraíba) tried to broker an agreement to pass the measure, but ran into resistance from key centrist leaders. The figure most strongly accused of working against the measure was São Paulo Governor Tarcísio de Freitas (Republicans), who denied any involvement.

“We felt very strongly the interference, purely political and electoral, of the São Paulo governor, who mobilized party presidents to change their stance on the provisional decree. Those of us who work for the best solution in each case and for meeting fiscal targets regret that a governor would use his position solely to prepare for an election campaign,” Mr. Zarattini said on the House floor.

Following controversy over the “shielding bill”, the Centrão and opposition lawmakers resumed strong anti-tax rhetoric to justify their rejection of the measure. Despite holding federal cabinet positions, parties like Brazil Union, the Progressive, and the Republicans ordered their members to vote against the bill. The Social Democratic Party (PSD), which had considered letting lawmakers vote freely, also instructed its members to oppose it.

Facing this unfavorable scenario, President Lula called a lunch meeting with leaders from the government’s congressional base, joined by Finance Minister Fernando Haddad and Institutional Relations Minister Gleisi Hoffmann. After the meeting, the government’s leader in the Lower House, José Guimarães (Workers’ Party, Ceará), said the administration might issue new decrees to make up for the revenue lost from the bill’s defeat.

Mr. Lula urged Congress to show “maturity” and criticized the use of the provisional decree for electoral purposes, in a clear jab at Mr. de Freitas. “If someone wants to turn this into an election issue, I can only say that it shows a staggering level of pettiness. Anyone can claim the proposal as their own. Any lawmaker can take credit for having voted in favor,” the president said.

Mr. de Freitas denied the accusation in comments to Valor. “I don’t interfere in these matters. We’re very focused on a number of issues here [in São Paulo],” he said.

In an effort to rally support, the government temporarily removed three ministers from their posts so they could vote in the Chamber: Tourism Minister Celso Sabino (Brazil Union, Pará), Sports Minister André Fufuca (Progressive Party, Maranhão), and Ports and Airports Minister Silvio Costa Filho (Republicans, Pernambuco). Ms. Hoffmann also sent messages to the Centrão parties controlling those ministries.

“If this bill fails, it will reveal a lack of public spirit [among lawmakers]. I appeal to all parliamentarians to walk with us in Congress today because this country is on the path to building social justice,” Ms. Hoffmann said.

Another strategy was to draw a comparison to the recent approval of the “shielding amendment,” when centrist parties and pro-Bolsonaro opposition lawmakers joined forces in a vote. The idea was to pressure opponents by labeling them as “enemies of the people,” but the tactic failed. Even after voting down the measure, most Centrão leaders refrained from making speeches, limiting themselves to brief, generic instructions.

Only Liberal Party leader Sóstenes Cavalcante (Rio de Janeiro) spoke forcefully. He congratulated the presidents of the main Centrão parties individually for voting against the bill. He said the move “shows, contrary to what many thought, that the center-right will be united in 2026” around whoever former President Jair Bolsonaro chooses to face Mr. Lula.

Tensions between the executive branch and Congress had already been mounting before the measure was introduced. President Lula issued it in June after lawmakers overturned a presidential decree setting new rates for the IOF (Tax on Financial Transactions). The original goal was to offset the revenue loss caused by that repeal.

*By Murillo Camarotto, Giordanna Neves, Beatriz Roscoe and Renan Truffi, Valor — Brasília

Source: Valor International

https://valorinternational.globo.com/

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Brazilian Amazon residents complain about heat, pollution

Climate crisis should already be treated as a public health and social crisis, survey shows

 

 

 

10/09/2025

In the Brazilian Amazon, the climate crisis should already be treated as a public health and social crisis, especially for traditional and Indigenous communities. This is what shows a new survey released this Wednesday (8), in which a third of the more than 4,000 respondents claim to be directly affected by global warming—whether through rising living costs, food insecurity, or heat-related chronic diseases.

The increase in electricity prices was the most common impact mentioned by the Amazonians who responded to a survey by Umane and Vital Strategies, with support from the Devive Institute. In total, 83.4% complained about higher electricity bills.

Other problems included rising average temperatures (82.4%), increased air pollution (75%), more frequent environmental disasters (74.4%), and rising food prices (73%). All of these factors cause and exacerbate health problems, says Luciana Vasconcelos Sardinha, deputy director of chronic non-communicable diseases at Vital Strategies.

Indigenous peoples, quilombolas, riverside communities, and rubber tappers are among the most affected, representing 42.2% of respondents who claim to be directly impacted by the climate crisis. These groups report worsening water quality and food production, increased vulnerability to extreme events, and dependence on natural resources for survival. Most depend on the Brazilian Unified Health System (SUS) for healthcare.

“The environmental agenda is directly related to public health, especially for more vulnerable populations who, in addition, are farther from urban centers and feel the consequences of drought more acutely, for example. These people also have a more acute perception of what is happening because they depend on natural resources that are under threat,” says Ms. Sardinha.

She emphasizes that exposure to climate change is also greater due to the accumulated deforestation over the last 20 years.

Regardless of the respondents’ income, the survey’s technical manager emphasizes that environmental problems weigh financially on households because they are unable to produce or collect enough of their own food and raw materials. As a result, in addition to food insecurity, households are in the red.

In the Brazilian Amazon, the main economic activity is agriculture. It covers over 5.1 million km2 of land distributed across nine states—Acre, Amapá, Amazonas, Mato Grosso, Pará, Rondônia, Roraima, Tocantins, and part of Maranhão. On the map, deforestation is a historical reality, Ms. Sardinha points out, and makes extreme droughts trigger even more serious consequences, for example.

Of the total respondents, 53.3% say they have reduced practices they believe worsen the crisis, and 38.4% say they feel guilty about wasting energy. According to Ms. Sardinha, this feeling reflects a mental health issue, specifically climate anxiety.

There is widespread evidence of health damage caused by intense heat throughout Brazil, says Ana Valério de Araújo, executive director of the Brazil Fund for Human Rights. With poorer health, the population is unable to work, worsening economic activity in regions affected by climate disasters, she says.

“Some groups have their rights violated more than others because they are already experiencing structural changes, in addition to those caused by climate change. For example, Indigenous peoples, who simultaneously fight for their right to land and against the impacts of extreme weather events, which tend to be much greater than for those living in urban areas,” she explains. The trend, she adds, is for climate change to deepen social inequalities if there are no governance and preparedness in the public and private sectors.

*By Isadora Camargo — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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RESOLUÇÃO SESP Nº 21, DE 08 DE SETEMBRO DE 2025

*Por meio de Resolução SESP no. 21, publicada no Diário Oficial do Estado em 06 de outubro de 2.025, foi criado o Memorial Olímpico, Paralímpico e do Esporte do Estado de São Paulo Major Sylvio de Magalhães Padilha. Cabendo a Alberto Murray Neto o posto de coordenador da comissão de trabalho para instituição do Memorial.*

 

 

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Tariffs, strong real and rising costs slash exporters’ margins

Brazil’s export profitability drops 7.7% in August as 2025 outlook turns negative

 

 

 

 

10/06/2025 

A stronger real against the dollar, new U.S. tariffs, falling average export prices, and rising production costs, especially wages and services, dealt a broad blow to Brazilian exporters’ profit margins in August. The hit spanned across industry, extractive sectors, and agribusiness.

Brazil’s overall export profitability dropped 7.7% from August 2024, according to the Foreign Trade Studies Foundation (Funcex). While year-to-date profitability remains slightly positive at 0.9%, it is slowing sharply. In the year through July, the increase stood at 2.2%. Funcex now expects the cumulative margin to flip into negative territory and close 2025 with a 1% loss compared to 2024.

The drop in August was widespread, affecting 24 of the 29 sectors tracked by Funcex.

Daiane Santos, economist at Funcex and professor at the Rio de Janeiro State University (UERJ), said the margin decline reflected a combination of three pressures: a nominal 1.9% appreciation of the real, a 3.3% drop in average export prices, and a 2.7% increase in production costs.

Services and wages were the main contributors to higher production costs, rising 5.2% in August year over year. Domestic inputs rose 1.9%, while imported inputs dropped 2.6%, but not enough to offset the broader cost increases.

The rea’’s appreciation already impacted margins in July, though to a lesser degree. That month, the real rose 0.2% compared to July 2024, contributing to a 4.4% margin drop.

Ms. Santos said the appreciation trend continued in September, likely further squeezing profitability. By the end of September, she projects margins could be flat year to date. From October onward, the cumulative figure is expected to turn negative, ending 2025 down about 1%.

The real’s strength hurts profit margins across all export segments. Sectors with the steepest margin declines in August included fishing and aquaculture; pulp, paper, and paper products; and oil and gas extraction.

Of the 29 segments tracked by Funcex, 15 still posted year-to-date margin gains but saw drops in August compared to a year earlier. These include food products, textiles, wood products, furniture, metallurgy, electrical machinery, and motor vehicles.

Pharmaceuticals and chemicals, computer equipment, and other transportation equipment were among the few with gains both in August and year-to-date. Aircraft, which fall under “other transport equipment,” were exempted from the new tariffs.

Commodities and global trade headwinds

The exchange rate isn’t the only factor weighing on margins. Export prices also show no sign of recovering, said José Augusto de Castro, head of the Brazilian Foreign Trade Association. “Commodity prices are likely to hold steady or fall a bit further. I see no drivers for an increase right now,” he said.

Mr. Castro expects average prices for soybeans, oil, and iron ore in 2025 to be lower than in 2024. As many commodities are used as inputs for manufactured goods, falling prices also drag down prices for industrial products.

He also pointed to weaker global trade, driven in part by uncertainty surrounding tariff policies under U.S. President Donald Trump.

The World Trade Organization now forecasts global goods trade to grow just 0.9% in 2025, down from the 2.7% previously projected before the recent wave of tariff hikes. In 2024, goods trade grew 2.9%.

Mr. Castro said uncertainty will likely persist, especially around Mr. Trump. He noted that the U.S. president signed a new executive order last week imposing 10% tariffs on wood products and 25% on some types of furniture.

Lower prices

Funcex data show that the pace of decline in average export prices accelerated in August, down by 1.5 percentage points compared to July, year over year. Ms. Santos attributed the sharper fall in part to President Trump’s tariffs, which pushed Brazilian exporters to renegotiate prices with U.S. buyers.

The footwear sector was one of the hardest hit, said Priscila Linck, economist and market intelligence coordinator at Abicalçados, Brazil’s footwear industry association.

From January to August, export profitability for footwear, travel goods, leather, and related products dropped 3.9% compared to the same period in 2024. In August alone, the margin fell 11%, driven by a 6.1% drop in average export prices.

Ms. Linck noted that leather and footwear have different market dynamics, but both are being impacted by international trends and U.S. tariffs. “When the real appreciates, companies have less room to offer discounts in dollars without compromising profitability. But sometimes dollar discounts are the only way to maintain volume in international markets,” she said.

She described the current global landscape as uncertain, with intensifying competition—particularly from Asia in key markets for Brazilian footwear. “There was a significant export loss in August due to the tariffs,” she said.

Footwear shipments to the U.S. fell in August, contributing to a 0.5% drop in Brazil’s overall footwear export volume and a decline in average prices. Footwear sold to the U.S. typically has higher added value, Ms. Linck said.

Even so, some shipments went ahead, absorbing part of the new tariffs. “Brazilian companies maintained some volumes, partly absorbing the tariff. In some cases, the U.S. importers also absorbed part of the cost to preserve long-standing relationships,” she said. However, she warned this is a short-term fix and unsustainable in the long run, underscoring the need to revisit the tariff measures.

Export redirection

Ms. Santos said exporters in other sectors also had to cut prices in August to redirect shipments originally bound for the U.S. to other markets. “Exporters had to lower prices to ensure their goods were absorbed elsewhere. They lost bargaining power, which pushed prices down,” she said.

A report from the Foreign Trade Indicator (Icomex), published by the Brazilian Institute of Economics at Getulio Vargas Foundation (FGV Ibre), shows that of the 15 main products Brazil exported to the U.S. that were hit by tariffs, nine saw U.S. sales decline in August. Meanwhile, sales to the rest of the world rose or fell less sharply.

For instance, exports of semi-manufactured iron or steel products fell 28.3% to the U.S. but surged 99.7% to other destinations. Boneless frozen beef exports dropped 47.4% to the U.S. but rose 67.9% elsewhere. Coffee exports climbed 16.4% to the U.S., while falling 0.7% to other markets.

Still, the reallocation of exports may be more complex than it appears. Lia Valls, a professor at UERJ and associate researcher at FGV Ibre, said the data do not necessarily mean that Brazilian exporters have found alternative markets.

“Some of these shipments may still be aimed at the U.S. market, even if routed through other countries,” she explained. Some multinational companies are using facilities in other countries to ship to the U.S., replacing direct exports from Brazil. “There may be a reconfiguration happening that the data aren’t capturing yet,” she said.

*By Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Sugarcane processor Colorado makes offer for Raízen mill in São Paulo

Raízen, owned by Cosan and Shell, is also negotiating sale of three other units

 

 

 

10/03/2025

Brazilian sugarcane processing company Grupo Colorado, the owner of two mills in Brazil’s Center-South region, has made an offer for Raízen’s Usina Continental, two sources familiar with the matter told Valor. The sources requested anonymity. Raízen declined to comment. Valor reached out to Colorado but did not receive a response before publication.

Located in Colômbia, a city in the far north of São Paulo near the Triângulo Mineiro region, the Continental mill has the capacity to process more than 2.5 million tonnes of sugarcane per harvest.

According to the sources, this is the deal closest to being finalized among the Raízen mills currently under negotiation. One source added that the company, owned by Cosan and Shell, has also begun discussions to sell its mills in Jataí (Goiás), Lagoa da Prata (Minas Gerais), and Igarapava (São Paulo). Another source said that the Jataí mill had received a proposal from Atvos, which was not accepted. Atvos declined to comment.

Continental has been on the market at least since June, as Valor previously reported. At that time, Raízen was still negotiating the sale of assets from Santa Elisa, in Sertãozinho (São Paulo), as well as Rio Brilhante and Passatempo, in Mato Grosso do Sul, which were eventually sold.

If confirmed, the sale of Continental would be the fourth unit Raízen acquired from Biosev in 2021 to be divested under its current asset disposal plan. In the case of the Santa Elisa mill, only the sugarcane fields were sold to a group of six industry companies, while the processing facility was put into hibernation. The mills in Mato Grosso do Sul were sold to Cocal.

The sale of these three assets has generated R$1.345 billion for Raízen. In the Santa Elisa fields transaction, sugarcane production capacity was sold at a multiple of $46 per tonne of raw material. In the sale of the mills located in Mato Grosso do Sul to Cocal—which included both industrial assets and crops—the multiple was $40 per tonne.

Selling mills has proven to be a more immediate way for Raízen to raise cash and reduce debt while its corporate restructuring remains unresolved. Pressured by high leverage, Raízen’s shares have fallen sharply, closing the Thursday (2) session at a record low of R$1.01. Cosan has already indicated it is willing to be diluted in the business.

The company reportedly discussed a potential capital increase in Raízen with Shell, but there were no developments. A source close to Shell said the recent decline in interest from major oil companies in clean energy reduces the likelihood of such a capital injection.

In its most recent financial statement, Raízen disclosed that its two partners were also exploring alternatives with a third investor. Bloomberg reported talks with Japanese firms Mitsui and Mitsubishi, while Valor’s business website Pipeline revealed interest from BTG Pactual and Itaúsa.

*By Camila Souza Ramos, Globo Rural — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Morgan Stanley sees Brazil economy slowing down less than expected

Country chief Alessandro Zema says favorable conditions should be attracting more foreign flows as investors await clearer fiscal signals; believes Selic will reach 11.5% in late 2026

 

 

 

10/03/2025

That engagement has already translated into some inflows into Brazil’s fixed income and currency markets, supported by the wide interest rate spread with the United States. Equities are also seeing movement, but at a smaller scale.

In Mr. Zema’s view, foreign investors are interested and beginning to position themselves while waiting for two main triggers to enter Brazil more decisively: a rate cut, which would favor equities, and a stronger fiscal commitment either from the current administration or from the candidates in the 2026 presidential election.

“In this world we’re entering now, with declining interest rates and Brazil still offering a relatively large spread, we should be attracting proportionally more flows than we are. If we implement or at least signal stronger fiscal adjustments, we will see much larger volumes coming into Brazil,” he said. Below are key excerpts from the interview:

Valor: U.S. interest rates have started to fall while Brazil’s Selic remains at 15%. What does this mean for Brazil?

Alessandro Zema: The macro picture has been relatively positive. Over the past four years, the economy grew more than markets expected. Inflation is decelerating, and prospects for rate cuts in Brazil are becoming increasingly likely. Currency volatility has also fallen significantly. This relatively benign scenario, with lower rates ahead, will bring some relief on the fiscal side and better growth prospects for next year. The major concern remains debt sustainability.

Valor: Markets expect a fiscal adjustment after the 2026 election, regardless of the winner. Do you agree?

Mr. Zema: Treasury Secretary Rogério Ceron told Valor he expects conditions for a stronger fiscal adjustment in 2027. Planning Minister Simone Tebet has also said this. The market increasingly expects a post-election adjustment.

Valor: That sounds like a meeting with the inevitable…

Mr. Zema: That’s how the market sees it. This adjustment could come through administrative reform, revenue and expenditure decoupling, or greater budget flexibility, but the expectation is that it will happen after the election.

Valor: We’ve seen inflows into Brazil, especially into bonds. Will they grow as the spread widens?

Mr. Zema: On the fixed-income side, with likely rate cuts ahead and a higher risk premium between U.S. and Brazilian yields, flows into Brazil are the strongest we’ve seen in years. Most of it has gone into foreign exchange rather than bonds. The long end of the curve is still very high, but as rates fall, we may see more bond allocations. Equities are a different story. Outflows from multimarket [hedge] and equity funds have slowed sharply since the start of the year, which is very positive. Brazil is cheap. We haven’t seen foreign investors selling Brazil. Any reallocation abroad that flows here is having a strong price impact.

Valor: What’s missing for stronger equity inflows?

Mr. Zema: Foreign investors don’t lack conviction or risk appetite. What’s missing are catalysts, mainly fiscal ones, to bring larger volumes. The first step, which is having investors more engaged and following Brazil closely, is already happening. At our September equity conference in London, with 63 Latin American companies and 250 global EM funds, the meeting agendas were completely full. Interest is strong, but greater visibility is still needed for a real equity flow.

Valor: Is this investor reallocating from the U.S. to emerging markets?

Mr. Zema: Yes. We’re seeing global reallocations into Brazil and Latin America that are moving prices. But I wouldn’t say there’s a strong directional flow specifically into Brazil yet. We’re not seeing foreign investors selling Brazil either. Falling U.S. rates and the prospect of cuts here too have been very positive for emerging markets. The MSCI EM index in dollars is up 25% this year. In Brazil, it’s up 35%.

Valor: Despite Ibovespa’s record highs, trading volume is at multi-year lows. Would a fiscal adjustment spark a rally?

Mr. Zema: Absolutely. In this world of declining rates and Brazil still offering a relatively large spread, we should be attracting proportionally more flow. So yes—if we implement or at least signal stronger fiscal adjustments, volumes will grow significantly.

Valor: How large would the adjustment need to be to unlock inflows? Would signaling be enough, or would investors demand concrete measures?

Mr. Zema: Signaling and a gradual execution plan are crucial. I can’t say how much adjustment is needed. What truly stabilizes debt is a primary surplus above 3%. Whether any government will deliver that, I can’t say. But the willingness to do so will matter a lot.

Valor: We have seen a stronger volume of debt issuance abroad this year. Is this also a reflection of foreign investors’ interest?

Mr. Zema: Up to this moment, we have had $29 billion in issuance from Brazilian companies. And we expect at least another $10 billion by the end of the year. This volume is much larger than last year, and many Brazilian issuers are raising funds with spreads over U.S. Treasuries at historical lows. In equities, when we think of the U.S. market, which is the most liquid in the world, since July we had not seen a sequence in terms of quality and quantity [of IPOs] as good as in the last four years. We have seen much more constructive markets. The offerings not only priced very well but the shares also performed very well afterward. This, obviously, is an important catalyst for future transactions to come to market. In these last ten days, we saw $15 billion in issuances in the U.S. in 27 different transactions.

Valor: Does this movement help reopen IPO activity in Brazil?

Mr. Zema: In Latin America as a whole, we live very much by windows [for IPOs]. What we see happening now in Brazil is that, due to these more constructive markets abroad and the prospect of rate cuts here, companies are at least beginning to think about the possibility of coming to market. Considering the possibility of coming to market requires not only constructive global markets but also visibility of a larger rate cut than currently forecast. Today, the market is expecting around three percentage points of rate cuts from the beginning of 2026 to the beginning of 2027. Empirically, when you look at the statistics, most IPO volume, follow-ons, and equity activity in general in Brazil happens when the real interest rate is below 6%. So we would need to reach a nominal rate of perhaps around 10% and a real rate below 6% to actually have the conditions to start seeing IPOs and successful offerings.

Valor: So, it is not something we can expect even in 2026…

Mr. Zema: No, I hope we will see it in 2026.

Valor: The Selic is not expected to reach that level next year…

Mr. Zema: Morgan Stanley’s view is that this very resilient pace of economic activity will slow down more gradually than the market imagines. In our view, rate cuts begin in March, but from then on they are much sharper. We are pricing in a rate of 11.5% by the end of next year. The market is pricing that the cuts start a bit earlier, but not as sharply. And with inflation decelerating, the exchange rate stable, and sharper rate cuts, all of this creates a very positive environment for Brazil’s capital markets, both equity and debt.

Valor: This will coincide with an election year. Won’t companies hold back their operations?

Mr. Zema: Without any doubt, it depends very much on the visibility of what the day after the election may look like. In general, local investors follow this electoral theme very closely, and it is 100% on their radar. For foreign investors, not so much yet. They will start paying more attention later on.

Valor: Here, it is the big topic…

Mr. Zema: Abroad, it is not such a big topic yet. It will be, but not yet. Fixed-income investors are looking at a very large spread and risk premium for Brazil, and they are coming here in very significant volumes. Equity investors are saying, “Well, Brazil is cheap, I am engaged, I am trying to understand, but I need greater visibility and some fiscal catalyst to actually come in with larger volumes.” There are so many things going on… Imagine yourself, an emerging markets investor who is allocated in China, India, Mexico, Brazil, South Africa, Russia, etc. You are following so many themes that Brazil’s election, in October next year, can wait a little longer before being followed that closely. The Trump government anticipated an agenda with very strong items—cost reduction, immigration, tariffs—and only now are we starting to see an adjustment. So, investors have re-engaged to follow Brazil, they have risk appetite. I mentioned the conference last week [the week before last]. If we had held it four months earlier, the level of engagement would have been half of what it was. So, investors are engaged, they have risk appetite to come to Brazil. They do not yet have great conviction, but that conviction should come.

Valor: In recent years, the performance of the U.S. market has outpaced the rest of the world. Is there now more room for emerging markets?

Mr. Zema: I have no doubt, with the depreciation of the dollar against other currencies and a reallocation happening from the United States to other markets. In the world equity market, 67% of all volume is allocated to the United States. The second largest is Japan, with 4%. Any 1% that leaves the U.S. makes an enormous difference for several markets. Investors are seeing lower growth in developed economies and higher growth here. It is definitely a trend.

Valor: Do tariffs and other sanctions imposed by the U.S. worry foreign investors?

Mr. Zema: At the beginning, it was a very big concern, but it became clear that, as Brazil is a relatively closed economy, with exports to the U.S. accounting for 12% of GDP, and since many items on the agenda, after those two or three weeks when we were in the dark, were exempted, the effective impact on GDP is somewhere between 0.1% and 0.2%. So there was a certain relief among investors and economic agents that the tariff impact would not be as large as initially imagined when the news first broke. The concern now is whether tensions will escalate and change what has already been priced in.

Valor: Is there no fear that Brazil is isolating itself from the world?

Mr. Zema: I don’t think so. Of course, it would have been much better not to have had [the tariff hike] than to have had it, but I did not get the feeling that Brazil is isolating itself from the world.

Valor: Do you think the recovery of equities will already begin to show this year, or only when the Selic falls?

Mr. Zema: The clearer it becomes that rate cuts will happen earlier and in a sharper or stronger way, the greater the predisposition to see investors coming here. And if there is good news or fiscal catalysts, that accelerates the movement. It does not necessarily need to wait until after the election. Positive government signals on the fiscal side will be of enormous help in generating stronger flows.

Valor: You mentioned companies starting to move toward IPOs. What is their profile? Large tickets?

Mr. Zema: That’s the profile. One thing we saw in the last Brazil cycle, which happened in 2019, 2020, 2021, was transactions with book prices in which 70% to 80% of investors were domestic. We saw that huge migration out of fixed income into equities. In this new phase, we will no longer see 70% or 80% domestic bookings. We will probably see balanced books between domestic and foreign investors, 50% to 50%, with a larger share of foreign investors.

Valor: How is the M&A market?

Mr. Zema: We have seen as a major trend Brazilian and foreign companies rebalancing portfolios to reduce leverage. Some large foreign companies are divesting assets in Brazil due to leverage at headquarters, and Brazilian companies are also rebalancing their portfolios. The volume of M&A transactions this year should be higher than last year, and we should see a better 2026 than this year. It is a positive trend.

Valor: What is the profile of these transactions?

Mr. Zema: They are generally larger, and many involve share swaps. In periods with interest rates as high as they are now, it is more difficult for companies to have the conviction to raise debt in the market to finance an acquisition. So if the stock price is at a healthy level, they prefer to use shares rather than debt. In many transactions, what has happened are share swaps.

*By Talita Moreira and Gabriel Roca — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Spending cuts, slowdown push retailers to lay off workers in Brazil

Large retail groups reduced headcount starting in Q2, citing high interest rates, restructuring

 

 

 

10/03/2025 

Large retail groups reported layoffs in the second quarter—or “corporate restructurings,” according to discreet mentions in earnings releases—and the headcount reductions extended into the third quarter at market leaders.

Cuts in operating expenses to dilute costs, weaker sales—which made store closures and layoffs more urgent—heavier debt service due to high interest rates, and business reorganizations tied to mergers all led to job reductions.

Demand for labor in parts of the retail sector, given today’s high turnover, may help absorb some of these workers.

One particular issue has drawn attention from the companies consulted: rising cost inflation, even as consumer spending shows signs of cooling. “We are dealing with wage inflation from collective bargaining agreements, energy costs are rising again, and the sales curve is heading downward or, at best, flat. There is not much room to maneuver,” said the CEO of a home improvement chain that has already closed stores this year.

Economists note that groups already in a fragile situation—burdened with years of high leverage or lacking competitiveness—have been hit harder than others that took measures to improve efficiency.

“We have become a country addicted to high interest rates to finance a deficit-ridden State, and companies are the ones paying the bill,” said Fabio Bentes, chief economist at CNC, the national retail and services confederation.

Valor compiled the cases based on an analysis of 2025 quarterly earnings reports, filings with the Securities and Exchange Commission of Brazil (CVM), official announcements of closures, and company sources.

Broadly, starting in the second quarter, a wave of cuts extended into the second half of the year in certain segments and companies, both listed and privately held.

From April to June, RD Saúde (Raia Drogasil), Casas Bahia, and Westwing reduced staff. In recent months, after July, GPA (owner of Pão de Açúcar supermarkets), Telhanorte, Azzas 2154, and Grupo Multi also announced cuts, according to official statements and Valor’s reporting.

Fast Shop, which is under investigation by São Paulo prosecutors for corruption, also cut jobs and plans further reductions.

In the view of Luiz Guanais, retail analyst at BTG Pactual, other similar moves remain possible but are likely to be more targeted among large groups. “I believe chains are adapting to a ‘new normal,’ with more indebted customers and inflation stabilizing at a high level. That said, today retailers are better prepared to deal with a slowdown and 15% annual interest rates than they were three or four years ago.”

Specialists emphasize that decisions on workforce reviews vary, and even well-structured, low-leverage businesses have faced pressures. That was the case with RD, which cut costs after a weak start to the year in its more mature stores. According to sources, the company dismissed about 700 people in April, including coordinators and managers with up to 47 years at the company.

Its last filing with the stock exchange B3 showed 64,200 employees at the end of 2024. The retailer declined to comment. A person close to the chain noted that it still projects 350 store openings this year, with new hires.

In its earnings release, the company said it carried out a corporate restructuring in April to reduce overhead and administrative expenses, part of “cost containment efforts” launched in 2024. In total, RD spent R$50 million on the reorganization, which eliminated overlapping roles and expanded autonomy. After that, the chain temporarily stopped hiring in the first half of the year, according to a former company coordinator.

In consumer durables, Westwing shut down two logistics warehouses—in Rio de Janeiro in June and Belo Horizonte in April—while keeping the one in Brasília. Its three stores and distribution center in Jundiaí (São Paulo) remain open. Sources said 60 to 70 people were laid off. At the end of 2024, the company had 405 employees.

“The idea was to make the company leaner, especially as online demand was losing steam this year,” said a furniture supplier to the chain. In its earnings release, the retailer said it carried out an “additional adjustment in its cost structure” in a context of declining gross merchandise volume (GMV) and market performance, “in line with the strategy of improving profitability.”

In a statement, Westwing said the reduction in “hubs” helped improve operating performance. The company said it aims to seize opportunities from a potential economic recovery, with a focus on profitability.

In recent weeks, GPA informed the CVM it had cut around 730 jobs in just over two and a half months—between July 1 and September 16, days before its September 18 disclosure. The company did not say whether further cuts are planned or which areas were affected. GPA declined to comment beyond its filing. The company had 39,000 employees in December 2024.

In the document, GPA said it has been “making efforts to reduce leverage,” and for this reason, it has a headcount reduction program underway. Its financial leverage—measured by the ratio of net debt to EBITDA—reached 3.0x in June 2025, up from 2.7x a year earlier.

Telhanorte and Tumelero, Brazil’s second-largest home improvement group, have been hit directly by higher and scarcer credit lines this year. The group has reduced its workforce by 40% to 45% since the end of 2024, according to a source. It had 2,700 employees in December.

At Telhanorte, the drop was around 25%, Valor has learned. Recent staff cuts followed business plan revisions that culminated in Tumelero shutting down 11 stores last month.

Additionally, as announced on Wednesday (2), all 16 Tumelero units were sold to Grupo GG10, which sells tires and machinery, as part of an effort to streamline operations. A major operational restructuring has been underway since 2024, led by general manager Manuel Corrêa, who has focused on the process.

Since its sales boom during the pandemic, the sector has struggled to regain momentum. The sharp rise in interest rates in 2021, which raised the cost of capital, and again in 2024, along with heavy competition, unsuccessful strategies, and product inflation, have all eroded competitiveness.

Under current plans, Tumelero ceased operations at 11 loss-making stores in Rio Grande do Sul in September, including two in Porto Alegre, the company confirmed in a statement. In July, it closed large-format stores in Aricanduva and Osasco, both in greater São Paulo. Valor learned that Atacadão is expected to take over the first location.

Telhanorte currently has 27 stores nationwide, down from nearly 70 in 2023.

At the end of 2024, competitor Casa&Construção (C&C), hit harder by the tough economic environment, shut down in Brazil and dismissed the remaining staff in its stores, such as one on Marginal Tietê in São Paulo, Valor found. The chain was sold in 2023 by the Faria family, the owners of Grupo Alfa, to AGI Partners. The asset manager wound down operations a year later. AGI declined to comment.

In the same segment, Sodimac reduced its workforce in Brazil from 2,900 to 2,500. Parent company Falabella did not comment.

Also this week, Azzas 2154—formed by fashion brands Soma and Arezzo—announced the closure of Arezzo’s women’s shoe factory in Parobé (Rio Grande do Sul) and the dismissal of 135 workers, tied to business integration.

Another retailer, Grupo Multi—a manufacturer and marketer of electronics—has been undergoing a more extensive restructuring since the second quarter. Measures include cutting expenses to improve efficiency, with a 5% to 10% reduction in its 4,500-employee workforce, according to a retail partner. The group did not comment.

*By Adriana Mattos — São Paulo

Surce: Valor International

https://valorinternational.globo.com/

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