Despite the growth of users, tight margins and strong pressure on services suppliers will harm the business


The health insurance market is expected to reach 51.5 million users this year — a historical level in the sector. The highest number so far was in December 2014, when there were 50.5 million people with health insurance in Brazil. However, even with this growth, which began with the outbreak of the pandemic, the healthcare industry is likely to have another difficult year, with tight margins and strong pressure on operators, hospitals, clinics, medical diagnosis labs, and clients of health insurance plans when it comes to raising prices.

In nine months of 2022, health insurance companies (not including dental care) reported a net loss of R$3.4 billion. The loss ratio in September was a record at 93.1%. “We estimate that the operators will return to positive profitability in 2024. This year, we expect a stabilization in the fall, considering that the adjustment in 2022 was positive rather than in 2021,” said Renato Casarotti, president of Abrange, a trade association that made the studies to project the number of health insurance users for this year.

According to projections from Citi and BTG, individual plans, a reference for other contracts, is expected to be adjusted by 10%. Citi questions whether the percentage is sufficient to cover the medical expenses of 2022.

This increase in the number of health insurance plans in the country is driven by users who buy products with lower tickets that, in turn, are not compensating for the high medical costs. The consequence is pressure on the entire healthcare chain. Last year, many hospitals and laboratories had difficulties in passing on their new medical service price lists to the operators.

“So, 2023 is likely to be another year of strong competition. We expect a challenging year for the healthcare industry, with higher risks for operators due to even worse loss rates, the need for prices above inflation, and a weaker growth scenario concerning beneficiaries,” said Bank of America (BofA) in a report.

The BofA team, led by Fred Mendes, also recalled that the unemployment rate is at 8.7% and, therefore, the general growth of beneficiaries should be lower than in 2022. According to Abrange’s projections, this year’s growth will actually be lower, with the entrance of 1.1 million new users, compared with 1.5 million last year.

Given this scenario, the analysts that follow the sector have reduced their growth expectations for practically all the listed healthcare companies. The price target projected for this year for 10 of the 11 companies linked to healthcare plans, hospitals, and medical diagnosis was reduced. The only exception was OdontoPrev, which operates in a segment with a low loss ratio.

This reduction in the target price was followed in several cases by a change in the recommendation of the stock. Last year, analysts indicated buying stocks of almost all healthcare companies. In the review of this beginning of the year, many analysts are recommending only holding the stock.

New projections on what the prices will be in December come on top of low prices, as healthcare stocks plummeted last year.

The biggest devaluations were faced by Kora (84.97%), Qualicorp (64.56%), Dasa (58.07%), Hapvida (51.06%), Oncoclínicas (46.4%), Mater Dei (46.19%), Rede D’Or (33.33%), and OdontoPrev (18.92%). Right after comes SulAmérica, which joined Rede D’Or, with a drop of 18.86%. Among the public companies, Fleury is the one with the least losses, with a devaluation of 8%. Hermes Pardini, which announced a merger with Fleury, had gains of 13.6%. Finally, Alliar shares rose 44.29% due to the sale of the company’s controlling group, whose shareholders established a price premium to get rid of their shares.

Itaú BBA argued in its report that it is taking a more cautious approach to the sector given the uncertainties surrounding growth, profitability, and high capital costs for longer than initially thought. In addition, in the bank’s view, investors are giving less benefit of the doubt to long-term projects and prefer to look more to the short term.

“Health insurance companies are under pressure. To deal with the current situation, they are increasing write-offs, lengthening payment terms, and adjusting prices below inflation. The measures affect revenue, margins, and the cash conversion cycle of service providers,” said XP.

According to Lígia Bahia, a physician and professor at the Federal University of Rio de Janeiro (UFRJ), the current scenario marked by tight margins and fierce competition tends to set back the project of making the sector more integrated – a recurrent discourse before the pandemic. In this health market, there is a dichotomy: operators win when hospitals lose and vice-versa, generating extremely conflicting relationships. “Today we live a dynamic of growth with lower returns. Today, it’s each one looking out for itself, for its own demands,” Ms. Bahia said.

In her view, another reflection of the current moment is the reduction in the coverage of health plans – a movement that has been occurring, even in health plans with higher ticket prices.

Asked about the negative performance of the operators and the impacts on the chain, the National Agency of Supplementary Health (ANS) informed that it is attentive to the results of the operators, but pondered that the data published so far are partial, referring to the first nine months of 2022. “Only after the accounting evaluation will it be possible to say if 2022 was a year of profit or loss for the sector.”

The ANS also highlighted that it has adopted measures such as the approval of new regulatory capital rules that will generate an estimated financial impact, based on second-quarter data, of around R$9 billion, compared to the current requirement. “It is important to emphasize that these changes do not in any way diminish the sector’s security, on the contrary, the idea is to cover market risks with the lowest possible barriers for operators.”

*By Beth Koike — São Paulo

Source: Valor International
Revenues reached an all-time high, but number of bags shipped decreased 9% year-over-year, to 3.7 million


Revenues from shipments reached a record of $705.7 million, up 24.5% year-over-year, thanks to higher prices — Foto: Divulgação/FAF

Revenues from shipments reached a record of $705.7 million, up 24.5% year-over-year, thanks to higher prices — Foto: Divulgação/FAF

Brazilian soluble coffee exports reached record revenues last year, but volumes declined due to problems affecting global logistics, including the consequences of the war in Ukraine. Brazil exported 3.7 million 60-kilo bags to 100 countries in 2022, down 9% from 2021, according to the Brazilian Soluble Coffee Industry Association (Abics).

Revenue from shipments reached a record of $705.7 million, up 24.5% year-over-year, thanks to higher prices.

“The decrease in volume reflects the global economic scenario, which was affected by the Covid-19 pandemic, logistical hurdles, high logistics costs, high raw material prices in Brazil, and the impact caused by the Russia-Ukraine war,” said Aguinaldo Lima, director of institutional relations at Abics, in a statement.

Eastern European countries are important consumers of this type of coffee. Purchases from Russia, which has been at war with Ukraine since last February, fell 64% in 2022, and the country imported just over 135,000 bags. The Russian market fell from second to eighth place in the ranking of the largest buyers of Brazilian soluble coffee, according to Abics. Ukraine, which was the seventh largest importer, was not even among the top 15 buyers in 2022.

Among the top importers is the United States, with purchases of 770,000 bags, up 8.4% from 2021. This is followed by Argentina with 303,000 bags (-14.6%); Indonesia with 269,000 bags (-3.3%); and Japan with 188,000 bags (-30.3%).

The high prices do not mean more income for the segment, said Mr. Lima. “The raw material – Arabica and Robusta coffees – reached prices never seen before, and at certain moments the values in Brazil were much higher than international prices,” he said. As a result, competing countries took the market share left by Brazilian exporters.

The Brazilian domestic market, on the other hand, consumed nearly 998,000 bags last year, up 1.4% year-over-year. According to Mr. Lima, this is the highest historical level of sales. He recalled that the industries have expanded their plants and diversified their products to attract Brazilian consumers.

*By Érica Polo — São Paulo

Source: Valor International
Partnership provides for use of new satellite for corporate market


Rafael Guimarães — Foto: Silvia Costanti/Valor

Rafael Guimarães — Foto: Silvia Costanti/Valor

U.S.-based Hughes will team up with British company OneWeb to offer a low-latency satellite communications service in Brazil, targeting the corporate market, starting in the second half of the year. The technology to be used is the same as that used by billionaire Elon Musk’s Starlink: a constellation of low-orbit satellites. This is a group of satellites that orbit the Earth in sync. The technology makes it possible, for example, to offer mobile services via satellite, which in practice means Internet access on planes, ships, and buses.

Hughes was a founding investor in OneWeb and continues to hold a stake in the company. Other OneWeb’s shareholders include the British government, Japan’s SoftBank, and French satellite operator Eutelsat.

Hughes has been in Brazil for 55 years and uses three geostationary satellites to provide services in the country. This type of satellite rotates in the same direction and at the same speed as the Earth. Therefore, although it is in motion, it appears to remain stationary in an orbit 36,000 kilometers above the Earth’s surface. This distance causes the communication signal to take almost 0.5 seconds to travel to the satellite and back to Earth. It may not seem like much, but this time lapse is a deterrent to providing some types of services in the banking industry, for example.

Low-orbit satellites, on the other hand, are 600 kilometers away from Earth and therefore have a response time comparable to that of fiber optics, said Rafael Guimarães, CEO of Hughes do Brasil. “The OneWeb constellation will be complete and operational by the second half of the year,” the executive said. Last year, Hughes and OneWeb signed an initial partnership to serve the Indian market. And now, in a second phase, they have signed an agreement to provide service across the Americas, from Canada to Tierra del Fuego, Argentina.

Unlike Starlink, which offers Internet access plans for individuals, Hughes will focus its commercial efforts on businesses and governments. “We have no plans to use our constellation to serve individuals,” said Mr. Guimaraes. The executive said it would be “wasteful” to use the network to provide broadband access to residential customers, as it is prepared to meet the requirements and specifics of the enterprise market.

Since 2016, Hughes has offered a satellite broadband service for end users (B2C) in Brazil, but its customer base in this segment has been shrinking. At the end of November last year, the operator had 208,300 subscribers in this category (individuals), according to data from the National Telecommunications Agency (Anatel), down 26% from November 2020, when it had 281,700 subscribers.

“We reached our maximum capacity very early on. In order to continue providing this service with quality, we reduced the number of subscribers,” said Mr. Guimarães, adding that each satellite has a fixed data transmission capacity. Broadband users, in general, tend to consume more and more data.

To continue growing in this segment, Hughes expected to launch Jupiter 3, the fourth satellite to help serve the Brazilian market, last year. The invasion of Ukraine in February 2022 caused the launch to be postponed. This is because the U.S. government now has priority in the launches.

Now Jupiter 3 is expected to be in space by the middle of this year. The satellite will have a total capacity of 600 gigabits per second to serve the Americas. Mr. Guimarães does not reveal how much of that capacity will be dedicated to Brazil. “It will be a big chunk,” the executive said.

*By Rodrigo Carro — Rio de Janeiro

Source: Valor International
Situation may be comparable with other large court-supervised reorganizations and mean the largest hit for the financial industry since pandemic


Case is likely to be biggest hit to banking industry since coronavirus pandemic — Foto: Dado Galdieri/Bloomberg

Case is likely to be biggest hit to banking industry since coronavirus pandemic — Foto: Dado Galdieri/Bloomberg

The collapse of Americanas after the discovery of a R$20 billion “accounting inconsistency” earlier this month is likely to cause strong impacts on the quarterly results of Brazil’s largest banks. As there is no defined rule for the level of provisions, it is impossible to know the exact amount, but industry sources say the case may be comparable to other large court-supervised reorganizations, including those of phone carrier Oi and mining company Samarco. This is also likely to be the biggest hit to the banking industry since the extraordinary provisions made at the start of the coronavirus pandemic in early 2020.

The total exposure of Americanas’s 10 largest creditor banks is R$23.4 billion, according to the list of creditors released by the company on Wednesday. This means that if the banks were 50% provisioned, as is the market practice for court-supervised reorganization cases, the impact would total R$11.7 billion. Some lenders question figures in the list, as is the case of Deutsche Bank, BV, and BTG. These last two took money from Americanas’s accounts to pay the debt, but these funds were later blocked by the courts.

In a report released Wednesday, XP estimates that the provisions of the five publicly-traded banks could reach R$8 billion, if the level of 50% of the exposure informed in the list of creditors were considered. The most affected ones would be BTG, Santander, and Bradesco, which may see their quarterly profit reduced by 20% to 30%. Itaú and Banco do Brasil would face a smaller hit, of less than 10% of profit.

“Overall, we expect a greater impact of the Americanas case on BTG, followed by Santander and Bradesco, as these banks have the largest relative exposure to Americanas’s debt. The higher provisioning in the near term would not only marginally reduce their capital ratios, but also temporarily pressure their earnings and profitability,” analyst Renan Manda wrote in the report. “Additional provisions of the remaining amount may be set up in the following quarters if the company’s new payment schedule is delayed or if banks make additional downgrades in their risk rating [for Americanas].”

XP’s analysis considers a provision of 50%, which is likely to be the minimum banks will adopt. The R$20 billion hole in Americanas was announced on January 11, but it is still unclear whether the banks recorded the provisions in the fourth quarter (as a subsequent event in the financial statement) or in the first quarter of 2023. According to an executive from a medium-sized bank, the tendency in his case is that it will be on the fourth-quarter financial statement, at 50%. The representative of another large bank comments that if the negotiations of the creditors with Americanas advance well, the banks could include an explanatory note about the case in the fourth-quarter report, but leave the provisions for the first quarter of this year. “However, I don’t think that will be the case.”

Last week, Citi had also released a report assessing the potential impacts of Americanas on the large publicly-traded banks. If they have to provision 50% of their exposure, the most affected one would be Bradesco, with a need for R$2.35 billion. Next come Santander (R$1.85 billion), Itaú (R$1.7 billion), BTG (R$950 million), and Banco do Brasil (R$ 650 million). Valor found that Safra has already provisioned half of its exposure to Americanas, which is R$2.4 billion, and BV has also done the same.

Credit Suisse made a similar calculation this week before the list of creditors was released. The bank estimated a provision of 30% and foresees a tax benefit that would reduce the final effect on profit by 45%. In this case, the impact on Bradesco’s result would be R$700 million, while Itaú and Santander would suffer an effect of R$500 million each and BB would have to provision R$300 million.

In the case of BTG, the actual debt is likely to be lower than what is reported in the list of creditors. There is R$1.2 billion in Americanas’s assets that could be used to offset debts – which would reduce total exposure. In addition, the bank also has around R$400 million in reinsurance, which would bring the exposure down to R$1.9 billion.

As for BV, the exposure in the list of creditors is also “inflated” due to debt securities structured and distributed to the market by the bank last year. Despite being CCBs, these bonds, which have relatively short terms of one or two years, never passed through the bank’s balance sheet and were distributed to some assets. The real exposure would be R$206 million – the bank also tried to take this money from Americanas’s accounts, but the amount was later blocked by the courts.

Obviously, the impact on profits is one reason that has made banks adopt a very hard strategy toward Americanas. But the main one is the stance of the trio of primary shareholders – billionaires Jorge Paulo Lemann, Beto Sicupira, and Marcel Telles – who claim they were not aware of the problems at the retailer and would not be willing to put up all the money that the creditors think will be necessary to fix the company. The CEO of a large bank, convinced that there was fraud, blames the trio for the case. “They are people of notorious legal, business, financial, and accounting knowledge, and they are businessmen of great technical capacity. They can never allege ignorance and try to hold third parties, the banks or the audit firms responsible.”

A prevailing view in the market is that the provisioning in court-supervised reorganization cases must be, at least, 30%. In resolution 4,966, issued at the end of 2021, the Central Bank defines a non-performing asset as one that has “indications that the respective obligation will not be fully honored in the agreed conditions, without it being necessary to resort to guarantees or collateral.” One indication, according to the Central Bank, is court-supervised reorganization.

Brazil’s Central Bank also defines non-performing assets are those more than 90 days overdue. In resolution 2,682/1999, when it created a system to guide the provisioning levels, the Central Bank established that delays of more than 90 days should be classified as level E, with a provisioning of at least 30%.

An executive of a large bank says that in the case of large companies, which have debentures and bonds with high liquidity in the market, the discount on these instruments is a good indication of how much the banks should provision. In the last few days, Americanas’s bonds have been trading close to 20% of face value, which suggests that banks could have to provision 80%.

Despite the still tense atmosphere in the relationship between the banks and Americanas, some point out that there has been some easing in recent hours. The banks have been meeting daily to discuss strategies and have also had somewhat less frequent talks with Rothschild. The consultancy Alvarez & Marsal would not be so involved in these negotiations. In these talks, there are still no firm proposals on a possible haircut percentage on the debts.

O Valor contacted all creditor banks of Americanas. Most of them declined to comment, claiming they have to comply with banking secrecy and do not comment on cases sub judice. Banco do Nordeste said that the operations are backed by highly liquid collateral and were contracted for investments in the opening of dozens of stores in the Northeast region, “which generated many jobs and income for families in our area of operation.” Daycoval said it has been working with credit for more than 50 years and the exposure to risk in these operations is natural, as is the provisioning of funds to cover eventual cases of default. “In the Americanas case, 50% of the amount has already been provisioned in the 2022 balance sheet.”

An analyst who has been following the sector for many years believes that banks are likely to report quarterly results with and without the Americanas provision and that cases of this magnitude are quite rare. “I think the degree of dissatisfaction of the banks with Americanas comes from the implicit guarantee by the three shareholders, which simply has not been converted into reality. The quarterly results are going to be a bloodbath.”

*By Talita Moreira, Álvaro Campos — São Paulo

Source: Valor International
Study shows that searches on the Internet for the topic skyrocket after a certain point


Brazilians begin to be bothered by the dynamics of prices when inflation is higher than 3.7% in 12 months, a study from MCM Consultores found.

This means, in theory, that from this level on, consumers and companies start to take into account the dynamics of inflation in their day-to-day economic decisions. This would translate not only into an “expenditure of cognitive resources,” but also into the creation of frictions between the agents’ actions that make inflation more inertial – and the Central Bank’s work harder.

In an interview last week, President Luiz Inácio Lula da Silva questioned the inflation target pursued by the Central Bank: “You established an inflation target of 3.7%. When you do this, you are obliged to squeeze the economy more to reach the target. Why did you need to reach 3.7%? Why didn’t you do 4.5% like we did?” The 2023 target is 3.25%, with a tolerance interval of 1.5 percentage points, up or down.

To reach this result, the study uses the annual variation in the frequency of searches for the term “inflation” in Google Trends in Brazil as a way to measure people’s interest or concern about the topic. It compares this data with the inflation over 12 months, measured by the official inflation index IPCA. The studied period goes from November 2005 to October 2022.

The results suggest that, between zero and 3.7%, the interest for the word is low and statistically not significant. In other words, Google searches cannot be attributed to current inflation. This, in fact, is the state considered ideal or optimal from an economic point of view, equivalent to an environment of so-called “price stability.”

From this point on, however, there is a jump in the frequency of searches for the word on Google, which moves into a new, statistically significant regime.

“If inflation starts to increase a lot, people become interested in the subject and this starts to generate effects in terms of prices and wages,” says Vitor Kayo de Oliveira, an economist at MCM Consultores who led the study.

Mr. Oliveira’s experiment employs, with some modifications, a methodology borrowed from a paper by economists Oleg Korenok, David Munro, and Jiayi Chen, published in September last year. They investigated the subject using data from 37 countries and came to the conclusion that, for this group, this threshold is between 2% and 4%. In the United States, the reference economy, it came to 3.55%.

The research led by Mr. Korenok was cited in a recent article signed by Olivier Blanchard for the Financial Times. In it, the former chief economist of the International Monetary Fund (IMF) again advocated a change in the inflation target pursued in developed countries, to 3% per year from 2%.

Mr. Blanchard is one of the mainstream economists who have been advocating a higher inflation target for developed countries since the 2008 financial crisis. The argument, since that time, has been that a 2% target made it too narrow for central banks to act in times of crisis without falling into the “zero lower bound” — the limit beyond which conventional monetary policy loses effect.

At first, however, Mr. Blanchard advocated for a looser target of 4%. In his article last year, he advocated 3%, considering, among other things, the work of Mr. Korenok and his colleagues.

In practical terms, “the ideal would be to set the inflation target below this threshold. This way, people wouldn’t worry about inflation, with the indexation of prices and contracts, for example, and the work of monetary policy would be easier,” says Mr. Oliveira.

In the case of the United States and other developed economies, he adds, this means an expansion of the target, currently at 2%. In the Brazilian case, the threshold found in the experiment is not far from the current target, which is 3.25% this year and 3% as of 2024.

“Ideally, from the point of view of how people interact with inflation, it would be to keep it below that 3.7%,” says Mr. Oliveira.

Mr. Korenok and his coauthors also studied Brazil but did not find enough evidence that there was a relationship between inflation dynamics and people’s interest. To reach his result, the MCM economist used some controls, such as the economic slack measured by the Central Bank’s Economic Activity Index (IBC-Br) and the three-month moving average of the FGV’s Consumer Confidence Index.

Unlike the original, Mr. Oliveira’s experiment also allowed more than one “jump” in interest for inflation on the internet. This third step appears at 8.1%, when Brazilians’ attention to inflation is 50% more intense than in the previous state.

*By Marcelo Osakabe — São Paulo

Source: Valor International
Brazil’s securities market watchdog wants to know if the accounting problem is restricted to Americanas


There is a risk that this is not Americanas fraud only, but an accounting method used by other companies, expert says — Foto: Gustavo Minas/Bloomberg

There is a risk that this is not Americanas fraud only, but an accounting method used by other companies, expert says — Foto: Gustavo Minas/Bloomberg

Brazil’s Securities and Exchange Commission (CVM) is questioning at least nine publicly traded retail companies to understand how they deal with a practice that is at the center of the issues involving the “accounting inconsistencies” of retail giant Americanas. The companies were consulted by the securities market authority. In the experts’ view, the goal is to understand what the market’s practices are and if the problem could repeat itself, even if in smaller proportions.

The so-called “risco sacado,” also known as forfait in Brazil, in general result from a triangulation between the company (buyer), suppliers, and banks. These operations use customer receivables to leverage the company with bank financing and with the company’s guarantee, without necessarily being represented as financial liabilities due to the specificity of each operation format. This practice is typically accepted by the market and is not restricted to retail companies.

In a note, CVM confirms that it has sent questions to companies on the matter and says that whenever necessary it interacts with capital market participants to request important information for analysis and supervision work.

One company questioned was Via. The company spontaneously manifested itself on the matter the day after Americanas disclosed accounting inconsistencies of R$20 billion that motivated the exit of CEO Sergio Rial and chief financial officer André Covre. The company said in a note, on January 12, that all these operations are recorded in its financial statements under international accounting standards and that it details the operation in the financial report. The operation is detailed in an explanatory note and the interest expenses are registered in the company’s results as a financial expense. Sought, the company declined to comment.

In 2016, CVM pronounced itself on the subject through a circular letter. The regulator warned about the need for companies to evaluate these operations and shows that the concern is not new. The capital market regulator recommended that if there was an understanding that the operation was a bank debt, it should be reclassified in the financial report as such. This point of attention has been repeated annually in the document since then. “The 2016 circular letter was not prescriptive. It may be that CVM will have clearer guidelines starting with the next circular, and will ask for classification criteria for companies. I think they will be more explicit in the way they want these operations to be treated,” said Luciana Dias, a lawyer and professor at Fundação Getulio Vargas.

More recently, in November 2021, the International Accounting Standards Board (IASB) requested, via public hearing, that companies give more details on such operations. IASB is the organization that publishes and updates the International Financial Reporting Standards (IFRS). There is also an understanding by IFRIC, the committee that interprets the IFRS standards, that it is necessary to assess the substance of the transaction when recording it in the financial report.

There is still a regulatory gray area, in the view of Ahmed El Khatib, a professor at Fecap. “This undefined question makes everyone understand their own way of doing things,” he said. If the company does not classify the financial expenses correctly, there would be a generalized distortion: the profit may be higher than it really is, which has an impact on the distribution of higher dividends, cash flow, and equity.

“There is a risk that this is not Americanas fraud only, but an accounting method used by other companies. If so, more companies may have built-in losses that nobody knows about. The CVM wants to have a snapshot of the market to show that the companies’ financial reports are reliable,” said Alexandre Chaia, a professor at business school Insper.

There was an analogous situation in the United States in 2000. In that year, the Enron financial scandal generated insecurity concerning the accounting of operations with derivatives and subsidiaries. As a response, two years later the Sarbanes-Oxley Act (also known as SOX) was created, aimed at protecting mainly investors from accounting errors and fraud. “Enron did what everyone else did. SOX is a consequence of the distrust of the market. This law serves as a reference for any company that operates in the international market,” said Mr. Chaia.

*By Juliana Schincariol — Rio de Janeiro

Source: Valor International
European commission vice president says he is pleased with the promise of zero deforestation


Frans Timmermans   — Foto: Divulgação

Frans Timmermans — Foto: Divulgação

“The eyes of the world are turned to Brazil”, says Frans Timmermans, Executive Vice President of the European Commission, and leader of the European Union international climate negotiations. The Dutchman, who is on a two-day visit to the country, wants to hear from the Lula administration what the plans to contain deforestation are, visit the Amazon, and initiate talks for COP28, the UN conference on climate change to be held in December in the United Arab Emirates.

Mr. Timmermans is also in charge of the debate on the European Green Deal at the European Commission, the executive branch of the block. The environmental agenda today is an economic agenda, and this was clear in the latest movements of the European Union, which is usually in the forefront of this issue and is concluding two legislations that affect Brazil — the one that wants to curb the importation of commodities linked to deforestation and the one that will adopt a mechanism for adjusting the carbon border.

The regulations have been viewed with anxiety by developing countries. “The climate crisis is a global crisis, and we can’t solve it by pushing emissions elsewhere,” he says, admitting that what is driving deforestation is the demand from markets like the EU for commodities like cocoa, coffee, palm oil, beef, and soy. “This new law will be holding us accountable for our consumption patterns,” he notes.

About the border tax on carbon from products, he says it is neither punitive nor protectionist. “We have done our best to design it in a way that respects global trade rules,” he says, adding that the system focuses on cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen.

“Renewable hydrogen will be an essential component of the future clean industry,” he acknowledges. Some industries such as steelmaking, chemicals, or long-distance trucks cannot become electric and need an energy carrier. That’s where hydrogen comes in. “It’s the rock star of the energy transition,” says Mr. Timmermans.

In recent years, and forcefully at recent COPs, the European Union has said it needs to broaden the donor base for climate finance. The UN Climate and Biodiversity conventions say it is the industrialized countries that are responsible for providing funds, but the Europeans argue that the world is not the same as it was 30 years ago. “Every country that is part of today’s industrial and economic elite can and must contribute to keep our planet a safe home for humanity,” argues Mr. Timmermans.

Mr. Timmermans recalls that G20 countries are responsible for 80% of emissions and “must improve their climate commitments.” In Brasilia, the European Commission vice president is expected to hold bilateral talks with Vice President Geraldo Alckmin and Ministers Marina Silva (Environment), Silvio Almeida (Human Rights), and Sonia Guajajara (Indigenous Peoples) before going to Belém. He will also visit Colombia and Mexico.

Before leaving, he gave an interview, in writing, to Valor. See below the main parts of it:

Valor: What are the goals of your visit to Brazil? How can European Union collaboration happen during Lula’s administration?

Frans Timmermans: This is the first time I will be in Brazil as executive vice president of the European Commission. I have already been here as a Dutch foreign minister and even lived in São Paulo when my father was the Dutch consul in the city. Right now, the eyes of the world are on Brazil. I was happy that I already had the opportunity to meet President Lula at the end of 2022, still as president-elect. We talked for a long time about the opportunities for the EU and Brazil to work together, including in the fight against deforestation, and about Brazil’s candidacy to host COP30. The desire to host the global climate conference in Belém and the decision to submit this candidacy soon after the inauguration say a lot about the government’s great ambitions for climate and environment.

Valor: President Lula and Minister Marina Silva are committed to zero deforestation, but Brazil will need help, especially after the Bolsonaro years. How can Europe help?

Mr. Timmermans: They have many ideas on how to stop deforestation. They know that it is in Brazil’s interest to do this. During my visit, first of all, I intend to hear what the new government is planning. The Amazon is an ecosystem of global importance, but how the forest is protected in Brazil is a sovereign decision of your country. I am happy that the government is so strongly committed to zero deforestation. You can be sure that the European Union is seriously considering how to help Brazil achieve this.

Valor: How and when the legislation of not importing goods produced by deforestation will come into operation? Although it is understood that the law goes in the right direction, not to stimulate deforestation, some people see it as protectionism and a barrier to the European market. What do you think about this?

Mr. Timmermans: Deforestation and forest degradation are important drivers of climate change and biodiversity loss. But what is driving deforestation? It’s the demand from markets like the EU for commodities like cocoa, coffee, palm oil, beef, and soy. So, this new EU law will be holding us accountable for our consumption patterns. More than 1 million European citizens have demanded that we do this so that our consumption in Europe does not cause environmental damage elsewhere. The law applies to European and non-European traders alike, and we take care to ensure that it is fully compliant with international trade rules. The goods I have mentioned, but also wood and rubber, can no longer be sold on the EU market if they are produced by deforestation. Once the law is fully adopted, there will be a year and a half to implement the new rules.

Valor: The European Parliament approved in December the first border tax in the world, the Carbon Border Adjustment Mechanism (CBAM). Will it be valid only for European companies outside Europe or for all? Will there be a test time and priority sectors? The measure is also seen as protectionist.

Mr. Timmermans: With CBAM, we want to avoid “carbon leakage.” I mean that efforts within the EU to reduce greenhouse gas emissions must not lead to Europe exporting emissions to other parts of the world. The climate crisis is global, and we cannot solve it by pushing emissions elsewhere. We also want to encourage clean industrial production in other countries. The result is simple: the less carbon that is incorporated into a product, the less CBAM will apply. CBAM is not punitive and it is not protectionist. We have done our best to design it in a way that respects global trade rules (WTO). The system focuses on products: cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. It will be introduced gradually over the next few years. In the transition phase, which will begin in October, importers of goods under CBAM will only have to report the greenhouse gas emissions incorporated in their imports; there will be no costs. Only after the transition period will they have to pay for the embedded carbon emissions. This price will be equivalent to the carbon price of products manufactured in the EU.

Valor: In the climate COPs, the EU has advocated the expansion of the number of donors to climate finance. Developing countries understand that this is rewriting the Climate Convention and even the Paris Agreement.

Mr. Timmermans: Every country that is part of today’s industrial and economic elite can and must contribute to keeping our planet a safe home. We cannot base new financing arrangements on an economic division that made sense in 1992. That would only allow countries that are now major economic powers to say, “Oh, we are part of the developing world, so we have no legal, moral or political obligation to contribute.” That is why the EU was so adamant in Sharm el-Sheikh [host of the COP27 in Egypt] to prevent the Damages Fund from being based on the same treaty article as the previous funds. This is not rewriting the convention. We are simply using other parts of the treaty. We need to do this if we want to achieve the necessary change and bring these funds to the countries that cannot cope with the climate crisis on their own. We need to bring in international and development banks and be able to attract private financing. That is the only way we can succeed.

Valor: There is a race in the world for the production of hydrogen, with more than 60 countries getting ready. Is there a demand for so much supply?

Timmermans: Absolutely. Renewable hydrogen will be an essential component of the future clean industry. Some industries such as steel, chemicals, long-distance trucks, and buses can’t go electric and need an energy carrier. Hydrogen will be critical in our industrial future. It is truly the rock star of the energy transition. Right now, we are living in the dilemma of who comes first. The industry wants to switch to hydrogen but is still reluctant to invest because they are not sure there will be enough supply. Potential producers, on the other hand, are not sure because they want to know if there will be buyers. We are developing a hydrogen bank in Europe to help fill this gap. We are also looking at cooperation with countries that are developing their renewable energy sector, to see if we can help transfer knowledge and create clean industrial value chains around the world.

*By Daniela Chiaretti — São Paulo

Source: Valor International
Brazilian exports of steel products totaled $9.3bn in 2021 and are expected to grow this year



The United States International Trade Commission (USITC) decided to lift the antidumping duty applied to Brazilian exports of carbon steel plate, in force since 1993.

According to the Ministry of Foreign Affairs, the U.S. will no longer charge additional 74.52% ad valorem duties on the import of carbon steel plates from Brazil.

“It should be noted that there was no change or revocation of trade defense measures for the other markets subject to the end-of-period review conducted by the USITC, with Brazil being the only country excluded from the surcharge,” said the Foreign Affairs Ministry, known as Itamaraty.

In a statement, the Brazilian government said it was proven that the extinction of the measure for Brazilian exports will not result in material damage to U.S. industry.

According to Itamaraty data, in 2021 Brazil exported $9.3 billion in steel products. Of this, 54%, or $5.1 billion, were destined for the United States. Brazilian exports related specifically to carbon steel heavy plates totaled approximately $75 million in 2021, a market that may increase after the surcharge lift.

*By Matheus Schuch — Brasília

Source: Valor International
Step is necessary before growing in Europe and Asia, says executive


After speeding up online sales during the Covid-19 pandemic, navigating through high interest rates and inflation, Brazil’s retailers are now seeking efficiency instead of accelerated growth. Representatives of these companies visited the pavilions of the NRF 2023 retail conference, in New York, this week, in search of answers to pragmatic questions through technology instead of futuristic trends.

“It’s no use talking about metaverse if I can’t integrate my stock with the online operation, for example,” said Rafael Forte, CEO of Vtex, a Brazilian multinational software-as-a-service company for online sales, which joined the list of Brazilian unicorns in September 2020 and went public in the New York Stock Exchange (NYSE) in July 2021.

Brazil’s retail results with the last Black Friday, which came below 2021 in gross sales, do not mean that the industry has not raised its margins in the period, said the executive. “The first thing that changed [in retail since last year] is that the game now is profitability and it is not made only with sales increase. You need to have margin and streamline the operations,” said Mr. Forte.

Working with leaner inventories, in reduced spaces or inside stores, as U.S.-based Macy’s has done in 35 stores over the past few years; betting on salespeople who attend customers in a customized way through WhatsApp, as fashion retailer C&A has done; or integrating the items on the shelf to the online sales inventory, as Carrefour has done, are some strategies in the search for efficiency shared by these companies during the NRF 2023.

For Vtex, which was born as an e-commerce platform and expanded its operations into software for managing other fronts of the sales chain, gaining the trust of U.S. companies is the focus before expanding operations in Europe and Asia, said the executive.

In September, the company opened an office in a prime area of Manhattan, where 40 people work. “If you build credibility here [in the U.S.], the global market respects it, so we need to have that focus,” he said.

Vtex has 2,400 clients in 38 countries. In the U.S., it has local contracts with AB Inbev, Motorola, Stanley, Black & Decker, and Whirpool. Brazilian clients currently generate 53% of the company’s revenue, and Latin American clients, more than 90%.

Before building a base in one of the most expensive square meters in the world, however, Vtex had to lay off employees, an adjustment measure that almost no unicorn – technology-based companies valued at over $1 billion – could avoid since last year.

The team of 1,850 people in February has dropped to 1,400 now. “We hired a lot of people, since 2020, when we had 400 people, to meet demand from retail, which was under pressure [in the pandemic] and then needed to streamline operations,” said the executive. “When you grow very fast like that, it is inevitable to lose efficiency, so we had to look inward and search for that again.”

The measure reflects greater investor caution in the face of the slowdown in the U.S. and global economy, causing technology companies to also seek efficiency. “Just as retail has been looking for efficiency, so have we.”

In the third quarter of 2022, Vtex’s revenue totaled $38.8 million in the first quarter of 2022 – of which $36.5 million in software-as-a-service subscriptions –, up 21.6% year-over-year. The net loss of $11.5 million in the September quarter was 47.7% lower than a year earlier.

(The reporter’s travel costs were covered by Vtex.)

*By Daniela Braun — New York

Source: Valor International
Rate fell for sixth time and is now at 8.1%


Job creation was more modest, suggesting a slower start of 2023 — Foto: Marcelo Camargo/ABr

Job creation was more modest, suggesting a slower start of 2023 — Foto: Marcelo Camargo/ABr

The good performance of the labor market in 2022 showed signs of exhaustion again in November, but it remains heated. In line with other signs of deceleration seen in the economy in the final stretch of last year, job creation was more modest, suggesting a more cautious start of 2023 for Brazilian workers.

According to the Continuous National Household Sample Survey (Pnad), released on Thursday by the statistics agency IBGE, the unemployment rate in the country was 8.1% in the moving quarter ended in November 2022, compared to 8.9% in the previous quarter ended in August.

The result was in line with the median expectations of 27 consulting and financial institutions consulted by Valor Data, which pointed to a rate of 8.1% in the moving quarter that ended in November 2022. It is the sixth consecutive quarter of decline in the rate, which reached the lowest level since April 2015 (8.1%).

In absolute numbers, the country had 8.7 million unemployed — people aged 14 or older who looked for a job but couldn’t find one. This is 3.7 million fewer people than in the same period in 2021. The employed population reached 99.7 million people, a new record in the survey, which began in 2012.

Despite the apparent good numbers, the improvement seems to be losing steam. The rate of expansion of the employed population, which was 2.4% and 1.5% in the previous two quarters, slowed to 0.7% in the survey period. According to the seasonally adjusted calculations of banks and consulting firms, it is already possible to see a drop in the employed population.

According to Bruno Imaizumi, an economist at LCA Consultores, the employed population has had a net negative variation for three months. This effect has not yet impacted the unemployment rate only because the labor force participation rate —including those looking for work — has also fallen again.

“If we used the labor force participation rate of the pre-pandemic period, of 2019, this unemployment rate would be 2 percentage points higher than the current number,” notes the economist, for whom the unemployment rate is expected to rise again in the first quarter of 2023.

In Santander’s seasonally adjusted calculations, there was a 0.4% drop in the labor force in November, followed by a retreat of the same magnitude in the employed population. As a result, the bank’s seasonally adjusted unemployment rate ended stable at 8.6% in November versus October.

“The result of the Pnad continues to show an overheated labor market. However, unemployment remains at low levels because of the reduction in labor force participation,” says Santander’s report, signed by Gabriel Couto. “We expect a slowdown in this improvement, but the maintenance of a low market participation rate means a downside risk to our projections.”

Coordinator of IBGE’s Household Sample Surveys, Adriana Beringuy, ponders that it is necessary to wait to better evaluate the loss of breath of job creation. Occupation also comes from successive growths. “Maintaining a high level is difficult,” she said, recalling that 2022 was a year of adjustment, especially in the services sector.

A point celebrated by Ms. Beringuy was the growth in the average income of workers, which rose 3% in the November quarter, to R$ 2,787. With this, the real income bill customarily received by occupied people was R$272.998 billion in the moving quarter ended in November, up 3.8% compared to the previous moving quarter.

In the year-on-year comparison, the average income of the Brazilian worker advanced by 7.1% in the quarter ended in November 2022, which was the first increase after six quarters of decline.

Contributing to this improvement was the growth in the formal sector, which reached 36.8 million, up 2.3% from the previous quarter. On the other hand, the informally employed population fell by 1.3%. Besides the improvement in the occupational composition, Ms. Beringuy also cites the easing of inflation in 2022, compared to the same period in 2022, to explain this first reaction of income in the year-on-year comparison.

Rodolpho Tobler, a researcher at the Brazilian Institute of Economics of Fundação Getulio Vargas (FGV Ibre), points out that, despite all the improvement in the market, the average usual income has not yet returned to pre-pandemic levels.

“It is natural that, when many people stay out of the labor market, the return happens with lower salaries. But this challenge remains for 2023, and the point that worries us is that this year tends to be a more difficult one. The economy was already showing signs of slowing down at the end of last year, and the labor market, with some lag, may notice this as well,” he said.

*By Marcelo Osakabe, Lucianne Carneiro — São Paulo, Rio de Janeiro

Source: Valor International