Auction is expected to draw at least one bidder after postponement, revamp
06/30/2022
Five groups mull taking part in the federal auction that will choose a company or consortium to build a beltway around Belo Horizonte, the capital city of Minas Gerais, through a public-private partnership. Acciona, Sacyr, China Railway Construction Corporation (CRCC), ECB (a subsidiary of the Portuguese group Mota-Engil) and Construcap are analyzing the project, sources say.
The auction, which was previously postponed and revamped, is expected to succeed this time and draw at least one bidder. Yet, the venture is seen as extremely challenging as market conditions remain very difficult amid soaring inflation and high interest rates.
The interested companies or consortiums will be able to file their bids on July 25. The action will be held on July 28 at the exchange B3, in São Paulo. The winner will be the group that offers a higher discount on yearly installments to be paid by the government to the concessionaire. The maximum amount is R$103.7 million.
In addition, the state of Minas Gerais will inject R$2.4 billion in the first moment to build the beltway. The funds come from the compensation paid by mining company Vale to the state government after damages caused by the dam failure in Brumadinho.
The auction had been scheduled for April this year before being postponed amid uncertainties about the project. Since then, the public-private partnership was revamped in order to draw bidders, sources familiar with the project say.
The main change was the reduction of necessary investments, as the construction works for two segments are no longer obligatory. The final version of the call for bids provides for the construction of the North and West sections, which total 70 of the 100 kilometers of the beltway and concentrate most of the traffic. As a result, the mandatory capital expenditure dropped to R$2.5 billion from R$5 billion.
The construction of the other two stretches (South and Southeast) is still provided for in the contract. The construction works will be included as an additional investment in exchange for a rebalancing of the contract – which could materialize through capital injection by the government, by contract extension, or another arrangement.
Acciona declined to comment. Mota-Engil and Sacyr did not immediately reply to a request for comment. Valor could not reach CRCC and Construcap.
The project is both highly encouraging and challenging, analysts say, because the beltway must be constructed from scratch. It is a multi-billion, complex venture – something rare in Brazil today, which draws flush engineering groups.
On the other hand, the risks are high, said Eduardo Ramires, a partner at the law firm Manesco Advogados. “It is a huge project, with large urban interference, many expropriations and an environmental permit process that will take at least two years. If the process is delayed, it is a problem, because it impacts all the planning and brings uncertainties to the financing structure,” he said.
Government measure reduces taxes to up to 16% from 35%
06/30/2022
The cars produced in Brazil may have lower local sourcing rate. The country is still far from the electrification drive underway in developed countries, and a recent measure of the federal government has accelerated the decline of manufacturing. A resolution from the executive management committee of the Foreign Trade Chamber reduced the import tax rates to 16%-18% from 35% for vehicles that enter the country entirely unassembled or partially assembled.
This is the first time that the Brazilian government stimulates the local assembly of vehicles with parts from abroad, known in the industry by the acronym CKD. Until now, the stimulus to local sourcing prevailed. Past government programs have granted many incentives in exchange for a minimum local content. Today, although there is no rule, in the major automakers the average local sourcing rate is 70%.
The Camex resolution is recent. It was published in the Daily Gazette on March 2. The tax break is valid for new cars and light commercial vehicles up to 1,500 kilos without equivalent domestic production. The resolution has a two-year term.
The tax drops to 18% on semi knocked-down (SKD) cars. That is, what arrives in the country in the form of sets of parts already assembled abroad. The government will grant a lower tax reduction, to 16%, for completely knocked-down vehicles (CKD). In this case, the assembly requires a greater amount of processes and local labor.
Audi will use the SKD benefit. Sets of components of the new generations of two models — Q3 and Q3 Sportback — will arrive at the Paranaguá port for assembly at Volkswagen’s plant in São José dos Pinhais, Paraná. The company announced on Wednesday an investment of R$100 million to modernize the line with new machinery. A total of 200 workers will be hired in the coming months until the planned capacity of 4,000 vehicles per year is reached.
This is a timid plan when compared to the sector’s average and to what Audi itself has already done in Brazil in its first two attempts to have an industrial activity in the country, in 1999 and 2015. In both, the German automaker was attracted by tax break programs — the so-called automotive regime and Inovar-Auto, respectively. When it decided to stop the activity for the second time, in early 2020, Audi’s management team pointed to the frustration of not having received back tax credits owed by the federal government.
These credits refer to a measure taken by the Brazilian government in 2012, which instituted the collection of 30 percentage points more IPI on cars imported by companies without plants in Brazil. When four luxury brands — Audi, Mercedes-Benz, BMW and Land Rover — unveiled plans to build factories in the country, there was a promise, never kept, to return the overcharged Industrialized Products Tax (IPI).
The total of these credits amounts to R$300 million, according to the company. It is estimated that Audi is owed more than R$200 million, although the company does not reveal precise figures. Mercedes gave up the operation at the end of 2019 and sold its factory to China’s Great Wall.
Daniel Rojas — Foto: Divulgação
According to the CEO of Audi in Brazil, Daniel Rojas, the model adopted this time, with the assembly of imported semi-knocked down kits, is used around the world and is “suitable for production in low volumes.”
The company may, however, expand production and even decide to make another model locally if tax credits are returned, he said. The executive points out what led the assembler to decide for the SKD system instead of importing complete vehicles: “We have an agreement with the government to produce until 2030, we have benefits, and we have a local production commitment with our customers.”
According to the executive, in conversations with dealers, it is noticeable that the brand’s customer values the company’s industrial activity in the country. “The Brazilian market is one of the largest in the world; a reference in Latin America,” he highlights.
Although it has chosen to produce combustion models in Brazil, Audi is among the brands that most offer electric cars in the country, all imported. According to Mr. Rojas, 8% of the brand’s sales this year will be of fully electric or hybrid models. This represents four times more than the market average.
The German brand already sells four electric models in the country and announced on Wednesday the arrival, soon, of two more in the hybrid version: Q5 and Q5 Sportback. The company also plans to invest R$20 million in the expansion of recharging points in its dealer network.
In the future, electrification will be present in the entire Audi line. The company’s global plan foresees that by 2033, the brand’s worldwide production will be restricted to hybrid or fully electric models. The effort paves the way for a bolder goal of achieving decarbonization by 2050.
Online platforms create opportunities for new companies abroad, experts say
06/30/2022
Expansion of e-commerce has created opportunities for new companies to venture into exporting — Foto: Ana Paula Paiva/Valor
The growth of internet sales — and a favorable exchange rate — drove commerce into a boom of new exporting companies with continuous sales to other countries. The number of those companies increased to 15,770 last year from 14,490 in 2019 — up 8.9%.
Commerce expanded nearly two times faster (16.5%) than the average and accounted for nearly one-third of the total number of regular exporters in 2021. The manufacturing sector remains the leader, with 9,400 companies last year, but its growth from 2019 to 2021 was smaller, at 2.8%. The data are from the Center for Foreign Trade Studies Foundation (Funcex).
For specialists, the expansion of e-commerce has created opportunities for new companies to venture into exporting. According to a survey by economist Daiane Santos and statistician Henry Pourchet, with Funcex, companies debuting in shipments overseas totaled 5,270 in 2021, 26% more than in 2019, before the pandemic hit Brazil. Again, commerce, with 2,500 companies, led the pack, with an increase of 45.8%. Industries added 1,960 companies, with an advance of 17.2%.
The devalued exchange rate, although not considered as a guarantee or as the only condition for the increase in shipments, also served as a stimulus, at the same time that the health crisis forced companies to improve their logistics structure, making the transportation and delivery of products more efficient and faster, said Ms. Santos.
The survey shows that in 2021 exporters totaled 30,960 companies, but only about half are regular exporters – those that made shipments every year during the period studied since they started selling overseas.
According to the survey, commerce was already gradually gaining more space among continuing exporters as the number of exporters grew. In 2000, the manufacturing segment accounted for 65.8% of regular exporters while commerce represented 24.5%. Ten years later, those shares were 64.8% and 27.9%. Last year they closed at 59.7% and 32%, respectively.
The data show the great interest that the foreign market arouses, especially from smaller companies that can serve certain niches in which small importing companies seek small suppliers, said José Augusto de Castro, head of the Foreign Trade Association of Brazil (AEB). The growth of trade over time among regular exporters, however, shows that the industry has more difficulty in sustaining its shipments, often taking advantage of favorable cycles or more irregular export opportunities.
Mr. Castro also considers that although the devaluation of the real may have created a temporary advantage for the surge in the number of companies, the exported values are concentrated by relatively few companies. The number of exporting companies in the agribusiness sector, he points out, exemplifies this well. In a sector in which newcomers are less common, regular exporters historically stand at around 300 companies. In 2021 there were 302, which represented about 2% of all regular exporters. In terms of value, the shipment of agricultural products last year accounted for 20% of the $280.8 billion exported by Brazil.
Ms. Santos and Mr. Pourchet say in the survey that the most recent export momentum was influenced by government stimulus policies and also by the economic situation. Between 2009, the first year after the international financial crisis, and 2014, the number of exporters stabilized at around 21,000 companies.
With the contraction of the domestic economy between 2015 and 2018, there is an increase in the number of companies entering the export base, with a new level of about 25,000 companies at the end of this period. In the last four years, there was a more vigorous year-over-year growth, maintained during the pandemic period.
Ms. Santos foresees that the number of regular exporters and opportunities will increase further amid the reorganization of the international trade in search of resilience and supplier diversification. “But it is not possible to rely solely on exchange rate devaluation to encourage new companies to export or help sustain shipments by newcomers,” she said. To do so, she stresses, it is necessary to have support from programs that encourage exports, including guidance and qualification for companies.
Senator files appeal asking for blueprint approved last week by Agriculture Committee to be discussed in plenary
06/29/2022
Paulo Rocha — Foto: Divulgação/Senado Federal
Senator Paulo Rocha (Workers’ Party, PT, of Pará) filed on Tuesday an appeal for the bill that establishes the so-called agricultural self-monitoring, passed last week by the Senate’s Agriculture Committee, to be analyzed in plenary before being signed into law. The lawmaker has already obtained the necessary signatures to take the proposal to the plenary.
In the model provided in the bill, farmers and agribusiness companies will also control their own production. If the change takes place, the agricultural defense system, which today is exclusively state-run, would become hybrid, shared with the producers.
Advocates of the project claim that this division of tasks between the public and private sectors is similar to systems adopted in Europe and the United States and would guarantee the fluidity of the processes, hampered by the federal government’s budget limitations. But consumer and animal protection organizations, opposition lawmakers, and representatives of the civil servants who work in enforcement are critical of the project and are calling for at least a broader discussion before a definitive change is made.
The National Union of Agricultural Federal Auditors (Anffa Sindical) said in a note that it is in talks with senators to try and take the bill to the committees of Consumer Protection, Health and Constitution and Justice. Anffa says that the proposal represents a risk to society by making the processes of sanitary inspection of agribusiness more flexible.
“Besides the risks to the country’s food health, this bill sets a dangerous precedent for the federal government’s auditing and inspection careers because it can be used as a reference to limit the actions of other civil servants in these fields,” Anffa’s head Janus Pablo said.
Besides Paulo Rocha, Senators Jean Paul Prates (PT of Rio Grande do Norte), Fabiano Contarato (PT of Espírito Santo), Paulo Paim (PT of Rio Grande do Sul), Jaques Wagner (PT of Bahia), Flávio Arns (Podemos of Paraná), Eliziane Gama (Citzenship of Maranhão), Rogério Carvalho (PT of Sergipe), Mara Gabrilli (Brazilian Social Democracy Party, PSDB, of São Paulo), Leila Barros (Democratic Labor Party, PDT, of Distrito Federal), Zenaide Maia (Pros of Rio Grande do Norte) and Alessandro Vieira (PSDB of Sergipe) have already signed the appeal.
Survey by Better Governance shows that only 17.6% of young companies are in most mature stages of governance
06/29/2022
In the last decade, the Brazilian startup ecosystem has become the most solid in Latin America, with a growing number of companies, investors and success stories. But this expansion has not been accompanied by an item considered fundamental to the long-term success of the business: corporate governance.
A survey conducted by consultancy Better Governance shows that while 60.1% of startups declare to be in the most advanced stages of business development, only 17.6% are in the most mature stages of governance. The majority (82.4%) are still in the early stages.
“There is a mismatch. It’s like a teenager, with growth spurts but still stumbling,” said Sandra Guerra, the founding partner of Better Governance. “Lack of governance increases the risk of a startup entering the valley of death,” says the expert, who has served on boards of directors for more than 25 years. The mortality rate is high among startups. One in four startups die in the first year of life, and half don’t make it past the fourth year, according to a study by Fundação Dom Cabral.
Better Governance heard 146 startups from 20 states, most of them (74%) with up to five years of founding, annual turnover of up to R$1 million (43.4%) and B2B model, with sales directed to other companies (45.2%). The results will be detailed this Wednesday in Miami, during an event of the Inter-American Development Bank (IDB). At the meeting, questionnaires in English and Spanish will also be launched, with the expansion of the survey to other Latin American countries.
The investments in startups in Brazil reached a record value of $9.6 billion last year, with an increase of 165% compared to 2020. For 2022, the projection is for expansion of at least 20%, reaching something around $11.6 billion to $12.9 billion, said Nelson Azevedo, director of Better Governance, based on data from the Distrito platform.
“Funds are not going to decrease, but investors are pickier in the selection of startups,” the expert said. The so-called “spray and pray” era, in which venture capital funds sprayed funds and waited patiently for the results, “praying” for them to be positive, is over, Mr. Azevedo said.
With the crisis triggered by Covid-19 and the unfavorable economic scenario, marked by inflation and high interest rates, startups are having to show more solidity to attract the attention of investors, whose evaluation criteria have also become more sophisticated as the checks get fatter. In this scenario, Mr. Azevedo points out, a well-structured governance system can make a lot of difference for startups.
Instead of rarities such as “unicorns” and “decacorns” – startups whose market capitalizations exceed $1 billion and $10 billion before they even hit the stock market, respectively – the funds are now interested in identifying “camels,” Mr. Azevedo said. These are companies that do not grow so fast, but show constant evolution and are resistant to bad weather.
The governance maturity model proposed by Better Governance takes into account the criteria for small and medium-sized companies of the International Finance Corporation (IFC), which is linked to the World Bank. There are six governance levels, classified by four stages of maturity. The results are then compared to the four stages of development of startups established by the Brazilian Institute of Corporate Governance (IBCG).
The biggest mismatch is in the control environment – which evaluates the financial, accounting, and strategic control structure – and in the field of financial information disclosure and transparency. In the first case, 66.4% of the companies are still in the initial stage of maturity. This reflects the fragility of startups in practices such as auditing (with 80.5% of the companies in the basic stage) and risk management (47.7%). In relation to transparency, the share of companies in the developed or advanced stage does not reach 14%. When it exists, the work of auditing the rendering of accounts is restricted to the founders, without greater visibility to the other stakeholders.
The concern with ESG occupies an intermediate level of attention. About 71% of the companies say they are advanced in issues related to the formalization of the business, such as articles of association and bylaws. But items such as sustainability and implementation of governance bodies (such as boards) only occupy a similar status in 20% and 15% of startups, respectively.
The same occurs with decision-making and strategic monitoring. Almost 46% of the companies are in the most mature phases of the remuneration policies, for example, but very few are prepared for the succession of their executives: 86.5% are still in their infancy in this aspect.
“Succession is not a taboo only in startups; it is a problem in any company,” Mr. Guerra said. In the case of new companies, this is aggravated because, in recent businesses, the entrepreneur or CEO hired has more difficulty in considering his own obsolescence and recognizing when the business requires another manager profile. The recommendation, however, is to consider a succession plan even if it is not to be effective in the short term, says the partner at Better Company. Unlike what the saying goes, never change a winning team, in a startup, it is necessary to be prepared to change at any time.
There will be 13 lots for construction, maintenance of 5,425 km
06/29/2022
In total, 13 lots will be auctioned for construction and maintenance of 5,425 km of transmission lines — Foto: Custódio Coimbra/Agência O Globo
The most awaited auction of the Brazilian electricity sector held by the National Agency of Electrical Energy (Aneel) takes place Thursday, June 30, at the B3 headquarters in São Paulo, with the expectation of at least R$15.3 billion in investments. There will be 13 lots for the construction and maintenance of 5,425 km of transmission lines and 6,180 megavolt-amps (MVA) in substation transformation capacity.
According to the calculations of the Ministry of Mines and Energy (MME), the contest is likely to draw the largest amount of investment in the segment since 2019. The transmission segment is the safest in the electric sector. It is fully regulated, and the winner gets a 30-year contract indexed to the IPCA (Brazil’s benchmark inflation index) with zero risk of default.
The projects, with a conclusion period of 42 to 60 months, will be implemented in the states of Acre, Amapá, Amazonas, Bahia, Espírito Santo, Mato Grosso, Mato Grosso do Sul, Minas Gerais, Pará, Rondônia, Santa Catarina, São Paulo and Sergipe. The government expects the creation of 31,600 jobs.
Lots 1, 2 and 3 are the ones that draw most attention for the robustness of the investments: almost R$12.3 billion. The largest of these is number 2, which cuts through the states of Minas Gerais and São Paulo over a distance of 1,700 kilometers. The purpose of the lot is to expand the transmission capacity in the northern region of Minas Gerais and, if completed, will employ 9,800 people.
The total value of the reference allowed annual revenues (RAP) to be paid to the entrepreneurs is approximately R$2.2 billion. The bidding will be based on the value of the RAP. The winner will be the bidder that presents the lowest value of RAP in reais per year.
André Fonseca, head of strategic financial services at Thymos Energia, believes that the auction will be of great competition with the presence of traditional companies in the sector, but the costs of the projects may be higher. “We have a scenario of higher capex and higher debt cost, which reflects in higher RAPs. Even so, the expectation is for high discounts,” he said.
Today Brazil has almost 170,000 kilometers of transmission lines, according to data from Brazil’s national grid operator ONS. Despite that, the segment still suffers from bottlenecks to drain all the power production. The goal is that by 2026 Brazil will have almost 202,000 kilometers of lines.
“The expansion of the transmission grid allows for better management of power resources. In the Northeast region, it expands the possibility of outflow of new renewable generation – mainly wind. In addition, the auction brings other benefits to society, such as improved service conditions in the states of Acre and Amazonas, especially the integration of the Humaitá (Amazonas) region, which is currently isolated from the National Interconnected System (SIN), said ONS Director-General Luiz Carlos Ciocchi.
For the professor at the Economics Institute of the Federal University of Rio de Janeiro (UFRJ) and coordinator of the Electric Sector Study Group (Gesel), Nivalde de Castro, the auction remains in line with the strategy that the formulators of the electric sector have adopted to meet the potential growth of renewable generation in Brazil.
“The auction is designed to meet expected demands, especially due to the growth of wind and solar sources, which require widespread number of lines. They serve 13 states, with investments of R$15 billion with a maximum delivery term of five years in small, medium and large lots,” he said.
In the transmission sector, the expectation is good. The Brazilian Association of Electric Energy Transmission Companies (Abrate) believes that all the lots will be auctioned with strong discounts.
“The expectation is the same as the last auctions, occasions in which all the lots were bought. In the last auction [in 2021], the situation was identical to the current one and the discount was above 50%. Therefore, this trend of strong discounts may happen again,” says the technical head of Abrate, Geraldo Pontelo.
He says that the investment in each lot of venture to be fought over is calculated by Aneel’s Reference Price Bank, whose nominal values remain the same compared to the last auction.
Mr. Castro, with the UFRJ, has a different view. The researcher evaluates that the macroeconomic conditions have changed. In his view, inflation is the main element that has increased costs, and this may not have been captured in the formulation of the costs of the projects, since the values were released well in advance.
“On the other hand, inflation ends up helping the business, because tariffs are adjusted by inflation. There must be a great demand, since it is the safest business in the electric sector, without regulatory risk and the Congress cannot interfere or give an opinion, as it has been doing in the generation and distribution segments,” he says.
Sharp reduction in taxes will put governors under pressure
06/28/2022
The reduction of sales tax ICMS on fuel, electricity, communications and public transportation, in effect since Friday, and the analysis by the Federal Supreme Court (STF) on how to calculate taxes levied on fuels will cause a loss of R$105 billion to R$136 billion for states and municipalities, nearly 10% of all revenues from the state tax. The abrupt reduction in revenues will put governors under pressure, especially from 2023 on. Experts and politicians see a limited menu of options for them to balance it out.
The idea of compensating for the loss of revenues by increasing ICMS rates on other goods and services, or the rates of state taxes like IPVA (on vehicles) and ITCDM (on inheritance), is seen as insufficient and politically difficult. An alternative, from the revenue point of view, is to lift tax benefits granted to certain companies and industries.
Another solution is to force the ICMS tax reform, to adjust the new tax in a way to recover these losses. Some people believe, on the other hand, that the result will be pressure for more transfers from the federal government and public services deterioration. The tax collection today is on the rise because of inflation, but this same inflation will begin to pressure spending soon for salary and contract adjustments.
The decision adopted by Congress and signed into law by President Jair Bolsonaro (Liberal Party, PL) to curb inflation has trampled states and municipalities. The governors were divided between those who criticized the bill, saying it would not solve the high power and fuel prices, and those allied to the president, who praised the measure. There was concern on all sides that resistance to the tax cut would be used to attack them in October, given the proximity to the election campaigns.
Among lawmakers leading the bill, the discourse behind the scenes is that there will not be a substantial drop in revenue this year, because of inflation and the measure that will force the federal government to compensate for a loss of more than 5% in revenue compared to 2021, a rule that will be in force only by December. Starting in January, they say, the new governors and the president-elect will be able to evaluate the scenario and adopt the necessary measures.
States see gigantic losses ahead. The National Confederation of Municipalities (CNM) estimates that the cut in ICMS will take R$85 billion in revenue per year from states and municipalities. They also say that the decision of Supreme Court’s Justice André Mendonça, who ruled that the calculation of taxes levied on fuels must be based on the average of the last five years, will increase losses by more R$20 billion. The National Committee of Finance Secretaries of the States (Comsefaz) presented larger numbers Tuesday to the STF – they foresee revenue losses of R$136 billion.
A source in the treasury department of one of the largest states in the country told Valor last week that there are still no discussions among governors about what to do. They were waiting for the unfolding of all the actions to be taken by the government and the decision on possible lawsuits. He corroborated, however, the view that the deficit is high and will require measures, either spending cuts or tax increases, probably announced only in November, after the election. The impact on the coffers will also differ for each state, because it depends on the rate currently applied to items with a reduced rate under the new law, so the solutions in each location may also be different.
Ítalo Franca — Foto: Divulgação
Santander’s economist Ítalo Franca points out that regional governments (state governments and municipalities) reported last year the largest surplus since official records began, with a positive balance of R$97.7 billion between revenues and expenses, but that the new law will hinder this result.
He had projected a surplus of R$70 billion this year. With the ICMS reduction, he reduced the figure to R$25 billion. For 2023, when the impact of the new law will reach the entire year’s collection, there would be a deficit, also considering the increase in expenses such as salaries and constitutional floors for spending in health and education. “This would bring problems for the state accounts. It will be a very hard adjustment.”
Rodrigo Spada, head of the State Tax Auditors Associations (Febrafite), points out that some states do see a temporary relief for cyclical reasons, while others in fiscal recovery regime as Rio de Janeiro, Goiás and Minas Gerais. “And any loss is permanent,” he recalled.
In Mr. Spada’s opinion, the governors will have difficulty in compensating for the loss in ICMS with increases in IPVA and ITCMD because they are direct taxes, with the bill going to the richest taxpayers, with the greatest mobilization capacity.
“The most likely is the increase of the ICMS itself on other fronts. The taxpayer does not know how much he pays because it is embedded in the price of the goods. Businesspeople are the ones who collect the tax, but the buyer bears the burden,” he said. This solution, he highlighted, would harm mainly the poorest people.
This, however, comes up against two obstacles. To prevent the gasoline tax reduction from being offset by higher taxes on diesel and ethanol, Congress forbid states from raising fuel and energy taxes that were already lower than the standard (17% or 18%). Furthermore, fuels, energy and communications are today the most profitable items of ICMS, representing 50% of the tax collection in some states. These are products that, even with higher prices, the population can’t stop consuming, unlike a new refrigerator or stove.
Deputy Aguinaldo Ribeiro (Progressive Party, PP, of Paraíba), the rapporteur of the tax reform in a mixed congressional committee, believes that, because of these obstacles, there will be greater pressure to vote on the issue in 2023. The tax overhaul was shelved due to political divergences.
“It makes it easier because neither the federal government will be able to compensate the states nor the governors will be able to survive with a cut like this,” he said. For him, the proposal to amend the Constitution (PEC) 45 would have solved the problem by applying a single tax rate for all goods and services, with extra taxation for items that cause “negative externalities.”
Gabriel Leal de Barros, a partner and chief economist at Ryo Asset, also sees a consensus forming on the need to change state taxation. “It will be inescapable. It is a blessing in disguise,” he said. The risk, he points out, is if this is not accompanied by measures on the expenditure side: the administrative reform, the revision of social programs and the definition of the country’s new fiscal anchor.
“Whoever wins [the presidential election], Lula or Bolsonaro, it is clear that the spending cap will be revised and the size of this flexibilization will be proportional to the quality of tax reform,” Mr. Leal said, citing former president Luiz Inácio Lula da Silva, the front-runner in the electoral race. “If the new spending space is too big, instead of doing tax reform that focuses on efficiency, the government will end up doing reform to increase revenue. And if that’s the concern, the chance of raising tax in the wrong place is much higher, which could reduce potential GDP growth even further.”
In the current legislature, the states pressed for the approval of the ICMS reform, with the creation of a Value Added Tax (VAT) that would unite five to nine taxes, but in the end, there were divergences with the federal government about the creation of a fund to compensate for losses, with the opposition of business sectors, such as services and agriculture. In addition, Chamber of Deputies Speaker Arthur Lira (Progressive Party, PP, of Alagoas) opposed the rapporteur.
Paulo Ziulkoski, head of the National Confederation of Municipalities (CNM), said that the tax reform has been discussed for 30 years without progress and that he does not believe it will be approved in the next legislature. The most urgent issue, he stressed, is a reform of the federative pact, to discuss the responsibilities of the federal government, states and municipalities. “We have no leeway to try and reverse this loss,” he said. The cities only have three taxes (property tax IPTU, service tax ISS and real tax transfer ITBI) that, even in the largest municipalities, such as São Paulo, only represent 7% of revenues.
The loss of up to R$13 billion this year and R$26 billion annually as of 2023 due to the ICMS cut will not be compensated with other revenues, but with the precariousness of public services to the population, said Mr. Ziulkoski. “Citizens will be affected. There will be no money for school maintenance, school transportation, distribution of medicine, adequate health care,” he said.
Juliana Damasceno, a senior economist at Tendências Consultoria, pointed out that the states live an atypical situation, with lower spending because of the freezing of wages during the two years of the pandemic, and increased revenue because of inflation, but this combination will take its toll and this may occur sooner if inflation slows down. “An inflation-adjusted tax helps in the short term, but in the medium and long term it hinders on the spending side. Either because the civil servants will press for salary raises, or because contracts will be adjusted,” she said.
As a tax reform is a “very long, exhausting and difficult path,” she believes that states are likely to increase taxes and review tax incentives granted to economic activities, mainly in the scope of the fiscal war. “These governments will be forced to rethink these benefits and study how they can withdraw them,” she said. A study by Febrafite, a federation that gathers state tax inspectors, showed that, in 2020, the tax waiver as a result of these incentives reached R$92 billion, a value close to the deficit now imposed by the federal government. In states like Paraná, Paraíba and Goiás, the amount exceeded 30% of the ICMS revenue.
Swiss gold refiners, among the world’s largest, have pledged not to import gold from indigenous territories in the Brazilian Amazon, in a first-of-its-kind statement that illustrates the growing scrutiny surrounding material from the forest.
Refiners Valcambi – considered the largest in the world –, Argor-Heraeus, Metalor, MKS Pamp and PX Précinox, as well as the Swiss Association of Precious Metals Manufacturers and Traders (ASFCMP), have made a “commitment not to deal with gold from indigenous territories of Brazilian Amazon, and to take the necessary technical and humanly possible measures in order not to take, import or refine illegal gold including the one from Brazil by tracing and identifying this gold,” according to the English version of the document.
They also condemn and reject “any mining activity linked to the protected areas of the Amazon without the free, prior and good faith informed consent of the impacted communities.” They condemn the use of mercury, and call on the Brazilian government to protect the environment and indigenous communities. The document also says that they share the concerns of the indigenous nations surrounding Bill 191/2020, which would open up indigenous lands to mining and other commercial activities.
The commitment is the result of dialogues with NGOs that culminated in a meeting in Bern, the Swiss capital, of the refineries with a delegation from the Amazon, including representatives of the Munduruku Wakoborun community (from Tajapós), the Xingu Vivo Para Sempre movement, the Aliança Volta Grande do Xingu, and Amazon Watch, mediated by the Society for Threatened Peoples (SPM).
SPM co-director Christoph Wiedmer says the declaration of intent is unprecedented in the Swiss raw materials industry. The question now is how it will be implemented, he says. No consensus has been reached on the central issue of transparency in the gold supply chain for Switzerland.
“Brazilian authorities said that in 2020 and 2021, 5 tonnes of dubious gold left for Switzerland,” Mr. Wiedmer notes. “We are still looking for where this gold went, because the Swiss refineries say they didn’t import it.”
Christoph Wild, president of the Swiss Association of Precious Metals Manufacturers and Trader, says Switzerland imports gold from all over the world “including Brazil, but mined legally and according to international standards.” And that it does not import the precious metal from the Amazon in any case, knowing that it is quite sensitive. The joint statement with NGOs, he added, seeks to show attention to sustainable supply chains.
Switzerland is the second-largest gold importer in the world, the leading exporter, and a global center for trading the precious metal. Non-governmental organizations often complain that the country is far from being able to guarantee the origin of imported gold.
Globally, gold extraction reached 3,300 tonnes in 2019. The largest producer was China with 380 tonnes, followed by Australia, with 325 tonnes, and Russia, with 305 tonnes. Brazil has a production of 90 tonnes, while Peru produces 128 tonnes.
A report by the WWF estimates that between 50% and 70% of all gold traded worldwide physically transits through Switzerland – figures that players in the industry dispute, saying it all depends on the definition used, whether it is gold mined, ingots, or otherwise.
According to WWF, a good part comes from countries that do not produce the precious metal, such as Great Britain (imports of 130 tonnes), United Arab Emirates (128 tonnes) or Italy (68 tonnes), due to a multi-faceted trading system that prevents gold from being traceable.
Last week, Swiss Customs data showed that more than 3 tonnes of gold were shipped from Russia to Switzerland in May, in the first major shipment since the Russian invasion of Ukraine in February, and thus a twist to international sanctions against Moscow. The G7 countries have decided to ban gold imports, in a decision announced over the weekend in Germany.
CEO says current hybrid is ticket to full electrification
06/28/2022
Anders Gustafsson — Foto: Silvia Zamboni/Valor
Volvo is the leader in the fully electric car segment in Brazil, with 39% of this market from January to May. About a year ago, the company decided to abandon the sale of combustion-powered cars in Brazil and to offer only hybrid and fully electric cars. And at the end of 2021, it announced an investment of R$10 million to expand the installation of public battery charging points, mainly on highways.
A few days ago, the CEO of Volvo Cars Americas, Anders Gustafsson, visited Brazil. Among the work commitments, in a meeting with dealers, the also executive in charge of the Americas operations since 2017 and still the CEO of Volvo Cars in the United States heard what he hears in every country he visits: there is a shortage of cars. It is a problem that frustrates him. But there is nothing to be done while the shortage of semiconductors persists. In his conversation with Valor, he takes the cap of a water bottle and compares: “Without this little piece, this bottle of water is useless.”
Read below the main excerpts of the interview:
Valor:Volvo decided to sell only electrified vehicles in Brazil. What has been the consumer’s reaction?
Anders Gustafsson: Many people told us that it would be too early to make this decision. There was a fear of lack of infrastructure. But we are seeing that consumers are adapting much faster than we could have imagined. Our customers are affluent and like what gets them into technology. Getting out ahead of the rest was a risk. But it is easier to win if you are the first.
Valor:In Brazil, there is a lot of talk about starting the electrification process with hybrids. What is your opinion?
Mr. Gustafsson: We see our hybrids as the ticket to the world of electrification, which gets you addicted. I remember how pleased my wife was when she started charging the car and later saw that she could monitor the charge level on her cell phone. I have three children. The youngest is extremely annoyed when she hears the noise of a combustion engine.
Valor:So, sustainability is already a sales appeal for electric cars?
Mr. Gustafsson: It is growing. And it happens the same way for all of us. We are all talking about it. I often say that when you get sick, nothing is more important than getting healthy. And I think the same is true for sustainability. We see what is happening in the world. We see diseases that we have never experienced before, and the power of nature is quite unique.
Valor: You are the CEO of Volvo in the USA, where the government has bold plans for electrification. How has this process been?
Mr. Gustafsson: In the end, it is always the consumer who decides. But incentives can lead customers to a faster transformation. Today we have electrification with financial support for the consumer in the U.S., and the government will provide additional financial stimulus to accelerate the process. There will also be lots and lots of money for infrastructure; and not just in California. The combination of the financial support and the existence of infrastructure will certainly increase interest in electrification in the United States.
Valor:And how are the tests with autonomous cars going over there?
Mr. Gustafsson: All brands are testing autonomous cars and we have advanced in the development with our partners. Probably in two months we will talk more about it.
Valor:Brazil is a country with an unstable economy. Do factors such as inflation and high interest rates worry a luxury brand like Volvo?
Mr. Gustafsson: I am not happy about it. But we are a strong brand, with a strong product portfolio. We only absorb one part of the industry, which is the premium segment. We don’t compete with conventional brands. We run a business that is healthy. When the market falls, we normally gain market share. And if the market grows, we have our cycle of new products.
Valor:Do you plan to increase the offer of products in Brazil?
Mr. Gustafsson: In the next two years, we will launch two new models in segments where we are not today. We will have a new fully electric SUV. We are moving forward with cars in new segments. This is how we grow profitably.
Valor:Volvo chose not to have a plant in Brazil. Could this change someday?
Mr. Gustafsson: We are a listed company and, therefore, we need to ensure return to shareholders. We make decisions based on what we need. We are growing and the structure will change if necessary. But first of all, we need to achieve volumes.
Valor:And how does Volvo face the shortage of semiconductors?
Mr. Gustafsson: It is frustrating because we could sell 100% more. But we don’t have cars. Our suppliers are trying to do their best. A lot of them happen to be in Asia. And they were under tremendous pressure last month. But now the factories are opening again and production is back to levels to meet our expectations.
Valor:Has the issue of chip shortage taught any lessons?
Mr. Gustafsson: We have the metal, we have the batteries, we have the technology, but without this little piece we cannot make the cars. It is amazing. My wife and I often buy things at IKEA [Swedish brand that designs and sells ready-to-assemble home accessories]. She always asks me to assemble them, but I end up asking her for help because, based on my gender, I never read the instructions. I always try without reading instructions. Then I end up leaving some piece out. This ruins my day. That is how I feel now at work about the lack of semiconductors.
Valor:There has always been an over-dependence on supply from Asia…
Mr. Gustafsson: Yes, and it was painful. But now the US government and several other countries are working with incentives to attract the semiconductor industry so that this does not happen anymore. The semiconductor needs to be made in a very strict environment, with a lot of investment.
Valor:Going back to electrification, although brands like Volvo are investing in public charging points, Brazil still lacks infrastructure. Doesn’t that affect your plans?
Mr. Gustafsson: I am happy when I see our charging stations and when I see that our competitors use them. Why do we have to wait for the government to fix everything? If we all invest in infrastructure it will be much easier to sell more electric vehicles.
Valor:But the lack of infrastructure still makes the consumer afraid of buying a 100% electric car…
Mr. Gustafsson: It is all a matter of changing habits. When I had to go on a strict diet, the first month was difficult, the second month was too. Today, it’s not anymore. I hate going to the gym. But I started going 30 minutes a day. And now I feel bad when I don’t go. With electrification, it is the same thing. The consumer will learn to change habits. Let’s be honest: how often do we drive the car until we get the full range of the fuel we have? Or: how much percent of the cell phone memory do we use? I really hope that the consumer will start to think differently about electric cars.
Company projects to increase its market share to 30% from current 13%
06/28/2022
The new furnace will have the capacity to produce 1,000 tonnes a day — Foto: Reprodução/Vivix
Flat glass manufacturer Vivix, owned by the Cornélio Brennand group, will invest R$1.3 billion in a new plant in the municipality of Goiana (Pernambuco), where it has been installed since 2014. With the investment, the company projects to increase its market share to 30% from the current 13%, expanding distribution outside the Northeast region.
The construction of the unit will begin in December and the start-up is scheduled for mid-2025. The new furnace will have a production capacity of 1,000 tonnes per day. Currently, the capacity of the company, which grossed R$900 million last year, is 900 tonnes/day.
The company signed on Monday a memorandum of understanding with the state government of Pernambuco to implement the venture. According to Henrique Lisboa, Vivix’s CEO, the project’s financial equation is still being closed. He says that the plant will have the contribution of shareholders’ own capital, resources from the company’s cash flow and a funding capture in the market.
The flat glass market is currently dominated by three multinationals (Cebrace, Agc, and Guardian). With the new plant, Vivix, the only 100% Brazilian, expects to become the second ranked company in the country.
Vivix’s expansion was planned since its implementation eight years ago, with investments of about R$1 billion. Mr. Lisboa says that the glass consumption per capita in Brazil is still low if compared to the United States and Europe, which indicates a great potential to expand the demand for the product, used mainly in construction, furniture, and decoration.
At the moment, the sector is going through a slowdown phase after the peak of the pandemic, following the oscillation the real estate market suffers directly the effects of high interest rates. “When we talk about high interest rates, we are talking about short term. The plant takes about 30 months to be ready and the furnace operates for 18 years,” says Mr. Lisboa.
According to the executive, the flat glass market may experience a slight contraction in volume this year, around 5%. The years 2020 and 2021 together add up to an increment of 14%.
Currently, Vivix commercializes half of its production outside the Northeast region, with road and sea distribution. With the new factory, the company wants to expand this share to up to 70% by road and sea.
The furnace will be practically all imported. It will be fueled mostly with natural gas. A residual portion will use electricity. The group has ore mines to supply the plant in a nearby region.
The unit currently employs 360 people. When it is fully operational, the workforce is expected to exceed 600 people.
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