Labor market reflects racial inequality in country

The Brazilian labor market is another segment of society that reflects racial inequality. Unemployment is higher among blacks (16.3%) and brown people (15%) than among whites (10.8%), according to data for 2021 from IBGE’s Continuous National Household Sample Survey (Pnad). The informality rate is also higher for blacks (52.9% for brown people and 49.4% for blacks) than for whites (43.8%).

The index measures the proportion of informal jobs in relation to the total number of jobs. In income, the gap is clearer: the average income of a black worker was R$1,907 in 2021 – only 57% of that of a white worker (R$3,310).

For specialists, the differences reflect, besides situations of discrimination, a previous trajectory of unequal opportunities according to race and social origin, especially in education. It is in this context that they highlight the role of racial quotas for universities — whose law is 10 years old — as one of the instruments to try to mitigate the problem.

The percentage of black and brown students between the ages of 18 and 24 in public universities, which was 32% in 2001, rose to 40% in 2012 and then to 52% in 2021, according to an estimate by Luiz Augusto Campos, a professor at the State University of Rio de Janeiro (Uerj).

Education explains a good part of the income difference between whites and blacks in the labor market, says Ipea researcher Rafael Guerreiro Osório, although there are regional influences, by occupation and type of activity.

Boards of directors

In the early 2000s, Wellington Silva was in company boards and never met any other black executive. More than 20 years later, discussions about racial diversity in the business world have increased, driven mainly by the adoption of ESG (environmental, social and governance) metrics in investment analysis. In practice, however, the evolution is very small.

Currently, some boards include members like Denísio Liberato (Neoenergia), Rachel Maia (Vale, BB and CVC), Fausto Augusto de Souza (Copel) and W. Don Cornwell (Natura). These black people represent a tiny slice of the more than 3,500 seats in Brazilian public companies considering board members, chief executive officers and chief financial officers.

Carlos Portugal Gouvêa, a professor at the University of São Paulo (USP), decided to conduct an unprecedented survey to map this situation. The research indicated that the chance of a white person to occupy some of the best paid jobs in the country is 58 times greater than that of person of color.

The study, conducted between January and May 2021, investigated the racial profile of the top management of companies listed on B3, the Brazilian stock exchange, by analyzing photos published on the internet. In all, 442 companies and 3,561 positions were surveyed. In this first stage, seven potential black and 28 brown board members were identified. Among CFOs and CEOs, it was noted that one CFO could be considered black. Among brown officers, the survey identified three CEOs and one CFO.

Afterwards, the racial information was submitted to the companies themselves for validation, and 69 of them (15.61% of the total) answered back. This new set, which represented 727 positions, showed that 712 of them were occupied by white people, nine were yellow, and six were brown. No black person was identified in this second stage among all the positions.

“We need much higher percentages for the numbers to become representative,” said Mr. Gouvêa, who, in addition to teaching at USP’s Law School, is the founder of law firm PGLaw. If racial diversity remains low, there is a risk of “tokenism,” when symbolic inclusion occurs with the aim of making superficial concessions to minority groups.

There is a mismatch between those who have the decision-making power in companies and the rest of society, which can be dangerous for companies, the professor warned. “It is important not to turn the subject into a marketing event. The idea of the diverse board is to offer new perspectives on the functioning of the company itself and for its own business plan,” says Mr. Gouvêa.

Cristina Pinho — Foto: Leo Pinheiro/Valor
Cristina Pinho — Foto: Leo Pinheiro/Valor

There are still barriers and cultural biases for the ascension of women and black people in the executive career, an important step for those who wish to join a board of directors, said Cristina Pinho, a member of the board of Ocyan, a private company. The rise to a position like this also depends on interpersonal relationships. “The nomination of white women comes from white men, who predominate on the boards. Where are the black men? They are not on the boards. That gear feeds on itself.”

Specific programs for the inclusion of blacks in top management positions in companies are still rare, said Cássio Rufino, a partner at MZ Consult. He is the chief operating and investor relations officer at the company that offers market solutions in IR. “Finding a white man among ‘farialimers’ is much easier,” he compares, citing the executives who work on Avenida Faria Lima, the corporate address of several companies in São Paulo.

When he attends trade shows and meetings with investor relations professionals, Mr. Rufino sees himself, more often than not, as the only black person present. These events bring together many analysts, managers and executives, who may in the future become CFOs or CEOs.

Large companies have a responsibility to be influencers for small ones, said Rachel Maia, board member and founder of RM Consulting. “Companies are looking for referrals for greater plurality.”

“I couldn’t even imagine that I would be able to do a college degree in engineering. My intention was to finish the technical course and work in Curitiba,” said Fausto Augusto de Souza, employee representative on Copel’s board of directors. Elected in 2021, he was the only black person among the candidates. The executive, who lived in the interior of the state of Paraná, studied electrical engineering after joining the company and then took a master’s degree. Now Mr. Souza is looking to expand his specialization and become an independent board member in the future.

Source: Valor International

https://valorinternational.globo.com

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Embraer to hire 1,000 people in Brazil

Carlos Alberto Griner — Foto: Silvia Costanti/Valor
Carlos Alberto Griner — Foto: Silvia Costanti/Valor

Embraer, the world’s third-largest manufacturer of commercial aircraft, is hiring 1,000 people in Brazil for different positions and levels in preparation for the projected growth cycle in the coming years.

Firm demand for executive jets, expectations of an upturn in commercial aviation, entry into new markets – including the launch of a cutting-edge turboprop and Eve Holding’s electric vertical take-off and landing vehicle (eVTOL) – and the expansion of affiliates underpin the opening of jobs across different units in the country.

“Hiring is the materialization of what Embraer had been indicating for the future,” Carlos Alberto Griner, the company’s vice president of people, ESG and communication, told Valor.

According to the executive, the move is aligned with the forecast that 2022 would be a year of recovery, with the resumption of growth in 2023. “Since the industry has a long cycle and requires qualification, we have to start looking at future needs with some anticipation,” he said.

In 2022, the company expects to deliver 60 to 70 commercial aircraft and 100 to 110 executive jets, compared to 48 and 93, respectively, last year – so the guidance already includes some growth.

Resumption of production at Embraer, creation of Eve, acceleration of EmbraerX, growth of Atech and Tempest, and other projects were considered in the package. “This brings a new demand for talent,” he added.

At the end of last year, the company boasted almost 18,000 employees worldwide, 80% of them in Brazil. By the end of 2022, there will be more than 19,000 employees.

The hiring comes two years after 900 workers were dismissed in Brazil as part of the efforts to face the crisis triggered by the Covid-19 pandemic and the losses from the cancellation of the sale of the commercial aviation business to Boeing. The entire aviation industry, from manufacturers to airlines, suffered from the effects of the pandemic that reduced the volume of travel worldwide.

About half of the new jobs were opened by Embraer in operation, and most of these positions are expected to be filled by people dismissed in September 2020.

According to Mr. Griner, the company will also take the opportunity to seek more diversity, in line with the environmental, social and governance commitments assumed. The working model is flexible now and can be in-person, remote or hybrid, depending on the requirements of the position. “The people strategy is to anticipate, qualify and take advantage of diversification,” he said.

Source: Valor International

https://valorinternational.globo.com

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Analysis: Consolidation takes off in airline industry with Avianca-Gol deal

Decision reinforces view of analysts and market experts that there are many mergers to come in the industry — Foto: Blende12/Pixabay
Decision reinforces view of analysts and market experts that there are many mergers to come in the industry — Foto: Blende12/Pixabay

The decision by Avianca and Gol shareholders to move forward with the creation of a holding company reinforces the view of analysts and market experts that there are many mergers to come in the industry. The Covid-19 crisis has caused many companies to suffer severe losses and led some, like Latam, to ask for protection from creditors. The situation is now compounded by the skyrocketing price of oil.

The main shareholders of Colombia’s Avianca and the Constantino family, which is the controlling shareholder of Gol, have signed an agreement to create a holding company that will control both airlines and hold a non-controlling stake of 100% of the economic interests in Viva’s operations in Colombia and Peru, as well as a convertible debt investment representing a minority stake in Chile’s Sky Airline. The holding company, called Grupo Abra, will be a UK-based private company. The Constantino family will have the largest stake, sources say.

This is a hot market. Besides the consolidation movements abroad, Latam became the target of competitor Azul, which sought to take advantage of the Chapter 11 plan (judicial recovery) of the Chilean company in the United States and is in talks with creditors to buy the rival. The effort, however, lost steam after Latam’s successful negotiation with creditors, which suggests that Azul’s approaches will not have an effect.

Gol CEO Paulo Kakinoff told Valor recently that mergers and acquisitions are likely to gain steam and cited American Airlines, which bought 5.2% in Gol, as an example. Now, the company has taken a new step.

Avianca Holding was once controlled by businessman German Efromovich, brother of José Efromovich, who owned now extinct Avianca Brasil. The businessman ended up losing control of the company because of an unpaid debt of $456 million with United Airlines. As a result, United emerged as one of the largest shareholders of Avianca before the pandemic and the company’s judicial reorganization.

Avianca completed its reorganization recently and raised $1.7 billion through financing. Shareholders now include Kingsland International Group, Elliott International and South Lake, as well as U.S.-based Delta. It is not clear what role United will play in the new holding company to be created.

On the other hand, Citi analysts pointed out that the agreement between United Airlines and Azul ends on June 26. As Gol has already received an injection from American Airlines, “it will be interesting to see if this business development will increase the urgency for United to reach a similar agreement with Azul,” the bank said. United currently owns about 8% of Azul.

In an earnings conference call this week, Azul executives were asked about talks to expand the agreement with United, but did not provide details. They only said that there is a window to extend the agreement and that there are ongoing talks.

The move by Gol and Avianca still lacks regulatory approval. Yet, sources signaled that there is no concern because the deal is not seen as creating much route overlap – the issue is one of the most sensitive in the analysis of antitrust agencies.

When Azul started approaching Latam, the former showed a strong appetite for consolidation. Behind the scenes, Azul even signaled that if talks with Latam were not successful, it would approach Gol.

In an interview with Valor in the middle of last year, Gol’s chair Constantino de Oliveira Júnior, who will take over as CEO of Abra, emphatically said that “by nature, we place ourselves in the position of consolidators, buyers, and not sellers in this process [of market consolidation].”

In view of the expected success of Latam’s judicial recovery, the group is expected to come out stronger than ever in view of the more favorable negotiations with partners, especially lessors, that Chapter 11 brings. The same happened with American Airlines and Delta, which faced restructuring.

At the end of the day, Azul, which has always signaled interest in consolidation, ended up lagging behind. It remains to be seen how the partnership with United will unfold and if the group has more cards up its sleeve.

Source: Valor International

https://valorinternational.globo.com

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New reading shows inflation persistently at double-digit levels

Will Gold Save You From Inflation? - Macro Hive

The result of the Extended Consumer Price Index (IPCA) for April reinforces the complicated scenario for inflation. It is yet another price index showing inflationary pressures spread throughout the economy, with strong increases in food, fuel, industrial goods and services prices.

It was the eighth month in a row with the 12-month inflation at double digits, which shows the difficulty of the Central Bank to bring down inflation to levels close to the targets, of 3.5% this year and 3.25% next year.

This points to the need for further monetary tightening, with interest rates likely to remain high for longer.

The IPCA in April was 1.06%, above the 1% expected by the analysts heard by Valor Data, even with the 6.27% deflation of the electric energy item. In 12 months, the indicator has risen 12.13%, the highest since October 2003. In the first four months of the year, the variation already stands at 4.29%, 0.79 percentage points above the Central Bank’s target for 2022.

The diffusion index once again brought bad news. The data, which show the percentage of items on the rise in the month, was 78.25%. It is the highest since January 2003, according to MCM Consultores Associados. It is a highly pervasive inflation.

There are effects of the war between Russia and Ukraine, which puts pressure on commodity prices and affects global supply chains, and the impact of the reopening of the economy with the easing of social distancing measures due to the improving numbers of the Covid-19 pandemic.

The cores, which seek to reduce or eliminate the influence of the most volatile items, continue at very high levels. The average of the five measurements most closely monitored by the Central Bank was 0.95% in April, close to the 0.98% seen in March, according to MCM figures. In 12 months, the average of these cores went to 9.69% from 9.01%. In summary, even indicators that seek to isolate or reduce shocks to inflation are close to double-digit levels.

The rise in food at home prices slowed down a little last month in relation to the 3.09% seen in March, but the increase was still very strong, at 2.59%. In 12 months, food at home went to 16.11% from 13.72%. Fuels had another significant increase, with gasoline prices rising 2.48% in the month.

The trajectory of rising prices of industrial goods is impressive. In April, they increased 1.22%, the ninth month in a row with 1% or over, points out MCM. In 12 months, these products have advanced 14.22%. Two years ago, in April 2020, the inflation of industrial goods on this basis of comparison was 0.05%.

The problems in global supply chains, due to the pandemic and the war in Eastern Europe, put pressure on the prices of these products. A lower exchange rate could ease these pressures, but the rate has appreciated again in recent weeks, to around R$5.15 to the dollar.

Finally, there is services inflation, which accelerated to 0.66% in April from 0.45% in March, taking the 12-month inflation to 6.94% from 6.3%. In the case of core service inflation, which excludes the domestic services, courses, tourism and communication groups, the picture is even worse. The rise last month was 0.79%, bringing the 12-month inflation to 7.74% from 6.98%. This measure is concentrated in the items that are most sensitive to demand, pressured in the services sector by the reopening of the economy.

This inflationary picture is president Jair Bolsonaro’s greatest weakness in his quest for reelection, as it wreaks havoc on the population’s purchasing power. And new pressures on prices are underway. The increase in diesel oil prices announced on Monday, of 8.87% in refineries, will not have a great direct impact on the IPCA, but has an important effect on the economy, by increasing costs in various industries. Such high inflation for so long is one of the main reasons for the low popularity of Mr. Bolsonaro, who heavily criticizes Petrobras’s pricing policy.

Some analysts project a double-digit IPCA also this year, which will contaminate next year’s indicator, because of the carryover effect, the phenomenon whereby past inflation increases future inflation. This scenario requires higher interest rates for longer, which will hit economic activity in the second half of the year and next year. The Selic, Brazil’s benchmark interest rate, which was at 2% until March 2021, is expected to rise to at least 13.25%.

Source: Valor International

https://valorinternational.globo.com

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Government eliminates import tax to curb inflation

Marcelo Guaranys — Foto: Marcelo Casal Jr./Agência Brasil
Marcelo Guaranys — Foto: Marcelo Casal Jr./Agência Brasil

The government is zeroing the import tax rate of several products to contain inflation, said on Wednesday the executive secretary of the Ministry of Economy, Marcelo Guaranys, in an interview to announce decisions taken by the Executive Management Committee of the Foreign Trade Chamber (Gecex/Camex). “These measures don’t reverse inflation, but businessmen think twice before raising prices,” Mr. Guaranys said. The discussion about steel was intense in the last two days, he added.

Beef, chicken meat, wheat and wheat flour, corn grain, cookies and crackers, and other pastry products had their import tariffs reduced to zero. Besides these, sulfuric acid and mancozeb (the latter had its tax reduced to 4%) are also on the list.

Tariffs were also reduced for two categories of steel, which are rebar used in construction, said Camex secretary Ana Paula Repezza “The impact, in this case, will not be direct on inflation,” she added, noting that the request to reduce steel taxes had been under consideration for eight months. For rebar, the import tariff fell to 4% from 10.8%.

The reductions are valid until December 31, 2022, and will bring an impact of R$700 million in tax waivers, said Herlon Alves Brandão, undersecretary of Intelligence and Statistics of Foreign Trade at Camex.

This loss, however, will not need to be compensated with the indication of other sources of revenue, because it is a regulatory tax, clarified the deputy executive secretary of Camex, Leonardo Diniz Lahud. “Import taxes don’t have a collection function, they regulate the market, either for one side or the other,” he said.

About the import tax of 4% established for steel rebar, Ms. Repezza said it is in line with the world average. She also added that the meeting held the day before with businesspeople from the steel sector was not the first to analyze the issue and that the decision taken now is the result of a process that has been going on for months and included a wide debate.

On Tuesday, after the meeting, leaders of the Instituto Aço Brazil, which represents steelmakers, said that Economy minister Paulo Guedes had instructed the team to re-examine plans to cut the product’s import tariff to 4% from 10.8%. The tariff cut is a request made by the construction industry, which complains of rising prices.

Mr. Guaranys contextualized the decision on the import tax by speaking that the opening of trade is related to improving the business environment and increasing productivity and competitiveness, one of the major pillars of economic policy. “We have made very important steps in this context,” he said. “Minister Paulo Guedes’s line is to make gradual opening.”

The first move was the 10% cut in import tariffs on capital goods and technology; then the 10% reduction of practically the entire Mercosur Common External Tariff (TEC). Then, an additional 10% cut was made on the tariffs for capital goods and technology and at the moment there are negotiations with Mercosur for a new cut in the TEC. Internally, the government cut the Industrialized Products Tax (IPI) by 35%.

“We have been going through a moment of great inflation, harmful to the population,” said Mr. Guaranys. “We he reduces rates on some specific products, with an impact on the population”.

Source: Valor International

https://valorinternational.globo.com

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Eve expected to be as large as Embraer in 10 years

Embraer’s Eve and Zanite agreed to merge air mobility businesses — Foto: Divulgação
Embraer’s Eve and Zanite agreed to merge air mobility businesses — Foto: Divulgação

In less than ten years, Eve Holding, Embraer’s urban air mobility company whose shares started being traded on Tuesday on the New York Stock Exchange (NYSE), may reach the Brazilian plane maker’s current size and become its main business. By current projections, the company is expected to reach revenues of $4.5 billion in 2030, against the $4.2 billion recorded by the aircraft manufacturer in 2021, and be at the head of a market estimated at $760 billion in 2040.

“Embraer has two lines of action: business efficiency and innovation. Eve is an example that this strategy is working,” CEO Francisco Gomes Neto, who attended the opening ceremony at Nyse along with the management team of Eve Holding, told Valor. The company already has non-binding orders for more than 1,800 eVTOLs (electric vertical take-off and landing vehicles), the so-called flying cars, which constitute a potential backlog of $5.4 billion.

Despite the figures, the debut on the American stock exchange was not smooth. Penalized mainly by the increase in interest rates, global inflation and investors’ flight from risky assets, the shares fell 23.5% in the first business session, to $8.66 each, in a movement that was already expected by analysts because of the recent negative performance of other stocks in the industry. In Mr. Gomes Neto’s evaluation, it is relevant the fact that the company has managed to move forward with the operation amid adverse market conditions.

The funds raised in the transaction — an IPO via merger with Zanite Acquisition, a special purpose acquisition company (SPAC) that was already listed at NYSE — were lower than expected. But, according to Mr. Gomes Neto, they are enough to finance Eve’s operation until eVTOL is authorized.

Initially, the estimate was that it would take about $500 million to reach certification of the aircraft, scheduled for 2025. Zanite’s financial partners, however, contributed less funds and Eve Holding raised $377 million. As a result, Embraer holds about 90% of the new company’s capital, compared to just over 80% in the original proposal.

“With more experience in relation to costs [of the project] and with competitive engineering, which is available in Brazil, the vision at this point is that the funds are enough,” the executive said.

According to Mr. Gomes Neto, one of Eve’s major distinctions in relation to its peers is being able to count on Embraer’s support, knowledge and global facilities. Other companies that are developing the so-called flying cars will have to build this structure, he pondered.

In addition, Embraer’s engineering team, which is recognized globally for its competencies, is participating in the development of the eVTOL. “We are confident that Eve’s design is simple and more favorable to operation than other designs,” he said.

The first 1:1 scale Eve prototype is due to take off in Brazil, at the Gavião Peixoto plant, in São Paulo state, in the next few weeks. There is still no decision on where the aircraft will be manufactured, and an international consulting firm has been hired to help define the assembly process. “We are going to make logistics and manufacturing network studies to decide where and how this process will be,” the Embraer CEO said.

In a note, Eve co-CEO Andre Stein called the IPO at Nyse a “historic milestone” in the journey started nearly five years ago by the startup incubated at EmbraerX. “This deal is a key enabler of our mission to become a leader,” he said.

Jerry DeMuro, also co-CEO, pointed out that the non-binding orders signed by major customers, including Azorra Aviation, Falkon Regional Aircraft, Republic Airways and Skywest, “provide powerful validation” of Eve’s business strategy and vision.

With the crisis triggered by the Covid-19 pandemic, which was especially hard on civil aviation, and the cancellation of the company’s commercial aviation sale to Boeing, Embraer had to reduce its operations and adjust to the new market reality. Eve’s success is one of the relevant axes for the company’s resumption of growth.

Source: Valor International

https://valorinternational.globo.com

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Kimberly-Clark expands operations to export from Brazil

Gonzalo Uribe — Foto: Ana Paula Paiva/Valor

Gonzalo Uribe — Foto: Ana Paula Paiva/Valor

Kimberly-Clark, the U.S.-based maker of personal care and household cleaning products, is expanding operations in Brazil in order to turn the country into the company’s innovation hub and main exporter for the Latin American market. “All Brazilian plants will produce items to be exported by the end of this year,” Gonzalo Uribe, the chief executive for Latin America, told Valor.

Since 2020, the owner of brands Intimus, Neve and Huggies is investing in capacity expansion, equipment, installation of new technologies and construction of an increasingly local raw material supply network. It also foresees sustainability targets, such as using 25% recycled plastics in packaging and reducing non-renewable fibers by 50%. The investment totals $120 million, one third of which will be injected this year.

“Brazil is our most important market in Latin America. It is one pillar of the company’s organic growth,” said Mr. Uribe. Earlier this month, the Colombian executive made his first visit to Brazil since taking office, bringing the entire management team from the region to follow the plans to strengthen the operation.

Brazil is one of Kimberly-Clark’s 10 largest operations worldwide, with 4,000 employees. In the first quarter, Mr. Uribe said, the sales of the Brazilian operation grew by double digits. Globally, the sales of the U.S-based multinational grew 7% year over year, to $5.09 billion, but operating income fell 10%, the same contraction as net income, which stood at $535 million.

“Margins are typically lower in the first quarter, but they are starting to show some recovery,” Mr. Uribe said. The cost of goods sold was 13% higher in the quarter, but, according to him, analyses and data point to an improvement this year.

During his visit to the country, he closely followed the changes in the Suzano plant, São Paulo. With the investments, the unit started producing 200 million diapers per month and automated the production of wet wipes. “Our entire production line is digitalized, with data every second on how the production is going, how much material we are consuming, how our products are in terms of quality,” Mr. Uribe said. Besides the local market, the unit already supplies Chile, Peru, Bolivia and Argentina.

But the allocation of funds includes the company’s other two plants, in Mogi das Cruzes (São Paulo) and Camaçari (Bahia). One brand that will have more products made in Brazil is Intimus. Today, some items in its portfolio come from Asia. They will be produced at the plant in Bahia, both to meet the domestic market and to export, at first, to Chile and Peru. The company expects the production to supply the entire region in the coming years.

The growth of domestic production also benefits product lines driven by the change in consumption habits during the pandemic, as is the case of the product Scott Duramax. At the beginning of the second half, the conversion line focused on local production will start operating, replacing the current import operation from Colombia. The product will be made in the Mogi das Cruzes plant. The local output is expected to grow 40% in the first year of operation.

The expansion plan also includes the use of local raw materials, a strategy that gained prominence after global supply chain disruptions caused by the pandemic. Almost all the inputs are Brazilian or imported by local suppliers, the executive said. “Verticalization and local production become more important and necessary, besides being a competitive advantage versus imports,” he said, citing advantages like the more guaranteed supply and the reduction of freight costs.

The Colombian executive believes that the moment is one of rearrangement of the global industry – not only for Kimberly-Clark. “It is an opportunity for Brazil to export even more to Latin America and the world. This is also happening in Mexico and Colombia. Latin American markets must take advantage of this trend.”

Source: Valor International

https://valorinternational.globo.com

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Analysis: Central Bank avoids new hints amid unchecked inflation

Central Bank building — Foto: Jorge William/Agência O Globo

Central Bank building — Foto: Jorge William/Agência O Globo

In an environment that is more uncertain than usual, the Central Bank’s Monetary Policy Committee (Copom) has chosen, in the minutes of last week’s meeting released on Tuesday, to describe in more detail how it sees this scenario, instead of signaling what its next steps could be. Even if the policymakers look to a longer horizon and adopt a cautious stance, the deterioration in the inflationary picture is likely to continue in the short term.

Last week, the Copom raised the benchmark interest rate to 12.75% per year from 11.75%. In the minutes in which it detailed the reasons for the decision, the committee invested in a section, much broader than the previous one, called “scenarios and risk analysis.” There, the Central Bank discusses risks that range from the war in Ukraine to the “Chinese policy to fight Covid-19” to the “persistently high demand for goods,” including in the United States. The policymakers also acknowledged that they discussed in the meeting “some likely explanations for the difference between the projection in its reference scenario [of the Central Bank] and the analysts’ projections” – a point that has been drawing the market’s attention for some time. Perhaps even more indicative is the fact that it has included the baseline inflation scenario in the section dealing with risks. In March, for example, this scenario was presented in the section that dealt with the economic situation. In other words: the main pillar on which the Copom relies to make its decisions about the Selic has lost reliability to some degree.

“The Committee judges that the uncertainty in its assumptions and projections is higher than usual,” it said on Tuesday regarding the baseline scenario.

In the opposite direction, the section that addresses the discussion about the conduct of monetary policy was much leaner in Tuesday’s minutes. The Copom affirmed that it opted “to signal as likely an extension of the cycle, with an adjustment of lower magnitude [than 100 basis points] in the next meeting.” But it said it decided on this signal, among other factors, since it “reinforces the cautious monetary policy stance and emphasizes the uncertain scenario.”

This does not mean that inflation will not get worse in the short term. In the Quarterly Inflation Report, a comprehensive document that details its assessment of the economic situation, the Central Bank projected that the Extended Consumer Price Index (IPCA) would be 1.02% in March – but the actual rate was higher, of 1.62%. Central Bank President Roberto Campos Neto acknowledged he was surprised by the reading.

April’s IPCA-15, a barometer for Brazil’s full month official inflation, continued to show deterioration, rising 1.73%. It was the highest level for April since 1995 and the also highest monthly rise since February 2003. As a result, the 12-month inflation rose to 12.03% in April from 10.79% in March. Besides the high readings, analysts have drawn attention to negative data, including qualitative aspects of inflation such as the diffusion index, which measures the number of products whose prices rose during the month. In Apex Capital’s calculations, the indicator reached 76% in April’s IPCA-15, the highest in almost 20 years.

To steer the Selic, Brazil’s benchmark interest rate, the monetary authority is currently aiming at 2023, for which the inflation target is 3.25%, with a tolerance interval of plus or minus 1.5 percentage points. But such a high and widespread inflation makes it difficult to bring the trajectory of prices to this target. As Valor reported Tuesday, inflation expectations have been deteriorating, both in the case of implicit projections in government bonds and in the estimates made by financial firms, consultancies and asset managers. Some firms project inflation of around 10% for this year. The Central Bank’s baseline scenario projections are 7.3% and 3.4% for 2022 and 2023, respectively. It is worth mentioning, also considering long-term inflation, the 8.87% adjustment made Monday by Petrobras in the price of diesel at the pump, which has a broad impact on the production chain.

In Tuesday’s minutes, the Copom acknowledges that the situation is serious, stating that “consumer inflation remains high, with increases spread among several components, and continues to be more persistent than anticipated.”

“Whereas inflation of services and industrial goods are still high, the recent shocks have led to a strong increase in the components associated with food and fuels. Recent readings were higher than expected, and the surprise came on both the more volatile components and the items associated with core inflation,” the Copom said. “As for the more volatile components, the increase of gasoline prices is still noteworthy, with greater and faster impact than anticipated. The inflation of the components more sensitive to the economic cycle and the monetary policy continues elevated, and the various measures of core inflation are above the range compatible with meeting the inflation target.”

The format of the minutes’ wording may have changed, in part, because of the presence of Central Bank’s new director of economic policy, Diogo Guillen, appointed at the end of April. But it is hard to deny that, in the face of such external and internal uncertainties, the monetary authority has been opting for a more cautious stance since last week. It is also clear that the inflationary environment continues to worsen in the short term.

Source: Valor International

https://valorinternational.globo.com

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Brazil has chance to consolidate in another level, former minister says

Joaquim Levy — Foto: Silvia Costanti/Valor
Joaquim Levy — Foto: Silvia Costanti/Valor

Brazil has a double opportunity for the coming years. The country can both consolidate itself at another level as an important commercial and international business partner in view of the reorganization of value chains and become a global reference in clean energy and decarbonization. This is the view of Joaquim Levy, a former Finance minister, now head of economic strategy and market relations at Safra. He spoke to Valor in New York during Brazil Summit 2022, an event held by Financial Times in partnership with Valor.

Mr. Levy said that one of the country’s advantages in a changing global environment — caused by the pandemic and sharpened by the war in Ukraine — is precisely the fact that Brazil is far from conflict areas, besides having a lower geopolitical risk profile.

“For many years, Brazil has built a reputation of stable democracy, of continuity with respect and convergence, and this is the most important thing for foreign investors,” Mr. Levy said. “Countries are reassessing their supply and value chains,” he added. “Brazil’s characteristics have great value [for international investors] if they are associated with the confidence of the predictability and transparency of the administration.”

In the economist’s view, “we have already seen some sign that foreigners are returning to look at Brazil in a different way [in view of the recent deterioration of the image abroad], if we signal in that direction.” According to Safra’s executive, “we are a country that can be trusted, that contains animosities and has predictability.”

In parallel, Brazil has a great opportunity in the fields of clean energy and carbon credit. “We have a tested and competitive biofuel power source that can be combined with an electric engine to deliver a huge productivity gain,” he said

According to the economist, Brazil would have great sectorial advantages, in addition to having production and employment growth, “with the electrification of the economy.” Mr. Levy says that he himself conducted a study, yet to be published, that supports this thesis.

The former minister reinforces that natural assets are another source of new income generation for the country. “Planting trees or just letting the forest come back is a carbon sequestration machine that has no parallel at the moment. Today there is nothing more efficient and cheaper than allowing the forest to regenerate. That captures 10 to 15 tonnes of carbon per hectare per year.”

Investment in renewable energy, in Mr. Levy’s view, helps to increase productivity in the economy. “Today, having renewable electricity is cheaper than other sources,” he said. “Wind and solar energy are much cheaper; it’s the cheapest power generation we have.”

This cost reduction, according to him, in itself generates an increase in productivity. “When we produce something cheaper, there’s more productivity, if you have a car that runs twice as much, there’s an increase in productivity, if you have a steel mill that doesn’t pay a surcharge due to the use of coal, there’s an increase in productivity,” he said.

According to Mr. Levy, “for a good period there will be an increase in total factor productivity.” This occurs because less cost and more funds for investments are reflected in more employment. “If unemployment has gone down, without affecting salaries, there is an increase in labor productivity. An example was the period between 2000 and 2010, when total factor productivity increased substantially because the country grew using resources it already had to a large extent without spending [more than it collects].”

The former minister also says that “no doubt Brazil can become a world reference in the use of low-cost clean energy.” To be so, he said, the country needs to organize and incorporate those priorities into its growth strategy. “If we do this, we can quickly become a reference and, in the carbon credit aspect, we can become an international supplier,” he said.

Mr. Levy defends that the government needs to have a clear plan on how it is going to face the big issues of the economy, such as stimulating the increase in productivity and fiscal balance. “When you have a plan, the money appears and the government doesn’t need to keep on spending, spending and spending,” he said. “The biggest difficulty in Brazil is the uncertainty about the direction in which the government is heading, and this makes financing difficult,” he added.

He believes that if foreign investors have clarity about the directions of the economy, more capital begins to enter the country and in a more sustainable way. “Establishing clear goals can bring more capital to Brazil, which reduces pressure on public spending,” he said. “This way, the government can use the money with more discipline, which allows domestic interest rates to fall.”

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Six state-run firms will pay R$46bn in dividends to government

The profits of Brazil’s six main state-owned companies last year will mean R$46 billion in primary revenue for the federal government, according to the calculations of the Economy Ministry. In 2021, Petrobras, Banco do Brasil, Caixa Econômica Federal, Brazilian Development Bank (BNDES), postal company Correios and power utility Eletrobras reported a positive net result of R$186 billion, as calculated by the ministry after the end of the companies’ meetings, in the last week of April.

Part of that amount was already paid by Petrobras last year. Even so, the federal government is expected to receive the largest portion this year.

“In a normal process, the money is expected to come in this year,” a source within the economic team said. “Sometimes the company withholds dividends. It approves them, but if it lacks cash, it withholds dividends to pay later, when the situation improves.”

Petrobras alone accounted for R$107 billion of last year’s R$186 billion combined profit. But the source says that even not taking into account the oil company’s data, the total profit “is a great result.”

“It’s about stability, more than the figure. It’s been a few years now that we have only positive results in almost all companies. It is no longer so common variations between positive and negative spread across the portfolio,” the source said, citing overhauls started during the Michel Temer administration, such as the Law of State-owned Companies. “Some companies are still unable to break even, but they are small and have acute, historical problems.”

Three other companies appear in an intermediate group in terms of results: BNDES, with net income of R$34.1 billion, Banco do Brasil (R$21 billion) and Caixa Econômica Federal (R$17.3 billion).

But the source also highlighted the performance of Eletrobras and Correios, two companies with lower profits (R$5.7 billion and R$1 billion, respectively) that Economy Minister Paulo Guedes often classify as having good chances of being privatized. “Correios has turned results around,” the source said, recalling losses in previous years.

The most recent projection of the Economy Ministry, presented in a report of primary revenue and expenditure for January and February, was that the collection of dividends and participation would reach R$39.2 billion this year. The figure was revised in relation to the estimate of the annual budget law, approved at the end of 2021, which was R$26.3 billion. The report for the March-April period, with possible new projections, will be released next week.

Last week, President Jair Bolsonaro (Liberal Party, PL) again criticized Petrobras’s pricing policy, saying that the R$44.5 billion profit reported by the company in the first quarter of this year was “a crime” and “a rape.” The result, driven mainly by the high oil prices in the international market, was 38 times – or 3,718% – higher than the one seen in the same period of 2021. On Monday, the oil company raised the price of diesel at the pump by 8.87%.

Alexandre Manoel — Foto: Gabriel Reis/Divulgação
Alexandre Manoel — Foto: Gabriel Reis/Divulgação

Alexandre Manoel, chief economist at AZ Quest Investimentos, says that the total payment of dividends to the federal government in 2022 is expected to exceed the estimates presented so far by the Economy Ministry. “For Petrobras alone, we expect the dividends paid to the federal government to be above R$60 billion,” he said. He points out that the ministry’s calculations are typically more conservative and that AZ Quest’s projections also take into account the oil company’s figures for the first quarter of this year.

Mr. Manoel also recalled that, due to the spending cap, which limits growth in public spending to the previous year’s inflation, a better-than-expected performance in tax collection tends to improve the primary result, the main measure of the situation of public accounts. The asset manager also has a “conservative” projection for this year, of a primary deficit of R$37 billion. But if the AZ Quest equity analysts’ estimates for the performance of Petrobras are considered, “it is very likely that the federal government will have a positive primary result.”

In addition to commodity prices in the international market and the lower exchange rate, Julia Braga, an economist and professor at the Fluminense Federal University, cites another reason for the “substantial” profits reported in 2021 by large state-run companies: the “historically low cost of labor” in the country.

“Labor income indicators are stagnant or even lower in real terms than in 2012,” she said, citing figures from the Brazilian Institute of Geography and Statistics (IBGE).

Gabriel Leal de Barros, a partner and chief economist at Ryo Asset, estimates that the federal government will receive R$41 billion in dividends in 2022, but says that the adjustment made by Petrobras on Monday means that collection could be even higher.

Source: Valor International

https://valorinternational.globo.com

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