Organic food industry projects 10% growth

Can eating organic food lower your cancer risk? Hard to prove - Health - The Jakarta Post

The Brazilian organic food market grew 12% in 2021 and handled R$6.5 billion, estimates the Organic Food Promotion Association (Organis), which expected a 10% expansion. Growth in 2022 is again expected to reach 10%, in a conservative forecast, or range from 12% to 15%, in a more consistent demand scenario.

The association head Cobi Cruz points out that the segment would have grown between 15% and 20% in 2021 were not for the economic downturn and the easing of sanitary restrictions in the second half of the year, which reduced food consumption at home.

“Government purchases could have been better if the pandemic were milder. Restaurants would have been bought more as well. Also, as the economy reopens, people are not cooking at home as much and have lost access to organics. Wages have also flattened out,” he said.

Mr. Cruz recalls that the number of organic food ventures in Brazil grew 11% in 2021, surpassing 25,000 production units, according to data by the Ministry of Agriculture. He says that revenues are far from the plateau, the point where there is a stagnation of growth, since the country accounts for only 1% of the $145 billion-a-year global market.

Organis is working to expand its international activities. Exports represented 20% of revenues last year, mainly thanks to the exchange rate. “There is a very large demand for organic grains and fruits,” he said, citing that Brazil is the largest exporter of acerola cultivated without the use of chemicals. Organic sugar shipments are also a highlight – the product is exported to over 25 countries.

Organic soy, coffee, yerba mate, açaí, palm oil, guaraná, cocoa, mango and acerola are also highlights in exports. About 90% of the sector’s revenue comes from food and beverages, Organis projects. “Yet, we produce and export processed raw materials for both the food and cosmetic industries,” Mr. Cruz said.

According to him, the main pillar of growth of organics is the search for a healthier diet. Vegetables and greens stand out among the products that are advancing the most. Fruits saw a more modest increase because the consumption decision is still more linked to the satisfaction of taste.

The head of Organis points out that the organic animal protein sector is also growing significantly, with the entry of large companies such as Seara and BRF, which can leverage the segment by training and encouraging producers. “When the two parties are partners, you can reduce the cost of uncertainty,” he said.

Source: Valor International

https://valorinternational.globo.com

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Revolut, Europe’s most popular digital bank, arrives in Brazil

Revolut: o que é, como funciona, vantagens e desvantagens

Revolut, Europe’s most popular digital bank and always cited by analysts as one of the best in the world, is finally arriving in Brazil. Glauber Mota, a very seasoned executive partly responsible for creating BTG’s digital bank, will lead the local operation. The group has not revealed its projected user base in the country, but Brazil is expected to be among the five largest markets for Revolut, which is already in more than 35 countries.

The operation will initially offer an international account and card with access to multiple currencies, and gradually bring the full experience of the global super app to Brazil. The full offer is expected to be available by the second half of the year. “I would really like that by the Qatar World Cup [which starts in November] Brazilians are already taking advantage of the full potential of the Revolut app. I think we will arrive well before that,” Mr. Mota said. The app is already available for download, but only for those on the waiting list.

With more than 18 million customers worldwide, Revolut was valued at $33 billion in its last investment round and competes with Nubank for the position of the most valuable digital bank in the world. In June, in its last round before the IPO, the Brazilian bank was valued at $30 billion. At the IPO in December, it reached $41.5 billion, but Nubank has a market capitalization of $36.9 billion after the stocks fell at Nyse.

“Brazil is the largest market in Latin America and a strategic priority for Revolut’s international expansion. With his vast experience in the financial sector and an excellent track record, we are very pleased that Glauber will join Revolut and help us in our mission to create the first truly global financial super app,” Nik Storonsky, CEO and co-founder of Revolut, said in a statement.

Mr. Mota points out that Brazil has one of the most active populations in the digital field, with over 112 million users with mobile devices and a growing number of people using digital banking as their primary account. However, when traveling abroad and shopping online, Brazilians still use credit cards and exchange houses paying high fees. “This represents a huge opportunity for Revolut to bring its product and service offering so Brazilians can shop.”

Mr. Mota joins serial entrepreneur Felipe Lachowski, who leads Revolut’s strategy and operations team in Brazil, and will set up the team. In addition to the local headquarters, Brazil will have a technology hub for Latin America – the digital bank landed a few months ago in Mexico – and serve as support for Brazilians who already work remotely for Revolut’s global operation.

“We are just finishing setting up the team and putting the structure in place,” Mr. Mota said. According to him, initially, the local operation will leverage the global structure, but soon afterward Revolut is likely to also apply to the Central Bank for a direct credit society license. He does not rule out an acquisition but says that it would not be to obtain a license, but to bring in expertise, perhaps along the lines of an acqui-hiring (an acquisition focused on bringing in the acquired company’s team). Still, Revolut’s tradition is to grow organically.

The executive says that Revolut virtually does not invest in marketing, relying on the good user experience and word of mouth, but it may have to change this strategy a little to make the brand known in Brazil. Asked about the potential of the customer base here, he says that, even by the fact of starting with an international account, the public is more restricted than that of Nubank, for example, which has 54 million customers. “Am I going to have 50 million customers? Probably not. In the first year, we will be something like a mix of Avenue, Nomad and Wise. When we have a local account, credit, insurance and everything else, we will be more like C6’s high-income business,” he said.

As for the competitive scenario in Brazil, Mr. Mota acknowledged that there are many digital banks, but he believes that the customer experience at Revolut is something that will make the difference. “We deal with products and clients in an outstanding way, which is why our NPS [Net Promoter Score] is high. It is all based on technology, with data analysis. Our suggestions to customers are very assertive and we offer several benefits. The UK is a pioneer in open banking and Revolut leverages a lot on this, and now we will be able to do the same in Brazil.”

As it is a private company, there is no detailed information about Revolut’s financial performance. In its last round of funding last July, the fintech revealed that it had revenues of £261 million in 2020, with a growth of 57%. The company was still operating in the red, but getting very close to breakeven. In the fourth quarter of that year, the gap was only £6 million.

Source: Valor International

https://valorinternational.globo.com

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Lula defends investment in refineries

Refineries to integrate with petrochemicals due to weak fuel demand

Former President Luiz Inácio Lula da Silva (Workers’ Party, PT) has suggested changes to Petrobras’s business plan, such as reversing the divestment policy started in 2016, after the impeachment of Dilma Rousseff. He also criticized again the state-owned company’s price policy and defended new investments in refineries.

In a debate organized by his party and the oil workers federation (FUP) in Rio, Mr. Lula da Silva avoided any reckoning of his government. Refineries planned by Petrobras during the Lula da Silva administration were at the center of scandals about embezzlement of state funds that shook the administration of his successor, Ms. Rousseff, and contributed to impeaching her in 2016.

The Abreu e Lima refinery (Rnest), in Pernambuco, was the target of investigations not only of Operation Car Wash, but also of lawsuits in the Securities and Exchange Commission of Brazil (CVM). The unit is now operational and is likely to be finished by Petrobras itself, which was unable to sell the facility. Another project investigated for irregularities under Car Wash was Comperj, a complex of refineries and the current Polo Gaslub, which got off the drawing board with only a fraction of the size initially imagined and today is focused on receiving and processing natural gas from offshore wells.

Encouraged by the fuel crisis that destabilized the command of the company, Mr. Lula da Silva signaled he could expand the oil company’s refining policy again. “This country needs to have new refineries. Or renovate the old, scrapped ones, as we have already done in Paraná and Rio Grande do Sul,” he said. “We need to produce more and improve the quality of the fuel. Brazil needs to be an exporter of oil products,” he added.

Mr. Lula da Silva also said Petrobras must be profitable, and that he never accepted a deficit in the company’s earnings reports when he was the president. He said, however, that profits “must be shared with those who are responsible for the state-owned company” — the population, through affordable prices.

Under the Rousseff administration, Petrobras announced losses of R$23.6 billion in 2014 and R$34.8 billion in 2015 as it had to write off losses caused by corruption.

Mr. Lula da Silva said he preferred not to speak ill of the consultant for not knowing him. But he did not spare him any criticism. “I don’t know this person [Mr. Pires], so I’m not going to speak badly of him. But the two snippets that I read out of the news today say that he is a lobbyist. And that he is much more connected to foreign companies than to ours.” He then indirectly criticized Mr. Pires’s preference for the privatization of assets. He defended “using what is happening today in Petrobras” in the electoral campaign. Mr. Lula da Silva, the leader in the polls, seeks to associate the high prices of gasoline, diesel oil and cooking gas to President Jair Bolsonaro.

With the exception of the governor of São Paulo, João Doria (Social Democratic Party, PSDB), who has made no public comments, the front runners for the presidency have also spoken out about Petrobras. Former minister Ciro Gomes (Democratic Labor Party, PDT) preferred to record a video to say that “the corporate governance of the thievery that Lula implanted in Petrobras” cannot return.

About the subject, former Justice Minister Sérgio Moro (Podemos) said that “our goal is to privatize, as much as possible, all state-owned companies. Petrobras is one of them,” he said. “How do you solve the question of price and product and reduce inflation? It is market competition. So you have a public monopoly, as is practically the case with Petrobras, or you have a private monopoly if you privatize in the wrong way, it won’t solve the problem,” he said.

(Julianna Granjeia contributed to this story.)

Source: Valor International

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Pix beats cards in transactions for first time

Pix terá cartão para transações por aproximação offline: como deve funcionar | CNN Brasil

The number of transactions through Pix surpassed those with credit or debit cards in the fourth quarter. It was the first time that the Central Bank’s instant-payment system took the first position among the most used payment methods.

Most transactions represent transfers between individuals, but the figures indicate the widespread use of the system. For specialists, Pix is likely to grow further, but there are factors linked to security and technology, for instance, that may restrain this advance.

According to the most recent data from the Central Bank, transactions via Pix totaled 3.89 billion in the last three months of last year, up 34% over the previous quarter. In cards, transactions also grew, but at a slower pace. There were 3.85 billion transactions using debit cards (up 9%) and 3.73 billion through credit cards (up 12%). Prepaid cards advanced 20%, to 1.92 billion transactions.

Options to transfer funds like TED and DOC, as well as intra-bank transfers, lost ground since the launch of Pix, in November 2020, figures from the monetary authority show. In the last quarter, there were 294 million transactions using TED, for instance, down almost 50% in one year.

Ricardo Vieira, the executive vice-president of Abecs, an association of credit card companies, says there is no competition between transfer options and that “there is room for everyone.” “All arrangements are welcome because they bring competition and make available to the market solutions that help to insert the population in electronic means of payment.”

According to Abecs data, the volume transacted with credit, debit and prepaid cards totaled R$2.65 trillion in 2021, up 33.1% year over year. The association projects a growth of 21% this year, to R$3.2 trillion.

Mr. Vieira stresses the fact that the average ticket for card operations is much lower than that of Pix. This confirms the greater use of cards in daily payments by individuals, he said. The average value of transactions through Pix in the fourth quarter was R$495, compared with R$126 for credit cards, R$67 for debit cards and R$21 for prepaid cards, data by the Central Bank show.

The use of Pix is likely to grow further considering the low cost and speed of transactions, said José Luiz Rodrigues, founding partner of the consulting firm JL Rodrigues, which is specialized in the regulation of the financial system. This is especially true as new functionalities are included, such as the possibility of installment payments. The Central Bank has a wide list of functions to be put in place, but sources say that the schedule may be hindered by a strike scheduled by the bank’s servers.

The specialist added that, at some point, the instant-payment system is likely to start affecting cards more directly, especially debit cards. “The credit card has other advantages, such as points and cashback rewards, but then we are talking about a wealthier public. Pix has included a lot of people in the system.”

The instant-payment system is already widely used for transactions between people, but it has also been growing among companies. In February, 72% of the transactions were made between individuals, and individuals transferred funds to businesses in 18% of them. A year earlier, these shares were 79% and 9%, respectively.

João Manoel de Lima Junior, coordinator of the Nucleus for Advanced Studies in Regulation of the National Financial System at FGV Direito Rio, also believes that Pix is likely to advance further over the space of other means of payment. Yet, he sees factors that may limit this growth.

The first one is technological. “One factor is the potential institutional incapacity to, for example, face the needs of technological innovations precisely to keep the system always ahead and updated,” he said, recalling Pix was operationalized by the Brazilian state.

He says there are still risks related to fraud and operational problems. In a little over a year of operation, three data leaks occurred. In the researcher’s view, despite that, the system has not yet had to face any “scandalous” problems. “There is a very big novelty factor in Pix, it is a kind of cultural phenomenon, but it has not yet been exposed to a major crisis, such as a crash, for example. In technology, operational risk is always present.”

The Central Bank did not comment on the subject.

Source: Valor International

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Carapreta gains space in premium meat market

Carapreta carnes nobres - Site Oficial Carapreta - Bovino, Ovino, Pescado

A fine meat company controlled by the Brazilian company ARG Group, Carapreta — with three farms in the north of the state of Minas Gerais — advanced its plan to invest R$1 billion in seven years to consolidate operations, saw its results surpass initial expectations and now is putting together a new set of projects to gain market share in Brazil and abroad.

Focusing on the heavy construction segment, ARG was founded in Minas Gerais in 1978 by brothers José, Rodolfo and Adolfo Géo. In 2017, with the start of the expansion plan began, which will be completed in 2023, the family already had two farms (Jequiti and Santa Mônica) with traditional livestock farming for decades, but they saw a chance to improve and transform the activity into a truly profitable business.

Then came the professionalization, expansion of production, diversification, investments in genetics and marketing and, of course, a whole new sales strategy to expand the commercialization of Carapreta meat cuts in retail, food service and abroad.

“When we structured the project to add value to the business, we evaluated the production chain and studied the main sales channels. In this work, we saw that the market wanted quality, regularity and standardization,” says Carapreta’s CEO Vitoriano Dornas.

With revenues of around R$400 million in 2021 and a forecast to reach the level of R$500 million this year, the company, which has 1,400 employees, is currently present in the beef, sheep and fish segment, in addition to agricultural operations.

The Santa Mônica farm, in São João da Ponte, has cattle herds, agriculture and power generation; in Santa Terezinha, in the same municipality, there are slaughterhouses, sheep, agriculture, fish, and solar and biodigesters power generation; and the third farm, incorporated in the expansion and located in Jequitaí, has agriculture and beef cattle.

In cattle breeding, Carapreta gathers a total of 70,000 heads of cattle, and to compete in the market for premium Angus cuts, it invested in genetic mapping and closed a partnership with Alta Genetics. In sheep farming, it has 30,000 heads — the largest in Latin America, according to Mr. Dornas.

Last year, the company produced 8,500 tonnes of beef, and the goal is to reach 12,000 tonnes in 2022. The supply of sheep meat, in turn, should increase to 1,500 from 1,200 tonnes. For the fish area, the expectation is to maintain the rhythm, at around 3,000 tonnes.

Source: Valor International

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Brookfield to invest $40m in Ouro Verde in 2022

Brookfield injects US$105mn into Brazil's Ouro Verde following acquisition | Global Fleet

Ouro Verde — one of Brazil’s largest vehicle fleet outsourcing — announced Monday that Canadian investment fund Brookfield, which owns 100% of the company since 2019, will contribute $60 million to the business this year. The new contribution is 50% higher than last year’s $40 million. The first part of the investment ($35 million) will immediately go into the cash flow, while the remainder was left for the second quarter.

According to the company’s CEO, Cláudio Zattar, the injection will help in the expansion of the fleet, especially in the segment of vehicle subscription. Today, the business serves small and medium-sized companies, but the goal is to open it to individuals by January.

“The new investment demonstrates the confidence of the shareholder. It gives us a more solid base to continue investing”, the executive told Valor.

Ouro Verde, the fourth largest rental company in number of fleets, had last year a net operating revenue of R$917.2 million, up 12.4%. Net income totaled R$35.4 million, compared with a negative result of R$5.6 million in 2020. The company ended the year with 35,447 vehicles and equipment available (only light vehicles were 26,372), a growth of 51% compared to 2020.

The challenge today is to buy vehicles on the market. Mr. Zattar said that on the heavy-duty side the negotiations with automakers have been more favorable. “We have managed to close a delivery schedule,” he said. The car industry has had problems to produce, especially because of the shortage of electrical components.

Even so, the group has managed to expand its subscription business. The segment’s total fleet had about 5,000 vehicles registered in February. “Our ambition is to double this number by the end of the year,” he said.

The group’s goal is to complete a technological upgrade by the middle of this year and with that prepare the subscription model to be scaled also for individuals by January.

The car subscription segment has been pointed out by the car rental companies as the apple of the eye in the sector. Among the leaders (Localiza, Movida and Unidas), all have already launched services to attract this public. None of them, however, give details. Executives from Movida at one point said that the segment may surpass even car rental in the future.

The Brazilian Association of Car Rental Companies (Abla) estimates that the segment accounted for between 8% and 9% of the total fleet of car rental companies in the country last year, of 1.136 million.

Mr. Zattar said that the group also intends to expand Ouro Verde Smart to the heavy vehicle segment, offering the service to small and medium-sized companies. Simultaneously, the group has been studying an alternative to offer some kind of subscription to individual truck drivers.

The plan is to develop a program in partnership with transportation companies in which their independent truck drivers will be classified – not only by how long is the relationship, but also by efficiency. The guarantee, in this way, will be a risk to be shared between Ouro Verde and the transport company.

The market has considered Ouro Verde one of the main candidates to evaluate the assets to be divested by Localiza to get the approval of the antitrust watchdog Cade to buy Unidas.

Mr. Zattar also said that Ouro Verde does not have the capital for an asset of this level. “At the moment, only Brookfield could have this capacity. And they are discreet, they don’t comment on speculations,” he said.

Sources pointed out that the divestment in vehicles alone is likely to be between 45,000 and 50,000 units, besides branches and sites in airports. The total value of the package has been estimated behind the scenes at about R$4 billion, but there are still several question marks, since the decision to close the deal, approved in mid-December, has not yet been published.

Source: Valor International

https://valorinternational.globo.com

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Auren Energia debuts on B3 with eye on renewables

Auren Energia, antiga Cesp, conclui listagem no Novo Mercado da B3 | Portal Solar

Auren Energia, a power generation company created from assets of Votorantim and CPP Investments, debuted in Novo Mercado, the strictest governance segment of the Brazilian exchange B3, valued at R$16 billion. Auren plans to expand and be among the leaders of the industry and says it is ready for acquisitions of renewable assets, a segment defined as its business focus.

Among the operations is Companhia de Energia do Estado de São Paulo (CESP), which became a subsidiary of Auren and accounts for a relevant share of the company’s generation portfolio.

With pro-forma net operating income of R$6.5 billion last year – including Votorantim Energia, VTRM (wind power assets) and CESP – the power company closed its first day on the B3 up 1.91%, encouraging investors who bet on the strategy.

The portfolio has 3.3 GW of capacity, with some ongoing projects expected to start operating this year, and the company is flush of cash. There is about R$1.5 billion to be invested in new projects. The company’s goal is to reach 5.2 GW by 2026, reducing the exposure to hydro sources, which today accounts for more than 70% of the pipeline.

CEO Fabio Zanfelice told Valor he intends to grow in renewable energies and in the free energy market. He also said that the new company was created to invest in assets in the electric sector.

Besides being capitalized and net debt-to-EBITDA ratio of 1.5 times, the company says it is able to take debts for mergers and acquisitions. However, in the current context of escalating interest rates and high capital costs, the company is likely to go shopping with its own capital.

In the market there is a menu of power generation companies for sale, such as the assets of Eletrobras – and the state-owned company itself, which may be privatized – , Ibitu, Rio Energy, Renova and EDP plants. “We are prepared to make any acquisition of any size in the sector today,” said Mr. Zanfelice, without elaborating. “We are capitalized, we have financial and technical capacity to make acquisitions and we will continue to evaluate assets, besides organic growth.”

One way is through solar generation, with ongoing projects that will add 1.7 GW. According to the company’s goal, the source will account for 34% of a 5.2 GW portfolio in four years.

Auren has two solar projects to develop in Brazil, but the challenge in reaching this goal lies in the pressure from the production chains. Last year, the cost of solar panels rose about 8% driven by the cost of freight, the surge in commodity prices and exchange rate volatility, which may cause some generation companies to revise investments.

“We have time to observe the evolution of prices and we consider that the prices of solar panels were impacted by the pandemic, production factors in China, and logistics, but within our strategy we have time to acquire equipment. But if this scenario of equipment costs persists, both solar and wind, sooner or later we will see an increase in the price of power in the long term,” he said.

In wind power generation, Auren currently operates farms in Piauí that have an installed generating capacity of 600 MW. Another 400 MW are expected to start operating by the end of the year. CESP’s generation capacity, with emphasis on the Porto Primavera plant, is 1,624 MW, of a total of 2.3 GW of hydro sources in operation and 160 MW (small plants) under development. The company is also setting up a 68 MW hybrid complex (wind and solar) in Piauí, alongside its assets.

In the commercialization activity, the company’s executives believe that the current business has conditions to be much bolder. The company has 2.6 average GW of power commercialized and about 500 clients.

With the modernization of the electric sector, through bill 414/2021 (currently making its way in Congress), in which one pillar is the growth of the free market, the strategy for this segment goes from power management for new smaller clients, digitalization of commercialization, and even low power clients.

“The expectation is that we will have smaller customers with a slightly higher margin on those products they will demand. Our goal is to increase twofold the number of customers and reach 1,000 customers in a year’s time,” he said.

In the restructuring and incorporation of assets for the formation of Auren, the controlling shareholders are Votorantim S.A., with 37.7%, and CPP Investments, with 32.1%. The remainder (30.2%) are held by minority shareholders in CESP who migrated to the new company, now robust and with a diversified portfolio of assets.

Source: Valor International

https://valorinternational.globo.com

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Analysis: Survey tests Central Bank’s plan to stop raising rates

The Focus bulletin of financial market expectations represents a first warning sign to Central Bank’s strategy of stopping interest rates hikes in May at 12.75% per year, compared with 11.75% per year now.

Interest rate projections for the end of the monetary tightening cycle remained at 13% per year. But inflation expectations have gone up again.

Not only the IPCA – Brazil’s official inflation index – forecast by analysts for 2023, which is the main target of the interest rate policy, worsened. The forecast for 2024 also went up, which represents a further deterioration in long-term expectations.

The median inflation projection for 2023 rose to 3.8% from 3.75%, compared to an inflation target of 3.25%. There are leading indicators that it may move higher. The average of the projections is at 3.84%, and the median of the analysts that have revised their forecasts in the last five days is already at 3.9%.

The combination that many analysts believe could lead the Central Bank to review its interest rate plans happened last week: the rise in current inflation has caused a deterioration in long-term inflation expectations.

Two new facts may have contributed to the deterioration in expectations. First, the clear signal from the Central Bank that it is willing to stop the tightening cycle unless inflation surprises upwards.

Second, on Friday the preliminary reading IPCA-15 for March was released, at 0.95%, higher than forecast by the market. Analysts are revising their bets for the month’s price index to above 1.2%.

In theory, this short-term surprise is unlikely to contaminate inflation in 2023 and even less so in 2024.

Central Bank President Roberto Campos Neto was asked last week why the market was betting on current inflation for March higher than the 1.02% variation estimated by the monetary authority.

He answered that this short-term pressure was due to a faster pass-through of fuel adjustments unveiled by Petrobras. For him, the stronger increase in the very short term is likely to be offset by lower inflation later on. Thus, when analyzing a group of months, the effects would compensate each other, to a good extent.

The Focus data, however, show that the market has not made this compensation, at least for the time being. The inflation projected by economic analysts for this year rose to 6.86% from 6.59% in one week.

According to market projections, the 12-month inflation will continue to rise until May, exceeding 11%. It will only fall back below double-digit levels in July.

This heavier current inflation is contaminating more distant years. The market forecast for the IPCA in 2024 rose to 3.20% from 3.15%, compared with a target of 3%. The average of the projections for inflation in 2024 already stands at 3.27%.

Source: Valor International

https://valorinternational.globo.com

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Exporters keep $70bn abroad despite high interest rates

Importer-Exporter – PFos

Exporters are choosing to keep hard currency abroad despite higher interest rates in Brazil. The internalization of funds has not materialized more than a year since the beginning of the tightening cycle. A survey by Valor Data based on data by the Foreign Trade Secretariat (Secex) and the Central Bank shows that the 12-month spread between physical exports and the contracted exchange rate is still at all-time high levels.

The data show that the so-called alligator mouth of the foreign exchange rate reached $70 billion by March 18, up 26% compared with the end of 2021. In September, the gap between shipped exports and the contracted commercial exchange rate was at $46.6 billion. In December, the spread totaled $55.6 billion, and in February it stood at $68.2 billion.

“Not necessarily all the funds used by Brazilian exporters are going to come. In the long run, there has to be a gap, since some money is poured into several services of large exporters abroad. So, this spread means less funds brought here,” said Marcello Curvello, the currency manager at ASA Hedge. “But today we see a contracted exchange rate much lower than the shipped one, which is not natural either. The normal thing would be it to run just a little below.”

He prefers to analyze the spread according to the balance of payments of the Central Bank, but says that, under any analysis, the gap remains very high. There are fewer reasons for such spread at the moment since a deleveraging push of large exporters has reached the targets and Brazil’s benchmark interest rate is at the highest level since April 2017, at 11.75% per year, he said.

In October, the Central Bank’s monetary policy director Bruno Serra Fernandes said in a public event that the monetary authority saw a “low commercial foreign exchange contracting in the recent period” that led to an “unusual” and “very relevant” gap in relation to the trade balance. According to him, this was due to the process of paying debts abroad and there was no relevant cash surplus of companies abroad that impacted the dynamics of the exchange rate.

Carlos Calabresi, the chief investment officer of Garde Asset Management, says that the gap, which began to widen in 2019, a move intensified in 2020 and 2021, was initially explained by the companies’ strategy of having cash available abroad in order to streamline flows to honor their debts. “But the exchange rate behaved so badly in the period, the volatility became so great, that companies began to diversify with investments abroad,” he said.

Nuno Martins, the head of structuring and sales at Bank of America (BofA), believes that companies with the largest export volumes maintain dollarized balance sheets and are mostly financed in hard currency, which implies fewer incentives to maintain large reserves in reais. He wonders whether the spread may have increased in recent months because the volume exported has grown with higher commodity prices, but the companies’ obligations in Brazilian currency have not grown in the same pace.

“I don’t think it is an issue related to a structural risk of Brazil, but the fact that companies are set up in such a way that cash management is less related to macro aspects and much more linked to risk management and balance sheet balance,” Mr. Martins said. “A company whose functional currency is the dollar manages its business in this currency. Therefore, it doesn’t make sense to amass reserves in a currency other than the dollar just to take advantage of higher interest rates.”

Mr. Calabresi, with Garde, expects a reversal of the phenomenon and notes that data has already improved given the higher interest rate regime. The monthly spread between physical exports and the contracted exchange rate fell to $3.8 billion in February from $5.5 billion in December, and the gap was at $4.7 billion in March until the 18th.

“The interest rate here is too high, the spread with the foreign exchange has gone up too much and the volatility has gone down a lot. We reached 18% of implied volatility from 16%, and inched closer to peers like the South African rand and the Mexican peso, with a volatility of 12% to 14%. You now have a worthwhile regime, while the cost of having dollars abroad increases,” he said.

The high interest spread has attracted foreign investors and is behind the appreciation of the real in recent weeks.

Mr. Calabresi also says that the internalization of funds is likely to contribute to an even greater drop in the foreign exchange rate. Garde, which holds short positions on the dollar, projects that the foreign exchange inflow will end the year at net $20 billion, but Mr. Calabresi says that “the flow to the stock exchange is so strong that we will probably have to revise this figure.” The most recent data from the Central Bank suggest a favorable foreign exchange flow of $9.5 billion this year.

Mr. Curvello, with ASA Investments, foresees a positive exchange flow of $25 billion and says that, in theory, it could be even higher if there were a greater internalization of funds from exporters. This could even contribute to a more substantial drop in the exchange rate, but the asset manager believes that the Brazilian currency will not appreciate much further. According to him, the fund today does not hold a forex spread bet on the real, but operates with a combined position with dollar sales and stock market purchases.

“We went to R$4.75 to the dollar from R$5.70 at the beginning of the year. At R$5.25, we thought it was a good size movement, so it was quite intense. I just think that the interest rate hikes by the Fed [U.S. Federal Reserve] does not match such a favorable scenario for emerging markets, with so much inflows,” he said.

Iana Ferrão, an economist with BTG Pactual, believes that the commercial flow is likely to increase this year due to the substantial increase in the balance of exports shipped because of higher commodities prices, but the gap is unlikely to be substantially reduced. “If we maintain a gap similar to that of 2022, we are talking about a trade flow of $30 billion, which is already much higher than last year,” she said.

BTG Pactual’s current expectation is that the trade balance will end the year positive at $75 billion. “We expect flow to Brazil to remain strong, not only because of commodities, which emerge clearly in the trade channel, but also for the financial channel, which has been the highlight at the beginning of the year.”

Source: Valor International

https://valorinternational.globo.com

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NBR group to open automaker in Pernambuco

cars will have modular platforms, which can be adapted to different models — Foto: Divulgação/NBR
cars will have modular platforms, which can be adapted to different models — Foto: Divulgação/NBR

The NBR group, led by businessman Evandro Lira, is going to build an automaker of popular and compact vehicles made of fiberglass and carbon in Araripina, Pernambuco. The initial investment — which includes the renovation of a castor oil factory deactivated in the 1990s — is R$260 million in three years, but can reach R$1 billion in five years.

The cars will have modular platforms, which can be adapted to different models. “This allows a reduction of between 30% and 40% in costs, which substantially impacts the price for the final consumer,” NBR’s CEO Evandro Lira said.

According to Mr. Lira’s view, Brazil lacks mass-market models. The first to be manufactured by NBR will be a dune buggy-style vehicle, with a flex engine, which can, according to the customer’s wishes, have a closed top. The vehicle holds five people and has a trunk. “The decision was to reinvent a typical Brazilian model, from the 70’s, the dune buggy, which until today is only produced by hand, without an assembly line,” he said.

According to him, to adapt a common vehicle to the buggy model, an investment of at least R$80,000 on the part of the consumer is required. “With the product getting cheaper, we will serve well the Northeast region, which already has a natural demand for this style of beach car,” he said.

With prices between R$60,000 and R$80,000, the vehicles will be sold in stores to be opened in Recife, Natal, Fortaleza, Florianópolis and São Paulo, in addition to approved dealers.

Mr. Lira has a background in the service sector, with several traditional businesses in the restaurant sector in the states of Paraíba and Pernambuco. According to him, the NBR group is raising part of the funds with Banco do Nordeste and Sudene. “We are also negotiating with an U.S.-based fund,” he said.

The Araripina unit will have capacity to make 1,600 cars a month. During an event to launch the cornerstone of the factory on Thursday, in Recife, Mr. Lira said that the first car is expected to reach the market in 18 months. As of 2024, he foresees a R$94 million monthly turnover.

According to Mr. Lira, the company will work with engines from Brazil, China and India. As they are light vehicles, with a chassis made of fiberglass and carbon, the models could deliver 30% savings in fuel consumption compared to a traditional mass-market car. “In the future, we will work with hybrid and electric vehicles,” he said.

The distribution of the production will be done primarily by road, but may also rely on sea freight. The factory is located within a radius of 300 kilometers from seven states in the Northeast region, about 600 kilometers from the Port of Suape (Pernambuco) and 700 kilometers from the Port of Pecém (Ceará).

The unit, which will be supplied by a solar plant, will be built in an area of 29 hectares and have 30,000 square meters of built area. In the construction stage, the work is expected to employ 240 people. The operation is expected to start with 450 people working in two shifts.

The arrival of the automaker is expected to have a major impact on the economy of Araripina, whose GDP is estimated at R$1.3 billion a year – about 1.7% of the GDP of the entire state of Pernambuco. According to Mayor Raimundo Pimentel (Social Liberal Party, PSL), the city’s economy today is quite dependent on the production of plaster for civil construction.

The NBR group is negotiating a partnership with the government of Pernambuco and the S System, a group of tax-funded training entities operated by employers’ trade groups, to train up to 1,000 people in Araripina in the fields of fiberglass and carbon lamination, electrical, mechanical, assembly and bodywork.

Source: Valor International

https://valorinternational.globo.com

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