THE TIGER YEAR
Measure could work as a counterpoint to salary readjustments in the states and to contain inflation
02/01/2022
Part of the Economy minister Paulo Guedes’ agenda, the elimination of the Industrialized Products Tax (IPI) on all products, except cigarettes and alcoholic drinks, returned to the discussions of the economic team. This time, it came to be examined as a potential counterpoint to the plans of some governors to grant salary hikes to the civil service and also as a measure to help contain inflation.
According to a person close to Mr. Guedes, this would be a structural reduction in prices in general. Possibly, adds this source, it would have a more lasting effect on inflation than a cut in fuel taxes, easily outweighed by a rise in the price of barrel of oil or an appreciated dollar against the real. For people close to the economic area, however, the opinion of president Jair Bolsonaro on this alternative is not yet clear.
The discussion takes place amid Bolsonaro’s signal that he will send a proposal for a constitutional amendment (PEC) to Congress that allows for the reduction of federal and state taxes levied on fuel and energy. The idea, however, already faces resistance from governors and depends on congressional approval.
IPI is not levied on these items. It is charged on industrialized products, from automobiles to food. In addition, it would be reduced by decree. It would not depend on approval by the Legislature, nor would there be any risk of the proposal being modified and receiving additions that are foreign to its objective, turning into a “Christmas tree” bill.
A reduction of the IPI would affect the plans of governors and mayors to increase spending because 50% of the income from this tax and from the Income Tax are transferred to states and municipalities through Participation Funds. In January alone, the transfers came close to R$19 billion.
In the opinion of a person close to Mr. Guedes, cutting part of this revenue would be a signal for the governors to hold back salary increases. The minister has warned about this, although the president himself has promised readjustments to civil servants in the area of public security, his electoral base, and to raise the salary floor for teachers.
Unlike the elimination of taxes on fuel, a general cut in the IPI would not go against the requirement of the Fiscal Responsibility Law (LRF) of adopting measures to compensate for the loss of revenue, says the economic area source.
This interpretation is confirmed by the Senate analyst and specialist in public accounts Leonardo Ribeiro. “The rule in Article 14 [of the LRF] does not require compensation if the reduction in rates is of a general nature, without differential treatment,” he said.
The effect on prices, however, is uncertain, warns Juliana Damasceno, economist with Tendências and researcher at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV). This is because there is no way to assure that the cut in the IPI will be passed on to the consumer.
In the economist’s view, companies may not reduce their prices because they understand that a tax cut at a critical moment in public accounts is not sustainable and will turn into a new high in taxes in the future.
Speaking about fuel, specifically, she said that the prices charged today by Petrobras are already out of step with the international prices. Even so, there is enormous pressure on prices. “The source of the problem is not being attacked,” she said. Reducing taxes, as the president wants, will have little effect on fuel prices, given the way they are defined.
The reduction of fuel taxes, if it happens, will be restricted to the federal sphere, commented the chief economist at MB Associados, Sergio Vale. States will hardly reduce sales tax ICMS.
Source: Valor International
https://valorinternational.globo.com
/i.s3.glbimg.com/v1/AUTH_63b422c2caee4269b8b34177e8876b93/internal_photos/bs/2022/j/q/4lN7Y5Ti6jxJlOX6rWUQ/starlink2.jpg)
Brazil’s telecoms regulator Anatel greenlighted the request of Starlink, owned by billionaire Elon Musk, to start commercial operation of its satellite system in Brazil.
The company is interested in using the satellite “constellation” project, supported by SpaceX, also founded by the businessman, to start offering broadband internet connection in the country.
During a meeting of Anatel’s command last Friday, director Emmanoel Campelo said that Starlink Brazil Holding has signaled it will launch, in the “medium term,” 4,408 satellites to expand internet availability worldwide.
“It is in the company’s interest to provide broadband access to customers across the Brazilian territory, which will certainly be very opportune for schools, hospitals and other venues located in rural or remote regions,” he said.
Late last year, Communications Minister Fábio Faria released photos on social media of meetings with Mr. Musk and SpaceX executives in Austin, Texas. At the time, the minister said that they discussed a partnership to bring connection to the Amazon rainforest.
Anatel director Vicente Aquino said that the U.S. regulatory body, the FCC, has already authorized Starlink to launch up to 12,000 low-orbit satellites. According to him, the company has plans to put in operation 42,000 satellites in its constellation, ensuring internet coverage around the world.
The satellite exploration right granted to Starlink is valid until March 2027, to operate the service in the ku and ka bands.
At the same meeting, Anatel also approved the right to satellite exploration in Brazil by U.S.-based company Swarm, which will expire in September 2035.
Mr. Campelo said that the company already operates 150 non-geostationary orbit satellites. He said that, in this case, the interest lies in the provision of bidirectional data transmission services for telemetry and telecommand, focused on the Internet of Things.
To release the new foreign satellite exploration rights, the agency had to decide on a process involving OneWeb, also a low orbit satellite operator.
Source: Valor international
At the end of 2021, concerns over weak economic activity dominated the debate over the direction of monetary policy. At the beginning of 2022, recent news suggests even higher interest rates, and for a prolonged period. High commodity prices, worrisome surprises in current inflation, high fiscal risk, still unanchored inflation expectations, and the more challenging external backdrop drive an even more heated debate about the direction of interest rates.
In a survey conducted by Valor with 112 financial and consulting firms, there is a unanimous expectation that the Selic will be raised this week by 150 basis points to 10.75%, in line with what was signaled by Central Bank’s Monetary Policy Committee (Copom) in December. Brazil’s benchmark interest rate was at double-digit levels for the last time in July 2017.
The survey also shows that the median of market estimates for the Selic at the end of the current monetary tightening cycle is up. Before the December meeting, the median indicated a rate of 11.75%. Now, the estimates have risen to 12%.
“The inflation picture remains bad since the [Copom’s] last meeting, and a set of risks signal higher interest rates,” said Aurélio Bicalho, chief economist at Vinland Capital, who projects the Selic at 12.75% at the end of the cycle, in May. Besides the domestic inflation and the uncertainty about Brazil’s public accounts, the more hawkish signals from the U.S. Federal Reserve, which suggests a cycle of faster interest rate hikes in the United States, make the scenario faced by Brazilian policymakers more challenging, he said.
The preliminary official inflation report for January (IPCA-15) unveiled last week brought worse-than-expected cores and diffusion figures, which concerned market players even more. Given this context, Valor also collected inflation projections for 2022 and 2023, the years that make up the relevant horizon of monetary policy.
The median of 110 estimates for this year’s inflation was 5.24%, compared to 5% in the last survey conducted in 2021. The inflation target for this year is 3.5% and the top of the target range is 5%. Of the total, 82 analysts (74.5% of the sample) already project Brazil’s benchmark inflation index IPCA at 5% or more at the end of this year. For 2023, the midpoint of 107 estimates collected rose to 3.4% from 3.3%.
“The likelihood of a Selic rate above 11.75%, which is our current projection, has grown,” said Simone Pasianotto, chief economist at Reag Investimentos. “The persistence of inflation, which shows more inertial signs and a strong pressure from food, has put a question mark over what the peak of the Selic will be.” The economist predicts the IPCA at 5.7%, above the market consensus.
HSBC was among those projecting a slower pace of interest rate hikes from February’s Copom meeting on but changed its mind and now expects an even stronger tightening. “There wasn’t enough time between December and now for the Central Bank to start slowing down,” said Ana Madeira, the bank’s chief economist for Brazil, which sees the Selic at 11.75% at the end of the cycle.
“Inflationary pressures have resurfaced at the beginning of the year; oil is at very high levels and there may be new pressure on food due to bad weather conditions,” she added. Although the data surprised upwards at the beginning of the year, she expects the coming months to show a major slowdown in inflation, with potential positive surprises such as electricity prices. HSBC projects that the IPCA will end the year at 4.2%, well below the market consensus.
With inflationary and external risks very much in the background, the agents will be mainly attentive to the Copom’s statements about the next steps. Economists are divided about the signals that the committee will give to the markets. One group argues that the Central Bank tends to maintain its tough tone in the fight against inflation and in rebalancing expectations, and point to a new interest rate hike in March of the same magnitude or a little less – of 100 basis points. Another group, however, believes that policymakers may not define the projected pace of tightening at the March meeting, given the higher than usual level of uncertainty.
“It seems that they will release a bit more open statement regarding what they will do in March, but we expect another tough statement. They have nothing to gain by being dovish at the moment, given the challenges of current inflation, expectations that remain above the target and a tighter monetary policy environment looming abroad,” said Claudio Ferraz, BTG Pactual’s chief economist for Brazil.
The bank’s scenario includes, besides the 150 basis points increase in interest rates now, a new 100 basis points hike in the Selic in March, followed by a final 50 basis points increase in May, which would take the basic rate to 12.25% — a level that would be maintained at least until December. Mr. Ferraz notes that at the beginning of the year the market’s mood changed as it started to pay more attention to the more pressured current inflation and to statements about monetary policy in the developed world, which pushed weak activity to the back burner.
Mr. Ferraz believes that the Copom may start slowing down interest rate hikes without signaling the magnitude of the increase. In addition, the absence of commitment with the next step to be taken “is the best stance amid volatility and uncertainty due to internal issues as well as external factors.”
André Loes, the chief economist for Latin America at Morgan Stanley, foresees that the Central Bank will remain willing to “doing whatever it takes” to deal with inflation, but without committing to a 150 basis points hike for the next meeting, under the risk of “ending up in a situation where it reaches a higher terminal rate than it would like.” The bank forecasts a basic interest rate of 12.25% at the end of the cycle, in May.
“I believe that the Central Bank will explain that the real interest rate, after the February hike, will already be quite high,” he said. Mr. Loes also believes that the monetary authority will become “data-dependent.” In other words, it will take future decisions based on indicators and, thus, leave the door open for slowing down interest rate hikes in March.
Morgan Stanley projects a 100 basis points hike in March and 50 basis points in May, when the cycle would come to an end. Furthermore, the U.S. bank is among those already projecting an interest rate cut this year, which would take place after the elections and reduce the Selic to 11.25% at the end of this year.
Andressa Castro, chief economist at BNP Paribas Asset Management, believes that the Copom may indicate on Wednesday the “beginning of the end of the cycle” of Selic tightening. “We see a more gradual adjustment due to the more benign behavior of implicit inflation in the market and by the stabilization of inflation expectations from Focus,” she said, citing the Central Bank’s weekly survey with economists.
According to data from Renaissance, there was an accommodation of implicit inflation, which is extracted from NTN-Bs, government bonds indexed to the IPCA – especially the shorter-term ones. In addition, the short-term IPCA coupon futures contracts (DAP) also show some relief. At Friday’s closing, the DAP pointed to an inflation rate of 5.43% this year and 5.25% in 2023.
Ms. Castro makes a caveat that, however, reductions in the Selic may only happen in 2023, should the fiscal deterioration scenario materialize, given that “today’s tax waiver becomes tomorrow’s inflation.”
“If, after the elections, there is no stress on the exchange rate in such a way as to compromise inflation and if expectations for 2023 and, mainly, for 2024, due to the displacement of the relevant horizon, are anchored, it would indeed be possible to reduce interest rates this year. However, we see this as not so likely and expect the interest rate to fall only in 2023,” the economist said.
Mr. Bicalho, with Vinland, on the other hand, is among those arguing that the most prudent thing to do would be for the Copom to maintain its tough stance and signal a new 150 basis points tightening in March. The economist notes, in particular, that the more conservative tone adopted by the monetary authority in December managed to contain the de-anchoring of inflationary expectations.
“However, there was no complete re-anchoring, looking at both market metrics and Focus itself,” he said, in reference to the median of the bulletin’s projection for the IPCA of 2023, above the center of the target. He believes that by indicating a 150 basis points hike in March, the Copom “will have a great chance to reinforce its commitment to the targets and consolidate the reanchoring process.”
Source: Valor international
In a new drive of investments in the port sector, at least 30 Private Use Terminal (TUP) projects were authorized in 2021 or are being analyzed by port regulator Antaq for authorization in 2022, unlocking contributions of up to R$9.5 billion.
For the Association of Private Port Terminals (ATP), which carried out the survey based on public calls and publications in the Daily Gazette, this proves the preference of many investors for this type of expansion in the sector.
TUPs are necessarily outside organized ports — those managed by dock companies or by state administrations — and have more flexible regulation than the leases of public areas. In the past decade, they had a 38% growth. Today, they handle about two-thirds of port cargo in Brazil, mainly minerals and fuel.
Among the new projects under analysis with chances of signing contracts with the Ministry of Infrastructure in 2022, are two large undertakings. One is Nordeste Logística, on an 83-hectare plot in Pecém (state of Ceará), with four terminals planned — for ore, grains, fertilizers, and containers. Investments of around R$2.35 billion are expected.
Another project that draws attention in the sector is Porto Guará, neighboring Paranaguá (state of Paraná), whose plan also involves the movement of different types of cargo. The request to Antaq mentions disbursements of R$3.85 billion.
Both have already gone through a public call – a process in which the agency opens a period of 30 days for the manifestation of any interested parties in building a TUP in the same geographic region – and are awaiting authorization. For this, it is necessary to have at least a term of reference issued by federal environmental agency Ibama for the preparation of environmental impact studies and land regularizations, as well as the absence of tax pending issues.
“Investor interest is greater in private terminals than in leases within organized ports,” says ATP president Murillo Barbosa. “No one has to wait for the government’s goodwill to conduct bidding processes. The private terminal has more flexibility. It can choose the location and type of cargo. It does not need to comply with the development and zoning plan of the public port.”
In 2013, with the new Ports Law, the requirement for new private terminals to predominantly handle their own cargo was dropped. Thus, the movement of third-party cargo was allowed. According to Mr. Barbosa, the number of authorized TUPs soared to 253 today from 124 that year.
In the calculations of the Ministry of Infrastructure, which are different from those used by ATP, the number of private terminals currently awaiting authorization reaches 53 projects and provides for investments of R$38.8 billion. “The government is no longer hampering investment. The investor’s challenge becomes environmental licensing and the economic viability of the project. It’s up to him to decide,” says the national secretary of Ports, Diogo Piloni.
In fact, however, many authorized projects die out along the way or remain undefined for years because of environmental restrictions or lack of capital for the works. Projects such as the Alcântara Port Terminal (state of Maranhão), Petrocity (state of Espírito Santo), and Porto Sul de Ilhéus (Bahia) disclose figures of billions of reais, but have not yet considered financing or have not yet obtained a prior environmental license.
For consultant Frederico Bussinger, managing partner at Katalysis consultancy and former president of the Port of São Sebastião, one of the most important factors for the success of a TUP project is the cargo guarantee. Therefore, according to him, terminals associated with the owner’s own production chain tend to start operating more easily. This has been the case, for example, with new facilities for the outflow of grain by groups such as Cargill and Louis Dreyfus, in the so-called Arco Norte.
In Mr. Bussinger’s assessment, the difficulty is significantly greater for structures that intend to move different cargoes that are unrelated to the business itself. There are still few successful cases, such as Porto do Açu (state of Rio de Janeiro) or Portonave (Santa Catarina), in creating private ports that handle third-party containers or cargo. “With a guaranteed cargo, the money appears quickly.”
Given the ease with which Antaq’s approval to build TUPs can be obtained, says Mr. Bussinger, permits often become a kind of “government bond”, and applicants only then go after real investors.
Despite the growth trend of TUPs, companies complain about recent attempts to increase regulation on an activity that is entirely private. A group of industry associations even overturned in court, in 2019, Antaq’s resolution that created a system for monitoring prices charged by its customers’ terminals.
The end of Reporto, a tax regime that made investments in ports and railways cheaper, whose recreation was barred by President Jair Bolsonaro in January, is also much criticized. Murillo Barbosa, with ATP, says that the absence of the benefit makes the value of a portainer (a type of crane used for loading and unloading containers) rise to $15 million from around $11 million.
Even with many advertised terminals having difficulties materializing, Mr. Piloni says that TUPs are already the main growth vector in the sector. “For every R$1 in investments effectively executed in port leases, we had R$3 in private terminals in 2021.
Source: Valor international
As Arezzo&Co moves forward in recent weeks with a secondary offering to raise up to R$830 million, the company’s appetite for mergers and acquisitions caught the investors’ attention in the roadshows.
For this unprecedented offering, the first since the IPO, Arezzo presented an aggressive plan, which surprised even potential investors aware of Arezzo’s ambition to become a major “house of brands.” In the rounds, the company’s management team unveiled a list of top assets it is interested in, including retailers Renner, C&A, Soma (already with Hering, a battle Arezzo lost), Centauro and Amaro, two sources said. To get off the drawing board a large deal, the company has been sounding out assets, with no clear evolution so far. The model Arezzo has in mind for these “big” deals involves share exchange, cash and debt. “Soma is the company they want most,” a manager familiar with the matter said.
Arezzo has already looked deeper into C&A after the pandemic, but the talks did not move forward.
Two managers who were at the roadshows see a short-term deal with Amaro, Soma or Centauro/Nike as the most likely, considering synergic portfolios and a potential open door for negotiation.
As Arezzo has little debt, there is still room to strengthen the cash flow, if necessary, without leveraging the company so much. In the same vein, a greater dilution of the partners is not an obstacle, considering the eventual need for new offerings. Arezzo believes that it makes sense to be smaller in something much bigger.
Anderson and Alexandre Birman hold 45.8% of the company. The stake fell to less than 50% after Arezzo bought Reserva in 2020. So, in practice, both have already given up the paradigm of being controlling shareholders, sacred to many Brazilian family groups, in exchange for faster growth.
Regarding leverage, the net debt-to-EBITDA ratio was 0.5 times in September, above what was seen a year ago, but one of the lowest in the sector.
Despite the great expectation generated in the market, as Arezzo has so far not done business with brands of large Brazilian retailers with a nationwide scale, it remains to be seen how the company would combine cultures and governance in businesses with consolidated management. “It’s one thing to buy Reserva, it’s another thing to combine it with Renner,” an investment analyst said. Since Reserva’s acquisition, Arezzo has brought in smaller businesses, such as streetwear brand Baw and womenswear brand Carol Bassi. Still, the prevailing assessment is that the Birmans are focused on putting together this digital “lifestyle” fashion retail model in the short to medium term – and are unlikely to stop until that strategy moves forward.
In the fully primary follow-on offering, the base offering is for 7.5 million shares (about R$615 million at the current price) and could reach R$830 million, considering the additional lot of up to 35%.
Source: Valor international
Chinese company Great Wall will make only electric and hybrid models in Brazil, starting in mid-2023. In an event to celebrate the automaker’s arrival in Brazil, Great Wall’s management team confirmed an investment of R$4 billion by 2025 and said future plans could total R$10 billion. In the first phase of the investment, which includes the start of operations at the factory in Iracemápolis, São Paulo, 2,000 workers will be hired. The company foresees 8,000 indirect jobs in this phase.
The Chinese automaker intends to export vehicles to markets beyond Latin America, said Koma Li, head of the Brazilian operations. According to him, the company is also preparing a research center in Brazil and intends to form partnerships with universities.
“Why Brazil?” asked the executive in his presentation at the factory. Because the country is among the 10 largest markets and car producers in the world and is the largest market in Latin America, he said.
According to Mr. Li, the country plays an important role in the expansion plans of the group, which wants, by 2025, to expand global production to 4 million vehicles per year from the current volume of 1 million.
Regarding the decision to only produce hybrid and electric vehicles, Pedro Betancourt, the company’s public relations officer, said: “We are a young company, only 30 years old; we don’t have to fight with those who defend things that have been done for years.”
According to Oswaldo Ramos, Great Wall’s chief commercial officer, surveys show that 43% of Brazilians want their next car to be electrified and 48% no longer want vehicles that do not offer the minimum of technology-related items, such as connectivity and safety. According to him, the vehicles that will be manufactured in the country will be of new generations, different from those already sold by the company in China and other markets.
Before the start of production in Iracemápolis, Great Wall will sell imported SUV and pickup truck models of its three brands (Haval, Tank and Poer). In this case, the imported ones will be hybrids and plug-in hybrids (which allows the hybrid to also be charged in an external power source). According to Mr. Ramos, the fully electric vehicles will arrive in the second phase, including those that will be produced in the country.
/i.s3.glbimg.com/v1/AUTH_37554604729d4b2f9f3eb9ad8a691345/internal_photos/bs/2022/d/f/7Ct9SfQqCQTT2U53VKdQ/sd-valor-06.01.201719029.jpg)
After falling more than 20% amid the pandemic shock in 2020, the Brazil-United States two-way trade recovered more than expected last year and reached an all-time high of $70.5 billion. That means a 43% year-over-year growth, or 9.3% more than the amount seen in 2019, of $64.5 billion.
The data are from the U.S.-Brazil Trade Monitor prepared by the American Chamber of Commerce for Brazil (Amcham). “We expected some recovery after the drop seen in 2020, but this is very substantial,” said Abrão Árabe Neto, Ancham Brasil’s executive vice president.
Brazil, which typically has a deficit trade balance with the U.S., reported a record negative balance also in 2021, of $8.3 billion. This deficit was the country’s largest with a trading partner last year, Amcham said.
The U.S. remained Brazil’s second main trading partner, with a 14.1% share in 2021, behind China. The Asian giant accounts for 27.1% of the pie.
Brazilian exports to the U.S. reached the unprecedented amount of $31.1 billion last year, up 4.7% from 2019, before the pandemic. They were driven by rising prices in sectors such as steel and oil and increased U.S. demand. “Domestic demand started heating up again in the U.S., which has been driving exports,” Mr. Árabe Neto said.
Brazilian imports totaled $39.4 billion, up 13% from 2019, an all-time high driven by broader factors. The result was boosted by purchases of natural gas and vaccines to tackle the water crisis and the pandemic, respectively. The previous peak, of $36 billion, had been seen in 2013.
U.S. natural gas purchases, which grew 2,330% from 2020 and totaled $3.3 billion last year, fueled Brazilian thermoelectric power plants. Brazil was the world’s fourth largest buyer of liquefied gas from the U.S. in 2021, Amcham said. “In value, liquid gas was Brazil’s second most imported product from the U.S. If we look at other years, imports were very low: $244 million in 2018, $269 million in 2019, $135 million in 2020,” Mr. Árabe Neto said.
Brazil’s mass vaccination against Covid-19 led to a 406% increase in vaccine imports in 2021, compared to 2020, totaling $2.3 billion. Petroleum fuels, however, remained the main product imported by Brazil ($7.4 billion).
Amcham projects a moderate increase in Brazil-U.S. two-way trade over 2022. “There is a considerable degree of uncertainty around the world,” Mr. Árabe Neto said. On the one hand, the performance of the economy and global trade tends to remain positive, although at a slower pace than in 2021.
The opportunities opened up by Joe Biden’s multi-billion infrastructure plan, a weakened real against the dollar this year and the high prices of key products like oil and pulp are likely to drive Brazilian exports to the U.S. On the other hand, this year will still be impacted by considerable uncertainty associated with possible new waves of the pandemic, fast inflation, China’s slowdown, supply chain failures, and geopolitical and climatic events.
Uncertainties such as that imposed by elections in Brazil affect the expectations of economic agents, Mr. Árabe Neto said. But he also says companies exposed to the Brazil-U.S. two-way trade already have consolidated operations. “Of course, the political scenario has a relevant influence on the international trade and investments, but we will continue to have favorable aspects for bilateral trade,” he said.
From the U.S. standpoint, he said, Brazil has also shown itself to be a relevant partner. “Among the main U.S. export destinations, Brazil was the second fastest growing. Brazil is not in the top 10 of American imports [in values], but was the second fastest growing in relative terms,” Mr. Árabe Neto said.
Source: Valor international
Brazil lost in 2021 the historical crown of exports bound for Argentina. After a technical draw in 2020, China surpassed Brazilian sales to Argentines by more than $1 billion last year. The Asian country’s achievement is unprecedented, records from the Argentine government since 2002 show.
China had already been ahead of Brazil by a few months in the last two years. In the full year 2020, China “won” by a difference of under $10 million, which left the Asian country and Brazil with an equal 20.4 percent share of Argentina’s $42.4 billion in total imports. Last year, the Chinese lead became clear.
With a total of $13.5 billion shipped last year to Argentina, the Chinese have accelerated exports and will hold just over a fifth – 21.4% – of Argentina’s foreign purchases in 2021, compared with 14.3% in 2011. Brazil increased its shipments to the neighboring country last year, but not at the same pace. With shipments of $12.4 billion, or 19.6% of Argentina’s import share in 2021, Brazil has lost ground in the last decade. In 2011, the country held 30% of the foreign purchases of the Mercosur partner. The data are from Indec, Argentina’s official statistics agency.
The Chinese have come to stay in first place in the ranking of suppliers to Argentina, experts say. “We must get used to this reality. We took Argentina’s market for granted,” said José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB). “And China will maintain its effort to gain markets, whether they are close or geographically distant.”
Last year, the sale of Chinese goods to Argentina rose 56.3%. The pace was much faster than Argentina’s total imports average growth of 49.2%. Brazilian exports to the neighboring country grew 43.3%. Among the main products exported by China to Argentina last year were vaccines, certainly driven by Covid-19. The records show, however, that the Asian country’s advance is not cyclical. It is a growing trend over more than a decade.
Well before overtaking Brazil, China took from the United States, in 2010, the position of second largest supplier to Argentina. That year, Argentina imported $6.1 billion from the U.S. and $7.7 billion from China. Brazil still led the pack, with $18 billion imported by the neighbor. In the following year, Brazilian exports to Argentina peaked at $22.2 billion, more than double the $10.6 billion sold by the Chinese.
In the following decade, however, this situation gradually changed. Following Argentina’s economic roller-coaster ride since then, both Brazilian and Chinese shipments to the country of Diego Maradona – and Alfredo Di Stéfano and Lionel Messi – saw ups and downs. But in each recovery of the Argentine economy, the Asian country’s appetite was greater and Argentina absorbed products made in China at a faster pace than those of Brazilian origin. The difference in shipments became smaller and smaller, until the technical draw in 2020, when the Chinese sold $8.66 billion in goods to Argentina, while Brazilians exported $7.6 million less. Last year, with a new and more vigorous start from China, Brazil lagged behind.
Considering broader factors, Brazil may have been even more favored last year than China in exports to Argentina, Mr. Castro said. That’s because most Brazilian goods imported by Argentina are transported by roads, so they felt less the logistical supply shocks that hit ships and containers needed for the goods to cross the sea from Asia. Moreover, Mr. Castro said, Brazilian shipments were also favored by the high prices of iron ore, one of the five Brazilian items most exported to Argentina last year.
Welber Barral, a consultant and a partner at BMJ, highlights that due to the relatively low exports from Argentina to China, their bilateral trade resulted in a deficit of $7.4 billion for Argentina in 2021. With Brazil, which typically imports higher values, the negative balance was much smaller, at $665 million. “The trade deficit is important at this moment for Argentina, given the more complicated scenario of their external sector,” he said. Even so, Argentina has not stopped buying more Chinese products.
“Some people said that the Common External Tariff would create a protection for intra-bloc trade, but this was not enough,” Mr. Barral said, referring to the set of tariffs charged when a country in the Southern Common Market (Mercosur) imports products from non-members. Brazil’s official figures also show that the trade relations with the bloc’s partner have lost steam. In 2010, the neighboring country accounted for 9.2% of total Brazilian exports. In 2018, the share fell to 6.4% and has not recovered further. Last year it was 4.2%.
The strengthening of the China-Argentina trade relations is not an outlier, said the economist Livio Ribeiro, a researcher at Fundação Getulio Vargas’s Brazilian Institute of Economics (FGV/Ibre) and partner at BRCG Consulting. “China has been advancing in the provision of industrial goods to Latin America as a whole since the mid-2000s, and in the last decade products made in China have invaded the region,” he said. This simply shows that China is more competitive, according to him. “It is hard to see a scenario in which the space it occupies does not increase. Right now, I can’t imagine something that would lead to a stagnation of Chinese expansion” in the region.
And it’s not just about China’s advance taking space from Brazil in the region’s markets, Mr. Barral said. In last year’s data, the former Brazilian foreign trade secretary said, other Asian countries such as Indonesia, Thailand and Korea increased their exports to Argentina at a rate above the average. These values are smaller, but form a representative set and show that the recovery of Brazilian shipments with the recovery of the economy expected for the region will face competition from Asia as a whole and not only from China. According to Indec data, the import of Thai products by Argentina totaled $1.6 billion in 2021, up 54% year over year. Imports of Korean products totaled $648.3 million, up 77.4% year over year.
As for the products, more than half of what China exported to Argentina last year were capital goods plus parts and pieces. The Asian country is furthest ahead in this category. Brazil still exports more intermediate goods and vehicles to Argentina, something that is based, experts indicate, on the integration of the two countries in the Mercosur.
Of the $13.5 billion that the Argentines bought last year from China, $4.3 billion were capital goods and $2.7 billion were parts and pieces for this category of use. Brazil exported, respectively, $1.6 billion and $2.4 billion, considering a total of $12.4 billion in exports to the Mercosur partner.
“Brazil is losing ground in machinery and equipment. This means that Argentina may even remain as the largest importer of industrialized products from Brazil, but in an increasingly less representative way. Even as Argentina is recovering in capital goods purchases, there hasn’t been a greater absorption of Brazilian products,” Mr. Barral said.
According to data from Argentina’s Indec, imports of capital goods in 2021 rose 38.1% year over year on average. The purchase of products in this category from China went well beyond, with an increase of 56.4%. Imports from Brazil in this category rose 17.6%. Mr. Barral believes that, in addition to competitiveness issues, the lack of financing lines that encourage exports of machinery and equipment to the neighboring country affects Brazilian performance.
Source: Valor international
President Jair Bolsonaro (Liberal Party, PL) has a disapproval rate of 64%, the highest since the beginning of his administration, according to an XP/Ipespe poll released Thursday. On the other hand, 29% approve his government. The poll shows that 55% of respondents consider the Bolsonaro administration to be bad or terrible, while 23% see it as excellent or good and 21% as regular. According to the poll, 65% of respondents consider that the Brazilian economy is on the wrong path. For 26%, the country’s economy is on the right track.
In closed-ended answers, former president Luiz Inácio Lula da Silva leads the voting intentions with 44%; Jair Bolsonaro appears in second place, with 24%; former judge Sergio Moro (Podemos) and former governor of Ceará Ciro Gomes (Democratic Labor Party, PDT) tied for third place, with 8%; São Paulo’s governor, João Doria (Brazilian Social Democracy Party, PSDB), have 2% of the voting intentions; tied with 1% are Simone Tebet (Brazilian Democratic Movement, MDB), Alessandro Vieira (Citizenship) and Felipe d’Ávila (New Party, Novo). In the open-ended answers, Mr. Lula da Silva have 35%; Mr. Bolsonaro has 23%; Messrs. Moro and Gomes have 4%; Mr. Doria, 1% of voting intentions. Pollsters conducted interviews with 1,000 people between January 24-25, with a 3.2% margin of error.
Source: Valor international