GM unveils R$7bn investment with no definition on electrification

Inclusion of combustion engine cars in extension of tax incentives changed scenario in Brazil

01/25/2024

Shilpan Amin and Santiago Chamorro — Foto: Gesival Nogueira Kebec/Valor

Shilpan Amin and Santiago Chamorro — Foto: Gesival Nogueira Kebec/Valor

General Motors announced this Wednesday (24) a robust investment program for Brazil, totaling R$7 billion from 2024 to 2028. The amount will be used to renew its entire product line and update plants. However, the plan breakdown disappointed expectations that the automaker could give some indication of the strategy it will adopt to electrification of vehicles produced in Brazil.

GM’s next investment cycle was the most awaited in the sector, as the company is the only one among the most traditional automakers to consider producing 100% electric vehicles and skipping intermediate phases with hybrids, as the other two giants—Volkswagen and Stellantis—have been defending.

However, recent measures announced by the government have shifted the scenario and could cause a possible review of the strategy. The most controversial rule is in the paragraph added at the last minute to the text regarding the extension of tax incentives for automakers operating in the Northeast and Central-West regions. The text was approved by Congress at the end of the year and benefits GM’s rival Stellantis.

The original text extended benefits only to hybrid and electric models, but internal combustion engine vehicles were included at the last minute.

The change impacts investment decision in a company as GM, which will celebrate 100 years in Brazil in 2025, and which has been always dedicated to producing combustion engine cars despite CEO Mary Barra’s declared intention to produce only electric vehicles worldwide from 2035.

The issue regarding tax incentives in Brazil was discussed in a meeting between the automaker’s leaders, President Lula, Vice-President Geraldo Alckmin, and Chief of Staff Rui Costa. In the meeting, GM’s plan to lay off 1,200 employees at the end of 2023 was questioned. By court decision, the cuts were replaced by a voluntary layoff program. The company’s leaders said that was a “specific” need to cut jobs.

GM International President Shilpan Amin, who is in charge of all company operations outside the U.S., came from Detroit especially to announce the investment plan to the Brazilian government.

During his two-day visit, he expected to unveil the investment in an interview after the meeting. However, President Lula was quicker and announced the amount of the company’s investment on social media. “The investment comes at a good time, with the return of the Brazilian economy to growth with programs such as the New PAC and the New Industrial Policy,” Mr. Lula posted on X.

In the automobile industry, all activity is linked to investments. As GM’s last investment cycle (2019-2024) of R$10 billion is about to end, it was time to renew it.

The announcement put an end to rumors about the possible departure of the company, which has one of the largest industrial complexes in the country, with 13,400 workers in three vehicle plants in São Caetano do Sul, São José dos Campos (São Paulo), and Gravataí (Rio Grande do Sul); one stamping parts plant in Mogi da Cruzes (São Paulo); and one engine plant in Joinville (Santa Catarina).

During the interview, the investment announcement was overshadowed by the reporters’ insistence on asking about vehicle electrification plans. Mr. Amin and Santiago Chamorro, GM’s president for South America, answered all questions, but did not clear doubts. They chose to keep the mystery alive.

“Some markets will go electric faster than others,” Mr. Amin said. According to him, the possible production of electric or hybrid vehicles will depend on market developments, consumer interest—which GM intends to capture through research—and “building a bridge” until Brazil is included on the electrification map.

The executive said the meeting with President Lula was “fantastic.” “I believe President Lula’s mindset is aligned with ours,” he said, when commenting on the need to decarbonize transportation.

Mr. Chamorro was even more enigmatic: “Brazil has strong potential for electric vehicles as a source of minerals to make batteries. And consumer demand and curiosity are there. I wouldn’t say yes or no, but there is potential.”

For now, GM will meet the potential demand by importing fully electric vehicles. In addition to Bolt, which is already being offered in the country, the company will bring electric versions of two other cars, Blazer and Equinox.

A large part of the new investments will be allocated to renewing the entire line, in addition to updating production processes, including sustainability solutions.

On February 1, it will be Volkswagen’s turn to announce a new investment cycle. The last program, worth R$7 billion and announced in 2021, will end in 2026.

Investments by automakers are confirmed as the government solves pending issues awaited by the industry. In the last days of 2023, the government presented Mover (the new stage of Rota 2030), a program offering tax breaks in exchange for companies meeting decarbonization targets and investments in research and development.

Furthermore, at the beginning of this month, imported electric vehicles were once again charged with Import Tax, which will gradually increase, signaling that the government seeks to protect the local industry.

*Por Marli Olmos — Brasília

Source: Valor International

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Treasury will not fund BNDES for industrial policy, director says

Industry support measures spread fear about use of public funds

01/24/2024

José Luis Gordon — Foto: Leo Pinheiro/Valor

José Luis Gordon — Foto: Leo Pinheiro/Valor

Although the government’s new industrial policy launched on Monday (22) has raised concerns among economists about the use of public funds to back investments, most part of the amounts were already included in the Brazilian Development Bank’s (BNDES) budget for the coming years. “There will be no capital injection from the Treasury into BNDES [to support industrial policy],” José Luis Gordon, director of productive development, innovation and foreign trade at the development bank, told Valor.

Of the R$300 billion to be invested by 2026 in the new industrial policy, R$250 billion (83% of the total) are expected to come from BNDES. The amount includes loans at market rates, implicit subsidies for innovation at the cost of the Reference Rate (TR, which adjusts savings accounts), and investments in funds (equity).

In the case of BNDES, the cost of loans is linked to the Long-Term Rate (TLP), but loans may also be indexed to the dollar in the case of external funding or via the Climate Fund (green bonds). There will also be subsidies via TR for innovation. The development bank also expects to raise funds to lend in the future, including to industry, via Development Credit Bill (LCD), pending on Congress approval, and via Agricultural Credit Bills (LCA). As Valor learned, should the LCD be approved, it could generate additional funds for the bank to lend, but the 2024 figures are unlikely to change.

That is because the BNDES operates with long-term loans and projects take time to mature. The bank’s budget could require more funds in 2025 or 2026, including to lend to industrial companies, but that will depend on economic growth. At the end of December, financial director Alexandre Abreu estimated that in 2024 the bank could lend from R$130 billion to R$160 billion, compared with R$115 billion to R$120 billion last year. The official figure will be known once BNDES releases its fourth-quarter report, in March.

The goal of the current administration, under the helm of Aloizio Mercadante, is to return to growth, which is expected to occur gradually. The aim is to reach 2% of the Brazilian Gross Domestic Product (GDP) in 2026, with investments of some R$200 billion per year.

Sources say the BNDES does not have current funding to sustain such investments. The available funds are enough to ensure a 1.3% share in the GDP. However, should the LCD be approved, the bank could gain momentum to raise and lend more funds, although the market is not sure about the real potential of this security to raise money on a scale enough to back infrastructure projects for long terms, of five or 10 years.

Mr. Gordon, the BNDES productive development director, notes that the “Mais Produção” program announced by the government is intended to show the available resources to the productive sector for the coming years, similar to what occurs in agriculture. “It’s the industry’s Crop Plan,” Mr. Gordon said, in a reference to the program created to boost agriculture. The initiative has been divided into four axes: innovation, exports, productivity and decarbonization. In the exports area, the bank expects to return to back services and intends to create an agency dedicated to international sales, the BNDES Exim, a plan that has been going back and forth for nearly 20 years.

Of the R$300 billion announced, R$271 billion are expected to be granted in loan operations. Other R$21 billion are expected in non-refundable facilities and R$8 billion in capital injection. Mr. Gordon says that the amount will not be used to acquire more shares in companies, but to structure investment funds in which BNDES will act as an anchor, bringing the market along. The R$300 billion figure also considers that R$77.5 billion, or 26%, were approved in 2023, most of it by BNDES, but also by Finep. The idea is to get Banco do Nordeste (BNB) and Banco da Amazônia to join the program, Mr. Gordon said.

“The ‘Mais Produção’ program is important for the economy to grow and for us to have productivity gains,” Mr. Gordon pointed out. Studies show, however, that previous initiatives, in other Workers’ Party (PT) administrations, were not enough to increase the productivity even with the BNDES injecting billions of subsidized funds into specific sectors, dubbed as “national champions.” The moniker refers to the choice of certain sectors that received support from the state in a previous version of industrial policy. Mr. Gordon claims there were indeed productivity gains. “The country will not be able to fund the production of machinery and equipment without BNDES,” he said.

Some economists understand the high degree of subsidies from the BNDES in the past pushed the private sector away in granting credit to companies. The private sector only returned after the BNDES downsized and established the TLP as the reference rate in loans. Now, new concerns are raised with the new industrial policy that past mistakes could recur.

Mr. Gordon said, “We are in alignment with the government’s budget forecasts, the BNDES is in alignment with [Finance] Minister [Fernando] Haddad’s policy. The bank will not use Treasury funds.” Although the bank’s projections indicate a limited number of subsidies in new industrial policy loans, the market is concerned.

Armando Castelar, an associate researcher at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), says the program announced by the government does not address the manufacturing industry’s biggest problem: low productivity, which leads to a constant loss of participation in GDP. Mr. Castelar notes that the program is focused on subsidizing sectors, and not on reversing the decline in productivity.

“Why does that raise concerns among so many people? Firstly, because it is a policy intended to compensate for low productivity, not to increase productivity. It’s a local content policy. As it is local content, taxpayers are paying for that. As it is a commercial barrier, consumers are paying for that. It doesn’t increase productivity, it keeps productivity low,” he argues.

In the economist’s opinion, the government’s initiative prevents the natural selection process and the most efficient sectors from developing. “It’s a support program for low-productivity companies. The result is that the country’s productivity remains low,” Mr. Castelar said. The second problem, in the economist’s opinion, “is it all has a price, it costs money.” He explains that, to extend subsidies to companies, the government takes money from taxpayers. “Brazil already has a very high tax burden and to provide such subsidies it will have to increase tax burden even further,” he notes.

Sergio Lazzarini, a professor at Western University, has a similar opinion. “What is worrying is that we made changes to give some discipline to BNDES loans. The TLP was implemented in recent years, and now we see changes underway to allow BNDES to change the reference rate for loans and capitalize directly,” he points out.

For the economist, it is inevitable to make connections between this Monday’s announcement (22) and the politics of “national champions,” especially given uncertainties accompanying the government’s announcement: “If it is to benefit companies and large groups with the argument that they need to export since they have national technology, we are again talking about national champions. And on a path of potential disaster as it was in the past.”

*Por Francisco Góes, Paula Martini, Rafael Rosas — Rio de Janeiro

Source: Valor International

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Federal revenue closes 2023 stable at R$2.3tn

Brazil’s tax authority cites atypical factors, believes annual result was positive

01/24/2024

Robinson Barreirinhas — Foto: EDU ANDRADE/Ascom/MPO

Robinson Barreirinhas — Foto: EDU ANDRADE/Ascom/MPO

Federal revenues ended 2023 virtually stable compared to 2022, with a real decrease of 0.1%, totaling R$2.3 trillion (at current prices). Brazil’s Federal Revenue Service estimates that the result was “quite positive” despite atypical factors that affected the result, such as the impact of the tax exemption on electricity and fuel that was implemented in 2022, a measure withdrawn by the Ministry of Finance last year.

The performance of tax collection this year is crucial for the government to achieve its zero-deficit target. The impact will not be felt until February, and if there is a revenue shortfall, the target could be revised in March, when the new projections are released.

The economic team cited four main factors that had a positive and negative impact on revenues: a real growth of 21.6% in the collection of individual income tax on capital income, due to the appreciation of the Selic policy rate; a real growth of 3.36% in the individual income tax on work and 5% in the Social Security contribution, due to the increase in the wage bill; a reduction in the fuel tax rates and an extraordinary collection due to the Zero Litigation Program and exports of crude oil.

Special Revenue Secretary Robinson Barreirinhas referred to a “challenging year” and recalled that after the pandemic there was a surge in revenues in some sectors, especially commodities, which “distorted” the 2022 result and made it difficult to compare.

The secretary highlighted that in 2023, the tax on industrialized products (IPI) fell sharply due to the reduction in rates in 2022, which deprived the government of R$22.8 billion in revenue. “The impact was enormous in 2023, as well as the fuel tax exemption, which had a gigantic impact of billions of reais, and we are resuming it [tax collection].”

“Even with all these challenges, the numbers are positive,” he said. He mentioned that in December there was a very strong increase in the Tax on Financial Transactions (IOF) for credit operations and the IPI for car production.

Mr. Barreirinhas also mentioned Zero Litigation, which generated revenues of R$5.6 billion. The export tax on crude oil generated R$4.4 billion. The tax was created for four months to compensate for the diesel tax exemption in 2023.

In the case of administered revenues, atypical factors had a negative impact on the collection of R$46 billion in the year. The reduction of tax rates on fuel alone resulted in a loss of R$32.7 billion for the federal treasury. Without these factors, these revenues would have ended last year at R$2.287 trillion, compared to the R$2.241 trillion recorded.

In 2023, the government managed to pass a series of measures in Congress to increase revenues, but so far the only one that has generated results in 2023 is the taxation of exclusive funds. In December, they generated revenues of R$3.9 billion.

The director of the Center for Tax and Customs Studies, Claudemir Malaquias, said that the tax authorities are still waiting to see what the real gain will be from the tax on exclusive funds and offshore companies that was passed by Congress at the end of the year.

*Por Guilherme Pimenta, Jéssica Sant’Ana — Brasília

Source: Valor International

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Mixed reactions to Brazil’s industrial policy announcement

Under criticism for resuming old practices, Brazil’s government proposes to modernize sector but lack of clarity worries

23/01/2024

President Lula, Vice President Geraldo Alckmin, and Ministers Esther Dweck and Rui Costa — Foto: Brenno Carvalho/Agência O Globo

President Lula, Vice President Geraldo Alckmin, and Ministers Esther Dweck and Rui Costa — Foto: Brenno Carvalho/Agência O Globo

The government’s new industrial policy, announced on Monday (22), envisages approximately R$300 billion in contributions by 2026 through financing, subsidies, and equity participation in projects. President Lula and Vice President Geraldo Alckmin stated that the amount was sufficient to modernize the industrial sector. Businesspeople present during the announcement viewed it as “a good start.”

The measures have received both criticism and praise. Economists have lauded them as a promising initial step in stimulating various sectors of the national economy. However, critics have also argued that these measures involve a repetition of old formulas that were ineffective during previous Worker’s Party administrations. Such criticisms include prioritizing national content in public purchases, potentially isolating the country from global production chains, and lacking clear targets.

Aloizio Mercadante, the president of Brazil’s Development Bank (BNDES), has denied that the government is reverting to the policy of national champions, which was prominent during the previous Lula administrations. He stated, “We’re not going to choose partners.”

The financial market responded cautiously to the announcement, with the real losing ground against the dollar and the stock market closing lower.

There is also uncertainty surrounding whether public funds will be used to subsidize a portion of the new policy, potentially raising concerns about fiscal rules. Mr. Mercadante indicated that BNDES’s portion would be financed from its own funding but did not provide explicit details. Of the planned R$300 billion, R$271 billion is allocated for financing, R$21 billion for non-reimbursable credits, and R$8 billion for direct company contributions, primarily for purchasing shares.

The plan, “Mais Produção” (More Production), is structured around four main pillars: Innovation, Exports, Productivity, and Decarbonization. The majority of the funds, approximately R$250 billion, will be provided by BNDES, while the remainder will be overseen by the Financier of Studies and Projects (FINEP) and the Brazilian Research and Innovation Company (EMBRAPII).

The largest allocation of funds, amounting to R$182 billion, is directed towards policies to increase industrial productivity. This package includes credit lines offered by BNDES, with interest rates starting at 5.5% annually. It also encompasses initiatives such as a broadband expansion program, and another focused on digitizing 90,000 small and medium-sized industrial companies.

The Innovation pillar will receive R$66 billion in funding, with interest rates tied to the TR (Reference Rate). According to Vice President Alckmin, this financing instrument effectively addresses the issue of funding innovation in the industrial sector. He remarked, “I would say that the funding issue for research and innovation is well balanced because it is tied to the TR, which is no more than 5% a year.”

Vice President Alckmin, who also oversees the Ministry of Development, Industry, and Foreign Trade, emphasized that the innovation axis includes a portion of FINEP’s non-reimbursable resources, meaning they don’t need to be repaid.

The government’s policy of subsidizing the productive sector, particularly through BNDES, faced scrutiny from the Federal Accounting Court (TCU) during previous Worker’s Party administrations. Nevertheless, the government continues to defend this measure, considering it essential for maintaining the industrial sector’s competitiveness, and cites similar international experiences.

Support for exports is allocated R$40 billion. The pre- and post-shipment lines provided by BNDES will be remunerated based on the TLP (Long-Term Rate), the Selic, and rates linked to the U.S. Treasury.

Mr. Mercadante also used the opportunity to request that Congress authorize the institution to resume financing services abroad, an operation that was halted after the Car Wash scandal. He stated, “We’ve lost national engineering, and if we don’t export services, we won’t be competitive globally.”

In conclusion, the decarbonization pillar will receive R$12 billion in funding from the Climate Fund, which the BNDES manages. Industrial projects falling under this category will have access to financing lines with interest rates starting at 6.15% per year. Additionally, a fund is planned for investment in critical minerals, such as lithium, used in the production of electric vehicle batteries. The BNDES is expected to have a stake in these strategic projects for the country.

Beyond loans and contributions, the government has also allocated R$3.4 billion in tax incentives to rejuvenate the industrial sector. Mr. Alckmin highlighted accelerated depreciation as one of the “most effective” measures of the new industrial policy. Under these rules, companies replacing their equipment after two years of use will benefit from reduced Corporate Income Tax (IRPJ) and Social Contribution on Net Profit (CSLL).

President Lula praised the announced measures and emphasized the importance of their implementation. He expressed dissatisfaction with the lack of clear targets and stressed that the objective over the next three years should be to achieve concrete results. He also mentioned that the R$300 billion allocation would address the financing challenges of industrial modernization, and he urged Brazilian entrepreneurs to have more faith in the country’s potential.

Leonardo de Castro, the vice-president of the National Confederation of Industry (CNI), considered the R$300 billion as “a good start” and cited larger figures made available by developed countries. He criticized what he perceived as ideological influences on Brazil’s development model, emphasizing the need for honesty and a more pragmatic approach to the country’s development in the global context.

*Por Murillo Camarotto, Renan Truffi, Fabio Murakawa — Brasília

Source: Valor International

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Domestic flight market drops 10% in December

Companies announced cuts in trips in November due to a lack of aircraft

23/01/2024

Congonhas Airport in São Paulo, one of the busiest and most profitable in the country, is expected to see a smaller reduction in the number of flights offered by airlines — Foto: Maria Isabel Oliveira/Agência O Globo

Congonhas Airport in São Paulo, one of the busiest and most profitable in the country, is expected to see a smaller reduction in the number of flights offered by airlines — Foto: Maria Isabel Oliveira/Agência O Globo

As airlines reduced the number of seats, passenger traffic slowed even more in December than it did before the pandemic. In the last month of last year, 8 million passengers were transported, down 10.1% compared to the same month in 2019, according to data published on Monday by the National Agency of Civil Aviation (ANAC).

With this result, the domestic market extended the decline reported last November. In that month, there were 7.6 million passengers, a decrease of 6.3% compared to the pre-pandemic period.

In mid-November, Brazilian airlines announced a reduction in their supply forecasts due to delays in aircraft deliveries and a lack of spare engines. The tight supply chain scenario is expected to continue until 2024. At the same time, airline Gol’s financial challenges could further shrink the market.

In 2023, Brazilian civil aviation handled 112.6 million passengers, the best annual result since 2020, although still 95% of the total handled in 2019. Compared to 2022, the result represents an overall 15.3% increase.

In the domestic market alone, there were 91.4 million passengers in 2023, 11.2% more than in 2022, while the international market totaled 21.2 million passengers, an increase of 37.5% on the same basis.

Domestic demand, measured in revenue passenger kilometers (RPKs), increased by 3.7% compared to December 2022. Meanwhile, seat supply, measured in available seats per kilometer (ASK), decreased by 1.3%. Compared to December 2019, demand and supply were reduced by 5.4% and 2.8%, respectively.

On the international market, demand increased by 17.2% compared to December 2022. Supply increased by 12.5%. The international market is also lower than before the pandemic: in December, demand fell by 1.7% while supply was cut by 2.1%.

In December 2023, domestic cargo handled 43,100 tonnes, 5.9% more than in the same month in 2022. International cargo handled 69,300 tonnes, 2.2% more than in December 2022.

The crisis of Gol, which is mulling over a court-supervised reorganization in the United States to resolve its high debt, could complicate life for consumers. This is because the airline, once the leader, is now the second largest in the domestic market—it has a share of around 30%, behind Latam. A possible legally-backed debt restructuring could lead to an even greater reduction in the company’s supply.

Bank BTG analysts have already signaled that a worsening of Gol’s crisis would be an opportunity for Azul to grow in the market. This is because the overlap of routes with Latam today is mainly in busy hubs such as Congonhas and Guarulhos in São Paulo, Santos Dumont in Rio, and Brasília. These more profitable routes are expected to see a smaller reduction in supply.

*Por Cristian Favaro — São Paulo

Source: Valor International

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U.S. senators want to block JBS IPO at NYSE

Claims by lawmakers echo Ban The Batistas movement, whose supporters are not known

23/01/2024

U.S. senators claim that JBS listing would put shareholders in the country at risk — Foto: Divulgação

U.S. senators claim that JBS listing would put shareholders in the country at risk — Foto: Divulgação

After British lawmakers have requested that the U.S. Securities and Exchange Commission (SEC) block the proposed listing of JBS on the New York Stock Exchange, now American senators are trying to stop the Brazilian meatpacker from going public in the country.

In a letter sent to SEC Chair Gary Gensler on January 11th, the senators claimed that JBS listing would put shareholders in the U.S. at risk. They cite a history of “corruption, human rights abuse, monopolization of the meatpacking market, and environmental risks” by the company.

In the senators’ view, JBS listing might also strengthen its market position in the U.S., which they say could harm competitiveness and the country’s farmers and ranchers.

They ask that the SEC evaluate JBS’s draft filing to ensure that the company provided all information required on such sensitive topics. “Should JBS fail to cure any such disclosure deficiencies, we would ask that the SEC decline to declare the company’s registration effective,” they wrote.

The letter cites that, in 2020, JBS holding company J&F Investimentos pleaded guilty in cases of bribery in Brazil and the U.S., including in the acquisition of Pilgrim’s Pride, in 2009. The lawmakers also cited cases of deforestation in the Amazon linked to the sale of cattle to the company.

When contacted, JBS argued that the dual listing would increase scrutiny on the company’s processes, which would have to comply with the standards of the SEC and the New York Stock Exchange. “Stakeholders truly interested in the development and growth of the company and its entire value network support JBS shares listing in New York,” the company wrote in a statement.

U.S. senators’ arguments echo the manifesto by the Ban The Batistas movement, which promises to fight to “protect U.S. farmers, ranchers, consumers, and investors from the risks of an IPO by JBS.” The group also mentions an alleged “unchecked power grab by its majority shareholders, brothers Joesley and Wesley Batista,” who would take advantage of the listing to increase their position in the company to 90%.

According to the Politico website, which specializes in covering U.S. politics, the movement had hired consultancy firm Actum to try and block the IPO. However, it is hard to connect the U.S. lawmakers’ letter to the group—contacted by Valor, the Ban The Batistas movement declined to inform on which organizations, companies, or individuals are supporting and backing the group.

Igor Guedes, a commodities analyst at Genial Investimentos, said that JBS expected to complete the offering in 2023, but the process proved to be more complex than expected. “They are now avoiding giving a new date and frustrating the market, but the chief investor relations officer says it is a matter of time,” the analyst says.

According to him, JBS listing in New York would increase the company’s liquidity in the U.S. market, where investors currently have access to the company’s shares through American Depositary Receipts. “JBS is traded at a value below its U.S. peers, like Tyson, while we think it should be the other way around,” he argues.

Mr. Guedes believes the possible listing may be upsetting members of the U.S. meatpacking industry, as the Brazilian company’s diversified portfolio would give it an advantage over companies that only operate with beef in the U.S. “The capital that filled the gap [in JBS’s market capitalization] in relation to its peers would probably come from those same peers,” he said.

Por José Florentino — São Paulo

Source: Valor International

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Gerdau chairman: “Will Brazil destroy its own steel industry?”

With the sale of non-strategic assets, Gerdau will define the allocation of new investments

19/01/2024

Gustavo Werneck — Foto: Carol Carquejeiro/Valor

Gustavo Werneck — Foto: Carol Carquejeiro/Valor

In a move to focus on strategic assets, particularly in Brazil, the U.S., Mexico and Canada, Gerdau announced on Wednesday (16) the sale of its stake in the Diaco and Gerdau Metaldom joint ventures to Inicia, a group that was already a partner in these two companies, for $325 million.

“We want to be in relevant countries for the long term. Gerdau has been in 13 countries and is now in seven,” said Gustavo Werneck, Gerdau’s chairman. With operations in Colombia, the Dominican Republic, Panama, and Costa Rica, the divested companies have long steel production units with production capacities of 360,000 tonnes in the melt shop and 1,250,000 tonnes in the rolling mill, a business considered of little relevance to the company’s overall results.

“The funds [from the sale] will be used for the company to look for other investment alternatives. In our opinion, these funds should be better invested in Brazil, Mexico, the United States and Canada,” the executive said.

In that sense, the steelmaker’s board of directors has asked the management team to define the future allocation of Gerdau’s investments. “The question is: where is the best place to invest? Brazil or Mexico, which is growing very fast and is part of the nearshoring movement? I think Brazil is missing that opportunity.”

With Chinese steel imports, Brazil has also lost competitiveness in the steel sector, and this scenario has worried the chain, according to the executive. “Investors looking at the sector have questioned what the country’s growth path will be.”

The sector has been highly critical of the Brazilian government for not erecting barriers to protect domestic steel. “Brazil used to be a major aluminum producer, but that important segment of the industry has been destroyed. Will Brazil destroy its steel industry as well?”

With operations in Argentina, the Brazilian steelmaker doesn’t intend to leave the neighboring country despite its economic instability. “There are countries, like Argentina and Peru itself, that have experienced great political difficulties in recent years that are very relevant to us.”

On his first visit to the World Economic Forum in Davos, the executive offered a positive assessment of the event for the company’s networking, but shares the opinion of businesspeople attending the forum that the Brazilian delegation fell short this year due to the lack of representatives from the country’s economic team.

“I think we missed an important opportunity. Brazil is the largest delegation in South America, it has the largest number of companies, so it’s contradictory to be the largest delegation and not have the largest representation. The Argentine government attended the event with its economic team.”

For the executive, the country was praised in the environmental field. “Minister Marina Silva is a global reference in sustainability.”

Mr. Werneck believes that the energy transition, a banner that Brazil is defending, is an important issue, but it is still necessary to understand how to finance the investments planned for this new industrial movement.

*Por Mônica Scaramuzzo — Davos

Source: Valor International

https://valorinternational.globo.com/
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New import tax rule increases government’s revenue

Brazilian retailers, industrial companies go to the Supreme Court to denounce tax inequality

19/01/2024

Data obtained by Valor show that from August to December 2023, after the start of the Remessa Conforme program—Portuguese for “compliant shipments,” which established new import rules for orders up to $50—tax revenues reached R$700.5 million, an increase of about 122% over the same period last year.

The issue of tax collection is gaining momentum at a time when one of the most important aspects of the program—the tax relief of international online marketplaces that participate in the program—is before the Federal Supreme Court (STF). Brazilian retailers and industrial companies are challenging the lack of tax equality between local and foreign companies.

Remessa Conforme was defined in a decree issued by the Ministry of Finance and has been in effect since August 1. It grants tax and customs benefits to foreign online platforms, such as exemption from the 60% import tax, as long as they source their shipments in Brazil. However, a sales tax, the ICMS, is still levied at 17%.

The data is part of a survey by Brazil’s Federal Revenue and shows that despite the tax break, there has been an increase in revenue due to an increase in the number of statements for shipments over $50 that are taxed—one of the goals of the tax authorities with the change.

Valor has also learned that the increase in revenue may reflect an improvement in the inspection of products entering Brazil. The tax authorities have been working on this in recent months. However, shopkeepers can still try to circumvent the rules by making statements of more expensive products as if they cost less than $50 (to obtain the exemption). However, the Federal Revenue detects the wrongdoing in these cases and charges a 60% tax.

Remessa Conforme involves voluntary compliance by businesses, so shopkeepers who do not comply will not get advanced customs clearance on sales up to $50. And they still have to pay 60% tax, plus 17% ICMS—which also increases the tax revenue. Currently, AliExpress, Shein, Shopee, and Mercado Libre have joined the model (Amazon is still implementing it).

According to the data obtained, from August to December 2022, only 2.4% of all postal shipments were reported, and in 2023, the percentage increased to just over 60%. Of this 60%, 44% were statements registered through the Remessa Conforme mechanism. The Ministry of Finance declined to comment on these figures.

From August to December, ICMS collection reached R$120 million, 10 times more than the previous year. Import taxes amounted to R$580 million, an increase of 92%.

With the new rules and early local sourcing of shipments, the Federal Revenue is increasing controls and trying to reduce fraud—the main reason for the change in rules.

There is a perception in the government that shopkeepers hosted on the platforms are falsifying data about the sender of orders to fall into the only category that was exempt from tax until August —that of person-to-person sales. Since August, the exemption also applies to shipments from foreign companies.

Local retailers, Brazilian industrial companies, and foreign online platforms have already spoken out in favor of the program, saying it tackles the problem of fraud and creates workable rules for imports. Since 2021, a series of meetings have been held with economic institutions and the tax authorities to draft the program.

The disagreements between the parties were therefore never about Remessa Conforme but about the idea of linking the model to an import tax break—something that was not discussed before the changes were announced.

This aspect of tax collection is becoming more important today, because among the alternatives for increasing tax revenue that the government is analyzing in the search for a balanced budget this year is the inclusion of this revenue from imports.

This could be further strengthened with the definition of a rate and the end of the exemption in 2024. The Ministry of Finance has discussed a rate between 17% and 20%, which could be as high as 28% on packages sent. The issue is under discussion at the ministry. There is a possibility of a staggered increase over the year, sources say.

The problem is that since there has been no definition of a rate so far—the public debate on the subject began in April 2023—the Confederations of Commerce and Industry (CNC and CNI) filed a direct action of unconstitutionality with the STF on Wednesday night, alleging a lack of tax equality.

The local chains claim to pay more than 100% tax on the production chain and the sale of goods. The Ministry of Finance was aware of this move by the CNC and CNI before the announcement, as Valor reported on Thursday.

The federal government has yet to define its line of defense in the lawsuit, but the initial reading is that Remessa Conforme already tackles the main problems identified by the sectors.

In the government’s view, Valor found out, with Remessa Conforme, the Federal Revenue already has control over small shipments entering Brazil. Therefore, it would already limit any wrongdoings, and the platforms that have joined are fulfilling the requirements to be within the new rules.

The companies argue in their petition that acts numbered 1,804/80 and 8,032/90 establish an exemption only for individuals for non-commercial international shipments. Therefore, they do not apply to shipments by companies as defined in the Ministry of Finance’s regulation. According to the companies, this definition is contrary to the law.

However, a source calls into question this point made by the associations. He said that wrongdoings existed before the program, with businesses posing as individuals to send packages into the country without paying taxes. He also claims that the zero tax rate was a decision by a minister who had the power to set it.

The Federal Attorney General’s Office (AGU) is still waiting to be asked to act in the case, based on the line of defense to be drawn with the rest of the government. The case was sent to STF’s Justice Cármen Lúcia on Thursday.

In the past few months, the discussion about the definition of a zero import tax has been growing among national retailers because of the risks that it could bring to the business, in the opinion of national companies. They claim that the entry of goods, especially from Asia, under these conditions poses a risk to local job creation and may not comply with Brazilian health monitoring standards.

The issue was the focus of a presentation by retailers at the last meeting of the Council for Sustainable Economic and Social Development (CDESS) with President Lula in December.

*Por Adriana Mattos, Jéssica Sant’Ana, Guilherme Pimenta — São Paulo, Brasília

Source: Valor International

https://valorinternational.globo.com/
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Energisa seeks R$2bn in second share offering this year

Power company seeks to raise funds for expansion by placing shares in Brazil and abroad

19/01/2024

Energisa, the company that controls power distributors in 11 Brazilian states, is preparing a new stock offering, as reported Thursday by Valor’s business website Pipeline. The operation, announced the day after Inter Bank raised $161.9 million in the United States, aims to attract around R$2 billion to invest in business expansion.

The company said that it is still working on the documentation “with a view to possibly conducting a public offering for the primary distribution of common and preferred shares.” The plan is to conduct the offering in Brazil, but also to seek international placements. The preliminary schedule foresees a launch after the close of trading on Friday.

Energisa has appointed as coordinators the banks Itaú BBA, leader of the operation, Bank of America (BofA), Bradesco BBI, BTG Pactual, Citi, J.P. Morgan, and Scotiabank Brasil, which are carrying out “preparatory work” to define the viability and terms of the offer.

According to the company, if the operation goes ahead, the controlling shareholder Gipar should accompany the capital increase in proportion to its stake of approximately 27.7%.

The company points out that the effective completion of the offer “is subject, among other factors beyond the company’s control, to market conditions, obtaining the necessary approvals, including the respective applicable corporate approvals, procedures with financial institutions inherent to this type of operation at the stage it is at, and the effective interest of investors.”

On Wednesday, Inter surprised the market with the announcement of the first follow-on share offering of the year by a Brazilian company. The bank raised $161.9 million after pricing the shares at $4.4, a discount of 3.08% from the day’s close.

According to sources familiar with the matter, the aim of Inter’s offering was to attract international funds to its shareholder base. When Inter moved to Nasdaq from B3 in June 2022, it didn’t do an IPO in the U.S., so its shareholder base remained essentially local funds. After a year and a half and with the bank’s results improving, a “tactical” offer could help attract other classes of investors and improve the liquidity of the stock.

Given the size of Inter’s offering, with average checks of around $15 million, the bank aimed to attract up to 10 new funds to its base. The idea, sources say, was to bring in a mix of U.S. and European funds, some long only, some focused on the technology sector, and some on emerging markets. With more liquidity and different classes of investors, Inter should see less volatility in its stock, making it more attractive to other classes of investors.

*Por Maria Luíza Filgueiras, Mariana Ribeiro, Álvaro Campos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Honeybee deaths across Brazil put pesticides in the spotlight

Earlier this year, Ibama suspended foliar application of fipronil in the country after reports increased

01/17/2024

Marcelo Ribeiro — Foto: Arquivo Pessoal

Marcelo Ribeiro — Foto: Arquivo Pessoal

The loss of nearly 400 hives in one fell swoop last January was the trigger for beekeeper Marcelo Francisco Ribeiro of Jacuí, in the south of Minas Gerais, to file the first complaint with his region’s environmental authorities about a problem he has been facing for at least five years.

“I arrived at the first box and was shocked to see the pile of dead bees. I went to the second, to the third, around the whole apiary, and there was only one hive with live bees,” he recalls. The results of the analysis carried out at the Biological Institute of São Paulo showed the presence of 35 different pesticide active ingredients, the main ones being fipronil, thiamethoxam, and propanil.

Although there are no organized statistics on honeybee deaths in the country, the perception of defense agencies and the government itself is that they have increased in recent years, especially since 2012. “This is not an isolated case in one state. There are reports in São Paulo, Bahia, Minas Gerais, Mato Grosso do Sul, Santa Catarina, northern Minas Gerais, there are cases of mass death in most of the main states of the country,” said the president of the NGO Bee or not to be, Daniel Gonçalves.

The mass death of bees is not necessarily a novelty in beekeeping. “It has always happened, but never in such large numbers. We used to lose one hive per apiary, two at the most, but it’s increased too much in the last five years,” said the beekeeper. Across the country, the increase has been linked to the popularization of fipronil, an insecticide registered in Brazil since 1994 but whose patent expired in 2008, paving the way for new formulations.

In Minas Gerais alone, about a thousand hives have been lost in one year, according to Rosangela Muniz, deputy director of Ibama’s Environmental Quality Department. Earlier this year, the agency suspended foliar application of fipronil across the state as a precautionary measure. “In several cases of bee deaths that have been analyzed, fipronil is the active ingredient that appears most often. We don’t have that percentage, but we do have several reports and studies,” he notes.

Although all reports collected by the state agricultural defense services are sent to the Ministry of Agriculture, the ministry claims to have no statistics on the problem. Between 2013 and 2015, the NGO Bee or Not to Be collected self-reported data from producers who lost hives due to mass bee deaths. In a year and a half, there were 300 incidents, more than 80% of which linked to pesticide contamination.

“Of course, we weren’t able to analyze all these cases, but it was undoubtedly a very important first survey,” said Mr. Gonçalves.

In São Paulo, work carried out by the manager of the State Bee Health Program (PESAB) of the State Agricultural Defense Coordination, Renata Taveira, analyzed the results of laboratory tests of the 62 reports of bee mortality received by the agency between 2020 and 2022, and found that of this total, 49 were related to pesticide poisoning, with fipronil being the active ingredient most frequently found: 63% of the cases.

“Notifications are increasing, and we know that in reality the mortality rate is much higher,” said Ms. Taveira. In 2023, it is estimated that the state will have recorded around 50 reports of bee mortality—in 2022, there were 39 reports.

In addition to the problem itself, greater awareness among beekeepers is cited as one of the factors behind the increase in reports. In Mato Grosso, according to the Agricultural Defense Institute (Indea), there were 45 notifications in 2023, of which 13 were for poisoning. In 2022, there were five reports.

“What’s significant is that, due to other notifiable diseases, we started several campaigns to get producers to come to Indea, and this may have affected this number of cases,” said the agency’s Animal Health Defense Coordinator, João Marcelo Brandini Néspoli.

Given the evidence of damage to beekeeping, Ibama has initiated a process to re-evaluate fipronil in 2022. “It is already understood that when the pollinator [bee] is affected in this way, there is a greater ecological risk associated with the use of this active ingredient. If you kill the bee in this way, you are certainly affecting other organisms in the fauna,” said Rosangela Muniz.

Following a precautionary suspension of foliar use of fipronil in Brazil, Ibama is not ruling out the possibility of more stringent restrictions on the active ingredient in the future, when the re-evaluation period for the substance comes to an end. “The re-evaluation process started a year ago and this was a precautionary measure. We thought it would be good to suspend foliar use of fipronil, but in the end Ibama usually restricts uses and crops even more,” said Ms. Muniz.

*Por Cleyton Vilarino — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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