Foreign investors take larger share in M&A in Brazil

Local investors expected to gain ground in 2024 amid capital market reaction

02/16/2024

Daniel Wainstein — Foto: Carol Carquejeiro/Valor

Daniel Wainstein — Foto: Carol Carquejeiro/Valor

The share of foreign capital in mergers and acquisitions (M&A) in Brazil increased last year, reaching the highest percentage in at least seven years.

In 2023, cross-border transactions accounted for 50.1% of a total of 371 operations, according to a survey carried out by Seneca Evercore for Valor. In the second half of the year alone, the share was 54.5%—out of a total of 156 operations—the highest half-yearly proportion since 2016. According to the study, since 2014 there have been 5,061 M&A deals in Brazil, 47% of which involved foreign buyers.

Investment bankers point out that the larger share reflects an improvement in Brazil’s risk perception, especially when compared to its emerging peers, which has also resulted in a greater number of mandates in the first weeks this year.

The trend should continue in 2024, although Brazilian buyers are also expected to show more strength this year, driven by a more functional capital market and the return of initial public offerings.

“We believe that, based on what we observe in the market and our own pipeline, the first half of 2024 will be even stronger than the last half of 2023 and should reveal even greater predominance of international investors,” said Daniel Wainstein, a partner at Seneca Evercore.

According to the executive, the increased participation of foreigners in M&A deals in the country is a consequence of the improvement in Brazil’s risk perception after the fall seen last year. “That is combined with a relatively low unemployment rate, inflation under control so far, a decrease in Brazilian interest rates and a downward trend in the U.S. likewise, and Ibovespa [Brazil’s benchmark stock index] at record highs,” he notes.

According to Dealogic, a consultancy that tracks financial market data worldwide, the same trend is observed in an analysis by financial volume. Last year, of a total of $37.9 billion in transactions, $17.8 billion came from cross-border operations, or some 47%, the largest share over the recent years.

The strength observed last year was driven by large-scale operations, such as the sale of shares of Vale’s base-metals unit, AESOP, and The Body Shop, the last two carried out by Natura as part of its business restructuring. In all three cases, the operations occurred largely abroad, but are included in the local M&A volume as they involve domestic companies.

The same trend has been observed in the investment bank sector, with foreign investors actively seeking assets in Brazil. “At the beginning of the year, we saw foreign investors interested in learning about transactions in Brazil, including the Arab and Chinese. But we have mandates at both ends, not only from foreigners wanting to invest in Brazil, but also from foreign companies leaving the country due to strategic decision,” said Leonardo Cabral, head of Santander’s investment bank in Brazil.

Fabio Medeiros, the head of Morgan Stanley’s investment bank in the country, points out that the participation of foreign investors last year is even clearer in transactions worth more than $100 million. In this section, 70% of the total were cross-border transactions. “It is the highest number since official records began, and the same as in 2016,” he said. According to the executive, that can be explained by Brazil’s attractiveness compared to its emerging peers. “Each country has its own challenges. We have our own, but they don’t scare foreigners so much.”

For this year, Mr. Medeiros believes that local transactions will gain traction again and will share the M&A pie with the foreign capital. Such expectation is also based on the forecast of improvement in the capital market in Brazil, with the expected return of IPOs in the local market. IPOs help fuel companies’ cash, boosting their interest in acquisitions.

Diogo Aragão, Brazil head of M&A at Bank of America, says the capital market is more functional this year, not only for equity, but also for local and international debt, which helps take operations off the drawing board. “The scenario has made companies feel more comfortable in starting a transaction,” he notes. According to him, new transactions are arriving at the negotiation table, while others, previously on hold, are taking up again.

“When you look abroad, Brazil is well positioned. Falling interest rates and stability in the exchange rate and in the political scenario create conditions for investors to take the country more seriously,” the BofA executive said.

Roderick Greenlees, global head of investment banking at Itaú BBA, says that, in general, operations involving foreign capital are large and have a long-term horizon. According to him, several conversations are underway, with new mandates at the beginning of the year, including the participation of foreign investors.

*Por Fernanda Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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January higher-than-expected inflation doesn’t change outlook

Rise in service prices gains attention but shouldn’t affect monetary easing

02/13/2024

Carla Argenta — Foto: Claudio Belli/Valor

Carla Argenta — Foto: Claudio Belli/Valor

Brazil’s official inflation, measured by the Broad National Consumer Price Index (IPCA), was higher than analysts expected in January but did not change the scenario of prices slowing down this year.

The indicator opened 2024 with a rise of 0.42%, according to the Brazilian Institute of Geography and Statistics (IBGE). The rate exceeded the median captured by Valor Data, which had predicted a rise of 0.36%. In January 2023, the rate was 0.53%.

The increase surprised some economists, who expressed concerns about the possibility of the heated labor market pressuring inflation in the services sector. However, experts emphasize that the result will not prompt revisions to estimates that suggest the continuation of the disinflationary process. In the 12 months leading to January, the IPCA increased by 4.51%, compared to 4.62% in December.

“The magnitude of the [monthly] increase is out of line with expectations and can be alarming if you look at the composition without considering seasonality,” said Carla Argenta, chief economist at CM Capital.

She cites the food and beverage inflation of 1.38% as an example. Although this was the highest increase for this group since April 2022 (2.06%), the figure was less impacted than expected by the El Niño weather pattern. “El Niño’s effect is on a subgroup that primarily includes rice and beans, as well as fruits and vegetables. But while it has driven up food inflation at home [1.81%], it doesn’t seem to be a concern for the coming months. The effects were mostly felt last year.”

Sicredi’s chief economist, André Nunes de Nunes, reiterated that the impact of climatic events in November and December 2023 may have begun to dissipate, favoring the January 2024 result of the food group—the 1.38% increase was below the projection of 1.55%. Food at home was also below the expectations of Sicredi’s economic team, which had anticipated a rise of 1.99%.

Laiz Carvalho, an economist for Brazil at BNP Paribas, points out that the higher-than-expected IPCA in January doesn’t change the outlook. “We still think that this year’s IPCA will close at 3.5%. It will be largely driven by goods and food at home in the next few observations. We’re already seeing a reversal of these increases in other indices.”

The 0.65% drop in transportation costs also helped economists maintain the scenario. After successive rises since September 2023, the price of airline tickets fell by 15.22%. Fuel prices also decreased by 0.39% in January compared to December.

However, the main point of attention for the disinflationary process, according to Itaú Unibanco economist Luciana Rabelo, is services inflation, especially those most pressured by labor adjustments. Core services inflation rose by 0.76%.

“It’s a little worrying, especially if the services sector comes under more pressure over the year due to the heated labor market,” she said. On the other hand, she comments that the rise seen in January “was already accounted for” and does not impact the bank’s projection that the IPCA will be 3.6% at the end of 2024.

Julio Hegedus, chief economist at Mirae Asset, also points to services inflation as an element that should be closely monitored in the upcoming measurements. “We have to keep an eye on the food and drink, personal expenses, and services groups. The economy is heating up in low-income services. It’s going to be an impact factor,” he said. “There may be some demand pressure over the year, not least because the diffusion data remains high.” The diffusion index, which measures the proportion of goods and activities that have increased in price, stayed at 65.3% last month, the same as in December.

Despite the warning, there is a consensus among economists that none of the data released Thursday by the IBGE will create obstacles to the continuation of the interest rate cut cycle by the Central Bank.

“The result for underlying services in January is not something to worry about. We need to see if the movement will be repeated over the next few months,” said the chief economist at CM Capital. “At the moment, it has absolutely nothing to do with monetary policy. Inflationary inertia is proving to be increasingly smaller, and the impact on adjustments to regulated prices has also been lower. What made it different were seasonal issues that should be reversed soon,” said Ms. Argenta, who expects successive cuts of 50 basis points in the Selic policy rate until the interest rate falls to 8.5% by the end of 2024.

*Por Rafael Vazquez, Rafael Rosas, Luiz Fernando Figliagi, Ívina Garcia — São Paulo, Rio and Manaus

Source: Valor International

https://valorinternational.globo.com/
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Car sales grow, but production stagnates

Carmakers face competition from abroad both in the domestic market and in exports

02/13/2024

Márcio de Lima Leite — Foto: Marcelo Camargo/Agência Brasil

Márcio de Lima Leite — Foto: Marcelo Camargo/Agência Brasil

Despite successive months of growth in car sales in Brazil, the industry’s production is not advancing. In 2023, while the domestic market grew by 9.7%, production fell by 1.9%. Now in January, again: domestic sales increased by 13% compared to the same month in 2023, but the number of vehicles leaving Brazilian factories was exactly the same as a year ago. The local industry is losing ground both in exports to neighboring countries and in the domestic market, because competitors from other countries are advancing on both fronts.

The speed of the decline in exports began to attract attention in the second half of 2023. The sector closed the year with 403,900 vehicles shipped, a decline of 16% compared to 2022, a year marked by a recovery in foreign trade after the peak of the pandemic. Last month, 19,000 vehicles were exported, 43% less than in January 2023.

Announcing the performance of the first month of the year on Thursday (8), the National Association of Motor Vehicle Manufacturers (Anfavea) pointed to the weakening of economic activity in neighboring countries such as Argentina and Chile as the main factor behind the drop in shipments.

To this must be added the loss of space to competitors from other countries, an issue raised by the same organization a few months ago.

For some time now, the Brazilian automotive industry has been facing strong competition, especially from Asia. This can be seen throughout South America, which used to rely on Brazilian factories as its main source of vehicle supply. Chinese brands are taking advantage of the region’s growing consumer interest in hybrid and electric models to make inroads in the region with new products in this segment. The Brazilian industry has a small supply of these products, limited to a few hybrids and no electrics.

In Colombia, for example, where local vehicle production is low, the share of hybrids and fully electric car in the local market rose to 16.9% last year from 10.6%, according to the National Association for Sustainable Mobility (Andemos). Total vehicle sales in the country fell by 28.9% during the same period. Brazil’s vehicle exports to Argentina and Mexico fell 19% in January, according to Anfavea president Márcio de Lima Leite. For Colombia and Chile, the decline was 79% and 60%, respectively.

Foreign competition is also on the rise in Brazil’s domestic market, the largest in the region and the eighth largest in the world. Foreign brands are taking advantage of the increase in demand for cars, largely due to the drop in interest rates.

In January, 161,100 vehicles were registered across the country, an increase of 13.1% compared to the same month last year. The car segment drove this growth with 152,200 units, 16.5% more than in January 2023.

A year ago, imported cars accounted for 14.3% of the new car market in Brazil. Last month, they reached 19.5%. As a result, the pace of production in Brazilian factories is not keeping pace with the growth in demand.

The president of Anfavea is concerned about the advance of foreign brands that don’t produce in the country. “Imports must be at a level that doesn’t harm the industry,” said Mr. Leite.

The Chinese are leading this foreign race. In the last four years, Argentina’s share of the Brazilian import market—from where the carmakers themselves import, taking advantage of the free trade agreement—has fallen to 46% from 63%. Mexico’s share also fell, to 11% from 15%. But China’s share jumped to 25% from 2%.

Anfavea sees the increase in imports in January as a result of the increase in sales of hybrid and electric models, which are largely produced abroad. According to the organization, among the cars imported in January, 14% were electric and 19% were hybrids.

Chinese brands stocked up on these models, taking advantage of increased demand from consumers who wanted to make a decision before the increase in import tax.

In January, the import tax on fully electric cars, which had been exempt since 2016, came back into effect, along with an increase in the rates for hybrids, which had been reduced during the same period. Most brands maintained their prices in January, due to the inventory accumulated before the tax increase.

According to the Brazilian Association of Electric Vehicles (ABVE), last month was the best January and the second-best month since the organization’s record began. Sales of hybrid and electric vehicles totaled 12,020 units, an increase of 167% over the same month last year. The import tax will increase gradually, starting at rates of 10% to 12% in January and rising to 35% in July 2026. Time will tell whether the tax hike will restore the competitiveness of the local industry.

Meanwhile, carmakers with factories in the country are moving to revamp their product lineups and expand the range of electrified models. A few days ago, Volkswagen announced a new investment of R$9 billion for the 2024-2028 period, revealing that most of the funds will go towards a new platform developed specifically for use in hybrid models that can be fueled with ethanol. Last week, Valor reported that the volume of investments announced by the automotive industry in the country since 2021 for the current decade totals R$41.4 billion.

*Por Marli Olmos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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El Niño again lowers grain harvest forecast

Grain production is now expected to total 299.7 million tonnes, 20 million tonnes less than in the 2022/23 cycle

02/12/2024

The weather didn’t help, and as producers are already seeing in the fields, the 2023/24 grain crop will be smaller than originally expected. On Thursday, the National Supply Company (CONAB) again lowered its production estimate, mainly due to losses in soybeans and corn. The grain harvest is now expected to total 299.7 million tonnes, 2.2% less than the January forecast and 6.3% less than the 2022/23 harvest. That’s 20 million tonnes less between one crop and the next.

“The delay in the start of the rains in the Central-West, Southeast, and Matopiba regions, followed by irregular and poorly distributed rains, with records of summer rains lasting more than 20 days, as well as high temperatures, are having a negative impact on crop performance,” said CONAB in its 5th Crop Survey report.

The lack of rain and the high temperatures due to the El Niño climate pattern have damaged the soybean and corn crops of the first harvest since planting. Soybean planting has been delayed, which should also affect the second corn crop, according to CONAB.

Soybean production, the flagship of Brazil’s agribusiness, is now expected to be 149.4 million tonnes, 3.4% less than the previous harvest. Compared to the initial forecast of 162 million tonnes, this represents a 7.8% decline. Production of less than 150 million tonnes had already been expected by market analysts.

For corn, CONAB estimated total production at 113.7 million tonnes, 13.8% less than in the 2022/23 cycle. This figure includes three crops. “The first crop, which accounts for 20.8% of total production, faced adverse situations such as high rainfall in the south of the country and low rainfall in the Central West, accompanied by high temperatures,” CONAB noted.

The bean crop estimate fell slightly, but was still close to 3 million tonnes, taking into account the three harvests. In rice, although El Niño initially affected the crop, no losses are expected for the time being. CONAB estimated production at 10.8 million tonnes, 7.6% higher than the 2022/23 crop.

CONAB’s survey was not all negative. The country is expected to see a new record in cotton production, with 3.3 million tonnes of lint. According to the agency, the price and marketing prospects have stimulated an increase in plantings, which grew by 12.8% over the 2022/23 crop.

On Thursday, CONAB also released its first estimate for the winter crop, forecasting a harvest of 10.2 million tonnes of wheat. This figure is 26% higher than the 2022/23 crop. Planting begins this month in the Central-West and will gain momentum in mid-April in Paraná and in May in Rio Grande do Sul, states that account for 82.7% of the country’s wheat production.

With the updated soybean production estimate, CONAB also lowered its export forecast for this crop by 4.29 million tonnes to 94.16 million. Corn shipments were also lowered by 3 million tonnes. As a result, they should total 32 million tonnes.

On Thursday, the Brazilian Institute of Geography and Statistics (IBGE) also released a lower estimate for the 2024 grain harvest, but the drop wasn’t as significant as CONAB’s. The agency lowered its estimate by 1% to 94.5 million tonnes. The agency lowered its estimate by 1% to 303.4 million tonnes. Compared to last season, this represents a decline of 3.8%.

Contrary to Brazilian estimates, the U.S. Department of Agriculture (USDA) on Thursday projected a still robust soybean crop in Brazil for the 2023/24 crop year in its monthly World Agricultural Supply and Demand Estimates report. The agency’s forecast calls for production of 156 million tonnes, 1 million tonnes less than the January forecast.

Analysts had expected a more aggressive cut from the USDA of at least 3 million tonnes. Nonetheless, March soybean contracts on the Chicago exchange closed up a modest 0.38% at $11.9350 per bushel.

For Ronaldo Fernandes, an analyst at Royal Rural, the USDA failed to take into account the fact that 2023 was the hottest year on record and that soybeans developed under such conditions. “There is no productivity or acreage to justify a 156-million-tonne crop. Given that, the market knows that soybean production is much more likely to be below 150 million than above that volume,” he said.

(Paulo Santos and Rafael Rosas contributed reporting.)

*Por Fernanda Pressinott — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Who is Eataly’s new owner and how much it paid for the business

Fund made up of more than 60 individuals is now calling the shots

02/12/2024

The fund paid R$15 million for the asset and took on a debt of R$45 million — Foto: Silvia Costanti/Valor

The fund paid R$15 million for the asset and took on a debt of R$45 million — Foto: Silvia Costanti/Valor

SouthRock asset manager took Eataly out of the court-supervised reorganization process at the end of last year and has now decided on the sale of the business. Pipeline, Valor’s business website, learned that the Wings fund has taken over the operation and is now renegotiating with suppliers and other creditors.

As it was reported by the website when conversations began, the fund is comprised of just over 60 individuals, including physicians, advertisers, and accountants, and now also a multi-family office. With no experience in the food industry, Wings investors brought to Eataly’s management Marcos Calazans, an executive who had previously tried to acquire the asset.

Panza&Co, then the owner of Café Suplicy, Fifties and P.F. Chang’s, submitted the acquisition of Eataly to antitrust regulator CADE in February 2022, but was overrun by SouthRock in the final stretch, while it was structuring the transaction. In August of that year, SouthRock’s CEO Ken Pope announced the acquisition. (Due to the pandemic, Panza&Co closed the other brands’ operations.)

Mr. Calazans took over as the CEO of the operation, which was then held by Luis Felipe Campos. The negotiations around the sale were carried out by SouthRock’s CFO, partner Fabio Rohr—Mr. Pope did not participate in the conversations, even though he signed all the paperwork, according to a person familiar with the matter.

The fund paid R$15 million for the asset and took on a debt of R$45 million. The size of the debt is impressive, considering that it is only store in Brazil. But, according to sources, only around R$15 million refers directly to the operation, as its inventory.

The total amount also includes outstanding taxes and royalty payments to the Italian parent company, which the new owners must renegotiate. Bank loans, with institutions such as Pine and Santander, have already been paid off. A source close to the fund says there is a lot of work to be done to recover and expand the store, but that there are issues, and several initiatives have been identified for the action plan.

One of the obstacles that the new owners will have to overcome is that the company has filed for bankruptcy, as reported by Valor. According to a source close to the fund, Winebrands is one of the smallest creditors among beverage suppliers, with around R$80,000—Mistral, for example, would have R$500,000—, but an agreement is expected. However, Winebrands states in the documents that Eataly has 634 notarial protests and recent debts with suppliers alone totaling R$8 million.

At the end of 2022, there was also a change in Eataly’s headquarters. European private equity fund Investindustrial bought control of the operation from founders, the Farinetti family.

In Brazil, the sale by SouthRock was signed before the approval of the court-supervised reorganization of the controlling company and other companies in the group. Although Eataly was not part of the process, the bankruptcy trustee defined, after approval, that the companies under reorganization could not sell shares.

The main asset in SouthRock’s reorganization process are the Starbucks stores—the U.S. brand has terminated its contract, but open units continue to carry the brand’s name.

The original story in Portuguese was first published on Valor’s business news website Pipeline.

*Por Maria Luíza Filgueiras, Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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January higher-than-expected inflation doesn’t change outlook

Rise in service prices gains attention but shouldn’t affect monetary easing

09/02/2024

Carla Argenta — Foto: Claudio Belli/Valor

Carla Argenta — Foto: Claudio Belli/Valor

Brazil’s official inflation, measured by the Broad National Consumer Price Index (IPCA), was higher than analysts expected in January but did not change the scenario of prices slowing down this year.

The indicator opened 2024 with a rise of 0.42%, according to the Brazilian Institute of Geography and Statistics (IBGE). The rate exceeded the median captured by Valor Data, which had predicted a rise of 0.36%. In January 2023, the rate was 0.53%.

The increase surprised some economists, who expressed concerns about the possibility of the heated labor market pressuring inflation in the services sector. However, experts emphasize that the result will not prompt revisions to estimates that suggest the continuation of the disinflationary process. In the 12 months leading to January, the IPCA increased by 4.51%, compared to 4.62% in December.

“The magnitude of the [monthly] increase is out of line with expectations and can be alarming if you look at the composition without considering seasonality,” said Carla Argenta, chief economist at CM Capital.

She cites the food and beverage inflation of 1.38% as an example. Although this was the highest increase for this group since April 2022 (2.06%), the figure was less impacted than expected by the El Niño weather pattern. “El Niño’s effect is on a subgroup that primarily includes rice and beans, as well as fruits and vegetables. But while it has driven up food inflation at home [1.81%], it doesn’t seem to be a concern for the coming months. The effects were mostly felt last year.”

Sicredi’s chief economist, André Nunes de Nunes, reiterated that the impact of climatic events in November and December 2023 may have begun to dissipate, favoring the January 2024 result of the food group—the 1.38% increase was below the projection of 1.55%. Food at home was also below the expectations of Sicredi’s economic team, which had anticipated a rise of 1.99%.

Laiz Carvalho, an economist for Brazil at BNP Paribas, points out that the higher-than-expected IPCA in January doesn’t change the outlook. “We still think that this year’s IPCA will close at 3.5%. It will be largely driven by goods and food at home in the next few observations. We’re already seeing a reversal of these increases in other indices.”

The 0.65% drop in transportation costs also helped economists maintain the scenario. After successive rises since September 2023, the price of airline tickets fell by 15.22%. Fuel prices also decreased by 0.39% in January compared to December.

However, the main point of attention for the disinflationary process, according to Itaú Unibanco economist Luciana Rabelo, is services inflation, especially those most pressured by labor adjustments. Core services inflation rose by 0.76%.

“It’s a little worrying, especially if the services sector comes under more pressure over the year due to the heated labor market,” she said. On the other hand, she comments that the rise seen in January “was already accounted for” and does not impact the bank’s projection that the IPCA will be 3.6% at the end of 2024.

Julio Hegedus, chief economist at Mirae Asset, also points to services inflation as an element that should be closely monitored in the upcoming measurements. “We have to keep an eye on the food and drink, personal expenses, and services groups. The economy is heating up in low-income services. It’s going to be an impact factor,” he said. “There may be some demand pressure over the year, not least because the diffusion data remains high.” The diffusion index, which measures the proportion of goods and activities that have increased in price, stayed at 65.3% last month, the same as in December.

Despite the warning, there is a consensus among economists that none of the data released Thursday by the IBGE will create obstacles to the continuation of the interest rate cut cycle by the Central Bank.

“The result for underlying services in January is not something to worry about. We need to see if the movement will be repeated over the next few months,” said the chief economist at CM Capital. “At the moment, it has absolutely nothing to do with monetary policy. Inflationary inertia is proving to be increasingly smaller, and the impact on adjustments to regulated prices has also been lower. What made it different were seasonal issues that should be reversed soon,” said Ms. Argenta, who expects successive cuts of 50 basis points in the Selic policy rate until the interest rate falls to 8.5% by the end of 2024.

*Por Rafael Vazquez, Rafael Rosas, Luiz Fernando Figliagi, Ívina Garcia — São Paulo, Rio and Manaus

Source: Valor International

https://valorinternational.globo.com/
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In Paraguay, Brazilian ministers reject Itaipu tariff hike

Ministers Alexandre Silveira (Mines and Energy) and Mauro Vieira (Foreign Affairs) traveled to Asunción to discuss with local leaders

02/07/2024

Alexandre Silveira — Foto: Marcelo Camargo/Agência Brasil

Alexandre Silveira — Foto: Marcelo Camargo/Agência Brasil

The Brazilian government informed Paraguayan officials on Monday (5) that it will not increase the tariff for electricity produced at the Itaipu Binacional hydroelectric power plant. Energy Minister Alexandre Silveira and Foreign Minister Mauro Vieira had traveled to Asunción to discuss the matter with local leaders.

As Valor learned, the argument expressed to the neighboring leaders is that the Lula administration is concerned about the effects of a possible tariff hike on the electricity bills for the neediest population in Brazil. Messrs. Silveira and Vieira also pointed out that higher power costs could harm the industrial activity and Brazil’s economic development.

The tug of war over tariffs led the president of Paraguay, Santiago Peña, to Brasília two weeks ago for a face-to-face meeting with President Lula. At that time, the Brazilian leader became upset with his aides for failing to provide sufficient information on the matter.

At first, the Brazilian president acknowledged that the two countries had differences regarding the tariff, but promised to negotiate a solution. Shortly after, the government tightened its stance and showed signs that it would not agree with the price hike.

In April 2023, Itaipu’s board of directors approved the price of $16.71 per kilowatt after Brazilians and Paraguayans reached a consensus. Elected as the president of Paraguay shortly after with the promise to renegotiate the agreement, Mr. Peña has been pushing for the increase.

Paraguay wants an increase in tariff to around $20.75 per kilowatt. The price of energy fell after the debt resulting from the construction of the plant was paid off. On Monday, in Asunción, the two ministers delivered the message that Brazil would not “compromise” with the price of energy.

The increase is pivotal for Paraguay, as the neighboring country receives payment from Brazil for the surplus of unused energy from the plant. Under the Treaty of Itaipu, each country is entitled to 50% of the electricity generated by the hydropower plant, but Paraguayans never reached such amount, since the country consumes less than 20% of the total.

In 2022, for example, the neighboring country used 17% of the power generated by the plant. The remaining 33% of the Paraguayan part was purchased by Brazil for around $1 billion.

Enio Verri, the managing director at the Brazilian side, confirmed last week that discussions around the tariff had turned into “a diplomatic problem” and that the solution would come “in the timing of foreign affairs.”

Fueled by calculations made by the Ministry of Mines and Energy, Brazil’s Foreign Affairs Ministry started negotiating an agreement with Paraguay. Valor has learned that the possibility of increasing the tariff was not considered by the Brazilian side, which fears the effects on the economy.

The impasse resulted in halting the approval of the plant’s budget for 2024, which led to delays in payments of vacation plans and year-end bonus to employees. Without an approved budget, Itaipu could not make any payments for the 2024 financial year.

In response to the Foz do Iguaçu Electricity Trade Union (Sinefi), the Regional Labor Court of the 9th Region issued a provisional measure ordering the plant to make payments to employees on the Brazilian side. The decision did not include workers in the neighboring country.

*Por Murillo Camarotto — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Record number of job quits amidst hot labor market

Termination at worker’s request exceeds 7 million in 2023; most people leave jobs seeking better opportunity

02/07/2024

Carolina Reis — Foto: Ana Paula Paiva/Valor

Carolina Reis — Foto: Ana Paula Paiva/Valor

One of the indicators of a tight labor market, termination of job contracts at the request of workers hit a record last year. A total of 7.3 million workers left their jobs at their own request in 2023, compared to 6.8 million in the previous year and 5.6 million in 2021. Official records began in 2004.

According to economists, the increase is a result of a larger number of people seeking jobs that are in alignment with their aspirations, a larger number of young people in the job market, and the methodology of the new General Register of Employed and Unemployed Workers (CAGED). The level of education is also an important variable. Highly-educated workers accounted for the largest number of resignations.

A survey carried out by LCA Consultores shows that Brazil had 21.5 million terminations of job contracts in 2023, 7.3 million of which were at the request of the worker, which is equivalent to 34% of the total. In 2022, there were 6.8 million resignations (33.6%), and in 2021, 5.6 million (33.4%). In 2020, the first year of the COVID-19 pandemic, resignations totaled 3.8 million (27%), in 2019, 3.6 million (24%) and 3.3 million (23%) in 2018.

“The indicator points to a tight [job] market. Most people are quitting their jobs probably because they are able to find positions elsewhere, which indicates an increase in job openings,” said Bruno Imaizumi, LCA’s economist in charge of the study.

According to him, in addition to the new CAGED methodology, which captures admissions and dismissals in a broader way, the numbers can be explained by the entry of young people into the job market.

“For that group, professional success means having a job aligned with their aspirations. If that is not happening, they [young professionals] keep switching jobs and won’t stay in the same company for the rest of their lives,” he said.

“Another reason is the COVID-19 crisis, which changed working relationships and brought to light other factors than just salary in the decision to move to a different employer.”

Lucas Assis, an economist at Tendências Consultoria, notes that the pandemic changed the dynamics of the job market. “Many workers are possibly reflecting on their career path and prospects, especially those working in low-paying jobs,” he points out.

Highly-skilled workers are the ones who quit the most, the LCA survey shows, indicating that the education level has a key weight when negotiating a job position.

The share of resignations compared to the total number of terminations last year reached 32.4% among workers with incomplete secondary education, 33.8% in the group that completed secondary education, 41.8% in the group with a higher education degree. Among those holding a master’s degree, that percentage reached 42%, in the group with a PhD, 40.9%, and in those with a complete postgraduate degree, 46.9%.

Public relations specialist Pedro Prata, 40, worked for more than two years at an electricity company. In 2023, he moved to the Ellen MacArthur Foundation, an organization promoting the circular economy.

“On the one hand, the new opportunity would allow me to work again with public policies and, thus, expand the impact of my work on the social, economic, and environmental fronts. On the other hand, it would give me greater autonomy, flexibility, and a work environment of trust,” he said. Mr. Prata notes that, in general, the pandemic has highlighted old problems in some work environments. “Disrespectful relationships, overwhelming volume of tasks, excessive controls, little freedom to express opinions. I have the feeling that, when working from home, many people realized how bad the environment in their offices was,” he said, based on his own experience.

“I think it’s important to be in an organization that combines the satisfaction of waking up to work with remuneration that is consistent with your delivery. It makes no sense to have job stability and emotional instability. Furthermore, it’s not about staying longer in the same place.”

Engineer Carolina Reis, 42, has similar opinion. “I don’t see staying in a single job for a long time as crucial. I value being in positions that resonate with my aspirations and that offer a healthy balance of personal and professional life,” she said.

Ms. Reis, who worked for 14 years as a business manager at Continental, is now in the middle of a career transition process. After three years and four months at Amazon, as an expansion and operations manager, she is now moving to Cummins, where she will serve as an executive sales manager. “The opportunity at Cummins is more aligned with my current career aspirations and personal skills,” she said. “[But] I am willing to reconsider my position if the work-life balance I seek is not achieved.”

Mr. Imaizumi’s survey shows that younger people were behind most resignations from formal jobs last year. Among young people aged 18 to 24, 39.5% of total terminations were at the request of the worker. That share decreases to 36.5% in the age group between 25 and 29 years old, and to 33.1% among those aged 30 to 39 years old. In the range between 40 and 49 years old, it falls to 29.7%. And even further among people aged 50 to 64 and over 65, to 24.7%.

Some of the activities that had a proportion of resignations higher than the average in 2023 were international bodies, human health and social services, education, accommodation and food, housekeeping services, financial services, car sales and repair, information and communications.

Among the regions with higher job quitting were the South (41.3%), Central-West (38%) and Southeast (33.7%). Among the states with the highest share are Santa Catarina (45.2%), Mato Grosso do Sul (43.8%), Mato Grosso (41.7%), Paraná (40.9%), and Rondônia (38.6%). The states of Espírito Santo, Minas Gerais, and Rio de Janeiro were below the national average (34%). The largest share of resignations is in regions and states that show better economic activity.

Hélio Zylberstajn, a senior professor at the Economics and Business School of the University of São Paulo (FEA-USP) and coordinator of the Salary Survey at the Economic Research Institute Foundation (FIPE), points out that the scenario is more favorable for those who quit than for those starting a new job.

One way to measure that is the salary pressure indicator, the ratio between the average salary of those who enter and the average salary of those who leave a job. For example, when the salary of someone entering a new job is R$900, and those who is leaving earn R$1,000, the salary pressure is 0.9. If someone who enters earns R$1,000 and someone who leaves earns the same, the salary pressure rises to 1.

A survey carried out by FIPE underscores the idea that the education level is directly related to mobility in the job market. The study shows that salary pressure for those with a higher education degree went up from 0.95 in 2022 to 0.98 in 2023. For those who hold a master’s degree, it went from 1.01 to 1.02, and for those with a PhD, from 1 to 1.04.

“The salary pressure for who resigned in 2023 is greater than in 2022. Those who left a job last year are getting better positions than in 2022,” Mr. Zylberstajn said. “The numbers reveal that there are opportunities in the job market, and the people who resigned in 2023 did better than in 2022.”

Despite the recent increase in resignations, the numbers are expected to decrease over the year.

“For 2024, the job market should slow down, in line with the loss of momentum in economic activity,” Mr. Assis points out. Tendências estimates a 1.5% increase in GDP this year. “The more intense acceleration of the labor force, compared to employment, should increase the unemployment rate. For the short term, the share of resignations is expected to fall.”

*Por Marsílea Gombata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Minutes show policymakers more concerned about inflation, employment

Document has harder tone than announcement of decision

02/07/2024

Robson Pereira

Robson Pereira Gabriel Reis/Valor

The Central Bank’s Monetary Policy Committee (COPOM) revealed that last week’s decision was taken after “more in-depth” discussions about the labor market and that services inflation deserved “greater scrutiny.” With these factors added to the committee’s assessment of a slowdown in activity, market participants saw policymakers more concerned about the economic situation, although there was no change to the scenario of another 50-basis-point cut in the Selic policy rate.

At various points in the minutes, the COPOM indicated that the economic scenario had evolved in line with expectations. However, the committee saw the need to include more in-depth discussions in the document, especially on the labor market and services inflation.

The recent increase in real incomes in the labor market data and the worse-than-expected results for underlying services inflation in recent IPCA readings—Brazil’s official inflation index—have recently triggered a warning signal among market participants. Thus, according to the minutes, the COPOM also noted these items, which was reflected in market participants’ sense of a cautious tone in the document.

In recent weeks, signs of a domestic economy that is still very hot and the deterioration in the behavior of U.S. Treasuries, with rising rates, have led to a sharp adjustment in local interest rates. At one point, the market was pricing in a Selic rate close to 9.5% per year at the end of this year.

“We saw the statement [of the decision] with a more neutral tone, and there was an expectation that the minutes would also come without any major news. However, we saw a more hawkish tone,” said Robson Pereira, chief economist at Brasilprev. He notes that the COPOM maintained its forecast for the next moves, signaling a further 50-basis-point cut in the Selic, but made “quite important” changes in its assessment of the scenario for conducting monetary policy going forward.

Mr. Pereira notes that the minutes brought to light the Central Bank’s greater concern with the labor market and services inflation, and that the monetary authority reinforced that uncertainty is high. “The Central Bank signaled that there is a more intense debate about the heated labor market and the causes of services inflation, in addition to the impact of the global scenario. All this is presented in a context of uncertainty, but it is a coherent minute that shows a more concerned Central Bank.”

In its baseline scenario, Brasilprev projects the Selic rate at 9% per year at the end of this year and 8% in 2025. “At the moment, we don’t see any asymmetry, but before today’s [Tuesday’s] minutes, we saw some asymmetry for [a Selic rate] a little below 9%,” he said.

In terms of inflation, the firm expects the IPCA to close the year at 4% per year, but the economist points out that it tends to decelerate further, which could eventually change something for interest rates as well. “Of course, central banks make decisions looking further ahead, and for 2025 we believe that inflation will be very close to target. The minutes cite the Central Bank’s projection of around 3.2%. That’s a workable number. We’re working with something close to 3%, but it’s a gradual process and the risks are very high,” Mr. Pereira said.

Speaking at a BTG Pactual event on Tuesday, Central Bank President Roberto Campos Neto at times struck a similar tone to the minutes. He said, for example, that it is “very difficult to see a more sustained decline in inflation without a decline in services inflation.”

Mr. Campos also highlighted the significant fall in “implicit” inflation, which is priced in by the market via the NTN-Bs (National Treasury notes), which was seen by the market as a more “dovish” signal and caused futures rates to fall on Tuesday. The January 2026 DI rate fell to 9.67% from 9.71%.

For Rafael Cardoso, chief economist at Daycoval Asset, it’s not possible to say that the minutes brought hawkish components than expected. “We believe that the Central Bank is explaining the reasons for its guidance, rather than adding new hawkish elements to the communication. The explanations are in line with what we have been following lately, and internally there is also a discussion about whether there is still an improvement in inflation on the near horizon,” said the economist.

Mr. Cardoso also notes that the COPOM’s own inflation scenario has not changed. “We think the minutes are very neutral,” he said. In his opinion, there is little room for further improvement in services inflation or goods prices.

In Daycoval Asset’s baseline scenario, the Central Bank should continue the current pace of 50-bp cuts, bringing the policy rate to 9% per year by the end of the year. “We also project a Selic of 8.5% in 2025, but we see risks that this level will be reached this year, depending on factors such as the external scenario and a slowdown in economic activity. Our call for the Selic to reach 9% in 2024 has a bearish bias,” he concludes.

*Por Victor Rezende, Gabriel Roca, Estevão Taiar, Alex Ribeiro — São Paulo and Brasília

Source: Valor International

https://valorinternational.globo.com/
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Fonplata to double capital, attract partners

Spain, Colombia, Portugal, and the United Arab Emirates are interested in joining Southern Cone bank, CEO says

02/06/2024

Luciana Botafogo — Foto: Wenderson Araujo/Valor

Luciana Botafogo — Foto: Wenderson Araujo/Valor

Fonplata—a development bank by Brazil, Argentina, Bolivia, Paraguay, and Uruguay—plans to double its authorized capital and seek new partners to leverage its credit portfolio and, as a consequence, expand investments in member countries. Plans for the year also include raising $300 million to $400 million in foreign capital. In Brazil alone, the bank’s portfolio totals $1.7 billion, considering approved, existing, and non-existing projects.

In an interview with Valor, CEO Luciana Botafogo said that the publication, in December, of a decree by President Luiz Inácio Lula da Silva enacting changes to the Fonplata’s constitutive agreement, as well as Argentina’s decision to remain as a partner opened some room for discussing other matters, such as the vote on the capital increase, from the current $3.14 billion to $6.5 billion. The distribution of Fonplata’s shares was pending ratification of adjustments to the constitutive agreement by all member countries. Brazil was the last country to enact the change.

The increase in authorized capital will help maintain the pace of credit granting from 2027 onwards. Currently, average growth is around 10% per year. “We plan to continue [at this level], or maybe reduce it a little, to 9.5%, by 2026. The funds we have give us peace of mind for now, but not from 2027 onwards. If we can’t increase capital, I would have to reduce the pace of growth,” Ms. Botafogo said.

She said the proposal has been submitted to the bank’s governors, who are the Financial Planning or Finance ministers of the five countries. “We hope to have a favorable vote in the next ten days to increase capital to $6.5 billion. We will increase the bank’s capital by more than a double-fold. That is crucial to increase our lending capacity, our ability to operate in the five countries,” she said. Ms. Botafogo is the first woman to take the position at the bank, which turns 50 in June.

Despite fiscal challenges in the region, such as in Argentina and Brazil, the CEO believes the entry of other countries interested in investing in sustainable projects in Latin America can reduce the need for large capital infusion by the bank’s current partners in the medium and long terms.

“By distributing [the capital] between the five founding countries and new, non-founding countries, we dilute the demand for capital in countries that are facing fiscal challenges, which are our five countries. Also, over the last ten years, those countries allocated an amount 20% higher than what we are currently proposing. It’s about allocating from now on, over the next ten years. So, we are reducing the annual entry amount that each member country can contribute. That helps because it weighs less on the fiscal situation,” she said.

According to Ms. Botafogo, several countries have responded positively to the possibility of becoming a member, including Spain, Colombia, Portugal, the United Arab Emirates, and Singapore. “But now we can formally come up with a proposal; until then, those were just approaches,” she added. “Our expectation is to have at least two new countries this year and two more next year. The idea is to start increasing capital from 2026 on,” she said.

Among the issues that need to be agreed upon by the five current founding countries is how to ensure the focus of investments continues to be in Latin America. Fonplata often works in loans or partnerships to complete small construction works that do not always arouse interest from institutions such as the Inter-American Development Bank (IDB) and the Development Bank of Latin America and the Caribbean (CAF).

To ensure a regional focus, it is being debated, for example, that the votes of the founders have a greater weight than those of other countries. In addition to enabling an increase in resources for investment in construction work, the entry of other countries will also help improve the bank’s rating, which in turn helps reduce the cost of international funding.

The bank’s CEO also said $150 million to $200 million per year are invested in projects in Brazil. For example, Fonplata has a loan of nearly R$200 million in Maceió (capital of Alagoas state) to mitigate the Braskem’s mine risk of collapsing.

Asked about the new administration in Argentina and its impact on the bank, Ms. Botafogo said Argentines are interested in maintaining the relationship with Fonplata. According to her, all approved contracts, involving $600 million to $700 million, are being reviewed at the request of the new Javier Milei’s administration.

She said Argentina requested the suspension of funds for construction works that have not been released so that the funds can be allocated to social projects “to guarantee this transition, until the inflation problem is solved.” “They [the Argentine government] are currently making fine tuning. We are together with the technical teams, seeing what will be maintained, what will be canceled, which construction work was being carried out and which will not stop,” she said.

*Por Edna Simão — Brasília

Source: Valor International

https://valorinternational.globo.com/
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