March 02, 2022
BRAZIL MOVES FORWARD WITH CRYPTO LEGISLATION
The economic affairs committee of the Brazilian Senate unanimously approved legislation to regulate crypto assets, paving the way for votes in the upper and lower houses of Congress.
If passed, the legislation will give the Central Bank of Brazil new powers to regulate the crypto asset market.
There is some debate over how many crypto investors operate in Brazil. Some estimates suggest there are more than 3.1 million traders registered with cryptocurrency exchanges in Brazil.
Source: NewsNow
March 03, 2022
VIBRA CREATES LARGEST POWER TRADER IN BRAZIL
Vibra Energia made official on Wednesday the creation of the largest trader in the free electricity market in the country. In the wake of the multibillion transaction announced in October — which began with an investment of R$2 billion in a convertible debenture — Vibra, formely known as BR Distribuidora, confirmed its option to take over 50% of Comerc.
In addition, Vibra and Comerc’s partners — manager Perfin, founder Kiko Vlavianos and executives
— also reached an agreement to invest in Targus, an energy trader controlled by Vibra since last year. With Targus, Comerc jumps from the fourth to the first position in the ranking of traders, going to 2.4 gigawatts from 1.9 gigawatts.
By adding Targus to Comerc, Vibra is already beginning to show the return of CEO Wilson Ferreira Jr.’s bet on the energy transition. A year ago, when the company bought 70% of Targus’ capital, the trader was valued at R$90 million. In the transaction with Comerc, the valuation of the company more than tripled, reaching R$303 million.
Under the terms of the transaction, Vibra injected R$2 billion into Comerc’s cash reserves in October through a debenture that will be converted into 30% of the capital. Originally, the company would invest another R$1.25 billion – in a secondary tranche – to reach 50% of Comerc’s capital, but the agreement around Targus reduced the secondary stake to R$1.1 billion.
In the negotiations with Comerc’s partners, Vibra also tied a purchase option to take control of the company between 2026 and 2028. The other Comerc partners are left with a put. When they announced the transaction in October, there was still no definition of the call and put structure.
“Another market leader is born,” Mr. Ferreira Jr. told Pipeline, Valor´s business website. The country’s largest fuel trader, Vibra does not want to lose its hegemony in the energy of the future.
Vibra has been building a multi-power platform that also aims to be a leader. In the commercialization of electric energy, it is already born as a leader in the free market with Comerc. The same logic applies to the sale of ethanol, a business that will be done in partnership with Copersucar.
With Vibra’s investment, Comerc will have the drive for an expansion that foresees R$6 billion in investments until 2025, with a capacity that should jump to 3,900 gigawatts/hour from 121 gigawatts/hour per year in five years. In distributed generation, Comerc is expected go to 550 gigawatts/hour from 157.4 gigawatts/hour.
In addition to the R$6 billion in investments already foreseen, Comerc also has a pipeline of projects that can add another 1,100 megawatts-peak. “This is an asset that was not valued in Comerc’s IPO,” says Mr. Ferreira Jr. When Vibra reached the agreement to acquire the 50% stake, the company went through the distributor’s IPO, paying a premium over what investors would pay to take Comerc to the stock exchange.
In the view of Vibra executives, the renewable power market will only grow. With the easing of barriers to entry into the free electricity market, reducing the size for the use of this format, the expectation is that 50% can be purchased on the free market in a few years, a jump over the current 33%. “This is the market that we are accessing with the transaction,” says Mr. Ferreira Jr.
Vibra will appoint three members to Comerc’s board of directors. The other partners will nominate another three. The board will also have two independent members.
Source: Valor International
March 05, 2022
STARTUP DIGITALIZES AGRICULTURAL COMMODITIES TRADING
When a farmer has a crop to sell, he has to deal with a series of phone calls to get the best offer for his products or even exchange grains for fertilizers and pesticides, in an analogical — and sometimes stressful — process that can last over a week until the contract is signed.
Grão Direto — a startup created by three friends who have known each other since childhood in Uberaba, a country town in Minas Gerais state — wants to change this logic, digitalizing the negotiation of agricultural commodities by connecting rural producers from all over the country to the most diverse buyer profiles, from large trading companies to feed mills and grain warehouses.
Little by little, the agtech founded by the trio Frederico Marques, Alexandre Borges and Pedro Paiva has been gaining traction, and attracting more and more investors. This time, Grão Direto brought to its shareholders the trading companies Amaggi, ADM, Cargill and Dreyfus, which are among the main grain buyers in the country — on the list of big companies, only Bunge and Cofco are not included, for the time being.
To scale up the operation, Grão Direto has raised R$40 million in the third round of investments. In addition to the minority contribution of trading companies, investors who had already supported the startup in the first funding rounds followed.
The list of shareholders also includes names such as the German giant Bayer (the largest seed company in the world), the managers Lanx Capital and Barn, the investment arm of the Rendimento Group, as well as individual investors. Since it was founded in 2017, Grão Direto has raised R$58 million.
“Agribusiness is probably one of the last multi-trillion markets without a marketplace in the physical market,” Alexandre Borges, founder and CEO of Grão Direto, told Pipeline, Valor´s business website.
In the world, agtechs such as Argentina’s Agrofy, the U.S.-based FBN, and Orbia have already advanced in building a marketplace for agricultural inputs, but the journey to creating an ecosystem for trading commodities (in Brazil, mostly grains) is still in its infancy.
Not by chance, Grão Direto managed to attract trading companies, which are also clients of the platform. But the pioneering does not mean that the startup is alone in the market. In Brazil, agtechs such as Tarken (founded by Luiz Tângari and Carlos Neto, the entrepreneurs behind Strider), sold to Syngenta, are also building a grain marketplace.
“Startups are less of a competitor and more of a facilitator for the digitalization of the agribusiness to happen faster. Our main competitors are the inefficient and analogical negotiations,” argues Mr. Borges.
In the Grão Direto model, rural producers have no cost to negotiate grain. So far, the agtech application has had 200,000 downloads. Last year, the startup hit 1 million tonnes traded — a small volume for the size of national production, but a milestone for the business.
To monetize the business, Grão Direto offers services such as digital contracts, which can also be hired by farmers and trading companies. On the buyers’ side, the startup charges a fee per deal closed. In the future, Grão Direto will also get into credit, offering the anticipation of receivables for producers.
With the available data and real-time connections to commodity exchanges, Grão Direto can also offer insights and help producers price their product, pondering variables such as freight. “Our system updated prices more than 1 billion times in 2021. It’s as if we replaced 1 billion phone calls,” jokes the CEO of Grão Direto.
To make the commodities trading platform be accepted by all, the principle is that the strategic partners are minority. Inspired by the New York stock exchange, built by brokerage houses, Grão Direto wants to involve most of the agribusiness players.
“We will bring in other strategic operators in new rounds. The idea is to have diversity, with the entry of rural producers as well. More important than control is to maintain neutrality and independence,” says Mr. Borges.
Due to the involvement of the trading companies, the conclusion of the round depends on the approval of antitrust regulator Cade.
Source: Valor International
March 07, 2022
SOLAR FINANCING IN BRAZIL TOTALED R$16BN IN 2021
The financing for solar power generation in Brazil totaled R$16.2 billion in 2021, according to a survey conducted by Clean Energy Latin America (Cela) with the main financial firms that foster the source.
This is the third consecutive year that the country sets a record for financing in the sector. Of the total resources, R$9.5 billion were destined to distributed generation. The other R$6.6 billion were directed to centralized generation (large power plants).
Cela founder and CEO Camila Ramos has been monitoring the sector since 2019 and says that the amount financed in 2021 increased by more than 100% compared to the previous year, which shows a growing interest of organizations in leveraging renewable power projects.
“The year 2021 more than doubled the amount of financing compared to 2020, which shows that the development of the sector came followed by new operators, fintechs and commercial banks entering the market to finance these projects.”
The executive highlights important institutions in the supply of credit, highlighting development banks, such as BNDES, BNB and Banrisul; multilateral banks, such as the Inter-American Development Bank and the European Investment Bank; cooperative credit systems, such as Sicredi; commercial banks, such as Santander, Bradesco, Banco do Brasil, among others, as well as bonds and fintechs.
In centralized generation, Ms. Ramos highlights a 70% increase in the volume financed due to the maturity of solar projects for the free energy market with many contracts signed “and now we see the construction of these projects.”
In distributed generation, the jump in financing was 2.4 times over 2020. “This is due to the increase in tariffs for the final consumer, new investors entering the sector, and more credit lines from financial firms,” she said.
What may hinder the number of deals in 2022 are the interest rates. Brazil has gone from a historic low to a double-digit rate, which is likely to make loans less attractive. However, the executive argues that, in spite of that, financing will continue attractive.
“When looking for financing, the consumer compares the cost of capital, rate of return, and interest rates. For centralized generation, we are going to see a dominance of development banks, such as BNB and BNDES, and bonds, besides the opportunity of financing in foreign currency. For distributed generation, the interest rate variation is going to be less important if consumers are able to exchange their electricity bill for the portion of the financing,” Ms. Ramos said.
What she has also noticed is that the financing companies are improving other financing conditions, such as extending the terms to fit the consumer’s budget. In addition, 2022 will be the first year of Law 14.300/22, which establishes the legal framework for self-generation of energy, microgeneration,
and distributed minigeneration, “which can bring greater comfort for financial firms and can impact the risk spread.”
Source: Valor international https://valorinternational.globo.com/.
March 09, 2022
AES BRASIL BETS ON DIVERSIFICATION TO RETURN TO PROFIT
AES Brasil, a subsidiary of U.S.-based AES Corp., managed to reduce losses in the fourth quarter of 2021 thanks to a substantial improvement in reservoir levels due to a more favorable rainfall regime. Now the power generation company sees a better landscape.
The company’s earnings continued to be impacted in 2021 due to the hydrological risk and the purchase of power due to the unfavorable scenario that affects the portfolio of hydroelectric assets. To move away definitively from this water exposure, AES Brasil has accelerated investments in the diversification of the power generation mix.
By 2026, R$3.8 billion are planned, considering the construction of the Tucano (322 MW) and Cajuína (1.3 GW) wind farms, in addition to the modernization and maintenance of assets in operation. The focus for now is on wind operations, since the solar source has been losing competitiveness in the face of pressure from production chains.
The company has 4.7 GW of operational installed capacity and the goal is to reach 6 GW when all greenfield projects – those built from scratch – are finished. Today AES has 57% of its portfolio in hydroelectric plants and this balance is likely to avoid new exposures. Chief Financial Officer Alessandro Gregori told Valor that the margins were affected by the water risk factor, but he is already feeling the compensation among the sources.
“As a strategy, we are diversifying the portfolio. Last year, we signed almost 900 MW of new PPAs [contracts] and created new business fronts with almost 30 MW of PPAs in dollars that we signed in 2021,” Mr. Gregori said.
This bet by the company in new PPAs in foreign currency can pave the way for new deals and serves as a hedge against exchange rate volatilities. This is expected to be made available to the customers of the power generation company since many of them have revenue in dollars and are also interested in having costs in the foreign currency.
“Despite the worst year ever, in which we brought forward the portfolio management, we managed to profit R$516.5 million, clearly lower than in 2020, when we profited R$848 million, but a reasonable and important volume in view of the worst year of hydrology,” the executive said.
According to him, the “lean times” are over and the dynamics of diversification has added important wind power projects. Considering the contracts delivered, wind and solar now account for most of the portfolio mix.
“The diversification has this result at a time. When we have sources with worse results, other sources compensate.”
Source: Valor international https://valorinternational.globo.com/.
March 11, 2022
RISING FUEL PRICES MEAN STRONG IMPACT ON INFLATION
The adjustment announced Thursday by Petrobras in the prices of gasoline, diesel and gas (LPG) did not surprise the market, but came higher and faster than the vast majority of economists expected, which caused immediate revisions in inflation expectations. The adjustment came after 57 days without hikes and was influenced by the Russia-Ukraine war, which caused the price of oil on the international market to skyrocket.
The hikes announced Thursday by Petrobras for gasoline (18.7%) diesel (24.9%) and LPG (16%) will probably lead to an impact of 0.4 percentage points (p.p.) on the official inflation, as measured by Brazil’s benchmark inflation index IPCA for March, and to a rise of 0.35 p.p. in the IPCA for April. In other words: a total impact of 0.75 p.p. on the rates of March and April’s indicators. These calculations were made by André Braz, the economist at the think tank Fundação Getúlio Vargas (FGV) who oversees the General Price Indexes (IGPs). Before the company’s announcement, the economist expected an annual IPCA around 6% to 6.5% by the end of the year.
It means that in the event that no other product but fuel saw prices increase, the official inflation rates for March and April would already swell by at least 0.75% in both months. In the case of the IGPs, the specialist reckons hikes of 0.75 p.p. on the IGP-DI for March, and 0.35 p.p. on the IGP-DI for April, caused by increases after 57 days on the prices of the three fuels made by Petrobras and affected by the war in Ukraine, which induced the price of oil to skyrocket.
Soon after the announcement, LCA Consultores raised IPCA expectations for the end of 2022 to 6.5% from 6.01%. “The direct impact of these diesel and gasoline increases on the IPCA is 0.5962 percentage points,” economist Fábio Romão said.
LCA now projects a 10.58% inflation for the transportation group at the end of the year – the previous forecast was 8.72%. The projection for the food and beverage group varied less, to 7.16% from 7.02%. “Specifically on food, I have very recently incorporated the effects of commodity hikes via the war. Hence the modest change in this update. In fact, before all this adjustment caused by the Russia- Ukraine [war], we had +5.8% for food and beverages and now it is at +7.16%,” Mr. Romão said.
J.P. Morgan also raised its projection for IPCA in 2022 to 6.5% from 6%, also incorporating the prospect of even higher prices for other commodities.
“Petrobras announced increases of 19.2% and 24.9% in gasoline and diesel prices, respectively. This is higher and earlier than our assumption of two 8% increases between March and April,” economists Vinicius Moreira and Cassiana Fernandez wrote in a report. In their estimates, the larger-than- expected hikes adds about 0.15 percentage point to the bank’s IPCA forecast. “As it came earlier than expected, it increases our inflation estimates for March and April, but has a downward effect in May, as we do not expect another increase in mid-April,” they say. The February IPCA, which will be released on Friday, will be important to adjust short-term expectations, they added.
Santander has also signaled that it will update its inflation estimate. “We were already considering a 10% adjustment in our scenario. Therefore, the surprise in relation to our projection for the gasoline increase was lower, by 9 points, which should add 0.17 p.p. to the annual inflation,” said Daniel Karp, an economist at the Spanish bank in Brazil, pointing out that the IPCA increase in the current month is expected to be raised to around 0.95% from 0.81%. “For 2022, our official forecast is 6%, but after the recent commodity shocks and the gasoline adjustment, the tendency is for the number to go to around 6.7%,” he added.
Mr. Braz, with FGV, says that, as the conflict in Eastern Europe shows no signs of ending in the short term, there is no way to know for sure if oil prices will continue to soar. Brent crude trades above $100 since the war started, he recalled, and there is no way to know if there will be other adjustments in fuels.
The first preview of the General Price Index (IGP-M) for March, unveiled on Thursday by FGV, showed stability, compared to a high of 1.38% in the same preview in February, favored by a drop of 11.77% in the price of wholesale iron ore. “But with the hike [of fuels], this first preview [prepared before
Petrobras’s announcement of more expensive fuels] no longer represents the reality of inflation,” he said, adding that the first preview is outdated.
Another warning sign mentioned by him, besides possible new fuel price increases due to the war, is the fact that indirectly higher fuel prices make other non-oil related products more expensive. “It’s going to increase freight costs, production cost,” he said, noting that the country’s item transportation logistics are dependent on trucks, which run on diesel.
“Those hikes will spill over to other sectors,” he said. Mr. Braz also recalled that there are other products that take petroleum in their preparation, such as PVC pipes, for example, which are expected to become more expensive because of the rising barrel — putting pressure on inflationary indicators.
Outside the oil sector, the specialist also reiterated the warning of a rise in prices abroad of commodities from the agricultural sector, also because of the war. This is because the conflict region is a producer of wheat, rye and oats, items that have a long chain of products in Brazilian retail.
“The war is far from over” he said. “And even if it ends, sanctions on Russia are expected to remain,” he said, noting that this will restrict access to products from Russia, such as wheat for example, in the global supply, which raises prices in the domestic market.
He made one warning, though. It is not impossible that oil prices to go down just as they skyrocketed when the conflict started, depending on the resolution of the war. “We have to take into account that oil is still fluctuating,” he said. “We have to wait and see how the post-war will be and how the relationship of other countries with Russia will be,” he said.
Source: Valor international https://valorinternational.globo.com/.
March 11, 2022
EMBRAER’S EVE STARTS CERTIFICATION IN CIVIL AVIATION AGENCY
On its way to being listed on the New York Stock Exchange (NYSE), Eve, Embraer’s urban air mobility company, started the process to obtain a type certificate for its electric vertical take-off and landing vehicle (eVTOL), or “flying car”, with the National Agency of Civil Aviation (ANAC).
This certification will confirm that the new aircraft model, which will be produced on a large scale, meets the legal criteria for airworthiness. Eve expects to certify its eVTOL in 2025 and put it into commercial operation in 2026.
According to the Brazilian aircraft manufacturer, with the initiative, Eve formalized with the regulatory body the commitment “to demonstrate compliance with international technical standards and mandatory airworthiness requirements for certification”.
The eVTOL will follow the process of obtaining the type certificate in the “normal category”. “Eve, with the support of ANAC, will continue the interactions with the main foreign aeronautical authorities, soon formalizing the type certificate validation process in accordance with its global business strategy”, it informed.
In a statement, ANAC´s Airworthiness superintendent, Roberto Honorato, stated that this is a relevant step. “The process aims to achieve the best security standards, in order to allow eVTOL access to the global market,” he said, adding that there is still a lot to be done from a regulatory point of view in relation to the new technology and to the urban air mobility ecosystem.
According to Eve’s head of technology, Luiz Felipe R. Valentini, the formalization of the certification process continues the discussions already underway with ANAC.
“In addition to demonstrating Eve’s commitment to the development of the project, it allows institutions to evolve together in defining the requirements and means of compliance applicable to certification,” he explained.
Eve’s “flying car” aims to offer comfortable transport, with low noise and zero carbon emissions. Initially, it will be manned and will have capacity for four passengers. With 17 announced partnerships and 1,735 aircraft on the order backlog, valued at $5.2 billion, Eve projects revenue of $4.5 billion in 2030 and a market share of 15%.
The merger between Eve, a startup that was incubated at EmbraerX and launched as an independent company in October 2020, with Zanite Acquisition, was announced in December. The transaction values Eve at $2.4 billion and is expected to be closed in the second quarter. Zanite is already listed on Nyse.
Source: Valor international https://valorinternational.globo.com/.
March 14, 2022
MARKET PROJECTS HIGHER BENCHMARK INTEREST RATE
A scenario that was already difficult for the disinflation process took on even more complex contours, which is ex require a higher interest rate. The significant worsening of the balance of risks for inflation,
in the wake of the war in Ukraine, knocks on the door of the Monetary Policy Committee (Copom) of the Central Bank, which is expected to raise the Selic, Brazil’s benchmark interest rate, again this week. While the prevailing assessment is that of a slower tightening now, the new challenges already signal the need for a higher base rate ahead.
In its last three decisions, the Copom promoted increases of 150 basis points in the Selic, but signaled that, at this week’s meeting, the magnitude of the rise should decrease. With the basic interest rate at 10.75%, the market believed the signal from the monetary authority and, of 93 financial institutions consulted by Valor between March 10 and 11, 82 expect the Selic to be raised by 100 bp, to 11 .75%.
The worsening of the inflationary scenario, however, made nine institutions project a 125 bp increase, while two – Austin Rating and UBS BB – believe that the committee will maintain the pace of interest rate hikes at 150 bp at the Wednesday meeting.
Despite this, it is clear to the market that the scenario has worsened significantly. Valor also consulted institutions about inflation this year and in 2023. The survey, conducted on Thursday, covered scenario revisions that took place after the fuel price hike by Petrobras and after a new surprise observed in Brazil’s benchmark inflation index IPCA in February. If, in the previous survey, the midpoint of the estimates indicated inflation at 5.2% this year, now the expectation is that the IPCA will close 2022 at 6.5%.
It is worth remembering, however, that this week’s Copom meeting is expected to be the last in which the 2022 calendar year will continue to be considered in the relevant horizon for the performance of monetary policy. The deterioration of expectations for 2023, which become more important, also triggers a warning signal. In February, the median indicated the IPCA at 3.4% at the end of next year and, now, the midpoint of the projections is at 3.8%.
Part of the market also adjusted its estimates for the Selic and began to see a higher rate ahead. In the Valor survey, the median of 91 projections collected points to the Selic at 12.75% at the end of the cycle (compared to 12.25% in the previous survey). A relevant part of the market, however, believes that the basic interest rate can reach at least 13% – which was stated by 44 institutions (48.3% of the total).
“When we think about the design of monetary policy from now on, we see that the Central Bank is dealing with an increasingly persistent inflation,” says Gustavo Arruda, BNP Paribas’ head of economic research for Latin America. “With a new shock on top of already high current inflation and inflation expectations above the target, what the Central Bank should do is continue in action, and that means raising interest rates for longer.”
Last week, the French bank raised its forecast for the Selic to 13.25% from 12.25% at the end of the cycle, which would take place in June. “It’s not a big change of scenery, it’s 100 bp higher. I believe that this is an adjustment for the Central Bank to coordinate inflation expectations and avoid the transmission of these shocks throughout the economy,” says Mr. Arruda.
Despite the deterioration of the inflationary scenario, the vast majority of agents continue to see a 100-point rise in the Selic rate this week as the most likely move. This is the case of Apex Capital’s chief economist Alexandre Bassoli, who projects the basic interest rate at 12.75% at the end of the current cycle.
Although he emphasizes that monetary policy “still has a lot of work to do to make inflation converge to the targets,” Mr. Bassoli still expects a deceleration in the pace of the Selic increase, from 150 bp to 100 bp, when considering the lagged effect of interest rates. “We have already advanced a lot in the cycle here in Brazil and, considering the uncertainties, this Copom guideline to produce a deceleration in the pace of growth seems reasonable. But there is still work to be done,” he emphasizes.
The economist recalls that the Copom had already mentioned “next adjustments”, in the plural, and, in the current context, there is a suggestion that the hike to be carried out this week will not be the last. “We have at least one more to go. I would expect at least two more,” he says. According to Mr. Bassoli, the probability of an extension of the cycle has increased, as the inflation figures in Brazil showed unfavorable dynamics even before the conflict, which tends to worsen.
On Brazilian stock exchange B3, the digital options market indicated, on Friday afternoon, a 66% chance of a 100 bp increase in the Selic in March. This possibility, however, has already reached more than 90%. In addition, the market has now built in higher odds of a 125 bp increase (20%) and a 150 bp increase (15%).
“In our view, even with a scenario of more perennial shocks, the Central Bank has a more limited total budget to raise interest rates, given the advanced stage of the cycle,” assesses Mirella Hirakawa, senior economist at AZ Quest. “It makes sense to go as planned and reduce the dose of adjustment.”
Although also pointing to a slowdown in pace, chief economist at Panamby Capital, Tatiana Pinheiro, notes that a good part of the factors advocates in favor of maintaining it. “Inflation surprised upwards; expectations continued to be revised upwards; commodity prices in reais also increased despite the appreciation of the real; even economic activity came in a little better than expected… These are indicators that go in the opposite direction of a reduction in the pace of adjustment.”
A focus for investors’ attention, in the current environment of high uncertainty, will be what the Copom will signal for the next steps. There are those who believe that it would be more prudent for the committee to anticipate a further deceleration of pace for the May meeting. This is the case of Fernando Honorato, chief economist at Bradesco, for whom the Central Bank should re-emphasize, as in the last meeting, the lag in monetary policy and also give weight to the transitory aspect of the shock in the balance of inflation risks.
“The Central Bank’s reference scenario projections will change significantly, but it has to assume some reversal of the commodity shock by the end of 2023, which is the horizon it is looking at. If not, we will be thinking about Selic levels above 13%, eventually, and that would involve a very big sacrifice for the activity”, evaluates Mr. Honorato. Last week, Bradesco increased its Selic forecast at the end of the cycle to 12.75% from 11.75%, but the economist expects more moderate interest rate adjustments ahead so that there is time for the Copom to observe the effects on economy.
In addition, he says that the Central Bank should emphasize the fight against the secondary effects of a classic supply shock like the current one. “If it doesn’t do that, the monetary authority will give the impression that it wants to endogenize an external supply shock, which is like saying it intends to fully combat this local effect of global inflation. It actually makes more sense to emphasize combating secondary shocks.”
For Mr. Hirakawa, with AZ Quest, what remains for the Central Bank “is to slow down the pace while maintaining the hawkish tone for the next meetings. “The Copom has to remain vigilant, but it must lengthen the cycle with more moderate doses of tightening because inflation expectations for 2023, lower than those for 2022, will become its exclusive focus after this week’s meeting,” she says.
At the other end, UBS BB started to project an increase of 150 bp and a Selic of 13.75%, in view of the increase in commodity and energy prices, which should make inflation this year and in 2023 higher than previously expected and lead to a slower normalization of relative prices. Thus, it is of “extreme importance” that no central bank, in particular the Brazilian one, allows inflation expectations to move upwards, at the risk of losing control, economists point out in a note to clients.
Source: Valor international https://valorinternational.globo.com/.
March 14, 2022
FOREIGN CAPITAL BRINGS R$80BN TO BRAZILIAN STOCK MARKET
The foreign investors have already brought almost R$80 billion to the Brazilian stock market this year, including purchases on the spot market, futures and stock offerings. In less than three months, Brazilian stock exchange B3 has already attracted 57% of the volume that came in last year. In the face of the Russia-Ukraine conflict, Brazil and other Latin American countries have benefited from the connection to commodities and the rotation of portfolios, from growth stocks to value stocks.
The question is how long this movement will last. There are those who consider that there is still a flow to arrive, since Brazilian assets are cheap in dollars. Others think that the new money won’t go that far because there are elections in Brazil, an unresolved fiscal and interest rate hikes in developed economies.
“Money looks for two things: growth differential and interest, where there is more interest. Ideally, if the region has a positive interest rate differential and also growth, at the margin, it will attract more capital. What the country experienced recently that performed so well was the fact of having depreciated prices. Brazil suffered before with a very devalued currency in relation to comparable peers and had no interest or growth. Press the forward button and the nominal interest rate is adjusted, but not growth,” says Marcelo Santucci, partner and head of international portfolios at BTG Pactual.
“Some of the money came from depreciation and interest rates, what is lacking is structural growth, reforms, there is the challenge of fiscal adjustment and uncertainty with the elections. To have the real big money, you need the structural. That’s one last unknown.”
For Mr. Santucci, this recent movement of foreign flow does not seem to be lasting. Despite the recent international setback, he believes that the diversification of currencies and regions remains a valid strategy for the Brazilians to smooth out periods of high tension as seen in global markets.
Long before the escalation of the war in Eastern Europe, there was already a reallocation of assets in global portfolios that to some extent accompanied the rise in U.S. Treasuries futures, says Leonardo Morales, partner at SVN Gestão de Recursos.
With the rise in long rates, investors reduced their exposure to growth companies, mainly in the technology sector, with more stretched multiples, and went to assets more linked to the commodity chain and banks, which had more attractive prices, segments considered value stocks in the traditional economy. “When you look at the Ibovespa, 60% is made up of commodities and banks. In
this rotation, Brazil was favored, as well as all of Latin America: Peru, Colombia, Chile, all had an appreciation, and their currencies, too.”
Mr. Morales says that Brazil has lost a lot of weight in international indices in recent years and any increase brings a strong inflow of capital to the country. He also recalls that Russia usually has a similar participation in the benchmarks of emerging exchanges, but sales there didn’t even happen because the Russian stock market has been paralyzed since the invasion of Ukraine. “There is always a ‘smart money’ that must have sold before and bought Brazil and Latin America.”
It was a money flow that ended up giving outlets to equity managers and local multimarkets that continue to take redemptions, he adds.
A diagnosis of how long this movement will extend over time is, however, the “$1 billion question”, says Mr. Morales. His perception is that it will continue at least until the end of the quarter, in the face of inflationary pressures and commodity prices aggravated by the military confrontation between Russia and Ukraine, benefiting raw material manufacturers. “These are companies that are generating cash, without debt, the rotation from growth to value has room to continue.”
The intensity of the inflow of resources in these first months of the year in Brazil was really surprising, but it is basically explained by the fact that the domestic market is supported by commodity exporters. The global investor makes this association here and with other economies in the region, says Marcelo Arnosti, chief strategist for equities, multimarkets and offshore assets at BB DTVM.
He observes that most companies listed on the local stock exchange are evaluated as being of value, in which the expected return on invested capital is not in the very long term as in growth companies. “The [American index] S&P500 and the Asian one are more recognized as ‘growth’ by the weight of tech companies,” he says. “Asia lost part of its flow to Latin America and Brazil, which explains why the stock market is resistant and the real has been appreciating.”
For Mr. Arnosti, this movement is difficult to fully anticipate, but the rotation should continue, even if the dynamics more directly related to commodities falls.
Looking ahead, this inflow of funds will not necessarily be replicated in the next three, four months, says Marcus Vinícius Gonçalves, Franklin Templeton’s president in Brazil. “Things can go a different way. It does not mean that we have a negative reading, the reading is positive, there will still be flow, but the electoral uncertainty will weigh,” he says. “Brazil is stupidly cheap, the Brazilian stock market is cheap. It could be a very good year for allocators here and abroad.”
Some sectors of the Brazilian stock market were reasonably discounted. The war only accentuated this perception for the commodities segment, says Daniel Celano, head of third-party resources management at Schroders in Brazil. “But we see it as a very one-off thing. For foreigners, in fact, to place Brazil on the list of long-term investments, they need to see growth and GDP, for now, is uncertain.”
For him, the Brazilian exchange rate was closer to the fundamentals, given the good numbers of the external accounts, but he does not see the currency much lower than around R$5 per dollar.
He claims that inflationary concerns remain a global phenomenon, a side effect of the pandemic that ended up being amended by the military conflict in Ukraine. In Brazil, inflationary uncertainties, with growth, elections and the fiscal framework tend to take off the drive from the flow that has been observed.
Source: Valor international https://valorinternational.globo.com/
March 15, 2022
AGRIBUSINESS EXPORTS GROW 65% IN FEBRUARY
Brazilian agribusiness exports reached $10.51 billion last month, 65.8% more than a year earlier and a new record for February, according to data from the Secretariat of Foreign Trade (Secex) compiled by the Ministry of Agriculture. So far, the best February ever had been 2019.
Both the average prices of exported products and volumes increased and helped the result — rising 24% and 33.7%, respectively. As a result, the share of agriculture in Brazil’s total exports grew again and reached 45.9%. In February 2021, the share was 38.7%.
The sector’s trade balance saw a surplus of $9.2 billion, as imports dropped 2.1% in February, to
$1.25 billion, despite the increase in average prices of several imported products, such as wheat, malt, salmon and palm oil.
Imports compiled by the ministry do not consider inputs used in the sector, but it released a balance of purchases of these products in February – fertilizer imports increased 124.1%, to $1.63 billion. The average price grew 128.7% in the period.
“It is important to point out that, in February, the survey of international fertilizer prices carried out by the World Bank indicated an average price increase of almost 100% in the last 12 months. To clarify this point, the volume of fertilizers imported by Brazil was about 2% lower compared to February of
the last two years (2021 and 2020): from 3 million tonnes in February 2021 to 2.94 million tonnes in February 2022,” the ministry said. The main fertilizer suppliers to Brazil were Russia, Canada, China, Oman and Qatar.
The positive performance of agribusiness exports in February was driven by shipments of soy beans, fresh beef, green coffee, soy meal, fresh chicken and wheat, the latter a product that typically makes up the country’s import basket.
The volume of soybeans exported was a record in February, with 6.27 million tonnes, up 137% compared to the same period last year, when 2.6 million tonnes were shipped.
The value of these shipments saw an even more expressive increase, 203%, to $3.1 billion from $1 billion. The average price per tonne increased 28%, to $501 from $392.
China is the largest importer of soybeans from Brazil. In February, the Asian country increased the amount purchased by 130%, reaching 4.3 million tonnes, about 69% of all Brazilian soybeans sold to the world. The amount paid for the product increased 186.6% year over year and stood at $2.17 billion.
With the normalization of sales to China, exports of fresh beef grew by 75.1%, reaching $965 million. The volume exported increased by 42%, and the average export price grew by 23.3%.
China doubled the value of purchases compared to February 2021, to $546.49 million and 87,100 tonnes from $261.79 million and 56,410 tonnes.
Foreign sales of chicken meat rose 26%, to $643.11 million. The increase in the average export price was 18.8%, and 6% in the volume exported.
Brazilian exports of green coffee increased 83.5% in price. Brazil exported 208,500 tonnes, up 9.1% from 2021. The ministry also highlighted wheat in the list of the main products exported. “The grain exports exceeded imports: $246.3 exported (836,600 tonnes), compared to $141.58 million imported (498,800 tonnes).”
According to a report by the Center of Advanced Studies on Applied Economics (Cepea) of the Luiz de Queiroz College of Agriculture (Esalq/USP), the favorable conditions of international prices and the greater external acceptance of wheat with lower pH, a characteristic of the local product, have driven the increase seen in Brazilian exports.
Source: Valor International https://valorinternational.globo.com/
March 15, 2022
EU SEEKS COMPANIES IN BRAZIL TO ENCOURAGE TRANSITION TECHNOLOGIES
A Brazilian farmer who wants to adopt some practice that reduces greenhouse gas emissions in his property may not always know or have available the necessary technologies to put his ideas in place. But these technologies do exist, and the European Union is making its efforts to show that there may be companies in the bloc capable of meeting this demand.
Through Low Carbon Business Action (LCBA), a business platform created by the European Union from the European Green Deal of 2020, the bloc wants to encourage commercial agreements between small and medium-sized European technology suppliers and Brazilian companies that want to invest in energy transition, circular economy and climate change mitigation in the country.
Some deals have already started to be made. Since the beginning of its operations in Brazil, the LCBA has already negotiated 14 agreements totaling €22 million, implying a potential reduction of more than 430,000 tonnes of carbon dioxide equivalent per year. And, to accelerate its operations in Brazil, the LCBA will launch a public call to draw more Brazilian entrepreneurs in search of technologies for greener businesses.
For this cycle of client prospection, the platform listed priorities to foster in Brazil: biogas and biomethane, low carbon agriculture, waste management, renewable power (including bioenergy, wind and solar) and recycling.
“The European Union has tested technologies for this. The challenge was how to bring them to Brazil and other countries,” said Marcelo Perpétuo, LCBA’s country manager. The effort is also in place in other countries of the Americas, including Argentina, Chile, Canada, Colombia and Mexico. LCBA initially maps small and medium-sized European companies that have developed green technologies, creating a portfolio that currently includes more than 500 companies in Europe.
The proposal is to offer solutions from European companies that do not usually have the same means of multinationals to reach the market, but that also have disruptive technologies for energy transition or circular economy.
Mr. Perpétuo cites cases like that of a small business in Serbia that developed an enzyme that can be added to animal feed and is able to reduce methane emissions from cattle, or of a company with presence in Spain and Finland that can identify the species within an area of vegetation using microsatellites and radars.
Besides bridging the gap with clients on the other side of the Atlantic, LCBA also offers to support investors in their investment and business projects. This support can be technical, organizational, or even financial. Thus, if the inputs need financing, the team of the European initiative helps to structure the investment plan and offers the financial firms an environmental analysis of the proposal.
“Today there is a lot of capital set aside for ESG, but there are few robust projects for this capital to be delivered. When we enter the process, it makes things easier,” Mr. Perpétuo said. All the support is funded by the EU.
The fact that LCBA also proposes to work with companies from different segments paves the way for technologies that are usually directed to some fields that can be explored in different businesses, in a kind of “cross-pollination” of technologies, the executive said.
He guarantees, however, that the Brazilian companies interested in the initiative need to ensure that the investments they intend to make are in fact transformative of the business, to avoid the risk of greenwashing. To this end, the projects are evaluated based on environmental indicators and by an independent auditor.
Source: Valor International https://valorinternational.globo.com/
March 16, 2022
MINING COMPANIES STAND AGAINST USE OF INDIGENOUS LANDS
Brazilian and foreign mining companies operating in the country said Tuesday they are against the bill sponsored by the Bolsonaro administration that foresees the opening of indigenous lands for mining projects. The companies say the issue needs a broader debate. And they are against the limited role that the bill gives to the indigenous people.
The bill establishes that the indigenous people need to be consulted on future projects on their lands, but without the power to veto them. The mining companies defend that the projects could only be put in place with the consent of the indigenous people.
The position was issued through a statement released by the Brazilian Mining Institute (Ibram), which brings together mining companies and companies that support the sector, among them giants like Vale, Anglo American, CBMM, Rio Tinto, Vallourec, Huawei, Gerdau and Votorantim.
Ibram’s president is Raul Jungmann, former Minister of Defense in the Temer administration. Mr. Jungmann took over the command of the organization recently.
The bill number 191 is making its way in the Chamber of Deputies, and it foresees the regulation of “the research and exploitation of mineral and hydrocarbon resources and the use of water resources to generate electricity on indigenous lands.”
The exploitation of indigenous lands is foreseen by the 1988 Constitution but has never been regulated.
The issue is dear to President Jair Bolsonaro and right at the beginning of his term was presented as one of the priority projects by the Minister of Mines and Energy, Bento Albuquerque, to representatives of large mining companies at an industry event in Toronto, Canada.
The discussion, however, did not move forward. It has only gained momentum now under the argument that — with Russia’s war against Ukraine and the limitations imposed on fertilizer exports from the region — Brazil could multiply its potash production if mining on indigenous lands is allowed.
The argument is not sustained by proof, since the vast majority of deposits of the mineral is not on indigenous lands. Even so, last week, federal lawmakers passed an urgency request to evaluate the proposal.
“The Brazilian Mining Institute understands that bill 191/2020, presented by the executive branch of government in the National Congress, is not appropriate for its intended purpose, which would be to regulate the constitutional provision that provides for the possibility of implementing economic activities on indigenous lands, such as power generation, oil and gas production and mining,” Ibram said in a statement.
“Since mining on indigenous lands is in the Federal Constitution, articles 176 and 231, its regulation needs to be widely debated by Brazilian society, especially by the indigenous peoples themselves, respecting their constitutional rights, and by the Brazilian Parliament.”
Ibram argues that mining can be viable in any area of the country, abiding environmental rules. But when it comes to indigenous lands, the entity adopts a stricter stance than that advocated in bill 191.
“In the case of mining on indigenous lands, when regulated, the Free, Prior and Informed Consent (FPIC) of the indigenous people is essential. FPIC is a principle provided for in International Labor Organization ILO 169 and in a series of other international directives. It established that each indigenous people, considering their autonomy and self-determination, can define their own consultation protocol to authorize activities that impact their lands and ways of life,” say the mining companies, through the Ibram statement.
The bill does not mention consent. It establishes the “procedure for hearing the affected indigenous communities,” but it does not say they have the power to say no to the project of a company that intends to exploit their lands.
In chapter 4, article 14, the project points out that: “It is up to the President of the Republic to send to the National Congress a request for authorization to carry out the activities provided for in this Law on indigenous lands.”
It continues: “The President of the Republic will consider the manifestation of the affected indigenous communities to carry out the activities referred to in the first sentence. The request for authorization may be forwarded with a manifestation to the contrary from the affected indigenous communities, provided that it is motivated.”
Although mining on indigenous land may represent new opportunities for companies, there is a view in the sector that it will only be possible to consider projects in these areas if there are transparent rules that reduce the risks of conflicts with the indigenous peoples. Another concern in the sector is that the bill may end up paving the way for mining companies that have been operating illegally for years in some indigenous lands in the Amazon rainforest – especially extracting gold and diamonds
– sometimes in agreement and sometimes in open conflict with indigenous peoples.
In the note, Ibram condemned illegal mining and demanded that the activity be combated. “The preservation of the Amazon is a necessary condition for the discussions of all matters related to mining in Brazil.”
If approved by the Chamber of Deputies, bill 191 will still need to go through Senate.
Source: Valor International https://valorinternational.globo.com/
March 21, 2022
AUCTION WINNERS START TO IMPLEMENT 5G MOBILE NETWORK IN BRAZIL
After years of preparation, the phone carriers that won the auction last November are beginning to put in place the fifth-generation mobile network in Brazil. Algar, América Móvil’s Claro and Telefónica’s Vivo have already started using one of the auctioned frequencies, 2.3 Ghz, to offer 5G connection in specific places. Telecom Italia’s TIM, on the other hand, is waiting for the release of the 3.5 GHz band by telecoms regulator Anatel to start operating the new technology.
For now, 5G is being offered in a band that can be used both for 5G and for 4G in the 2.3 Ghz band. Claro launched 5G in this frequency in some areas of São Paulo and Brasília; Algar did the same in Uberlândia and Uberaba, in Minas Gerais, and Franca, in São Paulo. Algar said it offers customers a better data browsing experience through the 5G 2.3 GHz network. It would be possible to download a 20-gigabyte video in about 40 seconds.
When available, a more powerful version of 5G, known as standalone, will allow downloading a movie, video, or song faster and easier. Tests done in Claro’s 5G lab in Rio show that downloading a 10- hour YouTube video in high definition would take only one minute and 30 seconds. On Netflix, a 500- megabyte video could be downloaded in 30 seconds, while on Spotify 24 hours of music will be downloaded in two minutes. Downloading the game Free Fire will take only 25 seconds.
The bands work as “avenues” through which the signal reaches the consumer. The major carriers will focus on “Avenue 3.5,” the fastest and most efficient of them all. According to the schedule of the call for bids, the standalone 5G will be working in the 3.5 GHz band in all the country’s capital cities by July 31. However, Communications Minister Fábio Faria said there may be delays in some locations until September – the maximum deadline defined by Anatel.
Despite the minister’s prediction, telecom companies, trade unions and the regulatory agency are still in talks about potentially moving up the 3.5 GHz band launch in some cities, where the satellite dish broadcast is used less. Phone carriers and suppliers have been saying that, from an operational standpoint, 5G is ready to be activated. Vivo, for instance, says it expects to launch the technology in capital cities by July 31.
Transmitted by radio waves, the new technology will need exclusive frequencies. The 3.5 GHz band, however, needs to be cleared because part of it, mainly in the interior of the country, is used for parabolic TV transmission, whose signal will be changed to another “avenue.”
The band clearing involves bureaucratic issues as well. One step was made on February 23, when Entidade Administradora da Faixa (EAF), a private-sector company coordinated by Anatel, was created to manage the bands. It will be overseen by telecoms regulator Anatel through a body known as Gaispi. The schedule may only be moved up with regulatory authorization.
Vivo says it is still adapting its network and, since the beginning of 2021, customers can already try 5G in the 2.3 GHz frequency in some locations in São Paulo, Rio de Janeiro and Brasília. The company is in the final phase of quality assurance of the service and plans to make a commercial launch soon. In the auction, the lots acquired in the 3.5 GHz frequency were those of 100 Mhz, while
the 2.3 GHz frequency was divided into 40 Mhz and 50 Mhz lots – meaning a capacity about twice as small, able to offer a less robust 5G called NSA (non-standalone).
Despite its lower potential – although much faster than 4G – some carriers have chosen to go ahead and use the 2.3 GHz band. Algar will focus on expanding connectivity in the country by region. “We were the first carrier in the country to launch the 5G service, in January, for customers in the frequencies auctioned by Anatel, in the NSA standard. Since December 15, 21 neighborhoods in Uberlândia, 12 in Uberaba and seven in Franca started to count on the new fifth-generation technology,” said Márcio de Jesus, Claro’s head of retail business.
Claro’s CEO, Paulo Cesar Teixeira, says that the launch of 5G at 2.3 GHz in specific points met the great demand for data traffic. The executive also says that the phone carrier was the first to offer, in July 2020, the so-called 5G DSS, which uses 4G with some 5G features, a kind of 4.5G. Its capacity, however, is smaller than that of 5G NSA and standalone 5G. TIM and Vivo also offer the technology to their customers.
“From there, we started to foster the handset industry. It is key that clients have the possibility of immediate use. There is no point in launching a network and not being able to use it because the cell phone is not suitable,” Mr. Teixeira said. Claro is already talking to manufacturers to launch mid-range level, cheaper handsets, and bets that cell phone prices will fall as 5G gains ground in the coun try. “The technology will quickly reach other social classes,” he said.
At the moment, carriers are not charging more from customers to have use 5G in the 2.3 Ghz band. On the other hand, to be able to connect to the internet, one must have a device compatible with the new frequencies. For the 2.3 GHz frequency, there are already some compatible smartphones. For the 3.5 Ghz band, the supply is still low.
In a recent event held by BTG Pactual, Huawei argued for a plan to sell 5G phones at affordable prices. According to specialists, one possibility is to sell subsidized handsets to customers, at lower prices, under loyalty programs.
With the release of the 3.5 GHz band, data usage packages with 5G technology are expected to become more expensive in the first moment. Marcos Ferrari, head of Conexis, which brings together Brazil’s large phone carriers, says that companies do not have a “crystal ball” to know how long the new technology will take to be dominant and surpass 4G. For this to happen, the country must foster competitiveness and face challenges including municipal laws that block base transceiver stations, the tax burden of the sector and cable theft.
TIM’s chief technology officer Leonardo Capdeville says that the standalone 5G network will coexist with DSS and NSA in the future. The carrier’s strategy is to wait for the release of the 3.5 GHz band, which, despite higher capacity, has smaller coverage, requiring more antennas. “We are not going to race simply to claim that we have released something that is not definitive. Our choice is not to worry about being the first one, but about being the best one. And to be the best one we are going to have to use the 3.5 Ghz frequency,” he said. The executive also said that the cost of investment in the 2.3 Ghz and 3.5 Ghz bands is virtually the same, so it is better to focus investments on what offers the best technology.
According to data from Anatel, the existing coverage in the 2.3 Ghz band is still incipient. At the beginning of February, there were only 90 authorized base transceiver stations in the country. Brazil currently has about 100,000 antennas. 5G, on the other hand, will need at least five times as many.
Paraná-based Copel, another phone carrier, has already defined investments. The company joined Sercomtel and Consórcio 5G to win regional lots in the 3.5 Ghz frequency in the South and North regions and in São Paulo. Now, it has a minimum initial investment plan of R$1 billion, besides a $200 million fund to bring 5G to the Amazon rainforest region.
CEO Wendell Oliveira said that the goal is to bring the technology to the cities in 2022, before the deadline set in the call for bids for cities with more than 500,000 inhabitants, which is 2025. In Paraná, the goal is to have the new technology online in the first half of this year. “The idea is to take 5G to those who need it most, especially regions and activities where not even the internet is a reality yet. For São Paulo, the group will look closely at the commercial sector, taking the new internet to companies, ports, airports, logistics companies and the agribusiness sector,” he said.
Cloud2U, which bought a regional lot in the 3.5 Ghz band, covering locations in Rio de Janeiro, Minas Gerais and Espírito Santo, says that the company will follow Anatel’s schedule.
Winity, which has bid for the 700 Mhz lot, which will be used to connect roads and expand 4G, says that the commitments made with the concession begin as of 2023 and that the company will be the country’s first wholesale carrier. “During 2022, we will develop commercial agreements with our customers, companies that operate nationwide and in specific regions, and deploy our wholesale operating business model, where we build the network to make coverage and capacity available to our customers,” the company said.
There are, however, risks with the worsening of the economic scenario due to the war in Ukraine. Telecoms and international relations experts do not foresee sanctions against China due to its implicit
support for Moscow – which could affect Huawei, a key supplier of telecoms infrastructure, including in Brazil. But the war increases inflationary pressure and the possibility of supply chain disruptions.
Mr. Ferrari, with Conexis, sees no risk for the local telecoms industry, though. “For now, the sanctions we have seen do not affect the deployment of 5G in the country. We do not anticipate any kind of problem to connecting 5G in the capital cities this year as provided for in the call for bids,” he said.
Source: Valor International https://valorinternational.globo.com/
March 24, 2022
AGRICULTURE, CONSTRUCTION BOOST INVESTMENTS
Agriculture and construction have driven the growth of investments between 2019 and 2021 in the country. An exclusive study by Fipe’s Center for Capital Market Studies (Cemec-Fipe), linked to the University of São Paulo, found that the two industries accounted for two-thirds of investments in machinery and equipment between 2019 and 2021. During the period, the country faced the first year of the pandemic, the recovery after the height of the crisis and the slowdown of this recovery over the past year.
The concentration helps explain the expansion of investments even in an unfavorable macroeconomic context, said Carlos Antonio Rocca, the coordinator of Cemec-Fipe, who led the study.
“Some key factors for investment decisions are not encouraging. The recovery of the economy has lost steam, the growth expectation for the next three years is the lowest since 2006, and we also have uncertainty. But we investigated who has driven the increase in investments and we found that this came mainly from agriculture, with the good performance of commodities, and from construction, with interest rates still relatively low,” he said.
The study was motivated by the assessment that the growth of investments in the period was “somewhat surprising” since the country has high levels of idle capacity, there is a continued reduction in growth expectations for the coming years and uncertainty remains high, Mr. Rocca said.
Statistics agency IBGE detected investment rates of 15.5% in 2019, 16.6% in 2020 and 19.2% in 2021. The study by Cemec-Fipe excludes 2020 to avoid specific effects of the first year of the pandemic and directly compares the variation between 2019 and 2021, which were more typical years.
To understand the origin of this investment expansion, however, Mr. Rocca takes into account work done by economist Gilberto Borça Jr. showing that the investment rate actually achieved 18.2% in 2021, compared with 16.2% in 2019.
This finding excludes two factors that affected investments in the period. The first is the change in relative prices between the capital goods that make up the gross fixed capital formation (GFCF) and the prices of service goods that make up the GDP, due to the increase in the exchange rate, which affects imported capital goods.
The second is the impact of the value of Petrobras’s rigs. A tax change – the end of Repetro, a special customs regime that eased imports of goods for oil exploration – caused investment to be driven by imports of capital goods recently.
“Even so, it was still a big growth in investments, of two percentage points. And when we look at GFCF data between 2019 and 2021, we see that the highlight is machinery and equipment and construction. From there, we looked at the production of machinery and equipment, and we saw this great weight of those linked to the agricultural sector and construction,” Mr. Rocca said.
Considering IBGE’s index of physical production of capital goods, the segments focused on agriculture grew above 40% in real terms (43.8% in agricultural and 47.8% in agricultural parts) between 2019 and 2021. Capital goods for construction, on the other hand, advanced 40.48%, considering the same base of comparison.
Thus, by the accounts of Cemec-Fipe, the production index of capital goods rose 14.8% between 2019 and 2021. Of this increase, 6.44 percentage points came from the agricultural segment and 0.91 percentage point from agricultural parts, totaling 7.35 percentage points, or almost half (49.7%) of the growth. Capital goods for construction, meanwhile, account for 2.47 percentage points, or 16.7% of the expansion. The weight is much higher than the industrial capital goods segments (only 1.01 percentage point), for instance.
“If you consider the agricultural segment and the agricultural parts segment, virtually 50% refers to machines for the agricultural sector. If you also consider construction, there are two thirds of the investments for these two segments,” Mr. Rocca said.
In addition to evaluating the impact of these segments in the growth of investment, the study also collects investment data from 472 public companies. According to the survey, agribusiness-related companies saw a 52% expansion of the GFCF indicator in the period (considering the evolution of the value of their assets), compared to a much lower rate (24%) for the average of public companies as a whole. The investment measure in this case considers the evolution of the value of assets in the
financial statements, both fixed assets (such as real estate and machinery) and intangible assets (such as systems and software, for example), in nominal values.
“Agribusiness-related companies had much stronger growth in this measure of investments than the sample average. This reinforces the data we saw about the substantial growth of agricultural machinery. Public companies have a great weight in the economy, they account for a quarter of the added value, and show a general trend,” Mr. Rocca said.
Source: Valor International https://valorinternational.globo.com/