Privatization, concession season set to begin
Privatization, according to Bolsonaro Administration policy-makers, is an idea whose time has come. But the move to sell government assets, along with concessions for public utilities, has been carefully prepared by administrations going back to the 1990s. “We improved the governance of state companies with a new law providing for professional management, and we cleaned up their finances,” said Ana Paula Vescovi, Deputy Finance Minister during the administration of President Michel Temer, at a recent conference. “They are now much more valuable than before.” Investors are eager. Net foreign direct investment into Brazil in 2018 was $88.3 billion, the highest level since 2012. The Central Bank is predicting FDI of over $90 billion this year as more government companies hit the auction block. The two-year (2016-2018) Temer Administration set the stage, selecting 73 projects for either privatization or concession sales and managing to actually auction 21 of them, netting R$3.8 billion. Tenders for 17 more have already been issued, 12 for airport concessions, one for a rail concession and four for port terminals. The Investment Partnership Program (PPI) expects to net R$1.5 billion for the government from the upcoming sales, which should, in turn, result in an estimated R$6.4 billion in private investments. One step away from issuance of tenders are 30 more concessions, ten for airports, 17 for maritime terminals, one for a highway and two for rails. But that’s only the beginning; the Bolsonaro Administration has much more ambitious plans. PPI boss Salim Mattar said in January the government expects to earn $20 billion this year from asset sales. These will include not only individual government companies and concessions but also key subsidiaries of state-run behemoths such as Petrobras, Banco do Brasil and mortgage bank CEF. The latter three boast, respectively, 36, 16 and six subsidiaries. Mattar said the government will also sell off shares in private companies held by the government-run Brazilian Development Bank (BNDES) and then shut down BNDESPar, the bank’s holding company. BNDESPar holds an estimated R$110 billion worth of minority stakes in private companies. The state will also promote a massive dilution of shares in Eletrobras, the utilities holding company, until private stakeholders constitute a majority. All told, auctions this year could reach more than a hundred, according to Infrastructure Minister Tarcisio Gomes in a recent speech. Economy Minister Paulo Guedes set the tone, in a recent interview with the Financial Times, saying, “We are going towards a market-driven economy.”
State of the Economy
Foreign trade stalls on global prices, stagnant imports.
Brazil racked up a solid foreign trade surplus in February, but year-to-date figures show overall exchanges stagnating, according to Economy Ministry figures last week. February saw a surplus of $3.673 billion, up 22% from February of 2018. However, the year-to-date surplus of $5.865 billion was up only 0.7% from the first two months of 2018. Year-to-date exports were down 3.6% while imports declined 3.5%. Declining exports were due, in part, to falling international commodities prices. Exports have also been hurt by a recession in neighboring Argentina, one of Brazil’s leading trade partners. Meanwhile, continued consumer and business caution has led to stagnating imports. (see more)
Total lending declines in January as interest rates, arrears rise.
Total lending in the Brazilian financial system declined in January by 0.9% from December and 5% from January of 2018, the Central Bank said last week. Lending decreased as banks turned more conservative in loan approvals. Consumers, meanwhile, struggled with higher interest rates. The average rate on all loans in January was 20.8%, up from 20.5% in December. Some 22.9% of consumers were in arrears on at least some payments, as of January, up from 22.8% in December. Total lending ended January at R$3.23 trillion. (see more)
Public sector produces big, but temporary, primary budget surplus.
Brazil’s public sector produced a whopping primary budget surplus in January, but officials warned the black ink was likely to be temporary. January saw a surplus of R$46.9 billion. That figure, however, was virtually unchanged from January of 2018. Treasury Secretary Mansueto Almeida said early-year government spending is typically low, especially in a new administration whose programs and directives have not yet been set. The 12-month primary budget deficit remained stable, against December, at R$108 billion. The government is still well within budget guidelines, which provide for an annual deficit this year as high as R$159 billion. (see more)
State of Business
- Moody’s Investors Service last week downgraded Brazilian mining giant Vale to Ba1 from Baa3, thus stripping the company of its coveted “investment grade” status. Moody’s cited possible losses to Vale in the wake of the deadly Brumadinho dam break and flood earlier this year. Separately, Vale announced that it was temporarily suspending its CEO, Fabio Schvartsman, pending an investigation into responsibility for the disaster.
- Who’s in and who’s out in Brazil this week? Former Finance Minister Eduardo Guardia will become a partner in Brazilian investment bank BTG Pactual. He will be responsible for management of some R$184 billion in assets. Guardia served as Finance Minister during most of 2018. General Motors Mercosur President Carlos Zarlenga, based in São Paulo, has been promoted. He will now take charge of all GM operations in South America. The Brazilian unit of ride sharing service Uber has a new boss, Claudia Woods, a banking and retail executive. She takes the place of Gui Telles, who took over last year as an Uber global vice president.
- Brazil is the most expensive county, out of 43 surveyed, for wearing apparel, according to an annual study by investment bank BTG Pactual. Clothing costs in Brazil are 18% higher than in the United States. The study blames high taxes, logistics costs and regulation.
- Banking apparently trumps brewing, at least in Brazil. According to this year’s Forbes listing, Jorge Paulo Lemann, co-founder of brewing giant AmBev, is no longer Brazil’s richest person. That honor now belongs to Banco Safra’s Joseph Safra. Both men hold personal fortunes of about $25 billion. Lemann was Brazil’s richest person for six years running but suffered losses this year from declining stock prices for AmBev and other holdings.
- The need for security in big Brazilian cities has finally come together with new communications technologies. Local investors have created a service called Anjo55. A mobile phone application, Anjo55 allows users to call in a motorcycle escort service when driving from point to point in Brazil’s biggest city of São Paulo.
- Fintechs—startup companies in the financial sector—have a new home in São Paulo. A group of corporate sponsors, led by insurance company HDI and consulting firm KPMG, have put out the welcome mat at a new work center called Distrito Fintech. A building in the city’s West Side, Distrito Fintech offers low-cost office space and technology to financial startups. The effort is part of an incubation drive that may one day transform the way business and consumer finance is managed.
- The Brazilian Anti-Trust Council (CADE) this week gave its unrestricted approval to the purchase of the Maromba offshore oil development block by international operator BW Offshore. BW has offered to acquire the site from its current joint owners, Petrobras and Chevron. Financial terms of the acquisition have not been disclosed. The purchase marks BW’s first foray into oil development in Brazil. The company specializes in offshore storage and loading vessels.
U.S. Dollar: The Brazilian Real closed at R$3.83 to the dollar, down 2.6% on the week and 16% year-on-year. The Real lost ground on fears of a global economic slowdown. (see more)
Stocks: The Ibovespa index closed at 94,096 points, down 3.3% on the week but up 9% year-on-year. Stocks slid on worries Brazil’s economic recovery may be stalling. (see more)
Interest Rates: The benchmark January 2021 contract closed at 7.16%, up from 7.1% the previous week on long-term inflation fears. (see more)
- Tuesday, March 12, Brazilian Census Bureau (IBGE) release of monthly IPCA inflation data, Rio de Janeiro
- Wednesday, March 13, Brazilian Census Bureau (IBGE) release of monthly industrial production data, Rio de Janeiro
- Thursday, March 14, Brazilian Census Bureau (IBGE) release of monthly retail sales data, Rio de Janeiro