A Kick-Start

As anticipated the constitutional amendment limiting Brazilian member state expenditure for the next 20 years was passed by the Chamber of Deputies last night. The 366 to 111 margin of approval is a significant victory for the Michel Temer cabinet. It further enhances confidence in the government’s ability to implement needed legislation for fiscal adjustment.

Economic recovery and the country’s credibility in the eyes of investors are the major beneficiaries of such important development. Next in line should be the delicate yet equally crucial issue of social security reform. One thing is for sure: in Brazil the ball is finally rolling again.

(photo credit: diariodonordeste.verdesmares.com.br)

A Long Climb Back Up

As these lines are written the government of Brazil appears to be taking gradual but positive steps towards the passing of critical legislation at Congress. After all, limiting member State spending will be crucial for restoration of fiscal equilibrium, one of a number of decisive measures to help rescuing the country’s credibility and its attractiveness to investors.

As political leaders negotiate the enactment of remedies unlikely to be too popular, yet nonetheless essential at this stage, experts seem all to point to infrastructure as the leading opportunity for investments. Quoted by Bruna Lencioni of the AméricaEconomia magazine, Eurasia Brasil’s Christopher Gardner anticipates up to US$ 269 billion in infrastructural projects open to PPPs for oil & gas, electricity, telecommunications, transportation, roads & railroads, ports & airports, sanitation, urban mobility and others.

For Zeina Latif of XP Investimentos the backlog is such that Brazil is currently spending less than 2% of its GDP in the maintenance of existing infrastructure alone – against an estimated minimum required of 3% and of the 5% being employed by neighbors Chile and Colombia. The consequent structural deterioration only adds up to the huge demand for all kinds of works in several domains.

Latif maintains that once economic order is reinstated people are bound to regain confidence in the system and at that point raising consumption will become another upward driving factor. She goes on to say that, should the government succeed in its correctional moves, by 2018 the scenario will push the next president in the direction of a more liberal agenda. “The potential is enormous!”, she concludes.

Trouble is far from over though. Unemployment remains excessive and the wheel of change has barely started moving. It will take time for the chain effect to salvage ordinary Brazilians from the deepest of recessions. Until it happens such words from specialists remain eloquent and useful to the cunning listener.

Landslide

Yesterday entrepreneur João Doria claimed an unprecedented first round win in the elections for São Paulo City Mayor. His victory at Brazil’s largest and richest city came along with a nationwide collapse of the PT Worker’s Party following a long series of corruption scandals during its 13 years in power now exposed.

Whilst those political and legal circumstances set new parameters of transparency and governance, the shift to a liberal business-friendly mentality at the São Paulo City Hall, for instance, also comes with the promise of new opportunities for international players.

The mayor-elect, who had based his municipal campaign on State downsizing and meritocracy in the administration, now anticipates privatization of public assets like the Anhembi exhibition complex and the Interlagos race circuit among others. Doria also hints the elaboration of PPPs in different areas, yet another source of potential interest to investors.

Naturally the effectiveness of the new administration’s policies remains to be seen. The city is huge and complex, so some degree of resistance even to common sense initiatives is not unlikely to materialize. If however the future mayor succeeds in using the force of a colossal 53% straight electoral victory for audacious steps, São Paulo may prove to be the ultimate laboratory for similar well-fated moves across the country in the next few years.

The Olympic Factor

The weeks of August drag on as Brazilians stand by the approaching epilogue of a long political crisis that is at the core of an unthinkable economic imbalance and the consequent delay of a long awaited national emergence.

With the slow passing of time the apparent result becomes ever clearer and the provisional government is set to become definite by the end of this month. That plain change in status should finally legitimize the profound reforms and sour short-term measures now required for the country’s recovery.

The market is prompt to react. After almost two years of exclusively dark prospects at last the prospects begin to improve. Inflation is somewhat under control and the currency holds strong – too strong perhaps for local exporters’ taste, actually. If only a real tightening of fiscal policies is indeed implemented, foreign investments to the country may be upgraded from speculative to lengthier productive ones. The economy will then have become more solid in a country able focus on catching up with all the wasted time.

It is under those circumstances that the Olympic Games come to the land with its analgesic properties. Two years after failing to enjoy the full benefits from hosting the World Cup, distress seems to have ripened Brazil’s attitude to a certain extent. Its perception is made more realistic and responsible than before.

Brazil came to host the two global events by virtue of the fascination its former administration once exerted over important circles worldwide. That means the very regime that was later to fall in disgrace due to its colossally corrupt methods and outspread incompetence in office.

Falling short from having an adequate lasting legacy can also be explained by the combination of those two characteristics. So as August draw closer, Brazilians were no longer lethargic as in the days of the early alarms of crisis in 2014. Instead they braced in anticipation of a possible organizational disaster.

But the evening of the opening ceremony had a welcome surprise in stock. Talent and creativity surpassed luxury and high tech in an occasion of poignant beauty and meaningfulness. National pride would thus live to see another day.

No, the continuing event has not been free from flaws since, but neither has it been the shameful catastrophe once imagined. The IOC is equally to blame for things that did not go as impeccably as some might have called for at the Olympic Village. No excuse for the city’s shortcomings, such as lacking urban infrastructure, endemic security issues or water pollution. Much less for the local audience which at times may have breached the boundaries of courtesy and fair play.

In the end Rio de Janeiro is a truly wonderful place claiming for good leadership to overcome whatever jeopardizes its path of well-deserved glory. More could have been done to its lasting benefit in relation to the Games. Yet, as the say goes, one should not cry over spilt milk. One had better look ahead and make good use of past mistakes.

Now what really seems to save the day is the sheer diversity and tolerance, unmistakable attributes of the Brazilian people. That alone is quite an accomplishment, setting an important example in this troubled world of hours. Leave the rest to hopefully conscientious opinion makers and to education for the new generations to sort out.

Countdown

After seemingly endless months of somber economic reviews and projections, the tone finally starts to give signs of change for the better. After all August is set to bring more than just the Rio Olympic Games, incidentally an event which organization and legacy are largely viewed with skepticism inside Brazil.

What is really decisive this coming August is the conclusion of removed President Rousseff’s ongoing impeachment process at the National Congress. Although technically speaking her return cannot yet be deemed impossible, hardly anyone would bet on it at this point. For one thing her disastrous policies have been determinant to an otherwise avoidable crisis. Above all, an extremely unlikely reinstatement would not give back her administration’s long lost political governability.

In anticipation of such foreseen outcome the market has been appreciating the Brazilian currency, while confidence in interim President Temer’s economic team begins to slow down – if not halt – the country’s freefall first initiated with the revelation of fraudulent data that had allowed Rousseff a marginal reelection almost two years ago.

With the loss of investment grade duly absorbed and put behind, there is increasing reason to believe Brazil’s luck already started to shift. The Brazilian real has regained 9% of its value in the past three months – out of 19% since January. In turn the stock exchange went up 10% in the last days and no less than 26% in the current year, indicating that the investors’ faith may be actually coming back.

Just as even at its worst moments the crisis managed to induce unique business opportunities, the present hints of improvement may shed new light on segments of interest, such as Brazil’s mighty agriculture, concessions and privatizations, delayed infrastructure or the overconcentrated banking segment, just to name a few. Yet again all that remains for sharp eyes and minds to grasp.

Vital Signs

Brazil will have more to endure until the end of its economic purgatory. The new federal administration cannot be deemed unequivocal prior to mid-August, when the impeachment of the politically agonizing and suspended President is set to be decided upon without further appeal. But the latter and her allies refuse to let go without a fight, their final desperate bet being to attempt toppling the new government through its implication in the same corruption scandals by which means they themselves have fallen in the first place.

For a country in need of urgent reforms and solid support to tough emergency measures, any instability – purposefully induced or not – is bound to retard any soothing effects. But even in such a scenario intended change of direction alone produces encouraging consequences which may range from steady financial indexes to industrial performance. That is exactly what transpired in the local media this week. 

According to the O Estado de São Paulo newspaper the country’s industrial revenue in the first four months amounted US$ 2.39 billion, an unexpected increase of almost 2% from last year. In the past two years automakers hired 1,230 workers just to cope with increasing export demand. In the past few weeks alone Brazil’s top companies combined managed to amass close to US$ 10 billion through the offer of bonds in the international marketplace.

No time for predictions yet, but that might mean the worst is past. Just perhaps.

Equals Attract

Consul General Paulo Lourenço opens the seminar

The Consulate General of Portugal in São Paulo undertakes the "Empreenda - Innovation & Culture" seminar as part of the "Experimenta Portugal '16" multidisciplinary event. The initiative coincides with the National Day of Portugal and very appropriately suggests cultural similarities as a facilitating element of bilateral cooperation. Well done once again, Consul General Paulo Lourenço!

The mayor of Porto and the president of SEBRAE-Brasil are mediated by Lidia Goldenstein

Tables Turned

Brazil feels like having finally waken up from a long enduring nightmare. Enough with the truth-twisting official speeches, just as delirious as the theory of a developing coup d’état raised by an ailing regime in despair.

A country in trance had marginally reelected a president based on lies and fraud that soon started coming afloat, leading to an administrative standstill that magnified an economic crisis induced by her very erratic policies. The rule of law and the voice from the streets have ultimately triggered her downfall. That is the plain truth.

The first appointments of the recent interim government seem to have mercifully reinstated some logic to the scenario. Those now nominated may not be flawless, but they do have a public service record to their favor. The new cabinet points to a more business friendly attitude and that is good enough for a country in need to get back on track.

There will surely be no easy path, but the general mood has already shifted overnight. It is time for a little goodwill and patience, for sour measures are just at the corner for Brazilian taxpayers. Yet, if remedy is inevitable, let's start the treatment right away and make it the least painful possible.

For those who might think this is a biased account from inside out, here is an invitation to further look into it for yourselves. The giant lives on and better times will inevitably come. For some of the ultimate acute vision, the glass is definitely half full.

Growing Up Hurts

Brazilians ask themselves why their long-awaited path to grandness had to be abruptly interrupted by a tsunami of political scandals and a nightmarish economic recession. After all, for over a decade they had grown used to being so close to the top five. How will they now cope with their deepening predicament?

Well, no one could have predicted the extent of damage to the economy made by 14 years of populism. Some may panic while part of the press tends to overestimate trouble. Plainly, the country is not falling apart just yet. Much less is there any possibility of serious social tension or conflict. With only 9% support to the government, the president’s departure instead is favored by a landslide majority.

In a nutshell Rousseff, Lula and the PT worker’s party refuse to let go of power, even though striking legal evidence against them adds up every day. Their destiny now hangs in the balance at different simultaneous fronts – all of them constitutional – as the ailing leaders vociferate their obstinacy with increasing despair and incoherence.

For now, with the establishment still in their hands, they have opted for the ludicrous strategy of trying to win last minute votes from opportunistic congressmen, in the aim to escape impeachment. However their ability to influence either Legislative or Judiciary crumbles at the same rate as public exposure of their moral and judicial decay increases.

With the 1964-1985 totalitarian interim all but forgotten, Brazil remains very sensitive to any hint of institutional breach. Hence there is no chance whatsoever that rules are broken in the process of delivering justice to those accountable and lawfully overthrowing the regime. It is only reasonable that so much zeal demands a painstaking process currently in motion.

Developments that point at an abbreviation of the presidential mandate invariably benefit economic indexes. While inflation slowly loses momentum, export segments finally reemerge. Although employment and consumption remain on the downside, experts speaking on the niche of luxury items are warning hasted quitters of their possible regret by the time the storm dies down. Other economists will stress on the instant positive effect of eventual political change. We are sure to follow it all up.

Seasons Change

President Obama’s visit to Havana is not the only novelty in Latin America these days. The winds of change blow in many directions at the same time. Different regimes show increasing signs of wear and tear. Finances fall apart and government corruption surfaces. Economics finally prevail over ideologies. The end of a long widespread political cycle looks to be imminent.

Argentina is one classic example. Gone into default in the early 2000s, it has seen circumstances only aggravate since. The country became a sovereign debt record holder and was eventually considered an international financial outcast. Seemingly endless trouble tormented the current 21st economy in the world.

Then the election of opposition’s liberal candidate, former Buenos Aires mayor Maurício Macri, started producing results even before any real action could be taken. Stock exchange went up 40% and yields on government bonds fell sharply. Optimism instantly took over despite the huge challenges lying ahead of the new president.

The market which had grown used to the manipulation of foreign exchange and inflation rates, nationalization of private assets and the like, now clearly welcomes the ascension of a business friendly leader. Foreign investors evidently favor Macri’s rise to power and the envisaged devaluation of local currency. Substantial changes are not expected any time sooner than next year. But then if successful Argentina is to grow some sound 5% by 2019.

Brazil is three times as large, five times as populated and four times as rich as Argentina. Nevertheless it has equally endured severe public mismanagement. Odds of the current Brazilian administration not going full term, by means of an eventual impeachment or abrogation, are enough to make experts foresee a speedy recovery thereon.

Strikingly no less than 235,000 companies were established in the State of São Paulo even in the midst of crisis in 2015. Segments like cellulose, pharmaceuticals and agribusiness keep performing well nationwide. Yet Brazil remains hungry for infrastructure – perhaps up to 600 billion dollars worth of investments, another display of great potential.

These are hard times for sure, but they may be the necessary rupture with past mistakes, introducing a new era of rationalism, moderation and consistency. Many reforms and amendments remain to be made. They will cost and they will take time, but there is indeed a future to look for. For some eager observers, that future has already begun.

When Worse Means Better

As the political showdown in Brazil approaches its climax on Thursday and change at government becomes ever more likely, the stock exchange rose 6.6%, the highest climb on a single day since 2009, while the currency appreciated by 2.55%. Those intriguing moves are added signs that the country may have a reasonably swift escape route from the present crisis once the political dilemma is settled. This is an ongoing story.

A Call from the Streets

What happened on Sunday March 13 in Brazil was unprecedented and largely underestimated. In São Paulo a stretch of two kilometers on Paulista Avenue was absolutely packed with people. So were several of its crossing and parallel roads. Some came by subway. Endless lines of people climbed the hilly ways leading to Paulista at the city’s summit. An astonishing number of parked cars jammed the streets for dozens of blocks from the demonstration area.

The Guardian newspaper correspondent, for instance, grossly erred in linking the movement to a specific race or social class. That was just not true. The crowds instead consisted of a myriad of families with children, youngsters, elderly, men and women, a legitimate representation of the Brazilian society’s spectrum. It is also notable that, despite the huge agglomerations that formed, the acts were ultimately void of conflicts or incidents.

Another mistake is to interpret the present situation as a clash between left and right wings. To start with the current regime is anything but socialist. Doubtful short-lived welfare policies only served the creation of hordes of captive voters for an indefinite maintenance in power. Disruption of fiscal soundness and corrosion of the country’s once most favorable finances would subsequently shatter the pretended prosperity.

Worse yet is the now substantiated creation of a scheme to raise party funds by means of fraud, corruption and extortion. At some point some officials finally succumbed to petty bourgeois desires and used the same methods for self benefit. Thanks to some lower federal courts, prosecutors and police issues like those keep being investigated and brought to light.

Back at capital city the Executive remains in complete standstill, plagued by political inability and administrative incompetence, while still flirting with populist would-be solutions that could only exacerbate the present economic distress.

What the country is going through is surely not an ideological dispute. This government failed to improve education, the one proven means of effective social ascension. It equally failed to provide good public services, to seize the favorable circumstances of the 2000s and invest in infrastructure which would have spared the country from today’s worries. That is why people demonstrate.

In the meantime Justice gets slowly, gradually served and that is enough reason for celebration. So is freedom of speech. Both those elements shall eventually contribute to the rescuing of the country from turmoil.

A tip for restless business minds

As we tirelessly evoke the need to broaden one’s scope in the quest for alternative niches in times of hardship, some piece of news stands out. The International Atomic Energy Agency (IAEA) has recently certified Iran’s compliance to its committed abstention from developing nuclear weapons by which virtue US$ 30 out of 100 billion in Iranian assets will very soon be unfrozen.

Sanctions to be lifted include the EU embargo on imports of Iranian oil. The Persian state promptly responded with the possible immediate increase of half a million barrels per day in its export capability. Just as important is the necessary update in infrastructure that shall generate contracts of so many more billions in the years to come. Enough said for a sharp audience.

Heads and Tails

Brazil’s wounds have been largely exposed over the past couple of years. The nation went straight from the daydream of the BRICS heydays into the vexing realization of its having played the role of the cicada in Aesop’s fable. Once acclaimed social programs ultimately crumbled to the ground by means of demagogy, incompetence and theft and so did the economy as a whole.

Yet not all is reason for shame. While Brazil’s emergence may have been delayed for years, impunity gradually becomes a thing of the past. In other terms, venom is the very raw material of its antidote. As evidence of illicit behavior increases the odds of the government’s constitutional stand down, an otherwise downward market is instantly lifted up, with a surge in both the stock exchange and the currency.

If on one hand crisis introduces investment bargains and new opportunities in the territory, it also promotes the awakening of local businesses which have been long neglecting the global market in favor of a frantic domestic demand. After all the Real was over valuated, compromising the competitiveness of Brazilian exports. Now the tables are turned and making up for lost ground is neither easy nor inexpensive.

Years of policies for economic growth solely anchored on consumption have sadly impaired some manufacturing segments which will now need time to recover. Still there is so much more to the Brazilian production range. Agriculture for one has been breaking successive records with practically unlimited space for growth. Cattle-raising is number one in the world. Forestry, mining, water and energy are of equally monumental potential. Clean and creative industries as well as services, just to name a few, are other niches of great interest.

Over time the obsolete concept of foreign trade gave way to international business. Exports were replaced by partnerships. Nowadays assessing new markets requires more than ever knowledge and planning, developing durable relationships, understanding the culture and reaching out to one’s counterpart based in the principle of mutual benefit.

Acting globally is no spot business. Instead it requires patience and consistency to get due rewards. Some players will need to update strategies previously customary. Newcomers should in turn refrain from the inclination to immediacy. Even in the aftermath of a disaster there is much that can be achieved.

There will always be saturated markets in search of new challenges just as friendly regions that will welcome dependable associates. Let’s roll our sleeves up then.

Opening Skies

Legislation has just been passed increasing the limit of overseas stake in local airlines from 20 to 49%. The market in Brazil – currently almost entirely dominated by four major airlines –  ranks third in the world, only behind USA and China. It has tripled in the past ten years, having reached 111 million passengers in 2015. The Brazilian Airlines Association further estimates that such figure may nearly double until 2022.

The measure which has been discussed for a long time before being finally enacted comes at a time of temporary market retraction and extreme currency undervaluation. Those circumstances are all the more indicative of yet another investment opportunity for global players. Considering Brazil’s continent-size territory, the potential for growth in domestic air transportation is absolutely huge. Airports for their part, also an area where massive resources are needed, have been made available for concessions and PPPs a few years ago.

One Little Apocalypse

If recession, successive investment downgrades, mounting unemployment and a distrusted federal administration were not enough causes for concern, now a mosquito-transmitted disease detected in dozens of different countries adds to the Brazilian people’s state of astrological hell.

True, it is indeed a health hazard that in Brazil denounces flaws in the expansion of sanitation infrastructures which continued to be neglected during the recent years of plenty. Even though shameful for conscientious Brazilian nationals, the story has been driven completely out of proportion.

Rumors that zika – said to be brief and void of serious symptoms – may be linked to brain malformation in fetuses are yet to be proven. For the record, dengue fever, carried around by the same insect, is said to be more severe, especially if recurrent. Here a vaccine is fortunately on its way.

Despite the reigning widespread panic, it must be said that, though the mood of people may not be at its brightest right now, the masses are not being decimated on the streets either. At least there is general awareness of the risks and action is being taken.

The whole situation and its timing suggest excessive image depreciation which may eventually offer acute players real bargains. If anything, these are intriguing times. Stay tuned.

Jump Start

Reports from the World Economic Forum in Davos suggest mission accomplished for Argentine President Mauricio Macri and his delegation.  A little over a month since inauguration, his task naturally was to assure the international community of the new government’s determination to negotiate debts and pursue ample economic cooperation, breaking away from long standing and fierce protectionist policies by his predecessors.

Macri’s Minister of Finance went so far as to name the need to “remind the world of Argentina’s existence” as their main purpose at the event. Meanwhile the President spoke of existing investment opportunities in his country and even recommended the shift of resources originally directed to Brazil – something which may actually occur in the short time and in few specific segments.

Mauricio Macri is a talented politician whose speeches are quite assertive as a rule. Earning back the trust of potential overseas partners is vital at this point where he has enormous challenges ahead of him to fix an economy that was heavily battered in years of populism back home. Macri’s first actions since taking office all point to a radical departure from the State’s reigning stronghold on the economy.

Prospects of recovery in Argentina are just as encouraging to its neighbors. It demonstrates how the anticipation of a turn towards well balanced liberalism may already produce some relief in times of crisis deepened by widespread delusion and pessimism. No one doubts that South America’s flirtation with pseudo welfare regimes is inevitably doomed by virtue of its own catastrophic economic consequences.

There is room for hope that improved governance, accountability and fiscal responsibility may derive from the troubles the continent presently faces. Macri’s election enabled Argentina to leap ahead in the race to make up for past mistakes. Others – Brazil in particular – are very likely to follow suit sooner or later.

From the Tollgate

STP company, owner of the leading non-stop drive through Sem Parar system in São Paulo State highways is rumored to be the subject of an intended take over by U.S.-based Fleetcor in a move that might involve as much as US$ 1 billion.

Sem Parar remains the leader in the segment that has been open to competition since 2013. In 2014 its revenue and amounted to US$ 160 million with net profit of US$ 50 million, considering the presently inflated exchange rate.

Currently STP’s major stockholder is highway concessionary CCR, along with the entrepreneur who originally founded the company in 2000, an investment fund, oil, energy and payment technology-related companies with smaller stakes each. Those involved parties are reported to be undecided about selling their respective stock.

STP has been approached by other prospective buyers throughout its brief existence. Even facing growing competition backed its business appears to be very solid, thus reflecting a crisis-resistant market.

Money Talks

Football has massive publicity anywhere, especially so in Brazil. Interesting though is when it moves from the sports to the economy pages as it is happening as the year begins. The general public will always think of the game as leisure or passion, but no one can deny it is also and mainly business, big business!

The 2015 Brazilian Champion Corinthians Paulista had an outstanding season. At first under financial constraints and losing a number of players seeking higher pays elsewhere, it came to be viewed as the underdog. However as the competition unfolded it managed to make a striking comeback, finishing well ahead of the runner up and clinching the title with three rounds still remaining.

Once praised as Brazil’s strongest contender for this year’s South American Cup, Corinthians found itself under heavy artillery right in the first days of January. Football in China is a novelty, but that does not prevent it from moving huge sums of money. In a little more than a week a handful of key Corinthians players have allegedly been drawn towards the Far East by multimillion dollar contracts.

For such players in evidence, most of whom are the subject of added visibility for being often called to the National Team, the outmost achievement is to be hired by one of the top teams in Europe. Moving to a distant incipient Chinese league instead normally means departing from the spotlight – perhaps for good.

It is true that for those professionals hitting 30 years of age and anticipating decline in their careers, cash will tend to be the predominant factor in their job choices. However in practice the same will also apply to some younger players who could otherwise pursue higher glory, fame and fortune.

What lies behind the exodus of football players is in truth the 40% currency devaluation seen in Brazil in the past twelve months. That political crisis-fueled event ultimately leads to the analogy with the state of affairs in the country’s marketplace. After all it is such abnormal situation that makes players susceptible to the call of the Chinese mermaid, just as products, services, assets remain undervalued, at least for the time being.

Nissan’s new bet on market niche

Japanese automaker Nissan announced a new investment of US$ 188 million from now until 2018 to locally produce the make’s SUV called Nissan Kicks, reports O Estado de S. Paulo newspaper. The new production  line will add 600 posts to the existing 1,500-people worforce at Nissan’s Rio de Janeiro State plant in the city of Resende.

Contrary to the industry’s negative results in 2015 – not yet expected to significantly improve this year – the compact crossover SUV segment has increased 20% in the same period, says Nissan CEO Carlos Ghosn.

Brazil ranks among the five largest motor vehicle markets in the world. More than 20 plants are located in its territory, manufacturing an excess of 70 different models.