Murray – Advogados – NEWSLETTER – January 2024


January 2024


PDF link: Newsletter PLG January 2024




Projection is lower than the 161 million tonnes in December’s report


The United States Department of Agriculture (USDA) attaché in Brasilia estimated Brazilian soybean production at 158 million tonnes for the 2023/24 cycle, lower than the 162 million reported in October. This month’s projection is also lower than the 161 million tonnes estimated by the agency in its December world grain supply and demand report.


According to the USDA, the revision was due to the poor weather outlook resulting from El Niño, especially in the Central-West states.


“Hot, dry weather, low soil moisture levels, as well as below-average precipitation during most of October and November had a negative impact on yield prospects,” the USDA said in a report.


Weather conditions are also adverse in Brazil’s South region. The report cites the situation in Rio Grande do Sul, where rains in the last two months have slowed the pace of sowing, risking the seeds planted more recently missing the ideal climatic window for proper plant growth.


This scenario could result in a loss of productivity for the country’s crops, currently estimated at 3,507 kilos per hectare. The cultivation area was revised to 45.2 million hectares, 200,000 hectares less than in the previous report.


Finally, given the expectation of a smaller supply, Brazilian exports are expected to total 100 million tonnes this cycle, a reduction of 2 million tonnes compared to the USDA office’s projection for the 2022/23 season.


Source: Valor International







Plans for reindustrialization and need to expand infrastructure are among motives attracting investors from China


Plans for reindustrialization, the need to expand infrastructure and low investment risks have put Brazil in the sights of Chinese investors. During the Brazil China Meeting forum, which began on Wednesday in Shenzhen, companies that have already won auctions or are preparing to invest in the country reported their experiences and concluded that there is a need to intensify the exchange of information between the two countries in order to strengthen relations.


In an initiative by Valor and Lide, the meeting included Chinese groups such as CRCC, which won the auction to build the Salvador-Ilha de Itaparica bridge, in Bahia. According to Liao Jun, head of the CRCC International group, the start of construction has been delayed due to the pandemic. “But they will start this year,” he said.


“Our company is interested in participating in projects in Brazil,” said Deng Yong , CRCC CEO, a 75-year-old company that has become one of China’s strongest groups, responsible for major railroad projects and construction in ports and airports in several regions.


According to Mr. Jun, the Chinese “lack information” about Brazil’s mobility and transportation needs.


“We are willing to take part in Growth Acceleration Programs (PAC) projects, offer intelligent mobility projects and make partnerships with Brazilian universities,” said Yin Xinglei, vice president with the CREC group, a subsidiary of China Railway Group, a giant in the infrastructure sector.


Brazil is a coveted destination for Chinese investors, according to Portuguese engineer João Andrade, with engineering consultancy Future, which works to support Chinese investors globally.


For Mr. Andrade, it is important for Brazil to be attentive to these partnerships. “Brazil leads agribusiness on the one hand, but on the other, its logistics don’t keep up with this development,” he said during a panel on infrastructure and transportation.


The country can, however, take advantage of the experience that China has acquired in this area over the last 20 years.


Source: Valor International






Ministry of Agriculture is considering line with the Brazilian Development Bank to help industry renegotiate debts of producers affected by crop failure


The forecast of a drop in grain production in the 2023/24 season and the fall in profitability in the countryside, with the maintenance of high costs and lower prices for agricultural commodities, led the Ministry of Agriculture to bring together entities from the sector in Brasilia on Thursday to discuss possible measures to support farmers and input industries in a projected scenario of indebtedness and lower liquidity in the coming months.


With budget restrictions, the initial idea is to create alternatives to solve possible private debts at no cost to the federal government. The proposal is to structure a line of credit in dollars with the Brazilian Development Bank (BNDES) for costs and working capital, with a three-year payment period.


The measure would help trading companies and input resellers to raise funds and renegotiate producers’ debts in regions such as Mato Grosso state and Matopiba (the confluence of the states of Maranhão, Tocantins, Piauí and Bahia), where the Crop Plan’s controlled credit represents a small portion of the productive sector’s financing.


A similar credit line was made available in 2023 so that cooperatives in Rio Grande do Sul could give their farmer members a boost, but it hasn’t taken off. Only R$20 million have been accessed so far.


At the meeting, representatives of organizations such as the Brazilian Association of Soybean Growers (Aprosoja), the Agricultural Federation of Rio Grande do Sul (Farsul) and the Brazilian Rural Society (SRB) told Neri Geller, the Secretary for Agricultural Policy, and Carlos Augustin, a special advisor to the Ministry of Agriculture, that the scenario was worse than that projected by the National Supply Company (Conab), which predicts a harvest of 155.3 million tonnes of soybeans this year. The reports indicated a drop of up to 20 million tonnes compared to the government’s projection due to delays in planting, replanting, drought, and excessive heat.


The sector has told the ministry that it may need to extend its debts, at a cost to the National Treasury. The measure is on the radar, especially for investment installments due in 2024. The ministry’s representatives, however, stressed the difficulty of obtaining fundas for this type of action.


The consultancy Pátria Agronegócios presented a survey, made at the request of Aprosoja, with a production projection of 143.18 million tonnes, a reduction of 7.4% in relation to the volume of the 2022/23 season.


The area planted with soybeans in the country, according to Pátria, stood at 44.4 million hectares. Average national productivity is expected to fall by 8.1%, to 3,200 tonnes per hectare. In Mato Grosso, the country’s main producer, production is expected to fall by 17% compared to the 2022/23 harvest, to 37.8 million tonnes. In Paraná, the loss could be 11.6%, to 19.8 million tonnes of soybeans.


In relation to Pátria’s initial estimate, which projected a production potential of 164.67 million tonnes in the 2023/24 harvest, 21.5 million tonnes of soybeans will be lost. “It’s the second biggest crop failure in history on this basis of comparison,” said Matheus Pereira, managing partner of the company.


Cleiton Gauer, superintendent of the Mato Grosso Institute of Agricultural Economy (IMEA), showed that the maintenance of high production costs in Mato Grosso and the reduction in soybean prices jeopardize the profitability of the state’s producers, even if the crop failure is not confirmed.


According to IMEA calculations, farmers need to harvest 65 bags per hectare, well above the historical average, just to cover the total costs of the crops, estimated at R$7,200 per hectare. In order to cover the general costs of the harvest, without taking into account investment and leasing costs, for example, productivity above 50 bags is needed.


For corn, the scenario is even worse, with total costs estimated at 161 bags per hectare. Mr. Gauer said that the figures could change over the course of the harvest. “The problem lies in the high costs and the projection of soybean prices below R$100 for future sales. The drought will only worsen a problem that already existed,” said Carlos Ernesto Augustin, special advisor to the Ministry of Agriculture.


“The figures weren’t adding up before. There’s turbulence ahead,” said Sérgio Bortolozzo, resident of the Brazilian Rural Society (SRB).


Source: Valor International







Nearly half of major online stores offer discounts to customers who use the instant-payment system


From different discounts to free shipping, the benefits offered in e-commerce for customers who choose to pay with Pix are progressively increasing. In early January, nearly half (47%) of the country’s large online stores offered some kind of advantage for customers using Brazil’s instant-payment system, according to a study carried out by Gmattos Pagamentos consultancy reviewed by Valor. The survey also reveals a decrease in the number of interest-free installments offered on credit cards. Experts see price reductions for cash payments as a healthy market trend.


The trend to promote Pix payment is a result of lower costs for retailers and advantages to their cash flow, as the money is made available immediately. There is also a high level of conversion in the shopping cart. Sales that actually occur after the customer adds the items to shopping cart exceed 90% on Pix, the consultancy notes. With a credit card, the conversion rate is around 70%, compared to 50% for boletos (bank-issued invoices) and 30% for debit card transactions.


The survey included 59 major online stores in the Brazilian market in the January edition and has been carried out bimonthly since 2021. Since September last year, Pix has been offered as a payment method in all stores surveyed, just like credit cards, that was the leading payment method in e-commerce until then.


Until early 2023, research showed some fluctuation in retailers’ incentive to use Pix. Since May, however, the percentage of businesses offering advantages for customers using Pix has been steadily growing. At that time, the offering of benefits involved 30% of stores surveyed. The percentage observed in January even exceeded that seen on Black Friday (46%), although during the promotional date discounts were greater, ranging from 10% to 15%. This month, discounts ranged from 4% to 12% and there was also free shipping offers in some cases.


“I believe the incentive to use Pix will continue to grow. Our view is that retailers were very engaged,” Gastão Mattos, co-founder and CEO of Gmattos, said. “Given the advantages it offers, offering different prices makes sense,” he adds.


Although Pix first became popular in transfers between individuals, transactions from people to businesses have been growing each month. In December, these transactions accounted for 36% of total operations. A year earlier, this share was 24%, according to Central Bank data.


Maurício Salvador, president of the Brazilian E-Commerce Association (ABcomm), points out the discount offer for customers using the instant payment system is not restricted to large online stores; it’s widespread across the Brazilian e-commerce. “On the one hand, Pix became popular among customers. On the other hand, it has a direct positive impact on the retailers’ cash flow. Furthermore, shopping cart abandonment is much lower and there is no risk of chargeback,” he said, on a reference to refunds on credit card purchases after dispute.


When accepting payment via credit card, the retailer has to bear the MDR costs (a discount rate charged by the acquirer firm), in addition to the cost of factoring of receivables in order to receive the money immediately. The greater the number of installments, the higher the costs are. Bank-issued invoices remain resilient in e-commerce—with 62.7% of surveyed stores offering this payment option in January—but has an average confirmation of receipt period of two business days, which affects sales flow.


The survey also revealed that, while the advantages for using Pix grow, the number of interest-free installments offered on credit card payments falls. In January, the average term was 5.4 times, compared to 5.7 times in the previous survey, carried out during Black Friday. A year earlier, the average was around 7.4 interest-free installments.


The discount offered in payment via credit card in one single installment is still low and was observed in only 5% of stores in January. However, Mr. Mattos notes this could be a trend in promotional strategies, given the retailers’ movement to reduce the number of interest-free installments. “Just as the discounts on Pix grew, discounts on a single installment on credit card should also start to increase, even if they’re smaller. It’s a healthy trend,” Mr. Mattos said.


Interest-free installments were in the spotlight last year amid discussions about measures to help reduce revolving credit interest rates, and the topic is expected to remain on the agenda. Carla Beni, an economist and MBA professor at FGV, says the option has become a habit in the Brazilian market, but she notes it is important that consumers understand there is no such thing as interest-free installments. As she explains, if there is no explicit fee, that is because the customer is not getting a discount on cash payments. “There is the normalization of interest rates embedded in the installment.”


In the professor’s opinion, part of consumers is willing to pay in cash if there is a discount, and the practice can help bring up discussions involving financial education. “Offering a discount on cash payments helps the retailer build customer loyalty and become less dependent on factoring of receivables,” she adds.


The evolution of payment transaction initiators (ITPs), a feature that allows the user to operate their account outside the financial institution’s environment, as well as the launch of Automatic Pix, scheduled for 2024, should help increase momentum for instant payment in digital transactions.


The possibility to pay in installments and a more fluid experience are currently the biggest factors for credit card differentiation in the online world, in addition to the chargeback. Pix has a special refund mechanism, aimed at facilitating a chargeback in the event of fraud or operational failure, but the Central Bank points out that cases of commercial disagreement are not part of the rules and must be dealt with directly by the parties.


Although installments via Pix have not yet been officially implemented, several businesses have been offering purchases with alternative installments to credit card, in many cases using instant payment options. According to the Gmattos study, 39% of the stores surveyed offered payment under the “buy now, pay later” option. That was the highest level of acceptance since records started, and the numbers are expected to remain up.


Debit-card payments, the modality that has lost the most space in e-commerce since the launch of Pix, in November 2020, was offered by only 20% of stores in November. Digital wallet payments were accepted in 42.4% of businesses. The highlight was NuPay, digital bank Nubank’s online payment solution, which has established as the second digital wallet in market presence, second only to Paypal.


Source: Valor International






National Supply Company estimates shipments of 98.45 million tonnes of grain


The drop in Brazil’s soybean production estimate, announced on Wednesday by the National Supply Company (Conab), due to climatic problems in the main producing states, is also expected to lead to lower exports of the oilseed this year.


In addition, the National Energy Policy Council (CNPE) approved the increase in the amount of biodiesel in diesel, to 14% from 12%, which indicates that there will be an increase in domestic demand for soybean oil.


As a result, Conab reduced its export estimate by 3.13 million tonnes, to 98.45 million tonnes of grains.


The number of soybeans crushed was adjusted by 119,000 tonnes to 53.4 million tonnes, due to the increase in the proportion of biodiesel added to diesel.


Conab therefore expects ending stocks in 2023/24 to be 3.58 million tonnes, compared to 3.4 million tonnes at the end of 2022/23.


Stocks of soy meal are expected to total 3.27 million tonnes, compared to 1.6 million tonnes in the previous season, and oil stocks are expected to fall to 300,000 tonnes from 310,000 tonnes.


Source: Valor International







Total revenues, which include transfers, fell in the first 10 months of 2023 compared with the same period in 2022


Even with the gain considered exceptional in 2021 and part of 2022, states’ revenue fell last year not only compared to the previous year but also to 2019, the period before the Covid-19 pandemic and also the first year of the previous governors’ terms.


From January to October 2023, the latest data available, revenues from taxes, fees, and contributions from the total of 26 states and the Federal District amounted to R$553.45 billion, 6.7% lower in real terms than in 2022 and 3.4% lower than in 2019. Although still 11.3% higher in real terms than in 2019, aggregate current revenue for 2023, which totaled R$954.9 billion, also deteriorated compared to 2022, with a decline of 3.1%. Aggregate revenues include transfers that states receive from the federal government.


As revenues fell, current expenditures increased by 3.9% in real terms in 2023 compared to the previous year, also from January to October. Personnel costs, which account for 58% of state governments’ current expenditures, rose by 5.2%.


The data up to October show the outlook before the advance payment in 2023 of the compensation for sales tax ICMS losses, which will not be paid by the federal government to states and municipalities until 2024. These funds were transferred to regional governments in November and December and helped improve the outlook at the end of 2023, according to representatives of state governments.


The data on realized revenues and liquidated expenses were collected by Valor from the fiscal reports submitted by the states to the National Treasury Secretariat. The figures for 2019 and 2022 were updated by the benchmark inflation index IPCA to October 2023.


For Gabriel Leal de Barros, economist and partner at Ryo Asset, the outlook shows that concerns about the states’ fiscal adjustment are back on the radar. The issue was sidelined during the pandemic and then, with the positive commodity shocks, in 2021 and part of 2022. “The issue of the states’ revenue base is back on the table,” he said.


According to the data, the drop in own revenue from January to October 2023 compared to the same period of the previous year occurred in 11 of the 27 entities. The drop in current income affected 16 of them. What is striking, says Mr. Leal de Barros, is the drop in revenue in the southeastern states, because they were hit hard by the ICMS cut imposed on the states in 2022. States with significant relative tax revenues, such as São Paulo and Minas Gerais, did not increase the standard tax rate, as did most of the Northeastern states. In these states, own revenues are more representative in the composition of revenues. According to the survey, current revenues in São Paulo and Minas Gerais fell by 7.3% and 3.4%, respectively, in real terms, from January to October compared to the same period in 2022.


The data collected shows that the Northeastern states’ revenue was stable in real terms compared to 2022, and the decrease in current revenue was only 0.7%. In the Central-West, own-source revenue was also virtually stable, with a 0.1% increase in real terms and a 2.2% decrease in current revenue. The North experienced a 7% increase in its revenue and a 2% increase in current revenue.


The largest losses were in the Southeast, which saw a 12.7 percent drop in own resources and a 6.7% drop in current resources. No state in the region raised the modal ICMS rate in 2023. In the South, the loss was 1.8% in own revenue, but there was a 1.4% increase in current revenue. Among the southern states, only Paraná increased the standard ICMS rate to 19% in 2023, up from 18% in 2022. At the end of last year, the state passed a law to raise it again in 2024, to 19.5%. At the end of 2023, the Rio Grande do Sul government even proposed to increase the rate from 17% to 19.5% in 2024, but the project was withdrawn due to difficulties in getting it approved by the state legislative assembly.


The figures show that the increase in the modal tax rate by the states was not enough to compensate for the loss of revenue from the aggregate, said Mr. Leal de Barros of Ryo Asset. The states that increased the tax rate, he explains, are less representative when looking at the overall fiscal picture of state entities. Data from the reports show that the four southeastern states account for 52.5% of the total revenue of the five regions and 45.2% of the current revenue.


The move to increase the modal tax rate came in response to supplementary laws 192/2022 and 194/2022. Approved in 2022, amid the presidential election campaign, the two laws imposed changes that resulted in rate reductions and changes to the ICMS calculation base in the telecommunications, electricity, and fuel sectors, considered the “blue chips” of tax collection.


The states’ loss of revenue was challenged in court and resulted in an agreement for the federal government to compensate states and municipalities for their loss of the tax, as 25% of the ICMS revenue is transferred by the state government to the respective municipalities. The agreement set a schedule for payments in 2023 and 2024 and in some cases 2025. Last year, however, the federal government made the scheduled transfer and also front-loaded the payments to be made in 2024. The advance payments were made in November and December.


According to Mr. Leal de Barros, the revenue from the compensations probably contributed to the state’s accounts being in the black in 2023. However, the revenue was temporary and 2024 is expected to be a year of economic slowdown, with a major fiscal challenge for the federal government.


The final text of the tax reform, the economist pointed out, had no provision that considered the average ICMS revenue from 2024 to 2028 as part of the criteria for distributing the future tax on goods and services (IBS), the new tax created by the reform and which will be collected by the states and municipalities. “The debate on how to compensate for the loss of the ICMS tax base will probably be part of the discussions on the tax reform regulations.”


The Rio Grande do Sul government said that the ICMS reduction imposed in 2022 continues to have an impact on its revenues, and to maintain regular payments and investments and overcome accumulated liabilities, the state needs to restore revenue levels. Part of the losses have been compensated, the state government said in a statement, but still not enough to restore the previous situation. The government has proposed “a review of tax benefits that will be implemented with caution to guarantee and maintain the competitiveness of the state, combining it with the need to seek a model of sustainability in the short, medium, and long term, especially in light of the changes in the tax reform,” the note said.


From January to October 2023, the state’s revenue fell by 2.4% compared to the same period in 2022, but with a 3.9% increase in current revenue and a 5.1% increase in current expenditure. The state government said that the data for 2023 are still being finalized, but Rio Grande do Sul maintains its budget surplus as a result of management measures, privatization, and the effects of the so-called Fiscal Recovery Regime, a mechanism created in 2017 to provide tools for struggling states to adjust their accounts.


Alagoas is among the states with an increase in revenue in 2023. The state’s revenue increased by 8.1% from January to October 2023 compared to the same months of the previous year. Current revenues increased by 3.2%. Renata dos Santos, Finance Secretary of Alagoas, said that the state’s revenue will end 2023 with a real growth between 10% and 12%. She said that a special ICMS installment plan also contributed to this revenue at the end of the year. The recovery, she said, was also helped by the increase in the modal ICMS rate to 19% in 2023 from 17%, along with changes in the state’s tax collection structure. The state’s tax revenue was favored in 2023 by the real increase in the minimum wage and the cash-transfer program Bolsa Família, which benefited a significant part of the Alagoas population and “turned into consumption.”


For 2024, she said, the idea is “to begin in balance,” and that’s why the state is already taking measures to contain current expenditures “to mitigate the pressure that may come from the municipal elections.” Revenues are expected to grow by 2% in real terms this year compared to 2023, while expenditures will remain at the same level in nominal terms.


In Pará, revenues also increased by 13.8% and current revenues by 3.5%. According to the state’s secretary of Finance, René Sousa Júnior, this reflects the increase in the modal ICMS rate from 17% to 19% in 2023 and the good performance of the mining sector, which does not generate tax revenue from exports but brings dynamism to local activity. Driven by hikes such as the teachers’ salary floor, the state’s personnel costs accelerated, rising by 11.9% in 2023 compared to 2022. Current expenditure increased by 9.8% from January to October. According to the secretary, the accounts were adjusted in 2023, with an important contribution from the compensation of ICMS losses by the federal government. According to Mr. Sousa Júnior, the state received a total of R$600 million in compensation in 2023, of which approximately R$200 million was related to the year itself.


Source: Valor International






Smaller base, agriculture, investment, and public sector actions explain higher growth in these regions, study shows



The total wage bill of Brazilian households is expected to grow more in the North, Northeast, and Central-West regions than in the Southeast and South of the country in the coming years, according to a study by Tendências Consultoria entitled “Classes of Income and Consumption in Brazil: 2023-2033.” The study takes into account the real total wages, excluding inflation.


In the period from 2023 to 2027, the consultancy forecasts that the Brazilian total wages will grow by 3.4% per year. The rates are expected to be 4.6% in the North and 4.1% in the Northeast and Central-West. The same pattern appears in the estimates for the period from 2028 to 2033, when the North (4.1%), the Northeast (4%), and the Central-West (3.9%) are expected to report a greater annual increase in total wages than the South (3%) and the Southeast (3.3%) of the country.


It is not unusual for the country’s total wages to grow at different rates in the five major regions. Experts point to several factors in this scenario of uneven growth of total income from a regional perspective.


The head of the study, Tendências’s economist Lucas Assis, said that the regions with the fastest growth in total wages benefit from a smaller base, which makes growth easier than in areas that are already consolidated, but that each of them also has specific reasons for the movement.


In the Northeast, the outlook is for increased public and private investment. The return of the Growth Acceleration Program (PAC) tends to benefit the region, he said, as does the expansion of production capacity in several sectors, especially oil and gas.


“If in 2022 and 2023 total wages in the Northeast benefited from income transfer programs and increases in the minimum wage, in the coming years the main influences will be public and private investment, which may benefit the local labor market. No further expansion of transfer programs is expected,” he said.


In the North, the boost will come from public administration—with a significant presence in the local GDP—and the concession of highways and ports. The maturation of investments in the iron ore mining industry will also play a role. “With the reduction of logistical hurdles, the region is also expected to attract investment,” he added.


Agriculture, in turn, is behind the income growth expected for the Central-West, said Mr. Assis. “The Central West is the country’s main agricultural frontier and will continue to grow over the next decade. Reducing transportation bottlenecks will further stimulate production in the region,” he said.


In the Central-West, this faster pace of income growth will be sustained by people like Ângelo Ozelame and Daniel Latorraca. They are part of the AgriHub network of entrepreneurs, linked to the Mato Grosso Federation of Agriculture and Livestock (Famato). They show the spread of agribusiness in the economy. Mr. Ozelame is the founder of Escola Agro—a school with courses aimed at agribusiness suppliers—and Lucro Rural—a financial management platform for agribusiness, working in the commercial, financial, and tax areas. The 34-year-old comes from a family of small farmers in Espumoso, Rio Grande do Sul state, has a degree in Agronomy from the Federal University of Pelotas (UFPel), and worked for several years as an analyst at the Mato Grosso Institute of Agricultural Economics (Imea) in Cuiabá, the state capital.


He opened Escola Agro while he was still employed, but a year later, in 2018, he began to dedicate himself fully to the business. In 2020, he opened a second business. His income is now 10 times higher than before he became a businessperson, he said. In 2023, Lucro Rural ended the year with six times more customers than the previous year, as well as R$25 billion in invoices processed in customer service. “More than the financial aspect, I’ve gained a lot of knowledge. The potential of the sector is huge, not only because of the growth prospects for agribusiness but also because of its financial and tax complexity. We help producers make decisions from the front gate, on the economic side,” said Mr. Ozelame.


Economist Daniel Latorraca saw financial services as an opportunity to work with agribusiness. He founded Creditares, a company that presents itself as a financial services hub for rural producers through financial advisors, the so-called “agrobankers.” The platform currently offers loans and will expand its portfolio to include insurance and hedging tools for operations on the futures market. “I have been following the evolution of agriculture and its impact on the economy in recent years, especially in Mato Grosso. So much so that I was encouraged to take the plunge. In my spreadsheets, agribusiness will continue to grow. If it is going to grow, it is going to need more credit,” said Mr. Latorraca.


However, this more significant income growth in the Northeast, North, and Central-West does not mean a reduction in regional inequalities in the country, said Mr. Assis. This is because the total wages of the Southeast and the South will continue to grow. “Regional disparities are likely to persist for at least the next decade. Even though the most vulnerable regions are experiencing greater income growth than the Southeast and South, the latter regions are also growing. As all regions grow, regional inequality is likely to remain big,” he said.


The regional dynamic of faster income growth in the Northeast, North, and Central-West goes hand in hand with faster income growth in the higher income classes than in the D/E class, according to the Tendências Consultoria study. This is because the economic recovery tends to benefit the richest, who also benefit from returns on investments, rents, and corporate profits.


For 2024, the consultancy predicts an increase of 2.9% in the country’s total wages. While in classes D/E this variation is 1.4%, the pace is over 3% in the other classes: A (3.2%), B (3.4%), and C (3.6%). Between 2023 and 2027, the average annual growth in classes D/E is 2.2%, half of the 4.4% of class A. Since there are no official criteria in the country for defining income classes, Tendências uses the following parameters: class A (monthly household income of more than R$24,200), B (between R$7,800 and R$24,200), C (between R$3,200 and R$7,800) and classes D/E (up to R$3,200).


In the analysis of class A, Mr. Assis said that there is an impact both from the increase in the average income of this group and from the increase in the number of households at the top of the pyramid, reflecting migration from other classes. At the other end of the spectrum, classes D/E, no major change in income transfer programs is expected to affect the ability of the total wages to expand. “In the long run, the higher income classes should still lead this income growth. There is an expected migration of households from the lower classes to the higher ones, but it’s still a very slow process,” said Mr. Assis.


Mr. Assis highlighted the difference between now and the 2000s, when there was a rapid rise of the poorest and an increase in the middle class. “This last decade in Brazil has been marked by two negative shocks: the recession of 2015/2016, and the pandemic. So, this growth in the next few years is a positive scenario compared to the last decade, but it’s different from the 2000s,” he said.


Source: Valor International





The Chinese company, which generated revenues of $61.7 billion in 2023, launched its first model as a sedan


A visit to BYD’s headquarters in Shenzhen, China, often begins unconventionally. Just beyond the entrance to a vast showroom, encased by glass walls, are two machines, each holding a battery. These machines ignite the batteries, demonstrating their durability. The employee explains that the battery that withstands the flames is used in BYD vehicles, which, in 2023, became the world’s largest electric car manufacturer. The other battery, quickly consumed by fire, is said to be typical of other brands.


This dramatic demonstration is part of BYD’s narrative, a company with a history stretching back almost 28 years and revenues of $61.7 billion in the previous year. Founded in 1995, BYD initially produced batteries for cell phones, a venture initiated by Wang Chuanfu, a chemist with a specialization in battery technology. At 29, Mr. Chuanfu capitalized on the burgeoning cell phone trend, establishing a battery factory in Shenzhen’s Kuichong industrial subdistrict, an epicenter of innovation.


Like a museum, the showroom chronicles the journey of BYD and its reserved founder through photographs and informative displays. BYD’s breakthrough came in 2000 when it began supplying lithium batteries to Motorola, later expanding to serve Nokia, Ericsson, and Samsung.


In 2002, BYD, standing for “Build Your Dreams,” went public on the Hong Kong Stock Exchange. The following year, Mr. Chuanfu, now chairman, realized his ambition to venture into vehicle production, with a sedan as the company’s inaugural model.


In 2008, a significant development occurred as American billionaire Warren Buffett invested $232 million to acquire shares in BYD, priced at $1 each at the time. Fourteen years later, when Mr. Buffett’s holding company Berkshire Hathaway started selling these shares, their value had surged to $35 each.


BYD entered the bus segment in 2009, producing its first electric bus in the subsequent year. In 2012, the company established a bus manufacturing facility in Campinas, in the Brazilian state of São Paulo. In 2016, it ventured into monorail production in China, a technology soon to become familiar to residents of São Paulo. By the close of 2024, BYD aims to deliver the first vehicles for use on the 17-Ouro line in São Paulo.


Alongside its automotive pursuits, BYD maintains a battery production presence, with a Manaus facility supplying the bus line in Campinas. The company also produces solar panels, emphasizing that it extends beyond the scope of a vehicle manufacturer.


The year 2023 marked BYD’s establishment in Bahia. The former Ford factory in Camaçari will transition to producing electric cars and plug-in hybrids, including a hybrid pickup truck fueled by ethanol. Plans to expand and modernize the Brazilian factory are set to start in February. BYD’s director, Marcelo Schneider, announced an expansion of the initial labor force recruitment from 5,000 to 10,000 workers. The first stage of investment is projected to amount to R$3 billion.


In Shenzhen, BYD employees take pride in their contribution to the fight against COVID-19. Throughout the pandemic, the production of protective masks against the coronavirus not only saved lives but also secured the salaries of BYD employees in China, where the majority of the company’s 750,000-strong workforce resides.


When the global population was compelled into social isolation, BYD swiftly mobilized its engineering team to develop masks, a scarce commodity at the time. Remarkably, the project was completed in just three days. BYD emerged as a major mask producer, with ongoing sales, including in Brazil.


With 90,000 engineers on board, BYD anticipates reaching 100,000 by year-end, a testament to its commitment to innovation. Rows of patents acquired by BYD adorn a vast wall in the showroom at its Shenzhen headquarters, attesting to the company’s dedication to research and development, with 11,000 daily patent applications.


BYD’s achievements are colossal in every dimension. In vehicle manufacturing, it took 13 years to produce its first million units. A mere year and a half later, that number surged to three million, followed by an additional million within nine months. By 2023, the company had surpassed the milestone of six million vehicles produced.


The showroom’s car display area showcases compact models featuring whimsical animal-inspired names like the Dolphin. Notably, the Dolphin Mini, set to launch in Brazil in February, is called the Seagle in China.


Outside, it’s time to witness a car that offers a unique driving experience. Introduced to the Chinese market in September, the Yangwang U8 model, a sizable SUV, can rotate a full 360 degrees on its own axis.


However, BYD’s management is most eager to gauge the reaction of Brazilian visitors to the Dolphin Mini. Jolin Zhang, the director of the American sales division, joins in to generate excitement, stating, “This car is compact but exceptionally roomy inside. It’s ideally suited for Brazil.”


Source: Valor International






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


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


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


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


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


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


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


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


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


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


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


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


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


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


Source: Valor International





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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


Source: Valor International






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


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


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


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


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


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


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


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


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


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


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


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


Source: Valor International






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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


Source: Valor International





Industry support measures spread fear about use of public funds


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


Source: Valor International






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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


Source: Valor International






Result includes social tax PIS/Pasep and revenue from sale of electric utility Copel and excludes court-ordered payments


The Lula administration posted a primary deficit of R$230 billion in its first year, the worst result since 2020, as reported on Monday (30) by the National Treasury. Of that amount, R$92.4 billion comes from court-ordered payments of federal debts at end of the year and must be excluded for the achievement of the primary result target as per decision by the Federal Supreme Court. As a consequence, the primary deficit was R$138.1 billion, or 1.27% of the gross domestic product.


The 2023 result is lower than the target of a R$213.6 billion deficit set for 2023. However, the amount considers revenue of R$24 billion from social tax PIS/Pasep as primary, as well as revenue of R$2 billion resulting from the sale of electric utility Copel. Both revenues are not in line with what says the Central Bank, responsible for calculating official statistics. Therefore, on February 7, when the Central Bank releases its data, the primary deficit of the central government will hover around R$256 billion (with court-ordered payments) and R$166 billion (without court-ordered payments, which is considered for the target).


Although the primary result was within the target, it is the second worst deficit since official records began, second only to 2020, the first year of the COVID-19 pandemic, when the deficit was R$939.9 billion, in adjusted values. The 2023 deficit was also greater than those recorded in the first year of both Temer and Bolsonaro administrations, second only to the first year of former President Dilma Rousseff’s second term, when the central government posted an inflation-adjusted deficit of R$183.1 billion in 2015.


In addition to lower-than-expected revenue in some fronts, especially the Social Contribution over Net Profit (CSLL), which fell 10.4% (loss of R$ 17.6 billion), the increase in other expenses also played a role: there was an increase of 42.4% (R$98.7 billion) in programs whose expenditures are under control of flows, such as Bolsa Família, which has expanded, and a 7.9% increase in social security benefits (R$66.4 billion).


Furthermore, the central government’s negative result was also driven by the payment of R$20 billion in offsets to states, resulting from reductions in Tax on Circulation of Goods and Services (ICMS) rates in 2022, during the election season; R$6 billion from the allocation to the secondary education fund; and R$1.4 billion from a BNB capitalization carried out in December. National Treasury Secretary Rogério Ceron argued that the deficit would have been R$109 billion (1% of GDP) except for those three extraordinary factors, in addition to the court-ordered payments. According to his opinion, the primary result would be consistent with the target the National Treasury had been pursuing since mid-2023.


The federal government posted a real drop in revenue of 2.8%. The most significant drop was in concessions and permits (82%). Dividends and shares of state-owned companies also plunged (44.7%).


According to Mr. Ceron, tax revenue was also impacted by other factors: tax offset made by companies due to the so-called thesis of the century, which struck out the ICMS from the PIS/Cofins calculation base, generating tax credits for companies—the government is now trying to address this issue through Provisional Presidential Decree 1,202, which curbs tax offset; the Events Sector Emergency Program (Perse) tax waiver, around R$17 billion, compared to the expected R$4 billion; and lower-than-expected inflation.


On the other hand, funds that have been released but were not used by ministries totaled R$19.8 billion in 2023, with a positive impact on the primary result. The “pooled” amount was slightly below that recorded in 2022, of R$20.7 billion, in current values.


For 2024, Mr. Ceron said preliminary data from January point to an increase in revenue, which creates a positive scenario for a zero deficit this year, in line with the target set in the federal budget.


Finance Minister Fernando Haddad commented that this year’s target depends on a good interaction with the Judiciary and the Legislative branches. “The target is set in agreement with Congress, but the primary result depends a lot on this good interaction with the Judiciary and the Legislative [branches]. As far as we are concerned, we will continue with the same commitment [in 2024],” Mr. Haddad said.


Rafaela Vitória, chief economist at Banco Inter, notes “the fiscal deterioration seen in 2023 is quite worrying.” “Not only did the government experience a drop in revenue, which was 2.8% below 2022 adjusting to inflation, but also expenses grew at an alarming rate of 12.5% above the IPCA,” she pointed out.


“Although fiscal expansion did not boost inflation last year, which subsided due to the fall in raw materials and the counterpoint of a restrictive monetary policy, there is concern about the continuation of such expansion, which is well above projections within the new fiscal framework,” the economist argued.


Felipe Salto, chief economist and partner at Warren Investimentos, points out that the 2023 result “was strongly affected by court-ordered payments.” “But it was important to break the snowball before it became unmanageable,” he notes. “For 2024, the key challenge is not a zero deficit. It’s about reducing the deficit and fully complying with the framework,” he argued.


Source: Valor International






One day after the airline filed for court-supervised reorganization, Santiago-based group reportedly sent letters to lessors eying up to 25 aircraft


Gol is studying measures against LATAM after the competitor attempted to take 20 to 25 of its 737 planes. Gol’s lawyers told the New York judge responsible for the case, in documents seen by Valor, that LATAM sent letters to the lessors on Friday (26) to try to take the aircrafts one day after Gol filed for bankruptcy protection.


Gol shares plunged again on Tuesday (30) trading session, marking a 26.97% drop. The company ended the day with a market capitalization of R$1.2 billion, a 55.4% loss when compared to Thursday (25), when it filed for court-supervised reorganization, according to Valor Data.


LATAM does not operate the 737 model and, according to Gol’s lawyers, the Santiago-based group is trying to illegally interfere in its rival’s restructuring. Andrew LeBlanc, a lawyer at the Milbank law firm, told Judge Martin Glenn that “several” articles in the legislation prevent the Chilean company from taking such approach.


Mr. LeBlanc told the judge that Gol is studying which measures to take against LATAM. The lawyer also argued that it is necessary to ensure that Gol will be able to negotiate with lessors without the “interference” of parties acting “inappropriately.”


The 737 model is crucial for Gol’s single fleet strategy. LATAM, in turn, has a fleet of 256 Airbus models, used on short-haul flights. The Boeing family (58 units in total) is used mainly in long-haul flights—through the 787, 777, and 767 models.


The lawyer said the letter starts by alluding to “recent events” in the industry, an obvious reference to Gol’s bankruptcy filing.


He notes that LATAM also underwent Chapter 11 in New York court in a two-year process, which means, according to him, that it knows the limits of the Bankruptcy Code.


The judge asked if it was confirmed that the letter was real and, according to the lawyer, it even had letterhead. The lawyer said he believes it is real and that the airline will investigate over the next few days whether it is having an effect.


The letter to lessors comes at a time when Gol struggles to negotiate contracts. Amid issues in the production chain, the market currently operates with a tight demand for aircraft. The scenario is different from what it was at the time LATAM and Colombian Avianca filed for Chapter 11.


In a statement, LATAM neither confirmed nor denied the existence of the letter. According to the statement, the company is in “permanent contact with all relevant stakeholders in the fleet [equipment and maintenance lessors and suppliers] as part of its business.” The airline said it has been active “in the market for several months with the aim of securing the necessary capacity to meet ongoing and long-term needs in the context of global supply chain challenges and aircraft/engine shortages.” When contacted, Gol declined to comment.


The rivalry between the airlines has been quite intense. No one is hoping for a large company’s bankruptcy, which could destabilize the entire transportation industry, but everyone wants to increase market share in the face of the weakness of a competitor who, before the pandemic, was the leader. In the past, Gol had around 38% market share. Last December, it was close to 33%, when it was outperformed by LATAM, with 38.7%.


At the time of Azul’s debt restructuring with lessors, which was concluded last year, sources pointed out that LATAM had made the same attempt to take Airbus aircraft from its competitor in conversations with lessors.


When LATAM filed for court-supervised reorganization in the U.S.—between 2020 and 2022—Azul tried to negotiate with Chilean creditors the acquisition of LATAM Brasil, as reported by Valor.


But Azul’s attempt does not come out of the blue. The company tried to purchase the assets of Avianca Brasil (OceanAir) before it went bankrupt. Gol and LATAM, however, launched a harsh campaign against it, preventing the deal. As a response, Azul decided to leave the Brazilian Association of Airlines (ABEAR), which now includes both Gol and LATAM, among other smaller airlines.


Source: Valor International