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Economic Reform Monitor
Market view of prospects for the Temer Government’s proposed economic reforms:
Overall, the markets remain unshaken by the political noise in Brasília, the capital. Over the last 4 weeks, the changes in market predictions for 2017 and 2018 show faith in the continuation of relative stability of Brazilian inflation and exchange rates. Expectations show that Brazil’s interest rates should continue to respond healthily to the somewhat improved business optimism and to those microeconomic measures that the Executive branch of Government is able to take without Congressional approval. The same applies to the expectations for Gross Domestic Product (GDP) growth, although this still should be at modest levels suggesting that the markets are not allowing their optimism to carry themselves away. At first sight the expected drop in the trade surplus from 2017 to 2018 might seem alarming. However, it appears to be the result of an expected healthy uptick in the imports of primary and intermediate goods that would be essential to sustain a lasting economic recovery.

In summary, over the last 4 weeks the market indicators would appear to suggest that the markets continue to believe in the Temer Government’s ability to walk the talk, to implement its economic reform proposals. The indicators below are selected from the Brazilian Central Bank’s (BCB) Focus Report of 7th April. The Focus Report represents the results of the BCB’s weekly survey of the players in the Brazilian Financial markets and is perhaps one of the most important tools used by business planners in Brazil.

Market Indicators

2017 rolling forecast

2018 rolling forecast


4 Weeks ago

This week


4 Weeks ago

This week


Annual Inflation:IPCA %







Year end rates US$1=R$






Average Interest rates SELIC %





GDP growth %







Trade Surplus US$ billions





Foreign Direct Investment
US$ billions






The key Temer Government’s Pension Reform proposals are approaching a critical stage in Congress. Congressional approval of these proposals is essential for the Government to bring its spending under control. It also is a precondition for Brazil’s return to meaningful, sustainable economic growth, as reported last week in the Financial Times, and in Britcham’s Market News over the last year. The general feeling among analysts is that the longer the negotiations go on, the more that the proposals will be dilapidated by populist pressure on Congress and by the self interest of certain Congressional players. The package is expected to be voted on in Congress “after Easter”, but apparently still in the first half of 2017.

The Temer Government has been criticised for not making it crystal clear to the electorate why the Pension Reform is needed. Despite this criticism, polls this week show that there is growing understanding of and an increasing body of support for the Pension Reform proposals among the population. And, somewhat belatedly, the Government is responding to this constructive criticism by putting on a Road Show in several cities targeting opinion makers. Ministers and Secretaries responsible for the proposed bill in Congress are making the presentations on the Road Show together with Brazil’s most respected specialists in Pension rights.

It is ironic that a conservative government, despised and vilified by the Left Wing, is attempting to abolish unjustifiable, entrenched privileges that the Labour Party failed to address in 13 years of government through May 2016. Such privileges permit 4% of pensioners (1 million pensioners) to sponge up the same absolute amounts of pensions and benefits as the remaining 96% of pensioners (25 million pensioners) in the population. However, many of the proposals’ most vocal Left Wing critics (academics, artists, civil servants and politicians) clearly are the greater part of the privileged minority group of pensioners. The opponents of Pension Reform claim to be speaking on behalf of the poor. However, the poor is largely unaffected by one of the principal proposals, the increase of the minimum retirement age to 65 for men and women. The poorest in Brazil already retire only at 65 years of age because they are unable to make even the modest pension contributions required for the precocious retirement enjoyed currently by the middle class, on average 55 years for men and 52 years for women.

Market trends & Business news

This week’s selection of news reveals that:

  • Brazil continues to engage with the EU and with its fellow-members in  Mercosul, the South American trade union, to facilitate trade and investment;
  • Brazil continues to progress towards a market driven economy and to remove unreasonable limits on foreign direct investment;
  • Investors are showing confidence in the Energy sector, where stable rules are required for the long-term investments; and
  • Investor interest is also being demonstrated across a wide range of sectors, such as Cellulose, Retail, Shipping and Technology.

 Here are the stories that underline these trends:

  • EU to seek access of processed foods to the Brazilian market: The Agricultural Ministers of EU countries apparently intend to use the resumption of Brazilian meat supplies to the EU as an argument for EU processed food products to gain access to the Brazilian market. – Quid pro quo.
  • Mercosul makes timid start towards breaking the deadlock on regional integration: Argentina, Brazil, Paraguay and Uruguay are the four countries comprising Mercosul, the South American free trade area. The area has been anything but friendly towards free trade since it was inaugurated. Protectionist interests and left wing ideology in every country have stymied all attempts at eliminating border controls and tariff barriers between these adjoining countries. Their Foreign Ministers have now announced that a deal would be signed that would provide for each member country to treat investors from the other member countries as if they were domestic investors. – No big deal, but better than nothing.
  • Capital markets overtake BNDES as the principal source of Corporate credit: For the first time in 10 years, in 2016 the domestic capital markets issued more corporate finance than the Brazilian Development Bank (BNDES). Much of this was in the form of Debentures and Real Estate and Agricultural Receivables. This trend is expected to recur in 2017 due to two factors: the Temer Government’s decision to reduced the BNDES’s subsidised credit lines and the drop in the basic interest rates (SELIC) which makes returns on paper issued by Corporations more attractive to investors. Carlos Antonio Rocca, Diretor of CEMEC, a Capital Markets think tank, said that many of the companies funded by the BNDES over the previous decade were major players, with robust corporate governance and audited financials and therefore fully capable of obtaining funding on the capital markets at competitive rates instead of looking for subsidised loans. The use of the BNDES by the previous government to subsidise large corporations has been criticised for having crowed out players in the domestic capital markets and for its transfer of wealth from taxpayers to certain large corporations. – Invisible hands at work.
  • Government readies its Bill to permit the sale of rural land to non-Brazilians: The Office of the Chief of Staff of the Brazilian Presidency already has prepared a Bill to be presented to Congress on this matter. The proposals free up access by non-Brazilians to land ownership, but still impose some restrictions. Non-Brazilian Companies or individuals may not own or lease, jointly or severally, more than 25% of land in any one municipality. The proposal also would prohibit from owning rural properties entities such as NGOs, Sovereign Funds, Government-owned Companies or Foundations maintained by non-Brazilian governments. The President of Congress states that the rural land Bill will start being heard after the votes on the Temer Government’s proposed Economic Reforms. – The last frontier.
  • Brazil looks cheap but needs to conclude its economic reforms: Mohamed El-Erian, economics advisor to the German Allianz Group, sees potential for investors in Brazilian shares and fixed income instruments, but emphasised that the Temer Government needs to carry out the economic reforms to unlock this potential. – Blowing hot and cold.
  • Engie to bet big on Transmission lines: Engie (former Tractebel) already is the biggest private energy generator in Brazil. Now, it also intends to invest  £420 million to enter the Transmission segment during the next auctions to be run by the Electrical Energy Agency (ANEEL) on 24th April. Eduardo Sattamini, Engie Brazil President, says that the basic characteristic of the Transmission line business, long-term concessions with fixed income, is similar to the Company’s business profile.  – Direct lines to the city gates.
  • UK Private Equity Fund Actis to become 2nd largest player in renewable energy in Brazil: The Fund is about to reach installed generating capacity of 1.7 GW through its investments in 3 different Companies. Sergio Brandão, Energy Director for Actis Brazil, says, “We see a quality wind and solar segment in Brazil”. Only CPFL, an established energy conglomerate, will have a higher installed generating capacity. Actis entered the sector in Brazil in 2013. – Moving up the grid.
  • Omega, renewable energy company, to make an IPO: Owned by private equity funds Tarpon and Warburg Pincus, Omega plans to bring in fresh funding to take the renewable energy company to the next level. The Initial Public Offering (IPO) also will permit a partial exit for the current investors. – Renewing shareholder energy.
  • Cornélio Brennand Group to invest  £110 million in hydroelectric generation: Mr Carlos Brennand, CEO of the family owned business, stated that the energy sector has become stable and attractive after having been dismantled by the Temer Government’s predecessor. “The rules have now been defined and this gives confidence to us investors.” The Brennand family has been in Brazil for over 100 years and has always operated in infrastructure and raw materials operations managed by skilled outside professionals. – Getting better all the time.
  • Commodities giant Votorantim to invest £250 million in wind energy: The Votorantim Group, controlled by the Emírio de Moraes family, will be 100 years old in 2018, but it has not slowed down its impetus. João Miranda, Group President, said that “Despite the crisis which Brazil has passed through over the last two years, we have decided not to postpone any of our investments in progress.” The wind energy project, a new area of business for the Group, is set to enter operations in the first quarter of 2018. The £250 million investment is for the first phase, which will have an installed capacity of 206MW. The Company already has a tradition of self-generation and believes that the new investment will make it an attractive potential partner for other investors. – Winding up for the start.
  • Chilean CMPC to invest  £250 million in cellulose operations in Brazil over 5 years: CMPC, a producer of tissue paper, already owns 4 plants across Brazil and is to use the investments to improve their efficiency. Mr Pedro Urrechaga, CMPC’s Managing Director, says that in 2016 the Group enjoyed “double digit growth” in Brazil. – Paper money.
  • Carlisle Group seeks partners for its Brazilian toy retail business: The Group plans to launch an IPO for Ri Happy, the largest toy retail chain in Brazil. It hopes to raise  £50 million that will be used to expand the chain. – Child’s play.
  • Maersk to sell Mercosul Line, its coastal container operations: The disposal is a preemptive move by Maersk to comply with Brazilian Monopoly regulations after buying Hamburg Süd, a German shipper. The domestic maritime traffic operations of Hamburg Süd in Brazil account for 59% of the market (versus 21% held by Mercosul Line).  – Handing over the rings to save your fingers (Brazilian saying).
  • Sweden looks to increase the presence of tech start ups in Brazil: King Carl Gustav of Sweden, whose Queen Sílvia is Brazilian born, is in Brazil drumming up interest in Swedish Technology start ups. – Right royal treatment.

This summary contains a selection of Business News from Brazil’s Markets for information purposes only and does not constitute any basis or recommendation for taking specific business decisions. Readers are recommended to seek appropriate counsel from their legal and business advisors before taking any business decisions.

For further information please contact Fabrício Soares, Business Development Manager at Britcham Brazil: fsoares@britcham.com.br