Friday, 5 May 2017

Micro Level Trends – Brazil's Automotive Sector – “Brazil 66”...Sixty Six Years of Economic Power Lifting (Part 5.2)

Before looking at the future of Brazil, a future much enabled by the previously highlighted Reform Agenda, and the possible long-term shape of government planning, the domestic auto-market and the roles of incumbent MNC players, and new indigenous and foreign entrants, it is well worth seeing a socio-economic 'snapshot' of the here and now in Q2 2017.

With the recent 'on the ground' report from the FT's John Authors pointing to the broad “new expectations” from Brazil for investors with successful reforms, this juncture of the web-log seeks to provide an echo of the current pulse of Brazil, the city and elsewhere.
Done so by re-conveying the recent news topics voiced by the English language newspaper 'The Rio Times'.
But before entering the realms of the daily news, the first vital issue to convey is the manner in which Brasilia has progressively led the world.

The Automotive Headline -
On 19th April 2017 Brasilia announced the easing of protectionism within its auto-industry.

This comes after criticism that for too long “exacerbated protectionism” and will see new measures inacted under the title of 'Roto 2030' (Route 2030), surpassing the previous prescription of the previous 'Inovar Auto' scheme.

Introduced by Snr Igor Calvet (Minister for Industry, Trade and Foreign Services) the new “open door” initiative starts at the beginning of 2018. 

As stated this will indeed create improved conditions of competition so raising all-round product quality in the long run. In the mid-term help broader B2C and B2B choice in all vehicle sub-sectors, from the new availability of more package efficient small city cars better suited to congested streets through to purchase flexibility for road haulage companies that can better balance up-front price versus running costs and residual values.

However, any notion of any 'automatic' price reduction resulting from cheaper imports was stated as not the case - though in reality will be seen to a certain extent - since much depends upon taxation issues, logistics costs and labour costs. 

This implicitly indicates that the government will seek to manage ultimate retail prices to both “harmonise” similar products – so effectively creating a Brazilian-made home-advantage - and in that process take advantage of the available tax-take on those cheaper imported vehicles, the importers obviously seeking to reduce such import prices as much as possible so as to reduce the final cost of per unit importation. Those same importers also likely to 'buy' sales through standard trade tactics, such as prey registrations of new vehicles sold as notionally used at discount.

This web-log previously described the lobbying role of the Importer's Association IBEIFA, and understandably this lobbying group is enthused to see such a shift in policy, even if for now the exact details remain unclear. The prime issue for it is the IPI tax level on industrial goods, which moved from 25% to a lofty 55%.

Reducing this problematic constraint and gaining assured long-term clarity regards a tax-reduction time-line – so that its members can better plan – obviously is critical to fully enacting the ideology of the 'open door' announcement.

However, for now this a brave undertaking given the mass populace's mood regards domestic employment security and opportuty, so balancing the rhetoric against outcomes is critical, as Temer's government well understands.
But given the evolving protectionist rhetoric elsewhere around the world, Brazil should be applauded, and in this way the country can be seen to be increasingly fulfiling its role in global leadership, with (ROTA) 2030 the seeming watershed point.
Bravo Brazil!

The Main News Feeds -

Item 1 : The 2017 General Strike

On May 28th a General Strike took place organised by the 9 biggest unions. The believed impact of announced Austerity Measures and the agitation of the unions sent protesters onto the streets across Rio de Janeiro, Porto Alegre and Brasilia; with stoppage of public transport and access to public buildings in Rio itself.

The industrial heartland of Sao Paulo continued to operate but at a notably slower pace given both worries about commuting and possible riots keeping people at home and of course the general 'feeling in the air' amongst those at work.

Given their position in the lower social ranks, it appears that many of the lower middle class masses (themselves very fearful of unemployment and a much retracted social-net budget) believe that President Temer is “removed from the people”, having gained his post directly because of Rousseff's forced departure.

Others, typically very the innately 'middling' class, have taken an alternative perspective. They believe that the strike was called in the self-interest of the unions, with especially senior union members defending their accrued personal interests, both political and financial.

But as seen in an Ipsos poll of 1,200 people in early April, Temer's own approval rating of just 4% highlights the general dissatisfaction amongst Brazilians; 98% believe Brazil to be on the wrong path

That in essence equates to the desire that if the people are to ultimately feel the pain, then so too should the privileged who occupy the highest offices of the land.

Perhaps only by rebalancing Brasilia's own rewards system, will the apparent anger and intraction of the masses be overcome. Shared pain for shared latter gain.

Item 2 : Pushing the Reforms Forward

President Temer sought to demonstrate his pluck with the statement that even in the face of social protests his cabinet's Reform Agenda will succeed.

The nationwide strike at the end of April contesting the primary pillars of the reform measures (esp pensions, labour and social security) was meant to undermine the scale of change, but Temer pre-empted any ideas of a dragged-out battle by stating that the three elements of the Judiciary, Executive and Legislative were of the same unified 'progressive' mindset.

With special mention of Japanese investment interest whilst opening the new Japan House cultural centre, he stated that effectively a new era was underway that would be to the eventual good of all; workers, managers and domestic and foreign investor / owners.

Temer argued that the Reforms are necessary since the sizeable aspect of a bloated Pensions Budget negates resources being given to Education and Health Care, and that old restrictive Labour Laws prevent the hiring of more workers by both domestic and (especially foreign) companies.

Item 3 : Best Trade Balance in 28 Years

At long last having absorbed both the 'Car Wash' affair and the 'Weak Meat' scandal the National Trade Balance saw a surplus of US6.969 billion, the best result since 1989.

Demonstrating continued strength, the first four months total reached US$21.387 bn, far surpassing the previous record of 2016 when it saw US$13.2 bn. April 2017 saw Total Exports of $17.686 bn versus $10.717 bn for Total Imports.

Unsurprisingly given the meat scandal's requirement to temporarily close meat-packing plants and cancellation of shipping orders, Meat Exports were down 13.3% in April YoY.

But with new confidence arising the government predicts a 2017 EoY Balance Surplus of $55 bn (versus the $47.7 bn of 2016).

This a very tangible and so pertinent sign of renewed national economic confidence, the $7 bn differential between 2017's exports and imports so bolstering the fiscal and monetary policies required behind the Reform Agenda.

Item 4 : Temer Meets Spain's Rajoy

To help further boost the record trade figures, President Temer met with Spain's President Mariano Rajoy at the end of April. Both are convinced of the need to advance relations between MERCOSUR and the EU.

Previous arrangements such as the Bus and Coach builder Irizar's entry into Brazil will now be complimented by new mutual destination projects in General Development, Trade, Infrastructure, Water and Transport; with heightened diplomacy the enabling factor.

The manner in which Spain addressed its own Reform Agenda after the European Sovereign Debt Crisis was of interest to Temer, with lessons learned obvious application to Brazil.

Rajoy said “the Brazilian government has a number of ambitious plans for its economy in keeping with its immense potential, and I'm convinced that this is an opportunity for increasing the presence of Spanish companies and to optimize our trade”.

Item 5 : Fevela Clearances...Cinematic Story-Telling

Vila Autodromo in the Jacarepagua district (West Rio) was a favela that began to expand with the need to build and service the major upscale housing complex that accompanied the 1974-1977 on-site creation of the Autodromo Internacional (Nelson Piquet).

Over four decades the fevala grew from an all male small construction worker shanty village to latterly include wives and girlfriends who cleaned the luxury apartment blocks; with the inevitable arrival of children and even aged grandparents.

Though much improved over the years the fevela had not been planned, so lacked properly considered fundamental amenities for what became a large township; and though its notional 'citizens' were hands-on regards gradual improvement it was always functionally below par of the ever improving modern norm.

This reason / excuse was given when the government sought to utilise the land for construction of the 2016 Olympic Village, Stadiums and infrastructure. The location was apt for such a scheme and the old 'township' would always be a symbol of Brazil's erratic social past, but more importantly a problem to the redevelopment ideals of the city and nation.

Thus the inhabitants of the Vila Autodromo fevela were removed to 'make way for the future' and that story has been captured in spirit – if not detail – by the new film “Vazio do Lado de Fora” (Empty on the Outside). Directed by Eduardo Brandao Pinto the short film will appear soon at the renowned 2017 Cannes Film festival.

However, undoubtedly to ease social tensions and avoid appearing the international bad-guy “it does not tell the story exactly, more of an aesthetic”.

It now seems obvious that whilst still fresh in the mass-memory, Brazil seeks to quickly re-tell the story to re-set the mass-consciousness. It seems that Historical Revisionism appears quicker than ever.

Item 6 : The Favelas Continue to Grow

Previously reported some years ago, once again the facts about the seeming endless growth of many fevelas have been re-reported to highlight a prime social issue. Between 2000 and 2010 the average population growth in 'normal' (ie officially planned and organised) areas of Brazilian cities was about 7%.

In stark contrast the fevelas saw a massive upturn through both incoming residends and the rise of birth rates over death rates. The highest seen in Rio de Janaeiro with a mighty 27% increase.

This has been reported to illustrate the size of the problem that not just the government faces, but the population at large as the idiom of the 'haves and have nots' becomes ever more complex.

Even though a costly exercise, to help aid integration of those at the very bottom of society, the Senate recently approved an Immigration Amnesty law in mid April which actually goes far further than its title implies. Well beyond mere amnesty, it provides a new era of security for the previously illegitimate immigrants, by providing citizenship rights to state resources such as welfare, healthcare, education and employment status rights.

A New Era For Many -

This then validates a mass of people who were previously 'under the radar', and far worse off than the current bleating working and lower-middle classes, and allows them to become fully participant in, and beneficiaries from, the slowly re-bounding Brazilian economy.

For a country which promotes the ideals of 'diverse social integration' the upfront costs will be sizeable, but the advantages brought by quickly deploying more unskilled and semi-skilled labour, from directed education and the assurance of a social safety-net means that over the mid and long terms Brazil will have been seen to have maintained and indeed improved its productive capacity. 

This beginning with the major infrastructure projects that demand enormous levels of affordable man-power, providing the basis for new factories and plant which in turn require many levels of personnel skill-sets and in turn promote the professions from engineering to accountancy and so much more.