Following the previous
headline stories from inside Brazil via the 'Rio Times', this portion
of the web-log summarises the Financial Times' recent Special Report
titled 'Reinventing Brazil' (16.05.2017).
Such reports are
typically produced when new positive sentiment towards a region has
become apparent in the wider world after a turnaround in capital
markets dynamics, local investment project plans, B2B and B2C
sentiment. Yet such 'pull-outs' will also be produced when the
tipping-point of a new era appears, such as with the recent similar
report on South Africa and its political retuning.
The beginnings of such
'good news stories' are in turn promoted by substantial advertising
by national government (seeking FDI), industry and trade bodies
(looking to promote new or regenerated sectors), and tourist boards
(to attract foreign currency and create commercial opportunity).
The FT's articles then
provide a good momentary further snapshot to the previous post, and
importantly provides insights from vitally positioned political
leaders, business luminaries and entrepreneurs.
Hereafter are condensed
summaries of the articles provided :
Item 1:
“Reforms end three
years of turmoil and recession”
- New 'buzz' on Avenida
Faria Lima (Brazil's Wall St).
- Sao Paulo bourse sees
marked shift in new IPO numbers
(3 so far in 2017,
with 10 – 15 others expected)
- Sentiment driven by
Temer's steadfastness on required Reforms
- Beyond exported
commodities, industrial powerhouses emerging
- Scandals seen to
reflect strong anti-corruption arms of the law
- New middle class
expect better 'democratisation' of public assets and services
- Rousseff's budgetary
machinations replaced with Temer's better 'mechanisation'
- Newly imposed budget
ceiling necessitate major systematic overhauls.
- State asset
divestment toward domestic and (critically) foreign investors
- Airports, Highways
and Oil and Gas increasing levels of private ownership
- Apparent successful
return of inflation target management
- Reduction of BNDES
(national development bank) lending...which...
- * relieves Treasury
- * disconnects its
from the low rates inducing 'high inflation spiral'
- * reduces prevalence
of politico-business 'connections'
- * Temer... “I am
not disposed to fiscal popularism”...when real change is needed.
Item 2:
“Finance minister
reins in profligate spending”
- Minister Henrique
Meirelles...”need to down-size government proportion of GDP”
- Background in
US-Latam banking and as Brazil's previous Central Bank Governor
- Expected that the
mass populace's approval will return as results of Reforms appear
- Government
expenditures cost 20% GDP today, to be 15% in a decade
- “This is now a
constitutional requirement” (so driving the imperative)
- “Need to treat
public sector and private sector social entitlements similarly”
- “For Brazil to
create (future) jobs it must have pension reform”
- “This to also
ensure pension system remains solvent”
- “The 1st
part of labour reform regards (domestic and foreign) Outs-Sourcing
passed...
- ...this eliminates a
lot of rigidity in the system”
- “The 2nd
part of labour reform – yet to be passed – concentrates on the
over-generous laws regards workers' rights (which presently deters
domestic and FDI investment)
- “New measures to
simplify bureaucracy and the tax system (to encourage commerce)
- Presently Brazil one
of the worst countries in the world to initiate a new business.
- Need to change
historical trends of major sentiment driven inflows and outflows of
investment.
Item 3:
“Development Bank
overhauls lending”
- The role and methods
of BNDES to evolve and modernise
- From yesteryear's
3rd/2nd World idiom toward a more laissez faire
1st World character
- Responding to
criticism about perpetuating the 'Patron System'
- This being the
advantageous funding terms (below market rates) to the Brazilian
elite
- To reduce subsidised
lending
- Apply stricter
criteria for financing
- Achieve a steep
increase in benchmark interest rates, closer to market rates.
- The Sao Paulo
business lobbyist 'FIESP' objecting to seemingly radical change
- Past has seen
mismatch between BNDES and Central Bank aims = systemic friction
- BNDES responds saying
the outcome would be a broad gain for all by reducing inflation
pressures on the
Central Bank and so allow for reduction in base rate, so raising
lending levels.
- BNDES to increasingly
distance itself from the Treasury
- It will increasingly
look to local and international markets for wholesale borrowing
- But over next 5 years
low-cost loans to be available for specific projects
- Those with greater
social benefit: Education, Health, Sanitation, Solar Energy, Urban
Mobility, Waterways, Railways, Transportation/Distribution of Gas and
Bio-Fuels, Public Administration, Small Businesses.
- These projects to be presented as Public-Private ventures so attracting local capital.
- These projects to be presented as Public-Private ventures so attracting local capital.
Item 4:
“Political
uncertainty still drags on the economy”
- Public
dissatisfaction protest of 2013 directed at costs of The Olympics
- Public malaise rising
since given incurred debt vs public obligation
- This after 30m raised
out of poverty by the PT Party (internal ideas of “turncoat
public”)
- New promises made but
little achieved besides 'plea bargains' to eradicate corruption
- Leading to the
enormous Petrobras Scandal and others since (eg Odebrecht
Construction).
- The enormity has
tainted the elite (past and present governments and business leaders)
- Affected Temer's
governments standing, with only 9% approval rating.
- Today Brazil stands
at “the most vulnerable point in its 30 year democracy”
- With only 30% of
Brazilians currently believing in Brazilian Democracy (-22% YoY)
- Supreme Court
responds by dismantling the legal privileges of politicians
- The October 2018
election now “wide-open”
- Bolsonaro vs Doria
(right-wing Congressman vs centrist Mayor of Sao Paulo)
Item 5:
“Views from the top
on what Temer should do”
Panel of guests from
the Brazilian business world
As per corruption :
- “What we see
happening today (regards corruption) is not new, having happened in
the US during the 1920s (cites 'The Robber Barons')”
[NB this suggests that
such periods are inevitable as countries move higher up the economic
ladder and portions of any elite maximise their gains as the economic
system that previously protected their gains itself evolves to
greater inclusion of the masses].
- “Such scandals will
unleash a better Brazil into the future”
- “There is an
enormous gap between what we are as a country and what we can be”
As per Labour Reforms :
- “We have operations
in 80-90 countries, [Brazil] is the most complicated”
- (And as such) “Brazil
is only 3-4% of our revenue”
- “We have a large
number of claims (and outcomes) that make little sense”
As per Taxation Reforms
:
- “the problem here
is not just about size but complexity”
As per Public
Administration Reforms :
- “The tendancy to
over-regulate in many areas from consumer rights to telecoms”
- “In telecoms our
obligations do not match real world use requirements”
- “We have a lot of
obligations to the past, but very few to the future”
- “Something that
must change is the governmental belief that individuals are unwise
(and so require 'Nanny State' protection).
- “If you don't
alter the welfare system how are we going to pay for longer lived
pensioners?”“The world has changed, so much Brazil”
As per SOE Political
Appointments :
- “We have no
Ministers or Army on the Board [of Petrobras], when talking of
'Re-inventing Brazil' we need professionals”
As per FDI and Trade :
(Year to March saw
record FDI of near $86bn)
- “Brazil has to have
the export mindset, not just flavour of the month because of crisis”
As per Populism vs
Economic Reform
- “Maybe the time has
come for business to be more engaged in debate (re: Reform tensions)
- “Brazil
(desperately) needs global leaders, modern laws and old values”
- “It needs people
who can understand what is happening around the world”.
Item 6:
“Sao Paulo's talent
for renewal is paying off”
- City expands beyond
its trade and industrial heartland roots
- Newer higher value
sectors in Services, IT and Retail
- Broadening of the
'Culture Industry' creates future economic value-streams
- Increasing
'info-tainment' correlation to the internet
- City planning to
de-congest routeways (more bus-ways and cycle-ways)
- The “Beautiful
City” campaign eradicates graffiti but is criticised for
also removing social
commentary and 'artworks'
[NB The campaign's main
aim to eradicate gangland 'tags' and improve aesthetics. Graffiti is
low-order crime but recognised as gang allegiance stepping-stone to
higher crimes and gang culture].
- Main issues of public
transport and crime under central government control in Brasilia
[NB Strong police force
but with less autonomy than believed ideal].
- The failures of the
public system (eg medical) promotes opportunities for entrepreneurial
new entrants able to deploy innovative or technology transfer IT
- Sao Paulo's market
size (21m residents) and their aspiration and dissatisfaction
provides a central 'growth point' for very varied new business
possibilities.
- The city's role as
Latin America's 'Financial Hub' means obvious self-serving economic
eco-system as well as increasing presence of FinTech and small and
large Venture Capital.
