The Brexit opportunity for Brazilian companies

. Jan 31, 2020
Brexit opportunity brazilian companies Demonstration outside the British Houses of Parliament. Photo: Amani A/Shutterstock

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We’re covering today how Brexit could affect Brazilian companies. The imminent firing of the president’s Chief of Staff. And new rules for loans that present risks for borrowers.

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Brazilian companies split on Brexit

Today is the UK’s last day as a member of the European Union

—entering an 11-month transition period at 11 pm GMT tonight. But while Brexit brings uncertainty to UK-EU relations—and the British union—many Brazilian companies see it as an opportunity to increase their footprint in the UK. A study by global consultancy TMF Group shows that over one-third of Brazilian firms believe Brexit will open up new business opportunities, against 27 percent who still see the split as more of a concern.</p> <p><strong>Why it matters.</strong> According to a recent <a href="">HSBC report</a>, about 80 percent of Britain&#8217;s food consumption is imported—but only 4 percent comes from South America. If Brexit truly reduces trading flows between the UK and the EU, as expected, it could create opportunities for Brazil&#8217;s highly competitive agribusiness companies.</p> <p><strong>Yes, but … </strong>As pointed out by Roberto Doring, minister-counselor of the Brazilian Embassy in London, Brazilian companies must prepare for new customs rules and different kinds of red tape. However, only 33 percent of Brazilian companies feel &#8220;very confident&#8221; about being in compliance with international laws and regulations, per the TMF Group.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/1311601"></div><script src=""></script> <p><strong>Lackluster.</strong> Brazil-UK trade has flatlined over the past four years, amounting to nearly USD 5.3 billion in 2019. In 2011, however, it surpassed USD 8.5 billion.</p> <p><strong>Impact.</strong> A study by consultancy Bertelmann Stiftung estimated the impact of Brexit on the Brazilian economy. Dependent on how strained UK-EU relations are, it could generate additional revenue of between EUR 940 million (USD 1 billion) per year—if the two divorced parties remain somewhat close—and EUR 1.7 billion, in case of a bitter separation.</p> <p><strong>Concerns.</strong> One year ago, the Brazilian Trade and Investment Promotion Agency (Apex-Brasil) surveyed Brazilian companies to find out their <a href="">biggest fears about Brexit</a>. Atop of the list were “the possibility of higher logistics and customs costs, roadblocks to exports that come through Europe, higher import costs, demands of certificates different than the ones required by the EU, and tariff and non-tariff barriers.”</p> <hr class="wp-block-separator"/> <h2>The fall from grace of the president&#8217;s Chief of Staff</h2> <p>When Jair Bolsonaro was still <a href="">seen by mainstream politicians as a joke candidate</a>, former Congressman Onyx Lorenzoni became the first member of a major party to show support for his presidential bid. Still, Mr. Bolsonaro has shown little regard for him over his first 13 months in office. While he did name Mr. Lorenzoni as his Chief of Staff, he has continually diminished the responsibilities and powers of his office.&nbsp;</p> <p>On Thursday, and via Twitter, the president said he would transfer the government&#8217;s program for privatizations and concessions (a.k.a. PPI) to the Economy Ministry, making Mr. Lorenzoni all but a decorative figure in the cabinet. Last year, he had lost control over political negotiations with Congress and a legal sub-department.</p> <p><strong>Why it matters.</strong> The move was interpreted by government officials as a sign that Mr. Lorenzoni will soon be relieved from his duties as Chief of Staff. And the nonchalant way in which the president has treated one of his most loyal soldiers—the move was announced just one day before Mr. Lorenzoni came back from vacation—could rub Congress up the wrong way. Mr. Lorenzoni belongs to the same party of House Speaker Rodrigo Maia and Senate President Davi Alcolumbre.</p> <p><strong>Double standard.</strong> Mr. Bolsonaro has shown his loyalty to cabinet members facing corruption allegations, such as Tourism Minister Marcelo Antonio and Press Secretary Fabio Wajngarten.&nbsp;</p> <hr class="wp-block-separator"/> <h2>Brazil moves to change credit rules to reduce spreads</h2> <p>The Economy Ministry is drafting a proposal that would make it easier for Brazilians to give property as collateral for loans. The move aims at reducing default risks—allowing banks to lower their interest spreads.</p> <p><strong>How would it work?</strong> Similar to the U.S.&#8217;s mortgage system, the same property could be used for multiple loans. A privately-run &#8220;real estate guarantees center&#8221; would assess property value and, based on the result, tell banks how much they can lend to people. Customers would alienate the property to this center—being unable to sell their homes before paying off their entire debt.&nbsp;</p> <p>The new system would also make it easier for banks to seize the property of debtors in default—a process that can currently take months (or years).</p> <p><strong>Why it matters.</strong> The Central Bank hopes the home equity market in Brazil could be as big as BRL 500 million. Such changes in the legislation could &#8220;give the economy a kick, as interest rates for mortgages are the lowest in the market,&#8221; José Augusto Viana, president of the São Paulo real estate agents&#8217; association, told <strong>The Brazilian Report</strong>.</p> <p><strong>Yes, but … </strong>The system could have many unintended effects in a country where people do not have enough financial education—and over 40 percent of the adult population is in default.&nbsp;</p> <p><em>—with Natália Scalzaretto</em></p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Embraer.</strong> After it was reported that the U.S. National Transportation Safety Board was investigating a malfunction in an Embraer plane, similar to the one which led to the two deadly <a href="">Boeing 737 Max crashes</a> recently, the company&#8217;s stock fell 2.15 percent on Thursday. When it became clear that the malfunction with the EMB-175’s nose was due to maintenance rather than technological issues, shares recovered, but still closed the day down 0.44 percent.</p> <p><strong>Bolsonaro.</strong> President Jair Bolsonaro has performed tests in a Brasília hospital to examine whether he will need to undergo surgery to reposition a mesh patch he had implanted in September 2019 to repair a hernia, besides cosmetic surgery on a scar from previous procedures. This would be Mr. Bolsonaro&#8217;s fifth surgery since being <a href="">stabbed while on the campaign trail</a>, in September 2018.</p> <p><strong>Agriculture.</strong> Brazil&#8217;s National Monetary Council—which is in charge of formulating monetary and credit policies—has approved a BRL 1-billion line of credit for family farming. Producers will be able to use the money for long-term investments, such as building barns for chicken and hog herds, planting perennial crops, buying machinery and equipment, soil correction, and recovering pastures. With the new credit line, the budget for family agriculture in 2020 will be BRL 14.8 billion.</p> <p><strong>Final countdown.</strong> Jair Bolsonaro&#8217;s allies have nine weeks to set up his <a href="">new Alliance for Brazil party</a> in time for the 2020 municipal elections. First, they need 492,000 signatures in support of the new party, of which they claim to already have over 200,000. Then, each signature must be validated by electoral courts—and the Alliance for Brazil must leapfrog 70 parties that have waited for years to be analyzed by electoral justices. The deadline is April 4.</p> <p><strong>Sex ed.</strong> Human Rights Minister Damares Alves has planned to promote sexual abstinence as the focus of a campaign to avoid teen pregnancy and HIV transmission, which is already disputed by Health Minister Luiz Henrique Mandetta. Now, the Federal Public Defenders&#8217; Office has officially recommended the government against the strategy—due to the risk of increasing misinformation about sex among teenagers, which could cause the opposite effect.

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