Brazilian industry recovering … slowly

despite two very positive months, the truth is that Brazil&#8217;s industry remains far below its pre-pandemic level — which was already underwhelming. Brazil&#8217;s general industry index, compiled by the country&#8217;s official statistics agency, remains almost 25 percent below January 2010 levels.</p> <ul><li>Industry performance is also 13.4 percent lower than February&#8217;s levels, and 10.9 percent down since January.</li></ul> <p><strong>Reality check.</strong> The transportation sector posted 142-percent growth in June, which was a record for a single month. But that was mainly because vehicle production had all but halted in April and May.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/2705731" data-url="https://flo.uri.sh/visualisation/2705731/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Emergency salary boosted industry.</strong> The government&#8217;s BRL 600 emergency salary gave a huge boost to consumers and helped explain the 82.2-percent increase in sales of durable consumer goods in June. As <a href="https://brazilian.report/newsletters/brazil-daily/2020/08/04/brazilian-government-sweating-over-next-years-budget/">yesterday&#8217;s Daily Briefing</a> discussed, this aid program could have its days numbered, however, at least in its current form.</p> <p><strong>Industry: looking ahead.</strong> Brazil&#8217;s industrial Purchasing Managers&#8217; Index rose 6 points to 58.2, the biggest on record since 2006. &#8220;We expect Brazil&#8217;s industry to gradually continue its path to recovery, in line with the predicted relaxation of social distancing protocols and measures to limit movement and activity,&#8221; wrote Goldman Sachs in a report to clients on Tuesday.</p> <p><strong>Recession.</strong> According to think tank Fundação Getulio Vargas, Brazil&#8217;s GDP shrunk 11.2 percent in Q2 2020. While not an official index, the institution&#8217;s Economic Activity Monitor shows trends of the Brazilian economy and helps to reach a ballpark figure for the official results.</p> <hr class="wp-block-separator"/> <h2>A proposal to make mining projects easier to approve</h2> <p>The committee coordinating the federal government&#8217;s privatization projects published a new proposal in the Federal Gazette that is advantageous for players interested in accelerating the exploitation of strategic minerals in Brazilian soil. It proposes the creation of the so-called Pro-Strategic Minerals policy — which, in broad terms, facilitates licensing processes for mining projects related to &#8220;strategic substances.&#8221;</p> <p><strong>Why it matters.</strong> The current administration is already under enormous scrutiny for its laissez-faire approach to deforestation. Removing controls from mining projects will hardly have a positive effect on the country&#8217;s image —&nbsp;which is already impacting foreign investments from funds guided by ESG (environmental, social, and governance) standards.</p> <p><strong>What would change.</strong> Companies would have to respond to an <a href="https://pesquisa.in.gov.br/imprensa/jsp/visualiza/index.jsp?data=04/08/2020&amp;jornal=515&amp;pagina=14">extensive questionnaire</a> including information on the mining site&#8217;s distance to indigenous reserves and caves, and whether it requires the cutting down of native vegetation. Analysts fear the questionnaire could be used to bypass environmental licensing processes.&nbsp;</p> <ul><li>Once this process is concluded, the project in question becomes a government &#8220;priority,&#8221; which includes &#8220;support in environmental licensing&#8221; — legalese that suggests rules will be made more flexible.</li></ul> <p><strong>What is a strategic mineral?</strong> According to the privatization committee, they are: (1) minerals on which the country relies on imports to supply &#8220;vital sectors of the economy,&#8221; such as potassium; (2) those that could be used &#8220;in high-tech industries,&#8221; such as niobium —&nbsp;a <a href="https://brazilian.report/power/2019/12/05/brazil-president-jair-bolsonaro-niobium/">personal obsession of President Jair Bolsonaro&#8217;s</a>; (3) minerals which weigh heavily on Brazil&#8217;s trade balance, such as iron.</p> <p><strong>No disguise.</strong> While it is hard to call Brazil&#8217;s Environment Ministry &#8220;<a href="https://brazilian.report/environment/2020/05/28/environment-minister-really-running-cattle-herd-through-amazon/">environment-friendly</a>,&#8221; it is telling that it does not hold a single seat on the inter-ministerial privatization committee.</p> <hr class="wp-block-separator"/> <h2>The coronavirus cabinet</h2> <p>Jorge Oliveira, the president&#8217;s Secretary-General, has tested positive for the coronavirus —&nbsp;becoming the eighth member of Jair Bolsonaro&#8217;s 23-person cabinet to do so. In just over a month, the number of people working at the presidential palace who contracted Covid-19 jumped 65 percent, with 70 of the 178 cases being confirmed over the past 30 days.</p> <ul><li>This comes after President Jair Bolsonaro — who has often chosen not to wear a mask in public —&nbsp;announced on July 7 that he had contracted the virus.</li></ul> <p><strong>Why it matters.</strong> On July 8, Brasília correspondent Renato Alves reported that not wearing masks inside public buildings was considered a <a href="https://brazilian.report/power/2020/07/08/not-wearing-masks-a-badge-of-honor-in-bolsonaro-government/">badge of honor</a> by many in Jair Bolsonaro’s administration.</p> <ul><li>One 51-year-old public servant who has worked for the government for 20 years told <strong>The Brazilian Report</strong> that those wearing masks to work in Brasília are labeled as “enemies of the state.”</li></ul> <hr class="wp-block-separator"/> <h2>Supreme Court calls foul play on Sérgio Moro</h2> <p>Former President Luiz Inácio Lula da Silva obtained a win at the Supreme Court. A three-justice panel removed from a criminal case against him the damaging contents of depositions made by his former Finance Minister, Antonio Palocci. The court found that former judge Sergio Moro, who oversaw the case, did not properly perform his role as an &#8220;unbiased umpire,&#8221; making the statements public less than a week before the first round of the 2018 election.</p> <p><strong>Context.</strong> Lula was barred from the 2018 election due to his multiple corruption convictions. His understudy, Fernando Haddad, used the former president&#8217;s image to exhaustion — going as far as saying &#8220;Haddad is Lula, Lula is Haddad.&#8221; Justices believe that, by making a damaging (and unproven) statement linking Lula to several corruption schemes days away from the election —&nbsp;and without being asked to do so by prosecutors, Mr. Moro tried to tip the scales against the ex-president.</p> <ul><li>The statements were made public just as Mr. Haddad had narrowed the gap to frontrunner Jair Bolsonaro, from 19 to 7 points. After that moment, Mr. Bolsonaro jumped ahead and remained out of reach until the election. It is impossible to measure how much of an effect the release of the plea deal had on voters —&nbsp;but it hints at Mr. Moro&#8217;s motivations.</li><li>Mr. Moro&#8217;s case is not helped by the fact that, weeks later, he agreed to become Justice Minister in the Bolsonaro administration.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3389063" data-url="https://flo.uri.sh/visualisation/3389063/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Why it matters.</strong> The decision comes as Operation Car Wash lives its darkest days, with attacks from multiple angles. These attacks&nbsp;— which jeopardize the very future of Brazil&#8217;s largest-ever anti-corruption effort — are motivated by a reaction of the political establishment, but also by the operation&#8217;s multiple transgressions in the name of a &#8220;greater good.&#8221;</p> <p><strong>Moro.</strong> The Supreme Court is yet to decide whether or not Mr. Moro&#8217;s conviction of Lula should be voided due to the judge&#8217;s bias, as has been requested by the former president&#8217;s defense. The trial is expected to be a 6-5 vote, but it remains unclear to which side.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Interest rates.</strong> The Central Bank&#8217;s Monetary Policy Committee will announce Brazil&#8217;s new benchmark interest rate this afternoon. Markets overwhelmingly expect a cut from 2.25 to 2 percent a year. Analysts will hold out for the minutes of the committee&#8217;s meeting, which will indicate the possibility of further cuts. The perception of an <a href="https://brazilian.report/newsletters/brazil-daily/2020/08/04/brazilian-government-sweating-over-next-years-budget/">increased fiscal risk</a> leads many to believe that the trend of falling rates will not continue.</li><li><strong>Intelligence. </strong>Supreme Court Justice Cármen Lúcia gave Justice Minister André Mendonça 48 hours to provide an explanation for his department&#8217;s secret intelligence report on civil servants and law enforcement officers who present themselves on social media as being &#8220;anti-fascist.&#8221; Data was gathered on almost 600 people, in a move many compared to the modus operandi of a political police. On Saturday, <strong>The Brazilian Report</strong> revealed — before Brazil&#8217;s main news outlets did — that <a href="https://brazilian.report/power/2020/08/01/is-bolsonaro-launching-his-own-private-intelligence-agency/">President Jair Bolsonaro changed the powers of the Brazilian Intelligence Agency</a>, giving it more freedom to act and introducing special divisions.&nbsp;&nbsp;</li><li><strong>Expiration date?</strong> When taking office as Brazil&#8217;s interim Health Minister, Eduardo Pazuello said he would hold the position for no longer than three months — a deadline set to expire next week. Still, the government shows no sign it intends on replacing him. When Mr. Pazuello took the job, Brazil had 218,200 <a href="https://brazilian.report/coronavirus-brazil-live-blog/">coronavirus cases</a> and 14,800 deaths. This count is now at 2.8 million and almost 96,000 deaths.</li><li><strong>Police ops. </strong>The Supreme Court upheld a June 5 decision by Justice Edson Fachin ti suspend all police operations within favelas during the pandemic — except in extraordinary circumstances and with a written report to justify the action. In the first month Justice Fachin&#8217;s decision was enforced, <a href="https://brazilian.report/opinion/2020/05/23/favela-black-lives-matter-brazil-rio-police-brutality/">deaths dropped 70 percent</a>, with the number of reported crimes against human life were down 48 percent and those against private property, 40 percent.</li><li><strong>Poisoning.</strong> In January 2020, a small group of people in the state of Minas Gerais started to fall ill, with ten of them dying due to a mysterious disease. It turned out they had been poisoned by a beer produced by local brewing company Backer. The beverage was contaminated with two toxic refrigerating substances — but the producer always sustained it was an &#8220;isolated event.&#8221; A new report by Brazil&#8217;s Agriculture Ministry released on Tuesday confirms that batches produced as early as January 2019 were already contaminated, in what authorities called an unprecedented case of poisoning in Brazil. In June, 11 people linked to Backer were indicted for homicide, contamination of food products, and bodily injury.