Brazil’s retail recovery is losing steam

. Dec 11, 2020
retail brazil Food sales have anchored Brazil's recent retail "boom." Photo: Luciano Spagnol Ribeiro/Shutterstock

This newsletter is for PREMIUM subscribers only. Become one now!

Today, we look behind the numbers of Brazil’s recent rise in retail. São Paulo starts producing Covid-19 vaccines. And the Brazilian Navy launches a new submarine.

Retail sales beat expectations, but recovery slows

Retail sales grew by 0.9 percent between September and October.

The result obliterated expectations of just 0.1 percent — according to Bloomberg — and official data shows the sector is at a level 8 percent higher than in February, just before the pandemic hit.</p> <ul><li>However, retail results could have been even better had it not been for rising inflation rates scaring off lower-income consumers, who have focused their spending on essential products.</li></ul> <p><strong>Yes, but … </strong>The retail boom is tied to the expansion of credit to individuals, which rose 4.6 percent in October. The coronavirus emergency salary — despite being cut in half since September and set to expire after December — also plays a huge role in Brazilians willingness to consume. But the pace of growth has died down considerably over the past six months.</p> <p><strong>Why it matters. </strong>In Brazil, family consumption is a <a href="">massive contributor to the GDP</a>, ahead of government consumption and investment.</p> <p><strong>Not evenly distributed.</strong> Social isolation spurred a 45-percent boom in e-commerce, bringing its share to some 12 percent of the entire retail sector. Meanwhile, brick and mortar stores have suffered: an estimated 135,000 shops (mostly small businesses) went out of business in 2020, reducing the national retail base by 10 percent, even with government support.&nbsp;</p> <hr class="wp-block-separator"/> <h2>São Paulo starts producing CoronaVac before regulatory approval</h2> <p>The São Paulo-based Butantan Biological Institute has started to produce the CoronaVac, a potential coronavirus vaccine developed by Chinese pharmaceutical giant Sinovac Biotech. According to state authorities, Butantan&#8217;s production facility will now operate 24/7 in order to get enough doses ready for January 25, when Governor João Doria intends on starting the state&#8217;s immunization plan.</p> <ul><li>The decision, however, comes before the vaccine has obtained clearance from regulators. Results from phase 3 trials will only be submitted to the National Health Surveillance Agency (Anvisa) on December 15, in a push to gain approval by January 15.</li><li>&#8220;I have no doubt that a vaccine proven to be safe in tests in Europe and Asia will get the green light here,&#8221; Mr. Doria told reporters.</li></ul> <p><strong>Why it matters.</strong> The CoronaVac might be the most advanced potential vaccine for Brazil. Besides São Paulo&#8217;s deal with Sinovac, the only other guaranteed purchase is a 100-million-dose order to British-Swedish lab AstraZeneca. Initially seen as a frontrunner for regulatory clearance, that vaccine has fallen behind competitors after multiple miscues and transparency issues.</p> <ul><li>A total of 11 state administrations and 900 municipalities have initiated talks to purchase the CoronaVac, and Mr. Doria has promised to make at least 4 million doses available to regions outside of São Paulo.</li></ul> <p><strong>Meanwhile …</strong> The Supreme Court is set to trial a case next week that would allow state governors to purchase vaccines that have been approved by foreign regulatory agencies, a maneuver that is technically permitted by an anti-coronavirus law ratified in February.</p> <hr class="wp-block-separator"/> <h2>Brazilian Navy launches new submarine</h2> <p>Navy officials will launch the country&#8217;s new Humaitá submarine today, the second unit of a massive defense program budgeted at BRL 37.1 billion (USD 7.4 billion). Created in 2008, the ProSub program will produce four conventional diesel-electric submarines and one <a href="">nuclear submarine</a> — and has already taken up BRL 20.8 billion in investment.</p> <ul><li>ProSub will help Brazil replace a fleet of five Tupi submarines bought from Germany in the 1980s — all of which are already obsolete when compared to newer models.</li><li>Moreover, deploying a nuclear-powered submarine would put Brazil in an exclusive group, currently made up of just six countries: the U.S., Russia, France, the United Kingdom, China, and India.</li></ul> <p><strong>Why it matters.</strong> Having a well-equipped Navy is crucial for the control of Brazil&#8217;s territorial waters. The Atlantic Ocean is where the country drills 85 percent of its oil, 75 percent of its natural gas, and gets 45 percent of its fish — being a source of wealth the military calls &#8220;Brazil&#8217;s Blue Amazon.&#8221;</p> <ul><li>The ProSub program is also part of Brazil&#8217;s strategy to extend its so-called &#8220;territorial sea&#8221; — the area in the ocean over which Brazil holds exclusive economic rights — by 4.5 million square kilometers.</li></ul> <p><strong>Yes, but … </strong>The project has been marred by budget cuts, which have caused several delays. Shipyard ICN — a joint venture between the Brazilian Navy, Odebrecht, and France&#8217;s Naval Group — is reportedly seeking alternatives to avoid losing its workforce between the first stage of the project and the second nuclear stage, as budgetary constraints will force a hiatus between the two phases.</p> <iframe src="" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Currency. </strong>Ratings agency Standard &amp; Poor&#8217;s <a href="">kept</a> Brazil&#8217;s sovereign debt rating at BB- (three levels below investment grade) as well as its stable outlook. However, analysts warned that the pace of structural reforms has been too slow and Brazil will face a massive budget deficit for at least the next two years. Reuters <a href="">reports</a> that on welfare payments held over to next year alone, the government faces a BRL 35-billion (USD 6.9 billion) budget hole.</li><li><strong>Meat business. </strong>A court in Rio de Janeiro froze BRL 528 million in assets of J&amp;F, the parent company of meat-processing giant JBS. The group is accused of paying kickbacks to politicians (disguised as campaign donations) in exchange for tax breaks. Earlier this week, company controllers Wesley and Joesley Batista were forced to agree to a BRL 1-billion fine in order to preserve their 2017 plea deal bargain with federal prosecutors, in which they provided information on their detailed schemes to bribe elected officials.</li><li><strong>Tourism.</strong> Gilson Machado, the <a href="">newly-empowered Tourism Minister</a>, said &#8220;the sector cannot withstand a new lockdown.&#8221; Despite a recent spike in cases and deaths, Mr. Machado claims the country is in &#8220;full recovery mode&#8221; and expects air travel to continue rising again. According to the National Confederation of Commerce, at least 50,000 tourism companies went under during the pandemic — and the sector amassed losses of BRL 208 billion by October.</li><li><strong>Mayor.</strong> Maguito Vilela, the mayor-elect of Brazil&#8217;s tenth-largest city Goiânia, has reportedly suffered a pulmonary hemorrhage. Mr. Vilela has been in the hospital since late October to treat a severe Covid-19 infection and was intubated prior to the first round of the 2020 municipal elections — never becoming aware that he won the vote. If he fails to recover, the city would be <a href="">thrown into uncertainty</a> about who will take office on January 1, 2021.</li><li><strong>Death.</strong> Joseph Safra, founder of the Safra banking group and Brazil&#8217;s richest man, <a href="">died on Thursday, aged 82</a>. Born in Lebanon, he belonged to the fourth generation of a traditional family of bankers and came to Brazil in the 1950s. A conservative investor, Mr. Safra built an institution reputed to be crisis-proof, but also less responsive to innovation. The last living member of an era of high-profile &#8220;big Brazilian bankers,&#8221; Joseph Safra was also notable for his charity work.

Read the full story NOW!

Our content is protected by copyright. Want to republish The Brazilian Report? Email us at