Brazilians go it alone as individual companies boom

. Feb 10, 2021
Brazilians go it alone as individual companies boom The retail sector has boomed with individual entrepreneurs. Photo: Yura Krasil/Shutterstock

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Today, more new companies set up shop in Brazil than ever before. Congress looks to reinstate emergency aid, but markets are worried about how they plan to pay for it. Supreme Court Justice says government could be prosecuted for Manaus crisis.

Brazil sees an epidemic of entrepreneurship

The pandemic has driven the number of bankruptcies in Brazil to record-shattering levels.

Still, never in history have so many new companies opened up for business. There were 3.36 million in 2020, taking the total tally of operating firms to 20 million, an all-time high. But the raw numbers could hide one aspect of this surge: most new companies created in Brazil are so-called &#8220;individual microentrepreneurs,&#8221; or MEIs. </p> <ul><li>MEIs accounted for 77 percent of the businesses that opened their doors last year.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/5252129"><script src=""></script></div> <p><strong>Why it matters.</strong> Instead of being proof of economic dynamism, the surge of individual companies reveals the rapid precarization of the labor market.&nbsp;</p> <p><strong>Irreversible trend? </strong>Brazil&#8217;s 2017 labor reform allowed companies to hire outsourced employees for their core business, as opposed to restricting this right to support staff. As a result, firms are more inclined to employ individual &#8220;businesses&#8221; rather than hiring formal workers.&nbsp;</p> <ul><li>In legal terms, employers are simply paying for the services of autonomous contractors, without the need to provide a series of labor rights guaranteed to individuals by law.&nbsp;</li><li>And in practice, these individual companies end up with the same routines, tasks, and obligations as regular employees — without the added benefits.</li></ul> <p><strong>Flipside.</strong> The other side of the story is the people who lost their jobs and had to reinvent themselves as autonomous workers. Many of these new business owners are trying to make a profit from the recent boom in e-commerce sales, which rose 40 percent last year.</p> <ul><li>No sector saw a bigger turnover of companies than retail. That indicates a trend of replacing brick-and-mortar establishments — ailing from coronavirus-related restrictions — with online stores, which require much less infrastructure and logistics.</li></ul> <p><strong>Less bureaucracy.</strong> Per the Economy Ministry, the average time to <a href="">open a new business</a> in Brazil was 2 days — 11 percent less than before the pandemic. Almost half of new companies were set up within a single day.</p> <hr class="wp-block-separator"/> <h2>Congress wants aid without austerity. Markets freak out</h2> <p>The <a href="">return of the coronavirus emergency aid</a> is being treated in Brasília corridors as a <em>fait accompli</em>. With millions falling below the poverty line and a slow vaccination effort that could see the country&#8217;s economic outlook remain negative for months — not to mention the proximity to the 2022 election — lawmakers are set to vote on a new aid package after next week&#8217;s Carnival holiday.</p> <p><strong>Why it matters.</strong> Senate President Rodrigo Pacheco showed discomfort on Tuesday over the possibility of conditioning a new aid program to austerity measures that would compensate for the initiative&#8217;s BRL 18 billion (USD 3.3 billion) price tag.&nbsp;</p> <ul><li>As expected, markets reacted negatively — with the Brazilian currency losing ground against the U.S. Dollar and the country&#8217;s <a href="">5-year credit default swaps</a> (used as a measure of the country&#8217;s risk) rising after weeks of drops.</li></ul> <p><strong>What they are saying.</strong> Congress wants to revive the so-called &#8220;War Budget,&#8221; a parallel budget for coronavirus-related spending that was put in place last year. While the move would prevent the government from breaching its spending cap — which is an impeachable offense — it does nothing from the fiscal austerity standpoint. Investors are worried that Brazil&#8217;s debt-to-GDP ratio, already at 89 percent, could spiral out of control.</p> <p><strong>K-shaped recovery.</strong> The pandemic has heightened one of Brazil&#8217;s most glaring problems: social inequality. Official data shows that the richest 10 percent of the Brazilian population lost 3 percent of their income during the coronavirus crisis, while the bottom 40 percent <a href="">lost 32 percent of income from work</a>, discounting government-paid benefits.</p> <div class="flourish-embed flourish-scatter" data-src="visualisation/5252688"><script src=""></script></div> <hr class="wp-block-separator"/> <h2>Government could be found criminally liable for Manaus</h2> <p>Supreme Court Justice Gilmar Mendes said on Tuesday that the federal government could be punished — both criminally and in civil courts —&nbsp;for the coronavirus debacle in Manaus. A new Covid-19 wave drew the biggest Amazon city to a health collapse as hospitals ran out of available intensive care beds and even lacked supplies of oxygen. Dozens of patients died of asphyxiation as health units became &#8220;suffocation chambers,&#8221; according to accounts.</p> <ul><li>Per Justice Mendes, &#8220;there was a series of ineptitudes and neglect&#8221; which led to the scenes of horror witnessed in Manaus.</li></ul> <p><strong>Why it matters.</strong> Health Minister Eduardo Pazuello is already facing a formal investigation into his role in the crisis. And opposition parties want President Jair Bolsonaro to be probed as well.</p> <p><strong>Next moves.</strong> The Federal Accounts Court has given the city of Manaus ten days to respond whether local authorities were coerced into using chloroquine to treat Covid-19 patients. The drug is used against malaria and has no proven effect against the coronavirus, but has been touted as a &#8220;possible cure&#8221; by Mr. Bolsonaro.</p> <ul><li>On January 7, the Health Ministry reportedly sent a memo to Manaus health officials saying it would be &#8220;inadmissible&#8221; for the city to refuse to follow federal guidelines and administer treatments based on chloroquine. The accounts court wants a copy of that document.</li></ul> <p><strong>Oxygen crisis. </strong>Besides Manaus, Sub-Saharan Africa, parts of Asia, and other Latin American countries are facing shortages of oxygen tanks. In Mexico, the government ordered the national guard to protect trucks carrying supplies to avoid heists.</p> <p><strong>By the numbers.</strong> Brazil has recorded over 9.6 million confirmed infections and 234,000 confirmed deaths by the coronavirus.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Inflation.</strong> After climbing for five months in a row, Brazil&#8217;s official inflation rate slowed its rise and ended the month of January at 0.25 percent — the lowest since August 2020. For many Brazilian families, however, the overall inflation index means little, as <a href="">food prices</a> continue to soar regardless — in January, they went up another 1.06 percent. Moreover, delivery workers and ride-hailing app drivers (which is the sector that <a href="">currently creates the most jobs in Brazil</a>) are feeling the pinch of rising fuel prices, which lowers their margins. </li><li><strong>Central Bank. </strong>The House decided to fast-track a bill granting <a href="">formal independence</a> to the Brazilian Central Bank and a floor vote is expected to happen today. The proposal states that the monetary authority’s board members must serve terms that do not coincide with those of the president, thus shielding monetary policy from political interference — at least in theory.</li><li><strong>Vaccines 1. </strong>The government once again lifted regulatory hurdles for coronavirus vaccines, now exempting those which are part of the UN-backed COVAX facility from the need for regulatory approval. Brazil is expected to <a href="">receive 10.6 million</a> doses in the first half of the year — mainly from AstraZeneca — out of a total of 42 million.</li><li><strong>Vaccines 2.</strong> Many Brazilian cities have caused controversy by prioritizing <em>all</em> health workers in the line for <a href="">coronavirus vaccines</a> — instead of just those working on the frontline. In these cases, biologists, therapists, and physical education teachers are lawfully receiving vaccines ahead of senior citizens — considered the top priority among the general public. While the Health Ministry does recommend that only frontline professionals should be at the top of the queue, states and municipalities enjoy a certain degree of autonomy in making that decision. The lack of clarity in the priorities for immunization led the Supreme Court to order the government to <a href="">establish clear criteria</a> for the entire country.</li><li><strong>Technology. </strong>Contactless payments <a href="">grew</a> 470 percent in 2020 and transactions amounted to BRL 41 billion (USD 7.6 billion). While the technology is becoming more available, the growth in its use can partly be explained by the pandemic, with consumers believing contactless transactions help avoid the risk of transmitting the coronavirus. Banks and credit card companies have raised the maximum limit for transactions without needing the use of PIN numbers.</li><li><strong>Podcast.</strong> After a brief hiatus, our <a href="">Explaining Brazil podcast</a> is back! This week&#8217;s episode talks about the Brazilian Communications Ministry&#8217;s roadshow in Europe and Asia to negotiate vaccine supplies — using the upcoming 5G auction as a bargaining chip. <a href="">Listen now!</a>

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