Brazil’s latest privatization plan a risk for data privacy?

serpro privatization data Serpro headquarters, in Brasília. Photo: Serpro

Good morning! This week, the privatization of Brazil’s data processing company—no one is (but should be) talking about. Jair Bolsonaro’s stable approval ratings. And the government’s success whipping votes in Congress. And the government’s success whipping votes in Congress. (This newsletter is for platinum and gold subscribers only. Become one now!)

The biggest privatization in Brazil no one is talking about

Economy Minister Paulo Guedes has not been shy about his willingness to privatize every single one of Brazil’s 138 federally-owned companies.

And while everyone has talked about the potential selling off of mammoths such as Eletrobras (electricity) or Correios (postal service), one major company that could go private has flown under the radar: Serpro, the Federal Data Processing Service.</p> <p><strong>Why it matters. </strong>Serpro holds a de facto monopoly of developing platforms for government agencies and houses the personal data of <em>every single Brazilian alive</em>. And data has become <a href="">the world&#8217;s most valuable resource</a>.</p> <p><strong>Serpro.</strong> Created to process and store data from the Treasury Department, Serpro currently has three lines of action:</p> <ul><li>Collecting and extracting data for private clients (limited to a few types of data);</li><li>Developing software for the government;</li><li>Offering idle processing capacity.</li></ul> <p><strong>The plan.</strong> With a payroll at BRL 1.7 billion (for 9,000 employees), Serpro is a tough asset to move. The government plans on holding an initial public offering of the firm, although it remains uncertain whether the administration is willing to give up its controlling status. A study about how an IPO could be carried out has been commissioned with the National Development Bank, a senior source at Serpro told <strong>The Brazilian Report</strong>&#8216;s Brenno Grillo.</p> <p><strong>New business model.</strong> The company wants to rely less and less on managing processing equipment, and more on data analysis. One strategy includes teaming up with internet giants and trading the state-owned company&#8217;s idle processing capacity for space on the cloud. This kind of partnership is already possible thanks to legislation passed by the Bolsonaro administration limiting government interference in companies, and Serpro wants to hire cloud computing services by February 21, 2020.&nbsp;</p> <p><strong>Risks. </strong>Keeping Serpro&#8217;s data on a different company&#8217;s space represents a major risk for the safety of Brazilians&#8217; data held by Serpro. American companies, for example, can be forced to hand out data to U.S. government in specific situations. One Serpro source says that the Brazilian government wants to circumvent that problem by establishing a liability clause, with pre-determined penalties in cases of breaches—making punishment swift and expensive.</p> <p><strong>—</strong><strong><em> with Brenno Grillo, from Brasília</em></strong></p> <hr class="wp-block-separator"/> <h2>Optimism with the country—not with the president</h2> <p>A new study by Datafolha, Brazil&#8217;s most-prestigious pollster, shows that Brazilians are more optimistic about the country&#8217;s economic outlook. However, fewer people trust the head of state. Almost one year into Jair Bolsonaro&#8217;s presidential term, 43 percent of people have positive expectations about how he will fare as head of state. Just before his inauguration, that rate was at 65 percent.</p> <p><strong>Trust. </strong>Jair Bolsonaro&#8217;s continuous aggressive rhetoric has helped him keep a core group of supporters, representing around 30 percent of the electorate. But it also seems to have alienated less radical voters, with 43 percent saying they can &#8220;never&#8221; believe in what the president says.</p> <div class="flourish-embed" data-src="visualisation/1068448"></div><script src=""></script> <p><strong>Why it matters.</strong> According to analysts from Datafolha, the recent positive economic results have prevented Jair Bolsonaro&#8217;s popularity from going any lower. It means that the president&#8217;s future in power is, more than any of his predecessors, tied almost exclusively to the results he can deliver by 2022.&nbsp;</p> <p>This year, he has been able to blame the disastrous mess left behind by Dilma Rousseff—and partially fixed by the Michel Temer administration. But that excuse should grow old soon.</p> <p><strong>Where the president grows.</strong> The president&#8217;s polling numbers have grown better among better-educated voters, as well as among retirees. But no group has been as supportive of Mr. Bolsonaro as business owners, among whom 58 percent consider his administration as either good or great.</p> <p><strong>Still bad.</strong> Mr. Bolsonaro continues to be the least popular first-term president during the inaugural year of his time in office.</p> <p><strong>Moro.</strong> Until 2022, Mr. Bolsonaro will have to figure out how to deal with the popularity of his Justice Minister, Sergio Moro. He is known by 93 percent of the electorate, among which 53 percent consider his tenure as a positive one—much higher than Mr. Bolsonaro&#8217;s approval ratings. Mr. Moro says he would never run for office, but of course, until last year, he also said he would never enter politics—only to join Mr. Bolsonaro&#8217;s cabinet soon after.</p> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>XP Investimentos, Brazil&#8217;s largest digital platform for investments, is pricing its Nasdaq initial public offering on December 10—ranging from USD 22 to 25. Levante, a firm that provides investment recommendations, considers XP a &#8220;buy,&#8221; as the company&#8217;s profits are expected to go from BRL 774 million in 2019 to BRL 4.3 billion in 2023. Return on investment could reach at least 46 percent in five years if shares are priced at the top of the range. (For more details, <a href="">check our story today</a> on <strong>The Brazilian Report</strong>.)</p> <p><strong>— </strong><strong><em>Natália Scalzaretto</em></strong></p> <hr class="wp-block-separator"/> <h2>How much support did Jair Bolsonaro have in Congress?</h2> <p>When Jair Bolsonaro won the election in 2018, we spoke to experts to try and predict <a href="">which kind of Congress he would have to deal with</a>. They predicted a supportive one, with one caveat: Mr. Bolsonaro would have to pander to congressmen from time to time. And while the president had an <a href="">on-again, off-again relationship</a> with the legislative branch, he did manage enough support to pass the most comprehensive pension reform to date.</p> <p>The following chart is part of the eBook &#8220;1 year of Jair Bolsonaro, explained,&#8221; which <strong>The Brazilian Report</strong> will publish this week—and platinum members will receive first.</p> <p><em>How to read the chart: Each dot is a congressperson. The higher they are on the chart, the more aligned with the government they are. The closer the dots, the more cohesive the party. The central line on the box indicates the average alignment of the party with the Bolsonaro administration—in percentage of votes agreeing with the government.</em></p> <div class="flourish-embed" data-src="visualisation/1067716"></div><script src=""></script> <hr class="wp-block-separator"/> <h2>Looking ahead</h2> <p><strong>Interests.</strong> On Tuesday and Wednesday, the Central Bank&#8217;s Monetary Policy Committee will hold its final meeting of 2019. Markets overwhelmingly expect the benchmark interest rate to be cut half a percentage point to 4.5 percent a year. The question is whether this cutting cycle will continue in 2020, making the committee&#8217;s post-meeting statement more anticipated than the actual decision on the interests. Stronger GDP performance could make the committee keep the rate stable.</p> <p><strong>Prisons.</strong> The Senate&#8217;s Constitution and Justice Committee is set to vote on Tuesday on a bill to enforce prison sentences after defendants lose their first appeal. Last month, the Supreme Court established that this could only happen after all appeals are exhausted. Congressional leaders had convened that the change would come by way of a constitutional amendment, as an ordinary bill will undoubtedly be questioned in courts.</p> <p><strong>Argentina.</strong> On Tuesday, Alberto Fernández takes over as Argentina&#8217;s new president. He and his vice president—the controversial former head of state Cristina Fernández de Kirchner—promise to make a shift in the country&#8217;s economic policy and give more attention to social policies. The Brazilian government has not hidden its dislike of Mr. Fernández, with President Bolsonaro not attending the inauguration ceremony, nor sending any representatives.</p> <p><strong>GDP.</strong> The Central Bank will likely publish on Friday its latest Economic Activity Index (IBC-Br), considered to be a predictor of the country&#8217;s GDP. The data will cover the month of October, and it should indicate if Brazil will continue on its path towards growth, after Q3 numbers showed a 0.6-percent expansion against Q2 (and is up 1.2 percent against Q3 2018).</p> <p><strong>Agriculture.</strong> On Tuesday, the government will publish its new estimates for Brazil&#8217;s agricultural production in 2019 and 2020. In September, official forecasts predicted a record-setting year for grain producers—240 million tons. In 2019, Brazilian corn exporters saw their sales go way up, especially to meat-producing markets, which increase their output to supply China, after the Asian giant lost millions of hogs to a swine flu outbreak.</p> <hr class="wp-block-separator"/> <h2>In case you missed it</h2> <p><strong>Transparency.</strong> Manoel Galdino, executive director of Transparência Brasil, <a href="">revealed on <strong>The Brazilian Report</strong></a><strong> </strong>the Jair Bolsonaro administration&#8217;s plan to silently reshape Brazil&#8217;s entire regulatory framework. It came through a presidential decree requiring a review of all regulatory acts in the country within a period of 18 months. Mr. Galdino worries that &#8220;without any transparent planning or strategy, is to make any hope of adequate and qualified analysis of what is being revoked or changed impossible.&#8221;</p> <p><strong>Right-wing.</strong> At the turn of the century, the Brazilian Social Democracy Party (PSDB) lost space in the center-left to the Workers&#8217; Party. Then, it <a href="">lost space on the right-wing</a> to Jair Bolsonaro. As a push to regain prominence in the electoral scene, the party launched on Saturday a new image strategy, especially catering to conservative voters who regretted voting for Mr. Bolsonaro. One thing remains in the party&#8217;s DNA, however: there are too many politicians within the party who see themselves as presidential material. Governors João Doria (São Paulo) and Eduardo Leite (Rio Grande do Sul) will make a push to be on the ballot come 2022.</p> <p><strong>Inequality.</strong> According to the United Nations&#8217; <a href="">Human Development Index</a>, published today, Brazil is the seventh-most unequal country on earth—only behind much poorer African nations. Latin America&#8217;s largest economy ranked only 79th in human development (among 189 nations), having stagnated between 2017 and 2018. The UN measures progress in healthcare coverage, education, and income—grading them between 0 and 1. Brazil scored 0.761.</p> <p><strong>Fake news.</strong> Congresswoman Joice Hasselmann, a former ally of the government, told her peers in a hearings committee about how the Bolsonaro family’s &#8220;social media militias&#8221;—as she calls them—operate. Ms. Hasselmann offered unknown details, such as names, places of work—and even the salaries of the aides in charge of attacking detractors of the president.</p> <p><strong>Cannabis.</strong> Brazil&#8217;s Sanitary Surveillance Agency (Anvisa) has ruled to allow companies to produce and sell <a href=";mc_eid=3fe7a799a2">cannabis-based medications</a>, including in pharmacies. However, growing cannabis in Brazil remains off-limits, forcing companies to import the plant extract. The decision was considered progress, but a <a href="">Uruguay-like legalization of marijuana</a> is seen as impossible under the Bolsonaro administration.&nbsp;

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