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Good morning! We’re covering today Brazil’s GDP numbers (and what is behind their increase). Medical cannabis legalized in Brazil, with restrictions. And a new white whale on Operation Car Wash’s radar. (This newsletter is for platinum subscribers only. Become one now!)


GDP numbers: glass half-full or half-empty?

As we anticipated in yesterday’s Daily Briefing,

Brazil&#8217;s official Q3 GDP numbers showed slow but continuous growth. The economy expanded 0.6 percent over the last quarter—meaning that if growth were to be 0 between October and December, Brazil&#8217;s GPD would have grown by 1 percent in 2019.</p> <div class="flourish-embed" data-src="visualisation/1040295"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Why it matters.</strong> There are many reasons to celebrate, such as the rise in family consumption (which accounts for two-thirds of the GDP), a 2-percent hike in investments, and a second-straight positive quarter for industry.</p> <p><strong>Between the lines.</strong> Brazil has registered positive GDP results in nine of the 11 quarters since the end of the recession, in Q1 2017. The latest indicators suggest that consumers and companies alike are becoming more confident in the Brazilian economy and that it could properly kickstart soon.</p> <p><strong>New predictions.</strong> Many banks and consultancies revised their predictions for Brazil&#8217;s growth this year. Goldman Sachs pushed it up from 1 to 1.2 percent, while Citi changed its own forecast from 0.7 to 1.1 percent.</p> <p><strong>Yes, but … </strong>The virtuous cycle must be sustained—and Brazil still has structural problems that may hamper growth. Exports are down, and a high (and persistent) unemployment rate, coupled with the increase in informal jobs, still makes many analysts rein in their optimism.</p> <p><strong>Reliability.</strong> The GDP numbers may be changed, as the Economy Ministry has recently revised Brazil&#8217;s export numbers—three times in less than a week—saying it underestimated the actual revenue … by USD 6.4 billion.</p> <p>The constant revisions—which affected the performance of the Brazilian currency—have cast <a href="https://www.ft.com/content/bc552d72-15cf-11ea-9ee4-11f260415385">doubts</a> among international analysts on the reliability of Brazil&#8217;s official data.</p> <hr class="wp-block-separator"/> <h2>Medical cannabis cleared in Brazil</h2> <p>Brazil&#8217;s Sanitary Surveillance Agency (Anvisa) has ruled to allow companies to <a href="https://brazilian.report/society/2019/06/28/brazils-cannabis-regulate-medical-marijuana/">produce and sell cannabis-based medications</a>, including in pharmacies. However, growing cannabis in Brazil remains off-limits, forcing companies to import the plant extract. Just hours after Anvisa&#8217;s decision, a federal court granted one pharmaceutical company the right to import hemp seeds, leaves, and fibers.</p> <p><strong>Why it matters.</strong> The decision may ease the lives of several patients battling chronic conditions such as epilepsy, Parkinson&#8217;s, cancer, among others. Until now, they had to either pay small fortunes for their medicines or engage in lengthy and uncertain legal battles to have the public healthcare system pay for them.</p> <p>Brazil could rapidly become Latin America&#8217;s biggest market for medical cannabis, with a potential turnover of USD 2.4 billion.</p> <p><strong>Yes, but …</strong> The new regulations require heavy investments and a lot of expertise—which could lead the market to be almost exclusively dominated by Big Pharma. And while medicine prices will certainly go down, the need for importing inputs could keep them out of reach for many patients.</p> <p><strong>Investments.</strong> Brazilian pharmaceutical companies haven&#8217;t revealed their plans for cannabis-based products. But Canadian Canopy, a global leader in the sector, has recently opened a unit in São Paulo, investing BRL 60 million.</p> <hr class="wp-block-separator"/> <h2>A new white whale for Operation Car Wash?</h2> <p>A panel of Supreme Court justices accepted an indictment of long-time Senator Renan Calheiros for corruption and money laundering—his first within the scope of Operation Car Wash. He is accused of pocketing BRL 1.8 million, siphoned from a state-owned energy company.</p> <p><strong>Who is he? </strong>Renan Calheiros has been one of the most influential politicians in Brazil since democracy was restored in the mid-1980s. He served as Justice minister, congressman, and has occupied the<a href="https://brazilian.report/power/2019/01/31/renan-calheiros-senate-president/"> Senate presidency for four terms</a>. Before taking public office for the first time, Mr. Calheiros declared a Volkswagen Beetle as his sole possession—but he has recently been linked as the owner of dozens of farms and thousands of cattle … hidden under the names of shell corporations.</p> <p><strong>Why it matters.</strong> Few people know the ins and outs of corruption in Brazil better than Mr. Calheiros, himself being at the center of dozens of scandals and criminal cases. In 2007, he was accused of using the Senate Police to spy on his political enemies. Should he decide to collaborate with investigators, Mr. Calheiros would certainly have the dirt to bring down plenty of his peers.</p> <p><strong>Reaction.</strong> The senator seemed unfazed by the indictment and issued a statement recalling that two-thirds of all indictments against him ended up being shelved.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Tourism.</strong> The tourism sector is poised to have its best performance in four years, with revenue up 3.9 percent between January and September. The São Paulo Federation for Trade and Tourism attributes this to the availability of more credit, low inflation, and decreasing unemployment rates. Still, the sector has yet to reproduce 2014 numbers, when Brazil hosted the World Cup. According to the federal government, <a href="https://brazilian.report/money/2017/11/13/tourists-brazil-crisis/">the country as a whole receives fewer tourists</a> per year (6 million) than the 7 million who visit the Eiffel Tower.</p> <p><strong>Exports.</strong> Today and tomorrow, the southern city of Bento Gonçalves will be host to a Mercosur summit, during which Brazil and Paraguay will hold a round of negotiations over a trade deal concerning exports of auto parts—one of the few segments not included in Mercosur&#8217;s existing trade agreement. One of the major roadblocks is Paraguay&#8217;s insistence on importing used cars, which make up for most of the country&#8217;s fleet. Asunción also wants preferential tariffs on auto parts produced by <a href="https://brazilian.report/money/2019/09/28/paraguay-brazil-maquilas-foreign-investment/"><em>maquilas</em></a>—companies under a special tax system.</p> <p><strong>Money laundering.</strong> After allowing tax authorities to flag suspicious behavior by citizens and companies to law enforcement, the Supreme Court will today decide whether Brazil&#8217;s money laundering enforcement agency will be allowed to do the same. The agency is usually the first step into investigating white-collar crime, as it makes prosecutors aware of suspicious financial transactions.</p> <p><strong>Elections.</strong> President Jair Bolsonaro got a partial win at the Superior Electoral Court, as justices decided to accept digital signatures in applications to open new political parties in Brazil. Mr. Bolsonaro is looking to create the Alliance for Brazil party and will first need the signatures of roughly 500,000 supporters in nine states—a process that would be sped up with e-signatures. But the ruling says the process needs regulation before being implemented, and there is no indication as to when this could happen.</p> <p><strong>Conservatives.</strong> Fourteen members of Congress from the Social Liberal Party linked to Jair Bolsonaro were punished for conduct detrimental to the party. Eduardo Bolsonaro, the president&#8217;s third-eldest son, was handed a 12-month suspension—which will jeopardize his position as party whip and chairman of the House&#8217;s Foreign Affairs Committee.

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BY Gustavo Ribeiro

Gustavo is the founder of The Brazilian Report, and is an award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.