THE WEEK IN REVIEW

  • Problems ahead. Just this week, President Jair Bolsonaro contradicted his top two cabinet members. After Justice Minister Sergio Moro invited a gun control activist to an unpaid consultant position, Mr. Bolsonaro promptly ordered her dismissal. But the more worrisome episode involved Economy Minister Paulo Guedes. The president admitted to the possibility of diluting the pension system—against everything his economic guru has said. 
  • Oil. Brazil’s energy council announced the government will hold an auction on October 28 for production sharing contracts for companies to explore areas that it says hold “significant volumes of oil and gas.” The reserves are from the so-called Transfer of Rights area—a high-yield, pre-salt region currently being explored by state-run oil company Petrobras.
    </li> <li><strong>Venezuela.</strong><strong> </strong>Juan Guaidó, the leader of the Venezuelan opposition to Nicolás Maduro, visited President Jair Bolsonaro in Brasília. Mr. Guaidó is recognized by over 50 countries—Brazil included—as Venezuela&#8217;s legitimate head of state. Last week, however, Mr. Maduro grew politically stronger as he managed to block humanitarian aid from the U.S. through Colombia and Brazil.</li> <li><strong>Central Bank.</strong><strong> </strong>Roberto Campos Neto was confirmed by the Senate as Brazil&#8217;s new Central Bank president. He takes the job with the country in much better shape than when his predecessor, Ilan Goldfajn, was handed the reins. Even if Brazil&#8217;s benchmark interest rate is at its lowest ever (6.5%/year) there is room for more cuts, as the country&#8217;s economy continues to post pedestrian growth rates. In 2018, Brazil&#8217;s GDP expanded by 1.1%.</li> <li><strong>Lula.</strong><strong> </strong>After missing out on his brother&#8217;s funeral after a legal battle, former President Lula was authorized on Friday to attend the funeral of his 7-year-old grandson who died of meningitis yesterday. Since April 7, 2018, Lula has served a 12-year prison sentence for corruption and money laundering (and has recently been convicted in another similar case). Brazilian prisoners have the right to attend funerals of close family members.</li> </ul> <div class="et_social_inline et_social_mobile_on et_social_inline_bottom"> <div class="et_social_networks et_social_autowidth et_social_slide et_social_rectangle et_social_left et_social_no_animation et_social_outer_dark"> <ul class="et_social_icons_container"><li class="et_social_facebook"> <a href="https://www.facebook.com/sharer.php?u=https://brazilian.report&amp;t=homepage" class="et_social_share" rel="nofollow" data-social_name="facebook" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_facebook"></i> <span class="et_social_overlay"></span> </a> </li><li class="et_social_twitter"> <a href="https://twitter.com/share?text=homepage&amp;url=https://brazilian.report" class="et_social_share" rel="nofollow" data-social_name="twitter" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_twitter"></i> <span class="et_social_overlay"></span> </a> </li><li class="et_social_whatsapp"> <a href="https://api.whatsapp.com/send?text=homepage - https://brazilian.report" class="et_social_share" rel="nofollow" data-social_name="whatsapp" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_whatsapp"></i> <span class="et_social_overlay"></span> </a> </li><li class="et_social_linkedin"> <a href="https://www.linkedin.com/shareArticle?mini=true&amp;url=https://brazilian.report&amp;title=homepage" class="et_social_share" rel="nofollow" data-social_name="linkedin" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_linkedin"></i> <span class="et_social_overlay"></span> </a> </li></ul> </div> </div> <p>&nbsp;</p> <h4>CHART OF THE WEEK</h4> <h2>Bolsonaro&#8217;s approval ratings <a id="2" name="2"></a><a id="2" name="2"></a></h2> <table class="mcnTextContentContainer" border="0" width="100%" cellspacing="0" cellpadding="0" align="left"> <tbody> <tr> <td class="mcnTextContent" valign="top">This week, polling institute MDA and brokerage firm XP published the first opinion polls assessing President Jair Bolsonaro&#8217;s approval ratings—the former focused on the electorate, while the latter polled investors and representatives of financial firms. While Mr. Bolsonaro has lost a lot of support in both polls—showing that being a sitting president is much tougher than being president-elect—he remains much more popular among investors.</p> <p><img class="alignnone size-large wp-image-14200" src="http://brazilian.report/wp-content/uploads/2019/03/cc92d624-7bb9-4359-81b8-99ae29bf44ec-1024x280.png" alt="" width="1024" height="280" /><img class="aligncenter size-full wp-image-16928" src="https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80.png" alt="" width="1200" height="800" srcset="https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80.png 1200w, https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80-610x407.png 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></td> </tr> </tbody> </table> <p>&nbsp;</p> <p>The dependency ratio is calculated by comparing the size of the population aged 65 and over with the current productive age range (15-64). A low dependency ratio, such as that of Brazil, means there is a sufficient number of people of working age to contribute to the retirement of the elderly. However, despite Brazil&#8217;s favorable ratio, its percentage of GDP spent on pensions is very high indeed. Simply put, the country cannot afford its current pensions system. If the 2060 projections are correct, Brazil will be saddled with a dependency rate larger than that of Japan&#8217;s, which already spends significantly less on pensions.</p> <p>It would not be accurate, however, to say that Brazil is &#8220;spending too much on pensions&#8221; in a general sense. The primary deficits are in fact restricted to certain sectors of the country&#8217;s labor force, with civil servants and the military being the biggest drains on the system. Brazil loses over BRL 63,000 per capita on the pensions of government workers, and almost BRL 130,000 for each retired member of the military.</p> <div class="et_social_inline et_social_mobile_on et_social_inline_bottom"> <div class="et_social_networks et_social_autowidth et_social_slide et_social_rectangle et_social_left et_social_no_animation et_social_outer_dark"> <ul class="et_social_icons_container"><li class="et_social_facebook"> <a href="https://www.facebook.com/sharer.php?u=https://brazilian.report&amp;t=homepage" class="et_social_share" rel="nofollow" data-social_name="facebook" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_facebook"></i> <span class="et_social_overlay"></span> </a> </li><li class="et_social_twitter"> <a href="https://twitter.com/share?text=homepage&amp;url=https://brazilian.report" class="et_social_share" rel="nofollow" data-social_name="twitter" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_twitter"></i> <span class="et_social_overlay"></span> </a> </li><li class="et_social_whatsapp"> <a href="https://api.whatsapp.com/send?text=homepage - https://brazilian.report" class="et_social_share" rel="nofollow" data-social_name="whatsapp" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_whatsapp"></i> <span class="et_social_overlay"></span> </a> </li><li class="et_social_linkedin"> <a href="https://www.linkedin.com/shareArticle?mini=true&amp;url=https://brazilian.report&amp;title=homepage" class="et_social_share" rel="nofollow" data-social_name="linkedin" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_linkedin"></i> <span class="et_social_overlay"></span> </a> </li></ul> </div> </div> <p>&nbsp;</p> <h4>MONEY</h4> <h2>Why Brazil&#8217;s richest man is no longer Brazil&#8217;s richest man</h2> <p>Brazil’s legendary businessman Jorge Paulo Lemann is no longer the richest man in the country, after seeing his net worth shrink more than USD 4bn in the past year, according to Forbes. Although he still has some USD 23bn to spare, losing the crown to banker Joseph Safra says a lot about how his management style may be at stake.</p> <p>The three main companies managed by Lemann’s fund, 3G Capital—Kraft+Heinz, Restaurant Brands International (Burger King’s controller) and AB InBev—lost around 30.5% of their market value in the past year.</p> <p>AB InBev saw its profits fall 14.7% last year. In Brazil, Ambev, the beer manufacturer controlled by AB InBev, registered a fall on domestic beer sales during Q4 2018, which BTG Pactual analysts said was “disappointing with no signs of improvement.” Ambev’s shares fell 6.15% in São Paulo after the numbers were released. Meanwhile, Kraft+Heinz shares <a href="https://www.cnbc.com/2019/02/21/kraft-heinz-tanks-after-disclosing-it-was-subpoenaed-by-sec-over-accounting-policies.html" target="_blank" rel="noopener noreferrer">crashed 27% last week</a> after the company reported a USD 15.4 billion impairment that caused a USD 12.6 billion loss, an investigation by the U.S. Securities and Exchange Commission into accounting practices slashed its dividends by 36%.</p> <p>Both companies seem to share the same problems: a different consumer mindset and their management style.</p> <p><img class="alignnone size-large wp-image-14201" src="http://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80-1024x683.png" alt="" width="1024" height="683" /><img class="aligncenter size-full wp-image-16928" src="https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80.png" alt="" width="1200" height="800" srcset="https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80.png 1200w, https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80-300x200.png 300w, https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80-768x512.png 768w, https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80-1024x683.png 1024w, https://brazilian.report/wp-content/uploads/2019/03/02142eaf-4ea6-4097-bf40-1afcd174fe80-610x407.png 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <p>For years, 3G Capital’s way of doing business, forged by Mr. Lemann and his partners Carlos Alberto Sicupira, and Marcel Telles, was seen as a <a href="https://blogs.oglobo.globo.com/aqui-se-bebe/post/como-brasileiros-e-belgas-criaram-juntos-maior-cervejaria-do-mundo.html" target="_blank" rel="noopener noreferrer">blueprint for success</a>. Aggressive sales, though cost control and plenty of acquisitions, provided results for a long time. But it now seems to be causing more problems than it is solving.</p> <p>Kraft+Heinz failed in acquiring Unilever and sees its consumers preferring healthier and fresher foods; AB InBev actually merged with SABMiller and is the largest brewer in the world, but clients are opting for craft and premium beers.</p> <p>“The least concerning is the accounting issue. Most concerning is that companies like Kraft have, to use the word, blown up, over the last year. (&#8230;) I think that’s all due to the fact that consumers are not eating the same kind of food they used to. That’s where the root of their problems are,” said JPMorgan analyst Ken Goldman about Kraft+Heinz in a CNBC interview. The bank cut Kraft+Heinz from overweight to neutral and slashed the price target to USD 37 from USD 52 after the results.</p> <p>Mr. Goldman is not the only one to see the problems. Mega-investor Warren Buffet, who holds a stake at Kraft Heinz recently said he “overpaid for Kraft,” but does not intend to sell such a large stake. Will Mr. Lemann be able to convince the market to do the same?</p> <div class="et_social_inline et_social_mobile_on et_social_inline_bottom"> <div class="et_social_networks et_social_autowidth et_social_slide et_social_rectangle et_social_left et_social_no_animation et_social_outer_dark"> <ul class="et_social_icons_container"><li class="et_social_facebook"> <a href="https://www.facebook.com/sharer.php?u=https://brazilian.report&amp;t=homepage" class="et_social_share" rel="nofollow" data-social_name="facebook" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_facebook"></i> <span class="et_social_overlay"></span> </a> </li><li class="et_social_twitter"> <a href="https://twitter.com/share?text=homepage&amp;url=https://brazilian.report" class="et_social_share" rel="nofollow" data-social_name="twitter" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_twitter"></i> <span class="et_social_overlay"></span> </a> </li><li class="et_social_whatsapp"> <a href="https://api.whatsapp.com/send?text=homepage - https://brazilian.report" class="et_social_share" rel="nofollow" data-social_name="whatsapp" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_whatsapp"></i> <span class="et_social_overlay"></span> </a> </li><li class="et_social_linkedin"> <a href="https://www.linkedin.com/shareArticle?mini=true&amp;url=https://brazilian.report&amp;title=homepage" class="et_social_share" rel="nofollow" data-social_name="linkedin" data-post_id="14195" data-social_type="share" data-location="sidebar"> <i class="et_social_icon et_social_icon_linkedin"></i> <span class="et_social_overlay"></span> </a> </li></ul> </div> </div> <p>&nbsp;</p> <p><span style="font-size: 1.7em;">

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BY Gustavo Ribeiro

An award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.