Tag: Brazil

Oct 01

GDP Growth Slows amid Surging Imports and Flat Manufacturing

Brazil’s GDP Growth Slows

Brazil’s GDP grew at a 2.5 percent annualized rate in the second quarter, down from 5.4 percent in the first quarter, and somewhat lower than its year-over-year growth of 3.2 percent.  GDP is now 7.8 percent above its pre-recession peak.

Brazil's real GDP Growth

Brazil's real GDP Growth

By Sector

Brazil continued its trend toward services and away from industry.  While services contributed 1.6 percentage points to annualized quarterly growth, industry subtracted 0.1 percentage point from overall growth (the remainder of the 3.2 percentage points was contributed by agriculture and net taxes).

Brazil: Real GDP, Selected Sectors (Seas. Adj. Index)

In the first quarter, manufacturing (the worst-performing sector since the recession) began to close the gap with finance and insurance (the best-performing sector since the recession), as manufacturing grew at its fastest rate in a year while finance shrank for the first time since 2008.  In the second quarter, however, the gap widened again.  Finance returned to positive, if modest, growth at an annualized 2.3 percent rate, while manufacturing shrank by 0.8 percent, annualized.  Finance has now risen to 20 percent above its pre-recession peak, growing 4.5 percent since the second quarter of 2010.  Manufacturing, in contrast, is still struggling to reach its 2008 levels.  Since the second quarter of 2010, it has grown 1.2 percent, but since the pre-recession peak its growth has averaged an essentially-flat -0.1 percent per year.

By Expense Category

Domestic sources of demand — private consumption, government spending, and gross fixed capital formation — all grew faster than overall GDP in the second quarter.  The only expense category to hurt GDP was the worsening trade balance, discussed in more detail below.

Private consumption, government spending, and gross fixed capital formation all accelerated their growth in the second quarter.  Private consumption rose at a 3.7 percent annualized rate, up from 2.6 percent in the first quarter.  Over the last four quarters, it has grown 5.7 percent.  It has averaged 5.1 percent annual growth for the business cycle.  Government spending grew at a 5.9 percent annualized rate — its fastest growth in a year — up from 3.4 percent in the first quarter and negative 1.1 percent in the last quarter of 2010.  This brings its four-quarter growth up to 1.9 percent.  Gross fixed capital formation expanded at a 6.4 percent annualized rate, above its year-over-year growth of 6.2 percent.

Brazil: Trade Balance (Seasonally Adjusted)

Both exports and imports bounced back after losing ground in the first quarter.  However, imports grew at a much faster pace: 31.4 percent annualized compared to 9.7 percent for imports.  The result is that the trade deficit widened, from 0.4 to 0.9 percent of GDP, after two quarters of improvements.  The previous two quarters’ improvement was largely due to falling imports, so over the past four quarters, imports have grown by only 13.4 percent.  Exports have remained much more stable, growing 6.3 percent over the past four quarters.

On August 31, the central bank lowered the Selic rate from 12.5 to 12 percent, in a move that surprised markets.  The real has fallen against the dollar from 1.59 on August 31 to 1.86 today.  With the global economy slowing, it appears that Brazilian policy makers — who had previously moved to slow the economy after last year’s 7.5 percent growth — may be reversing course.  With IMF projections for economic growth in the U.S., Europe, and elsewhere revised downward in last week’s World Economic Outlook, and a number of warnings of downside risks, moves toward a more expansionary macroeconomic policy would appear prudent.

Attribution: Rebecca Ray is a Research Associate at the Center for Economic and Policy Research in Washington, D.C.  This article was first published by CEPR on 30 September 2011 under a Creative Commons license.

 

Sep 24

Protectionism let JAC Motors freezes plant opening in Brazil

One of the automakers hardest hit by the protective measure of the Dilma administration, the increase in the IPI (Excise Tax), China’s JAC Motors accused Brazil of breaching the guidelines of the WTO (World Trade Organization) and confirmed that it has frozen its plans to open a factory in the country.

“The way in which the Brazilian government raised the tax is a serious violation of the basic principles of the WTO,” said JAC Motors, in a written response to Folha.

“The discontinuous, irrational and partial Brazilian policy strongly undermined the confidence of JAC and other automakers to invest in Brazil. Therefore JAC is forced to re-evaluate its decision to invest in Brazil,” the company said.

The Chinese automaker says that the measure did not forecast an adjustment period and cites three alleged violations of Brazil to the general guidelines of the WTO: market access, fair competition and non-discrimination.

In JAC’s judgment, Brazil adopted the measure looking to limit Chinese cars, compromising fair competition. The company says that it functions without subsidies from the Chinese government and has not been accused of dumping (charging artificially low prices).

“The Brazilian government offered special treatment to Mercosul and other countries (Mexico) to the detriment of China, breaking the principle of MFN (Most Favored Nation),” the Chinese automaker says.

MFN, taken by the WTO as one of the most important guidelines for international trade, states that in normal situations, one cannot differentiate between trading partners.

$600 MILLION FACTORY

JAC also mentions that the increase in the IPI differentiates between domestic and imported products, in violation of the principle of “national treatment” whereby imported products must have the same conditions of local competition after already entering the domestic market. The directive allows customs duties which is not the case of the IPI.

Representatives of JAC met on Tuesday with the Commerce Ministry to pressure the Chinese government to act on behalf of the company. But until yesterday there was no official statement on the issue.

At the beginning of August, JAC had announced the construction of a factory in Brazil, which would start production in 2014. The planned investment was $600 million to produce 100 thousand units per year. According to the company, this would generate 3500 jobs directly and another 10,000 indirectly.

JAC is a Chinese company that sold the most cars in Brazil this year – about 14.5 thousand.

Founded in 1964, the China Anhui Jianghuai Automobile Company is headquartered in the city of Hefei (east). Last year, it sold 460 thousand units, earning 50% more than in 2009.

 

Source: Folha.com

Sep 20

Protectionism: R$ 600.000 investment threshold for investment Visas in Brazil

Brazilian government shooting in their own foot

Brazilian government shooting in their own foot

Protectionism all over the place: Brazil is closing its doors

In another attempt protecting the labour market, Brazil has raised the minimum capital requirements for granting permanent Director’s Visas in Brazil. In the past it was possible to obtain a permanent visa for intra-company transferees to work as managers, directors, or executives with a minimum investment of US$200.000. From now on, companies have to invest at least R$ 600.000 in order to obtain a visa for its foreign directors who are coming to live in Brazil. Each additional director will require another R$600.000.

On this blog I have already given other examples of protectionism by the Brazilian government. Just a few days ago I wrote an article about the massive tax increase (+30%) on imported cars. Also the wind-energy industry is experiencing the measurements to protect the local (monopolist) steel industry.

Although the increased capital requirements and the additional option to get visa for foreign managers will provide additional revenue for Brazil government and facilitate the creation of jobs in the country, they could add further stress on the already tight labour market particularly for qualified labour and possibly discourage long term productive foreign direct investments  in Brazil vis-a-vis other similar foreign direct investment destinations with a more favourable legislation on foreign labour.

Again, this looks like another time the Brazilian government is shooting in its own foot.

So, as the Economist already mentioned in their April 2007 issue:

The Brazilian formula is to crowd out enterprise or drive it underground with excessive spending and taxation, then to harass it further with capricious, nonsensical regulation.

Source:  RESOLUÇÃO NORMATIVA Nº 95, DE 10 DE AGOSTO DE 2011

Sep 17

Wind industry is caught in a Brazilian steel-price trap

In Depth: Wind industry is caught in a Brazilian steel-price trap

High domestic steel prices are one of the main barriers to making future wind projects profitable in Brazil.

Developers are facing razor-thin margins after the two power tenders in August saw some projects awarded power-purchase contracts at less than R$100 ($58.30) per MWh.

Wind energy

High domestic steel prices are one of the main barriers to making future wind projects profitable in Brazil.

The price of steel is 50-70% higher in Brazil than on the international market. Belo Horizonte-based Usiminas — a former state-owned company privatised in the 1990s — enjoys a near monopoly on domestic steel plate supply, and the government allows it to set different prices for domestic sales and exports. At the same time, Brazil’s national development bank, BNDES, will not give developers full access to its funding unless at least 60% of a project’s equipment is produced in Brazil. That percentage is determined by weight, and towers can constitute 80% of a wind farm’s mass. Nearly all Brazilian developers depend on the bank’s cheap financing to make their projects viable, and BNDES does not consider foreign steel rolled in Brazil as local content, meaning that companies are generally unable to import from abroad.

Last year, BNDES was considering an exception to its rules for imported steel, but the proposal was shelved in August. Brazil’s steel industry is facing strong competition from imports, putting pressure on margins, so producers fiercely oppose any relaxation of local-content rules. “Clearly, if you want to play in Brazil, you have to get access to BNDES financing, and that exposes you to these steel prices,” says Brian Gaylord, an analyst with MAKE Consulting in Chicago, who specialises in the Brazilian market.

He says the high cost of steel plate makes towers disproportionately expensive in Brazil. Gaylord says some companies experimented with importing Asian steel for about a third of their requirements, but the strategy needs high volumes to create any real price advantage.

Wind turbine manufacturers, developers and industry representatives are highly critical of government policy, and are increasingly looking to concrete towers as an alternative.

“Obviously they [Brazil] want to build a steel industry and they are doing it by artificially raising prices,” Steve Sawyer, secretary-general of the Global Wind Energy Council, tells Recharge. “It’s good for the steel industry, but bad for everyone else.”

“It’s the prerogative of a sovereign state,” says Alstom’s vice-president for wind, Alfonso Faubel. “Steel is used in development, so if you want development to take place you are always going to have certain conditions of local content.”

But Edgard Corrochano, Mercosur director at Gamesa, which was one of the most aggressive bidders in the recent tenders, says he hopes the situation will change, with Usiminas becoming more competitive. “Either [Usiminas] gets with the programme and they have international prices in Brazil, or we are going to see a tendency to go to concrete towers. And as soon as that happens, it’ll be very difficult for it to come back to steel.”

Other manufacturers point out that steel towers, as well as being expensive, are difficult and costly to transport.

Suzlon Brazil chief executive Arthur Lavieri says: “Almost everybody is talking about concrete, and it’s not only because steel prices in Brazil are completely insane, but also because bringing steel tubes of 100-120 metres 3,000km from the biggest factories is simply not possible.”

However, concrete towers need to be made on site, which can be expensive.

“To take advantage of price advantages you need a big project size,” says Gaylord.

Leading local turbine manufacturer Wobben Windpower is experimenting with using mobile concrete plants to build the towers, while Vestas sales director Marcelo Hutschinski says his company can offer concrete towers for wind farms larger than 100MW.

Officials at some turbine manufacturers admit there are drawbacks to concrete, and say they have few alternatives to buying expensive steel.

Source: RECHARGE; Ben Backwell, Rio de Janeiro; Published: Thursday, September 15 2011

Sep 09

Driving American and European business people up the walls

What time is it anyway or why is everybody always late?

donald-trump-going-crazy

donald-trump-going-crazy

The perception of time and the concept of punctuality are very different in Brazil: it has nothing to do with Brazilians being lazy, just take a look at the crew working at around the clock at places like the National Synchrotron Light Laboratory in the state of São Paulo or the people who put together those spectacular carnival parades in Rio de Janeiro. It takes an enormous amount of effort, dedication, and extraordinary long hours to do that, and the logistics are frightening. That said…

  • In general, when scheduling meetings and such, allow for some degree of tardiness. In the Europe and U.S., people are accustomed to rigid schedules and appointments that must be kept on time, and usually things work better and faster. In Brazil, people often deal with several people and different problems at the same time, and face an incredible bureaucracy to boot. Add to that the fact that Brazilians, as a rule, ?waste time? on socializing wherever and whenever, and you?ll have a scenario made to drive American/European business people up the walls.
Source:UHY International Ltd

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