Before looking at the
future of Brazil, a future much enabled by the previously highlighted
Reform Agenda, and the possible long-term shape of government
planning, the domestic auto-market and the roles of incumbent MNC
players, and new indigenous and foreign entrants, it is well worth
seeing a socio-economic 'snapshot' of the here and now in Q2 2017.
With the recent 'on
the ground' report from the FT's John Authors pointing to the broad
“new expectations” from Brazil for investors with successful
reforms, this juncture of the web-log seeks to provide an echo of the
current pulse of Brazil, the city and elsewhere.
Done so by
re-conveying the recent news topics voiced by the English language
newspaper 'The Rio Times'.
But before entering
the realms of the daily news, the first vital issue to convey is the
manner in which Brasilia has progressively led the world.
The Automotive
Headline -
On
19th April 2017 Brasilia announced the easing of
protectionism within its auto-industry.
This
comes after criticism that for too long “exacerbated protectionism”
and will see new measures inacted under the title of 'Roto 2030'
(Route 2030), surpassing the previous prescription of the previous
'Inovar Auto' scheme.
Introduced
by Snr Igor Calvet (Minister for Industry, Trade and Foreign Services)
the new “open door” initiative starts at the beginning of 2018.
As stated this will indeed create improved conditions of competition so raising all-round product quality in the long run. In the mid-term help broader B2C and B2B choice in all vehicle sub-sectors, from the new availability of more package efficient small city cars better suited to congested streets through to purchase flexibility for road haulage companies that can better balance up-front price versus running costs and residual values.
As stated this will indeed create improved conditions of competition so raising all-round product quality in the long run. In the mid-term help broader B2C and B2B choice in all vehicle sub-sectors, from the new availability of more package efficient small city cars better suited to congested streets through to purchase flexibility for road haulage companies that can better balance up-front price versus running costs and residual values.
However,
any notion of any 'automatic' price reduction resulting from cheaper
imports was stated as not the case - though in reality will be seen to a certain extent - since much depends upon taxation issues,
logistics costs and labour costs.
This implicitly indicates that the government will seek to manage ultimate retail prices to both “harmonise” similar products – so effectively creating a Brazilian-made home-advantage - and in that process take advantage of the available tax-take on those cheaper imported vehicles, the importers obviously seeking to reduce such import prices as much as possible so as to reduce the final cost of per unit importation. Those same importers also likely to 'buy' sales through standard trade tactics, such as prey registrations of new vehicles sold as notionally used at discount.
This implicitly indicates that the government will seek to manage ultimate retail prices to both “harmonise” similar products – so effectively creating a Brazilian-made home-advantage - and in that process take advantage of the available tax-take on those cheaper imported vehicles, the importers obviously seeking to reduce such import prices as much as possible so as to reduce the final cost of per unit importation. Those same importers also likely to 'buy' sales through standard trade tactics, such as prey registrations of new vehicles sold as notionally used at discount.
This
web-log previously described the lobbying role of the Importer's
Association IBEIFA, and understandably this lobbying group is
enthused to see such a shift in policy, even if for now the exact
details remain unclear. The prime issue for it is the IPI tax level
on industrial goods, which moved from 25% to a lofty 55%.
Reducing
this problematic constraint and gaining assured long-term clarity
regards a tax-reduction time-line – so that its members can better
plan – obviously is critical to fully enacting the ideology of the
'open door' announcement.
However,
for now this a brave undertaking given the mass populace's mood
regards domestic employment security and opportuty, so balancing the
rhetoric against outcomes is critical, as Temer's government well
understands.
But
given the evolving protectionist rhetoric elsewhere around the world,
Brazil should be applauded, and in this way the country can be seen
to be increasingly fulfiling its role in global leadership, with
(ROTA) 2030 the seeming watershed point.
Bravo Brazil!
The
Main News Feeds -
Item
1 : The 2017 General Strike
On
May 28th a General Strike took place organised by the 9
biggest unions. The believed impact of announced Austerity Measures
and the agitation of the unions sent protesters onto the streets
across Rio de Janeiro, Porto Alegre and Brasilia; with stoppage of
public transport and access to public buildings in Rio itself.
The
industrial heartland of Sao Paulo continued to operate but at a
notably slower pace given both worries about commuting and possible
riots keeping people at home and of course the general 'feeling in
the air' amongst those at work.
Given
their position in the lower social ranks, it appears that many of the
lower middle class masses (themselves very fearful of unemployment
and a much retracted social-net budget) believe that President Temer
is “removed from the people”, having gained his post directly
because of Rousseff's forced departure.
Others,
typically very the innately 'middling' class, have taken an
alternative perspective. They believe that the strike was called in
the self-interest of the unions, with especially senior union members
defending their accrued personal interests, both political and
financial.
But
as seen in an Ipsos poll of 1,200 people in early April, Temer's own
approval rating of just 4% highlights the general dissatisfaction
amongst Brazilians; 98% believe Brazil to be on the wrong path
That
in essence equates to the desire that if the people are to ultimately
feel the pain, then so too should the privileged who occupy the
highest offices of the land.
Perhaps
only by rebalancing Brasilia's own rewards system, will the apparent
anger and intraction of the masses be overcome. Shared pain for
shared latter gain.
Item
2 : Pushing the Reforms Forward
President
Temer sought to demonstrate his pluck with the statement that even in
the face of social protests his cabinet's Reform Agenda will succeed.
The
nationwide strike at the end of April contesting the primary pillars
of the reform measures (esp pensions, labour and social security) was
meant to undermine the scale of change, but Temer pre-empted any
ideas of a dragged-out battle by stating that the three elements of
the Judiciary, Executive and Legislative were of the same unified
'progressive' mindset.
With
special mention of Japanese investment interest whilst opening the
new Japan House cultural centre, he stated that effectively a new era
was underway that would be to the eventual good of all; workers,
managers and domestic and foreign investor / owners.
Temer
argued that the Reforms are necessary since the sizeable aspect of a
bloated Pensions Budget negates resources being given to Education
and Health Care, and that old restrictive Labour Laws prevent the
hiring of more workers by both domestic and (especially foreign)
companies.
Item
3 : Best Trade Balance in 28 Years
At
long last having absorbed both the 'Car Wash' affair and the 'Weak
Meat' scandal the National Trade Balance saw a surplus of US6.969
billion, the best result since 1989.
Demonstrating
continued strength, the first four months total reached US$21.387 bn,
far surpassing the previous record of 2016 when it saw US$13.2 bn.
April 2017 saw Total Exports of $17.686 bn versus $10.717 bn for
Total Imports.
Unsurprisingly
given the meat scandal's requirement to temporarily close
meat-packing plants and cancellation of shipping orders, Meat Exports
were down 13.3% in April YoY.
But
with new confidence arising the government predicts a 2017 EoY
Balance Surplus of $55 bn (versus the $47.7 bn of 2016).
This
a very tangible and so pertinent sign of renewed national economic
confidence, the $7 bn differential between 2017's exports and imports
so bolstering the fiscal and monetary policies required behind the
Reform Agenda.
Item
4 : Temer Meets Spain's Rajoy
To
help further boost the record trade figures, President Temer met with
Spain's President Mariano Rajoy at the end of April. Both are
convinced of the need to advance relations between MERCOSUR and the
EU.
Previous
arrangements such as the Bus and Coach builder Irizar's entry into
Brazil will now be complimented by new mutual destination projects in
General Development, Trade, Infrastructure, Water and Transport; with
heightened diplomacy the enabling factor.
The
manner in which Spain addressed its own Reform Agenda after the
European Sovereign Debt Crisis was of interest to Temer, with lessons
learned obvious application to Brazil.
Rajoy
said “the Brazilian government has a number of ambitious plans for
its economy in keeping with its immense potential, and I'm convinced
that this is an opportunity for increasing the presence of Spanish
companies and to optimize our trade”.
Item
5 : Fevela Clearances...Cinematic Story-Telling
Vila
Autodromo in the Jacarepagua district (West Rio) was a favela that
began to expand with the need to build and service the major upscale
housing complex that accompanied the 1974-1977 on-site creation of
the Autodromo Internacional (Nelson Piquet).
Over
four decades the fevala grew from an all male small construction
worker shanty village to latterly include wives and girlfriends who
cleaned the luxury apartment blocks; with the inevitable arrival of
children and even aged grandparents.
Though
much improved over the years the fevela had not been planned, so
lacked properly considered fundamental amenities for what became a
large township; and though its notional 'citizens' were hands-on
regards gradual improvement it was always functionally below par of
the ever improving modern norm.
This
reason / excuse was given when the government sought to utilise the
land for construction of the 2016 Olympic Village, Stadiums and
infrastructure. The location was apt for such a scheme and the old
'township' would always be a symbol of Brazil's erratic social past,
but more importantly a problem to the redevelopment ideals of the
city and nation.
Thus
the inhabitants of the Vila Autodromo fevela were removed to 'make
way for the future' and that story has been captured in spirit – if
not detail – by the new film “Vazio do Lado de Fora” (Empty on
the Outside). Directed by Eduardo Brandao Pinto the short film will
appear soon at the renowned 2017 Cannes Film festival.
However, undoubtedly to
ease social tensions and avoid appearing the international bad-guy
“it does not tell the story exactly, more of an aesthetic”.
It now seems obvious
that whilst still fresh in the mass-memory, Brazil seeks to quickly
re-tell the story to re-set the mass-consciousness. It seems that
Historical Revisionism appears quicker than ever.
Item
6 : The Favelas Continue to Grow
Previously reported
some years ago, once again the facts about the seeming endless growth
of many fevelas have been re-reported to highlight a prime social
issue. Between 2000 and 2010 the average population growth in
'normal' (ie officially planned and organised) areas of Brazilian
cities was about 7%.
In stark contrast the
fevelas saw a massive upturn through both incoming residends and the
rise of birth rates over death rates. The highest seen in Rio de
Janaeiro with a mighty 27% increase.
This has been reported
to illustrate the size of the problem that not just the government
faces, but the population at large as the idiom of the 'haves and have nots' becomes ever more complex.
Even though a costly
exercise, to help aid integration of those at the very bottom of society, the Senate recently approved an
Immigration Amnesty law in mid April which actually goes far further
than its title implies. Well beyond mere amnesty, it provides a new
era of security for the previously illegitimate immigrants, by
providing citizenship rights to state resources such as welfare,
healthcare, education and employment status rights.
A New Era For Many -
This then validates a
mass of people who were previously 'under the radar', and far worse off than the current bleating working and lower-middle classes, and allows
them to become fully participant in, and beneficiaries from, the
slowly re-bounding Brazilian economy.
For a country which
promotes the ideals of 'diverse social integration' the upfront costs
will be sizeable, but the advantages brought by quickly deploying
more unskilled and semi-skilled labour, from directed education and
the assurance of a social safety-net means that over the mid and long
terms Brazil will have been seen to have maintained and indeed improved its productive
capacity.
This beginning with the major infrastructure projects that demand enormous levels of affordable man-power, providing the basis for new factories and plant which in turn require many levels of personnel skill-sets and in turn promote the professions from engineering to accountancy and so much more.
