China flags another Brazilian meat shipment for Covid-19

Authorities from China claim they have found traces of the coronavirus in a frozen meat shipment sent from a meat-processing plant in Barretos, São Paulo state, belonging to Brazilian food giant Minerva. 

Tests were reportedly made on October 1 and the slaughterhouse has been suspended from sending any products to China. According to the Chinese Embassy in Brasília, the suspension is “temporary and will not have a substantial effect on bilateral trade of agricultural goods.”

Minerva confirmed the suspension, but didn’t disclose the reasons.With the new case, ten Brazilian meat- or fish-processing plants have been suspended by Chinese customs authorities due to coronavirus-related issues.

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“Mystery seeds” in the post: brushing scam or international bioterrorism?

In the 1956 sci-fi classic “Invasion of the Body Snatchers,” alien plant spores fall from space and grow into large seed pods, each one capable of reproducing a duplicate copy of every human on Earth. Today — without the alien doppelgangers — frightened Brazil’s agricultural authorities warn that a similar phenomena could be in progress, after hundreds of suspicious, unsolicited packages containing mysterious seeds were sent to Brazilian homes through the post.

At least 258 samples of seeds have been turned in to authorities in all but two Brazilian states, and the Agriculture and Health Ministries have launched a joint investigation to discover whether these seeds are possible invasive plants or weeds which could be harmful to Brazil’s agribusiness, as well as finding out who is sending them — and why.[restricted]

A federally-run lab in the Center-West state of Goiás analyzed some 25 packages — finding three types of fungi, as well as different types of bacteria and live mites.

Scientists warn that four packages included possible plague agents that are still non-existent in Brazil, alerting the public that the seeds should not be planted — or thrown into the garbage.

According to Brazilian authorities, the packages appear to have been sent from four undisclosed Asian countries — though several contained Chinese postmarks — and were first reported in August by residents of the southern state of Santa Catarina. 

The seeds arrived alongside deliveries of goods purchased online, presented as an added free gift. In some cases, the package of seeds was labeled as “jewelry.” In a matter of weeks, similar reports cropped up across the country.

The Chinese Embassy in Brasília said in September that a preliminary inspection by the China Post found evidence of defrauded postal stamps. “The shipment of seeds is forbidden or restricted to member countries of the Universal Postal Union. China Post rigorously follows those rules and forbids the postal transportation of seeds,” said the embassy, in a statement.

Bioterrorism or online scam?

The unsolicited packages have also been sent to people in several other countries, including the U.S., Canada, and Portugal. 

Back in July, the Animal and Plant Health Inspection Service at the U.S. Department of Agriculture (USDA) launched an investigation into the phenomenon, alongside the Department of Homeland Security’s Customs and Border Protection and other federal agencies.

The USDA has yet to find anything ominous about the packages — though experts are only beginning their analysis of samples.

So far, authorities are working with one leading possibility: that the packages are linked to a common e-commerce scam known as “brushing.” This type of fraud involves online vendors setting up accounts in a stranger’s name, then sending their products to an unsuspecting recipient. They then use this account they’ve set up to write fake ‘verified reviews’ in a bid to improve their seller ratings. 

On many marketplaces, such as Amazon, vendors must include tracking codes for shipped goods — therefore, the scam only works if a package is physically sent. In this case, scammers use small throwaway items, such as seeds. 

This explains why authorities have been coy regarding the ploy as attempted bioterrorism.

For the recipients, though, it raises concern about their data — such as full name and address, at the very least — being easily retrievable online by malicious enterprises.

Importing seeds to Brazil

Brazilians are able to buy seeds from foreign vendors — but they must undergo a rigorous and long clearance process, which goes through the Agriculture Ministry.

However, it is quite common for people to buy seeds or small plants, being unaware of the rules and having their shipment seized by the authorities.

According to Correios, Brazil’s federally-run postal service, the number of apprehended packages weighing up to 2 kilos jumped from roughly 2,000 last year to 5,000 in 2020.[/restricted]


China’s deforestation footprint in Brazil

The increase in deforestation in the Amazon rainforest and its links to agricultural supply chains has become a hot-button issue for investors worldwide. With firms now painstakingly judged on their ESG (Environmental, Social, Governance) credentials, there is significant pressure placed on companies in the food industry to ensure that their deforestation footprints are minimized. However, while much of the coercion has come from companies in Europe and the Americas, what of China, Brazil’s biggest trading partner?[restricted]

China’s appetite for Brazilian products has increased significantly in 2020, as a result of the devalued Brazilian Real and trade war tensions with the U.S. While soybeans, oil, and iron ore continue to top Beijing’s Brazilian shopping list, trade of meat has seen the sharpest increase, totalling USD 1.84 billion in the first half of 2020 — more than double what was seen in the previous year.

Among the Chinese firms that has ramped up its purchases in Brazil is fast food company Yum China, which operates popular chains KFC, Pizza Hut, and Taco Bell. Deforestation and commodities think tank Chain Reaction Research estimates that in order to feed Yum China’s approximately 1 billion chickens, the company would take up between 0.9 and 1.6 percent of Brazil’s entire soybean production every year, not to mention Yum China’s significant appetite for imported beef.

Burning paradise to put up a cattle farm

Environmental monitoring has shown that cattle ranching is the largest cause of deforestation in the Amazon and the Pantanal wetlands. Landowners illegally torch the native vegetation on their properties to make way for pastures. This allows them to raise cattle which often make their way onto supply chains of major food companies.

A Federal Police investigation concluded that the overwhelming wave of forest fires ravaging the Pantanal began with blazes in four large farms. Since the beginning of the year, 25,000 hectares of the Pantanal have been destroyed by fire.

While the new found importance of ESG has prompted firms in Brazil and around the world to increase oversight on food supply chains, reducing their deforestation footprints as much as possible, Yum China did not even acknowledge its perceived links to environmental destruction as a sustainability risk in its recent prospectus supplement.

This lack of importance placed on deforestation risks could spell trouble for Yum China. With the growing concern around ESG credentials, Chain Reaction Research believes company shareholders BNP Paribas Norges Bank, Legal & General, and JPMorgan “might reconsider their positions or engage [Yum China] to support their investment value.”

Brazilian meatpackers make deforestation pledge

Meanwhile, in Brazil, the world’s biggest meat producer JBS has launched a plan to minutiously track every one of its cattle suppliers by 2025, thus completely eradicating any links to deforestation from its supply chain.

The company’s proposal involves using blockchain technology to oversee the entire life cycle of cattle, and severing ties with any farms linked to illegal deforestation. The focus of the initiative is to target so-called “indirect suppliers,” which are the farms that rear cattle before selling them to larger farms, where they are purchased by beef giants like JBS.

Competitors Marfrig and Minerva have made similar promises to monitor their supply chains, but critics say the 2025 deadline is too far in the future and that the firms have had plenty of time to implant these measures already — in 2009 all three companies pledged to fully track indirect suppliers by 2011.

Investment analysts from BTG Pactual are buoyant about the news coming from JBS, maintaining the firm as their “top pick in the food space.” A recent report from the financial management company highlights that JBS’s “ESG metrics are gaining increased attention from investors” and talks of the meatpacker’s strong earnings momentum for the coming future.[/restricted]

Latin America

Coronavirus reshapes Belt and Road in Latin America

The disruptions of the coronavirus pandemic have taken a toll on China’s flagship foreign infrastructure and investment program, the Belt and Road Initiative (BRI). Its nature, pace, and scope are all likely subject to change in Latin America in the near- and long-term. Many Chinese-backed projects framed as part of BRI have hit the brakes across the region, as the Covid-19 crisis affecting industries, supply chains, and the movement of people and goods. Many countries have been in lockdown for months, with only essential activities authorized.

There have been fewer new Chinese infrastructure projects in Latin America this year, and no new countries have formally signed a BRI agreement. The ones that already signed are raising concerns over debt repayments to China as their economies face significant difficulties.[restricted]

“We are entering into a new phase of BRI in Latin America, as China has been forced to transform the initiative,” said Ricardo Barrios, an analyst at RWR Advisory Group. “China has less money to lend and is being more selective about how it uses it, while it also has to cope with its own domestic economic problems.”

Launched in 2013, the Belt and Road Initiative aims to resurrect the ancient Silk Road and maritime trade routes, develop new links and enhance cooperation between participating countries and regions. Latin American countries began joining the initiative in 2017, and 19 nations have already signed an agreement.

In just a decade, trade between China and Latin America has increased more than 20-fold as regional partners have signed hundreds of agreements and broken ground on dozens of key energy, transport, and infrastructure projects in strategic locations. Diplomats have described the region as a “natural extension” of BRI.

“The coronavirus changes many things, both for China and Latin America. BRI is not a priority right now as everyone is preoccupied with the virus,” said Pepe Zhang, associate director at the Atlantic Council’s Adrienne Arsht Latin America Center. “The initiative is currently on the back burner.”

Belt and Road Initiative: Latin America’s hopes and dreams

For the Latin American countries that have already said yes to the initiative, closer ties with China through BRI were supposed to bring finance for energy, roads, and ports, among other benefits. However, that hasn’t necessarily been the case so far, and Chinese funds have declined over the past few years.

Margaret Myers, director of the Asia & Latin America Program at the Inter-American Dialogue, said that apart from a friendlier relationship with China, the direct benefits haven’t been clear. She listed a few exceptions, such as Bolivia getting easier access for exports to the Chinese market.

“It’s a tool that China uses to signal its commitments to a given country’s development and growth. If a country signs BRI, China sees it as an important symbolic gesture, especially now with the initiative being challenged by the U.S. and other developed countries,” she explained.

Argentina, Brazil, Colombia, and Mexico, the four largest Latin American economies — which account for about 70 percent of the region’s GDP —, haven’t signed an agreement yet, indicating that the Belt and Road Initiative still sparks doubts. Of those, Argentina could be closest to signing after a recent change of administration.

Still, all of them have comprehensive bilateral cooperation agreements with China and are host to Chinese infrastructure projects. This has raised questions about what can actually be classified as a BRI project, something that China has been trying to clarify in recent guidelines and documents.

“Not even China knows exactly what BRI is. Many things that already existed before BRI are being framed under it,” said Álvaro Méndez, co-founder of the LSE Global South Unit. “Latin America is still grasping to understand what the initiative actually involves. Policymakers in the region confuse it with other things.”

For Latin America, social and environmental risks feature prominently in concerns related to BRI. Non-governmental organizations have questioned various Chinese projects in the region, many labeled as part of BRI, for violating human rights and non-compliance with environmental standards.

But that’s not the only issue. Countries such as Venezuela and Ecuador have borrowed heavily from China over the last few years and now have a high debt-to-GDP ratio. Repayment looks difficult amid economic crises exacerbated by the pandemic.

Last month, China announced that it was pursuing debt relief for developing countries, mainly in Africa, through the G20 debt suspension initiative. With no announcements so far for Latin America, the most likely scenario will be more flexibility on interest payments and deadlines, experts say.

“China will likely show flexibility towards Latin America’s debt. But this doesn’t mean forgetting about the debt,” Barrios said. “China can’t expect the same things as before the pandemic, and showing flexibility will be effective to gain some goodwill from the region. But it will be on a case-by-case basis.”

Meanwhile, the funding seems to continue. State-owned oil firm Petroecuador is considering entering a new five-year oil export contract with China in exchange for USD 2.4 billion in Chinese state financing between June and October 2020. Between USD 300 and 400 million would be used to pay off part of Ecuador’s existing debt to China.

New areas of cooperation

With China mostly focused on its own economic recovery, investment in large infrastructure and energy projects in Latin American countries signed up to the BRI won’t likely be on the horizon, at least in the short-term.

Nevertheless, the pandemic opens up new areas of opportunity for China and its initiative across the region, especially the so-called Health Silk Road (HSR) and the Digital Silk Road (DSR) – both areas that experts agree have a lot of potential in the future.

The HRS has gained momentum through the coronavirus outbreak, with many countries from the region receiving donations or purchasing medical supplies from China. At the same time, the DRS is also booming amid the pandemic, with countries using China-inspired digital solutions to combat Covid-19.

Chinese companies that are already well established throughout the BRI, such as Huawei, Alibaba and Tencent, could find Latin America a natural fit for expanding their activities. That could also be the case for China’s medical technology sector.

For Latin America, an area of specific interest will be the deployment of 5G technology. Of the five companies in the world offering complete 5G telecommunication systems, two are from China – ZTE and Huawei. The latter has expanded across the region in recent years.

“China is a top provider of telecommunications equipment and tech, and it is trying to position its companies abroad,” Myers said. “It’s a critical industry for China that has received support from the government. There will be companies able to invest overseas in this sector.”

Overall, the short pause the pandemic has forced also represents an opportunity to reflect on how the BRI can be improved, Chinese researcher Xianbai Ji wrote in a recent column. This includes finding new ways to finance projects beyond loans from Chinese policy and state-owned commercial banks as well as discussing debt issues.

“For the countries along the Belt and Road, the main task is to control the impact of BRI on government debt,” he argued. “Countries should formulate special infrastructure strategies to clarify the role of BRI in their national long-term social and economic development plans.”

This article was originally publish by Dialogo Chino


Brazil Daily

China turns to Brazilian states for diplomatic ties

We’re covering efforts between governors to establish healthy relations with China. The new (old) controversy involving the Economy Minister. And the blazes devastating Brazil’s wetlands.

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China extends an olive branch … to Brazilian governors

During an online event with governors from the Northeast region of Brazil,[restricted] Chinese Ambassador Yang Wanming praised “friendship” as the “main asset” of Brazil-China relations, adding that “mutual political confidence” has allowed for a fruitful relationship and increasing exchange between the two nations over the years.

Investments. “The Chinese part is on hand for all sectors in the Northeast to plan regional exchange and diplomatic cooperation after the sanitary crisis, in order to recover the economy and improve people’s quality of life,” said Mr. Yang.

  • The acquiescence between China and Brazilian states is a counterpoint to the tepid relations the Asian giant has with the federal government. Back in March, tensions peaked after Congressman Eduardo Bolsonaro said the Chinese Communist Party is fully to blame for the Covid-19 pandemic. At the time, the ambassador demanded a formal apology for what he called “flagrant provocation.”

Why it matters. China has many interests in Brazil — while states, with depleted finances, desperately need foreign investment. Without the federal government coordinating diplomatic and trading efforts, states are negotiating directly with China. 

  • Political scientist Mauricio Santoro, an international relations professor at the State University of Rio de Janeiro, said that dynamic could be catastrophic, as “states have little to no structure to stand tall at the negotiation table, creating an immense risk of draconian deals.”

Relations. There is no evidence that the Bolsonaro government’s verbal attacks on China have resulted in any significant retaliation as of yet. However, observers point out that some donations from Chinese companies have never made it to Brazil. 

  • The Amazon Consortium — a body representing Brazil’s nine Amazonian states — requested support from potential Chinese partners to receive medical supplies to combat the Covid-19 spread. Eduardo Tavares, Planning Secretary of the state of Amapá, said “nothing concrete” has come from the request.

Trade. According to the latest data available, China gobbled up 34 percent of Brazil’s exports (in USD) and was responsible for 22 percent of imports.

Will Guedes stay or will he go?

Markets were in for a bumpy day on Monday, after rumors that Economy Minister Paulo Guedes was “no longer seen as indispensable” by President Jair Bolsonaro. Brazil’s benchmark stock exchange index Ibovespa fell below the 100,000-point mark, while the Brazilian Real lost ground to the U.S. Dollar, which topped the BRL 5.50 threshold for the first time since late in May. 

What to make of it. Mr. Guedes supports austerity measures as being the only way out of the crisis, opposing himself to the government’s military wing — which wants the president to ramp up public spending on infrastructure projects to recover economic activity. Analysts fear that his recent surge in approval rates might push the president into listening to the latter group.

  • Fears of Mr. Guedes jumping ship are nothing new, and arise every few months. This is because markets know that President Bolsonaro has never championed austerity throughout his time in politics, and see the Economy Minister as the sole guarantor of a pro-market agenda.
  • Mr. Bolsonaro has given mixed signals — publicly backing Mr. Guedes, but also floating the idea of a BRL 5-billion infrastructure project for 2021.
  • Per newspaper Folha de S.Paulo, markets fear Mr. Bolsonaro will turn into a right-wing version of ex-President Dilma Rousseff, “spending a lot and spending poorly.” The newspaper talked to three bankers, two economists from top investment banks, and managers of two major private equity firms — all of whom remained anonymous. 

Rocky relationship. Jair Bolsonaro and Paulo Guedes have always been odd bedfellows. But the truth is that the Economy Minister doesn’t seem to be planning to leave his position as Brazil’s economic tsar — even if only in name.

Pantanal: Brazil’s burning wetlands

Since late in July, Brazil’s Pantanal — the world’s largest floodplain and a Unesco World Heritage site — has lost over 200,000 hectares of vegetation to massive wildfires. This is Pantanal’s worst fire outbreak since 2006, but its origins remain unknown and there is no sign that the blazes can be tamed in the short term.

Why it matters. The fires are ravaging the São Francisco do Perigara farm — a sanctuary that is home to 15 percent of the world’s population of blue macaws, an endangered bird species. Over 70 percent of the reserve has been destroyed, which could erase decades of environmental efforts.

Why the fire has been so potent. Pantanal is suffering after months of severe droughts. The dry season arrived in May after a rainy season that saw 50 percent less precipitation than expected. To make matters worse, the region has seen strong winds — which help to spread flames.

  • The Environment Secretary of Mato Grosso do Sul state, Jaime Verruck, told Brasília correspondent Renato Alves that the majority of these fires were caused by humans. “We are in the middle of the worst situation in terms of drought, so the fires are likely to continue and the big problem we have is that most of the fires are caused by human action,” said Mr. Verruck.

What else you need to know today

  • Coronavirus. According to pollster Datafolha, 79 percent of Brazilians believe that school reopenings will aggravate the coronavirus crisis. The same percentage believe schools should remain closed until the pandemic is tamed. To help low-income students with limited access to the internet during this period, the government launched a procurement process worth BRL 24 million (USD 4.3 billion) to bring internet cell-phone SIM cards to 400,000 students in public universities and professional certificate courses. 
  • Strike. Employees of Correios, Brazil’s federally-owned postal service company, went on strike Monday night. They are protesting the government’s plan to privatize the company — which has posted losses in the billions over recent years — and accuse management of “neglecting workers’ health” during the pandemic. According to union leaders, servants lost several benefits, such as premiums for risky activities or extra hours, and aid for those with children with disabilities.
  • Politics. Antonio Rueda, deputy chairman of the Social Liberal Party, met with leaders of the so-called “Big Center,” a group of traditional conservative forces in Congress — and Jair Bolsonaro’s new allies. Mr. Rueda is heading negotiations for the president’s return to the party, after a bitter break up last year. 
  • Cybersecurity. Insurance premiums against cyberattacks have more than doubled since last year. In H1 2019, direct premiums amounted to BRL 8.3 million — figures have jumped to BRL 17.8 million in the first half of 2020. Insurance claims, which cover damages to third parties caused by leaks, were also up from BRL 145,000 between January and June 2019 to BRL 12.9 million in the same period this year. Per cybersecurity company Fortinet, Brazil registered over 1.6 billion cyberattacks over Q1 2020 alone. That number is directly related to remote work — as home networks are much less secure than corporate ones.[/restricted]

Chinese authorities say coronavirus found in Brazilian poultry

The Chinese municipality of Shenzhen announced they have found traces of the coronavirus in frozen chicken wings imported from Brazil. Despite no public indication of bans of Brazilian animal products, the report causes concern in local authorities. Brazil’s Agriculture Ministry is treating the case as an “alleged contamination,” adding that the country hasn’t received any official warning. In a statement, Brazilian authorities say they are “looking for official information to clarify the circumstances of the alleged contamination.”[restricted]

According to pro-Beijing newspaper South China Morning Post, the virus was found on the surface of a frozen chicken wing. The discovery happened on Wednesday, during a routine inspection. Every staff member who had contact with the product was tested, but all results reportedly came back negative.

Chinese authorities also announced the detection of the coronavirus on packages of frozen shrimp from Ecuador. Recently, sanitary authorities also have been finding the coronavirus in other seafood products.

“Shenzhen will continue to track and test all relevant frozen foods. The government also would like to remind residents to be cautious when purchasing imported frozen meat and seafood,” said the Shenzhen Municipal Health Commission, as reported by the South China Morning Post. The commission did not name the brand in question. However, according to Brazilian news website G1, the contaminated batch comes from a slaughterhouse owned by food company Aurora, located in the southern state of Santa Catarina.

The Agriculture Ministry says it is investigating the case. The Brazilian Association of Animal Protein (ABPA) said in a statement that “it remains unclear where the possible contamination might have occurred — and whether it happened during transportation.” 

The ABPA also stresses that the risk of Covid-19 transmission via food products is negligible. They take their cue from the World Health Organization, which put out a statement on April 7 downplaying the chances of food-to-human contamination. “There is no evidence to date of viruses that cause respiratory illnesses being transmitted via food or food packaging. Coronaviruses cannot multiply on food; they need an animal or human host to multiply.”

However, the WHO reinforced the need for measures to protect food workers. “It is imperative for the food industry to reinforce personal hygiene measures and provide refresher training on food hygiene principles to eliminate or reduce the risk of food surfaces and food packaging materials becoming contaminated with the virus from food workers.”

Slaughterhouses a hotbed for coronavirus

This is the first time that products from Brazilian food processing plants have been flagged for coronavirus contamination, but such concerns are not new. Six Brazilian slaughterhouses are already banned from selling to Chinese customers, due to worries about contamination among the plant’s staff. Four such facilities are located in the southern state of Rio Grande do Sul, which neighbors Santa Catarina, from where the contaminated chicken reportedly originated.

The pandemic continues to rage across Brazil, with over 104,000 deaths and 3.1 million confirmed cases. And the meat industry shoulders some of the blame for the spread, as slaughterhouses increase hazards of coronavirus transmission. Production sites are made up of closed, refrigerated spaces, with ventilation systems built to avoid external contamination. These factories see hundreds and sometimes thousands of workers side by side, manipulating animal protein.

By June 16, at least 47 abattoirs in 17 states had been shut down by the Agriculture Ministry due to the coronavirus. The looming crisis could have massive repercussions across the globe, as Brazil is the world’s largest meat exporter.

Priscila Dibi Schvarcz, the labor prosecutor responsible for monitoring the industry during the pandemic, told The Brazilian Report that since the beginning of the pandemic, agreements for improvements had been made. So far, all over the country, 94 plant managers accepted the commitment to implement stricter sanitary protocols, but still she sees much room for improvement.

“An effective investment in health management is necessary. We have shortcomings related to active surveillance: early removal of infected people, effective daily active searches, testing routines for asymptomatic, pre-symptomatic [patients],” said Ms. Schvarcz.

Regarding the alleged chicken-related contamination in China, the ABPA declined to comment, saying the association is still seeking more information — but arguing that all the right measures have been taken since the beginning of the coronavirus crisis. “The Brazilian meat-exporting sector reaffirms that all measures to protect workers and guarantee the safety of products have been adopted and improved over the past few months, since the beginning of the global pandemic.”

Brazilian relations with China

Trade between Brazil and China is as dynamic as ever, thanks in large part to agricultural commodities such as soybeans and meat. Between January and June, the Asian giant gobbled up 34 percent of Brazil’s overall exports. And chicken exports from Brazil are booming — amounting to USD 788 million between January and July.

But as of recently, relations between Brazil and its biggest trading partner have been tepid at best — and contentious at worst. 

Despite growing dependence on China, the Brazilian government has been adopting an unabashed pro-U.S. stance since Jair Bolsonaro took office. Among his supporters and close allies, anti-China sentiment is rife. The latest example of this came with the country’s support for a proposal by the U.S. at the World Trade Organization that was essentially a broadside directed at Beijing.

This anti-China stance — following the cues of U.S. President Donald Trump — has led to several warnings from the Chinese embassy to Brazilian authorities that feuds could impact the countries’ trading relations.[/restricted]

Brazil Weekly

Brazil to regulate infrastructure projects … without China?

This week, we are covering Brazil’s push to clear infrastructure projects. And the government’s moves to make life harder for Chinese companies.

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Greenlighting new infrastructure regulations

There is a major divide within the Jair Bolsonaro administration over how to deal with the push for recovery in the post-pandemic economy.[restricted] The government’s military wing, which enjoys much prestige with the president, is in favor of massive infrastructure investments, even if that means smashing the federal spending cap created late in 2016 to rein in public expenditure. To deal with that impetus, Economy Minister Paulo Guedes and House Speaker Rodrigo Maia appear to have found a Solomonic solution: they want to change regulations on several infrastructure sectors as a way to boost private investment.

  • That would include new regulatory frameworks for the gas and electricity sectors, as well as altering the rules for concessions and PPPs (public-private partnerships).

Why it matters. Mr. Maia argues that the federal spending cap is the only way Brazil will sustain long-term investments and move forward with structural reforms — such as overhauling its labyrinthine tax code and trimming the fat in public service.

Tug of war. The Economy Ministry agrees with the Speaker, but many sectors of the administration want to create exceptions in the spending ceiling, using the post-pandemic recovery as a justification. Mr. Maia spoke out against this possibility last week, saying that one exception could lead to several more, potentially causing public debt to balloon.

On the docket. During a live broadcast with the Brazilian Infrastructure and Base Industries Association, Mr. Maia said that new regulations for the gas and electricity sectors “will progress” this week after Congress reached an agreement with the Mines and Energy Ministry.

Harder. The framework to regulate concessions and PPPs will not go so smoothly. One bill has already gained the approval of a congressional committee — but the Economy Ministry asked for it to be revised. The government was expected to present suggestions by February 15 but still has yet to do so.

  • Lawmakers believe that the current framework for concessions and PPPs is “insufficient to attract private investments,” due to legal insecurity and the superposition of different watchdogs over the same contracts. The bill plans to define the role of each element of said contracts and create mechanisms to avoid litigation in case of conflict between parties.

Yes, but … Congress’ effort was not well received by the government — with Economy Minister Paulo Guedes publicly bashing it for “making the rules even more complex than they already are.” 

Creating barriers to Chinese investment

In his first year in office, President Jair Bolsonaro adopted a fairly pragmatic approach to China, choosing not to engage in conflict with Brazil’s top trading partner. But now, Brazil has become much less neutral in the current Cold War-like dispute between the Asian giant and the U.S. That shift is observed in many ways: from racist comments by members of the administration, to a stand against China at the World Trade Organization, or even the fact that the Brazilian government is meeting with 5G providers while excluding China’s Huawei.

  • Now, Brazil is imposing barriers on Chinese investments in two major infrastructure projects: the Angra 3 nuclear power plant and a fund for infrastructure investments.

What is being done? Rest assured, there is no ban on Chinese companies … not explicitly. But according to finance newspaper Valor, the government is drafting rules for public procurement that would make life harder for Chinese competitors.

  • In the Angra 3 project — valued at BRL 17.5 billion (USD 3,200) — the idea is to prohibit the winning bidder from taking out loans with its own subsidiary companies or hiring these subsidiaries for construction work. That would favor Russia’s Rosatom, France’s EDF, or the U.S.’s Westinghouse over China’s CNNC, which tends to self-finance its projects. This would force CNNC to fragment its operations, making the contract less profitable for the company. 
  • There is also the matter of a USD 20-billion fund for infrastructure development, created in 2017. The deal was that the Chinese would contribute with three-quarters of the money — and the Brazilian government would pick the projects the money would be spent on. But since the new administration took office in January 2019, the fund has simply stalled.

Why it matters. China is responsible for a considerable chunk of foreign investment in Brazil. Between 2010 and 2019, USD 55.1 billion came through Chinese-led projects — mostly energy or oil ventures.

Big stick diplomacy. Jair Bolsonaro’s seemingly unconditional will to align his government to the Donald Trump White House has given the U.S. some liberties: recently, Ambassador Todd Chapman said Brazil would face “consequences” if it chose not to ban Huawei from its upcoming 5G spectrum auction.


Markets eagerly await this week’s earnings reports. The list of expected results includes banks (BTG, Inter), construction companies (MRV, Cyrela, Eztec, Tecnisa), and the consumption sector (B2W, Via Varejo, Renner, Hering, Natura). Their results — very much tied to domestic demand — will help analysts get a clearer picture of how badly consumption fell during the pandemic. The early signs point to a dramatic drop: banks’ provisions are sky-high, and payment companies reported a drop in transactions. 

Interest rate at all-time low: for whom?

Last week, the Brazilian Central Bank slashed the country’s benchmark interest rate to its lowest level ever: 2 percent a year. However, Brazil continues to have the highest average rate charged to consumers and companies worldwide, per the International Monetary Fund. And that is even after banks cut that average to the lowest point since 2011. Also last week, Congress limited the interest rates banks can charge on overdrafts and credit cards, a move some experts fear will reduce credit availability even more amid the coronavirus economy.

Looking ahead

  • Indicators. The week will bring updates to a multitude of economic indexes that will help assess the state of the Brazilian economy. They include a forecast of this month’s inflation (Monday); retail sales (Wednesday); services companies’ performance (Thursday); and the Central Bank’s Economic Activity Index, a predictor of GDP growth (Friday).
  • Taxes. Lawmakers could vote this week to strike down a presidential veto against extending cuts on payroll taxes for 17 business sectors until the end of 2021. President Bolsonaro’s decision kept the benefit valid only for this year. That’s because the federal government is trying to use payroll tax deductions as a bargaining chip to pass a new levy on financial transactions in Congress — an idea that is deeply unpopular among voters and politicians alike.
  • Beirut. The Brazilian government is sending a military aircraft on Wednesday, carrying 5.5 tons of medicines, supplies, food products, and hospital equipment to Lebanon. President Bolsonaro named his predecessor, Michel Temer (the son of Lebanese immigrants), to head Brazil’s aid mission to Beirut, following the massive August 4 blast which killed over 150 people and left 5,000 injured in the Lebanese capital. It remains unclear if Mr. Temer will be on the military plane or if he will fly to the Middle East at a later date.
  • Environment. A group of executives putting pressure on the government to adopt stricter environmental controls will meet with Supreme Court Chief Justice Dias Toffoli on Tuesday. Then, they will talk to the governors of Amazonian states. The movement is formed by 62 large corporations, five private equity funds, and five sector associations. They began voicing a pro-environment agenda after international investors threatened to pull their assets from Brazilian companies not complying with ESG principles (environmental, social, and governance).

In case you missed it

  • Coronavirus. Brazil reached the terrible milestones of 3 million coronavirus cases and 100,000 deaths. Last week, during a live social media broadcast alongside Interim Health Minister Eduardo Pazuello, President Bolsonaro urged the population to “get on with our lives and find a way out of this.” Mr. Bolsonaro added that he is “sorry” for the casualties. Mr. Pazuello mentioned that most patients recover and that “life goes on.”
  • Scandal. Online magazine Crusoé revealed on Friday that money laundering enforcement agents came across a total of 21 checks from Fabrício Queiroz — a former cop tied to urban paramilitary militias and money laundering schemes — made out to First Lady Michelle Bolsonaro. Mr. Queiroz has been a friend of President Jair Bolsonaro for decades and worked as a sort of fixer for his family. The Brazilian Report’s Brasília correspondent Renato Alves had access to the investigation’s documents and confirmed the revelations, which link the presidential couple to an alleged money-laundering scheme running within the office of Senator Flávio Bolsonaro, the president’s eldest son. The government has yet to comment on the issue.
  • Coup? Monthly magazine Piauí published a story detailing a May 22 meeting between Mr. Bolsonaro and his closest advisers. The president is reported to have informed them he was about to send troops to the Supreme Court and vacate its 11 seats. Eventually, Mr. Bolsonaro is said to have been talked down by his cabinet members. The report only makes the president’s rocky relationship with the Supreme Court worse — in a moment when justices are about to hold trials that have the potential to trigger several crises for the government.
  • Industry. Brazil’s industrial output grew 8.9 percent in June, following May’s 8.2-percent growth. But despite two very positive months, the truth is that Brazil’s industry remains far below its pre-pandemic level — which was already underwhelming. Brazil’s general industrial index, compiled by the country’s official statistics agency, remains almost 25 percent below January 2010 levels.[/restricted]

Pandemic makes Brazil even more reliant on China

The global economic slowdown caused by the coronavirus crisis is changing the profile of Brazilian exports. And it continues to increase Brazil’s dependence on its undisputed top trading partner, China. Data from the Special Foreign Trade Secretariat shows a 7-percent drop in overall exports during the first half of 2020, which falls in line with the expected economic contraction for the economy this year. According to the latest Focus Report — a Central Bank-led weekly survey with market analysts — the median forecast for the Brazilian economy is a 5.66-percent contraction by the end of 2020.[restricted]

Exports to China over the first six months of the year amounted to USD 34 billion — twice what was sold over the same period in 2015. On the flip side, however, sales to the U.S. and Mercosur countries dropped 32 and 29 percent, respectively.

China has topped the list of Brazil’s trading partners since 2009 and gobbled up 33.7 percent of Brazilian exports in the first half of 2020. 

The impact of the coronavirus on imports was smaller, however, at just 5.21 percent. But these numbers show a more equal split among Brazil’s three main partners: China, the European Union, and the U.S.

Commodities continue to carry Brazilian exports

The Covid-19 pandemic has hit some sectors harder than others. With regard to Brazil’s foreign trade, industry has clearly slipped out of favor. The numbers of countries or regions where Brazil usually sells manufactured goods has also decreased, in general terms. However, the impact on total exported volume has been softened by the continued strength of Brazilian commodities.

José Augusto de Castro, chairman of Brazil Foreign Trade Association (AEB), believes the pandemic emphasized the chronic problems of competing in manufactured goods markets and the resilience of commodities. “In commodities, Brazil has productivity. Whatever the price or exchange rate, Brazil will be competitive. With favorable demand and exchange rates, as we have now, Brazil sells at ease, with no worries,” analyses Mr. Castro.

For instance, the five primary goods exported to China are commodities. For these five products, exports have increased by 13.4 percent.

In the opposite direction, Brazil’s far-more diversified export portfolio to the U.S. was affected significantly. Aircraft, for instance, saw sales fall 75 percent. Shipments to the U.S. in general fell 32 percent in the first half of 2020.

“Trade with the U.S. is a mix. It used to be much more based on manufactured goods, but this is decreasing mainly because of oil. Brazil had a trade surplus with the U.S. Today, however, it has a strong deficit. The U.S. market demands prices Brazil is unable to offer,” says Mr. Castro.

A similar process occurred in Mercosur. This trade relationship with regional South American partners is essential to Brazil, as it allows the country a chance at selling value-added goods — which doesn’t happen in its trade relations with China, for instance. And on a local level, the auto industry plays a huge role in Brazil-Mercosur relations.

But since last year, Brazil has been losing profits in sales to Argentina, Uruguay, and Paraguay. This began with the crisis in Argentina and was made worse by the Covid-19 pandemic. This year, China surpassed Brazil as Argentina’s top trading partner as well.

“Brazil has a chronic problem. Cost is an issue that mainly affects manufactured goods. There was already a dependency on China, which has increased. The market for manufactured products in Brazil, South America, and Argentina is in crisis. Brazil has nowhere to export manufactured goods,” Mr. Castro tells The Brazilian Report.

Brazil in the trade war

Increasingly dependent on China, the Brazilian government has been adopting an unabashed pro-U.S. stance since Jair Bolsonaro took office. Among his supporters and close allies, anti-China sentiment is rife. The latest example of this came with the country’s support for a proposal by the U.S. at the World Trade Organization that was essentially a broadside at Beijing.

And in a live online broadcast on July 30, the president deliberately avoided mentioning the word “China” when discussing vaccines. “We took part in Oxford’s consortium, and it seems that [the vaccine] will work, and 100 million units will arrive for us. It is not from that other country, no. Okay, guys?”

This anti-China stance — following the cues of U.S. President Donald Trump — has led to several warnings from the Chinese embassy to Brazilian authorities. In March, one of the president’s sons, Congressman Eduardo Bolsonaro, tweeted that “China is to blame” for the Covid-19 pandemic. The official representative of China in Brazil replied, demanding a retraction. “His words are extremely irresponsible and sound familiar. They are an imitation of his dear friends. Upon returning from Miami [where the Bolsonaro delegation met with Mr. Trump], he, unfortunately, contracted a mental virus, which is infecting the friendship among our peoples.”

There is also what seems to be an unwillingness from Brazilian authorities to accept the involvement of Chinese company Huawei in Brazil’s future 5G operations. However, pushing the firm out will be easier said than done, as Huawei currently operates in Brazil and supplies 80 percent of all operational radio antennas in the country

“The U.S. invites Brazil to take a stand against China, the primary market today. The world tries to be equidistant; Brazil takes sides. You need to start evaluating the business aspects, not of today but the future. The pandemic showed that Brazil depends on commodities; they have no option,” says Mr. Castro.[/restricted]

Brazil Daily

The U.S. turns to ‘big stick diplomacy’ on 5G

We’re covering Brazil’s competitiveness challenges. The U.S. pressuring Brazil to turn against China on 5G. And how extreme poverty is lowering in Brazil.

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Brazil ranks low in competitiveness study

Brazil’s high tax burden and the lofty costs [restricted]for financing capital have left the country near the bottom of the Competitividade Brasil 2019-2020 report, measuring 61 competitiveness-related variables in 18 countries comparable to Brazil. Only Argentina placed lower in the general ranking, as was the case in the 2018-2019 report. Leading the list were, in order: South Korea, Canada, Australia, China, Spain, and Thailand. Brasília correspondent Renato Alves breaks down the results:

  • The report, carried out by Brazil’s National Industry Confederation (CNI), measures nine areas of competitiveness: Financing, Taxation, Labor, Infrastructure and Logistics, Macroeconomic Environment, Business Environment, Productive Structure, Education, and Technology and Innovation. Brazil does not feature in the top six for any of these areas. 

Expensive credit. Brazil ranked dead last in the area of financing, with costs to borrow money significantly higher in the country than any other nation in the study. Brazil had the highest short-term interest rates (8.8 percent) and interest rate spread (32.2 percent), with the latter being almost three times larger than second-lowest ranked Peru.

Tax burden. In 2017, Brazil’s tax incidence added up to almost one-third of its GDP, only smaller than Spain and Poland, where the average income per capita is twice that of Brazil’s, according to 2018 data. As well as this high burden, the Brazilian tax system is classified as being “low quality,” with its labyrinthine rules spanning municipal, state, and federal levies. The tax framework in Brazil is so complex that companies spend excessive time and resources simply to pay the correct amount of tax.

A large, unproductive workforce. Brazil has a competitive advantage when it comes to its readily available workforce, but desperately low productivity rates make labor in Brazil exceedingly costly. During the Covid-19 crisis, productivity levels in the Brazilian economy have dropped even further, as we explained in our June 22 Weekly Report.

The “Brazil Cost.” Understood as a combination of increased operating expenses of doing business in the country, the “Brazil Cost” is a well-known phenomenon among global businesspeople and deemed a major hurdle in the country’s competitiveness. CNI President Robson Braga de Andrade stated that it was paramount to reduce these hidden difficulties. “To reach the status of a developed nation, we need a strong, dynamic, and competitive industry, which looks to the future, being increasingly innovative, global, and sustainable,” he said.

The U.S. turns to ‘big stick diplomacy’ on 5G

The U.S. Ambassador to Brazil Todd Chapman said in an interview that failing to ban Chinese tech giant Huawei from operating 5G technology in the country could lead to “consequences” for Brazil. The ambassador echoed U.S. President Donald Trump’s claims that Huawei hands over private data circulating on its 5G networks to the Chinese government.

Where Brazil stands on Huawei. The Brazilian government has avoided voicing an official position on the issue. Behind the scenes, it is torn between its more ideological wing — which preaches total alignment to the U.S., including a ban on Huawei’s 5G — and pragmatist officials such as Vice President Hamilton Mourão, Economy Minister Paulo Guedes, and Agriculture Minister Tereza Cristina, who are less enthusiastic about that option, given how dependent Brazil has become on trade with China.

  • In 2015, 18 percent of Brazilian exports headed to China. Now, that share amounts to 34 percent.

Stick … “I wouldn’t say reprimands, but consequences,” Mr. Chapman told newspaper O Globo, about the repercussions of Brazil allowing Huawei to operate 5G networks. “Each country is responsible for its decisions. We are seeing in the world a fear of companies which depend on proprietary technology to invest in countries where that intellectual property is not protected.”

… and carrot. Mr. Chapman also suggested that the U.S. International Development Finance Corporation — an agency that provides financing for private development projects — has USD 60 billion to spend on allies which buy telecommunication products from “reliable sources.”

5G ban: easier said than done. As reporter Beatriz Farrugia informed last year on The Brazilian Report, a Huawei ban in Brazil would not be easy to carry out. The Chinese giant has built roughly 70,000 of the country’s 86,000 operational radio antennas and has an enormous presence in the country’s telecom infrastructure.

Emergency aid slashes Brazil’s extreme poverty rates

Despite Brazil facing one of its most daunting economic crises on record, the country’s extreme poverty rate dropped to its lowest level in at least 16 years, with 3.3 percent of the population living with less than USD 1.90 per day. That amounts to roughly 7 million people — about half the population in that situation last year. 

What is happening. The reason for that, economist Daniel Duque says, is the BRL 600 (USD 112) coronavirus emergency salary.

  • Mr. Duque says the comparison beyond the past 16 years is difficult, as survey methodologies were very different before that period, meaning the results are not automatically comparable.

By the numbers. Reporter Laís Martins talked to Mr. Duque to break down his findings:

  • Last month, 43 percent of households and 50 percent of the national population benefited from the aid;
  • Poverty rates fell from 25 percent in June 2019 to 21.7 percent in June of this year;
  • The emergency salary costs the government BRL 50 billion per month. In comparison, the Bolsa Família cash-transfer program had a BRL 30-billion budget for the entire year of 2020;
  • Up to the beginning of this week, spending on the program amounted to nearly BRL 167 billion, according to a congressional consultancy body.

Electoral impact. Lifting millions out of extreme poverty has given President Jair Bolsonaro extended political life. Everyone predicted that the pandemic would plummet his approval rates. It did — for a moment. Now, as the emergency aid program expands, the president sees his re-election prospects grow more realistic.

Yes, but … We are talking about very vulnerable people here. “If — or when — these handouts are halted, many will likely fall back below the extreme poverty line,” says Mr. Duque. Which would push the president’s approval rates down, too. With that in mind, the government is drafting a new, revamped version of the Bolsa Família program, but it has yet to present it to Congress.

What else you need to know today

  • Taxes 1. The Economy Ministry wants to propose a 25-percent cut on payroll taxes for all wage brackets. Minister Paulo Guedes believes the move will make hiring and firing less expensive — thus making the job market more dynamic. But Mr. Guedes also hopes that the tax cut will make congressmen more sympathetic to his project of recreating a tax on financial transactions — a levy that is much-loathed in Brazil.
  • Taxes 2. The government is also mulling over new income tax rules, which could create exemptions for those with monthly earnings of up to BRL 3,000 (USD 580), lowering rates for the middle class, and creating a new tax bracket for the super-rich — which would be taxed more. A secretary at the Economy Ministry said these changes could come as soon as August, without giving further details.
  • Mining. With rising iron ore prices and a bump in Chinese demand for the commodity, Brazil’s mining giant Vale secured profits of BRL 5.3 billion (USD 1 billion) in Q2 2020. Over the past quarter, iron ore was sold for USD 93.30 per ton — a 5-percent bump from Q1. In a securities filing, Vale said “the most critical moment [of the pandemic] has passed.”
  • Gas. The House has agreed to turn the so-called “New Gas Bill” into a priority project. It hopes to modernize the sector by fostering competition. In debate since 2013, the bill only passed the House’s Mines and Energy Committee in October 2019.
  • Targeting Moro. House Speaker Rodrigo Maia has teamed up with Supreme Court Chief Justice Dias Toffoli to push forward a bill that would only allow judges to run for office eight years after leaving the bench. This move has a clear target: former Justice Minister Sergio Moro — who is polling second for president at the moment, two and a half years before the next election. But whether Mr. Moro may be affected is uncertain, since as new laws cannot work retroactively. Moreover, many former judges are already in public office — such as Rio de Janeiro Governor Wilson Witzel.
  • Environment. Areas with native vegetation have expanded by 4.9 percent in the state of São Paulo over the past decade. Now, 22.9 percent of the state’s territory is covered by forest, mostly found in the Serra do Mar region — an inhospitable chain of mountains near the coast. Meanwhile, forest areas are practically nonexistent in the interior of the state. Even so, “forest regeneration is greater than deforestation,” says physicist Marco Aurélio Nalon, responsible for São Paulo’s Forest Inventory project.[/restricted]
Brazil Daily

Huawei footprint in Brazil continues to grow

We are covering the latest move by China’s Huawei in Brazil. The government’s infrastructure project. And what will happen to the Brazilian currency.

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Huawei makes (another) move in Brazil

Brazil’s first permanent testing lab for 5G technology will be inaugurated today in Brasília.[restricted] It is a partnership between BIOTIC S/A (Brasília Technology Park), Vivo and … Chinese telecom equipment firm Huawei. Governor Ibaneis Rocha praised the initiative and said that “Huawei’s choice of Brasília shows the Brazilian capital’s potential to develop into a tech hub.”

  • The lab will serve to test how 5G technology can be used in industry and logistics. BIOTIC says it hopes companies’ efficiency will improve by up to 50 percent once the new-generation networks are fully operational in Brazil.

Why it matters. The inauguration happens as U.S.-China relations sour at a worryingly fast pace, with Huawei being a central part of the feud. Just this week, U.S. and UK officials talked about building a “coalition” that understands China as a “threat.”

  • Just last month, U.S. Secretary of State Mike Pompeo gave a statement saying Vivo would be “in the near future, without equipment from any untrusted vendors,” in reference to Huawei. “The more countries, companies, and citizens ask whom they should trust with their most sensitive data, the more obvious the answer becomes: not the Chinese Communist Party’s surveillance state,” said Mr. Pompeo.

We want Huawei. Back in June, Vivo CEO Christian Gebara defended the use of Huawei technology to develop 5G networks. “They are one of the world’s most advanced companies and one of our suppliers. We respect all security protocols. No Huawei equipment used by us has put consumers or our systems at risk,” he said.

Where Brazil stands. Brazil’s telecoms regulator Anatel — which is preparing to auction 5G frequencies next year — says the president’s security cabinet will decide on a potential Huawei ban. But the government has been coy about where it stands. Recent regulations suggest Brazil will keep itself equidistant from the U.S. and China. The rules don’t give Chinese behemoth Huawei a completely open market — freeing up space for U.S.-supported companies such as Cisco or Nordic firms Ericsson and Nokia.

Brazil-China. Earlier this week, Brazil moved to back an anti-China proposal by the U.S. at the World Trade Organization. Instead of treading carefully between the two superpowers to get the most out of each one, Brazil has adopted an erratic one-sided position in the brewing U.S.-China Cold War.

Infrastructure: the government’s priority list

The Pro-Brazil Plan — a government initiative to recover the post-pandemic economy through infrastructure projects — continues to move along. The Infrastructure Ministry forwarded to General Walter Braga Netto, the President’s Chief of Staff, a demand for BRL 40.4 billion (USD 7.7 billion) to be invested in 153 projects, including roadways, railways, waterways, and airports.

Why it matters. The plan was launched in April, as the government (correctly) assessed that the uncertain scenario, coupled with the global economic slowdown, would dry up investments in riskier markets such as Brazil. But committing billions of the public budget to new projects could make public debt spiral out of control, hampering recovery prospects.

Hurdles. Getting the right suppliers would be complicated. The administration resists turning to Brazil’s main construction groups, which have expertise in dealing with major public projects. These firms have been associated with massive corruption scandals, and many are in dire financial straits following Operation Car Wash.

Guedes opposes. Economy Minister Paulo Guedes is adamantly against the plan, even comparing it to “pickpocketing the government.” But the cabinet member, once hailed as a “super minister,” has lost power among political power brokers — and has suffered several behind-the-scenes losses recently. 

Brazilian currency has room to rise

The Institute of International Finance has published an update of its “FX Fair Value Estimates” model. The index determines where widening current account deficits suggest that falling currencies could still be playing catch-up with deteriorating fundamentals. The IIF says the Brazilian Real is undervalued by 8.8 percent — showing there is room for the currency to appreciate in value in the near future.

  • The previous estimate had the Brazilian Real undervalued by 15 percent. Since then, it gained 7 percent against the U.S. Dollar.

Why it matters. Since the beginning of the year, the Brazilian currency has lost 30 percent of its value — which may create inflation.

What else you need to know today

  • Coronavirus. The federal government published a new regulation yesterday making it easier for doctors to prescribe medication containing antimalarial drug chloroquine — which President Jair Bolsonaro touts as a “possible cure” for Covid-19. On the same day, the largest Brazilian study to date on the efficacy of hydroxychloroquine in the treatment of Covid-19 concluded that the medicine is not effective in combating the disease in mild and moderate patients.
  • Investments. The New Development Bank, also known as the BRICS Bank, has elected sustainable development as its top priority for the post-pandemic world. The bank currently has an investment portfolio in Brazil appraised at USD 820 million — mainly in infrastructure and logistics projects.
  • New strike. App delivery workers will stage a second protest on Saturday, July 25,  demanding higher pay and better working conditions. Their first demo happened on July 1 and drew attention from politicians — and they hope a new act will be more effective in pushing for effective change. Couriers ask for a higher fee paid per delivery, plus higher rates per kilometer — which in São Paulo averages BRL 1 (USD 0.19).
  • Inequality. The rate of cured Covid-19 patients in private hospitals is 50 percent higher than in public facilities. Experts say there is no single reason for the discrepancy but claim that pre-existing conditions are the key factor. Lower-income populations — those who rely more on public services — also face lower quality nutrition conditions and less access to healthcare.
  • Tech. OLX Brasil, an online marketplace company, launches two services today: its own payment platform and a delivery service in partnership with Correios, Brazil’s state-owned postal company. Until now, OLX users had to figure out payments and deliveries for themselves. Working exclusively on peer-to-peer transactions, OLX operates around 2 million deals per month and intermediated the sale of BRL 140 billion in products last year.[/restricted]
Brazil Daily

Brazil joins the U.S. in taking WTO stand against China

We’re covering Brazil’s decision to take a stand against China at the WTO. The tiny tax reform presented by the government. And a decision on the 2015 Mariana dam collapse.

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CNN Brasil, a network which enjoys privileged access to Jair Bolsonaro, has just reported that the president has tested positive for the coronavirus for a third time. He undertook the test on Tuesday and was hoping he could return to his normal schedule. Mr. Bolsonaro first tested positive two weeks ago. Despite the new result, Mr. Bolsonaro reportedly has no fever and has presented normal levels of blood saturation.

Brazil and the U.S. gang up on China at WTO

Brazil will reportedly support a proposal by the U.S. [restricted]at the World Trade Organization that is essentially a shot at China. The Americans defend that all members must abide by the principles of a market economy, especially when it comes to the notion of government interference in business decisions. The initiative is supported by the National Confederation of Industry (CNI), a lobbying entity for the sector. However, while CNI tries to frame this as a move in favor of domestic industry, analysts see it as a clear jab at China’s model of state capitalism.

  • “The WTO must be prepared to fulfill its fundamental role,” Brazilian Ambassador Alexandre Parola was quoted as saying on Monday. “We must put market-oriented principles at the center of the WTO once again, and the quest for open trade as the engine for economic growth, prosperity, and development.”

Why it matters. Such a strategic move would never happen without presidential endorsement. Coming during a brewing “cold war” between China and the U.S., it suggests Brazil has picked a side in the fight between its two main trading partners.

Context. Washington is pushing for WTO reforms, suggesting that the Chinese do not abide by the same rules. This argument has not fallen on deaf ears in Brazil. Industrial lobbying organization CNI published a set of reform proposals last year for the multilateral body, suggesting that state-owned companies distort trading and often move “according to governments’ political objectives.”

  • U.S.-China relations are growing increasingly tense, with the Chinese Foreign Ministry saying the U.S. government gave China 72 hours to close its diplomatic consulate in Houston, Texas. According to the New York Times, the Trump administration “is also considering a ban on travel to the U.S. by members of the Communist Party and their families, a move that would affect 270 million people.”

What now? Political scientist Maurício Santoro, an international relations professor at the State University of Rio de Janeiro, says ganging up with the U.S. against China is a major shift in policy. “While Brazil has filed complaints against China before, they were always related to sporadic disagreements. This decision is a kind of ideological declaration of war, as it questions China’s legitimacy as a WTO member,” he told The Brazilian Report.

Trade. China is undisputedly Brazil’s main trading partner, and Mr. Santoro fears Beijing could use that status to retaliate. This could cost President Jair Bolsonaro allies among agricultural producers — who depend heavily on China for their profits. Agricultural entities have repeatedly voiced their displeasure with the Brazilian government’s often aggressive stances toward Beijing.

No comment. Until this time of publication, the Brazilian Foreign Affairs Ministry had not responded to questions submitted by The Brazilian Report.

— with Natália Scalzaretto

Guedes’ tax reform bill: the beta version

Over a year after Congress began debating a tax reform, Economy Minister Paulo Guedes finally submitted his own version for an overhaul of Brazil’s highly complex tax framework. But 18 months after taking office, Mr. Guedes was only able to present a limited version — with only one core proposal: merging social contributions on consumer goods PIS and Cofins into a single 12-percent levy.

Why it matters. According to the Economy Ministry, the rules around PIS and Cofins payments amount to 2,000 pages (literally). And such a complex web of regulations leads to judicial battles — there are currently 71,000 pending lawsuits relating to these two taxes alone.

Reception. In a rare moment in which Congress seems keen to approve a tax reform, Mr. Guedes’ decision to only present a “beta version” seems rather puzzling. Moreover, analysts fear that the government’s proposal isn’t bold enough and maintains privileges for several sectors — such as banks — which could increase the burden on regular taxpayers.

Next steps. The government promises to reduce corporate taxes and begin taxing dividends. However, no time frame for these proposals was given. 

Court orders compensation for 2015 dam collapse

Today, a court in Manchester, England will begin hearing a case filed by 200,000 individuals — including 25 municipalities and 530 companies — against Anglo-Australian oil giant BHP. The company is sued for its role in the 2015 Mariana tragedy, when an iron ore tailings dam owned by Samarco (a joint-venture between BHP and Vale) burst, killing 19 people and burying entire towns under an avalanche of mud. The hearing will establish whether the case can be heard in England and Wales — as plaintiffs say Brazilian authorities have been too slow to act.

  • With impressive timing, a Brazilian court published two decisions yesterday, dated from July 1 and 9, establishing that Samarco must compensate several workers with amounts ranging between BRL 23,000 and 94,000 (USD 4,500 and 18,200).

Why it matters. Judge Mário de Paula Franco Jr. wrote: “[This is] maybe the most important ruling on the case to this moment. Almost five years after the dam collapse, it recognizes, for the first time, several workers’ categories as being directly impacted by the tragedy — including those which operated under absolute informality, such as washing ladies and cart drivers.”

Still … No one has been held criminally responsible for the disaster.

What else you need to know today

  • Remote work. A provisional decree regulating remote work signed in March has expired and loses effect. It had made labor rules more flexible and allowed employers to negotiate directly with workers — without trade union mediation. The decree passed in the House, but there was no consensus in the Senate — where over 1,000 amendment proposals were submitted. While the rules in the decree are no longer valid, the deals signed while it was still in force will remain binding.
  • Education. The House should vote today on a proposal to make the National Fund for Basic Education Development (Fundeb) permanent. Responsible for BRL 160 billion, the fund is the main program to finance public education in the country — helping states and municipalities pay for teachers’ wages — but it was set to expire at the end of this year. Lawmakers want the federal government to increase contributions, from the current 10 percent to a share of 23 percent by 2026 — including an automatic bump to 12 percent in 2021.
  • Fintech. Central Bank director João Manoel Pinho de Mello said during a webcast hosted by an investment brokerage firm that the money authority is ready to greenlight WhatsApp Pay — an instant payment function by the Facebook-owned messaging app — “as long as all rules are respected.” Just after being launched, WhatsApp Pay was swiftly suspended by the Central Bank, which analyzes if the service is safe in terms of data protection and doesn’t hinder competition.[/restricted]

Brazil forced to import soy as China expands its appetite

Brazil is one of the leading producers and exporters of soy in the world, yet data from June showed that the country is now importing the oilseed at the highest level in four years. A report from economic research institute Cepea explains that soy exports broke records in the first half of 2020, which, along with droughts in the south of the country, caused shortages for local companies, forcing them to buy in from Mercosur partners.[restricted]

Undeniably, one factor contributing to Brazil’s record exports is the appetite for soy in China. According to data by Brazil’s Economy Ministry, Brazil exported 60 million tons of soy in the first half of the year — 43 million of them to China.

Reuters news agency also reports that June’s soy imports rose to 11.16 million tons in China, 71 percent above 2019 levels. The jump was fostered by Brazilian soy, which sources reported to be cheap at a time when Chinese processors began reestablishing their activities. 

The latest crop bulletin by the National Supply Company (Conab) puts average soy prices at BRL 93.9 per bag, 36 percent more expensive than the same period last year. However, back then, the USD traded at BRL 3.85, on average. It stands at around BRL 5.35 now.

Conab believes exports will continue this fast pace for the coming months, expecting 7 million tons to be sold in July as advanced purchases for the 2020/2021 season are already being traded. In total, 80 million tons of soy will be shipped abroad and 46 million will be used for internal consumption, says Conab.

Soy: the driving force of Brazil’s economy

The good news in the field reflects on the entire productive chain of agribusiness. The Santos Port Authority, responsible for managing the largest cargo hub in South America, reported it had shipped a record of 70.3 million tons of goods in the first half of 2020, despite the great strain the Covid-19 pandemic caused on global supply chains. 

The performance was a result of a 13.6 percent increase in exports, mainly down to sugar and soy complex — which includes oil and soy meal. While sugar exports jumped 40 percent to 8 million tons, soy reached an impressive 22 million tons — a 27 percent increase versus the previous year. 

“The port’s good numbers reflect the strength of agribusiness and the favorable effect of the foreign exchange rate over exports,” SPA chief executive officer Fernando Biral was quoted as saying by magazine Época Negócios. 

At a time when the grimmest projections for Brazilian GDP expect a plunge of up to 10 percent this year, agribusiness remains as important as ever for the country’s economy and such booming results could mean an increasing share in the overall output.[/restricted]

Business Coronavirus

The pandemic could create a golden opportunity for Brazil’s industry

Over the past 30 years, China has turned itself into the world’s largest factory region, concentrating no less than 28 percent of global industrial output. While other countries, namely the U.S., have criticized this concentration of production for some time, it took the Covid-19 pandemic to prove that having nearly all medical supplies produced in one place is not a good idea. That realization, coupled with a slowdown in the flow of people, should lead to a reorganization of global value chains with countries seeking to bring production closer to home.

Could that be an opportunity for Brazil to make a leap in development?[restricted]

For people such as long time investor Mark Mobius, founder of Mobius Capital Partners, this is a real possibility. In an interview with CNBC, he said companies were keen on reorganizing their supply chains, and while Canada and Mexico would be more logical locations for U.S. companies, “there’s going to be diversification where these supply chains get moved into places like Vietnam, Bangladesh, Turkey, even Brazil.”

Changing a system that has been building up for so many years is no easy task, and will not happen overnight. But the first signs that the so-called “decoupling” of U.S. firms from China is here to stay are already popping up, with Apple moving part of its production to India and Vietnam. Also, as political tensions between the U.S. and China continue to boil over on issues such as trade and Beijing’s Hong Kong takeover, decentralization may be the new order of business.

Meanwhile in Brazil, the economy is still feeling the impacts of Covid-19, with factories closing for good and industrial production falling 22 percent in May year-over-year. But industry experts believe that the country may be in a good position to become an attractive destination for investment — if it deals with its own internal challenges.

And that is a big if.

Brazil is better than it was, but not where it should be

In the past few years, Brazil has approved several reforms that aimed at reducing red tape and costs — such as the 2017 labor reform — or at balancing public accounts, as was the case of the 2019 pension reform. However, the country still languishes in the 124th position in the Doing Business ranking, which measures how business-friendly a market is, suggesting that there is still a lot to be done in order to make Latin America’s top economy more competitive.

For Thomaz Zanotto, director of International Relations and Foreign Trade at São Paulo’s Industries Federation (Fiesp), the local priority must be Brazil’s long-delayed tax reform.

“If we manage to approve the tax reform, we’ll be able to enjoy this regionalization, especially with the U.S. There is no doubt that we can win back Latin American markets that we lost to China,” he told The Brazilian Report, pointing out sectors such as apparel, machines, and vehicles as potential areas to benefit from the trend, despite being among the hardest-hit by the Covid-19 crisis.

Mr. Zanotto is not the only one to support this vision. According to Patrícia da Silva Gomes, executive director of Foreign Markets, and Maria Cristina Zanella, executive director of Statistic Economy and Competitiveness, both from the Brazilian Association of Machine and Equipment Industries (Abimaq), Brazil is in a prime position to reach Latin American countries, an potentially go further. “The Brazilian machine and equipment industry exports to over 150 countries. In 2019, roughly 30 percent of the sector’s exports went to the U.S. market, which shows international diversification,” they wrote in an emailed statement to The Brazilian Report.

They add that trade deals between South American trade bloc Mercosur and the European Union and members of the European Free Trade Association are set to open more demanding markets for Brazil. However, “in order to attract productive investments amid the reorganization of global supply chains, it is necessary to fight the variables that make up the ‘Brazil Cost,’” they say, including poor infrastructure and the heavy tax burden.

This demand is not new, as Brazil’s complicated and onerous tax system is considered one of the main obstacles for the development of the productive sector in the country. The extent of the problem becomes evident when we consider that taxes gobble up to 45 percent of the transformation industry’s output, while agriculture and extractivism sectors pay roughly 6 percent, as shown in a study by Rio de Janeiro’s Industries Federation (Firjan).

This loss of competitiveness eventually takes a toll on the sector’s contribution to the economy. While the industry accounted for 21 percent of the Brazilian GDP in the 1980s, it now makes up around 11 percent.

Unlike the pension reform, which was forged in consensus, tax reform is a source of controversy, starting with the fact that at least five proposals have been considered in Congress — and the Ministry of the Economy is yet to assemble its own bill.

Industry also depends on political abilities

Reforms are not the only issues that will require a better strategy from the Jair Bolsonaro administration. Besides infrastructure woes and an entangled tax system, Brazil’s image has not been cast under a favorable light recently — not only due to a poor response to the pandemic but also due to numerous environmental scandals, including record levels of deforestation in the Amazon rainforest. The alarming data comes two months after Environment Minister Ricardo Salles was caught on tape saying the government should use the pandemic as a diversion to further deregulate environmental rules in the country.

The international community’s reaction is strong, with calls to suspend the Mercosur-EU trade deal, and a meeting held between foreign investors and Vice President Hamilton Mourão — including Mr. Salles, Foreign Minister Ernesto Araújo, and Agriculture Minister Tereza Cristina — to discuss combatting deforestation in the Amazon.

For Mr. Zanotto, “Brazil has to deal with [international pressure] politically, to be intelligent in its message. If we change the message and agree with the media’s greener view, moving forward with the reforms, investments won’t be a problem in Brazil,” he said.

Mr. Salles himself acknowledged in an interview that he needs to “improve communication and bring people to the debate,” signaling that the pressure is starting to produce some effects. However, the country is still far from achieving the material results necessary to prove to foreign investors that Brazil is making actual environmental progress. 

Fighting over scraps

Brazil will need to do its homework do overcome competition that is getting increasingly tough. On its newest World Investment Report, the United Nations Conference on Trade and Development (UNCTAD) expects global foreign direct investment to fall between 30 and 40 percent in 2020, plunging another 30 to 50 percent in 2021, depending on “the extent of the economic damage and the effectiveness of extraordinary measures that governments around the world are implementing to support businesses and households.”

Latin America and the Caribbean is set to be hit hardest, with a projected drop in FDI of between 40 and 55 percent in 2020. That’s because the region’s investments are highly concentrated in commodities such as oil, of which consumption has been severely affected by social isolation measures.

This blow is particularly hard for Brazil, where the oil industry accounts for 32 percent of FDI. The sale of assets such as gas pipeline network TAG to French group Engie helped to put the country on the map as one of the top 5 largest FDI destinations in the world in 2019, attracting USD 72 billion.

Privatizations of assets such as energy holding Eletrobras would be useful to foster investments once more, according to the report, and Economy Minister Paulo Guedes aims to carry out four such privatizations in the next 90 days. However, with market conditions unfavorable and the recent political skirmishes between the Executive, Congress and the Supreme Court also frustrating the sale of state-owned assets, the promise seems unrealistic. 

In a recent article, Fernando Santiago, Industrial Policy Officer from the United Nations Industrial Development Organization (Unido) and Fernando Vargas, Specialist in Competitiveness, Technology and Innovation at the Inter-American Development Bank, support the view that Latin America needs to foster innovation funding and the digitization of the economy to foster industry investments in the post-pandemic scenario. 

“The challenge of digitizing will vary according to the level of technological sophistication of each firm,” they wrote. “Those with more technologically mature systems, and which are operating in countries with greater levels of industrial development — such as Argentina, Brazil, and Mexico — may target a recovery strategy incorporating more advanced technologies such as those associated with Industry 4.0.”[/restricted]

Brazil Daily

Huawei excluded from a Brazilian 5G bid

We’re covering the latest on Huawei 5G in Brazil. The curious court order benefiting Jair Bolsonaro. And the links between more women mayors and lower child mortality rates.

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A move against Huawei in Brazil

Telecom Italia has removed Chinese behemoth Huawei[restricted] from a tender for 5G equipment for the core network it is preparing to build in Italy and Brazil, according to Reuters. Invited suppliers include Sweden’s Ericsson, Finland’s Nokia, and the U.S.’s Cisco, Mavenir, and Affirmed Networks (which was recently acquired by Microsoft).

What’s going on? Earlier this week, Italian newspaper La Reppublica said the country was mulling over banning Huawei from its 5G network over concerns — not yet backed up by evidence — that Huawei hardware could have backdoors allowing the Chinese government to monitor and control networks across the globe, or try to insert malware in government systems.

U-turn. Interestingly, TIM Brazil — a subsidiary of Telecom Italia — had already begun 5G trials in the southern Brazilian city of Florianópolis, using Huawei equipment. TIM has yet to comment on whether or not the trials will continue.

Why it matters. The ‘5G Cold War’ between the U.S. and China is squeezing Brazil between its two main trade partners

  • “It would be an opportunity to try and gain the most from each side if Brazil were to remain equidistant from them, but Jair Bolsonaro’s alignment with Washington goes against the country’s interests,” said political scientist Mauricio Santoro, who studies Brazil-China relations at the State University of Rio de Janeiro.

Huawei’s footprint. Despite Mr. Bolsonaro’s pro-U.S. demeanor, Brazil is unlikely to ban Huawei. Not that such a move would be anything simple. According to the National Telecommunications Agency (Anatel), the Chinese giant has built roughly 70,000 of the country’s 86,000 operational radio antennas

  • These devices are responsible for transmitting 3G, 4G, and LTE frequencies to smartphones, modems, credit card machines — essentially any device connected to a mobile network.

5G in Brazil. Last week, we reported that Claro, owned by Mexico’s América Móvil, had announced a pre-launch of 5G technology in Brazil. It chose Motorola, Ericsson, and Qualcomm as its partners.

Love moves mountains … and open jail cells

The Superior Court of Justice, Brazil’s second-highest judicial body, issued a mind-boggling decision on Thursday. It revoked the preventive custody order of Fabrício Queiroz, a longtime friend of President Jair Bolsonaro who is suspected of operating, for years, a money-laundering scheme for the president’s son. The decision also benefits Mr. Queiroz’s wife — who is literally a fugitive from justice.

Why it matters. Mr. Queiroz could compromise the Bolsonaros on many levels — he has ties with Rio’s paramilitary mafias and operated money schemes for Senator Flávio Bolsonaro. Some pundits expected him to make a plea deal with prosecutors to protect his family. That is no longer necessary.

Unprecedented. It is unheard of another case in Brazilian law in which a fugitive had penalties relaxed. Preventive arrests are used precisely when there is a flight risk for defendants.

  • The decision was penned by the court’s presiding justice, João Otávio de Noronha. In April, President Bolsonaro said he felt “love at first sight” for Mr. Noronha. Apparently, the feeling is mutual.

Not his first rodeo. Justice Noronha already has a track record of odd decisions in the president’s favor. In May, he allowed Mr. Bolsonaro to hide his Covid-19 test results — a decision later revoked by the Supreme Court.

  • Fellow court members called the decision a “disgrace,” and accused Justice Noronha of using his decisions to get in the president’s good graces — eyeing a nomination to the Supreme Court in the future.

More women, fewer deaths

A new study by the Federal University of Bahia and the University of Campinas suggests that positive results in lowering child mortality in Brazil depend more on politicians’ gender than their party. Researchers analyzed 3,167 of the country’s 5,570 municipalities for 15 years — and developed an econometric model suggesting that municipalities with female mayors and lawmakers had better performance reducing the mortality of children under 5.

What they are saying. The hypothesis of these public health scientists is that women are more committed to social policies than male politicians. However, the researchers say the impact of other positive outcomes of female leadership needs to be deeply investigated.

Why it matters. In Brazil, women account for only 11.7 percent of mayors — and only 10 percent of federal lawmakers. 

Child mortality in Brazil. Though child mortality has declined over the decades, 12.8 of every 1,000 births still die in Brazil before reaching the age of 5. That is almost twice the rates of Chile and Uruguay.

— with José Roberto Castro

What else you need to know today

  • Fintechs. Mastercard has reportedly invested in one of the most innovative Brazilian fintechs, Banco Digital Maré, which tackles how the country’s banking system excludes poor consumers. Besides providing banking services, the startup also gives financial advice to 37,000 people who otherwise would have little access to ATMs and bank branches. The value of Mastercard’s investment has not been disclosed.
  • U.S. Congress. A 26-page report by the U.S. Congressional Research Service says that President Jair Bolsonaro’s “interference in justice sector agencies and frequent attacks on the press, civil society groups, and other branches of government have placed additional stress on the country’s already-strained democratic institutions.” The document says that Mr. Bolsonaro’s demeanor may refrain U.S. congressmen from pushing for a closer relationship with Brazil. That contradicts the government’s official foreign policy mantra — that total alignment with the White House will bring positive trade results for Brazil.
  • Car Wash. Supreme Court Chief Justice Dias Toffoli granted an injunction forcing the Operation Car Wash anti-corruption task force to share all of its investigation files with Prosecutor General Augusto Aras — who investigates whether prosecutors overstepped their legal limits. There are two sides to this story: (1) the Bolsonaro administration has given evidence that it wants to kill anti-corruption efforts; (2) Car Wash investigators have also given evidence that they bent the rules in the name of what they consider to be the “greater good.”
  • Education. During a live broadcast on Facebook, President Jair Bolsonaro said he could appoint a new Education Minister today. “We want someone who promotes dialogue, which is not easy, with all levels of education,” said the president. After Abraham Weintraub left the department three weeks ago, Mr. Bolsonaro tried two names — one was tarnished due to lies in his résumé, while the other gave up the nomination after being bad-mouthed by the president’s most radical supporters for not being conservative enough.[/restricted]

New study gives China opportunity to blame Brazil for pandemic

There has been much conjecture and conspiratorial theorizing about the origin of the Sars-CoV-2 virus, which kicked off the Covid-19 pandemic that has so far claimed over half a million lives. The first official and confirmed case of human infection by the novel coronavirus was recorded by municipal health authorities in Wuhan (Central China) on December 31, 2019, and ever since scientists have been trying to identify the path of the virus until its first detection.

One spokesman from the Chinese foreign ministry tweeted a conspiracy theory according to which the virus was brought to the country by 300 athletes from the U.S. Army, in Wuhan for the 7th Military World Games in October 2019. Meanwhile, China’s mainstream media is giving credence to a preliminary study in Brazil, suggesting the virus may have been present in the country in late November of last year.

A group of Brazilian scientists found traces of Sars-CoV-2 in samples of human sewage collected in the country on November 27. If confirmed, this would mean that the virus was present in Brazil more than three months before the World Health Organization declared Covid-19 a pandemic.[restricted]

China seizing the opportunity

This preliminary discovery was quickly spread by several Chinese news outlets. The South China Morning Post wrote that the study “adds to suggestions that the virus spread undetected before the alarm was first raised in China in late December.” 

News agency CGTN does not mention that the paper still is in the preprint stage, meaning that it has yet to be formally peer-reviewed or published in a scientific journal. Preprint studies have become more and more widespread in recent months, due to the urgency for scientific discoveries related to Sars-CoV-2.

The story was also picked up by, Global Times, and

Since the beginning of the pandemic, CGTN has published a number of stories on studies differing from commonly held narratives about the spread of the virus. In a video about patient zero, the site stresses that the first confirmed case of Covid-19 does not necessarily mean the person was the first case of the disease.

An international blame game is brewing regarding the Covid-19 pandemic, with the Chinese government coming in for heavy criticism worldwide for allegations it had been negligent in containing the virus’ spread in December and early January.

This criticism of China has also overstepped into the realms of xenophobia in many places, including Brazil. Members of the Brazilian government and close allies of President Jair Bolsonaro blamed the Asian country for the pandemic and insisted on calling the novel coronavirus the “Chinese virus.” 

This anti-China stance, following suit with U.S. President Donald Trump, has led to several warnings from the Chinese embassy to Brazilian authorities. In March, one of the president’s sons, Congressman Eduardo Bolsonaro, tweeted that “China is to blame.” The official representative of China in Brazil replied, demanding a retraction. “His words are extremely irresponsible and sound familiar. They are an imitation of his dear friends. Upon returning from Miami [where the Bolsonaro delegation met with Mr. Trump], he, unfortunately, contracted a mental virus, which is infecting the friendship among our peoples.”

The paper placing the coronavirus in Brazil back in November

If confirmed, the trace of Sars-CoV-2 in Brazil would be the virus’ first recorded appearance in the Americas and would serve as evidence that the virus was circulating in other places before the first notified case in China. However, the researchers who found traces of the novel coronavirus in Brazilian sewage samples say it doesn’t mean Sars-CoV originated in the country. 

According to researcher Gislaine Fongaro, similar investigations have found traces of the virus in Italy in December. Another recent paper indicates that the virus has been circulating in Wuhan since March 2019, nine months before the first confirmed case. The sewage material shows the virus has infected people before, but the hypothesis is that those patients had been asymptomatic or been treated as ordinary pneumonia cases.

“We only found out about this pathogen in December. Before that, the novel coronavirus was not sought in examinations because it was not known that it existed. Diagnosis is linked to knowing the causative agent,” said Ms. Fongaro in a press conference last Friday.

The samples came from the sewage system of Florianópolis, the capital of southern Brazilian state Santa Catarina. The group of virologists, protozoologists, molecular biologists, and bioinformaticians analyzed the material collected from October to March. The first occurrence was identified on November 27. 

The samples were tested using the RT-PCR method, which can find even the smallest traces of a given substance. The samples were available as they had been collected previously for other studies.

The researchers emphasize that the quantity found in November is small compared to more recent samples. This would be explained by the fact that sewage represents a snapshot of a specific region, and the low level of Sars-CoV-2 suggests the virus was only present in a very small part of the population. Researchers found the virus in much higher quantities in subsequent samples, as Covid-19 spread around the population.

Ms. Fongaro points out that the research is just one step in the journey to trace the route of the virus up to the first signs of an epidemic in Wuhan. She believes that retroactive sewage samples can be a valuable source of information worldwide. “It is an excellent time for us to think about how the population’s sewage is useful for sentinel programs. Long before clinical cases appeared, the virus was circulating.”[/restricted]

Brazil Daily

Brazil’s recession to be brief yet acute

Today, we bring you projections for the looming Brazilian recession. China’s move to ban Brazilian meat due to coronavirus scares. And how Brasília’s failed reopening epitomizes the country’s botched response.

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Brasília, we have a recession

Brazil entered a recession in the first quarter of 2020, after three years of sluggish but consistent growth. [restricted]According to the Economic Cycles Dating Committee, linked to think tank Fundação Getulio Vargas, this recession might not last for that long, when compared to previous ones over the past 40 years. However, it is set to be the most intense downturn.

  • A recession is typically recognized as two consecutive quarters of economic decline. While Q2 numbers have yet to come out, it is certain that they will be well under zero. GDP contracted -1.5 percent in Q1 and is expected to fall by as much as 10 percent in Q2, the height of quarantine measures.

Why it matters. The economy was already in poor shape. This means that the economic recovery will not be V- or W-shaped. Instead, it will take the shape of a K — wealthy groups getting back on their feet while poorer workers lose purchasing power, widening the distance between them.

Why K? Social isolation has been brutal to the services economy — which is filled with poorly-qualified workers who earn the lowest salaries. But also because the inflow of credit the Central Bank is trying to pour on the economy is going to better-established companies, which offer the lowest risk for banks — but are not necessarily those which need a bailout the most.

  • But over two-thirds of Brazil’s jobs are in the services sector — and most of them are informal, which make them even more vulnerable to the crisis.
  • Registered workers had some protection. The government allowed companies to suspend contracts and paychecks, compensating part of the lost income. The Economy Ministry said the move, which is set to be extended, avoided 11.7 million layoffs.

Aid. The government’s three-month BRL 600 (USD 110) emergency salary to vulnerable populations has proven to be essential to keep millions of people from falling below the poverty line. President Jair Bolsonaro has said the government will pay an extra BRL 1,200 — either in two or three installments.

Glass half full. The Central Bank believes that Brazil reached rock bottom in April. In the best-case scenario, rock bottom will last for some months — the longer recovery takes, the hardest the recession will be felt by the poor and the middle class.

Glass half empty. In the worst-case scenario, the pandemic will continue to spiral out of control and the country’s economy will fall even deeper.

China bans meat from three Brazilian factories amid pandemic

The Agriculture Ministry reports that China suspended imports from three Brazilian meat-processing plants on Monday, citing concerns over Covid-19 contamination. The government, however, did not specify which companies were affected by Beijing’s decision. Meanwhile, the country’s top producers — JBS, Marfrif, and Minuano — declined to comment.

  • Chinese customs authorities have asked for information about Brazilian slaughterhouses that have registered outbreaks of coronavirus infections. By June 16, at least 47 abattoirs in 17 states had been shut down by the Agriculture Ministry due to Covid-19 contamination. 

Why it matters. Meat-processing plants are made up of closed, refrigerated spaces — ventilation systems are built to avoid external contamination — where hundreds, sometimes thousands, of people work “shoulder to shoulder,” handling animal protein. These companies have become breeding grounds for the coronavirus.

Lax regulations. Only on May 11 did the Agriculture Ministry issue a set of recommendations to how meat companies should proceed to avoid contaminations within their facilities. The document, however, is not legally binding.

Rushing back to work in Brazil’s capital

Governor Ibaneis Rocha has declared a state of public calamity in Brazil’s federal capital Brasília, with over 47,000 Covid-19 cases and 559 deaths. Despite the move, Mr. Rocha still went on with greenlighting a series of businesses to reopen, as part of his administration’s push to return to economic normality.

Quarantine. At the beginning of the pandemic, Brasília imposed some of the most restrictive quarantine rules. But it was also one of the first regions in Brazil to reopen, and did so before infection and death curves were going down — something other governors have copied.

Results. Cases and deaths spiked after a reopening that came long before experts thought it was safe. With the economic crisis hitting states hard, governors are making decisions less based on scientific evidence — and more in line with their own political interests.

Behavior. A new poll by Datafolha shows that Brazilians are increasingly afraid of contracting the coronavirus (78 percent are very or somewhat afraid). However, the rate of people who say they are in total isolation has actually decreased (12 percent). Interestingly, the survey suggests that poorer people — who live in communities where social distancing is more difficult — isolate themselves more than the rich.

Why it matters. The public buy-in for total isolation has gone down, which raises the question: how would it be possible to shut economies down again as the coronavirus continues to spread?

What else you need to know today

  • Cabinet. Brazil’s new Education Minister might be fired before he is sworn in. After Carlos Alberto Decotelli was caught lying on his résumé, including a Ph.D. he never obtained and postdoctoral research he never carried out, President Bolsonaro postponed the inauguration ceremony scheduled for Monday. He is not, however, the only minister in the hot seat. Aides have advised Mr. Bolsonaro to get rid of Ricardo Salles (Environment) and Ernesto Araújo (Foreign Affairs), who have become liabilities for Brazil’s international image — which could dry out foreign investment.
  • The three stages of a pandemic. A survey by consulting firm GfK showed that, among wealthier Brazilians, the consumption of “superfluous” goods — such as tablets or robotic vacuums — has skyrocketed. The study says these consumption decisions are part of the stages of grief people are experiencing during the pandemic: from panic, to adaptation, to, finally, self-indulgence. “The sentiment now is: ‘the pandemic will last for a long time, therefore I deserve to give myself some presents,'” says GfK director Fernando Baialuna.
  • Chloroquine. In order to validate the government’s endorsement of antimalarial drug chloroquine as a treatment for Covid-19, Brazil’s interim Deputy Health Minister Élcio Franco said one of the country’s flagship health institutions, the São Paulo-based Albert Einstein Hospital, had adopted the medication. The hospital quickly announced otherwise.[/restricted]

São Paulo teams up with Chinese lab to produce Covid-19 vaccine

São Paulo Governor João Doria announced today on social media that the state-run Butantan Biological Institute will partner up with Sinovac Biotech, a privately held Beijing-based lab, to produce a Covid-19 vaccine. Mr. Doria claims the potential vaccine is entering its “final phase of testing.”

“Today is a historic day for science in Brazil and São Paulo,” the governor declared on Twitter. He promised to provide more details about the project later today (and we will update this post).

Reopening its economy before significantly flattening the Covid-19 curve, Brazil risks an explosion of coronavirus infections and deaths — and will need a scientific breakthrough in order to prevent a humanitarian crisis.

Covid-19 vaccine, Made in China

Sinovac Biotech became the first pharmaceutical company able to protect an animal — rhesus macaques — from infection by the coronavirus, Science Mag reported on April 23. 

The company administered doses of their potential vaccine to eight monkeys. Three weeks later, researchers introduced SARS-CoV-2, the virus that causes Covid-19, into the animals’ lungs. According to reports, none of the monkeys developed a full-blown infection, with those administered with the highest dosage having the best response.

Several of the animals given lower doses had a “viral blip” but also appeared to have gotten the infection under control, the Sinovac team reports in a paper published on April 19 on the preprint server bioRxiv. (A peer-reviewed version of the study was published on May 6 by Science.)

While the results seem promising, many experts are urging caution. Douglas Reed, a microbiology professor at the University of Pittsburgh, says the number of animals was too small to yield statistically significant results.

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Latin America

Blanked by Brazil, Argentina turning to China for trade

Beyond ideological supporters and the “anti-politics” vote, a significant portion of those who elected Jair Bolsonaro president in 2018 did so with an eye on the economy. During the campaign, the former Army captain declared he knew “nothing about economics” and the appointed ultra-liberal Paulo Guedes as his future czar for all things finance. With supporters of free trade and liberal economics firmly on board, Mr. Guedes set his stall out early, saying that South American trade bloc Mercosur (which also includes Argentina, Paraguay, and Uruguay) wouldn’t be a priority during his tenure and that “doing business with ideology” — a veiled dig at China — had its days numbered.[restricted]

This came as quite the break with tradition, as China and Argentina are among Brazil’s top three trading partners. According to think tank Fundação Getulio Vargas, almost 30 percent of Brazilian exports in 2019 went to China. But while Brazil broke monthly records of exports to China this year, even during the pandemic, the country’s relationship with Argentina has soured dramatically. Now, China has surpassed Brazil as Argentina’s biggest trade partner.

According to the Argentinian Productive Development Ministry, total trade with Brazil plunged 55.6 percent in May, compared to the same month last year. Buenos Aires news website Infobae says the trend is likely to last longer than a month. 

Simultaneously, China has ramped up its purchases of Argentinian commodities, with soybeans and beef increasing 52 and 29 percent, respectively. And that’s only the beginning. In the words of the Chinese ambassador in Buenos Aires, Zou Xiaolli, Beijing’s “demand for quality products will grow again.”

Is this trend simply based on China’s voracious appetite for inputs? Miguel Ponce, Argentina’s former deputy secretary of industry and commerce, says no. In his view, recent developments also have a political edge.

“China is finding permanent opportunities to grow. Take trade between China and Australia, for example. Australia asked the World Health Organization (WHO) to investigate China for the coronavirus outbreak. What did China do? It stopped buying barley and meat from Australia. Now Argentina is preparing to be a substitute market and take Australia’s place,” Mr. Ponce told The Brazilian Report

This could also be a warning to Brazil. As reported in May, several members of the Bolsonaro government have repeated conspiratorial messages against China. So far, that rhetoric has not affected how Beijing does business with Brazil, but if it does, it could cause a cataclysmic episode in an economy already tipped by the World Bank to fall 8 percent in 2020. 

“It is a delicate situation. Argentina fears, for example, that this new Chinese position will generate retaliation for Brazil. We must remember that Brazil ‘punished’ us by buying wheat from the U.S. in 2019. This kind of intrigue cannot happen now, especially during the pandemic. We don’t need less Mercosur. We need more Mercosur to overcome this adversity. That’s the motto in Buenos Aires nowadays,” he added. 

Multilateralism is the only way

Brazil under Jair Bolsonaro is a daily machine of global discord, led largely by anti-globalist Foreign Minister Ernesto Araújo. Argentina, meanwhile, goes in the opposite direction. As Brazil antagonizes China, the administration of President Alberto Fernández preaches that “relations must be de-ideologized,” a view shared by his Foreign Minister Felipe Solá. Unlike Paulo Guedes, he means it. In February, Mr. Solá even went to Brasília to re-establish relations with their neighbors. 

“Mr. Solá’s message is important. We must not only de-ideologize trade issues. We must stop thinking only about the post-crisis and also think about what we can do during the crisis. It is necessary to work together and take advantage of the opportunities that arise, as in the case of Argentina and the China-Australia problem. Brazil must be an ally of Argentina, to also take advantage of the opportunities that emerge from China’s trade war [with the U.S.].”

Meanwhile, multilateralism is something Brazil appears to be ignoring. Last week, the Netherlands was the third European Union member state to reject the Mercosur-EU trade deal, due to Brazil’s inactivity in curbing Amazon deforestation. If Brazil doesn’t change tack and make concessions, the historical agreement — the fruit of 20 years of negotiations — will have been for nothing.[/restricted]


Brazil wasting golden opportunity in U.S.-China feud

On top of imposing a massive death toll, unprecedented economic recession, and a possible “job apocalypse,” the pandemic has once again squeezed Brazil between its two major trading partners — China and the U.S. Marching on to become the world’s undisputed Covid-19 epicenter, the biggest market in Latin America is now a battleground for superpowers’ coronavirus diplomacy — that is, the use of health cooperation to enhance countries’ influence in the global scene.

A couple of weeks ago, the city of São Paulo received 30,000 protective face masks from authorities in the Chinese metropolis of Shenzhen. The supply was used to provide health workers with protective gear in the city with the highest number of Covid-19 cases (73,000) and deaths (8,800). Prior to that, the city had received donations from the Shanghai government and the Bank of China —  getting 50,000 masks from each. These actions of cooperation are part of the Asian giant’s efforts to change perceptions of its handling of the pandemic.[restricted]

On the opposite side of the issue is the U.S., which under President Donald Trump has adopted an anti-China stance — calling the coronavirus “the Chinese virus” and even severing his country’s ties with the World Health Organization.

The Trump White House has just sent Brazil 2 million doses of antimalarial drug chloroquine. While it has no proven effectiveness against Covid-19, it has been touted by President Jair Bolsonaro as a “possible cure” for the disease, leading the Brazilian Health Ministry — headed by a military officer with a background in logistics, not science or healthcare — to recommend its use on all Covid-19 patients.

“Chloroquine became the panacea of populist leaders, from both the left and the right. But no leader has gambled on it more than Mr. Bolsonaro,” says political scientist Guilherme Casarões, a professor at think tank Fundação Getulio Vargas. “The chloroquine donation seems to be good for the U.S. on two ends — it enhances their soft power with the Brazilian government, and allows it to dump a product U.S. health officials have advised against using,” he adds.

A major opportunity lies ahead, but will Brazil seize it?

Only on very rare occasions has Brazil found itself in a situation where it can use feuds between superpowers to get the most out of each one. 

One textbook case happened in World War II, when then-President Getulio Vargas flirted with both the Allies and the Axis Powers until the very last second. In the 1930s, Brazil had improved ties with Nazi Germany, which became the country’s sixth-largest trading partner by the end of that decade. Ideologically, one might even say that Mr. Vargas shared more common ground with Adolf Hitler and Benito Mussolini than with liberal democracies.

Both the Axis and the U.S. were keen on setting up military bases off Brazil’s Northeast coast — a strategic location for the war in the Atlantic. “And a pragmatic Getulio Vargas used the leverage to get the most from each side. In the end, the Americans had a better offer, helping to revamp the Brazilian Armed Forces, build a national steel industry, and implement economic cooperation deals,” explains political scientist Mauricio Santoro, an international relations professor at the State University of Rio de Janeiro.

Now, the wedge between the U.S. and China could provide the perfect opportunity for Brazil to pull a similar move, especially as the local economy is expected to tank in the coming months — and foreign investment will be as valuable as ever. “Mr. Bolsonaro, however, has pledged for automatic alignment with the U.S., and many members of his family — and administration — have voiced anti-Chinese sentiment,” says Mr. Santoro.

The risks for Brazil

For decades, Chinese diplomacy was all about coyness. Under Deng Xiaoping, the country’s declared strategy was to “hide its ability and bide its time.” Its politburo was so subtle and indirect that former U.S. Secretary of State Henry Kissinger wrote that “Beijing’s diplomacy went over our heads in Washington.”

That tone has changed with Xi Jinping, who wants China to have a more prominent role in world politics. And as criticism of the country’s handling of the pandemic piles up, Beijing is adopting an increasingly tough tone. The Chinese Embassy in India, for example, described calls for China to pay compensation for the pandemic as “ridiculous and eye-catching nonsense.”

“In Brazil, that new kind of diplomacy has become even more confrontational,” says Mr. Santoro, whose research concentrates on Brazil-China relations. Racist comments by members of the Bolsonaro administration have been met with strong messages — with Yang Wanming, the Chinese ambassador to Brasília, holding verbal sparring matches with one of the president’s sons and his Education Minister.

After Congressman Eduardo Bolsonaro blamed Beijing for the coronavirus, the embassy’s official Twitter account was cutting in its reply: “Your words are extremely irresponsible and sound familiar. It is nothing but an imitation of your dear friends. When returning from Miami, [you] unfortunately have contracted a mental virus that is infecting our friendship.”

A lack of dialogue with Beijing raises many risks, Mr. Santoro warns. “If the Chinese government sees no negotiation lane with Brasília, it might go directly to state administrations for business. And that could be catastrophic. States are in a dire financial crisis and have little to no structure to stand tall in a negotiation table. That is an immense risk of draconian deals.”

Coronavirus diplomacy has already offered some examples of this bypassing of the federal government. Back in April, the state government of Maranhão pulled an ingenious operation to bring 107 ventilators and 200,000 masks from China. In order to evade blockades or having the material seized by Brazil’s federal government, the state sent the equipment to Ethiopia, before shipping it directly to Maranhão.

To make matters worse, the pandemic has put governors on a collision path with President Jair Bolsonaro. That could create an environment in which today’s medical aid is used — albeit indirectly — as a way to twist governors’ arms in negotiations concerning issues such as the privatization of state-owned infrastructure companies, or 5G technology matters.[/restricted]