Approving large investments is already a risky decision for any company in calm scenarios. With Brazil on the eve of an election, with record unemployment, resilient inflation and political turmoil, this step has become even more complex.
In the evaluation of economists heard by sheet, political and economic uncertainties should make entrepreneurs think twice before investing and end up shelving projects for next year or even after the 2022 election.
“Uncertainties, with the anticipation of the election, make the risk premiums rise even more and this affects the entire credit area and loans to individuals and companies”, evaluates José Roberto Mendonça de Barros, former secretary of Economic Policy of the Ministry of Finance.
The evolution of the risk premium measured by Brazil’s CDS (Credit Default Swap), for example, is a fact that portrays how the country’s image has been getting worse. CDS is a kind of default insurance, so it works like a thermometer to measure how investors rate a country. When he goes up, he points out that the perception of risk is increasing and vice versa.
Brazil’s CDS, with a five-year term, fluctuated around 207.5 points on Monday (11), an increase of approximately 24% in the accumulated result for 2021, and of around 13% compared to the historical average of 183 .4 points, according to Bloomberg data.
“This scenario also brings more volatility and impacts on the reduction of investment projects. The number of companies that leave more significant decisions on investments and acquisitions after 2022 continues to grow,” he adds.
For the economist, companies are “on the defensive” and postpone investments, considering that the political crisis and the president’s speeches have contaminated the economy.
Representatives from the business sector say that the moment demands prudence. “We are currently experiencing a scenario of instability, which makes us act more cautiously”, says Daniella Guanabara, director of strategy and investor relations at Aliansce Sonae. The company manages 39 shopping centers, including Shopping West Plaza (SP), Boulevard Shopping Brasília (DF) and Shopping Leblon (RJ).
Fortunately, says the executive, Aliansce has “little debt and a strong cash position”, which allows it to face more turbulent periods in politics and the economy. “But decisions about larger investments, such as the construction of a new shopping mall, for example, were left for after Christmas”, he says.
“Consumer trust is very important for our business, as well as job creation. When we enter a scenario of instability like the current one, caution is needed to direct investments”, says Daniella.
The political crisis fueled by President Bolsonaro escalated quickly until last September 7, when he spoke at two demonstrations with attacks on other Powers and on ministers of the STF (Supreme Federal Court).
The president then turned his speech around in an open letter in which he attributed the attacks to “the heat of the moment.”
Despite a temporary improvement in the political scenario, confidence in the letter written by the president is low and, in his speech at the UN (United Nations), he once again attributed to governors and mayors the responsibility for negative indicators during the pandemic.
On the other hand, the Datafolha survey, carried out on September 13 and 15, pointed out that most Brazilians attribute some responsibility to the Bolsonaro government to high inflation and unemployment.
“We are on our way to see a small recession at the end of this year and at the beginning of next year. The confluence of crises and a difficult economic situation will worsen economic prospects,” says Mendonça de Barros.
Data from the Ibre-FGV (Brazilian Institute of Economics, from the Getulio Vargas Foundation) also helps to portray this scenario: on the companies’ side, there was a reduction in confidence in all sectors, with a worsening of the perception of the current situation and a review expectations. Commerce and services, which had seen a recovery influenced by the advance of vaccination, feel the effect of increased caution.
On the consumer side, there was also a drop in expectations, from 11.5 points in September.
“The worsening of the economic situation, with political and institutional crises, triggered a new wave of uncertainty in the first half of September”, says the Ibre bulletin.
Daily indices of economic and political uncertainty increased by more than 15 points in a month and returned to the same level as in April — during one of the worst moments of the second wave of the pandemic.
Ibre also points out that, between July 2020 and the same month this year, foreign investments fell from US$ 67.2 billion to US$ 23.8 billion.
“It is already clear that growth prospects for next year are falling and one of the reasons for this, without a doubt, is the political uncertainty, combined with the external sector and the energy crisis”, assesses USP economist Laura Carvalho.
“The pace of vaccination is good news, which may make sectors that were idle to return next year.”
In recent weeks, consultants and banks have revised their growth forecasts for GDP (Gross Domestic Product) next year to below 1%. The outlook is for less growth, with higher interest rates and more resistant inflation than anticipated.
In addition, second quarter GDP data, published by the IBGE (Brazilian Institute of Geography and Statistics), already pointed to a 3.6% drop in gross fixed capital formation (investment in assets that can help increase capacity productive).
According to a UN ranking, the Brazilian economy was in sixth place in attracting investments in 2019; by the end of 2020, it had dropped to 11th place.
The Central Bank also announced at the end of September that foreign direct investments in Brazil totaled US$ 4.5 billion in August, down 26% from the previous month. This volume was below the estimate, which was US$ 5.8 billion.
In the opinion of a top executive of a retail chain, in a country like Brazil, the entrepreneur is forced to “run on another track”. Because if you’re going to run on the same track as politics, you don’t invest anything, he says. Especially at a time like the present, when the election for president was “advanced by a year.”?
Another businessman, this time from the real estate sector, said on condition of anonymity that he should only take larger projects out of the drawer when the electoral scenario is clearer, next year.
The concern is great, even for sectors that knew how to adapt well to the pandemic, says José Ricardo Roriz, president of Abiplast (Brazilian Association of Plastic Industry).
“What makes the entrepreneur invest is the prospect of increased demand and we have several conditions out of control: nothing indicates a rapid fall in inflation, the interest rate rising and penalizing those who want to invest and the consumer who buys in installments; and a crisis policy that turned into a seesaw and takes setbacks in the decision to invest.”
If, on the one hand, more than 14 million people are out of work and an electoral scenario is approaching, in which it is not known what the direction of economic policy will be in the coming years, the entrepreneur ends up being led to step on the brakes, says Roriz.
“Reforms, which would be a driving force for investments, in which a better condition for the tax system would be defined, are also going through difficulties. With all this, it is difficult to have security.”
The president of Cbic (Brazilian Chamber of Construction Industry), José Carlos Martins, agrees that the uncertain scenario could lead to a postponement of investments.
Approving large investments is already a risky decision for any company in calm scenarios. With Brazil on the eve of an election, with record unemployment, resilient inflation and political turmoil, this step has become even more complex.
In the evaluation of economists heard by sheet, political and economic uncertainties should make entrepreneurs think twice before investing and end up shelving projects for next year or even after the 2022 election.
“Uncertainties, with the anticipation of the election, make the risk premiums rise even more and this affects the entire credit area and loans to individuals and companies”, evaluates José Roberto Mendonça de Barros, former secretary of Economic Policy of the Ministry of Finance.
The evolution of the risk premium measured by Brazil’s CDS (Credit Default Swap), for example, is a fact that portrays how the country’s image has been getting worse. CDS is a kind of default insurance, so it works like a thermometer to measure how investors rate a country. When he goes up, he points out that the perception of risk is increasing and vice versa.
Brazil’s CDS, with a five-year term, fluctuated around 207.5 points on Monday (11), an increase of approximately 24% in the accumulated result for 2021, and of around 13% compared to the historical average of 183 .4 points, according to Bloomberg data.
“This scenario also brings more volatility and impacts on the reduction of investment projects. The number of companies that leave more significant decisions on investments and acquisitions after 2022 continues to grow,” he adds.
For the economist, companies are “on the defensive” and postpone investments, considering that the political crisis and the president’s speeches have contaminated the economy.
Representatives from the business sector say that the moment demands prudence. “We are currently experiencing a scenario of instability, which makes us act more cautiously”, says Daniella Guanabara, director of strategy and investor relations at Aliansce Sonae. The company manages 39 shopping centers, including Shopping West Plaza (SP), Boulevard Shopping Brasília (DF) and Shopping Leblon (RJ).
Fortunately, says the executive, Aliansce has “little debt and a strong cash position”, which allows it to face more turbulent periods in politics and the economy. “But decisions about larger investments, such as the construction of a new shopping mall, for example, were left for after Christmas”, he says.
“Consumer trust is very important for our business, as well as job creation. When we enter a scenario of instability like the current one, caution is needed to direct investments”, says Daniella.
The political crisis fueled by President Bolsonaro escalated quickly until last September 7, when he spoke at two demonstrations with attacks on other Powers and on ministers of the STF (Supreme Federal Court).
The president then turned his speech around in an open letter in which he attributed the attacks to “the heat of the moment.”
Despite a temporary improvement in the political scenario, confidence in the letter written by the president is low and, in his speech at the UN (United Nations), he once again attributed to governors and mayors the responsibility for negative indicators during the pandemic.
On the other hand, the Datafolha survey, carried out on September 13 and 15, pointed out that most Brazilians attribute some responsibility to the Bolsonaro government to high inflation and unemployment.
“We are on our way to see a small recession at the end of this year and at the beginning of next year. The confluence of crises and a difficult economic situation will worsen economic prospects,” says Mendonça de Barros.
Data from the Ibre-FGV (Brazilian Institute of Economics, from the Getulio Vargas Foundation) also helps to portray this scenario: on the companies’ side, there was a reduction in confidence in all sectors, with a worsening of the perception of the current situation and a review expectations. Commerce and services, which had seen a recovery influenced by the advance of vaccination, feel the effect of increased caution.
On the consumer side, there was also a drop in expectations, from 11.5 points in September.
“The worsening of the economic situation, with political and institutional crises, triggered a new wave of uncertainty in the first half of September”, says the Ibre bulletin.
Daily indices of economic and political uncertainty increased by more than 15 points in a month and returned to the same level as in April — during one of the worst moments of the second wave of the pandemic.
Ibre also points out that, between July 2020 and the same month this year, foreign investments fell from US$ 67.2 billion to US$ 23.8 billion.
“It is already clear that growth prospects for next year are falling and one of the reasons for this, without a doubt, is the political uncertainty, combined with the external sector and the energy crisis”, assesses USP economist Laura Carvalho.
“The pace of vaccination is good news, which may make sectors that were idle to return next year.”
In recent weeks, consultants and banks have revised their growth forecasts for GDP (Gross Domestic Product) next year to below 1%. The outlook is for less growth, with higher interest rates and more resistant inflation than anticipated.
In addition, second quarter GDP data, published by the IBGE (Brazilian Institute of Geography and Statistics), already pointed to a 3.6% drop in gross fixed capital formation (investment in assets that can help increase capacity productive).
According to a UN ranking, the Brazilian economy was in sixth place in attracting investments in 2019; by the end of 2020, it had dropped to 11th place.
The Central Bank also announced at the end of September that foreign direct investments in Brazil totaled US$ 4.5 billion in August, down 26% from the previous month. This volume was below the estimate, which was US$ 5.8 billion.
In the opinion of a top executive of a retail chain, in a country like Brazil, the entrepreneur is forced to “run on another track”. Because if you’re going to run on the same track as politics, you don’t invest anything, he says. Especially at a time like the present, when the election for president was “advanced by a year.”?
Another businessman, this time from the real estate sector, said on condition of anonymity that he should only take larger projects out of the drawer when the electoral scenario is clearer, next year.
The concern is great, even for sectors that knew how to adapt well to the pandemic, says José Ricardo Roriz, president of Abiplast (Brazilian Association of Plastic Industry).
“What makes the entrepreneur invest is the prospect of increased demand and we have several conditions out of control: nothing indicates a rapid fall in inflation, the interest rate rising and penalizing those who want to invest and the consumer who buys in installments; and a crisis policy that turned into a seesaw and takes setbacks in the decision to invest.”
If, on the one hand, more than 14 million people are out of work and an electoral scenario is approaching, in which it is not known what the direction of economic policy will be in the coming years, the entrepreneur ends up being led to step on the brakes, says Roriz.
“Reforms, which would be a driving force for investments, in which a better condition for the tax system would be defined, are also going through difficulties. With all this, it is difficult to have security.”
The president of Cbic (Brazilian Chamber of Construction Industry), José Carlos Martins, agrees that the uncertain scenario could lead to a postponement of investments.
The president of ABIMAQ (Brazilian Association of Machinery and Equipment Industry), José Velloso, forecasts growth this year, with the replacement of machinery in the industry that was being postponed in the years prior to the pandemic. The scenario could be even better, he ponders, with less uncertainty.
“Political instability is the greatest evil that Brazil is experiencing today. This lack of harmony between the federal, state and municipal governments, and between the Judiciary, Legislative and Executive powers, is the greatest evil in Brazil today. I regret that things don’t are balanced”, evaluates Sergio Zimmerman, president of the Petz chain, focused on the pet products and services market.
“Political instability brings economic consequences, and the base of the economy is related to the level of consumer confidence. This will compress the economy, leaving GDP growth dwarfed, below the level of growth that the country deserves”, he says, who has not yet decided to suspend investments, despite the troubled scenario.
, forecasts growth this year, with the replacement of machinery in the industry that was being postponed in the years prior to the pandemic. The scenario could be even better, he ponders, with less uncertainty.
“Political instability is the greatest evil that Brazil is experiencing today. This lack of harmony between the federal, state and municipal governments, and between the Judiciary, Legislative and Executive powers, is the greatest evil in Brazil today. I regret that things don’t are balanced”, evaluates Sergio Zimmerman, president of the Petz chain, focused on the pet products and services market.
“Political instability brings economic consequences, and the base of the economy is related to the level of consumer confidence. This will compress the economy, leaving GDP growth dwarfed, below the level of growth that the country deserves”, he says, who has not yet decided to suspend investments, despite the troubled scenario.
