Brazil’s curious new ‘business office’ in Jerusalem

Author

Gustavo Ribeiro
April 01, 2019 • Reading Time: 7 minutes

Good morning! Brazil’s curious new ‘business office’ in Jerusalem. Pension reform back in the limelight with Guedes. The government’s eloge to the dictatorship.

Brazil’s curious new ‘business office’ in Jerusalem

Visiting Israel until Wednesday, President Jair Bolsonaro has decided to find a middle-ground solution for his promise to move Brazil’s embassy from Tel-Aviv to Jerusalem: he announced the opening of a business office in the city claimed by both Israelis and Palestinians.

The president intended to pander to Brazil’s congressional evangelicals—who believe the Jewish people is entitled to their Holy Land—without creating problems for halal meat producers.

In the end, though, the move could backfire from all angles—being considered not enough by the groups Mr. Bolsonaro sought to please, and creating rifts with Muslim-majority countries. The immediate reaction was Palestine calling its ambassador back.

Even if the country has no significant trade relations with Brazil, it could motivate a similar move from the Arab League—which has already threatened to boycott Brazilian halal exports. In 2018, almost 50% of Brazil’s poultry exports were halal. Plus, Brazilian companies are responsible for 20% of all halal beef sold in the world.

Moreover, the move is empty. Business offices are placed in countries with which Brazil doesn’t enjoy full diplomatic relations (such as Palestine)—and most major Israeli companies who could do business with Brazil are based in Tel-Aviv.

Pension reform back in the limelight with Guedes

April begins today with renewed expectations around the pension reform. Investors, however, are more grounded in their outlook—and seem to be more aware of the difficulties the government will encounter to pass the reform in Congress. Two pieces of good news excited the markets, though: the fact that Economy Minister Paulo Guedes has taken over negotiations with Congress, and the apparent truce between President Bolsonaro and House Speaker Rodrigo Maia.

On Wednesday, Mr. Guedes is expected to speak before the House’s Constitution and Justice Committee, where the bill is stalled. Last week, the minister’s visit was boycotted by supporters of the reform, which led Mr. Guedes to cancel the appointment, fearing an “ambush” by the opposition. How Mr. Guedes will be received remains to be seen—and the minister’s abrasive personality could become a problem.

However, if things go smooth, local assets should perform as they did two weeks ago—with the stock market rising to the historical mark of 100,000 base points and the Brazilian Real gaining ground against the U.S. Dollar, to an exchange rate closer to BRL 3.70.

The government’s eloge to the dictatorship

The federal administration’s press office published a video on social media denying that the 1964 military coup was an illegal power grab. In the video, a man says that in the 1960s, Brazil lived “a time of fear and threat” provoked by communism. And urged younger audiences to do some research on the press of the time to find out whether it was a coup or not.

The press at the time was widely supportive of the coup, with some newspapers, like Estado de S.Paulo, calling it a “democratic movement.”

Yesterday marked the 55th anniversary of the coup, which installed a 21-year dictatorship. According to Brazil’s Truth Commission, 434 people were killed or disappeared by the government during this era. In Brazil’s major cities, demonstrators protested the dictatorship. In São Paulo, groups for and against the military regime clashed on Avenida Paulista—with one person being arrested.

Companies lose faith in an economic recovery in 2019

The year’s first quarter is gone—and the government hasn’t been able to pass any of the significant economic reforms it promised last year. Business owners and industrialists have lost faith in a recovery in 2019—and, at this point, not even the pension reform passing in Congress could change that outlook.

“The government needs to spark trust from productive sectors. One thing is certain: 2019 won’t see a boom in investments,” said Fernando Pimentel, who leads a lobbying association for textile companies.

Per think tank Fundação Getulio Vargas, the industry’s idle capacity is at 26%—an increase on last year. And the construction sector, which has driven employment rates down in past years, has become a symbol of Brazil’s economic apathy—the sector created only 26,000 jobs between January and February, after shutting down 974,000 jobs between 2014 and 2018.

A group of businessmen who support President Jair Bolsonaro has decided to open a lobbying office in Brasília, in a bit to help the administration convince members of Congress of the need to approve the pension reform bill quickly. One of their strategies is also to rely on an aggressive social media campaign, trying to get people to put pressure on their congressmen

Could low-cost airlines push airfares down in Brazil?

Flying low-cost is still relatively new in Brazil. Only in 2017 did the National Civil Aviation Agency allow companies to choose which products will be complementary and which ones customers will have to pay for. The move attracted international low-cost companies—which have found immediate success. Chile’s Sky connects Rio to Santiago for USD 67 (plus USD 28 fees) and the route has reached an 86% occupation rate in three months. Yesterday, Norwegian Air inaugurated its Rio-London Gatwick route for USD 239.90 (45% cheaper than competitors).

Experts predict that the presence of low-cost airlines will drive prices down in general. However, one thing could prove to be an impediment—fuel costs. According to the Latin American Air Transportation Association, plane fuel is much more expensive in Brazil than abroad. While fuels represent 25 to 30% of the costs of companies elsewhere in the world, here that rate reaches 40%. The culprit is considered to be Petrobras’ monopoly over the sector.

What else you need to know today

  • Anti-politics? The Armed Forces decided to do some damage control in the government’s deteriorating relationship with Congress, by an attempt to curb President Jair Bolsonaro’s anti-politics rhetoric. General Santos Cruz, who acts as the government’s liaison with Congress, has sought to praise the importance of congressmen, and has supported their requests to be more involved in drafting the federal budget.

  • Profits.Brazilian publicly listed companies doubled their profits in 2018—a year in which executives trimmed down expenses and benefited from the slight improvement of the country’s macroeconomic scenario. Petrobras, Eletrobras, and Vale are among the most notable results—the 3 companies registered expressive gains, following losses in 2017. The latter, however, will have its 2019 results impacted by the Brumadinho dam collapse, which caused the shutdown of several mines.

  • Police.Considered to be one of the deadliest police forces in the country, the São Paulo Police will start making officers use body cameras to record their interactions. The project will be tested in six units before becoming a statewide rule. To avoid selected leaks, the cameras won’t allow the editing or sharing of images.

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