Brazil’s plan to reduce its dependence on diesel

Author

Gustavo Ribeiro
July 23, 2019 • Reading Time: 6 minutes

Good morning! In this issue, Brazil’s plan to change its fuel matrix and become less dependent on diesel. Jair Bolsonaro visits Bahia under intense scrutiny. And the immense economic potential of Brazilian favelas. Enjoy your read!

Brazil’s plan to reduce its dependence on diesel

Mines and Energy Minister Bento Albuquerque revealed the government’s plan to stimulate the conversion of trucks from diesel- to natural gas-fueled engines. The expansion of the use of natural gas vehicle as a fuel (today limited to 2% of the country’s truck fleet) will be made possible, says the minister, through the opening of the gas market to private players, breaking Petrobras’ monopoly.

Why this matters. Replacing diesel with gas could, according to some truck manufacturers, reduce carbon dioxide emissions by up to 85%. Moreover, diesel prices—which are pegged to international crude oil prices—have been more volatile, leading to tensions between the government and truck drivers. 

Hurdles. Gas-fueled vehicles have less autonomy than their diesel-fueled counterparts—and Brazil lacks the requisite fueling stations along roads. Moreover, the country has an aging truck fleet, with an average of 15.2 years. Truckers have struggled to acquire new models, with truck sales going almost exclusively to big freight operators, who cater to agribusiness producers. Will the government subsidize truckers to renew their fleets? Also, a program to completely replace diesel would dramatically lower its value—which would be negative for producers and owners.

After insulting the Northeast, Bolsonaro visits Bahia

Why it matters. The Northeast is the only region in which Mr. Bolsonaro didn’t get most votes during the presidential election (only 30%—against 55% nationwide). It’s also where his approval ratings are the lowest—only 25%. Northeastern politicians also represent a major obstacle to the passing of the pension reform—and many have voiced their will to block the bill in the second round of votes (scheduled for August) after the president used the slur.

Boycott. After the controversy, Bahia Governor Rui Costa, of the Workers’ Party, said he wouldn’t attend the inauguration ceremony. Paloma Rocha, daughter of Bahian filmmaker Glauber Rocha (after whom the airport is named), also chose not to attend the event. The president’s security team decided to put siding around the site of the ceremony so that those outside won’t be able to see in.

The economic power of the favelas

During the Workers’ Party era, cash-transfer policies coupled with a commodities boom that led the country near to full employment made it possible for the emergence of a “new middle-class”—citizens in the periphery who finally had some purchasing power. As the crisis hit the country in 2015, this group particularly felt the blow—especially those living in favelas. 

Why it matters. While the Brazilian economy shouldn’t grow more than 1% this year (more below), the “favela GDP” is set to rise by 4% in 2019, according to research by consulting firm Outdoor Social. Despite widely ignored by many brands, this is a BRL 102-billion market. The study shows that in the Rocinha favela, the biggest in Rio de Janeiro, its 100,000 residents spent over BRL 1bn in 2018. “Favela inhabitants have suffered a hit, but haven’t stopped consuming,” said the firm.

Also noteworthy

Truckers. The government decided to suspend the minimum freight pricing table until a consensus is achieved with truckers. Infrastructure Minister Tarcísio de Freitas meets tomorrow with union leaders.

GDP. After 20 weeks revising down their growth expectations for the year, analysts spoken to by the Central Bank’s Focus Report (a weekly survey with top-rated investment firms) have finally improved, even if only slightly, their expectations for economic growth: from 0.81 to 0.82%. Analysts continue to predict the Selic benchmark interest rate finishing the year at 5.5%—a full point below the current 6.5%.

Budget cuts. The government confirmed a new round of budget cuts to the federal budget, this time of BRL 1.4bn (lower than initially announced). The move was due to reduced revenue expectations: today, the government releases how much it has raised in taxes in June. In May, receipts were up 1.92% from one year ago. Also today, the official statistics agency publishes the monthly inflation forecast for July—last month the rate was 0.01%, the lowest this year.

Pesticides. The National Sanitary Vigilance Agency (Anvisa) should vote today on a new regulatory framework for pesticides, trying to establish clearer criteria—and to align more closely with other countries. Yesterday, the Agriculture Ministry cleared 51 new pesticides for use, amounting to a total of 262 approvals this year. Never before have so many pesticides been cleared in such a short span of time. Brazil is, in absolute numbers, the world’s largest pesticide consumer—but it is way below what Japan, the EU, and the U.S. use per planted area.

Deforestation. President Jair Bolsonaro is mulling how to control the release of deforestation data to the public, to avoid being “blindsided” by the numbers. The move recalls what other presidents tried to do: José Sarney (1985-1990) attempted to manipulate the data, while Dilma Rousseff (2011-2016) began withholding it the 2014 election.

Sweepstakes. Alongside the center-right Brazilian Social Democracy Party (PSDB), right-wing party Democratas has begun courting members of center-left politicians who face possible expulsion from their parties for having supported the pension reform. The star of the group is rookie Congresswoman Tabata Amaral, who has amassed approval ratings hovering around 60%.

Hacking. Economy Minister Paulo Guedes reportedly had his cell phone hacked last night. He is the second cabinet member to make such a claim, after Justice Minister Sergio Moro (and several Operation Car Wash-related investigators) did likewise. During the weekend, Congresswoman Joice Hasselmann, the government’s whip in Congress, also claimed her cell phone was hacked. It could indicate an effort to expose private information and embarrass the administration.[/restricted]

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