Brazil & Southern Cone - October 2017 (ISSN 1741-4431)

Attracting more investment into Brazil could be integral to reviving the country’s domestic economy. With this in mind, the government led by President Michel Temer has forged ahead with a privatisation plan targeted at foreign companies.

On 27 September, the Temer government raised R$12.13bn (US$3.83bn) in revenue from selling off four hydroelectric power plants in Minas Gerais state owned by state-owned energy company, Cemig. This was almost 10% better than the R$11bn (US$3.47bn) the government had expected to get, suggesting that interest in investing in Brazil is starting to pick up. The winning bids came from Pacific Hydro, a firm owned by China’s State Power Investment Corp (for the São Simão plant), France’s Engie (for the Jaguara and Miranda plants) and Italy’s Enel (for Volta Grande plant).

Also on 27 September, Brazil held an oil and gas auction which attracted a record R$3.8bn (US$1.2bn) in bids from energy companies. This is well above the R$500m (US$157m) projection that the industry regulator, Agência Nacional do Petróleo (ANP), had expected. However, results from the auction were mixed. Of the 287 blocks on offer, the ANP was only able to allocate 37 (13%), perhaps due to low international oil prices, which remain at around US$55 per barrel. However, this was offset by a record-breaking R$3.6bn (US$1.3bn) bid for two offshore blocks in the Campos basin, located of the coast of Rio de Janeiro state, which led to them being awarded to a consortium comprising the US’s Exxon Mobil and Brazil’s state-owned oil firm, Petrobras.

The high bids offered for the Campos Basin concession, as well as some of the others on which bids were made, signal that investor confidence is returning to Brazil’s oil and gas industry. “We hope we have turned the page,” stated the mines & energy minister, Fernando Coelho Filho. The minister added that, “We want to promote a competitive exploration and production market in Brazil.”

The next two oil and gas tenders for ‘pre-salt’ deep-water offshore blocks are now scheduled to take place on 27 October. These include the lucrative ‘polygon’ offshore reserves (located of the shores of Rio de Janeiro and São Paulo states) which together account for nearly half of Brazil’s oil production, according to the ANP. The level of interest that these auctions generate, and the size of the bids placed, will be closely watched by the government and economists to try to gauge if there is now substantially more appetite for investing in Brazil.

IMF improves Brazil’s growth forecast

The International Monetary Fund (IMF) revised up its GDP growth forecast for the Brazilian economy this year to 0.7% from 0.3% in July in its most recent World Economic Outlook (WEO) report published on 10 October. The improvement is due to strong export performance and higher domestic consumption levels. The IMF noted that the increase in consumption levels was driven by a record agricultural crop and a windfall from the release of mandatory workers savings (FGTS). However, Brazil’s economic growth is still below the IMF’s projected regional average of 1.2%. Indeed, Brazil’s is the fifth-worst growth forecast of all the 26 Latin American countries surveyed by the IMF, after Venezuela (-12%), Trinidad & Tobago (-3.2%), Suriname (-1.2%), and Ecuador (0.2%). Ongoing political uncertainty in Brazil coupled with weakening investment threatens to drag its economy down again, which could weigh on next year’s growth. The IMF revised its forecast for Brazil for 2018 to 1.5%, up from July’s estimate of 1.3%. But this is lower than April’s projection of 1.7%.

• Labour market begins to recover

Brazil’s labour market is beginning to pick up again following the country’s economic recession, in another sign that the economy is recovering. Unemployment in Brazil fell to 12.6% between June and August, according to data from Brazil’s national statistics institute (IGBE) published on 29 September. This is down 0.7 percentage points from the 13.3% unemployment rate recorded during the previous three months. However, the latest unemployment rate still means that 13.1m people are currently out of work in Brazil.