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SÃO PAULO Brazilian President Dilma Rousseff and Chinese Premier Li Keqiang have signed $53 billion of agreements in a range of areas, including infrastructure, agriculture and energy, in what is being hailed as a new era in Sino-Brazilian relations.

The new wave of Chinese investment in Brazil has come at an opportune moment, as the Brazilian economy continues to struggle and a vast corruption scandal at Petrobras bears down on both the political world and the country’s top construction companies.

Anadolu Agency

SÃO PAULO – Brazil’s northeast region is set to receive a major boost to its growing wind energy sector from private and public funds, the Folha de S.Paulo newspaper reported on Tuesday.

Around R$43 billion (US$19.3bn) will be invested in Brazil’s wind energy industry between now and 2017, funded by the country’s National Development Bank (BNDES).

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On the face of it, Thursday brought some sorely-needed good news for Brazil.

The country’s national office of statistics, the IBGE, confirmed the country’s economy had bounced back, if only modestly, with better-than-expected results for the last quarter of 2013 and the year overall, achieving annual GDP growth of 2.3% – more than the US, the UK and other advanced economies.

Brazil Finance Minister Guido Mantega. Photo: Marcello Casal Jr/Agência Brasil

Brazil’s Finance Minister Guido Mantega said the figures were a ‘surprise’ for the government. Photo: Marcello Casal Jr/Agência Brasil

After negative growth in the third quarter of 2013, some economists feared Brazil could be facing a technical recession.

In the end the fourth quarter rebounded with 0.7% growth, buoyed by strong consumer spending, investment and 2.0% growth in the country’s services industry, upon which 70% of the economy relies.

The surprise uptick in the economy is a much-needed boost for the government of President Dilma Rousseff, who is seeking re-election in this October’s general elections, and has been suffering from a compounding of anti-government protests, World Cup concerns, political scandals, and more recently problems with water and power supplies – all of which have seen approval ratings for both Ms Rousseff and her government slide.

Finance Minister Guido Mantega told reporters the positive fourth quarter results had come as a surprise, saying 2013 had seen “quality growth spurred among other things by investments”.

It was certainly better than in 2012, when Brazil grew just 1%; however, the general feeling among analysts surveyed by Anadolu Agency appears to be that the results are mildly encouraging at best, and indeed, nobody is expecting growth to return to the impressive 7.5% seen in 2010 or even to the 4% average seen over much of the last decade, when the economy was boosted by China’s seemingly unstoppable demand for Brazilian commodities.

Over the past decade, Brazil has used available cheap and plentiful external finance options to catalyse a consumption boom, which led to the ‘feel-good factor’ experienced particularly by new middle-class Brazilians in recent years.

But it also led to significant consumer debt and over-target inflation. Now China is no longer buying such vast quantities of commodities, and the global economy is still struggling to recover.

Growth grounded?

Mr Mantega said industry in Brazil was suffering from a “lack of dynamism in the global market”, but was upbeat about the future, defending Brazil as now being in better shape to tackle international instability.

However, once touted as a star among emerging markets, today Brazil’s economic prowess is being described more than ever in shades of ‘fragile’ and ‘vulnerable’, and the IMF recently labelled Brazil as one of the most susceptible emerging economies.

In truth, Brazil has always been a vulnerable economy.

Although international instability, currency volatility, and dwindling demand from China certainly play a role, economists say internal problems – substandard infrastructure, rampant consumer debt and dismal confidence in both the country’s market and policymakers’ decisions at the Central Bank – are also hampering growth and believe Brazil now faces a long period of uninspiring annual growth of around 2%.

I’m sceptical about the economy’s future. We have major issues with infrastructure and the labour market and reforms are sorely needed,” Fernando Chague, professor of economics at the University of São Paulo (FEA-USP), told Anadolu Agency.

According to the USP economist, Brazil failed to implement the necessary fiscal changes in the last decade, while the going was good, and grew largely “in spite of the government”.

“There’s no political strength to do so now, and the uncertainty we are facing is not good for the economy,” Professor Chague warns.

Neil Shearing, chief emerging markets economist at London-based macroeconomic research company Capital Economics says Brazil could in theory get back to annual growth of four percent: “First, economic reform would have to take place to rebuild the supply side of the country’s economy, but politically this would be very difficult at the current time.”

Brazil is now entering the home straight to this year’s general elections, with political campaigns set to start in earnest later this year.

“The much more probable scenario is therefore one of continued weak annual growth of around two percent,” says Mr Shearing.

Boosting confidence

But there have been some positive comments emerging from the situation, and a few economists praised the results and the country’s 6.3-percent increase in investment last year.

That jump in investment should go some way to convincing wary investors that improvements to the economy are occurring and that the government is likely to be more market-friendly should President Rousseff win a second term in office.

Regaining sagging market confidence at home and overseas is also going to be key to getting Brazil back to more impressive results, but investment is still below the level that many investors would like to see and pessimism is said to reign among business leaders – who bemoan the incumbent government’s monetary policy as having been too overbearing.

Businesses also want Brazil to tackle the toxic mixture of suffocating bureaucracy, a poorly educated labour force and infrastructure that is not fit for purpose – all of which increases the price of doing business in Brazil, often referred to as the “Brazil cost”.

Professor Chague cites the example of Brazil’s ports which, despite investment, still experience major backlogs in getting goods in and out of the country.

Investments have been promised in the government’s official acceleration plans (PAC) and in some cases made – but progress is slow and many projects have hit obstacles.

Tough year to come

The overseas market has also not been enamoured by Brazil’s national debts, even though the government has promised to cut US$18.5 billion in public spending this year to show it is tackling the issue.

With extra investments promised for infrastructure, the World Cup and the Olympics to pay for, and more money pledged for cash-strapped public services in response to protesters, few people are expecting Brazil to spend less this year, and ratings agencies have hinted they might put Brazil on a negative outlook if signs of economic improvement fail to appear.

Most market analysts put GDP growth forecasts for 2014 at 1.7 percent and the government’s official prediction has recently been slashed from 3.8 to 2.5 percent.

Despite this Mr Mantega says he believes the Brazilian economy to be “on a trajectory of gradual acceleration [that] will continue in 2014” and described 2013 as a “difficult year”.

But the government is in a Catch 22 situation: they must spend more to appease social unrest and prove they are investing more and improving infrastructure, but also simultaneously cut spending to allay market concerns and bolster confidence.

Several additional issues – including a severe drought in parts of the country affecting harvests, economic chaos in neighbouring Argentina and Venezuela, as well as ongoing protests and the make-or-break of this year’s World Cup – could also collude to stymie economic activity further and make 2014 yet another difficult year.

Extended version of article for Anadolu Agency

The Brazilian Senate has approved by a wide majority a bill that changes rules governing how the country’s ports are regulated, in a victory for the ruling government, despite last-minute attempts by opposing senators to derail the bill.

Leônidas Cristino, minister for Brazil’s Special Ports Secretariat (center), heralded the passing of the bill, photo by Fábio Rodrigues Pozzebom/ABr.

Leônidas Cristino, minister for Brazil’s Special Ports Secretariat (centre), heralded the passing of the bill. Photo by Agência Brasil.

The bill aims to open state-run ports to more private investment and lift restrictions on the building of privately-run ports.

Officially known as MP 595, the bill was voted in without amendment after receiving the support of 53 votes, with just seven votes against and five abstentions. The text now goes to President Dilma Rousseff for evaluation.

The bill finally reached the Senate on Thursday after a final 40 hours of debates in the Chamber of Deputies, many of whom had expressed their frustration and sheer exhaustion following the longest-running debate by deputies in the last 22 years.

According to Leônidas Cristino, minister for Brazil’s Special Ports Secretariat, this approval was vital, but most of the work remains ahead to work out the finer detail of new ports regulations, which would be analysed “item by item.”

Paulo Skaf, President of the Federation of Industry of São Paulo State (FIESP), said the bill was vital for the country’s competitiveness:

“Brazil is calling for a clash of competition. The measure meets the demands of the most important production sectors: it allows an increase in what operators can offer, promotes greater competition and, consequently, reduces port costs,” Mr Skaf said.

The bill was also seen by many as an important step towards making sure the country’s ports – considered a serious bottleneck in Brazil’s external trade – work more efficiently, eradicating excessive waits currently endured for cargo to be unloaded.

It was recently reported that ports that should have started running 24 hours a day since mid-April were still failing to do so.

The government has earmarked over R$54 billion for 159 port projects through Brazil to be implemented by 2016 as part of plans to improve the country’s infrastructure, also including upgrades to airports, roads and railways.

First published on The Rio Times website.

Brazilian President Dilma Rousseff and Spanish Prime Minister Mariano Rajoy. Photo: Roberto Stuckert Filho/Presidência da República.

Brazilian President Dilma Rousseff and Spanish Prime Minister Mariano Rajoy. Photo: Roberto Stuckert Filho/Presidência da República.

Investing in Brazil’s concession plans, which represent billions of reais of infrastructure contracts, could provide the answer for troubled European economies, Brazilian President Dilma Rousseff has said during an official trip to Spain.

The state of the European economy and potential business deals were top of Brazil’s agenda on the visit, and other issues, including past immigration issues, were pushed aside.

President Rousseff, who also attended the 22nd Ibero-American Summit in Cádiz, criticized “excessive austerity measures”, making reference to the IMF’s recommendations, and reiterated her belief that only by sustained growth through investment can a country emerge from such an economic crisis, pledging her country’s support:

“Brazil can and must contribute to more economic growth, more options for solving the crisis, because this must be done through growth,” President Rousseff said, speaking alongside Spanish Prime Minister Mariano Rajoy in the capital, Madrid.

The president used the opportunity to rally other countries to help Europe get itself out of the crisis, and left little doubt as to where she believed Spain should aim this crisis-averting investment.

Rousseff noted favorable conditions for concession projects, including the R$133 billion (US$64 billion) already announced for roads and railways, with more to come for ports and airports, as well as R$30 billion committed to the Rio-São Paulo trem-bala (high-speed train).

Contracts for telecom infrastructure would be available, an area where Spanish telecoms giant Telefónica already has a foothold through Vivo, Brazil’s second largest telecoms company.

Spain’s King Juan Carlos I said he wanted Brazil to “count on Spanish companies” for the 2014 World Cup and 2016 Olympics, advocating “the possibility of procedures facilitating highly-skilled Spanish workers to stay temporarily [in Brazil]. At the same, we want to encourage Brazilian companies to invest in Spain.”

Read the full article on The Rio Times site.

Brazil’s Central Bank has revealed that foreign investors have reduced the amount of capital they are investing in Brazil from US$12.4 billion to US$7.5 billion in the first six months of 2012, representing a drop of 40%.

External investors have been disappointed after the weaker performance posted by Brazil in the past two years, and analysts say government fiscal policy altering the exchange rate of Brazil’s currency, the real, has eroded investors’ bank balances and led to a change in the mood of the market.

President Dilma Rousseff is set to unveil a new stimulus package this week, expected to include tax relief and reduced energy bills for industries, as well as privatization schemes for roads, railways and airports.

However despite previous interventions from the government – including slashing interest rates and increasing access to cheaper loans – official predictions for 2012 growth have been cut from 4.5 to 3.0%, and some are predicting as low as 1.5%.

Brazil’s main stock exchange – the Ibovespa – has taken a tumble in the past few months. (Image: Yahoo Finances)

Some in the Brazilian media have described the fiscal policies as “a bucket of cold water” in investors’ faces.

However, it appears the story isn’t this simple: economists are divided as to whether the foreign capital exodus is based on facts concerning the slowdown of the Brazilian economy due to reduced demand for commodities from China, and the rippling effects of the Europe economic crisis and general lacklustre mood of the world economy, or whether it’s got more to do with an overly negative, pessimistic impression of Brazil’s economy by foreign investors.

Some are saying that foreigners have humoured the Brazilian economy long enough, and are seeking an alternative: Mexico – dubbed by some as the “New Brazil”. Its main stock exchange skyrocketed over 17% this year alone.

However, Brazil’s main São Paulo-based Ibovespa stock exchange has had 4.15% wiped off its dollar value year-on-year, after a noticeable exodus by foreign investors began some four months ago – now totalling nearly US$1.8 billion in lost shares.

Read more on this in my business article for The Rio Times here.