[Podcast] Christine Lagarde’s call for action – IMF World Economic Outlook

In today’s podcast we are going to be speaking about the IMF World Economic Outlook, which is a publication that was release by the International Monetary Fund in October of 2018. I actually want to focus this conversation a little more on the press conference that was delivered in the World Economic Forum on January 21st of 2019, where a panel was held with directors of the IMF – the Managing Director Christine Lagarde, she is very well known, but she also had the support of an economic counselor, who is the director of their research department, in order to deliver the sort of information that we are going to review today. What I think was very interesting – the highlight of this study, of course – will be Lagarde’s message because she introduced us to the study. She gave us an overview of what is actually happening in the global economy. But she had a very strong call for action and, of course, when that comes from Christine Lagarde I think that we need to focus and pay attention. She is a powerful woman, she is running the IMF, and it was very interesting to see her out there and deliver this message.

In the beginning she tried to make this analogy between cross-country skiing with the global economy. It was quite interesting, it was kind of cute to see her – such a powerful woman – come down and say: “here,” – in a very educational manner – “this is what we expect from the economic environment. We want predictability, less risk. We want things to run smoothly, just kind of like cross-country skiing”, which is a personal practice. So that was quite interesting.

But Lagarde did not have a very exciting message to tell us. She actually had some unfortunate news for the global economic environment. She told us, here, we have to deliver this message that we are downgrading the growth forecast since october 2018, because risks are on the rise and we have some bad news on the trading front, so we have some threats in the trading environment which is sort of escalating all sorts of problems and risks in the global economy and for that reason they had to announce a further downward revision of the forecast that was published in October. This is pretty much because of the significantly higher risks.

Higher trade tariffs and rising uncertainty over future trade policies. That is a big issue that is one of the key sources of global economic risks. Lower asset prices, higher market volatility, which these three combined are tightening financing conditions and that is including for advanced economies. And this is in a scenario of high debt burden in both private and public sectors are carrying a high debt load right now.

But she does give us the message that we are not facing a global recession right around the corner. This does not mean that a major downturn is happening. But what is happening is that a sharper decline in global economic growth is happening, there are many issues, including geopolitical worries as well.

But she says that this scenario actually shows us a very clear message for policy-makers. One is that they need to address remaining vulnerabilities. And two, is that they need to be ready if a serious slow down were actually to materialize. So, if a recession is actually to materialize, policy-makers need to be ready. Third message is that policy-makers need to harness existing growth momentum, and she is very emphatic. She says, yes, there is growth momentum, so we need to take advantage of that and harness these sorts of opportunities.

Policy-makers also need to work on reducing high government debt, and she is making a point here that this opens space to fight future downturn in the global economy. So, economies need to be ready if that comes to take place.

As far as monetary policy, they should be data dependent and exchange rates should be allowed as shock absorbers, and I thought that that was kind of interesting because of the whole conversation behind exchange rate manipulation. Next message is about economic reforms. They need to be in place in order to push growth, specially in labour markets and infrastructure investments.

So, these were the messages that she believes that this risky scenario is showing us. But she also makes a point in saying that if we must deliver the promise of the digital revolution, it has to be inclusive to all people, including measures to help workers that are displaced because of the automation of work, and we also need to create opportunities for women and young people.

She has a very important point here on International Cooperation. She said that for efficient and effective collaboration in the international system we have to increase our efforts in resolving the shared problems and that meaning, we need to fix the global trading system. There is a call for action here for the G-20 saying that they have to deliver results. This is a call for the World Trade Organization reform. I think this took place in Buenos Aires. She says that we need to collaborate in fighting corruption and tax evasion, and also, collectively address climate change.

Now, one very interesting message, I think she nailed in closing her speech talking about something that she calls New Multilateralism. And that was brilliant, because she runs away from the term globalization. Because people have been feeling very uncomfortable about the globalization topic, and globalization issues. Countries are becoming more nationalist driven, and she puts this here that is not becoming a unit, it is staying multilateral but acting together. And I thought that that was quite brilliant. She gives us a new perspective on globalization. Kind of running away from the term, but still sticking to togetherness. Kind of nice. And that includes macroeconomic policies and structural reforms that need to be applied to many economies in the world.

Now, going back to the report. In October of 2018, the IMF had this projection of global growth at 3.7% in 2019 and they reduced that to 3.5% in 2019 and then they also reduced to 3.6% in 2020. Now this is for global growth. The growth in advanced economies is forecasted at 2% in 2019 and 1.7% in 2020. And then emerging markets and developing economies at 4.5% in 2019 and 4.9% in 2020.

Both in the report and the press conference, they really put emphasis on the rising trading tensions and then the policy uncertainty that raise concerns about the global economic prospects, because these factors could actually lead firms to postpone or forgo capital spending, and then hence slow down economic growth and investment and demand.

One very interesting point in the report – and this is where I am going to close this podcast with – is the point that the IMF is now keeping an eye on increasing market power. They also think that this is a risk for economic growth. They said that the concerns about corporate market power is growing pretty much for two reasons. One is because, in the past decades, there has been some macroeconomic trends that can be somewhat the fault of corporate behaviour. Low investments, despite of rising corporate profits, declining business dynamism, low productivity growth and falling labour income. This is quite interesting because they pretty much raise a flag here saying, here, we have to review the behaviour that is happening in the private environment, we have to follow up on actions that are going to change this sort of trending behaviour. And, I mean, if we are talking about Corporate Diplomacy, there is a lot to be talked about on here – activities and strategies that need to be built in order to respond to such a claim that corporate market power can actually account for these macroeconomic trends that are not so positive for the overall economy.

And then the second reason about the rising concern in the market power of corporations is that the rise of tech giants has raised questions about whether this trend – of the tech giants becoming more powerful – and if this trend continues, the IMF is saying that we need to rethink the policy that is needed in order to maintain fair and strong competition. I thought that it was very nice to put in the context of Corporate Diplomacy. So, there is a lot that could be explored in this report. This increasing market power session in this report itself is evidence that government is becoming aware and it actually wants to tackle the sort of increase in power for private environment. And all sorts of strategies that have to be built, not because the private environment needs to win in the game. We actually want a balanced governance strategy nowadays.

[Podcast] Creating the Corporate Foreign Policy

The topic today is Corporate Foreign Policy, but how did we come up with this name? Because Corporate Diplomacy is pretty much a reflection of traditional Public Diplomacy, we borrowed the term Foreign Policy. States, in Public Diplomacy, have specific interests that they need to defend in the international environment, so they build up this foreign policy on how they are going to relate to the external economy, to the external political environment. So, we bring ths term – this practice of having a plan on how to relate to the external environment – we bring it to  Corporate Diplomacy and then build this matrix.

I created this methodology to build a strategy that goes beyond the economic interests of the organization. What the Corporate Foreign Policy does is it expands this planning – this strategy building – to engage with the external environment as a whole: the government, the market and society in general. It is a composition of four pilars. So, the methodology is divided in a pilar that is called Information, a pilar that is called Government, a pilar that is called Society and a pilar that is called Market. And this is what I will talk about today. I will break down these four pilars and then talk a little about each one of them and how to build this strategy by starting with the pilar Information.

Information is the main pilar because it is where the organizational philosophy is going to be constructed and how the diffusion of this philosophy is going to be carried on. So, you define the philosophy of the organization and then you also define a strategy to communicate that philosophy within the organization and then to the external environment. This philosophy of the organization is pretty much the organizational’s narrative: what are we portraying externally? What are our ideals, our beliefs upon which the organization is built? Are we a sustainable business? And if so, what do we understand by sustainability? We have to create these concepts in our organizational strategy.

A second step within the information pilar is to define the causes we support. Do we wish to engage in activities that will tackle current challenges such as poverty, climate change and education? If so, we develop these meanings. What are our ideas that compose our strategy to deal with poverty, for example. What do we think that should be done collectively so that issues are minimized and that the problems can be tackled. In the information pilar what we are going to build is a conceptual narrative and this conceptual narrative is pretty much the message that we want to communicate externally. This message needs to be diffused internally so that the people (our employees) who are going to diffuse this information are alligned with the philosophy of the organization.

Now, the second pilar is Government. There isn’t necessarily an order here,  but I like to put information first because you can first construct the philosophy of the organization and then from there on you can build your strategy in the order that you wish: either government, society or market. But within the Government pilar we want to ask ourselves: who in government are we going to engage with and negotiate our interests and interests that are more related to public interests?

Within national governments we have a set of institutions at municipal, state and federal levels. And we have to map these institutions within each one of these spheres. Do we want to relate locally (municipally), do we want to relate at state and federal levels? So, what we are going to do is: we are going to map these key institutions we wish to relate with, we are going to map the programs that interest us, So, if the institution at municipal, state and federal levels have specific programs that they already work with, we need to have these programs mapped out so that we know what kind of proposals we are going to build for technical cooperation. And I think that essentially, we need to have a map for the key contacts within these institutions. A map of people who are within the offices and the people who occupy these offices. And the reason why I think this map is really important is pretty much because organizational employees – especially in private organizations – come and go, they move either to other institutions or they move either vertically or horizontally within the organization. By mapping these contacts out we have a track record, a history of these relations, who is the organization relating to, and at which point within other institutions. And this is a good track record to have because then you don’t have to restart the relationship – to restart the conversation and the exchanges – everytime you have somebody new coming into the offices.

Then we have the institutions at the international levels, and we draw these maps slightly different because we want to know which countries have common technical and commercial interests. If we are based in one country we would also like to know which countries have similar interests and whether there are treaties, either multilateral or bilateral treaties (agreements) already in place to promote these sort of cooperation in these particular interets. Let me give an example. If we are located in Germany and we export to the United States, it would, in a particular segment – lets say, biotechnology – it would be interesting to know which treaties are in place bilaterally, between the United States and Germany, to understand if there is some space to integrate that agreement, that common interest at the higher political level into our activities. This is quite interesting, and this is where real Corporate Diplomacy comes into place, because we have the expertise, we have the economic exchange, we have a lot to be able to cooperate with these bilateral agreements and to put these activities in a more practical perspective and how we can increase the economic exchange – either scientific or economic exchange within these two countries. So this is a good example.

Then there is our third pilar, which is Society. Within this pilar we must define the policy programs that will be carried out by the organization. This is pretty much an extension of the organizational philosophy. Here is where the plan to act on the visions that we have for the collective are carried out. So, if the philosophy says we are a sustainable organization, within the Information pilar we are going to define the concepts of sustainability, and then within the pilar Society we’re going to structure programs to carry out these sort of philosophies. Are we going to promote recycling? Are we going to promote water cleaning? Decrease atmosphere pollution, and so on. We want to know if we have social or environmental policies in place, and if so, what are our priority programs within these policy programs. This is pretty much the third pilar, I’m not going to be speaking about it extensively. We already kind of spoke about it within the Information pilar because the third pilar really depends on the philosophy that the organization has. This has a lot to do with Corporate Responsibility. So, if the organization wants to engage in particular projects that can improve its corporate image, then this is the place where we should create the programs.

Then we move on to the last pilar, which is Market. This is essentially just an integration of the more traditional organizational strategy. Within this pilar we map out the entire supply chain: consumers, distributors, suppliers, competitors. And we kind of have these definitions and these maps – a visual – on how we relate to all these stakeholders.

And here we also define our Research and Development strategy. We establish our priority projects in scientific developments. We map also scientific institutions that might be working on the same type of technologies that our organization is working on, and we also map the incentive programs that are in place for technological developments.

Ideally, all of these pilars must contain action plans for at least a 12-month period. Maybe four years to relate at federal levels, because offices change after four years.  But ideally, every 12 months we should have some sort of revision on our plan, and having an action plan for the next 12-month period. That would be a good time frame to have a vision on how we are relating to the external environment.

So, what this methodology attempts to do is pretty much to centralize – in a good way, centralizing. I’m going to explain this. If you think of air traffic, for example. If you don’t have air traffic control, if you don’t have a centralized vision on what is happening collectively, than you might face accidents and all sorts of problems. So, I think that by centralizing a vision, we can tackle and coordinate the way that we are going to deal with the external issues and problems that may arise in a more efficient way. So I think that in this way, centralization is not so negatively put.

The Economics of China’s New Era – Prof. Lin from Peking University

Prof. Justin Yifu Lin from Peking University delivered a lecture to a full auditorium at Goethe University (Frankfurt, Germany) on the new Era of the Chinese Economy, on this Jan. 21st. The event was made possible by IZO, the Interdicsciplinary Eastern Asian Studies, on its 10th year aniversary. Professor Lin acquired his PhD from the University of Chicago, and was the Chief Economist of the World Bank between the years of 2008 and 2012, currently working as a professor at Peking University.

Prof Lin started his talk by reminding us of how, 40 years ago, China started its reforms and openned up to the global economy. In 1978, China’s GDP per capita was 156 USD a year, according to the World Bank. Back then, 90% of its production was not linked to global production. However, nowadays, China is considered to be the second largest economy in the world, the largest exporter, and the largest trading country in the world. In 2018, the country reached 9.740 USD GDP per capita.

“China has entered a new era”, stated Prof. Lin, questioning about the implications of such transformation. According to him, people will have different interpretations, but his talk was to give voice to his own. He continued by acknowledging that the Chinese growth in recent decades was very impressive, especially if you compare it to other traditional economies in the Western world, that collapsed with the forces of the global crisis. Meanwhile, China mantained its stability and continues presenting itself as the only country in the world that did not experience a financial crisis in the last 40 years.

Prof. Lin considers this phenomenon a result of a pragmatic gradual reform in the Chinese economy, and he believes that these reforms will continue to be taking form on the long run, in order to maintain stability. He also believes that the secret behind the the country’s economic stability was its competitive advantage in specific sectors of the economy.

But China also paid some costs. The Chinese economy grew alongside with widespread corruption and income disparity in the country, and the Chinese people are not happy with these two factors, creating great social discontent.

But even after 40 years of continuous economic growth, China still has huge potential. According to him, developing countries have the “late comers advantages” – you can input technology by buying new technology from developed countries. This explains why China could achieve the high growth rates. A high income country already has the highest income, productivity and technology in the world. They would have to invent the new technologies. But new inventions require huge capital input, and are of high risk.

He mentioned that a study done in 2010 showed that there’s a potential for China to achieve 8-9% growth until 2028. Now it’s 2019, so there’s still 10 years of this potentil growth. But in a scenario where the global economy doesn not pick up from the 2008 crisis (which most countries have not yet recovered completely (US, Japan and countries in Europe), China can still mobilize resources internally and achieve 6% growth, continuing to be a major driver of economic growth in the world.

Closing his talk, Prof. Lin sounded very optimistic, mentioning that China serves as an inspiration for other developing countries. The experience of China demonstrates that once you have the right policy and ideals, a country can be changed. The country will have to continue deepening its reform, and though it has huge potential for growth, the external situation will be very challenging. The country will also have to show more responsibility for the world (i.e. developing international aid programs). Its growing economic significance implicates greater political significance as well.

Author’s note: My observation is that Prof. Lin failed to address the issues of environmental and health impact that the economic growth brought to its country. He was very enthusiastic about presenting China as this growing economic and political force at global scale, but his analysis – at the event – lacked some of the emerging reflections over the importance of performance indicators other than capital in a country’s development initiatives. This stagnant mindset seems to be leading to the same problems of traditional development policies, which can be only be accentuated by China’s worrying demographics.

[Podcast] The historical context of Corporate Diplomacy as an emerging practice

In this first podcast, I will be speaking about the historical context of Corporate Diplomacy as an emerging practice. This historical context is important because it will tell us how Corporate Diplomacy came to emerge as a practice in private organizations.

I am going to give you a few dates within a time frame so that you can be situated historically, which were taken from the United Nations` website. So, in 1865 and 1874 is when we saw the first international organizations to take form. But up until the Cold War approximately, we say in International Relations that we were living in an era of Realism, because we had a “realistic” international system: Nation States were the ony actors – the most powerful actors – who were able to negotiate their individual interests within the international system.

So, if that is pretty much how it was until the Cold War, so why is it exactly that I want to speak about international organizations? Because with the emergence of international organizations this scenario starts to shift a little. So, very lightly, in the beginning – 1865 and 1874 – with the first international organizations, which were the International Telecommunications Union and then the Universal Postal Union, we see these international movements where individual members started to get together to negotiate over particular subjects. Then we had the Treaty of Versailles in 1919 that became the League of Nations trying to establish peace right after the I World War (they weren’t very successful because we had the II World War, so they interrupted their activities). Within the Treaty of Versailles the International Labour Organization also took form. Then we had the II World War, and after we were done with that mess, in 1945 the institution United Nations was officially formed. And then in 1948, the GATT – the General Agreement on Tarifs and Trade – which later became the World Trade Organization – the WTO to establish some sort of negotiation in the international trading system.

These  international organizations started coming into the international scene and becoming more relevant, so they had more relevance in the negotiations – not only Nation States now had to negotiate these multilateral agreements and negotiations, but we also had the international organizations interested in the public good, of course.

But when we reache the 1980s and 1990s, we start seeing these internationalizations movements – the internationalization processes of corporations. You know, majorly American, European and Japanese private organizations that started to establish offices and branches overseas in other territories, and they became these networked private international organizations. These transnational organizations – transnational corporations – they started growing to the extent where some of them can actually be more powerful than some of the Nations States nowadays, and this is where we say that they became powerful enough where they have a lot of influence and a lot of power to come into the negotiation table in the international system. And this is where I say that we see the birth of Corporate Diplomacy, because these institutions are very powerful.

So, just to recap, we had the Nation States, they were the main actors, the most powerful actors, they would do all the negotiations. Then we started seeing the emergence of international organizations into the system and that is the beginning of the diffusion of power in the negotiations, and then more towards the 80s and 90s we see these private organizations – these transnational corporations – also taking form and becoming more powerful and starting to influence decision-making within the public environment.

To add a little more of a theoretical perspective, within International Relations we have a few authors who really theorize this movement and explain what is going on with these dynamics. Robert Keohane and Joseph Nye have partnered in a couple of publications, but I mostly like this publication by Joseph Nye called The Future of Power, and also Susan Strange in her publication called The Retreat of the State: The Diffusion of Power in the World Economy. They both talk about how technology is not put at the center of this transformation, but gains a very significant aspect on why this transition happens. So, information and communication technologies were very influential in the transition of power and the diffusion of power. These two authors, Joseph Nye and Susan Strange in these two books, will explain this in a very concise and a very clear way.

So, with these private organizations having more significance and having more space to negotiate and promote their individual private interests, you have the employees who go out and relate to governments and other institutions and then negotiate their interest. But the thing is that we need to create the mindset in these professionals that they are actual diplomats from these organizations because of how powerful these private institutions are becoming, so they need to be trained as corporate diplomats. It`s a little complex to train these profesisonals, but they have to become more aware of their political influence in the external environment – outside of the organizations of course.

So this was the first podcast, and in the next podcast I will talk about the structure of the corporate diplomacy foreign policy. As much as public diplomacy has its foreign policy as a structured strategy for the State, we need to think of the Corporation as a state, as na institution that has a structured strategy to deal with the external environment.

Stick around, there is a lot more to come!

Recently created government fund for secured infrastructure projects in Brazil

The other day a foreign investor who was looking into potential infrastructure projects in Brazil asked me whether the Brazilian Government makes use of Sovereign Guarantees, Bank Guarantees and/or SBLC’s to attract and secure foreign investors (ment).

At least for infrastructure, I believe the most suitable instrument would be the Brazilian Law 12.712/2012, Art. 32, which establishes the Infrastructure Guarantee Fund (or FGIE, Fundo Garantidor de Infraetsrutura).

This fund is managed by the Brazilian Guarantee Agency (or ABGF, Agência Brasileira Gestora de Fundos Garantidores e Garantias S.A.) and is operated through guidelines which regulate the direct guarantee awards (Regulamento de Operações para Outorga de Garantia Direta Pelo Fundo Garantidor de Infraestrutura), meant to offer risk coverage for noncompliance of pecuniary obligations assumed by the public partner in Public-Private Partnerships.

As of its latest report made publicly available (December 31st, 2017), this fund comprised the value of R$ 568.560.446,00 in total net assets (approx. USD 156.043.574,93 today; not very large due to its recent establishment), and applicable to specific concession operations including the following:

I – Major infrastructure projects included in the Growth Acceleration Program (or PAC, Programa de Aceleração do Crescimento) or strategic programs defined by the Executive Branch;

II – Projects resulting from Public-Private Partnerships in the form of Law 11.079/2004.

However, the exact answer to this question depends heavily on the sort of infrastructure project, value and nature of partnership sought in the country, amongst other specifics.

Accelerating Energy Efficiency: Policy Briefs for the 2018 High Level Political Forum

The High Level Political Forum on Sustainable Development meets annually in July, under the United Nations Economic and Social Council (ECOSOC), where countries present their Voluntary National Reviews (VRNs) of the Sustainable Development Goals (SDGs). The HLPF also carries out thematic reviews of progress on the SDGs including cross-cutting issues. To facilitate an in-depth review of progress, the HLPF annually discusses a particular set of SDGs and their interlinkages. In 2018, the in-depth review will be carried out over SDGs 6, 7, 11, 12 and 15, as well as 17, which is reviewed annually.

As a Major Group Consultative Member for the ECOSOC Civil Society Network, my cooperative efforts are particularly focused on the private-public dialogue over policy briefs contained within the new publication “Accelerating SDG 7 achievement: Policy briefs in support of the first SDG 7 review at the UN High-Level Political Forum 2018”. The document was launched by the SDG7 Technical Advisory Group, in partnership with UN DESA (United Nations Department of Economic and Social Affairs) and includes 27 policy briefs relating to accelerating SDG 7 achievement.

Policy Brief #6 Energy Technology Innovation: Digitalization of Grid Services. Increasing the speed of digitalized technology development could lead to a first-mover advantage for pioneering countries or companies.

  • The need for resilient infrastructure, increasing stress on resources, and decentralized supply) and enabled by the interaction of various disciplines such as data and information networks. As the rate of interlinkages increases and improvements in data and information networks accelerate, we can expect rapid advances in the innovations that exploit the interactions of these technologies.
  • Technology such as sensors, robotics and advanced analytics, which together form advanced interconnected systems capable of quickly analyzing large amounts of data, are developing potentially transformative solutions, across various sectors, for improving energy efficiency and managing more variable renewable energy. This development is driven by continuous improvements, and the cost-performance curve of core digital technology building blocks: computing power, data storage, and bandwidth utilization.

Policy Brief #14 Interlinkages Between Energy and Sustainable Cities: Smart Grid and Smart Buildings. Cities are adopting more energy efficient policies and practices in the transport, buildings, industry, and commercial sectors.

  • The number of energy efficient building codes adopted by countries, and by-law at city levels, has increased in the last five years.
  • Smart grids are enabling major energy efficiency and resilience gains. Using ICTs, the grid is able to manage energy demand and use most efficient energy source on the system.

The formal session to review SDG7 will take place on 10 July from 11:00 to 13:00, during the HLPF 2018 and Side Events sponsored by Member States, UN system and other intergovernmental organizations, Major Groups and other accredited stakeholders will be held in the margins of the event. More information on the HLPF 2018 can be found here.

Brazilian Central Bank publishes Fintech regulations

On April 24th, 2018, the Brazilian National Monetary Council (CMN) approved Resolutions 4.656 and 4.657, which regulate the performance of financial technology companies (known as Fintechs) operating in the credit market.

According to Resolution 4.656/2018, Fintechs may operate within the following two frameworks:

  • Direct Credit Society, or SCD (Sociedade de Crédito Direto), through which Fintechs can lend money raised through investment funds, eliminating the bank as an intermediary; or
  • Person-to-Person Credit Society, or SEP (Sociedade de Empréstimo entre Pessoas), which allows for peer-to-peer lending operations within the established limit of R$15.000 per CPF (individual) or CNPJ (organizations).

In September of 2017, the Brazilian Central Bank had opened a request for comments on the subject (BC Public Consultation 55/2017). The new regulation is part of its + Agenda – the Bank’s strategy to increase competition in the National Financial System, foster credit offer, reducing the cost for the final borrower and increase legal certainty to operations.

 

REFERENCES:

Folha de São Paulo. Fintechs poderão concede crédito sem mediação de banco. May, 2018.

InternetLab. Banco Central regulamenta atuação de startups de tecnologia no mercado de crédito. April, 2018.

Banco Central. BC coloca em consulta pública atuação de Fintechs no mercado de crédito. September, 2017.

2018 Economic Outlook Brazil: Foreign Policy

This is the third chapter of the series of posts on the “2018 Economic Outlook Brazil” that is based on the Presidential Message delivered to the Brazilian National Congress in February, 2018 by President Temer. The official document, in its entirety, advises on the key national policies divided into five central pillars: Economy, Infrastructure, Social, Foreign Affairs and Public Administration.

Read below the policy higyhlights on Foreign Policy. The other posts are Regulated Markets and Structural Reforms.

1. Introduction

In a global scenario trending towards nationalism, Brazil continues to push forward a diplomacy of universalism by promoting multilateral dialogue and integration. Its foreign policy has been implemented towards the interests of economic recovery, job creation, border security and the promotion of welfare.

During the year of 2017, the Brazilian Government continued to give expression to the universalist vocation of its Foreign Policy. Beyond Latin America and the Caribbean, the Brazilian government tried to deepen its diplomatic relations with European countries, North America, Asia Africa and the Middle East. In 2017, Michel Temer visited China (during the BRICS summit), Norway, Portugal and Russia. He also participated in the meetings of G-20 in Hamburg, Mercosur in Mendoza, the UN General Assembly in New York and the WTO Ministerial Conference in Buenos Aires.

Its participation in multilateral institutions is also to be highlighted, having representatives working for the Inter-American Commission on Human Rights, Committee on the Elimination of Racial Discrimination, International Court of Justice and the International Law Commission. Brazil is also in the Presidency of the World Trade Organization.

2. Migration and Refugee Crisis

In 2017, the new Migration Law entered into force, establishing the guidelines for the Brazilian migration policy through which the country has acted in the UN negotiations for a Global Compact on Migrations. The government is also working on improving its mechanisms for granting refuge. Aiming to facilitate the instructions on the process of request for refuge, an electronic ordering system is under development (Sisconare), which will give greater speed, reliability and security to the processes. A working group was also established for the revision of the resolutions of the National Refugee Council (Conare).

3. China

In 2017, China remained Brazil’s main trading partner, and an important source of investment. During the Presidential visit to China, bilateral agreements were signed in the areas of tourism, health and consumer product supervision. The bilateral cooperation also advanced through the launch of the Fund for Brazil-China Cooperation for the Expansion of Productive Capacity.

4. Africa

The African continent is a permanent priority to the Brazilian Foreign Policy. During the UN Assembly, in September, President Temer met with the President of Egypt, Mr. Abdel Fattah Al-Sissi, to discuss economic opportunities for both countries. In the same month, the Mercosur-Egypt free trade agreement entered into force. Egypt is the main destination of Brazilian exports to Africa.

In 2017, the Brazilian Foreign Minister visited Namibia, Botswana, Malawi, Mozambique, south Africa, Sao Tome and Principe, Ghana, Nigeria, Côte d’Ivoire and Benin. During these visitations, cooperation agreements were signed in areas such as visa facilitation, social security, and air transportation, reiterating the country’s commitment to socio-economic development and the consolidation of peace and democracy in West Africa.

5. BRICS

Within BRICS, progress was made towards the consolidation of the New Development Bank (NDB) with the approval of the 2017 – 2021 General strategy, which included the bank’s second batch of loans and the opening of its first regional office in South Africa. In its 2017 summit, BRICS signed the Plan of Action for Economic and Trade cooperation and the Customs Cooperation Strategy.

6. Middle East

Brazilian Diplomacy is also attentive to the geopolitical situation of the Middle East. It defends the two-State solution to the Israel and Palestine conflicts, based on International Law and opposing to the illegal construction of Israeli settlements in Palestine. President Temer met separately, in New York, with the Israeli Prime Minister and the President of Palestine.

In May 2017, the Brazilian Minister of Agriculture, Livestock and Supply visited Saudi Arabia, Qatar, the United Arab Emirates and Kwait, helping to maintain the Brazilian beef exports. To attract investments, the Brazilian government went on a mission to Saudi Arabia, Bahrein, Kwait and Qatar.

7. Regional Integration

In 2017, Brazil prioritized advances in economic-trade relations and in the areas of border cooperation, physical integration and the fight against transnational crimes within the Latin America and Caribbean region. In commitment to the Ushuaia Protocol, members of Mercosur voted on the indefinite suspension of Venezuela from participation in the bloc. In articulation with other 11 countries in the “Lima Group”, Brazil seeks to favor the return of democracy in Venezuela. Internally, an inter-ministerial group was designed to coordinate the reception of the Venezuelan migratory flow in the Northern region of Brazil. A Resolution of the National Immigration Council made it possible to grant temporary residence to Venezuelan nationals for two years.

In April, the Protocol of Cooperation and Facilitation of Investments of Mercosur was signed, and in December, the block agreed on the Protocol for Public Procurement. A free trade agreement started to be negotiated with the European Free Trade Association (EFTA), formed by Switzerland, Norway, Ireland and Liechtenstein. The negotiations for an FTA with the European Union are still under negotiations.

Brazil has also maintained an active participation in the Amazon Cooperation Treaty Organization (ACTO), especially in the illegal deforestation monitoring program, in the projects for water resources management and forest firefighting in the Amazon basin.

8. Foreign Trade

The results of the Brazilian foreign trade have contributed to the return to growth, as the country recorded a surplus of USD 67 billion in 2017. Both exports and imports recovered some of the dynamism lost during the crisis. In May, Brazil requested access to the Organization for Economic Co-operation and Development (OCDE) and, in attempt to speed operational processes, began the implementation of the Digital Origin Certificates and the Consolidated Portal for Trade.

It is estimated the start of production and exporting by companies located at the ZPE in Ceará (Export Processing Zone) has contributed to leverage the state economy. Other ZPEs are already in advanced stages of implementation in the states of Piauí and Mato Grosso.

 

Source: Presidential Message to Congress 2018 (adapted translation)

Brazilian government reduces import tariffs on ICT and capital goods

The Brazilian Foreign Trade Chamber (CAMEX) issued Resolutions No. 14 and 15/2018, reducing to zero percent the import tax on capital goods (780 items) and computer and telecommunications goods (50 items). The tariff reductions that entered into force on February 28th under the Brazilian Ex-tarifário regime are temporary and will be in place until December 31st, 2019 as established by the new resolutions.

The Brazilian Ex-tarifário regime consists of the temporary reduction of the tax on imports of goods when there is no equivalent national production. The special customs regime is intended to promote a reduction in the cost of investments and to produce a multiplier effect on employment and income on differentiated segments of the national economy. Camex Resolution No. 66/2014 established the rules for the concession of the Ex-tarifário regime.

2018 Economic Outlook Brazil: Regulated Markets

This is the second chapter of the series of posts on the “2018 Economic Outlook Brazil” that is based on the Presidential Message delivered to the Brazilian National Congress in February, 2018 by President Temer. The official document, in its entirety, advises on the key national policies divided into five central pillars: Economy, Infrastructure, Social, Foreign Affairs and Public Administration.

Read below the policy higyhlights on Regulated Markets. The other posts are Structural Reforms and Foreign Policy.

1. Oil & Gas

Law No. 13.586 of December 28, 2017 was part of a broad set of measures that altered the regulatory framework for the oil sector. The act aimed to increase competition in the exploitation of reserves and thereby increase the income absorbed by taxpayers in the form of tributes, royalties, special participations, signature bonuses or oil surplus.

Decree No. 9.128 of 2017 extended the benefits of Repetro until 2040. This is a special customs regime for importing and exporting goods for research and drilling activities of oil and natural gas. This regime has been in place since 1999 and aims to equate the taxation of the oil sector in Brazil with the practices of other producing countries.

Resolution No. 17/2017 from the National Council for Energy Policy (CNPE) established the Petroleum and Natural Gas Exploitation and Production Policy, which defines the guidelines for policy implementation for the planning and realization of public bids. Resolution 10/2017 from CNPE establishes the schedule for the bidding rounds of blocks and fields for oil & gas exploitation and production for the biennium 2018-2019.

There was a change in the clause of Research, Development and Innovation of the Programme for the Competitiveness of the Productive Chain, Development and Improvement of Suppliers of the Petroleum and Natural Gas Sector (Pedefor, Decree No. 8.637 of 2016): A percentage of 30% to 40% of eligible expenditure in PD&I should be destined to universities or research centers; 30% to 40% for programs, and the remainder to qualified activities defined by the concession itself.

2. Mining

Throughout 2017, the Brazilian government reviewed the legislation of the mineral sector, with the objective of restoring the credibility and legal certainty demanded by the investors. Provisional Measure No. 789 (converted into Law No. 13.540/2017) provides for the Financial Compensation for the Exploration of Mineral Resources (CFEM); Provisional Measure No. 790, amends the Mining Code (Decree-Law no. 227/1967); and Provisional Measure No. 791 (converted into Law 13.575/2017) creates the National Mining Agency (ANM) for the regulation of the mineral sector, substituting the former National Department of Mineral Production (DNPM).

3. Electricity

The Brazilian government issued new legislation in 2017 to support and encourage the process of privatization. This is the case of Decree No. 9.192/2017, which regulates the bidding process and the respective transfer of share control of electricity distribution companies controlled by Eletrobras. Provisional Measure No. 814/201 gives incentives for the transfer of share control and includes Eletrobras in the National Program for Privatization.

4. Basic Sanitation

Population in Brazil still faces serious problems related to access to basic sanitation services, despite advances promoted by the last legislation revision enacted by Law 11.445/2007. There are deficiencies mainly in the water supply and treatment and sewage collection and treatment services.

There is a general understanding that it is necessary to increase legal certainty aiming at investment expansion. As per current regulatory framework, the country has more than 50 regulating agencies in the sector, with municipal, regional and statewide outreach. This multiplicity of actors contributes to the context of low investments due to the intertwined complexity of rules. The government is considering changes in Law 9.984/2000 in order to assign to the National Water Agency (ANA) new competences for the coordination of services in basic sanitation.

5. Telecommunications

The General Telecommunications Law No. 9.472/1997 was published two decades ago and, given the rapid technological innovations in the sector, a regulatory reform is urgently necessary, since the concession of fixed telephony becomes less attractive in relation to emerging broadband technologies. The Draft Bill PLC 79/2016 that is under discussion in the Federal Senate is proposing legislation reform in order to reverse the obligation of investment in fixed telephony in favor to investments in broadband expansion.

 

Source: Presidential Message to Congress 2018 (adapted translation)