Brazilian industry’s slow path to recovery

Brazilian industry slow path to recovery

Today, we are covering the struggles of Brazil’s industry sector. The pension reform advances. And how companies want to police employees’ use of messaging apps like WhatsApp. (This newsletter is for platinum subscribers only. Become one now!)


Operation Car Wash has launched a new stage this morning, with police targeting

civil servants working at the Federal Revenue Service. Fourteen auditors (all of whom have arrest warrants issued against themselves) are accused of taking bribes from business owners investigated by the same Operation Car Wash, in exchange for lowering (or scrapping altogether) fines they were imposed.</p> <hr class="wp-block-separator"/> <h2>Brazilian industry&#8217;s slow path to recovery</h2> <p>The Brazilian industry sector has registered growth after three consecutive negative months. But the slim improvement (a bump of just 0.8 percent) was largely concentrated on iron ore and oil extraction, showing that the sector as a whole remains sluggish.</p> <p><strong>Why it matters.</strong> The Brazilian industry—just like the overall domestic economy, for that matter—is highly dependent on family consumption. But high unemployment rates and the shrinking salaries of the jobs that do appear have crippled the sector., In 2019, 60 percent of industrial segments posted negative results—and overall industry activity is down 1.7 percent.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/730872"></div><script src=""></script> <p><strong>Insult to injury.</strong> Two other factors, not related to Brazil&#8217;s own economic crisis, have hampered the sector: the January 25 Brumadinho dam disaster (which killed 250 people and provoked a major setback to the extractivist industry) and the Argentinian economic collapse (which reduced exports to the country, having a huge impact on automakers).</p> <p><strong>Risks.</strong> The participation of the industry sector in the GDP has slimmed in recent years—and the complexity of activities performed locally is also down, which makes it harder to integrate Brazil in global production chains. Since 2014, industrial activity grew 10 percent worldwide—but dropped 15 percent in Brazil, with the country risking no longer figuring among the world&#8217;s top 10 largest industry producers.</p> <p><strong>Obstacles.</strong> Outside of regulatory hurdles and excessive bureaucracy—which has become known as the &#8220;Brazil Cost&#8221;—another thing hampers Brazil&#8217;s industry: the low productivity levels of local workers, who often have trouble with math calculations and are not proficient in English (in many industries, equipment only have displays in Shakespeare&#8217;s language).</p> <p><strong>Back on track.</strong> Despite external issues, Brazilian industrialists are also to blame. The country has been an outlier among emerging nations when it comes to investments in value-added technologies. The rate of medium- and high-complexity industries went from 50 to 34 percent between 1995 and 2000.</p> <hr class="wp-block-separator"/> <h2>Pension reform advances—but government suffers defeat</h2> <p>The Senate approved, by a comfortable 56-19 majority, the first-round vote of the pension reform bill. The upper house will consider amendments to the bill today before heading to a second round.</p> <p>Yesterday&#8217;s sitting at the Senate, however, gave the government mixed results—as senators refused to reduce financial aid to workers earning up to BRL 1,996. With the move, savings from the reform in ten years lost BRL 76 billion—to a predicted impact of BRL 876 billion.</p> <p><strong>Why it matters.</strong> The pension reform bill is <em>the</em> core piece of Jair Bolsonaro&#8217;s economic agenda. At the beginning of the year, the government wanted to approve it by July—wishful thinking which was quickly struck down by Congress.</p> <p><strong>Red flags.</strong> While the first round of votes was relatively uneventful—when compared to the struggles to pass the text in the lower house—the second round promises to be a much harder battle. Some senators could block the vote due to an unrelated issue. Political leaders are battling to decide how the money raised from a massive upcoming oil auction will be split. Senators want state governments to get a larger share—while representatives want to privilege municipalities. All of them have their eyes on next year&#8217;s municipal elections—as the extra addition of cash could make their constituents happy.</p> <p>It will be an ugly fight, as most state- and municipal-level administrations are in dire financial straits. Everyone needs the money.</p> <p><strong>Responsibility.</strong> Approving the reform as soon as possible is pivotal to convince investors that Brazil is committed to an austere agenda. But quid pro quo is the name of the game in Congress.</p> <hr class="wp-block-separator"/> <h2>WhatsApp ethics in Brazilian companies</h2> <p>Brazil-based companies are starting to create guidelines on how employees are allowed to use messaging apps.</p> <p><strong>Why it matters.</strong> Companies are trying to avoid lawsuits and data breaches.</p> <p>Many employers have recently been found guilty of harassing workers on phone messages,&nbsp; demanding improved performance at work, or even firing them through these apps.&nbsp;</p> <p>Companies also want to limit the use of group chats by employees (a common practice in Brazil), for fears that confidential information could leak should a worker be hacked or leave their job in possession of sensitive data.</p> <p><strong>Usage. </strong>About 91 percent of Brazilians with internet access <a href="">use mobile messaging apps</a>—especially WhatsApp and Telegram. A recent survey by pollster <a href="">Datafolha</a> shows that 71 percent of Brazilian users say they share professional content on messaging apps—including confidential data. For many, one of the reasons to trust WhatsApp is the fact that the tech giant says it doesn&#8217;t keep users&#8217; chat logs.</p> <hr class="wp-block-separator"/> <h2>What else you need to know</h2> <p><strong>Car Wash.</strong> The Supreme Court is set to conclude last week&#8217;s trial on how criminal courts must deal with collaborating defendants. The majority of the court believes they must be considered accessories to the prosecution—which gives other defendants more time to produce their closing arguments in trials. But justices will also have to determine whether the change in the law&#8217;s interpretation should be applied from now, or whether it should apply to past cases too. Depending on their decision, many Operation Car Wash-related convictions could be overturned, with cases going back to trial courts.&nbsp;</p> <p><strong>Mining. </strong>A dam containing tailings from a gold mine collapsed in the state of Mato Grosso, just five days after the company turned in its stability report—containing no warnings. The tailings spread across an area of 2 square kilometers, injuring two people, but killing none. In its recent assessment of tailings dams, the National Mining Agency deemed the facility as presenting a low risk of collapse. The mine&#8217;s activities have been shut down, and the company has been served a notice by regulators.</p> <p><strong>Logistics.</strong> General Motors believes that diversifying its transportation of exported vehicles is key to increasing its market share in South America. The firm&#8217;s Brazilian plant now sends 30,000 vehicles a year to neighboring countries (excluding Argentina), but it believes that—with alternatives to roadway transportation, such as cabotage or railways, it could raise those figures fivefold.</p> <p><strong>Ambassador.</strong> Per government officials, the nomination of Congressman Eduardo Bolsonaro, the president&#8217;s third-eldest son, to the position of Brazil&#8217;s ambassador in Washington D.C. is about to be made official. All the paperwork is reportedly ready—with the government just waiting for the Senate to be done with the pension reform first. President Jair Bolsonaro doesn&#8217;t want his son&#8217;s appointment to be used as a bargaining chip in the pension reform vote.</p> <p><strong>Aviation.</strong> Brazil&#8217;s antitrust authorities are set to investigate Brazil&#8217;s major airlines for suspected irregularities in ticket price hikes. In 2017, carriers were no longer forced to give passengers at least one free checked piece of luggage—a move aimed at reducing fares. But the average price of plane tickets in Brazil rose 40.9 percent between January and August of this year. Despite regulatory changes, the lack of competition in the sector pretty much allows airlines to set whatever prices they want. The main carriers combined for profits of BRL 194 million over Q2 2019.</p> <p><strong>Memoirs.</strong> After former Prosecutor General Rodrigo Janot said he came close to carrying out a murder-suicide plot against a Supreme Court justice, his soon-to-be-released memoirs were leaked, and are being shared on WhatsApp. Many Operation Car Wash defendants are set to use the book as evidence of abuse committed by investigators. One example is former President Lula, who is attempting to prove bias from prosecutors.

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Gustavo Ribeiro

An award-winning journalist, Gustavo has extensive experience covering Brazilian politics and international affairs. He has been featured across Brazilian and French media outlets and founded The Brazilian Report in 2017. He holds a master’s degree in Political Science and Latin American studies from Panthéon-Sorbonne University in Paris.