The environmental governance crisis may intensify the flight of foreign capital from Brazil | economy

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In addition to a reduction in the flow of global investment, natural in a crisis of such magnitude, Brazil suffers from political instability, concerns about the country’s fiscal situation after the pandemic. and with an environmental governance crisis that impacts the country’s reputation in the foreign market and may contribute to further reducing foreign investment.

“We are left with a lack of competitiveness and growth potential. Environmental issues are gaining momentum and now we have an additional factor of concern, ”says economist Zeina Latif.

What the numbers show

According to the BC, Direct investments in the country totaled US $ 22,841 million in the first half of this year, a decrease of 26.6% compared to the same period last year, which was $ 31,147 billion. It’s even about lowest value for that period in 11 years.

The same downward curve is observed in the capital market. Foreign investors withdrew R $ 88.9 billion from the Brazilian stock market this year until September 18, practically double the volume registered in 2019. The figures only consider listed shares that are already in circulation on the stock market.

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In all of last year, when the stock market registered growth of new individual investors and increase in the index, the withdrawal was R $ 44.5 billion, the highest annual volume of the entire historical series published by B3, which began in 2004 .

Lack of external trust

The country follows a lower flow of investments worldwide. According to the Global Investment Report 2020 (World Investment Report 2020), from the United Nations Conference on Trade and Development (UNCTAD), the drop should be 40% in 2020, due to the new coronavirus pandemic. In 2019, the figure reached $ 1.54 trillion, and this year it should be below 1 trillion homes for the first time since 2005.

Concerns in Brazil, as well as other Latin American countries, are even greater due to dependence on the extractive industry and basic products, which are expected to fall further in the period. The region will see a reduction of between 40% and 55% in the year, according to Unctad.

“Brazil had been losing share in the global flow of investment because China began to prefer to stimulate its own economy. The lower investment rate reinforces the weaknesses of the economy,” says economist Zeina Latif.

For her, the outflow of resources not only took money from the country, but also developments that would come from international experience and the governance requirements of developed countries. In addition, foreign investment is a reflection of internal confidence, which the country does not currently have.

Environmental concerns

For Sérgio Vale, chief economist at MB Associados, the Jair Bolsonaro’s attitude of minimizing events such as the fires in the Pantanal or the increase in deforestation in the Amazon intensifies mistrust on the most productive sector that brought results during the crisis, which is agribusiness.

The main effects are twofold: reputational, since developed economies perceive demand for products with a more sustainable production chain, and relevance in the long term, since, little by little, Brazilian products can go unnoticed in global competition .

“It is true that a large part of our buyers, such as China and the Middle East, are less concerned about this than developed countries. But this type of government action can affect other areas, such as free trade agreements, that cannot move forward. as long as the government does not radically change attitudes about the environment ”, says the economist.

Indeed, there is a movement among investors pushing to improve the deal with the environment: In the first half, seven major European investment firms told Reuters they would divest from meat producers, grain traders and even government bonds. of Brazil if they do not see progress towards a solution to the increasing destruction of the Amazon rainforest.

A group of 230 institutional investors, responsible for managing $ 16.2 trillion, is also calling on companies to act against deforestation and fires.

In more specific terms, Brazil has the peculiarity of an internal discussion on the path of the public debt without a clear plan to resolve the fiscal deterioration.

Policies to contain the pandemic will bring the primary deficit in the government accounts to around R $ 861 billion this year, the Ministry of Economy reported in this year’s budget income and expenditure report on Tuesday (22). Debt relative to GDP is already above 86%, with the expectation of approaching 100%.

The scenario encourages the market to ask about the administrative and tax reforms that are taking place in Brasilia. Insecurity prevents investment and does not give firmness to the resumption of consumption, the engine of growth of the Brazilian economy.

“There is a very high risk that Bolsonaro will deliver in 2021 the second worst growth average of that democratic period, a three-year period that alone would not be less than Fernando Collor. For direct investment, which depends on growth, this is the worst scenario.” says Vale.

With the outflow of capital, Brazil still has a certain stability to maintain a positive trade balance. On the 14th, this month’s partial shows that exports totaled US $ 8,124 million, 5.1% higher than the amount registered in the same period last year, while imports totaled US $ 4,751 million, a decrease of 24 ,4%. in the same comparison.

In addition to the surplus, which has the effects of a high dollar, the country has strong foreign exchange reserves by its side. The risk comes with the foreign policy of the government, which is betting its chips on aligning itself with Donald Trump’s United States. In his speech, Bolsonaro greeted the American.

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China remains Brazil’s largest trading partner in 2020. For every dollar that Brazil exported to the United States in the first half, it was US $ 3.40 for Asians. While it has a trade surplus of $ 17.6 billion with the Chinese, it has a deficit of $ 3.1 billion with the Americans.

“The policy that the government follows is suicidal. Brazil set this benchmark in Trump, but we can be orphaned. There were 35.4% of our total exports to China in the first half,” says Rubens Ricupero, former Minister of Finance and former ambassador to the United States.

For him, for now, divestments have more to do with the fiscal doubts that the government leaves open, but environmental policies will make it difficult to attract future contributions.

“Whoever leaves the Stock Market and the National Treasury is afraid of what will happen here, because the ‘Ipiranga gas station’ has run out of fuel. This is how the crises begin,” he says.