Brazil’s government has acted fast to capitalise on its new level of certainty following Dilma Rousseff’s official destitution last week, with the signing of multiple commercial agreements with China.
Ahead of the G20 meeting in Hangzhou, new President Michel Temer launched a charm offensive with China – the country largely responsible for Brazil’s growth in the past 10 years – and it worked. A number of agreements were signed, including the sale of seven Embraer aircraft to Chinese firms Colorful Yunnan and Colorful Guizhou Airlines. This was hailed as Embraer’s consolidation on the Chinese market, where it has already sold or leased 230 aircraft.
“China has huge potential for us, and currently represents about 12% of Embraer’s export revenue,” the firm’s CEO, Paulo Cesar de Souza e Silva, said upon signing the deal. According to him, Temer’s presence at the ceremony helped reassure investors about Brazil’s new-found political stability.
Among other agreements, China’s State Grid purchased 23% of the shares of CPFL Energia – Brazil’s third-largest electric utility company – for about US$1.83bn and Fosun bought a 50.1% stake in investment firm Rio Bravo for an undisclosed amount.
This type of sale to foreign investors was widely expected in the market, as Temer faces the urgent task to get the country’s fiscal deficit under control by generating investment.
“It is very likely that he will push in the short term for the privatisation of certain assets – they have made efforts to privatise at least four airports, they have announced plans to possibly privatise electricity distribution, and also sell some of the participation that Petrobras has had in certain projects,” IHS Markit head of Latin America country risk analysis and forecasting Carlos Cardenas told GTR on the day of Rousseff’s impeachment.
While the stakes sold in this instance were in private companies, these deals are a positive first step in gaining investors’ trust back and reviving the economy – while avoiding the strike-related disruption to be expected in privatisation of state entities.
Among other deals, China Communications and Construction Company International (CCCC) and Brazil’s WTorre agreed on a R$1.5bn investment by the latter in a new port terminal in the state of Maranhão. CCCC also announced a partnership with Banco Modal, which will act as financial advisor to the company for its infrastructure investments in Brazil.
Also in Maranhão, China’s CBSteel has signed a deal with the state authority to build a new steel mill in Bacabeira, investing no less than US$3bn and creating an estimated 5,000 jobs.
Another agreement involved a US$1bn investment by Hunan Dakang into Brazilian agriculture, four months after it bought a controlling stake in grains company Fiagril Participações.
According to Brazil’s foreign minister, José Serra, Chinese President Xi Jinping took advantage of the meeting with Temer to reiterate “emphatically” his trust in Brazil’s political stability and, more importantly, in its economic recovery.
Mauricio Munguia, head of the Latin America desk at Santander UK, tells GTR: “China’s demand for commodities was one of the main drivers behind Brazil’s growth in the last years before this recession, so I’m not surprised that they would continue to negotiate new agreements and new ways to supply and buy from each other.
“Chinese businesses are very aware of the opportunities that investing in Latin America’s largest economy can provide. These investments are medium to long-term projects which take into account the size and demands of Brazil, such as its huge middle class. Investment in infrastructure and energy projects as well those in other sectors will continue in years to come.”