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Devaluation good for Brazil’s economy — Envoy

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By EBELE ORAKPO
With rising inflation, unemployment,  tightening of operational credit, and diminishing domestic consumption, the Brazilian government had to devalue its currency, the Real, in order to facilitate trade and market access. Her Excellency, Maria Auxiliadora Figueiredoá, the Brazilian Consul-General in Lagos stated this at the quarterly breakfast meeting of the Nigerian-Brazilian Chamber of Commerce and Industry (NBCCI).

The meeting which held at the Lagos Oriental Hotel, and sponsored by Petrobras, had as theme: Expanding Nigeria’s non-oil sectors of the economy – benefiting from Brazil’s experience.  

According to Figueiredoá, Brazil currently faces a number of challenges on the economic front including slowing economic growth and resistance of inflation to measures aimed at reducing it.

“Brazil’s GDP suffered a decrease of 1.9% in second quarter of 2015 plus 0.7% in the first quarter signifying a recession of 2.6% in the year so far. It also means that recession is now official after two consecutive quarters of negative growth. Brazil boomed for several years on the back of the middle class between 2003 and 2010. Today, many Brazilians are in debt and household spending reportedly fell 2.1% as compared to the previous quarter.

“Inflation is now nearly about 9% per year which is twice the government’s target, but how can you curb inflation in a depreciating currency? Only in the last month, we’ve had a10% devaluation.”

She said that the balance of trade presented a deficit in 2014 for the first time in over a decade, but it has been reverted in the first quarter of 2015, noting that the challenges were a result of the cyclical downturns commonly observed in all market-oriented economies and not from structural deficiencies of the Brazilian economy.

It was not all bad news, however, as the Consul-General said that the bad news is good news from the point of view of Nigerian importers’ interest.

“The very good news is that the Brazilian government recognises the fact that dealing with these challenges is essential for the resumption of sustainable economic growth so addressing the country’s trade policy is among the initiatives aimed at overcoming the challenges.

“There was no government policy regarding exportation of manufactured products during the boom years (2003 – 2010). There was no need. However, with current challenges, there is not much to do except strive for exportation. In this sense, devaluation helps.

“Brazil recognises the strategic importance of an active foreign trade policy and has therefore built the National Exports Plan (NEP) with the private sector in the first quarter of 2015. The NEP is based on five pillars – Market access, Trade facilitation, Trade promotion, Exports financing and Taxation. Trade facilitation has gained the status of state policy in Brazil,” she stated.

“There is need to re-establish the fiscal equilibrium. During the boom years, the growth in government expenses exceeded the pace of growth in fiscal income.

It was not very noticeable but it did not really matter because there was always a primary surplus of around 1.8%. However, as soon as growth began to slow down and austerity measures were taken, we found ourselves in large primary debts of 0.6%.

“Government expenditures are estimated to be equivalent to 7.2% of the GDP in 2015. Gross government debt and 66% of the GDP looks unimportant if compared to Greece’s 175% or Japan’s 227% but the interest of 40% per year only makes our balance worse,” she said.

Fielding questions from journalists, President of NBCCI, Mr.  Emmanuel Ibru, said the chamber aims to promote trade between Brazil and Nigeria. “Brazil has made tremendous strides in terms of agriculture, manufacturing, industrialisation, power generation and Nigeria is in a stage where Brazil was 25 years ago and we feel there is a lot of experience and technological know-how that we can learn from Brazil. There is a potential for a lot of intercontinental investments. Brazil has already gone very far; its weather and terrain are similar to ours and we have a lot of untapped resources which technical know-how from Brazil can help us tap into.”

“Between now and end of the first quarter of 2016, we will be expecting a trade mission from Brazil, the plan has been on for quite some time, in conjunction with the Nigerian Embassy in Brazil and areas of interest for potential investors are agriculture and agribusiness, energy and power, construction and infrastructure, mining, oil and gas and banking and finance. We hope to have a powerful delegation, mostly private sector-driven, coming in.

The balance of trade is skewed in favour of Nigeria. I don’t know about this year’s figures but in the past, Nigeria was the main exporter of oil to Brazil which was buying about $7 billion worth of oil per annum from Nigeria.”

In area of government policies, Ibru said NBCCI works very closely with the Ministry of Trade and Investment. “A new government has taken over but as of two years ago, a special agreement was reached where relationship between the two countries was deemed to be so important that the two vice-presidents were mandated to be the ones to push forward the various programs regarding development. We are working with all the agencies involved.

He regretted that lack of a direct air link between Brazil and Nigeria has been a problem. “I am sure if there was a direct air link, you will see a tremendous growth in the demand for visa to go to Brazil and vice versa.”

 

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