“How Brazil Can Become An Economic Powerhouse”
By Lorenzo Montanari, ATR, courtesy of Libertad y Progreso
In only one year Brazil President Jair Bolsonaro has been able to revert 13 years of socialist policies which were implemented by the previous leftist presidents Lula and Dilma. His accomplishments include passing important free-market reforms such as the pension reform and different de-regulation laws, such as the reduction of the number of Ministries from 29 to 22, and the privatization of logistics networks from roads to airports. Thanks to the approval of the anti-crime package crime rates have dropped by 22%. Also, 2019 was the best year for employment since 2013, with almost one million jobs created.
Now Brazil needs to invest in its innovation. If a free-market telecommunications reform will be approved, Brazil will definitely open its market to further competition and attract large quantities of foreign direct investments, making Brazil a regional economic powerhouse.
Bolsonaro’s Administration initiated massive reforms to open the economy and set it on a more fiscally sustainable path. Among his major accomplishments is a pension reform which would be the highlight of any political career. Across the world politicians have found it easier to promise massive handouts, paid by smaller populations, that is expected to result in a global shortfall of $400 trillion by 2050.
Bolsonaro stared down union strikes. His reform raises the retirement age by 10 years, increases contributions, and saves the government $187 billion over a decade. The reforms put Brazil on a much more sustainable path. According to the Brazilian Ministry of Economy Paulo Guedes, “Brazil’s economy is on course to grow by 2.5% this year”.
The EU-Mercosur deal is a boon to EU businesses eyeing first-mover advantage to a region equivalent in economic size to Germany. Mercosur has committed to removing €4 billion in annual tariff revenue including its prohibitive 35% tariff on cars, and an average 20% tariff rate on machines, an 18% tariff on chemicals, and a 14% tariff on certain pharmaceuticals. While the EU has committed to eliminating tariffs on 93% of Mercosur exports to the bloc.
Mercosur is physically three times the size of the EU yet its GDP output is a fifth. Brazil needs a trade partner that sees it tripling in size and becoming an innovation powerhouse in Latin America.
Open trade with the EU means the next generations will be able to find their way into IP-intensive industries and services sectors such as telecommunications. According to the World Intellectual Property Organization’s 2019 Global Innovation Index Brazil ranks 66th out of 129 economies. Still too low for the eighth-largest economy in the world. Trade with the EU or as well as with the U.S.A will bring variety and competition to Mercosur consumers who have had little, especially in closed sectors such as telecom services.
For his part, Bolsonaro is on the path to having several record achievements in 2020. And now that USMCA is passed, he can look forward to negotiating a comprehensive deal with its next biggest trade partner after China. That’s not all he has going for him, ascension to the OECD is also on the table.
The latest report from the OECD concluded that Brazil could “lift GDP by 20% over 15 years” if it continued with opening markets, strengthening institutions, and improving the business environment. One low hanging piece of fruit that would invite foreign investment, before an EU or U.S. deal is finalized, and allow leapfrogging in the telecom space is to repeal the SeAC law which restricts ownership and vertical integration in the audiovisual market.
The law is vestigial of the former socialist Brazilian President Dilma Rousseff that saw foreign competition as a threat. The law prevents producers of paid TV from also being online distributors of their content. In other words, it carves out a space for the Globo Group, of which a third of the Brazilian congress has an ownership stake, to be the main online streaming service for TV programs. It significantly discourages foreign investment and reduces opportunities for Brazilian producers that could have more distribution outlets.
Warner Media CEO Gerhard Zeiler stated, “We have the option to acquire the business in Brazil but are not doing so at this time. As we have said, additional, direct investment in Brazil is not currently attractive to us because of the existing regulatory uncertainty in the country.”
To Brazil’s credit, the government seems to be working going through all the right motions. Fox+, the first streaming service to be a victim of the prohibition received injunctive relief against ANATEL’s decision, the regulator, to suspend its service saying it was “excessively burdensome to Fox, its consumers, and third parties.”
Currently, there is an open consultation period. The national Brazilian film agency, ANCINE, submitted an impact analysis that recommended reducing the barrier. Not to be outdone, there is also a bill in the Congress, submitted by Senator Vanderlan Cardoso, that amends the current law to remove the restriction. Finally, the president also drafted a provisional measure to remove it.
“The issues affecting the Brazilian telecommunications market do not negate the country’s economic and institutional performance in recent decades,” says Brazilian economist Vladimir Fernandes Maciel, “but prove that, if government interference is not rethought and the regulatory framework modernized, this will hinder innovation and stifle the long-term economic growth in the country.”
All that’s missing is for either the president, congress, or the regulators to follow through. Overcoming this obstacle should be first on Bolsonaro’s new year resolution list. It will, on the one hand, deliver immediate benefits for consumers and will demonstrate to the OECD, the EU, and U.S. partners that Brazil is committed to upgrading regulations that invite investment and competition.
Lorenzo Montanari is vice-president of International Affairs for Americans for Tax Reform, a Washington D.C. based advocacy and policy research group working for lower taxes and free market policies at the national and international level. He is also executive director of Property Rights Alliance, an advocacy policy group in charge of publishing the International Property Rights Index.