How politics could derail Brazil's privatization plans

Brazil's President Jair Bolsonaro is facing obstacles fulfilling his campaign promise of privatizingnearly 100 firms.

During his 2018 campaign, Bolsonaro said state-run firms were not profitable and used by past administrations to extend favors to political allies.

“The privatization agenda has always been a priority of economy minister Paulo Guedes who could convince Bolsonaro … that focusing on this agenda would attract the support from the private sector to his administration,” Banco Mizuho's chief Latin America strategist, Luciano Rostagno, told BNamericas.

But “now, the scenario is changing. The president is seeking more political support to ensure his governance in the next two years and privatizations are not a priority anymore.”  

Bolsonaro already ruled out the privatization of São Paulo state warehouse company Ceagesp.

"Here, when it comes to privatization, I want to make it very clear. As long as I am president of the republic, this is your home," Bolsonaro told Ceagesp workers during a recent company visit, even though the firm is part of the federal concessions and privatizations program, PPI. 

Guedes has claimed privatizations would boost economic growth. Yet, he is losing standing as after two years in office economic indicators have not improved.

Bolsonaro, meanwhile, increasingly prizes political aspects in appointing executives of state giants like Petrobras or Banco do Brasil, rather than technical and market experience, which complicates privatizations.

A resurgence of COVID-19 infections and deaths adds to the uncertainty as the government is not organizing a massive vaccination campaign. This failure does not just threaten economic recovery but the resulting criticism also generates the need to arrange political support.

The Bolsonaro administration is pushing for the election of Arthur Lira as lower house head in early February. Lira is seen as unambiguously pro-government, while current lower house head Rodrigo Maia is seen as pragmatist who weighs arguments.

"The lack of advances in a privatization plan is negative for the economy, because there are many inefficient state-owned firms and that should be managed by the private sector," Rostagno said. 

BANCO DO BRASIL

Bolsonaro is reportedly considering firing CEO André Brandão because he announced plans to close 112 Banco do Brasil branches and advance a voluntary layoff program to 5,000 employees.

Local media reported that Bolsonaro opposes the plans amid the economic crisis and because they would affect mostly rural localities with strong support for his allies, risking Lira’s election.

Investors are worried by such meddling and the bank’s shares dropped nearly 5% after the reports. 

ELETROBRAS, POST OFFICE

Uncertainty also arose about the privatizations of power holding company Eletrobras and post office Correios.

Although the government had insisted for months that the privatizations were imminent, they have failed to materialize.

Government officials, however, blame congress.

"Eletrobras' privatization project since 2019 is stopped. There is no rapporteur. This is evidence that this issue is not a priority [for the leadership of the house]," Diogo Mac Cord, special secretary of privatization of the economy minister, told news site Jota. 

CONCESSIONS AT RISK?

While infrastructure concessions have a lower impact than privatizations, they could also suffer setbacks.

The government has prioritized infrastructure concessions this year because they are seen as drivers of economic reactivation and are easier to pursue as congressional approval is not required.

But the 69-year concession for the planned 933km Ferrogrão railway, which is expected to be auctioned in the first quarter, has come under fire.

Among Brazil’s largest infrastructure projects, it demands an 8.4bn-real (US$1.59bn) investment and is part of infrastructure ministry efforts to increase the role of railways in the transport matrix. The line will connect Sinop city in Mato Grosso state and Miritituba, an important port on the Tapajós river in Pará state.

Senator Jayme Campos, of centrist DEM party, claimed in an op-ed that Ferrogrão would serve a region that’s already covered by the Ferronorte railway which even could be extended, rendering a new project unnecessary. 

If this argument gains traction, pressure to reject Ferrogrão will rise as the audit court (TCU) must still authorize the auction.