TMF Brazil chief talks coronavirus, trade wars, investment

Prior to January, the global economy was already facing a few stiff headwinds, chief among them being the trade tensions between China and the US.

And over the past several weeks the Asian giant’s coronavirus epidemic has whipped up more of a swell.

Meanwhile, for governments in some Latin American countries – including Mexico and Argentina – these external risks compound sticky problems on the macroeconomic front. 

In a nutshell, it adds up to uncertainty, although a drop in the number of new coronavirus cases has been observed and, to date, no cases have yet been reported in Latin America. Plus, the needle on the global trade tension gauge has dipped, despite remaining high, following the signing of the first phase of a wider trade deal between the US and China.

Against this backdrop, BNamericas spoke with Rodrigo Zambon, managing director for Brazil at global business services provider TMF Group, about business risks and how an improving environment in the country is drawing investors.  

TMF Group recently published the results of a poll of 1,770 decision-makers in international firms across Brazil, the US, the UK, France, India, Singapore and China. 

Researchers found that multinational businesses expect trade wars and other geopolitical shocks to cause issues in 2020 – but few are taking steps to protect themselves or capitalize on opportunities. Data also suggests that Chinese business are more concerned about global trade issues than their US counterparts.

BNamericas: TMF Group polling data suggests that, for multinational companies, trade wars remain the biggest business risk of 2020. What’s the outlook on the trade war front for 2020?

Zambon: I think trade wars are still number one. There's a sense [today] that there's less anxiety associated with it. I think people understand a little bit more about the nuances. As people get more intelligence about it, they're in a better place to make decisions. It’s still an item on the agenda of businesses. 

BNamericas: Business executives at US-based multinational companies aren't as concerned about global trade conflicts as their Chinese counterparts despite the long-running trade dispute between the two nations, according to the poll. Why the pessimism in China do you think?

Zambon: We see, and perceive, a lot of reliance of China on exporting goods to other markets, so I think they’re probably more dependent and they have more to lose in that trade war. 

China is also very agile in terms of acquiring, or moving into, different markets, but I think the US still represents a lot in the trade balance for them. 

It’s something we’re observing. I think, as the [phase one trade deal signed last month] agreement settles, things will calm down, level out, stabilize.

It would say it’s [the concern in China] probably more of a short-term reaction and I don’t see a long-term effect. It hasn’t been communicated in any of the conversations we’ve been having in the region, either with clients or at forums where that topic has been discussed. 

BNamericas: Trade wars present challenges but also opportunities. How, in general, could Latin American countries capitalize on the situation?

Zambon: I can give you a very precise example. During 2019, as a result of the trade war, China became Brazil’s largest trade partner for the first time in history. It was really a quick reaction by China, with Brazil also having an interest in doing business. This is one example of opportunities generated as a result of a trade war. 

In the case of Brazil, there was a short-term benefit. It increased its market share in terms of soy, protein exports to China. It started to import from China as well. There are these movements, with China continuing to grow in terms of investment in Brazil.

Market analysts [because of the signing of the first phase of a wider trade deal] are announcing potential risks in Brazilian exports of soy to China. But there's a lot of debate about whether there will be a material impact or not. That's something we're following closely.  

Companies that are more prepared, more agile in adjusting, could embrace opportunities. 

BNamericas: Since the survey was conducted, coronavirus has become a major issue globally. How big of a concern is coronavirus among businesses in the region in general, would you say, and are you getting a sense of the mood in Brazil?

Zambon: A comment made by a banker [at a recent LatAm investment conference in Brazil] was very interesting. He said that markets were a little more volatile for a week and there are still a lot of things to unfold as a result of this, but that it seems like there's some level of stability, at least at the market level.

Companies [however] would worry about what potential effects an epidemic would generate. In the case of Brazil, and with European and Latin American companies, there’s a similar reaction. If there's a clear understanding of the risk of an epidemic increasing in a specific Latin American country it's critical that companies use their business continuity plans. The immediate effect for companies is ‘how do I continue to run my business if we need to go into contingency mode?’. 

Business [in Brazil] is in wait-and-see mode, with no dramatic actions being taken at the moment. If this evolves, I think there's going to be a lot of movement in terms of contingency plans and so forth.

BNamericas: Brexit is another major concern of multinationals, according to the survey. What are they mostly concerned about and how could Brexit impact Latin America?

Zambon: We don’t see much [talk of Brexit] in business discussions in Latin America. As far as we can see, and as far as we can hear, it is a lot about what types of agreements, post-Brexit, Britain will make with Europe, for one, and, as a result of that, how that will unfold.

As far as Latin America is concerned, I think it's more a case of being in wait-and-see mode versus anticipation of any negative impacts. Any hard position on this topic, at the moment, is very premature. 

BNamericas: Any final words?

Zambon: It's interesting to see increasing interest in the region among investors. There’s a positive trend in terms of willingness to do business, specifically in Brazil.

I think companies [in Brazil] are looking to create conditions, partner with experts, making sure they're setting themselves up for success. 

The government is putting in a lot of effort in terms of encouraging new investment stemming from the privatizations that have been announced. That has caught a lot of attention.

There's increasing positive discussion around tax reform, more concerning the idea of simplification… But the general concept is very well accepted by the public. It seems like there's commitment by congress to make it happen. 

There are lots of positive signs. As a result of this, companies and investors are crowding in again for private investment options in Brazil. We’re getting a lot of requests from companies willing to invest, creating mechanisms, SPVs and such things.