BRAZILIAN EMBASSY IN CANBERRA NEWSLETTER NO. 2 – FEBRUARY 2020

2019: RECORD YEAR FOR BRAZIL’S OIL AND GAS PRODUCTION

With an increase of 7.78%, oil production Brazil surpassed for the first time the mark of 1 billion barrels of crude oil in 2019, according to the National Agency of Petroleum, Gas, and Biofuels-ANP. The daily average stood at 3.106 million bpd. Total oil and gas production rose to 3.95 million barrels of oil equivalent daily, which will enhance Brazil’s new position among the top producing countries worldwide.

The giant fuel reserves in deep waters off Brazil’s Atlantic coast (the pre-salt  zone) that are just now beginning to be exploited has already become the reference for the oil industry under new rules that are more favorable to foreign companies. The area could hold up to 15 billion barrels of untapped crude, which will double Brazil’s total reserves to 30 billion barrels and make it the world’s fifth-largest oil producer.

Brazil will be the second-largest contributor of non-OPEC production growth this year, after the United States.

BRAZIL’S OIL EXPORTS NEW RECORD IN DECEMBER – INCREASING 9% IN 2019

Brazil’s oil exports reached a record in December and will continue to grow in the coming months and years, given a significant increase in production in the pre-salt fields, which will place Brazil among the top five global producers.

The country exported 8.72 million tons in December, more than double of the volume  registered in November (3.77 million tons) and in the same period of 2018 (4.22 million), according to data from SECEX, Brazil’s Foreign Trade Secretariat. Overall in 2019, Brazil’s oil exports reached 64.6 million tons, compared to 59.2 million tons in 2018, up 9% annually. Experts and the government expect foreign sales to continue to expand.

Brazil has carried out reforms in the oil sector and promoted auctions for exploration of new areas, after a previous period without bidding and concentration of activities in state-owned Petrobras. The positive trend will be enhanced in the coming years, making production to increase further and the country to become a more relevant exporter.

In December, according to ANP data, Petrobras had 74.9% of the national oil and gas production. The second-largest producer, the Anglo-Dutch Shell, had 12.2%.

EMBRAER DELIVERS ITS FIRST CARRIER JET TO THE BRAZILIAN AIR FORCE

After a decade of development, the delivery of the second carrier jet made by EMBRAER to the Brazilian Air Force (FAB) in December 2019 represents a landmark for Brazil’s airspace industries. The company expects substantial earnings and to consolidate its position in the international market in this new segment of defence. The Brazilian aerospace company enters 2020 with a greater ambition after establishing that historical milestone.  Twenty-six other C-390 will be delivered to FAB as EMBRAER prepares to meet also its scheduled international deliveries.

The C-390 MILLENNIUM is a new generation transport aircraft with multi-mission capabilities which combines highly flexible platform with the lowest life cycle cost in the medium airlift market. It is capable of transporting and launching cargo and troops and performing a wide array of missions: medical evacuation, search and rescue, humanitarian transportation, aerial refueling (fighters and helicopters) and aerial firefighting and assistance.

The C-390’s piloting is facilitated by an integrated avionic system and a fly-by-wire flight control, and it can be equipped with a self-defense system and ballistic protection which increases its capacity to operate in hostile environments.

BRAZIL OPENS A DEFENSE ATTACHÉ OFFICE IN AUSTRALIA

Brazil opened in 2020 the defense attaché office at the Brazilian Embassy in Australia. The office is headed by the Navy Captain Alexandre Fontoura. With this decision, the government of Brazil strengthens its commitment to broaden further the scope of bilateral relations.

BRAZIL’S FOREIGN DIRECT INVESTMENT GREW 26% IN 2019

The UNCTAD monitor highlights Brazil up 26% in foreign direct investment flows at the start of a privatization program in 2019.

FDI increased by 16% in Latin America and the Caribbean and 3% in Africa. Despite a decline of 6%, flows to developing Asia continued to account for one-third of global FDI in 2019. Flows to transition economies rose by two thirds to $57 billion.

With the increase of 26%, Brazil became in 2019 the fourth recipient of FDI in the world.

FDI inflows: top 10 host economies, 2018 and 2019

(Billions of US dollars)

Source: UNCTAD Investments Trend Monitor January 2020

Brazil moved from 9th place to 4th amidst recipients of foreign direct investments flows in 2019 (UNCTAD), as FDI grew 26% into Latin America largest economy.

Opportunities to expand investment in Brazil’s infrastructure

According to the Brazilian Association of Infrastructure and Basic Industries (Abdib), investment in infrastructure in 2019 should reach R$ 131.7 billion, compared to R$ 122.8 billion in 2018, according to the Brazilian Association of Infrastructure and Basic Industries (Abdib). In 2017, investments totaled R$ 115.2 billion.

In 2020 the infrastructure sector, whose investments are at a level too low after significantly retreat in recent years, will contribute more positively to the recovery of the economy as a whole.

The outlook in 2020 is more promising for infrastructure, especially due to the initiatives adopted and still in progress in sectors such as oil and natural gas, sanitation, electricity and transport, which should provide an increase in investments.

Important regulatory reforms in progress will boost investments. Investments in infrastructure will start to grow more rapidly and this will help pull the economic growth rate up.

The chief executive of Abdib points out that public investments in infrastructure remain at a level very depressed and you need to get them to that state contributions contribute alongside private investment, to resume more vigorous economy.

Over the past 15 years, Brazil has never invested more than 2.4% of GDP in infrastructure, but needs to invest 4.31% of GDP per year over at least ten years in a row, to reduce bottlenecks and increase competitiveness productivity.

AGRICULTURE

Grain harvest is expected to hit record figure of 240.9 million metric tons in 2020, 33,6 thousand metric tons above the expected result for 2019, according to Brazil’s Institute of Statistics and Geography. The estimates point to an increase of 6.7% in the production of soybeans and a decrease of 7.5% in the production of milk. Beans – 1st crop is also expected to have a smaller production (-0.3%). The estimates indicate better perspectives for cotton (2.0%) and rice (1.0%).

UNEMPLOYMENT

The unemployment rate stayed at 11.6% between August and October this year, hitting 12.4 million persons. The IBGE considered it stable, despite the reduction of 0.2 percentage points (p.p.) in relation to the quarter between May and July, when it registered 11.8%.

Having changed from 24.6% to 23.8%, the under utilisation rate of the workforce was 0.8 p.p. lower than that in the previous moving quarter, which represented nearly one million persons less.

OUTLOOK FOR THE MINING SECTOR 2020

Iron ore, gold, copper and coal represent 72% of revenues in the mining sector. The proportion of revenue of each of those commodities has remained relatively steady for the last decade and a half, according to PwC.

Other minerals of interest include platinum, palladium, molybdenum and the rare earth elements. Rare earths are required high-tech products, including the batteries and high-strength magnets used in hybrid and electric vehicles. Rare earth elements come mainly from China, but there are other sources under development in the US and in South America, including Brazil.

In 2018, mining revenue increased 8%, rising by $51 billion to $683 billion. Operational improvements and reduced costs encouraged mining activities. As for gold, its prices have been high and trending up. After $7 billion in gold transactions in 2018, the gold business had already showed $14 billion in transactions year to date (2019) Capital expenditure in gold mining held steady from 2017 to 2018.

OVERCOMING A NEGATIVE IMAGE

Though financial performance for mining companies remain firm, stock prices and market capitalization do not reflect this strength. Financial returns and market value are still disconnected. Public and investors see mining as an unsafe industry due to disasters such as the 2019 collapse of an iron ore tailing dam in Brazil.

To regain public trust is necessary in a fundamental activity for economic development. One possible solution is technology, which could reduce the number of workers at risk in the mines. Another factor that reflects poorly on mining is global climate change because of coal’s bad reputation among those seeking to reduce carbon dioxide emissions. He suggested mining companies adopt greenhouse gas reduction initiatives similar to what oil companies have done.

The commodity revenue mix appears stable among the top 40 mining companies for selected major commodities (coal, iron ore, gold, copper).

Mining profits appear likely to increase by about 15% for 2019.

Capital expenditures should be up modestly for 2019.

TRADE BALANCE BRASIL AUSTRALIA SECEX

2019   $453.100.231                    $951.747.652

2018   $469.971.749               $1.124.946.357