JPM Brazil

J P M O R G A N Latin America Equity Research
08 November 2023
Brazil 101
The 2023 Handbook
This is the eighth edition of our Brazil country guide. This 170+ page handbook Latin America and Brazil Equity
is a useful primer and reference guide for new and seasonal investors, both on the Strategist
securities and real economy sides. We revisit key metrics and some of Brazil’s Emy Shayo Cherman AC
history, processes, reforms and institutions to provide better resources for (55-11) 4950-6684
understanding what the future holds and what might be the best long-term emy.shayo@jpmorgan.com
Bloomberg JPMA SHAYO <GO>
strategies for the country.
Cinthya M Mizuguchi
(55-11) 4950-6560
cinthya.mizuguchi@jpmorgan.com
EM, Economic and Policy Research
Cassiana Fernandez
(55-11) 4950-3369
cassiana.fernandez@jpmorgan.com
Vinicius Moreira
(55-11) 4950-3195
vinicius.moreira@jpmorgan.com
Mirella Mirandola Sampaio
(55-11) 4950-3289
mirella.sampaio@jpmorgan.com
Banco J.P. Morgan S.A.
This publication wouldn’t be possible

without the valuable contributions of Joao
Pedro Morgado, Arthur Santi, Gabriel
Pereira and Bruna De Marchi.
Cover Photo: Amazon Rainforest, Brazil
See page 164 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.jpmorganmarkets.com
Emy Shayo Cherman AC Latin America Equity Research
(55-11) 4950-6684 08 November 2023 JPMORGAN
emy.shayo@jpmorgan.com
Table Of Contents
Overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Urbanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Social Aspects: Inequality, Poverty, and Cash Transfer
Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Income Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Race Inequality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Poverty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Hunger and Food Insecurity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Human Development Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Middle Class and the Economic Distribution of the Population. . . . . . . . . 14
Bolsa Família . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Covid-19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Tourism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Amazon Rainforest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Carbon Credit Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Competitiveness Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Economic Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Brief Political Economy Retrospect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
GDP in Context. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Large Investment Programs / Privatizations . . . . . . . . . . . . . . . . . . . . . . . 39
Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
AGRICULTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Main Inflation Indices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Recent Inflation Behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Central Bank and Monetary Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Exchange Rate Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
External Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
External Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
2
External Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Fiscal Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Fiscal Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Public Sector Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Sovereign Credit Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Tax System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Credit Markets’ Main Aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Brazilian Mortgage System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
BNDES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
IPOs & Follow-Ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
B3 Equity Indexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
MSCI Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Equity Market Valuation Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Flow of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Pension Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Political System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
How a Lower House Representative Gets Elected . . . . . . . . . . . . . . . . . . 99
Brazil’s Main Political Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Brazil’s Presidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Sectors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Oil, gas & Petrochemicals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Metals & Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Pulp and Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Non-Banks Financials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Homebuilders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Malls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Capital Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Overburdened Public System: Private to Gain Ground . . . . . . . . . . . . . . 133
Aging Population Is a Double-Edged Sword for the Health Sector . . . . . . 133
Health of Healthcare Plans Is an Ongoing Concern . . . . . . . . . . . . . . . . . 134
Brazilian Pharma Industry: Resilient Market and One of the Most
Attractive in the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Food . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
Beverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Telecommunication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Power & Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Electric Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
Power Generation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
3
Power Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

Power Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Water & Sewage Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
Appendix II: Historical Economic Data and Forecasts . . . . . . 159
4
Emy Shayo Cherman AC (55-11) 4950-6684 Cassiana Fernandez (55-11) 4950-3369 Latin America Equity Research
emy.shayo@jpmorgan.com cassiana.fernandez@jpmorgan.com
JPMORGAN
Banco J.P. Morgan S.A. 08 November 2023
Cinthya M Mizuguchi (55-11) 4950-6560 Vinicius Moreira (55-11) 4950-3195
cinthya.mizuguchi@jpmorgan.com vinicius.moreira@jpmorgan.com
Table 2: Regional Profile (2022)

Overview North
Area 3,850,594 km² or 45.25% of total
Population 17,4 million or 8.5% of total

Area 4.51 people/km²
With a total area of 8.5 million square kilometers (3.4 mil- GDP R$478,1 billion or 6.3% of total
lion square miles), Brazil is the world’s fifth-largest coun- US$5,021.2 per capita
try. It is also the third-largest country in the Americas, after Main Activities Extractive, forestry, agriculture, manufacturing
Canada and the US, and the largest in South America, border- States Acre, Amapá, Amazonas, Pará, Rondônia, Roraima, Tocantins
ing all the countries of the continent with the exceptions of Northeast
Chile and Ecuador. Brazil occupies about 40% of South Area 1,552,174 km² or 18.2% of total
America’s territory. Population 54.64 million or 26.9% of total
35.21 people/km²
Table 1: Top 5 Countries in the World by Area
km² GDP R$1,079.3 billion or 14.2% of total
Country Area in square kilometer US$3,688.7 per capita
Russia 17,075,400 Main Activities Forestry, agriculture, construction, utilities, commerce, manufacturing
Canada 9,976,139 States Alagoas, Bahia, Ceará, Maranhão, Paraíba, Pernambuco, Piauí, Rio Grande
do Norte, Sergipe
China 9,596,960
Midwest
US 9,519,666 Area 1,606,354 km² or 18.9% of total
Brazil 8,510,416 Population 16.3 million or 8% of total
Source: IBGE 10.14 people/km²

GDP R$ 791.3 billion or 10.4% of total
The country comprises 26 states, the Federal District and US$9,400.4 per capita
5,570 municipalities. Brazil is divided into five main regions: Main Activities Agriculture, forestry, finance, utilities, construction, commerce, manufacturing
North, Northeast, Midwest, Southeast and South. These
administrative divisions, set by Instituto Brasileiro de States Goiás, Mato Grosso, Mato Grosso do Sul, Distrito Federal
Geografia e Estatística (IBGE), are composed of states with Southeast

similar cultural, economic, historical and social aspects. Area 924,557 km² or 10.9% of total
Population 84.8 million or 41.8% of total

Figure 1: Brazilian Regions
91.77 people/km²
GDP R$ 3,952.7 billion or 52% of total

US$8,707.1 per capita
Main Activities IT services, finance, extractive, transportation/ storage, manufacturing
States Espírito Santo, Minas Gerais, Rio de Janeiro, São Paulo
South
Area 576,737 km² or 6.8% of total
Population 29.9 million or 14.7% of total
51.90 people/km²
GDP R$ 1,308.1 billion or 17.2% of total
US$8,495.5 per capita
Main Activities Agriculture, forestry, manufacturing, utilities, commerce, construction
States Paraná, Rio Grande do Sul, Santa Catarina
Source: IBGE as of 2022.

Source: IBGE
5
JPMORGAN
Brazil 101
Population even the 207 million indicated by the census preview.

2022 Census: Brazil didn’t conduct a national census in 2020 Figure 2: Brazil’s Population Since the First Census
due to a lack of resources, which were in part geared towards
the pandemic. The survey was done in 2022, and the results 190.8
203.1
started to be unveiled in 2023. At the time of this publication 146.9

169.6
only data in terms of the size of the population and house- 121.2
94.5
holds were unveiled. They were considerably different than 70.9
51.9
what was expected, showing a pretty different country from 30.6
41.2
9.9 14.3 17.4
what was seen in 2010. Some of the most important findings
were that the population is smaller than what was previously
1872
1890
1900
1920
1940
1950
1960
1970
1980
1991
2000
2010
2022
thought; that population growth is the lowest in 150 years,
that the only region that has population growth higher than Source: IBGE
1% is the Midwest (agribusiness boom), and that the Brazil- In 2018, the IBGE forecast is for the population to peak
ian families today are getting smaller. The smaller-than-ex- between 2045 and 2050 at about 233.1 million people and
pected population is attributable to three factors: 1) the Zika then start to decline, with 4.9 million fewer people than at the
epidemic (2005-06), which led to a reduction in the fertility peak by 2060 (228.3 million). However, some experts have
rate, never returning to the previous level, 2) Covid, which noted that the lower-than-expected population size revealed
increased the mortality rate, and 3) the economic crisis, which by the 2022 census should anticipate the population to peak to
might have contributed to a process of immigration steeper between 2030 and 2040.
than what was observed before. The census is important not
only as a portrait of Brazil, but also because it defines public Figure 3: Population Projections (2000 - 2060)
policies, budgets and even the representation in the Lower
House. This report will refer to the latest census findings if
available.
Brazil x World: According to the UN, the world had 8 bil-

lion people in Nov-2022, and this was projected to reach 8.51
billion people by 2030, 9.7 billion in 2050 and 10.4 billion by
2100. Brazil is then responsible for 2.5% of the world popula-
tion, the 7th largest in the world in terms of population.
Table 3: Largest Populations in the World

Population % of Total Source: IBGE 2018
World 8,045,311 100.00%
The most populous region in Brazil is the Southeast, which
1 India 1,429,233 17.80% had a vast populational increase beginning with the industrial-
2 China 1,425,654 17.70% ization process in the ’60s, followed by a vast migration from
3 United States 340,080 4.20%
the Northeast in the ’70s. However, the 2022 census showed
that the Southeast, albeit remaining by far the most populous
4 Indonesia 277,639 3.50% region, started to see a decline in population. The same is true
5 Pakistan 240,702 3.00% for the Northeast. On the other hand, the South, North and
6 Nigeria 224,047 2.80%
especially the Midwest are seeing their populations increase
vis-à-vis the country’s total.
7 Brazil 203,062 2.50%
8 Bangladesh 173,034 2.20%
9 Russia 144,421 1.80%
10 Mexico 128,498 1.60%
Source: World Population Aug 2023
The 2022 census showed that Brazil has 203.1 million people,
fewer than the 213 million that was estimated in 2021 and
6
JPMORGAN
Figure 4: Population Growth Rate (%) Table 4: Population Geometrical Annual Growth
42.1% 41.8% 1991 - 2000 2000 - 2010 2010 - 2022
27.8% 26.9% Brazil 1.64 1.17 0.52
North 2.86 2.09 0.75
14.4% 14.7% Northeast 1.31 1.07 0.24
8.3% 8.5% 7.4% 8.0%
Southeast 1.62 1.05 0.45
South 1.43 0.87 0.74
Southeast Northeast South North Midwest
2010 2022 Midwest 2.39 1.9 1.23
Source: IBGE, 2022
Source: IBGE 2022
More women than men: There are 6 million more women
Figure 5: Population by State (2022)
than men. Thus, women make up 51.5% of the population. In
fact, the proportion of women within the population has been
increasing. in the 1980 the ratio between men and women
was 98.7 men for every 100 women. now, it is 94.2 men for
every 100 women. This is partially explained by the fact that
women live longer then men. Within the population of up to 4
years old, there are 103.5 men for every 100 women
On average, the population density in Brazil is 23.86

inhabitants/km² (2022). With this number, the country can
Source: IBGE, 2022 census
be considered a sparsely populated one given the world aver-
age is 61.9 people/km² (2023, Our World in Data). The most
Brazil’s population is currently growing at an annual rate populated place in the world is Macao (China) with an esti-
of 0.52%, the lowest in 150 years and the first time below mated 21.4K people/km², followed by Monaco with 18.1K
1%. In 2018, the IBGE estimated that the population in Brazil people/km². The least populated are Greenland and Mongolia.
was going to start to have a negative growth rate from 2050
onwards, but considering that population growth is already The Brazilian population is concentrated on the coast,
lower than what was expected, it is likely that population which is partly explained by the European colonization
decline is going to take place earlier as well. (1500s onward) that started on the Northeast Coast, then
moving south to Rio de Janeiro. The change of the federal
Figure 6: Population Growth Rate (%) capital to Brasilia in 1960 attracted people to the Midwest.
Brasilia has the highest population density area in Brazil, with
2.99% 2.89%
2.91%
2.48%
over 489 people/km², but it has to do more with the very tiny
2.01% size of the federal district than anything else. Even so, the
2.39%
1.98%
1.93%
1.64% Southeast region remains the one with the highest demo-
1.17%
1.49% graphic density in Brazil. Rio de Janeiro state has 367 people/
0.52% km², followed by Sao Paulo with 179 people/km². Yet, Sao
Paulo has an area that is a lot larger than Rio and houses a
1872 - 1890
1920 - 1940
1980 - 1991
1991 - 2000
2010 - 2022
1890 - 1900
1900 - 1920
1940 - 1950
1950 - 1960
1960 - 1970
1970 - 1980
2000 - 2010
population that is 2.8x larger than Rio. In the North region,

the country still has unoccupied areas, mainly because of the
Source: IBGE
Amazon forest, which is scarcely populated. Indeed, while
the Amazon State occupies 22% of Brazil’s total area, it has a
Although population growth has been declining, there are population density of only 2.5 inhabitants/km². The exception
important regional differences. For example, the Midwest is is Manaus, the most urbanized area in the region.
now the region leading population growth, at 1.23% yearly.
The agribusiness boom that has allowed for high growth rates
in the Midwest is probably the reason for that, as it continues
to attract people from other Brazilian regions. On the other
hand, the Northeast has the lowest population growth, at only
0.24%.
7
JPMORGAN
Brazil 101
Figure 7: Demographic Density by Municipality revised significantly lower when the 2022 census reveals it.
Inhabitants per km².
Figure 10: Fertility Rate
Number of Children per Woman
6.2 6.2 6.3
5.8
4.4
2.9
2.3
1.8 1.8 1.7 1.7 1.7 1.7
1940 1950 1960 1970 1980 1991 2000 2010 2020 2030 2040 2050 2060
Source: IBGE, as of 2018
According to IBGE, the child mortality rate in Brazil stood

at 11.2% in 2021. The high reading is also comparable to oth-
er countries in Latin America, such as Mexico (11.8%) and
Colombia (11.4%)
Source: IBGE, 2022

Figure 11: Children Mortality Rate in LatAm
13.8
Figure 8: Inhabitants Who Come from Another Region (% of Total) 11.8 11.4 11.2
38% 7.6
5.8
23%
19% Latin America & Mexico Colombia Brazil Argentina Chile
Caribbean
13%
8%
Source: IBGE, World Bank, 2021
Age groups and the demographic bonus: The Brazilian age

Midwest North Southeast South Northeast pyramid was often considered a “classic” one until the 1960s,
Source: IBGE, PNAD 2016
with a large base and a narrow top. Since then, the base has
been narrowing while the middle has been widening, a reflec-
Life expectancy at birth in Brazil has risen by 22.5 years tion of the population getting older. This is happening as both
since 1960, reaching an estimated 77 years in 2021 – above the mortality and the fertility rates have been decreasing. In
the average life expectancy in the world that stands at near 73 the past few years, the change in the population pyramid has
years. Despite all the developments observed in this indicator, accelerated. Estimates from 2018 show that by 2060, over
Brazil still has a low life expectancy rate compared with that 30% of the population would be 60 years old or more,
of developed countries. Hong Kong and Monaco have the according to IBGE. It is important to note that the data below
highest life expectancy in the world, followed by Switzerland. are based on population projections from before the 2022
census.
Figure 9: Life Expectancy at Birth (2021)
85 84 84 82 79 78 77 76 75
Figure 12: Population Pyramid (2000)
73 70
60
90 +
80 to 89
70 to 79
60 to 69
50 to 59
40 to 49
30 to 39
Switzerland
Argentina
Brazil
Hong Kong
Japan
France
Chile
Mexico
China
Colombia
United States
Sierra Leone
20 to 29
10 to 19
0 to 9
Source: United Nations, World Population Prospects 2022. -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0%
Man Woman
The expected number of children born per woman in Bra-
zil is also falling. Brazil’s average fertility rate was 1.77 in
Source: IBGE, 2013, actual data.
2018, down from 2.39 in 2000 and over 6 in the 1940s, 1950s
and 1960s. It is very likely that this number is going to be
8
JPMORGAN
Figure 13: Population Pyramid (2015) median age of the population in 2022 was 35 years old, com-
90 + pared to 29 years old in 2010.
80 to 89
70 to 79
60 to 69 Figure 17: Age Distribution of the Population over Time (2022)
50 to 59
40 to 49 4.0% 4.8% 5.9% 7.4% 10.9%
30 to 39
20 to 29
10 to 19 57.7% 60.4%
0 to 9 64.5% 68.5% 69.3%
-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
Men Women
38.2% 34.7% 29.6% 24.1%
Source: IBGE, 2013, population projection 19.8%
1980 1991 2000 2010 2022

Figure 14: Population Pyramid (2022) Under 14 15 to 64 Over 65
100+
90 to 94 Source: IBGE 2022 census
80 to 84
70 to 74 … and aging fast: Roughly speaking, by 2050, the percent-
60 to 64 age of Brazilians who are 65 years old or older will rise by
50 to 54
40 to 44
more than 130%. Note in the next chart that the aging of the
30 to 34 Brazilian population is faster and more abrupt than that in
20 to 24
10 to 14
LatAm & Caribbean and middle-income countries.
0 to 4
-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Figure 18: % of the Population 65 Years Old and Older Over Time
Men Women
Source: IBGE, 2023 from the 2022 census
Figure 15: Population Pyramid (2050)

90 +
80 to 89
70 to 79
60 to 69
50 to 59
40 to 49
30 to 39
20 to 29
10 to 19
0 to 9 Source: UN population estimates, 2019
-8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0%
Men Women Dependency ratio / demographic bonus: One of the key
finds of the Census 2022 is that the population is lesser than
Source: IBGE, 2013, poulation projection thought before and also getting older faster. Thus, the demo-
Figure 16: Population Pyramid (2060) graphic bonus is coming to an end earlier than it was thought.
In the article “O censo 2022 e o 1o Bonus Demografico,” José
90 +
80 to 89 Eustaquio Diniz Alves points out that the best point for the
70 to 79
60 to 69 demographic bonus is when the working age population
50 to 59
40 to 49
grows more than the population as a whole; the second best is
30 to 39 when the working age population is still growing, but less
20 to 29
10 to 19 than the rate of growth of the population. The demographic
0 to 9
-8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0%
bonus reached a peak when the working age population
Man Women
peaks. According to this study, for the next ten years we will
be on phase two, when the working age population is still ris-
Source: IBGE, 2013, poulation projection ing, but at a lower rate than the full population. After that, the
demographic bonus is pretty much gone. However, there are
Brazilians getting older... In 1960, almost 43% of the popu-
some factors that can attenuate this. Albeit the working age
lation was under 14 years old, while this proportion in 2022
population is expected to stop growing in the next decade,
declined to 19.8%. Meanwhile, only 2.7% of the population
one could see the increase of the actual working population,
was over 65 years old in 1960, and that rose to 10.9% in
those who actually have a job. The OECD estimated that
2018. The population over 65 years old is now increased
there are about 7 million people aged 18 to 25 years old in
57.4% relative to 2010, when the last census was taken. The
Brazil who are neither working nor studying. This corre-
9
JPMORGAN
Brazil 101
sponds to 35.9% of this age group, the highest ratio among 37 more people being of working age than non-working age, is
countries, only ahead of South Africa. The eventual incorpo- over or very close to being over. There are a series of socio-
ration of those into the working population could be an atten- economic implications of these findings, some positives and
uating force that makes the end of the demographic bonus some negatives. On the positive side, the reduction in the
less problematic. Also, there are an estimated 29 million peo- number of children per family will allow families to provide
ple who are unemployed or under-employed that could help better quality health and education. On the other hand, the
in this transition. increase in the quantity of elderly people (estimated at 40% of
the population by the end of the century) requires more and
Over the past few years, the concept of the second and third more efficient transfer policies (i.e., social security), more
demographic bonuses was adopted. The second one would be access to health and also care for the elderly.
a productivity bonus, when one can do more with fewer peo-
ple. However, according to the IBGE in its publication “Bra- Urbanization
zil em Numeros 2023,” the process of aging in Brazil has
According to the UN, 56.2% of the world population lived in
been a painful one, as the elderly are not working and don’t
urban areas in 2020, and the number is expected to increase to
have either savings or income, making the second demo-
68.4% by 2050, with the largest increases concentrated in
graphic bonus perhaps nonexistent. The third demographic
Asia (29.6%) and Africa (35.6%). Brazil is no exception to
bonus has to do with longevity, meaning that the roles of the
this trend. Since 1950, the urbanization rate has been rising,
elderly contribute more to social capital and other issues.
and the population living in urban areas has more than dou-
bled (IGBE). The urbanization rate intensified in the 1970s,
Currently, the number of people who work still exceeds the
when the so-called “economic miracle” was taking place,
number of those who do not work (defined as those under 15
with large government projects in terms of infrastructure and
and those above 65). The Brazilian dependency ratio estimat-
state-owned companies creating jobs in urban areas. At that
ed for 2021 is 43.1. Of this, 29.4% is the dependency of chil-
time, the most evident migration has been from the Northeast
dren under 15 and 13.7% is of elderly over 65. Keep in mind
to the Southeast. Since 2010, about 85% of the population has
that these data are pre-census 2022, so the dependency ratio
been living in urban areas, and this amount has remained sta-
might be somewhat higher than that. Still, looking at these
ble since then. The Northeast remains the least urbanized
data, Brazil compares favorably with the world and LatAm
region of the country (73.2%). Maranhão is the state with the
average estimates of 54.1 and 48.3, respectively (UN 2021
lowest urbanization rate: 63.1% (2010 census). On the other
projections).
extreme are the large metropolitan areas of the Southeast:
Figure 19: Dependency Ratio (the “Demographic Bonus”) – 2021
Rio de Janeiro (96.7%) and Sao Paulo (96%). Some of the
problems caused by disorganized formation of urban areas are
evident such as the lack of satisfactory infrastructure, e.g.,
78
transportation, sewage, hospitals and schools, while a lack of
48.3 49.4 51.2 53.7 54.1 54.1 access to public services of good quality continues to be a key
44.5 45.2 46.4 46.6 48.1
43.1 complaint from the population.
Figure 20: Urban Population as % of Total

87.1 89.3 85.891 87.892.4
81.2 84.3 81.2 83.5
Brazil China Chile Upper E and India LatAm Mexico Central US World High Africa 75.5 78.6
middle SE Asia and and S. income 70.773.9
64 65.5
income Carib. Asia 57.355.9
49.446.1
Source: UN population estimates 2022. In Brazil, for every 100 people, 43 are dependent (29.4 41.3
36.2
child and 13.7elderly) and 57 are working age. We use the indicator that defines dependency
ratio as those under 15 and those above 65 years old.
Preliminary conclusions of the 2022 census: There are 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
important implications in terms of the demographic transition LatAm & Caribbean Brazil
that the 2022 census brought so far. First is that the demo-
graphic transition is at a slightly more advanced stage than Source: United Nations, World Urbanization Prospects (2018)
what it was thought. Typically, the first stage of this transition

is the decline in the mortality rate, when there is a population
boom. After that, there is the beginning of the decline in the
fertility rate. Finally, there is the aging of the population. Bra-
zil is now entering the phase when the population is aging
faster. Also, the demographic bonus, which is defined by
10
JPMORGAN
Figure 22: Historical Evolution of the Gini Coefficient

Social Aspects: Inequality, 65
63
Poverty, and Cash Transfer 61
59
57
Programs 55
53
51
49
Income Distribution 47
45
Income distribution and inequality have been a central top-
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1992
1993
1995
1996
1997
1998
1999
2001
2002
2003
2004
2005
2006
2007
2008
2009
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
ic in the political and economic sphere in the past decades,
Source: The World Bank. Note: No data available for 1991, 1994, 2000 and 2010.
and they are perhaps the source of all Brazil’s problems. Bra-
zil ranks very poorly in international comparisons as one of Beyond the economic crisis from 2014 onwards, the Covid
the countries with the highest income inequalities, along with pandemic also had a critical impact on inequality. At first,
LatAm being the most unequal region in the world. Indeed, inequality actually fell significantly because of the very
Brazil has one of the worst Gini coefficients in the world, aggressive fiscal support from the government (about 8% of
which is a measure of income distribution in the population GDP), which benefited over 68 million people. Once these
(zero means perfect equality and 100 perfect inequality). Tak- benefits were trimmed and contemplated less people (2021),
ing into account existing World Bank data from 2021, Brazil the Gini index climbed up again, back to levels observed in
would be the 2nd most unequal country in LatAm, only better 2019. The interesting part is that the index fell to an all-time
than Colombia. low in 2022. This is because there was the entrance of over 8
million Brazilians in the labor market, and the thesis is that
Figure 21: Gini Index for Selected Countries the average income received by them was similar, at the same
time that income of informal workers was probably higher
50.3 51.5
52.9 once reopening firmed.
44.9 45.4
40.2 40.7 41.9 42 Figure 23: Recent Evolution of the Gini Index
37.9 38.2
35.1 35.7 36
28.8 29.7
Source: IBGE "PNAD Continua 2012-2022". Note: Gini index of the average real household
income.
Source: The World Bank. Data: 2018 for Nigeria; 2019 for Poland, India, China, Turkey, Chile,
Zimbabwe; 2020 for Hungary, Russia, Mexico; 2021 for Peru, Philippines, Argentina, Colombia,
Brazil. 2022 for Indonesia. Still, while the Gini index is pointing to somewhat more
equality, the income of the 1% richer is still 32.5 times higher
During the 20th century, Brazil showed very little evolution than 50% of the population. Albeit the income disparity has
in terms of wealth distribution. During the hyperinflation somewhat decreased, it remains very high.
period of the 1980s, income inequality actually increased.
Albeit the 1990s was a period of institutional reform, growth
was low and unemployment high, which generated little
change in the income distribution data, despite the advent of
the Real Plan in 1994 which put an end to hyperinflation. The
first signs of improvement started around the turn of the cen-
tury, when the commodity boom and access to credit allowed
for higher growth at the same time that inflation remained rel-
atively low. Still, this improvement came to an end in 2014,
when the economy embarked on a steep recession that contin-
ues to reverberate in terms of low growth to this day.
11
JPMORGAN
Brazil 101
Figure 24: Multiples of the Income Received by the 1% Richer Relative 10.6%. The Northeast is the region with the largest percent-
to the 50% Poorer age of non-whites, a total of 73.9%. In direct opposition is the
39.5 39.9
South, where 72.8% of the population is white. The socioeco-
38.2 38.4
35.8 36.5 37.3
34.8
nomic disparities of the black population relative to the white
33.4 33.9
32.5
one is staggering. Data from 2021 show the following:
• Labor market: The white population makes up 35.2% of

the unemployed, 64% are black. Thus, in 2021, the unem-
ployment rate for whites was 11.3%, 16.5% for blacks
and 16.2% for mixed race. Note that these levels were
higher for blacks and mixed race independently of the
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
level of education, with the gap smaller only for those
Source: IBGE, PNAD Continua 2012-2022
who have a college degree. Also, white informal workers
make up 32.7% of total, compared with 43.4% for blacks
Another way to look at this is to see how much income is in and 47% for mixed race. In terms of wages, whites make
the hands of the richer and poorer. The 10% richer concen- about 60% more than blacks and mixed race. For those
trate 40.7% of the income, while the 10% poorer have only with a college degree, the difference narrows some, but
1%. Going further, the 50% poorer have 16.9% of income, still whites make 50% more then blacks with a college
while the 20% richer have 56.6%. These data refer to real degree and 40% more than mixed race. Last but not least,
household income per capita. blacks and mixed race make up for 29.5% of managerial
posts, with the remainder of 70% filled out by whites.
Figure 25: Monthly Real Household Income Per Capita – Distribution
per % of the Population • Household income: Same disparity as observed within
the labor income. Income for white families was almost
40.7
twice higher than those of black and mixed race, a trend
that has been in place since 2012. Also, within the 10% of
the lowest household income in the population at large,
15.9
11
56.5% are black or mixed race. On the other hand, within
8.5
2.4 3.4 4.5 5.6 7 the 10% with the highest household income, only 28.2%
1
are black or mixed race. Within those that have less than
Up to 10% 10 to 20% 20 - 30% 30 to 40% 40 to 50% 50 to 60% 60 to 70% 70 to 80% 80 to 90% 90 to 100%
US$5.50/day, which is the poverty level established by
Source: IBGE, PNAD Continua 2012-2022 The World Bank, 18.6% were white, 34.5% were black
But where is the income of Brazilians coming from? and 38.4% were mixed race, for a total poverty level of
According to the IBGE, roughly 75% of household incomes 29.4% in the country as of 2021.
come from labor, while 25% come from other sources, the
bulk of it being pensions and retirement benefits (18%).
Social programs such as Bolsa Familia make up for 4.6% of
average household income. While social programs have little
weight on the composition of total income, 22.1% of house-
holds in Brazil received one or more of them, albeit there is a
great regional disparity on that. While in the Northeast 41%
of households receive one or more social benefit, in the South
less than 10% do so.
Race Inequality
Brazil is the largest country in the world in terms of the size
of the black/mixed race population, just behind Nigeria. This
is because of the estimated 12.5 million enslaved population
that were forcefully brought from Africa into the Americas,
an estimated 40% came to Brazil. According to the IBGE in
2022, the majority of the population in Brazil is self-de-
scribed as mixed race (pardo), accounting for 45.3% of the
total. Whites make up for 42.8% of the total, while blacks are
12
JPMORGAN
Table 5: Distribution of the population per percentile of household Figure 26: % of the Population Living in Extreme Poverty ($2.15/day)
income per capita and Poverty (US$6.85/day)
83.8
White Black Mixed 60.4
Total 43.4 9.2 47.4 39.2

46.9
Up to 10% 25.2 9.8 65.0 28.4

24.7
32.5 33.7
10 to 20% 26.9 10.8 62.4 10.6

5.8 8 6.6
10 12.6
8.5
1 0.7 2.5 3.1 2.9
20 to 30%
0.4
30.5 11.9 57.6
0.1
Argentina Brazil Chile China Colombia India Indonesia Mexico Peru Turkey World
30 to 40% 35.6 10.6 53.8 $2.15/day $6.85/day
40 to 50% 39.0 9.9 51.1

Source: The World Bank
50 to 60% 43.4 10.3 46.3
60 to 70% 47.3 8.8 43.9 Typically, Brazil is not considered a poor country, but an
70 to 80% 53.3 8.7 37.9 unequal one. However, Covid has exacerbated the levels of
80 to 90% 61.4 6.4 32.0 poverty in the country, especially in terms of extreme poverty.
Over 90% 71.8 4.3 23.9 Still, a recent study from Instituto Jones dos Santos Neves
with IBGE data for the year indicates that there was a signifi-
Source: IBGE, 2021. Note: this table shows that for those who earn up to 10% of the total house-
hold in come per capita of the country, 25.2% are white, 9.8% are black and 65% are mixed cant decline in poverty in the first year of reopening. The
race. On the other hand, for those who are on the top 10%, the last line of the table, 71.8% are study shows that the percentage of Brazilians living in
white.
extreme poverty (R$208.73/month per capital household
income) fell 3% to 6.4%, while those in poverty (R$665/
• Housing: About 72% of whites, blacks and mixed race month per capital household income) fell by 5.2% to 33%.
own their homes. However, about 20% of the non-whites
didn’t have proper documentation for their houses, double Figure 27: Poverty and Extreme Poverty in Brazil
the level of whites. In terms of access to sewage within % of total population
their own homes, 27.8% of whites didn’t have access to it 39 10
38 9.5
in 2019, compared with 46% for mixed race and 36% for 37 9
blacks. The same can be observed for garbage collection. 36 8.5
35 8
• Durable goods: Pretty much the entire population, inde- 34 7.5
pendently of race, have a refrigerator and a television. 33

32
7
6.5
The white population that has access to other durable 31 6
goods is 10 to 20% higher than the black one. For exam- 30 5.5
29 5
ple, 61.6% of whites have a car while this number is 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
37.4% for mixed race. The only exception is with motor- Poverty Extreme Poverty (right)
cycles, which 28.2% of the mixed race population has, Source: IJSN with IBGE data.
compared with 22.6% for whites.
Note that during the first year of the pandemic, poverty actu-
Poverty ally declined because the emergency social programs had a
The World Bank defines extreme poverty as families whose very wide reach. However, these were curbed in 2021. While
daily expenditures are less than US$2.15/day. Poor families 68.3 million people received a social benefit in 2020, there
are those whose expenditures are below US$6.85/day. The were 39.4 million that did so in 2021. However, conditions
chart below compares different countries in terms of poverty greatly improved in 2022 for two reasons. First, it was the
and extreme poverty. It is important to note that for most, the reopening from Covid and the labor market improved. Sec-
latest data are from 2021, when poverty became worse across ond, it was an electoral year and the reach of Auxilio Brasil
the board because of the pandemic, despite the initial allevia- (a.k.a. Bolsa Familia) attained a total of 16.9% of total Brazil-
tion from social programs. ian households in 2022, double the level observed in 2021.
Hunger and Food Insecurity

In recent years, especially after the advent of the pandemic,
Brazilians are hearing again more and more about food inse-
curity. Hunger per se was considered solved in Brazil until
recently. In the 1990s there was a big campaign led by the
civil society against hunger. When first elected in 2002, Presi-
13
JPMORGAN
Brazil 101
dent Lula led the Zero Hunger program, which then became Figure 29: Human Development Index
the Bolsa Familia. Not only that, but in his victory speech 0.855 0.842
0.822
0.768
both in 2002 and in 2022 he said that the objective of his gov- 0.762 0.758 0.754 0.752
0.713 0.705
ernment was that all Brazilians have a meal three times a day. 0.633
According to the UN, there are 10 million Brazilians that suf-

fer from undernourishment or chronic hunger, sometimes
without eating at all during a full day or more. Beyond those,
it is estimated that one-third of the population falls in the cat-
egory of food insecurity. Severe food insecurity is when one
Chile Argentina Russia China Peru Mexico Brazil Colombia south Africa Indonesia India
sometimes runs out of food, experiences hunger or goes days
without eating. Moderate food insecurity is when one doesn’t Source: United Nations
have consistent access to food.
Middle Class and the Economic Distribu-
Figure 28: Food Insecurity: Brazil vs. Upper Middle-Income Countries tion of the Population
25 22.9 In Brazil, it is very common to use a letter to classify a partic-
20 ular economic segment for the population. Class A refers to
16.4
15
the richest sectors, while class E refers to the poorest. A
11.6
9.7 9.9 household is classified in one or another economic “class”
10
6.9
4.6
6.5
4.7
depending mostly on its total income, the presence of some
5 3 2.5 1.9 comfort items in the house (such as number of bathrooms,
0
Upper Middle Income Upper Middle Income Brazil Brazil
TVs, refrigerators, etc.), and the education level of the head
(2004 - 2006 ) (2019 - 2021 ) (2004 - 2006) (2019 - 2021)
of the household.
Undemourishment Severe Food Insecurity Moderate Food Insecurity
Source: UN, The State of Food Security and Nutrition in the World, 2023 In the 1980s and 1990s, it was common to say that Brazil was
a country of extremes, that people were either rich or poor as
Human Development Index the middle class lacked critical mass. During the first decade
The United Nations calculates the Human Development of the 21st century, economic stabilization has allowed for a
index, a summary measure of average achievement in key decline in interest rates while commodity prices allowed Bra-
dimensions of human development. The three main aspects zil to grow at unprecedented levels. Lower rates paved the
are having a long and healthy life (measures via life expectan- way for banks to start, for the first time, giving credit to the
cy at birth), being knowledgeable (expect years of schooling population. Then, the level of leverage of individuals was
and mean years of schooling) and having a decent standard of pretty much zero. By 2013, credit to individuals was already
living (GNI per capita). The two countries in LatAm today 23% of GDP. Ten years later, it corresponds to 32% of GDP.
that are considered at the top echelon of human development All in all, the first decade of the century represented the for-
is Chile (rank 42) and Argentina (rank 47), which are in the mation of a middle class, which then represented for the first
group together with most European countries. Most emerging time more than half of the population, reaching about 65% in
markets are considered of being “ high human develop- 2013.
ment”; Brazil is ranked at 87, preceded by Mexico (86) and
followed by Colombia (88). There are 191 countries in the However, a severe recession hit in 2015 and 2016. While
ranking. Since the introduction of the HDI in 1990, Brazil there were a couple of reasonably good years in terms of
climbed from an HDI of 0.616 to 0.754. The highest HDI macro between 2017 and 2019, the pandemic was another big
belongs to Switzerland and the lowest to South Sudan. blow for the middle class, which was the most impacted by
the loss of jobs. All in all, there are data today showing that
the middle class represents about half of the Brazilian popula-
tion, while one can also find data indicating that classes D
and E together make up about 50% of the population.
Below is the ABEC economic criteria, which rank the popula-

tion in terms of the economic class letters. The data are for
2021 and today are the latest data available for us to have
some sort of distribution of the population. They show classes
D/E as representing about 30% of the population.
14
JPMORGAN
Figure 30: Population Distribution per Economic Class Throughout Support program was trimmed in terms of number of benefi-
the Years ciaries (about 40 million people) and amount of the benefit,
60.0% which varied from R$150 to R$375/month, depending on the
50.0% 47.4% family. The budget for that was R$44 billion and the emer-
40.0% gency benefit was distributed for 7 months (April to October
30.0% 27.9% 2021). All in all, the Auxilio Emergencial lasted for 17
20.0%
months and had a total cost of about R$360 billion.
21.8%
10.0%
0.0%
Auxilio Brasil: The end of the Emergency aid leads to the cre-
ation of the Auxilio Brasil, which is nothing more than a new
2000
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2017
2018
2019
2020
2021
D/E C1/C2 B1/B2 name for the Bolsa Familia, considering that all the families
that were registered at the Bolsa Família were part of the
Source: ABEP
Auxilio Brasil. The average benefit per family increased from
Bolsa Família around R$216 to R$400/month. However, in August 2022, 2
months before general elections, the government was able to
Created in 2003, Bolsa Família is today one of the largest get congressional approval to increase the benefit to R$600/
conditional cash transfer programs in the world, serving 21.5 month for 5 months (until December-22).
million families in September 2023, representing about 55
million people with a budget of R$175 billion in 2023. Dur- One of the 2022 election campaign commitments from Presi-
ing the Bolsonaro administration, the program changed names dent Lula was to maintain the Bolsa Família benefits at
and was called “Auxilio Brasil,” but it reverted to its original R$600/month. In addition, in March 2023 the government
name once President Lula was re-elected. announced that it will pay an extra R$150 for per child under
six years, R$50 per child or teenager (from 7 to 18 years old)
Figure 31: Number of Families Benefiting from Bolsa Família
and R$50 per pregnant women. In order to guarantee the
Millions of Families
maintenance of the program at R$600/month, there was a
21.61 21.14 need for extra resources of about R$70 billion. However,
Congress approved a supplemental budget of more than
14.2 14.43 14.78
12.58 12.95 13.52 13.77 13.83 13.91 13.83 14 13.19 R$160 billion in December 2022. In addition to that, it was
established that the Bolsa Família program was not going to
be included in the ceiling of expenditures fiscal rule. All in
all, the cost of the program, which used to be less than 0.5%
of GDP, is now hovering around 1.5% of GDP.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Ministério do Desenvolvimento Social, UOL., gov.br, As of August 2023. Figure 32: Bolsa Família Cost as a % of GDP
4.11
The Bolsa Família was greatly expanded as of late. In 2019,
the year before the Covid pandemic, the total cost of the pro-
gram was 30 billion and there were about 14 million families
that were benefited, with an average payment of about 1.58 1.52
R$200/month. Then, the program was transformed to meet 0.93 0.92
the needs that arose from the economic crisis generated by the 0.35 0.35 0.34 0.39 0.44 0.46 0.46 0.45 0.46 0.43 0.43 0.45
pandemic and never went back to what it was before that.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
During the pandemic, all the beneficiaries of the Bolsa Famí- Source: Portal da Transparência, J.P. Morgan. Note 1: 2020 data includes 3.85% of GDP on
lia qualified for the “Emergency Support” (Auxilio Emer- Emergency Aid. 2021 includes 0.64% of GDP on Emergency Aid. Note 2: 2023 data is according
to the budget; 2024 data is according to the budget proposal.
gencial). The program guaranteed R$600/month for 5 months
(April to August 2020) for those that had an income of less The Bolsa Família program is a conditional cash transfer pro-
than half a minimum wage and/or a family income of less gram, which means that to receive the benefits the families
than three minimum wages. Single mothers received a month- must fulfill certain conditions imposed by the government,
ly benefit of R$1,200.There were over 68 million people that such as immunization monitoring and, especially, school
got this benefit, about double the number of those who got the attendance. Children over 6 years of age must be properly
Bolsa Família. From September to December 2020, the enrolled at school and attending at least 60% of the classes.
amount of the benefit was cut in half (R$300/month and For those older than 6 years old, mandatory attendance stands
R$600/month for single mothers). In 2021, the Emergency at 75%.
15
JPMORGAN
Brazil 101
How does it work? Families that qualify for the Bolsa Família
program are those whose family income per capital is below
R$218/month. For example, a family of four must have a total
income below R$872/month to qualify (4x218.). Once eligi-
bility is established the benefits are as following:
• Citizen income (renda cidadã): monthly payment of

R$142 per family member
• Complementary income: for families whose sum of the
citizen income benefit is below R$600/month. The objec-
tive here is that all families get at least a R$600/month
benefit.
• Infant benefit: R$150/month per child between 0 and 6
years old.
• Variable income: R$50/month for families that have preg-
nant women and/or children between 7 and 18 years old.
As of June 2023 there were 21.2 million families receiving
the Bolsa Família. The average benefit of the program per
family is now R$705.4/month, for a cost of R$15 billion per
month. 46% of families that receive the benefit are in the
Northeast, 30% are in the Southeast.
Table 6: Regional Distribution of Bolsa Família

Region #Families (Mn) % of Total Avg. Monthly Benefit Cost (bn)
North 2.5 11.8% 740.4 1.9
Northeast 9.73 45.9% 696.8 6.7
Midwest 1.1 5.2% 721.2 1.1
Southeast 6.3 29.7% 700.3 4.4
South 1.4 6.6% 711.3 1
Source: gov.br, as of June 2023
If the per capita income of a family that receives the benefit

climbs above R$218/month (excluding the benefit), the fami-
ly will be maintained in the program for 24 months, receiving
50% of the benefit. If the per capita family income surpassed
half a minimum wage, that family will be taken out of the
program.
Benefício de Prestação Continuada program (BPC): Together

with Bolsa Família, the BPC is one of the most important pro-
grams of cash transfer in Brazil. BPC is responsible for assur-
ing one monthly minimum wage to the elderly and disabled
who belong to families with a per capita income under one-
quarter of the minimum wage per month (R$350 in 2023).
Since its implementation in 1996, the program has increased
the number of recipients, reaching 5.35 million people in
2022, with an estimated cost of R$58.5 billion in the same
year.
16
JPMORGAN
Health ered by private health insurance surpassed 50 million for the

first time. It is only recently, in 2022, that this number has
Polls consistently show that health is considered one of the
reached the previous mark.
main problems in Brazil. The diagnosis is easy, but the
causes are more difficult to detect. Accessibility is certainly a Figure 34: Number of Beneficiaries of Private Health Insurance
problem as there are fewer beds per person than in the majori-
Millions of People
ty of comparable countries. Also, the population as a whole
49.5 50.5 49.3 50.1
needs to wait for a long time to have access to a doctor, 44.9 46.0 47.8 47.7 47.1 47.1 47.1 47.5 48.9
41.5 42.6
exams, and surgeries. 37.2 39.3
Figure 33: Brazil’s Main Problems

62
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
38 37
34
27
22 Source: ANS. Data as of June 2022
15 13
9
6 6 4 4 In Brazil, total expenses associated with healthcare
amounted to 10.3% of GDP in 2020, up from 6.6% in
2000. This is slightly below the global average (10.9% of
GDP), and one of the highest levels among Latin American
Source: IPEC Inteligencia, Jan 2023. Respondents answered which are the top three problems countries and among the BRICS. Still, this allocation is lower
of the country.
than the expenditure on healthcare of high-income countries
The Brazilian health system is divided in two: public and pri- (near 12%) but somewhat in line with those that offer univer-
vate. The public system is known as SUS (Sistema Único de sal health care. Per capita expenditures on health in Brazil
Saude), a universal health system. The idea that the govern- amounted to US$700 in in 2020, which is double the levels
ment must provide free health care for all Brazilian citizens observed in 2000 in PPP terms.
was an important item of the 1988 Constitution, which con-
sidered health a citizen’s right. The SUS is decentralized, with
most municipalities running the system with state and federal
resources. The private system complements the public one Figure 35: Total Expenditure on Health as % of GDP (2020)
and can provide services for the SUS through specialized 18.8
clinics, diagnostic labs, private practices, etc. The private sys-

12.5 12.2
tem is mostly available for those who pay for it and/or have 12
10.9 10.3
9.6 9.75
access to health insurance. 8.6 8.3
7.3
8.6
7.6
7.2 7
5 5.6
4.5 4
The SUS, in theory, reaches 100% of the population. It is esti- 2.9
mated that more than nearly 25% of the population are cov-
ered by private health insurance, but they are also entitled for US France UK World Brazil Chile S Africa Russia Mexico India
2000 2020
access to the SUS’s health services. Each time someone with
private health insurance uses the SUS, the plan is required to Source: World Bank
reimburse the government 1.5x the cost of the procedure/con-
sultation. Brazil’s relatively high expenditure on health is only made
possible by the private sector. Public sector expenditures on
The SUS importance became evident for the entire population health amounted to near 55% of total health expenditures in
during the Covid pandemic as it was the sole entity responsi- 2020, while the private sector (both insurance and out-of-
ble for vaccination. On that front, it did very well, consider- pocket) amounted to 45%. It is interesting to note, however,
ing that Brazil had one of the highest vaccinations levels in that the pandemic led the public sector to increase health
the world. expenditures vis-à-vis the private sector. Still, private sector
expenditures is high relative to the global average (36.6%)
Private health insurance is a direct function of the economic and also high relative to middle-income countries (45.8%).
cycle in Brazil, considering that it is mostly provided by the One could argue that public sector disbursement to health is
employer for its employees. Before the big recession of 2015- low for a country that wishes to offer universal health cover-
16, when GDP contracted by 7%, the number of citizens cov- age. In the case of Norway, almost 88% of total health expen-
17
JPMORGAN
Brazil 101
ditures came from the public sector in 2020. Brazil posted a decrease and now is 10 positions below where
it was in the 2018 survey.
Figure 36: Public Sector Health Expenditures as a % of Total Health
Expenditures Table 7: Happiness Ranking
87.7
83.7 Country Rank Country Rank
76.1
72.7
66.3 63.4
57.7
Finland 1 Spain 29
56.7 56.4 55 54.2 52.9
44.8 Denmark 2 Brazil 38
Iceland 3 Chile 44
Norway 4 Mexico 46
Netherlands 5 Japan 54
Argentina
Indonesia
Colombia
China
Euro Area
Middle Income
World
Norway
Chile
Mexico
Brazil
U.K.
U.S.
Luxembourg 6 Argentina 57
Sweden 7 Russia 80
Source: World Bank
Israel 9 China 81
Government expenditure on health is highly regulated. Con- Australia 12 Venezuela 108
stitutional Amendment 86, which was approved in 2015, United States 17 India 136
establishes that the budget needs to allocate a fixed amount
United Kingdom 19 Afghanistan 146
of net revenues to health, starting with 13.2% in 2016 and
rising to 15% by 2020 (18% for education). This excludes Source: World Happiness Report 2022
the mandatory allocation of 25% of oil revenues to health (the
remainder goes to education). With the new fiscal plan However, taking a deeper look at the data, one notes that over
approved in 2023, which conditions the level of expenditures time, Brazilians are becoming somewhat less happy. The
to the level of revenues, there is the possibility that the nomi- Global Happiness 2022 study, a 30-country Global Advisor
nal expenditures with health increase a lot if revenues also do survey, shows that the level of Brazilians who consider them-
so. In this case, it would compress spending in other areas. selves happy or very happy, fell from 81% to 63% over the
Thus, at the time of this writing, the government was mulling past decade, the third biggest drop, just behind Argentina and
on changing the constitution to de-link the mandatory expen- Turkey. Thus, even though Brazilians are considered happy,
ditures on health and education to tax revenues, in favor of they are less happy than before.
another kind of arrangement such as a set amount of expendi-
ture of both education and health per capita. Table 8: Happiness Level Change by Country
Country 2013 2021 Change
Brazilians are getting fatter: According to the Ministry of Australia 84% 85% 1.0%
Health, 57.25% of the populations was overweight in 2021,
up from 53.8% in 2016. This is an increase of 8.75 percentage China 79% 83% 4.0%
points in 10 years. Over 2015-17, the obesity rate was stable India 87% 82% -5.0%
at 18.9%, but grew again in 2021, when 21.55% Brazilians United States 83% 76% -7.0%
were considered obese. The most recent data from 2021 show Mexico 80% 65% -15.0%
that 37.7% of the population exercises more than 150 minutes
per week, up from 37% in 2017 and 33% eight years ago. On Brazil 81% 63% -18.0%
the other hand, the share of the population that doesn't do Argentina 67% 48% -19.0%
physical activity regularly stood at 47.2%. Turkey 83% 42% -41.0%
Happiness Level: The 2022 World Happiness Report, which Source: World Happiness Report 2022
consider data from the period of 2019-21, shows that the

Covid-19
North European countries took the first few positions in the
happiness ranking, while the poorest African countries and The first case of Covid-19 in Brazil was confirmed on Ash
conflict zones fared the worst. Brazil was ranked 38 out of Wednesday 2020 (26 February). On March 17, 2020, the first
146 countries, with Mexico (46) and Chile (44) behind it in Covid-19 death was confirmed. Mobility restrictions were
Latin America. The Happiness Report is not a survey, but it applied pretty much at the same time. Even though these
consolidates a series of quantitative and semi-quantitative restrictions were not as harsh as in many other countries in
measures to produce a score. Still, it is important to flag that the region (Chile and Argentina, for example), they were the
target of important criticism from some important govern-
18
JPMORGAN
ment officials. Vaccination: The first vaccine that was available in Brazil
was the Coronavac from China. The rollout started slowly in
Brazil ended up being one of the places where Covid-19 hit February 2021, but had a quick pickup once vaccines became
the hardest globally. Although it has the 5th largest population more available. In 2H21 other vaccines were available, such
in the world, it was #2 in terms of deaths, with almost 700K as Pfizer, Astra Zeneca and J&J. Even though President Bol-
registered deaths. When looking at deaths per 100,000 peo- sonaro didn’t incentivize vaccination, the public health system
ple, Brazil comes out in 4th place. Sadly, the 4 of the 10 coun- was very effective in terms of information and distribution of
tries with the most deaths per 100K people are in LatAm: shots, making Brazil one of the countries with the highest
Peru (#1); Chile (#3); Brazil (#4), and Mexico (#9). vaccination levels in the world. It is estimated that about 80%
of the population is fully vaccinated (at least 2 shots).
Figure 37: Covid-19 Deaths per 100k People
665.8 Figure 40: People Fully Vaccinated per Hundred
341.1 336.2 329 314.5 311.5

272.8 266.2 260.7 257.6
US
Russia
Chile
Italy
Brazil
Ukraine
Poland
Portugal
Peru
Mexico
Source: John Hopkins Coronavirus Resource Center. Last data as of March 10, 2023
Source: Our World In Data, J.P. Morgan
• Until August 9 2023, there were 37.7 million confirmed

Mobility plummeted in March 2021 reaching its lowest point
Covid cases in the country.
on March 24 of that year, but it experienced a normalization
Figure 38: Covid-19 Cases Since March 2020 as soon as reopening began with all countries' mobility back
at normal levels between July and August 2021.
Figure 41: Stringency Index
Source: Our World In Data, J.P. Morgan
• There were almost 705K total Covid-19 deaths

Source: Our World In Data , J.P. Morgan
Figure 39: Deaths from Covid-19 Since March 2020
Education
The Brazilian education system is divided into basic (early
infancy, primary and secondary) and superior education (col-
lege, master, doctorate). Beyond school, the education system
also incorporates professional and technical education. Theo-
retically, basic education is mandatory for children between 4
and 17 years old and free for everybody (including adults).
Primary education takes nine years to be completed. Second-
ary education lasts three years and is also free. Higher educa-
Source: Our World In data
tion, which includes university study, is free only at public
universities.
19
JPMORGAN
Brazil 101
Education is recognized as one of Brazil’s main structural The UN data for years of schooling is lower than the one
problems. Not only do children not stay at school much, but reported by the IBGE, still, it is useful to compare Brazil with
the quality of education is also very poor, thus continuing to other countries. The sad reality is that, under this measure,
perpetuate a system of workers with very low skills and, con- Brazil has the lowest average years of schooling relative to all
sequently, very low productivity. Indeed, the poor education major Latin American countries.
of the country is seen as a major obstacle for the country to
grow and enter a new development phase. Figure 43: Years of Schooling Relative to Other Countries
12.8
11.4 11.1 10.9
The illiteracy rate in Brazil in 2022 was 5.6% for those over 9.9
9.2 8.9 8.6 8.1 7.6
15 years old. The illiteracy rate reflects the regional inequali- 6.7
ties within the country: the highest illiteracy level is observed

in the Northeast (11.7%) and the lowest in the South and
Southeast of the country (3%). Illiteracy in Brazil is closely
Russia
Argentina
Colombia
Mexico
Indonesia
Brazil
Peru
India
Chile
South America
China
linked to age, as more than half of those illiterate are over 60
years old. It is also important to note that as of 2022, 3.4% of
those illiterate above 15 years of age were white, while the
Source: UN – Human Development Index. As of 2021.
rate more than doubled among the black or mixed race to
7.4%. The problem is not in terms of enrollment, as in Brazil there
is pretty much universal enrollment in primary schools. The
Figure 42: Illiteracy Rate of People 15 Years or Older by Region challenges appear in the transition between primary and sec-
ondary school (elementary to high school), when there is a
high level of school evasion.
Still, the data have been on an improving trend. In 2007, over

52.4% of the population had no instruction or didn’t finish
primary education, a level that declined to 34% in 2022. Col-
lege graduates were 9.1% of the population, among the worst
ratios in the world and today account for 19.2%. All in all,
there are today 53.2% of the population aged 25 or more than
Source: IBGE, PNAD Continua
have completed at least high school. The OECD average for
that number is 83%.
On average, a Brazilian student spends 9.9 years at school,
which is roughly enough to complete primary education (ele- Figure 44: Education Level of People Aged of 25 Years or More
mentary school). Higher averages are recorded for women %
(10.1 years) and the white population (10.8 years). On the
other hand, men’s average years of study are 9.6 years, while
blacks have 9.1 years on average.
Table 9: Average Years of Schooling

2016 2017 2018 2019 2022
Total 9.1 9.3 9.4 9.6 9.9
Men 8.9 9.1 9.2 9.3 9.6
Women 9.2 9.4 9.6 9.7 10.1
White 10.1 10.3 10.4 10.6 10.8 Source: IBGE, PNAD Continua
Black 8.1 8.4 8.6 8.7 9.1
North 8.4 8.7 8.9 9 9.4 NEET: Neither employed nor in formal education or
Northeast 7.7 7.9 8.1 8.2 8.6 training. We found this acronym at the OECD, but have been
Southeast 9.8 10 10.1 10.3 10.6 familiar for a long time with the concept. Data from the
South 9.4 9.5 9.6 9.9 10.1 OECD show that, other than South Africa, Brazil is the coun-
Midwest 9.3 9.6 9.7 9.9 10.2 try with the highest number of those aged 18 to 24 years who
are NEET. While this contingent accounts for 35.9% of the
Source: IBGE, PNAD Continua
population in Brazil, the OECD average is 16.1%. Even in
LatAm, Brazil has the worst score. Also, among those aged
20
JPMORGAN
25 to 29 years old, there are 32.4% who neither work not Figure 47: Evolution of Students’ Grades in Math
study, compared with the 20% OECD average. 250 256 273 270
209 216
Figure 45: People Neither Working Nor Studying
5° grade 9° grade high school senior

2011 2021
Source: MEC, INEP - SAEB 2021
The PISA (International Student Assessment) is an interna-

tional study conducted by the OECD with the aim of evaluat-
Source: OECD – Education at a Glance 2022 ing the proficiency of 15 year old worldwide in key subjects
(reading, math, and science). Brazil has been well below
Spending on education: The OECD's Education at a Glance average in all topics. In the 2018 exam, Brazil ranked 70 in
2022 study shows that public spending on primary to tertiary Math, 66 in Science, and 57 in Reading out of 78 countries.
education as a percentage of total government expenditure Brazil was not able to register significant improvements in
was 14% of GDP in Brazil, above the OECD average (10.6% the 2018 assessment relative to 2015 on all fronts: science
of GDP). Indeed, this is among the highest level of expendi- (404 vs. 401), math (384 vs. 377), and reading (413 vs. 407).
tures of all countries in the survey. Not only does Brazil falter in all categories, but also Brazilian
students are among the ten worst performers in math in the
Figure 46: Total Public Expenditure on Education 2018 assessment. In the last PISA exam (2018), the average
% of Total Government Expenditure performance of students in Brazil was significantly below the
OECD average in science (404 vs. 489), reading (413 vs.
5.4 3.3
487), and mathematics (384 vs. 489 points). According to the
3.2 3.6 4.9 2018 OECD PISA report, in Brazil 95% of 15-year-olds are
5.8
6.1 1.6 5.3
3.7 2.8
2.6 3
enrolled in school, in grade 7 or above, a remarkable
6.3
4.1 5.5 4.3
4.6 5.6
4.6 improvement from the previous PISA report in 2015, when it
7.3
5.9
3.5
5.4
3.4 4 4.1 3.9 3.7
stood at 84%. Due to the pandemic, the OECD postponed the
2.3
Chile Colombia Mexico Turkey OECD Argentina Brazil India South Africa G20
2021 PISA to 2022. Results were still pending at the time of
Primary Secondary Terciary this writing.
Source: OECD, Data from 2019 Figure 48: Performance in the PISA Math Evaluation (2018)
Despite the high level of expenditure on education, the results 569 558 551 526
481 451 430 417 409 400
are pretty subpar. The SAEB (basic education assessment sys- 384 379
325
tem) is a Math and Portuguese language test that is applied in
all Brazilian public schools to students in the 5th and 9th
years and also high school seniors. The latest results (2021)
Greece
Chile
Mexico
Argentina
Peru
Singapore
Romania
Brazil
Dominican Republic
Macao (China)
Spain
Korea
Hong Kong (China)
indicate that there has been very little improvement through

the last decade. For 5thand 9th grade students the results
showed a very tenuous improvement. When comparing the
2011 results with those of 2021, these students improved
3.3% and 2.4% in the math test, respectively. However, for Source: OECD
the high school seniors, the recent score shows a -1.1% reduc-
tion in the performance over the last decade. In the assess- College admission paradox: Contrary to public schools,
ment of 2021, the pandemic had a greater impact on the edu- public universities are considered centers of excellence in
cation, as students couldn’t go to school, yet a structural Brazil. And they are free: once admitted into one of these top
problem is observed in Brazilian education for the past years. universities, the student doesn’t pay ANY tuition; there is
zero disbursement in terms of tuition or material during the
entire time that the student takes to graduate from a public
university. However, the exam to enter public universities is
particularly difficult, and it takes an excellent (private) high
21
JPMORGAN
Brazil 101
school education to prepare the student for it, something that to reformulate the FIES program. The most important change
the public schools don't offer. Thus, the poorer students, who was that companies will bear most of the brunt related to
cannot afford a private high school education, end up in less delinquencies. Until then the government was responsible for
good colleges that have tuitions that vary from moderate to 85% of NPLs. Now, it will make a one-time contribution of
expensive. R$3 billion to the guarantor fund, and the remainder will be
borne by companies and banks. The vision here is that the
Affirmative action in higher education: The law government wants to subsidize only the tuition itself and not
12.711/2012 instituted affirmative action for access to Brazil- the student who fails to comply with his/her obligations.
ian higher education, mandating that by 2016 federal univer- Moreover, in 2022 there were 110.925 slots available for stu-
sities will need to offer 50% of seats to students from public dents, distributed in the first and second semester of the year.
schools, setting aside a specific number of seats to blacks,
browns, and the indigenous population. This amount must be In 2019, the government introduced some changes regarding
proportional to the percentage of minorities within the total the FIES program. The program is now divided into two cate-
population in which the campus is located. Brazil uses the gories. For the first one, called just “FIES,” the government
process of auto-declaration for students to qualify for the will offer a zero interest loan for students who have a house-
seats reserved for minorities. The law also established that hold gross income up to 3 minimum wages per capita. Still,
half of those qualifying for the quotas seat must have a house- the student will start to pay down the debt based on his/her
hold income per capita that doesn’t surpass 1.5 minim wages. income. The second category, named “P-FIES,” is a loan
The law 13.409/2016 included individuals with disabilities offered by financial institutions using public resources for
via the quotas system as well. The quotas law from 2012 students who have a household gross income of no more than
established that after 10 years there would be a revision of the 5 minimum wages per capita, covering 50% of the university
system, but so far there have been no changes, albeit some tuition. In addition, to qualify for both categories students
measures were presented in Congress. All in all, the result of must have done at least one ENEM exam in the last 10 years
quotas has increased the number of public school students in and achieved a minimum score of 450 (maximum 1000), and
federal universities from 17% in 2013 to over 38% currently, having a score above zero on the essay. The second change
which is still below the level established by the law. regards the deadline to start to pay down the debt. Previously,
the student had 1.5 years after graduation to start the pay-
Figure 49: Enrollment in Public Universities ment. It is estimated that in 2022, the Union allocated
R$5.53bn to FIES. Going forward, the administration of Pres-
ident Lula has already announced that they will reformulate
the FIES program, but at the time of this writing there is no
indication on how the program will look going forward.
Table 10: FIES as a % of GDP and Total Expenditure
Year % GDP % Net Revenue

2013 0.09 0.48
Source: Lepes/ UFRJ e Açao Educativa; Poder360. 2014 0.11 0.61
FIES – Student Financing Loan: FIES (Student Financing 2015 0.1 0.55
Fund) is a college loan program that became fully operational 2016 0.11 0.65
in 2010. Students who wish to qualify for the loan need to 2017 0.09 0.54
have completed the ENEM (a secondary education comple- 2018 0.04 0.23
tion test) and enroll in an on-campus course at a private sector Source: National Treasury, Finance Ministry, J.P. Morgan
university that has a good national qualification. In its
essence, FIES seeks to give access to college education to PROUNI: The program was created in 2005 and gives total
students who wouldn’t otherwise have the opportunity to or partial (50%) scholarships for students entering private
attend an undergraduate course. universities. To qualify, students must have a minimum score
of 450 on the last ENEM exam (maximum is 1000) and have
Starting in 2015 the government imposed limits on FIES as it household gross income of no more than 1.5 minimum wages
started to weigh on the budget/fiscal accounts. At its peak in per capita for total scholarship and 3 minimum wages for par-
2014, about 730K students were being admitted on the FIES tial scholarship. Also, students must graduate from public
program. By mid-2017 the government sent a bill to Congress schools or from a private one with a scholarship.
22
JPMORGAN
PRONATEC: The National Program for Access to Technical Figure 50: Intentional Homicide Rate per 100,000 People (2020)
Education and Job Training was created in 2011 to increase
access to technical/professional courses for students in sec- 41.86
ondary education. The government provides scholarships for

28.175 27.48
students to attend these courses. 22.38
19.3
Security 6.79 5.71 4.62 3.63 2.93
As in the rest of Latin America, security is a major issue that
Venezuela
Russia
Peru
Chile
Mexico
Colombia
Brazil
Argentina
South Africa
India
permeates Brazil’s society and fundamentals. The issue has
enormous public visibility, is very pressing, and is a notable
feature of the region when comparing it to other places. Prob- Source: World Bank
lems related to crime, degradation of public spaces, over-
Brazil vs. Mexico: Although one hears a lot about violence
crowding in prisons, and an increasing sense of impunity,
in Mexico, official data show that Brazil is historically worse
especially in large urban centers, represent a very high barrier
in terms of murders. The data below tell a tale of two coun-
to the country’s development.
tries: Brazil's murder rate has been significantly higher than
Mexico’s for most of the series. To some extent, the data in
According to the World Economic Forum (2018), Brazil is
Brazil have also been more stable (albeit higher) than those of
poorly ranked and below the world average in all indicators
Mexico. From 2018 onwards the murder rate in Brazil has
associated with crime. Among 140 countries, Brazil was
declined, a fact that was highly publicized during the Bolson-
ranked 111th in reliability of police services, 124th in orga-
aro administration. On the other hand, the murder rate in
nized crime, and 133rd in homicide rate per 100,000 inhabit-
Mexico jumped in 2006 following the advent of Felipe Calde-
ants. Still, Brazil is better than its Latin American peer Mexi-
ron as the president and the beginning of an active engage-
co in all aspects except for the homicide rate and is worse
ment “war” against organized crime. As policies changed
than Russia in all items.
over time, so did the (recorded) murder rate.
Table 11: Brazil’s and Peer Countries’ Ranks on Crime/Violence
Figure 51: Murder Rate per 100,000 Inhabitants: Mexico vs. Brazil
Rank of 140
Homicide Rate
Organized Crime Police Reliability
Countries
China 15 80 63
Russia 117 78 88
Colombia 131 135 114
Brazil 133 124 111
Mexico 130 139 138
South Africa 135 125 119
Source: World Competitiveness Report 2018
The figure below shows the number of homicides per 100,000 Source: World Bank, data for 2020
inhabitants. As of 2020, Brazil had 22.4 intentional homicides
No pretty comparison: Between 1990 and 2022, close to 1.1
per 100,000 people, which is the 11th highest reading in a list
million people were killed by firearms in Brazil. Data from
of more than 140 countries. Note that all the countries that
Anuario Brasileiro de Segurança Publica 2023 show there
have a higher murder rate than Brazil are in LatAm or the
were 47.5K murders in 2023, which is 2.4% lower than in the
Caribbean, with the exception of South Africa.
previous year. While the North and the Northeast register the
highest levels of murder rates per 100K inhabitants, Sao Pau-
lo, Santa Catarina and the Federal District have the lowest. It
is key to note that 77% of the victims were black and 5%
were over 12 and 29 years old. Another interesting finding is
that the murder rate in the legal Amazon is 54% higher than
in the rest of the country. From a historical perspective, the
increase in the murder rate from 2015 onwards is attributable
to the dispute between two major crime organizations in the
country: the PCC and the Comando Vermelho. In the same
way, the decline has to do with some stabilization in the bal-
23
JPMORGAN
Brazil 101
ance of power between them. Figure 53: Number of Arms Registrations by Hunters, Collectors and
Sport Shooters
Figure 52: Annual Number of Murders 900000
Murders per Year 800000
70000 700000
65000 600000
60000 500000
55000 400000
50000 300000
45000 200000
40000 100000
35000 0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
30000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Source: Anuario Brasiliero de Segurança Publica, 2023.
Source: Anuario Brasileiro de Segurança Publica 2023
Incarcerated people: At the end of 2022, there were 832.3k
Although there is a lot of emphasis on data vis-à-vis murders, people in Brazilian prisons, representing an increase of
theft is a major problem. According to the World Bank, there almost 260% since 2000. Almost 70% of those were black,
were 630.8 thefts per 100K people in Brazil in 2020, which is the highest in the series, according to the Anuario Brasileiro
almost 3x higher than in Mexico. de Segurança Publica. Brazil has the third largest prison pop-
ulation in the world, behind the U.S. and China. There is a
Beware your cell phone! While there is much focus on mur- huge problem of overcrowding in jails (140% occupation
ders and thefts, the crime that is the most prevalent in Brazil rate), which often generates violence and inhumane condi-
today is fraudulent scams, increasingly taking place via cell tions in the Brazilian prison system. It is estimated that Brazil
phones. It is estimated that there were 208 scams an hour in needs 230K new prison slots to safely accommodate those
2022, or over 1.8 million in the year, an increase of 38% y/y. who are already incarcerated.
Of those, 200K were via mobile phone, an increase of 65% y/
y. Another very prominent crime is the stealing of cell
Corruption
phones, which increased 16.6% y/y in 2022. It is estimated
that almost 1 million cell phones were stolen in 2022. Corruption represents a severe constraint to Brazil. Accord-
ing to Transparency International’s 2022 ranking, Brazil ranks
Firearms in Brazil: There has been a vertiginous increase in 94 out of 180 countries, with a score of 38, with 0 the most
the possession of firearms in Brazil over the past half decade. corrupt and 100 the least. The country grew by 9 positions
While this started with a law from President Temer that considering the data from 2019, when it was ranked 105
allowed hunters, collectors and sport shoorters (CAC) to car- among 180 countries. Within LATAM countries, Chile (27) is
ry their guns when taking them from one place to the other. far ahead of Brazil, Argentina is in the same position and
However, in the first six months of his administration, Presi- Mexico (126) is behind.
dent Bolsonaro issued laws that facilitated the access to guns
by CACs, not only in terms of the number of guns (for exam-
ple, a sports shooter can own 60 guns), but also in terms of
the caliber of the guns. All in all, at the end of 2022 there
were 783K firearms in the hands of CACs, up from 117K in
2018. On the first day of his administration, President Lula
issued federal decree 11.366, establishing that all guns
acquired by CACs from 2019 onwards need to be re-regis-
tered. More legislation is upcoming. All in all, the total num-
ber of registered arms in Brazil (beyond CACs) is about 1.5
million. However, on top of this, the Small Arms Survey con-
cludes that there were over 17.5 million legal and illegal fire-
arms in Brazil in 2018, the most in Latin America.
24
JPMORGAN
Table 12: Global Corruption Perception Index 2022

Rank Country Rank Country
1 Denmark 70 South Africa
1 Finland 78 Bulgaria
1 New Zealand 85 India
4 Norway 87 Colombia
4 Singapore 96 Brazil
11 U.K. 105 Ecuador
18 Japan 105 Peru
18 Uruguay 117 Egypt
27 U.S. 128 Paraguay
27 Chile 136 Russia
34 Spain 144 Uganda
42 Poland 174 North Korea
66 China 180 South sudan
Source: Transparency International
A survey conducted by Transparency International in Latin

America shows that, for citizens, the most corrupted institu-
tions in Brazil are those related to the government. Nonethe-
less, the same study revealed that only 13% of interviewers
paid bribes for public services in the LTM, the lowest value
among the main countries in the region.
Figure 54: Brazil’s Corruption by Institution (2019)

63% 62%
57%
54% 53%
50%
38% 36% 34%

31%
23%
Religious Leaders
Bankers
Police
Journalists
Business Executives
Local Governemtn Officials
Judges and Magistrates

Government Officials
President / Prime Minister
Members of Parliament
NGOs
Source: Global Corruption Barometer Latin America & the Caribbean.
An important advancement of the past few years has been the

Ficha Limpa law. The measure was brought to Congress via
popular request, and approved in 2010. It stipulates that only
candidates that have no pending issues with Justice can run
for elected office. However, for a candidate to be barred from
running for office, he needs to be found guilty in the appeals
court. This is important because many politicians are found
guilty in the lower court but are still awaiting an appeal. In
the meantime, they can run for office.
25
JPMORGAN
Brazil 101
Tourism Figure 56: Tourist Arrivals in Brazil

Million
Despite its natural beauty and its huge and diversified territo- 6.4 6.3 6.5 6.6 6.6 6.4
ry, Brazil is not in the top 10 most visited destinations. One of 5.4
5.7 5.8
the reasons for the low international demand could be the dis-
3.6
tance between Brazil and core tourism centers. In addition, 3.3
issues such as safety and security and lack of infrastructure 2.2
and skilled labor also contribute to low tourism in the coun- 0.7
try. However, even with the low number of international tour-
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
1H 2023
ists, the country’s assessment is positive: 94% of tourists who
come to Brazil leave intending to come back (according to
Source: Ministerio do Turismo.
Embratur). From 2012 until 2015, Brazil was the most visited
country in South America, and up to 2019 fell to second posi- One of the main issues that could have improved the number
tion, with Argentina conquering the 1st place. More recently of foreign tourists to Brazil over the past few years is the
Colombia jumped to first place, Argentina stands in second more competitive exchange rate. From 2015 to 2020 onward
and with Brazil fell to the third place. the currency fluctuated north of R$3/USD compared relative
to significantly stronger levels prior to that. From 2020 to ear-
Figure 55: Top Travel Destinations in South America ly 2023 the currency remained around the R$5/USD, which
4.6 might stimulate not only foreigners to come to Brazil, but
3.9 also Brazilians to travel inside the country instead of taking
3.6
an overseas vacation.
2.0 2.0 1.9 As the number of tourist arriving in Brazil improves so does
1.2 the revenues. In 2023, from January to August, tourists spent
0.6 USD4.5, more than 7.5% of the same period in 2019, signal-
ing that recovery is indeed taking place. Worth highlighting
Colombia Argentina Brazil Chile Peru Uruguay Ecuador Paraguay that Argentina represents three times the numbers of tourists
Source: Index Mundi 2023. from the United States for example (1.4 million vs 430k).
About half the international travelers who come to Brazil are Figure 57: Revenues from International Travelers in Brazil
from South America, mainly from Argentina (almost 30.8% 7.4
6.6 6.6
of the total). Europeans represented nearly 20%, coming 6.1
5.5
5.9 6.0
especially from France and Germany, and North Americans 4.6 4.5
accounted for 9.1% of international travelers to Brazil in 3.4

3.0 2.9
2019, according to the country's Ministry of Tourism. 2.0 2.1
Over the past few years, Brazil hosted both the FIFA Soccer
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2019
2020
2021
2022
World Cup (2014) and the Olympic Games (2016). Those
events contributed to the rise in the number of foreign tourists Source: Ministerio do Turismo
in Brazil, which reached 6.5 million people in 2016, 4.3% Below we look at Brazil’s main touristic regions. Rio de
higher than in 2015 and surpassing the World Cup year by Janeiro is foreigners’ favorite destination, while Bahia (on the
more than 100K visitors. However, the number of tourists Northeast coast) is the preferred destination for domestic
drastically fell during the Covid-19 pandemic, reaching his- tourists, especially during Carnival. São Paulo is the business
torical lows, especially in 2021 when restrictions were still in and financial center, receiving most of the people who come
place. In 2022, as the reopening started, 3.6 million tourists to Brazil for business reasons or commercial events. Among
were registered, pretty much below the pandemic level; yet, the most popular destinations are also the Amazon rainforest,
2023 is promising a return to pre-pandemic levels. Data rela- the Pantanal in the Midwest region, and the country’s capital,
tive to the 1H showed that 3.3 millions tourists arrived in the Brasilia, famous for its complex and innovative architecture.
country – if the pace remains the same, we should see strong
numbers by year-end.
26
JPMORGAN
Figure 58: Main Travel Destinations Figure 59: Main Brazilian Biomes
Source: IBGE, J.P. Morgan
Environment Source: IBGE
The animal and plant biodiversity is one of the greatest attri- Amazon: The biome encompasses about 49% of the Brazil-
butes of Brazil. There are six biomes in Brazil: Amazon, ian territory. The Amazon is the biggest tropical forest in the
Atlantic Forest, Cerrado, Caatinga, Pampa and Pantanal. world and contains 20% of the available potable water and
They are important not only because of the natural resources mineral reserves.
for the population but also due to the great natural wealth that
houses uncountable species. Atlantic forest: It represents about 13% of the territory and is
occupied by 50% of the population. Currently it is the biome
The relief is composed by flatlands, plains and depressions. more threatened by deforestation in Brazil as only 27% of its
Flatlands are areas essentially flat formed by the sediment original forest is still untouched. Still, the biome provides
deposition from higher lands; they are formations more recent hydric resources that supply 70% of the Brazilian population.
in geological time. The plains are older lands located in high-
er altitudes. Depressions are areas characterized to be in alti- Caatinga: The biome covers around 10% of the territory and
tudes lower than underlying areas, including those below the is characterized by a semi-arid climate, presenting a huge
sea level. variety of landscapes and specific species. The vegetation suf-
fered huge modifications in the past years, being replaced by
Brazil has the biggest potable water reserve in the world. The agriculture and livestock. Deforestation and fires are a com-
distribution of water is unequal as 80% of the superficial mon practice to prepare the land for livestock. About 36% of
water is located in the hydrographic region of the amazon. the original vegetation was already modified for these purpos-
es.
There are three types of climate in the region, equatorial, tem-
perate and tropical. The equatorial climate encompasses the Cerrado: The Cerrado is considered to be the Brazilian Sava-
majority of the territory, such as the Amazon; it is character- nah. The biome covers mainly the Brazilian central highlands
ized by daily rains and elevated temperatures. The tropical and occupies about 25% of the national territory. Until 1950,
climate varies per region, but it is also hot and rains less fre- the biome was untouchable, but with the construction of
quently. The temperate climate predominates in the south Brasilia, the natural vegetation was replaced by agriculture
region and during winter can register negative temperatures. and livestock.
Pampa: This is the smallest biome in the country, represent-

ing only 2% of the territory. It is characterized by rainy
27
JPMORGAN
Brazil 101
weather and negative temperatures during winter. In the Figure 61: 2023 Monthly Track of Fire Activity in Legal Amazon
whole coverage of the biome, the practice of livestock and 50000
agriculture (mainly production of rice) is observed.
40000
30000
Pantanal: The biome also encompasses only 2% of territory,
like the Pampa biome. Nonetheless the coverage is known by 20000
flatlands that get flooded during rainy seasons.This biome is 10000
the most preserved and has the largest amount of wildlife in 0

the country. Livestock and tourism are very common in the
Mar-23
Jul-23
Jan-23
Apr-23
May-23
Jun-23
Feb-23
Aug-23
Sep-23
region.
# of fire spots Monthly Avg.
Amazon Rainforest Source: INPE. Data as of September 2023.
Amazon: In August 2019, deforestation and fires in the Ama- The INPE provides two sets of data: The first one is called
zon gained national and international attention when INPE DETER, a real time deforestation system that sends daily
data showed a spike in yearly deforestation. Since then, the alerts for the purpose of control and monitoring. The system’s
rainforest has been a constant topic in the news and social limitation is that it doesn’t detect deforestation in cloudy con-
media, intensifying the pressure for global leaders and, thus, ditions and its images are of low resolution. The second met-
Brazilian politicians to take preservation measures in the ric is called PRODES, which provides annual data about the
country. deforestation rate since 1998 and is the main source of infor-
mation for the government vis-à-vis Amazon forest policies.
Data: The INPE (National institute of Space Research) pro- After increasing for four years in a row, the PRODES rates
duces data on forest fires through satellite images for the nine fell 11%y/y in 2022, yet the deforested area remains above
states that form the “Legal Amazon” and also across Brazil. the historical average. One of the past directors of the INPE
The data rely on NASA satellites and, thus, are the same argues that there is an 82% correlation between the DETER
images produced by NASA. Data relative to September 20 and PRODES data.
show that 2023 is tracking not only below the 10yr average,
but also the lowest number of fire spots over the past 5 years. Figure 62: DETER: Deforestation in the Legal Amazon (2023)
Important to note that the months of more intense dryness, 12,000
Deforestation (km2) 10,278
such as August and November, stand out with fires above the 10,000 Average 9,171
8,426
yearly average. 8,143
8,000
6,032
6,000 4,946
Figure 60: Yearly Track of Fire Activity in Legal Amazon 3,943
3,552
4,000
300
2,000
250
200 -
2016 2017 2018 2019 2020 2021 2022 2023
150
100 Source: DETER, Terra Brasilis, INPE. 2023 as of September.
50
-
Figure 63: PRODES: Annual Deforestation of the Legal Amazon
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Km2
Total Avg 30000
25000
Source: INPE. Note: 2023 as of September. 20000
15000 11568
10000
5000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: INPE
28
JPMORGAN
Figure 64: PRODES: Variation of Deforestation The bill approved at the Senate: The project creates a “Bra-
% zilian Greenhouse Gas Emission Trading System” (SBCE),
40%
29% 27%
34% which is basically the Brazilian Emission Trading System
30% 24%
20% (ETS) to regulate and manage the market. Companies that
20% 11% 8% 7% have emissions over 10k tons of CO2 per year will have to
10%
0% comply the rules established by the regulation, and those with
-10%
-6% -8%
-12% -11%
emission higher than 25k should have stricter rules. Compa-
-20% -15%
-30%
-18% nies that have emissions below these targets will be able to
-29%
-40% sell the excess in the market.The targets will be established by
-50% -42%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
a national plan of allocation (PNA) to be designed by the
SBCE that will follow companies’ actions and in case of non-
Source: INPE
compliance, there will be penalties. Important to highlight
Carbon Credit Market that the rules will not apply to the agribusiness sector and the
main argument is that it is complicated to measure gas emis-
In the COP-26, Brazil committed to reduce carbon emissions
sions from this sort of activity. Still, worldwide, agriculture
by 50% and methane emissions by 30% by 2030. The carbon
and livestock are not included in other regulated markets.
credit market is another tool in the effort to reduce GHG
Lastly, the period of transition will be of 6 years, which is
emissions and a regulated market would unleash the Brazil
expected to be a gradual implementation for the proper moni-
protagonism in this market, considering the country potential.
toring and authentication of the credits.
Latest study published by WayCarbon in partnership with
ICC Brasil estimates that Brazil has a potential to generate
Details on the bill: What will be traded? A key issue regard-
US$120bn in carbon credits, responding for 28% of global
ing the trading of carbon credits was related to the “unit/
regulated market and 49% of voluntary market. In 2021, Bra-
asset” to be traded. The bill created an asset named “Brazilian
zil was responsible for 12% of the global credit market, a sig-
emission quota” (CBE) in which 1 CBE is equivalent to
nificant jump from the 3% in 2019.
1tCO2, a liquid asset that can be traded among operators.
Apart from the CBE, it was created another asset, “certificate
The main sources of carbon credits are agricultural activity,
of verified emission reduction” (CRVE), which represents the
the energy sector, and forests. So far, as the only operating
credit created from the effective reduction or removal of
market is the voluntary one, companies have to register their
1tCO2 from the atmosphere. This asset will be tradable with-
inventory of carbon emissions, voluntarily set reduction tar-
in institutions and could also be used in international transfers
gets, and, finally, buy or sell carbon credits to offset emis-
covered by the Paris Agreement. The two assets, CBE and
sions. Still, there is interest stemming from companies given
CRVE, will also be tradable in stock exchanges according to a
that a regulated market is essential for a transition to green
regulation to be established by the CVM (local regulator).
economy and would avoid potential international sanctions.
Taxation: There will be a tax on profit to be calculated upon
the net income if the transaction takes place in the Ibovespa
Since 2019, the government has been trying to approve a reg- or over capital gains in other situations/platforms. The will be
ulation for this market. Two steps back, important to note that no taxes such as PIS/Pasesp or Cofins and there will be a sort
there are two types of carbon markets: the voluntary and the of tax benefit (deduction of expenses when calculating profit
regulated. In the voluntary, the carbon credits must be audited and CSLL base) for companies that choose the CBE/CRVE to
by a third party but are not considered for the targets agreed reduce GHG emissions. Penalties: companies that do not
in the Paris Agreement. The regulated market has rules on comply with the rules could be fined on BRL5mn or 5% of
how to trade and tax, how many credits a project can gener- total revenue. Other sanctions could be activity embargo, loss
ate, and others. The main issue around these markets is that of fiscal benefits and access to finance and few others. Partic-
many countries do not have a settled regulation to trade car- ipants of the market: individuals and corporates that fit into
bon credits and the COP 26, held in 2021, was an important the rule and those that are able to offer credits can participate.
step because it established guidelines to be followed. The Also indigenous population and traditional communities (qui-
main goal is to create a standard metrics that allow the func- lombolas, for example) can participate as well. Origin of the
tionality and feasibility of this market. Having said that, after credits: only credits stemming from projects or programs that
a few years of discussion, the Senate approved a bill seek to reduce/remove GHG, for example, permanent preser-
(PL412/2022) that regulates this market and at the moment vation area (APP) or legal reserve.
we are writing this report, it is being analyzed at the Lower
House - prospects are for an approval until year-end.
29
JPMORGAN
Brazil 101
Competitiveness Indicators Table 14: Brazil’s Rank Breakdown
Brazil ranked 60th out of 64 countries in the 2023 IMD 2021 2022 2023
World Competitiveness Ranking, one post below the 2022 Overall 57 59 60
rank and only ahead of South Africa, Mongolia, Argentina Economic Performance 51 48 41
and Venezuela. Denmark leads the ranking as the most com- Domestic economy 47
petitive economy in the world, followed by Ireland. All major International trade 51
LatAm countries are ahead of Brazil: Chile is the best (44), International investment 25
followed by Peru, Mexico and Colombia (55, 56 and 58 posi- Employment 41
tions). Prices 16
Government Efficiency 62 61 62
Table 13: IMD World Competitiveness Index 2023
Public finance 64
Rank Country Tax policy 44
1 Denmark
2 Ireland Institutional framework 62
3 Switzerland Business legislation 62
4 Singapore Societal framework 61
5 Netherlands
Business Efficiency 49 52 61
10 UAE
15 Canada Productivity & efficiency 63
20 Luxembourg Labor market 53
25 Bahrain Finance 48
30 Thailand
35 Japan Management practices 57
40 India Attitudes & values 55
45 Cyprus Infrastructure 52 53 55
50 Croatia
55 Peru
Basic infra. 56
60 Brasil Tech infra. 57
Source: International Institute for Management Development (IMD) World Competitiveness Rank-
Scientific infa. 36
ing 2023. Health & environment 45
Education 64
The IMD analyzes and ranks countries according to how they
manage their competencies to achieve long-term value cre- Source: IMD World Competitiveness Booklet 2023.
ation. The overall rank consists of four sub-indexes: Econom-
ic Performance, Government Efficiency, Business Efficiency,
and Infrastructure. Considering the four categories, Brazil’s
best ranking is in Economic Performance (41th). Both govern-
ment efficiency and business efficiency are very poorly
ranked at 62 and 61, respectively.
30
JPMORGAN
in 2002. It was during this time that fiscal policy was taken
Economic Activity more seriously, and the economic team led by Arminio Fraga
implemented the so-called macroeconomic tripod, which is
Brief Political Economy Retrospect viewed to this day as the ideal recipe for Brazil’s economy:
floating exchange rate, fiscal responsibility, and inflation-tar-
Economic policy and GDP performance: Economic activity
geting regime. The tripod was pretty much in place until the
since the end of hyperinflation can be categorized by four dif-
global credit crisis of 2008 and then the government of
ferent periods, and the election of the third term of President
Michel Temer in 2016 putting extra effort to reestablish it.
Lula probably characterizes a fifth one. The first is under the
Growth during the Cardoso years was modest, averaging
Fernando Henrique Cardoso administration (1995-2002). The
2.3% per year, and unemployment was high.
second falls mostly during the first Lula administration until
the global credit crisis (2003-08). The third takes place most-
Lula I – Strengthening the Tripod, the Commodity Boom:
ly during latter part of Lula’s second mandate (2009-10) and
With the economy stabilized, the country had concrete oppor-
during the entire administration of Dilma Rousseff (20011-
tunities to grow, also helped by China’s great hunger for com-
16), characterized by the embracing of a different economic
modities. President Lula followed the economic model inher-
model, which culminated in one of the largest recessions in
ited from Fernando Henrique Cardoso, even tightening the
Brazilian history. Since the impeachment of President Dilma
fiscal standards at the start of his administration to increase
in mid-2016, the fourth period started with the Temer admin-
credibility. It was also then that social security reform for
istration, working to restore fiscal balance and implement
public sector workers was approved. Both monetary and fis-
structural reforms. At the time of this writing the third term of
cal policy were in large part well managed until the global
President Lula was only 7 months old. Still, the positioning of
economic crisis of 2008. Average growth in this second peri-
this administration is less liberal than the one that was in
od was 4.2%.
place during the Temer/Bolsonaro years. Therefore, it appears
that we are entering a fifth period of economic policymaking.
Third Phase: Lula II and Dilma I and II – The New Eco-
Figure 65: Brazilian GDP Growth and Economic Policy Cycles
nomic Matrix: Economic policy changed after the global
financial crisis. From 2009 onward the government started to
10.0% Phase 1: Phase 3: Lula II and Phase 4:
Cardoso I Phase 2: Cardoso II and Lula I Dilma Temer and
play a much more interventionist role in economic manage-
8.0%
Avg GDP Avg GDP = 3.5% Avg GDP = 0.43% Bolsonaro ment and financing. One could argue in broad terms that the
6.0% = 2.6% Avg GDP =
4.0%
1.5% “tripod” was abandoned and in its place a policy that became
2.0% known as the “new economic matrix” was implemented and
0.0% strengthened during the first mandate of President Dilma
-2.0% Rousseff. Within the real economy, the BNDES, for example,
-4.0%
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021
was greatly expanded, with annual loans increasing from
R$65 billion in 2008 to over R$100 billion a year from 2009
Source: IBGE, J.P. Morgan. Note: 2019 and 2020 JPM Estimates to 2015. In 2013, BNDES loans reached a peak of R$190 bil-
lion, up 22% from the previous year. Public sector banks also
First Phase: Cardoso I – The Real Plan: In the first peri- took a larger share of credit for companies and consumers and
od, the country was making several adjustments in order became responsible for the majority of the loan stock in Bra-
to stabilize the economy and regain international credibility. zil. In the fiscal accounts, the primary result (excluding inter-
As a finance minister, even before his first mandate (1995- est payments) fell from a surplus of 4% of GDP in October
98), Fernando Henrique Cardoso created and implemented 2008 to a deficit of 2.5% at the time of the impeachment of
the Real Plan in 1994, finally controlling the hyperinflation President Dilma, while the overall budget deficit climbed
that had characterized Brazil for the better part of the prior 15 from only 1.2% of GDP to a whopping 9.5% of GDP, perhaps
years. His administration also conducted several structural the largest in all emerging markets. The autonomy of the cen-
reforms, including a deep privatization initiative of state- tral bank was questioned more than once, and last but not
owned companies. least, the government took a more interventionist approach,
putting regulatory issues at the forefront of economic policy,
Second Phase: Cardoso II – Introduction of the Tripod: often causing a great deal of uncertainty within the business
Cardoso’s second mandate (1998-2002) was marked by sever- community. Prices of utilities and gasoline were frozen for a
al crises, starting with Asia, passing through Russia, and cul- long time, creating significant distortions. The result of this
minating in the BRL devaluation in January 1999, the energy new approach is in the numbers: following the slump of 2009
rationing of 2001, and the great instability caused by uncer- and the substantial stimulus injected in the economy, 2010
tainties related to Luis Inácio Lula da Silva’s (Lula) election was a record year, with GDP growth of 7.5%, second only to
31
JPMORGAN
Brazil 101
China and India within EM. Unfortunately, the higher the recorded up to that year. The disappointment continued to be
climb, the deeper the fall. the weak growth, which registered a combined increase of
only 3.7% in 2017-18, following the recession.
After the October 2014 elections (when President Dilma
Rousseff was reelected), there was an effort to restore eco- In May 2017, the administration was on the brink of approv-
nomic policy credibility. Joaquim Levy, a University of Chi- ing the social security reform in the Lower House when it
cago–trained economist with government and private sector was shaken by the release of the “JBS tapes,” which in theo-
experience, tried to implement a fiscal adjustment. Prices ry involved the president in wrongdoing. One could say that
were deregulated, which generated higher inflation, leading these events had an important impact on curbing growth by
the central bank to hike rates. But, in essence, the adjustment lowering confidence, at a time when growth was starting to
was not enough and a deep stagflation (among other things) pick up. After that, Temer became a lame-duck president and
made it very difficult for the government to implement auster- spent the rest of his mandate with low popularity and trying
ity measures in Congress. By the end of 2015, Levy left the to defend himself and his legacy. Still, it is unquestionable
government as the administration fell back to the old practice that there were important institutional advances during his
of trying to stimulate the economy. GDP in 2015 fell by 3.5%, presidency. Indeed, one could say that these have been allow-
to the lowest level since 1981. Weak growth, high inflation, ing Brazil to actually post better-than-expected growth num-
low popularity and the lack of support in Congress culminat- bers over the past few years.
ed in the impeachment of President Rousseff in mid-2016. In
that year, the economy contracted 3.3%, leading to a 6.8% In May 2018, a truckers’ strike paralyzed the country for 9
GDP collpase in the 2015-16 period, the worst ever. days, having an estimated impact of -0.7% on GDP at a time
when the economy was showing solid signs of recovery fol-
Fourth Phase: Presidents Temer and Bolsonaro – From lowing the deep rate cut from the previous year. The truckers'
Recession to Low Growth: What became clear following the strike brought forward electoral concerns that were expected
period between 2009 and mid-2016 was that the economy to take place only in 3Q, as the elections were to take place
policy wasn’t going to deliver faster growth on a sustainable on October 27. So 2018 was another year of uncertainty and
basis without fixing the fiscal problem. It was imperative to low growth.
start to dismantle the public sector machinery that was built in
the previous years to allow the private sector more room to Liberalization, Covid-19 and Polarization – The Bolsona-
invest. President Temer, who took over the helm of the coun- ro Years: Jair Bolsonaro took office in 2019 after a com-
try following the impeachment of President Dilma in mid- manding victory in an election that was characterized by
2016, committed to that path, with the nomination of a credi- polarization, the huge advent of new media channels (social
ble economics team with commitment to restore the fiscal media, especially) and an anti-establishment message. Bol-
path to normality and implement structural reforms. In 2H sonaro ran against Fernando Haddad (PT), former mayor of
2016, the government approved the spending ceiling bill Sao Paulo. Haddad was in reality a stand-in for former Presi-
(virtually all federal expenditures to be frozen in real terms dent Lula, who was jailed as a consequence of the car wash
for the next 20 years), and in mid-2017 a Labor reform was investigation and, thus, unable to run for elected office. When
approved. State-owned companies were revamped, not only elected, Bolsonaro embraced economic liberalism, with the
in terms of management but also in terms of policies. For appointment of Paulo Guedes as Economy Minister. The eco-
example, Petrobras was under the helms of very respected nomic policy agenda of the new administration can be sum-
CEOs and started a program of asset divestments. Also, the marized in the following points: 1) Fiscal responsibility, with
BNDES largesse was curtailed and it started to pay back the social security reform as its main item; 2) De-bureaucratiza-
Union part of the R$500 billion subsidized loans from past tion and ease of doing business, which also encompasses a
years. At the same time that the subsidized interest rate TJLP tax reform; 3) Reduction in the size of the state through priva-
was substituted by the TLP, which albeit usually lower than tizations and divestments; 4) Trade openness; and 5) Federal-
the Selic, is still not frozen in time and oscillates with market ization. In retrospect, there was progress in some areas but
rates. These efforts have allowed the central bank to embark not all. Social security reform was approved in mid-2019,
on a large and extended easing cycle, one that has lasted until and there was an important privatization initiative that
now. What also made possible for rates to follow was that included the sale of the majority stake of Eletrobras. Another
double-digit inflation started to decline, mostly a result of a important advance was the approval of a law that made the
deep recession that led the country's GDP to contract by 7.5% central bank officially independent, with fixed mandates
in 2015-16. Interest rates were more than halved, falling from for its board members. The micro agenda also advanced, with
14.25% by the time President Temer took office to 6.5% by greater ease of doing business. However, the liberal agenda
the time he left (Dec 2018), the lowest Selic nominal rate ever was compromised once the Covid-19 pandemic took hold.
32
JPMORGAN
Brazil embarked on one of the largest fiscal expansions glob- at the same time that the central bank remains independent
ally, with an estimated 8% of GDP fiscal expansion. The col- and previously approved reforms are not reversed.
lapse of inflation in the first six months of the pandemic led
the central bank to continue to cut interest rates, bringing GDP in Context
them all the way to 2% by 3Q20, the lowest on record. Fiscal
and monetary expansion led to a sell-off of the BRL at the Long-term historical GDP: Brazil data for the last 100 years
same time that politics was becoming noisy. On November show that the country’s GDP pattern has been mostly charac-
2019, the Supreme Court decided that all the legal processes terized by severe boom-and-bust cycles. This is especially
against former President Lula had to start from scratch. In true until the industrialization phase, which started in the
practice, this has allowed Lula to leave jail after 580 days and 1950s. After that period, the country enjoyed a period of
be a candidate in the 2022 elections. Faced with his greater growth and stability that lasted until high inflation took over
adversary, Bolsonaro, to a great extent, opened the govern- in the mid-1960s. With the military coup in 1964, Brazil
ment coffers in 2022, increasing the number of people bene- embarked on a new phase, with the development of several
fited by social programs and also the amount distributed. heavy industries (oil, iron ore, steel, utilities, etc.) at the same
time that urbanization accelerated. These were the “miracle”
years, with growth peaking at almost 14% in 1973, when the
Fifth Period? The Third Lula Mandate: Most of the mar-
oil shock hit Brazil. The rise in oil prices from around US$3/
ket assumed during elections that if Lula were to be elected
bbl to US$12/bbl enhanced fiscal difficulties, but the country
for a third term, he would embrace the same pragmatism that
continued to grow at very high rates until the end of the
characterized his first mandate. However, the reality at first
decade. The second oil shock of 1979 gave way to an acute
was very different and can be summarized in the post-election
external debt crisis in the 1980s, which together with hyperin-
issues: 1) The week after the race, President Lula delivered an
flation characterized the period as the “lost decade.” In the
anti-market speech, saying that the country should have a
1990s the economy stabilized, and although growth has been
social target and not a fiscal target, that market participants
more subdued, the severe boom-and-bust cycles of the past
were all speculators, and that the central bank and its presi-
were, to a great extent, smoothed – until now.
dent needed to start ASAP to cut interest rates. 2) During the
Few times in history did Brazil have negative GDP episodes
transition, the PT requested Congress, through a constitution-
as in the recent past. Since 1901, there have been only two
al amendment, extra funds of R$200 billion that would be
occasions when Brazil had two consecutive years or more
accounted for outside of the ceiling of expenditures. The
of negative or flat annual GDP: The first happened in 1930-
amount was more than double what the market assumed,
31, after the 1929 crash, and the second in 2015-16. The bien-
which was the resources needed to maintain the benefits of
nial of 2015/2016 was responsible for a GDP contraction of
the Bolsa Família program at R$600/month. While Congress
6.8% in GDP, worse than the 5.4% contraction observed in
reduced some the extra resources (R$165 billion), it still rep-
1930/1931. Single-year negative GDP readings are more usu-
resented an additional worsening of fiscal accounts. 3) Presi-
al and have happened 13 times since 1901. These were most-
dent Lula nominated Fernando Haddad as Finance Minister,
ly due to external shocks (First and Second World Wars, oil
who was initially seen as more heterodox by the market. All
shock, Asia/Russia crisis, 2008 credit crisis, Covid-19), with
this led to a rough few months for the markets. In 1Q23, there
the exception of the late-1980s hyperinflation. As can be
was talk of changing the inflation target, of reversing the
observed in the chart below, Brazil has not yet been able to
privatization of Eletrobras, of the government taxing for 3
get back to a growth pattern in line with what was observed
months exports of oil and of President Lula continuing to
before the 2015-16 recession. This is partly because of policy
vociferate against the central bank. Thankfully, things started
choices, partly because of Covid-19, but also partly because
to get better once the new fiscal plan was presented. The new
there is still a high risk premium embedded in investing in
fiscal framework substitutes the ceiling of expenditures and
Brazil.
had a quick approval in the Lower House. That calmed the
market, along with the maintenance of the inflation target
and also congressional action, which has been somewhat of a
backstop for reversal of previously approved reforms. For
example, the reversion of the Sanitation Law proposed by the
Lula administration was not approved. Lastly, the government
appears poised to get approval for the first phase of the tax
reform, which consists of the merger of several different tax-
es into a VAT. All in all, there is no question that this is not an
economically liberal administration; however, markets will be
content enough if it is able to keep the lid on fiscal accounts
33
JPMORGAN
Brazil 101
Figure 66: Brazil Real GDP Since 1905 Figure 68: Estimated Potential GDP for LatAm Countries
15 6.0
13 2013 2023
11 4.8 5.0
9
7 3.5 3.3 3.2
5 2.8 3.0
2.7
3 2.25
1 1.6 1.6 1.5
-1 1.25
-3
-5
1917
1925
1933
1953
1961
1969
1977
1989
1997
2005
2013
1905
1909
1913
1921
1929
1937
1941
1945
1949
1957
1965
1973
1981
1985
1993
2001
2009
2017
2021
Colombia Peru Chile Latin America Mexico Brazil Argentina
YoY% 5 year average
Source: IPEA, J.P. Morgan Source: J.P. Morgan
According to IMF data, in 2022 the Brazilian economy

was the 11th largest in the world in USD terms and the
Despite the malaise, GDP has been surprisingly on the upside largest in Latin America. In 2022 the country’s GDP reached
in consensus estimates since 2021. Indeed, even in 2023 this US$ 1.9 trillion. The result was 16% higher than in the previ-
appears to be the case. Market consensus as collected by the ous year and has to do both with the appreciation of the BRL
central bank’s Focus survey showed an expectation of only (+5%) in the year and also real GDP expansion of 2.9%.
0.8% growth in 2023. Now (August 2023), the consensus has Since its peak in 2011, USD nominal GDP fell by 26%.
moved to 2.29%. Growth expectations for 2024 currently sit Indeed, since then, Brazil fell in the ranking of the largest
at 1.3%. These better-than-expected GDP readings could have global economies, considering that it was in 7th place. In the
many explanations, such as the new protagonism of the agri- same comparison, Brazil was responsible for 3.5% of the
cultural sector. Still, one is left to wonder if years of structural world’s USD GDP in 2011 and today the figure is only 1.9%.
reforms are finally starting to pay off.
Table 15: GDP in Dollars and Rankings
Figure 67: GDP has typically been higher than initially forecast
JPM forecast IMF forecast Actual reported
2018 2.8 1.9 1.8
2019 2.3 2.5 1.2
2020 2.0 2.2 -3.3
2021 2.6 3.6 5.0
2022 -0.5 0.3 2.9
2023 0.5 1.2 3.0*
2024 1.2* 1.5*
Source: J.P. Morgan; IMF; IBGE. Note: *is the forecast as of October 2024
Structural impediments to growth: There are questions that

abound on whether Brazil is going to be able to embark once
more on a high-growth path or if it is on a middle-income
LatAm comparisons
ramp. The need for structural reforms has already been diag-
nosed and, to some extent, implemented. On the other hand, During the commodity boom years, Brazil’s real GDP grew
major inequality, poor education standards, a very low invest- consistently above that of LatAm and the world. It lagged EM
ment/savings rate, and a high cost of labor are also issues that because of the huge growth rates from China. However, from
dampen competitiveness and productivity. Currently, J.P. 2012 until 2018, Brazil’s growth rates started to lag those of
Morgan projects that Brazil’s GDP (potential GDP) is only LatAm. The environment started to change again in 2018, as
1.5%; this is down from 3.2% a decade ago. Still, considering the impact of lower rates and reforms implemented during the
the recent surprises in GDP, there is some early-stage specula- Temer years started to lead to some growth recovery follow-
tion that potential GDP can actually be a tad higher than that. ing the 2015-16 recession. However, this all came to an end
with the pandemic: in 2020, Brazil actually grew in line with
global GDP and above LatAm considering the higher fiscal
stimulus employed to combat the macro impacts of the pan-
demic. Albeit, that was short lasting, and growth rates started
to fare worse since then.
34
JPMORGAN
Figure 69: GDP Comparison It is interesting to note that the end of the commodity boom
was also about the time when one saw the appreciation of the
USD. A strong USD leads to lower LatAm growth, as periods
of a weaker USD lead to higher growth in the region.
Figure 72: Broad Dollar vs. LatAm GDP

130 10%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
8%
120
Global EM LatAm Brazil 6%
110 4%
Source: IMF 2%
100
0%
Going forward, Brazil is expected to beat the region’s growth 90 -2%
1Q00
4Q00
3Q01
2Q02
1Q03
4Q03
3Q04
2Q05
1Q06
4Q06
3Q07
2Q08
1Q09
4Q09
3Q10
2Q11
1Q12
4Q12
3Q13
2Q14
1Q15
4Q15
3Q16
2Q17
1Q18
4Q18
3Q19
2Q20
1Q21
4Q21
3Q22
in 2023, in part because of a very strong collaboration of the
Broad dollar GDP (right)
agricultural sector with GDP. However, that growth rate is not
expected to remain as a trend going forward, returning to Source: Bloomberg Finance L.P.; J.P. Morgan
about 1% in 2024, as a result of slower global growth and a
higher base of comparison. GDP Composition: Looking at GDP composition (weight),
household consumption is the main item on the demand side.
Figure 70: Economic Growth: Brazil vs LatAm, EM and the World This is not new as in the last two decades household con-
sumption has been responsible for over 60% of GDP. In
7.2 6.9
6.3 recent years, government consumption is tied up with fixed
5.0 capital formation for the second largest component. In 2022,
3.5 3.8 3.5 3.7 government consumption represented 18% of GDP, slightly
2.9 2.9 3.0
2.5
2.0 1.9
1.5
below the historical average of 19.4%. Fixed capital forma-
1.2
tion, a.k.a. investment rate, is often at low levels, having end-
Global EM LatAm Brazil
ed 2022 at only 18.8%, one of the lowest levels in the world.
2021 2022 2023F 2024F On the external side, there is significant yearly variation in
terms of contributions of exports and imports. Exports were
Source: J.P. Morgan, official agencies very weak in the period of the fixed exchange rate (1994-99),
accounting for about 8% of GDP, while imports at the time
were hovering around 9.5% of GDP. This relationship
reversed when the BRL was devalued in January 1999 and
Brazil has been one of the slowest growing countries in
with the advent of China as a large buyer of Brazilian com-
LatAm since the end of the commodity boom cycle. While
modities. Exports recovered and rose to 15% of GDP. From
policies are also to blame for the lower growth relative to the
2010 to 2014, however, the appreciation of the exchange rate
previous period, it is interesting to note that countries that are
led imports to outpace exports once more. In 2022, exports
commodity driven also have experienced the same decline.
and imports were both responsible for about 20% of GDP.
On the other hand, Mexico has seen a more stable growth pat-
tern, albeit equally low in both periods.
Figure 73: GDP Components by Expenditure (Demand Side)
% of total GDP, 2017 and 2022
Figure 71: LatAm Countries’ GDP – End of Commodity Boom Leads
61.4% 63.1%
to Lower Growth
% average growth 2008 - 2022
6.2 20.7%
18.5% 18.0% 18.8% 20.0% 19.3%
11.9% 13.2%
4.6 4.5 4.3
4.0 3.7 3.5
3.0
Household Consumption Government Fixed Capital Formation Exports of Goods & Imports of Goods &
1.7 1.8 Consumption Services Services
1.0 0.8
2012 2022
Brazil Argentina Mexico Chile Colombia Peru

Source: IBGE
2002 - 2010 2011-2022
When observing the growth rate of the different demand com-
Source: J.P. Morgan, Bloomberg Finance L.P. ponents, one could say that what is likely pushing down GDP
going forward is private consumption, expected to grow at an
35
JPMORGAN
Brazil 101
average 1.5% in 2023-2024 (JPM forecast) as high interest Per capita GDP
rates continue to be felt by an indebted consumer. Another Per capita GDP reached US$8,917 in 2022, an increase of
very weak component is investment, which should contract 16% oya. Per capita GDP is 32% below the peak of US$13.2
3.5% in 2023, following very low growth in 2022. Worse K registered in 2011. A lot of the loss has to do with the
still, prospects going forward do not indicate a great recovery. depreciation of the BRL, which went from R$2/USD in 2011
Another noteworthy point is that while there was a pre-pan- to R$5.25/USD in 2022. Still, as we have already observed,
demic effort to cut government expenditures, these are from 2012 onwards, Brazil’s real GDP started to slip, thus
expected to grow going forward. also impacting per capita GDP. One thing worth noting is that
the data are likely to be revised upwards considering that the
Table 16: Real GDP Growth by Demand Components recent result of the 2022 census found out that there are about
203 million people in Brazil, or about 10 million less than
Items 2019 2020 2021 2022 2023F 2024F
GDP 1.2 -3.3 5.0 2.9 2.9 1.2
previously estimated. At the end of 2022, Chile, Argentina
Demand components: and Mexico had a higher per capita GDP than Brazil, respec-
Private Consumption 2.6 -4.6 3.7 4.3 2.7 1.2 tively, at USD 15.3K, 13.7K and 11K.
Government Consumption -0.5 -3.7 3.5 1.5 2.0 1.3
Investment 4.0 -1.7 16.5 0.9 -3.5 0.7
Exports -2.6 -2.3 5.9 5.5 9.0 2.0 Figure 75: GDP per Capita in USD
Imports 1.3 -9.5 12.0 0.8 0.8 1.5
14000
Source: IBGE, J.P. Morgan Forecast as of Oct 17, 2023 12000
10000
On the supply side, the economy is dominated by services, 8000
which make up almost 60% of Brazil’s GDP. The largest 6000
share of services is real estate activity and public health & 4000
education, each accounting for about 13% of 2022 GDP. 2000

0
Commerce accounts for 12.3% of GDP and has been main-
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
taining this share pretty constantly over the past several years.
A category entitled “other services” has a 7.8% share and Source: World Bank
growing and includes establishments like beauty parlors, pri-
vate security and private health and education. Industry is Regional GDP
responsible for 20.7% of GDP. It saw some 200bp recovery in Brazil’s GDP has a particular characteristic: more than a half
terms of participation over the past couple of years, but over of it is concentrated in the Southeast region (51.9%), where
time the share of this activity has been declining, mostly São Paulo, Rio de Janeiro, and Minas Gerais are located. It is
because of manufacturing. Indeed, about 50% of industry is interesting to note that the Southeast GDP share is significant-
manufacturing (half of which is autos). Mineral extractions ly larger than its population. Sao Paulo state alone is responsi-
account for 4.8% and utilities for 2.2%. Finally, although Bra- ble for nearly one-third of Brazil's GDP (31.2%). Still, the
zil is an important exporter of agricultural commodities, the share of the Southeast has been declining, while that of all
sector accounts for only about 7.6% of GDP, although it other regions has been increasing, especially in the Midwest
increased the level over the past decade. and the North.
Figure 74: GDP Components by Sector (Supply Side) Table 17: Regional GDP Share and Population Distribution
% of GDP, 2022 GDP Population
20.7% 2002 2020 2002 2020
North 4.7% 6.3% 7.8% 8.7%
12.3% 13.5% 13.3%
Northeast 13.1% 14.2% 27.9% 27.1%
6.8% 6.5% 7.8% South 16.2% 17.2% 14.7% 14.3%
2.6% 2.9% Southeast 57.4% 51.9% 42.6% 42.2%
Midweast 8.6% 10.4% 7.0% 7.8%
Financial
Agriculture
Real Estate
Health &
Industry
Commerce
Information
Transportation
Other Services
Education
Activities
Source: IBGE, 2020 (last available data)

Services
Rental
In fact, regions with smaller participation are the ones that are
2012 2022 growing the most: The Midwest and the North grew 13.7%
and 8.2%, respectively, in 2020 (last available), mostly due to
Source: IBGE
advances in agriculture and mining. On the other hand, GDP
in the Southeast grew only 0.9%. This very poor reading is
partly due to the -3.3% contraction of Rio de Janeiro, the low-
36
JPMORGAN
est growth rate of all the 27 Brazilian states. Investments

Figure 76: Regional Real GDP Growth %oya (2020)
One of the central issues of the Brazilian economy is that
there is too little investment and too much consumption, at
13.7% least in “regular” times. This is similar to the composition of
the US economy. Investments ended 2022 accounted for
8.2% 18.8% of GDP, the second highest level over the past nine
years but still very low on international comparisons. In fact,
3.0% 2.8% Brazil has one of the lowest investment rates in the world,
0.9% including all the major LatAm countries. In addition, since at
North Middwest Northeast South Southeast
least the 1970s, Brazil never had an investment-led growth
cycle. More recently, the closest it got to that was during the
Source: IBGE
commodity super cycle, when there were investment multipli-
Indeed, in 2021, 18 states grew more than the Brazil aggre- er effects. One of the key weaknesses of the Brazilian econo-
gate (1.3%), with the vast majority located in the Midwest, my is, indeed, that low investment curbs growth. Typically
North and Northeast. All the Southeast grew less than Brazil, what happens is that when consumption rises, the economy
with the exception of Minas Gerais. overheats and the central bank has to tighten monetary policy
to contain inflation. In other words, there is limited supply for
Table 18: States: GDP Growth and Share of National GDP the level of consumption in Brazil, which ends up generating
(2020) inflation. One could argue that unless investment expands, it
GDP Participation will be difficult for Brazil to have a natural and sustainable
State % Y/Y % of Total growth rate that is higher than the current 1-2%.
Mato Grosso 25.7% 2.3%
Pará 21.1% 2.8% Figure 77: Gross Fixed Capital Formation – Brazil
Mato Grosso do Sul 14.7% 1.6% % of GDP
Roraima 12.1% 0.2% 22.00%
21.00%
Tocantins 10.9% 0.6%
20.00%
Maranhão 9.8% 1.4%
18.8%
19.00%
Rondônia 9.6% 0.7%
18.00%
Santa Catarina 8.0% 4.6%
17.00%
Goiás 7.4% 2.9%
16.00%
Amazonas 7.2% 1.5% 15.00%
Alagoas 7.2% 0.8% 14.00%
Piauí 6.8% 0.7%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Amapá 5.6% 0.2%
Source: IBGE
Acre 5.4% 0.2%
Minas Gerais 4.7% 9.0% Figure 78: Gross Capital Formation – Selected Countries (2022)
Paraná 4.6% 6.4% 43
35
Bahia 4.1% 4.0% 34 33 33 31 30 28 27
Paraíba 3.4% 0.9% 25 25
22 22 22 22 21 20 20 19 18 17 17
18 states above 9.4% 41.1% 15
Brasil 3.0% 100.0%

9 states below -0.5% 58.9%
LatAm
Korea
Russia
Nigeria
Saudi Arabia
Kenya
Argentina
Indonesia
Colombia
Iraq
Egypt
Turkey
Vietnam
Chile
Mexico
Greece
Brazil
India
Philippines
Peru
South Africa
China
Thailand
Ceará 2.0% 2.2%

Sergipe 1.6% 0.6%
São Paulo 1.2% 31.2%
Espírito Santo 0.8% 1.8% Source: World Bank. Note: Data for China, Iraq, Nigeria and Vietnam are for 2021
Rio Grande do Norte 0.3% 0.9%
Pernambuco -2.3% 2.5% The issues surrounding Brazil’s low investment levels are not
Rio Grande do Sul -2.4% 6.2% new. Indeed, for the past 20 years, Brazil's investment rate
Distrito Federal -2.8% 3.5% has been below that of Latin America countries, with Argenti-
Rio de Janeiro -3.3% 9.9% na more recently catching up on the downside. Between 2010
and 2012, Brazil’s investment rate was over 20%, around the
Source: IBGE
same as the average for LatAm, but these were one-offs, driv-
en by massive loans by public sector banks (BNDES espe-
37
JPMORGAN
Brazil 101
cially), high commodity prices derived from the post-crisis Figure 81: Exports Prices vs Fixed Capital Formation Growth
Chinese stimulus programs, and relatively low rates. After %oya
that, however, the regulatory framework in the country deteri- 22% 40%
orated, as the government started to tamper with taxes, stimu- 21% 30%
20% 20%
lus and laws to try to maintain the same level of high growth 19%
10%
observed during the commodity boom years. As expected, 18%
0%
those measures were not effective in stimulating growth, on 17%
16% -10%
the contrary: the legacy was a deep recession that led invest- -20%
15%
ment to decline to the lowest observed level since 1984. 14% -30%
1Q97
1Q99
1Q01
1Q02
1Q03
1Q04
1Q06
1Q08
1Q10
1Q12
1Q13
1Q14
1Q15
1Q17
1Q19
1Q21
1Q23
1Q98
1Q00
1Q05
1Q07
1Q09
1Q11
1Q16
1Q18
1Q20
1Q22
Figure 79: Investment Rate Comparisons by Major Country Groups Gross Fixed Capital Formation (% GDP, left) Export prices (% oya, avg 4Q)
39.0
Source: Funcex, IBGE, J.P. Morgan
34.0
During the military period, the investment/GDP ratio used to
29.0
be higher than the current level, mainly due to industrializa-
24.0 tion and heavy public sector investment, which put a burden
19.0
on Brazil’s fiscal accounts. The macroeconomic instability of
the 1980s and part of the 1990s curbed investment from the
14.0 private sector at the same time that the public sector capabili-
1980
1986
1990
1994
1998
2002
2008
2012
2016
2020
1982
1984
1988
1992
1996
2000
2004
2006
2010
2014
2018
2022
ty to invest was constrained by fiscal concerns. The commod-

G7 EM LatAm & Carib Brazil
ity boom allowed investment to rise, but its end, along with
Source: IMF
unorthodox economic policies, led the investment rate to
plunge. The issue now is that the fiscal adjustment leaves no
In 2022, gross fixed capital formation in Brazil grew by space for the government to invest, at the same time that the
only 0.9% relative to 2021, following a 16.5% y/y rise in private sector is on the sidelines, waiting for more concrete
2021 as investment recovered from a contraction during the signs of growth. There are always questions related to the
pandemic. For the past 10 years, investment was pretty much regulatory framework of the country, which tends to change
flat, compared with an average increase in the prior 10 years according to the political transitions that take place in Brasil-
(2003 to 2012). The average since the start of the series in ia. More transparency, solid institutions and less comings and
1996 is a mere 2.4% growth. goings of regulation could be an important springboard to
higher capex.
Figure 80: Fixed Capital Formation (% OYA)
Capacity utilization indicators capture well the story of
investment. Typically, Brazil operates at high capacity, mostly
due to a lack of investment, not because of high growth. From
2004 to 2014 (except for the 2008 crisis period, when the
country’s industry suddenly stopped), utilization has been
operating close to full capacity, always above the 80% level,
even in periods of low growth. In 2Q15, capacity utilization
fell below 80% for the first time since the 2008 global crisis,
and has continued to fall since then, as a result of weak
growth, which was followed by the pandemic. After that,
Source: IBGE capacity started to normalize and operate on or above aver-
age.
Why is Brazil’s investment rate low? There are many theses
on why investment is low in a country that supposedly has so
much in the way of resources, both in terms of its large con-
sumer market and its natural resources. One could rightly
advance the thesis that investment in Brazil rises substantially
only in times of high commodity prices, when a large amount
of foreign resources enter the country. The figure below
shows that there is a close correlation between export prices
(mostly commodities) and investments.
38
JPMORGAN
Figure 82: Capacity Utilization (% of Total Installed Capacity) resources are even more limited. The current PAC, down the
90 road, can be an issue that spreads to the fiscal debate. Already
85 upon its launch, the government wants to exclude R$5 billion
80 of PAC investments from the fiscal rules that limit expendi-
75 tures.
70
65
Figure 83: PAC 2023 – Overview
60
55
Field Amount Spent (R$bn)
jan-01
jan-02
jan-03
jan-04
jan-05
jan-06
jan-07
jan-08
jan-09
jan-10
jan-11
jan-12
jan-13
jan-14
jan-15
jan-16
jan-17
jan-18
jan-19
jan-20
jan-21
jan-22
jan-23
NUCI Average Sustainable & Resilient Cities 609.7
Energetic Transition & Security 540.3
Source: FGV
Sustainable & Efficient Transports 349.1
Large Investment Programs / Privatizations Army Industry Innovation 52.8
Education 45
The Brazilian government always has some sort of invest-
Healthcare 30.5
ment program in place: this century started with the PAC
Access to water 30.1
(Program for Growth Acceleration) under President Lula,
which prioritized several infrastructure investments that Digital Inclusion 27.9
would receive government funding and monitoring. The PAC Social & Inclusive Infrastructure 2.4
was expanded around 2010 to include housing, water, urban Source: PPI, J.P. Morgan
mobility and others, right before the election that culminated
in the victory of Dilma Rousseff. In 2012, the government Privatizations/Divestments: At the end of 2018, Brazil had
announced a R$470 billion logistics program whose main 209 federal state-owned companies. According to an OECD
accomplishment was the privatization of a few local airports report produced at the end of 2015, Brazil has the largest
(GRU in São Paulo, for example). Many of the road conces- numbers of SOEs among LatAm countries and the third larg-
sions also took place, but at a discount of 70% from the ask- est within the sample (all OECD members and some aggre-
ing price. In mid-2015, the government launched the PIL gates). During the Bolsonaro administration there was a rela-
(Logistics and Infrastructure Program), a R$190 billion infra- tively successful initiative to decrease the number of SOEs,
structure and logistics program. and the initiative was relatively successful. Many companies
were sold, some that were inactive for a long time were
Upon taking office in mid-2016, President Temer created his closed, while some were privatized. The biggest and most
own investment program, this time the PPI (Investment Part- symbolic and important one was Eletrobras, one of the four
nership Program). In essence, the government created a bun- big state-owned companies, together with Petrobras, Banco
ker within the Presidency that would coordinate all the mov- do Brasil and Caixa. The Eletrobras privatization happened in
ing parts of selected projects. The PPI survived the Temer June 2022 through a capitalization. New shares were sold at a
administration and remained in place during the Bolsonaro cost of R$33.7 billion, and, with that, the government ceased
years. to be the controlling shareholder. In 2019, the Supreme Court
ruled that the government can sell the subsidiary of SOEs
without congressional approval, but it needs approval to sell
Fast forward to 2023 and the third Lula presidency and the
the main companies, such as Banco do Brasil, Petrobras,
third incarnation of the PAC. The current program estimates
Eletrobras and Caixa Economica Federal.
R$1.7 trillion in investments, of which R$1.4 billion until
2026. Resources come from the government (R$371 billion
from the budget), private sector (R$612 billion) and state- In 3Q22, there were 130 federal state-owned companies in
owned companies (R$343 billion). On top of this, it is expect- Brazil. Of those 46 were under the direct control of the feder-
ed that financing loans would complement the needed al government, while another 84 were subsidiaries of exisit-
resources (R$362 billion). The PAC is expected to create 4 ing SOEs. For example, Petrobras has 44 subsidiaries, Banco
million jobs. The program is detailed in the figure below. do Brasil has 25, Caixa has 11, the BNDES has 2 and so on.
These companies employed over 433K people, a reduction of
12.54% relative to the personnel employed in 2018. Going
While these programs clearly list investment priorities and
forward, it is unlikely that one will see a further reduction in
give some transparency during the construction/investment
the number of state-owned company employees. Indeed, the
phase of the different projects, the success of previous pro-
government has indicated that it is going to start once more to
grams hinged a lot more on private sector involvement. The
put together public exams to hire new people for public sector
public sector investment capacity is very low, and today the
careers.
39
JPMORGAN
Brazil 101
Table 19: Numbers of Employees in the Largest State-Owned 2023, the revision of the capex plan was approved, and the
Companies new one should be released in November. One could assume
2018 2020 3Q22 % 3Q22/2018 that considering that the limited amount of cash flow that
Correios 105,333 98,101 88,133 -16.3% Petrobras has, the government will probably seek to increase
Banco do Brasil 100,406 94,258 86,986 -13.4% capex. In the first year of President Dilma’s second adminis-
Caixa 84,832 83,444 86,758 2.3%
Petrobras 47,008 41,333 39,241 -16.5%
tration, PBR’s 5-year Capex Plan was R$130 billion. The cur-
EBSERH 31,273 38,154 39,328 25.8% rent program stipulates that 6% of the capex goes to low-car-
Others 126,345 112,189 92,828 -26.5% bon initiatives. This is likely to increase to between 6% and
Total 495,197 467,479 433,274 -12.5% 15% going forward. Another issue that could enter into the
Source: Ministerio da Fazenda new capex is E&P on the Amazon Basin, an investment that
has not reached a consensus yet.
It is interesting to note that, although most of the population
remains against privatizations, the level of those in favor has Figure 85: Petrobras Investment Plan 2023-2027
pretty much doubled over the years. This topic used to be
taboo in Brazil in the past, but it was partially demystified
during governments that were more to the right of center. It
remains to be seen if opinions will shift with the current left-
ist administration.
Figure 84: Poll: Opinion on Privatization

70
67
45
38
25
20 Source: Petrobras; J.P. Morgan
14
7 6
2 2 3 Sanitation: One of the poorest aspects of Brazil’s underde-
In Favor Against Indiferent Don't Know velopment has to do with access to water and sewage in the
2017 2019 2022 country. According to a study from Trata Brasil and GO
Associados, there are an estimated 35 million people without
Source: Datafolha, J.P. Morgan
access to clear water and over 100 million without sewage.
Energy: There are projects in all segments of the Energy sec- As is the case with other social and macro indicators, the situ-
tor. Within transmission, there are 2 auctions per year. In ation is much better in the South/Southeast than in the North/
2023, the government is expected to auction R$35 billion in Northeast. Sanitation today is one of the priorities of invest-
investments. For 2024, the pipeline is at least R$15 billion. In ment in Brazil. To make that a reality, Congress approved in
addition, there are plenty of greenfield growth opportunities mid-2022 a new Sanitation Law, which stipulates that munici-
ahead. According to the Decennial Energy Plan (PDE) pub- palities can transfer sanitation projects and management to
lished by the Energy Reasearch Company (EPE), the govern- the private sector through bidding auctions. Before, it was
ment projects an additional 41,000 kilometers of new trans- common for a municipality to engage in a contract without a
mission lines and about 460 GVA new substations by 2032. bidding process. Also, state-owned companies had a priority
The total investment of these are R$158 billion. Within Dis- in terms of sanitation contracts vis-à-vis the private sector. It
tribution, there is typically about R$40 to 50 billion of invest- also establishes that by 2033, 99% of the population must
ment per year for maintenance and expansion of the grid. In have access to drinking water and 90% must have sewage ser-
Generation, the segments of solar and wind are the ones that vices. According to the same authors of the aforementioned
grow the most. In the year to July 2023, there has been R$33 study, since the implementation of the Sanitation Law, there
billion in solar investment. Investement in wind is more frag- were 18 new public-private partnerships or concessions of
mented. There is still R$20 billion in nuclear investment sanitation, totaling R$67.8 billion. When these projects are
needed to finish the Angra 3 project. All in all, investments in concluded, they should benefit about 32 million people. There
generation should start to decelerate in coming years because are currently an additional 29 projects in study phase, includ-
the system has excess capacity and prices are too low. ing the privatization of Sabesp. Still, our analysts estimate
that R$650 - 700 billion reais are needed to achieve the uni-
Petrobras: Petrobras has typically been responsible for large versalization goals by 2033.
investment projects in the country. The latest Capex Plan
(2023-27) anticipated US$78 billion of investments. In July
40
JPMORGAN
Figure 87: Household Consumption (% oya)

Figure 86: Sanitation Deficit in Brazil (2021) 8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: IBGE; J.P. Morgan
One interesting thing to note is that consumer confidence has

been on an improving path. In fact, the last reading is the best
since pre-Covid levels. The breakdown of the data, which are
divided between how one is viewing the current environment
and, on the other hand, expectations for the future, indicate
that the latter are currently 19% higher than they were last
year. With inflation coming down and rates starting to go
down, consumers are once more optimistic, despite being
over-leveraged.
Figure 88: Consumer Confidence

110
100
90
80
Source: BNDES with SNIS data, 2021 70
60
Consumption 50
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Apr-23
The beauty of the commodity boom years was that the
impact of higher commodity prices filtered way beyond Source: FGV
commodities per se, giving way to a consumption boom.
Retail sales: In Brazil, like in the US, there are two defini-
To some extent, this is what one would have expected in the
tions of retail sales. The narrow reading excludes autos, con-
years to come given what nearshoring does for Mexico. The
struction materials and, more recently, cash & carry super-
big theme in the period between 2003 and 2013 was the rise
market activities. When one mentions only retail sales, that
of a new middle class in Brazil. This development was also a
relates to the narrow reading. Also, while the indicator pres-
reflection of lower interest rates that have paved the way for
ents both an index of nominal revenues and one of volume, it
banks to engage in consumer lending, pretty much for the
is the latter that is a reference. In the first six months of the
first time ever. However, the tide turned at the time of the
year, retail sales ex autos/construction gained 1.3% relative to
recession, and when the recovery looked like it was going to
the same period in 2022. At the same time, the 12-month
take hold, Covid-19 struck and the rebound observed as of
expansion was 0.9% y/y. On the other hand, the expansion of
late is still the effect of the re-opening. Also, consumption
broad retail sales in 1H23 was 4% while the accumulated 12-
was helped by the huge social grants that were granted during
month variation has been 1.1%.
the Covid years and that were extended in the 2022 election
year. However, going forward, our economists believe that
consumption is going to grow close to 0% in 2023 and only
1% in 2024. That is mostly reflective of the impact of interest
rates and also of the fact that consumers are extremely lever-
aged.
41
JPMORGAN
Brazil 101
Figure 89: Retail Sales (Broad and Narrow Measures) Figure 91: New Auto Registrations (2021)
% oya, 6MMA millions
15% 26.3
10%
5%
15.4
0%
-5%
4.4 3.8
-10% 3.0 2.1 2.1 2.0 1.7 1.7 1.7 1.7 1.1 1.0 1.0
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Jun-22
Jun-23
Broad Narrow
Source: IBGE Source: ANFAVEA
In our view, retail sales (narrow) are being driven mostly by Brazil has one of the largest consumer markets in the
categories that are more associated with income than credit. world, ranked 8th by the World Bank. This is measured by
The categories that have been doing better in 1H23 are fuel, household final consumption expenditure in nominal terms.
supermarket, pharma, things that people typically by with In Brazil it is estimated that the consumer market amounts to
cash. On the other hand, things like appliances, furniture and US$1.3 trillion, or 63% of GDP. Within LatAm, it is the larg-
apparel, which are more dependent on credit, have been est consumer market, followed by Mexico in 12th place.
underperforming. The exception here would be autos, which From 2009 to 2013 new registrations were growing at the
have been on a slow post-pandemic recovery. pace of about 3.5-4 million units a year. However, as the
economy deccelerated and rates went higher, the level of
Figure 90: Retail Sales by Category banks’ NPLs related to auto loans soared and financing
% oya, 1H 23 and 1H 22. became a lot more restrictive. In 2019, auto registrations were
14.5
2.8 million, and that decelerated to only 2 million during the
Fuel (12%) 1.4 Covid years, so not only demand can be blamed for it.
Cash & carry supermarket 8.3
5.4
Table 20: Ranking of Domestic Market Size
Autos 0.4
Rank Country Rank Country
Broad retail sales 4.0
0.3 1 United States 9 Italy
Supermarket, food, beverage (54%) 2.6 2 China 10 Canada
0.5
2.2
3 Japan 11 Mexico
Pharma and cosmetics (9.33%) 8.1
4 India 12 Russia
Narrow retail sales (100%) 1.3 5 Germany 22 Argentina
1.4
1.0 6 U.K. 31 Colombia
Furniture and appliances (6.93%) -9.3
7 France 40 Chile
IT, mobile phones (1.43%) -0.7
0.7 8 Brazil 46 Peru
Books, newspapers, magazines (0.33%) -1.7 Source: World Bank. Note: We excluded the European Union from the rank, considering thall of
18.4
its member countries have individual listings.
Construction material -3.6
-7.4
-9.0
Family Budget Survey (POF): The national statistical agen-
Textile, apparel, shoes (6.25%) 17.2 cy IBGE does a survey every decade or so to evaluate what
Others (toys, jewlrey, etc) (9.68%) -13.7 items weigh the most on Brazilian household budgets. This
-2.8
survey is important not only for the result it presents, but also
because it calibrates the different weights of many economic
1H23 1H22
indicators such as consumer prices, for example. The last of
this survey, called POF, took place between 2017 and 2018
Source: IBGE
and its results were released in the following year. Some facts
Autos: The auto market has a long tradition in Brazil, and it found in the study include:
was through it that the process of the country industrialization
happened from the 1950s onwards. According to ANFAVEA, • Fixed expenditures represent 92.7% of families’ budgets.
Brazil was the 8th largest auto producer in 2021 and the sev- • Families spend on average R$4.6K per month. Those
enth largest in terms of new auto registration. expenditures are 7% higher in urban areas and 45% lower
in rural areas.
42
JPMORGAN
• Expenditures are higher than average in the Midwest and like to experiment, and digital penetration is close to univer-
Southeast; lower in the North and Northeast. sal. According to IBGE data from 4Q21, 84.7% of Brazilians
had access to the internet. For people between 20 and 24
• 18% of expenditures are resolved with non-monetary
years old, this climbs to 94.2%, while for those over 60 years
instruments such as exchange, donation, etc.
old it falls to 57.5%. The main use of the internet is texting
• 72% of expenditures go to food, housing and transporta- thought apps that are different from email, thus, for example,
tion through Whats App, video calls, and watching videos/series.
Table 21: Consumer Expenditures Survey (POF 2017-2018) As expected, among those with internet access, the main
means of access is a mobile phone (98.8%). Indeed, 96.3% of
Type of expenditure % of total Type of expenditure % of total household in Brazil had a mobile phone, while only 15.6%
Total expenditures 100.0 Education 3.8
had a fixed line, down from 23% in 2019. On average, the
Fixed expenditures 92.7 Regular courses 1.2
Consumption expenditures 81.0 University courses 1.0 income of the households that didn’t have a mobile phone was
Food 14.2 Other courses 0.8 almost 50% lower than those with one. There are 90% of
Housing 29.6 Books and magazines 0.3 households that have access to the internet, up 6% in 2019.
Rent 15.1 Articles 0.2
As usually is the case, the Southeast, South and Midwest
Electric energy 2.5 Others 0.3
Fixed phone line 0.2 Leisure 2.1 areas are above the average and the North and Northeast are
Mobile phone 1.1 Toys 0.2 below the average, but the increase in access was observed in
Internet, tv and data package 1.1 Mobile phone and accessories 0.9 all regions.
Gas 0.8 Books and magazines 0.1
Water & sewage 1.0 Sports 0.5
Others 0.8 Others 0.5
Table 22: Digital Penetration (% of people)
House Maintenance 2.6 Tobacco 0.4 People who use the Internet People with mobile for personal use
Cleaning products 0.5 Personal services 1.0 2019 2021 2019 2021
Furniture 1.4 Hair salon 0.6 Brazil 79.5 84.7 Brazil 81.4 84.4
Appliances 1.3 Manicure and pedicure 0.2
Southeast 85.0 88.0 Southeast 86.2 88.4
Repairs 0.1 Repairs 0.0
South 83.4 86.8 South 86.7 88.1
Apparel 3.4 Others 0.2
Men's apparel 0.8 Miscelaneous 2.4 Midwest 85.8 89.9 Midwest 87.6 89.6
Women apparel 1.0 Betting and games 0.2 Norteast 70.0 78.1 Norteast 72.7 77.5
Children apparel 0.5 Communication 0.1 North 70.0 76.3 North 69.7 75.4
Shoes 0.9 Parties 0.3
Source: PNAD - IBGE; J.P. Morgan
Jewlery and Custom jewlery 0.1 Professional servuces 0.7
Fabric 0.0 Occasional real estate 0.5 According to a study from FGV, there are more than 2 digital
Transportation 14.6 Others 0.5
Urban 1.3 Other fixed expenditures 11.7 devices for each Brazilian (computer, notebook, tablet or
Gasoline 3.0 Taxes 4.7 smartphone). There are 249 million smartphones in use, plus
Ethanol 0.4 Labor contribution 3.5 215 million of the other devices. The average company
Maintenance 1.7 Banking services 1.0 expenditure on it is 10% of net revenues, but depending on
Vehicle purchase 5.6 Pensions and donations 0.9
Occasional trips 1.5 Private social security 0.2 the sector, a lot more than that.
Others 1.1 Others 1.5
Hygine and Personal care 2.9 Increase in Assets 4.1
Perfum 0.8 Real estate Acquisition 2.7
Hair Products 0.4 Real estate refurbishment 1.3
Soap 0.2 Other investments 0.0
Others 1.6 Decrease of Liabilities 3.2
Health Care 6.5 Loans 2.4
Medicine 2.9 Mortgage 0.9
Health insurance 2.1
Teeth insurance and care 0.3
Doctor appointment 0.3
Medical Treatment 0.1
Surgeries 0.2
Hospitalization 0.0
Exams (Diagnostics) 0.2
Treatment material 0.3
Others 0.1
Source: IBGE, POF 2017-2018
Digital Penetration: It is widely known that Brazil is a great

place to experiment with new technologies. People in general
43
JPMORGAN
Brazil 101
AGRICULTURE Figure 93: Industrial Production and Economic Categories (% oya,

3MMA)
% year-over-year
30
Industry 20
10
Industry represented 20.7% of GDP in Brazil in 2022, one of
0
the lowest levels within the current GDP methodology, which
-10
starts in 1996. Nearly 54% of total industry corresponds to
-20
manufacturing, while mining activities (including oil) repre-
-30
sent 22.5%. Construction corresponds to 13.2% of the total,
while the utilities group is 10.5%. Over the past few years,
IP Capital goods Intermediate Consumer goods
there was an increase in the share of mining activity at the
expense of construction.
Source: IBGE
Figure 92: Share of Industry in Overall GDP As for sectors, the largest one within IP is food, followed by
25.0% the extractive industry (mining and oil exploration) and oil
24.0%
23.0%
by-products & biofuel. However, they are not the ones that
22.0% have been growing the most over the pat 12 months. Auto
21.0%
20.0% equipment is the only sector currently growing by double dig-
19.0%
18.0%
its, while pharma comes in second at close to 10% accumulat-
17.0%
16.0%
ed growth over the past 12 months. The weakest production is
15.0% being registered in wood products and electric machinery.
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: IBGE Figure 94: Industrial Production by Category

% accumulated over the past 12 months – June 2023
The deep industrial contraction should be mostly attributed to
a weakness in manufacturing. Brazil is not the only country
Auto equipment (1.1%) 16.7
where a sharp de-industrialization has taken place. Other than
Pharma (2.4%) 9.8
in Asia, most emerging markets also de-industrialized over
Tobacco (0.4%) 5.4
the past decade. However, it appears that the process in Brazil
Oil byproducts, Biofuels(13.5%) 5.1
was a lot deeper. The strong exchange rate that was in place
Autos (6.2%) 4.3
from 2007 to 2013 and the flood of Chinese goods into the Pulp & papel (3.7%) 2.2
country over the past 10 years are the obvious reasons. How- Food (15.1%) 1.9
ever, taxes are far too complicated and a real obstacle to keep Beverage (3%) 1.5
industry in business, as well as the fact that the cost of capital Extractive Industry (14.6%) 1.2
is also prohibitive. When looking at the big macro categories, Printing (0.3%) 0.2
it is mostly intermediate goods that determine IP in Brazil, Plastic & rubber (3.4%) 0.2
also considering that they are 60% of the index. Capital goods Industrial production (100%) 0.1
is the category that fluctuates the most and is responsible for Manufacturing (85.4%) -0.2
only 6% of total IP. Last but not least, consumer goods are Shoes (4.9%) -1.4
responsible for 32% of total IP, of which 85% is related to Metals (1.6%) -3.3
consumer semi-durables. Within the index breakdown, inter- Machinery maintenance (1.6%) -3.6
mediate goods led the negative performance on a year-over- Chemical (7.4%) -3.9
year basis through decreasing 2.2%y/y, on the back of the Machine and equipment (3.8%) -4.5
Metal products (3%) -4.9
lackluster performance in mining activity (-9.7%y/y), given
Others (1.2%) -5
the Brumadinho dam burst in the beginning of the year. On
Electronics (2%) -5.8
the other hand, durable goods increased the most (2%y/y),
Textile (1.3%) -7
mainly driven by autos (+2.1%y/y). Capital goods is still very
Furniture (1.1%) -7
weak and declined 0.4%y/y in 2019, a tepid result that doesn’t Non metalic minerals (2.7%) -7.4
bode well for the capex outlook going forward. Apparel (2%) -9.3
Electric Machinery (2.3%) -9.4
Wood products (1.1%) -19.7
Source: IBGE; numbers in parentheses are the weight of the activity in the overall index.
44
JPMORGAN
Industrial business confidence: Since the pandemic recov- a 5.2% increase in 2021 after contracting almost 4% in 2020.
ery, industrial business confidence has been declining, and we
think this has much to do with the increase in interest rates. Figure 96: Services Y/Y Change
Rates were at 2% in March 2021, when they started to climb, 8.0%
reaching 13.75% a year later. Now that rates have started to 6.0%
go up, it is likely that one will see confidence starting to 4.0%
improve somewhat. However, there is one item that could 2.0%
curtail the improvement – the tax reform. It is still unclear at 0.0%

-2.0%
this point how the new tax reform will impact the different
-4.0%
sectors and also how long it will take for this impact to be
-6.0%
felt. Still, some improvement should be expected on the back
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
of lower rates. FGV confidence indexes are diffusion indexes
that go from 0 to 2000; anything above 100 is optimistic and Source: IBGE – National accounts; J.P. Morgan
below 100 is pessimistic. The last time the indicator was A few years ago, the IBGE started to produce a services indi-
above 100 was in August 2022. cator, which is similar to retail sales, and the industrial pro-
duction index. In the first half of 2023, it grew by 4.7%, while
Figure 95: Industrial Business Confidence the gains are at 6.2% over the past 12 months. Looking at the
index, non-seasonally adjusted breakdown below, it is clear that the reopening has been an
110
105
important force for services, with lodging and restaurants
100 recovering at a good pace. On the other hand, the most nota-
95 ble advance has been in transportation, which is being greatly
90
boosted by the booming agricultural sector.
85
80
75 Table 23: Services Index breakdown

70 % change year-over-year
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Apr-23
1H 2023 12 mo. to Jun 23 Index weight

Source: FGV Total Services 4.7 6.2 100%
Services Rendered to Families 5.8 10.2 8.2%
Industrial activity in Brazil is pretty much concentrated in the Lodging 6.1 10.1 1.5%
Bar & Restaurant 11.2 NA 5.5%
Southeast region, mainly in the state of São Paulo. The region Others 5.6 10.9 1.2%
is an industrial center marked by diversity and production Communication Services 5.3 4.5 23.5%
volume. The industry in the Southeast is technologically more Telecom 2.1 -2.2 10.8%
IT 6.9 13.1 9.9%
sophisticated than in the other regions and thus attracts a lot TV, Radio, News Agency 3.3 1.7 2.8%
of multinational companies, mainly because of its more spe- Professional Services 4.4 5.8 21.7%
cialized labor market and its strong consumer market. In the Transportation 5.6 9.1 36.4%
South, industry has an important linkage to agricultural pro- Land 10.2 14.5 20.8%
Sea 11.1 11.6 1.9%
duction. The region is also an important producer of interme- Air -1.2 4.2 3.2%
diate goods, complementing Southeast production. The Storage -2 0.9 10.6%
Northeast industry is more focused on agribusiness. The Others 0 0 10.2%
region has been evolving lately but still suffers from the Source: IBGE
South-Southeast competition. In order to attract more indus-
tries to its states, the North, the Northeast and more recently Labor
the Midwest, have been offering attractive tax subsidies. As in other parts of the world, the labor market in Brazil is
However, it is possible that these are at their final stage con- also proving to be more resilient than it was expected.
sidering the introduction of a VAT tax in Brazil in substitution Despite the weak growth in the post-Covid period, unemploy-
for the different state taxes now in place. ment is hovering around 8%, which is a level not observed
since 2015. Part of this is due to a lower level of labor partici-
Services pation, that is, the amount of people actually looking for jobs
has decreased.
Services historically make up over 60% of Brazil’s GDP, but
services fell below that level during Covid and has not yet
recovered. Half of services are made up of real estate services
(such as brokerage, rental, etc.), Health & Education, and
commerce. Services increased by 4.2% y/y in 2022, on top of
45
JPMORGAN
Brazil 101
Figure 97: Unemployment Rate (%) Real wages, as measured by the PNAD Continua have been
16 growing as of late, and it is mostly the product of lower infla-
14 tion. In BRL levels, real wages are R$2921/month, which is
12
10
not yet back to the pre-Covid peak of R$3132.
8
6 Figure 99: Real Wages
4
Year-over-year %
2 10
0 10.0% 8
May-16
May-21
Mar-12
Jul-15
Oct-16
Mar-17
Apr-14
Jul-20
Oct-21
Mar-22
Aug-12
Jan-13
Jun-18
Apr-19
Sep-19
Jun-13
Nov-13
Sep-14
Feb-15
Dec-15
Aug-17
Jan-18
Nov-18
Dec-20
Feb-20
Aug-22
Jun-23
Jan-23
6
5.0%
4
0.0% 2
Source: IBGE
0
-5.0%
Labor market measures
-10.0%
Unfortunately, there are no long data series on unemployment
-15.0%
in Brazil. The methodology has changed a couple of times
Jul-16
Jan-14
Jun-14
Jan-19
Jun-19
Jul-21
Mar-13
Apr-15
Dec-16
Oct-17
Mar-18
Nov-19
Apr-20
Dec-21
Oct-22
Mar-23
Aug-13
Nov-14
Sep-15
Feb-16
May-17
Aug-18
Sep-20
Feb-21
May-22
over the past 25 years, and this has led to a discontinuation of
the series. There are two main labor market measurements: Source: IBGE
(1) The household survey is represented by the PNAD conti-
nua. The PNAD is a wide household survey, encompassing Occupation rate: The occupation rate is the percentage of
3,500 municipalities across all Brazilian states and with data people working relative to the size of those who are at work-
starting in 2012. The results refer to data collected in the prior ing age. The occupation rate collapse during the pandemic,
three months rolling. (2) The payroll number, known as but today has recovered to pre-Covid levels and is even at
CAGED, is released by the Labor Ministry and shows how higher levels than previously observed. Again, this might be
many people were hired and fired in the formal labor market, because the size of the working age population is starting to
that is, those who have been registered with the social securi- decline, at the same time that the level of unemployment has
ty institute. The data go back to January 1995. been decreasing. All in all, today over 56.6% of the working
age population is working or looking for a job.
The household survey: There are some reasons that can pin-
point why the labor market has been doing better than expect- Figure 100: Level of Occupation
ed. First, not only unemployment is doing better than expect- % of working age population
59.0%
ed, but also the macro overall. And this can be observed in
57.0%
the payroll services, considering that net job creation has also
55.0%
been expanding (more below). Another issue has to do with
53.0%
demographic considerations: the population is getting older,
51.0%
and the recent census indicated that the process of demo-
49.0%
graphic transition is happening faster than it was earlier
47.0%
thought. Thus, the working age population, albeit still in posi-
Jul-15
Jul-20
Jan-13
Jun-13
Apr-14
Mar-12
Nov-13
Dec-15
Oct-16
Jun-18
Apr-19
Dec-20
Oct-21
Jan-23
Jun-23
Feb-15
Mar-17
Jan-18
Nov-18
Feb-20
Mar-22
Aug-12
Sep-14
May-16
Aug-17
Sep-19
May-21
tive territory, has been declining for at least 10 years. Not Aug-22
only that, but the labor force, represented by those working Source: IBGE
and those looking for a job, has moved to negative territory in
2Q23. As of mid-2023 there were almost 99 million people in Brazil
with a job, the majority of whom were working as formal
Figure 98: Labor Force (Economic Active Population) workers in the private sector (36.7 million people, an increase
% year-over-year of 4.8% in 1H23 relative to the same period in 2022 ). In
10.0% 1.5% comparison, there were 13.1 million informal workers in the
1.4% private sector. The level of informality across all positions
5.0% 1.3%
1.2% reached 42% in 1H23.
0.0% 1.1%
1.0%
-5.0% 0.9%
0.8%
-10.0% 0.7%
Jul-16
Jul-21
Jan-14
Mar-13
Jun-14
Apr-15
Jan-19
Jun-19
Apr-20
Nov-14
Feb-16
Dec-16
Oct-17
Mar-18
Nov-19
Feb-21
Dec-21
Oct-22
Mar-23
Aug-13
Sep-15
Aug-18
Sep-20
May-17
May-22
Labor force % OYA Working age Population % OYA
Source: IBGE
46
JPMORGAN
Table 24: Occupation Position The breakdown of the data (non-seasonally adjusted) indi-
% of total working % 1H cates that the payroll varies enormously within sectors. Ser-
Private Sector - formal 37.2% 4.8% vices has added 310K jobs in 2019 (up to November), fol-
Self Employed 25.5% -1.2% lowed by commerce (121K) and construction (51K). The only
Private Sector - informal 13.3% 3.2% sector to post a contraction shed 2K jobs in the period. The
Public sector 12.4% 3.8% only sector to post a contraction in 2019 was public construc-
Domestic worker 5.9% 1.0% tion (2K).
Employer 4.2% 0.5%
Figure 102: Net Jobs Creation per Sector (2019)
Source: IBGE, J.P. Morgan
% of total %1H23/1H22
Most of those who have a job in Brazil work in the services Agriculture 9% 17%
sector. Commerce and auto services lead, with 17.8 million Industry 14% -31%
people at the end of 4Q. The sector is followed by public Construction 17% 2%
administration, health, education and defense, which make up Commerce 5% -30%
16.5 million people. Services 56% -18%
Source: Caged. Note: Until November 2019
Table 25: Occupation Activity
% of total %1H23/1H22 Minimum wage:
Retail, Auto Services 19.0% 1.9%
Public administration, Health, education, defense 18.1% 4.8%
Since 1995, the minimum wage has grown over 1000%. In
Industry 12.8% 1.4% real terms, this is a very significant evolution, considering
IT, Banking, Real Estate 12.2% 4.4%
Agriculture 8.4% -5.1%
that in the same period inflation rose 173%. The minimum
Construction 7.2% -2.1% wage has always been a much politicized issue, and in the late
Domestic services 5.9% 0.7%
Lodging and Restaurants 5.6% 2.1% 1990s one of the most common claims of workers and unions
Transportation, Post Office, Storage 5.4% 7.4% was a minimum wage equivalent to US$100/month. Now, the
Others 5.3% 4.2%
minimum wage is equivalent to around US$250/month.
Source: IBGE, J.P. Morgan. Note: as of November 2019
CAGED – The Payroll Data: The CAGED data records the Figure 103: Minimum Wage Evolution
total number of (formal) payroll additions and subtractions on R$ per Month
1400 1320
a monthly basis. These data are taken from information sent 1212
1200 1100
by companies to the Labor Ministry about jobs created and 937 954
998 1045
1000 880
terminated each month. The CAGED is a reliable barometer 788
800 678 724
622
for the market, once the high number of net hires is correlated 600 465 510
545
to good performance of economic activity, much like in the 380 415

400 300 350
US. For example, when in 2010 Brazil grew by 7.5%, more 200
than 2 million net new jobs were created, a record high. In 0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
1H23, although the data are running okay, having already
reached the symbolic mark of more than 1 million jobs creat- Source: Portal Brasil
ed (net), formal job creation is running 16% below the level
from 1H22. One methodological note: the CAGED started to The Dilma administration (2011-16) stipulated a formula for
incorporate new sources of information into its data from the fixing of the minimum wage. It established that the mini-
2020 onwards. Accordingly, the data from recent years could mum wage is readjusted by the prior-year inflation plus the
be somewhat higher than when compared with the old meth- level of GDP growth from two years back, if positive. This
odology. One of the reasons might be because temporary logic of readjustment should occur at the beginning of every
workers are better detected in this new survey. year, until its expiration in 2019. From 2019 onwards the
minimum wage was readjusted considering only the inflation
Figure 101: Net Formal Job Creation (Hires Minus Fires) in the previous year, without the addition of the level of GDP
2,844
growth two years back. It is estimated that about 70% of wag-
2,143
1,620 1,474 1,561
1,999
1,155
es are readjusted taking into account the minimum wage.
1,005 872 724
141
401 541
174 Upon taking office, Lula sent a provisional measure to
(147) increase the minimum wage from R$1302/month to R$1320/
(1,637) (1,376) month. It also got congressional approval for the return of the
2023 - 1H
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
minimum wage “formula” adopted by former President Dil-

Source: Labor Ministry. Note: until March 2023 ma, but this time around without an expiration date. This
means that if a future administration wants to change that
47
JPMORGAN
Brazil 101
issue, it would need to go to Congress and face the political Now, with almost 6 years of reform approval, it is difficult to
burden of doing so. know if job creation improved because of the pandemic
impact on the data and also the new methodology of the
An important aspect of the minimum wage is that there are a CAGED from 2020 onwards. Also, recall the earlier-than-ex-
series of government obligations that are tied to it. An pected process of demographic transition, which could also
increase in the minimum wage immediately triggers a chain lead to a higher occupation rate. Still, one thing is undeniable:
of higher government spending. It is estimated that each R$1 the number of complaints at labor courts decreased a great
increase in the minimum wage triggers R$400 million in deal. Data from O Globo show that labor lawsuits decreased
extra government spending as the minimum wage is tied to from 2.66 million processed in the year before the reform to
the following benefits: 1) Social security: The floor of social 1.6 million in the 12 months to August 2022. During the same
security benefits is the minimum wage, so once it goes up, so period, the cases of moral damages at the labor court fell by
does government spending to finance these benefits (about 51%.
65% of private sector retirees receive one minimum wage as
monthly retirement payment). 2) Wage bonus: The govern- Table 26: Main Aspects of Labor Reform
ment gives one minimum wage a year to all formal sector Negotiations between employers and employees will prevail over the labor laws for definition of
workers who are paid up to two minimum wages a month. 3) vacation periods, working hours banks, career planning and wages
Elderly and disabled benefit: Elderly and disabled people who Creates new types of labor contracts: irregular intervals, with workers paid by hours worked and
have an income of less than one minimum wage per month remote work/home office opportunities
receive an extra minimum wage every month from the gov-
Working hours may be negotiated up to 12 hours/day and 48 hours/week
ernment.
Vacation division in up to 3 periods of no less than 5 days
Labor Reform:
In July 2017 the government approved a long overdue labor Part-time work increased to 30 hours/week, with the possibility of 6 extra hours for less than 26
reform. The labor laws in Brazil are governed by laws that hours/week
were established in the 1940s and are very strict, not allowing
End of the mandatory contribution to unions for non-unionized workers
for any freedom of negotiation between employer and
employee. The result is that Brazil is the world record holder Termination of contract will not have to be overseen by union
of labor lawsuits. Not only that, but the labor courts have a
bias in favor of the employee, and this ends up being a rele- Workers who terminate contract may not go to the Labor Justice
vant cost for companies. Still the large amount of regulation
ends up making the Brazilian worker extremely uncompeti- Time limit of 8 years for lawsuits in Labor Justice
tive from a remuneration point of view. It is estimated that the
cost of a laborer to the company is two times the worker Allows for consensual termination of labor contract, with the payment of fees
wage. This is because it is mandatory to pay a bonus for vaca-
tion, a 13th wage in December, not to mention the high pay- Forbids a company from rehiring an employee fired by that same company as outsourced
roll taxes and the FGTS, which is a compulsory retirement
contribution of 8% made by the employer. Source: Lower House, CLT, J.P. Morgan
Given this context, it was with great relief that Brazilian com-
panies received the Labor Reform. It basically introduced sig-
nificant flexibility in labor relations, which should end up
making it cheaper to hire and also decrease the level of law-
suits. The new bill established 13 points that can be freely
negotiated between employer and employee such as vaca-
tions, hours worked, etc. Also, it regulates outsourcing, which
until now was not possible for the main line of work in a
business (for example, a bank could not outsource a teller).
Last but not least, the reform extinguished the mandatory
union contribution. This mandatory tax is equivalent to one
day of work of every employee in the country and feeds the
unions, even if one doesn’t want to be formally unionized.
48
JPMORGAN
Figure 104: Inflation-Targeting System – History

Inflation Year Target Tolerance Interval (%) IPCA %oya
1999 8 6.0 - 10.0 8.94

History
Inflation performance over the years tells us a lot about Bra- 2000 6 4.0 - 8.0 5.97
zil’s history. Until 1994 the country’s economy suffered peri- 2001 4 2.0 - 6.0 7.67
ods of extremely high inflation, which were only overcome
2002 3.5 1.5 - 5.5 12.53
by the introduction of the Real Plan and the Brazilian Real
3.3 1.25 - 5.25
(R$), the current currency. Today, Brazil works with the infla- 2003¹ 9.3
4 1.5 - 6.5
tion-targeting system to keep inflation under control.
3.8 1.25 - 6.25
2004¹ 7.6
Inflation-targeting system: The inflation-targeting regime was 5.5 3.0 - 8.0
adopted in 1999, giving the central bank the responsibility of 2005 4.5 2.0 - 7.0 5.69
conducting monetary policy. The BCB’s objective is to reach
2006 4.5 2.5 - 6.5 3.14
the center of the inflation target and maintain financial stabili-
2007 4.5 2.5 - 6.5 4.46
ty. The target is determined by the National Monetary Coun-
cil (CMN), which is composed of the Economy Minister, the 2008 4.5 2.5 - 6.5 5.9
Finance Secretary and the Governor of the Central Bank. The 2009 4.5 2.5 - 6.5 4.31
IPCA is the inflation index that benchmarks the process. The 2010 4.5 2.5 - 6.5 5.91
CMN sets not only an inflation target but also an interval tol-
2011 4.5 2.5 - 6.5 6.5
erance band for inflation. This particular CMN meeting usu-
ally takes place in June of each year, and its members set the 2012 4.5 2.5 - 6.5 5.84
target for three years after (for example, in 2023 they decided 2013 4.5 2.5 - 6.5 5.91
on the target for 2026). In 2016, the CMN also started to 2014 4.5 2.5 - 6.5 6.41
establish the target for three years after as a way to introduce 2015 4.5 2.5 - 6.5 10.67
more predictability into the system. Occasionally, there are
2016 4.5 2.5 - 6.5 6.29
some revisions introduced into the CMN meetings vis-à-vis
inflation targeting. At the June 2023 meeting, the CMN 2017 4.5 3.0 - 6.0 2.95
reconfirmed the 3% inflation target for 2024, 2025 and 2026 2018 4.5 3.0 - 6.0 3.75
and kept the tolerance band at 1.5%. However, an important 2019 4.25 2.75 – 5.75 4.31
change was introduced: from 2025 onwards, instead of the
2020 4 2.5 – 5.5% 3.2
inflation target being for a calendar year, it will be a “continu-
ous target,” meaning that it would aim forward for a certain 2021 3.75 2.25 – 5.25% 8.3
period of time (let’s say 18 or 24 months). Regulation on how 2022 3.5 2.0 – 5.0% 9.3
the continuous target will work has not been released at the 2023 3.25 1.75 – 4.75% 4.6*
time of this writing. 2024 3.0 1.5 – 4.5% 3.6*
2025 3.0 1.5 – 4.5%
2026 3.0 1.5 – 4.5%
Source: Banco Central do Brasil; ¹A bill of Jan-21-2003 established adjusted target of 8.5% for
2003 and 5.5% for 2004. *JPM forecast for 2023 and 2024 as of September 2023.
Deterioration (2010-15): The inflation target system has

worked well for Brazil, but from 2010 onwards the monetary
authority deviated somewhat from trying to reach the center
of the band, which was widely understood to be the central
bank’s goal. Instead, the BCB gave itself significant latitude
within the tolerance bands. Political scrutiny over adminis-
trated prices was wildly used to keep inflation artificially
under control. On this matter, the government capped utility
prices, gasoline prices, and even some food items. By 2015 it
became evident that the strategy was costly and did not lead
to lower inflation. Indeed, CPI in 2015 reached 10.67%,
49
JPMORGAN
Brazil 101
much higher than the upper tolerance level of 6.5%. This was that a higher target would allow for rates to be reduced
partly happened because the government started to release more quickly. However, the result was terrible: inflation
price freezes, but also because fiscal policy was very expan- expectations that were relatively under control increased with
sionary. Also, the BRL depreciated over 40% in 2015, con- the speculation on the target change and the repeated attacks
tributing to the rise in prices (every 10% depreciation of the towards the central bank. Not only that, but the president also
BRL leads to a ~60bp rise in inflation over 12 months, questioned the independence of the central bank and also
according to J.P. Morgan economists). Note that Brazil was called for the inflation targeting system to include a target for
experiencing high inflation even in a period of recession, thus employment (dual target). Despite the damage done on prices,
a real stagflation. all that proved to be mostly noise. Still, one wonders whether
incoming central bank appointments of the current adminis-
Figure 105: CPI, Target and Bands tration will be less technical and more political than previous
14.00
ones.
12.00
Figure 106: Inflation Expectations for YE2023 and YE2024
10.00
8.00 6.50
6.00
6.00
5.50
4.00 5.00
4.50
2.00
4.00
0.00
3.50
2023*
2024*
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
3.00
Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23
2023 2024
Source: Banco Central do Brasil. * Forecast
Source: Banco Central do Brasil
Regaining confidence (2016-22): The appointment of Ilan
Goldfajn to the central bank following the impeachment of Inflation timeline:
President Dilma Rousseff started the process of confidence 1920: Inflation started to be measured in Brazil.
rebuilding in the inflation targeting system, and this became
quickly evident with the retrenchment of inflation expecta- 1945: Brazil’s economy reached considerable stability, with
tions. Higher confidence in the system, combined with appre- inflation at 3% per year.
ciation of the BRL as well as the continued economic reces-
sion, has put into motion a disinflationary process. Inflation 1960s: Period of economic growth and industrialization pro-
in 2016 closed the year at 6.29%, a 4.4% decline from 2015 moted by President Juscelino Kubitschek. Inflation rates
and within the tolerance limits of the inflation target for the increased to 90% per year.
first time in two years. In June 2017, the CMN set inflation
targets for the future 3 years instead of 2 years in order to
1964-85 (military regime): During the whole military
reinforce credibility. The disinflationary process was a prod-
regime, inflation remained at high levels. However, a mecha-
uct of a stronger BRL, lower food inflation and the recession
nism of inflation correction created in 1964 for government
in 2015. Inflation was at or below the target from mid-2016
debt, which was later used for all prices and salaries, dubbed
allowing for a record drop in interest rates, and the slow
“correção monetária,” allowed people to withstand higher
rebound of the economy from 2017 onwards. Not only that,
inflation. The authorities used to manipulate data in order to
but inflation expectations have been consistently below the
keep the rates low. Hence, data from that period are not reli-
inflation target. Once the pandemic first hit, inflation col-
able.
lapsed, reaching 1.88% in May 2020 and closing the year at
4.52%, higher than the center of the target of 3.5% but within
1986-94: After re-democratization, Brazil went through its
the tolerance intervals. At that time there were already calls
most turbulent period of inflation. The rate jumped from 80%
for the central bank to start hiking rates, which took place in
in 1986 to 1,973% in 1989. During this period, prices often
March 2021.
rose every day. Many economic plans were introduced
(Bresser, Cruzado, Collor, among others), but all attempts
Challenging the System (2023): Even before taking office,
were unsuccessful. The middle-income segment was hardest
President Lula started to challenge the central bank and its
hit: wages lost value very quickly, and in 1990 President Col-
President Roberto Campos Neto regarding the level of inter-
lor confiscated banks’ savings.
est rates, considered too high. Not only that, but calls started
to emerge requesting a change in the target itself. The idea
50
JPMORGAN
1994-99: In 1994, then-Finance Minister Fernando Henrique and so are some public tariffs, transportation prices and a
Cardoso announced the Real Plan, putting into circulation a number of other contracts.
new currency in an effort to finally reach price stabilization.
In this period, the inflation rate fell dramatically, from 916% Main Inflation Indices
in 1994 to 22% in 1995, and the country started to rescue its
credibility in the international arena. The fixed exchange rate Brazil is well known for having a myriad of inflation indices,
was the main anchor of price stability, which over time many times leading to significant confusion. There are two
became extremely costly and unsustainable for the govern- families of indices that we view as the most important: the
ment. The successful introduction of the Real Plan and lower IGPs, collected by Fundação Getulio Vargas (FGV), and the
inflation led to the election of President Cardoso in Novem- IPCs, collected by Instituto Brasileiro de Geografia e Estatís-
ber 1994. tica (IBGE).
1999-2019: With the floating of the exchange rate in January The IPC family (IBGE)
1999, inflation fears rose. The government acted quickly, IPCA: The IPCA is today the benchmark consumer price
increasing taxes, cutting spending and, more importantly, index of Brazil, mostly because it is the inflation index used
introducing the inflation-targeting regime. This regime for inflation-targeting purposes by the central bank. The sur-
remains in place currently. Targets weren’t met in the period vey of prices usually takes place during the calendar month
between 2001 and 2003. Also, during the Dilma Rousseff and is released before the 10th of the next month. It takes into
presidency, the government gave itself more flexibility within account costs for families that earn between 1 and 40 times
the system, informally making the ceiling of the target the tar- the minimum wage per month in 16 metropolitan regions.
get itself (instead of the center). From 2010 until 2016 infla- The IPCA-15 has a similar methodology as the IPCA (with
tion was consistently hovering around 6%, with the CPI sur- fewer cities of coverage), and with a different price collection
passing the double-digit mark in 2015. With the advent of a date, which works as the mid-month CPI preview. In 2022,
new central bank board following the impeachment of Presi- the IPCA closed the year at 5.79% y/y, while the IPCA-15
dent Rousseff, the inflation targeting regime was reinforced was 5.9%. In July 2023, the 12-month accumulated IPCA was
and inflation once more migrated to the center of the target 4%.
and has been undershooting the target since 2017. After sev-
eral years when the target remained set at 4.5%, in 2018 the Figure 107: IPCA Weight per Category and Metropolitan Region
central bank started to reduce the inflation target. %, January 2020
Components Weight (%) Area Weight (%)
Food and beverage 19.34 São Paulo 32.28
2020-Now: Pandemic and post-pandemic: The sudden stop Food inside of the house 13.48 Belo Horizonte 9.69
caused by economic activity–led inflation to reach its lowest Food outside the house 5.86 Rio de Janeiro 9.43
level in recent memory in May 2020. However, the steep cur- Housing 15.59 Porto Alegre 8.61
Bills and Maintenance 9.98 Curitiba 8.09
rency devalaution, which started in mid-2019 as a conse- Rent 7.91 Salvador 5.99
quence mostly of high commodity prices and low rates in Energy 5.61 Goiânia 4.17
Brazil, led inflation to double digits for the first time since Household items 3.75 Brasília 4.06
2016. To counterbalance that movement in an electoral year, Apparel 4.57 Belém 3.94
Transportation 20.59 Recife 3.92
President Bolsonaro called for lower local oil prices in 2022 Private car 11.18 Fortaleza 3.23
and also instilled a decline in fuel taxes, which allowed for Fuel 6.08 Vitória 1.86
inflation to be tamed somewhat. Still, food prices escalated at Health and Personal Care 13.53 São Luís 1.62
Personal Expenses 10.73 Campo Grande 1.57
the same time that the pandemic reopening added to the high- Education 6.14 Aracaju 1.03
er price mix. Upon taking office, President Lula was faced Communication 5.71 Rio Branco 0.51
with inflation that was high above the target. Although fuel
Source: IBGE
subsidies were lifted, it was only with higher rates, a stronger
exchange rate and the normalization of the supply chain that INPC: The INPC has the same methodology as the IPCA but
prices started to move lower. First, it is goods prices that are takes into account households that earn between one and five
falling, but service prices are slowly moving lower. times the minimum wage monthly, which represents approxi-
mately 50% of Brazilian households (instead of up to 40 min-
Indexation: One of the key problems with rising prices in imum wages, as in the IPCA). Therefore, the weights for each
Brazil is that the economy is still indexed to inflation to some category are different from the IPCA’s. In May 2023, for
degree. For example, the formula of minimum wage readjust- example, food has a heavier weight in the INPC calculation
ment has a price component. The mandatory returns of pen- (22%) than in the IPCA (19.34%).
sion funds is inflation plus 5%, rents are indexed to inflation,
51
JPMORGAN
Brazil 101
Figure 108: IPCA vs. INPC Composition prices in 7 major capital cities. In 2023 there was a method-
19.322.0
17.5
20.619.9 ological change of the index composition, for which the
15.6
13.5
11.8 10.7
weight of labor costs was reduced (40% now versus 49%
8.1
3.8 4.6 4.6 5.4 6.1 4.5 5.7 6.1 before), the weight of material and equipment increased (54%
versus 42%) and services went to 6% from 9%. The index is
used to run project viability studies as well as the readjust-
ment index of homebuyers’ payments during the construction
phase. The INCC gained 9.4% in 2022 and fell to 3.06% in
IPCA INPC August.
Source: IBGE
IPCA vs. IGP-M
The IGP family Over time, the IGP-M and the IPCA tend to converge.
The IGP family is composed of three main indexes: the Still, major changes between the indexes happen at times of
IGP-DI, the IGP-M and the IGP-10. All of them have the large commodity price variation (which is stronger in whole-
same composition but differ by collection and release dates. sale prices than in retail) and at times of wide FX variation.
The IGP-M has two previews before the final monthly num- For example, in 2020 and 2021, when commodity prices
ber is released. It is the most common FGV index, because it soared and the BRL depreciated, the IGP-M was much higher
is the one used to readjust contracts, for example, rents. In than the IPCA. On the other hand, the decline in commodity
2022, the IGP-M closed at 5.45%, but in August 2023 it was prices in 1H23 together with a stronger BRL lead the IGP-M
at -7.2% on a year-on-year basis. to register the largest deflation in its over 30 year history.
Table 27: IGP Price Index Calendar Figure 109: IPCA vs. IGP-M
15
Index Collection Date Releases Date
13
st th End of the month with two earlier
IGP-M From the 21 of the previous month to the 20 of the current month 11
previews
9
IGP-10 From the 11st of the previous month to the 10th of the current month Around the 20th of each month
7
IGP-DI Calendar month Around the 10th of each month 5
3
1
Source: FGV
-1
-3
The IGPs have an interesting composition: 60% of the
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
1H23
index is made up of wholesale prices (IPA), 30% of the index IPCA IGP-M
is consumer prices (IPC) and the remaining 10% covers con- Source: FGV, IBRE, J.P. Morgan
struction costs (INCC).
Recent Inflation Behavior
The IPA (wholesale prices) was until recently the closest Inflation in 2023 is to be miss the inflation target of 3.25%,
matrix that Brazil had for producer prices (PPI). It is in the but could still fall within the tolerance level (4.75%). Consen-
IPA that one can measure the price pressure emanating from sus forecast inflation for 2023YE is 4.86% and for 2024YE
commodity prices. It is also the IPA that captures changes in 3.88%. It is interesting to note that the consensus has revised
the exchange rate more intensely, as many commodities that lower expectations as the year went through after a very large
are part of the index are priced in USD. The IPA-M was spike caused by fears of a change in the target itself and the
reporting inflation of 5.27% at the end of 2022, but it col- negative expectations vis-à-vis the fiscal policy of the incom-
lapsed to -11% by August 2023. ing Lula administration.
The IPC (consumer prices) surveys households that earn Our economists believe that inflation will remain above the
between 1 and 33 times the minimum wage in 7 major capital center of the target for both 2023 and 2024, as per the table
cities. It classifies products in eight categories (food, housing, below, but within the tolerance level. Prices of goods have
clothing, health/personal expenses, education/recreation, been falling faster than prices of services, which appear stick-
transportation, communication, others). The IPC-M increased ier. Also, government-controlled prices (administrated) were
4.3% in December 2022 and stood at 3.81% in August 2023. higher this year because of the return of taxes on gasoline and
diesel, which were removed in mid-2022.
The INCC (construction costs) takes into account construc-
tion costs and subdivides the index into labor costs and mate-
rials/equipment and services. It is calculated considering the
52
JPMORGAN
Table 28: IPCA Weights and Variations BCB independence/autonomy: Until February 2021 the BCB
% oya, data and forecasts was not de jure independent from the government; it was a
Components Weights (%) 2020 2021 2022 2023 2024 sort of of sub-arm of the Finance Ministry. However, since
IPCA headline 100.0 4.5 10.1 5.8 4.6 3.6 the Cardoso years, the central bank has enjoyed de facto oper-
BCB core - 2.8 7.0 9.0 4.6 3.2 ational autonomy, having the freedom to decide on interest
rates without having to answer to political pressure. This
Food and beverages 21.1 14.1 7.9 11.6 0.4 4.0
autonomy has given credibility to the institution and, there-
Food at home 15.3 18.2 8.2 13.2 -1.4 4.2 fore, to the interest rate decisions of the past few years, for
Food outside home 5.9 4.8 7.2 7.5 5.4 3.5 the most part. Having said that, it is important to note that the
Housing 15.3 5.3 13.0 0.1 5.1 4.2 BCB’s autonomy was questioned during the Dilma Rousseff
Home appliances 3.8 6.0 12.1 7.9 -1.3 1.4 years, as the central bank was more tolerant with inflation,
Apparel 4.8 -1.1 10.3 18.0 3.8 2.0 deviating from the center of the inflation target and testing
Transport costs 20.7 1.0 21.0 -1.3 7.6 2.6 extremely low levels of interest rates on the premise that the
Health care 13.4 1.5 3.7 11.4 6.9 4.7 neutral rate for Brazil was lower than previously thought. In
Personal expenses 10.1 1.0 4.7 7.8 5.5 4.2 February 2021, the Brazil’s Congress approved a bill that for-
Education costs 5.9 1.1 2.8 7.5 8.0 6.4 malized central bank independence. It entails, among other
Communication 4.9 3.4 1.4 -1.0 3.5 -0.4 things, fixed mandates of 4 years with a possibility for anoth-
Source: IBGE and J.P. Morgan estimates er consecutive 4-year term for the president and the board of
the entity, which are not coincidental with the presidential
Table 29: IPCA per Category
term. After the 2022 election, President Lula questioned on
% oya, data and forecasts
occasion the independence of the central bank. He has also
Components Weights (%) 2020 2021 2022 2023 2024 been a fierce critic of BCB Governor Roberto Campos Neto.
IPCA headline 100.0 4.5 10.1 5.8 4.6 3.6
BCB core - 2.8 7.0 9.0 4.6 3.2 Table 30: Brazil Central Bank Governors Since 1985
Administered 25.8 2.6 16.9 -3.8 9.8 4.5
Central Bank Chairman Period Brazil's President
Market driven prices 74.2 5.2 7.7 9.4 2.9 3.3
Goods 39.0 8.7 10.6 11.2 0.5 2.6 Antonio Carlos Lemgruber Mar-85 to Aug-85
Non-durable 22.8 13.2 9.4 12.0 0.1 3.8 Fernão Bracher Aug-85 to Feb-87
Francisco Gros Feb-87 to Apr-87
Semi-durable 6.2 -0.2 11.1 17.1 3.6 2.5
Lício de Faria Apr-87 to May-87 José Sarney
Durable 10.0 4.5 12.9 6.1 -0.6 -0.2
Fernando Milliet May-87 to Mar-88
Services 35.2 1.7 4.8 7.6 5.7 4.0
Elmo Camões Mar-88 to Jun-89
Cyclical services 24.0 1.7 6.1 9.2 5.2 3.9
Valdico Bucchi Jun-89 to Mar-90
Trend services 11.2 1.9 2.1 4.2 6.8 4.1
Ibrahim Eris Mar-90 to May-91
Fernando Collor
Source: IBGE, J.P. Morgan Francisco Gros May-91 to Nov-92
Gustavo Loyola Nov-92 to Mar-93

Central Bank and Monetary Policy Paulo Cesar Ximenes Mar-93 to Sep-93
Itamar Franco
The Banco Central do Brasil (BCB) was created in 1964 and Pedro Malan Sep-93 to Dec-94
Gustavo Franco Dec-94 to Jan-95

is the monetary authority in the country. Since its creation, the
Persio Arida Jan-95 to Jun-95
central bank of Brazil has had almost 40 governors. Remain-
Gustavo Loyola Jun-95 to Aug-97
ing more than a year as the governor of the central bank was a Fernando Henrique Cardoso
Gustavo Franco Aug-97 to Mar-99
challenge until the mid-’90s due to problems related to eco-
Armínio Fraga Mar-99 to Jan-03
nomic stability and publicly perceived credibility. More
Henrique Meirelles Jan-03 to Jan-11 Lula
recently, however, there has been a lot more stability. Hen-
Alexandre Tombini Jan-11 to Jun-16 Dilma Rousseff
rique Meirelles stayed in office during the entire tenure of
President Lula. Alexandre Tombini was in office during the Ilan Goldfajn Jun-16 to Feb-19 Michel Temer
entire tenure of President Dilma Rousseff. When Michel

Roberto Campos Neto Feb-19 - Now Jair Bolsonaro / Lula
Temer became president, he nominated Ilan Goldfajn for the
post. After the election of Jair Bolsonaro in October 2018,
Source: Brazil Central Bank
Roberto Campos Neto was appointed central bank president.
He took office in February 2019 and will remain in office The classic monetary policy instrument in Brazil is the
until December 2024. He is the first governor of the central basic interest rate, the SELIC. Beyond that, in 2010 and
bank with a fixed tenure, a result of a law that established for- 2011, the central bank made ample use of hybrid instruments
mal independence of the central bank, approved in 2021. of monetary policy, the now famous macro-prudential mea-
53
JPMORGAN
Brazil 101
sures. These were first used to cool down credit markets at Figure 110: Selic Rate vs Inflation
the end of the 2010 boom. The use of these measures was 20
reduced, and they haven’t really been used since at least 2013. 18
16
Eventually, the central bank also uses reserve requirements as 14
a tool of monetary policy. For example, it reduced reserve 12
10
requirements in time and demand deposits in March 2020 as a
8
response to the macro impacts of the Covid-19 pandemic. 6
4
2
The COPOM: Brazil operates under an inflation-targeting 0
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Jan-23
system, and it is the responsibility of the central bank to man-
age the interest rate so as to achieve the convergence of infla- CPI YoY Selic 5
tion to the set targets. The interest rate level is set by the
Monetary Policy Committee (COPOM), which was estab- Source: Bloomberg FInance L.P.
lished in 1996 with the objective to conduct monetary policy. The TLP – increasing monetary policy impact:
There are monetary policy meetings every six weeks for a
In September 2017, Congress approved the TLP, which grad-
total of eight meetings per year. The COPOM meetings take
ually replaced the TJLP as the new BNDES benchmark inter-
place over two consecutive days (Tuesday and Wednesday),
est rate. The TLP is an interest rate that fluctuates in line with
with a decision being released at the end of the second day
the 3-month moving average of the 5-year NTN-B (inflation-
(around 6pm local time). The COPOM typically has nine vot-
linked bond). The idea here is to remove the implicit subsi-
ing members who decide on interest rates: the governor of the
dized rate of the development bank, which used to set rates ad
central bank as well as the directors of monetary policy, eco-
hoc and typically at much lower levels than the Selic. It is
nomic policy, regulation, international affairs, surveillance,
thought that by making the BNDES rate more in line with
administration, institutional relations, and organization of the
market rates, the power of monetary policy is stronger, allow-
financial system. If there is a tie vote, it is up to the governor
ing for rates to be lower over the medium run. In 2017, it was
to break it. Since the start of the inflation-targeting regime in
estimated that about 25% of credit in Brazil is tied to the sub-
June 1999, the COPOM has moved interest rates a total of
sidized BNDES interest rate.
137 times. The year it moved the most was 2003, by reducing
rates following the first election of President Lula. The years
in which the COPOM moved rates in every single meeting International comparisons: Brazil is once more on the podi-
were 2005, 2006, 2012, and 2017. The year in which the um of real interest rates. After Mexico, it is the country with
COPOM moved rates the least was 2016. the highest real interest rate ex-ante in the world. Why are
rates high? This is a lengthy debate, but it touches upon the
issue of savings and investment rates in the country being
Post-Pandemic Monetary Policy: Brazil exited the Covid-
very low, forcing Brazil to attract capital from abroad and, for
19 pandemic with the highest interest rate in the world among
that, offering higher yields. Also, the low level of installed
major countries. The Selic jumped to 13.75% in nominal
capacity leads inflation to hit very quickly once the country
terms, and reached over 7% in real terms. At the moment of
grows, as there is not enough supply to meet demand (over-
this writing, the central bank started to cut interest rates and is
heating), forcing the central bank to move on rates. Also, and
expected to do a total easing of about 4% to 6% by mid-2024,
perhaps the most relevant aspect, is that fiscal policy is very
depending on the global framework (Fed easing would help)
loose despite efforts on the contrary, forcing monetary policy
and the local institutionalization of a reasonably tight fiscal
to be tight. Thus, Brazil has both one of the highest real inter-
policy. That would bring nominal interest rates to between
est rates in the world and one of the highest debt-to-GDP
10% and 8%. While there is no consensus on the magnitude
ratios in the world.
of the easing, there is consensus that rates are high at this lev-
el. But looking in retrospect, it is difficult to think that Brazil
will embark on the kind of easing that prevailed from 2017
onwards.
54
JPMORGAN
Figure 111: Emerging Market Real Interest Rates (%) 1999: The introduction of the floating exchange rate regime
led to a significant depreciation in the BRL, taking it from
R$/US$1.2 in December 1998 to R$/US$1.98 in January
1999, depreciation of about 64% in just one month.
2002/2003: Brazil was facing a severe confidence crisis, trig-

gered primarily by uncertainties regarding the presidential
election. The main candidates were Luis Inácio Lula da Silva
(PT) and José Serra (PSDB). The market was concerned that
Lula, the opposition candidate, would win the election and
make good on the populist themes that marked his previous
electoral attempts. Markets were unsure if Lula would follow
the economic policies in place during the Cardoso administra-
tion and if he would fulfill the commitments on public debt.
During this period, the dollar came close to 4 R$/US$, the
highest value since the implementation of the BRL.
2008: The most serious global economic crisis since the

Source: J.P. Morgan. Calculation takes into account current policy rates minus current inflation,
as of October 2023. Great Depression of 1929 generated a global confidence cri-
sis. The collective uncertainties led foreign capital to leave
Exchange Rate Policy Brazil, searching for what it hoped were relatively safer
The introduction of the Real Plan in early 1994 culminated havens, thereby causing BRL weakness.
six months later with the introduction of a new currency, the
Real (BRL), which substituted for the Cruzeiro Real. The 2010/2012 – “Currency wars”: A world of negative real
new currency was born under a managed, pegged regime of interest rates and plenty of liquidity led to very high inflows
bands. At the time of its introduction, the BRL was valued to Brazil, attracted by strong economic recovery post the cri-
below 1 USD, and for several years it depreciated very slight- sis and high interest rates. The currency strengthened and led
ly. Finance Minister Guido Mantega to declare in 2010 that Bra-
zil was in a currency war against other nations. The main con-
In January 1999, when the BRL was around 1.2/USD, the cern of the authorities was avoiding the de-industrialization of
government finally allowed the BRL to float after 4.5 years the country, which could be caused by a lack of competitive-
of a pegged regime with horizontal bands. The Brazilian cur- ness of the Brazilian manufacturing industry in light of the
rency was under attack after the Asia and Russia crisis, and strong exchange rate. Exchange rate controls were put into
international reserves, which were around US$70 billion in place.
mid-1998, fell 37% in six months. Thus, the BRL was
allowed to float. Since the introduction of the floating 2013/2014 – Taper tantrum/daily intervention policy: Gov-
exchange rate system in 1999, the economy has undergone ernment efforts to weaken the currency started to pay off in
several critical periods, leading to significant volatility in the mid-2013, but not in the way it imagined. The BRL started to
BRL, especially in times of crisis. weaken once it became evident that macro data were not
rebounding and investor sentiment towards Brazil soured
once more. China woes in 1H13 and the taper tantrum of mid-
year exacerbated the weakness. The BRL and the currencies
Figure 112: Exchange Rates in context since the Real Plan from the so-called Fragile 5 were the worst performing in
2013, with the BRL depreciating 13%, the TRL down 17%,
5.8 Fed 1st hike, Fiscal
deterioration, and the ZAR and IDR losing 19% versus the USD. FX
4.8 President Lula Election impeachment
Covid-19; Swaps: In August 2013 the central bank introduced a policy
3.8 negative real
Floating regime
Global Financial Taper interest rates of “daily interventions.” It would provide USD to the markets
Crisis Tantrum
2.8 introduced US-China trade
war; Selic cuts
via derivatives at the rate of US$500 million per day in FX
1.8 swaps, with an additional US$1 billion in repos on Fridays.
0.8
Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19 Jan-21 Jan-23
The BCB goal was to provide hedges for economic agents
and FX liquidity. The central bank renewed its daily interven-
Source: Bloomberg Finance L.P.; J.P. Morgan tion policy in December 2013, June 2014 and December
2014. J.P. Morgan estimates that the level of the BRL in 2014
55
JPMORGAN
Brazil 101
was 10-15% stronger due to the intervention policy. conditions were favorable for an appreciation: first, during
the Covid reopening in 1H of 2022, which was accompanied
2015/2017 – Economy and politics unravel: The effect of by the beginning of the Russia-Ukraine conflict, leading com-
the economic policy choices of the Dilma Rousseff adminis- modity prices higher. The BRL also found some footing once
tration started to become apparent in 2013/2014 once the the central bank started to hike interest rates in 1Q21 and con-
global search for yield faded. However, it was not until 2015 tinued that March until August 2022, for a total hike of
that the deterioration became evident. Growth slowed expo- 11.75%. That brought real rates in Brazil at over 7%, making
nentially and a tentative implementation of better fiscal policy the currency, along with the MXN, one of the highest yielding
found the Congress averse to it. The central bank announced in the world. The question now is on whether the ongoing
in March 2015 an end to the daily intervention policy in an easing cycle will lead to another round of depreciation.
effort to allow the BRL to float more freely. The daily inter-
vention program of the BCB generated a total liability of Figure 113: BRL versus Selic
US$114 billion in FX swaps. Country risk continued to climb 6
19
as a result of faltering economic policies. By mid-2015, S&P 17
5.5
5
removed its Investment Grade rating for Brazil, accelerating 15
4.5
13
the BRL downfall. Currency deterioration remained in place 4
11 3.5
until the time of the impeachment of President Dilma Rouss- 9 3
eff. Once there was a change in economic policy with the 7 2.5
impeachment, the BRL appreciated and was by far the best- 5 2

3 1.5
performing currency in the world in 2016, gaining 22%, 1 1
despite the losses provoked at the time of President Trump’s
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Jan-23
election. Selic BRL (right)
2018-20: Lower rates, Weaker FX: The BRL embarked on a Source: Bloomberg Finance L.P., J.P. Morgan
depreciation trend in 2018. At the time, the broad dollar start- Real exchange rate: The BRL is a volatile currency and very
ed to strengthen and, locally, concerns escalated with the correlated to commodity prices. It used to be a carry currency,
truckers' strike of May 2018 and the general elections of as it is was a vehicle for foreign investors to profit from Bra-
October. After the election of Jair Bolsonaro, the currency zil’s high local rates. At times of domestic stress, a heightened
strengthened, but that was only temporary. There have been risk perception hits the currency perhaps more abruptly than
several discussions on why the BRL weakened when there any other asset. Looking at the real exchange rate for the
was so much institutional progress locally, especially vis-à- domestic currency, these fluctuations become very clear.
vis the approval of a bold social security reform. On one Since mid-2017, the REER has been below its long-term
hand, low growth doesn’t induce capital flows. But, the most average, as a reflection of a weaker BRL. Still, the weakness
important explanation appears to be the slashing of interest level is not very pronounced, and the REER is today only 3%
rates, which led the BRL to be a currency with practically no below the average.
carry, contrary to what happened in the past. Lower rates led
leading Brazilian companies to pre-pay their USD debt and Figure 114: Real Effective Rate (CPI Based) Since 1994
issue locally, with a surge in the demand for spot USD. A
120
one-time unthinkable event happened in February 2020,
which is that the level of the currency was, for the first time 100
ever, higher than interest rates (Selic at 4.25% and BRL at
4.45/ USD). 80
60
2020 onwards: Covid-19 and beyond: It is important to
observe that the BRL was already weakening even before the 40
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
'16
'18
'20
'22
pandemic became a reality. As Covid-19 hit, the central bank

continued the easing cycle, which was supposedly coming to
Source: J.P. Morgan with Central Bank Data
an end. Rates fell all the way to 2% in nominal terms, a situa-
tion very unsupportive for the BRL. At the same time, Brazil To gauge the BRL level, it is also important to monitor terms
introduced very large stimulus measures, at around 10% of of trade. It is interesting to note that from the Covid period
GDP, increasing very substantially the concerns on the fiscal onwards, terms of trade improved a lot more than the real
side. Since then and until mid-2023 the BRL has traded most- effective exchange rate would suggest.
ly above the 5/USD level, except for moments when global
56
JPMORGAN
Figure 115: Real Exchange Rate and Terms of Trade
140
REER
110 ToT
130
90 120
110
70
100
50 90
10 12 14 16 18 20 22 24 26
Source: J.P. Morgan
57
JPMORGAN
Brazil 101
the norm, with few exceptions (2013 and 2014). One

External Sector observes that exports have been on a relentless climb, rising
by 40% between 2012 and 2022, double the level than the
It is a known fact that Brazil is one of the closest economies climb in imports (21%). This is because the global economy
in the world. A recent article from CINDES shows that in has been growing more than Brazil, allowing for its commod-
2020 there were only 9 countries in the world with average ity exports to flow. On the other hand, low internal growth
import tariffs that were higher than those of Brazil for non- combined with high tariffs end up curbing the rise in imports.
agricultural products: Algeria, Argentina, Bhutan, Cameroon, On average (1999-2022), Brazil has had a trade surplus of
Gabon, Iran, Venezuela and Zimbabwe. It is interesting to US$26.5 billion per year, with the best year being 2022
note Argentina in the list, considering that it is in the same (US$61.5 billion surplus) and the worst being 2014 (‑US$9.9
highly protectionist structure as Brazil, namely the Mercosur. billion deficit). The key thing to keep in mind is that there is a
The World Bank data indicate that Brazil was the country trend for the trade surpluses to be increasing over the next
with one of the lowest proportions of total trade in the world, few years, first because of the agricultural exports, which are
at only 33% in 2002... becoming larger and larger, and also because oil production is
rising.
Figure 116: Total Trade as a % of GDP (2022)
85 85 Figure 118: Trade Balance
64 67 70
54 55 60
49 50 51
50
39 40
33 34 34 35 35 40
27 30
20
10
0
-10
-20
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: World Bank Source: MDIC
… the good news, however, is that this was a record for the A More Open Economy? EU - Mercosur trade agreement.
country. That was a result of a vast expansion of both exports Mercosur and the EU have come to terms on a free trade
and imports since the post-pandemic reopening. In 2021, for agreement in June 2019 after 19 years of negotiation. While
example, both exports and imports climbed by 30% relative on one hand the EU committed to open its markets to Brazil’s
to the previous year. Albeit the base of comparison was agricultural goods such as beef, poultry, soy, sugar, ethanol,
depressed, both indicators jumped again in 2022, with exports among others. On the other hand, the Mercosur commits to a
up by 19% y/y and imports up by 24%. removal of tariffs on autos, machinery, IT equipment, textiles,
chocolates, wine, etc. Albeit talks continue, a final signing is
Figure 117: Brazil Total Trade as % of GDP (Exports plus Imports) still pending mostly because of the EU requirements vis-à-vis
the protection of the Amazon and anti-agreement claims from
35
30
European farmers. Also, the EU wants to include a legally
25
binding clause in terms of climate conditions over which the
20 Mercosur is reticent.
15
10 Exports
5
0
Compared with other countries in Latin America, Brazil has
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
the second lowest export share relative to GDP at only 20%,

Source: MDIC
according to the World Bank calculations. In Mexico, exports
represent 43% of GDP, and in Chile 35.6%. The silver lining,
Since Brazil opened its doors to imports in 1990, deficits in if there is one, is that Brazil’s GDP ends up being relatively
the trade balance were observed just seven times – in the insulated from international crises, as was the case during the
years when the crawling peg exchange rate regime was in Global Financial Crisis.
place and also in 2013 and 2014. Between 1995 and 1999,
when the Real Plan was in place, the BRL was strong against
the dollar, encouraging imports over exports. Beginning in
1999, after the implementation of the floating exchange rate
regime, trade deficits started to shrink, and surpluses became
58
JPMORGAN
Figure 119: Exports of Goods and Services as a % of GDP (2022) Figure 121: Brazil Exports (US$ bn)
43 48 400.00
38 40 350.00
33 36 300.00
30 31 32
28 28 29 250.00
24 26 200.00
20 21 22
20 20 150.00
15 17 100.00
12
50.00
0.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Iran
Argentina
Brazil
Colombia
Israel
Mexico
Kenya
Russia
Egypt
Indonesia
Peru
Turkey
Saudi Arabia
India
Philippines
OECD
World
Chile
S. Korea
China
Middle income
South Africa
Source: MDIC. Note: 2023 until September.
Traditionally, the top three export products in Brazil have

been soy, crude oil and iron ore. The three together are
Source: World Bank
responsible for over 38% of total exports in 2023. The top ten
Despite diversification attempts, Brazil is still one of the larg- export products (below) are responsible for 60% of total
est commodity exporters in the world. Brazil has three main exports, and all of them are commodities or commodity relat-
categories for foreign trade: Manufacturing, Extractive Indus- ed.
try and Agro. At first glance, it appears that the export com-
position is about 50% commodities (Agro + extractive/min- Table 31: Top 10 Brazilian Exports (Jan to Sept 2023)
ing). However, a close look at the manufacturing category Products % Y/Y (Jan - Sep) % of total 2023
shows that an important part of it is made up of commodities Soy and Soy Meal 9.6% 21.7%
as well, such as pulp, beef, poultry, pork, soy bran, fuel oil,
Crude oil -1.8% 11.8%
sugars, and semi-manufactured products of steel and iron.
Iron ore -6.0% 8.5%
Together, these add up to another 21% of exports, leading
commodities to make up over 70% of Brazilian exports in Sugars 38.4% 4.0%
2022. Corn 27.7% 3.4%
Fuel oil -15.8% 3.3%
Figure 120: Brazilian Exports Composition by Category (Jan-Sep Beef -25.5% 2.7%
2023) Poultry -9.9% 2.4%
Pulp -2.6% 2.3%
Agro, 25.2% Coffee -18.3% 2.0%
Source: MDIC
Manufactured
Industry 52.0% Brazil’s largest trade partner is China, which received
20% of total 18.2% of total exports in 2022. In 2009, China took the
Extractive
Industry 22.1%
leading position from the US, and that situation prevails. In
2023 up to September, China exports from Brazil are at
US$77 billion, up 10.8% from 2023 and accounting for over
Source: MDIC
30% of Brazilian exports. In fact, this year is likely to be a
Agricultural exports gained 36.1% in 2022, mostly due to a new record in terms of exports to China. The US is in a far-
31.5% increase in prices. On the other hand, the extractive off second place, responsible still for a good part of exports
exports (such as iron ore, oil) fell by 4.6%, also mostly due to (10.5%), but with a decline of 4.5% y/y (Jan to sept 2023).
a price retrenchment of 2.5%. Last but not least, manufactur- Among Latin American countries, Argentina is an important
ing industry exports increased by 26%, gaining both on price trade partner (third in the rank), taking 5.4% of Brazilian
(15.7%) and volume (5.5%). Overall in 2022, exports reached exports. Interestingly, as LatAm countries’ economies grow,
US$334.1bn, 19% increase relative to 2021. About 14% of so do exports of Brazilian manufacturing products, mainly
this increase is due to price and 5.5% is due to volume. In destined to the region. In 2023, there has been some change
2023 until September, total exports are pretty much at the in the destination of exports, while US shares are decreasing,
same level of last year, thus, guaranteeing that exports this countries like China, Argentina and Mexico are showing sig-
year will be higher than in 2022. Agricultural exports nificant increases in comparison to 2022. It is interesting to
increased an additional 7.7% y/y from Jan to September, and note that many other traditional trade partners are seeing
is responsible for over a quarter of Brazilian total exports. decreases in their shares and instead, more is going to non-
Manufacturing stayed pretty much flat. traditional trade partners.
59
JPMORGAN
Brazil 101
Table 32: Destinations of Brazilian Exports Figure 123: Soybeans – Brazil as % of Total World Exports
% of Total Exports (1000 mt)
Countries % Y/Y (Jan - Sep) % of total 2023 25,000 35%
30%
China 20,000
10.8% 30.5% 25%
15,000
US -4.5% 10.5% 20%
10,000 15%
Argentina 14.9% 5.4% 10%
5,000
Netherlands -4.7% 3.4% 5%
0 0%
Mexico 29.0% 2.6%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Spain -19.3% 2.4% Brazil exports BZ as % of World (RHS)
Chile -14.6% 2.3%
Japan 5.9% 2.0% Source: USDA 2023.
Germany -9.1% 1.7% The corn harvest was the highlight this year as Brazil sur-
South Korea -9.5% 1.7% passed the United States as the largest exporter. The last time
Source: MDIC. Note: 2023 until September Brazil came in 1st place, was in 2013, when the US had a sig-
nificant loss due to a severe drought. In the last grain harvest
Agriculture: The relevance of the agribusiness comparing to Brazil was responsible for 32% of global exports, while the
the total amount exported has been growing year over year in US, which led the corn market for many decades, 23%.
the past two decades. In 2000, agribusiness represented 37%
of total exports, jumping to 43% 10 years ago and reaching Figure 124: Corn – Brazil as % of Total World Exports
47% in 2022. Last year was a record of USD 142bn with an (1000 mt)
increase of 32% relative to 2021 on the back of a record har- 60,000 35%
vest in 2021/2022 of soy and corn. Still, data relative to the 50,000 30%
1H23 showed a solid increase in the amount exported of 25%
40,000
20%
grains (+18%) versus the same period of 2022. Apart from 30,000
15%
the record harvest, global factors are favoring this landscape: 20,000
10%
10,000 5%
increase on the demand from China, the harvest in the US
0 0%
was worse than expected given weather issues and Argentina
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
suffered with a severe drought and started to import from Brazil exports BZ as % of World (RHS)
Brazil to honor contracts.
Source: USDA 2023.
Figure 122: Agriculture Exports as % of Total Exports
Brazil is set to remain the world's largest beef exporter in
60
2023, with just under a quarter of total global exports. A
47 47 48 48
50
41 41 42 42 43 44 45 44 44 43 record in exported volume could take place this year, whereas
40 40
37 38 37
40 37 36 36 36 the US will likely lose a spot in the top 3, leaving Australia
30 and India in 2nd and 3rd places, respectively.
20
10
Figure 125: Beef – Brazil as % of Total World Exports
(1000 MT CWE)
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
3,500 35%
3,000 30%
Source: MDIC. 2,500 25%
2,000 20%
Soft commodities: Brazil is a lead exporter in several prod- 1,500 15%
1,000 10%
ucts: coffee, meat, chicken, soy, sugar, and as of late, corn.
500 5%
The country has a goal to become a leader in cotton as well. 0 0%
2006
2007
2008
2010
2011
2012
2015
2016
2017
2019
2020
2021
2022
2004
2005
2009
2013
2014
2018
2023
In 2022, soy represented 14% of total exported and 2023 is

posing to be another record year (higher Chinese demand). Brazil exports BZ as % of World (RHS)
Brazil is by far the lead exporter worldwide, with US in sec-

Source: USDA 2023.
ond place an Argentina in 3rd place.
In both 2021 and 2022, coffee saw a decline in exports, most-
ly due to a record harvest in 2020. In 2023, another record
harvest (third-largest ever) is set to help in a recovery. Brazil
is the lead exporter worldwide (18% of global exports in
60
JPMORGAN
2022), with a good margin to Colombia and Switzerland, 2nd the production of oil in Brazil is exported. The good news is
and 3rd places, respectively. that production could increase significantly over the next ten
years, which would lead to a greater expansion in the oil trade
Figure 126: Coffee – Brazil as % of Total World Exports surplus, considering that prospects for energy consumption
50,000 35%
domestically are not likely to change that much, especially as
45,000
40,000
30% Brazil is increasing the use of alternative fuels at the same
35,000 25%
30,000
time that growth is not expected to suddenly pick up in a con-
20%
25,000 tinuous fashion. Brazil is today the 9th largest producer of oil
20,000 15%
15,000
10,000
10% in the world, but could climb to the top 5 in the next decade.
5,000 5%
0 0%
Figure 129: Oil Trade Balance
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Brazil exports BZ as % of World (RHS)
40
Source: USDA 2023.
30
imports exports trade balance
Brazil is by far the largest sugar exporter in the world, 20
responsible for 36% of global exports in 2022 and is set for a
record volume in 2023, following India’s export restrictions 10
and El Niño’s effects. Runner-up India and 3rd place Thailand 0
represented 19% and 10%, respectively, of total exports in
-10
2022.
-20
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Figure 127: Sugar – Brazil as % of Total World Exports
35,000 60%
30,000 50% Source: Comex, J.P. Morgan
25,000
40%
20,000
15,000
30% Imports
20%
10,000
10%
The rise or fall of imports is closely related to economic
5,000
0 0% growth. Imports rise when there is a macro expansion and
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
decline in times of recession. Importantly, they suffered sig-

Brazil exports BZ as % of World (RHS) nificantly during the 2014-16 recession and then during the
Covid-19 pandemic. In the last few years, imports have been
Source: USDA 2023.
running at about 75-80% of total exports, thus the trade sur-
Poultry exports this year are set to top 2022’s record mark of plus that is typically registered.
USD6bn, keeping Brazil as the largest global poultry export-
er, followed by the US and Poland. In 2022, Brazil claimed Figure 130: Brazilian Imports (US$ bil)
30% of total world poultry exports. 300
250
200
Figure 128: Poultry – Brazil as % of Total World Exports 150
100
5,000 45%
4,500 40% 50
4,000 35% 0
3,500 30%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
3,000 25%
2,500
2,000 20% Source: MDIC. Note: 2023 until September.
1,500 15%
1,000 10%
500 5% Considering that most of Brazilian exports are commodities
0 0%
and that Brazil is very diverse when it comes to those, it is
2006
2007
2008
2010
2011
2012
2013
2015
2016
2017
2020
2021
2022
2004
2005
2009
2014
2018
2019
2023
Brazil exports BZ as % of World (RHS)

natural that almost 90% of imports are made up of manufac-
tured products. Considering economic categories, in 2022
Source: USDA 2023. intermediary goods represented the highest share of Brazil’s
imports basket at 62% of total, followed by an almost even
Oil trade balance: Brazil is a net exporter of oil and is poised
participation among the other categories.
to become even more so in the years to come. Currently, Bra-
zil has a surplus of around US$25 billion in the 12 months to
September 2023, equivalent to 1% of GDP. Pretty much all
61
JPMORGAN
Brazil 101
Figure 131: Imports by Category Table 34: Top 10 Brazilian Imports (Jan-Sept 2023)
% of total, Jan to Sep 2023
Products % Y/Y (Jan - Sep) % of total 2023
Fuel & Lubricants Capital goods
13% 12% Fuel -26.4% 7.1%
Fertilizers -47.7% 5.9%
Consumer goods
13% Valves & tubes -21.2% 3.8%
Crude oil 3.6% 3.8%
Auto parts -4.5% 3.1%
Chemical compounds -26.9% 3.0%
Intermediate goods Pharmaceuticals 1.7% 3.0%
62%
Mobile phones and parts -12.1% 2.4%
Source: MDIC Veterinary medicines 24.5% 2.1%
Autos 47.9% 2.1%
Brazilian imports are well diversified in terms of country of
Source: MDIC
origin. China and the US are the main sources for imports to
Brazil, with Argentina and Germany as distant third and Despite the rise in Chinese imports, the trade balance between
fourth partners (<5% each). In recent years, China led as the Brazil and China was US$28.7 billion in 2022 (Brazil export-
main origin of Brazilian imports, a place previously held by ed more to China than it imported), 11.6% lower from the
the US. previous year (US$40.3 billion). In 2022, exports to China
rose by 1.7%y/y, mainly driven by soy and crude oil (16.8%y/
Table 33: Origin of Brazilian Imports (2022) y and 16.5%y/y, respectively). Furthermore, exports to the US
% of total imports increased 20.2% in the same period, led by gasoline
Countries % Y/Y (Jan - Sep) % of total 2023 (+44.3%y/y).
China -13.2% 21.8%
US -26.5% 15.9% Table 35: Brazil - China Trade (2022)
Germany 6.6% 5.6%
Argentina -6.7% 5.0% Exports to China
Russia 9.6% 3.8% US$ Billion % of Total
India -17.8% 3.0% Soy 31.8 36%
Italy 5.6% 2.5%
France 13.4% 2.3% Iron Ore 18.2 20%
Mexico 8.2% 2.2% Crude Oil 16.5 28%

Japan -6.0% 2.1%
Source: MDIC Beef 8 8.90%
Pulp 3.3 3.70%
For the past few years, fertilizers, fuel oil and valves & tubes Total Exports 89.4 100.0%
have been the most imported products in Brazil. Russia is the Imports from China
largest fertilizer supplier for locals; however, despite the Rus- US$ Billion % of Total
sia-Ukraine war, Brazil still relies directly and indirectly on Valves & Tubes 7.0 11.0%
Russia. Organic Compounds 5.0 9.2%
Telecom Equipments 4.1 6.8%
Pesticides 3.0 4.9%
Other Manufactured Products 2.9 4.8%
Total Imports 60.7 100.0%
Trade Balance (Exports - Imports) 28.7
Source: MDIC
62
JPMORGAN
Table 36: Brazil - US Trade (2022) Table 37: Current Account by Country
Exports to US % of GDP
US$ Billion % of Total Country 2021 2022 2023E 2024E
Crude Oil 5.1 14.0% United States -3.6 -3.8 -3.1 -3.3
Semi-Manufactured Steel 4.5 12.0% Argentina 1.6 -0.9 -2.9 1.8
Aircrafts 2.2 5.8% Brazil -1.9 -2.8 -2.2 -2.5
Iron Products 1.98 5.3% Chile -7.3 -9 -3.5 -3.8
Coffee 1.7 4.6% Colombia -5.5 -6.3 -3.2 -3.1
Total Exports 37.4 100.0% Mexico -0.4 -0.9 -1.5 -1.6
Imports from US Peru -2.3 -4.4 -2.9 -2
US$ Billion % of Total China 1.8 2.3 1.5 0.8
Fuel 12.8 25.0% Japan 2.8 1.9 3 2.6
Korea 4.9 1.8 1.9 2
Engines and Machines 4.2 8.2%
Euro Area 2.3 -0.4 1.2 1.2
Natural Gas 3.2 6.2%
India -1.2 -1.9 -1.7 -1.7
Crude Oil 3 5.8%
Other Manufactured Products 2.1 4.1% Source: J.P. Morgan
Total Imports 51.3 100.0%
Trade Balance (Exports - Imports) -13.9
The three main drivers of the current account are the trade,
service, and income balances. First, the trade surplus reached
Source: MDIC
a record high in 2022 and is very likely to surpass that in
External Accounts 2023 as seen in the previous section. Second, the service
account is constantly in a deficit, and this is widening, among
Current account: From a historical point of view, Brazil is a other reasons, because of the cost that Brazil incurs in send-
current account deficit country. From 1947 until 2022, there ing its exports abroad. Only in 2023 YTD, exports of soy
were only 12 years when Brazil registered a current account have increased by over 20%, and the cost associated with
surplus. The longest stretch took place between 2003 and freight and container rent adds to the service deficit.
2007, when the country was profiting from a commodity
super-cycle. A record surplus as a percentage of GDP was Figure 133: Services Account
registered in 2004 (1.76%), when commodity prices were
0.00
2.0
0
high and the BRL was weak, boosting exports and inhibiting 1.0
-10
-0.50
imports. The oil shock of the 1970s was the low point in 0.0
-20
-1.00
terms of the current account, with a deficit of 6.8% of GDP in -1.0
-30
1974. Since 2008 the current account turned to a deficit and -1.50
-2.0
-40
reached a low of -4.50% of GDP in June 2015. The data post- -2.00
-3.0
ed a significant improvement up to October 2017, with the -50
-4.0
-2.50
current account at -1.16% of GDP, mostly a result of weak -60
-5.0
-3.00
1995
1995
1996
1996
1997
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
growth. Since then, the data has been fluctuating between 2 -2.43
and 3% of GDP and we do not expect too many changes from Source: Banco Central do Brasil
that level, albeit the bias would be for a lower rather than
higher CAD.
Figure 132: Current Account

12 month accumulated as % of GDP
0.00
2.0
1.0
-0.50
0.0
-1.00
-1.0
-1.50
-2.0
-2.00
-3.0
-4.0
-2.50
-5.0
-3.00
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
-2.43
63
JPMORGAN
Brazil 101
Figure 134: Balance of Payments (US$ bil) three positions ahead of what it ranked in the two years
before.
Figure 136: Main FDI Destination by Country (2022)

US$ billion
450 388
400
350 285
300
250 189181
200 141131 140
150 118
86
100 51 62 53 66 49 45 46 36 31 35 32
50 21 21
0
US China Singapore Hong Brazil Australia Canada India Sweden France Mexico
Kong
2022 2021
Source: UNCTAD
According to central bank data for 2022, the U.S. and the
Netherlands sent the most direct investment to Brazil corre-
sponding to a share of 25% and 20%, respectively, of total
investment into equities (excluding intracompany loans and
Foreign direct investment: FDI typically has been a bright redistributed profits). Luxembourg and Spain ranked in the
spot, typically being more than enough to cover the current third and fourth places with 8% and 6%, respectively.The data
acount deficit. Even in recession times and during the pan- in terms of FDI origin are misleading, however, because the
demic, FDI has been above 3% of GDP. However, there are parent company is often housed elsewhere. For example, Chi-
different ways of looking at FDI, and in recent years this dif- na is not featured as a major originator of Brazilian FDI;
ferentiation is becoming more important. The best way to however, it has been acquiring major stakes in Brazilian com-
gauge the interest of foreigners in investing in the country is panies for the past decade.
in looking at equity direct investment. While this remains the
largest part of FDI (42%), it lost share over the years, when it Figure 137: Participation of Key Countries in Brazilian FDI
was responsible for a larger share of FDI. In 2022, equity %, 2021
direct investment was US$36.6 billion, compared with almost
Japan, 1.7%
US$ 43 billion pre-pandemic and a peak of US$55 billion in Cayman, 2.5% Others, 14.4%
2015. Reinvestment of profits make up the second largest France, 2.7% US, 25.2%
share of FDI, in 2022 pretty much matching equity invest- Switzerland, 3.4%
ment at US$34 billion. Last but not least is intercompany UK, 3.7%
Netherlands,
Chile, 3.7% 19.8%
loans, which have been declining in recent years. All in all,
FDI closed at 4.5% of GDP in 2022 and is now running at Canada, 4.0%
3.2% in the last 12 months to August 2023. On a year-on-year Germany, 5.7%

Spain, 6.1% Luxembourg, 8.1%
basis FDI is 63% lower than the level observed in 2002 (Jan
Source: Banco Central do Brasil. Note: Does not include intercompany loans.
to Aug).
Looking at a sectorial breakdown of FDI inflows, services
Figure 135: Annual Brazilian FDI (US$ million) represented the largest investment destination in 2021, with
120 000 almost 59% of FDI. In addition, this reading is a slight reduc-
100 000 tion over 2018, when it stood at 59.1%. Industry followed,
80 000
60 000
with 30.6%, and Agriculture and Mineral Extraction received
40 000 10.5%.
20 000
-
-20 000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Equity investment Profit reinvestment Intercompany loans
According the UNCTAD World Investment Report 2023,

Brazil was the sixth largest recipient of FDI in the world,
64
JPMORGAN
Table 38: FDI Distribution per Sector (2022) Figure 139: Brazil International Reserves
352 373 358 363 356 365 373 374 356 355 362 344
325
288
238
180 193
85
53
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Banco Central do Brasil. Note: 2023 as of September
Brazil’s reserves have been consistently equivalent to around

20% of GDP. In the past, it used to be the LatAm country
with the highest reserve as a share of GDP, but it has been
superseded by Peru.
Figure 140: International Reserves as a % of GDP (2022)

27.1%
15.4% 15.2%
12.3% 11.7%
Source: Banco Central do Brasil, Note: Does not include intercompany loans
5.5%
2.3%
Portfolio investment: From 2016 onwards, portfolio invest-
ments in Brazil have turned negative, with the only exception Peru Brazil Colombia Mexico Chile Argentina Bolivia
being 2021 as the process of easing boosted the debt market. Source: CEIC Data
It is important to emphasize that it has been mostly debt that
has been weighing negatively on portfolios flows. Equities External Debt
were down only in 2019 and 2020 recently. In 2023 (Jan to In August 2023, total gross external debt in Brazil exclud-
Aug), portfolio investment is running at a positive US$7.4 ing inter-company loans reached US$328 billion, or
billion, compared with -US$7.4 billion for the same period in approximately 16% of GDP, which pretty much corre-
2022. It is interesting to note that the bulk of flows this year is sponds to the level of international reserves and 85% of
coming from debt as equities are on the negative side. total exports. In addition to that, there is $261 billion in
intercompany loans.
Figure 138: Net Portfolio Inflows
US$ billion The profile of Brazilian external debt has changed significant-
80 000 ly since the 1980s. Previously, the public sector was the great-
60 000 est external debtor (in 1985, for example, it was responsible
40 000
20 000
for about 82% of total external debt), and external debt was
-
enormous, leading Brazil to declare a moratorium on pay-
-20 000 ments in 1987, similar to what Mexico had done in 1985.
-40 000 Nowadays, the general government and the central bank
account for 28% of total debt, a level that has been stable
Equities Investment Funds Debt
over the past few years. Not only that, but the level of exter-
Source: Banco Central do Brasil. Note: 2023 is Jan to Aug.
nal debt is only 10% of the total gross debt of the federal
administration.
International reserves: Brazilian international reserves
reached US$324.7 billion at the end of 2022. This is
US$37.5 billion less than the level of reserves in the same
period of 2021. However, in 2023 international reserves
already increased by US$20 billion.
65
JPMORGAN
Brazil 101
Table 39: External Debt Stock
External Debt by Debtor US$ Billion % of Total
Public Sector 92.58 28.1%
Private Sector 236.40 71.8%
Gross External Debt Ex-intercompany

328.98 46.3%
loans (A)
Short Term 74.05 22.5%
Long Term 254.94 77.5%
Intercompany Loans (B) 266.81 37.5%
Local Debt Held by Foreigners (C) 115.46 16.2%
Total Debt ( = A + B+C) 711 100%
In February 2008 the central bank announced that, for the

first time in history, Brazil had enough resources to cover its
external debt. This means that international reserves were
higher than total public external debt, making the country a
net external creditor. This continues to be the case, as the
ratio of international reserves to gross external debt is cur-
rently at 115.6%, that is, international reserves surpass all of
the gross external debt by 15.6%.
Figure 141: Gross External Debt as a % of GDP (2022)

60
50
40
30
20
10
0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
Source: Banco Central do Brasil, J.P. Morgan
66
JPMORGAN
ment spending, subsidies, delays in some payments, and qua-

Fiscal Policy si-fiscal measures in the form of loans from the Treasury to
public banks. These loans had no impact on the primary bud-
Brief history: During the 1980s and first half of the 1990s, get balance but implied subsidized interest rates as the Trea-
inflation was the big problem for the Brazilian macro story. sury issues bonds at market rates and lends to public banks at
Since the relative stabilization of prices with the advent of the much lower levels, most of the time linked to the TJLP long-
Real Plan and later with the inflation-targeting system, the term interest rate, increasing interest expenditures and gross
Achilles’ heel of the Brazilian macro story became the fiscal debt. Those measures failed to boost economic growth but
accounts, although there were bouts of high inflation during sharply worsened the fiscal balance and significantly reduced
the Dilma Rousseff administration. The first serious efforts on fiscal policy transparency. The deterioration of the fiscal
the fiscal front took place with the advent of the Asia crisis in accounts during the Dilma Rousseff administration was, in
1997. This was the first time that the government started to effect, a breach of the fiscal responsibility law and provided
work with the concept of establishing a fiscal target, and the the legal grounds for her impeachment process. By Novem-
chosen measure (which remains to this day) became the pri- ber 2014, the primary surplus turned into a deficit for the
mary fiscal target, which is the public sector budget balance first time since the mid-1990s, and it has continued to be
excluding interest payments. It became consolidated in the in the red since then.
late 1990s and 2000s as a key fiscal metric, and, slowly but
surely, it became more robust, rising from 0.2% of GDP in
1997 to 1.8% of GDP in 1999. In May 2000, the Cardoso Figure 142: Federal Government Revenues and Outlays
administration was able to pass the Fiscal Responsibility % of GDP, 12-month rolling
Law in Congress, which among other things established lim- 24
its of spending on personnel and the prohibition of creating 22
20
new permanent spending without matching revenue, among 18
other things. If the law is not complied with, the heads of the 16
14
executive branch in each of the three levels of government 12
can be found criminally liable. 10
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
When President Lula won the 2002 elections, one of the Net revenues Total expenditures
first economic measures of the new administration headed by

Source: National Treasury
Finance Minister Antonio Palocci was to increase the primary
surplus target to 4.25% of GDP (was 3.75%), thus promoting Investment grade loss: On September 9, 2015, Brazil lost
an important fiscal effort and boosting confidence in the the status of investment-grade rating. Standard & Poor’s
incoming administration. The primary fiscal target was downgraded the country’s long-term foreign currency debt
increased once more in 2004, this time to 4.5% of GDP. The rating to BB+. Brazil initially became investment grade in
solid fiscal results led to an increase in confidence in macro- May 2008 following years of fiscal consolidation. The S&P
economic stability and, ultimately, to Brazil being awarded move followed two consecutive downward revisions in Bra-
Investment Grade by the three large rating agencies in 2008 zil’s primary fiscal targets (July and August 2015). More
and 2009. It is difficult to pinpoint exactly when the fiscal importantly, it reflected the sheer incapacity of Congress and
effort started to deteriorate, but the 2008 financial crisis was the Executive to agree on getting a fiscal consolidation plan
without question a turning point. Then, the government start- going. The situation continued to deteriorate a great deal as
ed to take the first dives into a countercyclical fiscal policy by macro policy making came to a halt in 1H16, when the
enacting tax cuts and increasing social expenditures. It also impeachment process of President Dilma Rousseff was ongo-
boosted the role of the BNDES, allowing it to extend loans to ing. By the end of 2015, the debt to GDP ratio in Brazil was
companies and promote Brazilian champions (large compa- 65.5%, up from 56.3% at the end of 2014. The primary fiscal
nies that had the potential to be leaders in their sectors in Bra- budget closed 2015 with a deficit of 1.86% of GDP (original
zil and abroad). target was +1.2%), from -0.56% in 2014. At the end of 1H23
While Brazil exited the 2008/09 crisisrelatively unscathed, Brazil was 3 notches below investment grade at S&P.
the waning of Chinese stimulus in 2009/10,combined with
lower commodity prices and a general global economic decel-
eration, led the government to deepen countercyclical mea-
sures. By mid-2011the Dilma Rousseff administration
embraced fiscal stimulus to boost domestic demand and GDP
growth via a variety of measures: tax relief, increased govern-
67
JPMORGAN
Brazil 101
Table 40: Metrics of BBB/BB Rated EM Countries at the Time of much removed any spending obstacles. FGV IBRE estimated
Brazil’s IG Loss that the expenditure above the ceiling during Bolsonaro’s
Gross Govt. Primary C.A. Reserve administration was on the order of nearly R$800 billion,
Debt Balance Balance Balance s much of that during 2020 caused by the Covid-19 pandemic.
Russia 17 -3.4 -2.1 1 6.5
Peru 19 -2 -1 -5.1 10.1
In 2023, after Lula’s election, the Congress allowed the
Indonesia 25 -2 -0.7 -2.8 4.9 R$145 billion above the spending cap.
Colombia 32 -2.4 -0.1 -5.2 5.3
Turkey 35 -2.4 -0.1 -5.1 5.4 The new fiscal framework: During the 2022 election cam-
Mexico 41 -2.7 -1.1 -2.4 4.6
South Africa 48 -3.8 -3.8 -4.7 4.3
paign then candidate Lula stated several times that, if elected,
Brazil (S&P)* 64.3 -4.8 0.2 -4.3 12.6 he would get rid of the spending ceiling law. At the end of
Brazil (J.P. Morgan) 65.9 -7.5 0.1 -4.3 - March 2023, Finance Minister Haddad presented the initial
India 66 -6.4 -1.7 -1.1 5.9 contours of the new fiscal framework, with the full package
Hungary 76 -2.6 1.6 3.3 3.9
BBB+ median 37.5 -2 0.6 -2.4 4.6 being unveiled at the end of April and fast-tracked into the
BBB median 37 -3 -0.9 -4.4 4.3 Lower House. Final approval took place in August 2023. The
BBB- median ex-Brazil 50 -2.8 -0.6 -1 5.1 core of the fiscal rule is that it relies on higher revenues to
BB+ median 29 -2.6 -0.7 -1.5 4.4
bring about fiscal balance rather than a cut in expenditures. In
Source: S&P; J.P. Morgan. 2015 estimates were released in March 2015, except for Brazil, more detail:
which was released in July 2015.
Following the impeachment of President Dilma Rousseff and • The government is to reach a primary fiscal balance of
0% of GDP in 2024, a surplus of 0.5% of GDP in 2025
the appointment of VP Temer (2016), the economic team was
and 1% of GDP in 2026. The tolerance level for the target
totally changed. Henrique Meirelles took over as finance
is +/- 0.25% of GDP. With those settings, the forecast is
minister and with him a “dream team” of economists and
that the gross debt reaches 76.1% of GDP in 2024, 76.4%
policymakers, many with PhDs from the best American uni-
in 2025 and 76.5% in 2026.
versities and with experience in government. They started to
try to turn around the fiscal accounts, an effort that continued • The amount of expenditures will be conditioned to 70%
under Economy Minister Paulo Guedes, at least until Covid- of the real variation of primary revenues if the fiscal tar-
19 struck. gets are reached. If the fiscal targets are not met, expendi-
tures will be limited to 50% of real primary revenues in
Spending Ceiling Law: At the start of 2016, officials at the the following year.
Finance Ministry under President Dilma Rousseff were • The amount of the annual revenues will be computed in
already talking about a plan to create a constitutional ceiling June of the previous year, excluding the 12-month varia-
for government spending. Also, there was talk about social tion of the IPCA in that period.
security reform, but the political events that took place from
March 2016 onward halted any progress on the macro agen- • In all circumstances, expenditures are going to increase at
a minimum of 0.6% per year and a maximum of 2.5% per
da. After the impeachment process was voted in the Lower
year in real terms.
House (April 2016), VP Temer took over the country’s high-
est executive office. He was able to put together a very strong • If the fiscal target is surpassed, the government can spend
and credible macro team, headed by Ilan Goldfajn at the cen- 70% of the excess surplus, but not surpassing 25bp of the
tral bank and Henrique Meirelles at the Finance Ministry. The prior-year GDP.
most important economic policy measure enacted in 2016 • Investments will always be at least 0.6% of GDP forecast
was the approval of a law that established a spending ceiling. in the budget law.
Constitutional Amendment 95 established that spending could
go up in real terms for the next 20 years. The readjustment of Fiscal issues ahead: Even though there is a new framework
all government spending would be in line with the inflation for fiscal policy, there are some lingering issues in terms of
reading based on the 12-month accumulated CPI reading of both legislation and implementation of the new law.
June of the previous year (that was later changed to Decem-
ber). Because total spending is limited by the ceiling, the real • First, the government itself estimates that it needs
increase in expenses on one particular item must, by default, extra revenues of R$168 billion in 2024 to reach its pri-
translate into the reduction of spending on another item. The mary fiscal balance target. The bulk of it (R$54.7 billion)
law worked, but it was easier said than done. The largest is to come though CARF, the entity responsible for legal
breach to the ceiling of expenditure rule happened upon the decisions of tax disputes between companies and the gov-
advent of Covid-19. The government was able to approve in ernment. The government has recently changed the law to
Congress the regulation of a “calamity state,” which pretty determine that in case of a tie in decisions, the deciding
68
JPMORGAN
vote will be from the Union. Then, it expects to collect fiscal deficit of between 1% and 2% of GDP in 2027
over R$40 billion with tax renegotiations. Also, the coun- according to the Independent Fiscal Institution. In Sep-
try’s high courts have recently ruled that some state tax tember 2023 the government announced that it was plan-
benefits cannot be used to reduce the taxable base of fed- ning to pay all the R$200 bil liabilities coming due as
eral taxes, which could bring about R$35 billion in reve- soon as 2024 so that it doesn’t become a snowball into the
nues. Also, there are three specific measures that were future. There are issues surrounding how this would be
aimed to close some tax facilities within capital markets: computed within the fiscal accounts.
tax on exclusive funds, tax on offshore funds and the end
of the IOC. Also established was a VAT tax on foreign Social security – past and future reforms: As in many other
retailers and that sports betting sites are also to be taxed. countries, social security is a burden to state coffers. Brazil
Note that legislation dealing with these issues are already has been reforming or trying to reform it since the turn of the
in advanced stages in Congress at the time of this writing. century, with different degrees of success. In 1998, the Cardo-
so administration tried to establish a minimum age of retire-
Figure 143: Federal Government Expectations for Extra Revenues in ment, but it didn't go through – by only one vote. In 1999, the
2024 Cardoso administration implemented the "retirement factor,"
% of total expenditures which reduced the amount of benefits in case one were to
CARF changes 54.7 retire earlier or save less. It was able to smooth the rising def-
Tax renegotiations 42.1 icit and suffered many methodological changes over the
Court decision on taxes 35.3 years. In 2003, President Lula’s social security reform imple-
Exclusive funds 13.28
mented a minimum age of retirement for public sector work-
End of IOC 10.5
Offshore funds
ers that entered service after the law’s approval. It also estab-
7.05
Foreign retailers 2.8
lished less generous benefits. In 2012, President Rousseff
Others 2 approved the Funpresp, which established a complementary
Sports betting 0.73 pension fund system based on individual accounts for civil
Source: National Treasury
servants who wished to save more than the ceiling. Finally,
after approving the spending ceiling law, the Temer adminis-
tration focused on getting social security reform done. As it
• Earmarked expenditures with health and education: became notorious, the efforts failed politically after tapes
As seen in previous sessions of this report, both health involving the president in supposed wrongdoing were
and education have earmarked revenues: 15% of net reve- released to the press (May 17, 2017), and his congressional
nues should go to health and 18% of net tax revenues support plummeted. Still, social security reform was a key
need to go to education. However, under the ceiling of theme during the 2018 election campaign, with virtually all
expenditures, these earmarked funds were also frozen and candidates supporting one kind or another adjustment. With
readjusted only by inflation. With the transition to a new the victory of Jair Bolsonaro, there was great expectation that
fiscal regime, expenditures for these two items (especially his economic team was going to pick up where the Temer
health) are expected to increase exponentially. the govern- reform was left, thus using the same proposal. However, in
ment is already trying to find a way to change these ear- February 2019, Economy Minister Guedes announced that the
marked items, but there has been no concrete news on the administration would start the reform from scratch. Markets
topic. initially didn’t like it, but when the proposal was presented, it
• Court-ordered payments: In 2H21, upon the discussion was very well received because it envisaged a much more
of the 2022 budget, then Finance Minister Guedes said ambitious overhaul of the system, with projected savings at
that the government became aware of a “meteor” that was R$1 trillion in 10 years. Markets were very skeptical that
going to hit Earth. This was in the form of R$90 billion in such a target would be achievable, and for most of 1H19 the
court-ordered payments that were due. To solve the prob- market oscillated around views on the final result of the
lem, the government was able to get approved a constitu- reform in terms of timing and amount saved. At the end of the
tional amendment (PEC) that split the payment into 4 day, the reform did deliver savings that were close to R$1 tril-
years, all fitting inside the rule of the ceiling of expendi- lion, according to the government’s estimate, despite some
tures. The problem is that the stock of court order pay- modifications from the original proposal. The main points of
ments only increases. In 2022, for example, the govern- the reform were:
ment didn’t pay over R$22 billion of this modality and
keeps rolling that to the following year. However, as per • Establishment of a minimum age of retirement: 62 years
the PEC, it all needs to be paid by 2027. And the estimate for women and 65 years for men. Previously, a worker
is that by then there will be R$200 billion of court-or- could retire with 25 years of contribution, independently
dered payments past due, which could lead to a primary of the worker’s age.
69
JPMORGAN
Brazil 101
• Minimum 15 years of contribution for women and 20 IMF. The primary surplus became the main fiscal target, and
years for men. to this day the government sets its fiscal goals in the annual
budget by establishing a primary surplus target. The primary
• For rural workers, the minimum age of retirement is 55
fiscal metric takes into account net revenues (excludes trans-
years for women and 60 years for men, with at least 15
years of contribution. fers to states and municipalities) minus total expenditures
excluding interest payments. In the late 1990s the target was
• Once the minimum age is reached, a worker can retire relatively modest, at around 2.0-2.5% of GDP, but later it was
with 60% of the average of all contributions since July increased. In January 2003, when President Lula took office
1994. For each extra year of contribution above the mini- the first time, Finance Minister Antonio Palocci implemented
mum, there will be an increase of 2% in the total benefit. a new round of fiscal corrections, further increasing the pri-
Thus, for someone to retire with 100% of the average of mary surplus target to 4.5% of GDP from 3.75%. Since then,
contributions, a man needs to work 40 years and a woman and especially during the first Dilma Rousseff administration,
35. the target was decreased towards aiming at deficits. In 2012-
• The minimum benefit is 1 minimum wage, and the maxi- 14, the government made ample use of creative accounting to
mum is the ceiling of the benefit, which is around 5 mini- boost the primary surplus result. These maneuvers, or “peda-
mum wages. ladas,” ended up being the legal rationale behind the
impeachment of President Dilma Rousseff. Examples include
However, according to experts on the topic, there are issues state companies having to advance dividend payments to the
that will need to be addressed in the not so distant future to government to boost the primary surplus. Also, it was deter-
avoid the possibility of social security ending up suffocating mined that the government wasn’t going to be responsible for
public finances. According to the 2024 budget, the social whether states and municipalities actually complied with the
security deficit in 2024 will be 2.6% of GDP and should primary fiscal surplus. Expenses associated with the infra-
climb to 5.9% in 2060. This is because the population is structure PAC program were also excluded from the target.
becoming older and the system is “pay as you go,” that is, The result of all this is that the primary surplus quickly erod-
fewer people will be contributing to more people retiring. ed and turned into a deficit. By mid-2016, the primary deficit
According to Paulo Tafner (here), who was involved in the peaked at 3% of GDP. Then, in the post-Dilma Rousseff
2019 reform, what still needs to be addressed includes: impeachment period, Finance Minister Henrique Meirelles
and his team started to work to reduce the deficit. After peak-
• Same retirement age for men and women
ing in September 2016 with a deficit of over 3% of GDP, the
• Increase of the minimum age to 67 years primary surplus started to improve, mostly through a drive in
• Change in the age of retirement for the rural population spending contention. That improvement continued during the
Bolsonaro administration, with efforts that included the priva-
• Change in the rules of the BPC
tization of state-owned companies. Indeed, in January 2020,
the primary deficit reached the lowest level in almost 5 years.
Even though the great fiscal stimulus generated by the Covid-
Figure 144: Federal Government Expenditures by Category 19 pandemic led the primary fiscal deficit to fresh new highs
12 months to July 2023, % of total (9.25% at its peak), the Bolsonaro administration was none-
Discretionary, 8.0%
theless able to return to primary surpluses as soon as Novem-
ber 2021. By the time President Lula took office in January 1,
Others, 14.2% 2023, the primary surplus was running at 1.27% of GDP. The
approval of R$145 billion in extra expenditures through the
Social security, 43.8%
“transition constitutional amendment” quickly turned surplus-
Other mandatory,
16.0% es into deficit again. The target of the government is for a pri-
mary deficit of 0.5% of GDP in 2023 and 0% in 2024, with
Payroll, 18.0%
surpluses after that. J.P. Morgan Research believes that these
targets are too ambitious.
Source: Tesouro Nacional
Fiscal Indicators
Primary surplus: The idea of a fiscal adjustment starts to get
importance in Brazil first during the establishment of the Real
Plan and then, when the Asia crisis hit in 1997. The primary
surplus as a main gauge for fiscal health gained importance in
the late 1990s, when Brazil signed a rescue program with the
70
JPMORGAN
Figure 145: Primary Surplus Figure 147: Nominal Budget Deficit Across EM
% of GDP YE2023, JPM forecast, % of GDP
10
8
-1.9 -2
6 -2.8 -2.8 -3.1 -3.5 -3.8
4 -4.3
-5 -5 -5.5 -5.5
2 -6.3 -6.4 -6.5
0
-2 -9.7
-4
Colombia
Brazil
Korea
Indonesia
mexico
Poland
Argentina
Malaysia
Turkey
India
Chile
Peru
Philippines
South Africa
China
Thailand
-6
Source: Banco Central do Brasil . Note: negative data is a surplus. Source: J.P. Morgan
Nominal deficit: The nominal deficit reflects the overall fis- Interest payments: Former Economy Minister Paulo Guedes
cal status of the country. The nominal deficit reached its best used to say that Brazil pays in interest “one Marshall Plan per
point at the end of 2008 at -1% of GDP. The first Lula admin- year.” In 2022, in the last year of his tenure, Brazil paid
istration had a plan to lock in gains in the fiscal accounts by a R$586 billion in interest payments, or 5.91% of GDP. The
target of 0% nominal deficit, or, a balanced budget. But that “Marshall Plan” at the time was U$13.3 billion in four years,
proposal faced opposition even within the Lula administra- which today would be equivalent to US$173 billion. Thus,
tion, with then Chief of Staff Dilma Rousseff calling the plan Paulo Guedes was not that far off as interest payments in
“rudimentary.” The advent of the 2008 crisis led the govern- 2022 would be US$113.5 billion. Of course, with the current
ment to open its coffers, more than doubling the nominal defi- reduction in interest rates, this bill is likely to get smaller.
cit. The 2015-16 recession led the deficit to balloon, reaching
a high of 10.7% of GDP in January 2016. After that, the nom- Figure 148: Interest Payments
inal deficit as a percentage of GDP entered a downward trend 10
following the reduction of interest rates that took place in the 9
8
post-impeachment era. But even the easing cycle was not 7
6
enough to contain the ballooning of the deficit due to the 5
Covid-19 pandemic. While the reduction of extraordinary 4
3
Covid-19 expenditures helped to reduce the deficit, the start 2
1
of the hiking cycle in March 2021 pushed it higher again. 0
Adding to that, there was no willingness on the part of the
administration to cut expenditures in an electoral year (2022).
Figure 146: Nominal Deficit
Public Sector Debt
% of GDP
16 Brazilian public sector debt has come full circle in a little
14 over a decade. Prior to the global credit crisis in 2008, mar-
12
kets concentrated on the net measure of public sector debt. In
10
8 2002/2003 the net debt-to-GDP ratio reached over 60% as a
6 great deal of the debt was denominated in foreign currency at
4
a time when the BRL suffered a significant devaluation due to
2
0 fears related to the election of President Lula. With the appre-
ciation of the exchange rate, economic growth and large pri-
mary surpluses, net debt started to decline and remained
Source: Banco Central do Brasil between 30% and 35% until 2015, when actual debt started to
climb. At the end of 2022, the net debt to GDP ratio stood at
57%. However, net debt is no longer considered a useful way
to look at the overall debt of the country. This is because the
government issued a lot of debt to capitalize BNDES and oth-
er government entities from 2010 onwards, but this does not
show up in the net debt accounts: debt issuances (liabilities)
are matched by credits against BNDES assets. Therefore, the
focus has shifted to gross debt, which provides a more real-
71
JPMORGAN
Brazil 101
istic picture of the problem. In 2018/ 2019, it was common to considering that it is all domestic. In lieu of that, it would
see projections indicating that the gross debt would reach print money to pay down debt and, thus, generate inflation.
100% of GDP. However, over the past few years the results
have been somewhat more benign, partly because growth has Over the past 15 years or so, there have been important
also surprised to the upside and partly because the govern- changes in the composition of Brazil’s internal debt: 1) There
ment ended up producing some primary surpluses. At the end was a successful effort to decrease the level of floating rate
of 2022, gross debt stood at 72.9% of GDP and in July 2023 it debt at the time when rates were high, but more recently, this
was at 74.1% of GDP. Nevertheless, this is a lot higher than modality has increased in importance, while fixed rates and
the 60% that prevailed during 2012. Net debt is currently at inflation-linked rates fell some. 2) The level of FX-linked
59.6% of GDP. debt was greatly reduced, which makes Brazil less vulnerable
to exchange rate variations.
Figure 149: Public Sector Debt
% of GDP Table 41: Composition of the Federal Public Internal Debt
90
2017 2019 2021 1H23
80
Federal internal debt stock (R$ bil) 3,435.5 4,083.2 5,348.9 5,957.4
70
60 Composition (% of total)
50 Fixed rate 36.30% 31.96% 30.13% 27.96%
40 Inflation linked 30.62% 27.10% 30.75% 30.62%
30
Floating rate 32.65% 40.50% 38.66% 41.07%
Mar-10
Mar-19
Dec-01
Mar-04
Sep-02
Jun-03
Dec-04
Sep-05
Mar-07
Dec-07
Mar-13
Jun-06
Sep-08
Jun-09
Dec-10
Sep-11
Jun-12
Dec-13
Sep-14
Mar-16
Dec-16
Mar-22
Jun-15
Sep-17
Jun-18
Dec-19
Sep-20
Jun-21
Dec-22
FX linked 0.44% 0.48% 0.40% 0.35%

Net debt Gross debt
Maturity structure
Average maturity (years) 4.14 3.97 3.84 3.85
Source: BCB, Finance Ministry and J.P. Morgan estimates
% expiring in 12 months 15.70% 15.94% 27.96% 20.14%
The chart below shows that Brazil is one of the most indebted Source: Tesouro Nacional
countries in the world. While the data themselves do not
match those provided by the local central bank, it is good to The average maturity of the overall domestic debt held by the
compare across other countries. public sector has increased from less than one year at the end
of 1999 to about 4 years by 1H23. Currently, 20.14% of Bra-
Figure 150: General Government Gross Debt (% of GDP) zil’s internal debt matures in less than 12 months, down from
2021 nearly a third in late 2006.
90.7 89.9 84.7
80.9 76.8
71.8 69.0 Figure 151: Total Internal Debt Maturing in Less than 12 Months
64.0
58.7 58.4 57.0
53.8
42.0 41.8 41.1
% of Total
36.4 36.3
28.8 42.3% 43.9%
40.6%
35.7% 36.9%
32.8%
29.9%
27.6% 28.0%
26.1%24.8% 25.9%25.5%26.2% 24.4%
22.9% 23.2%
18.3% 19.4% 20.1%
15.7% 15.9%
Source: IMF. Note: IMF accounting is different from the Brazilian government, but usefull for
international comparisons.
One of the prime objectives of fiscal plans in Brazil over the

years has been to seek the stabilization of the debt. In fact, Source: Tesouro Nacional
this purpose is clearly stated in the fiscal framework approved
In terms of maturities, inflation-linked instruments have lon-
in August 2023. Key inputs for that are primary surpluses, the
ger maturities, reaching about 7 years on average as of July
implicit interest rate and the growth rate. Unfortunately, both
2023, and have contributed most to the lengthening of the
have been subpar as of late.
average maturity for total debt. Average maturity for fixed-
rate instruments (LTN) is around two-and-a-half years.
Internal (domestic/local) public sector debt: In July 2023,
Brazil’s total debt stood at R$7.68 trillion, or 74.1% of GDP,
of which 88% is internal, real denominated debt. Almost all
of this amount comes from Treasury debt. This is why it is
very common to say that Brazil cannot default on its debt,
72
JPMORGAN
Table 42: Average Debt Maturity by Type Way down: From 2011 on, the upward trend of Brazil’s rat-
Jul-13 Jul-23 ings began to reverse. In 2014 S&P downgraded Brazil one
notch (to BBB-), placing it at the lowest investment-grade
Total debt 4.38 4.06 level. The creative accounting of the first Dilma Rousseff
Internal Debt 4.26 3.95 term and low growth were the main reasons behind the down-
grade. But the outlook was maintained at stable, which was a
Fixed rate 2.12 2.02
sign of relative comfort. In 2015 the changes in fiscal targets
Inflation Linked 7.74 7.00 and political struggles in Congress to advance the fiscal agen-
Floating rate 2.38 2.88 da led the rating agency to put Brazil on negative outlook,
establishing that the possible next move could be the loss of
FX 7.82 1.41
the investment-grade rating, which finally happened in Sep-
External Debt 6.81 7.08 tember 2015 (BB+). At the start of 2016, S&P downgraded
Source: Tesouro Nacional
Brazil one more notch to BB. Finally, in January 2018, the
rating was downgraded once more to BB-, thus three notches
Although the great majority of local Brazilian debt is owned below investment grade, remaining at BB- in 2022. Moody’s,
by Brazilians, foreigners have moderate participation, which on the other hand, was more conservative in its actions. It
peaked at 20% of total outstanding debt held by the public in held Brazil at one notch above investment grade until August
mid-2015, up from 5% in December 2008 and 15% in mid- 2015, when it finally downgraded the country to Baa3, still
2013. From 2015 onward, after Brazil lost investment-grade investment grade. The loss of the investment grade came only
status, foreign investors have been reducing their participa- in February 2016, when Brazil was classified Ba2, and it
tion in the country’s debt, reaching 9% in mid-2023. Foreign- remains at that level at the time of this writing. In fact, S&P’s
ers own mostly instruments that are fixed rate–linked. In fact, and Moody’s have not changed their ratings on Brazil since
they are holders of 22.5% of the fixed rate debt (LTN), and then. In June 2023, S&P placed Brazil on a positive outlook,
51% of the NTN-Fs, which are inflation-linked bonds with the first such move in many years. On July 26, 2023, Fitch
coupon payment every six months. increased its Brazil rating from BB- to BB, reflecting a better-
than-expected macroeconomic and fiscal performance, with
Figure 152: Distribution of Internal Debt by Creditor (% of total) proactive policies and reforms. Currently ,Brazil is two notch-
29.2
es below investment grade at Moody’s and Fitch and three
24.1
notches below at S&P.
23.1
Table 43: Brazil Sovereign Ratings History

9.2
6.4
4.1 3.8 2005 2010 2015 2020 2023 Outlook
S&P BB- BBB- BB+ BB- BB- Positive
Fitch B BBB- BB+ BB- BB Stable
Financial Investment funds Retirement funds Foreigners Others Insurance Government
Institutions Moody's Ba3 Baa3 Baa3 Ba2 Ba2 Stable
Source: Tesouro Nacional. Note: Data as of July 2023 Source: Bloomberg Finance L.P.
Sovereign Credit Ratings We looked at countries that lost investment grade and
Way up: Until 2006 the core rating agencies rated Brazilian regained it at some point later. For this exercise we used only
public debt securities speculative. In 2007 the lesser known S&P ratings. We found 10 countries where this has happened,
R&I rating agency was the first to rate Brazil credit as invest- and, on average, it took them 7.4 years to regain the stamp of
ment grade. But the upgrade was only fully recognized by the good payer. Considering that S&P downgraded Brazil from
market on April 30, 2008, when Standard & Poor’s gave Bra- investment grade in September 2015 and that we are writing
zil a BBB- rating, meaning that the country was joining the this in September 2023, 8 years have passed. We think that
select group of countries with investment-grade ratings. In Brazil needs to have a more credible and predictable fiscal
May 2008 Fitch Ratings upgraded Brazil to investment grade, policy together with higher growth capacity to be able to
citing that fiscal consolidation combined with healthy GDP regain the investment-grade rating. It might be a while.
growth would continue to improve the country’s debt profile.
The last agency to announce an investment-grade rating for
Brazil was Moody's, in September 2009. In April 2011, Fitch
upgraded Brazil to one notch above the IG threshold.
Moody’s followed the move in June 2011, and S&P did the
same in November 2011.
73
JPMORGAN
Brazil 101
Table 44: Countries That Lost and Then Recovered Investment Grade tion that the tax burden will end up rising because the govern-
Lost IG Recovered IG Years ment’s fiscal plan is based on higher revenues and not lower
Indonesia Dec-97 May-17 19.7 spending. Still, the government affirms that this is not the
case. At the end of 2022, taxes were 33.71% of GDP. Federal
Colombia Sep-99 Mar-11 11.7
taxes are responsible for 67.5% of total taxation, while states
Uruguay Feb-02 Jul-11 9.5
respond for 25.5% and municipalities for 6.9%.
Cyprus Jan-12 Sep-18 6.8
Croatia Dec-12 Mar-19 6.3 Figure 153: Total Taxation as a % of GDP
Portugal Jan-12 Sep-17 5.8 % of GDP
Romania Oct-08 May-14 5.7
36
Hungary Dec-11 Sep-16 4.8 Collor
FHC 2
32 Sarney Itamar
Bulgaria Dec-14 Dec-17 3.0 FHC 1
Lula 1 Lula 2 Dilma 1 Bolsonaro
S. Korea Dec-97 Jan-99 1.1 28 and 2
Temer
Average 7.4 24
Source: S&P, Bloomberg Finance L.P.; J.P. Morgan 20
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Tax System
Brazil is known to have one of the most complicated and Source: Instituto Brasileiro de Planejamento Tributario (IBPT) until 2010. National Treasurt after
expensive tax systems in the world. The main reason for that.
this is that Brazil has many taxes, several of which are indi- Not only are taxes high in Brazil, they are also among the
rect and cascading, functioning in a system without unified highest in the world. Indeed, if Brazil were an OECD country,
legislation at any government level. The precarious tax sys- it would have the 18th largest tax burden in this group. Poland
tem is blamed for inhibiting business activity and, conse- is the only EM featured in the list ahead of Brazil.
quently, harming development.
Figure 154: Tax Burden by Country (2021)
Table 45: Complexities of the Brazilian Tax System
% of GDP
Main Complexities
50.0%
– Different taxes are levied on the same product 45.0%
– Six indirect taxes on goods and services; most countries have one or two 40.0%
– Constantly changing legislation 35.0%
30.0%
– At the federal level, four taxes and three tax systems
25.0%
– At the state level, 27 different legislations (one for each state), different rates and criteria 20.0%
– Two taxes on business profits (CSLL and IRPJ) 15.0%
– High bureaucratic costs 10.0%
5.0%
– Disputes with the tax authority 0.0%
Luxembourg
France
Ireland
Slovakia
Latvia
Sweden
Austria
Slovenia
Canada
Germany
South Korea
Italy
Brazil
Poland
Portugal
Israel
Colombia
Belgium
Chile
Spain
Finland
Mexico
The Netherlands
Denmark
Iceland
Norway
Source: “Tax Reform,” Brasilia, D.F., February 28, 2008
Tax burden in Brazil is high: Taxes in Brazil started to go

up in around 1997/98, at the end of the first Cardoso Source: OECD
administration. At that time, the Brazilian government pro-
moted a fiscal shock, trying to counteract the effects of the In 2021, the IBPT produced a study indicating that among 30
Asian crisis that were fast making their way to Brazil. Presi- countries with the highest tax rates, Brazil has the worst
dent Cardoso’s government increased taxes and tried to cut return for taxes, that is, what the population gets in terms of
spending. However, it was successful only in the first goal. public service for the money it paid the government. The
Total tax collection in Brazil increased from 25% of GDP in methodology of the study takes into account the level of tax
the mid-1990s to the low- to mid-30s%. Over the past few collection compared with GDP and the HDI (human develop-
years, it has been fluctuating around 32% and 34% of GDP, ment index) calculated by the U.N. The #1 on the list was Ire-
impacted by activity level and specific policies. For example, land, followed by United States and Switzerland.
during the first mandate of President Dilma Rousseff, several
tax subsidies were granted. That was an attempt to boost eco-
nomic activity, favoring local companies, mainly from the
industrial sector. The protectionist tax policy did not yield
good results, as growth didn’t improve and the fiscal accounts
worsened. Subsequent presidents have been consistently try-
ing to reverse some of these subsidies, but this has been more
difficult than expected. Going forward, there is the expecta-
74
JPMORGAN
Table 46: Ranking: Level of Human Development Relative to Taxes Table 47: Tax Revenue Profile – 2022
1 Ireland 16 Czech Republic R$ billion % of GDP % of Total
Federal government 2258.6 22.78% 100%
2 United States 17 Uruguay Taxes 1512.8 15.3% 67.0%
3 Switzerland 18 Slovenia Tax on income, profit and capital gains 910.3 9.2% 40.3%
Personal income tax 55.1 0.6% 2.4%
4 Australia 19 Slovakia Corporate income tax 281.3 2.8% 12.5%
5 South Korea 20 Luxembourg Payroll tax 417.8 4.2% 18.5%
Net Income contribution (CSLL) 156.1 1.6% 6.9%
6 Japan 21 Sweden Others 0.7 0.0% 0.0%
7 Israel 22 Denmark Labor taxes 57.1 0.6% 2.5%
Property tax 2.6 0.0% 0.1%
8 New Zealand 23 Greece Takes on Goods and Services 483.8 4.9% 21.4%
9 Canada 24 Finland PIS and COFINS 330.3 3.3% 14.6%
Tax on industrialized products 58.9 0.6% 2.6%
10 United Kingdom 25 Belgium Tax on financial transactions 59.0 0.6% 2.6%
11 Iceland 26 France Others 38.6 0.0% 1.7%
Trade and tariff taxes 59.0 0.6% 2.6%
12 Argentina 27 Austria Tax on imports 59.0 0.6% 2.6%
13 Spain 28 Hungary Tax on exports 0.0 0.0% 0.0%
Others 0.2 0.0% 0.0%
14 Norway 29 Italy Social Contributions 745.7 7.5% 33.0%
15 Germany 30 Brazil Private Sector Social Security 519.0 5.2% 23.0%
Public Sector Social Security 50.5 0.5% 2.2%
Source: Instituto Brasileiro de Planejamento e Tributação, "Indice de retorno do bem estar à FGTS Contribution 156.3 1.6% 6.9%
sociedade" PASEP Contribution 20.0 0.2% 0.9%
States 851.0 8.6% 100%
One interesting aspect of the Brazilian tax structure (feder- Property taxes 78.5 0.8% 9.2%
al+state+municiplaities) is that almost 50% of taxes fall into Taxes on goods and Services (ICMS) 722.5 7.3% 84.9%
Social security contribution 50.4 0.5% 5.9%
goods and services, among the highest burden in the world. Municipalities 232.1 2.3% 100%
This ends up leading to a regressive tax structure, meaning Property taxes 84.2 0.9% 36.3%
that the poor end up paying more than the rich, who pay a low Tax on goods and services 125.8 1.3% 54.2%
Social security contribution 22.1 0.2% 9.5%
level of income tax . In most of the world, the income tax is Grand Total 3342.1 33.7%
higher than the tax on goods and services ,usually a VAT.
Source: Tesouro Nacional, J. P. Morgan
The worst tax system in the world? One of the most com-
mon issues regarding Brazilian taxes has to do with their
complexity. A number of surveys indicate that Brazil’s tax
system is close to the worst in the world. This means that
companies have to allocate a great deal of resources and/or
personnel to be up to date with their tax obligations and the
constantly changing laws and regulations. According to the
World Bank’s “Doing Business,” Brazil stands at 184 out of
190 in its Paying Taxes ranking.
Table 48: Tax System Is Among the Worst in the World
Paying Taxes Rank 184 out of 190

Payments (# per year) 10 (avg = 32.1)
Time (hours per year) 1501 (avg = 234)
Total tax and Contribution rate (% 65.1%
of profits)
(avg = 40.5%)
Source: Global Competitiveness Report 2019 , J.P. Morgan
75
JPMORGAN
Brazil 101
Tax reform Figure 155: Tax Reform Proposal
The problems surrounding the Brazilian tax system have been

diagnosed for a long time, and over the last 30 years different
administrations have tried to approve a tax reform. Because
of the political complexities involved in this endeavor, the
government usually chooses to change taxes in line with its
own interests, promoting bits-and-pieces changes in the legis-
lation that end up complicating the system even more. In fact,
it is estimated that Brazil currently has over 5,000 tax laws,
which, if the paper on which they are written is laid out side Source: J.P. Morgan, Finance Ministry, and CCiF
by side, would span 6.6 kilometers (IBPT). Now, however,
the tax reform has never been closer. At the time of this writ- Impacts of the tax reform: From a top-down perspective,
ing, the reform has been approved in the Lower House, pend- there are all kinds of estimates vis-à-vis the impact of the tax
ing the vote from the Senate. Considering that the Senate is reform on GDP. The Finance Ministry sometimes mentions
very likely to change the bill, it is expected to return to the 10% in 10 years. The aforementioned IPEA study talks about
Lower House at some point. However, there is a broad con- an increase of 2.39% during the transition and an improve-
sensus that a reform will be finalized, probably still in 2023. ment of 1.03% in employment until 2032. The truth is that it
appears that the reform is good news for the macro, but we
Which reform? First and foremost, the aim of the reform is find it is very difficult to estimate. On the sector side, roughly
to simplify the system. and to end the “tax wars” between the speaking, services today pay 3.65% of PIS/COFINS while
states, where companies are granted enormous tax benefits to goods/manufactured products pay 9.25%. The reason for this
produce in a certain state that is typically very far away from difference is that the manufacturing of goods generates cred-
the consuming market. Second, less is more. The reform was its at each stage of the production process, while services do
split in two, and this first phase has to do with taxes on con- not, considering that they do not produce anything. The new
sumption. The second phase, to be tackled perhaps in 2024, reform will create one single VAT applied to products and
will deal with tax on income. Currently, the issue revolves services, which will then elevate the tax burden of service
around the creation of a federal VAT and a state VAT in lieu companies at first glance. Another issue is that tax credits
of 5 different taxes, PIS, COFINS, IPI, ICMS and ISS. The generated at the different production stages will be paid in no
last two are state and municipal taxes, respectively. All these more than 60 days. A recent study from IPEA calculated the
taxes combined total to 12.5% of GDP, or about ⅓ of total tax impact of the reform in different sectors and states. The study
collection in Brazil. There are a number of sectors and items takes into account the proposal presented by the government
that are being granted a differentiated treatment in the reform, and not the one approved in the Lower House, which actually
either being tax exempt or having a hefty discount from the increases the number of sectors that will receive special treat-
new VAT. These sectors are public transportation, education, ment under the reform, something the authors think is bad for
health, and agriculture. There continues to be pressure for the system as a whole. In any case, as expected, sectors with a
more sectors to be included in the “special” list, and the latest long supply chain are likely to grow more in the next few
ones to receive this grant from the Lower House were hospi- years as compared with the current state of affairs. In fact,
tality, restaurants, regional aviation, security and IT services. sectors that benefit the most are manufacturing, extractive
The transition period will take place between 2026 and 2032 (oil, gas, materials), energy, water and gas and, to a much
– in the first two years, just federal taxes (CBS) will be lesser extent, retail. Construction is to have a neutral impact,
impacted, while states and municipalities will migrate along with agriculture and IT. The sectors negatively impact-
towards the IBS from 2028 to 2032. During the transition, the ed are transportation, restaurants and hospitality (hotels, etc.),
federal government is going to compensate the regional gov- and other services. However, the version approved in the
ernment for the losses incurred with the new tax. The VAT Lower House also puts hospitality, restaurants, bars and trans-
level has yet to be defined. At the end of the transition, the portation on the special list, reducing the negative impact on
tax will be charged in the place where the good is consumed them.
rather than where it is being produced. To compensate for
losses that a regional government will incur, the union will
create compensation funds that have gradually increasing
amounts, with allocations reaching R$0 billion per year from
2029 to 2033.
76
JPMORGAN
Figure 156: GDP Impact of the Tax Reform for Different Sectors ation (shareholders don’t pay tax on dividends), IoC is taxed
11.4 at the rate of 15% after being distributed. Over the past sever-
7.98
6.62 al years there have been constant discussions on the possibili-
2.35 ty that IOC will be eliminated. We estimate that the impact of
0.53 0.27 0.07
a reversal in IOC would be an extra R$30 billion in taxation
-1.81 -2.8 -2.82 for companies. Sectors that have a lot of IOC distribution
include banks (whose revenues would be impacted by about
15-20%) and, to a lesser extent, food and beverages compa-
nies, but it is of common use across all sectors. Beyond the
IOC, there is also significant discussion to establish a tax on
Source: IPEA, Carta de Conjuntura # 60, 3Q23. “Propostas de reforma tributaria e seus impac-
tos: Uma avaliacao comparativa,” Joao Maria de Oliveira. Note: It takes into consideration the
dividends in Brazil and also to eliminate the tax exemption
transition period of the tax reform and the proposal sent to Congress, which was then changed for some investment vehicles like REITs, notes that finance
somewhat to include more sectors in the “special”categories, those that pay less taxes. agriculture and real estate, exclusive investment funds, and
Figure 157: GDP Impact of the Tax Reform on Selected States others.
3.77 3.92
2.91 Main taxes
2.08 2.36
1.67 An ordinary Brazilian is subject to several taxes and may not
1.04
know where all the money is going. The complexity of the
system makes understanding it difficult. Perhaps the greatest
-0.57 -0.41 -0.32
-0.93 complication is the fact that Brazil doesn’t have a single VAT
-1.71
on consumption (yet). What would be a VAT is divided into
three spheres (union, states, and municipalities), and each one
has its own legislation and tax rate. The main taxes are listed
Source: IPEA, Carta de Conjuntura # 60, 3Q23. “Propostas de reforma tributaria e seus impac- below:
tos: Uma avaliacao comparativa”, Joao Maria de Oliveira. Note: It takes into consideration the
transition period of the tax reform and the proposal sent to Congress.
Federal taxes
Second phase of the tax reform: The second phase of the
Corporate income tax: Companies in general pay 15% of tax-
reform deals with tax on income and is expected to be
es on profits, plus an additional 10% if profits are above
launched in 2024, but, in some aspects, its debate is already
R$240K per year. Companies that have sales of less than
advanced. This is because under the Bolsonaro administra-
R$78 million in a calendar year qualify for the calculation of
tion, Minister Paulo Guedes presented an income tax reform
income taxes over estimated profits (rather than observed). In
to Congress that was actually approved in the Lower House.
this case, rates differ for different activities, ranging from 8%
The current administration appears to want to start from
for cargo transportation to 32% for services in general. Com-
scratch, but some of the guidelines are already well known:
panies that have gross revenues of less than R$4.8 million
• Establish a tax on dividends, which today doesn’t exist in qualify for a simplified tax regime (SIMPLES), which com-
Brazil, one of the very few countries in the world where bines 8 different federal taxes. Rates differ depending on the
this takes place. business: 19% for commerce, 30% for industry and so on.
• To compensate for a new tax on dividends, reduce the cor- Table 49: Statutory Corporate Tax Rate in Selected Countries
porate income tax.
35 34
• Increase the number of income brackets in the personal 30 29.94
27 26.5 25.83 25.77 25
income tax. Today there are only 3 brackets, and the max- 20.6 20 19 19
imum personal tax rate is 27%. The minimum is 15%.
9
End of the IOC and Financial Markets Tax Changes:
Income on own capital allows companies to deduct from tax-
Colombia
Mexico
Korea
Brazil
Germany
France
Turkey
Poland
Chile
U.S.
U.K.
Sweden
Hungary
Czech Rep.
able income a percentage of pre-tax earnings to be distributed

to shareholders. Many companies chose to use this instrument
as it provides them with a tax shield. The interest on own cap- Source: OECD, J.P. Morgan
ital (IoC) was created in 1995 becoming a new instrument to
remunerate shareholders. Brazil is the only country to adopt Social Contribution Tax on Profits: The CSLL is imposed on
this way to distribute income to shareholders. Different from profits at a rate of 9% for most companies. For banks, the
the payment of dividends, in which the company pays for tax- CSLL is currently a whopping 21%; for other financial insti-
tutions it is 16%. The CSLL and the income tax together
77
JPMORGAN
Brazil 101
result in an effective tax on corporate profits of 34% for Table 51: Financial Product Taxes for Non-Residents
non-financial companies. The effective tax rate for Brazil- Income Tax
Government Bonds Exempt
ian banks is therefore 46% (income tax + CSLL). Funds Carrying 98% of Portfolio in governemnt bonds Exempt
Funds Carrying 85% of Portfolio in infraestructure bonds Exempt
Personal income tax: All personal income earned in Brazil is Private Bonds and Fixed Income Funds 15%
Swaps 10%
subject to federal income tax. The country has a progressive Equity Investment Funds 10%
taxation system under which individuals are taxed up to a Capital Gains
maximum of 27.5% of their income. Brazilian taxpayers must Stocks or stock indexes on exchanges Exempt
Stocks or stock indexes over the counter 15%
present an annual income tax declaration, to be delivered by Derivatives on exchanes Exempt
the last day of April each year. It is interesting to note that Derivatives over the counter 10%
Dividends
anyone that makes above R$4,664 per month pays the same Stocks Exempt
amount of income tax. Below is the income tax rate table.
Source: ANBIMA, J.P. Morgan
Note that for the past four years it has not changed, not even
to compensate for inflation. Table 52: Financial Products Taxes for Residents
Income Tax
Table 50: Personal Income Tax Rate by Income Level Government Bonds Up to 180 days: 22.5%
Private Bonds and Fixed Income Funds 181 to 360 days: 20%
Monthly Income Tax Rate Fixed Income Funds - Long Term 361 to 720 days: 17.5%
Swaps More than 720 days: 15%
Up to 2,112 Exempt Structured Notes (COE)
From 2,112 to 2,826 7.5% Income Tax
Fixed Income Funds - Short Term Up to 180 days: 22.5%
From 2,826 to 3751 15.0% More tahn 180 days: 20%
From 3751 to 4664 22.5% Income Tax
Equity Investment Funds 15%
Above 4664 27.5% Capital Gains
Stocks or stock indexes on exchanges Exempt
Source: Receita Federal
Stocks or stock indexes over the counter 15%
Derivatives on exchanes Exempt
PIS/COFINS: This is a federal tax charged on a company’s Derivatives over the counter 10%
gross receipts and destined to finance social security. The cur- Day Trade 20%
rent COFINS rate is 7.6% and the PIS is 1.65%. There are Dividends
Stocks Exempt
two main regimes for this tax: 1) Cumulative, which doesn’t
contemplate tax credits and is used mostly by service compa- Source: ANBIMA, J.P. Morgan
nies. The rate is 3% and for banks it is 4%. 2) Non-cumula- Federal Contributions: The difference between taxes and con-
tive: Companies (usually industries with a production chain) tributions is that the former needs to be split with states and
can claim tax credits in each step of the production process. municipalities while the latter does not.
The rate in this case is 7.6%. The PIS/COFINS underwent
legal changes in 2004 and is the core part of the tax reform INSS (Social Security): Both employers and employees are
being proposed in Congress. subject to social security contributions. The employee contri-
bution depends on level of income, and varies from 8.0% to
Taxes on security investments: In a nutshell, locals pay 15% 11% of the gross wage. There is also a limit to contribution
capital gains tax on equities and no tax on dividends. For (R$608.44, equivalent to wages of R$5,531.31 or more).
fixed income investments, the tax rate depends on how long Generally, the employer contribution is between 26.8% and
the investment is held: for fixed income investments of less 28.8% of the monthly salary. To try to stimulate the economy,
than six months, the tax is 22.5%, and it falls to 15% for peri- the government temporarily eliminated the payroll tax for
ods of two years or more. Foreigners in general are exempt around 50 sectors in 2012 and instead levied a tax on gross
from capital gains and dividend taxes in Brazil, unless they revenues that varied between 1% and 2%. This has cost the
come from countries that do not tax income or tax income at a government R$25 billion a year. In 2015, some of this subsi-
rate of less than 20%. Foreigners investing in fixed income dy was removed, with the tax increasing to about 4% for most
instruments are exempt from capital gains taxes. Foreign sectors. Still, the government is aiming to completely reverse
exchange transactions are usually taxed at a rate of 6%. Cer- the payroll tax subsidy, but this has been met with fierce
tain instruments in Brazil are tax free, such as real estate and rejection in Congress. There is an estimated 6 million house-
agriculture incentive bonds, infrastructure bonds, among oth- hold helpers in Brazil (housekeepers, nannies, etc.). Employ-
ers. ees pay a contribution that varies from 8% to 11% (depending
on the salary) while the employer contributes 8%, an addi-
tional contribution of 8% for the FGTS, and some other con-
78
JPMORGAN
tributions, for a total tax on domestic workers of around 25%. State Taxes
ICMS: This is the tax on the circulation of goods and services.
Table 53: INSS (Payroll) Contribution by Wage Level (2019) It is a state tax, and thus there are 27 different legislations
Monthly Wage Employer Tax (one for each state). The tax rate varies depending on where
Up to 1320 7.50% the product is produced and where it will be consumed. It also
1320 to 2571 9% varies according to different products. Every manufacturer,
distributor, retailer or provider of almost every type of mer-
2571 to 3856 12%
chandise or service pays the state ICMS and passes the cost
3856 to 7507 14%
along to the consumer. ICMS in Brazil is basically a hidden
Source: Social Security Ministry tax, meaning that the tax is embedded in the product price.
FGTS (Worker's Severance Fund): Under the FGTS, employ- Therefore, most Brazilians are unaware of how much the
ers make a deposit of 8% of a worker’s wage in the Caixa ICMS actually costs them. One of the main ideas of the Tax
Econômica Federal. The balance is released when a worker Reform that is currently in the Senate is to incorporate the
retires or in some special circumstances. For example, if a ICMS in the VAT that is to be created. However, there is a lot
worker is fired without a justified reason, the FGTS is of controversy on whether this would be feasible considering
released and the employer must pay a penalty of 40% of the the different interests of each state.
FGTS total balance. Also, the FGTS can be released in spe- Estate Tax: This tax is established by each state and is rela-
cial cases such as the purchase of a first home, in case of tively low for the international standard, averaging around
some illnesses (cancer, HIV, among others). Nowadays, the 4%. While there have not been recent discussions on the
FGTS is one of the most important sources of real estate cred- estate tax, at some point this is likely to be also one that will
it. It is also a key component of the BNDES’s annual financ- see higher rates in the future
ing. In 2015, Congress passed legislation stipulating that
domestic workers will have the right to receive the FGTS. State Taxes
Early in 2017, in an effort to stimulate growth, the govern- The main city taxes are the tax on property (IPTU), the tax on
ment released the FGTS of workers’ inactive accounts, that is, services (ISS) and the 3% tax on transfer of property.
the balance of the FGTS accumulated in previous jobs. The
FGTS release lasted from March to early August 2017. More
than 24 million people received resources equivalent to
R$43.5 billion (0.7% of GDP) BRL, which probably helped
to boost the economy in 2Q, albeit it is unknown how much
of these resources were spent and how much were used to pay
debt. In 2019, the Bolsonaro administration decided once
more to free up FGTS resources. Each individual with an
FGTS account had the right to withdraw R$500 from their
FGTS balance. In addition, individuals can also opt to with-
draw a percentage of their FGTS balance on a yearly basis
according to the rules in the table below. it is estimated that
about 28 million Brazilians have opted for this category of
withdrawal. The Lula administration is in general against this
“anniversary withdrawal” and could change the rules on it as
soon as 2023.
Table 54: FGTS Voluntary Yearly Withdrawal Rules

FGTS balance Yearly Withdraw Additional Pay (R$)
500 or less 50% 0
From 500 to 1000 40% 50
From 1000 to 5000 30% 150
From 5000 to 10,000 20% 650
From 10,000 to 15,000 15% 1150
From 15,000 to 20,000 10% 1900
More than 20,000 5% 2900
Source: Caixa, J.P. Morgan
79
JPMORGAN
Brazil 101
Figure 159: Credit as a % of GDP – Selected Countries (2022)

Credit 216%
183%
The credit boom in Brazil began in 2004, when interest rates
147%
started to come down to more affordable levels. There are
three key issues that may explain the low level of historical
88%
credit penetration in Brazil. First, high interest rates acted as 60% 55% 54%
inhibitors for credit, due to the prohibitive cost for individuals 45% 44%
22%
and companies. Second, banks didn’t need to go into the cred- 9%
it business as it was very profitable to finance the govern-
Mexico
Colombia*
Peru
China
United States
Great Britain
Russia
Brazil
Chile
Argentina*
India
ment’s debt, considering the high rates of return. Finally, it
was only in 2004 that it was clear that the Brazilian economy
had stabilized on a sustainable path, allowing for more jobs,
higher wages and, therefore, more demand for credit. The Source: J.P. Morgan: Latin American Banks: Credit and Market Share Bible Volume IX
advent of credit has been a key factor propelling domestic The rise of public sector banks: With the advent of the
consumption. Indeed, the credit expansion in Brazil is largely European crisis in 2H11 and questionable policy choices
due to consumer credit and less due to corporate credit. domestically, growth started to slow down considerably in
Brazil. Banks became more reticent to lend at a time of uncer-
In 2004 total credit represented about 25% of GDP, and in tainty. At the same time, non-performing loans started to
December 2015 this ratio peaked at 53.8%. Given the reces- deteriorate, considering the credit boom of 2010. The deceler-
sion of 2015/16 and the de-leveraging process that took place ation was mostly felt in non-directed loans (issued by banks
since 2013, this ratio touched 45% in 2018, the lowest level at market interest rates), to which most consumers usually
since 2012. The issue was not only on the demand side: banks have access. Public banks came to the rescue. First, this was
also remained a lot more cautious in terms of loan growth done through significant expansion of the BNDES, with
during the past few years and only started to accelerate credit about R$500 billion from Treasury loans used to capitalize
in 2018/19, even so just single-digit growth. Currently, credit the bank and increase its lending power. By 2012, the boost-
as a % of GDP stands at 52%, and has been at around this lev- ing of public sector banks as the main conductor of loans in
el since March 2020, when the ratio came from 45% reaching Brazil became an official policy. The Dilma Rousseff admin-
52% in December 2020. istration adopted a somewhat belligerent stance to the finan-
cial system starting in April 2012. The president argued that
Figure 158: Credit as a % of GDP
while interest rates were falling, there was no decline in
60 spreads. This happened at a time when the economy was
55
50
showing few signs of a rebound and credit was seen as a
52.10 major growth booster. In order to foster lower spreads, the
45
40 government adopted a strategy that relied on public sector
35 banks (especially Banco do Brasil and Caixa) greatly expand-
30
25
ing loans at lower rates, which would force private sector
20 banks to do the same or risk losing market share. However,
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
20…
the strategy didn’t work as private sector banks remained on

Source: Banco Central do Brasil. Data as of July 2023.
the sidelines. All in all, one of the primary structural changes
in the Brazilian banking system was the rapid growth of gov-
Relative to other LatAm countries, at the end of 2022 Brazil ernment-controlled banks from 2008 to 2017, with their mar-
had the second-highest credit/GDP ratio, behind only Chile. ket share touching 57% of the total loan portfolio in 1H16
(was 34% at YE2007).
80
JPMORGAN
Figure 160: Evolution of Market Share earmarked loans experienced a jump of 30% while the ear-
75% marked loans remained relatively flat in the same period. This
65% move was mostly due to the position adopted by the BNDES
55%
to decelerate the path of loans, pushing the demand to look up
45%
for options in the non-earmarked sphere. In 2020, earmarked
35%
credit embarked on an upward trend (+17%y/y in mid-2021)
on the back of government stimulus during the pandemic.
25%
Since then, the percentage fell, but remains at elevated levels
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Public Private given an increase in rural credit for individuals and other pro-
grams (Pronampe and Peac) to provide credit for corporates.
Source: Banco Central do Brasil. Note: 2016 data blip on private and foreign banks reflect the Still, the BNDES played a role but not as it did in the first
acquisition of HSBC by Bradesco. Data as of July 2023.
decade when loans amounted to 4% of GDP.
Reversal: As with other areas of the economy, the adminis-
trations that came to power after the Dilma Rousseff adminis- Figure 162: Directed and Non-Directed Loans Growth (y/y)
tration started to reverse the policy of boosting public sector 50%
banks. The Temer administration stopped intervening in the 40%
public banks, which started to lend at market rates, while the 30%
development bank BNDES became a lot more selective, lend- 20%
ing less and at higher rates. This new policy continued with 10%
0%
the Bolsonaro administration leaving the loan growth flat
-10%
from the government sphere. Moreover, there is a clear priva- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
tization/divestment strategy that seeks to reduce the size of Non-Earmarked Earmarked
the banks by selling assets, equity and subsidiaries. Latest

data as of July 2023, show that the government share of total
credit stands at 43%, the lowest level over the past 10 years, Overall, total credit has been decelerating since mid-2022
while private share stands at 57%. from 18% to 8.2% in July 2023. For 2023, the guidance of
loan growth from the three main banks in Brazil for 2023 was
Figure 161: Loan Growth mixed. Itau had 8% to 11% for 2019, Bradesco had 9% to
50% 13%, while the Banco do Brasil numbers were very little, of
40% -2% to 1% in 2019. For 2020 the soft guidance from all the
30%
20%
private banks is between 10% and 15%.
10%
0% Figure 163: Total Loan Growth (%oya)
-10%
40%
-20% 34.2%
35%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
30%
25% 22.9%
Government Pivate Domestic Foreign
20%
Source: Banco Central do Brasil. Note: 2016 data blip on private and foreign banks reflects the 15%
acquisition of HSBC by Bradesco. Data as of July 2023. 10% 15.0%
5% 8.2%
4.1%
0%
Direct lending vs. non-direct lending: Brazilian credit data -5% -3.8% -0.4%
are classified as directed (lending that comes from BNDES
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
sources, or agricultural or mortgage loans funded by savings

and/or demand deposits mainly) or non-directed (lending that Source: Banco Central do Brasil. Data as of July 2023.
is freely lent out by banks at market interest rates and not
beholden to directed lending requirements on some sources of Credit Markets’ Main Aspects
funding). As discussed above, public sector banks are mostly The credit boom that Brazil experienced since 2004 was
the carriers of directed loans, albeit mortgages are sometimes mostly a product of an expansion in credit to consumers – and
subsidized and fall within private sector banks. While the today they are responsible for almost 50% of total credit in
deceleration in non-directed/non-earmarked/free loans Brazil.
already started to take place following the high-growth years
of the beginning of the decade, deceleration in earmarked/
directed loans took place over a year later, in mid-2013. From
2017 up to the beginning of 2020 the trend reverted and non-
81
JPMORGAN
Brazil 101
Figure 164: Total Credit Destination by Debtor (Directed and Non- Figure 167: Mortgage Growth YoY
Directed) 35%
Agriculture, 30%
Commerce, 8.1%
0.6% 25%
Other Services, 7.9% Public Sector, 2.6%
20%
15%
10%
Industry, 12.3%
5%
Individuals, 50.0% 0%
-5%
Services Total, 18.5% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: Banco Central do Brasil . Data as of July 2023.
Corporate credit: Corporate credit was in a tough place
Non-directed loan to individuals have been in a downward before the pandemic, especially in 2016-17 when the easing
trend since mid-2022, falling 12% since then up to July 2023. cycle began. During the pandemic, there was a boom given
This happened at the same time that earmarked credit the need to provide support for companies. Loans to corpo-
remained stable. rates have been in a downward trend since mid-2022 and
deteriorated in 2023 given the episodes involving Americanas
Figure 165: Non-Directed Loans to Individuals (y/y) and other private companies.
40%
35% Figure 168: Non-Directed Corporate Loans
30%
25%
Y/Y % change
20% 60%
15% 50%
40%
10%
30%
5% 20%
0% 10%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 0%
-10%
Source: Banco Central do Brasil. Data as of July 2023. -20%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Mortgages: Mortgages are mostly associated with earmarked/
Old New
directed loans. Indeed, mortgages are responsible for almost
60% of total earmarked credit to individuals. While private Source: Banco Central do Brasil. Data as of July 2023.
sector banks have been expanding their penetration into mort-
gages, most of them are still within the domain of Caixa Eco- In terms of distribution 34% of outstanding non-earmarked
nomica Federal, as it offers subsidized loans and facilities to corporate loans are for working capital needs, and within that,
use the FGTS balance to buy a house. Despite the higher the great majority are for terms of over 365 days. The second-
interest rates in Brazil in the first decade, mortgages present- largest category is leasing, responsible for 9.4% of total cor-
ed a steady upward trend, touching 16% of total credit, in porate loans (non-directed).
2017. Since then, the percentage has remained stable at 18%.
Figure 169: Non-Directed Loans Breakdown for Corporates
Figure 166: Mortgages as a % of Total Credit
Others, 43.5% Working Capital,
22.0% 33.9%
18.0%
18.0%
14.0%
Exports, 11.5%
10.0% Goods Acquisitions,
Imports, 1.3% 0.4%
6.0%
Leasing, 9.4%
2.0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Banco Central do Brasil. Data as of July 2023.
Source: Banco Central do Brasil. Data as of July 2023. Within corporate directed loans, around 70% relates to invest-
ment financing, and this comes mostly from BNDES. This
line has decreased meaningfully from its peak in 2012, and is
currently at the lowest level ever. Following the end of the
Dilma Rousseff administration, the BNDES went through
82
JPMORGAN
important changes. It became smaller and disbursements are (1Q20). Influenced by the fiscal stimulus provided to individ-
more geared to good projects rather than applying a sectorial uals and companies throughout the following two years, total
bias.Nowadays the bank is focused on the concession for NPLs fell on average 100bps and started to increase in
small and medium-size companies and plans to increase the mid-’21 given the beginning of the tightening cycle. Currently
bank participation on the concession of earmarked credit. NPLs for both individuals and corporate stand at 6.2% and
3.3%, respectively, higher than pre-pandemic levels.
Figure 170: BNDES Share of Earmarked Loans Outstanding
% of Total Figure 172: Non-Directed Lending NPL Ratios
80% 8
77% 7
74% 6 5.6
71% 5
4.1
68% 4
65% 3
2 2.4
62%
1
59%
0
56%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
53%
50%
Total Corporates Individuals
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Banco Central do Brasil. Data as of July 2023. Source: Banco Central do Brasil
Since 2020, BNDES credit has been in an upward trend on a Spreads at higher levels: The recession in 2015 was the last
yearly basis, accelerating very much in 2023, when the new peak of spreads, and even though the Selic rate started to fall
government took office. in October 2016, it took some time to pass on to consumers.
Given the increase in rates in March 2021, lending spreads
Figure 171: Credit with BNDES Resources are higher than pre-pandemic levels, especially for individu-
% Y/Y als. Nonetheless, after touching 13.75% and remaining at
50% higher levels for 13 months, the easing cycle began with the
40%
first cut taking place on July 2023.
30%
20%
Figure 173: Lending Spreads
10%
35
0%
30
-10% 25
-20% 20
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
15
Source: Banco Central do Brasil. Data as of July 2023. 10

5
Non-performing loans (NPLs): One could imagine that the 0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
two years of recession (2015-16) would have led delinquency Total Corporates Individuals
rates to go through the roof. However, they slightly increased
in the period post-crisis and are currently below the 2015 lev- Source: Banco Central do Brasil
els (4.3% vs. 3.8% today). This is a feat, considering that the Interest rates: The level of interest rates used to be very high,
unemployment rate escalated from around 9% then to 13% in despite the development of the Brazilian credit market. How-
July 2017 (reaching a peak of 13.7% in March 2017), and is ever, from 2017 up to 2021, interest rates to corporates and
still running at double digits (December 2019 = 11%m/m). individuals experienced a downward trend due to the lower
Most of the credit should go to the banks, which have been rates. Following the same direction of the Selic, interest rates
very cautious in lending since 2013. On the corporate side, on non-directed loans increased, standing at 23% for corpo-
the NPLs also fell. They were strongly impacted by the eco- rates and 58% for individuals. Lower rates certainly affect the
nomic contraction, which led NPLs to rise. However since banks’ margins, and to maintain profitability, banks will have
mid-2017 there was a huge decline of 151% due to companies to focus on new strategies.
renegotiating their debts, to a cautious selection from banks to
lend money and also to the improvement of the macro envi-
ronment.
From 2017 onwards post the national recession, total NPLs

were in a descending trend until the pandemic hit the world
83
JPMORGAN
Brazil 101
Figure 174: Interest Rates on Non-Directed Loans From mid-2020, it jumped from 40% touching 50% in July
80 2022, a clear reflection of higher interest rates. Nonetheless,
70 since this peak in July, the level of debt started to show sig-
60
50 nals of deceleration: inflation slowing down, higher real wag-
40
30 es and controlled rates of unemployment. On the other side,
20 while level of debt is decelerating, income committed to debt
10
0 service jumped 20% since March 2020, reflecting higher rates
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
and a tough economic environment. Note that while house-
Total Corporates Individuals hold debt has increased in recent years, the level of income
committed to service debt has increased as interest rates rose.
Source: Banco Central do Brasil Thus, while leverage is up, affordability is down, at the same
Loan maturities: Non-directed loans in Brazil are inherently time that maturities are being extended.
short term, albeit these have been lengthening somewhat over
the past years (for consumers only). The risk associated with Figure 176: Household Leverage and Income Committed to Service
Debt
credit still makes banks worry about extending long-term
credit. Therefore, this pretty much falls into the job descrip- % of Total annual income
55 30
tion of the public sector banks (mainly BNDES for corporate 50 28
long-term loans and Caixa for mortgages). There is an ongo- 45 26
40
ing effort to prompt private sector banks to engage more in 35
24
22
long-term credit, and the effort has been bearing fruit on the 30
20
25
mortgage side. 20 18
15 16
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Table 55: Average Loan Maturity
Total Debt/ Annual Income (LHS) Income Commit. to Debt Service (RHS)
Non-Directed
Total Loans Directed Loans
Loans Source: Banco Central do Brasil. Data as of June 2023.
Corporate 49.63 28.24 83.29
While mortgages are still a growing business in Brazil, this
Consumer 167.43 61.23 262.39
Total 118.79 45.5 201.3
loan type continues to grow in terms of share of household
indebtedness. As of June 2023, household indebtedness
Source: Banco Central do Brasil. Data as of July 2023. excluding mortgages was 30%, a jump of 18% comparing to
Consumer leverage: As credit starts to peak once more, one pre-pandemic levels. Yet, there already signals of decelera-
starts to look at leverage data again. While in developed mar- tion. Income committed to service debt ex-mortgage remain
kets household debt stock is very large (over 100% of annual in an upward trend, touching record levels of 28%.
income), in Brazil it hovers between 55% and 60% of annual
income (net of taxes). Currently, it stands at 45%. However, Figure 177: Household Leverage and Income committed to Service
Debt Ex-Mortgage
in Brazil, the level of mortgages is small, while in other coun-
% of total annual income
tries, especially in Europe and the US, and Chile in Latin
35 27
America, mortgage liabilities make up the lion’s share of
30 25
household debt. 23
25
21
Figure 175: Household Debt as a % of Net Income (2023) 20
19
15 17
300
247
250 10 15
206 211
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
187
200
150 122 126 Total Debt Ex-Mortgage/Annual Income (LHS) Income Commit. to Debt Service Ex-Mortgage (RHS)
91 93 102 102 102
100 59 67
45 45 52 Source: Banco Central do Brasil. Data as of June 2023.
26 37
50
0
It is interesting to note that of the total 28% of income com-
mitted to service debt as a percentage of total income, 10%
relates to interest payments and 18% to principal.
Source: OECD. Data as of July 2023.
The level of debt relative to annual income in Brazil was

somewhat flat from 2013 until 2020 and was considered low.
84
JPMORGAN
Figure 178: Breakdown of the Income Commitment to Service Debt Figure 180: Mortgages as a % of GDP – Selected Countries
20 75% 77%
18
59%
16 48%
14 36%
42%
30%
12 22% 24%
10 9%
8
6 Brazil Italy Chile South Africa Germany France Spain Portugal UK US
4
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Source: Banco Bradesco institutional presentation
Income Commited to Service Principal Income Commit. to Service Interest
There are two main sources of funding in Brazil, savings
Source: Banco Central do Brasil. Data as of June 2023. accounts or SBPEs (Sistema Brasileiro de Poupança e
Emprestimo) and the FGTS (Fundo de Garantia do Tempo de
Desenrola Brasil: In July 2023, federal government launched
Serviço), which is a type of mandatory pension fund to which
a national program to renegotiate around 70 million individu-
all Brazilian employees make mandatory contributions.
als’ debt. The goal is to foment consumption and “clean” the
name of those that do not have current allowance for credit.
SFH: Sistema Financeiro de Habitação (Housing Financial
The debt will have a discount in the total amount and could
System) was created in 1964 to develop the mortgage market
be refinanced up to 60 months. Population target are those
in Brazil. Its main sources of funding are savings deposits in
with income up to two minimum wages or those that belong
the financial system, including deposits at government-owned
to the “Cadastro Unico” (government database for low-in-
Caixa Econômica Federal (CEF), which is the main vehicle
come band). The program is divided in phases: 1) the focus is
for directed mortgage lending in the country, with a market
on those up to 2 minimum wages or that belong to the
share of almost 68% in June 2017 in mortgages to individu-
“Cadastro Unico” and that pursue debt up to BRL5k and that
als. The participating banks constitute the Sistema Brasileiro
were “created” between Jan 1st, 2019, and Dec 31, 2022; and
de Poupança e Emprestimo, or SBPE (Brazilian Saving and
2) target will be those with debt up to BRL20K and Dec 31,
Loan System). The other source of funding for SFH is
2022. Still, each institution will be responsible to renegotiate
employee payments to FGTS.
debts with customers. Other characteristics of the program
are: those with debt up to BRL100 will have their name
SBPE: Traditionally, the SBPE has encompassed all public-
“cleaned” as a means to allow them to get credit with banks –
and private-sector banks except those focused on the rural
the debt will not be eliminated, but their names will remain
segment. In 2019 mortgages from SBPE amounted to roughly
“clean.”
R$78bn, representing a 43% increase versus 2018's R$57bn
and compared with a peak of R$113bn in 2014. Banks in the
Brazilian Mortgage System SBPE have to devote 65% of savings deposits to mortgages,
Historically, mortgage penetration in Brazil has been low. 30% stay as compulsory (regulatory reserves at the central
Getting credit to finance a house used to be a substantial chal- bank) with 20pp remunerated at TR + 6.17% (or TR+ 70% of
lenge, and only a few Brazilians could own their own homes. Selic if Selic is below 8.5%) and 10pp at Selic. Of the 65%,
Since 2006, and mainly after the implementation of fiduciary 80% has to be lent at no more than TR + 12% a year for units
mortgage duty and programs like the Minha Casa, Minha with prices below R$1.5mn, and the remaining 20% can be
Vida, mortgage issuance started to increase. However, since allocated to mortgages at market rates. However, banks are
the 2014-15 crisis, it remains around 9.5% of GDP. allowed to comply with this requirement through a variety of
regulatory facilities. If banks have a shortfall in their directed
Figure 179: Mortgages as a % of GDP lending requirement, they are penalized with a lower return
9.7%
on the shortfall amount (TR flat vs. the TR+6.17% or TR +
9.5% 9.5% 9.5% 9.2% 9.4% 9.2% 9.4%
9.0%
7.6%
70% of Selic that they have to pay on the savings deposits).
6.3%
5.2%
4.0%
2.2%
3.0% FGTS: Provides funding through compulsory savings from
1.4% 1.5% 1.8%
employees. Originally conceived as unemployment insurance,
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 it is now used for a variety of purposes, including providing
Source: Banco Bradesco institutional presentation support to workers who are terminally ill, helping workers
purchase a house, providing financial assistance for employ-
Despite the evolution in the last few years, Brazil still has one ees who are laid off, and, more recently, infrastructure invest-
of the lowest mortgages-to-GDP ratios in the world. ments. Employees contribute 8% of their monthly salary
deposited at Caixa Econômica Federal, which is the adminis-
trator of the fund. The money at FGTS yields TR+3% a year,
85
JPMORGAN
Brazil 101
and recently the government approved the distribution of the BNDES is once more focused on development, within the
funds, which increased annual remuneration by around 1.5pp. PPI partnership: helping in the privatization/divestment pro-
gram, funding for concessions and infrastructure projects and
FGTS – Low-Income Funding: FGTS represents the main also lending in areas where the private sector is absent, such
source of funding for the Minha Casa, Minha Vida program, as sanitation, SMEs, etc.
which was introduced in 2009 as an attempt to reduce the
housing deficit in Brazil, which at that time was above 7.0mn The BNDES credit expansion and contraction are evident
units. Caixa Econômica Federal is the main operator of when looking at disbursement data. In 2008, BNDES dis-
FGTS, receiving an annual fee from the fund for this service. bursements increased by 40% relative to 2007, reaching R$91
Interest rates on MCMV loans vary between 4.25% and 7.7% billion. In 2010, BNDES loans reached a record of R$168.4
depending on homebuyers’ income levels. The program has a billion (23.5% y/y) plus R$25 billion that the bank invested in
price cap of R$264k per unit the Petrobras capitalization. In 2011, the level of loans
declined to R$140 billion, but excluding Petrobras, loans
Figure 181: FGTS Total Housing Disbursements were almost flat relative to the previous year. 2012 saw an
R$ billion important contraction in investment, and during 1H loan orig-
65
58.4 59.7 inations were muted. These accelerated a great deal in 2H as a
56.4
49.7 result of explicit government policy. Then, the terms of the
40.2 42.3 PSI program were extended, issuing additional funding for
35.2
33.1 the purchase of capital goods at negative real interest rates. In
25.1
2013, loans continued to expand (+22% y/y), surpassing the
2010 record and reaching R$190.4 billion. This level was
pretty much reproduced in 2014 as the BNDES continued to
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
be used as a tool to smooth the economic contraction.
Source: FGTS
In the post-2014 election period, there was some effort to put
BNDES the economy back on track and rationalize BNDES’s roles,
especially considering the cost that its funding was having on
Since its creation in 1952, the Banco Nacional do Desenvol-
Treasury coffers. Loans in 2015 fell by 28% relative to the
vimento Econômico e Social (BNDES) has performed differ-
previous year, but were still at a triple-digit level in nominal
ent strategic roles in propelling the cause of Brazilian devel-
terms. A real deceleration started in 2016, with the advent of
opment. In the 1970s, it was a key enabler of the capital
the new Temer administration and restrictions on the funding
goods industry and an enabler of the import substitution mod-
side. In 2016, total disbursements declined to double digits in
el. The bank was a lender to companies at times of distress
Reais for the first time since 2008. The deceleration trend
during the successive crises in the 1980s. In the 1990s,
continued as part of the Bolsonaro administration, reaching
BNDES had a key role in the privatization process. Following
the lowest level in 2019, with R$55.3bn. During the next
the 2008/09 global financial crisis, the BNDES took taken
three years, BNDES disbursement has risen over 25%/year,
center stage in the Brazilian economy. In the post-crisis peri-
with the latest data pointing to an expenditure level of R$bn
od, BNDES increased its loans at a CAGR of 16.4% in 2007-
97.5.
14, made possible by unprecedented Treasury loans to the
bank (around R$500 billion), at some point responsible for Figure 182: BNDES Disbursements (R$bn)
over 57% of the bank’s funding. These loans were mostly 190.4 187.8
200.0
destined to fund the so-called national champions – those 180.0 168.4
156.0
160.0 136.4 138.9 135.9
companies that have large and dominant positions in the 140.0
120.0 97.5
country and that could also expand abroad. What was initially 100.0 90.9 88.3
70.8 69.3
80.0 64.9 64.3
55.3
post-crisis stimulus became a permanent feature of the bank: 60.0
40.0
a large loan portfolio, responsible for over 21% of total credit 20.0
0.0
in Brazil, or about 11% of GDP.
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: J.P. Morgan

The increase of the BNDES participation in the Brazilian
economy peaked in 2015 and has been falling until 2022. Sector distribution: During the "giant BNDES" years, most
Starting with the Temer administration (2016), the BNDES of the loans were given to the industrial sector. Many recall
participation in the economy as a whole started to decline, that the BNDES made possible some of the large corporate
with the bank now responsible for 12.6% of total credit and transactions in Brazil, especially those that sought to become
5.5% of GDP, an important contraction. The current role of a leader in their sectors in international markets. In the mean-
86
JPMORGAN
time, infrastructure, which was obsolete, usually received will reflect market rates; 3) reverse the crowding out effect
about 30% of total loans. This has started to change. In 2022, that TJLP had in terms of incentivizing private banks to lend
infrastructure received 43.4% of total disbursements, while long term. The TLP is defined by the IPCA inflation rate plus
agriculture came in second, responsible for 22%. Yet, despite the real interest rate of the 5-year Brazilian inflation linked
the low levels observed in the previous years, Lula’s adminis- note (NTN-B). The new rate was applicable only to new con-
tration reinforced the return of the BNDES on the new gov- tracts. After Lula’s reelection, the new BNDES administra-
ernment. tion, chaired by Aloizio Mercadante, intends to present a pro-
posal on the “new” Long Term Rate (TLP), which would
Table 56: BNDES’s Disbursements by Sector (2022) enhance the participation of BNDES on the Brazilian market.
Disbursement - 2022
BNDES equity portfolio: The BNDES subsidiary,
Sectors / Subsectors R$ Billion % of Total
BNDESPar, is responsible for the bank’s capital market oper-
Industry 19.11 20% ations, and its main attribute is the management of a huge
Food & Beverage 3.80 20% equity portfolio. As of 4Q22, the BNDES equity portfolio
Pulp & Paper 3.13 16% hovered around R$64.7 billion, with equity participation in
Chemical and Petrochemical 2.80 15% publicly traded companies. This makes the BNDES the larg-
Transport Materials 2.75 14% est equity market participant in Brazil. The sector distribution
Mechanics 2.26 12% is very concentrated, with nearly 40% in oil & gas and 25%
in electricity. Food & Beverage is responsible for an addition-
Indutries - Others 1.94 10%
al 15.6%. There has always been a lot of questions on what
Apparel and Textile 0.81 4%
strategy the BNDES was going to adopt to deal with this port-
Others 1.62 9% folio. The administration of Jair Bolsonaro defined that the
Infraestructure 42.19 43% entire BNDES portfolio is to be sold by the end of 2022,
Eletrical Energy 16.72 40% when his term ended. Already the BNDES is divesting impor-
Roads 11.90 28% tant participation in Petrobras, JBS, Marfrig and Light.
Transports - Others 5.34 13%
Table 57: Sector Distribution of BNDES Equity Holdings (4Q22)
Public Utilities 2.91 7%
% of total for publicly traded companies (~80% of portfolio)
Auxiliar Activities - Transports 2.14 5%
Sector % of BNDES Portfolio Company
Others 3.18 8% Oil and Gas 39.40% Petrobras
Commerce & Service 14.74 15% Food & Beverage 15.64% JBS
Eletric Energy 25.65% Eletrobras, Copel, Energisa, Cemig
Agriculture 21.47 22% Autos 1.80% Tupy, Iochpe-Maxion
TOTAL 97.52 100% Capital Goods 0.88% Embraer
Sanitation 0.32% Copasa MG
Source: BNDES Mining 0.20% CSN
Logistics 0.06% Hidrovias do Brasil, Triunfo
While in the Temer years there was a discussion on whether Telecom 0.01% Oi
the BNDES was becoming too small and if it should have a Source: BNDES
more relevant role in funding, this was mostly absent during
the Bolsonaro administration, compared with previous years.
In 2023, the BNDES stated its intention of expanding and
putting significant focus on the PPI investment program,
privatizations and concessions, on a national scale.
The TLP: Beginning on January 1, 2018, the BNDES inter-

est rate, which was known as the TJLP, was substituted by the
TLP. The bill that made it possible was approved in 2017 and,
in effect, it made the BNDES rates more similar to market
rates, rather than the subsidized rate that was in place earlier.
The introduction of the TLP: 1) allows for greater efficacy of
monetary policy as set by the central bank considering that it
will also impact BNDES loans, which until now were bench-
marked by a completely separate rate; 2) prevent the Treasury
from subsidizing the BNDES at a loss considering that both
87
JPMORGAN
Brazil 101
Table 58: Brazil’s Ten Largest Companies by Market Cap

Capital Markets Rank Company Ticker
Market Cap (R$ % of Bovespa
billion) Market Cap
According to the World Federation of Exchanges, the Brazil- 1 Vale VALE3 BS Equity 462.93 14.5%
2 Petrobras PETR4 BS Equity 300.90 12.0%
ian stock exchange B3 is the 20th-largest stock exchange in 3 Itausa ITUB4 BS Equity 250.30 6.4%
the world in terms of market capitalization and the larg- 4 Bradesco BBDC4 BS Equity 216.30 3.7%
est in Latin America. 5 B3 B3SA3 BS Equity 148.81 3.6%
6 Eletrobras ELET3 BS Equity 147.33 3.4%
Figure 183: 20 Largest Stock Exchanges in Terms of Market Cap 7 Banco do Brasil BBAS3 BS Equity 135.73 3.3%
8 Ambev ABEV3 BS Equity 83.18 2.9%
24.8
21.3 9 Localiza RENT3 BS Equity 76.69 2.5%
10 Weg WEGE3 BS Equity 65.76 2.5%
6.8 6.7 5.8 4.7 4.3 3.6 3.2 3.0 2.9 2.2 2.0 1.9 1.9 1.7 1.7 1.8 1.1 0.9
Source: Bloomberg Finance L.P. and J.P. Morgan. Prices as of September 12, 2023.
Exchanges and…
Taiwan Stock
Nasdaq - US
Euronext
B3 - Brasil Bolsa
NYSE
Tehran Stock
Exchange of India
LSE Group London
TMX Group
Johannesburg Stock
SIX Swiss Exchange
Shenzhen Stock
Saudi Exchange
Deutsche Boerse AG
Shanghai Stock
Nasdaq Nordic and

Japan Exchange
Korea Exchange
Securities Exchange
Stock Exchange
Exchange
National Stock
Exchange
Hong Kong
ASX Australian
Exchange
Exchange
(Tadawul)
The largest sector in the B3 in terms of index weight is Finan-

Balcão
Group
Exchange
Baltics
cials (24%), followed by Materials (20%) and Energy (17%).

When it comes to market cap, Financials and Energy sectors
Source: World Federation of Exchanges. Note: as of July 2023.
are the largest ones.
Market cap: From 2002 to 2007, the Bovespa market cap in
USD grew an average of 48% per year, from US$124 billion Table 59: Bovespa by Sector
in 2002 to US$1.4 trillion in 2007. In 2008, the total market Number of Market Cap. (R$
cap of all companies listed on the stock exchange fell to Sector Index Weight (%)
Companies billion)
US$588bn, but rapidly rebounded in the following year Financials 11 23.88 1,150.1
reaching US$1.3 trillion and achieved the all-time high in Materials 11 20.17 532.1
2010 of US$1.5 trillion. Still, in the following years B3 lost Energy 8 16.80 1,077.5
the ground gained as economic activity decelerated, reaching Utilities 11 11.01 429.7
US$490 billion at year-end 2015. B3 reached the highest Consumer Staples 12 8.82 415.3
amount of market cap in December 2019, at US$1.25 trillion, Industrials 8 8.17 313.4
the largest amount ever registered in local currency. In 2020, Consumer Discretionary 14 3.99 113.3
the amount fell to ~US$900bn as a reflection of the pandem- Healthcare 4 3.65 134.7
ic, touching US$760bn in 2022, the lowest level since 2016. Communications 2 1.46 107.3
Currently the market cap stands at US$930 billion, trading
Source: Bloomberg Finance L.P. Prices as of September 12, 2023
around these levels over the past 3 years.
The Brazilian stock exchange had 379 companies as of
Figure 184: B3 Market Cap July 2023. The number of companies traded on the B3 has
1,542 been falling: In 1998, there were over 500 companies listed
1,341
1,223 1,235 1,256 on the B3, but after that, the number started to decline. This
1,031
845
956 918 960
888 930 reduction can be explained mainly by the increased number
757 788
588 of mergers and acquisitions. Also, less traditional companies
490
decided to remain private. B3’s management often mentions
that the number of companies listed in Brazil is very low, and
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
this is likely to get even lower in the coming years.
Source: B3. Note: 2023 as of July
Figure 185: Number of Listed Companies on Selected Exchanges
In Brazil, more than 50% of B3's market cap is concentrated
6,580
in only nine companies. The largest company is Vale, which
by itself represents 14% of B3’s market cap. The second-larg- 3,871 3,688 3,584
2,743
est company is Petrobras, responsible for 12%. Still, the larg- 2,597 2,468 2,405 2,174
est sector for the B3 is Financials, 28% of B3’s market cap. 369
Note that among the ten largest companies on the B3, five are National EquitiesJapan Exchange Nasdaq - US
Exchange and Group
TMX Group Shenzhen Stock Hong Kong Korea Exchange
Exchange Exchanges and
NYSE Shanghai Stock
Exchange
Ibovespa
financial institutions (ITUB4, BBDC4, BBAS3, BPAC11, Quotations Clearing
SANB11, ITSA4). Source: WFE, as of November 2019
The pandemic has taken a toll in the number of mergers and

acquisitions. From 2002 to 2019, the average was 650 deals
88
JPMORGAN
per year, with 2019 registering the largest amount ever. Figure 188: Total volume into the primary market (IPOs + follow-ons)
Important to highlight that even during the national crisis in BRL billion
2015-16, there was no significant disruption in the number of 160.0 149
140.0 131
transactions. From 2020 to 2022, during and post the pan- 120.0
118
demic, the average jumped 118% to 1,417 deals. In 2023, up 100.0 90
to May, the numbers registered was 509; if the trend remains 80.0 70
58
in place, this should be another strong year in terms of trans- 60.0
34
46
42
40.0 30 30
actions. 20.0 9
14 18
13
23
14 18
11 11
-
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Figure 186: Number of Mergers and Acquisitions in Brazil
1659 1556
Figure 189: Number of IPOs and Follow-Ons by Year

1038
879 912
799 752 771 812 742
722 12
573
645 644 597 643 658
509 26
395 337 415 389
25
16
64
2023*
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
37 46
11 11 16
18 7 28
8 10 26
Source: PWC. 2023 as of May 2023. 8 9
19 18
8 8 11 11 10 9 10 2
4 6 3 4 5
11 1 1 3 - -
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
IPOs & Follow-Ons
IPO FOLLOW-ON
From 2004 to 2023 (through July), there were 246 IPOs in

Brazil and 264 Follow-Ons. In 2010, the largest follow-on Source: B3, J.P. Morgan
ever took place: Petrobras raised R$120bn to explore the pre- On average, foreigners are responsible for 50% of the primary
salt. From 2011 up to 2018, equity offerings were tepid, market. In 2007, when there were 76 of total offerings, for-
amounting to R$150bn in this period. As a comparison, in eigners’ participation reached the highest level ever – 71%.
2019 the total amount was R$90bn, in 2020 R$118bn and in Nonetheless, looking into the period with the highest amount
2021 R$130bn, mostly due to record lower interest rates. In of issuance, in BRL, from 2019 up to 2021, their participation
2022 and 2023 (up to October), no IPOs were conducted, and was 37% on average.
in 2022 mostly on the back of uncertainties hovering around
the elections and still elevated interest rates (13.75%). None- Figure 190: Foreign Participation in Equity Issuances (%)
theless, considering the past two years, 37 follow-ons took 71%
66% 66% 67%
place, amounting to R$90bn. 58% 59%
55% 54%
47% 48% 49%
44% 44%
41%
Figure 187: Number of IPOs and Follow-Ons by Year 33% 34%
27% 29%
Year IPO (R$ bn) Follow-on (R$ bn) Total (R$ bn) IPO FOLLOW-ON # deals
2004 4.5 4.3 8.8 8 8 16

2005 5.4 8.5 13.9 8 10 18
2006 15.4 15.1 30.4 26 16 42
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
2007 55.6 14.5 70.1 64 12 76
2008 7.5 26.8 34.3 4 8 12
2009 23.8 22.2 46.0 6 18 24 Source: B3, J.P. Morgan.
2010 11.2 138.0 149.2 11 11 22
2011 7.2 10.8 18.0 11 11 22
2012 3.9 9.3 13.2 3 9 12 B3 Equity Indexes
2013 17.3 6.1 23.4 10 7 17
2014 0.4 14.0 14.4 1 1 2 Ibovespa: This is the benchmark equity index for Brazil. The
2015 0.6 17.5 18.1 1 4 5
2016 0.7 10.0 10.6 1 9 10 index is composed of a theoretical portfolio, now including
2017 20.8 21.0 41.8 10 16 26
2018 6.8 4.4 11.3 3 2 5
86 companies, that comprises the group of stocks whose total
2019 9.8 79.8 89.6 5 37 42 negotiability index represents 80% of total value negotiated
2020 43.9 74.0 117.9 28 25 53
2021 65.7 64.8 130.5 46 26 72 on the Bovespa. Ibovespa is a cumulative index. Basically its
2022 - 57.7 57.7 - 19 19
2023 - 30.2 30.2 - 18 18
number represents the current value of a portfolio that began
on January 2, 1968, with a starting value of 100. The index is
Source: B3, J.P. Morgan
rebalanced every four months.
89
JPMORGAN
Brazil 101
Figure 191: Ibovespa Index Performance (1992 - 2022) world, from Feb 18 to March 23, the Ibovespa fell 45% to
140,000 50,000 64K, the lowest level since 2018 (truckers’ strike). Four
120,000
40,000
months later, the index recovered 66%, closing the year at
100,000 120K, higher than the pre-Covid level. Yet, in USD, given the
80,000 30,000
60,000
strong depreciation of the BRL, the index fell 20% in dollar
20,000
40,000 terms in 2020. Since the beginning of 2021 the index has
10,000
20,000 been trading range-bound, touching 130K in June 2021 on the
0 - back of the reopening period post-pandemic. In USD, 2022
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
and 2023 returns are looking better given currency apprecia-
BRL (LHS) USD
tion, even though they didn’t recover to the levels pre-pan-
Source: Bloomberg Finance L.P.
demic or even before the 2008 GFC. The challenge is to sur-
Back to record levels after 9 long years: From 2002 until pass and sustain the technical level of 120K.
May 2008, the Bovespa index increased almost continuously,
both in BRL and USD terms, reaching a level of more than Table 60: Annual Bovespa Performance, 2000 - 2023
73,500, the all-time peak following Brazil’s upgrade to invest- Bovespa Index Return
ment grade. The Lehman collapse in 2H08 caused market jit- Year BRL USD BRL USD
ters, but the Bovespa soon recovered, as growth picked up on 2000 15,259 7,825 -11% -18%
the back of a credit boom and higher commodity prices. 2001 13,578 5,866 -11% -25%
However, the market was impacted in 2011 from the Europe-
2002 11,268 3,184 -17% -46%
an crisis. The recovery was mild in 2012, with an increase of
2003 22,236 7,665 97% 141%
only 7.4% in BRL terms, and almost flat in USD terms. 2013
2004 26,196 9,869 18% 29%
was a tough year amid the taper tantrum in the US, with Bra-
zil the worst performer among major indices in the world as 2005 33,456 14,398 28% 46%
commodity prices fell. In 2014, the index anticipated a signif- 2006 44,474 20,818 33% 45%
icant recovery, which didn’t materialize following the results 2007 63,886 35,986 44% 73%
of the 2014 elections. The increase in risk premium associat- 2008 37,550 16,076 -41% -55%
ed with the deterioration of the fiscal accounts and the loss of 2009 68,588 39,373 83% 145%
investment grade were responsible for the market deteriora- 2010 69,305 41,715 1% 6%
tion in 2015. The contraction of the index reached a low in 2011 56,754 30,425 -18% -27%
January 2016, as the economy deteriorated amid poor policy- 2012 60,952 29,820 7% -2%
making and a loss of support for then sitting President Dilma 2013 51,507 21,820 -15% -27%
Rousseff. However, soon after that, the Ibov rallied after it 2014 50,007 18,887 -3% -13%
became evident that monetary policy in the U.S. was going to
2015 43,350 10,961 -13% -42%
remain accommodative and policy change consolidated local-
2016 60,227 18,531 39% 69%
ly. The rally entered 2017, helped by a positive external sce-
2017 76,402 23,109 27% 25%
nario with higher liquidity and commodity prices. 2018 con-
tinued to sustain the ascendant level of the Ibovespa 2018 87,887 22,694 15% -2%
providing returns of 15% in BRL terms, but declined 2% in 2019 115,645 28,801 32% 27%
USD given the strong depreciation of the BRL. The year was 2020 119,017 23,018 3% -20%
marked by the truckers’ strike in May, which prompted sever- 2021 104,822 18,852 -12% -18%
al negative consequences for the economy, being an impedi- 2022 109,735 20,762 5% 10%
ment for the rebound to accelerate. Still, this event led to 2023 115,742 23,439 5% 13%
strong outflows in the B3 market causing the currency to Accumulated 658.5% 199.5%
devaluate. 2019 was a strong year for the Ibovespa as it ral- Average/Year 12.3% 13.8%
lied 32% in BRL terms and 27% in USD. The index closed
Source: Bloomberg Finance L.P., J.P. Morgan.
above the symbolic level of 100,000 in March 2019, and in
January 2020 it closed at its all-time record (119,000 points). IBX-50/IBX: The IBX-50 and the IBX are also benchmark
This rally in 2019 was mainly led by local investors, while indices. The companies that constitute these indexes are very
foreign allocation is still lagging. The approval of the social similar to those in the Ibovespa. The main difference is the
security reform coupled with a supportive macro agenda to way the indices are calculated. The IBX-50 and IBX-100 are
contain the extrapolation of fiscal accounts was the main trig- composed of, respectively, 50 and 100 companies with active-
ger. In 2020, the year started pretty much strong for the index, ly traded and best representative stocks of the Brazilian stock
with Ibovespa trading at 120K. When the pandemic hit the market. The portfolios have durations of four months (Jan-
90
JPMORGAN
Apr, May-Aug, Sep-Dec) and are recalculated at the end of detailed in the next table.
each period. Because of the different methodology, the per-
formance of the IBX can greatly vary from that of the Boves- Table 61: Summary of Corporate Governance Levels for Bovespa
pa, even though they have the same company members in Companies
most cases. Level 1
• Both shares class (Ordinary - ON and Preferential - PN)
• The public offering must prioritizes Capital dispersion.
Figure 192: Ibov vs IBX vs IBX-50 It applies the same dispersion rule as the Novo Mercado Segment
• Maintain at least 25% of the shares in free float
140,000
• Minimum of 3 members on the Board
120,000 Public release of shareholder agreements and options programs.
100,000 • Tag Along concession: 80% for ON
80,000 Level 2
60,000 Everything in Level 1, plus:
40,000
• Tag Along concession: 100% for ON
20,000 • If the company takes itself private, or exits Level 2,
- it must publicly offer to acquire 100% of shares in circulation
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023 • Mandatory participation in the Arbitration Court
IBOV Index IBX 50 IBX Novo Mercado

Everything in Level 2, plus:
Source: Bloomberg Finance L.P. • Only one share class (ON - Ordinary)
Bovespa Mais
Other indices: Bovespa also provides sector-specific indices. • Only ones share class (ON - Ordinary)
This kind of index provides a segmented view of the market, • If the company takes itself private, or exits the Bovespa Mais,
measuring the performance of the stocks issued by the repre- it must publicly offer to acquire 100% of shares in circulation,
except if it moves to the Novo Mercado segment
sentative companies of each sector. Today, sector indices Bovespa Mais Level 2
include the IEE (electricity), INDX (industrial sector), ICON Everything in Bovespa Mais, plus:
• Both shares class (Ordinary - ON and Preferential - PN)
(consumer), IMOB (real estate), IMAT (Basic Materials) and
• Tag Along concession: 100% for ON and PN
IFNC (financial). Other relevant indices have to do more with • If the company takes itself private, or exits the Bovespa Mais,
corporate governance. The IGC can only be composed of it must publicly offer to acquire 100% of shares in circulation,
except if it moves to the Novo Mercado segment or Level 2
companies listed on the Bovespa Level 1 or 2 or on the Novo
Mercado. One example is the ITAG, an index composed of Source: B3
companies that offer tag-along rights for minority sharehold-
ers that is required by law in the event of a disposition of con- MSCI Brazil
trol. Moreover, there are indices for companies in the mid- to The Brazil MSCI index is composed of 47 companies,
large-cap range (MLCX), and small-cap category (SMLL). weighted by free float market capitalization. With a 5.4%
The goal is to measure the average performance of a portfolio weighting in the MSCI Emerging Markets index, Brazil is the
composed with companies with highest market cap, while fifth-largest country in terms of representation, behind China
SMLL has the objective to track the average performance of (27.2%), India (15.8%), Taiwan (15%) and South Korea
companies with lower market cap. In 2022, the B3 presented (12%). Medium market performance over the past several
the ICBIO3, an index of de-carbonization credit as a means to years combined with the increased weight of China in the
create an instrument for financial products related to ESG. index has led Brazil’s market weight in the MSCI EM to con-
tract. Looking back to 10 years ago, Brazil’s weighting was
Corporate governance: Since the turn of the century, there 12% of the index. The peak was reached in May 2008, after
have been important advances in terms of corporate gover- Brazil received an investment-grade rating from S&P, at an
nance, especially on the stock exchange. The CVM (Comis- almost 17% weighting.
são de Valores Mobiliários), which is equivalent to the US
SEC, is responsible for the regulatory framework of Brazilian As in the Ibovespa, the sector with the largest weighting in
security markets. The main piece of legislation that improved the MSCI Brazil is Financials (26%), followed by Energy
the capital market was the Corporate Law approved by the (21.6%) and Materials (18.3%) all other sectors come in with
Congress in 2001. It established levels for dividends and far lower weights. The following table shows the share of
number of shares available on the market, also stipulating the each Brazilian equity sector in the MSCI Brazil, MSCI
rules for the composition of company boards, among other Emerging Markets, and MSCI LatAm.
things. Up to the moment, there are five levels of corporate
governance: i) Level 1, ii) Level 2, iii) Novo Mercado, iv)
Bovespa Mais, and v) Bovespa Mais Level 2. Today, in the
Bovespa there are five levels of corporate governance,
91
JPMORGAN
Brazil 101
Table 62: MSCI Brazil Weighting by Sector The Brazilian market P/E typically trades at a discount to the
Brazil EM LatAm Number of Co`s Latin America multiple and almost in line with Emerging
Consumer Discretionary 2.36 0.13 1.47 3
Broadline Retail 0.34 0.02 0.21 1 Markets, albeit there are notable exceptions. The 10-year
Specialty Retail 2.02 0.11 1.26 2 average for LatAm and EM 12-month fwd P/E average now
Consumer Staples 8.40 0.45 5.25 6
Beverages 3.54 0.19 2.21 1 stand at 11.9x and 11.8x, respectively.
Food Products 0.82 0.04 0.51 1
Consumer Staples Distribution & Retail 3.29 0.18 2.05 3
Personal Care Products 0.75 0.04 0.47 1 Figure 194: MSCI Brazil,LatAm and EM P/E
Energy 21.59 1.16 13.48 5
Oil, Gas & Consumable Fuels 21.59 1.16 13.48 5 19.0
Financials 25.98 1.40 16.22 9
Banks 18.70 1.00 11.68 6 17.0
Capital Markets 6.02 0.32 3.76 2
Insurance 1.26 0.07 0.79 1
15.0
Healthcare 2.86 0.15 1.79 3
Health Care Providers & Services 2.08 0.11 1.30 2
Pharmaceuticals 0.78 0.04 0.49 1 13.0
Industrials 8.60 0.46 5.37 4
Transportation Infrastructure 0.73 0.04 0.45 1 11.0
Ground Transportation 4.53 0.24 2.83 2
Electrical Equipment 3.35 0.18 2.09 1 9.0
Information Technology 0.81 0.04 0.51 1
Software 0.81 0.04 0.51 1
7.0
Materials 18.39 0.99 11.48 5
Metals & Mining 14.82 0.80 9.26 3
5.0
Paper & Forest Products 2.56 0.14 1.60 1
'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23
Containers & Packaging 1.01 0.05 0.63 1
Telecomunications 1.83 0.10 1.14 2
Diversified Telecommunication Services 1.09 0.06 0.68 1 LatAm GEMs Brazil
Wireless Telecommunication Services 0.74 0.04 0.46 1
Utilities 9.17 0.49 5.72 9
Electric Utilities 6.90 0.37 4.31 6
Source: Bloomberg Finance L.P., J. P. Morgan
Water Utilities 1.21 0.06 0.75 1
Independent Power and Renewable Electricity Producers 1.06 0.06 0.66 2 Within LatAm, all countries are trading below historical aver-
MSCI Brazil 100.0 5.4 62.4 21
ages, with Brazil 1.4SD below its historical average. Mexico
Source: MSCI, Bloomberg Finance L.P., J.P. Morgan. is the most expensive LatAm market, at 15.4x, with Chile in
second place standing at 14.2x.
Equity Market Valuation Metrics
Price to earnings: From a 10-year historical perspective, Figure 195: LatAm Markets 10-Year Average PE (12-mo. Fwd)
MSCI Brazil’s 12-month fwd P/E has an average of 10.6x. In 18.0
15.4
October 2023, the P/E was at 7.4x, trading below a 1.5 stan- 16.0 14.2
14.0 12.5
dard deviation of the average. The P/E has been trading 11.6
12.0 10.6
below the historical average since February 2021, right after 10.0
the first interest rate hike. 8.0
6.0
4.0
Figure 193: MSCI Brazil Consensus P/E 2.0
0.0
25 Brazil Chile Colombia Mexico Peru
Source: Blooomberg Finance L.P., J.P. Morgan
20 Looking into the 10-year average, the most expensive sectors

within the industry are Consumer Discretionary, Industrials
15 and Healthcare. The last one used to trade at very high digits
given growth expectations during 2019-21. Data as of Octo-
ber 2023 show that 7 out of the 10 sectors within MSCI are
10 trading below average. The cheapest sectors are Energy,
Materials and Discretionary while Telecom and Utilities are
5 trading in line.
0
04 06 08 10 12 14 16 18 20 22
Source: Bloomberg Finance L.P., J.P. Morgan
92
JPMORGAN
Figure 196: MSCI Brazil 12-Month Fwd P/E by Sector Figure 198: Brazil Dividend Yield
25
20
20
15
10 15
5
0
10
Fwd P/E Avg. 10 Year 5
Source: Bloomberg Finance L.P., J.P. Morgan.
Price to Book Value and ROE: At the beginning of October 0

2023, Brazil traded at 1.7x P/BV, slightly below the 10-year 04 06 08 10 12 14 16 18 20 22
average of 1.9x. Brazil’s ROE is currently 28.1%, quite above Source: MSCI, Bloomberg Finance L.P.
its 10-year average (16.8%).
Flow of Funds
Figure 197: Brazil P/BV versus ROE
Our basic theory is that flows are inversely correlated to risk.
4.0 35.0 This was pretty much the case in recent years, when outflows
were the rule mostly due to the attraction of bonds over equi-
3.5 30.0 ties. In recent months, emerging markets suffered with strong
3.0 25.0 redemptions as a reflection of high US rates for longer. From
2.5 2013 to 2017, strong foreign inflows to Brazilian stocks were
20.0 registered. In 2013, Bovespa registered strong inflows of
2.0 R$11.9bn at the same time as its market value declined by
15.0
1.5 16.6% in USD terms. The same movement repeated in 2014
1.0 10.0 with inflows of R$20.3bn while market cap was trimmed by
18.1%. In 2015, a similar movement took place with inflows
0.5 5.0
of R$16.4bn and a market cap reduction of 42% in USD
0.0 0.0 terms. In 2016, the inflows continued, but this time with a
96 98 00 02 04 06 08 10 12 14 16 18 20 22 positive strong market performance and the market cap regis-
P/BV ROE (RHS) tered 54% increase. In 2017, flows stood in positive territory
at R$13.4bn, with market cap increasing 26%y/y. However,
Source: MSCI, Bloomberg Finance L.P.
flows in 2018 were negative by R$9.5bn, amid local events
that brought uncertainty to the Brazilian market (Lula’s trial,
Dividend Yield: Brazil’s dividend yield is the highest in truckers' strike and the Brazilian presidential election). In
LatAm, standing at 6.2% in October 2023, while the country’s 2019, the global backdrop was mostly responsible for the dry-
average is 4.5%. The 10-year historical average for LatAm ness in the local market, mostly due to the impact of the
dividend yield stands at 3.5%. Trade War in global markets. However, there was R$90bn in
equity offerings (5 IPOs and 37 follow-ons). Foreigners were
responsible for R$40bn of these offerings (44% of total), thus
justifying to some extent the dryness in the secondary market.
In 2020, as expected, the pandemic increased risk aversion
leading to another round of outflows of R$44bn in the sec-
ondary market, while the primary remained strong registering
R$118bn of inflows, in which foreigners were responsible for
33% of this flow (or R$39bn). In 2021, when a slight reopen-
ing started to take place, outflows were mild, but this was
compensated by strong inflows in the primary market. There
were 46 IPOs and 26 follow-ons in 2021, which amounted to
93
JPMORGAN
Brazil 101
a record inflow of R$130bn in the market. Foreigners represent the largest group of investors for the past
decade. Since 2015 they increased their participation in
Figure 199: Foreign Equity Investment in the Bovespa ADTV consistently and reached a new level of participation
BRL Billion above 50% of total investments in B3. On the other hand, in
120
the same period, individual investors’ share of total volume
100.8
100 decreased significantly and reached the lowest level in
80 December 2014, with 11.2% down from above 34% in 2008.
60 The participation of local institutional investors, who current-
40 20.6 ly rank second after foreigners, has remained around 25-30%
11.9 20.3 16.4 14.3 13.4 7.3
20 6.0 for the last few years.
1.8
-4.2 -1.4 1.8
-7.2
0
-20 -9.5
-40.1 Figure 201: Investor Participation in Bovespa’s Volume Throughout
-44.5
-40 -24.6 the Years
-60
%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
56% 55%
50%
44%
Source: Bloomberg Finance L.P. Note: Data related to 2023 are up to October 6, 2023.
33%
In 2022, it was the turn of the secondary market to register 27% 25% 27%
record foreign flow. Even though it was an electoral year, 18%

15% 14% 14%
which usually leads to higher risk perception, foreigners
poured in up to R$100bn in 2022. After the hiking cycle that
Retail / Individuals Institutional Foreign
began in March 2021, the new step was for Brazil to start the
easing cycle earlier than the rest of the world. Still, the China 10yr ago 5yr ago 1yr ago Today
reopening gave fuel to the whole story. Lastly, in 2023, accu-
mulated flow in the year is positive, even though no trend can Source: B3. Note: Data related to 2023 are up to October 6, 2023.
be perceived. In the 1H, better macro data and a complacent B3 average daily traded volume (ADTV): B3’s ADTV had
outlook allowed for an inflow of almost R$20bn. Nonethe- been reaching new record levels each year after 2005 (with
less, the increasing global risk aversion on the back of record the exception of 2009); however, in 2015 and 2016 it reached
US yields and doubts of a soft-landing scenario was a trigger a low level of US$2.1 billion. Since then, the trend reverted
for outflows to resume. and volumes rose year over year, touching US$6.3bn in 2021.
Since then the ADTV declined a little bit but remains above
Figure 200: Accumulated Foreign Flows into B3 (R$ bn) pre-pandemic levels.
150
100
Figure 202: Bovespa Average Daily Trade Volume
100.8 US$ billion
50
6.3
-7.2 5.8 5.9
0 7.3
5.0
-40.0 4.6
-50
3.7 3.9 3.8
3.5 3.4
-100 3.1 3.1
2.6 2.7 2.7
Jan Fev Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2.1 2.1
2020 2021 2022 2023
1.1
0.7
0.4 0.3 0.4
Source: Bloomberg Finance L.P., J.P. Morgan. Note: Data related to 2023 are up to October 6, 0.2 0.3
2023.
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Investor participation in B3: Over the past ten years the

Source: B3. 2023 as of October, 2023.
profile of the B3 investors has consolidated. Foreigners
remain the most relevant players, with their participation Pension Funds
improving over the past 5 years. They used to be 50% and are
currently running at 55%. On the flipside, individuals’ partici- The Brazilian pension fund system: The pension fund sys-
pation saw a slight decrease trend in the past 2 years, standing tem in Brazil is basically divided into three areas: (1) public
at 14.9% nowadays. Institutional participation has been sector – mandatory social security for public sector employ-
steady since 2018, remaining at the 27% level. ees (RPPS); (2) general regime – mandatory social security
for formal sector employees (RGPS); (3) complementary pen-
94
JPMORGAN
sion – optional, can be closed (when the worker is associated opt to invest 100% of AUM in these securities. For invest-
with a company that offers a private social security plan) or ment in private debt (notes, receivables, etc.), the limit is
open (available to anyone who wishes to participate, indepen- 20%. Real estate investment suffered some changes in mid-
dent of the company for which the person works). 2018: direct investment in real estate as the purchasing of
buildings is now forbidden; only investments through real
As of April 2023, there were 242 closed-end pension funds in estate funds are allowed. As a bargaining chip, the CMN
Brazil and almost 2.80 million active participants contributing increased the application in this type of funds from 8% to
to the system. The largest closed-end pension fund is Previ, 20%. Funds have until 2030 to divest from direct real estate
which belongs to Banco do Brasil’s employees. Its AUM or to transfer the investment to appropriate funds. Invest-
accounts for 23% of the industry’s total, or about R$252 bil- ments in real estate plans fall under another category (struc-
lion as of April 2023. tured products, which include multi-strategy funds), with a
limit of 10%. For investments outside of Brazil, the limit is
Table 63: Top Ten Brazilian Pension Funds (2023) 10%.
AUM in
Fund Name Entity Associated
R$ bn Fixed Income remains the preferred allocation: with interest
1 PREVI Banco do Brasil 252.0 rates at the level of 13.25% and with expectations of remain-
2 PETROS Petrobras 111.5 ing at this point until the end of 2023, the pension funds allo-
3 FUNCEF Caixa Economica Federal 97.3
cation remains mainly focused on fixed income investments,
4 VIVEST Cesp 36.5
which meet their target of investment.
5 FUND ITAÚ UNIBANCO Banco Itau 31.2
6 VALIA Vale 29.2
7 BANESPREV Banco Santander 28.0 Mutual Funds
8 SISTEL Telecom Companies 22.4
9 FORLUZ Cemig 19.4
As of July 2023, the mutual fund industry had R$6 trillion
10 REAL GRANDEZA Eletrobras 18.0 of AUM. This amount represents around 60% of the country’s
GDP. In Brazil, there are almost 30,000 mutual funds regis-
Source: Abrapp. Data as of April 2023.
tered, an all-time record level.
Pension fund investments in Brazil over the last several years
have been pretty conservative, with a heavy concentration in Table 64: Mutual Fund Industry
fixed income. This makes sense, since the interest rates are at Relevant Information - July 2023
13.25% at the moment. However, considering the easing
Domestic Market R$8 trillion of AUM
cycle that is expected to start at year-end, a rotation from
fixed income into equities should not be discarded. The data # of funds 29.9k funds
for pension funds are very lagging, and current allocations Offshore R$45 billion of AUM
across securities as of April 2023 were 12.1% in equity and # of funds 57 funds
80% in fixed income. Total R$ 8.05 trillion
Source: ANBIMA
Figure 203: Pensions Fund Asset Allocation
% of total Total AUM has increased steadily since 1994. With the
80% exception of 2002 and 2008 (both years marked by a confi-
70% 80.2%
60%
dence crisis in Brazil), between 1994 and 2012 each year pre-
50% sented double-digit growth from the prior year. The excep-
40%
30% tions were 2013 and 2014, when growth stood at only single
20%
10%
12.1% digits. Even during the national crisis in 2015-16, AUM con-
0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
tinued to increase. Relative to 10 years back, the industry
Fixed Income Equities grew 156%, even though the period of record low rates was
observed between 2019 and 2021.
Source: Abrapp
In Brazil, there are limitations in terms of security allocations

for pension funds. In 2009, the legislation was changed to
allow for a higher limit on equity investments, with the ceil-
ing raised from 50% to 70%. Still, we note that the previous
50% limit was never reached, so the new legislation really
hasn’t made a material difference. Fixed income investments
(public sector debt) in general have no ceiling, and funds can
95
JPMORGAN
Brazil 101
Figure 204: Mutual Funds’ Total AUM Figure 206: Fixed Income vs. Equity vs. Multistrategy
R$ trillion 60.0%
50.0%
6.05
5.77 40.0%
5.47
5.03 30.0%
4.71
4.18 20.0%
3.78
3.27 10.0%
2.80
2.56 0.0%
2.22 2.36
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
1.93
1.70
1.45
1.20 1.19 Fixed Income Equities Multistrategy
0.96
Source: ANBIMA
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Anbima. Note: 2023 as of July
As of July 2023, the share of total AUM invested in fixed

income funds was 37.5%, including the amount invested in
overnight rates tied to the Selic (DI). The second most pre-
ferred type of fund for investors is multi-strategy (mostly
hedge funds), accounting for over 21% of total AUM. Equity
funds have decreased participation over the years, jumping
from over 10% observed three years ago to 6.9% of invest-
ments in 2023. The drop in percentage is justified by the
tightening cycle that started in March 2021. Total equity
investment of Brazilian mutual funds (which include hedge
fund allocations within the realm of multi-strategy funds),
accounts for 9.8% of total AUM in July 2023. This represents
one of the lowest levels for the past 7 years, due to record
interest rates reducing the appetite for equities in the industry.
Figure 205: Mutual Funds AUM by Category

37.5%
21.2%
16.0%
9.2%
6.9%
4.7%
3.3%
0.6% 0.5% 0.1%
Multistrategy
ETF
Off shore
Equities
FX
Fixed Income
Private Equity
Real Estate
Receivables
Retirement
Source: ANBIMA, as of July 2023.
The figure below shows that the fixed income share of total
AUM has decreased over the last few years. In 2006, over
50% of AUM was allocated to fixed income funds but since
then has been in a downward trend touching 38% by July
2023. Equity and hedge funds have remained relatively stable
over the past 15 years.
Comparing mutual fund and pension fund allocations, pen-

sion funds have a more aggressive strategy in terms of equity
investments. While 12% of pension funds’ total AUM is allo-
cated to equities, 9.8% of mutual funds’ AUM is invested in
this category. In part, this is because pension funds were
active participants in the privatizations of the 1990s and thus
own important stakes in key Brazilian companies.
96
JPMORGAN
they made up over 50% of the Lower House. President Dilma

Political System Rousseff needed 11 parties to guarantee the support of about
60% of the Lower House in 2014, support that faded a couple
The Federal Republic of Brazil is a democratic state, meaning of years later, as is well known at this point. Upon taking
that its representatives are elected through universal suffrage, office and even before that, President Bolsonaro said that he
according to the Constitution of 1988. The executive power is would not form coalitions with parties, but with groups of
exercised by the president. The president, governors and may- representatives that support his program such as the BBB
ors are elected to four-year terms and may be re-elected once group known in Portuguese as Boi, Bala, Biblia (meaning
for a consecutive term. After a four-year hiatus, they could those representatives that support big agri and guns or who
run again. The legislative power is exercised by the Brazilian defend the interests of the evangelics.) That idea didn’t last
National Congress, composed of two chambers. The Chamber long, and as Bolsonaro’s popularity started to decline, he
of Deputies is the Lower House and has 513 members elected sowed an alliance with parties from the center. President
for four-year terms, with unlimited re‑elections possible. The Lula’s support base was limited to the left when he took
number of representatives for each state is determined by its office, but mid-year it became evident that he needed the sup-
population, with a minimum of 8 seats and a maximum of 70 port of the center parties to gather support for his agenda. At
seats. The Federal Senate (Upper House) has 81 members this point, even though informally there are enough Lower
elected for eight-year terms, with elections every four years House representatives to theoretically approve constitutional
for, alternatively, either one-third or two-thirds of the seats. amendments (3/5 majority), at the end of the day it appears
Each state elects three senators. To be elected president, gov- that the main allegiance of these center parties are to their
ernor or mayor in Brazil, the candidates need an absolute leader, currently the President of the Lower House, Arthur
majority, which means they need 50% of the valid votes plus Lira, rather than to the president. Thus, some political scien-
one vote to carry the election in a single round. Otherwise, tists have been arguing that Congress is becoming so strong
the two candidates with the highest number of votes go to a that Brazil is moving from coalition presidentialism to “semi-
second round. Run-offs for mayor only take place in localities presidentialism” considering the power that the heads of the
of more than 200,000 people. Elections for federal and state Lower House and Senate now have.
deputies as well as city council representatives are through a
proportional system in which the total number of votes that Figure 207: % Participation of the three largest right and center
the party and its representatives get determine the number of parties in the Lower House + PT.
representatives it will have in Congress. % of total representatives
60 55.9
50.5
50 44.6 42.9
“Coalition presidentialism”: In 1988, political scientist Ser- 40 34.3
40
30.6
gio Abranches coined the term coalition presidentialism 30 24.4
15.8 16.2 16.8
(presidencialismo de coalizão). This is something that is 20 11.5 13.3 10.5 13.5
6.6
10
unique to Brazil because it is a presidential system with many
0
different parties and proportional representation. Considering 1994 1998 2002 2006 2010 2014 2018 2022
the heterogeneity of the system and of the people of the coun- FHC 1 FHC 2 Lula 1 Lula 2 Dilma Dilma 2 Bolsonaro Lula 3
Right and Center PT
try, the only way that a president can actually govern is
through the formation of wide/strong coalitions that can guar- Source: Camara dos Deputados; J.P. Morgan
antee that individual votes needed in Congress. When the
president is popular and the coalition is united, the system “Semi-presidentialism”: What has led to this greatest pro-
delivers good results. However, the system always forces the tagonism of Congress in recent years is the national budget.
president to maintain a coherent balance within coalition Until recently, the budget was mostly a work of fantasy:
members through a more or less even distribution of posts expenditure and revenue assumptions were adjusted every
and resources. This makes for a complex administration of two months and the resources were fungible, and thus could
governability, and many times (more often recently) the presi- change from one place to another. Hence, the president had
dent loses control of its wide base. One of the key problems is the power to decide which representative would get budgetary
the proliferation of political parties in Brazil over the past resources to go ahead with his/her project in their cities,
decade. This diluted the representation of each party in the which in turned translated into votes for the president and his/
Lower House, making it necessary to add more parties to a her political allies. These resources were granted mostly in
coalition to guarantee support. All in all, the size of the coali- exchange for support for bills that were of government inter-
tions balloon and, with this, the number of favors that the est or to stabilize support for the administration. Since 2015
President needs to grant to each party. Fernando Henrique laws started to be approved for making the budget more rigid.
Cardoso (1995 to 2002) governed with three main parties, and By 2020, this process was crystalized in what is now known
97
JPMORGAN
Brazil 101
as the “imposed” budget. This means that the budget is no is better than democracy remained at only 5%, the lowest lev-
longer a fantasy: whatever is written there needs to be com- el in the series.
plied with, with resources allocated to a certain place having
to remain there. The important point here is that the govern- Figure 209: Level of Support for Democracy
ment now needs to heed the amendment proposals from con- 90% 79%
80%
gressional representatives, thus removing the ability of the 70%
president to decide who gets what. In practical terms, this has 60%
50%
shifted some of the power from the president to Congress, 40%
with the term semi-presidentialism now being used to define 30%
20%
this shift in power dynamics. Last but not least, but to keep in 10%
0%
mind: it is solely up to the president of the Lower House to 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
decide if there is going to be the opening of impeachment Democracy is always better Indifferent Sometimes, Dictorship is better
procedures against a sitting president.

Source: Datafolha 2022
Types of amendments: Budget amendments are pretty much Who votes in Brazil? Voting is considered both a right and a
proposals that congressional people embedded in the budget duty in Brazil. Every citizen between 18 and 70 is subject to
so that resources go to the project of their interest. There are compulsory registration and voting. The new Constitution in
four types of budget amendments: 1) individual: presented by 1988 allowed 16- and 17-year-olds to vote on a voluntary
acting representatives; 2) bench (bancada) amendments: pre- basis. In November 2022, the Brazilian electorate reached
sented by representatives from the same state but who are 156.454 million people, with 42.6% located in the Southeast
from different parties; 3) commission: presented by technical region, 27.1% in the Northeast, 14.4% in the South, 8% in the
or permanent working groups that are from the lower House North and 7.4% in the Midwest. Brazilians living abroad can
or Senate; and 4) rapporteur: included by the budget rappor- vote, and they represent 0.4% of the electorate. Almost a
teur based on requests from other politicians. According to quarter (22.97%) of Brazilian voters didn’t complete pri-
Porta da Transparencia, there were a total of R$25.4 billion in mary education (elementary school), while only 10.95%
congressional amendments spent in 2022. Of those, 42% were completed college. The data show an improvement in terms
from individual amendments, 34% were from the rapporteur, of education of Brazilian voters, with more people now hav-
22% from bench and only 2% were commission amendments. ing more education than in the past, yet still at low levels.
Figure 208: Lower House Support for the Executive, 1H of the Figure 210: Brazilian Voters – Education Level (% of Total)
Administration (% of total bills voted)
31
70 63.74 27
58.29 57.06
60 54.2 54.1 23
20
50 46.13
17
15
40 13
11
30
6 7 7 6 5 5
20 4 3
10
0 illiterate Reads and Primary Primary Secundary Secundary College College

1H03 - Lula 1H07 - Lula 1H11 - Dilma 1H15 - Dilma 1H19 - Bolsonaro 1H23 - Lula Writes Education Education Education Education Incomplete Complete
Incomplete Complete Incomplete Complete
Source: Arko Advice Jun-13 Sep-23
Democracy Support: Datafolha has been tracking the sup-

Source: Tribunal Superior Eleitoral
port of Brazilians for democracy for the past 30 years. It is
interesting to note that by the time of the first direct elections
following the military dictatorship (1989), the level of sup-
port for democracy was relatively low. It oscillated between
45% and 55% approval until the second term of President
Lula, when support for democracy increased to 60%. During
the Temer administration, the support for democracy fell, but
it increased once more during the Bolsonaro administration.
The latest data, from October 2022, show that support for
democracy rose from 62% in 2019 to 79%, the highest histor-
ical level. Moreover, the opinion that dictatorship sometimes
98
JPMORGAN
Figure 211: Brazilian Votes – Age Distribution (% of Total) 43.6 million inhabitants and a federal deputy needed 622,753
votes to get elected. In Roraima, the population is 532K and a
25
23
24 representative needed 66,382 votes to get elected.
20 21 20
On Election Day, voters can vote for a candidate or for a par-

12 ty. Once the election is over, all the votes for party or candi-
9 9
8 date are added (excluding the annulled votes, which repre-
6 6
3 3
5 4 sented 15% of the votes in the 2014 elections, double the ones
1 1 for president). The next step is the determination of the elec-
More Than 70 to 79 60 to 69 45 to 59 35 to 44 25 to 34 21 to 24 18 to 20 16 to 17
toral ratio by dividing the number of valid votes into the num-
79
ber of seats. If a party doesn’t meet this electoral coefficient,
Jun-13 Sep-23 it is already out, meaning no representative from this party is
to get a seat in the Lower House, unless the party is part of a
Source: Tribunal Superior
coalition and all the votes from the coalition put together do
Voting system: Electronic voting was introduced in 1996, meet the electoral coefficient. All in all, these data determine
and the country became the first in the world to conduct fully how many seats a party will have. The next step is to distrib-
electronic elections. The vote count happens quickly, and ute the seats within the party candidates. If a party has the
results are out shortly after the polls are closed. In 2012, may- right to 3 seats, the 3 most voted representatives get that seat.
oral election biometric electoral booths were tested, in which One of the most well-known problems with this is that some-
voters prove their identity with electronic fingerprints. In the times a famous person gets a lot of votes that are enough to
2018 elections, there were 87.3 million voters with registered get him/herself elected along with others within his/her party,
biometrics, representing at the time 59.3% of the electorate. even if the others have virtually no votes. The example men-
Lately, there have been calls to produce a written receipt of tioned from Nicolau´s book is well known to all Brazilians:
the vote, as a cautious measure against hacking of the ballot Enéas Carneiro, who ran for president in past elections and
box. The Electoral Court voted against that in the 2018 elec- became famous for only having a few seconds of TV time in
tions, an issue that is largely defended by President Bolsona- which he said only his name (Meu nome é Enéas!) and got
ro. In January 2020, the Electoral Court started to test new 1,573,112 votes in the 2002 elections, surpassing by five time
electronic booths, which were used in the 2020 mayoral elec- the electoral ratio in Rio (280,297). He was able to carry with
tions. In 2021, a Constitutional Amendment was proposed by him 4 additional representatives to the Lower House, who had
Bolsonaro allies to return with the paper ballot voting, being 275, 382, 484, and 673 votes, virtually all unknown. Another
rejected by the Congress later on. During the elections of more recent example is that, in the elections of 2010, a clown
2022, the Supreme Electoral Court (TSE) implemented a known as Tiririca got more than 1 million votes and was able
strict fiscalization to ensure the fairness of the election. Final- to bring with him five additional candidates from his party
ly, it was stated that there was no fraud in the elections, which (PR, nowadays called PL) to the Lower House.
led to Lula's victory by 50.9% of the votes.
A mini-political reform in 2015 made it mandatory for elected
How a Lower House Representative Gets representatives to get at least 10% of the electoral ratio in
Elected votes under his/her name. So, in the above example, the 4
representatives that were brought by Eneas would not make it
This is a simplified explanation as a full one would require a as they would need at least to achieve 10% of the electoral
report in itself. Most of the explanation plus the data come coefficient to get elected, or at least 28K votes.
from the book by political scientist Jairo Nicolau, Represen-
tates de quem? Os (des)caminhos do seu voto da urna a Another mini-political reform took place in 2017, when the
Camara dos Deputados. end of coalitions in proportional elections was defined start-
ing in 2020. Therefore, from then on, a party cannot make
Different from what is called “majority” elections (i.e., the alliances with others, thus pretty much eliminating the chance
person who gets the most number of votes gets elected), Low- that smaller parties would be able to get much representation
er House representatives are elected in a proportional election (recall they need to meet the electoral ratio and that their rep-
of lists. First and foremost, each state has a fixed number of resentatives need to get at least 10% of the vote under their
seats in Congress, with a minimum of 8 and maximum of 70. name). Yet another important change to restrict access to
Thus, the first distortion was already stated: the vote of one smaller parties to the Lower House was the establishment of a
person in Sao Paulo is worth less than a vote of someone in “performance” clause starting in 2018 and raising the perfor-
Roraima: Back in the time of the publication, São Paulo had mance bar in subsequent years. If a party doesn’t attain a cer-
99
JPMORGAN
Brazil 101
tain threshold of representation, it will not have access to were: the three federations listed on the table below, plus the
public funds that are distributed to political parties (fundo MDB, PDT, PL, Podemos, PP, PSB, PSD, Republicanos and
partidario), nor to ¨free¨ TV and radio time. União. Seven of the parties that ran were able to elect repre-
sentatives but didn’t meet the barrier clause. Last but not
Brazil’s Main Political Parties least, nine of the 28 parties didn’t elect any representatives.
Brazil currently has 31 official political parties, of which Table 65: Lower House Composition by Party in 2023
23 have congressional representation. A political party can be
Party # of Representatives
constituted if it is able to gather at least 0.5% of voters’ signa-
PL 99
tures in nine states. Any party that is officially registered has
Federação PT, PCdoB, PV 81
the right to receive financial resources and have frequent
União 59
spots on television during elections. The system itself is very
PP 47
fragmented and was not very polarized. Still, this has been
MDB 42
changing as of late, with the advent of parties that are clearly
PSD 42
identified with the extreme right or the extreme left. Until the Republicanos 40
time of the impeachment of President Dilma and the 2018 Federação PSDB, CIDADANIA 18
elections, most of the parties were hovering around the center PDT 17
to center left. Federação PSOL, REDE 14
PSB 14
Barrier Clause: Reducing the number of parties over time: Pode 12
Starting on January 1, 2019, parties need to attain a certain Avante 7
performance level in terms of elected representatives to quali- PSC 6
fy for free TV/ radio advertising and resources from the Party Patriota 4
Fund, a chest of almost R$1 billion that is divided among par- Solidariedade 4
ties (95% according to their proportional representation at the Novo 3
Lower House at the time of the election and 5% equally Pros 3

PTB 1
among all). The barrier clause rule stipulates that, to pass the Total 513
barrier clause, parties need to get at least 1.5% of total votes
Source: Camara dos Deputados as of October 2023
in the federal deputy election in at least 9 states. In addition,
in each of those states it needs to get 1% of the valid vote. Table 66: Senate Composition by Party in 2023
Alternatively, parties can have at least 9 federal deputies in 9
states. In the 2018 elections, there were 12 parties that fell Party # of Representatives
below the barrier clause threshold, including REDE (from PL 13
Marina Silva), and the PCdoB, a historical ally of the PT. If a União 11
party falls below the barrier clause, its representatives have
the right to switch parties without any penalty (there are spe- MDB 10
cific windows for elected representatives to change parties; if PSD 10
they do so outside of the window or if not to join a newly PT 9
formed party, they, in theory, lose their mandate). In the elec-
PP 7
tions of 2022, the barrier clause demanded 2% of the valid
votes, with 1% of the valid votes in at least one-third of the Pode 6
Federation units or to elect at least 11 federal deputies distrib- PSDB 4
uted in nine Federation units, thus 15 parties did not meet the
Republicanos 3
minimum requirements. These criteria start to get more diffi-
cult in each election, until 2030, when parties will need to get PDT 2
3% of the valid votes with at least 2% of the votes in 9 states PSB 2
or 15 federal deputies in 9 states. In 2021 a law was voted Cidadania 1
allowing for the creation of a federation of parties. This pretty
much means that parties unite during the entire duration of a PSC 1
congressional period, pretty much voting as one. The federa- Rede 1
tion of parties thus can help smaller parties to reach the barri- Pros 1
er clause by uniting with others. In the 2022 elections, only
Total 81
12 of the 28 parties or federations that ran on the Lower
House elections were able to meet the barrier clause. They Source: Senado Federal as of October 2023
100
JPMORGAN
On the next pages is a summary of all the parties with Con- votes, against 46.03% for Bolsonaro, or 17.9 million less
gressional representation. votes. The PT came back to the spotlight after Lula’s winning
a third presidential term against Jair Bolsonaro in 2022.
PL: The Liberal Party is also part of the centrão; it was for-
merly knownas PR – Party of the Republic. It was founded in Progressistas (PP): The PP is a political party that was
2006. The boss of the party is Valdemar Costa Neto, a former founded in 1995 under the name Partido Progressista Brasile-
congressional representative who was involved in the men- iro. Although the party has a right wing identity, it doesn’t
salão scheme. Jair Bolsonaro joined the PL to run the 2022 have a strong ideology. The PP is the largest party in the
elections, losing it against Lula afterwards. Yet, the party has “centrão,” or big center, a group of parties that have about
the highest representation in both Upper and Lower Houses. 150 representatives in Congress and who tend to vote togeth-
er, independently of ideology. Today, its most important rep-
União Brasil: União Brasil is a result of the merger between resentative is President of the Lower House Arthur Lira. In
the PSL and the DEM parties. The former was the party that the past, it was home to politicians such as Paulo Maluf,
former President Bolsonaro got affiliated with when he ran Francisco Dornelles, Antonio Delfim Netto, among others.
for president in 2019. That election not only led to Bolsonaro’ The current president of the party is Senator Ciro Nogueira,
s victory but also led the PSL, a party with virtually no con- who was the Chief of Staff under President Bolsonaro.
gressional representation, to become the second largest in the
House. In 2019, Bolsonaro left the party after a series of dis- PSD: The Social Democrat party was created by former Sao
agreements with its president, Luciano Bivar. With the exit of Paulo mayor Gilberto Kassab and was a split from other cen-
Bolsonaro, the PSL lost about 30% of its representatives. The ter and center right parties, but with members especially from
DEM on the other hand was the former PFL. The origins of the DEM. It was part of Dilma's coalition in 2014, but it also
the party are in the ARENA, which was the party that sup- supported her impeachment. In the 2018 elections, it was part
ported the military rule in Brazil. One of its main representa- of the Alckmin coalition. In 2022, Senator Rodrigo Pacheco,
tives today is former Bahia mayor ACM Neto, the grandson member of the party, was reelected as president of the Upper
of the anthological Antonio Carlos Magalhães (ACM). Also, House. The party has been growing and gaining more influ-
Representative Elmar Nascimento is the party’s leader in the ence. It has three cabinet posts under Lula: Mines and energy,
House and a potential successor to Arthur Lira as President of Agriculture and Fishing.
the Lower House. The União Brasil party has an ideology that
is right of center, and it is not in the coalition that supports MDB: Formerly known as PMDB. The Brazilian Democratic
President Lula. Movement party is the largest political party in Brazil,
although it has never elected a president in a direct election –
PT: Founded in 1980, the Worker’s Party was founded by a that is, with the entire population able to cast a vote. Still, two
group of intellectuals and union workers in the industrial São MDB representatives have become sitting presidents. One
Paulo region (known as ABC) whose leader was Luis Inácio was Itamar Franco, which was the VP of impeached President
Lula da Silva. The PT is a leftist party on the ideological Fernando Collor de Mello, and the other is Michel Temer, the
spectrum and was an opposition party until Lula was elected VP of impeached President Dilma Rousseff. The MDB was
President in October 2002. It is a well-established view that the largest party in the last legislature and has often been
President Lula’s election was made possible because he among the top three in terms of number of representatives in
embraced more centrist views. One of the main strategies of Congress. That, however, has changed in the 2022 elections,
the PT has been to form very large coalitions to widen the with the MDB now being #5 in terms of size in the Lower
party’s support in Congress and get its members elected in House, but it is still the third largest in the Senate. The MDB
regional elections. At the time of President Dilma’s reelec- is still the largest in terms of number of affiliates, and has the
tion, there were 11 parties in her coalition, most of them with largest number of mayors by far, giving the party a large
Cabinet representation. The most important party in the PT grassroots organization. Re-launched in 1980, as PMDB, the
coalition during its 13-year tenure in Brazil’s presidency was party is the successor of the Brazilian Democratic Movement
the MDB. Despite winning the re-election in 2014, President (MDB), which was the official opposition party to the mili-
Dilma quickly lost popularity. A very serious stagflation, tary regime. Since the end of the military regime, the MDB
combined with fiscal creativity (the famous pedaladas), led to has been part of the governing coalition, filling key posts in
Dilma’s impeachment. Just a few months after that, the PT the various administrations. Historically, the MDB has been
was the party with the worst relative showing in the 2016 characterized as a very divided party, with important leaders
municipal elections. In the 2018 elections, the party’s candi- in different areas and regions of the country. The PMDB
date Fernando Haddad (former Sao Paulo mayor) went to the hasn’t had a presidential candidate since the 1994 elections,
second round against Jair Bolsonaro and got 29.28% of the but it always announces its clear intention to have one. It has
101
JPMORGAN
Brazil 101
three cabinet posts under the Lula administration, including military coup of 1964, the party was banned but later re-creat-
that of Planning Minister Simone Tebet. ed in 1985. Its main stronghold was (and continues to be) in
Pernambuco state. The party became a national protagonist
PSDB: The Brazilian Social Democracy Party was founded again in 2002, with the presidential candidacy of Anthony
in 1988 by dissidents from the PMDB and is considered a Garotinho. During the PT presidency years, the PSB was
centrist political party. President Fernando Henrique Cardoso mostly a governing party, but it left the coalition in 2013, as
was elected just six years after the party’s creation. PSDB then Governor of Pernambuco Eduardo Campos decided to
members are called “tucanos” because of their mascot, which run for president the following year. He invited Marina Silva
is a toucan. During the years of the PT presidency, the PSDB to become his running mate and form a wide coalition on the
was the main opposition party and saw an important contrac- center-left as an alternative to the PT vote. Mr. Campos died
tion in the number of congressional representatives. However, in a tragic plane accident, and Marina Silva became the par-
the PSDB popularity greatly increased during the impeach- ty’s presidential candidate. The PSB supported the impeach-
ment process of 2016, and it had a good showing in the 2016 ment of President Dilma, even though it is a party that is con-
municipal elections. Most emblematic was the election of sidered left of center. In 2022, former Sao Paulo governor
Joao Doria for Sao Paulo mayor, winning and in a first round Geraldo Alckmin left the PSDB, a party that he helped to
of voting, something that never happened before, being elect- build, and joined the PSB. That has allowed him to become
ed afterwards for governor in the same state. In the past, the the vice-president under Lula.
party was very divided between those who would like to
leave the Temer coalition (the “black heads” or cabeças pre- PDT: The Democratic Workers Party was founded in 1979
tas, represented largely by the party’s younger generation) and is a left wing party. It carries the legacy of former Presi-
and those that want to stay in the government (the “white dent Getulio Vargas. Its legendary representative is Leonel
heads” or cabeças brancas, which is primarily the older gen- Brizola, who was the former governor of Rio Grande de Sul,
eration). During the Covid-19 pandemic, João Doria, former the son-in-law to President João Goulart (last president before
governor of São Paulo, had several heated encounters with the military regime) and the governor of Rio de Janeiro. More
President Jair Bolsonaro, mainly on the topic of vaccination recently, the party has been mostly represented by Ciro
and public health, yet was a critic of the PT’s administration. Gomes, who ran for President in 2018 and 2022. The PDT
Thus, since the 2022 election was polarized between Lula and longtime president Carlos Lupi is today the Minister of Social
Bolsonaro, the “third option” was not strong enough to gain Security in the Lula administration.
the spotlight, especially after a conflict inside the party to
decide which candidate would run for the elections: João SOLIDARIEDADE: Founded in 2013, it is a center left par-
Doria or the Rio Grande do Sul Governor, Eduardo Leite. At ty whose main representative is the union leader Paulo
the end of the day, none was a candidate and the party had a Pereira da Silva, a.k.a. Paulinho da Força. It supported Geral-
pretty weak showing in the election. Eduardo Leite, stated do Alckmin during the 2018 elections. In the 2022 elections,
that “PSDB lives an identity crisis, and needs to reevaluate its the party fell below the barrier clause criteria, thus incorporat-
values.” ing the party “Pros” to attain the minimum requirements.
Republicanos: Former PRB. Founded in 2005, this was the PTB: The Brazilian Workers Party was founded by former
party of former vice-president of President Lula, Jose Alen- President Getulio Vargas in 1945, and has its historical base
car. It is considered a center right party. It was part of the in the unions. Still, in recent decades, it has usually been a
Temer coalition and supported the Bolsonaro administration. part of the governing coalition, whoever is in power. Roberto
In 2023, the boss of the party, Deputy Marcos Pereira, stated Jefferson, one of the protagonists of the mensalão scandal
that Republicanos will not be a part of Lula’s support base. In was the party president at the time (2005). The party awaits
fact, Mr. Pereira is one of the main candidates for the succes- the Supreme Electoral Court decision to merge with the Patri-
sion of Arthur Lira as President of the Lower House. Another ota.
very important figure of the Republicanos is Tarcisio de Freit-
as, former Bolsonaro Infrastructure Minister, currently gover- Podemos: Formerly known as Partido Trabalhista Nacional,
nor of Sao Paulo, and who is a potential presidential candi- it changed its name to Podemos in 2016. It considers itself a
date in 2026. centrist party, and it favors direct representation (referendum,
plebiscites, etc.). The president of the party is Renata Abreu,
PSB: The PSB is Brazil’s socialist party, in theory. It was a deputy from São Paulo.
founded in 1947, but its first role on the national stage was
with João Goulart, who in 1961 assumed the presidency fol- PSOL: The Socialism and Freedom Party was created in
lowing the resignation of Janio Quadros. After that, with the 2003 following dissidence with the PT, when its representa-
102
JPMORGAN
tives decided to vote in favor of the social security reform REDE: Rede Sustentabilidade was created by former Senator
being proposed by President Lula. It is to the left of the PT. Marina Silva and registered in 2015. According to its founder,
Since 2014, the party was the third one that grew the most the party doesn’t have a right or left ideology, but it supports
affiliates. One of the main representatives is deputy Guil- the parties and coalitions that are in line with its party pro-
herme Boulos. grammatic views.
PROS: Founded in 2013, it is a center left party, that support- Brazil’s Presidents
ed Lula in the 2022 elections. It has 4 representatives in Con-
Since the advent of the republic (1889), Brazil has had 39
gress.
presidents, including Luis Inacio Lula da Silva in 2023. The
Brazilian republic history is very troubled, and only a few
PSC: The Social Christian party was founded in 1990, and
presidents can be considered fully elected by a democratic
while it oscillated in the ideological spectrum, it was in the
vote. Below we describe briefly what many view to be the
base of support of President Bolsonaro. Today it is in the base
most famous, popular and polarizing presidents in Brazil’s
of support of President Lula.
history.
Cidadania: Formerly known as PPS, which, in its turn was
Getúlio Vargas: One of the most popular political figures in
originated from the Communist Party (PCB). Today, it is a
Brazil’s history, Mr. Vargas was the country’s president twice,
party much more identified with the center/center-left of the
from 1930 to 1945 and from 1951 until his suicide in 1954.
political spectrum. The president of the party is Roberto
He held the post of president longer than anyone else – 18
Freire.
years in all. Vargas assumed the post initially as a provisional
president after the 1930 Revolution against the oligarchic and
PCdoB: The Communist Party of Brazil is a left Marxist par-
decentralized confederation of the Old Republic. In 1937 he
ty that has been traditionally a close ally of the PT. In the
utilized fears of Communism to justify a dictatorial regime.
2018 elections, it nominated Manuela DÁvila as the vice
Under the “New State,” Mr. Vargas abolished political parties,
presidential running mate of PT candidate Fernando Haddad.
imposed censorship and stimulated nationalism. In 1945 he
Today it is in a federation with the PT.
was deposed by the military. In his second government, when
he was finally elected by free and secret vote, Vargas pursued
NOVO: The Novo party was registered in 2015. It has a clear
a nationalistic policy, turning to the country’s natural resourc-
ideological stream that is to defend democracy, liberalism, a
es and away from foreign dependency. Petrobras was created
small state, and entrepreneurship. The party doesn't use any
in this context. Pressured by political adversaries and the mil-
of the public funding received by political parties in Brazil. In
itary that wished his resignation, Vargas shot himself in
2022, it elected 3 Lower House representatives, 5 less than
August 1954. He is famous as the “the father of the poor,”
2018, and its presidential candidate, Luis Felipe D’avila, got
mainly because of the improvements he made in the labor
less than 0.5% of the vote, finishing up in 6th place. Novo
laws.
reelected Romeu Zema as Governor of Minas Gerais in the
2022 elections.
Juscelino Kubitschek (JK): JK played a key role in Brazil’s
industrialization, and his presidency was marked by political
AVANTE: Formerly known as PTdoB. It is a small center left
optimism. During his government (1956-1961), the country
party.
went through a period of relative economic prosperity and
political stability. He launched the famous “Plano de Metas”
PATRIOTA: Formerly known as PEN, it is a right wing par- (Goal Plan) in order to stimulate the diversification and
ty and was going to be the one that housed the candidacy of expansion of the Brazilian economy. The plan was based on
Bolsonaro in the 2018 election. The party chief is a former industrial expansion and integration of the national territory.
state representative from São Paulo called Adilson Barroso. His main motto was “fifty years of progress in five,” and the
The party awaits the Supreme Electoral Court decision to time of his government is known as “the Golden Age.” Mr.
merge with the PTB. Kubitschek’s special achievement was the construction of a
new capital for Brazil away from the coast, Brasília. (The
PV: Brazil’s Green Party has little national representation plan to move the capital was 100 years old.) But JK was not
these days. It gained national notoriety when Senator Marina free from controversies; his government was also marked by
Silva ran for president under the party in 2010, getting over accusations of corruption, mainly involving the construction
19% of the votes. In the 2018 elections, the party endorsed of Brasilia.
Silva. In 2022, PV, PT and PCdoB announced the creation of
the “Brazilian Federation of Hope.”
103
JPMORGAN
Brazil 101
Fernando Collor de Mello: Collor was Brazil’s president and 85% popularity, he was a key figure in helping to elect
from 1990 to 1992 and the first president elected by popular his successor, Dilma Rousseff. Despite his popular acclaim,
vote after the end of the Brazilian military regime. His gov- there was little progress in terms of structural reforms. In
ernment was marked by the freezing of the population’s bank- 2018, as a consequence of the Car Wash probe, Lula was put
ing assets and corruption accusations that shortened his term. in jail for 580 days. After the Supreme Court’s decision ruling
Still, Collor was responsible for trade liberalization and the that a suspect needs to exhaust his appeals before going to
start of privatization. Despite that, he was unable to curb jail, reversing the previous understanding that one could be
inflation. During his government, more than 920,000 jobs sentenced to jail after the appeals court, Lula left jail. In 2022,
were lost and annual inflation climbed to more than 1,200%. Lula won the elections against Jair Bolsonaro by a very tight
In October 1992 he resigned under accusations of corruption margin (<1%), becoming president for a third mandate.
and influence peddling. After his resignation, the impeach- Throughout the first year of his mandate, the economics team
ment trial continued, and Mr. Collor was found guilty and dis- lead by Fernando Haddad approved the new fiscal frame-
qualified from holding elective office for eight years (1992- work, replacing the ceiling of expenditure created during
2002). He was elected senator in the 2006 elections. Temer’s administration.
Fernando Henrique Cardoso (FHC): An accomplished Dilma Vana Rousseff was first elected in 2010, continuing
sociologist, professor and politician, Mr. Cardoso took com- the PT’s administration after Lula, then in 2014 she was
mand of the country in a difficult period, from 1995 to 2002. reelected by a tight margin (3%) against Aécio Neves
He was propelled to the presidential seat mostly due to the (PSDB). Before becoming president, Ms. Rousseff was part
successful implementation of the Real Plan, which took place of President Lula’s Cabinet, first as Minister of Mines and
under his watch as Finance Minister. His election was a vote Energy and later as Chief of Staff. She was born in Minas
of confidence on the stability of the Brazilian economy and, Gerais in 1947 and in the mid-1960s joined the armed resis-
especially, on the end of inflation. He was the first president tance against the military regime. President Dilma was a
since Vargas to be re-elected (he approved the constitutional member of far-left guerrilla movements until she was caught
amendment allowing re-election). On the economic front, he and imprisoned. She stayed in jail for three years (1970-73).
deepened the privatization process and led Brazil through Sometime after her release, she earned a degree in Econom-
major crises, including Asia, Russia, the BRL devaluation, ics. In the 1980s she was part of the group that revived the
the energy rationing (2001) and the Lula election crisis PDT (Democratic Worker’s Party), the party of political icons
(2002). During his government important policies were put in such as former President João Goulart and Leonel Brizola. In
place such as the inflation-targeting system and the fiscal the early 1990s she was the Secretary of Energy of the state
responsibility law. In the 2022 elections, Collor ran for gover- of Rio Grande do Sul, and in 1998 she joined the PT (Work-
nor in the State of Alagoas, achieving third place. Afterwards, er’s Party). Since the beginning of her first term, President
the former president supported Bolsonaro against Lula in the Dilma’s presidency has been characterized by a very wide but
same elections. not very faithful coalition. Measures in general have a hard
time getting through Congress. She was a very popular presi-
Luis Inácio Lula da Silva: Arguably, the most popular president until June 2013, when millions of people went to the
dent in Brazil’s history, Mr Lula ran for the post three times streets across Brazil, initially to protest against an increase in
unsuccessfully before becoming the country’s president for bus tariffs. Later, this protest became a symbol of the middle-
eight years (2003-10). He is a founding member of the Work- class dissatisfaction with the government for not providing
er’s Party and currently its most important member. Upon his good access to quality healthcare, education, transportation,
election, President Lula stuck to the economic pillars of the and for the many corruption allegations against politicians.
previous administration, fostering market confidence and President Dilma’s popularity recovered during the 2014 elec-
popular support. The emphasis of his administration was on tion, at the expense of lots of TV appearances and a multi-
social programs, such as “Bolsa Família” and “Minha Casa, million electoral campaign.
Minha Vida,” which brought him a lot of popularity. On the
international relations front, his government was marked by IMPEACHMENT: During 2014 the macro imbalances in the
polemical but prominent participation, including controversial country were already evident, but the electoral process put
statements on Iran’s nuclear program. Under his government, them in the background. In 2015, however, the macro situa-
the Brazilian economy performed well and recovered quickly tion went from bad to worse, with growth falling and inflation
from the 2008/2009 financial crisis. Social indicators also rising sharply, at the same time that fiscal indicators moved
presented significant improvements: income inequality sharply down. The president lacked the charisma of her pre-
decreased, and more than 30 million Brazilians migrated to decessor and, amid the stagflation, started to lose congressio-
middle-income segments. After eight years of government nal support. Add to this critical situation the fact that the
104
JPMORGAN
Lower House President Eduardo Cunha was a formidably content of the population that was fed up with corruption. He
strong opponent of the president. All this, combined with also talked a lot about a values agenda. For example, he is
developments related to the Lava Jato investigation, culminat- against same-sex marriage, against university quotas, favors
ed in the impeachment process against the president. First, the death penalty, among others. About a year before the race,
Eduardo Cunha accepted the impeachment petition against Bolsonaro recruited Paulo Guedes, a liberal macro economist
the president in December 2015. In March 2016, after Presi- from the Chicago school, to become his Finance Minister and
dent Dilma nominated former President Lula as Chief of Staff have complete dominance over the macro framework. Bol-
(which would grant him the privilege to answer Lava Jato sonaro was elected with 55.1% of the valid votes, or 57.8 mil-
investigations only to the Supreme Court), millions of Brazil- lion votes, beating Fernando Haddad from the PT in a second-
ians went to the street to support her impeachment. By April, round election. Bolsonaro’s base of support is diffuse, relying
the Lower House gave 367 votes to permit impeachment to on the military (with some members being part of the Cabi-
move forward, 59 votes more than needed. Immediately after, net), his family (he has three sons in politics: Flavio in the
Michel Temer, Dilma’s vice president, took over as interim Senate, Eduardo in the Lower House, and Carlos as Rio's city
president until the impeachment was confirmed in the Senate representative), and some important sectors of the civil soci-
in August. The PT and its allied parties denounced the ety such as the evangelic (who make up about 30% of the
impeachment as a coup. population), the market liberals (who have embraced Paulo
Guedes agenda), among others. Bolsonaro’s cabinet was not
Michel Temer: Michel Miguel Elias Temer Lulia is the first made up of political appointees, and he didn't have a steady
Paulista president in 110 years. He was a well-known consti- coalition in Congress. Beyond the macro liberalism, the
tutional lawyer before entering politics in 1987. He was a fed- administration embraced a close alignment with the United
eral representative for six consecutive terms and twice the States in foreign relations. Bolsonaro tried reelection in 2022,
President of the Lower House. He was also the president of running against former president Lula. Despite the support he
the PMDB party and Dilma Rousseff’s running mate since her achieved throughout the years, Bolsonaro lost the elections by
first election in 2010. Following the impeachment, he became a very tight margin
the president and came to power with very low popularity but
a strong weapon: 85%+ support in Congress. This was an ide-
al combination to pass unpopular reforms. The president sur-
rounded himself with a top-notch economics team and by
2H16 had approved the constitutional amendment that estab-
lished a spending ceiling. In 1H17 the Labor Reform was
approved, and there were efforts to approve the social securi-
ty reform. However, the government was weakened by cor-
ruption accusations from executives of JBS against President
Temer. That event, which took place May 17, brought the
government into chaos, and there was speculation about the
president’s resignation. That didn’t happen, and the president
ended up surviving two votes against him in the Congress
that, if approved, would have led to his substitution, first tem-
porarily and then eventually permanently. However, in retro-
spect, the president’s survival can be attributed to a lack of
viable substitutes, the trauma of two presidential replace-
ments in a short period of time, a very strong economics team
with a pro-market agenda, and significant political maneuver-
ing to get support for the President in Congress.
Jair Messias Bolsonaro: The election of Jair Messias Bol-

sonaro is one that is going to enter history books because it
was the first time that digital means of communication were
more important than television. Since even before the elector-
al campaign started, Bolsonaro organized a huge following on
social media, becoming known by 70% of the population and
maintaining a mid-teens voter preference a year before the
race. Bolsonaro’s attractiveness is that he appealed to the dis-
105
JPMORGAN
Brazil 101
Table 67: Brazilian Presidents Figure 212: Approval Rating of Brazilian Presidents
%, 1990 - 2022
President Period
90
1 Deodoro da Fonseca Nov 1889 - Nov 1891 80
70
2 Floriano Peixoto Nov 1891 - Nov 1894 60
50
3 Prudente de Morais Nov 1894 - Nov 1898 40
30
4 Campos Sales Nov 1898 - Nov 1902 20
10
5 Rodrigues Alves Nov 1902 - Nov 1906 0
Mar-13
Mar-16
Mar-22
Apr-17
May-14
Oct-14
May-21
Jan-12
Out-13
Feb-15
Dec-18
Dec-19
Jan-18
Sep-14
1987
1988
1990
1991
1992
1993
1994
1995
1997
1998
1999
2000
2001
2002
2003
2003
2005
2005
2006
2007
2008
2009
2010
Aug-14
Aug-15
Aug-20
Aug-22
Sep-22
6 Afonso Pena Nov 1906 - Jun 1909
SarneyCollor Itamar FHC Lula Dilma Temer Bolsonaro Lula
7 Nilo Peçanha Jun 1909 - Nov 1910
Source: Datafolha
8 Hermes da Fonseca Nov 1910 - Nov 1914
9 Venceslau Brás Nov 1914 - Nov 1918
10 Delfim Moreira Nov 1918 - Jul 1919
11 Epitácio Pessoa Jul - 1919 - Nov 1922
12 Artur Bernardes Nov 1922 - Nov 1926
13 Washington Luis Nov 1926 - Oct 1930
14 Getúlio Vargas Nov 1930 - Oct 1945
15 José Linhares Oct 1945 - Jan 1946
16 Eurico Gaspar Dutra Jan 1946 - Jan 1951
17 Getúlio Vargas Jan 1951 - Aug 1954
18 Café Filho Aug 1954 - Nov 1955
19 Carlos Luz Nov 1955 - Nov 1955
20 Nereu Ramos Nov 1955 - Jan 1956
21 Juscelino Kubitschek Jan 1956 - Jan 1961
22 Jânio Quadros Jan 1961 - Aug 1961
23 Ranieri Mazzilli Aug 1961- Sep 1961
24 João Goulart Sep 1961 - Apr 1964
25 Ranieri Mazzilli Apr 1964 - Apr 1964
26 Castelo Branco Apr 1964 - Mar 1967
27 Costa e Silva Mar 1967 - Aug 1969
28 Emilio Medici Oct 1969 - Mar 1974
29 Ernesto Geisel Mar 1974 - Mar 1979
30 João Figueiredo Mar 1979 - Mar 1985
- Tancredo Neves -
31 José Sarney Mar 1985 - Mar 1990
32 Fernando Collor Mar 1990 - Dec 1992
33 Itamar Franco Dec 1992 - Jan 1995
34 Fernando Henrique Cardoso Jan 1995 - Jan 2003
35 Luiz Inácio Lula da Silva Jan 2003 - Jan 2011
36 Dilma Rousseff Jan 2011 - Aug 2016
37 Michel Temer Aug 2016 –Dec 2018
38 Jair Messias Bolsonaro Jan 2019 – Dec 2022
39 Luiz Inácio Lula da Silva Jan 2023 -
Source: J.P. Morgan
106
JPMORGAN
potential of the region.

Sectors
Figure 214: Equatorial Margin
Oil, gas & Petrochemicals
Rodolfo de Angele AC and team

(55-11) 4950-3888
rodolfo.r.angele@jpmorgan.com
The Brazilian O&G segment is complex, comprising several

companies that are divided into different segments: upstream,
midstream, downstream, petrochemicals and fuel distributors,
which, at the end, supply the country’s energy needs. The Oil
& Gas sector contributed ~2-3% of Brazilian GDP in 2020
Source: Petrobras.
(accounting only for direct contributions from E&P and
Refining), and has a weight of ~17.3% in Ibovespa. Prolific oil basins are concentrated in the Southwest of
Brazil. The biggest oil and gas accumulations found in the
The Brazilian energy matrix is centered on hydropower country are concentrated in the Brazilian Continental Plat-
generation and oil consumption. Oil represents 35% (vs forms of Santos and Campos Basins, respectively. The Santos
47% in 2018) of Brazil’s energy matrix, followed by hydro- Basin, which contains the most recent giant discoveries in
power generation accounting for 27%. Compared with other pre-salt, accounts for 73.2% of the reserves, while Campos
countries, Brazilian natural gas and coal consumption is Basin, which contains mainly post-salt but also pre-salt
among the lowest in the world. Natural gas represents only assets, represents ~20.2% of the reserves. As of 2023, Petro-
12% (vs 10% in 2018) of the total energy matrix relative to bras's pre-salt production represented 75.2% of the company’s
the world average at 24%, while Coal represents 6% (vs total volume.
world at 27%). We expect gas and renewable energy con-
sumption to continue to increase the contribution to the Bra- Figure 215: Brazil Historical O&G Production
zilian matrix as it is corroborated by the government’s plan to kboed
foster: (a) the utilization and competitiveness of the natural 5,000
gas market in the country, and (b) the expansion of renew- 4,000
ables. 3,000
2,000
Figure 213: Brazil’s Energy Matrix 1,000
0
100%
90%
80%
70% Total Onshore Offshore Pre-salt Post-salt
60%
50%
40% Source: J.P. Morgan, ANP.
30%
20%
10%
0%
Brazil Mexico United States Argentina Colombia China Europe World
Oil Natural Gas Coal Nucler Energy Hydro Power Renewables
Source: BP Statistical Review of World Energy 2022.
Brazil oil and gas reserves reached 17.4Bboe as of YE22

(14.9Bboe of oil and 2.5Bboe of gas). Of this total, Petrobras
has 61% of Brazil’s total O&G reserves (10.6Bboe). Industry
expectations are that reserves are likely to increase over the
next years with the potential development of the Equatorial
Margin. According to IBP (Oil and Gas Brazilian Institute),
the recent discovery of over 10bn barrels in Guiana (adjacent
area to Brazilian Equatorial Margin) indicates the attractive
107
JPMORGAN
Brazil 101
Figure 216: Brazilian Oil & Gas Basins Figure 217: Brazil Refining Capacity
Capacity
Refinery Municipality (State) Start-up Share
bpd
Total 2,423,727 100%
Replan Paulínia (SP) 1972 433,996 17.9%

Mataripe (ex-Rlam) São Francisco do Conde (BA) 1950 377,388 15.6%
Revap São José dos Campos (SP) 1980 251,592 10.4%
Reduc Duque de Caxias (RJ) 1961 251,592 10.4%
Repar Araucária (PR) 1977 213,854 8.8%
Refap Canoas (RS) 1968 220,143 9.1%
RPBC Cubatão (SP) 1955 179,184 7.4%
Regap Betim (MG) 1968 166,051 6.9%
Recap Mauá (SP) 1954 62,898 2.6%
Reman Manaus (AM) 1956 45,916 1.9%
RPCC Guamaré (RN) 2000 44,658 1.8%
Rnest Ipojuca (PE) 2014 115,009 4.7%
Riograndense Rio Grande (RS) 1937 17,014 0.7%
Manguinhos Rio de Janeiro (RJ) 1954 14,303 0.6%
Univen Itupeva (SP) 2007 5,158 0.2%
Lubnor Fortaleza (CE) 1966 10,378 0.4%
Dax Oil Camaçari (BA) 2008 2,095 0.1%
Ssoil Energy Coroados (SP) 2021 12,498 0.5%
Six2 São Mateus do Sul (PR) 2007 - 0%
Source: Petrobras
Source: ANP/SPC 12/31/2023.
Brazil O&G production increased at a CAGR of 3.4%
between Aug-19 and Aug-23. This increase reflects (i) Brazil is not self-sufficient in fuel demand, importing die-
declining ratios in already mature fields such as Campos sel and gasoline. Currently, imports account for ~24% of
Basin, which were more than offset by (ii) increased pre-salt total diesel consumed and ~13% of total gasoline. Additional-
production. ly fuel consumption has continued to increase, presenting a
CAGR of 4.5% and 2.0% for gasoline and diesel from 2009
Brazil’s refining capacity reaches ~2.3mbpd. As of Aug-23, to 2023. In 2023 (until July) Brazil imported an average of
the production of oil derivatives reached~2.0mbpd, which ~76kboed of gasoline and 235kboed of diesel. Ethanol still
implies a utilization rate of 86.6%. Current sales of refined represents a relevant market (10% of total sales) on the back
products of 2.2mbpd are almost balanced with the refining of consumer preference for flex-fuel cars, which can run on
capacity (completed by imports), with diesel representing 100% the fuel.
45% and gasoline 30%. Demand for refined products floats
according to GDP expansion/retraction. Diesel fuel leads the Figure 218: Brazil Fuel Sales
consumption of oil derivatives in Brazil, reaching 000’ m3
~1,058kboed, followed by gasoline, with demand of 7,000
~527kboepd. PBR owns the majority of Brazilian refining 6,000
capacity (78.6%), although it has decreased after its divest- 5,000
ment program (from 95% in 2019). For more fundamental 4,000
refining information refer to Brazil Refining 101. 3,000
2,000
1,000
0
Gasoline Hydrous Ethanol Diesel Fuel Oil
Source: J.P. Morgan, ANP.
108
JPMORGAN
Figure 219: Gasoline Net Imports Figure 222: Gasoline Discount to International Prices
000’m3 Gasoline Discount to International Parity
1,200
1,000 20%
800 10%
600
0%
400
200 -10%
- -20%
(200)
-30%
(400)
Jul-16
Mar-17
Jul-17
Mar-18
Jul-18
Mar-19
Jul-19
Mar-20
Jul-20
Mar-21
Jul-21
Mar-22
Jul-22
Mar-23
Jul-23
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
Gasoline Discount Average (Under Previous Policy) Average (Under New Policy)
Gasoline Net Imports
Source: J.P. Morgan, ANP. Source: J.P. Morgan, ABICOM.
Figure 220: Diesel Net Imports Brazil Oil & Gas Regulators snapshot. The sector’s main
000’m3 policymakers are the National Petroleum Agency (ANP), the
2,500 National Counsel for Energy Policy (CNPE), and the Ministry
2,000 of Mines and Energy (MME). ANP is an autonomous federal
1,500
entity responsible for regulating the segment. CNPE, which is
presided over by the Ministry of Mines and Energy, is tasked
1,000
with proposing national energy policies to the President of the
500 Republic. MME, in its turn, is an administrative body that
-
represents the federal government in the formulation, supervi-
sion, and implementation of public energy and mines policies
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Jul-22
Jul-23
Mar-17
Mar-18
Mar-19
Mar-20
Mar-21
Mar-22
Mar-23
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
Diesel Net Imports

Brazil has three regulatory frameworks for oil and gas
Source: J.P. Morgan, ANP. exploration and production. The Brazilian federal govern-
ment regulates the oil and gas sector and is the owner of all
Petrobras’s fuel prices should follow international mar-
crude oil and natural gas reserves in Brazil. Currently, the
kets, but ranging within a band. By May-23, Petrobras
approaches for E&P in Brazil are concessions, bidding pro-
announced its new pricing policy, which remains market
cess or sharing schemes (lately added by Law #12,351/2010
based but is able to determine prices ranging within in a band:
with the pre-salt enrollment).
(a) the cap is the customer's alternative costs, considering
supply alternatives and substitute products; while (b) the floor • Concession model: Oil and gas companies have the right
is Petrobras’s opportunity cost (production, refining, imports to explore and produce hydrocarbons through contracts
and exports). Before this new policy, we saw prices roughly granted during licensing rounds. The concession model is
in line with international parity; however, now we are seeing valid for onshore acreage and other non-strategic offshore
an average discount of 12%. We flag the recent increase of areas outside the “Pre‑Salt Polygon.” By current regula-
discounted Russian diesel into Brazil, which could lower the tion, ANP is allowed to conduct new rounds of bidding
new policy cap. under a concession model, observing the rule that acreage
cannot be part of the pre-salt polygon nor considered stra-
Figure 221: Diesel Discount to International Prices tegic by the federal government. Under the concession
Diesel Discount to International Parity regime, O&G companies pay royalties that vary from
0-10% as well as special participation taxes (SPT), which
20%
are charged on current production and vary from 0-40%.
10%
0% • Production-Sharing Agreement (PSA): Introduced in

-10%
2010, the PSA regime became valid for licensing pre-salt
-20%
assets inside the pre-salt polygon. The PSA regime has
-30%
some specific characteristics: (i) The government receives
its oil portion from production after both cost oil and oil
profit are deducted; (ii) the minimum percentage of
Diesel Discount Average (Under Previous Polcicy) Average (Under New Policy) excess oil to the government moves according to a matrix
that considers different oil prices and well productivity
Source: J.P. Morgan, ABICOM.
ratios; (iii) PBR has the optionality to have a minimum
109
JPMORGAN
Brazil 101
30% stake in the areas; (iv) signing bonuses are estab- pation contracts accounted for more 16.78%.
lished by the bidding process offer; (v) companies are
exempt from paying special participation taxes (SPTs) but Figure 223: Petrobras Dividends to Government
must pay 15% royalties to the government; and (vi) the Dividend Payments to Government Unit 2019 2020 2021 2022
winning consortium will be the one to present the highest Total Dividend (USD) $M 1,877 1,367 13,078 37,701
stake of oil profit to the government Dividend owed to Union (USD) $M 687 500 4,787 13,799
GDP (USD) $B 1,873 1,476 1,649 1,924

• Transfer of Rights Model. The transfer of rights model is
Dividend as % % 0.04% 0.03% 0.29% 0.72%
applicable only to specific assets (and limited to 5.0Bbbl)
National Revenues (USD) $B 389 287 348 430
acquired directly by Petrobras from the federal govern-
Dividend as % % 0.18% 0.17% 1.38% 3.21%
ment during the company’s $69.9bn capitalization process National Revenues (Ex. Social Security) $B 279 206 259 322
held in 2010. For the assets acquired in this process, the Dividend as % % 0.25% 0.24% 1.85% 4.29%
federal government will not charge special participation
Source: J.P. Morgan, Petrobras.
taxes (based on productivity of fields).
Figure 224: Petrobras Taxes and Payments to Government
Transfer of Rights Surplus. Recap: The pre-salt had been
Taxes and Government Take Unit 2019 2020 2021 2022
recently discovered when in 2010 the federal government
Total Taxes and Gov. Take on PBR $B 62 25 38 54
transferred the rights of exploration of 5bn barrels to Petro-
bras during the company’s capitalization process. All barrels GDP (USD) $B 1,873 1,476 1,649 1,924
contained in the area belonged to the government, but the PBR Contributions as % % 3.32% 1.69% 2.28% 2.81%
rights to explore were transferred to Petrobras. As part of the National Revenues (USD) $B 389 287 348 430
agreement, Petrobras paid BRL74.8bn (equivalent to PBR Contributions as % % 16.00% 8.70% 10.80% 12.58%
USD42.5bn at the time) for the rights to explore and produce National Revenues (Ex. Social Security) $B 279 206 259 322
PBR Contributions as % % 22.31% 12.11% 14.52% 16.78%
up to 5bn barrels of oil equivalent – implying a value of
USD8.51 per barrel. It was also agreed that any excess oil Source: J.P. Morgan, Petrobras.
discovered in the area would continue to be owned by the
Brazilian Oil Jrs: a private player alternative with attrac-
government. The original agreement already contemplated
tive growth potential. Besides Petrobras and acquiring a
scenarios in which it could be renegotiated between the par-
block directly from the government, investors have the possi-
ties. Much changed since then. The Brazilian real (BRL)
bility of accessing oil and gas fields in Brazil through M&A
weakened relative to the US dollar. Oil prices have also
transactions, especially in the divestment programs of major
dropped from USD79.23 (the value on which the ToR agree-
oil companies. These are opportunities more frequently
ment is based) to ~USD60.0 per barrel. By being the sole
engaged in by junior oil companies, particularly since 2015,
operator of the pre-salt fields, Petrobras incurred a significant
when Petrobras started divesting some non-core assets. Most
amount of CapEx that weighed on its capital position. And, as
of the divestments made in recent years were mature assets
fields were explored and developed in the pre-salt area, it
that encompassed lower risks than a new exploration cam-
became evident that the area contained more than the 5bn
paign but, on the other hand, also provided a limited increase
originally related to the ToR contract, and the contract
in production. For that reason, junior oil companies in Brazil
became even more valuable. Outcome: By April-19, after
are quite different from the majority of their peers around the
years of negotiations, the federal government and Petrobras
globe, but sill, the basic business model consists of acquiring
finally settled on a value for the adjustment of the Transfer of
old assets and investments in recovery (see our initiation of
Rights (ToR), with the company being reimbursed $9.06bn.
PRIO and 3R Petroleum here). In terms of regulation, we flag
The federal government was then able to auction the Transfer
that ANP published Resolution #749/2018 (following CNPE
of Rights Surplus, containing the fields Atapu, Buzios, Itapu
Resolution #17/2017) allowing the reduction in royalties to
and Sepia. The first auction took place on Nov-19, and Petro-
5% on the incremental production of mature fields to incen-
bras was the biggest winner, with a 90% stake in Búzios and
tivize investment in the segment.
100% in Itapu. Two years later on Dec-21, the auction for
other two areas, Atapu and Sepia, took place. Now PBR’s
stakes in each correspond to 52.5% and 30.0%, respectively.
Petrobras’s relevance to the country. In addition to the

importance of the whole oil & gas industry to Brazil, PBR
alone holds significant relevance. Notably, in 2022, Petro-
bras’s dividends constituted 4.29% of total nation’s revenues
(excluding social security), while royalties and special partici-
110
JPMORGAN
Figure 225: Frade Production Increase After Recovery Capex

70.0
60.0
50.0 Investments to
40.0 recover production
Acquisition by PRIO
30.0
20.0
10.0
0.0
Sep-15
Sep-16
Sep-17
Sep-18
Sep-19
Sep-20
Sep-21
Sep-22
Jan-15
Jan-18
May-18
Jan-19
May-19
Jan-22
Jan-23
May-23
May-15
Jan-16
May-16
Jan-17
May-17
Jan-20
May-20
Jan-21
May-21
May-22
Source: ANP. J.P. Morgan Estimates.
Overall, the oil & gas industry is, and should remain, rele-
vant for Brazil in the following years. While energy transi-
tion is a reality, government should try to balance such a trend
(and even foster that with new sources, as offshore wind) with
the fiscal contribution that the oil industry brings. Apart from
pre-salt, which should reach a production peak by 2029-30,
investments in the equatorial margin could potentially help
sustain growth afterwards. With that, Petrobras and other Bra-
zilian players might continue to benefit from our bullish
supercycle thesis in the coming years.
Figure 226: Brazil Upstream Output Snapshot

kboed
Company Crude Oil Gas Total
Petrobras 2,208 617 2,826
Shell Brasil 371 104 475
Petrogal Brasil 95 26 121
Petro Rio 95 6 101
Repsol Sinopec 61 17 78
3R Petroleum 48 12 60
Petronas 51 7 58
Equinor Energy 33 5 38
Others 488 135 623
Total 3,450 929 4,379
Source: J.P. Morgan, ANP.
111
JPMORGAN
Brazil 101
Metals & Mining Figure 228: Automotive, Capital Goods and Construction Are 48% of
Total Consuming Sectors
100%
Rodolfo de Angele AC and team 90%

80%
21% 22% 21% 21% 22% 25% 23% 20% 19% 21% 20%
70%
35% 36% 36% 33% 33%
60% 36% 38% 39% 34%
(55-11) 4950-3888 50%
40%
40% 37%
19% 16% 18% 21% 19% 20%

30% 18% 18% 18% 16% 14%
rodolfo.r.angele@jpmorgan.com 20%
10%
9%
16%
8%
16%
8%
15%
9% 8% 8%
16%
9%
18%
9%
17%
9%
15%
10%
17%
11%
17%
13% 14%
0%
Banco J.P. Morgan S.A. 2012 2013 2014 2015
Automotive
2016
Capital Goods
2017
Construction
2018
Distributors
2019
Other
2020 2021 2022
Source: IABr.
The Brazilian Metals & Mining industry evolved during

the industrial development programs (Brazil’s “economic mir- Figure 229: Brazil Exported 35% of Its Steel Production Last Year
acle”) of Presidents Vargas and Kubitschek during the 1940s Kt
and 1950s. During the mid-20th century, strategic state steel
18,000
production plants were established by the government, and
13,945
steel production became synonymous with the drive toward a 14,000 12,805
11,941
10,975
more autonomous development model. The sector remained 10,000
10,538
11,538
predominantly state owned until the 1990s, and in the process 10,440
8,591
6,000 8,501
it became highly inefficient. It was then that the federal gov- 6,001
ernment embarked on a privatization drive that began with a 2,000

change of control first at Usiminas (1991) and later at Vale
-2,000
(1997). After privatization, Vale’s core focus moved to min- -2,407 -2,365 -2,037
-3,350
ing activities, and it sold its holdings in the steel (Açominas, -6,000 -4,974
2018 2019 2020 2021 2022
CSN, CST, and Usiminas) and pulp businesses.
Exports Imports Balance
As it stands now, the steel industry in Brazil is 100% held Source: IABr.
in private hands and is responsible for ~55% of Latin Amer-
ica production. Within the sub segments, compared with long Figure 230: Brazil Finished Steel Consumption Per Capita in 2022
steel, the flat steel category faces relatively more competition Was~Kg110/Inhab….
from the presence of a greater number of players and the Kg/inhab
140.0
increasing influence of imports (direct and indirect). Finished 122.9
120.0 108.8
steel output was 23.4Mt in 2022 (58% flat steel, 42% long 100.9 99.0 100.6
100.0
steel). Apparent consumption was 23.5Mt, and the main con-
80.0
suming sectors included civil construction, automotive, capi-
60.0
tal goods, machines, and equipment as well as household and
40.0
commercial appliances. 20.0
0.0
Figure 227: Steel Products Apparent Consumption Reduced 9.8% y/y 2018 2019 2020 2021 2022
in 2022 Source: Worldsteel.

Mt
35.0 30.5
28.6 28.0 28.5
30.0 25.7
22.7 22.1 22.8 23.3
25.0 26.6 28.0
25.6 19.2 19.6 26.3
23.5
20.0 16.1 21.3 21.2 21.0 21.4 15.3
15.2 14.5 19.5 13.8
11.9 11.9 18.5 11.7 12.7 12.4 12.3
15.0 11.4 11.1 10.5 11.1
9.4 8.5 8.6 9.1 9.8
8.0 7.8
10.0
5.0
0.0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Flat Steel Long Steel Total Apparent Consumption
Source: IABr, Worldsteel, MDIC.
112
JPMORGAN
Figure 231: … Representing Only Around 16% of China Consumption However, following the Brumadinho dam burst in January
Kg/Inhab. 2019, Vale lost at peak ~100Mtpa of iron ore capacity (out of
Kg/inhab 400Mtpa total) due to government shutdowns. Since then,
1,200 Vale has gradually restarted halted capacity (operating at
1,000
306Mtpa in 2022), and the company expects to ramp up vol-
umes until 360Mt by 2027.
800
600 Figure 233: Vale Production Should Reach 340Mt by 2026 per Our
400 Estimates
Mt
200
Source: Worldsteel.
Currently, the business environment for steel producers have

been challenging. China’s annualized exports of ~90Mt are at
the highest level since 2016 and are roughly equivalent to US
demand and around 4x Brazilian demand levels. Also, flat
steel prices in Brazil are at a ~17% (Platts) premium to inter-
national parity, which in our view makes Brazil a prime desti-
Source: Vale, J.P. Morgan.
nation for Chinese steel. The combination presents a risk to
the steel sector, especially in LatAm. Governments now try to Figure 234: Brazil Iron Ore Exports Decreased 3% y/y and Reached
find solutions to reduce imports from China, but as Chinese 346Mt in 2022
prices are competitive, that has been a challenge. In addition, Mt
commercial barriers are being ineffective in stopping the flow 450 20%
400 15%
of Chinese steel into Europe, for example. China’s steel 350
10%
300
exports reached annualized levels of as much as ~90Mt, and 250 5%
Europe rapidly placed quotas in place. Chinese steel moved to 200 0%
150
-5%
other countries such as South Korea, India, Vietnam, Taiwan 100
50 -10%
and Indonesia, which are now large exporters into Europe. 0 -15%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Exports (Mt) Y/Y Growth (%)
Figure 232: Total China Steel Output Estimate Is Currently at ~1,000Mt
Annualized
Source: MDIC, J.P. Morgan.
Kt
1200 Overall, we are more positive on iron ore. With the combina-
1150
1100
tion of: (a) China’s steel output remaining resilient and trans-
1050 lating into higher exports; (b) modest Chinese steel capacity
1000
950 cuts; and (c) policy easing, we concluded that our previous
900
850
price forecasts were too cautious. Iron ore price has averaged
800 $117/t in the past 5 years, despite Chinese steel production
750
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec hovering around 1bntpa over that time frame. As we expect
2018 2019 2020 2021 2022 2023 the next few years to continue in this path (flat Chinese steel
production and only modest supply growth), our LT price has
Source: CISA, J.P. Morgan Estimates
also been raised by $5 to $80/t to reflect the lower point of
On the mining side, Vale is the world’s second largest iron marginal costs following recent inflation, which we regard as
ore producer and exporter, and it is the third largest min- a strong support level – i.e., significant marginal supply
ing company in terms of market capitalization. While it made would drop out of the market below this price.
efforts to diversify into other commodities, such as nickel and
copper, it remains predominantly an iron ore producer and
exporter.
113
JPMORGAN
Brazil 101
Figure 235: With the Absence of Steel Cuts in Chinese Production, We

See a ~1Mt Deficit for 2023
Mt
Demand 62% Fe (wMt 8% moisture) 2020 2021 2022 2023F 2024F 2025F 2026F 2027F
Americas 82 110 103 102 107 109 110 111
CIS, Middle East & Africa 138 139 115 113 115 119 121 124
Europe 166 186 165 161 169 174 175 176
World direct reduction iron demand 197 221 227 234 241 248 256 264
AsiaPac ex-China 326 368 360 376 392 408 419 427
China 1,515 1,397 1,382 1,392 1,390 1,348 1,343 1,302
Growth 120 -118 -15 10 -2 -42 -5 -41
Growth 8.6% -7.8% -1.1% 0.7% -0.1% -3.1% -0.4% -3.0%
Total ex-China 909 1,023 971 987 1,025 1,058 1,081 1,100
Growth -60 114 -52 17 37 34 23 19
Growth -6.2% 12.6% -5.1% 1.7% 3.8% 3.3% 2.2% 1.8%
Total (wmt, 62% Fe, 8% moisture) 2,423 2,420 2,353 2,379 2,415 2,406 2,425 2,403
Growth (Mwmt) 61 -3 -67 27 36 -9 18 -22
Growth (%) 2.6% -0.1% -2.8% 1.1% 1.5% -0.4% 0.8% -0.9%
Supply 62% Fe (wMt 8% moisture) 2020 2021 2022 2023F 2024F 2025F 2026F 2027F
Australia 965 945 953 971 996 1,023 1,029 1,029
South America 406 443 419 429 438 453 466 478
North America 121 131 120 120 120 120 120 120
CIS 177 178 118 125 133 133 133 133
Middle East & Africa 130 140 133 134 135 135 133 142
China / port destock 352 271 329 303 265 209 205 155
Other Asia 221 262 265 276 284 289 294 300
Europe 50 50 17 22 44 44 44 44
Growth (Mwmt) 61 -3 -67 27 36 -9 18 -22
Growth (%) 2.6% -0.1% -2.8% 1.1% 1.5% -0.4% 0.8% -0.9%
Supply 62% Fe (wMt 8% moisture) 2020 2021 2022 2023F 2024F 2025F 2026F 2027F
Vale 295 320 316 322 330 341 351 361
Rio Tinto (Pilbara) 324 316 316 328 334 334 334 334
BHP Billiton (Pilbara) 289 283 282 284 292 292 292 292
Fortescue 167 171 178 182 190 199 199 199
Roy Hill 54 58 58 58 58 58 58 58
Minas Rio 26 25 24 26 27 29 29 29
Kumba 41 45 41 42 44 44 44 44
Simandou 0 0 0 0 0 0 0 11
IOC 25 25 25 25 25 25 25 25
Major miners 1,220 1,243 1,241 1,268 1,302 1,321 1,332 1,353
Curtailments / growth 4 23 -2 27 34 20 10 21
China domestic 352 271 329 303 265 209 205 155
Curtailments / growth 93 -81 58 -26 -38 -55 -4 -50
Other non-traditional supply 851 906 784 809 849 876 887 894
Curtailments / growth -36 55 -122 25 40 27 12 7
Balance 62% Fe (wMt 8% moisture) 2020 2021 2022 2023F 2024F 2025F 2026F 2027F
Supply change ex Majors (Mt) 57 -26 -65 -1 2 -28 8 -43
Proportion of global market (%) 2.4% -1.1% -2.7% 0.0% 0.1% -1.2% 0.3% -1.8%
Source: J.P. Morgan estimates, Company data.
114
JPMORGAN
Pulp and Paper The main drivers in the sector recently have been the emer-
gence of Chinese domestic consumption and the onset of
structural decline in demand in the developed world.
Rodolfo de Angele AC and team
(55-11) 4950-3888 In 2018-1H19, a combination of elevated pulp and paper
rodolfo.r.angele@jpmorgan.com inventories at the buyers in China and negative macro senti-
Banco J.P. Morgan S.A. ment (trade war) has resulted in a weakening buying appetite
from the Chinese and, as a consequence, a strong pulp price
Brazil is a unique place for pulp production owing to the drop. Weaker-than-expected demand in Europe (economic
combination of favorable climate, land, and water. As a slowdown, higher competition on the export market) also
result, Brazil has become a major player in the global pulp weighed on overall pulp demand. This year, the story repeat-
market and is now the second biggest pulp producer in the ed itself. Prices dropped in the beginning of the year, reaching
world. $470/t in May, due to the oversupply. But we now see a floor
to prices. Integrated Chinese P&P producers stopped their
A handful of family-run companies have dominated the sector high cost pulp facilities and, instead, started buying market
in Brazil since the turn of the last century. Brazil’s advanta- pulp to supply their paper machines. This happened strongly
geous climate allowed for rapid tree growth, with eucalyptus below ~$500-530/t, which we see as a new floor. In fact,
plantations reaching maturity in just seven years compared since June pulp companies have been able to pass along small
with 20-30+ years in traditional pulp markets (N. America, price hikes, taking the spot price to $553.1/t. In addition, we
Europe, etc.). Advances in forestry yields in the 1970s further also see limited scope for negative surprises. Demand is
improved Brazil’s cost competitiveness in pulp production, already very weak in Europe and in the US and lukewarm in
making it one of the lowest-price producers globally and China. The Chinese economy seems to be gradually improv-
leading to Brazil becoming a significant exporter of eucalyp- ing and any demand recovery, especially in Europe, would
tus pulp. Meanwhile, advances in paper production technolo- come as a positive surprise. We have also seen ex-China
gy have allowed for broader use of eucalyptus grade pulp, capacity shutdowns driven by low prices as well.
which began to replace the traditional softwood-type pulp in
tissue, printing and writing, and even boxboard paper manu- Figure 236: China Port Inventories Reach 2,299kt, Up 22.5% y/y and
facturing. +29.3% vs 5Y Average
2,500
2,250
The growth in the domestic paper market has not been steady 2,000
and has resulted in oversupply. More recently, Brazil’s reces- 1,750
1,500
sion led paper consumption to drop, accelerating the replace- 1,250
ment for digital media. 1,000
750
500
The past two decades saw significant consolidation in the sec- 250
0
tor, in both the pulp and printing and writing paper segments
Dec-18
Feb-19
Jun-19
Dec-19
Feb-20
Jun-20
Dec-20
Feb-21
Jun-21
Dec-21
Feb-22
Jun-22
Dec-22
Feb-23
Jun-23
Aug-18
Apr-19
Aug-19
Apr-20
Aug-20
Apr-21
Aug-21
Apr-22
Aug-22
Apr-23
Aug-23
Oct-18
Oct-19
Oct-20
Oct-21
Oct-22
(the corrugated packaging segment remains quite fragment-

ed). Suzano and Bahia Sul merged. Ripasa was bought out by Qingdao Changshu 5Y Avg
Suzano and VCP. Fibria, the then world’s largest pulp produc- Source: RISI, J.P. Morgan estimates.
er, was created through the merger of Aracruz and VCP. Over
time, Suzano and International Paper emerged as the key Figure 237: Europe Port Inventories Are 61.6% Up y/y and 35.2%
domestic players in P&W paper grades, while Klabin and Above the 5Y Average
Suzano emerged as the leaders of the domestic boxboard seg- 2,000
1,750
ment. American players Meadwestvaco (today WestRock) 1,500
1,250
and IP also entered the containerboard market through acqui- 1,000
750
sitions of Rigesa and Orsa. More recently, Fibria was 500
250
acquired by Suzano, resulting in the world’s largest pulp pro- 0
ducer. A strong position on the cash cost curve in Brazil has
Jul-18
Jul-19
Jul-20
Jul-21
Jul-22
Jul-23
Jan-19
Mar-19
Jan-20
Mar-20
Jan-21
Mar-21
Jan-22
Mar-22
Jan-23
Mar-23
Sep-18
Nov-18
May-19
Sep-19
Nov-19
May-20
Sep-20
Nov-20
May-21
Sep-21
Nov-21
May-22
Sep-22
Nov-22
May-23
attracted international players, with Asian RGE Group acquir- TOTAL Historical Average
ing Lwarcel (a small mill with plans to expand capacity) and
Paper Excellence acquiring 49% stake in Eldorado. Source: RISI, J.P. Morgan estimates.
115
JPMORGAN
Brazil 101
Figure 238: China Hardwood and Softwood Prices Respectively Figure 239: We Expect 3.3Mt of New Capacity Until 2025, But After
Declined 33.0% and 22.5% Since Last Year, But Are Showing Signs of That We Will Likely See a Window of 3-4 Years Without Any Major
Improvement New Pulp Plant Being Commissioned
$/t 2,000 92%
1,500 90%
1,100
1,000 88%
1,000 500 86%
0 84%
900
(500) 82%
800 (1,000) 80%
700 (1,500) 78%
600
Global Surplus (Deficit) Utilization Rate
500
400 Source: J.P. Morgan estimates.
Also, the growth of Brazilian pulp production had been heavi-

China Hardwood China Softwood
ly supported by the National Development Bank (BNDES),
which has a mandate to support sectors in which Brazil has
Source: RISI and J.P. Morgan estimates.
competitive advantages. Through both debt and equity, the
Going forward, we expect that in the medium-term case for bank has over R$20bn employed in almost all the important
pulp should be more compelling. After a concentration of 3 pulp and paper producers.
mega projects ramping up in an ~18-month period, we will
likely see a window of at least 3-4 years without any major
new pulp plant being commissioned. The industry will still
have a lot to digest, especially into 2024 and 25, but we do
see a breather afterwards, which should finally allow for
higher prices. Assuming that, we adjust our prices up for the
following years from $575/t in 2025 to $700/t in 2028. With a
LT forecast price of $530/t.
In the future, we see Brazil increasingly focusing on pulp pro-

duction, which takes advantage of favorable access to raw
materials. However, we believe paper production will increas-
ingly be based in China, where access to raw materials is lim-
ited but access to capital is more readily available. China may
continue to depend on virgin fiber imports due to its limited
availability to increase production. Also, China has been
replacing non-wood fibers such as wheat and bamboo straw,
opening room for market-share gains for Brazilian fiber.
In order to secure long-term supply of fiber, Asian paper

companies have been interested in Brazilian assets. In 2017,
the private producer Eldorado was sold at a 40-70% valuation
premium to Paper Excellence, a company controlled by an
Asian producer.
For many years, Brazil and South America were, without a

doubt, considered among the places providing the best returns
for greenfield projects. As mentioned previously, the region
contains most of the resources needed for pulp production.
However, the increasing prices of land, labor, and energy
have made Brazil less competitive
116
JPMORGAN
Banks Government-controlled banks increased their collective mar-

ket share to a peak of ~56% in 2015-16 from ~35% in 2007.
This trend started reversing in 2017-19 as private banks
Yuri R Fernandes AC and team
regained share. By mid-2019, government-owned banks’ mar-
(1-212) 622-3400 ket share was back to ~50%, and by mid-2022 privately
yuri.r.fernandes@jpmorgan.com owned banks reached their peak 58% share. Since then, the
J.P. Morgan Securities LLC share split stabilized at 57-58% for private and 42-43% for
government-owned banks, respectively.
Table 68: Market Share: Government, Private Domestic and Foreign

A highly concentrated industry. As of 2022, the five largest Banks
banks controlled ~70% of loans and ~70% of deposits. Nota- Gov. Private DomesticPrivate Foreign
bly, loan concentration for the top-5 banks is fairly similar to 2008 36.3% 42.8% 21.0%
historical levels, but deposits used to be more concentrated in 2009 41.4% 40.3% 18.3%
the past (e.g., top-5 banks held 80%+ share before 2017). 2010 41.7% 41.0% 17.3%
Overall, Brazil is not the most concentrated banking industry 2011 43.6% 39.0% 17.4%
in the region, but it certainly remains a highly concentrated 2012 47.9% 35.8% 16.3%
one. 2013 51.3% 33.1% 15.6%
2014 53.8% 31.6% 14.6%
2015 55.8% 29.4% 14.7%
2016 55.7% 31.4% 12.9%
Figure 240: Top Five Loan Concentration (2022) 2017 54.1% 32.2% 13.7%
100.0% 2018 51.2% 32.8% 16.1%
81.4% 80.2% 76.6% 2019 47.0% 37.1% 15.9%
80.0% 68.8% 69.0% 2020 45.0% 38.8% 16.2%
58.1%
60.0% 2021 42.6% 42.2% 15.2%
2022 42.5% 42.9% 14.6%
40.0% CAGR 12-22 7.2% 10.5% 7.3%
20.0% Source: Brazil Central Bank
0.0% Figure 242: Market Share: Public vs. Private

Colombia Peru Chile Brazil Mexico Argentina
65%
Source: J.P. Morgan and Central Bank. Note: For Colombia, Grupo Aval banks are considered
as one institution for the purposes of our top five calculations. Chile does not include Itau Chile
55% 57%
Colombian operations and BCI’s US operations.
Figure 241: Top Five Deposit Concentration (2022) 45% 43%

100.0% 35%
81.8% 81.0% 78.2%
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Jun-19
Jun-20
Jun-21
Jun-22
Jun-23
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
80.0% 69.6% 69.2%

54.9%
60.0%
Government Banks Private Banks
40.0% Source: Brazil Central Bank. Data as of June, 2023.
20.0%
Rate-adjusted ROE down to 2017 levels. System earnings
0.0% grew 11% Y-o-Y in 2022 and ROE stood at 175, stable from
Peru Colombia Chile Mexico Brazil Argentina 2021 and recovering from 2020 lows at 13%. Notably, when
Source: J.P. Morgan and Central Bank. Note: For Colombia, Grupo Aval banks are considered
netting out the average Selic rate, the system’s ROE less ref-
as one institution for the purposes of our top five calculations. Chile does not include Itau Chile erence rates declined to 4% from 12% in 2021. This is back
Colombian operations and BCI’s US operations. to 2017 levels and below 10-12% levels in recent years.
Privately owned banks were gaining share, but now stabi-
lized. One of the primary structural changes in the Brazilian
banking system from 2007 to 2016 was the rapid growth of
government-controlled banks at the expense of private banks.
117
JPMORGAN
Brazil 101
Figure 243: Banking System Return on Equity (ROE) Figure 245: Loan Market Share (2022)
25.0%
19.5%
20.0%
15.6% 15.1%
15.0%
10.6%
10.0% 8.0%
5.4%
5.0%
0.0%
Caixa Banco do Itau Bradesco Santander BNDES
Brasil Brasil
Source: J.P Morgan and Central Bank of Brazil. Note: Gross Loan figures.
Source: Brazil Central Bank.
Figure 246: Deposit Market Share (2022)
Figure 244: ROE Minus Average Reference Rate
20.0% 19.0%
15.0% 12.4% 12.2% 16.2%
10.1% 15.0% 12.6% 12.5%
10.0% 7.4% 8.1%
6.1% 5.6% 8.8%
4.1%4.7% 3.8%3.3% 4.0% 4.2% 10.0%
5.0%
5.0% 2.7%
0.0%
0.0%
-1.6% Itau Banco do Caixa Bradesco Santander BTG
-5.0%
Brasil
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Source: J.P Morgan and Central Bank of Brazil.

Credit data presented by Brazil’s central bank is often
Consolidation has been a trend in the past decade. Since classified as directed or non-directed lending. In essence,
2008, sizable mergers have taken place in the country: (i) most directed lending constitutes lending that comes from
Santander Brasil and ABN Banco Real (August 2008); (ii) BNDES sources, or agricultural and mortgage loans funded
Itau and Unibanco (November 2008); (iii) Banco do Brasil by savings and/or demand deposits. By contrast, non-directed
and Banco Nossa Caixa (November 2008); (iv) Banco do lending is freely lent out by banks at market interest rates and
Brasil and Banco Votorantim (January 2009); and more not beholden to directed lending requirements on some sourc-
recently (v) Bradesco and HSBC (August 2015); and (vi) Itau es of funding. Moreover, we note two data revisions in recent
and Citibank retail operations (October 2016). Additionally, years. First, the central bank instituted in February 2015
in 2013, Itau also acquired Credicard (Citibank’s card opera- methodological changes in its data series (link). These chang-
tions). es moderately impacted non-directed loan balances, spreads,
and NPLs when compared with prior versions. Moreover,
Local banks remain the most relevant players, but new- these changes are layered onto more sizable changes in the
comers gaining growth. Top 5 banks in terms of loan market credit data instituted in February 2013 (see Latin American
share are local and control a joint market share of 69%. This Banks: Credit and Market Share Bible, Published April 10,
is ~500bps below 2017 levels, but still represent the bulk of 2013 for details).
the system and the decline was mainly driven by public banks
(Itau and BBDC actually gained share in the period). Still, we Non-directed and lending growing at similar pace. After
recognize that neobanks are gaining relevance in specific decelerating for several years and actually declining in 2016,
products. Notably, for credit cards, the top 5 banks lost ~12 non-directed lending accelerated again in the following years
p.p. market share in 2017-22. Meanwhile, Nubank moved and peaked at ~20% Y-o-Y in 2021. Since then, and as Brazil
from 2% to 6% share and is now the 5th largest player. Some moved into a credit cycle, it decelerated to 14% Y-o-Y in
relevant decrease is also observed in personnel ex-payroll. 2022 and 6% as of June 2023. Directed lending, on the other
Additionally, we also see some pressure in deposits, with top hand, grew at 14% Y-o-Y in 2022 and kept that pace (~13%)
5 banks moving from 80% of total deposits in 2017 to ~70% as of June 2023. Notably, in the past decade from 2012 to
in 2022 (decrease also driven by public banks). 2022, the compound annual growth (CAGR) of directed and
non-directed lending was very similar 8-9%.
118
JPMORGAN
Table 69: Directed and Non Directed Lending (Y/Y) Figure 248: Loan-to-Nominal GDP growth Multiplier
Total Directed Non-Directed 6.0x 5.2x
2008 31.1% 26.7% 32.7% 5.0x
4.0x
2009 15.7% 29.2% 8.4%
3.0x 2.1x 1.8x
2010 20.6% 27.0% 16.9%
2.0x 1.3x 1.5x 1.6x 1.3x 1.3x 0.9x 1.2x 1.0x 1.1x
2011 18.8% 22.4% 16.5% 1.0x
2012 16.4% 20.9% 13.6% 0.0x
2013 14.5% 24.3% 7.7% -1.0x -0.1x
2014 11.3% 19.6% 4.6% -2.0x -0.8x
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2015 6.7% 9.8% 3.8%
2016 -3.5% -2.1% -5.0%
2017 -0.4% -2.8% 1.9%
2018 5.6% -0.5% 11.4% Figure 249: Government Banks: Loan-to-Nominal GDP Growth
2019 6.5% -2.4% 14.0% Multiplier
2020 15.6% 16.2% 15.4% 5.0x 4.5x
2021 16.3% 10.9% 20.1% 4.0x 3.6x
2022 14.2% 14.0% 14.1% 2.8x 2.9x
3.0x 1.9x 2.1x 2.0x
CAGR 12-22 8.5% 8.3% 8.6% 2.0x 1.3x 1.1x
0.6x
Source: Brazil Central Bank. 1.0x
0.0x
Loan origination accelerated after the pandemic, especial- -1.0x 0.0x
-0.4x
ly individuals. Before Covid-19 pandemic hit (e.g., Feb- -2.0x -0.8x-0.7x
2020) non-directed loans to individuals were growing ~17%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Y-o-Y vs. non-directed loans to companies +13% Y-o-Y. As
the pandemic hit and corporates demanded liquidity, loans to Source: Brazil Central Bank.
companies spiked to ~26% Y-o-Y in the initial months, while
Figure 250: Private Banks: Loan-to-Nominal GDP Growth
consumer decelerated. However, after 2020 loans to individu-
als regained their pace and reached ~25% Y-o-Y growth pace 8.0x 6.6x
by mid-2022. Since then, loans to both companies and indi- 6.0x
viduals have decelerated to 1-11% Y-o-Y, respectively, as of
4.0x 2.9x
June 2023. Overall, consumer leverage as reported by the 1.9x
central bank stands at record-high levels. 2.0x 0.8x 1.2x 1.2x 0.8x 1.3x 1.1x
0.7x 0.7x 0.5x 0.6x
0.0x
-2.0x -0.7x
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Figure 247: Y-o-Y Loan Growth
30% Source: Brazil Central Bank.
20% Figure 251: Total Household Debt

11%
10% 55.0%
9%
48.5%
0% 1% 45.0%
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
Jun-23
35.0%
25.0%
Total Loans Non-Directed to Individuals
Non-Directed to Companies 15.0%
Apr-05
Oct-06
Apr-08
Oct-09
Apr-11
Oct-12
Oct-21
Apr-23
Apr-14
Oct-15
Apr-17
Oct-18
Apr-20
Household debt
Source: Central Bank of Brazil. Note: Private Banks includes Domestic Private Banks and For-
eign Private Banks.
119
JPMORGAN
Brazil 101
Figure 252: Debt Service (% of Disposable Income) Fees under pressure from fintechs’ competition. Fee-to-
30.0% revenues remained at high 35% in 2022, the highest in the
27.9% region and very close to Brazil’s historical high. Though Bra-
25.0% zilian banks have large financial conglomerates with diversi-
fied fee business (e.g., insurance, consortium, pension, credit
20.0% card brands,etc.), we believe the rise of fintechs could pres-
15.0% sure this line in a multi-year period. Recently, we addressed
checking accounts fees (link), and we see this line losing rele-
Apr-05
Oct-06
Apr-08
Oct-09
Apr-11
Oct-12
Apr-14
Oct-15
Apr-17
Oct-18
Oct-21
Apr-20
Apr-23
vance, decreasing from ~7% of banks’ revenues, to about 5%.
Still relevant, but as we continue to see pressure in checking
Debt Service
accounts, asset management, payment services, etc., we
Source: Brazil Central Bank. believe Brazilian banks will need to focus in cost optimiza-
tion to keep high-teens ROEs.
Lending spreads bottomed in 2020 and then bounced back
above pre-pandemic levels. Total spreads stood at ~18% in
Figure 255: Fees-to-Revenues (2022)
2019, then bottomed at ~14.5% by 2020YE, and started mov-
ing back up in 2021. More specifically, spreads increased 40.0%
33.5%
130bps Y-o-Y in 2021, 370bps in 2022, and additional 260bps
in 1H23 to 22% by June-2023. Most of the increase was driv- 30.0%
en by individuals. In particular, spreads on individual loans 16.8%
20.0% 16.4% 16.1%
grew 450bps in the Dec19-Jun23 period vs. spreads with 12.1%
companies up 140bps. Moreover, spreads for non-directed
10.0%
consumer loans increased 700bps in the period.
0.0%
Figure 253: Total System Lending Spreads Brazil Chile Peru Mexico Argentina
30.0% 28.3% Source: Brazil Central Bank.
20.0% 22.0% Figure 256: Efficiency Ratio (2022)

10.0% 9.7% 60.0% 55.0%
50.3%
50.0% 46.0% 43.3%
0.0% 41.6%
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
Jun-23
40.0%
30.0%
Total spreads Individuals Spreads
20.0%
Companies Lending Spreads
10.0%
Source: Brazil Central Bank. Data as of June 2023.
0.0%
Figure 254: Non-Directed Lending Spreads (Sept. 2019) Brazil Mexico Argentina Peru Chile
50.0% 47.4% Source: Brazil Central Bank.
40.0%
30.0% 33.1% Figure 257: Current Account Fees to Total Fees (2022)
20.0%
25.0% 21.6%
10.0% 11.9%
19.8%
0.0% 20.0% 17.7% 16.9%
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
Jun-23
15.0%
Total spreads Individuals Spreads 10.0%

Companies Lending Spreads
5.0% ~2-3%
Source: Brazil Central Bank. Data as of June 2023.
0.0%
ITUB BBDC SANB BBAS* USA
120
JPMORGAN
In the middle of a credit cycle. Following fast loan growth Figure 260: Branches per 100,000 Inhabitants (2022)
in recent years, asset quality has been deteriorating since 12.0 10.9
2021. Specifically, NPLs bottomed at 2.1% in 2020 helped by 9.9
10.0 9.1 8.7
credit reliefs granted during the pandemic. Since then, NPLs 8.0
increased ~150bps to 3.6% by June 2023 (most of the deterio- 8.0
ration took place in 2022 and 1H23). More specifically, as of 6.0 4.6
June 2023 consumer NPLs had increased ~140bps from the 4.0
bottom (2020) to 4.2%, while commercial NPLs reached
2.0
2.5% (+130bps).
0.0
Figure 258: Total System NPL Ratio (Sept. 2019) Colombia Argentina Mexico Brazil Chile Peru
Source: IMF population estimates, Central Bank of Brazil, Superintendencia de Bancos e Institu-
5.0% ciones Financieras (Chile),Superintendencia Financiera de Colombia, Comision Nacional Bancar-
4.0% 4.2% ia y de Valores (Mexico), Banco Central de la Republica Argentina, and Superintendencia de
3.0% 3.6% Banca, Seguros, Y AFP (Peru)
2.5%
2.0%
1.0%
0.0% Central bank is the primary regulator for banks. The
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
Jun-23
National Monetary Council (Conselho Monetário Nacional,

or CMN) is the primary regulatory entity in the Brazilian
financial system. The CMN is composed of the central bank
System NPLs Individuals NPLs Commercial NPLs president, the finance minister, and the planning minister.
Among its functions, the CMN gives the central bank authori-
ty to establish reserve requirements and establishes general
Financial penetration is relatively low on a global basis, directives regulating the banking and financial markets. How-
but not compared with other Latin American economies. ever, the central bank is the primary supervisory entity over-
Brazil has a relatively high loan-to-GDP ratio vs. Mexico, seeing the banking system. Among its primary functions, the
Peru, and Argentina, but stands well behind Chile and devel- central bank establishes minimum capital and reserve require-
oped markets. As of 2022, loans-to-GDP were 54%, back to ments, approves mergers and acquisitions of financial institu-
its 2015 historical high level after declining in 2016-21. tions, and must approve any capital increases or establish-
ment of branches in Brazil and abroad.
Figure 259: Loans to GDP (2022)
250% 216%
183%
200% 147%
150% Table 70: Brazil’s Major Listed Financial Companies
85%
100% 60% 55% 54% 45% 44% Company Ticker Rating Mkt Cap (US$ Million)
50% 22% 9%
Itau Unibanco ITUB4 OW 52,723
0%
Nubank NU N 37,006
Great Britain
Russia
Brazil
Mexico
Colombia
Chile
India
Peru
Argentina
China
United States
Bradesco BBDC4 OW 32,252

Banco do Brasil BBAS3 OW 27,985
Santander Brasil SANB11 N 21,562
Inter INTR N 1,442
Source: J.P. Morgan estimates, Bloomberg Finance L.P., Central Bank of Brazil, Superintenden-
cia de Bancos e Instituciones Financieras (Chile),Superintendencia Financiera de Colombia, Banrisul BRSR6 N 1,189
Comision Nacional Bancaria y de Valores (Mexico), Banco Central de la Republica Argentina, ABC ABCB4 N 909
and Superintendencia de Banca, Seguros, Y AFP (Peru). China, United States, Great Britain
Russia, and India data based in 2021 figures from the World Bank Source: J.P. Morgan estimates and Bloomberg as of August 7, 2023.
121
JPMORGAN
Brazil 101
Non-Banks Financials Figure 262: Payment Means – Financials Volume

R$ billion
40,777
Yuri R Fernandes AC and team 35,753
(1-212) 622-3400
yuri.r.fernandes@jpmorgan.com
J.P. Morgan Securities LLC 10,891
5,204
1,0611,017 910 983 1,5632,042 125 219
Check Debit card Credit card Wire transfers Prepaid cards PIX
Acquirer Industry Overview 2021 2022
Secular growth story. The volume of payment card transac-
tions has consistently increased in the past years. In 2022, Source: Central Bank of Brazil
total processed volumes added up to R$ 3,244bn, up from R$

596bn in 2011 and implying a 17% CAGR in the period.
Notably, credit card volumes grew at 35% CAGR in 2020-22, The pace of POS growth decelerated, now at 20.8mn. The
the fastest pace in years. number of POS machines totaled 20.8mn in 2022, up 18%
Y-o-Y. Brazilian total population stood at 215mn, implying
Figure 261: Credit and Debit Processed Volumes ~10% penetration. Following the spike in 2018, explained by
R$ billions the acquiring boom in the long tail, we note POS growth nor-
4,000
malizing.
3,244
3,000 2,597
1,756
1,989 Figure 263: POS Machines (mn) and Growth Rates
2,000
1,230 1,404
943 1,038 1,106 25.0 100%
704 829 20.8
1,000 596
20.0 17.6 80%
- 13.8 60%
15.0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 10.6 40%
Credit Debit Prepaid 10.0 7.8
20%
3.6 3.9 4.4 4.6 4.3 4.1
5.0 3.0 3.0 3.1
0%
Source: Central Bank of Brazil
0.0 -20%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Cash and check substitution has been the main driver of POS (mn) Y-o-Y Growth (rhs)
credit and debit card usage. The percentage of transactions
accounted for by checks fell to 2% in 2022 from ~46% in Source: Central Bank of Brazil
2002. Following its fast-paced adoption, PIX has grown to
represent 34% of transactions in 2022, driving the proportion
of credit and debit cards down to 44% vs. 75% in 2019.
Competition structure. Since 2012, the central bank is the
official regulator of Brazil’s electronic payment structure.
Wire transfers still account for the larger share of finan-
One of its first measures was determining the end of remain-
cial volume. Despite the rapid growth of card volume, it still
ing exclusivities between brands and acquirers. That started
represents a small percentage of the overall payment means.
to end in 2016, and in 2017 the full acquiring model began.
Notably, larger payments are transferred through electronic
With the end of barriers, competition got fiercer and started
means, and we see its migration to cards as unlikely.
pressuring MDRs.
122
JPMORGAN
Figure 264: Total Processed Volume Market Share Figure 266: Credit Card – Net MDR
2Q23 %
Other
16.0% Cielo 1.40
22.3%
Banrisul
1.30
1.3% 1.20
PagSeguro 1.10
10.6%
1.00
0.90
Stone 0.80 0.70
Rede
11.1% 23.7% 0.70
Santander GetNet 0.60
15.1%
0.50
Source: ABECS, Company reports, and J.P. Morgan 0.40
Oct-11
Oct-18
Dec-12
Dec-19
Feb-14
Jun-16
Nov-15
Aug-17
Feb-21
Nov-22
May-12
May-19
Jan-17
Apr-15
Apr-22
Mar-11
Sep-14
Mar-18
Jul-20
Sep-21
Jul-13
Merchant discount rates trending downwards. According
to central bank data, gross credit card MDR declined to
2.27% in Dec-22 vs. 2.79% in 2011. Of note, it is not clear at Source: Central Bank of Brazil
this point if the central bank considers all-in packages (with Figure 267: Debit Card – Gross MDR
D+2 prepayment fee or POS rental embedded in MDRs) %
within numbers, which would imply further pressure. Mean-
while, net MDRs declined more modestly to 0.70% vs. 1.26% 1.70
in 2011. Gross debit card MDR stood at 1.13% in Dec-22 vs. 1.60
~1.27% in 2011. Net debit card MDRs spiked in 4Q18 to 1.50
0.78% as a result of the regulatory interchange cap on debit,
1.40
but decreased thereafter due to rising competition. Over the
last two years, net debit MDRs have slightly increased as 1.30
competition has become more rational. 1.20 1.13
1.10
Figure 265: Credit Card – Gross MDR
1.00
% Jun-16
Oct-11
Dec-12
Jan-17
Dec-19
May-12
Feb-14
Oct-18
Jul-13
May-19
Feb-21
Jul-20
Mar-11
Apr-15
Nov-15
Aug-17
Apr-22
Sep-14
Mar-18
Nov-22
Sep-21
2.90
2.80
2.70 Source: Central Bank of Brazil
2.60
Figure 268: Debit Card – Net MDR
2.50
%
2.40 2.27
2.30 0.90
2.20 0.85
2.10 0.80
2.00 0.75
Feb-14
Feb-21
Dec-12
Oct-18
Oct-11
Jun-16
Dec-19
May-12
May-19
Jan-17
Aug-17
Apr-22
Nov-22
Mar-11
Jul-13
Sep-14
Apr-15
Nov-15
Mar-18
Sep-21
Jul-20
0.70
0.65 0.59
Source: Central Bank of Brazil 0.60
0.55
0.50
Jun-16
Feb-14
Feb-21
Oct-11
Oct-18
Dec-19
Dec-12
May-12
Jan-17
May-19
Nov-15
Apr-15
Aug-17
Nov-22
Mar-11
Sep-14
Apr-22
Mar-18
Jul-20
Sep-21
Jul-13
Source: Central Bank of Brazil
123
JPMORGAN
Brazil 101
Industry organization: participants and fees. The Brazilian Figure 270: Insurance Growth vs. GDP
payment card industry has the following participants and fees: 20% 18.2% 9%
18%
15.7% 15.6% 7%
• Issuer: Financial institution that is responsible for setting 16%
14%
13.9%
12.7% 5%
credit limits, interest rates, and identifying and authoriz- 12% 10.8% 11.3% 11.0%
10.3%
11.2%
3%
ing each card transaction. It also is responsible for main- 10% 7.8%
1%
8% 6.8%
taining a direct relationship with the brand (e.g., Visa, 6% -1%
3.3%
MasterCard) and establishing loyalty programs. 4% 2.7%
-3%
2%
• Acquirer: The financial institution responsible for captur- 0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
-5%
ing and processing credit and debit card transactions. It
Industry Written Premiums Y-o-Y Real GDP
connects merchants to banks.
• Brand:The owner of the trademark. It defines the general Source: SUSEP
rules and terms of the payment means structure, including The Brazilian insurance market remains underpenetrated.
the interchange fee (bank remuneration) and net merchant Penetration of insurance and long-term savings products
discount rate (acquirers’ remuneration). Examples include remains low in Brazil when compared with other markets,
Visa and MasterCard. mostly developed ones. Specifically, premiums as % of GDP
• Cardholder:Financial client, user of the card. have been roughly stable at a ~4.0% level since 2014. Mean-
while, Brazil continues to rank below the global average
• Merchant: Seller of good or service.
(6.8% in 2022).
The following figure illustrates this structure:
Figure 271: Insurance Penetration: Premiums as % of GDP
Figure 269: Brazilian Card Payment Structure (Estimated Values for R 11.6% 10.5%
$100 Transaction) 8.2% 8.0%
6.8%
5.9% 4.9% 4.0% 3.8% 2.9% 2.4% 1.5%
Canada
Chile
Czech Republic
Mexico
Turkey
UK
...
USA
Spain
Brazil
World
Japan
Germany
Source: Sigma Swiss Re 2022 Report
Overall, health, life, and pension insurance represent the

bulk of total premiums. Auto insurance is the main category
within P&C insurance. The following figures are based on
Source: Central Bank of Brazil, J.P. Morgan estimates
SUSEP data and illustrate the premium breakdown for each
category.
Insurance Industry Overview

According to SUSEP data, as of 2022, the Brazilian insurance
market was formed by: 125 insurance companies, 18 capital-
ization companies, 44 focused in supplementary pension, and
13 local reinsurance companies.
Premiums remained resilient during economic recession,

but have decelerated since. Written premiums have consis-
tently grown above real GDP, even during economic down-
turns. Nevertheless, it is worth noting that the average annual
growth for written premiums has decelerated from 14% dur-
ing 2009-15 to 7.6% between 2016 and 2022.
124
JPMORGAN
Figure 272: Brazil's Insurance Premium Breakdown Figure 274: Auto Market Share
Market Share of Written Premiums
2018 2019 2020 2021 2022
Porto Seguro 27.8% 27.3% 27.6% 28.2% 27.7%
Porto 18.2% 18.2% 18.3% 18.5% 18.8%
Azul 8.5% 9.1% 9.3% 9.7% 8.9%
Itaú Auto 1.1% 0.0% 0.0% 0.0% 0.0%
Tokio Marine 9.5% 9.7% 10.3% 10.4% 12.6%
Allianz 5.4% 5.2% 14.3% 13.8% 12.4%
Bradesco 11.1% 11.4% 11.1% 11.8% 12.4%
Liberty 8.0% 8.5% 9.1% 8.4% 9.2%
HDI 8.7% 8.8% 8.9% 8.3% 7.3%
Mapfre 7.7% 7.3% 7.7% 7.7% 6.6%
Sompo 2.2% 2.6% 2.6% 2.7% 2.5%
Zurich 1.4% 1.6% 1.8% 1.9% 2.1%
Others 18.2% 17.4% 6.5% 6.8% 7.0%
Source: SUSEP
Figure 275: Brazil’s Major Listed Non-Bank Financial Companies

Company Ticker Rating Mkt Cap (US$ mn)
Cielo CIEL3 BZ Neutral 1,912
Source: SUSEP, ANS, J.P. Morgan PagSeguro PAGS US Neutral 2,863
Stone STNE US Neutral 3,257
DLocal DLO US Neutral 5,736
BBSE leads in pension plans. In traditional insurance and XP XP US Neutral 12,273
pension plan products, there is very high market share con- BB Seguridade BBSE3 BZ Overweight 12,469
centration among the large retail banks. In particular, the four
IRB IRBR3 BZ Underweight 713
largest players represented ~80% of total market contribu-
Porto Seguro PSSA3 BZ Neutral 3,348
tions in 2022. Those same players represented ~80% of mar-
ket reserves. Notably, BBSE remains the largest participant Wiz WIZC3 BZ Neutral 161
with 35% market share through BrasilPrev. Bolsa Mexicana BOLSAA MM Overweight 1,073
B3 B3SA3 BZ Overweight 13,821
Figure 273: Pension – Contribution Market Share Vinci VINP US Overweight 567
Patria PAX US Neutral 2,167
Itausa ITSA4 BZ Overweight 17,315
Other
Source: J.P. Morgan Estimates and Bloomberg Finance L.P. as of October 11, 2023
21%
BrasilPrev
35%
Caixa
13%
Itaú
11% Bradesco
20%
Source: SUSEP
Porto Seguro remains the leader in the Auto Insurance

market. Porto Seguro has consistently defended its leader-
ship position in the Auto market with ~28% market share in
terms of written premiums.
125
JPMORGAN
Brazil 101
Homebuilders Low-income segment closer to peak. As to the low-income

segment, despite the well-known housing deficit in Brazil of
~7mn units and the recent improvements in the MCMV exe-
Marcelo Motta AC and team
cution, we are less optimistic regarding share performance as
(55-11) 4950-6712 the bar in terms of expectations is set at a higher level after all
marcelo.g.motta@jpmorgan.com the improvements seen in 2023. In our view, this will limit
Banco J.P. Morgan S.A. potential positive surprises in the sector as higher profitability
and growth already seem to be priced in at current valuation
Sector overview: Currently the homebuilding sector com- levels. Additionally, it is still unknown how the recent chang-
prises around 17 companies with a total market cap of es in MCMV will increase competition in the segment, which
~US$9bn, with trading volume of over around US$115mn per could translate to slower-than-expected growth and/or leaner-
day on average and a weight of ~1.0% in the Ibovespa Index than-expected margins. Nonetheless, we acknowledge that the
(Cyrela, MRV and Eztec). The sector has its own index called segment should remain a topic of discussion and on investor’s
IMOBBV, which also includes Malls and Properties stocks. minds throughout the presidency of Lula, who created the
The sector is divided into two main segments: low-income program back in 2009.
names, in which mortgages are mostly provided by the feder-
al government through the social housing program called Figure 276: Sector P/BV vs Selic Rate
Minha Casa, Minha Vida (MCMV), and the mid/high-income Multiple and %
names which rely on market dynamics. 3.0x 16%
P/BV Selic
14%
2.5x
12%
We have a bullish view on Brazilian homebuilders. This 2.0x 10%
positive view is mainly fueled by: (i) recent improvement in 8%
1.5x 6%
MCMV economics (link here) including an increase in cash 4%
1.0x
subsidies, higher price cap and lower mortgage rates increas- 2%
0.5x 0%
ing homebuyers’ affordability and helping to recompose com-
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Jul-22
Jul-23
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Jan-23
panies’ gross margins, (ii) expected reduction in mortgage
rates for the mid/high-income segment reflecting the ongoing
Source: J.P. Morgan estimates, Bloomberg Finance L.P.
easing cycle in Brazil that started in mid-2023; (iii) stabiliza-
tion of construction materials inflation in the past 12 months, Launches accelerating again: Launches by companies under
which had plagued profitability of projects launched between our coverage (CYRE, CURY, EZTC, MRVE, DIRR and
2H20 and mid-1H22 in the sector. TEND) should reach a historical high in 2023 at around
R$19.2bn representing an expansion of 2% yoy, reflecting the
The mid/high-income segment will benefit the most from stabilization of interest rates and strong growth in the low-in-
the current easing cycle. We expect the mid/high-income come segment. We expect companies to continue with robust
segment to deliver a superior performance during 2H23 and launch schedules in 2024 as macro fundamentals continue to
2024. This outperformance is supported by the improvement improve as interest rates decline, which should translate into a
in the macroeconomic scenario (consumer confidence and faster sales speed. We expect launches and pre-sales for our
GDP growth) as well as by the increase in affordability due to coverage to increase 4-7% (CAGR 2022-25e).
lower mortgage rates reflecting the expected reduction in Sel-
ic that peaked at 13.75% and should be at 10% by 2024YE. Figure 277: Covered Homebuilders’ Launches and Presales*
Keep in mind that mortgage rates in Brazil peaked in 1H23 at R$bn
~12-13%. We also expect companies’ profitability to improve 25
Launches Presales
given a higher contribution from new launches and lower 20
pressure from projects impacted by high construction infla- 15
tion seen in 2021/22. Moreover, the sector’s legal framework
10
has proved to be strong as cancellations remained low in
5
recent years despite the negative impact of COVID-19 on
homebuyers’ payment capacity. This is a reflection of some- 0
2019 2020 2021 2022 2023e 2024e 2025e
what new cancellation legislation (approved in late 2018),
Source: J.P. Morgan estimates, Company data.*At companies’ stakes.
which increased the penalty on homebuyers cancelling their
acquisitions retaining up to 50% of payment vs around 5% in Inflation not a concern (any longer): Inflation has a sub-
the previous legislation. stantial negative effect on both of the sectors. In the mid/high-
income sector, the short-term impact relates to higher dissolu-
126
JPMORGAN
tions risk (homebuyers’ payments are adjusted by construc- mortgage disbursements decreased 13% yoy to R$179bn un
tion inflation until construction is concluded) and a mismatch SBPE, while the FGTS allocated over R$54bn towards the
between the inflation index (INCC) and company’s actual MCMV program, implying a 15% yoy growth.
inflation basket resulting in margin contraction. Moreover,
the mid-term impact relates to the likelihood of high inflation Figure 279: SBPE Savings Account Inflows
triggering higher interest rates and thus higher mortgage R$bn
rates, which translate into higher PMTs (assuming all else 30
equal) and thus lower affordability for potential buyers. For 20
10
the low-income segment, inflation hits the hardest as under
0
the Credito Associativo mortgage scheme – main source of (10)
funding from the MCMV program – clients’ mortgages are (20)
transferred to CEF right after the unit sale, leaving the com- (30)
Jul-19
Jul-20
Jul-21
Jul-22
Jan-19
Mar-19
May-19
Nov-19
Jan-20
Mar-20
Sep-19
May-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Nov-21
Jan-22
Mar-22
Mar-23
Sep-21
May-22
Sep-22
Nov-22
Jan-23
May-23
pany with a fixed monthly transfer from the bank, while CEF
benefits from the INCC readjustment on the mortgage. Addi-
tionally, companies were impacted by a hard price cap (which
varies per city, reaching up to R$350k/unit) on the price Figure 280: FGTS Financing – Disbursements to MCMV Program
homebuilders can charge for units in order to sell through the R$bn
MCMV program. As such, the low-income segment was the 55 54 54
51 49
hardest hit by the post-pandemic inflationary period with con- 42
46 47
38 40
struction inflation reaching ~17% (mainly fueled by materials 32
30
that weighs ~50% of the index reaching ~30%), which led 24
gross margins in the segment to decrease from ~30-35% to 14
~20% and cost overruns in select names. More recently, con-
struction inflation has remained at a mid-single-digit level 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
since April-23 and stands at ~4% as of June-23, with materi-
Source: FGTS.
als component at only ~1% in light of the reduction in com-
modities prices in the past 6-8 months. Details on MCMV program: The Minha Casa Minha Vida
(MCMV) program was announced by the government in
Figure 278: INCC – Aggregate and Materials Component March 2009, with a target to build 1 million houses in a peri-
YoY (%) od of two years to reduce a housing deficit. Through the
40% MCMV program, more than 6.0mn units have already been
Aggregate Materials
30% contracted since 2009, with over 15mn people living in hous-
20% ing financed via the program representing investments of
10%
R$550bn. The program was recently upgraded by the current
administration, with the main changes being: i) higher price
0%
cap for most income segments, with Faixa 3 now up to
Jul-20
Jul-21
Jul-22
Mar-20
Mar-22
Jan-20
Jan-21
Mar-21
Jan-22
May-20
Sep-20
Nov-20
May-21
Sep-21
Nov-21
May-22
Sep-22
Jan-23
Mar-23
Nov-22
May-23
R$350k vs R$264k prior (+33%); ii) increase in maximum

Source: FGV.
subsidies per unit to R$55k vs R$47k previously for Faixa 1
and 2; and iii) lower rates for families earning up to R$2k
Funding dynamics. Brazilian mortgages have 2 main sources monthly at 4.0% and 4.25% per year depending on the region.
of funding: i) SBPE, mortgages for the mid/high-income seg-
ment, which is funded by saving accounts – 65% of savings Accounting methodologies specificities: Homebuilders in
account balances must be allocated on mortgages; and ii) Brazil have some accounting particularities, which help to
FGTS, low-income funding used to finance the MCMV (Min- explain the mismatch between operational data, income state-
ha Casa, Minha Vida) program, being represented by an 8% ment, and FCF. Companies book revenues and costs accord-
mandatory annual contribution from regular employees’ coming to the percentage-of-completion method (PoC), in which
pensation. While the funding costs on mortgages under SBPE revenues and costs are booked in accordance with the physi-
is at 6%+TR per year, under FGTS the cost of funding is at cal evolution of construction. For example, if a project is 50%
3% per year. During 1H23, savings accounts (SBPE) posted built and 50% sold, the company recognizes 25% of the
R$55bn in net outflows reaching a balance of R$740bn, results. Considering the current environment, in which com-
mainly reflecting the challenging macro environment in the panies accumulated high levels of inventory, the sale of con-
beginning of the year and higher interest rates as well as a cluded units tends to boost revenues and FCF, since 100% of
migration of funds to fixed income investments. In 2022 its results are recognized on the income statement.
127
JPMORGAN
Brazil 101
Malls amounted to R$192bn in 2022 (~R$910/m2 per month). Rela-

tive to 2019, shopping mall tenants’ sales are still down 1%
yoy, compared with GLA being +4%. For 2023, ABRASCE
expects the opening of 13 assets representing 208k m2 of
(55-11) 4950-6712 GLA.
marcelo.g.motta@jpmorgan.com
Banco J.P. Morgan S.A. Figure 281: Shopping Mall Evolution per ABRASCE Data
Number of Malls and GLA (m2)
Our view. We continue to like the Shopping Mall segment, as 800 # of malls 17.0 17.2 17.5 20
16.3 16.8
companies should continue to benefit from lower interest 700 GLA (mn m2) 14.7 15.2 15.6
12.9 13.8
600 11.4 15
rates in Brazil, with Selic expected to reach ~10% by the end 500 10.3
of 2024, leading to higher multiples in the sector. Under the 400 10
300
lower interest rate scenario, we believe the Malls segment’s 200 5
multiple could re-rate to ~20x P/FFO 12M fwd vs the current 100
0 0
~13x level. Additionally, an improvement in macro economic 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
fundamentals should translate into higher retail sales, leading
Source: ABRASCE.
to better-than-expected tenants’ sales, top-line and bottom-
line growth, representing an additional earnings growth vec- Potential recovery in consumption could lead to upward
tor and upside to stocks. Our favorite name is ALSO3 (OW), revisions: Data from Cielo showed a decrease of 1.8% yoy in
as we believe it should benefit the most from an expected retail sales in real terms during 2Q23. Additionally, IBGE fig-
recovery in retail sales in addition to having a discounted val- ures for May showed retail volumes sales at +3.0% yoy, with
uation. From a top-down perspective, the shopping malls sec- Supermarkets. Keep in mind that we expect these figures to
tor in Brazil has a total market cap of ~R$8.0bn, with a trad- accelerate during 2H23 and 2024 positively impacted by the
ing volume of R$65mn per day on average and a weight of lower interest rate environment recovery. We believe inves-
around ~1.2% on IBOV. tors could start to raise their estimates upwards in the coming
quarters in case sales start to reflect this improvement in fun-
Table 71: Brazilian Shopping Malls Under Coverage damentals.
Company Ticker Rating Mkt Cap (US$mn)
Aliansce Sonae ALSO3 OW 2,945 Figure 282: IBGE Retail Sales Index
Iguatemi IGTI11 OW 1,358 YoY (%)
Multiplan MULT3 OW 3,309 60%
40% Volumes Nominal Sales
20%
A defensive sector with stable results and FCF: The shop- 0%
ping mall industry offers exposure to growing retail consump- -20%
tion in Brazil and to potential appreciation in property values -40%
Jul-18
Jul-19
Oct-19
Jul-20
Oct-20
Jul-21
Jul-22
Oct-22
Jan-18
Apr-18
Oct-18
Jan-19
Apr-19
Apr-20
Apr-21
Oct-21
Jan-20
Jan-21
Jan-22
Apr-22
Jan-23
Apr-23
on the back of a secular trend of compression in cap rates and
lower interest rates, a result of Brazil’s macroeconomic stabi-
lization. The sector also offers protection against inflation Source: IBGE.
through its rent structure as retailers are subject to monthly
Good recovery in operational metrics: In 2Q23 SSR
payments, represented by a maximum of a percentage of sales
remained solid for covered companies, at around ~10% yoy
(around 5-7% of total sales) or a minimal rent annually
surpassing inflation in the period at around 4% based on the
adjusted by inflation (IGP-M or IPCA). As a consequence,
IPCA. More importantly, the sector’s occupancy rate did not
the companies benefit from stable and predictable cash flows,
suffer materially from the pandemic as it has remained above
offering investors a hedge against inflation as contracts have
the ~92% level on average since 1Q20. The median occupan-
tenors of 5-10 years. On the other hand, during positive eco-
cy rate in the sector stands at ~95% as of 2Q23 vs 2Q19 level
nomic cycles the sector allows investors to capture an
of ~96%.
increase in consumption right away.
Main metrics: According to ABRASCE (Brazilian Shopping

Mall Association), as of 2022 Brazil had 628 malls represent-
ing total gross leasable area (GLA) of 17.5mn m2 divided into
116k stores and 3.1k movie theaters. Total tenants’ sales
128
JPMORGAN
Figure 283: Sector Occupancy

Percentage %
100%
95%
90%
Max Mean Min

85%
1Q18
2Q18
3Q18
4Q18
1Q19
2Q19
3Q19
4Q19
1Q20
2Q20
3Q20
4Q20
1Q21
2Q21
3Q21
4Q21
1Q22
2Q22
3Q22
4Q22
1Q23
Source: J.P. Morgan estimates, Company data.
Low leverage leaves room for new projects and M&A:

Shopping mall companies under our coverage have a consoli-
dated leverage of around 2.0x net debt to EBITDA as of 2Q23
vs a peak of 3.5x in 2013-14. In our view this comfortable
leverage level and low construction inflation leave room for
companies to accelerate investments (greenfields, expansions
and M&A) in the coming quarters or increase payout, which
is on average at 40% based on 2022 dividend distribution.
Easing and subsequent earnings growth to be the driver:

The sector is trading at ~13x 12M forward P/FFO, implying a
spread of ~240bps to real long-term rates, which compares
with an average spread of ~130bps leaving room for addition-
al re-rate.
Figure 284: P/FFO (12 Months Fwd) vs Real Interest Rates

Spread
E-commerce competition: Even though e-commerce pene-

tration should continue to increase in Brazil given its small
base of around 12%, we don’t believe it will have a signifi-
cant impact on listed shopping mall companies given the pre-
mium location of their assets. Keep in mind that in Brazil
parking revenues represent around 15-20% of companies’
revenues, illustrating the assets’ premium locations. More-
over, shopping malls in Brazil are already a destination center
for consumers given the elevated participation of services
(casual dining and restaurants) and entertainment (movie the-
aters and gyms) in their mix. Additionally, despite the nega-
tive impact from COVID-19 on consumer habits – forced
e-commerce purchases – Malls foot traffic and tenants’ sales
recovered reflecting the sector’s strength in Brazil.
129
JPMORGAN
Brazil 101
Capital Goods with auto production up 2% yoy impacted by weak exports to

Argentina. Then the pandemic arrived and 2020 vehicle pro-
duction contracted ~30% yoy, with the 2022 level still ~20%
below 2019 levels and resulting in a high idle capacity, which
(55-11) 4950-6712 today is at around 50%. Production was hampered by a chips
marcelo.g.motta@jpmorgan.com shortage on the supply side in the early pandemic years and a
Banco J.P. Morgan S.A. sluggish demand towards its conclusion starting in 2022. For
2023, ANFAVEA expects vehicle production to reach 2.4mn
The Capital Goods space encompasses a variety of names, vehicles, implying 2% yoy growth but still 18% below 2019
most of them tied to the automotive industry (light vehicles, levels. Zooming into heavy vehicles (HVs), it has experi-
buses and trucks), aircraft manufacturers (Embraer) and gen- enced solid growth in recent years on the back of record crop
eral investment in gross fixed capital, infrastructure and Elec- seasons (mainly grains) with 2022 production +9% yoy and
trification (WEG). Capital Goods exposed to the Brazilian +37% vs 2019 level. However, the outlook for trucks (bulk of
economy have faced a challenging scenario in recent years HVs production at ~80%) is challenging as the shift in emis-
due to the the high-inflation environment and subsequent high sions standard towards Euro 6 from Euro 5 starting 2023 has
interest rate landscape. However, the ongoing easing cycle led ANFAVEA to guide HVs production for the year to -20%
and several efficiency initiatives implemented during the pan- yoy but still +9% vs 2019 levels.
demic are expected to bear fruit in the coming years as
demand recovers. As to exporters, their profitability has been What about electrification? We don’t see full EVs as a
impacted not only by supply chain disruptions (mainly semi- short-term threat for the light vehicle sector, since Brazil still
conductors) but also by a sluggish recovery in the auto sector lacks a feasible infrastructure for it, namely a lack of recharg-
globally and by the Argentinian macroeconomic crisis as the ing networks. Additionally EVs’ higher prices vs. traditional
country used to be the main trade partner for Brazilian vehicle internal combustion engine vehicles also prevent a higher
exports (up to ~70% of LVs in the past vs ~30% currently). In penetration in the country as EVs usually are ~90% more
regard to aviation, traffic measured by RPK terms have most- expensive than entry-level ICE vehicles prices (link here).
ly rebounded to pre-pandemic levels, despite still high jet fuel Instead, we believe Brazil is likely to favor hybrid vehicles
prices and global recession concerns. Lastly, the electrical- given: i) 83% of Brazil’s LV fleet is already flex fuel, running
equipment segment continues to reap the benefits from a on both gasoline and ethanol; ii) ICE vehicles running on eth-
strong capex environment globally, with nearshoring and con- anol in Brazil have ~29% lower life cycle emissions than
tinued decarbonization efforts being the main topics for BEVs, being a better option for the environment; iii) Brazil
investors to track going forward. would only need an additional 8.6mn hectares of biomass
plantation area (sugar cane or corn) for the full fleet to use
Figure 285: Brazil Manufacturing PMI ethanol, an area that is only 4.4% of the current grazing area
Points in the country; and iv) alternative fuels produced with bio-
65 mass could be used to decarburize other transportation indus-
60 tries such as aviation (SAF).
55
50 Figure 286: Vehicles Production Evolution

45 Mn units
40
4.0 40%
Mn units YoY (%)
35
Apr-22
Apr-23
Jul-21
Oct-21
Jul-22
Oct-22
Jul-23
Nov-21
Dec-21
Mar-22
Nov-22
Dec-22
Mar-23
Jan-22
Jun-22
Jan-23
Jun-23
Aug-21
Sep-21
Feb-22
May-22
Aug-22
Sep-22
Feb-23
May-23
3.0 20%
2.0 0%
1.0 -20%
Automotive Industry
0.0 -40%
The Brazilian auto industry experienced a tough decade as it
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
e
faced a myriad of challenges. It was hard hit during the crisis

that started in 2014 by a combination of (i) continued eco- Source: ANFAVEA
nomic/BRL weakness; (ii) a relatively young light/heavy Credit conditions likely at an inflection point: Given the
vehicle fleet; and (iii) low visibility into recovery, which pandemic and subsequent rise in interest rates, average auto
caused a contraction of 40% in auto production from 2013 to loan interest rates have increased to ~29% per year vs the
2016. After strong growth in 2017 of 24% yoy and a 6% late-2019 level of 20%, impacting consumer affordability,
expansion in 2018, the sector faced some stabilization in 2019 which had already been affected by higher auto prices (entry-
130
JPMORGAN
level cars are currently around+40% vs 2019 levels). Howev- Figure 289: IHS Production Expectations
er, given Brazil´s ongoing easing cycle, we expect a gradual Mn units / YoY (%)
improvement in credit conditions, with the latest monthly 100
Global Light Vehicle Production y/y growth (%)
15%
vehicles financing data (May-23) showing new operations 5%

increasing ~4% yoy with the auto loan portfolio growing 8% 80
-5%
yoy reaching R$267bn. Additionally, interest rates for these
60
lines are down ~50bps MoM as of May-23 to ~28% and com- -15%
pared with a Jan-23 peak of ~30%.
40 -25%
2019 2020 2021 2022 2023e 2024e 2025e
Figure 287: New Auto Loans Operations
Source: IHS, J.P. Morgan estimates.
R$bn
16 Figure 290: Global Manufacturing PMI
14
12 Points
10
8 65
Global US Eurozone China
6
4 60
2
0 55
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Nov-16
May-17
Nov-17
May-18
Nov-18
May-19
Nov-19
May-20
Nov-20
May-21
Nov-21
May-22
Nov-22
May-23
50
45
Source: Brazil Central Bank. 40

Jul-21
Jul-22
Jul-23
Oct-21
Feb-22
Apr-22
Oct-22
Feb-23
Apr-23
Aug-21
Sep-21
Mar-22
Aug-22
Sep-22
Mar-23
Nov-21
Dec-21
Jan-22
Jun-22
Nov-22
Dec-22
Jan-23
Jun-23
May-22
May-23
Figure 288: Auto Loans Financing Rate
Per year (%) Source: J.P. Morgan estimates, Bloomberg Finance L.P.
30
25
28
20
15
10
May-11
Nov-11
May-12
Nov-12
May-13
Nov-13
May-14
Nov-14
May-15
Nov-15
May-16
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
May-23
May-17
May-18
May-19
May-20
May-21
May-22
Source: ANFAVEA.
Exporters impacted by BRL appreciation
The Brazilian auto parts and machinery companies benefited

from BRL depreciation in the past few years, reporting an
aggregated top-line CAGR (2019-22) of around 20%, and
also benefitting from an acceleration in growth in the heavy
vehicles segment domestically and in the US. However,
recession fears in the US, lower selling prices, a slow recov-
ery in global LV volumes post-pandemic and mixed global
PMIs prints could start to impact volumes and Capex, indicat-
ing that top-line growth could decelerate for these companies.
Additionally, BRL depreciation should play less of a role
going forward, with the JPM Economics team estimating
~7% appreciation vs. USD in 2023 and a depreciation of 8%
vs. USD in 2024, compared with an average yearly deprecia-
tion of 10% between 2020 and 2022.
131
JPMORGAN
Brazil 101
Retail Consumers remain highly leveraged

Indebtedness levels of consumers remain close to historical
Joseph Giordano AC and team highs, hurt by high rates but also higher exposure to credit
card debt and personal loans, which tend to be higher cost.
(55-11) 4950-3020
While rate cuts should give some relief, we do not see it as an
joseph.giordano@jpmorgan.com immediate game-changer in a context where (1) rates should
Banco J.P. Morgan S.A. converge back to ~9-10% (above levels seen in the pandem-
ic), and (2) lower-income consumers who earn up to two min-
Economic activity expected to decelerate in 2024 imum wages (~US$500 per month) have roughly ~2x the debt
Despite resilient GDP growth of ~3% in ’23E and improving burden of higher-income individuals. Moreover, most of
inflation prints amid resilient employment, retail activity has those consumption-related loans carry fixed rates.
been tepid this year across most categories, reflecting the high
consumer leverage and limited consumption credit availabili- Figure 293: Indebtedness Remains at All-Time High
ty while comps from ’22 were high given the post-pandemic Indebtedness as % of accumulated households rent over the last 12-
repressed demand. Expected rate cuts should help disposable motnhs; Debt service as % of income
51% 29%
income into next year, but consumer de-leveraging process
49%
should remain slow added to likely lower GDP growth into 27%
47%
’24 (~1%). All in, visibility is low, but most factors point to a 45% 25%
slow market recovery. 43%
41% 23%
39%
Figure 291: Retail Sales Growth 21%
37%
Economic Activity Index and Retail Sales Y/Y % Growth 35% 19%
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Jul-22
Jul-23
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Jan-23
24.0%
19.0%
Indebtedness (LHS) Debt Burden (RHS)
14.0%
Source: Brazil Central Bank, J.P. Morgan estimates.
9.0%
4.0% Food retail: Industry growth is shifting away from the more
-1.0% traditional supermarket and hypermarket formats, with the
-6.0% larger purchases migrating to retail formats that offer a supe-
-11.0% rior value proposition and prices, particularly Cash&Carry.
Aug-22 Oct-22 Dec-22 Feb-23 Apr-23 Jun-23 Aug-23 Thus, we see food retail undergoing a format polarization
Economic Activity Index Total Retail
process. In response to this trend, players such as Grupo Car-
Apparel & Footwear Supermarkets refour Brasil (N-rated) and Assai (N-rated) have accelerated
Furniture & Appliances Pharma and CF&T expansion (organic and inorganic) over recent years, yet the
market is not suffering from high competition.
Source: Brazil Central Bank, J.P. Morgan estimates.
Figure 292: Stable Unemployment Rate Figure 294: Food Retail Formats Are Facing Polarized Trends
Real wage mass Y/Y % Chg. Growth; Unemployment Rate Market Share - Food Retail
20%
20% 9.0% 8.8% 8.5% 8.9% 8.2% 8.6% 8.1% 8.1% 8.0%
15% 19.6% 18.1%
15% 26.3% 26.7% 25.2% 23.0% 22.8% 20.6% 19.7%
10%
5% 10% 25.5%
25.9% 26.7% 25.5% 26.3%
0% 27.0% 25.5% 26.2% 26.2%
-5% 5%
-10%
-15% 0% 45.4% 46.1% 48.0%
37.7% 39.0% 40.1% 41.9% 43.1% 44.1%
Feb-14
Aug-14
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Feb-19
Aug-19
Feb-20
Aug-20
Feb-21
Aug-21
Feb-22
Aug-22
Feb-23
Aug-23
Nominal (LHS) Real (LHS) Unemployment Rate (RHS) Jan-20 Jun-20 Dec-20 Jun-21 Dec-21 Mar-22 Jun-22 Dec-22 Jun-23
Cash & Carry Super Hyper Proximity
Source: IBGE PNAD, J.P. Morgan.
Source: Nielsen, J.P. Morgan.
132
JPMORGAN
Healthcare Corporate plans represent about ~70% of the sector. Thus, job
creation is a major market driver. On the positive side, net job
creation is back in positive territory and unemployment rates
Joseph Giordano AC and team
are declining. Such movements are structurally positive for
(55-11) 4950-3020 the private healthcare sector growth. Still, we expect the
joseph.giordano@jpmorgan.com reflection of such movement into healthcare member base
Banco J.P. Morgan S.A. growth to be gradual.
Overburdened Public System: Private to Figure 299: Net Job Creation Figure 300: Correlation
vs. Unemployment rate Between Net Jobs Creation
Gain Ground and Corporate Net Adds
Brazil has a public universal healthcare system, but Net job additions vs. Corporate
investments are insufficient healthcare beneficiaries’ growth
4,000 16% 3.0
3,000 14% 2.5
Brazil has a universal healthcare system, and public health- 2,000
1,000
12%
10%
8%
2.0
1.5
0 6% 1.0
care services are a right granted by the constitution. However, -1,000
-2,000
4%
2%
0%
0.5
0.0
R² = 0.6138
-0.5
Jul-19
Jul-20
Jul-21
Jul-22
Jan-19
Mar-19
Nov-19
May-19
Sep-19
Jan-20
Mar-20
Nov-20
May-20
Sep-20
Jan-21
Mar-21
Nov-21
May-21
Sep-21
Jan-22
Mar-22
Nov-22
May-22
Sep-22
the public healthcare system is overburdened, as budget con- Net Job Addition LTM ('000) Unemployment Rate
-1.0
-1.5
-2.0
straints limit investments. As a result, people often have to -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 4.0
wait months for exam results and to get simple and critical Source: MTE/CAGED and J.P. Morgan. Source: MTE/CAGED and J.P. Morgan.
surgeries and procedures. Moreover, ~55% of health expendi-
ture in Brazil is private, while just about 24% of the popula- Aging Population Is a Double-Edged Sword
tion is part of the private healthcare system. for the Health Sector
On the upside, aging population drives higher demand for
Figure 295: Total Healthcare Figure 296: Private Healthcare health services...
Expenditure as % of GDP Expenditure as % of Total
(2020) (2020) Based on population forecasts, the percentage of inhabitants
India 3.0% Japan 15.8%
aged 65+ is expected to double and reach 18% of the total
China 5.6%
Mexico
Russia
6.2%
7.6%
Germany
U.K
France
16.3%
21.6%
23.3%
from 2020 to 2040. Older populations lead to higher demand
South Africa 8.6% Italy 23.9%
Colombia
Italy
9.0%
9.6%
Canada
Spain
25.0%
26.7%
for healthcare services and drug prescriptions. In our view,
Chile 9.8% Colombia 27.3%
World
Argentina
9.8%
10.0%
Russia
Argentina
29.5%
33.7%
this is a major opportunity for the sector as a whole.
Brazil 10.3% South Africa 37.9%
Spain 10.7% World 40.0%
Japan 10.9% USA 43.2%
UK 12.0% Chile 43.6%
France
Germany
Canada
12.2%
12.8%
12.9%
China
Mexico
Brazil
45.3%
47.1% On the downside, higher costs with limited room for
55.2%
USA 18.8% India 63.4%
health plan pricing
Source: World Bank and J.P. Morgan. Source: World Bank and J.P. Morgan. As the elderly typically require more health assistance, more
Penetration of private healthcare is still low often with chronic conditions, health insurers and MCOs will
need to cope with increasing costs. Yet, there is a pricing lim-
Currently, 23% of the population is covered by private health-
itation after age 59. The Brazilian private healthcare regula-
care plans. Also, just ~14% enjoy dental coverage through
tion sets forth 59+ year olds as the oldest age band, which
plans, but the lower figure is expected given the high afford-
means there are no price increases based on age after age 59.
ability of dental services out-of-pocket. Still, those penetra-
tion figures compares with ~90% in the U.S. for health cover-
Figure 301: Brazil Age Profile Figure 302: … to a Diamond
age and ~60% for dental. – Moving from a Pyramid Shape
Shape… Mn of inhabitants (2042E)
Figure 297: Total Number of Figure 298: Private Healthcare Mn of inhabitants (2002)
Beneficiaries in the Private Plans Breakdown
80 + 1.1 0.7 80 + 4.1 4.4
Health Market 70 to 79 2.5 2.1 70 to 79 7.5 8.2
50.5 50.4 50.7 60 to 69 4.3 3.9 60 to 69 11.5 12.9

49.5 49.3 48.9
47.7 47.1 47.1 47.1 47.5
50 to 59 6.5 6.5 50 to 59 14.4 15.8
Affinity
12.2% 40 to 49 10.0 10.3 40 to 49 17.1 16.4
Corporate/
25% 25% SME Others 30 to 39 13.0 13.2 30 to 39 16.7 15.7
24% 23% 23% 24%
23% 23% 22% 22% 23% 70.2% 0.0%
20 to 29 15.3 16.2 20 to 29 15.9 14.0
10 to 19 17.5 17.9 10 to 19 13.9 12.7

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Individual
17.6% 0 to 9 17.0 17.6
Beneficiaries (mn) Penetration 0 to 9 12.4 11.6
Women Men Women Men
Source: ANS Source: ANS Source: IBGE Source: IBGE
Sector’s member base growth is highly dependent on job

creation
133
JPMORGAN
Brazil 101
Figure 303: Brazilian Population Age Profile – Getting Older As a result of the still peaking MLR, industry LTM combined
6% 6% 7% 8% 9% 11% 13% 16% 18%
ratio stands at 103%, above the 5-year pre-Covid average of
10% 11% 13% 14% 16% 98% and indicates that most private healthcare plan operators
17% 18% 19% 20%
33% 34% 36% 36% 37%
are running at operating losses.
37% 36%
13% 35% 34%
13% 12% 12% 11% 11% 10% 9% 8%
Figure 305: Industry LTM Combined Ratio Stands Above 5-Year Pre-
38% 35% 33% 30% 27% 25% 23% 21% 20%
Covid Average of 98%
5y Pre-Covid Avg.
2000 2005 2010 2015 2020 2025 2030 2035 2040 102% 103% 103%
97% 99% 101%
97% 98%
0 to 18 19 to 25 26 to 49 50 to 64 65 + 95% 95% 95% 95% 95% 94%
90%
88% 89% 89%
Source: IBGE
Health of Healthcare Plans Is an Ongoing

Concern
Medical loss ratio deteriorated amid pandemic after- 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23
shocks... Source: ANS and J.P. Morgan
Industry LTM MLR stands at its highest levels at 90.7% as of
3Q22, ~6p.p. above the 5-year pre-Covid average of 84.3%. … which has taken several health operators out of the
This is a reflection of the 1) limited pricing during the pan- business
demic amid low cost inflation, 2) the surfacing of inflationary As operators run close to the breakeven level and, in the
pressures on materials and services, and 3) frequency normal- majority of the cases, rely on interest income, meaning asser-
ization amid some still repressed demand pressure. tive short-term investments, many operators have filed for
bankruptcy and exited the market, either by the regulator rul-
… and MLR control should be a recurring theme to ing on a compulsory sale or by being acquired by a better
explore… capitalized player. In the past 15 years, more than 500 health-
In our view, medical inflation is a key issue tapping the sec- care plan operators left the market out of ~1.2k in 2005. And,
tor, which may become unsustainable in the longer run, par- most of those players left the market given relaxed underwrit-
ticularly for the elderly population, if annual price increases ing policies, limited cost control, pricing limitation amid high
continue to hover in the low- to mid-teens range. Thus, we penetration of individual plans, and increasing capital require-
believe ways to improve MLR should be a recurring theme to ments.
reduce churn in price increases and put private health cover-
age within reach of a broader spectrum of the population. Brazilian Pharma Industry: Resilient Market
and One of the Most Attractive in the World
Figure 304: Industry LTM MLR Stands ~5p.p Above 5y Pre-Covid
Average Accelerated growth pace should persist in Brazil over the
Claims as a % of premiums
next years
The forecast CAGR for the Brazilian pharma market in the
5y Pre-Covid Avg. 84%
87% 87% 88%
89% 89% 2023-27 period stands between 9% and 12% according to
83% 83% 85% 86%
81% 81% 82%
78%
82% IQVIA. This is slightly below the 13% CAGR the market
76% 76% 77%
printed over the past decade. Still, it remains a solid print. In
our view, the forecast growth is supported by 1) the accelerat-
ed population aging; 2) growth in disposable income over the
past years, along with an upgrade in income levels; and 3) a
1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23
higher number of generic versions for blockbuster drugs,
which put several products within reach of a larger portion of
Source: ANS, J.P. Morgan.
the population.
Private health plan operations historically run at breakev-
en levels…
Historically, most private healthcare plan operators are barely
breaking even with their underwriting operations.
… and situation further deteriorated post pandemic
134
JPMORGAN
Figure 306: Brazilian Pharmaceutical Market Should Grow at a 10.5% Table 73: Brazil’s Healthcare Companies under Coverage
2023-27 CAGR
Mkt Cap
R$ bn Company Ticker Rating USD bn
23-27E CAGR
10.5%
248
274
Rede D'Or RDOR3 BZ OW 17.9
224
12-22 CAGR
13% 170
184
203
Raia Drogasil RADL3 BZ OW 10.5
96 103 113
126
145
Hapvida HAPV3 BZ OW 7.4
87
24 26 30 36 43 50 58 66 75
Hypera HYPE3 BZ OW 6.0
12 13 15 17 19 21
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23E '24E '25E '26E '27E
Odontoprev ODPV3 BZ UW 1.5
Viveo VVEO3 BZ OW 1.3
Source: IQVIA, J.P. Morgan Mater Dei MATD3 BZ N 0.9
Qualicorp QUAL3 BZ N 0.3
Brazil should become the 6th largest pharmaceutical mar-
Blau BLAU3 BZ N 0.8
ket in three years Pague Menos PGMN3 BZ N 0.4
The superior growth of the pharmaceutical market in Brazil Qualicorp QUAL3 BZ N 0.3
should sustain accelerated global share gain, helping the Kora KRSA3 BZ UW 0.2
country’s market to climb quickly through the global ranking. Source: J.P Morgan, Bloomberg Finance L.P.
As a result, in a 10-year period, Brazil should climb 4 posi-
tions in the top 10, figuring as the 6th largest pharmaceutical
market by 2026.
Table 72: Largest Global Markets in 2022 – Brazil in the Top 10

Rank 2016 2021 2026
1 U.S.A. U.S.A. U.S.A.
2 China China China
3 Japan Japan Germany
4 Germany Germany Japan
5 France France France
6 Italy U.K. Brazil
7 United Kingdom Italy U.K.
8 Spain Brazil Italy
9 Canada Spain India
10 Brazil Canada Spain
Source: IQVIA, J.P. Morgan
Population aging is a strong prescription driver

The number of prescriptions among the elderly should grow
faster in Brazil than in other countries. According to the U.S.
National Institute of Health (NIH), the number of prescrip-
tions is about 5x times higher within the elderly population
(+80 years old) when compared with the youngest age group
(10-19 years). Thus, the increase in the elderly population in
Brazil should be a strong demand driver going forward.
Figure 307: Drug Expenditure Increases Significantly with Age

R$ per month/capita
271.1 1.0x 280.7
1.5x
183.4
1.3x
136.4
1.4x
1.2x 100
1.3x 82.1
63.5
10-19 20-29 30-39 40-49 50-59 60-69 70+
Source: Hypera Institutional Presentation, IBGE and J.P. Morgan.
135
JPMORGAN
Brazil 101
Food Pork consumption in Brazil lags that of other proteins, which

we attribute to traditional preferences (pork is mostly con-
• Lucas FerreiraAC and team sumed via its derivative products in BZ), but this could
change.
• (55-11) 4950-4217
• lucas.x.ferreira@jpmorgan.com Figure 310: Brazilian Protein Volume Consumption Evolution
Per capita consumption (kg/year)
• Banco J.P. Morgan S.A.
55
Global protein powerhouse. Brazil is the world’s #2 poultry 45
producer by volume and #1 exporter with more than a 30%
35
share in global trade. The country ranks as the second-largest
25
beef producer and the #1 exporter surpassing India and U.S.
over the past years with ~25% share. Last but not least, Brazil 15
is the world’s #4 pork producer and exporter. 5
Figure 308: Brazilian Volumes in Poultry, Beef, and Pork Beef Poultry Pork
‘000 MT
Source: USDA, IBGE, J.P. Morgan.
Production Consumption Exports
Poultry 14,875 10,051 4,825 High per capita consumption levels; focus of further pro-
Beef 10,650 7,663 3,050
Pork 4,465 2,967 1,500 cessing protein. Brazilian per capita consumption in beef and
poultry is relatively high. Brazilians consume on average
Source: USDA 2023E.
36kg beef/year, similar to the average American, for example.
The basic ingredients that led to this leadership position are a In poultry, Brazilians consume ~47kg/year, also close to
combination of i) natural resources (abundant land, water and Americans. Companies are thus increasing further processing
therewith also grain, cattle) with ii) ambitious entrepreneurs into branded value-added products, looking to augment value
and iii) government support, be it via capital deployment or and elevate margins.
policy to foment growth and open trade.
Figure 311: Per Capita Protein Consumption in Brazil: Strong in
Brazil’s largest and fastest-growing food category. Protein Poultry and Beef, but Lagging in Pork
(and its derivatives) sales reached R$286bn in 2022, having Per capita consumption (kg/year)
increased at a CAGR of ~13% since 2010, representing the 122
2nd best performance on a segment breakdown and perform- 97 30
ing above the food industry as a whole. 14
53
47
Figure 309: Brazil Food Industry Size
R$bn 36 39
Brazil Food Sales 2010 2018 2022 10-22' CAGR

Brazil US
Protein derivates 66 145 286 13.0% Beef Poultry Pork
Coffee, Tea and cereals 36 67 182 14.4%
Sugar 38 35 28 -2.5% Source: USDA (2022), J.P. Morgan.
Dairy 33 69 172 14.7%
Oil and fats 29 52 91 10.0% Exports should continue gaining relevance. Beef export
Wheat derivates 20 37 86 12.9%
Fruit and vegetables derivates 16 32 65 12.3% volumes are projected to increase to almost 30% in 2023 (vs.
Other 37 84 166 13.3% 18% in 2013). The evolution in pork is more significant, from
Total Food Industry Sales 275 521 1,075 12.0%
17% in 2013 to 34% in 2023E. Meanwhile, poultry exports
Source: ABIA. are expected to be slightly up to 32% in 2023 (vs 30% in
2013).
Domestic protein consumption growing faster in poultry.
Poultry surpassed beef as Brazil’s most consumed protein in
2007. Its faster growth pace can be attributed to relatively
lower poultry inflation – when compared with beef – which is
likely to continue in the coming years. Beef production costs
are likely to structurally rise above those for poultry on the
underlying costs related to land price appreciation and ranch-
er formalization, especially to supply cattle for export beef.
136
JPMORGAN
Figure 312: Export Volumes as % of Total Production in Brazil Figure 314: Brazil Growing Poultry Exports Significantly
Poultry export volumes (mn tons)
32% 34% 5.0
29% 30%
4.5
18% 17% 4.0
3.5
3.0
Beef Poultry Pork
2.5
2013 2023E 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023E
Brazil United States
Source: USDA.
Source: USDA.
According to USDA forecasts, Brazil is likely to continue
growing export volumes at rates above those for other major Pork could represent an opportunity for Brazil. Brazil still
exports in the next decade. has plenty of room to grow its share on global pork exports,
especially when considering its low-cost production strategy.
Long-term opportunity to grow sustainable beef produc- Export volumes in the coming years should be mainly fueled
tion. Brazil shows ample room to increase sustainable beef by Chinese demand, as inventories of pigs in the region are
production via pasture and animal productivity gains. Both expected to become pressured due to higher slaughtering and
metrics can be grown by greater technological deployment the effect of the African Swine Fever disease.
without harm to the environment, helping Brazil gain compet-
itiveness, credibility and therewith share of global trade. This Figure 315: Brazil Pork Exports Historical Evolution
potential must be jointly addressed by ranchers, meatpackers, Pork export volumes (mn tons)
1.6
and government agents. Higher sanitary and environmental
1.4
standards are key for trade. Despite having competitive costs, 1.2
Brazil currently does not export beef to some relevant global 1.0
0.8
importers (i.e., Mexico) due to its low level of sanitation.
0.6
Worth flagging that some countries, such as Mexico, have 0.4
recently opened their frontiers to receive Brazilian beef 0.2
0.0
exports.
Brazil is also competitive in poultry production and has Source: USDA.

captive markets. Brazil and the U.S. lead global poultry
exports with a combined ~60% share. Both have similar pro-
duction costs, with a small advantage in Brazil coming from
the slaughter part of the process, as grain costs are similar.
Export volumes for both have been moving in a similar man-
ner, with the exception of 2015, when U.S. exports decreased.
Both countries largely export to different countries. While the
U.S. exports mainly to Mexico, Angola and Canada, Brazil
ships mainly to Asia and the Middle East.
Figure 313: Brazil Has Competitive Production Costs

Broiler production and slaughter costs EURc/kg
180
150 31 22
120 22 32 22
22 23
90
60 133 131
110 100 106 97 93
30
0
EU Russia Thailand USA Ukraine Brazil Argentina
Farm level Slaughter
Source: Research paper published by Wageningen University, Netherlands; P.L.M. van Horne;
N. Bondt; Dec'13.
137
JPMORGAN
Brazil 101
Beverages Figure 317: Brazil Beer Consumption

billion liters
11.26
Lucas Ferreira AC and team
(55-11) 4950-3629 10.76
lucas.x.ferreira@jpmorgan.com 10.39 10.37

10.17
2020 2021 2022 2023 2024
Brazil – the world’s #3 beer market. With ~147mn HL/year, Source: Statista, J.P. Morgan.
which is equivalent to over 121 million barrels, Brazil is the
world’s third largest beer market, behind only China and the Market led by Ambev, an Anheuser-Bush-Inbev subsidiary.
U.S. It accounts for roughly 7% of the global volume pie and Ambev represents ~62% of Brazil’s beer volumes with lead-
~40% of beer sold in Central and Latin America and the ing mainstream (Brahma, Skol, Antarctica) and still-develop-
Caribbean. ing global premium brands (Budweiser, Stella Artois). Other
relevant players include Heineken (~18%) and privately held
Figure 316: Brazil Is Amongst the World’s Largest Beer Markets Grupo Petropolis (~12% share). Since Heineken acquired
Global beer market volumes (mn HL, 2021E)
Kirin’s BZ operations, a combination of economic weakness,
400 360
aggression by Heineken, and a craft beer boom increased the
350 competitive rivalry within the segment. Both Heineken and
300 Ambev have noted positive market share developments fol-
250
194 lowing Petropolis’s filing for Chapter 11, with the market
200
147 141
150 beginning to consolidate into a duopoly structure.
88 82
100
46 41 39 38
50 Figure 318: Ambev Has Leading Market Share in BZ Beer (2020)
0
China United Brazil Mexico Germany Russia Japan Spain Vietnam Poland Ambev volume market share in Brazil beer
States
8.40%
Source: VinePair; Kirin; J.P. Morgan.
11.90%
Elevated per capita consumption levels. Per capita con- 18.10%

61.60%
sumption in Brazil rounds out to roughly 60 liters, ahead of
the global average of 26 liters and the Latin America average
Ambev Heineken Petropolis Others
of 55 liters, having increased from the 2000-16 CAGR of
1.6%. Beer consumption in Brazil is forecast to reach 11.3 Source: Company presentations; J.P. Morgan..
billion liters by 2024 according to Statista, up from an esti-
mated 10.8 billion from the year prior. Returnables increasing off-premise affordability and mar-
gins. Off-premises (i.e., supermarket) have likely been gain-
ing share over on-premises (i.e., bars) in Brazil over the last
few years due to relative inflation trends as well as tougher
economic conditions. Drinking in a bar can cost up to 2x as
much as buying the same beverage in a supermarket. This
trend brings a margin and return challenge for beer compa-
nies. In an effort to capture volumes from retailers, and at the
same time be more competitive and retain profitability, beer
companies’ returnable package efforts inside of supermarkets
were resumed a few years ago. Off-premise returnables are a
win-win for beer companies/consumers. Consumers pay
today ~20-30% less per liter, and beer companies increased
profit per liter vs. if the same content were sold via a one-
time use package.
138
JPMORGAN
Education Figure 320: In Terms of Students, Brazil Is the Third Largest Private
Higher-Education Market Globally
Million private higher education enrollments, last year available (2018-2021)
Marcelo Santos AC and team 18
16
(55-11) 4950-3708 14
12
marcelo.p.santos@jpmorgan.com 10
8
6
Banco J.P. Morgan S.A. 4
2
0
Germany Argentina Iran Mexico Japan Indonesia USA Brazil China India
Higher Education and the Stock Market

Higher education companies have been listed in Brazil since
Source: UNESCO and J.P. Morgan estimates.
Mar-07, with the IPO of Anhanguera (later acquired by
Cogna). Currently, there are seven listed higher education Market Size and Growth
companies that operate in the country: Afya, Anima, Cogna We estimate that brazilian private higher education generated
(formerly Kroton), Cruzeiro do Sul, Ser, Vitru (formerly Uni- ~R$49bn of revenues in 2021, out of which 83% came from
asselvi) and Yduqs (formerly Estácio). Combined, these campus education and 17% from distance learning. Within
stocks add up to R$28bn ($6bn) in market capitalization. the campus segment, it is worth noting the weight of medical
Most global comparables in higher education are players courses, generating c. R$14bn/yr in revenues, vs R$27bn of
focused on the US and Chinese markets, with the exception non-medical campus courses.
of Laureate – a former global player with operations in 25
countries, having sold most of its assets and concentrating its Figure 321: Estimated Industry Revenues
business in Mexico and Peru. Revenues, R$bn/yr, 2021
DL, R$ 8.3
Figure 319: Brazilian Companies Are Below Average in Market Cap…
Market Cap in USD billions
4.0
Campus ex-
3.5 Med, R$ 26.9
Medicine, R$
3.0 14.2
2.5
2.0
1.5
1.0
Source: J.P. Morgan estimates. Estimated assuming 3.3m paying
0.5
campus ex Med students and R$770 tuition, 143k paying medical
0.0 students and R$8,3k tuition, and 3.2m paying distance learning stu-
Minsheng
COGN
Yuhua
AFYA
ANIM
YDUQ
VTRU
LOPE
LAUR
STRA
ATGE
APEI
CSED
China Ed.
SEER
China N.H.Ed.
dents and R$215 tuition.
Growth has been decelerating

Growth in the Brazilian higher-education market came to a
Source: Bloomberg Finance L.P. and J.P. Morgan.
halt in recent years, due to the reduction in the FIES program
at the end of 2014, the Brazilian economic crisis in 2016 and
Brazil is one of the largest private higher-education mar- the COVID-19 pandemic in 2020.
kets
Due to the country’s large population of 203mn (2023), and Figure 322: Total Undergraduate Enrollments
relatively small size of public education (~25% of higher edu- Million undergraduate enrollments; % change y/y in total enrollments
cation enrollments), Brazil is the third largest private higher 10
Public Private Growth 7.8 8.0 8.0 8.3 8.5 8.6 8.7 9.0 25%
8 7.0 7.3 20%

education market worldwide in terms of student base, only 6 5.3
5.8 6.0
6.4 6.7
15%
4.6 4.9 6.9
6.4 6.5 6.7
trailing India and China. It is worth noting that Brazil lost its 4
2.7 3.0
3.5
3.9 4.2
4.3 4.4 4.7 5.0 5.1 5.4 5.9 6.1 6.1 6.2
10%
3.6 3.9
3.3
second place to China, and, moreover, for-profit education is 2 1.8 2.1 2.5 2.8 3.0
1.9 1.9 2.0 2.0 2.0 2.0 2.1 2.1 2.0 2.1
5%
1.1 1.2 1.2 1.2 1.3 1.3 1.6 1.5 1.6 1.8
0.9 0.9
fully allowed, unlike other large markets such as India and 0 0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
China.
Source: : INEP and J.P. Morgan estimates.
FIES saw a major contraction post the 2010-14 boom...

FIES recap: FIES is a government-sponsored program that
provides subsidized loans to students taking campus courses
139
JPMORGAN
Brazil 101
(distance learning was never contemplated) in private institu- expansion of federal loans through FIES (2011); and PRO-
tions. While subsidized education loans have existed in Brazil NATEC (2014), a program focused on technical/vocational
since 1976, with the CREDUC program, the number of loans courses. On several occasions, President Lula has expressed
expanded significantly in the 2010-14 period following a the willingness to increase the current FIES size.
revamp of the FIES program. At the end of 2014, changes
started being made to FIES to limit exponentially growing On March 23, the Ministry of Education issued ruling 390/23
costs and bad debt, which caused a sharp reduction in the pro- determining the creation of a workgroup to conduct technical
gram. Currently, the relevance of the program has become studies related to the federal student loan program FIES. We
very limited, and it represented 3% of private campus intakes see this as a first step for potential changes in the program,
in 2021. and as such, as positive news for mass education names.
Figure 323: FIES New Contracts as a % of Private Campus Intake Higher occupation could lead to better margins
New FIES contracts issued over private campus intake We believe the year with the highest occupation for higher
45% education players was 2015, when the base peaked but com-
40% panies were still pondering the impacts of cuts in FIES
35% announced in Dec-14; thus, we take this year as a benchmark
30% of a normalized occupation level.
25%
20%
Based on this analysis (see more details here), we conclude
that lease per student increased 42-69% in real terms, which
15%
implies companies are running with an occupation level of
10%
59-62%. If we assume companies were able to instantly
5%
return to 2015 utilization levels, the dilution of rent alone
0% would be enough to boost campus operations margins by
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
3.8pp-5.4pp, and consolidated margins by 2.9pp-3.8pp.

Source: Rel. Gest 2005-2008, TCU, FNDE, INEP and J.P. Morgan estimates
Figure 325: Campus Occupancy 2022E
… impacting campus tuitions, which have seen relevant Campus business occupancy estimate for 2022E, vs 2015 levels
real contractions 70%
59% 59% 62%
Campus tuitions have been under pressure since restrictions

in the FIES program started in 2015. Moreover, there is
increasing competition from distance learning, with prices
75% below on-campus levels.
Cogna Yduqs Anima Ser
Figure 324: Campus Tuitions Have Seen Relevant Real Contractions Source: J.P. Morgan estimates.
Since the Reductions in FIES
Distance learning gains relevance
Median tuition, R$/month, deflated by IPCA
1,200 15%
Every year, the share of private new students taking distance-
pre-FIES FIES boom FIES contraction learning (DL) courses is increasing, having reached 51% in
1,000 10%
2021 (vs. 44% in 2020). A key reason might be related to
800 5%
pricing, as distance-learning median price is ~66% lower than
600 0%
on-campus.
400 -5%
2021 basis
200 -10%
% chg y/y (real)
0 -15%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Source: Hoper, IBGE and J.P. Morgan estimates.
Potential revamp of FIES could improve campus profit-

ability
PT governments have historically been positive for the Bra-
zilian private higher-education sector, with the creation of key
federal programs, including PROUNI (2004), granting fiscal
exemptions in exchange for scholarships; the substantial
140
JPMORGAN
Figure 326: Distance Learning Already Half of Private Intakes Figure 327: Seats
Private intake (new students), millions Medicine undergrad seats, thousands
3.5 55
Campus Distance Private Public
3.0 50 44
45 42
39
2.5 40 36 12
2.0 35 31 11
12
30 27 11
1.5 23 24
25 10
18 19 10
1.0 20 16 9
9
15 7 30 33
0.5 7 7 25 28
10 17 21
0.0 11 14 15
5 10 10
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: INEP and J.P.Morgan estimates. Until 2018, campus courses were allowed to provide up
to 20% of class hours through DL, but by the end of 2019, new regulations (Portaria 2,117/19) Source: INEP and J.P. Morgan estimates.
were enacted allowing to increase the amount to 40% of a course.
The opening of medical courses offers substantial challenges,
Competitive environment is a key challenge for DL. The as the licenses are very hard to obtain relative to other cours-
number of players operating in DL is much smaller than in es. Since the launch of the Mais Médicos program in 2013
the campus segment, and enrollments are more concentrated, (Law 12,871/13), the opening of medical courses must follow
with 63% of enrollments in the hands of four institutions. a public bidding process, in which the Ministry of Education
selects cities underserviced by medical services. There have
Medical Education been four such bidding processes (2014, 2015, 2017 and
We see medical undergraduate courses as highly distinct from 2018), although the 2015 process was cancelled following
other campus courses, mainly due to substantial demand giv- legal disputes with higher-education institutions.
en low doctor density in Brazil and high wages relative to
other majors, combined with limited supply, as medical We believe it is reasonable to expect that a new Mais Médicos
courses are highly regulated in Brazil (as well as in other should be launched in August 23, given that in April 23 the
countries). The result is a course with very high demand, for Ministry of Education published ruling 650/23, setting rules
which practically every private player has more demand than for the expansion of seats in Brazil, which should happen via
regulatory capacity to accommodate the students, competition Mais Medicos bidding processes, and should be made public
among institutions is more limited, tuitions and collections in the next 120 days.
are high, while dropout rates are very low.
Long-term outlook for the sector
The number of regulatory seats more than doubled in the peri- In general terms, our view on the sector is positive, given the
od to 44k in 2021, with 33k in the private sector. Student economic benefits for students. We believe the average stu-
intake increased accordingly, from 18k to 50k, although still dent benefits substantially from taking a higher-education
heavily concentrated in the Southeast (23k out of 49k). Total course, which is objectively attested to by labor markets, with
enrollments jumped from 107k to 220k, with 158k in the pri- higher-education graduates showing a 6pp lower unemploy-
vate initiative. Graduations were nearly constant at the 17k ment rate and 114% higher salaries versus those with only a
level until 2017, and are now increasing as a result of the seat high school degree, according to our analysis of IBGE data.
expansion that has taken place over the last decade, currently We are constructive on distance learning and medical educa-
at 24k. tion. Moreover, we believe listed players will gain share
against smaller players, due to their superior managerial prac-
tices and technology, growing above market rates.
Key long-term challenges

The main challenge in our view is affordability, given that a
R$770 average tuition is high versus Brazil’s average student
per capita income of R$1.2-1.6k/month. This could be
addressed by a revamp in FIES. Another hurdle is the stag-
nant level of high school graduations – mostly stable for sev-
eral years, despite a still low graduation rate of 60% vs 80%
141
JPMORGAN
Brazil 101
for developed nations and the stated intent of most govern-

ments to improve in this area. On distance learning, a key
challenge is competition: if companies fail to differentiate
themselves, this could bring profitability down over time. On
medical education, a higher number of doctors graduated
could lead to wage compression, and in turn, tuition compres-
sion.
Short-term view: better macro perspectives, plus a poten-

tial FIES upside
Overall, we expect the following months will be positive for
the education sector. Mainly driven by: (1) better macro per-
spective – effects of earlier cuts in SELIC rates, which will
help cash flow generation, and (2) a revamp of FIES that
could point to a turnaround in the campus business, which
remains one of the largest segments (in terms of revenues) for
all players.
Stock preferences: favor resilient stories tilted towards

medical courses
Our top pick is Afya, a premium player focused on medical
courses, which enjoys a more stable student base and higher
pricing power while at the same time trading at very low pre-
miums versus mass names. Moreover, the Mais Medicos
overhang should soon be over, and we believe shares are
under pressure due to an expected announcement in the num-
ber of medical seats, following five years of freeze.
142
JPMORGAN
Telecommunications Figure 328: Brazil Mobile – Market Share Evolution

% of total mobile accesses
Marcelo Santos AC and team 1% 2% 2% 3%

(55-11) 4950-3708
33% 34% 33% 38%
marcelo.p.santos@jpmorgan.com
Banco J.P. Morgan S.A. 24% 22% 21%
27%
16% 16% 17%
Historical perspective: The Brazilian telecommunications
sector was opened to private investment with the enactment 26% 27% 28% 33%
of the General Law of Telecommunications in 1997, which
2019 2020 2021 Post Oi Sale
established a new regulatory structure, allowed competition
and determined the privatization of Telebras, the state-owned Claro Oi Tim Vivo Other
company that was responsible for all telecom services in the
Source: Anatel.
country. In the following years, several players entered the
segment through the acquisition of Telebras’s operations as Fixed: Incumbents under pressure
well as the launch of new operations, mostly in the mobile We divide wireline history post-privatization into four distinct
segment. phases. In general, the segment is facing increasingly higher
competitive pressure as technology allows for ISPs challeng-
The most recent relevant change in the industry was the pur- ing incumbents.
chase of Oi mobile operations by the other three large players
back in April 2022. The sale follows several years of bank- • Fixed-line growth (1998-2004): During this period,
ruptcy status by the company (since 2016) as well as other incumbents reported significant growth in lines in service
asset sales including fixed towers, submarine cables, as well (LIS) and revenues, as there was significant unmet
as a majority stake in its fiber infrastructure company. Hence, demand for the service.
as of 2023, Brazil is effectively a 3-player mobile market,
while the migration and integration of Oi client base towards
• Broadband adoption (2005-10): Incumbent LIS reached
a peak in 2004, and in the following years companies
Vivo , Claro and TIM was concluded in 1H23. started to lose subscribers to alternative players (mostly
cable companies) or just due to fixed-to-mobile substitu-
Below a brief description of the three mobile players operat- tion. Nevertheless, revenue growth remained in positive
ing in Brasil: territory on increasing broadband internet adoption.
• Telefonica Brasil, with is the combination of formers • Intensification of competition (2011-14): As technology
mobile operator Vivo, which leads subscriber share in progressed, altnets, including cable companies such as
Brazil, the incumbent wireline player Telesp in São Paulo Net Serviços, and wireline attackers, such as GVT, started
state, and the second-largest cable TV player, TVA; to (1) offer increasingly higher broadband speeds, above
acquired GVT from Vivendi in 2014 to increase its fixed 8mpbs, which could not be matched by incumbents’ lega-
and broadband service. cy networks; and (2) increase their geographical reach.
These developments are keeping incumbents under
• America Movil, combining Claro’s mobile operation with
intense pressure due to price cuts and higher investments
leading cable player Net Serviços as well as long-distance
incumbent Embratel, now also providing corporate data, needed to match competition.
fixed telephony through wireless technologies and DTH • Vivo buys GVT (2014), boosting its capabilities to com-
paid television. America Movil also acquired NIHD pete against AMX/Net with a 4P offer.
mobile operations.
• Small players gain share (2014-present): Small broad-
• Tim Brazil, controlled by Telecom Italia, mostly a mobile band players have reached 50% market share in 2Q23, vs
operation, although it acquired Intelig, a long-distance 14% in 2017, posting significant competition to incum-
operator that owns a large backbone and provides corpo- bents. Usage of fiber, focus on small and underpenetrated
rate data as well, and AES Atimus, which has an exten- cities are among the reasons why these players have
sive fiber network in SP/RJ and started to provide fixed become so relevant.
broadband. In 2022, Tim spun off its fixed fiber business
into I-systems, in which it owns a 49% stake, to run the
broadband segment as an asset-light operator
143
JPMORGAN
Brazil 101
Figure 329: Brazil Broadband – Market Share Evolution Figure 331: Brazil Mobile Market – HHI Index
% of Broadband accesses
3,235
2,586
2,584
2,585
2,579
2,574
2,563
2,558
2,555
2,550
2,552
2,549
2,535
100.0%
90.0%
80.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Post Oi
70.0%
Sale
60.0%
50.0%
Source: Anatel and company reports.
40.0%
30.0% Telco industry struggles to pass inflation through: In gen-
20.0%
eral, telcos have not produced real organic revenue growth in
10.0%
0.0%
the last ten or five years. On a ten-year window, the weakest
performance came from Tim (-4.2% CAGR), while over five
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Jul-22
Oct-17
Oct-18
Oct-19
Oct-20
Jan-17
Apr-17
Jan-18
Apr-18
Jan-19
Apr-19
Jan-20
Oct-21
Oct-22
Apr-20
Jan-21
Apr-21
Jan-22
Apr-22
Jan-23
Apr-23
Algar Claro Oi Tim Vivo Others
years, it came from Vivo (-4.6%). We believe that the recent
outperformance of Fixed vs Mobile, is partly explained by the
Source: Anatel. strong growth ISPs have been posting, taking share out of the
Mobile: competitive environment improving incumbents.
Brazilian mobile market was always highly competitive, Figure 332: Brazil Telco Revenues Have Failed to Grow with Inflation
fueled by the existence of four established players with rela-
Industry revenue growth in real terms
tively similar share, putting pressure on growth and mar-
110
gins.Therefore, after the acquisition of Oi by the other two Brazil Mobile Brazil Fixed
integrated players, rationality in the market has increased
leading to higher mobile prices from all the remaining mobile 90
players.
70
Most companies have adopted a more-for-more strategy,
whereby prices are increased in exchange for more services 50
provided for the consumer, including higher data allowances,
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
services such as free WhatsApp use, free music subscriptions,
free backups and magazine subscriptions. Source: Company reports, ANATEL, and J.P. Morgan estimates.
We do not expect a substantial impact from 5G ramp-up

Figure 330: Bz Mobile Price Tracker in Brazil: We look into the impacts of 4G transition on Bra-
R$ / month zilian telcos, in an attempt to understand what could poten-
Control (R$ / month) Post (R$ / month) Pre (avg R$ / day)
Jan-21
TIM
50.0
Vivo
50.0
Claro
50.0
TIM
110.0
Vivo
130.0
Claro
120.0
TIM
1.1
Vivo
1.5
Claro
1.5
tially happen as 5G ramps up. The ramp-up of 4G took place
Feb-21
Mar-21
50.0
52.0
50.0
50.0
45.0
45.0
110.0
110.0
130.0
110.0
120.0
120.0
1.1
1.1
1.5
1.5
1.5
1.5
during 2014-18, and there was limited perceptible impact on
Apr-21
May-21
55.0
55.0
50.0
50.0
45.0
45.0
110.0
110.0
120.0
110.0
120.0
120.0
1.1
1.1
1.5
1.5
1.5
1.5
revenue trends, albeit with ARPU increases, mostly caused by
Jun-21
Jul-21
55.0
55.0
60.0
55.0
45.0
50.0
110.0
110.0
110.0
120.0
120.0
120.0
1.0
1.0
1.5
1.5
1.5
1.5
prepaid base clean-ups; there was some evidence of capex
Aug-21
Sep-21
55.0
55.0
51.0
45.0
50.0
50.0
110.0
110.0
120.0
120.0
120.0
120.0
1.0
1.0
1.5
1.5
1.5
1.5
upticks, although this could be more attributed to company-
Nov-21
Dec-21
55.0
55.0
51.0
51.0
50.0
50.0
110.0
110.0
120.0
120.0
120.0
120.0
1.0
1.0
1.5
1.5
1.5
1.5
specific reasons. Our base case remains that there should be
Jan-22
Feb-22
55.0
55.0
51.0
51.0
50.0
50.0
110.0
110.0
120.0
120.0
120.0
120.0
1.0
1.0
1.5
1.5
1.5
1.5
no major change in terms of revenue or capex trends,
Mar-22
Apr-22
55.0
55.0
56.0
56.0
50.0
50.0
110.0
110.0
120.0
120.0
120.0
120.0
1.0
1.0
1.5
1.5
1.5
1.2
Oi migration
although there might be upside if new services using 5G
May-22
Jun-22
55.0
55.0
56.0
55.0
50.0
50.0
110.0
110.0
120.0
120.0
120.0
120.0
1.0
1.0
1.5
1.5
1.2
1.2
develop, such as IoT.
Jul-22 55.0 55.0 50.0 110.0 120.0 120.0 1.0 1.5 1.2 ICMS reduction
Aug-22 52.0 55.0 44.9 100.0 120.0 109.9 1.0 1.5 1.2
Sep-22
Oct-22
52.0
52.0
51.0
51.0
44.9
44.9
100.0
100.0
110.0
110.0
109.9
109.9
1.0
1.0
1.5
1.5
1.2
1.2
Figure 333: Capex Saw Slight Increase After 4G Deployment Started
Nov-22 52.0 51.0 44.9 81.0 110.0 109.9 1.0 1.5 1.2
Dec-22 51.0 51.0 44.9 71.0 110.0 109.9 1.0 1.5 1.2 30%
Jan-23 51.0 51.0 44.9 100.0 110.0 109.9 1.0 1.5 1.2
4G starts
Feb-23 51.0 57.0 49.9 100.0 122.0 109.9 1.0 1.5 1.2 25%
Mar-23 51.0 57.0 49.9 110.0 122.0 109.9 1.0 1.5 1.2
Apr-23 50.0 57.0 49.9 110.0 122.0 109.9 1.0 1.5 1.2
May-23 50.0 57.0 49.9 110.0 122.0 109.9 1.0 1.2 1.2 20%
Jun-23 50.0 57.0 49.9 110.0 122.0 109.9 1.0 1.2 1.2
Jul-23 50.0 57.0 49.9 110.0 122.0 109.9 1.0 1.2 1.2
15%
VIVT TIMP Oi
Source: Companies’ webpages and J.P. Morgan.
10%
2013 2014 2015 2016 2017 2018
Source: Company reports and J.P. Morgan estimates.
144
JPMORGAN
Power & Water political agenda and, most importantly, post the publication of
the “Concessions Law” in 1995. Several state-owned compa-
nies (or parts of them) were privatized at the end of that
Henrique Peretti AC and team
decade. By then, the regulatory model for generation was lib-
(1-212) 622-0610 eral, competitive and driven by market forces. Transmission
henrique.peretti@jpmchase.com and distribution utilities have always been natural monopolies
J.P. Morgan Securities LLC and, hence, highly regulated since their inception. The com-
mercialization segment, which is highly fragmented, is pri-
marily an intermediary between generators and customers.
Generally, electric utilities, gas utilities and water/sanitation Figure 335: Key Industry Players
utilities are organized, overseen and regulated at different Companies Market Share in Electricity Generation, Transmission and Distributed
government levels. In Brazil, electricity is regulated at the
federal level, while gas and water utilities are regulated at
state and local levels. There are distinct regulatory regimes
and entities involved in each of these groups.
Electric Utilities
The Brazilian federal government sets the rules for elec-
tric utilities through the National Council of Energy Policy Source: Companies, J.P. Morgan.
(CNPE), the Ministry of Mines and Energy (MME) and the
Electric Sector Monitoring Committee (CMSE), all of which Post the 2001 rationing, a New Regulatory Model of the
are under the umbrella of the president. Government agents Electric Sector was established. In June 2001, after one of
define the energy policy, regulation, centralized dispatch/ the driest rainy seasons in history, the Brazilian federal gov-
operation and the commercialization of power in the country. ernment decreed electricity rationing in Brazil as the only
Planning, operating and transaction accounting are undertak- alternative to avoid blackouts and electricity shortages in the
en by public companies and non-profit private companies. country. The government imposed a 20% compulsory reduc-
More specifically, the MME acts as the granting authority on tion in electricity consumption so as to allow the recovery of
behalf of the Brazilian federal government and is empowered water storage reservoirs. The rationing affected 80% of the
with policy-making, regulatory and supervising capacities. Brazilian population at that time. Although bad hydrology
was usually cited as the main cause of the energy rationing, it
Figure 334: Power Market Structure was not solely responsible for the energy crisis. An insuffi-
cient transmission network and lack of back-up thermoelec-
tric capacity also contributed to the crisis. The rationing stim-
ulated significant investments in thermal capacity in the
following years as well as the establishment of the New Reg-
ulatory Framework of the Electric Sector in 2004. The new
legislation was an effort to further restructure the power
industry, with the ultimate goal of providing consumers with
reliable electricity supply combined with low tariffs. The laws
were regulated by a number of decrees enacted by the Brazil-
ian government in July and August 2004 and are still subject
to further regulation to be issued in the future.
Concessions in Brazil are finite. According to legislation,

the federal government (conceding power) authorizes compa-
Source: J.P. Morgan. nies (public or private) to operate generation, transmission
The electric sector is divided into four main segments: and distribution assets through concessions. Distribution and
generation, transmission, distribution and commercializa- transmission concessions usually last 30 years, while genera-
tion. The first electric utilities were mostly publicly owned tion concessions have distinct periods (30 years for hydro, 15-
(controlled by the Federation or the states). The breaking up to 30-year authorizations for thermal, and 35-year authoriza-
of the sector started in the 1990s under a new economic and tions for solar and wind). The legislation establishes that
concessions are reverted to the conceding power upon the
145
JPMORGAN
Brazil 101
expiration of the concession and compensated for non-depre- ments between the gencos and large customers (unregulated
ciated investments. Many legacy concession contracts or free market).
allowed a first renewal (periods varied), depending on the
government's discretionary analysis. Going forward, most The Brazilian power generation matrix is one of the clean-
generation, transmission and distribution concessions no lon- est in the world. The country has a total installed generation
ger have the right for an automatic extension and therefore capacity of 194.4 GW (audited figures as of July 2023) –
are subject to a request by the incumbent when possible and numbers refer to centralized generation. Brazil is the fifth
granting by the federal government. largest power producer (GWh) in the world, according to the
BP Statistical Review of World Energy (June 2022). About
The utilities sector is still affected by politics. The Brazilian 56% of capacity relies on hydro power plants, while other
utilities sector has posted strong price and earnings volatility renewables (wind, solar) amount to another 19%. Thermal
in the past 20 years due to controversial energy policies, polit- plants – coal, gas and diesel-fired, biomass plus three nuclear
ical considerations in the renewal of concessions, power cri- reactors – represent 24% of the matrix. We highlight that
ses, price and return controls, among others. Although the hydro and thermal assets are concentrated in the hands of a
great majority of listed electric companies are now privately few large conventional generators, while the more recent
run, the political agenda and the election outlook can materi- renewable segment is highly fragmented and dominated by
ally impact utility stocks. In this sense, transmission compa- private players.
nies are perceived as the most defensive due to fixed revenues
insulated from volume risk. Transmission companies, and Figure 336: Breakdown of Capacity and Generation – 2023
generation companies to a lesser extent, are prominent divi- Capacity in GW, Generation in GWh
dend payers due to the nature of their businesses, and hence
favored by dividend yield portfolios. The main example of
disruption was the issuance of Provisional Measure 579 in
2012 that aimed to allow a second renewal of expiring gener-
ation and transmission concessions. The government pro-
posed a 30-year renewal in exchange for a 70% cut to genera-
tion and transmission revenues. Defined compensation for
non-depreciated investments was also controversial. The pub-
lication of the MP579 led to a 9.5% devaluation in the IBO-
VIEE index (electric index) in 1 month (IBOVESPA +4% in Source: ANEEL (July 2023 Data), ONS, Bloomberg New Energy Finance, J.P. Morgan.
the same period).
BNDES’s diminishing role in sector lending. The Brazilian Brazil is home to two of the three largest HPPs in the
Development Bank (BNDES) had historically played a strate- world. The country is a global benchmark when it comes to
gic role in the infrastructure landscape by providing attractive large hydro power plants. Binational Itaipu HPP (14 GW) and
lending conditions through the combination of subsidized Belo Monte HPP (11.2 GW) are the second and third largest
interest rates (average of TJLP + spread) and longer amortiza- hydro dams in the world. Another iconic project is Tucuruí
tion periods (which started at 12 years and reached 25 years). HPP (8.4 GW).
The bank is still the go-to resource for new generation proj-
ects but since 2015 has been pulling back from transmission State-owned generation companies no longer dominate
projects. The development of the Brazilian capital markets the industry. After the privatization of Eletrobras, the scale
now allow distribution and transmission companies to explore shifted toward the private sector holding the vast majority of
different sources of funding, such as infrastructure deben- capacity. ENBPar was created amidst the privatization to hold
tures. the monopoly of nuclear generation, as per legislation, and
the operation of Itaipu HPP, given its binational nature. There
Power Generation are still some bulky state-owned players such as Cemig and
This segment is responsible for power output. GenCos gen- Copel (6% combined share), Petrobras (which controls the
erate electricity through hydro, thermal, nuclear, wind, solar majority of the thermal generation park, or 3% of total capac-
and biomass plants and inject this form of energy into the ity), and China-based CTG (4%). Among private IPPs, we
transmission network so it can reach the final customer. The highlight Eletrobras and Engie Brasil as the largest.
energy sold is remunerated by the prices set in competitive
energy auctions through long-term contracts (regulated mar- Hydro output losing ground in the power matrix for wind
ket), or the prices and conditions settled in bilateral agree- and solar. Hydro generation used to dominate the electricity
146
JPMORGAN
matrix for decades but has been losing space more recently bution companies through public bids of all electricity neces-
due to the 2014/2021 water crises, the heavy deployment of sary to supply their captive consumers; and (ii) the free mar-
renewable sources (wind and, increasingly, solar), and the ket, which encompasses the purchase of electricity by non-
higher dispatch of thermal plants to withstand climate change regulated entities (such as free consumers and energy traders).
conditions. Moreover, most of the hydro power plants that Nevertheless, electricity generated by plants qualified under
were built recently are run-of-the-river (i.e., lack storage res- Proinfa, nuclear power plants, Itaipu and hydroelectric plants
ervoirs). Last, but not least, the country has embraced a governed by the quota allocation system with their concession
strong stance toward renewable sources with the introduction renewed pursuant to Law No. 12,783/13 are governed by a
of wind power auctions in 2009 and solar power auctions in special regime for commercialization and therefore are not
2014, along with sector incentives for these sources. Brazil, subject to either the regulated market or the free market. The
which boasts one of the greenest energy matrixes in the electricity generated by Itaipu, the most relevant among ener-
world, should remain predominantly clean. gy sources governed by a separate regime, is sold to ENBPar
and to distribution concessionaires in the South and Center-
Figure 337: Past Evolution of Figure 338: Projected Southeastern power markets in proportion to their market
the Generation Capacity Evolution of the Generation share in those markets. The rates at which Itaipu-generated
GW (includes distributed generation Capacity electricity is traded are denominated in US dollars and estab-
- GD) GW lished pursuant to a treaty between Brazil and Paraguay. As a
250 240
210
result, Itaipu’s rates rise or fall in accordance with FX varia-
200
180 tions. Changes in the price of Itaipu-generated electricity
150
150
120
(currently at $16.71/kW/month) are, however, subject to full
100 90 pass-through to distribution tariffs.
60
50
30
0 0
The regulated market. Distribution companies must meet
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Biomass & Waste Hydro Solar Wind Nuclear Oil Gas Coal Biomass & Waste Hydro Solar Wind Nuclear Oil Gas Coal
100% of market demand from electricity sourced primarily
from public auctions in the regulated market. However, a few
Source: ANEEL, Bloomberg New Energy Source: ANEEL, Bloomberg New Energy
Finance, J.P. Morgan. Finance, J.P. Morgan.
exceptions apply, such as the electricity bought from quotas,
from the PROINFA program, from Itaipu, and from nuclear
According to industry data and our estimates, the regulariza- plants. New greenfield generation projects are tendered in the
tion capacity of Brazilian water reservoirs has been falling in so-called “A-4” and “A-6” energy auctions, with plans to con-
recent years. It was over 6 months in 2011, and we forecast it tract new capacity 4 and 6 years before the initial delivery
will reach about 3.35 months by the end of 2027. That means date, respectively. The A-4 and A-6 were introduced in 2017
that even when reservoirs are fully replenished, they would to allow more construction time for generators. Previously,
not be able to sustain power demand by themselves for a these auctions were classified as “A-3” and “A-5” with plans
whole year, and a situation of oversupply in one year could to contract new capacity for start-up in 3 and 5 years, respec-
easily reverse into a shortage if the next rainy period is sub- tively. The government also carries out reserve energy auc-
par. tions dedicated to renewable sources, aimed to provide back-
up capacity to the system. The strategic research on the
Renewables gaining share rapidly. Renewables (hydro, energy industry, including centralized policy-making and
wind, solar and biomass) should represent 83% of the matrix planning, is conducted by the Energy Research Company
in 2031, mostly stable vs. 85% today, according to the Decen- (EPE), a state-owned company. The EPE is in charge of the
nial Energy Plan (PDE) 2022-2031. The share of convention- technical qualification of the projects participating in the bids
al hydro power is set to shrink to 46% from 56% today. The promoted by ANEEL for sale of energy. The public auctions
government projects the addition of 85 GW of new generation are organized by ANEEL in compliance with guidelines
capacity in 10 years, for global investments of R$435 billion. established by the MME, including the requirement to use the
The PDE encompasses other initiatives such as new open and lowest bid as the criterion to determine the winner of the auc-
combined cycle thermals, reversible power plants, turbine tion. Distribution companies will buy from the pool of sellers
upgrades, batteries and demand management. at the average price of the auctions. These regulated PPAs
will be annually adjusted by the IPCA inflation index until
Regulatory Model their maturity (30 years for hydro, 20 years for solar/wind,
Markets for the trading of electricity. Under the Electricity varying years for thermal).
Regulatory Law, electricity purchase and sale transactions
may be carried out in two different market segments: (i) the The free market. This segment covers freely negotiated elec-
regulated market, which contemplates the purchase by distri- tricity sales between generation concessionaires, independent
147
JPMORGAN
Brazil 101
power producers (IPPs), self-producers, energy traders, Table 74: Generation Segment: Main Definitions
importers of energy and free consumers. The free market also
includes bilateral contracts between generators and distribu- • MRE is a financial instrument that aims to mitigate the hydrologi-
cal risk of the HPPs dispatched by the ONS (National Operator
tion companies signed before the enactment of the Electricity System)
Regulatory Law in 2014, until they expire. Upon expiration, • Since the generation of these plants is determined by the opera-
MRE tors, thus making them unable to manage their energy produc-
new contracts must be entered into in accordance with the (Energy tion, the Mechanism shares the generation of the plants located
Electricity Regulatory Law guidelines, which only allows the Relocation in different hydrographic basins
distribution companies to negotiate power within the regulat- Mecha-
nism) • Total generation volume is shared by all plants according to their
ed market. quote calculated based on each plant’s assured energy
• Considering the lack of management of their production and the
hydropower generation risk reduction associated with a larger
number of HPPs (portfolio effect), the Mechanism is mandatory to
all HPPs dispatched by the ONS
• The federal government publishes the physical guarantee of all
hydroelectric generators dispatched by the ONS
Physical
Guarantee • The Physical Guarantee represents the energy contribution of
(previous- each generator to the security of supply and is denominated in
ly known MW average
as • Nowadays, the Physical Guarantee has main uses: (i) to deter-
Assured mine each generator’s quota of the energy generated by the
Energy) MRE in each period and (ii) the limit of energy that a generator is
able to sell in the market (known as their resource), through a
PPA for instance
Contract- • Each generator is allowed to enter into contracts to sell up to
ed Energy 100% of its Physical Guarantee
• In each period, the total energy volume generated by the MRE’s
HPPs is compared to the sum of their physical guarantees
• This ratio is used to verify the Mechanism's ability to generate its
physical guarantee with financial impact to their participants
GSF (Gen- • When the ratio is greater than 1, the MRE allocates the excess
eration energy among their participants considering each plant MRE’s
Scaling quota. This extra energy is known as Secondary Energy and cor-
Factor) responds to an additional resource for the generators in the spot
market
• When the ratio is lower than 1, it is known as Generation Scaling
Factor (GSF). In such cases, the GSF is multiplied by the physi-
cal guarantee of each participant to obtain their resources in the
spot market in order to reflect the Mechanism's generation deficit
• Optimization Tariff (TEO) is the price at which MRE transactions
MRE price are set
/ TEO
price • The TEO is set every year as an estimate of the production cost /
operation of a standard generation plant and big changes are not
expected, except for the annual inflation adjustment
• PLD is the acronym for Price for Liquidation of Differences: it is
PLD (Spot the reference for spot transactions and denominated in R$/MWh
Price)
• It is calculated by the Electricity Commercialization Chamber
(CCEE) on a hourly basis by block of demand
• PPA is a Power Purchase Agreement: Can be bilateral (free mar-
ket) or regulated (with distribution companies, settled through
auctions)
Free market (ACL): prices are established through bilateral nego-
PPA pric- tiations
es
• Regulated market (ACR): prices are established through competi-
tive auction for long-term PPAs
• All regulated contracts and almost all bilateral PPAs are denomi-
nated in R$/MWh
Genera- • Real energy produced by the hydro plant

tion Out- • Hydro producers are subject to centralized dispatch coordinated
put by the ONS, thus have limited flexibility regarding managing vari-
ation in production
Source: Neoenergia, J.P. Morgan.
148
JPMORGAN
Energy Commercialization Chamber (CCEE). In 2004 the Power Transmission

CCEE succeeded the former MAE – the market in which all
Transmission companies connect generation companies
large electricity generation companies, energy traders and
and distribution customers. They transport large amounts of
importers and exporters of electricity had participated in and
electricity produced by generation companies through high-
on which the spot price was determined. One of the principal
voltage lines (i.e., above 230kV). The National Interconnect-
roles of the CCEE is to conduct public auctions in the regulat-
ed System (SIN) is a 179,000-kilometer continental grid that
ed market, registering all the energy purchased through regu-
links the four subsystems in Brazil: South, Southeast/Center-
lated contracts (CCEAR), and accounting and clearing of
West, Northeast and North. The SIN transports about 98% of
short-term transactions. CCEE members include generation,
the entire electricity volume generated and transactioned in
distribution and trading companies, as well as free consumers.
Brazil; the remaining 2% is confined to “isolated systems” in
the Amazon region in the north of Brazil. This grid is one of
the most extensive in the world. Power generation and trans-
mission are operated and managed by the National Dispatch
Hydrology: Power Surplus in the System in 2023
Administrator (ONS), an entity regulated and supervised by
The supply x demand balance looks solid for now. Rainfall ANEEL.
during 2022 was plentiful, and thermal dispatch was elevated
through April, leading to a striking recovery in reservoir lev- State-owned players no longer dominate the industry in
els, especially in the crucial Southeast/ Center-West system. terms of length of the lines. Similar to generation, the trans-
Brazil is about to start a new rainy period, with reservoir lev- mission segment is fragmented. Eletrobras holds approxi-
els in the Southeast/Center-West (70% of national storage mately 50% of the transmission capacity, but younger players
capacity) and Northeast (18% of national capacity) at 68.7% own new lines that enjoy higher revenues.
and 59.8%, respectively, versus 18.2%-37.0% two years ago.
Regulatory Model
Figure 339: Southeast/Center- Figure 340: Northeast
West Reservoir Levels (70% of Reservoir Levels (18% of The transmission system is regulated by regulatory agency
national storage) national storage) ANEEL. Transmission lines and substations have fixed reve-
% of total system capacity % of total system capacity nues (RAP – annual permitted revenue) that are annually
100 100 adjusted by inflation and valid until the expiration of the con-
80 80
cession contract, which usually lasts 30 years. Given their
60 60
40 40
predictable, inflation-adjusted revenues, transmission compa-
20 20 nies are perceived as the safest, most defensive players in the
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec utilities sector. The contracts are volume risk free, meaning
Range 2021 2022 2023 Range 2021 2022 2023
that transmission lines are remunerated by their availability
Source: ONS, CCEE estimates for 2023, Source: ONS, CCEE estimates for 2023,
J.P. Morgan J.P. Morgan
and are independent from the amount of electricity that flows
through them. The transmission revenues are paid by the
Figure 341: South Reservoir Figure 342: North Reservoir users (generators, distributors and free customers) with a sol-
Levels (7% of national Levels (5% of national id guarantee mechanism.
storage) storage)
% of total system capacity % of total system capacity
100 100
80 80
60 60
40 40
20 20
0 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Range 2021 2022 2023 Range 2021 2022 2023
Source: ONS, CCEE estimates for 2023, Source: ONS, CCEE estimates for 2023,
J.P. Morgan J.P. Morgan
Based on simulations using government prediction software

(NEWAVE and DECOMP), CCEE forecasts the Southeast/
Center-West reservoirs will finish 2023 at 73% (21p.p. above
Dec 2022) and the Northeast reservoirs at 55% (10p.p. below
Dec 2022) – these key systems hold together 88% of the res-
ervation capacity of the country.
149
JPMORGAN
Brazil 101
Table 75: Categories of Transmission Lines safety of power supply; (b) promote tariff moderation, i.e. the
lowest possible tariff to the final consumer; and (c) integrate
• Assets awarded before 1999
and universalize access to electricity, especially for low
• Concessions renewed for 30 years in 2012 (Provi-
income users. Since its creation, the government has been
Category 1 sional Measure 579)
enhancing the rules and legislation to improve the model, and
• Tariff review every 5 years
we don’t foresee a shift to a new regulatory framework, at
• RAP adjusted by IPCA inflation index from 2013
onwards least under the current federal administration.
• Assets awarded between 1999 and November 2006 The Southeast and South regions house 2/3 of power con-
• RAP adjusted annually by the IGP-M inflation index sumed in Brazil. According to EPE (Energy Research Com-
pany), the South and Southeast combined account for 67% of
Category 2 • RAP reduced by 50% in the 16th year of operation
(midlife of concession) Brazil’s electricity consumption. The two regions comprise
• No tariff review seven of the 26 states, but more than half of the distribution
• Concession contract run for 30 years companies and concessionaries. The market is indeed frag-
• Assets awarded after November 2006 mented, posing still room for consolidation and streamlining,
in our view.
Category 3 • RAP adjusted annually by the IPCA inflation index
• Tariff reviews on the 5th, 10th and 15th year
Figure 343: Electricity Figure 344: Average
• Concession contract run for 30 years
Consumption Growth per Residential Consumption per
Source: J.P. Morgan. Class Capita
Growth y/y In MWh per 1,000 consumers
Transmission auctions. Because transmission lines are natu- 15.0% 2,100
ral monopolies, the concessions for new projects are awarded 10.0%
5.0%
2,000
1,900
through competitive bidding systems. The federal govern- 0.0%
-5.0%
1,800
1,700
ment conducts auctions – typically twice a year – offering -10.0%
-15.0%
1,600
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
1,500
new projects for potential investors. Regulatory agency
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Residential Industrial Commercial Others
ANEEL defines a ceiling annual revenue (in R$) for any par- Source: Energy Research Company Source: Energy Research Company
ticular project, and the winning bid is the one that sets the (EPE). (EPE).
highest discount to this cap revenue. The companies are The industrial class accounts for the 36% of total power
responsible for securing the environmental licenses prior to consumption. Brazil has a population of approximately 210
initiating the construction works. According to the regulation, million people (IBGE data), and residential clients represent
the line starts to receive revenues (RAP) the moment it is about 29% of electricity consumed in the country. The com-
energized and initiates operations. Therefore, players are mercial and other classes stand for 19% and 17% of total con-
encouraged to anticipate the start-up versus the original sumption, respectively. Among the regions, we highlight the
schedule to boost revenues and returns. Southeast (São Paulo, Rio de Janeiro, Minas Gerais and
Espírito Santo states) accounts for 50% of power consump-
Power Distribution tion in Brazil, due not only by the greater population concen-
Electricity DisCos deliver power to retail clients (the vast tration but also by the industrial activity. The South region
majority of power clients). DisCos enjoy a fixed regulatory comes in second, with 18% of total consumption. The North-
return for their asset base, materialized through the applica- east, Center-West and North regions account for 17%, 8% and
tion of a regulated tariff to energy sales to final customers. 7% of all electricity consumed in Brazil.
Currently, the Brazilian territory is divided into 53 distribu-
tion concessions. The retail market, serviced by the distribu- Brazil still lags developed countries in per capita power
tion companies, accounts for ~65% of energy consumption in consumption. The Brazilian economy displays low per capita
Brazil. The free market clients pay tolls to the distribution power consumption when compared to developed markets,
company to use their infrastructure but are not clients; the suggesting great growth potential ahead. According to the
free market currently represents ~35% of consumption in Energy Information Administration (EIA), Brazilians con-
Brazil. sume 2.8 MWh per capita per year (2019e), more than Mexi-
co (2.1 MWh) but less than China (5.9 MWh) and Chile (4.0
Distribution companies are natural monopolies, totally MWh), for instance. By contrast, per capita consumption per
supervised and controlled by regulatory agency ANEEL at the year reaches approx. 8 MWh in the OECD countries and 12.2
federal level. The prevailing regulatory framework was estab- MWh in the US. Additionally, low per capita residential con-
lished in 2004 (Laws 10,847 and 10,848, and later resolu- sumption in the Northeast region of Brazil demonstrates that
tions). The model has three main objectives: (a) guarantee the there is still a lot of room to grow in that space.
150
JPMORGAN
Figure 345: Map of Brazilian Distribution Companies Parcel A: Non-Controllable Costs

Parcel A represents the non-controllable costs incurred by the
distribution company, namely electricity purchased for re-
sale, transmission fees, regulatory charges (CDE, Proinfa,
ONS, ANEEL supervision fees, among many others) and tax-
es. Parcel A costs are affected by the yearly adjustment of
power purchase agreements (PPAs), transmission fees, Itaipu
costs (denominated in USD terms), to name a few. These
costs are fully passed on to the final consumer, excluding
electricity losses exceeding the regulatory limits. Distribution
companies must fulfill their energy needs entirely through
regulated energy contracts, awarded by the federal govern-
ment in competitive bidding systems carried out on a periodi-
cal basis.
Electricity losses. ANEEL sets a regulatory level of electrici-

ty losses for each concession (technical and commercial) to
calculate the fair volume and cost of electricity purchased.
The regulatory level of electricity losses vary considerably
Source: J.P. Morgan, ANEEL and company reports. Yellow, Green Gray and Pink represent the among the DisCos, explained by the substantial discrepancy
same Economic Group.
of geographical and socioeconomic complexities amongst dif-
Regulatory Model ferent Brazilian states and regions. Companies that record
Distribution companies are natural monopolies, totally super- electricity loss rates above this regulatory limit buy energy to
vised and controlled by regulatory agency ANEEL on a feder- supply their clients but don’t have the right to pass this excess
al level. The prevailing regulatory framework was established purchase through their tariffs, printing suboptimal EBITDA.
in 2004 (Laws 10,847 and 10,848, and later resolutions). The On the other hand, companies that have losses below regula-
new model has three main objectives: (a) guarantee the safety tory numbers, tend to outperform regulatory EBITDA.
of power supply; (b) promote tariff moderation, i.e. the lowest
possible tariff to the final consumer; and (c) integrate and uni- Parcel B: Controllable Costs
versalize access to electricity, especially for low income Parcel B comprises what is known as the controllable or man-
users. Since its creation, the government has been enhancing ageable costs of the distribution company, including the fair
the rules and legislation to improve the model, and we don’t remuneration on assets and a regulatory depreciation quota.
foresee a shift to a new regulatory framework, at least under The Brazilian model is based on return on assets, meaning
the current federal administration. The tariff regulation in that distribution companies are allowed a regulated return
Brazil currently follows a price cap system. specified for each cycle. The Regulatory Asset Base (RAB) is
the value of all prudent investments tied to the electricity dis-
Periodical Tariff Reset (RTP) tribution business. The RAB is shielded and recalculated at
Every four years, on average, distribution companies undergo the beginning of each cycle to update it monetarily by infla-
a complete rate review to assure they have a sufficient reve- tion, incorporate investments made in the previous cycle and
nue base (through tariffs) to cover efficient operating costs deduct the regulatory depreciation of the assets, and write-off
and properly remunerate prudent investments made into the assets that are no longer existent or fully depreciated, if that is
concession. The concession contracts specify different reset the case. The sum of capital remuneration and regulatory
dates for each concessionaire. The duration of the tariff cycle depreciation comprehends the so-called regulatory EBITDA
also varies: some last four years, some last five and one lasts of the cycle. The regulatory EBITDA is the theoretical EBIT-
three (EDP ES disCo). From 2015 to 2019, every tariff review DA to be recorded by the distribution company if all variables
cycle had the same remuneration WACC (8.09% post-tax, in projected by ANEEL when resetting the tariffs transpire.
real R$). However, since 2020 ANEEL approved a new meth-
odology to recalculate the WACC yearly using a parametric Part A + Part B are the required revenues of the conces-
formula with a 5-year moving average for the parameters that sion. As the name suggests, the required revenues set for the
feed the CAPM. The WACC valid for a particular year is cycle will pay the non-controllable costs (Parcel A), cover
applied for all discos undergoing tariff review that year. For regulatory depreciation of the assets, shelter the efficient cost
tariff reviews occurring in 2023, the regulatory WACC is structure (including provisions for bad debt), and properly
7.42% in real R$ post-tax. remunerate the RAB at the regulatory ROA (WACC) speci-
151
JPMORGAN
Brazil 101
fied for the cycle that is about to start. Required revenues are Table 76: Largest Water & Sewage Utilities in Brazil
contrasted against the revenues that the distribution company Million people
would collect in the next twelve months if tariffs weren’t to Population serviced
Company State
be reset (verified revenues). The ratio between the two yields Water Sewage
the reset rate (increase/decrease). Sabesp SP 30.5 28.3
Cedae RJ 12.4 6.2
Figure 346: Tariff Reset Formula Copasa MG 11.3 8.1
Embasa BA 10.4 4.9
Sanepar PR 10.3 8.3
Compesa PE 7.8 2.2
Source: SNIS 2021 and J.P. Morgan.
Source: J.P. Morgan.
National Sanitation Law was published in 2007, but regu-
Annual Tariff Adjustment (IRT) lation is regional. This law determined that water utilities
Distribution companies have the right, established in their must be regulated at the state or municipality level, as
concession contracts, to adjust tariffs every year at a given, opposed to federal regulation, and many states are still craft-
specified date (anniversary), aiming to update the tariff ing their water agencies and regulatory frameworks. Accord-
charged from their serviced consumers. The objective is to ing to the Association of Brazilian Regulatory Agencies,
maintain the purchasing power of the concessionaire, given there are state-level regulatory agencies in 25 states and the
that every year non-controllable costs (Part A) are adjusted by Federal District, municipal-level agencies in 24 cities, and
inflation or other indexes. In other words, the annual tariff agencies for six pools of cities; these agencies regulate servic-
adjustment aims to update the regulatory EBITDA by infla- es in more than 3,000 cities, more than 50% of the total num-
tion, capped by productivity gains obtained in the 12 months ber of cities in the country. Law 14,026/2020 modernized the
previous to the annual tariff hike. National Sanitation Law of 2007 and unlocked opportunities
for water & sewage state-owned companies across the coun-
Water & Sewage Utilities try, with the possibility of privatization and efficiency from
Compared to the electric utilities industry in Brazil, the sani- competitive bidding processes. Nevertheless, regulatory risk
tation industry is far behind in terms of coverage and consoli- exists and is a consequence of political risk and regulatory
dation. According to the Federal Constitution, the regulatory fragmentation, in our view. Water & sewage utilities are more
responsibility and the concession rights of the sanitation sys- subject to government intervention than electricity utilities, in
tem fall to municipalities. As a result, Brazil has a fragmented our opinion.
water and sewage system, controlled by state-owned compa-
nies and regulatory agencies that are mostly on the state level, Tackling the water & sewage deficit is a priority in the
which means rules and rights can differ for each federal unit. country. Brazil has historically underinvested in water &
sewage infrastructure, as underscored by the fact that 16% of
State-owned water & sewage companies dominate. Water the population doesn’t have access to clean potable water,
& sewage utilities produce and deliver potable water to the 55.8% of sewage produced in the country is collected, and
population, collect sewage, and treat it before returning approximately 81% of this volume is treated. The North,
cleaned water to water resources. In Brazil, ~95% of the pop- Northeast, and Center-West regions have the largest deficits.
ulation is serviced by state-owned utilities. Generally speak- Another deficiency is the ratio of water losses, which reaches
ing, each state has its own water & utility company; some 40.3% from a national standpoint. BNDES development bank
states, such as the state of Sao Paulo, have several, either con- is supporting the sector through: (i) financing water & sewage
trolled by the state itself or by larger municipalities. Smaller, projects in order to support the expansion of the services and
privately run companies exist but are exceptions in the mar- (ii) modeling restructure and privatization projects for sanita-
ket. tion concessions in Brazil.
National Sanitation Plan targets 99% water coverage and

90% sewage collection coverage by 2033. SP-based Sabesp
provides drinking water to 98% of the population in its con-
cession area, collects 92% of sewage produced, and treats
84% of it; MG-based Copasa supplies water to 99% of the
population in its concession area, collects 91% of sewage pro-
duced, and treats 72% of it; while PR-based Sanepar provides
152
JPMORGAN
water to 100% of the population in its covered area, collects Program contracts are contracts signed without competi-
79% of sewage produced, of which 100% is treated. Although tion, directly and between municipalities and state-owned
the coverage of those companies seems advanced, the reality companies (SOEs). The new law prohibits the establishment
in the other states is far different. In the state of Amapá, for of new program contracts and provides guidelines for the
example, 33% of the population has access to potable water conversion of these contracts into concession contracts. This
supply, and in Pará and Rondônia only 6% of the sewage is was an important alteration to how the sanitation segment is
collected. structured in Brazil. Currently, the segment predominantly
consists of regional SOEs that maintain their contracts with-
Regulatory Framework out competition from private or other public players. Before
Water and sewage regulation is based on the municipality Law 14,026, if a company were to be privatized, the program
autonomy granted by the Federal Constitution, which means contract would no longer be allowed (as it cannot be signed
that, ultimately, concession ownership is a municipal respon- by private parties), and the potential revenues involved in the
sibility. Additionally, according to the constitution, it is a fed- privatization would be uncertain, as a competitive bidding
eral duty to define guidelines for the sector in Brazil, as also, process would be required to regularize the concession. With
mutually with states and municipalities, to promote sanitation the new law and regulation, the program contracts will transi-
programs. Over the country’s history, the majority of munici- tion to concession contracts and will stay in force until the
palities lacked the financial and technical capability to impose expiration date. For that, the concessionaries will prove the
local rules and institute regulatory agencies. Thus, most of the economic and financial capacity to make the universalization
agencies for sanitation in Brazil are regional or state man- feasible. The bill also waives the necessity of mayors blessing
aged. the privatization of water companies if the existing contract
conditions are preserved (i.e., if the governors give in renew-
In this way, states and municipalities are responsible for local ing/extending them). We highlight that even though the legis-
regulation and supervision of the companies, while the feder- lation now permits the transfer of control of the existing con-
al government is responsible for defining strategies for sanita- tracts, most of the privatization auctions that have happened
tion in the country, in a macro approach set by ANA (Nation- so far have had the consent of the municipalities in order to
al Water Agency). This arrangement attempts to make the avoid subsequent judicial disputes.
Brazilian water regulation more homogeneous among the
states and municipalities and facilitate investments, as Universalization. According to Law 14,026, companies will
expressed in the National Sanitation Law of 2007 and the need to reach 99% of potable water and 90% of sewage col-
Law 14,026/2020. Water and sewage companies are regulated lection and treatment by 31 December 2033; these targets
by regional regulatory agencies that define rules, supervise, must be amended to the existing contracts by March 2022, or
and apply tariff process for the companies. contracts could lose validity. Furthermore, companies will
have to comply with quantitative methods of supply, loss
Regulatory models are very similar to electricity distribu- reduction programs, and improvement in treatment processes.
tion. Most of the regulatory frameworks applied to water & The legislation also affirms that, in the case of regional ser-
utility companies are very similar to electricity distribution, vice providers (grouped municipalities), the deadline can be
meaning ROA-RAB regulation with incentives (price cap extended until 1 January 2040.
system). There are tariff cycles and annual tariff adjustments,
similarly. Each state has its own regulatory regime, but they
tend to be pretty similar with small differences.
Sanitation Bill 14,026/2020. The Brazilian Lower House

approved a new Sanitation Bill in December 2019, initiated
by the federal government, and in June 2020 the bill was
approved in the Senate. The new regulatory framework
brought important changes to the previous system of water
and sewage sectors, such as more competition, opportunity
for private investments and new universalization targets for
water and sewage. It established that the National Water
Agency (ANA), based in Brasilia, will be a “regulator of reg-
ulators,” setting guidelines for all the other state-level regula-
tory agencies. Finally, this new law created legal grounds for
the privatization of state-owned water utilities.
153
JPMORGAN
Brazil 101
Table 77: Summary of the Regulatory Framework – Water Utilities

Regulatory Concession Concession / Renewal Revenue
Agency process program term
• Each state
has its own
regulatory
agency, which
in turn estab-
lishes its own
regulatory
regime
• Sabesp,
Copasa and
Sanepar
Concessions Possible undergo tariff
State and/or and program Usually 20 or according reviews every
municipal regu- contracts to certain four years -
30 years
lator granted by the contractual process simi-
municipalities conditions lar to electrici-
ty distribution
• On non-re-
view years,
tariffs (R$/m3)
are adjusted
by a paramet-
ric formula
that includes
inflation on
the main cost
items
Source: J.P. Morgan.
154
JPMORGAN
Transportation tion of Ponte Rio-Niterói, operated by CCR up until

May/2015, at which time it was re-auctioned and is now con-
trolled by Ecorodovias. At that time, uncertainties regarding
Guilherme Mendes AC and team
the macroeconomic environment and the regulatory frame-
(55-11) 4950-4105 work led the average of real unleveraged IRR of the projects
guilherme.g.mendes@jpmorgan.com to reach levels of 17-20% in BRL terms. The federal auctions
Banco J.P. Morgan S.A. held in October 2007 were a landmark for the toll road sector
as they focused on lowering tolls to the end user, instead of
Highways maximizing grants paid to the government. At that time, aver-
Brazil has the fourth-largest highway system in the world, age real unleveraged IRR in BRL dropped to 8-9%, reflecting
with over 1.7 million kilometers of roads, of which only the consolidated regulatory framework and low barriers to
around 13% is paved. Highways are the main means of trans- entry due to the concession model adopted by the govern-
portation in the country, both in number of passengers and in ment, which stimulated competition. However, the focus on
terms of freight and goods transported. It is estimated that obtaining low tariffs for new concessions faced some issues
roads represent more than 60% of the Brazilian transportation given the economic crisis started in 2014 and the corruption
matrix. While the Southern and Southeastern regions of Bra- investigations (companies involved in the Car Wash scandal
zil are well connected by paved highways, the Northern did not receive BNDES funding), leading to lower-than-ex-
region has a much weaker network, partially explained by the pected returns on several assets. The most recent auctions
presence of the Amazon Rainforest. (since 2016) changed to the concession fee criteria – an
upfront payment to the government, or a hybrid model –
The major Brazilian paved highways are operated by private which tends to eliminate companies with a poor balance
players and therefore have toll stations. The highway system sheet.
of Sao Paulo is the largest statewide paved road transportation
system in Brazil, with nearly 35k km of roads. Around 7% of In terms of funding, BNDES has historically played a rele-
this system consists of federal roads, 78% municipal and 15% vant role in the infrastructure segment, granting subsidized
state. In the late ’90s, the government pushed for privatization loans to stimulate the sector.
of state-controlled paved highways in a bid to generate extra
revenues. Currently the two major toll road operators are the Aviation
publicly listed CCR and Ecorodovias. Air travel has been expanding in Brazil, and is recovering
well even after COVID-19. Data from ANAC show that
The traffic growth of toll road companies is tied (in part) to between 2008 and 2022, PAX traffic grew at a CAGR of
GDP, as heavy vehicle traffic is a function of the intensity of 2.0% (+2.9% on domestic and +1.3% on international). The
economic activity/industrial production. Traffic on the two growth seen until the early 2010s was not followed by invest-
above-mentioned concessionaires’ highways has typically ments in the corresponding infrastructure, resulting in over-
increased at a 1-1.6x multiple of GDP growth, on average. In crowded airport terminals. Consequently, the federal govern-
addition, as toll fares are contractually adjusted by inflation ment decided to privatize major Brazilian airports to solve
once per year (IPCA, IGP-M or a basket of indexes), the toll capacity constraints and boost investment in this segment.
road companies are seen as defensive plays when inflation is
high. The government has been privatizing airports since
2012/2013 and since then has implemented several auctions.
Figure 347: Road Traffic Growth (y/y) vs. GDP Growth (y/y) In 2012/13, five of the country’s most relevant airports
15%
(Guarulhos, Viracopos, Brasilia, Galeão and Confins) were
10%
successfully sold into private hands. The bidding process for
5%
these assets was very competitive, and winning companies
0%
offered elevated premiums over minimum concessions fees.
-5%
-10%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
CCR Ecorodovias GDP
Source: Company reports and J.P. Morgan
The privatization of highways in Brazil started in 1995, with

the “Brazilian Toll Roads Concession Program” and the auc-
155
JPMORGAN
Brazil 101
Table 78: 2012/13 Airport Auctions Table 81: 2021/2022 Airport Auctions
Location Project CapEx (R$bn) Winner Premium Location CapEx (R$bn) Winner Premium
SP Guarulhos 6.2 Invepar/ACSA 373% Northern block 1.6 VINCI 777%
SP Viracopos 11.5 Triunfo/Egis 158% Southern block 2.9 CCR 1534%

Engevix/ Corp.
DF Brasília 3.7 673% Central block 2.1 CCR 9156%
America
Odebrecht
RJ Galeão 5.8 294% Pampulha 0.2 CCR 245%
Trans.
MG Confins 3.6 CCR 66%
Northern block II 0.9 Novo Norte 120%
Source: Brazilian Federal Government and J.P. Morgan

General block 0.6 XP 0%
In 2017, the government once again successfully privatized
four more airports, with total investments amounting to SP-MS-PA-MG 5.9 AENA 231%
R$6.5bn. Important to say that some of these concessions cur-
São Gonçalo 0.3 Zurich 10%
rently face financial constraints and are being re-auctioned, a
reflection of the aggressive bids and the economic crisis in Source: Brazilian Federal Government and J.P. Morgan
2015-16.
Going forward, the government still plans a re-auction Vira-
Table 79: 2017 Airport Auctions copos-SP and the jewels of the crown (Santos Dumont and
Galeão-RJ).
Location Project CapEx (R$bn) Winner Premium
GOL, LATAM and Azul are the largest airlines in Brazil. In
SC Florianópolis 0.96 Zurich 14.80%
2019, LATAM had a 36% market share in the domestic mar-
CE Fortaleza 1.37 Fraport 4.50% ket, while GOL had 34% and Azul a 30% stake (measured in
terms of ASK). The bankruptcy of Avianca Brasil in 1H19
RS Porto Alegre 1.9 Fraport 213.10% impacted the supply of the industry, which has been redeemed
mainly by Azul. Demand for air travel in Brazil deteriorated
BA Salvador 2.3 Vinci 28.20% during crisis years, especially during COVID-19. Companies
have been able to recover capacity levels post-pandemic, and
Source: Brazilian Federal Government and J.P. Morgan
so far the demand and yield environment remains healthy. As
And in early 2019, three blocks were auctioned, including of 2022, Azul managed to gain market share, reaching 30% of
several small projects in each of them, amounting to R$3.6bn. total domestic ASK, LATAM with 36% and GOL with 34%.
Table 80: 2019 Airport Auctions Ports

With 8,500km of seacoast and 35 ports, the Brazilian port
Location CapEx (R$bn) Winner Premium
sector handles 1.2mn tons annually, representing ~90% of the
Northeast block 2.2 AENA 1011%
country’s foreign trade. Comprising public and private termi-
nals, the sector suffered major changes during the 1990s,
Mid-west block 0.6 Zurich 830% when the Port Modernization Law (8.630/93) was enacted
and most of the current terminals were ceded to private play-
Aeroeste
Southeast block 0.8 4739% ers.
Consortium
Source: Brazilian Federal Government and J.P. Morgan As a result of the strong growth in the BRIC economies over
By 2021/2022 the government also concluded several auc- the past years, there was a significant increase in trade in the
tions, divided into blocks. This new modeling strategy Southern hemisphere, with the Brazilian ports witnessing
enabled the consolidation of the sector, with higher interest strong growth in demand for maritime transportation services.
from foreign players. The figure below shows some of the major ports on the Bra-
zilian coast.
156
JPMORGAN
Figure 348: Main Brazilian Ports Table 82: Upcoming Ports Under PPI
Project type Project CapEx (R$ mn)
Auction Ilheus – Cargo and Passenger 28
Auction Itaqui - Solid Bulk Terminal (IQI 14) 120
Auction Itaguaí – Solid Bulk Terminal (ITG02) 3,065
Auction Itaguaí – Solid Bulk Terminal (ITG03) 60
Auction Maceió – Solid Bulk (MAC 14) 42
Auction Maceió – Liquid/Gas Bulk (MAC 11) 21
Auction Maceió – Liquid Bulk (MAC 12) 8
Auction Mucuripe – Solid Bul (MUC 03) 66
Auction Mucuripe – Liquid Buld (MUC 09) 173

Source: J.P. Morgan
Auction Paranaguá – Solid Bulk (PAR 03) 121
Despite the increase in investment in the sector since the port Auction Paranaguá – Solid Bulk (PAR 09) 911
reforms of the 1990s, Brazilian ports remain a bottleneck to Auction Paranaguá – Solid Bulk (PAR 14) 1,188
the economy and have elevated operating costs. Among the Auction Paranaguá – Solid Bulk (PAR 15) 657
major issues faced by Brazilian ports, we highlight: (i) poor
Auction Paranaguá – Liquid Bulk (PAR 50) 338
access (both maritime and land), (ii) narrow channels, (iii)
Auction Porto Alegre – Vegetable Bulk (01) 41
insufficient dredging works, (iv) busy terminals, and (v) defi-
Auction Porto Alegre – Solid Bulk (11) 51
cient infrastructure.
Auction Rio de Janeiro – General Cargo 22
The Port of Santos, located in the state of São Paulo, is the Auction Rio de Janeiro – Liquid Bulk 22
main port in the country. Over 50% of Brazilian GDP is con- Auction Rio Grande – Vegetable Bulk (RIG71) 27
centrated in the economic operating area of this port, primari- Auction Salvador – General Cargo (SSD04) 40
ly covering the states of São Paulo, Minas Gerais, Goias, Auction Santos – Liquid Bulk (STS08) 265
Mato Grosso and Mato Grosso do Sul. Approximately 90% of Auction Santos – Container (STS10) 3,285
Sao Paulo’s industrial base is located less than 200km from Auction Santos – Solid Bulk (STS53) 659
the port. Auction Sao Francisco do Sul – Solid Bulk 37
Auction Sao Francisco do Sul – Solid Bulk 35
The ports segment has the most extensive list of projects, Auction Ceara – Passenger Terminal 1,600
although with a relatively smaller investment requirement, Auction Vila do Conde - Solid Bulk (VDC 04) 10
well divided into different regions and types of cargo. In
Auction Vila do Conde - Mineral Bulk (VDC10) 25
order to increase investment in the sector, government’s PPI
Auction Vila do Conde - Liquid Bulk(VDC10A) 25
has 34 projects on the pipeline related to the ports segment,
Privatization CODEBA NA
and the government expects an additional R$37.3bn invest-
Privatization Itajaí – Santa Catarina 2,800
ment related to the projects on the pipeline.
Privatization Santos 20,200
Privatization São Sebastião NA
Privatization Paranaguá – Water Access Canal 1,071
Source: Projeto Crescer / PPI
In addition, in 2013 the government published a new port reg-

ulation (through Provisional Measure 595), which, after a
long debate in Congress, was approved in June (Law
12.815/13). Among the main changes introduced by the New
Port Law, we flag (i) the ability to renew concessions granted
after 1993 prior to the end of the original term in exchange
for CapEx deployment (no need for grants to be paid to the
157
JPMORGAN
Brazil 101
government); (ii) the re-auctioning of concessions granted capacity increase in the respective concessions. The govern-
before 1993 once original concession terms expire; and (iii) ment already granted the anticipated renewal to Rumo’s Pau-
the removal of differentiation between owned cargo and third- lista network, Carajás and Vitória-Minas. The next in line is
party cargo. FCA followed by Rumo’s South Network.
Additionally, through Decree 9,048/17, the government estab- Table 83: Upcoming Railways Under PPI
lished a regulatory framework for the renegotiation of conces- Investment (R$
sions, including eventual amendments/extensions as well as Project
bn)
potential changes in the initial contract (i.e., investment plan).
New concession
Currently there are ongoing discussions to privatize the local FIOL and FICO 3.3
port authorities in Brazil. CODESA, located in Espírito Santo
State, was the first privatization of the sector in 2022, but the EF-170 - Ferrogrão 25.2
projects under discussion – SPA and CDRJ, for example – are
on hold. Rumo – West Network NA
Railroads Ferroeste Privatization 8
Brazil has a railway network of ~31 thousand km, which, in Concession renewal
our view, is modest considering the country’s size and com-
modity-based economy. The recent phase of Brazilian rail- FCA 13.8
ways began with the privatization process during the 1990s,
when a new regulatory framework was established and rail- South Network NA
roads were moved into the private sector in order to increase
investments and improve their efficiency. Source: Projeto Crescer / PPI
The Brazilian railway development was not centrally coordi-

nated, which resulted in a lack of integration of current
stretches and different gauges (large and metric) over the net-
work. The railways generally link commodity-producing
regions to ports. The major operators are Rumo, VLI, MRS
and Vale, and since privatization they have continuously
increased investments, mostly on tracks and acquisitions of
rolling stock. On the other hand, investments from the gov-
ernment remained very modest until 2007, when the construc-
tion of the North-South railway resumed. During the first
Logistics Investment program (started in 2010), the govern-
ment tried to auction railway projects but did not succeed due
to the lack of a solid regulatory framework and VALEC risk.
In 2017 the government concluded for the first time in a long

period the auction of a new railway, named North-South,
which was won by Rumo (Central Network).
In 2021 the government approved a new regulatory frame-

work approved that created the authorization model, which
allows fully private railroad operations for smaller stretches.
Recall that on a regular concession all assets belong to the
government after the end of the concession term. The authori-
zation does not require an auction process, which should turn
the sector less bureaucratic.
Another important topic for the sector is the concession

renewal of existing railways, as it should unlock investments/
158
Appendix II: Historical Economic Data and Forecasts
Table 84: Main Economic Indicators – Yearly
Selic real deflate

Consumer prices Wholesales price
Real GDP % Selic nominal Selic nominal d Exchange rate Exchange rate
- IPCA % - IGP-M %
change oya nsa eop % a.r. avg % a.r. by IPCA avg. % BRL / US$ eop BRL / US$ avg
Dec/Dec nsa Dec/Dec nsa
a.r.
1995 4.4 22.4 15.2 53.07 53.4 25.3 0.97 0.92
1996 2.2 9.6 9.2 27.13 38.1 26.0 1.04 1.00
1997 3.4 5.2 7.7 24.67 23.7 17.6 1.12 1.08
1998 0.3 1.7 1.8 28.45 27.5 25.3 1.21 1.16
1999 0.5 8.9 20.1 25.07 29.0 18.5 1.79 1.82
2000 4.4 6.0 10.0 17.32 19.5 12.7 1.95 1.82
2001 1.4 7.7 10.4 17.21 16.5 8.2 2.32 2.35
2002 3.1 12.5 25.3 19.19 18.4 5.2 3.53 2.93
2003 1.1 9.3 8.6 16.50 23.0 12.5 2.89 3.08
2004 5.8 7.6 12.4 17.75 16.4 8.2 2.65 2.93
2005 3.2 5.7 1.2 18.00 19.1 12.7 2.34 2.44
2006 4.0 3.1 3.8 13.25 15.1 11.6 2.14 2.17
2007 6.1 4.5 7.8 11.25 12.0 7.2 1.80 1.94
2008 5.1 6.0 9.8 13.75 12.5 6.2 2.40 1.84
2009 -0.1 4.3 -1.7 8.75 9.9 5.4 1.74 2.00
2010 7.5 5.9 11.3 10.75 10.0 3.9 1.66 1.76
2011 4.0 6.5 5.1 11.00 11.7 4.9 1.86 1.67
2012 1.9 5.8 7.6 7.25 8.5 2.5 2.10 1.99
2013 3.0 5.9 5.5 10.00 8.4 2.4 2.36 2.18
2014 0.5 6.4 3.7 11.75 11.0 4.3 2.66 2.36
2015 -3.5 10.7 10.5 14.25 13.6 2.6 3.96 3.39
2016 -3.3 6.3 7.2 13.75 14.2 7.4 3.25 3.45
2017 1.3 3.0 -0.5 7.00 9.9 6.7 3.31 3.20
2018 1.8 3.8 7.5 6.50 6.6 2.7 3.88 3.68
2019 1.2 4.3 7.3 4.50 5.9 1.5 4.03 3.95
2020 -3.3 4.5 23.1 2.00 2.8 -1.6 5.19 5.24
2021 5.0 10.1 17.8 9.25 4.8 -4.79 5.57 5.41
2022 2.9 5.8 5.5 13.75 12.6 6.4 5.29 5.14
2023* 2.9 4.6 -4.0 11.75 13.2 8.3 5.00 5.00
2024* 1.2 3.6 3.7 10.00 10.4 6.6 5.30 5.12
Source: J.P. Morgan. Note: *J.P. Morgan forecast, a.r.: annual rate, nsa: non-seasonally adjusted; eop: end of period, avg: average. As of November 6, 2023.
159
Table 85: Main Economic Indicators – Quarterly
Real GDP % Consumer prices - Wholesales price - Selic nominal Selic nominal Exchange rate Exchange rate
change oya nsa ** IPCA % oya nsa ** IGP-M % oya nsa ** eop % a.r. avg % a.r. BRL / US$ eop BRL / US$ avg
04Q1 3.9 6.8 5.9 16.25 16.4 2.91 2.91
04Q2 6.3 5.5 7.3 16.00 16.0 3.10 3.05
04Q3 6.6 6.9 12.0 16.25 16.1 2.86 2.94
04Q4 6.2 7.2 12.2 17.75 17.2 2.66 2.75
05Q1 4.2 7.4 11.5 19.25 18.7 2.67 2.62
05Q2 4.5 7.8 9.0 19.75 19.7 2.36 2.44
05Q3 2.1 6.2 3.7 19.50 19.7 2.21 2.32
05Q4 2.2 6.1 1.9 18.00 18.5 2.34 2.26
06Q1 4.3 5.5 1.1 16.50 17.0 2.17 2.17
06Q2 2.3 4.3 -0.1 15.25 15.6 2.17 2.19
06Q3 4.5 3.8 2.4 14.25 14.4 2.17 2.16
06Q4 4.8 3.1 3.5 13.25 13.4 2.14 2.15
07Q1 5.2 3.0 3.8 12.75 12.9 2.03 2.09
07Q2 6.5 3.3 4.4 12.00 12.3 1.93 1.96
07Q3 5.9 4.0 4.7 11.25 11.4 1.84 1.89
07Q4 6.6 4.3 6.8 11.25 11.3 1.78 1.77
08Q1 6.2 4.6 8.7 11.25 11.3 1.75 1.73
08Q2 6.3 5.6 11.6 12.25 11.9 1.60 1.64
08Q3 7.0 6.3 13.7 13.75 13.3 1.92 1.71
08Q4 1.0 6.2 11.3 13.75 13.8 2.31 2.25
09Q1 -2.4 5.8 7.4 11.25 12.3 2.31 2.33
09Q2 -2.2 5.2 3.5 9.25 9.9 1.97 2.04
09Q3 -1.2 4.4 -0.6 8.75 8.7 1.77 1.84
09Q4 5.3 4.2 -1.5 8.75 8.7 1.74 1.75
10Q1 9.2 4.9 0.5 8.75 8.8 1.78 1.82
10Q2 8.5 5.1 4.1 10.25 9.8 1.79 1.78
10Q3 6.9 4.6 6.9 10.75 10.8 1.70 1.74
10Q4 5.7 5.6 10.1 10.75 10.8 1.66 1.69
11Q1 5.2 6.1 11.2 11.75 11.4 1.63 1.65
11Q2 4.7 6.6 9.7 12.25 12.1 1.56 1.57
11Q3 3.5 7.1 7.9 12.00 12.2 1.85 1.66
11Q4 2.6 6.7 6.0 11.00 11.2 1.86 1.79
12Q1 1.7 5.8 3.7 9.75 10.2 1.82 1.76
12Q2 1.0 5.0 4.4 8.50 8.7 2.01 1.97
12Q3 2.5 5.2 7.5 7.50 7.7 2.03 2.04
12Q4 2.5 5.6 7.4 7.25 7.3 2.08 2.11
13Q1 2.7 6.4 8.1 7.25 7.3 2.02 1.99
13Q2 4.0 6.6 6.6 8.00 7.8 2.21 2.11
13Q3 2.8 6.1 4.5 9.00 8.8 2.22 2.30
13Q4 2.5 5.8 5.5 10.00 9.8 2.36 2.31
14Q1 3.5 5.8 6.2 10.75 10.7 2.25 2.33
14Q2 -0.4 6.4 7.4 11.00 11.0 2.21 2.23
14Q3 -0.6 6.6 4.6 11.00 11.0 2.45 2.32
160
Real GDP % Consumer prices - Wholesales price - Selic nominal Selic nominal Exchange rate Exchange rate
change oya nsa ** IPCA % oya nsa ** IGP-M % oya nsa ** eop % a.r. avg % a.r. BRL / US$ eop BRL / US$ avg
14Q4 -0.2 6.5 3.4 11.75 11.4 2.66 2.56
15Q1 -1.6 7.7 3.7 12.75 12.4 3.19 2.92
15Q2 -2.7 8.5 4.4 13.75 13.4 3.11 3.10
15Q3 -4.3 9.5 7.6 14.25 14.3 3.95 3.67
15Q4 -5.5 10.4 10.4 14.25 14.3 3.96 3.90
16Q1 -5.1 10.1 11.5 14.25 14.3 3.55 3.86
16Q2 -3.2 9.1 11.3 14.25 14.3 3.20 3.42
16Q3 -2.5 8.7 11.3 14.25 14.3 3.24 3.24
16Q4 -2.3 7.0 7.7 13.75 13.9 3.25 3.27
17Q1 0.3 4.9 5.6 12.25 12.5 3.16 3.14
17Q2 0.8 3.6 1.4 10.25 10.9 3.31 3.25
17Q3 1.6 2.6 -1.6 8.25 8.9 3.16 3.15
17Q4 2.6 2.8 -0.9 7.00 7.3 3.31 3.29
18Q1 1.9 2.8 -0.2 6.50 6.7 3.31 3.24
18Q2 1.6 3.3 4.4 6.50 6.5 3.85 3.69
18Q3 2.1 4.4 9.1 6.50 6.5 4.00 3.96
18Q4 1.6 4.1 9.3 6.50 6.5 3.88 3.82
19Q1 0.9 4.1 7.5 6.50 6.5 3.90 3.75
19Q2 1.2 4.3 7.6 6.50 6.5 3.81 3.90
19Q3 1.1 3.2 4.9 5.50 5.8 4.16 4.02
19Q4 1.7 3.4 4.8 4.50 4.8 4.19 4.14
20Q1 0.4 3.8 7.1 3.75 4.2 5.18 4.65
20Q2 -10.1 2.1 6.8 2.25 3.0 5.48 5.44
20Q3 -3.0 2.6 13.4 2.00 2.1 5.61 5.43
20Q4 -0.4 4.3 22.9 2.00 2.0 5.19 5.44
21Q1 1.7 5.3 28.6 2.75 2.2 5.71 5.58
21Q2 12.4 7.7 34.9 4.25 3.5 5.01 5.21
21Q3 4.4 9.6 29.9 6.25 5.2 5.44 5.24
21Q4 2.1 10.5 19.1 9.25 8.2 5.57 5.60
22Q1 2.4 10.7 15.9 11.75 10.6 4.78 5.10
22Q2 3.7 11.9 12.0 13.25 12.6 5.18 4.92
22Q3 3.6 8.6 9.0 13.75 13.6 5.39 5.24
22Q4 1.9 6.0 6.0 13.75 13.8 5.29 5.30
23Q1 4.0 5.3 1.9 13.75 13.8 5.10 5.13
23Q2 3.4 3.8 -4.5 13.75 13.8 4.84 4.97
23Q3* 1.7 4.6 -7.0 12.75 13.2 5.02 4.89
23Q4* 2.3 4.7 -4.2 11.75 12.2 5.00 5.03
24Q1* 1.0 4.1 -3.5 10.75 11.2 5.00 5.00
24Q2* 0.5 3.4 -0.1 10.00 10.3 5.00 5.00
24Q3* 1.2 3.7 3.3 10.00 10.0 5.20 5.13
24Q4* 1.7 3.7 3.6 10.00 10.0 5.30 5.33
161
Table 86: Main Economic Indicators – Quarterly
Consumer prices - Wholesales price -

Real GDP % Selic nominal Selic nominal Exchange rate Exchange rate
IPCA IGP-M
change QoQ saar eop % a.r. avg % a.r. BRL / US$ eop BRL / US$ avg
% qoq nsa % qoq nsa
04Q1 6.1 1.9 2.7 16.25 16.4 2.91 2.91
04Q2 11.2 1.6 3.9 16.00 16.0 3.10 3.05
04Q3 4.9 1.9 3.2 16.25 16.1 2.86 2.94
04Q4 3.4 2.0 1.9 17.75 17.2 2.66 2.75
05Q1 3.4 1.8 1.6 19.25 18.7 2.67 2.62
05Q2 4.6 1.3 1.2 19.75 19.7 2.36 2.44
05Q3 -2.6 0.8 -1.3 19.50 19.7 2.21 2.32
05Q4 5.8 1.7 0.3 18.00 18.5 2.34 2.26
06Q1 5.9 1.4 1.0 16.50 17.0 2.17 2.17
06Q2 1.7 0.1 -0.1 15.25 15.6 2.17 2.19
06Q3 6.6 0.5 1.1 14.25 14.4 2.17 2.16
06Q4 5.2 1.1 1.4 13.25 13.4 2.14 2.15
07Q1 7.2 1.3 1.3 12.75 12.9 2.03 2.09
07Q2 7.1 0.8 0.5 12.00 12.3 1.93 1.96
07Q3 4.1 0.9 1.6 11.25 11.4 1.84 1.89
07Q4 6.1 1.4 3.3 11.25 11.3 1.78 1.77
08Q1 5.4 1.5 3.1 11.25 11.3 1.75 1.73
08Q2 8.4 2.1 3.1 12.25 11.9 1.60 1.64
08Q3 6.1 1.1 3.5 13.75 13.3 1.92 1.71
08Q4 -14.0 1.1 1.2 13.75 13.8 2.31 2.25
09Q1 -5.2 1.2 -0.5 11.25 12.3 2.31 2.33
09Q2 7.2 1.3 -0.6 9.25 9.9 1.97 2.04
09Q3 9.8 0.6 -0.6 8.75 8.7 1.77 1.84
09Q4 10.5 1.1 0.2 8.75 8.7 1.74 1.75
10Q1 8.9 2.1 1.6 8.75 8.8 1.78 1.82
10Q2 5.1 1.0 2.9 10.25 9.8 1.79 1.78
10Q3 3.6 0.5 2.0 10.75 10.8 1.70 1.74
10Q4 5.6 2.2 3.3 10.75 10.8 1.66 1.69
11Q1 6.0 2.4 2.6 11.75 11.4 1.63 1.65
11Q2 3.6 1.4 1.4 12.25 12.1 1.56 1.57
11Q3 -0.6 1.1 0.4 12.00 12.2 1.85 1.66
11Q4 3.7 1.5 1.4 11.00 11.2 1.86 1.79
12Q1 -5.4 1.2 0.4 9.75 10.2 1.82 1.76
12Q2 7.0 1.1 2.0 8.50 8.7 2.01 1.97
12Q3 7.1 1.4 3.4 7.50 7.7 2.03 2.04
12Q4 0.2 2.0 1.3 7.25 7.3 2.08 2.11
13Q1 2.0 1.9 1.1 7.25 7.3 2.02 1.99
13Q2 6.0 1.2 0.6 8.00 7.8 2.21 2.11
13Q3 1.6 0.6 1.4 9.00 8.8 2.22 2.30
13Q4 0.7 2.0 2.3 10.00 9.8 2.36 2.31
14Q1 3.0 2.2 1.8 10.75 10.7 2.25 2.33
14Q2 -5.2 1.5 1.7 11.00 11.0 2.21 2.23
162
Consumer prices - Wholesales price -

Real GDP % Selic nominal Selic nominal Exchange rate Exchange rate
IPCA IGP-M
change QoQ saar eop % a.r. avg % a.r. BRL / US$ eop BRL / US$ avg
% qoq nsa % qoq nsa
14Q3 -0.4 0.8 -1.3 11.00 11.0 2.45 2.32
14Q4 1.8 1.7 1.2 11.75 11.4 2.66 2.56
15Q1 -3.2 3.8 2.0 12.75 12.4 3.19 2.92
15Q2 -8.8 2.3 2.3 13.75 13.4 3.11 3.10
15Q3 -6.1 1.4 1.9 14.25 14.3 3.95 3.67
15Q4 -3.8 2.8 3.9 14.25 14.3 3.96 3.90
16Q1 -5.4 2.6 3.0 14.25 14.3 3.55 3.86
16Q2 1.3 1.7 2.9 14.25 14.3 3.20 3.42
16Q3 -1.9 1.0 0.5 14.25 14.3 3.24 3.24
16Q4 -0.5 0.7 0.7 13.75 13.9 3.25 3.27
17Q1 4.0 1.0 0.7 12.25 12.5 3.16 3.14
17Q2 3.2 0.2 -2.7 10.25 10.9 3.31 3.25
17Q3 1.5 0.6 -0.2 8.25 8.9 3.16 3.15
17Q4 2.1 1.1 1.6 7.00 7.3 3.31 3.29
18Q1 1.9 0.7 1.5 6.50 6.7 3.31 3.24
18Q2 0.1 1.9 3.9 6.50 6.5 3.85 3.69
18Q3 3.9 0.7 2.8 6.50 6.5 4.00 3.96
18Q4 -1.3 0.4 -0.7 6.50 6.5 3.88 3.82
19Q1 1.1 1.5 2.2 6.50 6.5 3.90 3.75
19Q2 2.8 0.7 2.2 6.50 6.5 3.81 3.90
19Q3 0.1 0.3 -0.3 5.50 5.8 4.16 4.02
19Q4 2.7 1.8 3.1 4.50 4.8 4.19 4.14
20Q1 -8.8 0.5 1.7 3.75 4.2 5.18 4.65
20Q2 -30.3 -0.4 2.7 2.25 3.0 5.48 5.44
20Q3 35.7 1.2 9.6 2.00 2.1 5.61 5.43
20Q4 14.3 3.1 7.6 2.00 2.0 5.19 5.44
21Q1 3.5 2.1 8.3 2.75 2.2 5.71 5.58
21Q2 -0.8 1.7 6.3 4.25 3.5 5.01 5.21
21Q3 1.7 3.0 0.80 6.25 5.2 5.44 5.24
21Q4 4.6 3.0 1.54 9.25 8.2 5.57 5.60
22Q1 3.9 3.2 5.49 11.75 10.6 4.78 5.10
22Q2 4.2 2.2 2.54 13.25 12.6 5.18 4.92
22Q3 1.6 -1.3 -1.4 13.75 13.6 5.39 5.24
22Q4 0.4 1.6 -1.1 13.75 13.8 5.29 5.30
23Q1 7.5 2.1 -0.9 13.75 13.8 5.10 5.13
23Q2 3.7 0.8 -6.9 13.75 13.8 4.84 4.97
23Q3* -1.2 0.6 -0.5 12.75 13.2 5.02 4.89
23Q4* -0.4 1.0 1.0 11.75 12.2 5.00 5.03
24Q1* 2.0 1.3 0.9 10.75 11.2 5.00 5.00
24Q2* 1.5 0.5 0.6 10.00 10.3 5.00 5.00
24Q3* 1.5 0.9 1.0 10.00 10.0 5.20 5.13
24Q4* 1.5 0.8 1.2 10.00 10.0 5.30 5.33
163
Disclosures
Analyst Certification: The Research Analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple Research Analysts
are primarily responsible for this report, the Research Analyst denoted by an “AC” on the cover or within the document individually certifies,
with respect to each security or issuer that the Research Analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect the Research Analyst’s personal views about any and all of the subject securities or issuers; and (2) no part of any of the
Research Analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
Research Analyst(s) in this report. For all Korea-based Research Analysts listed on the front cover, if applicable, they also certify, as per KOFIA
requirements, that the Research Analyst’s analysis was made in good faith and that the views reflect the Research Analyst’s own opinion,
without undue influence or intervention.
All authors named within this report are Research Analysts who produce independent research unless otherwise specified. In Europe, Sector
Specialists (Sales and Trading) may be shown on this report as contacts but are not authors of the report or part of the Research Department.
Pursuant to Brazilian regulation, the primary research analyst signing this report certifies that (1) all recommendations expressed herein by the
research analyst reflect the analyst’s sole and exclusive personal views and have been independently produced, including from the J.P. Morgan
entity in which the research analyst is an employee; and (2) the research analyst responsible for or any research analyst involved in the
preparation of this report will disclose herein any situation that impacts or that could impact the impartiality of the recommendations contained
in this report or that constitutes or may constitute a conflict of interest.
Important Disclosures
Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium
reports and all J.P. Morgan–covered companies, and certain non-covered companies, by visiting https://www.jpmm.com/research/disclosures ,
calling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request.
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average
total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this
stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight
[Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the
analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock
because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the
price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia and ex-India)
and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country
market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying
analyst’s coverage universe can be found on J.P. Morgan’s research website, https://www.jpmorganmarkets.com .
J.P. Morgan Equity Research Ratings Distribution, as of October 07, 2023

Overweight Neutral Underweight
(buy) (hold) (sell)
J.P. Morgan Global Equity Research Coverage* 47% 39% 14%
IB clients** 47% 45% 33%
JPMS Equity Research Coverage* 46% 41% 13%
IB clients** 65% 64% 51%
*Please note that the percentages may not add to 100% because of rounding.
**Percentage of subject companies within each of the "buy," "hold" and "sell" categories for which J.P. Morgan has provided
investment banking services within the previous 12 months.
For purposes of FINRA ratings distribution rules only, our Overweight rating falls into a buy rating category; our Neutral rating falls
into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation
are not included in the table above. This information is current as of the end of the most recent calendar quarter.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies,
please see the most recent company-specific research report at http://www.jpmorganmarkets.com , contact the primary analyst or your J.P.
Morgan representative, or email research.disclosure.inquiries@jpmorgan.com . For material information about the proprietary models used,
please see the Summary of Financials in company-specific research reports and the Company Tearsheets, which are available to download on
the company pages of our client website, http://www.jpmorganmarkets.com . This report also sets out within it the material underlying
assumptions used.
A history of J.P. Morgan investment recommendations disseminated during the preceding 12 months can be accessed on the Research &
Commentary page of http://www.jpmorganmarkets.com where you can also search by analyst name, sector or financial instrument.
164
Explanation of Emerging Markets Sovereign Research Ratings System and Valuation & Methodology:
Ratings System: J.P. Morgan uses the following issuer portfolio weightings for Emerging Markets Sovereign Research: Overweight (over the
next three months, the recommended risk position is expected to outperform the relevant index, sector, or benchmark credit returns);
Marketweight (over the next three months, the recommended risk position is expected to perform in line with the relevant index, sector, or
benchmark credit returns); and Underweight (over the next three months, the recommended risk position is expected to underperform the
relevant index, sector, or benchmark credit returns). NR is Not Rated. In this case, J.P. Morgan has removed the rating for this security because
of either legal, regulatory or policy reasons or because of lack of a sufficient fundamental basis. The previous rating no longer should be relied
upon. An NR designation is not a recommendation or a rating. NC is Not Covered. An NC designation is not a rating or a recommendation.
Recommendations will be at the issuer level, and an issuer recommendation applies to all of the index-eligible bonds at the same level for the
issuer. When we change the issuer-level rating, we are changing the rating for all of the issues covered, unless otherwise specified. Ratings for
quasi-sovereign issuers in the EMBIG may differ from the ratings provided in EM corporate coverage.
Valuation & Methodology: For J.P. Morgan's Emerging Markets Sovereign Research, we assign a rating to each sovereign issuer (Overweight,
Marketweight or Underweight) based on our view of whether the combination of the issuer’s fundamentals, market technicals, and the relative
value of its securities will cause it to outperform, perform in line with, or underperform the credit returns of the EMBIGD index over the next
three months. Our view of an issuer’s fundamentals includes our opinion of whether the issuer is becoming more or less able to service its debt
obligations when they become due and payable, as well as whether its willingness to service debt obligations is increasing or decreasing.
J.P. Morgan Emerging Markets Sovereign Research Ratings Distribution, as of October 7, 2023
Overweight Marketweight Underweight
(buy) (hold) (sell)
Global Sovereign Research Universe* 8% 83% 9%
IB clients** 0% 51% 67%
*Please note that the percentages may not add to 100% because of rounding.
**Percentage of subject issuers within each of the "Overweight, "Marketweight" and "Underweight" categories for which J.P. Morgan
has provided investment banking services within the previous 12 months.
For purposes of FINRA ratings distribution rules only, our Overweight rating falls into a buy rating category; our Marketweight rating
falls into a hold rating category; and our Underweight rating falls into a sell rating category. The Emerging Markets Sovereign
Research Rating Distribution is at the issuer level. Issuers with an NR or an NC designation are not included in the table above. This
information is current as of the end of the most recent calendar quarter.
Analysts' Compensation:The research analysts responsible for the preparation of this report receive compensation based upon various factors,
including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.
Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US
affiliates of J.P. Morgan Securities LLC, may not be registered as research analysts under FINRA rules, may not be associated persons of J.P.
Morgan Securities LLC, and may not be subject to FINRA Rule 2241 or 2242 restrictions on communications with covered companies, public
appearances, and trading securities held by a research analyst account.
Other Disclosures
J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide.
UK MIFID FICC research unbundling exemption: UK clients should refer to UK MIFID Research Unbundling exemption for details of
JPMorgan’s implementation of the FICC research exemption and guidance on relevant FICC research categorisation.
All research material made available to clients are simultaneously available on our client website, J.P. Morgan Markets, unless specifically
permitted by relevant laws. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research
material available on a particular stock, please contact your sales representative.
Any long form nomenclature for references to China; Hong Kong; Taiwan; and Macau within this research material are Mainland China; Hong
Kong SAR (China); Taiwan (China); and Macau SAR (China).
J.P. Morgan Research may, from time to time, write on issuers or securities targeted by economic or financial sanctions imposed or administered
by the governmental authorities of the U.S., EU, UK or other relevant jurisdictions (Sanctioned Securities). Nothing in this report is intended to
be read or construed as encouraging, facilitating, promoting or otherwise approving investment or dealing in such Sanctioned Securities. Clients
should be aware of their own legal and compliance obligations when making investment decisions.
Any digital or crypto assets discussed in this research report are subject to a rapidly changing regulatory landscape. For relevant regulatory
advisories on crypto assets, including bitcoin and ether, please see https://www.jpmorgan.com/disclosures/cryptoasset-disclosure .
The author(s) of this research report may not be licensed to carry on regulated activities in your jurisdiction and, if not licensed, do not hold
themselves out as being able to do so.
165
Exchange-Traded Funds (ETFs): J.P. Morgan Securities LLC (“JPMS”) acts as authorized participant for substantially all U.S.-listed ETFs. To
the extent that any ETFs are mentioned in this report, JPMS may earn commissions and transaction-based compensation in connection with the
distribution of those ETF shares and may earn fees for performing other trade-related services, such as securities lending to short sellers of the
ETF shares. JPMS may also perform services for the ETFs themselves, including acting as a broker or dealer to the ETFs. In addition, affiliates
of JPMS may perform services for the ETFs, including trust, custodial, administration, lending, index calculation and/or maintenance and other
services.
Options and Futures related research: If the information contained herein regards options- or futures-related research, such information is
available only to persons who have received the proper options or futures risk disclosure documents. Please contact your J.P. Morgan
Representative or visit https://www.theocc.com/components/docs/riskstoc.pdf for a copy of the Option Clearing Corporation's Characteristics
and Risks of Standardized Options or http://www.finra.org/sites/default/files/Security_Futures_Risk_Disclosure_Statement_2018.pdf for a copy
of the Security Futures Risk Disclosure Statement.
Changes to Interbank Offered Rates (IBORs) and other benchmark rates: Certain interest rate benchmarks are, or may in the future
become, subject to ongoing international, national and other regulatory guidance, reform and proposals for reform. For more information, please
consult: https://www.jpmorgan.com/global/disclosures/interbank_offered_rates
Private Bank Clients: Where you are receiving research as a client of the private banking businesses offered by JPMorgan Chase & Co. and its
subsidiaries (“J.P. Morgan Private Bank”), research is provided to you by J.P. Morgan Private Bank and not by any other division of J.P. Morgan,
including, but not limited to, the J.P. Morgan Corporate and Investment Bank and its Global Research division.
Legal entity responsible for the production and distribution of research: The legal entity identified below the name of the Reg AC Research
Analyst who authored this material is the legal entity responsible for the production of this research. Where multiple Reg AC Research Analysts
authored this material with different legal entities identified below their names, these legal entities are jointly responsible for the production of
this research. Research Analysts from various J.P. Morgan affiliates may have contributed to the production of this material but may not be
licensed to carry out regulated activities in your jurisdiction (and do not hold themselves out as being able to do so). Unless otherwise stated
below, this material has been distributed by the legal entity responsible for production. If you have any queries, please contact the relevant
Research Analyst in your jurisdiction or the entity in your jurisdiction that has distributed this research material.
Legal Entities Disclosures and Country-/Region-Specific Disclosures:
Argentina: JPMorgan Chase Bank N.A Sucursal Buenos Aires is regulated by Banco Central de la República Argentina (“BCRA”- Central
Bank of Argentina) and Comisión Nacional de Valores (“CNV”- Argentinian Securities Commission” - ALYC y AN Integral N°51). Australia:
J.P. Morgan Securities Australia Limited (“JPMSAL”) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by the Australian
Securities and Investments Commission and is a Market, Clearing and Settlement Participant of ASX Limited and CHI-X. This material is
issued and distributed in Australia by or on behalf of JPMSAL only to "wholesale clients" (as defined in section 761G of the Corporations Act
2001). A list of all financial products covered can be found by visiting https://www.jpmm.com/research/disclosures . J.P. Morgan seeks to cover
companies of relevance to the domestic and international investor base across all Global Industry Classification Standard (GICS) sectors, as well
as across a range of market capitalisation sizes. If applicable, in the course of conducting public side due diligence on the subject company(ies),
the Research Analyst team may at times perform such diligence through corporate engagements such as site visits, discussions with company
representatives, management presentations, etc. Research issued by JPMSAL has been prepared in accordance with J.P. Morgan Australia’s
Research Independence Policy which can be found at the following link: J.P. Morgan Australia - Research Independence Policy . Brazil: Banco
J.P. Morgan S.A. is regulated by the Comissao de Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Ombudsman J.P. Morgan:
0800-7700847 / ouvidoria.jp.morgan@jpmorgan.com . Canada: J.P. Morgan Securities Canada Inc. is a registered investment dealer, regulated
by the Canadian Investment Regulatory Organization and the Ontario Securities Commission and is the participating member on Canadian
exchanges. This material is distributed in Canada by or on behalf of J.P.Morgan Securities Canada Inc. Chile: Inversiones J.P. Morgan Limitada
is an unregulated entity incorporated in Chile. China: J.P. Morgan Securities (China) Company Limited has been approved by CSRC to conduct
the securities investment consultancy business. Dubai International Financial Centre (DIFC): JPMorgan Chase Bank, N.A., Dubai Branch is
regulated by the Dubai Financial Services Authority (DFSA) and its registered address is Dubai International Financial Centre - The Gate, West
Wing, Level 3 and 9 PO Box 506551, Dubai, UAE. This material has been distributed by JP Morgan Chase Bank, N.A., Dubai Branch to
persons regarded as professional clients or market counterparties as defined under the DFSA rules. European Economic Area (EEA): Unless
specified to the contrary, research is distributed in the EEA by J.P. Morgan SE (“JPM SE”), which is subject to prudential supervision by the
European Central Bank (“ECB”) in cooperation with BaFin and Deutsche Bundesbank in Germany. JPM SE is a company headquartered in
Frankfurt with registered address at TaunusTurm, Taunustor 1, Frankfurt am Main, 60310, Germany. The material has been distributed in the
EEA to persons regarded as professional investors (or equivalent) pursuant to Art. 4 para. 1 no. 10 and Annex II of MiFID II and its respective
implementation in their home jurisdictions (“EEA professional investors”). This material must not be acted on or relied on by persons who are
not EEA professional investors. Any investment or investment activity to which this material relates is only available to EEA relevant persons
and will be engaged in only with EEA relevant persons. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is
regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong, and J.P. Morgan Broking (Hong
Kong) Limited (CE number AAB027) is regulated by the Securities and Futures Commission in Hong Kong. JP Morgan Chase Bank, N.A.,
Hong Kong Branch (CE Number AAL996) is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission, is
organized under the laws of the United States with limited liability. Where the distribution of this material is a regulated activity in Hong Kong,
the material is distributed in Hong Kong by or through J.P. Morgan Securities (Asia Pacific) Limited and/or J.P. Morgan Broking (Hong Kong)
Limited. India: J.P. Morgan India Private Limited (Corporate Identity Number - U67120MH1992FTC068724), having its registered office at
J.P. Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz - East, Mumbai – 400098, is registered with the Securities and Exchange Board of India
166
(SEBI) as a ‘Research Analyst’ having registration number INH000001873. J.P. Morgan India Private Limited is also registered with SEBI as a
member of the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited (SEBI Registration Number –
INZ000239730) and as a Merchant Banker (SEBI Registration Number - MB/INM000002970). Telephone: 91-22-6157 3000, Facsimile: 91-22-
6157 3990 and Website: http://www.jpmipl.com . JPMorgan Chase Bank, N.A. - Mumbai Branch is licensed by the Reserve Bank of India (RBI)
(Licence No. 53/ Licence No. BY.4/94; SEBI - IN/CUS/014/ CDSL : IN-DP-CDSL-444-2008/ IN-DP-NSDL-285-2008/ INBI00000984/
INE231311239) as a Scheduled Commercial Bank in India, which is its primary license allowing it to carry on Banking business in India and
other activities, which a Bank branch in India are permitted to undertake. For non-local research material, this material is not distributed in India
by J.P. Morgan India Private Limited. Compliance Officer: Spurthi Gadamsetty; spurthi.gadamsetty@jpmchase.com ; +912261573225.
Grievance Officer: Ramprasadh K, jpmipl.research.feedback@jpmorgan.com ; +912261573000.
Investment in securities market are subject to market risks. Read all the related documents carefully before investing. Registration
granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of
returns to investors.
Indonesia: PT J.P. Morgan Sekuritas Indonesia is a member of the Indonesia Stock Exchange and is registered and supervised by the Otoritas
Jasa Keuangan (OJK). Korea: J.P. Morgan Securities (Far East) Limited, Seoul Branch, is a member of the Korea Exchange (KRX). JPMorgan
Chase Bank, N.A., Seoul Branch, is licensed as a branch office of foreign bank (JPMorgan Chase Bank, N.A.) in Korea. Both entities are
regulated by the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS). For non-macro research material, the
material is distributed in Korea by or through J.P. Morgan Securities (Far East) Limited, Seoul Branch. Japan: JPMorgan Securities Japan Co.,
Ltd. and JPMorgan Chase Bank, N.A., Tokyo Branch are regulated by the Financial Services Agency in Japan. Malaysia: This material is issued
and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X), which is a Participating Organization of Bursa Malaysia
Berhad and holds a Capital Markets Services License issued by the Securities Commission in Malaysia. Mexico: J.P. Morgan Casa de Bolsa,
S.A. de C.V.and J.P. Morgan Grupo Financiero are members of the Mexican Stock Exchange and are authorized to act as a broker dealer by the
National Banking and Securities Exchange Commission. New Zealand: This material is issued and distributed by JPMSAL in New Zealand
only to "wholesale clients" (as defined in the Financial Markets Conduct Act 2013). JPMSAL is registered as a Financial Service Provider under
the Financial Service providers (Registration and Dispute Resolution) Act of 2008. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a
member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan. Philippines: J.P. Morgan
Securities Philippines Inc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the
Philippines and the Securities Investor Protection Fund. It is regulated by the Securities and Exchange Commission. Russia: CB J.P. Morgan
Bank International LLC is regulated by the Central Bank of Russia. Singapore: This material is issued and distributed in Singapore by or
through J.P. Morgan Securities Singapore Private Limited (JPMSS) [MCI (P) 030/08/2023 and Co. Reg. No.: 199405335R], which is a member
of the Singapore Exchange Securities Trading Limited, and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore), both of
which are regulated by the Monetary Authority of Singapore. This material is issued and distributed in Singapore only to accredited investors,
expert investors and institutional investors, as defined in Section 4A of the Securities and Futures Act, Cap. 289 (SFA). This material is not
intended to be issued or distributed to any retail investors or any other investors that do not fall into the classes of “accredited investors,” “expert
investors” or “institutional investors,” as defined under Section 4A of the SFA. Recipients of this material in Singapore are to contact JPMSS or
JPMCB Singapore in respect of any matters arising from, or in connection with, the material. As at the date of this material, JPMSS is a
designated market maker for certain structured warrants listed on the Singapore Exchange where the underlying securities may be the securities
discussed in this material. Arising from its role as a designated market maker for such structured warrants, JPMSS may conduct hedging
activities in respect of such underlying securities and hold or have an interest in such underlying securities as a result. The updated list of
structured warrants for which JPMSS acts as designated market maker may be found on the website of the Singapore Exchange Limited:
http://www.sgx.com . South Africa: J.P. Morgan Equities South Africa Proprietary Limited and JPMorgan Chase Bank, N.A., Johannesburg
Branch are members of the Johannesburg Securities Exchange and are regulated by the Financial Services Board. Taiwan: J.P. Morgan
Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures
Bureau. Material relating to equity securities is issued and distributed in Taiwan by J.P. Morgan Securities (Taiwan) Limited, subject to the
license scope and the applicable laws and the regulations in Taiwan. According to Paragraph 2, Article 7-1 of Operational Regulations
Governing Securities Firms Recommending Trades in Securities to Customers (as amended or supplemented) and/or other applicable laws or
regulations, please note that the recipient of this material is not permitted to engage in any activities in connection with the material that may
give rise to conflicts of interests, unless otherwise disclosed in the “Important Disclosures” in this material. Thailand: This material is issued
and distributed in Thailand by JPMorgan Securities (Thailand) Ltd., which is a member of the Stock Exchange of Thailand and is regulated by
the Ministry of Finance and the Securities and Exchange Commission, and its registered address is 3rd Floor, 20 North Sathorn Road, Silom,
Bangrak, Bangkok 10500. UK: Unless specified to the contrary, research is distributed in the UK by J.P. Morgan Securities plc (“JPMS plc”)
which is a member of the London Stock Exchange and is authorised by the Prudential Regulation Authority and regulated by the Financial
Conduct Authority and the Prudential Regulation Authority. JPMS plc is registered in England & Wales No. 2711006, Registered Office 25
Bank Street, London, E14 5JP. This material is directed in the UK only to: (a) persons having professional experience in matters relating to
investments falling within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) (Order) 2005 (“the FPO”); (b)
persons outlined in article 49 of the FPO (high net worth companies, unincorporated associations or partnerships, the trustees of high value
trusts, etc.); or (c) any persons to whom this communication may otherwise lawfully be made; all such persons being referred to as "UK relevant
persons". This material must not be acted on or relied on by persons who are not UK relevant persons. Any investment or investment activity to
which this material relates is only available to UK relevant persons and will be engaged in only with UK relevant persons. Research issued by
JPMS plc has been prepared in accordance with JPMS plc's policy for prevention and avoidance of conflicts of interest related to the production
of Research which can be found at the following link: J.P. Morgan EMEA - Research Independence Policy . U.S.: J.P. Morgan Securities LLC
(“JPMS”) is a member of the NYSE, FINRA, SIPC, and the NFA. JPMorgan Chase Bank, N.A. is a member of the FDIC. Material published by
167
non-U.S. affiliates is distributed in the U.S. by JPMS who accepts responsibility for its content.
General: Additional information is available upon request. The information in this material has been obtained from sources believed to be
reliable. While all reasonable care has been taken to ensure that the facts stated in this material are accurate and that the forecasts, opinions and
expectations contained herein are fair and reasonable, JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) make
no representations or warranties whatsoever to the completeness or accuracy of the material provided, except with respect to any disclosures
relative to J.P. Morgan and the Research Analyst's involvement with the issuer that is the subject of the material. Accordingly, no reliance should
be placed on the accuracy, fairness or completeness of the information contained in this material. There may be certain discrepancies with data
and/or limited content in this material as a result of calculations, adjustments, translations to different languages, and/or local regulatory
restrictions, as applicable. These discrepancies should not impact the overall investment analysis, views and/or recommendations of the subject
company(ies) that may be discussed in the material. J.P. Morgan accepts no liability whatsoever for any loss arising from any use of this material
or its contents, and neither J.P. Morgan nor any of its respective directors, officers or employees, shall be in any way responsible for the contents
hereof, apart from the liabilities and responsibilities that may be imposed on them by the relevant regulatory authority in the jurisdiction in
question, or the regulatory regime thereunder. Opinions, forecasts or projections contained in this material represent J.P. Morgan's current
opinions or judgment as of the date of the material only and are therefore subject to change without notice. Periodic updates may be provided on
companies/industries based on company-specific developments or announcements, market conditions or any other publicly available
information. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections, which
represent only one possible outcome. Furthermore, such opinions, forecasts or projections are subject to certain risks, uncertainties and
assumptions that have not been verified, and future actual results or events could differ materially. The value of, or income from, any
investments referred to in this material may fluctuate and/or be affected by changes in exchange rates. All pricing is indicative as of the close of
market for the securities discussed, unless otherwise stated. Past performance is not indicative of future results. Accordingly, investors may
receive back less than originally invested. This material is not intended as an offer or solicitation for the purchase or sale of any financial
instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not
intended as recommendations of particular securities, financial instruments or strategies to particular clients. This material may include views on
structured securities, options, futures and other derivatives. These are complex instruments, may involve a high degree of risk and may be
appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. The recipients of
this material must make their own independent decisions regarding any securities or financial instruments mentioned herein and should seek
advice from such independent financial, legal, tax or other adviser as they deem necessary. J.P. Morgan may trade as a principal on the basis of
the Research Analysts’ views and research, and it may also engage in transactions for its own account or for its clients’ accounts in a manner
inconsistent with the views taken in this material, and J.P. Morgan is under no obligation to ensure that such other communication is brought to
the attention of any recipient of this material. Others within J.P. Morgan, including Strategists, Sales staff and other Research Analysts, may take
views that are inconsistent with those taken in this material. Employees of J.P. Morgan not involved in the preparation of this material may have
investments in the securities (or derivatives of such securities) mentioned in this material and may trade them in ways different from those
discussed in this material. This material is not an advertisement for or marketing of any issuer, its products or services, or its securities in any
jurisdiction.
Confidentiality and Security Notice: This transmission may contain information that is privileged, confidential, legally privileged, and/or
exempt from disclosure under applicable law. If you are not the intended recipient, you are hereby notified that any disclosure, copying,
distribution, or use of the information contained herein (including any reliance thereon) is STRICTLY PROHIBITED. Although this
transmission and any attachments are believed to be free of any virus or other defect that might affect any computer system into which it is
received and opened, it is the responsibility of the recipient to ensure that it is virus free and no responsibility is accepted by JPMorgan Chase &
Co., its subsidiaries and affiliates, as applicable, for any loss or damage arising in any way from its use. If you received this transmission in
error, please immediately contact the sender and destroy the material in its entirety, whether in electronic or hard copy format. This message is
subject to electronic monitoring: https://www.jpmorgan.com/disclosures/email
MSCI: Certain information herein (“Information”) is reproduced by permission of MSCI Inc., its affiliates and information providers (“MSCI”)
©2023. No reproduction or dissemination of the Information is permitted without an appropriate license. MSCI MAKES NO EXPRESS OR
IMPLIED WARRANTIES (INCLUDING MERCHANTABILITY OR FITNESS) AS TO THE INFORMATION AND DISCLAIMS ALL
LIABILITY TO THE EXTENT PERMITTED BY LAW. No Information constitutes investment advice, except for any applicable Information
from MSCI ESG Research. Subject also to msci.com/disclaimer
"Other Disclosures" last revised October 21, 2023.
Copyright 2023 JPMorgan Chase & Co. All rights reserved. This material or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan. It is strictly prohibited to use or share without prior written consent from J.P.
Morgan any research material received from J.P. Morgan or an authorized third-party (“J.P. Morgan Data”) in any third-party
artificial intelligence (“AI”) systems or models when such J.P. Morgan Data is accessible by a third-party. It is permissible to use J.P.
Morgan Data for internal business purposes only in an AI system or model that protects the confidentiality of J.P. Morgan Data so as to
prevent any and all access to or use of such J.P. Morgan Data by any third-party. #$J&098$#*P
Completed 08 Nov 2023 03:14 PM EST Disseminated 08 Nov 2023 03:15 PM EST
168

JPM Brazil

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

JPM Brazil

Uploaded by

Copyright:

Available Formats

J P M O R G A N Latin America Equity Research

This publication wouldn’t be possible

Power Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

Table 2: Regional Profile (2022)

Population 17,4 million or 8.5% of total

Country Area in square kilometer US$3,688.7 per capita

Brazil 8,510,416 Population 16.3 million or 8% of total

Source: IBGE 10.14 people/km²

Geografia e Estatística (IBGE), are composed of states with Southeast

Population 84.8 million or 41.8% of total

GDP R$ 3,952.7 billion or 52% of total

States Espírito Santo, Minas Gerais, Rio de Janeiro, São Paulo

Area 576,737 km² or 6.8% of total

Population 29.9 million or 14.7% of total

GDP R$ 1,308.1 billion or 17.2% of total

US$8,495.5 per capita

Main Activities Agriculture, forestry, manufacturing, utilities, commerce, construction

States Paraná, Rio Grande do Sul, Santa Catarina

Source: IBGE as of 2022.

Population even the 207 million indicated by the census preview.

started to be unveiled in 2023. At the time of this publication 146.9

Brazil x World: According to the UN, the world had 8 bil-

Table 3: Largest Populations in the World

8 Bangladesh 173,034 2.20%

9 Russia 144,421 1.80%

10 Mexico 128,498 1.60%

Source: World Population Aug 2023

On average, the population density in Brazil is 23.86

population that is 2.8x larger than Rio. In the North region,

Source: IBGE, as of 2018

According to IBGE, the child mortality rate in Brazil stood

Source: IBGE, 2022

Age groups and the demographic bonus: The Brazilian age

1980 1991 2000 2010 2022

Source: IBGE, 2023 from the 2022 census

Figure 15: Population Pyramid (2050)

Figure 20: Urban Population as % of Total

what it was thought. Typically, the first stage of this transition

Figure 22: Historical Evolution of the Gini Coefficient

• Labor market: The white population makes up 35.2% of

White Black Mixed 60.4

Total 43.4 9.2 47.4 39.2

Up to 10% 25.2 9.8 65.0 28.4

10 to 20% 26.9 10.8 62.4 10.6

40 to 50% 39.0 9.9 51.1

pendently of race, have a refrigerator and a television. 33

Hunger and Food Insecurity

According to the UN, there are 10 million Brazilians that suf-

Below is the ABEC economic criteria, which rank the popula-

• Citizen income (renda cidadã): monthly payment of

Table 6: Regional Distribution of Bolsa Família

If the per capita income of a family that receives the benefit

Benefício de Prestação Continuada program (BPC): Together

Health ered by private health insurance surpassed 50 million for the

Figure 33: Brazil’s Main Problems

clinics, diagnostic labs, private practices, etc. The private sys-

consider data from the period of 2019-21, shows that the

341.1 336.2 329 314.5 311.5

• Until August 9 2023, there were 37.7 million confirmed

Figure 41: Stringency Index

Source: Our World In Data, J.P. Morgan

• There were almost 705K total Covid-19 deaths