What a far-right Bolsonaro presidency in Brazil means for Canadian business
Miners could benefit from relaxed regulations, as environmentalists fear growth plans will destroy the Amazon
Jair Bolsonaro, a far-right, seven-term congressman, won Brazil's presidential election Sunday, giving him a convincing mandate to radically alter politics in Latin America's most populous country.
Critics at home and abroad have lambasted the former paratrooper for his homophobic, racist and misogynist statements and his support for Brazil's military dictatorship that ruled from 1964 to 1985. Supporters backed his pledge to crack down on crime and battle government corruption in South America's largest economy.
For Canadian business, a Bolsonaro presidency could open new investment opportunities, especially in the resource sector, finance and infrastructure, as he has pledged to slash environmental regulations in the Amazon rainforest and privatize some government-owned companies.
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Critics say investors, particularly in the resource sector, will be profiting from the destruction of the Amazon, the world's largest rainforest, at the expense of the local Indigenous people and the planet's health.
Here's what Bolsonaro's win could mean for Canadian business:
Trade and investment
Canadian firms invested about $11.5 billion in Brazil last year, accounting for about one per cent of total foreign investment abroad, according to Global Affairs Canada. It's mostly in mining, infrastructure, machinery, finance and technology, said Jean Daudelin, a Brazil expert at Carleton University.
Notable investments by Canadian firms in Brazil include Brookfield Asset Management, a Toronto-based property and infrastructure company with more than $40 billion invested in the South American giant's shopping malls, homes and oil pipelines, according to Reuters.
Brazil was the 13th-largest recipient of Canadian direct investment abroad. About 500 Canadian companies are active there.
As large countries exporting primary commodities, Brazil and Canada have frequently clashed on trade. In some respects, they're natural competitors, particularly in agricultural products and mid-sized jet manufacturing.
Brazil invested $18.2 billion in Canada in 2017, accounting for 2.2 per cent of the foreign direct investment coming into the country, according to Global Affairs. Vale, a mining giant partially controlled by the Brazilian government, is arguably the highest profile Brazilian investor in Canada, with major nickel operations around Sudbury, Ont.
Bolsonaro's victory is not expected to radically alter trading relations, said Daudelin. But Canadian companies in mining, agriculture and infrastructure could see new opportunities if Paulo Guedes, Bolsonaro's chief economic adviser, is given full control over investment policy.
Holding a PhD in economics from the University of Chicago, Guedes has pushed for a wave of privatizations across Brazil's state-dominated, highly regulated economy. He helped rally the country's initially skeptical business class behind Bolsonaro, whose own economic leanings are thought to hew closer to Latin America's past military leaders, favouring state intervention in the economy and control over what they consider strategic sectors like energy.
"Brazil has been opening up a bit recently," said Prusa. "Foreign companies have been bidding for railroads and port contracts. I think there is space for foreign companies to be part of these projects."
Mercosur free trade bloc
In the midst of trade negotiations with the U.S., Canada concluded exploratory talks with Mercosur, a free trade block involving Argentina, Brazil, Paraguay and Uruguay.
In its bid to diversify trade away from dependence on the U.S., access to 260 million consumers in Mercosur would help Canada, said Daudelin. Canada and the bloc are set to exchange offers about a free trade deal in 2019, he said, adding: "I don't see Bolsonaro opposing it."
Bombardier, the Montreal-based aerospace company, has been battling Brazil's Embraer SA for years for dominance in the mid-sized jet market. Brazil has a launched a complaint at the World Trade Organization, arguing that Canada has unfairly subsidized Bombardier. As the case is before the WTO (and U.S.-based Boeing bought a big stake in Embraer in July), a Bolsonaro government is unlikely to significantly impact the dispute, analysts said, despite his nationalist rhetoric.
"We expect a Bolsonaro government will continue with the sale of Embraer to Boeing," said Prusa. "I doubt we will see any real improvement on the dispute side of things between Brazil and Canada."
Mining and agriculture
Brazil is home to the Amazon, the world's largest rainforest, which scientists describe as the "lungs of the planet" for its role in sucking climate-changing carbon dioxide out of the atmosphere.
Bolsonaro has pledged to open more of the Amazon to farming, mining and hydroelectric dams. He won significant backing from rural lawmakers who say Brazil's rules on deforestation and land management are too onerous for business. His proposals to increase extraction have been lambasted by environmentalists and Indigenous groups who accuse him of putting the planet in peril.
Brazil is the world's largest exporter of soybeans, according to Bloomberg, and a powerhouse producer of other agricultural commodities. Bolsonaro's pledge to open new land to agriculture will mean more competition for Canadian farmers on global markets.
"Brazil is in the unique position of having a lot of land left that could be turned into farmland," Prusa said. "We expect production to increase in Brazil."
Daudelin, however, said Canadian farmers shouldn't be too worried. Brazil produces more than 10 times as much soy as Canada, he said, yet ,"Canadian exporters are competitive." Trade tensions between the U.S. and China, and broader U.S. farm policy, will have more impact on global farm prices than Brazil boosting production, he added.
Bolsonaro has hinted at plans to expel international non-governmental organizations from Brazil, specifically mentioning the World Wildlife Fund, a group with operations in Canada.
He initially proposed withdrawing Brazil from the Paris agreement to combat climate change, which would be an especially heavy blow to the deal given the importance of Brazil's forests for regulating global temperatures, although he changed his tune later in the campaign.
For mining and resource firms, Bolsonaro has pledged to make it easier for major extraction projects to be approved.
Toronto-based Belo Sun Mining Corp., for example, has been embroiled in a long-running licensing fight over a major gold mining project in the Amazon, after Brazilian regulators said the company hadn't properly consulted with local Indigenous communities.
This is the kind of dispute where Bolsonaro has said he favours economic growth over environmental protection.
With nearly 60 per cent of the world's public mining companies listed on the Toronto Stock Exchange, losses for the Amazon rainforest under Bolsonaro could spell big gains for Canadian investors.
With files from Reuters