January Political Risk Report

Brazil: Crime Takes Center Stage

By Rogerio Jelmayer 

Public security in Brazil is becoming a growing headache for incumbent local governments and promises to be a key issue in the October municipal elections.

Although the number of homicides in the country has fallen, the rate is still higher compared to the rest of the region, according to a UN study. In 2021, 458,000 homicides were recorded worldwide, of which 46,000 were in Brazil. In 2017, the country recorded 63,000 homicides.  

Robberies, assaults and even kidnappings in big cities are reported daily by Brazilian media, while illegal mining and logging and related violence and corruption are threats in remote areas.

"I consider it essential that this topic gain prominence both in the campaign for this year's municipal elections and also in the elections for president of the republic and governors in 2026," says Carlos Melo, professor of political science at São Paulo business school Insper. 

"The issue of crime affects different aspects of society, from common crime committed in a large city to crimes linked to organized crime in border regions of the country. We are past the time to discuss public safety and the responsibility of local, state, or even federal governments. We are at a stage where crime is a general problem."  

Historically, right-wing parties have dominated the narrative in the fight against crime, arguing in favor of empowering the police and relaxing gun laws so citizens can arm themselves for self-defense, while the left has remained concerned about the potential for a police state and the violation of human rights. Nevertheless, President Luiz Inácio Lula da Silva's administration has indicated that crime has become a main concern for the government.

Recently, Lula signed a decree authorizing the armed forces to patrol ports and airports to combat the traffic of weapons and drugs by organized crime.

An air force patrol at Galeao international airport in Rio de Janeiro. Credit: AFP

The federal government also created an app that allows Brazilians to block their mobile phones in the event of theft, as criminals have been increasingly targeting cell phones to access customers' digital banking apps. It will also invest 1.2bn reais (US$244mn) this year to combat illegal activities, including mining, on Yanomami indigenous land in the north of the country.   

The public security issue may indirectly benefit the local infrastructure sector, which may see increasing public-private partnership opportunities to build more prisons.

"The issue of public security is difficult to resolve in the short term and also involves social measures, ranging from improving public services, as well as detention center conditions," Frederico Araujo Turolla, an infrastructure specialist and partner at consultancy Pezco, told BNamericas. 

"The crowded prisons in Brazil are not suitable places to help inmates reinsert and have been fertile grounds for the proliferation of criminal groups. Therefore, the tendency is to see an expansion of PPPs in the prison sector, as society understands that the private sector can help with this solution as well," adds Turolla, who recently worked as an adviser for Soluções Serviços Terceirizados, which late last year won a 149mn-real PPP contract to build and maintain a prison in Erechim, in Rio Grande do Sul state.  

SECTOR RISKS

MACRO ● 

Inflation: The consumer price index rose 4.62% in 2023, down from 5.79% the previous year and in line with the central bank’s 1.75-4.75% target, making it likely that the monetary authority will lower its Selic base rate to single digits. For 2024, inflation is projected to end at 3.87%, according to the central bank's most recent weekly survey of 100 analysts, while the Selic rate is projected to end this year at 9%, compared with 11.25% currently. 

GDP: The economy is projected to expand 1.6% in 2024, versus a forecast of around 3% in 2023. The slowdown in GDP expected for this year is largely due to the effects of high interest rates. 

IMF FORECAST FOR 2024 GDP GROWTH: 1.5%

MINING ● 

Vale leadership: Brazil's biggest mining company is in the process of selecting its CEO for the next three years, a decision that is complicated by differences among shareholders over whether the current chief executive should continue or whether there should be a change in command. 

The federal government – which has an indirect influence in Vale as its largest individual shareholder is Previ, the pension fund for employees of state-run bank Banco do Brasil – wants the company to invest in more domestic projects, including in the rail sector, while a group of minority shareholders would like to see bigger dividends. 

Vale's governance rules limit the CEO's term to three years, with the possibility of renewal. CEO Eduardo Bartolomeo has expressed an interest in continuing in the post. 

"Bartolomeo took on the role of Vale CEO at one of the most difficult times in the company's history [following the Brumadinho tailings dam disaster] and did a good job, bringing more management transparency. He has a very good technical profile. However, there is currently a division among Vale shareholders because they are looking at other aspects in a CEO for the coming years," a representative of a group of important Vale shareholders, who wished to remain anonymous, told BNamericas. 

Capex: Canada-based Ero Copper advanced construction works at its Boa Esperança (Tucumã) iron oxide-copper-gold project in Pará state, while making a small capex projection increase. The project’s capex estimate has been raised to US$310mn from US$305mn due to the appreciation of the Brazilian real against the US dollar in the fourth quarter. Construction progress has reached 85% and production of copper concentrate is expected to start in the second half. 

ENERGY ● 

Eletrobras: Incorporating Furnas into Eletrobras is considered a positive credit event for the power holding company. "Mainly due to the potential tax benefits arising from the transaction that will partially offset the lower energy prices, which weigh negatively on its credit profile," said Murilo Pentagna, an analyst at Moody's Investor's Service. 

Mercosur tax: The import of solar modules in Brazil became subject to Mercosur's 10.8% common external tariff (TEC) as of January 1. The measure's potential impact is dividing the opinion of industry executives consulted by BNamericas.  

Petrobras: The federal oil giant is considering moving back into fuel distribution and marketing. Marcus D'Elia, a partner at Leggio Consultoria, said the possible return reveals the government's interest in influencing fuel prices at the pump.    

Rio de Janeiro tax: Lawyers interviewed by BNamericas believe that oil companies operating in Brazil will be able to have the courts overturn the creation of a new tax on exploration and production activities in Rio de Janeiro state. 

The so-called fee for monitoring and inspection of E&P activities (TFPG) was established by the Rio de Janeiro government in late December, just over three years after the country's supreme court (STF) declared it unconstitutional.

ICT ● 

Digital legislation: Brazil is putting on the statute books laws to regulate the digital environment. Lula recently signed into law a bill that criminalizes cyberbullying. Systematic online intimidation will carry a prison term ranging from two to four years, plus a fine.  

And at the end of 2023, Lula signed into law a bill to regulate online sports betting platforms. These websites have been operating since 2018 but are not paying taxes and need a permit and a local legal representative. The government projects some 10bn reais in collection this year. At the beginning of the year, a presidential decree also established the new national cybersecurity policy. 

5G: Mobile telephony, notably 5G technology, was the only service to grow in the Brazilian telecom market in November from October, according to updated figures from regulator Anatel. 

INFRASTRUCTURE  ● 

Highway concessions: The government unveiled a highway improvement plan with 35 concessions and public investments of up to 80bn reais. The plan will run through the end of Lula's term in 2026. In 2024, the plan includes tenders for 13 highway concessions and 20bn reais to be invested by the government.  

PPPs: The country is expected to hold at least 30 auctions for streetlighting public-private partnerships before the municipal elections in October. 

"In an election year, from the middle of the year onwards, the public administration becomes very focused on the electoral process. Because of that, there's less effort by mayors to carry out other tasks that aren't directly associated with the election," says Pedro Vicente Iacovino, president of private streetlighting concessionaires' association Abcip. 

Mexico: Supreme Court in Play in Election

By Ariel Rodríguez 

Mexico’s 2024 elections could affect the future of the supreme court, which for years has been the private sector’s last defense barrier against the restrictive reforms and policies pushed by President Andrés Manuel López Obrador (AMLO) and his governing Morena party.  

Examples include the 2021 amendments to the electric power industry law (LIE) passed by Morena and its allies in congress to prioritize the electric power dispatch of public utility CFE, and the 2023 amendments to the mining law, which gave geological service SGM exclusive rights to exploration. Both are up for review in the court this year after hundreds of appeals were filed, some involving unconstitutionality claims.  

The supreme court consists of 11 judges appointed by the president for 15-year terms. Judges cannot resign or be removed unless there is a major reason for them to step down.  

During his six-year term that started in 2018, López Obrador was supposed to appoint only three judges, but due to the controversial resignations of former judges Eduardo Medina Mora in 2019 and Arturo Zaldívar in 2023, AMLO was able to appoint five judges to the highest court. Medina left amid a corruption scandal, and Zaldívar quit to join the campaign of presidential frontrunner Claudia Sheinbaum from Morena.  

The problem, at least for López Obrador, is that most of the court’s 11 members have sided with the constitution and not his political views. Only three of the five judges he appointed have remained loyal to the president – Yasmín Esquivel (appointed in 2019), Loretta Ortiz Ahlf (appointed in 2021) and Lenia Batres Guadarrama (appointed in January), the newest member of the court who proclaimed herself as the “judge of the people.” Needing at least four supreme court judges to side with his proposed laws, reforms and decrees (as the votes of eight justices are required to declare a measure unconstitutional), AMLO has been repeatedly thwarted by the supreme court.

With the election for president, congress and nine governorships on June 2, the scenario could change in favor of Morena.

The next presidential term (2024-30) will see three judges finish out their terms – Jorge Mario Pardo Rebolledo (2026), Alberto Pérez Dayán (2027) and Alfredo Gutiérrez Ortiz Mena (2027) – thus giving the next head of state the chance to fully control the supreme court.

Sheinbaum, the former Mexico City mayor and AMLO protégé, has a considerable lead in the polls over her main opponent, opposition senator Xóchitl Gálvez, a critic of the president who has warned of the election's high stakes.  

“This is the most important election of our lives. It will define the next 30 years. With the renewal of the supreme court's justices, the division of powers and the last counterweight of Mexican democracy are at risk," Gálvez told a rally on January 14.

Xóchitl Gálvez. Credit: AFP

Morena currently controls the senate and lower house, and the governorships of 21 of the 32 states, a number that could rise in June when Mexico City, Jalisco, Puebla, Chiapas, Tabasco, Guanajuato, Veracruz, Yucatán and Morelos choose new leaders.

SECTOR RISKS

MACRO ● 

GDP: The government's financial system stability council expects the economy to have expanded in the fourth quarter. "Going forward, expectations of weakening persist, although lower in magnitude than projections some months ago. Despite the foreseen slowdown in external demand, expectations that domestic spending will continue to provide support in the short term have strengthened," said the council led by finance minister Rogelio Ramírez de la O.

Inflation: The consumer price index rose 4.66% in December year-on-year, after expanding 4.32% in November. The central bank has maintained its benchmark interest rate at 11.25%, and expects inflation to converge on its 3% target by the second quarter of 2025. 

IMF FORECAST FOR 2024 GDP GROWTH: 2.1%

MINING ● 

Services downturn: Mexico’s mining services sector plummeted 26.2% year-on-year in November after having expanded 3.3% in October, according to the monthly indicator of industrial activity published by statistics agency Inegi.

The drop was the steepest seen in 2023, after the 17.3% decline in January. Raúl García Reimbert, president of Mexico’s college of mining engineers, metallurgists and geologists (CIMMGM), said the fall was mainly related to lower demand for services at new exploration projects. 

New non-oil mineral exploration is practically paralyzed due to the policy to freeze the award of new concessions in the last five years under the government of López Obrador and the uncertainty generated by the mining reforms of last May. The reforms gave geological service SGM exclusive rights to exploration, although the related regulation is pending.

“This 26% drop is very serious. What services are they? Mainly those for new exploration. There are lots of companies dedicated to exploration, which was a very large mining subsector, but that exploration is no longer taking place and there are layoffs, total and partial closures, and that is very, very serious,” García said in an interview with BNamericas.

He said layoffs of between 30% and 40% of employees have been observed, especially at companies with new exploration projects.

“The category of mining services fell very sharply in November, and continues to fall due to the new reform to the mining law …. This reform has to be reformed, so that there's growth,” added the president of CIMMGM.

ENERGY ● 

Risky temperatures: The local market faces the threat of a natural gas shortage due to freezing temperatures in the US. On January 12, grid control center Cenace declared a “state of operational emergency in the national interconnected system.” Although Cenace did not explain the reason for the declaration, it came amid concerns of an Arctic blast hitting Mexico’s north and southern US. President López Obrador later confirmed that it was related to the dropping temperatures.  

Electric reforms debate: The supreme court will decide on a proposal that declares parts of the 2021 amendments to the electric power industry law unconstitutional. The reforms, which currently remain without effect due to the more than 170 appeals filed against them, were meant to prioritize the electric power dispatch of public company CFE, regardless of cost.  

Expropriation decree: Through a federal decree published on December 29, energy ministry Sener ordered the temporary occupation of French firm Air Liquide’s hydrogen production plant at the Tula oil refinery. According to the document, state-owned oil and gas company Pemex will immediately and temporarily take over the 6,452m2 area that hosts four air separation units, while the Pemex Transformación Industrial unit must pay Air Liquide compensation. The declaration that the plant in Hidalgo state is of public utility was interpreted by experts and media outlets as an expropriation.  

ICT ● 

Telecom outlook: Consultancy The CIU projects that growth in the Mexican telecommunications sector will reach 4.8% in 2024, driven by the expansion of fixed and mobile connectivity, as well as voice minutes, channels and contracted content.

The Mexico City-based firm expects that the deployment and development of new-generation networks (mainly 5G and fiber optics) will outweigh the cloudy outlook for global economic activity.

“In recent years, telecommunications have shown their resilience and countercyclical/procyclical nature in the face of macroeconomic swings, with 2023 being no different,” the firm said in a report in January.

Connected schools: Yucatán state announced that more than 2,100 educational centers in 106 municipalities now have free internet services via fiber optic connections under the Yucatán Digital program.

INFRASTRUCTURE ● 

EV plant: Chinese electric vehicle manufacturer Solarever Electric Vehicles (SEV) will invest 6.8bn pesos (US$395mn) in a new assembly plant in Mexico’s Durango state, where it seeks to begin production of four models by 2025. 

The plant was announced by CEO Simón Zhao and governor Esteban Villegas, who also claimed that other major investments will follow this year. 

SEV’s plant will be the second a Chinese player has announced for Mexico’s electromobility sector as part of the nearshoring trend. The first plant was announced in November by EV manufacturer JAC, which has established operations in the country and will expand its Ciudad Sahagún plant in Hidalgo state. 

Rail structure collapse: President López Obrador accused the media of carrying out a campaign against his government by making a "scandal" out of the collapse of a concrete structure of the elevated section of the Mexico City-Toluca rail line, part of which is still under construction.

On January 16, part of the structure of the interurban rail link collapsed on Minas de Arena street, in the Observatorio area of the capital's Álvaro Obregón district, while construction works were being carried out. No injuries were reported.

State projects: San Luis Potosí state announced a 2bn-peso (US$118mn) investment in infrastructure projects for 2024, local media reported. Governor Ricardo Gallardo Cardona said the funds were obtained from the sale of industrial land to Steel Dynamics. 

The funds will be used for several projects, including construction of the three-lane highway from Villa de Arista to Moctezuma and the expansion of the Ahualulco-Moctezuma highway to four lanes. 

Chile: Legislation Push – Now or Never

By Allan Brown

Pension, tax, permitting, and energy reform – along with combatting crime – will likely feature among the top issues on Chile’s 2024 political agenda. 

For President Gabriel Boric and his left-of-center coalition, this year and the first half of 2025 constitute a window of opportunity to get key legislation onto the books before attention shifts to the November 2025 presidential election. 

The wave of violence and breakdown in prison security in Ecuador thrust the issue of crime, and particularly drug gangs, on the news and political agenda, with the center-right opposition calling for a tougher stance by the State. 

The government assured citizens that the country’s prisons were under control, that prison raids to uncover weapons, drugs and mobile phones had been carried out and that other preventative measures were being taken. 

What happened in Ecuador only entrenches public safety as a key issue among voters in Chile. Along with the economy and illegal immigration, violence and drug crime will likely dominate the upcoming presidential debates, where the track record of Boric’s government will be scrutinized.  

Carabineros in Santiago. Credit: AFP

Against the backdrop, key draft legislation should advance. A long-standing task and political hot potato, pension reform may finally get approved after the government ceded over a demand concerning the destination of a planned employer pension pot contribution of 6%, although not all quarters of congress are aboard.  

Tax reform, part of the government’s 'fiscal pact', is pending, while draft legislation to overhaul project permitting entered congress – bills deemed vital to help spur the flow of investment and job creation.   

The government’s energy transition bill remains in congress while draft legislation to cushion the impact of a planned electricity rate hike and gradually address the associated issue of a US$6bn generator debt pile was recently submitted. 

Overall, this year may see increased deal-making and bargaining in congress as the electoral clock ticks for the incumbent administration. 

In a post on social media platform X, Boric said: “In order to be able to reach an agreement that benefits Chileans, we must all make concessions with regards to our ideal stances. As a government, we do it because we know those who have worked all their lives, especially women discriminated against under the current system, cannot continue waiting.” 

SECTOR RISKS

MACRO ● 

Inflation: JP Morgan expects 2024 inflation to print at 3.29%, just above the central bank’s sweet spot of 3.0%. This aligns with forecasts by local lender Santander Chile, which expects inflation to hold steady at around 3% from August. 

GDP: Domestic bank Bci forecasts GDP growth of 1.8% for 2024 and for the benchmark interest rate to end 2024 at 4.5%. The World Bank also expects GDP growth of 1.8% for this year. 

IMF FORECAST FOR 2024 GDP GROWTH: 1.6%

MINING ● 

Welcome reform: The mining sector has applauded reform proposals for Chile’s environmental impact review system (SEIA) that are expected to reduce permitting times.

While presenting the two reforms that are part of a growth agenda, President Boric said the changes were essential to encourage investments, generate jobs, and meet high environmental and social standards.

The first reform targets the sectoral permitting system, incorporating measures such as proportionality and risk criteria, deadlines and the creation of a public body to enforce regulations. The reform is expected to reduce permitting time by at least 24%.

Economy undersecretary Javiera Petersen said in a social media video that times to approve a mining project of over 5,000t per month will decrease by three years from an average of nine currently, and by two years for a desalination plant, which currently takes eight. She did not specify what the 5,000t/m refers to but it is assumed it means copper, of which Chile is the world's largest producer.

ENERGY ● 

Price stabilization: The government submitted a bill containing a third power price stabilization mechanism and a proposed subsidy for 850,000 vulnerable households. The development comes as national energy commission CNE published its definitive power rate technical report, which calculated increases of up to 88% for regulated clients with high consumption, outstripping the 48% hike estimated originally.  

Solar capacity: Installed solar PV capacity is poised to exceed overall maximum daytime demand on the grid – reinforcing the potential for solutions, chief among them storage systems, that can convert surplus into revenue. 

In a related matter, the government has amended its energy transition bill, introducing multiple tweaks, chiefly in the sphere of energy storage.

ICT ● 

5G tender: Movistar Chile presented a precautionary measure before the competition tribunal (TDLC) against the upcoming 5G frequency tender which, in the opinion of the operator, is designed to favor the merger of Claro and VTR.

The Telefónica-owned operator requested that the tender be suspended because it is the “only way to prevent the anticompetitive effects that will be the subject of future legal action that Movistar will file against regulator Subtel.”

Movistar claims that the tender rules limit in an “unheard of, unjustified and illegal way the entry of new mobile network operators and ignore the international trend of telecommunications networks.” It mentions that due to the current spectrum accumulation limits, the tender privileges ClaroVTR to the detriment of the other established operators. ClaroVTR is the only operator that has not yet launched 5G networks.

M&A: Direct-to-the-home company TuVes acquired Claro's satellite operation, the sale of which was one of the conditions imposed in October 2022 by the national economic prosecutor's office to approve the América Móvil unit’s merger with local telco VTR.

The sale was completed on December 29 last year, Miguel Amunátegui, one of the bankers in charge of the operation, reported on social networks. The terms of the operation were not disclosed. 

Claro split off the satellite operation after the merger with VTR and since then it has been managed by a trust.

INFRASTRUCTURE ● 

Permitting and concessions: The government is betting on a reform to permitting processes to speed up projects in key areas such as infrastructure, where the public works ministry is looking for investors as it plans to launch 12 concession tenders worth US$5.6bn this year.  

Launched so far is the auction for a US$56mn penitentiary in Maule region, while a tender for a long-awaited US$300mn desalination plant in Coquimbo region is also expected for this year.   

The 2024 concessions agenda also includes cable cars, highways, airports and light rail projects. Outside concessions, MOP plans to invest US$3.89bn this year in over 3,700 projects.