How the Amazon’s destruction is pushing away investors in Bolsonaro’s Brazil
By: Isabel Oriol Llonin
In the last article 'When political change becomes a risk: how the Mexican government undermined investor's confidence' a case was made that political change in some Latin American countries can bring about a drastic change in a country's economic policies. This can represent a risk for mid-term and long-term business interests. This Dyami Insights will discuss how political change in Brazil has impacted business interests with the new government of Jair Bolsonaro.
As a controversial figure, Jair Bolsonaro has made world headlines for his far-right, discriminatory remarks. However, his problematic comments are not the only issue that has impacted Brazil's international image. The international community has not welcomed his environmental policies and the rise of deforestation and human-made fires in the Amazon rainforest. They have ultimately damaged investor's confidence in Brazil.
A country in need of change
The election of a far-right leader in Latin America's leading economy stirred controversy around the world. Many were afraid Brazil would take on a completely different direction bringing uncertainty to the country and the entire region, especially after 13 years of left-wing governments led by the Worker's Party (Partido dos Trabalhadores).
In the five previous years to Bolsonaro's election, Brazil faced the worst economic recession in the country's history with rising numbers of unemployment and crime. In 2014, operation 'Car Wash' (Lava Jato) uncovered deeply rooted corruption at the highest levels of politics, extending to several government officials, companies, and countries across the region mostly in the form of handouts and briberies in the oil and energy sector. For many Brazilians, the Worker's Party and its leaders were responsible for such high levels of corruption, crime, and a struggling economy. Bolsonaro exploited people's discontent with a very discredited left and presented himself as the heavy-handed anti-establishment candidate the country needed to end corruption and crime.
Once elected, Bolsonaro pledged to the outside world to 'eliminate uncertainty for foreign trade flows', by lowering taxes and loosening regulations in order to appeal to international investors. However, major foreign businesses have started to see Brazil as unappealing for investments due to a different issue than economic policies: the Amazon rainforest.
How the Amazon was put under the world’s spotlight
The Amazon rainforest is the largest and most biodiverse rainforest globally; it comprises more than half of the world’s rainforest areas. The Amazon plays a crucial role in sustaining life on the planet, and it is estimated that it absorbs 5% of the CO2 annual emissions, playing a vital role in preventing climate change.
While the Worker's Party leadership in Brazil did not have a clean sheet in terms of environmental damage, regulations were put in place to contain the Amazon's deforestation. Since Bolsonaro, a climate-change denier took office, many of these regulations have been removed, and deforestation continues at alarming rates. Between August of 2019 and July 2020, a total of 11,080 sq km were deforested, a 9.5% increase from the year before setting the record for a 12-year high.
Additionally, in 2019 the Amazon made world headlines due to an increase in wildfires. By 2020 the situation had worsened with a rise of 28% in July 2020 over the previous year, almost 50% in September from a year earlier. Many of the wildfires are human-made and illegal with the aim to repurpose the land for the production of beef and soybeans. Bolsonaro has been accused of turning a blind eye to these unlawful practices.
A burned area in the Amazon Rainforest in Prainha, Para state, Brazil. (AP Photo/Leo Correa)
Concerned about their reputation and the security of their long-term investments, international investors have urged the Brazilian government to curb deforestation. In June 2020, a group of financial institutions collectively managing more than $3.7 trillion in assets urged the Brazilian government to reconsider its environmental policy claiming it has generated "uncertainty about the conditions for investing in or providing financial services to Brazil".
Private investors are not the only ones pressing the Brazilian government for a change in the Amazon management. In 2019 president Emmanuel Macron of France called the Amazon wildfires a global crisis that should be addressed at the G7 summit. President Bolsonaro did not welcome this comment and accused Macron of colonialist tendencies.
The tension between the two leaders had impactful consequences. Macron stated that France would be opposing the EU-Mercosur free trade agreement if Brazil failed to contain deforestation in the Amazon. The EU-Mercosur (Brazil, Argentina, Paraguay, and Uruguay) agreement is reaching the end of negotiations after nearly 20 years. It would create the largest free trade agreement area in the world. After the rejection of other European countries to Brazil's environmental policies, the deal now hangs by a thread.
More recently US president-elect Joe Biden pledged to spearhead a $20 billion international effort to protect the Amazon while threatening with 'economic consequences' if Brazil failed to cooperate. So far Bolsonaro has been defiant of Biden's and other foreign leaders' remarks regarding the Amazon and framing it as an issue of Brazilian sovereignty.
It is likely that in the upcoming months, with president-elect Biden taking office in January, the topic will regain attention. The US might join efforts with others in the international community to leverage against Brazil's environmental policies by imposing economic sanctions or encouraging companies to stop importing Brazilian products (just like Timberland, Vans, and The North Face have already done). This could potentially represent a significant blow to the Brazilian economy, which has been hit hardly by the COVID-19 economic crisis. It is a risk that Brazil might not want to take.
This article is part two of a series highlighting the importance of political change in security risk analysis in the region of Latin America.
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About the author
Isabel Oriol Llonin is a contributing analyst at Dyami. She holds a bachelor’s degree in International Relations and has a post-graduate degree in Public International Law from Utrecht University. She has expertise in the Latin American region and the public international law implications of conflict analysis.