Brazil’s centrists ‘could bolster Bolsonaro’s agribusiness reform efforts’

Aqua Capital chief executive Sebastian Popik tells Agri Investor that after a years-long period when macroeconomic uncertainty complicated Brazil-focused fundraising efforts, he expects a surge following the country’s October 28 election.

Early indications of support among Brazil’s centrists suggest President-elect Jair Bolsonaro will be able to enact agribusiness-friendly reforms in the near term, according to the chief executive of São Paulo-headquartered Aqua Capital.

Speaking to Agri Investor three days after Brazil’s October 28 election, Sebastian Popik stressed that the Bolsonaro campaign’s approach had been more business-friendly than its competitor, which had helped the administration secure wide support among Brazil’s agribusiness community.

In addition, he said, early steps including a focus on retirement reform and eliminating deficits, the appointment of pro-business cabinet members and a streamlining of government ministries have all been received as encouraging signs among the country’s centrists.

“There is a sense that they [centrists] will give him support, at least in the initial stages, and then we have to see how that goes,” said Popik. “After the honeymoon period, the capacity to create a coalition to pass reforms and then to sustain that coalition over time; that’s the big issue.”

Regarding Bolsonaro’s broader popular mandate, Popik highlighted that the President-elect  secured almost 50 percent of popular support in a crowded field during the first round of voting and that Brazil’s lower chamber contains representatives of more than 30 political parties, none of which control more than 12 percent of votes. After a campaign during which corruption and public safety were the key issues, Popik said, the initial focus is likely to be in those policy areas.

“Brazilians want change,” said Popik. “There’s an endorsement from the business community, and the centrist parties, to give the new administration a chance. In the short term, we will see measures getting passed and change being enacted. Then, the question is how that plays out over time.”

“The intent is there”

Though Popik said it was too soon to know what Bolsonaro’s election would mean for the long-running debate around restrictions on land ownership by foreign investors, he did say the new government has indicated it will support specific steps to lower structural costs that have hindered the international competitiveness of Brazil’s agricultural sector.

“Specifically, what that means in terms of measures is not clear yet,” Popik added. “Campaigns, typically, are vague, but the intent is there.”

In the meantime, he said, a recent strike among truck drivers has helped draw renewed attention to infrastructure constraints that have harmed Brazil in international markets. In August, Latitude 20 Capital Partners’ partner Eimaad Ahmed told Agri Investor that the labor dispute had been among the factors keeping Brazil from taking full advantage of changes in soybean trade flows between China and the US.

“Those higher costs have moved the private sector to accelerate their participation in initiatives that improve infrastructure,” Popik said, highlighting indications of support by Cargill, Bunge and Amaggi for a proposed railway connecting agricultural production areas of central Brazil to ports in the country’s north.

Partial cloud lifting

Aqua closed its most recent fund on its hard-cap of $370 million in June 2017, though Popik acknowledged last week that macroeconomic uncertainty had complicated Brazil-focused fundraising efforts over the past two or three years.

“Some of those clouds have been lifted and we should see an increase in fundraising from fairly low levels,” he said. “There’s probably a long line of managers that were in the market, or are planning to go to market, shortly after the election, that will be hitting the market.”