Sanctions on Russia could hinder trade with Brazil

The sanctions imposed on Russia, such as the withdrawal of banks from the Swift international payment system and the freezing of part of the international reserves, can make it impossible to ship products from that country to Brazil and even delay the unloading of goods that are already on their way to the our country.

Specialists in the area of ​​foreign trade assess that the biggest risk for Brazil at this moment is not to guarantee the delivery of fertilizers, products that represented 62% of imports from Russia in 2021.

Exports, on the other hand, could be directed to other countries, since the foreign country represented only 0.6% of the foreign market for Brazilians last year.

Mauro Lourenço Dias, director-president of Fiorde Logística Internacional, says that the sanctions imposed on Russia may make it impossible to grant letters of credit to exporters and importers. Without this guarantee of receipt, both Brazilian companies and their Russian counterparts would not have the security to carry out their operations.

“It is impossible for you to do international trade. The payment system has already been compromised. If there is no swift, the big banks will not issue a letter of credit for operations with Russia”, he says.

According to the executive, this puts Russia in a situation similar to that of Cuba, Venezuela and Iran, which are also outside the international banking system.

He says that even goods that have already been shipped can be held up longer in Brazilian ports until the importing company manages to make the money reach the seller in Russia. “The ship will arrive here and it will be difficult to release the cargo”, he says.

José Augusto de Castro, president of the AEB (Brazilian Foreign Trade Association), says that Brazil has a way to compensate for a possible drop in exports of products to Russia, including soy, meat and coffee, by directing supply to other countries.

In 2021, Russia accounts for just 0.6% of Brazilian sales abroad, with values ​​representing about a third of what was seen in 2008, during the previous commodity boom.

For him, the problem will be imports, especially fertilizers. These products accounted for 62% of Brazilian purchases of Russian products in 2021. Last year, imports of these inputs reached a record US$ 3.5 billion, an increase of 98% compared to 2020.

“What is sold in meat, soy and other things there is not so important. Last year’s exports were R$ 1.6 billion. You can put this in other countries without any problem,” he says.

“Now, when importing fertilizers, there is no alternative market today. If I stop buying fertilizers, it will affect productivity and we will have fewer products to export, either to Russia or to other countries.”

The AEB president says difficulties with the Swift payment system are a second problem. The first will be to ensure that the supply of input to the crop is not affected. He believes that the Russians can hold back their sales to value the product, as they know that there are no alternatives today for consumers of these products.

“Brazil, as a major agribusiness producer, depends on fertilizer from Russia and also from Ukraine. We have no alternative market. New shipments will depend on what Russia decides and it can suspend them.”

Last year, Brazil exported US$ 1.6 billion to Russia and imported a record US$ 5.7 billion (107% more than in 2020), according to data from the Ministry of Economy.

The bottlenecks in foreign trade are another factor that should contribute to the rise in prices of products imported by Brazil.

Economists estimate that the conflicts in Ukraine tend to generate an increase in inflationary pressure in Brazil, which can lead to a need for even higher interest rates by the Central Bank, and, consequently, to lower economic growth.

Sérgio Vale, chief economist at MB Associados, points out that Brazil imported around 40 million tons of fertilizers over the past year.

Of that amount, just over 20% came from Russia, points out the economist, adding that the natural tendency is for an increase in the price of inputs, given the escalation of war in Ukraine and the sanctions of Western countries against Russia.

“The war in Ukraine brings a shock that is not trivial on top of a Brazilian economy that is already very pressured by double-digit inflation”, says Vale.

With a projection of 5.8% for the IPCA for this year and with a Selic of 12.25%, the chief economist says that conflicts in Eastern Europe should make Brazilian inflation reach the 6% mark in 2022. , with an interest rate that could get closer to 13% at the end of the monetary tightening cycle.

In this scenario, the growth of economic activity, which MB Associados already predicted close to zero in 2022, tends to remain in the negative field, says the economist.

“We cannot rule out that we have, in fact, a recession”, says Vale.

He recalls that, in addition to the escalation of global risks, attention must also be paid to the domestic scenario, in which uncertainties related to the political field should further cloud the market’s expectations for the performance of the local economy.

“In addition to the price pressure brought about by the rise in commodities, the race for safer assets should favor an appreciation of the dollar, to the detriment of emerging market currencies such as Brazil”, says Alexandre Schwartsman, economist at the Schwartsman & Associados consultancy and former BC’s director of international affairs.

While this year’s inflation is expected to be lower than 2021’s, the expected slowdown in prices is likely to occur more slowly than previously anticipated, says Schwartsman.

In the most recent Focus report, the median of the projections points to an inflation of 5.56% in the year, with a GDP of 0.30% and a Selic rate of 12.25%.

“Given the carriage ride, I would not rule out inflation testing levels above 6% this year, with the possibility of postponing the convergence of inflation to the target for 2024”, says the economist, who says he considers the BC to be a “very real possibility”. having to take the Selic rate to the level of 13% per year.

Economic sanctions on Russia and market reactions