Travel retail and duty free industry keeping eye on Brazil developments

 

ASUTIL Secretary-General José Luis Donagaray 
 
Brazilian President Michel Temer remains on shaky ground with Congress set to vote this month on whether the country’s Supreme Court should be allowed to try him on corruption charges. 
 
But for now it appears the political scandals are not having an overriding impact on the economy.
 
Recent news reports show industrial output rose for two consecutive months in April and May. And capital markets are holding steady, after a brief decline in May when bribery allegations against Temer first surfaced.
 
Temer has consistently denied taking bribes from JBS, Brazil’s largest meatpacking company. But the next steps are in Congress’ hands, and if they decide to move forward, it Brazil’s Supreme Court will conduct the trial. 
 
But the fact that the economy appears to holding steady is especially good news for the travel retail and duty free industry.
At the June 2017 conference of the South American Association of Duty Free Stores (ASUTIL) in Rio de Janeiro, Secretary-General José
 
Luis Donagaray said growth had been in the double digits during the first quarter of 2017, in large part due to the fact that Brazilians and Argentines were on the move again.
 
“Brazilians and Argentines are traveling a lot,” Donagaray told us in an earlier interview. “Things are good in Uruguay, Paraguay and Peru, too,” he said. “And people are spending a lot in the duty free stores.”
 
But an economically healthy Brazil is essential for a healthy duty free and travel retail industry in South America. Donagaray’s colleague, Gustavo Fagundes, ASUTIL President and COO of Dufy Brazil and Bolivia, puts it succinctly. 
 
 “You have to remember when we check Brazil and we put this into a South American environment, we see 50% of the geographic area and 50% of the population. “It is very difficult to understand the industry if we don’t understand Brazil.”
 
The industry suffered when Brazil’s economy went south after Temer’s predecessor, Dilma Rousseff was impeached. As Rouseff’s vice president, Temer took over. Now, however, Temer is in political trouble and if proceedings against him go forward, he could become the first sitting president in Brazil’s history to be tried for corruption.
 
But for now the message is that the political challenges confronting Brazil will not hurt the economy.
 
Murilo Portugal, president of the Brazilian Federation of Banks or FEBRABAN, who was the keynote speaker at the ASUTIL conference, told attendees he was optimistic about Brazil’s future. 
 
“Despite all the challenges we have, having lived through a number of crises myself … my impression is that I am confident we re going to overcome these political problems and that the structural factors are going to have a positive impact on economic outcome. 
 
“Brazil is an open society with no religious or ethnic or cultural conflicts…with a stable and thriving democracy.” he said. He also pointed out Brazil’s professional tradition, it’s free press and it’s active civil society.  “All these forces help to keep checks and balances working well, he said. “And it is also a country with plentiful investment opportunities.”
 
Ernesto Talvi, Academic Director of the Center for the Study of Economic and Social Reality  (CERES) of Uruguay also spoke at ASUTIL. He was a bit more tenuous, but still generally positive. 
 
In regards to Brazil (and Argentina) he said  there are myriad possibilities for economic rebound. “If the political situations are resolved, (through situations) that are being generated, the capacity to reboot these economies is huge… But we need the political capacity to do it.”