Octavio Frias de Oliveira Bridge, São Paulo - @sdmarks
“The Brasilian economy is moving despite the politics,” said a good friend recently over lunch in São Paulo. This small sense of optimism may surprise casual observers of Brasil who follow the drama portrayed in the global media. Case in point: the trials and tribulations of the leftist former president Lula, rising security issues in Rio de Janeiro and and the “mass exodus” of wealthy Brasilians, and recent labor issues with truckers that led to a slowdown of the economy.
While it is true that institutional chaos reigns, the deregulation reforms that were put in place by the deeply unpopular and corrupt President Michel Temer may be working. After years of negative growth (-3.4% GDP in 2015), the economy grew by 1% in 2017 and it is on track to grow by 1.5%+ this year during a challenging election cycle.
One such reform addressed antiquated labor laws, which favored the worker in frivolous termination lawsuits and now require the losing party to pay the legal costs. This is no small measure as there are salaried employees whose only job is to hedge against these lawsuits by developing algorithms to determine which suits to settle and which ones to fight. Employees will now be easier to hire and fire, which is something that has plagued multinationals for years in Brasil.
Austerity measures also needed to be taken by the government where spending was clearly outweighing revenue. Constitutional governmental spending measures were passed and while not addressing the impending pension crisis, these reforms do provide a certain level of stability at a federal level.
The by-product of the short lived Temer era could be economic conditions that may lead to a more stabilized economy and a slight increase in foreign direct investment (FDI). FDI in Brasil hit $6.5B USD for the month of June 2018, which is higher than the estimated figure of $6B.
The question remains: are these gains an illusion or indicative of a larger recovery? Only time will tell and with a critical election on the horizon, the race may be competitive for candidates who harness the public’s anger towards austerity. This could halt Brasil’s progress over the past year and shorten the recovery.
In order to truly create long-term economic stability, a private equity contact and native Brasilian described the keys as, “education of the work force, improvement of infrastructure and continued deregulation”. Only then will Brasil be a true superpower and global economic force.
For now, opportunities exist for those who are patient, those who have a good local partner and the stomach to tolerate the rollercoaster that is politics in Brasil.