Brazil’s Current Turmoil as it Prepares for the Olympics
Brazil has been top of mind for many reasons in the past months, certainly not always due to the Olympic Games that will be hosted in Rio de Janeiro this summer. The impeachment of President Dilma Rousseff and ensuing political unrest and the spread of the Zika virus with health implications for pregnant women and their newborn babies have resulted in extensive media coverage. Multinational companies, international business travelers, and tourists around the world are pondering the implications of the challenges that Brazil is currently facing.
To explain the current political and economic state and its implications to visitors, we turned to two of our close associates in Brazil, Virginia Eickhoff Haag, a Brazilian professional working in international export, and Sven Dinklage, a German senior consultant living in Brazil.
The city of Rio de Janeiro is hosting a second big sporting event in Brazil (after the football world cup in 2014), the 2016 Summer Olympics. However, the country has been in the news much more due to its recent political turmoil. What should foreigners know about the current political state of the country?
Virginia: The impeachment of the President of the Republic is set forth in the Brazilian Constitution. Dilma Rousseff is facing charges of manipulating government accounts in 2014 to 2015, in order to misrepresent the budget execution approved by Congress. The impeachment is still in process, although she was suspended from Brazil’s Presidency on May 12 until her judgment by the Senate, which should happen within 180 days from the date of suspension.
While this uncertainty prevails behind the scenes, Vice President Michel Temer has taken the position of head of state. He is trying to restore trust in the national economy. His actions aim to cut public spending, reduce the number of ministries, reshape the management of state enterprises (especially those involved in corruption cases, such as Petrobras) and change the orientation of foreign policy in favor of closer diplomatic and trade ties with the United States, European Union, and Japan.
At the same time, Temer is apparently unable to establish economic measures of greater impact, as they tend to be controversial and intensify the political debate.
More forceful measures will only occur after the end of impeachment process. Until then, the Brazilian economy will continue to face difficulties, with the highest interest in the world, a tax burden that is close to 40% of GDP, and the lack of confidence of entrepreneurs and consumers. The latest available data (March 2016) show that industrial production in Brazil fell 9.7% in the last 12 months, trade fell 5.8%, and vehicle sales fell 17.6%. (IBGE)
Sven: From a cultural point of view, the political and other turmoil in Brazil is normal. In fact, Brazilians are very used to it and like to live “com emoção” (emotionally) instead of “sem emoção” (unemotionally). I’m sure they will put on a great show during the Olympics, as always, and the foreign visitors will not take much notice of the domestic problems the country is facing.
How would you say the current political and economic state of Brazil affects multinational organizations doing business with Brazil?
Virginia: It is hard to give a clear answer before knowing the result of Rousseff’s impeachment process.
If she is permanently replaced by Michel Temer, the country’s priority will be the resumption of the objective conditions for economic growth.That would mean the creation of a more favorable environment for multinational organizations, for example, special policies to attract investment through tax benefits, as well as raising funds for the exchange of domestic debts to external, as a supplementary means of balancing public accounts.
Michel Temer was very clear in his opening statement about favoring the privatization of Brazil’s state-owned enterprises. This can present opportunities for international investors in the infrastructure sectors: electrical, petrochemical, and others.
If, on the other hand, Rousseff returns to the presidency, the implications may be very different. The Workers’ Party (the political base of Rousseff) clearly favors nationalization and social assistance policies financed by increased taxes and high interest rates. In this context, it is more likely that the Brazilian economy will continue in a recession until at least the end of 2018, when new presidential elections will decide the political future of Brazil.
Sven: Of course, the trust in Brazil as a macro-economy has suffered a lot lately, as problems in all areas have kicked in and rating agencies have downgraded the country. We can certainly see that multinational organizations have also put their investments on hold, while unemployment is reaching historic heights. You see a lot of shops in the streets having gone out of business. I am also witnessing many multinationals pulling Brazilian talent out of the country and transferring them to other places, such as the US.
News about the Zika virus and potential unrest have quickly spread around the world, creating fear for tourists and business travelers alike. From a local perspective, what advice do you have for professionals who are going to Brazil for business these days?
Sven: I would advise pregnant women to avoid Brazil at the moment because of the Zika vírus. As for the rest, there is currently no additional risk to visiting the country. Much to the contrary, your stay will turn out to be much cheaper than in 2013 or 2014, due to the weak local currency, the Real. On an additional note, it may be challenging to get around Rio de Janeiro during the Olympic Games. While most sites have been completed on time, the infrastructure (especially bus and metro lines) have not been finished, so getting from one place to another may prove difficult during the games.
Virginia: The Zika virus is already widespread in South and Central America, and is projected to advance to the Northern Hemisphere by July of this year, according to the World Health Organization. A scientific partnership between the University Medical Branch (Texas, USA) and the Institute Evandro Chagas (Brazil) is starting clinical trials of a vaccine in November.
Doctors recommend that pregnant women avoid areas that have aedes-aegypti mosquitoes. Remember the aedes-aegypti is also a transmitter of other diseases like dengue fever, which can be fatal. You should always wear appropriate insect repellents in high-risk areas, such as areas with standing water.
Finally, what are the sentiments and feelings of Brazilians towards the Olympic games?
Virginia: Right now, the priority for Brazilians is the political and economic crisis in the country. This should change in the weeks leading up to the Games in Rio de Janeiro.
Tourists who come to Brazil during the Olympic games might see political protests, but without the risk of physical violence. Typically, Brazilian political protests are peaceful, with no significant history of physical abuse. Besides that, the security of Rio de Janeiro will be strengthened during the Olympic Games.
Here’s a tip – Tourists in Rio de Janeiro should avoid venturing outside the well-known tourist areas and avoid displaying jewelry, cell phones, cameras, luxury goods and money on their trips.
Sven: As with other countries that host big events like the Olympics, Brazilians have voiced a lot of criticism about the money that is being spent. Brazilians are aware that this kind of event is an opportunity for only a few people to earn money, while many important and necessary things may fall short (i.e. education, infrastructure). This especially leaves the poor population feeling no impact from the “economic benefit of the Olympics.” Besides, looking at the state of official organizations like FIFA and hearing reports on doping, etc. doesn’t help the credibility of these kinds of events.
On the other hand, Brazilians are curious about sports that are not so popular here (like badminton, rugby, or field hockey). But I’m not sure how many will be able and willing to go to Rio to attend a live event. As a Rio taxi driver told me the other day: “I’m taking the whole month of August off and will leave the city!” For my part, I have bought a family ticket for a football (soccer) match in São Paulo (the only sports not concentrated in Rio), which is much closer to our home in Campinas/SP!
Thank you, Virginia and Sven, for clarifying the implications of the political and economic turmoil in Brazil on international visitors and multinational corporations.
If you are travelling to Brazil for business anytime soon, have a look at our Country Briefing on Brazil to learn more about the country and local business culture.
Sven Dinklage has been living in Brazil since 1998. Born in Germany and with a degree of “European Master of Management” from ESCP Europe in Paris/France, he spent a decade working for the Robert Bosch Corporation before founding his own company in 2007 and dedicating himself to intercultural training, and leadership development and coaching, all of which he also conducts through various partnerships.
Virginia Eickhoff Haag is a Brazilian entrepreneur with a Master in Economics with a specialization in International Business, She has been working with Brazilian and foreign companies, contributing to the entry into new markets and developing global strategies.
Further suggested reading:
The Economist explains: Michel Temer’s plans for Brazil