Brazil—Political scandals make for bad business

By Rachel Duk,

If the current antics of a certain “reality-star-turned-presidential-candidate” are anything to go by, political scandals are currently in vogue. For those of us watching on here in the UK, the build up to the US election has made for compelling viewing—a fascinating political soap opera that would keep writers of House of Cards in storylines for years to come. For the US electorate however, the debates are a glimpse of an unappealing reality that may come to pass when votes are cast today. Watching on with some empathy perhaps, are the inhabitants of Brazil—who are all too familiar with the damaging effects politically bad behaviour can have on business.

The Petrobras scandal that shook Brazil was a perfect storm. When the company discovered the biggest deepwater offshore oil resource in recent history, the opportunistic leftist Worker’s Party (‘PT’) ensured that state-owned Petrobras would have full control, while they set about diverting funds to their party and sharing their ill-gotten gains with the shady cast of construction companies they were in collusion with. Unfortunately for Dilma Rousseff—Brazil’s president at the time of the investigation—her background as chairman of Petrobras during the period of corruption, proved that in politics the past is definitely not another country.

The investigation cast a long shadow over Brazil’s business market, a fact that was further compounded by economic turmoil. Despite observing time and again that consultants are resilient to volatility, and indeed can make a good living supporting clients when the chips are down—the crisis in Brazil had a deep impact on the consulting market. As we discovered while producing this year’s consulting market report for Brazil it contracted by 4% over the course of 2015, shrinking to $976m.

The energy & resources industry was, unsurprisingly, hit particularly hard. Petrobras itself slammed the brakes on planned investments, and low commodity prices meant the spending power of many other clients was significantly constrained. The uncertainty of the economic climate put consumers off spending—which shook the fortunes of the retail and manufacturing industries.

For the majority of the consultants we spoke with, the impeachment of Rousseff and the newly elected government is heralding a new dawn for Brazil. For now at least, there is a clear commitment from politicians and clients to clean up their act, learn the lessons of the past year, and ensure that the country’s economy is positioned to return to growth. While the scandals of the past years have generated headlines, Brazil has learnt that economies thrive on strong and transparent leadership. Perhaps those in the Northern Hemisphere should take note.