These are difficult times for Brazil. For years it has been the ‘almost’ country, never quite living up to expectations. There always seem to be stumbling blocks that arrest Brazil’s development, preventing it becoming one of the economic success stories in an otherwise lacklustre global economy.

The question is: why? In a recent report in The Economist headlined ‘After the election, the reckoning’, Brazil was cited as one of a number of so-called emerging markets “facing headwinds”.

Last October the country’s President, Dilma Rousseff, whose Workers Party (or PT) had won a second term in office, had her victory celebrations quickly tempered by troubling news on a number of fronts. Yet following the financial crisis of 2008, Brazil appeared at first to be coping well, in contrast to many developed nations.

At the time the front cover of The Economist took a rather more optimistic stance, showing ‘Christ the Redeemer’ taking off like a rocket from the hills above Rio de Janeiro – graphically indicating that Brazil would soon be demonstrating a coherent, structured growth plan outpacing other, more mature markets still stuck in the doldrums.

But the predicted good times haven’t yet arrived… Instead growth has remained stubbornly low. What’s more, some of these chilly economic conditions were entirely of the country’s own making. As part of a pre-election giveaway, spending grew twice as fast as revenues in 2014 leading to a budgetary hole equal to 4.9 per cent of GDP in the 12 months to September 2014, a 12-year high.

Ms Rousseff’s government has missed its self-imposed target of 1.9 per cent primary surplus for 2014. According to André Freire (left), partner and president of Odgers Berndtson’s Brazil office in São Paulo: “Brazil suffers from poor infrastructure, corruption at several levels and a lack of long-term planning.” He adds: “It also lacks talented manpower.

Regrettably, the country has one of the worst productivity rates in the world, further aggravated by this rate having deteriorated even more during the past decades. This fact, combined with the low quality of education and the high cost of labour derived from an ancient and protectionist legislation is making companies less competitive as each year goes by.”

The crash in oil prices (hovering around just $60 at the time of writing) hasn’t helped one of Brazil’s largest companies, either. According to, a business and financial website specialising in Latin America: “Petrobrás holds the title of one of the most indebted companies in the world, it also faces the issue of a depreciating currency (the Brazilian Real).

Eighty per cent of Petrobrás’ debt of BR$240 billion [US$90 billion, €73 billion] is denominated in US dollars or Euros. In 2014 the company spent over BR$35 billion [US$11 billion, €13 billion] just to service its debt.

With the depreciating currency, this bill will go up.” Adriano Pires, an energy consultant, added: “The company is so leveraged and with such a high need for investment, that an abrupt change in exchange rates can be fatal to its ability to service its debt in 2015.” To make matters worse, a huge corruption scandal was uncovered in December 2014, involving Petrobrás and the largest Brazilian contractors, putting the company in an even more negative spotlight.

So why does Brazil have such problems? Jaime Szulc, President of Goodyear Latin America, is unequivocal: “Brazil did not make good use of the economic strength that was evident over the past 10 years. It did not capitalise on the resources available – and there were many – in infrastructure, technologic innovation, or in the industrial sector. It failed to deal with important matters, like the complexity of the Brazilian tax regime. There are also snags in the labour area, where direct charges are more than 100 per cent over the payroll, versus 30 per cent on average in other countries, like Mexico for instance. All these factors created the so-called ‘Custo Brasil’ [a combination of factors that make Brazil a relatively expensive place to do business], which prevents us from growing and from achieving better competitiveness.”

Marcelo Barboza, President of the Brazilian wing of the giant US pharmaceutical group Valeant, agrees: “Dealing with commodity prices and instigating essential fiscal and tax reforms have not happened. It’s a complex scenario that has weighed heavily and caused the country’s growth to slow down.”

Marcelo Bertini, President of Cinemark, which owns the largest chain of movie theatres in Brazil, lays a great deal of the blame for the country’s economic woes at the government’s door: “Political management and other things were lacking, like no planning for boosting economic development. We have had 12 years of a government that centralised decisions with a high degree of interference in the day-to-day running of business. This government has not been capable of adequately using the resources that the country accrued over the past few years. For example, there were several factors that hampered the necessary evolution of infrastructure; Brazil attracted many investments, but they were badly redistributed.”

Coupled with these regulatory, infrastructure and tax problems Brazil also suffers from a severe lack of talented human capital. Says Goodyear’s Szulc: “Education is the point. As a rule, Brazilians are highly creative individuals and good problem solvers, mainly as a result of navigating through years of high inflation rates and other adversities. But there has been one point that has not been well developed, which is an analytic capability. Therefore, everything has to be worked on from scratch. The country needs to improve its performance on the educational side.”

Valeant’s Barboza is more explicit: “I believe that local companies will now have to put their efforts into leadership development tools like coaching and mentoring and develop a strong feedback process: in effect, do what the multinationals have been doing and doing well. Local companies will just have to adopt this route.”

For Cinemark’s Bertini, there is no point discussing leadership when the problems are much more serious. “It is right down at the basis of education. The country needs to evolve with regard to public education; in other words, review the learning system that is poor. Investments in education are meagre. The people are not to blame; it’s the system that doesn’t work. It just doesn’t perform its role of actually educating.”

Osmar Stefanini, Vice-President for Human Resources at Laureate University in Brazil, gives an educationalist’s perspective on the country’s plight: “Brazil is at a defining moment. The government  needs to create a favourable environment for investment. An investor does not require the country to be ‘totally ready’ in order to invest, but it is very important that they can visualise a scenario with clear rules and no concerns about abrupt or radical change. The last thing investors want is a series of disruptions and instability that might bring the market to a frenzy.”

Nevertheless, there is a consensus between economists and business people that Brazil simply has to shape up. It has to declare clearly what the routes to growth are for its economy and for the country’s society as a whole, or it will continue to promise great things but never quite deliver them.

Says Freire: “The market needs to visualise the horizon. For some time, the corporate world has been looking for efficiencies at all levels of an enterprise. Brazilian companies have already shown greater concern towards corporate governance, particularly if they are going to succeed in attracting investments from outside Private Equity Funds or Venture Capital. This has made them look to diverse talent and human capital management tools such as coaching or assessments, among others.

“In addition there has been a clear trend for setting up Advisory Boards with the intention of professionalising Brazilian companies, thereby achieving better access to the capital markets and to less expensive financing. I see this trend accelerating over the next few years.”

Meanwhile all the indications are that 2015 will not be an easy year for anybody in Brazil.

Renato Barbosa, CEO of Coca-Cola Andina [which includes Brazil, Argentina, Chile and Paraguay], is clear: “The government will have to adopt strict measures to make the country grow again. Many measures that could have been made gradually were not accomplished and now they must put them into place all at once. In this new mandate, the government faces an adverse scenario, with a monetary and financial model that has been weakened by the fiscal deficit.

There are several difficulties to be overcome, such as the increase in public tariffs, the risk of shortages in water and energy resources impacting the country’s productivity, as well as the productivity of organisations themselves.”

Barbosa is clearly concerned about the effect high inflation has on the life of the population and to their capacity for consuming. “With a tighter budget,” he says, “people need to cut expenses and establish priorities at the time they are actually in front of the supermarket shelves.”

He knows that Coca-Cola is a product that needs to reach out to all consumers at a price that is compatible with their current purchasing power. This presents a clear challenge to a company that has to carefully monitor its costs and yet be highly productive.

In addition, Coca-Cola, like other big multi nationals operating in Brazil, must obey the country’s tax and labour rules, keep margins aligned and somehow provide the consumer with a quality product at a fair price. With all of this uncertainty surrounding Brazil’s longer term economic prospects, the upcoming 2016 Olympic Games might be seen as a potential Holy Grail.

Coca-Cola is the first global sponsor of the Rio 2016 Olympics and will deploy a large contingent of personnel at the event, involving professionals from the entire Coca-Cola Andina system in South America.

“In this regard,” says Barbosa, “many things are already being activated. Special packaging, the deployment of a team of professionals experienced in large events, plus an operation formed by great talents.”

With the assistance of Odgers Berndtson, the company has been busy setting up a robust management ‘corps’ over the past few months, with competencies well aligned to the project and to the goals the company has established for the years leading up to the Games.

But what will the Brazil Olympics really contribute to the nation? Opinions vary wildly.

Cinemark’s Bertini has positively vitriolic views: “I’m sorry, but something that costs BR$37 billion [US$14 billion, €11billion] in a country that is unable to balance its accounts  just cannot be seen as positive. Futhermore, this is an event that will be headquatered in one single city. I really cannot see how all this will generate a positive platform, not even for Rio de Janeiro. To hold an Olympiad is an extremely complex matter, it involves technology and great management capability, which I beleive we are not well prepared for. No, I'm not optimistic about this".

Valeant's Barboza has a more positive perspective: "In reality, this is an event that has a much broader scenario, because it involves a diverse range of sports, and this is very good. This will be a positive moment. Brazil is still mostly focussed on Soccer and it will be good to have the focus broadened to other areas. We here at Valeant have a product line of supplements dedicated to the sports' areas and for us this will indeeed be a good moment."

Either way, the Olympics are hardly likely to provide a panacea for all of Brazil's ills.

Almir Herdy de Orem, President of Merolar, a Spanish real estate multinational, established its Brazilian operation a few years ago and has a much more positive view of Brazil's future: "Merolar has been growing in Brazil year on year since our startup in 2010. Brazil is a large market, with an important urban concentration. It has a growing middle glass allowing our company to grow sales substantially.

The large population is another enabler of growth for our market. Even taking into account the short term economic and political issues, we have no doubt that Brazil is a great country and our compnay has solid plans to maintain our investments there for the years ahead. Our target is to become one of the most important companies in our sector in Brazil, creating value for our shareholders, customers and employees."

"Although the short term outlook is challenging" adds Odgers Berndtson's André Friere, "very few global players could take the risk of not investing in a country of nearly 200 million people, which is democratic by nature and has an emerging middle class avid to consume."

Brazil is one of the the four largest developing economies in the world and it is easier to do business there compared with the other three. Foreign investment is encouraged and the legal system is similar to those in developed nations, the country is peaceful and not under threat from terrorism, the market is open and there are plenty of natural resources available.

Social growth is advancing and that should enhance education standards, enabling standards, enabling better productivity and bringing new people to the consumer middle class status. All that together encouraged 435 out of the Fortune 500 listed companies to establish local subsidiaries in Brazil, most of them in and around the São Paulo metropolitan are, making that city a safe haven for both investors and executives.

Can you really risk not optimising this extraordinary opportunity?



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