Battling Through Brazil’s Uncertainty

brazil-1030374_640Following news that the majority of Brazil’s 65-member congressional committee has voted to progress with impeachment proceedings against President Dilma Rousseff, it seems the political situation in Brazil is set to continue dominating headlines. And, as Brazil’s economy ranks within the top 10 of the world in terms of GDP purchasing power parity, this political crisis is having major implications on the nation’s economic confidence, further impacting Brazil’s ongoing recession.

An unprecedented situation

Speaking from a business that has a significant number of people on the ground in Brazil, the economic situation is unprecedented. Indeed, the last time the nation experienced a recession this dire was in the 1930s, meaning that people, quite rightly, have no idea what to expect. In reality, it is anticipated that Vice President Michel Temer will replace Ms Rousseff in the short term in order to limit the economic repercussions of her impeachment and continue to attract foreign investment.

The current situation has unsurprisingly led the Real to lose a great deal of value, meaning that, against the US Dollar and factoring in Brazil’s high interest rates, the ROI for businesses has become very attractive indeed. However, some Brazilian economists are now forecasting a 3% to 4% contraction of GDP in 2016 and the outlook remains grim for unemployment which is set to reach 11 percent by the end of this year.

On the flipside, government instability has caused a great deal of unease for most investors. Investment levels remain below half that of fellow BRICS member, China, as a percentage of GDP, and projects that were planned to move forward in the first half of 2016 have been shelved until there is some positive movement in the Brazilian government.

Going down fighting

The proverbial writing is on the wall for Rousseff, with clear indications that the nation, followed by the rest of the world, is rallying against her. This has been publically demonstrated with an increase of approximately 10-20 per cent for the Real value and shares in Petrobras whenever a negative report is released regarding the government.

With the world betting against her, there will no doubt be an immediate boost to the economy as soon as she vacates. This will be mainly cosmetic and a symptom of Brazilians and the rest of the world breathing a sigh of relief that things are starting to move in the right direction. However, the core issue is more complex than that and we fully expect that a full recovery will take some time.

Sector slowdown

Certain sectors in the Brazilian economy are undoubtedly slowing down. The oil & gas industry, for example, increased its production by 180,000 barrels per day last year, but is already cutting back and output is predicted by OPEC to plateau in 2016.

In terms of how this affects the recruitment industry in Brazil, the country still has to face high levels of internal bureaucracy when it comes to recruiting both within its own borders and from overseas. A talent shortage among native Brazilians still exists, although reforms to the education system are quietly addressing that issue.

Confidence among investors and consumers has been increasingly undermined by the continuing political instability. Furthermore, high levels of both salary and employment tax have also contributed towards perceived market entry barriers. However, the potential size of the market in Brazil continues to make it an attractive proposition for recruiters wishing to gain a foothold.

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Brazil’s medium-term outlook depends on its ability to raise productivity and competitiveness to drive growth and attract investment from both within the European Union and with African nations.

For those companies involved with staffing solutions in Brazil, the situation in the country, particularly with the large number of overseas workers who are employed there at the moment, might be seen as unsettling. However, it is a resilient nation, with vast natural wealth, a huge internal market size, and an entrepreneurial spirit, and the positive changes following Rousseff’s impeachment should offer a beacon of hope to Brazil and its foreign investors.

It is set to be an interesting few months for Brazil and we will be watching closely and, with the 2016 Olympic Games hosted by Rio in August, the eyes of the world will remain firmly fixed on this ever-evolving nation.

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Matt Walters

Matt Walters
Matt Walters specializes in labor leasing matters at European labor leasing expert Capital GES.

Matt Walters

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