What people don’t tell you about the Brazilian Crisis
--- From a European entrepreneur on the ground ---
By Gwendoline de Ganay | www.AboutBrasil.com | October 2015
Rio de Janeiro — I moved to Brazil in 2012 after graduating from my MBA. At that time
Brazil was in an economic boom.
Brazil was at the heart of the international attention, right after hosting the Rio +20 Conference as well as competing for the World Cup and the
Since then, I created my own company, helped other people do the same and have been consulting companies on strategic issues related to the Brazilian market.
Recently, many foreigners have asked me what my view is on the current eco & political situation in Brazil and how bad it is.
Here’s my take on the “crisis” that Brazil is going through and why despite what you read in the media, there is still very much room for hope.
Yes, the Economic and political crisis is real
As most of you have read and heard by now,
during the last 18 months Brazil has fallen from the status of booming economy and member of the BRICS to that of a global disappointment, as was described broadly in the media including this detailed article in the Washington Post last month.
|In just a few years, Brazil went from being a country with 5-7 % growth to a country with a dire mix of recession, inflation and massive debt.
Foreign investors seem to be fleeing the country just as fast as the currency is plunging.
The current economic turmoil is due to a complex interaction of factors, both external and internal.
On the external side, China’s slowdown has reduced the demand for raw materials such as iron, soy and crude oil, which was the backbone of Brazil’s export. On the domestic side, Brazil is seeing the consequences of some strategic decisions taken by the government in the last year.
One of those decisions was the decision to spend billions on World Cup facilities, including stadiums that will hardly ever be used, rather than
investing in infrastructure, public health, public education and reduction of bureaucracy, which are the main hurting points in Brazil.
When the economy was booming, there was an opportunity to invest in education, local production and added value industries. Instead the government chose to rely on its natural resources and to spend on the hosting of big events, which might be beneficial on some aspects such as public transportation, but so far has failed on many goals such as sustainability or reduction of inequality.
The city of Rio de Janeiro still doesn’t have a decent sewage system and the water in which the athletes are supposed to compete in 2016 for the Olympics is still highly toxic.
Moreover the economy is affected by large corruption schemes, epitomized in the Petrobras scandal that has been unfolding in the last months.
Billions have disappeared; people at the highest ranks of political and business leadership are being incriminated.
This situation leads to a lack of confidence in the institutions and leadership. The Brazilian people feel betrayed and the investors have lost confidence.
Dilma Roussef’s government is held responsible for this situation, causing her to have the lowest rates in popularity seen in decades and campaigns demanding her impeachment. People here feel that an opportunity has been wasted and that the every day worker will have to pay the price through the decrease in purchasing power and increased taxes which the government is suggesting as solution to tackle the debt.
One of the reasons I really wanted to write this paper however is to point out all the
positive things that are going on in Braziland that most in the media seem to ignore while the above mentioned crisis is unfolding.
* An Independent Justice system
As much as the Petrobras scandal is appalling, the fact that people so senior as the CEO of some of the biggest construction firms in Brazil and people very close to the current government and the Workers Party currently in power actually get arrested and prosecuted is a great sign for the independence of the justice system.
This fact should be celebrated because it hasn’t always been a reality in Brazil, and certainly isn’t a reality in many countries in Latin America.
Indeed, over time Brazil had tried to build a State Police and a Justice system that could actually respond to corruption practices.
This particular scandal is an example of this process.
Even if only symbolically, it sends the message that political leaders can’t get away with it so easily anymore.
* A young population eager to learn and adapt
The average age of the Brazilian is around 30 years old. They are forward-looking, optimistic and creative. The shortcomings of the public education system represent an opportunity for private or alternative solutions such as e-learning.
|It turns out many Brazilian companies are focusing on this issue.
Indeed, education is the 10th largest sector in Brazil generating US$ 75 billion annually, US$ 12.5 billion of that from private institutions.
The Lemann Foundation for instance, a non-profit institution backed by the richest man in Brazil, supports initiatives linked innovation in education.
A large number of start- ups are also coming up with tools for self learning such as Qranio, an app which received accolades makes learning fun by turning school material into a trivia game.
Another thing is special about youth in Brazil. People and companies actually give a chance and responsibilities to young people. Some of my friends have been named country managers or directors at age 25. As for me, a large company trusted me with an important consulting project at age 27, even though I had just started my company and just arrived in Brazil.
Overall, Brazilians do not consider that young people are too inexperienced. They tend to give you a chance. These cases are frequent and I consider this a major difference with European countries and a great source of optimism.
* A population extremely receptive to new technologies
An article published in the Wall Street Journal in 2013 called Brazil 'the social media capital of the universe'. And indeed Brazil counts in 2015 over 70 million Facebook users (placing it third country in the world, after the US and India) and 13 million Twitter users. Even in 2014, which saw the beginning of the crisis, the population of Brazilian users of Twitter grew 25%.
Brazilians are not just using social media for entertainment; they are using social media to buy.
A research made in 2013 showed that 77% of Brazilian social media users have a positive attitude toward shopping and buying on social networks.
They are also avid adopters of all apps that will make their lives easier (Waze, Trello) or increase their social capital (Instagram, Snapchat).
These apps are not used only for individual interactions but also in a corporate context. For instance it is frequent to see companies such as restaurants or spas using Whatsapp for customer service, reservations and even to coordinate shifts of employees.
In fact the social media and technology sector is growing so fast in Brazil that most of the big brands are trying to get a slice of this juicy cake by launching social media campaigns and targeting the young population who is active online. This context also represents opportunities for small and medium companies, Brazilian and foreign, to launch innovative services.
* Brazilians are responsive to new business models
The people here are accustomed to inefficient infrastructure and public services. Therefore they have always been good at creating alternative solutions, what they call the jeitinho ('the way around'). New technologies and disruptive business models are empowering this cultural tendency. Uber, Airbnb are booming.
Speaking of Uber, another notable fact in Brazil is that for a few years already, partly in response to Uber’s popularity, taxi companies have decided to compete by launching aps that match a customer with a driver (Easy taxi, Resolve Aí, 99 taxi).
Rather than simply complaining about Uber’s methods, they decided to step up. The sharing economy is also booming (see my blog post a year ago) and this trend is here to stay.
The good thing about these startups especially in IT is that there is much less bureaucracy than in other sectors, which makes it easier for foreign companies to penetrate the market.
* Brazilians have an entrepreneurial mindset
The situation for entrepreneurs has improved dramatically in the past decade. For a long time, less than 30% of companies created would survive the first two years. Now this figure is around 75%. This is due to an improved ecosystem including better training and improved taxation on startups.
* Various sectors are still performing well
Sectors such as hospitality, fashion, food, cosmetics, retail of musical instruments, transportation, pet food and vet pharmaceuticals among others are still growing or performing well, and represent huge opportunities of investments.
* Last but not least, a massive opportunity in Brazil lies in green business
| Brazil has one of the biggest potential for solar and wind, and this potential is largely untapped. Instead they have focused on hydropower and fossil fuels.
In 2014, The Guardian wrote an article about this issue, wondering why Brazil was not taking more advantage of its wind potential: In 2014 Brazil invests just $5.42bn (£3.4bn) in wind power despite having a total estimated potential of 300 gigawatts.
As for ethanol, it was an important sector in Brazil but got crashed by the rising prices of sugar, the 2008 financial crisis and the oil subsidies.
One can hope that the current prices of oil will make government rethink this strategy.
And now what?
Nobody can deny that the Brazilian economy has taken a hit.
However in a country of 200 million inhabitants spread over 27 states, with so many sectors still catching up and a population so eager to embrace new technologies and the changes that come with it, I believe there are still millions of opportunities to be explored and plenty of business that can flourish, locally and internationally.
Not to mention that the
plunge of the currency also means investing in Brazil is cheaperthat it has been in a long time.
Gwendoline de Ganay is a French entrepreneur in Brazil and Consultant/ Owner of Sustainable Brazil Consulting