I have just returned from ten days in Brazil. I was in our office in São Paulo for the first part of the trip, then went to a number of Olympic events in Rio de Janeiro, which is a most magnificent setting for the Summer Games. The backdrop of Pão de Açúcar and the Corcovado (the mountain with Christ the Redeemer atop it), the miles of beachfront (Ipanema, Copacabana), the traditional city center and the passion of the Brazilian fans were all equally stunning. Here are my observations on the country, based on discussions with executives, reporters and academics.
- This is one of the most important markets in the world for multinationals seeking growth opportunities. Its large population, immense size and dominant position in South America are obvious advantages. But there are deep problems, from criminality to depressingly low rates of literacy and a huge gap between rich and poor. The government is weak and overly involved in the economy. The legacy of President Dilma Rousseff and former President Lula da Silva is exemplified by the growth in BNDES (The Brazilian Development Bank), the state bank, which went from $45 billion to $450 billion in size in the period 2009-14, mostly lending to Brazilian companies building infrastructure or buying companies abroad.
- The recession is serious and will not ease for years. The drop in GNP is now the largest in the past 100 years… down 10.5 percent in the past two years. This economic problem is not attributable solely to the decline in commodity prices. Government spending was at an unsustainable level and has had to be reined in. Based on personal observation, the stores are bustling and the restaurants are packed (with locals, not just tourists) so those with money do not seem to be cutting back.
- The economy is quite mercantilist and its companies are oriented to serving the home market. An example is TOTVS, the fifth biggest software company in the world, which does 98 percent of its business in Brazil. Trade only accounts for 25 percent of GDP.
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The impeachment of President Dilma Rousseff, is a certainty in my view. Her successor, Michel Temer, is seen as a lame duck with little power. There are 27 parties represented in the Congress, an unsustainable dispersion of power based on a hyper-proportional system that advantages the smaller population centers with large land areas. Thus government is a risk factor, not a positive, for a recovery.
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The Rio Games have shown that the country can deliver on its building commitments. The venues were not extravagant by any means but comfortable, well-lit, good sight lines and creatively decorated.
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The absence of effective mass transit in Rio made the daily journey to and from the three main venues a serious challenge.
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There is a serious security issue in Rio. There have been reports that athletes from the U.S. and New Zealand were allegedly robbed and kidnapped when they walked outside of their housing complex.
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The country needs to improve its service. The team assigned to assist spectators at the Olympic venues was enthusiastic and friendly but not knowledgeable and therefore not helpful. There are two or three people doing the job of one person. There is a lack of technology that could make efficiency possible. Even entering a hotel to visit a client became a fifteen minute process with my request to enter having to be approved by ever higher levels of the security apparatus.
The question for every Olympics is whether the giant investment will pay off in the future. With all of the frustrations of traffic and service, I come away impressed and committed to the country. The enthusiasm of the people, the potential for improvement in government, the unbelievable quality of certain parts of the experience (shopping, food) give me confidence for the future. I am not sure of the impact for Rio specifically because it has so many unresolved issues, most notably the favelas which are not governed and the migration of the center of industry to São Paulo. If energy prices recover, there may be a different story.
Richard Edelman is president and CEO.