Brazil’s morning after the night before

By Alison Huntington

Ouch. Much like waking up with a pounding headache after a big night out, the Brazilian economy is suffering the after-effects of its long binge on credit, high commodity prices, and domestic consumption. The formula that felt so good at the time papered over deeper structural issues in the economy—issues that are now headline news. The country’s credit status is junk, commodity prices are low, and ordinary Brazilians are cutting back on spending as they feel the pinch.

For consultants, Brazil’s morning after woe only truly set in after the October general elections. Over 2014 the consulting market grew 1.7%, mostly in the months preceding the election and despite the stifling effects of political and economic uncertainty. Consultants had hoped that the election result would be the confidence boost clients needed to start spending again, but things took a turn for the worse almost immediately. The economy officially entered a recession, and the Petrobras scandal engulfed the government and several of Brazil’s key companies. With each crisis reinforcing the other, it’s easy to see why clients held onto their cash, waiting to see just how much worse things were going to get.

Quite a bit worse, it transpired; 2015 is shaping up to be a very challenging year for everyone, especially consultants. Key industries—energy and resources, and manufacturing in particular—are struggling, with many clients slashing consulting budgets and putting major initiatives on hold until they feel they can afford them. Overall, we expect the consulting market to shrink by about 2% in 2015, with growth unlikely to be seen again until at least 2017.

So are consultants upping sticks and leaving the market? Actually, only a few are. Most appreciate that the sheer size of Brazil’s economy represents a major long-term opportunity. Like many emerging markets, Brazil’s certainly lost its sheen, but it feels like an almost necessary stage in the market’s development—a stage that’s prompting reassessment and realignment.

So although there’s plenty of doom and gloom, the downturn has created some reasons for consultants to be cheerful. Clients are trimming the fat from their businesses, becoming more efficient, robust, and better able to weather the many ups and downs of Brazilian economic life. Those that can afford to think about it are considering how best to position themselves for the eventual upturn, with a particular interest in what role digital technology will play. And from what we’re hearing, there’s a great deal more long-term thinking going on than there used to be. Clients want to know how their strategies will set them up for the decades to come, while foreign investors are putting their money in with a 10- to 20-year investment horizon, rather than viewing Brazil as a ‘get rich quick’ scheme (which it certainly isn’t at the moment) to invest in for a couple of years before pulling out.

All of which bodes well for when the economy does eventually recover. There’s no doubt that it’s a tough place to be a consultant at the moment, but for the majority the short-term pain is worth the potential long-term gain.  Let’s just hope that the Brazilian government cook up a better economic cocktail to feed the nation in the future – heaven knows they don’t want another awakening like this one again any time soon.