As we get closer to the end of 2016, we wonder what is the perspective of recovery for the Brazilian economy and how the change in the U.S. Government may impact the country. To help us understand it, we had a conversation with Daniel Motta, CEO of BMI, PhD in Economics, professor, author and leader specializing in organizational transformation, strategic execution and sales teams of high performance.
BayBrazil: New projections point to a worse recession in Brazil in 2016 and just a timid recovery in 2017. What is your opinion and perspectives about the Brazilian economic scenario?
Daniel: Brazilian economy is probably finishing its recession cycle, with few signs of recovering along 2017. Industrial production rebounded in 2016Q3 and current account deficit has been moderated, but retail sales still remains poor. Federal Government is committed with fiscal reforms, although political environment remains complicated. Monetary policy might be more flexible during the following months, with reduced inflation. Access to bank credit lines and improvement of business confidence will eventually drive increase of capital investments in private sector as well as of formal employment and family income.
BayBrazil: How does the election of Donald Trump affect emerging economies, especially Brazil?
Daniel: Mr. Donald Trump election might result in higher risk aversion and uncertainty at global scale. Emerging economies, such as Brazil, might face currency depreciation in this adverse environment. A weaker BRL might accelerate inflation rate in tradable goods and industrial costs. Consequently, Central Bank of Brazil might choose to become more conservative in reducing interest rates, slowing down economic activity recovery along 2017 and 2018.
However, it’s important to highlight that the Brazilian economy is significantly closed to international trade. This means that any slight decrease in exports of goods and services won’t have a big impact, except for specific industries such as agriculture, mining and steel. The real impact might occur in the financial channel through balance of payments. Nevertheless, the impact shall not be bigger than internal events such as fiscal reforms, political stability and business confidence.
BayBrazil: In this adverse scenario, what is the impact for those who intend to or are already working as an entrepreneur in Brazil?
Daniel: From a global investment perspective in Brazil, this uncertain scenario might have positive and negative effects. On one hand, depreciated BRL and stressed economic activity decrease price for valuable assets, creating window opportunities for strategic acquisitions by international investors. On the other hand, restricted credit lines and high volatility in capital markets might reduce cashing out opportunities.
BayBrazil: And what about those entrepreneurs who intend to expand their businesses into the US?
Daniel: Growing number of Brazilian start-up companies and investors are choosing US as a top priority. Local macroeconomic challenges and insufficient funding are both driving attention to prospect overseas opportunities. A depreciated BRL might become a barrier for these endeavors, but still stronger ecosystem and growth perspectives are very appealing to those seeking new investments. Finally, Mr. Donald Trump election may also increase uncertainty for new LATAM investments in US.
BayBrazil: What should we expect from the leaders in situations like that? What would be their roles and attitudes as well as the main topics on the agenda?
Daniel: Leadership is about making bold decisions with scarce resources and uncertain conditions, inspiring and fostering achievements from high performance teams. Alignment, Engagement, Commitment and Execution are the four critical areas of development for any leadership role. Successful entrepreneurs know how to calibrate visionary goals with pragmatic management decisions.
I usually remind C-Suite executives from our corporate clients that revenue is vanity, profitability is sanity and cash is reality. Management teams shall have that in mind, realizing that economic cycles will always be part of business environment.