The fall of the Brazilian business sector

As Latin American governments and business leaders hold their breath waiting for the next list of names of big wheels likely implicated in Lava jato audiotapes, the big Brazilian champions keep falling like domino pieces.

It all started with the mighty and revered Petrobras, one of the first companies to be listed in the Dow Jones Sustainability Index, and since then expelled from it.

The most recent domino to fall is JBS, which is selling assets and will struggle to remain the biggest meat processing rm in the world. Odebrecht, the only big Latin American construction company, is never far from the news.

Only seven Brazilian companies are represented in the 2016 Fortune Global 500 list which ranks the largest corporations worldwide by total revenue. In comparison, 103 firms from China are among the 500, and the number of Brazilian companies in this revered list may go down.

At the same time, we see increased interest from China, which has become Brazil’s main investor.

One of the prominent Chinese companies is State Grid, the second biggest company in the world by revenues after Walmart. This state-owned company provides electricity to 88 percent of China’s population and has its own innovative technology to reduce electricity loss during transmission.

The company entered Brazil in 2010 with the acquisition of seven energy transmission companies from the Spanish ACS engineering and construction firm for $989 million. In 2014, State Grid was, with Brazilian companies Furnas and Eletronorte, granted the concession to build 1,305 miles of electrical grid to connect the Belo Monte hydroelectric plant in Pará with Brazil’s southeast region. Last year, in 2016, State Grid took control of Brazilian CPFL Energia for $4.2 billion. It is interesting to note that the Brazilian government privatized CPFL in the 90s and the company is now being nationalized by China.

In volatile emerging markets like Latin American countries characterized by currency fluctuations and political instability, it takes a long while to build global companies which are jewels of the nation. These enterprises create sought-after jobs, innovate and are able to internationalize, expanding the soft power of a country. Jobs in these global players are for many aspiring graduates the entry ticket to joining the middle class. Innovations in these firms allow them to reduce dependence on expensive patents from developed economies, and their successes bring pride and motivation to the country’s citizens.

It remains to be seen how these two parallel phenomena –the crippled domestic Brazilian business sector and the massive investments of (quite often) state owned Chinese companies– will help Brazil come out of this profound economic crisis. Brazilians need to consider this new reality and ask themselves what kind of role they foresee for Brazil in the world in the years ahead. LT

By Lourdes Casanova


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