The Brazilian business environment in 2022

Until the current month of March, 2022 has been a challenging year for global markets. After a long period in which the Covid-19 pandemic had a profound impact on the production of wealth in countries, today we are faced with a scenario of war in Europe – and, with it, uncertainties about the near future of the Old World and the extent impact on emerging economies and on the balance of power between the West and the bloc represented by Russia and China.

For Brazil, the biggest challenge has been to balance the adverse international scenario with a troubled domestic front. In October, the country will once again go to the polls to decide who will be its next president, in an electoral process that, in practice, began with the defeat of the left in 2018, and the victory of conservative Jair Bolsonaro. 

To learn how these differences in forces correlate in the macroeconomic scenario and the business environment in Brazil in 2022, as well as to understand what we can expect in relation to GDP, read on.

A country that cannot wait

Given the central role that Brazil plays in world food production, and also the weight of its economy and its consumer market for the global economy, it is possible to affirm that until now the Brazilian government has managed to balance pressures and interests in the search for neutrality against the conflict in Eastern Europe.

The reason why the position initially tends towards neutrality is actually one that is derived from traditional pragmatism and multilateralism in international relations, combined with the country’s strong dependence on fertilizer exports from Russia. This type of input is absolutely essential for Brazilian agribusiness – and, therefore, for feeding around 22% of the world’s population.

On the other hand, dependence on Russian input can lead to two situations. In the first hypothesis, with the maintenance of supply, it is possible that Brazil will face the consequences of the sanctions imposed on the Russian economy due to the invasion of Ukraine. Due to the need to guarantee food security for populations, this is a risk that can be considered remote.

The second hypothesis concerns Russia’s own ability to maintain the supply of fertilizers, as its own economy will be affected by the continued war effort, and by the aforementioned sanctions imposed by the United States and European Union countries. This is certainly a more pressing risk, and one that could represent smaller harvests throughout 2022 and 2023, with potential for agricultural commodity prices to rise.

Whatever the scenario, it is urgent for the world to find a solution to this impasse. An alternative is for Brazil to invest in potash mining and in the construction of new plants. In this case, the country comes up against the fact that the main potassium reserves are currently in demarcated areas and reserves of native population.

An uncertain electoral process

The political scenario is one that has been causing anxiety in the Brazilian business community. This is because until now there was a longing for a center candidacy that would unify different political forces in a national conciliation plan.

In practice, we still see in the polls the old polarization between the left represented by former president Lula da Silva and the current president, Jair Bolsonaro.

Lula da Silva, who recently had his convictions reversed on account of annulments of proceedings, appears as the leader in most polls. His campaign, however, does not seem to have entered into marching order: popular support at his events has been scarce, and even on social media he has a considerably lower number of supporters.

Jair Bolsonaro, in turn, enjoys great popularity on the streets and has been gaining ground in the most recent polls. His policy to fight drought in the Northeast has had a real and electoral effect, with experts projecting that he will reach the leadership in the polls by the month of August.

Whoever the victor will be, he or she will face a troubled economic landscape. We cannot yet say what the long-term effects of the war in Ukraine will be, but one thing is certain: Russia’s action has served to provoke a major reassessment of the ties that unite the West, and also the European energy matrix, today largely dependent on Russian natural gas and oil reserves.

Reforms on hold

As a result of the unique combination of the international and national scenarios, what was the great expectation of the Bolsonaro administration has turned out to be a relative fiasco. Tax reform at the moment has made little progress, having already become virtually impossible for large definitions to be produced yet by this legislature.

As an effect, we may see Brazil’s entry into the OECD being delayed, and we may also see the expected recovery of the economy taking longer than necessary to ensure growth and a decrease in unemployment rates.

What we have on the table today is a proposal that unifies the IPI Tax on Industrialized Products and the ICMS Taxes on Circulation of Goods and Services in the IBS Tax on Goods and Services, and the unification of PIS and COFINS under the CBS Contribution on Goods and Services. This is an important step, but still far from being one that represents the end of the tangle of obligations and the high complexity of maintaining tax compliance in Brazil.

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