A month has passed since the outbreak of Brazil’s most recent political crisis, yet President Temer appears far from being out of the woods. While the president successfully overcame a hearing in the country’s electoral court (with a 4-3 vote in his favor) to save his mandate from early cancelation for illegal campaign finance, he now faces almost certain indictment from Brazil’s Attorney General. Should the indictment come through (expected by FSG within the next two weeks), Temer would face a vote in the Chamber of Deputies, where he would require just 1/3 of the 513 deputies to vote in his favor to avoid being removed from office.
While Temer currently can count on sufficient votes in the Chamber of Deputies to save his mandate yet again, there are building risks in the form of potential new plea bargain deals, including from the former President of Brazil’s lower house Eduardo Cunha (and former Temer ally). With the PSDB (Social Democratic Party), Temer’s key coalition partner in Congress, leaning heavily toward abandoning the government, further evidence against the President could easily signal defeat in a future vote to remove Temer in the Chamber of Deputies.
How are MNC managers reacting in Brazil?
With this continued elevated level of uncertainty, and Brazil’s ultimate economic recovery depending on the passage of pension reform – which is currently held up in Congress while Temer fights to retain his mandate – multinationals in Brazil are faced with the challenge of how to navigate this storm and still hit their 2017 revenue targets. Indeed, Brazil was showing a clear exit from recession prior to the outbreak of the most recent political turbulence, with Q1 GDP figures showing growth of 1.1% QOQ while recent monthly data showed both retail sales and the service sector expanding by 1% MOM.
This clear movement toward market expansion, but newly elevated downside risk, places Brazil managers in a challenging position. To align on these challenges, FSG recently held a webinar for clients, here are some of the takeaways from that gathering:
- 40% of FSG clients reported accelerating sales prior to the outbreak of the most recent crisis, while 45% reported flat sales: Greater economic stability had clearly begun to translate into improving conditions for multinationals in the Brazil market
- 72% of FSG executives reported that their confidence in their ability to hit their top-line targets for the year had worsened: clearly demonstrating that the most recent events have been viewed as a major downside risk for the economy
- 86% of FSG clients reported that their 2017 business plans in Brazil were vulnerable to disruption: in moments of heightened economic instability, FSG suggests that multinationals increase reviews of scenario and contingency plans from a quarterly to a monthly cadence, while ensuring high alignment between country and regional leadership
- 43% of FSG clients said they would focus on entering new markets or customer segments to hit top-line targets should the crisis extend to Q3 2017 and the economy once again slowed: this comes as no surprise, as even with a return to economic contraction, opportunities for expanding sales will be present in the market, though greater strategic precision will be required (see graphic below for analysis of which industries are likely to outperform in the case of an extended crisis and contraction)
- Meanwhile, 33% of respondents said they would focus on key accounts to hit top-line targets if the crisis were to extend to Q3 2017: yet another strategy to continue driving revenue from financially strong and relatively resilient customers
- 50% of FSG clients reported that they would focus on cutting SG&A cost to protect their bottom-line should the crisis extend to Q3 2017: this cost category was also the focus of most multinationals during the crisisobviously presenting low hanging fruit in times of crisis
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