Navigating Brazil’s Post-COVID-19 Political Landscape

Authorities’ uncoordinated strategies to the spread of COVID-19 in Brazil have raised uncertainty as to how organizations can navigate through the current crisis amid changes to the country’s federalist republic model. The country that will emerge from this crisis will no longer be navigated via a one-size-fits-all approach, as in the past. Up until now, organizations needing to engage with the government would normally focus their efforts on the federal administration, where power used to be concentrated. However, states and municipalities have come to have much more influence over businesses, governing everything from telecommunications infrastructure and healthcare management to the passage of taxation and environmental regulations. Against this backdrop, there are likely to be constitutional and regulatory changes, which may not only bring new opportunities to companies operating in highly regulated industries, but also challenges.

Once known for putting too much power and budget control in the hands of the President, in the last year Brazil has witnessed an increasingly assertive stance from Congress. But now, COVID-19 has given Brazil’s 27 governors a new leading role. Since the World Health Organization announced the pandemic, the Federal District, the 26 states and even major municipalities such as São Paulo and Rio de Janeiro have moved faster than the federal government to mandate social distancing, regulate transportation, commerce and key services, and construct new ICUs at existing healthcare centers. Meanwhile, the president and cabinet have sent contradictory and erratic signals, being slow to present the necessary measures to counteract the macroeconomic impacts of the epidemic. After the federal government fell far short of the public’s expectations for a COVID-19 response, emboldened governors and mayors will likely have an outsized role in policymaking for years beyond the current epidemic.

While the current turbulence does not necessarily mean that Brazil will face radical political disruption in the near future, COVID-19 has already prompted changes in the country’s federalist model. Decisions historically percolated from Brasilia to the states, but now Brazil is moving closer to the United States’ model in which governors have more flexibility to develop their own agendas independent of Washington. COVID-19 has allowed Brazil’s governors to stand their ground and directly contradict the President, whose response to the outbreak has been lackluster at best. Empowered and focused on their own political ambitions, several regional leaders have established a regulatory precedent that will not be easily forgotten or surpassed even when this pandemic is over. Supreme Court decisions in response to state-level requests to intervene on debts and federal budgets are an example of how COVID-19 is changing Brazil’s federalist pact.

During the COVID-19 crisis, we are seeing more state-level court and regulatory decisions, political discussions and draft legislation that signal the rise of more autonomous state governors and urban area leaders. Facing this new landscape, multinational companies will need to keep in mind the following considerations to navigate this new cast of actors.

Experienced local knowledge needs to be complemented with an international view.

While experts following Brazil from abroad may be able to study media clippings and regulatory reports and describe all legal frameworks, they could easily fail to identify subtle changes to the business landscape. On the other hand, a purely local view may not consider more global issues, such as activist litigation, which may be relevant for international audiences. Similarly, a local view may not be familiar with the rapidly evolving compliance and regulatory rules for multinational operations. An integrated approach is therefore essential to navigate such a complex market.

The ability to engage with multiple local stakeholders will be key to navigate through different levels of regulatory authorities.

The first step is identifying the correct stakeholders to engage with. This goes beyond the traditional mapping and classification of stakeholders as detractors and allies. Identifying “ambassadors” who comply with international norms is crucial, along with ones that are not controversial or too partisan and who can open doors and communicate key messages across various stakeholder groups. The next step here is working cautiously to finetune messages to stakeholders based on their interests, motivations, and geographies. Additionally, there is a need to align different arguments and different ambassadors so they can spread a unified message even from different voices speaking to divergent issues.

Acting abroad could move the needle on local issues.

When domestic divergence in policies may negatively impact fundamental rights or activities, multinational players may be ready to appeal to domestic or multilateral regulators. They could offer support to their local counterparts in Brazil to encourage discussion and provide broader, unified views of domestic issues that may affect every national entity’s business. In a world in which businesses also rely on new rounds of investment from international players, this may be helpful for identifying and highlighting new opportunities for recovery at every level.