“Brazil is back,” announced Luiz Inácio Lula da Silva shortly after being sworn into his third term as the country’s president. The result of a knife-edge election in early 2023 has certainly catapulted Brazil back onto the world stage. But to truly progress, Latin America’s biggest market will have to break new ground rather than reclaim what it once had.
Indeed, Lula’s lofty goals have not yet translated into the kind of rebound hoped for by his supporters. For one thing, economic growth is predicted to slump to 0.8% this year, marking a sharp downturn from the 3% rise recorded in 2022. The manufacturing, services and agricultural sectors are driving this modest growth. But staving off a recession will instead be the major economic victory of the next few years.
Brazil remains an investment-friendly environment, however, with the adoption of a widespread pro-business approach and relevant ministries demonstrating the technical prowess to ensure this continues. The government’s new fiscal framework should also be advantageous here. It sets out how the government will stabilise its debt through spending restrictions – something that should give investors increased confidence in the potential of Brazil’s economy, despite the obvious fluctuations. Many law firms, therefore, have continued to see diversified demand from investors, with traditional transactional areas such as corporate work, finance and capital markets showing sustained activity.
Cross-border acquisitions feature heavily in Brazil’s transactional market, while state-owned companies divesting substantial assets are also keeping law firms busy. Brazil’s renewables market is another area driving investment and has an impressive capacity for growth. Installed capacity for wind energy, for example, stands at 71 gigawatts – a mere quarter of the country’s total potential. As a result, several firms have bolstered their environmental teams through lateral hires and home-grown talent to ensure they can meet this demand.
Real estate investment funds are also seeing an uptick in activity, with shopping centre assets particularly pushing this growth. The sector is poised to double in size in the next five years.
Debt and equity capital market mandates remain a growing source of work for Brazilian law firms, while demand for counsel in large restructurings and bankruptcy cases remains high. Several significant follow-ons, including BRF’s US$1.1 billion offering in July 2023, have kept firms busy while indicating that IPOs could make a modest comeback by the end of the year.
The infrastructure sector has enjoyed increased activity, thanks to the government’s programme for investment partnerships offering major opportunities for ports, airports, motorways and sewage development through concessions. There is also ongoing interest from private equity funds with interest in infrastructure, which is creating more work for firms.
Favourable regulations from the Central Bank have made space for innovation in the fintech market, which has gone hand-in-hand with a widespread preference for cashless payment systems as users veer away from traditional banking. Visa’s purchase of Pismo – the country’s first unicorn of 2023 – confirms how Brazilian innovation in this space has international appeal. In the broader tech industry, start-ups, including e-commerce platforms and software companies, continue to seek investment. Law firms have met this demand, amending their billing structures to meet the needs of start-ups.
Leading law firms keep focusing on environmental, social and corporate governance (ESG) initiatives – a trend that is becoming increasingly common among smaller outfits and boutiques. There is also a heightened interest from companies in matters of sustainability and social impact. This focus will become even more pronounced now that all companies listed on the B3 stock exchange will be required to have at least one woman and one person from an underrepresented community on the board by 2026. Law firms, as a result, will continue to see an influx of work regarding advising clients on ESG matters, while updating their own practices and consolidating specialised teams in this space.
Companies are also coming to these firms for assistance on sustainability-linked bond issuances. In terms of internal corporate responsibility, firms here are also placing great emphasis on pro bono work, with an increased institutionalisation of this practice.
The country’s non-transactional market has also continued to be characterised by ongoing activity in tax guidance, particularly advising clients on the best tax structures to operate in the country. Tax reform is also on the cards and will drive an increased reliance on firms for tax counsel. Many are optimistic that, once approved, Brazil will be able to make drastic simplifications to its labyrinthine tax system. This will entail an enormous undertaking for companies, which will have to get to grips with the new mechanisms while phasing out the old ones. Law firms, in many cases, will be drafted in to provide support and make up numbers to scale an ever-increasing mountain of paperwork.
In addition to an increased focus on ESG practice groups, Firms are also expanding their compliance offerings to keep up with the evolving nature of ESG, which is now just as significant to companies as anti-corruption and financial risk. Firms have continued to strengthen their criminal law teams in response to this – rather than the previous practice of outsourcing to boutiques.
But this by no means indicates a tendency for lawyers to develop their specialisation under the auspices of larger, full-service outfits. The Brazilian legal market has recently seen top firms lose key talent in infrastructure, M&A, international trade, antitrust and litigation, who have left to launch their own boutiques. One new specialist firm of note is Xavier Gagliardi Inglez Verona Schaffer (XGIVS), a disputes boutique that was formed by five partners and 21 associates from Demarest Advogados in May 2023. The advent of these new boutiques has been particularly motivated by identifying gaps in the market for highly specialised counsel, while lawyers apply managerial and strategic know-how from their experience at full-service firms.
Lateral hires continue to be a market fixture, with firms able to nab core talent from their competitors. Many outfits are set on staying ahead of the curve and have successfully implemented strong modernisation programmes, which cover partner compensation structures designed to support cross-team collaboration and transparent career plans. Most recently, technological investment has also been at the centre of these firms’ minds, many of which are committed to moving beyond automation and truly leveraging the potential of artificial intelligence. Investments in digital platforms and cybersecurity tools are also deemed invaluable.
Promotions, on the other hand, have taken a nosedive. According to data reported to Latin Lawyer, between December 2022 and February 2023, only 49 lawyers were elevated to the senior rank. During the same period a year earlier, 104 partner promotions were made. Despite this slump, several women appointed partner points to firms’ growing commitment to diversity at the top level.
Brazilian firms are set to continue balancing their clients’ expectations for sophisticated services with value for money, toeing the line between increased practice specialisation and a simultaneous move towards a bigger and broader firm model capable of a full-service offering.
A novice knows the extent of opportunity in Brazil, but it will take a master to unlock it. In a country where crisis is the one constant, it is the firms that are proactive rather than reactive to this reality that will thrive as Brazil moves towards a more prosperous future.
show less
