Three years of sluggish growth following the recession have done little to curb the expectations around a strong rebound from Brazil’s economy. At the beginning of 2020, an increase in capital markets activity and in M&A deals and big divestments made by state-owned companies gave signs that the boom might finally arrive. Law firms, especially those with an international clientele, have reported a growth in demand from investors and wealthy individuals who now need advice on the best tax structures to return and operate in the country as well as how to comply with brand new – and much fiercer – compliance regulations in a post-Car Wash world.
Brazil had paved the way for a more business friendly environment in the previous year. The enacting of a comprehensive pensions reform was the biggest sign the government has put public spending back on track after the growing dept pile led to the loss of the country’s investment grade by all three major credit rating agencies four years ago. The government expects to save up to 855 billion reais (US$191 billion) with the implementation of the reform in the next ten years.
Another positive point for investors is the pro-business approach adopted in key areas in the government. Lawyers report that the ministries of economy, infrastructure and energy are now staffed with technically skilled officials who are receptive to dialogue. As a consequence, suspicions of the private sector, a source of complaint about previous governments, have diminished, creating space for more productive interaction. The government is boosting privatisation and pumping up concessions and public private partnerships. It plans to foster private investment, replacing Brazil’s dependence on public funds.
Despite these changes, there are plenty of reasons why the economy has failed to bounce back in the last few years. And those reasons, such as political turmoil, still remain. Brazil’s president Jair Bolsonaro is in constant clash with the country’s institutions. The Congress, the press and the Bar association have been victims of the president’s rage and contempt. Bolsonaro’s fraught relationship with Congress further soured at the beginning of 2020 so important reforms, including those which are a key part of economy programme, have stalled. Yet in Brazil the business community is used – if not immune – to tensions.
There are plenty of examples of potential for business growth. The fintech market is a promising source of opportunities as favourable regulations from the Central Bank create the right conditions for innovation. The oil industry is another sector where expectations abound. Although much will depend on prices, Brazil is set to become one of the world’s great exporters as production in its pre-salt oil reserves gather pace.
Private health and education sectors are also thriving. Also, data lawyers are busier than ever as Brazil’s EU-inspired general data protection law comes to force in August 2020, prompting demand from companies across all sectors.
However, it is the infrastructure sector the one which holds most promises, with the government’s programme for investment partnerships offering major opportunities for ports, airports, roads, railways and sewage development through concessions and privatisation deals.
Be as it may, Brazil will continue to be the most developed and competitive legal market in the region. Lateral hires remained a market fixture in 2019. Firms which have successfully introduced strong modernisation programmes, with partner compensation structures that support cross-team collaboration and well-designed career plans, have been able to get ahead. Those firms are increasing in size, retaining talent and attracting recruits. Several highly successful newcomers have found their space in the market too. These tend to be nimble, offer streamlined services and great value for money. On the flipside, those firms that are taking longer to establish well-institutionalised structures are struggling against aggressive competitors.
As is the case elsewhere in the world, the legal market is experiencing increasing specialisation, as well as a push towards a bigger, broader firm model. More and more clients demand a combination of sophisticated services and value for money. As clients’ problems get both more complex and more numerous, those firms with real expertise in a particular field command an ever-higher premium, and Brazil’s IP, antitrust, labour and tax boutiques, among others, are for the most part going from strength to strength.
Meanwhile, the larger firms are broadening their offering, with some heavily investing in existing labour and tax teams as companies focus on cutting expenditure.
A clear shift took place in 2019. Almost all firms have established standalone anti-corruption departments served by criminal law partners. In preview years, law firms would prefer to farm out this kind of advice to partner boutiques. Most firms have also boosted their technology and data specialist departments. In addition to demand coming from Brazil’s new data protection law, this is an increasingly strategic field and firms are adjusting their positions in the chess board accordingly.
As usual, especially in face of a global recession, Brazil might be again failing to fulfil its large potentials. But the legal market have learned to thrive in good as well as in bad times. And nothing suggests law firms’ quest to further institutionalise will recede an inch. The strongest are those which adapt, and the Brazilian law market is full of examples of those who not only survive but thrive in the most adverse conditions.