After a difficult 2020, expectations are growing in Brazil for a strong economic rebound. The multitude of international public offerings on the stock exchange throughout 2021 demonstrations a sustained increase in capital markets activity, which has been accompanied by M&A deals and big divestments made by state-owned companies. In turn, law firms, especially those with an international clientele, have reported growth in demand from investors. These clients now need advice on the best tax structures to return and operate in the country, as well as how to comply with the brand new – and much fiercer – compliance regulations in a post-Car Wash world.
Key steps have been taken to firm up a more business-friendly environment. The enacting of a comprehensive pensions reform was the biggest sign the government has put public spending back on track after the growing debt pile led to the loss of the country's investment grade by all three major credit rating agencies some years ago. The government expects to save up to 855 billion reais (US$191 billion) with the implementation of the reform in the next 10 years.
Another positive point for investors is the pro-business approach adopted in key areas of government. Lawyers report that the ministries of economy, infrastructure and energy are now staffed with technically skilled officials who are receptive to dialogue. The government is boosting privatisation and pumping up concessions and public–private partnerships. It hopes to foster private investment, replacing Brazil’s dependence on public funds.
However, there are economic headwinds, not least on the political front. Brazil’s president Jair Bolsonaro is in constant clash with the country’s institutions, with Congress, the press and the Bar association all recent targets of the president’s rage and contempt. Bolsonaro’s fraught relationship with Congress means important reforms, including those that play a key part in the economic programme, have stalled. The covid-19 crash in oil prices in 2020 was another factor, contributing to the highest level of capital flight in Brazil’s history; the subsequent shortage of investment complicates government plans for economic recovery.
Economic bright spots, however, create opportunities for the country’s law firms. The fintech market, for instance, has not only benefited from favourable regulations from the Central Bank, creating the right conditions for innovation, but has also witnessed a growing demand for cashless payment systems and less traditional banking methods in light of covid-19.
In the broader tech industry, several start-up companies, including e-commerce platforms and facial recognition software companies, have also thrived despite the challenging economy of the past year, with several achieving unicorn status after securing large investments. Technology and data departments in law firms saw a busy 2020 on another front too, as Brazil’s EU-inspired general data protection law came into force in August, prompting demand from companies across all sectors.
However, the infrastructure sector is the one that holds the most promise, with the government’s programme for investment partnerships offering major opportunities for ports, airports, roads, railways and sewage development through concessions and privatisation deals. Private equity funds with interest in infrastructure are circling, creating more work for law firms.
Increased corporate interest in matters of sustainability and social impact is another emerging area of attention for Brazilian law firms – in relation both to advising clients and to their own practices, focusing more on environmental, social and corporate governance (ESG) initiatives. Firms such as Demarest Advogados, Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados, Pinheiro Neto Advogados and TozziniFreire Advogados are among the firms paving the way in the ESG area.
Brazil is by far the most developed and competitive legal market in the region. Lateral hires remained a market fixture in 2021. Firms that 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, offering streamlined services and value for money. On the flip side, 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 in Brazil 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 intellectual property, 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 investing heavily in existing labour and tax teams as companies focus on cutting expenditure.
Where firms in previous years would prefer to farm out anti-corruption advice to partner boutiques, a clear shift can be seen in recent years. Almost all firms have anti-corruption departments established by partners specializing in criminal law, Brazil's anti-corruption framework has come a long way since Operation Car Wash.
As it stands, and especially in the face of a lingering global recession, Brazil might once again be failing to fulfill its potential, but the legal market has learned to thrive in good as well as bad times, with nothing to suggest that law firms' quest to further institutionalize will lose momentum any time soon. The strongest are those who adapt and the Brazilian legal market is full of examples of those who do not only survive, but also thrive in the most adverse conditions.