Election removes uncertainties and foreign investors are optimistic, says analyst

Foreign investors are “cautiously optimistic” about the victory of Luiz Inácio Lula da Silva (PT) in the presidential election. The assessment is by James King, senior vice president of Albright Stonebridge, a consultancy for companies with foreign investments founded by former US Secretary of State Madeleine Albright.

King serves companies from different sectors that invest or want to invest in Brazil and has in its portfolio more than 15 companies from the US, Europe and Asia, in fields such as technology, industry, private equity, mining and commodities, among others.

In an interview with Sheetstates that the election removes the “cloud of uncertainty” that existed over the Brazilian scenario and that there is a lot of curiosity about what the next Lula government will be like.

What changes in the Brazil-US relationship from a business point of view from now on? The cloud of uncertainty that existed in relation to a potential democratic rupture or some period of political volatility, which hovered over investors, is gone. Many of our business clients are waiting to see what will happen, obviously it is still a fluid situation, but it seems that the best scenario happened: it was a relatively smooth election and the results were accepted by most institutions and by leaders in Congress. Once that cloud of uncertainty is removed, you can start making the business environment more predictable.

Furthermore, in the relationship between Brazil and the United States, it was clear that there was a lack of high-level political engagement between Presidents Bolsonaro and Biden. There is now a possibility of resetting and re-engagement among leaders. If a stronger relationship is built, this is always positive for the business environment and gives investors security.

Don’t the protests and roadblocks shake this expectation of tranquility? Not. When you look at how polarized the election was, that was to be expected on some level. Of course, all this is worrying, but it is not out of the post-election expectations. The most important thing, I think, was today’s speech [terça] of the president, however short it was, and Senator Nogueira’s promise that he will work on an orderly transition. This reassures investors. The protests are yet another indication that Bolsonaro will remain a potent political force. The new government will have the challenge of overcoming the polarization and finding ways to work with a very strong opposition in Congress and in part of the population. But ultimately what matters is that, despite the polarization, there is an orderly transition.

What is the level of interest among foreign investors in Lula’s victory? Very high. Brazil is a very important market for investors and there was apprehension about the potential for deterioration if there were some kind of democratic breakdown. Now I think there is some optimism. Investors know Lula and are hopeful that this predictability and stability will improve medium and long-term investment prospects. To a certain extent, I think investors were working well with any scenario, with a Bolsonaro or Lula victory, but what they were worried about was uncertainty.

And how mr. Do you evaluate what has been presented so far about Lula’s economic policy? Will it be a good environment for investors? It’s still too early to assess. But the signs that Lula gave both in the campaign and in the victory speech were of moderation and conciliation, trying to build a coalition and an agenda that works well for all. These are positive signs that we will have a government committed to being pragmatic, committed to improving the business environment and able to carry out the necessary reforms. We still need to see what your actual policies will be and what your team will look like, we still need to have details of what your agenda will be. But so far, I think what we’ve heard has been reassuring, which has left investors cautiously optimistic so far.

And what needs to be done to keep investors interested? We’ve been getting a lot of questions about tax reform, which has been promised a lot in the current government and hasn’t been carried out to the end, investors are paying a lot of attention to that. It is also necessary to give confidence that the government will have fiscal discipline, that there will continue to be dialogue with the private sector and that it will create policies that facilitate investments, microreforms that are extremely important. We also received questions regarding Brazil’s accession to the OECD, whether this will remain in focus, which is widely viewed positively by foreign investors as it leads the country to a more competitive business environment. If nothing is done, moving forward with tax reform will already be a very successful sign for the market.

One argument of the opposition to Lula is that his election drives investors away from the country, which has been said since 2002. Do you see this movement of investment outflow? Of course, there are concerns about how favorable the environment will be and whether there will be dialogue with the private sector. But Lula is on the right track, he tried to say the right things, he indicated that there would be room for dialogue and that the government will maintain a favorable environment for business and investment. Investors are hearing the right things and asking us a lot of questions. They want to know if it will be a Lula more similar to the first term, more pragmatic, who continued FHC’s policies, or if it will be the Lula of the second term, with less fiscal discipline. I don’t know if it’s the right question, it will be a different Lula, to be honest. Brazil has changed a lot, there is a more conservative Congress and there is a broader consensus regarding the need for more business-friendly policies. There will be a major governance challenge, investors are curious to know how he will handle it. It is a new Brazil, and it will need a new Lula to succeed.

James King

Master in international relations from George Washington University, he is senior vice president at Albright Stonebridge, where he advises companies from different sectors that invest or want to invest in Brazil.