Episode 1 – Rodrigo Guedes Nunes (Brazil)

Fred Rocafort 0:08
Global law and global business go hand in hand, but never seem to keep pace with each other and other developing and developed nations wax and wane in their importance in the global stage. While consumption and interconnectedness both increase, laws and regulations change incessantly, requiring businesses to stay nimble. How do we make sense of it all? Welcome to global lawn business hosted by Harris Sliwoski International Business attorneys. I’m Fred Rocafort,

Jonathan Bench 0:34
and I’m Jonathan Bench. Every Thursday, we take a bite sized look at legal and economic developments in locales around the world as we try to decipher global trends in law and business with the help of our international guests. We cover continents, countries, regimes, governance, finances, legal developments, and whatever is trending on Twitter. We cover the important the seemingly unimportant, the relatively simple and the complex.

Fred Rocafort 0:59
We hope you enjoy today’s podcast. Please connect with us via email and social media to comment and suggest future topics and guests.

With 200 and 10 million people, and a GDP of $3.5 trillion, Brazil is Latin America’s undisputed giant. its economy is the largest in the region and the eighth largest in the world. But the covid 19 pandemic is taking a toll on the Brazilian economy. The Real, the country’s currency has lost approximately 20% of its value since the beginning of the year.

As Winston Churchill once said, however, one must never let a good crisis go to waste. Brazil’s economic woes present opportunities for foreign investors and we are privileged today to have with us a distinguished Brazilian attorney and businessman to discuss the situation. Rodrigo Guedes Nunes wears two hats.

He is the Vice President of Kibo Biotech, which develops biological pharmaceutical products originated from animal venom’s. In addition, he is an attorney who specializes in offering worldwide legal support to Brazilian businesses and individuals. He is joining us from São Paulo this afternoon. Welcome Rodrigo.

Rodrigo Guedes Nunes 2:18
Hi, Fred. Hi, Jonathan. Pleasure to be here with you. We appreciate you taking the time and we’re looking forward to digging into your expertise a bit more.

Jonathan Bench 2:27
Can we start off by asking, how is Brazil dealing with the COVID-19? It’s on everyone’s mind. A lot of us in the in the United States are very concerned about countries like Brazil, that are on a strong growth curve. But running into this. We know it’s going to have a big impact. So can you talk a little bit about what you’re seeing and what you’re hearing in Brazil?

Rodrigo Guedes Nunes 2:48
Yes, sure. Jonathan. There’s a crisis like a crisis never seen before in Brazil. I never saw that in my life before. Probably Probably not. Not one of us saw that before. Maybe our grandparents if they’re still alive, but I mean it’s a new thing for everyone.

And São Paulo is trying very hard to to prepare for this crisis. And we are putting up like improvised hospitals we are we are converting stadiums and other public facilities to become hospitals. And we are trying our best to prepare for for the crisis. Other states are also doing their best. I know I know they’re doing everything they can. But one thing that it’s important to say is that Brazil it’s very well placed to face the crisis. Like we have 2.6 to two point 66 to intensive care units for each 10,000 inhabitants. So we are in front of friends in front of Italy in front of the UK in Germany of preparedness for this crisis. politics in Brazil is getting kind of in front of rationality for dealing with the crisis, which what is making it harder to deal with this threat? Because our President, Mr. Bolsonaro, in spite of being like a liberal of being converted a liberal and liberalizing the economy, used to say, like two weeks ago that the Christ it wasn’t a crisis. It was like a politics, some some some maneuver from from politicians from the other political spectrum. And he downplayed the crisis. So it took Brazil like one or two weeks more than what was necessary to adapt and to and to realize what was what was going on.

Fred Rocafort 4:51
Rodrigo, Turning now to the economy. How is the crisis affecting the economy? And how do you expect that it will continue to be affected as we await for a stabilization of the situation?

Rodrigo Guedes Nunes 5:11
Well, Fred, like for now, the way I see it, Brazil is kind of a nested size, nested size with the crisis. Because, like, it’s heating now, people are realizing it’s serious. Now, only now, like a few days ago, it wasn’t. There was still the discussion, people saying that it wasn’t a crisis, a real crisis, that it was something like coming from politics and now we are realizing that the country is realizing that the crisis is very serious, and it’s something we have to really pay attention to. So and also the government is still sending like mixed mixed signal. Which are confusing companies.  Companies are not aware of if they will have to really close down everything, or if they are going to be able to to in 15 days or something people still talks about this here, like maybe in 20 days, everything will be fine. We’ll be back to work. So it’s not it’s not it’s still not real here. I could say the thing like people are still doubting what’s going on.

I think like in the future, of course, I’m aware of the of the seriousness of the situation of the what’s happening. And I think that, like five factors, will will play a key role for the for the recovery or for like, facing the crisis and staying, being able to stay in a good shape for the economy. The first one, it’s like

It’s how business models the company’s business business model will adapt how fast they will adapt to the new, the new normal we’re facing now. Companies will have to realize from now on that the the old normal, it’s not going to be possible in the near future. We don’t know how long it will take. But I guess it won’t, you won’t come back until one 1.5 years, one and a half year. I think the pharmaceutical industry will take probably at least eight months to come up with with something that that can be the good for this or can treat the illness. So I think the companies will have to adapt very fast. So leadership will be very important now for these companies to to actually to survive and to stay like running. The second thing is we have to monitor, it’s important to be monitoring constantly monitoring the number of bankruptcies that will happen in Brazil. I project like for now as I’m saying like, people are still companies are still not realizing what’s going on. So they are still thinking they can come back to business in a few days, maybe 15 days. They think it depends on the government to say when or whenever they can come back or not. But it’s important to monitor this the the number of back bankruptcies and to really be have like at a temperature to have what’s going on in the economy. The third thing, it’s to monitor and to see what what’s happening. It’s the loss of corporate confidence. And that will depend like largely on on fiscal easing programs.

And other incentives that that the government may or may not come up with. Brazil’s government is already like saying that they will inject probably 1 trillion Heis maybe less in the economy, which 1 trillion has will be like something like $200 billion US dollars. So this, of course helps in the in the in the short run, but it’s not like solution especially because in in differently from from from the US, the Brazilian Hell is we have a history of inflation in Brazil. So maybe we can have problems with fiscal easing in Brazil. It may not be like the silver shot, you know, it might be a problem.

The fourth thing it’s to monitor and to see how other economies will be impacted. Because we are like our largest trade partner in Brazil now is China used to be China? I don’t know, today because things change a lot nowadays with the crisis. But we have China is our largest partner in commerce, international commerce. So depending on how China will be impacted and how what’s going on what’s going to happen in in China, Europe, and in the US, of course, the US is our second commerce partner. Depending on how this countries are impacted, we will be able to understand better how Brazil will survive or will pass the crisis. And the most important thing, the fifth factor, it’s the length of the lockdown. This is what is killing the economy right now. Okay.

Today like the whole country realize what’s going on. I mean, they’re starting to realize and starting to stay at home. The International authorities for health are recommending, of course everybody to stay home. And local authorities are sending next sent signals to the country that the federal government says the president says that it’s not. It’s not that, that that much a big deal. Like he himself goes out and meet people and talk to people and says, it’s not a big deal. But his minister, his his health minister, clashed with him last week, and saying that no, this this was wrong, everybody should stay home. Because if everybody gets infected if a lot of people get infected in the short run, even if even if we have like a large number of intensive care units, the our health system will won’t be able to support everybody that will need it. So I think the most important thing to answer your question, Fred is, and I don’t have the answer, of course, it’s how long the lockdown will will be in place. Because I foresee from in my estimates, like every quarter of lockdown, our economy will fall, our GDP will fall will fall 3.5%. So we’ve had if we have three months of lockdown Brazil’s economy, we will shrink 3.5 if we have six, it will be 7% GDP shrink, and so on. If we have a year it will be 14% maybe more maybe close to 20 I don’t know.

So, I think this this factors will be of great impact to the economy and I believe that the lockdown In my opinion, the lockdown will take not less than six months to be eased, or at least like to be a good idea to ease the lockdown. And in six months, we were going to have like a 7% shrink. In addition in our GDP to nowadays our unemployment rates are going up each day, like people around you can see people who are poor and we have a lot of them in Brazil very poor like under the poverty line. Sometimes they are already like having troubles, making ends meet, having things to eat. Next day, these people like they work today to have a meal tomorrow with the money. So these people are already like desperate.

And this is I’m talking about something like 30% may be 30% of our population. So, these are, I think the factors that will be impacting Brazil’s economy in the, in the near future. You mentioned China’s role in being Brazil’s largest trading partner. Can you talk for a minute about how China’s work involvement in Brazil’s economy is perceived to to Brazilian people? Is it a good thing? Is it a necessary thing? Is it a necessary evil? How do you how do you see that? I think Brazil as other countries in Latin America, we are a democracy is kind of new in Brazil. Democracy came back in 1986. It’s relatively new. So people are are still confused if it’s really a good thing or not, of course, São Paulo, like Brazil, like I said, like I mentioned, it’s, it’s composed of several states and São Paulo is the richest one. São Paulo, of course has. It’s not a it’s not a standard to discuss Brazil.

But I think that Brazilians see China as a good commerce partner. And that’s it. They also like see, I don’t know, I think in the West, we made like a mistake in the West when we started tolerating. I mean, dictatorships and countries, illiberal countries, just looking at the money and just looking at the commerce benefits that this could bring. But there’s a downside on this. That is, if you if you have any problem with it, the country if they don’t like you, which is happening right now, the Brazilian government just like two, three weeks ago they had a clash with with China. And now China suddenly became like not an ally anymore.

So I mean, probably we’re going to have some some we’re going to just start to have some problems now with China. The our commerce which with China, it’s a very simple one. It’s basically commodities we send them commodities with we send them soybean and other commodities, agricultural commodities we produce in Brazil, in the in they send us those electronics products and tires, and all sorts of things that that China produces. But I think the Brazilian population sees China as a good, a good business opportunity. Let’s put it like that. This and it’s not an evil. It’s not like a good thing is just, it’s just good business, the way I see it.

Jonathan Bench 17:10
You mentioned with all the Brazilian companies kind of now starting to realize and maybe not even realizing yet that that this crisis could go on and very significantly impacted their company’s future. That may lead to a lot of bankruptcies. And so that will probably mean a lot of opportunities for companies that have the cash reserve that can make some strategic acquisitions during this time. What do you what do you see coming down the pipe in Africa?

Rodrigo Guedes Nunes 17:39
What I see Jonathan coming down on on this matter is in 234 weeks, like companies will will start realizing that they’re not going to be able to live life as before.

So a lot of companies are already facing cash flow problems. So they are like desperate going after the federal government or banks, private banks, but credit is shrinking also, at least private credit. The government is trying I know very well they’re they’re trying to to, to, to provide like additional credit for companies. But Brazil we have for this we have to, to put money on the market to inject money on the market. And we are already with running deficits in our in our government. So there’s a limit of what the government can do. Another thing that that politicians are ventilating ideas that they are ventilating is like printing money, which is a nightmare from the 80s for Brazil.

So it wouldn’t be a good idea to print money like, like, we were thinking that we are the us that we have the dollar that the world will, will absorb our currency. No, it’s going to stay in Brazil. And it’s going to, like create inflation. So, I mean, it can be used, of course, but not to the same extent as other countries and regions, like the European Union can can print euros or the US can print dollars. Brazil cannot print highs as they wish. You know, it’s it’s very monetary policy here. In my view, of course, it’s a bit different than other countries that have that has hard currencies and the world absorb can absorb their currencies, if they put it in the market. So it’s

Something tricky how the government will be dealing with this. But the the the good side of this is that the they’re in AI projects like like in three weeks, four weeks like thousands if not millions of companies will start to file for bankruptcy and they will be desperate for cash and hard currency nowadays, I mean nowadays today and probably tomorrow and in one week, they didn’t they still didn’t realize that they are going to be broke. If they cannot go back to business, they think they might go back to business because the government tells them so right now, the federal government. So they are still, like I said anesthetize.

They’re not feeling the pain that it’s coming. Still some of the companies are having a lot of cash to spend, they have reserved.

But I mean, this is the tiny minority of Brazilian companies. If the lockdown stays in place for one more month and or two more months, which I think it’s very it’s very problem, it’s probably going to happen.

We’re going to have like millions of companies like filing for bankruptcy like good companies, healthy companies, like they used to be healthy, they used to have like, they have good production lines, they have good clients, they used to have good clients, they so but this very companies will be fine filing for bankruptcy or trying to find international partners to join forces with them to to be able to support this lock, downtime, and to survive, actually not to not to break into months and

Another point I think in in the month or something valuation, the valuations of this companies will go down like steeply so a company that that is now nowadays valuated at 700 million highs will be probably in one month one and a half month valuated that 500 maybe 400 maybe less depends on the on the on the market they are operating at. But valuations will go down steeply in the next weeks in the next month. So this presents another opportunity in my view. Another point it’s our exchange rate. Today, it’s going five points 10 highs for each US dollar. It reached already. 5.3 and it’s oscillating around this number. And in PPT per purchase parity power parity terms,

one Brazilian can buy virtually the same as one US dollar can buy in the US of non tradeable goods, of course, like the like the Big Mac index. So, if you think about it, Brazil, you can buy like virtually the same company you could buy in the US for five times less, you divide that by five, and you can buy it in Brazil, a stake in the company. So, and I think whenever Brazil gets real about that, that will happen happen probably in two week, three weeks. Whenever we get we get real about what’s going on. The exchange rates might probably hit six, six for $1 six heads for $1-

Making it even cheaper for foreign investors to buy stakes in Brazilian companies. So, in summary companies in the very short term will be devaluated. Desperate for cash and dollar, the US dollars will be king in Brazil. So, there will be hundreds, thousands of opportunities of companies to to to acquire participation in Brazil or to to enter the market or even to buy companies that other international international actors are leaving sometimes Brazil that happens too. They decide this is Oh no, this is too tough. It’s not all that on all the companies around the world that that can that are ready to work in the Brazilian market.

Like emerging markets are tough. We have exchange rate issues. We have fiscal deficit issues, sometimes even government, even government issues. So it’s it’s, it’s different from making business, of course in developed markets. But nonetheless, I think Brazil, it’s it’s, it’s turning in the new China. We are democratic. We are we have now a government that is liberal, that knows the benefits of of international trade of free markets, and a very good ally of the United States, the federal government now, it’s absolutely aligned with the US with US interests. And I think this is very good for the integration of our economies. Americans are very welcomed in Brazil, very well seen. Chinese not that much Chinese are Chinese, but Americans are like, we are all the same. We are from from the west. We think the same. We like freedom the same way. That’s the way I see I see. I see I think there will be a lot a lot of opportunities and whoever can be a well well well placed in this in this moment that I think will happen in one month, probably in May, May to June. Whoever is well placed here and ready to to to to evaluate the deals and and talk to people and and close the deals will be able to buy steaks and very healthy companies in very good companies for good, very good discount. That’s the way I see it.

Fred Rocafort 26:58
There you go. This is very interesting and you bring up a good point. I think that for many, certainly for Americans and for Europeans in general, there’s that concern sometimes with investing in places like China because of those perceived differences. And one of those key differences has to do with the legal system. So I was hoping you could tell us about the Brazilian legal framework for relevant aspects of the Brazilian legal framework for potential investors who might be looking at taking advantage of the current juncture in Brazil.

Rodrigo Guedes Nunes 27:41
Mm hmm. Yes, Fred. Brazil is a totally open economy. Okay. Our constitution puts in an equal place. Everyone, like Brazilians are equal to any foreign foreigner that comes to Brazil. They have the same rights, they can do the same things. The The only thing that that makes Brazil a little harder for foreigners to deal with, of course, is bureaucracy.

But, I mean, it is actually a problem. But this is something like good lawyers and good accountants can do the trick. You know. And also, if bureaucracy means money means time, sometimes you have to wait a bit more. Sometimes you have to hire lawyers, sometimes you have to hire accountants. Sometimes you pay a little more taxes than you expected before because of bureaucracy, and this is what i mean i think that holds Brazil for being like a China today and we have loss of course, we have a you cannot like put people to work for 14 hours.

We have a workplaces legislation here that that protects, of course, people from being in slavery or unfairly treating. But this is a good thing because on the other end, they are they are a market themselves they consume, you know, they, they they are they are also consumers.

I mean, it’s Brazil, it’s open the constitution that allows everyone to do business here the same. So I think Brazil is very well prepared right now, to receive a foreign investment. The government will have to adapt a bit. And the good news is that the crisis came in a way that government is working fast right now. They’re changing rules fast the bureaucracy is being like, wiped out gradually.

Also, also because of the political and inclination of this of our current president and the current government, and I think if the US can also the good the US government can demonstrate interest also, in coming to Brazil and investing in Brazil. The government is very open to this, the legislation is ready already, what we have now is bureaucracy, bureaucracy has a price on the side, but can be slashed, also if the government is proactive in in this activity.

And the crisis, the COVID crisis is making new legislation to pass in record time. So, we are open to business right now. And whatever is necessary, I think, to adapt, the government will be very open to adapt in the in the short run, but even now, if nothing changes Brazil is open. Brazil is open for business is pro America pro West. Of course, we are democracy also. We are like, free people here. And we would love to have like, more investment and more companies, international companies coming to our market and doing business with us.

Jonathan Bench 31:24
So wherever you go, you you if I could sum up what you just said, You think Brazil is ready to do business is poised to do business. There are strong laws in place to protect companies that are investing so they have good, you could basis in contract, and they can expect a very pro business environment when they are looking at Brazil.

Rodrigo Guedes Nunes 31:45
Absolutely. Absolutely.

Fred Rocafort 31:48
Rodrigo, thank you very much. This has been an incredibly informative session. And part of what we’re trying to do with these podcasts is really encourage people to seek out information about other countries and what’s happening, they’re there in terms of law and business. And as part of that, one thing that Jonathan and I would like to do is ask our guests and and also each other, what are some of the things that we’re reading that are helping us increase our understanding of the of the wider world? So I would love to hear what you’re reading at the moment.

Rodrigo Guedes Nunes 32:29
Fred, nowadays, like I use, like an app from Amazon called audible. So I hear a lot of books. It’s very useful and augments, increases your productivity a lot. So the book I’m actually listening to right now. It’s called the Splendid and the Vile from Eric Larsen. It’s about Britain in the second World War.

When Winston Churchill assumed as prime minister, and he literally literally taught the British people the art of being fearless. And this is helping me like the book is helping me to strength, my beliefs and, and to believe in the future, even if we are like, at home right now, having to work at home and seeing our companies like going in the way that they are going to break in the near future. If nothing happens, I think that this book is a it’s very useful, and this is exactly I think what we need nowadays, we have to, to learn the art of being fearless and to face the challenges without fear and with faith, that’s what I’m reading now.

Fred Rocafort 34:03
Well, that makes me feel a lot better about having started off with a Winston Churchill quote. Jonathan, what are what are you reading?

Jonathan Bench 34:11
Right now I’m in the middle of Confessions of an Economic Hitman. And this is a fascinating story by author named John Perkins. And we could spend a whole hour just talking about this because he goes through the development from from developing countries like Saudi Arabia,

Indonesia, you know, from the late 60s up to the present time and how the US foreign policy in interacting with countries that changed post World War Two, it’s such a fascinating story and it half the time it reads like a spy thriller and half the time, like political discourse on whether or not the way the US has done business in the last 50 years. 70 years. Is is the right way to do it. And it

It’s been good for the countries that we’ve, that we’ve dealt with. So it’s really caused me to think critically about the way that I do business personally and the way the US is doing it as me as an agent. What about your Fred? What’s in your reading queue these days?

Fred Rocafort 35:16
So I’m a big fan of audible as well, but I’ve sort of gone in the opposite direction and having time here at home to, to look around and see what I can find that I’ve been ignoring. I actually picked up a rather old book. I mean, I think it I think it’s older than I am. It’s yellowed, and was originally bought by my my grandfather, who was an avid reader, and it’s called, I just started, but I thought when I saw it, I thought this would be great preparation for one of our upcoming conversations on this podcast, and it’s called the Blue Nile. It’s by

An author called Alan Morehead. And as the title suggests, it is a basically a travel book about the Blue Nile and the and the countries that that join, you know, through which the river goes through Ethiopia, Sudan, nowadays, South Sudan and Egypt. So I thought this would be a good way of learning a little bit more about a part of the world that I don’t know at all. And get us ready for that shift to Africa that we’ll be having in a little bit. The Blue Nile by Alan Morehead.

Jonathan Bench 36:42
Rodrigo,Thanks for taking the time to talk to us today. It’s been absolutely fascinating love getting to know you better as well as your expertise and your insider’s view on Brazil.

Rodrigo Guedes Nunes 36:52
My pleasure, Jonathan. It’s a it’s an honor to be to be invited for this for this podcast and

I’m here whenever you need, just call me up. I’m always here.

Fred Rocafort 37:06
Thank you Rodrigo obrigado. And we look forward to having you on the program before too long.

Rodrigo Guedes Nunes 37:12
Muito obrigado. Thank you very much, guys.

Fred Rocafort 37:19
We hope you enjoyed today’s podcast. We look forward to connecting with you on LinkedIn, Facebook, Twitter and anywhere else you want to find us until next week.

Transcribed by https://otter.ai