Brazil: Who Will Win The Brazil Election - And What Will They Do To Fix The Economy?

Last Updated: 24 October 2014
Article by Ricardo Aquino

Incumbent president Dilma Rousseff is virtually neck and neck with surprise pro-business contender Aecio Neves. But what has got the Brazilian people so energised about this election?

In 2001 the term BRICs entered our vocabulary, cited as the most promising up and coming investment destinations in the world – and Brazil was perhaps the most exciting of these. The prediction was a solid one, with Brazil's GDP hitting a magnificent 7.5% at the end of 2010.

But since then we've seen a major slowdown and widespread unrest, evidence of which marred the recent World Cup celebrations.

In the first round of the country´s presidential elections on 5 October, Rousseff secured 41.6% of the vote and Neves was behind with 33.6%. Now the economy is a central campaign issue for Worker's Party candidate Dilma Rousseff and Social Democratic Party candidate Aecio Neves, who will face-off against each other in the run-off ballot this Sunday 26 October. Growth for this year is forecast at just 0.3% and following two quarters of negative growth the economy is officially in recession.

The candidates

The challenges to the Brazilian market are many and doing business in the country is notoriously difficult. Yearly, PwC works with the World Bank and the International Finance Corporation (IFC) to produce a comparison of tax systems in economies worldwide. In the 2014 report, Brazil held its position as the most time-consuming tax regime in the world.

Tax professionals in Brazil are said to spend 2,600 hours a year complying with regulations, so it's little wonder businesses are crying out for change. Penalties can be aggressive and are not infrequent, given the endless number of tax regulations. To add to the burden, the government has assembled a huge tax surveillance system, increasing the pressure on tax payers.

While Neves has come forth with promises to make Brazil more competitive by overhauling the burdensome fiscal system, Rousseff is highlighting the impressive employment rate of around 95%. On top of that, wages have steadily risen and welfare programmes have helped to lift 40 million people out of poverty over the past decade. But Neves has promised voters that the welfare programmes won't be cut, blurring the opposition lines.

In terms of business, the current government's attitude is largely internally focused, with incentives mainly available for national manufacturing and construction companies. Rousseff's government has been keen to encourage consumers to buy more domestic products, reducing interest rates to stimulate spending at the beginning of her tenure, but in turn fuelling inflation. Tax incentives have also been extended to consumers on the price of new cars, motorcycles and white line goods.

Opinion is fairly evenly divided on Brazil's two polar candidates but Neves' stance on opening up the market and a return to an orthodox macroeconomics agenda has won over many from the financial sector. Behind the scenes he is being supported by former Central Bank director Arminio Fraga, whose solid reputation and recognition in the international market lends Neves even greater credibility. Former presidential runner Marina Silva has also thrown her weight behind the Neves campaign following his agreement to pursue a green environmental programme. But whether Silva's supporters will follow suit is another question entirely.

Public feeling

The Worker's Party has been in government for 12 years now, overseeing Brazil's boom time and now its stagnation. For Neves and Rousseff supporters alike, it seems that a fresh start is just around the corner.

Groaning under the weight of its reputation, Brazil certainly wants to deliver on its promise to one day be a global power house. Whatever its issues, it's an economy that multinational businesses can't ignore – and they haven't. Many multinationals have carved out a place for themselves in Brazil, including the likes of Fiat, who is developing the country's biggest manufacturing project in the north-eastern city of Goiania.

And we can't mention Brazil without touching on the recent World Cup and the 2016 Olympics. Many lessons will have been learned from hosting the footballing spectacle which will be applied to the next sporting event and, whatever the criticisms, it will spur on another round of investment in infrastructure – a major issue for Brazil, particularly if it wants to attract FDI and boost GDP.

Neves has thrown down the gauntlet to Rousseff, and is ready to revolutionise Brazil, targeting economic policy, the tax system, infrastructure and the energy sector. But Rousseff is rising to the challenge, also promising major tax reforms, greater investment in infrastructure, a new education programme and an expansion of her social policy programmes which have led to an emerging middle class.

Ultimately, in an election battle that is currently too close to call, one thing is certain; the Brazilian people are clamouring for improvements which will see their country an undisputed competitor on the world stage. Whoever the victor, change is certain because the country is at a turning point and the world is watching.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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