Brazil’s post-pandemic economy: a dog-eat-dog world

As is the case anywhere in the world, the Covid-19 pandemic will reshape the Brazilian economy, with merger and acquisition (M&A) deals likely to become an integral part of the “new normal.” In the big leagues, these operations will demand a more comprehensive approach from Brazilian antitrust watchdog, Cade. Small- and medium-sized firms, however, will be faced with a survival-of-the-fittest situation. Businesses will have to turn to the courts to avoid liquidation — a fate estimated to hit some 2,500 companies — or even declare bankruptcy.

Industrial production fell 9.1 percent in March, while the National Confederation of Industry index measuring business confidence dropped 25.8 points between March and April. Before this, the most significant drop recorded was 5.8 points in June 2018, following the 2018 truckers’ strike.

A study among 245 publicly-listed Brazilian companies showed that half of them could endure for three months without steady cash inflow, while the other half could survive longer. But small and medium-sized enterprises (SMEs) — which amount to no less than 99 percent of all Brazilian firms, employing 52 percent of the formal workforce and generating 25 percent of the Brazilian GDP — can only withstand a downturn of business for about 27 days, on average.

“There is a group of companies, with revenues between BRL 10 and 15 million, which is lost to the government. They will not survive,” warns economist Elena Landau. Default rates among Brazilian companies have been rising for 11 straight months. In January, 6.2 million companies were behind on their dues. Of that total, 94...