Alert: Political Unrest and Violence in Brazil’s Capital
In scenes reminiscent of the January 6th, 2021 storming of the U.S. Capitol, thousands of Jair Bolsonaro supporters broke barriers and assaulted police forces to ransack Brazil’s key government buildings, including the country’s congress, presidential palace, and supreme court. The protests were not as violent as had been initially feared. During the previous administration, Bolsonaro reduced obstacles to obtaining high-powered firearms—as a result, ownership increased more than 60% during his presidency. Foreign governments—including the US and China—have made public statements in support of Lula Da Silva, the elected new President.
Key points so far:
Neither house of Congress was in session and the recently inaugurated President Lula da Silva was not at the presidential palace when it was breached. Former President Bolsonaro is in Florida at the moment, and the degree of coordination between him, his coterie, and these vandals is currently unknown. He made a statement shortly afterwards that criticized “destruction and invasions of public buildings.”
Security forces retook all three buildings within hours, arresting 200+ and dispersing the rest, so the risk of a major clash or more violent confrontation has abated, for now, as the government investigates the planners and funders of the rioters.
Despite attempts by Bolsonaro supporters to convince the Brazilian military—which the former president referred to as “my army”—to intervene and stop Lula’s inauguration, there is no sign that the armed forces intend to involve themselves. Bolsonaro supporters had been camping outside military facilities since the election, which authorities are now attempting to dismantle.
As Latin American government condemnations poured in, President Biden called the protests “outrageous” and his National Security Advisor, Jake Sullivan, said the United States “condemns any effort to undermine democracy in Brazil.”
These events have rocked the Brazilian political system and introduced heightened political risk to the largest South American economy and the fourth largest democracy in the world.
As of Monday morning, some protests continued in Sao Paulo and elsewhere in Brazil, with at least one group of supporters burning tires under a bridge that serves as a main artery in Sao Paulo. Military police units are breaking up encampments of Bolsonaro supporters outside military facilities and elsewhere in Brazil.
KSG is advising all our clients to take the following steps to mitigate immediate risk and posture for a more volatile environment going forward.
Immediate Steps Given Acute Risks
The situation is uncertain, and while presently contained, firms with operations and personnel in Brasilia should closely follow U.S. State Department advisories and guidance.
The U.S. Embassy advised US citizens yesterday to avoid downtown Brasilia after media and police reported that an “anti-democratic protest has turned violent and now occupies areas of downtown Brasilia, including the National Congress and areas of the Praça dos 3 Poderes.”
Firms should prepare for a more intense security environment, especially in the capital city and around government buildings.
Firms should consider evaluating the location of staff during the protests and dismiss any participants pursuant with local labor laws and regulations.
Strategic Posture Given Heightened Political Risk
Supply Chain Risks: Firms should examine their first- and second-degree dependencies on supply chains with a Brazilian terminus. The risk of an acute disruption is low, but present political conditions are very unstable—if protests or violence spreads nationally, local production processes could be impacted.
Most of Brazil’s exports are raw commodities (iron ore, soybeans, oil, sugar, beef, and bituminous minerals), so higher value supply chains are unlikely to be affected.
Outsourcing: Firms should examine their reliance on outsourcing solutions based in Brazil and consider identifying backups in case of acute disruption. The risk of an acute disruption to these services is low, but present political conditions are very unstable—if protests or violence spreads nationally, outsourcing centers and related workforces could be impacted.
Brazil’s regulatory environment, time zone, large workforce, and digital infrastructure have made it an attractive destination for IT, Business Process, and other forms of outsourcing. These outsourcing centers are distributed throughout the country in several major metropolitan areas and are not currently affected by the events in Brasilia.
Democracy Threats: Firms should re-assess their assumptions on Brazilian political stability as part of a broader strategic assessment of business exposure to geopolitical and political risk.
Brazil’s political system has been occasionally tested by high-level scandals, corruption, and instability.
However, it has been able to conduct broadly legitimate elections and execute the peaceful transfer of power.
Recent events challenge that successful track record and introduce heightened risk to Brazil’s democratic institutions and political stability.
Despite Bolsonaro’s efforts to politicize the military during his term in office, the discipline from the officer corps during the protests to refuse action is a positive sign for the state of Brazil.
Learning From Chaos: Patterns are emerging from the bout of political decay plaguing democracies. A few indicators may presage future political instability in other democracies.
In Hungary, Poland, and Brazil, leaders have made significant efforts to undermine the rule of law and install puppet judges in the countries’ highest-level courts.
In South Africa, the ruling African National Congress uses state-capture of institutions to appropriate public goods for private gains. Their current president is embroiled in a corruption scandal, but slack rule-of-law will stop him from being charged.
The fascist Bharatiya Janata Party of India closes media outlets critical of the government, frames journalists for crimes, disenfranchises Muslim minorities, and suffers bouts of political violence against religious minorities. Bureaucrats control access to competition in the economy by dolling out permits to friends of the ruling elite.
The economies that in the 1990s promised to carry the world through the first half of the 21st century—Brazil, Russia, India, China, and South Africa (BRICS)—are now almost entirely unreliable or a locus of increasing concern.