Geopolitical turbulence puts Brazil in focus – but sustained growth needs a strategy

Why misalignment is a risk executives often underestimate

It is tempting to treat Brazil’s governance weakness as a known and manageable cost of doing business. That is, a discount may already be priced into investment decisions. The report suggests that such an approach is insufficient. “Cross-pillar misalignment,” as the report terms Brazil’s status quo, does not simply add risk to individual transactions. It creates a structural ceiling on aggregate outcomes that shapes the operating environment for all firms, regardless of their sector or size.

Consider what this means in practice. Brazil’s stellar managerial dynamics are driven partly by a relatively small number of large, sophisticated firms concentrated in finance, agribusiness, energy, and technology. The broader productivity landscape, however, remains deeply heterogeneous. SMEs, which account for over half of formal employment in Brazil, operate with significantly lower productivity, limited managerial capabilities, and constrained access to long-term finance. This highlights persistent structural constraints in firm organization and credit access. The same financial system that supports deep capital markets charges substantially higher borrowing costs to smaller firms, with lending rates for SMEs reaching more than double those of large corporations.

The same institutional environment that enables Brazil’s scientific excellence fails to translate that knowledge into broad-based innovation diffusion. In other words, the strengths that drive Brazil’s managerial dynamism are real but narrowly concentrated, and the governance deficits that underpin its weak governance and institutional rating affect the entire economy.

For executives, such an environment carries two major implications.

1. Institutional risk in Brazil falls most heavily on those least equipped to absorb it. Large, well-connected firms with established legal teams, regulatory relationships, and political capital can operate within Brazil’s institutional complexity with relative efficiency. Smaller entrants, foreign firms without deep local networks, and businesses in sectors with high regulatory exposure face substantially higher transaction costs, longer contract resolution timelines, and greater uncertainty over enforcement.
2. Brazil’s fiscal position constrains the policy space available to address structural weaknesses. With government debt at over 91% of GDP and interest payments absorbing nearly a third of public expenditure, the resources available for infrastructure investment, improvements in the quality of education, and social inclusion are limited.

Brazil’s societal empowerment performance in the rating captures this. Despite a relatively moderate Human Development Iindex score and strong internet infrastructure, socioeconomic inequality remains among the worst in the region, with a Gini coefficient of 51.6. In addition, women hold 17.5% of parliamentary seats, among the lowest regionally. Brazil also shows a weak performance in the gender inequality index. These are not peripheral social concerns. They are constraints on the size and quality of the labor force, the depth of domestic demand, and the long-term sustainability of growth.