Project Management Institute

Without a net

Brazil's economy has hit another rough patch—but this time, the country's national government isn't backing major projects to stimulate Latin America's largest economy. To the contrary: It's enacting austerity measures and reeling from a corruption scandal involving one of the country's marquee projects. Embroiled in bribery allegations, Petrobras’ Abreu e Lima oil refinery in Ipojuca, Brazil opened in December three years late and more than US$15 billion over budget.

The scandal prompted the semi-public multinational energy company to announce it will review all of its projects. Two oil refineries under construction will be delayed so contracts can be renegotiated with companies that have faced accusations of overcharging for work. A global drop in oil prices has prompted Petrobras to cancel two other refinery projects in Brazil's northeast.

“There's a high degree of uncertainty resulting from the corruption investigations at Petrobras, and that is certainly affecting the construction industry as well,” says Sara Johnson, senior research director for global economics, IHS Global Insight, Lexington, Massachusetts, USA. “Brazil is in a mild recession. It's a difficult environment.”

From oil refineries and highways to shipyards and hydroelectric plants, grand infrastructure projects have long buoyed Brazil's economy. When the country hit an economic slowdown in 2011, the government stepped in with stimulus packages to keep projects on track. But with the United Nations estimating that Brazil's gross domestic product will contract 0.9 percent this year, President Dilma Rousseff has slashed government spending in a bid to curb inflation and avoid a debt rating downgrade. A downgrade would likely mean a reduction in foreign investments, which would probably cause major projects across the economy to be delayed or canceled.

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Little more than a decade ago, the BRIC nations—shorthand for the developing economies of Brazil, Russia, India and China—were seen as the future of the global economy. Today, two of these once-vaunted countries are in recessions, and only one is growing robustly.

It's not only Brazil. Russia's real GDP will likely contract 5 percent in 2015, says Sara Johnson, senior research director for global economics, IHS Global Insight, Lexington, Massachusetts, USA. She projects a 1.1 percent real GDP decline for the year in Brazil—“not as difficult as Russia, but far worse than India and China.”

The country's rapidly cooling real-estate market has slowed construction project activity, and as of April that had rippled out to slow down employment and new business growth to their lowest points in at least eight months. But the factory sector is showing signs of a rebound, and the government has acted to make home buying easier in an attempt to jump-start the market.

“We're projecting 6.5 percent real GDP growth compared to 7.4 last year,” Ms. Johnson says. “The environment is not as vibrant, but at least there is some growth.”

RUSSIA

The global drop in oil prices, coupled with economic sanctions from Western countries, has triggered big government spending cuts and a major recession. That had pushed down project activity in heavily state-controlled industries, including defense and healthcare. Soaring inflation has also hurt the private sector, including retailers and wholesalers.

INDIA

2015 may be India's breakout year. With a new government spurring market optimism with promises to enact business-friendly tax, labor and foreign investment laws, IHS Global Insight projects a 7.8 percent growth rate in the current fiscal year—higher than China's for the first time this century. Project activity is particularly hot in defense, energy and manufacturing sectors. Still, lackluster electricity and transportation infrastructure continues to hold back broader project activity, Ms. Johnson says. —Ambreen Ali

But there are bright spots on Brazil's project landscape. Two years after the World Cup tournament culminated a BRL25.6 billion program of stadium and infrastructure projects, the 2016 Summer Olympics will be staged in Rio de Janeiro. The Olympics have spurred a range of transportation and construction projects, with the cost of sports venues estimated at BRL6.6 billion, and a total budget of BRL37.7 billion.

The mining industry also remains strong. Multinational mining organization Vale continues its US$19.7 billion S11D expansion project at the Carajás mine in the Brazilian state of Pará, having received an environmental license from the government in 2013. The project is scheduled for completion during the second half of 2016, with mining operations to reach full capacity two years later.

“S11D is Vale's most important project, and it's running as planned. There is no delay in this because of Brazil's economy,” says Murilo Fiuza, media relations officer, Vale, Rio de Janeiro, Brazil.

 

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“Brazil is in a mild recession. It's a difficult environment.”

—Sara Johnson, IHS Global Insight, Lexington, Massachusetts, USA

The mining industry notwithstanding, the recession has already impacted project managers. Practitioners in the construction, oil and gas, and IT sectors have lost jobs as a result of the economic slowdown and corruption scandals, according to Alex Brasil, PMP, project manager, Clarify, São Paulo, Brazil.

“For a while now, some companies have not been hiring and the number of unemployed professionals has grown,” Mr. Brasil says. Project managers looking for work—or just looking to leave large organizations in sectors hit by the downturn—can stay afloat by exploring opportunities in other industries, or with small-to-medium enterprises.

The good news is that in recent years Brazil has suffered from a shortage of project managers, so a significant oversupply in the current recession isn't likely. For those who do find themselves out of work, Mr. Brasil suggests taking the opportunity to boost skills.

“Despite crises, there's always an opportunity to improve our careers with new knowledge, education and inspiration, including improving our technical and interpersonal skills and entrepreneurial vision.” —Ambreen Ali

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PM NETWORK JULY 2015 WWW.PMI.ORG
JULY 2015 PM NETWORK

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