Brazil Faces Polarised 2022 Election

Mário Braga, Control Risks’ Lead Brazil Analyst, investigates how next year's presidential polls could impact international investors...

With just less than a year to go before the presidential elections in Brazil, polls suggest a polarised race between far-right President Jair Bolsonaro and former President Luiz Inácio Lula da Silva (2003-10), from the centre-leftist Workers’ Party (PT). Because of the multiple obstacles a moderate candidacy would have to overcome over the next six months to become competitive, the chances of the so-called “third way” winning the vote is unlikely – but not impossible.

According to a poll carried out by Datafolha and published in September 2021, 46% of the electorate plans to vote for former President Lula in the first round and 58% in the second round. Incumbent President Jair Bolsonaro, on the other hand, holds 25% of the voting intentions share in the first round and 31% in the second. Centre-leftist PDT party contender Ciro Gomes, who finished the 2018 first-round vote in third place (with 12.47%), finds himself in the same position in the poll, with 8% of voter intentions. Other centrist contenders get less than 5% of voting intentions each.

These numbers hardly vary from July’s poll, suggesting that a “third-way” alternative has yet to overcome the electorate split between Lula and Bolsonaro.

An atmosphere of elevated social anxiety is likely to push voters to opposite sides of the political spectrum

Scepticism around a centrist candidacy has been growing mainly for three reasons. Firstly, Bolsonaro and Lula are popular among far-right and left-wing voters, respectively, and at the same time have high disapproval rates in early polls. This polarisation is indicative of an atmosphere of elevated social anxiety, which is likely to push voters to opposite sides of the political spectrum, which in turn is disadvantageous for moderate candidates.

Secondly, disagreement around a unified candidacy keeps pre-candidates from flexing their muscles early in the race and leads to the inevitable dispersion of voter intentions among several uncompetitive potential candidates. However, a comprehensive alliance between centrist pre-candidates for the first-round vote in October 2022 remains unlikely in the short term.

Also, the “third way” still lacks a consistent and assertive narrative. Without a clear idea of what they stand for, these politicians struggle to turn Bolsonaro’s and Lula’s high disapproval levels into broad public support for themselves.

Centrist political forces would have to overcome these challenges over the next six months to have enough time to build a competitive ticket and catch up with Lula and Bolsonaro, who have already started making political moves ahead of the campaigns’ official August 2022 launch. Bolsonaro has been encouraging frequent rallies in big cities while Lula has been touring the Northeast – a key electoral region – and holding meetings with several seasoned politicians. It is a battle against the clock and the moderate pre-candidates are lagging behind.

The winner takes it all

The moderate pre-candidates’ spark of hope comes from the increasing disapproval rates for Bolsonaro and Lula. Datafolha reported that Lula’s rejection rates stood at 37% in July, compared to 36% in May. President Bolsonaro’s disapproval rate, on the other hand, rose from 54% on May’s survey to an all-time-high of 59% in July. Rising inflation - at 10.25% as of September - and high unemployment rates - 13.7% in the three months ending July - are key factors for the president’s popularity erosion. That scenario is unlikely to significantly improve over the next year, and the economy will be a central topic in the electoral landscape, as increased prices, especially in strategic goods such as energy, fuel and food impact Brazilians and challenge Bolsonaro’s popularity.

The polarised environment will also keep fuelling pro- and anti-government protests as the election approaches. Political tension and protest activity are likely to persist, although waves of civil unrest or widespread escalation of violence remain unlikely in the one-year outlook. It is worth noting that, historically, election years register fewer unrest episodes in Latin America, as social movements typically express their discontent through voting – at least when elections are perceived as legitimate.

Down the road 

With persistently low approval rates and voting intentions, Bolsonaro is likely to replicate the 2018 moralist and conservative approach and will likely return to deploy belligerent rhetoric and try blame others for the problems his administration faces. He will attribute unemployment to state governors because of the restrictive measures taken during the pandemic, argue that corruption probes against his inner circle are a result of a witch hunt by the Supreme Court while echoing the anti-communist and anti-globalist sentiments that resonate among his core supporters. Ultimately, his goal is to keep his base mobilised.

However, the anti-establishment rhetoric that boosted his victory in 2018 has dwindled following Bolsonaro’s political alliances with traditional political parties. To continue to pose as an outsider, he will likely resume the attacks against democratic institutions, especially the judiciary branch, as they would represent the so-called “establishment.”

As Bolsonaro increasingly prioritises his re-election prospects, he is also likely to pursue an increasingly populist agenda and sideline the pro-business economic platform of his economic advisors – leading to reduced policy predictability, fuelling fiscal concerns, and causing financial volatility.

On the other hand, Lula is likely to present himself as a unifier willing to negotiate with political actors from the centre and the left of the political spectrum. To do so, he will try to show he is ready to form alliances with centrist governors – but not at the expense of the PT’s traditional social programme. Lula is likely to explore the environmental agenda by following US President Joe Biden’s footsteps in the green infrastructure field in order to differentiate himself from his opponent in the global arena and try to mitigate the wariness of investors and businesspeople regarding his economic platform. As the electoral debate will dominates the agenda in the year ahead, pro-business measures, including the tax and administrative reforms, are unlikely to make significant progress in Congress. Uncertainty around the election outcome and tight monetary policy to fight inflation will negatively impact investment decisions and slow down the economic recovery. Against that backdrop, investors and companies operating in Brazil will be exposed to a challenging business environment in the one-year outlook.