Here’s How The Petrobras Scandal Is Helping Destroy Brazil’s Job Market

4/05/2015 @ 10:02PM 5,962 views

Here’s How The Petrobras Scandal Is Helping Destroy Brazil’s Job Market

Kenneth Rapoza/Forbes

Brazil’s economy is expected to contract this year. But the biggest downer in the country is the enormous Petrobras scandal that is pulling the rug out from under thousands of low skilled workers.

Civil construction is an important economic sector in any economy. That is particularly true in an emerging one, where governments and the private sector are busying building up roads and refineries.

But political scandal and wide spread white collar crime at Petrobras is damaging that sector something fierce. In the first two months of the year, 35,500 jobs were lost in civil construction, many of them low skilled labor.

“This is a problem that has no end in sight. You wonder where many of these workers are going to go,” asks Fernanda Lima, CEO of Gradual Investments, a $6.5 billion money manager in Sao Paulo. “Construction company layoffs are going to weigh on the economy.”

Petrobras is currently being investigated for a number of scandals. The biggest ones involve the oil giant’s gouging billions out of public coffers by allowing construction firms to over-charge for refineries. There were kickbacks paid. Offshore accounts were opened. A few guys got rich. A few guys went to jail. And now two of the companies involved in the scheme, OAS and Galvao Engenharia, have filed for bankruptcy protection.


Once loved by all, Petrobras is now the bane of Brazil’s existence as crisis leads to job destruction for over 30,000 low income construction workers.

Late last week, the Getulio Vargas Foundation think tank said Brazil would lose an estimated $27.1 billion from potential GDP growth this year because of Petrobras’ cut backs and the impact those will have along the supply chain and, ultimately, in tax revenue to the state. The number included around $4.5 billion in tax losses from Brazil’s shrinking construction business alone.

Many construction companies are no longer receiving government payments for work orders as Brasilia tries figuring out whether or not it is getting what it pays for.

Petrobras “caused unemployment to rise in civil construction, especially among those companies that were involved in building projects for them,” Carlos Zveibil, president of the Sao Paulo Public Works Association told the Estado de Sao Paulo newspaper on Sunday. ”The economy is already fairly bad in a general sense…but this crisis is just another ingredient,” he says.

In the northeastern state of Pernambuco, home to the questionable Petrobras refinery project known as the Abreu and Lima Refinery, work orders have ground to a halt. The project is still under construction, but not at the pace it was a year ago. The government is holding back payments. Nearly 90% of those people laid off were released without explanation other than the investigation of fraud changing the project timeline. In Brazil, getting laid off without just cause is a lawsuit waiting to happen. And it is one laborers tend to always win.

In other words, the Petrobras scandal is like someone took a nuclear missile and exploded it in a sewage treatment plant.

“Everything in Brazil right now has stopped,” laments Lima from Gradual. “There is no investment. People want to see what becomes of these investigations. It’s very sad for Brazil and tough for us to do business because no one wants to assume risk right now.”

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