Brazil - The Twitter ban and the investment environment
Elon Musk shows the mistakes to avoid when investing in Brazil
Twitter, which a few people also call X, has been banned in Brazil. Judge Alexandre de Moraes ordered the country's telecom providers to block the social network after Elon Musk refused to shut down accounts that violated Brazil's laws and pulled all of the local staff. Moraes also threatened to target Musk's other businesses including Starlink if Twitter did not comply (and Tesla will be next, though Moraes did not explicitly say that yet). As a first step, the judicial order forced Starlink to block Twitter. Musk accused Brazil of being a dictatorship. Lula, still bitter about Musk's support for Jair Bolsonaro, said Brazil is an example of how democracies can regulate rightwing ideologues who think their business success grants them impunity.
The situation is far more complicated than the preceding paragraph, but that's a good enough summary to move on. In response to the controversy, hedge fund manager Bill Ackman said the Twitter ban and Starlink bank account freeze "put Brazil on a rapid path to becoming an uninvestable market."
That's totally wrong. Brazil is a giant market and a great place to invest for companies that know what they are doing.
While the Twitter drama has given the country a sudden burst of attention from US citizens who usually don't give it much thought, the Twitter ban hasn't changed anything. Brazil is still Brazil. It's practically the same investment environment that it was last month and last year and last decade. Whether you think it is fair or not, Moraes did exactly what anyone who has followed Brazil for any amount of time during the 21st century should have expected him to do.
If anything, Musk's actions showed four things foreign investors get wrong in Brazil. Watching Musk screw this up is a great opportunity for others to learn the mistakes to avoid when investing in Brazil.
Follow the law, especially if you're a big company. Brazil, like the United States and Europe, is a place that requires a lot of legal effort, particularly from large companies. Too many large companies think they can treat Brazil like a small-time developing country where they can ignore the rules and get away with it (the fact they shouldn't do that in any country is a different issue). Brazil is quite effective at enforcing rules and regulations on large companies when they want to. Its activist judicial system will go above and beyond when necessary. Running a company in Brazil is much more like operating in Europe than like operating in Ecuador or most of Brazil's other neighbors. That doesn't make it uninvestable, but it does require lawyering up.
Don't cross business streams. Foreign businesses do best when they stay in one lane. Brazilian rules will target companies that have overlapping ownership. One company can be de facto liable for another company's actions if the owners overlap, which doesn't regularly happen in most other markets. Even wealthy Brazilian oligarchs who run conglomerates of companies in different industries have seen their business empires hurt because the problems of one company bled over into their other unrelated companies. In other words, Musk put Starlink's and Tesla's operations in Brazil at risk with his Twitter antics and the overlapping ownership is a real problem for him.
Don't expose your business to political controversy. Brazilian politics is neither more nor less messy than any other country in the hemisphere. But the risks for business owners who are outspoken about politics are bigger in Brazil than most other countries. That is due to a variety of factors including how regulations, regulatory capture, judicial activism and enforcement, congressional alliances, and corruption all impact the business environment. Intentional or not, Brazil's political system almost feels designed to punish foreign businesses that get too involved in local and national politics. Is it fair? No. Is it a bit authoritarian? Yes. But if you want to make a profit in Brazil, don't go making political enemies. The most successful businesses and politicians in Brazil are the ones that can flow across the political spectrum and work with whatever party is in power at the moment. The companies that openly support one side will be targeted by the other side. While I'm sure plenty of people from other countries will say, "that happens here too!", the impact is worse in Brazil than in most other democracies.
Don't run a social media company. Unlike the US, there are no "first amendment" rights or Section 230 or any other law limiting liability for social media companies in Brazil. Just stay away from that space in Brazil. Run a fintech company instead. Those make lots more money and Brazil has an awesome regulatory environment for them to operate. Or run a hedge fund or a venture capital fund or a real estate investment portfolio or an aerospace technology company. Those are all quite profitable in Brazil.
I have no interest in defending Brazil or Moraes or Lula in all this. The internet censorship rules in Brazil are ridiculous. Here is a blog post from 11 years ago where I criticize Brazil's internet policies. Back in 2012, after Brazil detained a Google executive during a similar dispute, I warned at the time that "any company building platforms for user-generated content must recognize that it may be liable under Brazilian election law for the content created by its users." That seems relevant to the current Twitter controversy and also shows that everything from the past week was completely foreseeable. Brazil is an investable environment, but you do have to have some sense of how the country operates to make it profitable.
