State-owned companies buoyed by efficiency gains and record profits

Changes in the governance of State-Owned Enterprises (SOEs), more efficient management and transparency measures have changed the reality of these companies for the better. Data from the Ministry of Planning, Development and Management shows that accumulated profits from state companies increased from R$ 8.7 billion in Q3 2016 to R$ 23.2 billion this year - a 167% increase.

Banco do Brasil was the highlight in terms of growth. In the period, the institution grew by 11%, with net profits of R$ 7.9 billion. Petrobras also performed very well, reversing a R$ 15.8 billion loss in the first nine months of last year to achieve a R$ 5.7 billion profit this year.

As the changes implemented by the Brazilian government helped boost investor confidence, state companies also stood to benefit from the consequent increase of resources in the financial market. This has been reflected in market value: most major Brazilian SOEs increased their market caps over the last 12 months.

Petrobras, for instance, increased 7.8% in value, from R$ 188.6 billion to R$ 203.3 billion. Banco do Brasil, a public bank, had even more impressive performance: its market cap rose by R$ 34.6 billion since last year to reach the current R$ 100 billion.

Efficiency and good management

The recovery of growth in these companies was helped by the positive environment of the Brazilian economy, reduced personnel expenses, and responsible management practices all playing a decisive role.
Most of the changes in governance came through the State-Owned Enterprise Responsibility Law. Sanctioned in 2016, the law establishes tougher and more transparent rules for strategic appointments in these companies, including a prohibition of political nominations for high-profile technical positions that foster more pragmatic and efficient management.

The efforts to reduce costs have paid off. From January to September, 26,300 job posts were eliminated in State companies in relation to the same period of last year; in total, SOEs today have 43,000 less employees in comparison with 2015. The number of state-owned companies also decreased, from 154 last year to 149 in 2017.

“Downsizing staff is part of the efforts we are making to recover and increase the sustainability of these companies, reduce costs and bring them closer to market values," said Fernando Ribeiro Soares, Secretary of Coordination and Governance of State-Owned Enterprises, in an interview with journalists.

The main cuts happened in Caixa Econômica Federal, a public bank (7,200 employees), the Correios, Brazil's postal service (-7,100 employees), Petrobras (-4,010 employees) and Banco do Brasil (-2,600 employees). These numbers include both trust positions eliminated and voluntary termination programmes.

"State-owned companies are continuously reassessed, always with a view to generating better results for society," said the secretary, who estimates that there will be 500,000 fewer jobs in state-owned companies, increasing their corporate sustainability and efficiency.