Brazil’s Corruption Probe Causing Paralysis, GE’s Rice Says

  • Brazilian builders key for Latin America: GE’s vice chairman
  • ‘There’s a penalty that comes with continuing it forever’

Brazil’s two-and-a-half-year investigation of construction companies is hampering new infrastructure in Latin America’s biggest economy and the wider region, where Brazilian builders have a dominant presence, said a top executive at General Electric Co.

“There’s a certain amount of paralysis that exists now because of Carwash, and the damage of continuing that for years and years would probably be significant,” GE Vice Chairman John Rice said in an interview in Rio de Janeiro. “There is a penalty that comes with continuing it forever.”

While opinion polls show Brazilians massively support the so-called Carwash investigation, the scandal of kickbacks at state-controlled companies has had an impact on a wide range of infrastructure projects and on employment. More than 200 people including top executives have been indicted, and 16 construction companies have been charged, with some seeking bankruptcy protection. 

The scandal contributed to about 675,000 construction job losses in Brazil since 2014, worsening what is projected to be the country’s deepest two-year recession in more than a century. It also tarnished Brazil’s main political parties who allegedly benefited from the scheme for years.

To read more about Carwash, click here

Brazil’s biggest construction and engineering company Odebrecht SA has seen its former chief executive go to jail and is selling assets to compensate for lost business and help service its debt. Camargo Correa SA and OAS SA, Brazilian conglomerates that have also seen their top executives jailed, are likewise restructuring. Sete Brasil Participacoes, a rig builder created to supply Petrobras and a target in the investigation, declared bankruptcy earlier this year. A group of shipyards has gone bust.

Brazilian construction companies “have been tainted recently, but that doesn’t mean that under the taint there aren’t really good people capable of doing really good things in a region that needs what they do,’’ Rice said. “Some bad stuff happened. We don’t condone that, and most people don’t condone it. It needs to be fixed, but let’s not destroy some good companies in the process.’’

Rice added that he isn’t in a position to know whether more can be materially accomplished by continuing the investigation, or if the it is being prolonged either for political purposes or “just to fry small fish.’’

Divestment Plans

The Fairfield-based industrial giant isn’t looking at acquiring Brazilian construction firms because they have a broader reach than GE, which focuses on electricity and oil and gas industries in Brazil, Rice said. Still, the company could be interested in some of the non-oil related asset sales by Petroleo Brasileiro SA, one of GE’s major clients. Petrobras is looking to scale down and curb capital expenditures in the wake of Carwash and amid a global downturn in oil prices.

“Petrobras does need to conserve capital, and there probably are some assets that would be better off with other companies,” Rice said, adding that GE would be willing to consider buying assets that would “make sense for us to have.”