Brazil is in bloom, economically speaking, and the international media has stirred up a frenzy of excitement about the robust and ever-expanding Brazilian economy. But as I’ve written several times before, this trend of stability and wealth mixed with blind optimism is not necessarily sustainable in the long run, and if there is any example to indicate this, it’s the U.S. experience. There are so many lessons to be gleaned from our hubris, overspending, and inattention to the big picture, but who wants gloom and doom when things are looking up?
There are plenty of great stories about Brazilians opening new businesses and getting new job opportunities, being able to buy washing machines for the first time, or having luxuries they never had before. But when you look on more of a micro level, there is cause for concern, or at least caution.
Brazilians are up to their ears in debt, and the first line from one article about debt was “Brazilians have never owed so much.” Because of expanded credit, extended financing on anything and everything from vacations to groceries to toilets, and greater access to loans, consumers are spending more than ever. In 2009, consumer debt in Brazil hit R$555 billion, or US$308 billion, which encompasses 40 percent of total income that year. According to LCA Consulting, if all of those debts were collected with interest all at once, each Brazilian would owe five months of income. However, despite such a large debt burden, Brazilians have more time than ever before to pay off their debts; from 2006 to 2009, average financing rose from 17.3 months to 31.1 months. Economists can’t seem to agree on the risk of defaulting, but once employment slows down, they expect it will rise.
Besides being able to pay for many goods and services in installments and having access to credit and loans, as well as expanding employment and salaries, there remains another problem: many consumer goods in Brazil remain very expensive, with prices far above average salaries. Technology is the most obvious; it is one of the most expensive countries in the world to buy computers, and is the most expensive country to buy an iPod. It is also one of the most expensive countries for telecommunications: cell phones and cell phone/land line services. (Despite this, 78 percent of Brazilians owned a cell phone in 2009–another source of consumer debt.) Internet services are also among the most expensive in the world. Even though Brazil is a major auto producer, cars are also very expensive on a global scale: imported cars are sometimes less expensive than domestically produced cars, despite high import taxes, and in 2009, there were more foreign cars imported in Brazil than Brazilian cars exported abroad.
Evidence of the high cost of goods in Brazil can be found in the tourism deficit: in January 2010, while foreign tourists spent only US$566 million in Brazil, Brazilian tourists spent US$1.21 billion abroad. In New York, for example, many tourists buy all sorts of electronics (while Eli was touring with his sister, he saw one woman buying four laptops at once), as well as other items that are cheaper abroad.
Finally, despite great progress in employment levels, salaries are still surprisingly low for a wide range of jobs (though cheap labor has been a key factor in Brazil’s economic success, even though Brazilian labor is more expensive than in other developing countries). Estadão recently promoted this really cool online tool where you can look up the salary of practically any job in Brazil, or search by state and other factors. To give one example, the average salary for an accountant in Brazil is R$2,425 per month (R$29,100 per year, or US$16,166), while the average salary for an accountant in the US and Canada is between US$40,000 and US$80,000 per year. While the average cost of living in Brazil is lower than in the US or Canada, those services/products discussed above are still very expensive in comparison to wages.
While there are a number of factors that affect the cost of consumer goods, import taxes are the most obvious factor that drive up costs, especially for technology. Lowering these taxes would make a world of difference for Brazilian consumers, though it seems unlikely the government would dramatically change the lucrative system it has in place.