BRAZIL’S ECONOMIC BOOM AND THE NEW MIDDLE CLASS

BRAZIL’S ECONOMIC BOOM

The eyes of the world are increasingly falling upon Brazil, not least because of its remarkable economic growth over the past few years. As the largest Latin American economy and one of the so-called BRIC nations together with Russia, India and China, Brazil’s growth has recently outpaced that of the US and western Europe.

The country has undergone remarkable economic, cultural and political changes since the 70s when repressive military dictatorship ruled with an iron fist. Brazil’s vast natural resources (iron, diamonds, oil, soybeans, sugar and coffee) have been instrumental in the strong development of both agricultural and industrial production, though there is still much controversial debate over the future of the Amazon region.

Other factors which have fuelled Brazil’s economic boom are a large population (190 million people compared to the UK’s 60 million people), international investment and high food and oil prices, which has led to rapid growth. The nature of this rapid growth has it’s dangers, however, with soaring domestic inflation being the main concern.

Enjoying a whopping 7.5 percent GDP growth in 2010 despite the global downturn, unemployment below 5 percent, rising wages, decline in relative poverty and an expanding middle class and Brazil looked like it was poised for long-term economic growth and prosperity. Over the past three years, 45 million Brazilians have moved into the middle class, known as ‘C-ers’, which has opened up a world of consumer opportunity. The government’s program ‘My House, My Life’ was set-up to help lower-income families buy or build their first home which helped fuel growth, though has raised concerns about creation of a credit bubble.

It looks, however, as if the economy is now slowing down as the GDP was down to .9 percent in 2012. This indicates that the reliance on the new consumer class cannot sustain this level of growth and the rising inflation rates are taking their toll. To keep the momentum going, Brazil needs improved productivity and investment and to support this, the infrastructure problems (The ‘Brazil Cost’) of high import tarrifs and bureaucratic hurdles, must be addressed.

Despite large leaps in education, skilled and qualified labor is still relatively hard to come by, pushing wages up and keeping productivity down. According to a study by the Federação das Indústrias do Estado de São Paulo, this means that national products are 34 percent more expensive than imported ones.

The country will host the 2014 World Cup and Rio de Janeiro will be home to the 2016 summer Olympics which will give a big boost to the economy, with estimates of more than $131bn, but with these world-class events come extremely high expectations.

THE INTERNET

Along with the rest of the world, Brazil is becoming obsessed with surfing the internet. The expanding middle class are increasingly online and Brazil’s highly-social culture means social networking is hugely popular. Unlike China, the world’s biggest emerging market, Brazil does not block sites such as Youtube, Facebook and Twitter which means the business is there for the taking. Brazil’s Facebook users total around 65 million, the second largest market after the USA. It has become one of Twitters top-five user groups.

Brazilian’s love to chat and to share, which is handy as there is increasing curiosity in Brazilian content. International technology companies are planning huge increases in advertising in Brazil over the next three years to tap into this booming trend of online trading and increase in purchases of smart phones and computers.

The Brazilian music industry is also benefitting from the surge in the online market. It has helped break artists via direct-to-fans marketing and trending and the digital streaming music service Deezer has recently launched in the country. The huge passion for music in Brazil is undoubtable, it is now down to the digital music companies to entice Brazilians into purchasing music in this way.

PROPERTY

The price of property and land in Brazil has sky-rocketed. Costs have almost doubled in Sao Paulo and Rio since 2009 and continue to climb. There is increasing interest from Western Europe to buy in Brazil which has helped create a market for million pound, top-end properties. Internally the system is very similar to the UK, with most people borrowing on mortgages, which are becoming more accessible with the growth in the economy.

Following the authorities clamp-down on the gangs and policing of the favelas (Pacification), wealthy buyers are now stepping in to buy up the land of the favelas. Vidigal favela in Rio, the most famous of all, nestled on the slopes overlooking the city, has seen a big transformation. Estate agents are opening offices, rental prices have surged and more outsiders are moving in.

One of the most famous of the newcomers is Andreas Wielend, an Austrian engineer, who bought a run-down favela property with stunning panoramic views and turned it into a popular hostel and nightclub. The area has suddenly become one of the most fashionable in Rio, with flashy hotels under construction, Rio’s elite and even rumours of Brad Pitt and Angelina Jolie buying up land in the area. The gentrification is similar to that seen in cities such as New York, London, Berlin and Beijing and with it comes big changes to the community. Some are positive such as greater security, increased social services and more money coming in. Some are not so great. There are still huge public health issues with irregular or no sewerage or water services and increasingly the threat that people will be forcibly relocated or priced out of their homes.

There are more people living in Brazil’s favelas (over 11 million) than live in the whole of Portugal (10.6 million). Rio alone has 1000 or so favelas and 40 will have been pacified by 2014. This gentrification trend looks set to stay.

SOURCES AND FURTHER READING:

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