Brazil: Not the Place to Be!

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This was meant to be Brazil’s moment of glory. The Pope on his first official visit outside of the Vatican in 2013. Hosting the World Cup in 2014. Then the Summer Olympic Games in 2016. But, right now the only thing that looks like taking precedence over all of that are the soaring cost of daily necessities for Brazilians and the overall cost of living that is rising without precedence in the country, plunging many into economic hardship and financial difficulty. It looks very much as if Brazil is not the place to be either this year and the coming months and next couple of years will be just as troublesome as today.

Today average Brazilians are having trouble making ends meet paying for everyday products or household goods. Riots erupted in Brazil against the Pope’s visit to Rio de Janeiro. Anger has erupted because the country is paying out more than $50 million for the man from Rome. But, most of those that are actually protesting are doing so for political reasons, rather than anything to do with religion. It’s just another straw on the camel’s back, but this one looks as if it may break that back, snapping the country in two.

Brazil: Rio de Janeiro

The World Cup has also been the cause for great concern. The building of the super-stadium in Manaus, for example, that will be so big that it won’t be able to be used after the World Cup has finished. The World Cup is costing $13.73 billion. At least, that is the price at the moment, but we all know that predicted prices and actual prices at the end when the last ball gets kicked have nothing to do with each other.

The Olympic Games are said to be covered by the total cost of $14.4 billion (that was included in the bid that was put in for their election as the host). Again, prices rarely remain fixed and the chances are they (like everyone else) will go over budget.

It’s quite understandable that Brazilians are taking to the streets with regard to the money being thrown at the Pope, at football and at the Olympics. Take the example of products that we already consider to be rather expensive in our own countries. Apple’s iPad and iPhone, for example, are the most expensive in Brazil than anywhere else in the world! The average price of one of those products retails at $1, 348, or 28% more than on US soil.

one-bedroom apartment in the centre of Rio costs an average of over $900 a monthThree bedrooms in the city centre increases that rent to $1, 800 a month. Cars in Brazil could cost anything up to twice the price of the same make and model in the US.

The main reasons for the high prices?

  • Inflation: Brazil is suffering from inflation which stands at 6.7% (June 2013, as reported by the Brazilian Institute of Geography and Statistics (IBGE)). Between 1980 and 2013 it averaged out at 406.59%! Its all-time low was in December 1998 at 1.65% and the highest it ever reached was 6821.31% in April 1990.
  • Taxes: Brazil has a complex system of taxation, taking money from everyone involved in the supply-chain process. That means that taxes in the country are extortionate and the reason why goods that are cheaper in other countries are double or triple the prices being used in Brazil. For example, cars in Brazil tend to cost roughly 42% more than they should since this is due to the taxes levied on their sale in the country.
  • Legislation that is circumvented by the state itself. Just one amazing example is the fact that students get 50% off all entertainment and cultural activities in Brazil. So, as a consequence people get fake identity papers and student cards to get the discount. As a result, the state increases the price of those events by about 80%. That way they get around the loss of money from people who should not be benefiting from the discounts. Counter-productive!
  • Imports:  Brazil has one of the highest import taxes, which could sometimes range from 14% to 100%, depending on the product being brought into the country. It’s the tax and the original price of the product that therefore determine the sale price for that product.
  • Underground economy: This is the cause of inflated prices in the Brazilian economy. Many transactions take place by word of mouth or by a network of individuals that are inter-connected in the economy. That means that products that are on sale rarely actually enter the real, legalized marketplace. So, the few products that are on sale in that real market seem as if they are few and far between. Scarcity or apparent lack in supply means that the prices are inflated and people pay over the odds in the real market, thus driving them back into the underground economy. The story just goes round and round.

How are the Brazilians showing that the once celebratory feel of getting the World Cup in their country and the granting of hosting the Olympic Games there is no longer the order of the day? They are taking to the streets and demonstrating against their government for not listening to them and not providing for everyday living of the country’s citizens. Brazil has the highest tariffs on manufactured goods today in the world. It also has the third highest non-tariff barriers to trade. The government provides precedence to Brazilian-made products. But, that means, due to inflation in the country, the products have inflated prices and so (in particular, for pharmaceutical products, which are 25%more expensive when produced in Brazil) people have reduced access to them. Per capita income in Brazil stands at just $11, 630 today according to the World Bank.

Brazil’s growth prospects are already being downgraded by financial analysts around the world (i.e. HSBC). Growth for the economy of Brazil has been reduced to 2.4% this year and next year it stands at 3%.

Originally posted: Brazil: Not the place to be!

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