Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
With the Summer Olympics over, the only thing standing between Brazil on the world stage for a bevy of major sporting events is Russia in 18 months. After that Brazil will be hosting both the World Cup in 2014 and the Summer games of 2016. So this country will definitely be introduced to the world stage. Every country attempts to grow it’s economy in various ways, and Brazil’s latest efforts have been a combination of reliance on natural resources combination with a type of redistribution of wealth that would not do very well in the American political spehere. But after decades of extreme polarization in its wealth distribution, the growth of the middle class is bringing many new opportunities. However, to a country which has gone head first into debt funded spending – some pitfalls also are being seen. The AP takes a closer look:
- …an estimated 40 million people such as Costa have joined the ranks of Brazil’s middle class between 2003 and 2011, according to the Fundacao Getulio Vargas economic think tank, providing them with enormous purchasing power and sparking businesses to come up with new marketing techniques to woo them.
- For most of its modern history, Brazil has been a nation of the starkest economic divides: Super rich, super poor. Businesses that sold anything but the most basic items trained their sights on the upper strata.
- Now, Brazil is a major player in a global economic shift that is seeing formerly “developing” nations morph into “middle income” countries — where a burgeoning middle class is driving a boom in business to capitalize on the sea change. From gyms to hair salons, travel agencies to home appliance stores, “everyone wants to dance with the new middle class,” a recent opinion article in the Folha de S. Paulo daily said.
- The metamorphosis is largely the product of a decade of mostly solid economic growth and an array of cash-transfer social programs that pay Brazilians a stipend for meeting social goals, such as keeping their kids in school.
- The economic think tank defines the middle class, or Class C as it’s known here, as households with monthly incomes of $600 to $2,590. In 1993, just over 45 million people were considered Class C. In 2011, their ranks had swollen to more than 105 million — accounting for 46 percent of the country’s buying power.
- In 2000, 4.2 million small businesses had less than 100 employees, according to the Brazilian Support Service for Micro and Small Businesses, a private industry group. A decade later, 6.1 million small businesses had such workforces, and the number of larger businesses doubled to 60,000.
- In beauty-obsessed Brazil, straight, white teeth are almost as much of a status symbol as fast cars. So braces, along with computers, cell phones and college degrees, often count among the newly minted middle class’ first investments, said marketing specialist Meirelles. “For a long time, braces were seen as something that was reserved for people in Ipanema or Leblon,” said Temido, referring to two of Rio’s most chic, highest-rent neighborhoods. “Our innovation was to introduce techniques that made it possible to make care both high-quality and affordable.”
- With Brazil’s commodity-driven growth slowing over the last year, the government is looking to domestic consumers, particularly the Class C, to spur on the economy. The Central Bank has slashed a benchmark interest rate to a record low, hoping it will spark consumer spending by generally making credit more available.
- But skeptics worry that the new consumers are already too indebted to shoulder the lion’s share of future growth. Economists estimate 20 percent of Brazilians’ household monthly income goes to debt payments, and the Serasa Experian credit rating agency said that in the first half of 2012, consumer defaults in Brazil were 19.1 percent higher than in the same period last year.
[Sep 14, 2011: WSJ – Dark Side of Brazil’s Rise]
[Mar 25, 2011: Brazil’s Housing Carnival Stokes Bubble Woes]
[May 21, 2010: The Economist – Brazil: Too Much Government Spending?]
[Oct 27, 2009: Goldman Sachs – “Hazardous” to Underweight Brazil]
[Sep 23, 2009: Brazil’s Credit Rating Raised to Investment Grade]
[May 16, 2008: Brazil is Sexy]
Disclosure Notice
Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund’s holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/holdings/blog
