Brazil is the country of the future… and it seems to keep being so forever.
Lately we’ve heard a lot about the country’s corruption scandals, the economic crisis it
is going through or the street violence in cities like Rio de Janeiro.
But there is something even more important about this country! Something that doesn’t
appear very much in the media.
Brazil is the MOST expensive country in all of South America. Yep. You heard that right.
If you go Shopping in a city like Sao Paolo or Rio de Janeiro, you’d better be ready
to clean your wallet because it will be as expensive as New York or London.
The Brazilians even have a name for this. They call it ‘CUSTO BRAZIL’. This is the
especial overcost you have to pay for living in the country of samba and carnaval.
Here is an example. The Big Mac Burger you get from McDonalds. If you’ve been subscribed
to VisualPolitik for a long time, you already know that the economists use the so called
BIG MAC INDEX to measure the cost of living in a country.
For example, in SWITZERLAND, one of the wealthiest countries in the World, a Big Mac costs the
equivalent of 6.75 bucks.
Nonetheless, in PERU, a poorer country, the burger costs only 3.23 dollars. Fair enough,
right? Well, in Brazil, the Big Mac costs 5.10 USD. It’s more expensive than in Denmark,
UK or Canada.
According to EXPATISTAN.COM, a website, Sao Paolo is the most expensive city in South
America, with prices as high as those of Houston, Texas, or Berlin, Germany.
And now you might wonder… Given the high cost of living, how high are Brazilian salaries?
Are they wealthier than, say, Colombians or Chileans?
Absolutely not.
The average wage in Brazil is less than 600 USD a month. Argentinians and Chileans are
better off in this regard.
So the real question here is Why is Brazil so expensive? What are the reasons why a middle
income country has the prices of a wealthy one?
Today we are going to answer this question. And believe me, this explains, partly, the
Brazilean crisis too. Let’s take a look at this.
AN ISOLATED ECONOMY
Many of you might think Brazil is a country open to foreign trade, right? At the end of
the day, many foreign companies like MasterCard or Barclays have a strong presence on this
country.
Nonetheless, Brazil has the highest tariffs in South America.
And what does this mean?
Well… imagine we have a cell phone manufacturer in America and we want to sell in the Brazilian
market. Since our product is made abroad, we must sell it with a special tax that can
reach up to 35% of its market price.
As you can imagine, this kind of policy has a big impact on everyday life…
Nintendo exits Brazilian market due to high tariffs
Yep. You heard that right. During those years, Brazilians who wanted to buy a WII or a Nintendo
DS had to travel to Uruguay in order to find one.
Interestingly, this was a great advantage for Nintendo’s biggest rivals, especially
Microsoft and the XBOX. Do you know why? Microsoft has a factory in Brazil where the XBOX ONE
is made. This means, they don’t have to import it and, therefore, it don’t have
those high tariffs.
And yes, I know what you are thinking! High tariffs are cool because they force companies
to build factories in your country and employ your citizens, right?
Well… think twice! When Microsoft opens that Brazilian factory, they still need to
import all the machines and materials needed to manufacture that XBOX ONE.
Plastics, semiconductors, robots… many of which are made somewhere else.
And, if they are made somewhere else, they have those special tariffs.
And guess who pays for this overcost? The final consumer!
This explains why so many products manufactured In Brazil are so expensive.
Want an example? Take the VOLKSWAGEN GOL.
In Mexico City, this car costs around 15,000 USD. In Sao Paolo, it costs 25,000 USD. All
of this, despite the fact that this specific model of automobile is manufactured in Sao
Paulo.
But wait a minute because this is not the only reason to explain this CUSTO BRAZIL!
LOGYSTIC “CUSTO”
Imagine a SOY agriculture in the state of PARA, in the North of the country. If he wants
to send his SOY to Sao Paolo, he must carry it on trucks through the highway BR-163. This
highway has over 1000 kilometers… and 100 are not even paved. A simple rainy day is
enough to keep those trucks stuck in the mud.
And this is just one example! In fact, Brazil has some of the worst infrastructure on the
planet.
Even INDIA has better roads. So, to make a comparison, anytime an American farmer sells
100 USD in Soy, he has to spend 9 USD in transport.
The same farmer in Brazil would have to spend 25 USD.
Since they have no good roads, Brazilians have to invest in expensive trucks that break
down quickly and make the cost even more expensive.
And, of course, all of this means higher and higher prices for their Brazilian customers…
But now you might wonder… Why is the Brazilian government so reluctant to pay for infrastructure?
At the end of the day, Brazil has state of the art engineering companies. Companies like…
ODEBRECHT group.
If you see this video from a South American country, I’m sure this name will ring a
bell.
Odebrecht was the biggest engineering and construction company in the region.
And I say ‘WAS’ because they had the biggest corruption scandal in the history of the continent.
So now the future of this firm is pretty dim.
But this story explains pretty well why Brazil has such poor infrastructure.
At the end of the day, part of this money goes toward bribes and corruption.
But not only that! When the Brazilian government wanted to modernize their country… what
did they do? Exactly! The Olympic games and FIFA world cup!
So… today, Brazilian cities can congratulate themselves for having the most beautiful sport
arenas, with high end technology and luxurious decoration.
Taking a walk in the center of Sao Paolo feels like being in a sci fy movie.
But outside of this metropolis, the railroads are abandoned, the highways are unpaved and
several neighbourhoods don’t have a single bus line that connects them with the city
center.
Brazil’s woeful infrastructure costs the economy as much as 48 billion USD per
year
Of course, this affects the prices for Brazilian consumers but also for Worldwide consumers
who want to buy Brazilian goods.
But we will talk about this in another video.
Because now the question is… How can someone who makes 600 bucks a month spend 25 bucks
on a pizza at an average restaurant in Sao Paulo?
Well… I’ll tell you how…
CREDIT-A-HOLICS
For decades, Brazil had some of the highest inflation in the World.
During the 80s and the 90s, they had more than a 6000% inflation rate. This means
if you had a beer at a Rio de Janeiro bar, in 1980, you would pay 100 CRUCEROS. The CRUCERO
was the Brazilian currency back then. One year later, that same beer would cost 600,000
CRUCEROS. As you can imagine, that hyperinflation created unique consumer behavior. Something
different from the rest of the world.
In order to survive, Brazilian shops got used to selling with installments. And this is
still a thing today.
If you go to any Brazilian shop, you can see that, next to the price, it says something
like 10x, 12x or 20x. This number and this x means you can pay that product on 10, 12
or 20 installments.
In other words… the question many Brazilians ask themselves is not whether this TV or this
suit is more or less expensive, but if they can pay for it during the next 2 years.
And, as you can imagine, when you buy something in instalments, it is more expensive. For
example, on the screen we are showing you a smartphone on a Brazilian ecommerce website.
If you buy it at once, it costs 632 RAIS, which equals to 202 USD at the moment we made
this video.
Nonetheless, if you buy it with instalments, it costs 217 USD. That’s 7% extra that we
have to add to the rest of the costs we already mentioned.
So as you can imagine, your average Brazilian is in debt all the time. And this has a consequence.
Nearly 60% of Brazilians in Installment Debt
But wait a minute because this is not the worst of it! In the latest year, something
has happened in Brazil that has turned CUSTO BRAZIL into a real nightmare.
CREDIT CARD HELL
At the beginning of the 2000s, Brazil was the perfect market for foreign banks. Big
financial firms like SANTANDER or CREDIT SUISSE started investing in the country.
Don’t forget we are talking about a 200 million person country, that was on the rise,
where prices were high and people were used to paying for things on instalments.
In other words, Brazil was a paradise for selling credit cards.
“Since 2005, the brazilian credit card market has grown more than 20% year after year”
By the year 2012, Brazilians had an average of 2 credit cards per person. And oh boy!
They knew how to use them!
Brazil was the country with the most credit payments all across South America. Nonetheless…
the happiness didn’t last long.
Brazilian consumer default on credit cards has reached 27% in April 2012
In that very same year, 2012, the alarms started to sound in all those Brazilian banks.
The country was in the middle of a crisis, with rising unemployment and declining salaries.
And that made it hard for Brazilians to pay back their debts.
So… what happens when a bank is afraid of getting defaulters? Exactly! They raise the
interest rates.
This is why, since september 2014, the interest of those credit cards has reached figures
around 400%.
So imagine you use your credit card to buy a TV screen that costs 1000 USD. You pay it
in 12 instalments.
Well, at the end of the day, counting the interest rate of the credit card, the TV costs
around 5000 USD. Impressive, isn’t it?
And, don’t forget that the average wage in Brazil is less than 600 USD a month. In
other words… despite those anti poverty measures made by the government… most of
Brazilians are struggling to survive. And worst of all, since they can’t save money,
losing a job can be a real tragedy for many.
Homeless population in Rio de Janeiro increases 150% in three years.
So here is the question now… Can Brazil get over this situation? Who could possibly
reform this country? Please, leave your answer on the comment section below.
Also, don’t forget to visit RECONSIDER MEDIA.COM, the podcast that provided the voices on this
video that are not mine.
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