Dreami n g of l Apr l - t on Brazi A special - The Economist
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reaming
D eci
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al report on Brazil Ap r i l 1 4 th 2 007
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Republication, copying or redistribution by any means is expressly prohibited without the prior written permission of The Economist
The Economist April 14th 2007 A special report on Brazil 1
Land of promise
Also in this section
Heavy going
The biggest enemy of Brazil’s promise is an
overbearing state. Page 3
The blessings of stability
Lower ination has done wonders for nance
and industry. Page 5
The economy of heat
Nature has been almost too kind to Brazil.
Page 6
The nal frontier
For Brazilians, land still has a mythical
quality. Page 8
Rich man, poor man
Eorts to reduce poverty and inequality are
bearing some fruit. Page 9
Low marks
Education is still letting the country down. Brazil is big, democratic, stable and rich in resources, says Brooke
Page 11 Unger. So why is it not doing a lot better?
The slow road to paradise
Why Brazil is taking so much time to reach its
O N THE right bank of the wide channel
that constitutes the port of Santos,
Brazil’s biggest, the Orange Wave awaits a
(over six feet) shallower than it should be.
The state environment regulator is with-
holding permission to deepen it. Transport
potential. Page 12 charge of orange juice for delivery to New costs consume nearly 13% of Brazil’s GDP,
Jersey. The North King, of Panamanian reg- ve percentage points more than in the
No end of violence istry, is taking on soya grown somewhere United States, according to Paulo Fleury of
between Brazil’s temperate south and the COPPEAD, a business school in Rio de Ja-
Law enforcement remains a weak spot. savannahs of the centre-west. Further on neiro. And that is only a small part of the
Page 13 gleaming ranks of cars await their vessel. burden that businessmen refer to despair-
Portside terminals, once owned by the ingly as custo Brasil (the cost of Brazil).
state, now display corporate heraldry: the Fecundity and frustration sum up the
logos of Cosan, a sugar and ethanol pro- state of Brazil these days. It is bursting with
ducer; Bunge, a global food trader; and the commodities coveted by the rising
America’s Dow Chemical. Last year San- economies of Asia, from soya to iron ore.
tos broke its 1909 record for exporting cof- No other country is better placed to cash in
fee, the commodity that midwifed the port on the global craze for biofuels. Yet Brazil
in the 19th century. refuses to grow in line with the expecta-
Exchange rates The Victorian majesty of berthed ships tions of its 188m people. Since the end of
Brazilian real, March 30th 2007 gives no hint of the diculties the cargo the miracle years of the 1960s and 70s,
must overcome on its way to and from when it was the world’s second-fastest-
$1= 2.05 ¤1= 2.72 Santos, which handles 27% of Brazil’s inter- growing large economy, Brazil has lagged
¥100= 1.73 £1= 4.01 national trade. For soya these can start in (see chart 1, next page). In the past four
the eld, where scarce storage sometimes years, whereas developing countries as a
forces growers to dispatch it to port regard- whole have grown at an average of 7.3%,
A list of acknowledgments and sources is at less of price. Then it faces a bumpy journey Brazil has loped along at 3.3%.
www.economist.com/specialreports on potholed roads (80% of the cargo ar- In 2003 Goldman Sachs, an investment
An audio interview with the author is at rives in Santos by lorry rather than by rail). bank, selected Brazil, along with Russia, In-
www.economist.com/audio Privatisation of the terminals and better dia and China, as one of the four BRICs
trac management have boosted the the developing countries that would share
A country brieng on Brazil is at port’s eciency, but ships must still await dominance of the world economy by
www.economist.com/brazil high tide to clear the channel, which is 2m 2050. It has been the slowest-growing by 1
2 A special report on Brazil The Economist April 14th 2007
2 far, leading some Brazilians to wonder tics means the primacy of personal bonds
Plodding 1
whether the B would be dropped. South over rules. Liberties and electoral rights are
Korea’s income per person overtook Bra- GDP* per person, $’000 entrenched, says the former president, Mr
zil’s in the 1980s; it may not be so long be- 20
Cardoso, but there’s a lack of citizenship,
fore China’s and India’s do the same. South Korea of respect for the law. Democracy means
Brazilians have non-economic grounds Russia that, too.
Brazil 15
to fret, too. In its rst crack at national China
power the Workers’ Party (PT) of President India Too much, too soon
Luiz Inácio Lula da Silvawhich used to 10 The constitution too readily created
crusade against corruptionorchestrated a rightsof bureaucrats to job protection, of
baroque scheme involving bribes to Con- 5 sub-national governments to tax reve-
gressmen in exchange for votes, known as nues, of ordinary citizens to government
the mensalão (monthly allowance). The 0 transfersthat Brazil can ill aord. They
Congress that ended its four-year mandate 1950 60 70 80 90 2000 05 help explain why real interest rates remain
in December is widely reviled as the Sources: Penn World Table; *At purchasing-power among the highest in the world, why pub-
Economist Intelligence Unit parity in 1996 $
worst in history. Within the past year Bra- lic investment in roads, ports and other in-
zil’s two biggest cities, São Paulo and Rio frastructure is stunted and why the tax
de Janeiro, have been terrorised by gangs expect it to remain below target this year. burden bets a rich European welfare state
operating from inside the prison system. Real interest rates are at their lowest level rather than a young developing economy.
Education, perhaps Brazil’s biggest failing, since 2001. The risk of a panic abroad trig- Brazil is thus in the midst of a slow me-
seems to be getting worse rather than bet- gering a crisis at home, which often hap- tamorphosis in its economy, society and
ter. Air travel has been crippled following pened during the 1990s, has diminished. polity. Contemporary Brazil is a hybrid
the mid-air collision last year between a Exports and the trade surplus have soared between two moralities: one unequal and
passenger plane and an executive jet. Bra- (see chart 2), pushing foreign-exchange re- hierarchical, the other universal and egali-
zil is falling to pieces, lamented Lya Luft, a serves above $100 billion. When Brazil be- tarian, argues Jacqueline Muniz, an an-
columnist for Veja, the biggest news maga- came independent in 1822 Britain insisted thropologist in Rio de Janeiro. Rigid legal-
zine, last year. that it assume the debts of the Portuguese ism sits alongside rampant illegality, and a
crown. Now Brazil’s government is an in- vibrant private sector coexists with a scle-
What’s the problem? ternational creditor. An investment-grade rotic state. President Lula, who presented
If so, many Brazilians appear not to have credit rating is probably only a matter of himself as the scourge of old-style oli-
noticed. President Lula resoundingly won time. When Lula nishes his second term garchs, now governs with their help. Few
re-election last October, largely on the in 2010 Brazil will have enjoyed 16 years modernisers are untainted by the past.
strength of support from the poor. Their of stability and predictability, says Mail- Although progress is slow, Brazil’s insti-
living standards have been soaring, thanks son da Nóbrega, a former nance minister tutions are now strong enough to make it
in part to handouts from the federal gov- who now heads Tendências, a consul- reasonably sure. Goldman Sachs recently
ernment. Income inequality, from which tancy. That is an important and sometimes rearmed the country’s BRIC status. Econ-
Brazil suers more than most other coun- underrated discount on custo Brasil. omic growth may top 4% this year. When
tries, has at last begun to shrink. In some ways Brazil is the steadiest of GDP gures were revised in March, Brazil
The same is true of ination and its lin- the BRICs. Unlike China and Russia it is a discovered that it was richer and less in-
gering symptom, high real interest rates. full-blooded democracy; unlike India it debted than it had thought. It could do bet-
The introduction of the real as Brazil’s cur- has no serious disputes with its neigh- ter still. But that would require another in-
rency in 1994 ended decades of high ina- bours. It is the only BRIC without a nuclear sight from Lula, as important as his
tion. Many observers feared that Lula bomb. The Heritage Foundation’s Econ- conversion to low ination: that the main
would rekindle it when he was rst elected omic Freedom Index, which measures obstacle to progress is the state itself. 7
president in 2002. His PT had opposed the such factors as protection of property
Real Plan. The risk premium on Brazil’s rights and free trade, ranks Brazil (moder-
Going global 2
bonds soared. But Lula realised that ina- ately free) above the other BRICs (mostly
tion hit the poor most. Defying his com- unfree). One of the main reasons why External trade
panheiros, he has entrenched stability, Brazil’s growth has been slower than Current-account Exports, $bn
faithfully sticking to the policy tripod China’s and India’s is that Brazil is richer balance as % of GDP Imports, $bn
put in place by his predecessor and politi- and more urbanised. 4 150
cal foe, Fernando Henrique Cardoso: a This special report will argue that dis-
2 120
primary surplus (ie, before interest pay- gruntlement persists because Brazil is a +
ments) high enough to reduce debt as a battleground between progress and iner- 0 90
share of GDP, a oating exchange rate and tia. Since independence was proclaimed –
ination targets. by the son of the Portuguese king, Brazil 2 60
Helped by global enthusiasm for Bra- has been adding layer upon layer of
4 30
zil’s goods and nancial securities, the Car- change rather than sweeping away the old
doso-Lula tandem has wrought an econ- and starting afresh. The 1988 constitution, 6 0
omic miracle of a dierent sort. Ination which restored democracy after 20 years 2000 01 02 03 04 05 06
last year was only 3%, below the target of of military dictatorship, did not abolish Sources: Ministry of Development, Industry and Trade;
Economist Intelligence Unit
4.5% set by the central bank. The markets the culture of cordialidade, which in poli-
The Economist April 14th 2007 A special report on Brazil 3
Heavy going
The biggest enemy of Brazil’s promise is an overbearing state
I N 2002 Caio Mesquita and Marcelo Fer-
raz quit jobs in nance and publishing re-
spectively to start Wraps, purveyors of
least 3%. To match South Korea’s infrastruc-
ture Brazil would have to treble that, ac-
cording to the World Bank. Despite its free-
which would reconsider how it taxes and
spends, how it makes and enforces rules
and to what extent it should be directly in-
healthy and tasty meals at seven restau- spending ways, the state cannot aord to volved in nance and infrastructure.
rants across São Paulo. Sometimes they do that, yet it has discouraged the private
wonder why. Their competitors evade sector from lling the gap. Overall invest- Spend it wisely
taxes (one trick is to put individual eateries ment, though growing, is an underpo- Apart from debt service, the federal gov-
in the names of friends and relatives to wered 16.7% of GDP. ernment spends its money mainly on
qualify for small-business tax breaks). The The political left blames the central three things: pensions, transfers to lower
labour laws, they say, are almost impossi- bank for keeping interest rates high. But levels of government and its own bureauc-
ble to comply with (although they do): most of the responsibility lies with the racy. In none of these areas is spending ef-
people who wash dishes are not allowed state’s excesses, which have built up a net cient or equitable. Take pensions. Brazil is
to clean tables, and vice versa. Of the public debt running at 45% of GDP and are a young country with the pension costs of
seven sta in Wraps’ corporate headquar- now stoking demand while restraining an old one. With 6% of its population over
ters, two do nothing but ward o lawsuits supply. The solutions lie in a long to-do list the age of 65, Brazil spends 11% of its GDP
from former employees. The readers of of reforms which has been around for on publicly nanced pensions. A big
water and electricity meters sought bribes years without making much headway. chunk of this goes to workers in the formal
to cut their bills. A policeman who came to The tax system, pensions and labour laws sector, who can retire after contributing to
investigate a robbery was more interested are all in need of redesign; trade needs to the system for 35 years (30 for women) re-
in selling his private security service. I felt be liberalised further; spending should be gardless of their age. More than 60% of
like I was in Baghdad, says Mr Ferraz. more exible; and the central bank should workers who benet from this scheme re-
To experience the state as meddlesome, be given formal autonomy (in practice it tire by the age of 54. Besides Brazil, only a
covetous, inecient and corrupt is no rar- gets a free hand to hit ination targets). few big oil-exporting countries have such
ity in Brazil, and no novelty either. Marcos All this is part of a more ambitious pro- an indulgent system, says Fabio Giambiagi
Fernandes of the Fundação Getulio Var- ject that is not on the political agenda: a of IPEA, a think-tank with links to the gov-
gas, a business school, traces the origin of a thorough review of the role of the state, ernment. In his second term as president
rent-seeking state to 1808, when Napo- Mr Cardoso tweaked the rules to discour-
leon chased Portugal’s royal family to Bra- age early retirement, but that provoked an
zil. Mussolini helped inspire the Estado A greedy state 3 explosion of claims for disability benets,
Novo of President Getúlio Vargas in 1937, Government tax revenues as % of GDP which trebled between 2001 and 2005.
whose system of labour and industrial Federal State Municipal Two-thirds of all pensions pay out the
syndicates is the basis of today’s labour re- equivalent of the minimum salary (now
lations. The 1988 constitution was politi- 40 380 reais a month), which has doubled in
cally liberating but economically stiing. real value since 1994. Many of these go to
Indeed, Brazil’s modest growth is a tri- 30 beneciaries who have not paid into the
umph over state-sponsored adversity. system. This encourages people to work in
The Brazilian formula is to crowd out 20 the informal sector, because if they will get
enterprise or drive it underground with ex- that pension anyway they have no incen-
cessive spending and taxation, then to ha- 10 tive to contribute. Demographers have no-
rass it further with capricious, nonsensical ticed an unusual upsurge in marriages be-
regulation. Last year the state’s tax take set 0 tween pensioners and much younger
another in a series of records, at 35% of 1988 90 92 94 96 98 2000 02 04 06 partners in the countryside, probably pro-
GDP, much higher than the average of its 2004
voked by this benet. Spending on pen-
developing-country peers (see chart 3). No sions in the private sector has risen from
0 10 20 30 40
surprise, then, that the grey market ac- below 6% of GDP in 1996 to 8% now.
counts for a much higher proportion of the OECD average On top of that comes the cost of public
economy than in Mexico, China or India, Brazil servants’ pensions, which is about half
according to the International Finance South Korea that of the private-sector scheme but bene-
Corporation (IFC), part of the World Bank. Argentina ts a group of people only one-eighth the
Informal rms underinvest and weaken Mexico
size. One of the Lula government’s rst
their formal-sector competitors. McKin- and bravestacts was to raise the mini-
Russia
sey, a consultancy, thinks this is the biggest mum retirement age for public servants
China
drag on productivity. Infrastructure invest- and to tax people on high earnings who
Source: Brazilian Institute of Tax Planning
ment, now shy of 2% of GDP, should be at had previously retired with a pay rise. 14 A special report on Brazil The Economist April 14th 2007
2 The federal government’s second big Brazil in 115th place. Hiring people is ex-
Growing largesse 4
task is to transfer revenue raised primarily pensive because taxes add 60% to salaries
in the rich states of the south-east to state Federal government spending* and workplace rules are an invitation to
and municipal governments mainly in As % of GDP conict. At Unibanco, a big private-sector
poorer states. These transfers more than Pensions Health bank, the turnstiles are programmed to
doubled in real terms between 1995 and Personnel† Other keep workers out of the building until a
2004. Such redistribution is justied by 20 minute after their allotted lunch hour; a
Brazil’s regional inequalities, which persist minute too soon and they could demand
despite the spread of industry beyond its 15 extra pay. Despite such precautions, the
São Paulo heartland. Average income in banking sector alone is embroiled in
the north-east is only two-fths that in the 10 160,000 cases in the labour courts, which
south-east. are faced with a total of 2m new cases a
Transfers play an important part in 5 year. The solution? Try to have as few
holding the country together; they are people as you can, says Pedro Moreira
why we don’t have separatism, says José 0 Salles, the bank’s boss.
Roberto Afonso, a specialist in public - 1995 97 99 2001 03 05 06 Investing in infrastructure is a legal and
nance. But the money, spent mainly on *Excludes debt service and transfers †Includes regulatory adventure. Investors do not
Source: Raul Velloso pensions for public-sector workers
health, education and administration, trust the supposedly independent regula-
rains down on 27 states and 5,564 districts tory agencies. Brazil’s nance minister,
that dier vastly in their capacity to spend son Marconi, of the Fundação Getulio Var- Guido Mantega, insists that it’s not true
it well. Despite the redistributive intent, gas, believes that public employment that the government is hostile to regula-
some of the criteria applied militate could easily be slashed by 30% without tory agencies. But the World Bank main-
against justice and eciency. Brazil’s fed- making services worse. tains that the majority of the agencies do
eral system makes no distinction between Successive governments have, in eect, not have full autonomy and are subject to
forested provinces and the metropolis of built a scal escalator that mainly goes up. interference from other [government] or-
São Paulo with its population of 10.8m. Presidents can, and often do, speed its as- gans. Courts can delay projects for years
Every municipality has competence to do cent, for example by raising the minimum at the behest of angry environmentalists
everything, which is absurd, says Raquel wage, but have enormous trouble slowing or disappointed bidders. It always takes
Rolnik, the national urban secretary. it down. Financial catastrophe has been twice as long as you estimate to imple-
Most don’t have capacity. More than avoided by raising taxes and squeezing in- ment an infrastructure project in Brazil,
half rely for most of their revenue on trans- vestment. But, says Raul Velloso, an expert says one nancier.
fers from federal and state government. on public nance, investment has a oor
Revenue without responsibility is a and taxation a ceiling. The government’s At your service
bad idea. The more that municipalities de- growth acceleration package, an- Brazilians yearn for a state that behaves
pend on transfers, the more they spend on nounced in January, tries harder to lift in- like the servant of its citizens. Raymundo
administration and the less they invest in vestment than to lower taxes, and allows Magliano, the president of the São Paulo
infrastucture and social programmes. for the possibility of a lower primary sur- stock exchange, ended a recent interview
States that get a lot of their revenue from plus to pay for it. That can work as long as by recalling a trip to the Antipodes, where
the central government pay bureaucrats interest rates are falling. But if the balmy - bureaucrats in New Zealand have no job
more relative to private-sector workers. A nancial weather changes, the government security and the tour guide at the parlia-
minimum grant for municipalities was will face hard choices. ment in Canberra knows exactly how
supposed to help the poorer ones, but also What Brazil loses in eciency it does much the institution costs each Australian
encouraged hundreds of them to break not gain in poverty alleviation. Because citizen. Brazil is not ready for that. Too
themselves up into smaller and less e- most revenue comes from consumption many lobbies have an interest in keeping
cient units. It also disproportionately ben- taxes, a Brazilian earning less than twice the system as it is.
eted the rich south and south-east, which the minimum wage pays out nearly half Despite the grumbling, there have been
has most of the smaller districts. The con- his income in tax, whereas someone on 30 some successes. Judicial reform was one
stitution stipulates that health spending times the minimum wage pays only about of the few that advanced, says Joaquim
must rise with GDP, guaranteeing that a quarter in tax. Such benets as pensions Falcão, a member of a council newly
much of it will be wasted. and free tuition at public universities ow created to oversee the judiciary. It cracked
disproportionately to the well-o. In a re- down on nepotism, resulting in thou-
Fat and abby cent study comparing the redistributive ef- sands of dismissals over the past two
The bureaucracy, the third big spending fects of taxation and spending in 16 coun- years. The súmula vinculante, a new mech-
category, is neither lean nor agile. On aver- tries, most of them rich, Brazil came last by anism under which lower courts have to
age, public servants earn more than twice a long way. follow the Supreme Court’s decisions, will
as much as workers in the private sector Government bureaucracy can be da- strip millions of cases out of the clogged
and have an easier life. The constitution maging too. In a league table of the ease of court system, Mr Falcão predicts. State gov-
protects them from dismissal. Merit tends doing business in 175 countries, the IFC ernments are speeding up procedures for
to be measured by the number of training ranked Brazil 121st. The average rm takes opening businesses. The federal govern-
courses they have attended rather than by 2,600 hours to process its taxes, a world re- ment recently ended the monopoly of the
their competence. Some 20,000 federal cord. Opening a business, on average, re- state-owned reinsurance underwriter. A
jobs are lled by political appointees. Nel- quires 17 procedures and 152 days, putting new regulatory framework for sanitation 1The Economist April 14th 2007 A special report on Brazil 5
2 should encourage private investment. pends on the government buying o the growth acceleration package as public
Lula’s critics indict him as a lucky bum- potential losers. The government has money direct to the vein. That, not re-
bler who may have kept Brazil out of trou- started to tackle fraud in the pension sys- form, is the government’s passion.
ble but has done nothing to improve its tem and has created a forum with business In spite of everything, Wraps is pros-
prospects. That is not entirely true. But his and labour representatives to deal with pering. It is talking to a German entrepre-
second term may be less productive than knottier pension problems, but this looks neur about opening a branch in Frankfurt.
his rst. His main economic initiative aims more like a device for avoiding the issue. Its habit of paying taxes and obeying the
to simplify an incredibly cumbersome sys- Other high-prole plans, such as labour- rules is making Wraps attractive to private-
tem of state-based sales taxes, laying the market reform and central-bank auton- equity funds. Last year the chain’s prots
groundwork for a national value-added omy, seem to be o the agenda. Dilma exceeded the return on investing in gov-
tax. That would be wonderful, but it de- Rousse, Lula’s chief of sta, describes the ernment bonds. That is big news. 7
The blessings of stability
Lower ination has done wonders for nance and industry
B RAZIL is the country of the future and
always will be, goes a sour old joke. In
fact, the opposite is true. Brazil has never
nue, placing free deposits in high-yield
government paper. That nancial child’s
play now accounts for only 1% of its in-
ket in São Paulo to the rest of Brazil and
eventually to Latin America. Cosan plans
to consolidate the ultra-fashionable sugar
put much stock in the future, and that has come. As late as 2002, eight years into the and ethanol industries. Last year set a re-
held it back. Brazil’s three founding cul- real era, bank credit to the private sector cord for mergers and acquisitions, fuelled
tures lived for the present, argues Eduardo amounted to less than a quarter of GDP. in part by the capital raised through initial
Giannetti, a philosopher and economist at That has now leapt to 34%. Only in the past public oerings, says Cláudio de Leoni Ra-
IBMEC, a private university. Indigenous few years have banks launched them- mos of KPMG, a consultancy. Many of the
Brazilians had no need to plan; the Portu- selves into large-scale lending, starting debutantes were ushered to the market by
guese came for quick enrichment; and with credit cards and hire-purchase - private-equity investors, who after a long
slaves, who did not even own their own nance for consumers (still at absurdly high delay can now take their prot and chase
bodies, had no reason to invest in any- interest rates). More recently lower-rate new opportunities.
thing. After a dozen years of economic sta- loans secured on the borrower’s pay
bility, Brazil is beginning to take a longer cheque or pension have taken o. Big com- Safe as houses
perspective, says Mr Giannetti. panies can raise money on the capital mar- One of the biggest pay-os from nancial
The eect has been subtle but far-reach- kets, but banks are still wary of lending to normality will come in property and con-
ing. Corner shops are gaining market share small business. struction. Property nance, throttled by in-
at the expense of supermarkets, against Enterprises raised a record 70 billion ation, low incomes and a legal system 1
the global trend, because housewives no reais through debentures last year, 60%
longer spend money as quickly as they get more than in 2005 and ve times the level
it to beat ination, says Fábio Prado of Uni- in 2002. The stockmarket last year set a 20-
lever, a consumer-goods giant. There is no year record for the number of new listings.
longer a need for court-clogging lawsuits It used to be dominated by state-owned
to challenge the way that savings and pen- companies and enterprises that issue
sions are adjusted for ination. Invest- mainly non-voting shares, which enables
ment in innovation seems more worth- cliques of shareholders to control them
while. Enterprises are planning for the with relatively small nancial stakes. The
long term and investors are beginning to newcomers are a dierent breed. Almost
back them. all list on the Novo Mercado (new market),
Brazil’s receding riskiness and a global which mandates full voting rights for all
abundance of liquidity have narrowed the shares and high standards of corporate
dierence in yields between Brazilian and governance. They leaven the stockmark-
American bonds to less than two percent- et’s menu of infrastructure companies and
age points, down from 24 points just be- heavy industry with retailers, technology
fore Lula was elected (see chart 5, next rms and airlines. Their managers are will-
page). The drop in domestic interest rates is ing to risk control for growth.
pushing investors to look for alternatives Some are poised to change their indus-
to short-term government bonds. The tries. Totvs, a supplier of management
economy may be trotting, but credit, prop- software, used nearly half of the 460m
erty and the stockmarket are o at a gallop. reais it raised to buy a rival. DASA, a chain
In the hyperinationary 1980s, 70% of of medical laboratories, is absorbing com-
Unibanco’s prots came from oat reve- petitors as it expands from its home mar- A property boom on the horizon6 A special report on Brazil The Economist April 14th 2007
2 that failed to protect lenders, amounts to a problem, says Martus Tavares of BRVias, a
Calm after the storm 5
negligible 3-4% of GDP. This leaves Brazil new infrastructure-investment rm. What
with a shortage of 8m houses and huge Government-bond spreads and inflation is a problem is the state’s obstructionism
pent-up demand, especially from the 25
described in the previous article. In Janu-
poor, who tend to build their own dwell- Spread over US Treasuries, ary the government suspended a long-
ings one room at a time. Mexico has 60% of % points awaited concession of 2,600 km of federal
20
Brazil’s population but builds four times roads on the ground that returns to inves-
the number of houses, says Sérgio Rossi of 15 tors of nearly 13%, the ceiling set by the gov-
Rossi Residencial, a builder. Now builders Consumer-price inflation, ernment’s audit court, would be too gener-
%
lick their lips at the prospect of Mexicani- 10 ous. At that rate, says Mr Tavares, more
sation, thanks to stability and better loan than 30 enterprises would have bid, possi-
guarantees. Property and construction 5 bly driving the yield lower. Below 12%
companies are prominent among those there is not much interest.
heading for the Novo Mercado. 0 The government is convinced that Bra-
2002 03 04 05 06 07
Property lending doubled in 2006, zil is on the verge of an investment-grade
Source: Thomson Datastream
partly because of lower interest rates and credit rating and economic growth of 5%.
partly because arcane rule changes made That is why investors are crowding around
it safer. Foreclosure can take up to 12 years 15 years or more, and nance is still too ex- Brazilian infrastructure projects like thirsty
with a traditional mortgage, but a newish pensive for the mass of poor Brazilians sheep. If it comes to pass, any concession
type of loan, which withholds full control who need it most. Builders are beginning paying 13% (or more) will deliver a wind-
of the property until it is paid o, cuts the to move down the economic pyramid, but fall. The government has shrewdly gauged
time of repossession to 12-18 months. This slowly. Gasa, a publicly quoted construc- investors’ greed but overlooked their fear:
is part of a broader credit reform which is tion company, is starting a separate enter- that the projects will be mired in expensive
coaxing banks to take more risk. Under a prise to build houses at prices up to delays, that the government will change
law passed in 2005, lenders with collateral 150,000 reais, but that is still out of most the rules, or that an investment-grade rat-
have moved ahead of the government in people’s reach. The main benet to the ing will remain beyond reach.
the creditors’ queue for debtors’ assets. The poor of a construction boom, at least at But it would take a disaster to bring
new law has given condence to lenders rst, is likely to be the jobs it will create. back the days when the only sensible
to approach companies which they would Another mouthwatering prospect is thing to do with one’s money was to spend
not have done under previous regula- that of private investors underwriting the it immediately, or else invest it in govern-
tions, says Unibanco’s Mr Moreira Salles. ports, power plants, roads, sewage and ment paper. As Álvaro Gonçalves of Stra-
Normalisation has further to go. De- other infrastructure projects that Brazil so tus, a private-equity rm, puts it, the Bra-
posits are still too short-term to allow patently needs. There is plenty of money zilian economy is now turning toward the
banks to nance many property loans of around. Today, nancing is not a serious real sector. 7
The economy of heat
Nature has been almost too kind to Brazil
A PINE tree in a Finnish forest takes 50
years before it can be pulped and
milled into paper. A eucalyptus tree in Es-
commodities (for Brazil it was sugar, coee
and rubber) and yearned to become mod-
ern industrial economies. Beginning with
and Dutch disease. We’re competitive
where nature has helped, says Eugênio
Staub, head of Gradiente. He does not
pírito Santo, on Brazil’s coast, is ready in Getúlio Vargas, a succession of strong pres- count his company’s televisions and mo-
seven. Growers in Petrolina, in Brazil’s idents frogmarched Brazil into the indus- bile phones among the beneciaries.
north-east, harvest grapes twice a year, trial age, often with little regard for cost or So far there is little evidence of whole-
twice as often as their competitors in competitive advantage. The partial open- sale deindustrialisation. The share of ex-
France. Sadia, a meat producer, needs no ing of the economy in 1990 by the debon- ports based on natural resources did rise
electricity to heat its chicken houses, un- air Fernando Collor, who was later im- sharply between 1989 and 2005, but half
like its competitors in colder climates. Bra- peached for corruption, shocked industry the gain came from petroleum, and manu-
zil has more than its fair share of the into modernisation. facturers of medium- and high-technology
world’s sun, soil and water, and in many Now Brazilians worry about slipping goods also increased their shares slightly.
of the products based on those ingredi- back into their commodity-dependent A study by BNDES, the national develop-
ents, including soya, sugar and beef, it may role. Brazil’s success in selling raw materi- ment bank, concluded that there was no
become pre-eminent. als and other basic products pushes up the general shift in production to natural-re-
This natural advantage revives an old real, which makes other Brazilian exports source-based industries.
anxiety. For much of the 20th century less competitive and exposes industry to But the real has stayed strong, and wor-
countries at the periphery of the rich cheap imports, especially from China. This ries have grown. Last year the trade sur-
world lamented their dependence on is leading to talk of deindustrialisation plus in manufactures fell for the rst time 1The Economist April 14th 2007 A special report on Brazil 7
Brazil’s new driving force
2 since 2000, notes Edgard Pereira, chief fuel models and now account for 83% of all If these calculations are correct, Brazil
economist of IEDI, an industry associa- new cars sold in Brazil. will need $90 billion of investment in new
tion. The March revision of GDP gures The second is the belated realisation mills, plus $2 billion for pipelines, railways
showed that services had a bigger share the world over that fossil fuels overheat and storage. It already has 357 mills and is
and industry a smaller one than previ- the planet, are controlled by dodgy re- planning another 136 at a cost of $14.5 bil-
ously thought. Domestic consumption gimes and cost too much. In January Presi- lion, according to Datagro, an industry
and investment are growing at a healthy dent George Bush announced an Ameri- consultancy. The investors are mostly Bra-
pace but manufacturing is not keeping up, can version of Proálcoolhe wants to cut zilian, but also include Louis Dreyfus and
in part because demand is being lled by petrol consumption by one-fthand has Tereos of France and Cargill of the United
imports. Labour-intensive products such since signed an agreement with President States. If anything there is an excess of en-
as shoes and clothing are under the most Lula to spread production and consump- thusiasm. A lot of money is chasing too
pressure. The (protected) car industry is tion of ethanol worldwide. few opportunities, worries David Bunce
booming, thanks to easier credit. But this It will take a while for any other coun- of KPMG.
year the strong real forced Volkswagen to try to copy Brazil, where ethanol already To become a staple in the world’s en-
scrap its plan to use Brazil as the export accounts for 40% of the fuel used by cars. ergy diet ethanol needs to be commodi-
base for Europe of its compact Fox model. The United States insists on producing tised, with global standards of purity and a
The country is in little danger of becoming most of its ethanol from home-grown vibrant futures market. But the industry re-
an open-air greenhouse. But its economy maize, which is more expensive than Bra- jects the stigma of commodity status.
may be starting to specialise, which is both zil’s cane-based version and burns up Workers in the new mills wear white coats,
painful and exhilarating. about seven times more fossil fuel per unit and laboratories are springing up beside
of energy produced. No other country can them. Biocell is one of several biotech com-
Sweet smell of success match Brazil’s distribution network, so in panies looking for a way to convert the cur-
Luckily, the economy of heat is diverse. the short term ethanol will be mostly an rently unused two-thirds of the cane plant
The showcase is ethanol. Brazil’s variety, additive to fuel, not the main ingredient. into ethanol. Alellyx, which Mr Reinach
based on sugar cane, is cheaper than any- Even that is enough to cause a fever. claims is the only company tweaking
one else’s and has encouraged a lot of in- Brazil currently produces 18 billion litres of sugar-cane DNA, has started eld trials of a
novation beyond the basic commodity. ethanol a year of which it exports 4 billion variety with 80% more sucrosethe raw
With biofuels we’re suddenly at the fore- litres, just over half of worldwide exports. material for sugar or fuelthan the stan-
front, says Fernando Reinach of Votoran- By 2013 consumption in Brazil is expected dard sort. Researchers are also working on
tim Novos Negócios, which runs a ven- to double. Global ethanol trade could rise drought-resistant varieties that will grow
ture-capital fund that invests in ethanol 25-fold by 2020. far beyond the São Paulo heartland.
technology.
This is a turnaround for the sugar busi- Coming of age
ness, previously notorious for exploited la- Too commodity-dependent? 6 Corporate Brazil is coming of age in other
bour, insolvency and pollution. Ethanol Brazil’s top export products, 2006 ways too. A new personage, the Brazilian
got started after the oil-price shocks of the multinational, has appeared. Companhia
1970s, when dictators induced the car in- Product Value, $bn % of exports Vale do Rio Doce (CVRD), privatised in
dustry to convert from petrol that Brazil Transport equipment 20.4 14.9 1997, last year became the world’s second-
could no longer aord. The Proálcool pro- Metallurgical products 14.7 10.7 largest mining company when it acquired
gramme ended with a hangover around Oil and fuel 13.0 9.5 Inco, a Canadian nickel producer. Gerdau
1990 as oil prices fell and cane growers has become the biggest producer of long
Mineral ores 9.8 7.1
switched back from ethanol to sugar, in- steel products in the Americas (and has
Soyabeans & derivatives 9.3 6.8
furiating drivers of ethanol-only cars. vaulted trade barriers) by buying opera-
But it left behind a system for distribut- Chemicals 9.1 6.6 tions in nine countries, including the Un-
ing ethanol to petrol stations which sud- Meats 8.5 6.2 ited States. Embraer is the Boeing of the re-
denly looks like a national treasure, thanks Sugar and ethanol 7.8 5.7 gional-jet market. Last year, boosted by the
to two recent developments. One is the Machinery & equipment 7.7 5.6 CVRD acquisition, Brazil for the rst time
Brazilian invention of ex-fuel cars which Electrical equipment 5.8 4.2 invested more abroad than foreign compa-
can run happily on any combination of Paper and pulp 4.0 2.9 nies did in Brazil.
ethanol and gasoline. Introduced in 2003, Footwear and leather 4.0 2.9 Brazilian bosses reckon they have out-
these cars, which enjoy a small govern- Source: Ministry of Development, Industry and Trade
smarted a dicult economy by cutting
ment subsidy, cost no more than single- costs, consolidating their business and 18 A special report on Brazil The Economist April 14th 2007
2 professionalising their management. If a what drove Gerdau abroad was Brazil’s compete mainly on price accounts for 63%
recent book, Sucesso Made in Brasil, by low growth and its high cost of capital. of sales and nearly half of employment.
Donald Sull and Martin Escobari, is to be Manufacturers now realise that the cheap The remaining rms have serious pro-
believed, they have evolved special skills dollar is here to stay and that the exchange blems of productivity and invest very lit-
for surviving chaos and seizing opportuni- rate is less volatile than it used to be, says tle, says João Alberto De Negri of IPEA.
ties. Between 2003 and 2005 sales of pub- José Roberto Mendonça de Barros of MB In addition to economic growth, Bra-
licly quoted companies grew three times Associados, a consultancy. So they are out- zil’s industrial health depends on three
faster than the economy as a whole. Many sourcing production, especially to China. things. The rst is whether innovation will
of these companies are a long way from Gradiente, which produced almost its en- spread beyond a tiny minority of rms.
mining or farming. Last year’s merger of tire output in Brazil three years ago, now Spending on research and development
Submarino and Americanas created one outsources 40% of it, mainly to China. In amounts to only 1% of GDP, of which well
of the world’s biggest e-commerce opera- 2005 Brazil’s largest shoe manufacturer, over half is done by universities. The
tion. Some businesses can be found nest- Azaléia, shut a factory employing 800 peo- OECD average is more like 2% of GDP, and
ling close to Brazilian multinationals, in ple in the southern state of Rio Grande do two-thirds of that is done by industry.
the way that growing companies cosy up Sul and started producing in China. The second is the outcome of the Doha
to American universities. Cordoaria São But for most companies there is no es- round of multilateral trade talks. Brazil’s
Leopoldo started out making shoelaces cape. Of the 72,000 industrial enterprises agriculture would be the biggest gainer
and now produces cables to anchor Petro- with more than ten employees, only 1,200 from an ambitious settlement, but its
bras’s deep-water drilling platforms. compete by dierentiating their products, manufacturing would be less protected.
Graúna makes aircraft parts for Embraer according to IPEA. They account for a quar- The third and most important is what
and is beginning to export. ter of turnover in the corporate sector but happens to custo Brasil. As technology
Sometimes outsmarting Brazil means just 13% of jobs. A middle group of 15,000 changes, even Brazilian ethanol may start
getting away from it altogether. Part of rms making standardised products that to be weighed down by it. 7
The nal frontier
For Brazilians, land still has a mythical quality
I F BRAZIL disappeared from the face of
the earth, the rest of humanity would
probably miss the Amazon rainforest
against the sugar-cane monoculture.
Corporate landowners often nd them-
selves embroiled in disputes with indige-
grabbers often follow, or stake their claim
to virgin forest by razing and burning the
trees and turning the land into pasture.
most. It is one of the world’s biggest reser- nous peoples or landless movements. In Then come the planters, who replace pas-
voirs of carbon dioxide, the principal Brazil everyone loves the land, says Car- ture with more protable soya, driving the
greenhouse gas, as well as a rain factory for los Aguiar, chief executive of Aracruz, a ranchers deeper into the forest. The pio-
all of South America and, possibly, a vital pulp and paper manufacturer that has neers outrace the state’s capacity to en-
regulator of the world’s weather. If Brazil’s been repeatedly invaded by both groups. force the law and to exercise its own prop-
contribution to global warming came only Brazil is still in the process of discover- erty rights.
from its eet of vehicles and power plants, ing itself. Agriculture, having conquered This may be changing. Deforestation
it would be a model environmental citi- much of the savannah of the centre-west, has fallen by more than half over the past
zen, thanks to its use of renewable re- is opening new fronts in the north-east. two years, to its lowest level since 1991 (see
sources. But three-quarters of its carbon The old mining centre of Minas Gerais chart 7). Part of the explanation is the 1
emissions come from the destruction of now has a rival in Carajás, in the Amazo-
the Amazon, turning the country into one nian state of Pará. Industry, having con-
of the top ten polluters. Will Brazil save the verged on the city of São Paulo for much of Down in the forest something stirs 7
world or destroy it? the 20th century, has been dispersing for Brazilian Amazon’s deforestation rate
That depends on how Brazil manages decades. Oil has come to the rescue in ’000 sq km per year
its 8.5m sq km (3.3m square miles) of terri- parts of declining Rio de Janeiro. Brazilians 30
tory. Brazil is a sea of empty unoccupied associate space with opportunity, which
land without need for irrigation, says Pli- lures them to their frontiers. 25
nio Nastari of Datagro. There should be This restlessness has devastated the 20
plenty of room for all the beef, sugar cane, Amazon. Since the 1960s, when military
15
soya, eucalyptus trees and other commod- rulers promoted settlement to rid them-
ities that Brazil wants to produce. But Brazil selves of troublesome social groups and 10
sometimes feels like a continent-sized lay claim to a vulnerable part of the coun- 5
planning dispute. Every commodity try, about 18% of the forest has disap- * † †
seems to provoke a purpose-built protest peared. Sometimes the cycle of destruc- 0
1988 90 92 94 96 98 2000 02 04 06
movement. During President Bush’s recent tion starts with illegal logging, which
Source: INPE *Average 1977-88 †Estimate
visit to Brazil he was treated to slogans etches the rst trails into the forest. LandThe Economist April 14th 2007 A special report on Brazil 9
2 appreciation of the real, which has put o
ranchers from opening new tracts of forest.
But it helps that the state is beginning to
make its presence felt. The government has
created 40m hectares of conservation ar-
eas in the past four years, many of them
across the arc of deforestation, a band
along the southern and eastern fringes of
the forest. A new law declares that no pub-
lic forest can be privatised, which should
discourage land-grabbers, and provides
for concessions for sustainable logging
and other tree-friendly uses. Federal police
have arrested dozens of ocials for traf-
cking in fraudulent logging licences. Con-
sumer pressure, transmitted from rich
countries to the Amazon via green NGOs,
is beginning to have an eect. Last July pro-
cessors announced a two-year morato-
rium on buying soya from deforested land.
Putting a price on a priceless asset
The government’s goal, says the federal
secretary of biodiversity, João Paulo Capo- other possible methods, for example the crime better, they will be a blessing to
bianco, is zero illegal deforestation (prac- use of carbon-credit markets. But Brazil’s environmental criminals.
tically the only kind these days). Amazo- new willingness to put forest preservation Brazil need not chop down the Amazon
nian governors are more committed to this on the market is an extremely important or destroy the remaining savannahs to ex-
than ever before, he reckons, and now Bra- step, says Paulo Moutinho of IPAM, a re- pand its agriculture. Most of Brazil’s farm-
zil wants the rest of the world’s help. search institute. land is pasture, running to some 175m hect-
This is new. Brazil has always resisted With the revival of soya and the gov- ares and occupied by around half a cow
the idea of allowing outsiders any say in ernment’s new growth acceleration pack- per hectare. Crops take up just 63m hect-
the fate of the Amazon. But last year it for- age, which proposes to pepper the Ama- ares. If ranching were made more inten-
mally proposed an international fund to zon with infrastructure, Brazil is about to sive, crops could expand into empty pas-
pay Brazil for the forest’s environmental put its new model to the test. More than ture. Embrapa, the government’s
services to the planet. Under the scheme, two-thirds of Brazil’s unexploited hydro- agricultural-research arm, is promoting
Brazil would be compensated for reducing power potential is in the Amazon. The gov- integration of crops and cattle, which
deforestation below a certain baseline ac- ernment is warring with environmental- could multiply the density of the cattle
cording to the market value of the carbon ists over proposed dams on the Madeira population by ve. The big problem is to
sequestered in the intact forest. This would and Xingu rivers. The package calls for change the mentality of the rancher, says
give it a value to compete with the prots paving several Amazonian roads, Embrapa’s Eduardo Assad. Brazil may be
to be gained from its destruction and - traditionally the main vectors of destruc- huge, but it is not as inexhaustible as Bra-
nance the cost of proper policing. There are tion. If the state does not use them to police zilians think. 7
Rich man, poor man
Eorts to reduce poverty and inequality are bearing some fruit
B ACABEIRAa low-slung settlement
where the main street is a federal high-
way and most of the rest are dirt tracksis
stores and a DVD shop have opened, and
women no longer have to go to neighbour-
ing Rosário for beauty treatments. School-
to keep their children in school and take
them to clinics for health check-ups. A ver-
sion of Bolsa Família existed before Lula
not a rich place. More than half its popula- children now carry backpacks. took oce, but he greatly expanded its cov-
tion lives below the ocial poverty line of Bacabeira owes much of its newfound erage and increased the value of the bene-
120 reais a month per person. The main prosperity to infusions of federal cash. The t. It now reaches 46m people, a quarter of
source of jobs is local government. But real value of pensions, which is linked to Brazil’s population, making it the world’s
lately this district with 12,000 inhabitants, the ocial minimum wage, has doubled largest conditional cash transfer pro-
about 50km from the port city of São Luís, over the past 13 years. Well over half the gramme (ie, benets are linked to the re-
the capital of Maranhão, has been experi- families receive Bolsa Família, a benet of cipients’ behaviour). It helps a lot, says
encing a boom of sorts. Four furniture up to 95 reais a month that requires parents Rosângela Quindere, a mother of ve. Out- 110 A special report on Brazil The Economist April 14th 2007
2 side her house sits the barber’s chair
where her husband oers alfresco hair-
cuts. As usual, it is empty.
Poverty and inequality are to Brazil
what wars of independence are to other
countries. Brazil is not unique in its history
of slavery and the obliteration of its indig-
enous peoples. But there is no Brazilian Bo-
lívar to distract attention from these injus-
tices, and no founding ideology of
equality to set against them.
Brazil’s bloodiest conicts, with the ex-
ception of the ruinous Paraguayan war of
1865-1870, have been internal aairs, pit-
ting classes, regions and races against each
other. The country’s thinkers have dwelt
on the paradox of a nation where power is Too many Rocinhas
a rich man’s luxury and vitality ows from
below. Its politics are a quest to narrow the be sluggish, but the very poor are living poor north-east, where local colonels
awkward gap between the Brazil of closed Chinese growth rates, says Marcelo Neri traditionally call the shots and the PT had
condominiums and the other Brazil of un- of the Fundação Getulio Vargas. never made much impression. Lula won
treated sewage. This looks like the combined eect of an unprecedented 77% of the vote in the
Income distribution in Brazil is more earlier reforms and the ramping up of so- north-east in the last election. Income
skewed than in any other big country. Vio- cial spending. One of the main levellers transfers mean you won’t have competi-
lence and pollution are spread even more has been the labour market. Despite the tive elections, frets Bolívar Lamounier, a
unequally. The road that separates Gávea, slow pace of economic growth the num- political scientist. A graver problem is s-
a rich neighbourhood of Rio de Janeiro, ber of new formal jobs doubled between cal. Pensions and Bolsa Família contrib-
from Rocinha, a favela (slum) dominated the start and the middle of the current de- uted equally to the decline in inequality,
by gangs of drug dealers, marks a ninefold cade. Mr Neri reckons that greater econ- but the higher pensions cost four to ve
dierence in unemployment, a 17-fold dif- omic stability gave employers the con- times more.
ference in income and a 13-year variation dence to resume hiring. The wage gap There is also concern that income trans-
in life expectancy, says André Urani of between large and small cities fell as the fers will mark the end of development
IETS, a think-tank. Such indicators are cor- export boom created rural jobs and indus- rather than its beginning. In theory, Bolsa
related with race, but Brazilians argue over try ed from urban complications such as Família breaks the cycle of poverty by en-
whether racial inequality is a cause or a crime and trade unions. suring that children are healthier and bet-
consequence of economic inequality. Another reason for less unequal wages ter educated than their parents. In practice,
Narrowing these gulfs has become the is less unequal access to education. Prim- poor schooling means that the next gen-
main business of government since the ary education did not become available to eration’s earning power will not improve
restoration of democracy. Lula, who revels everyone until the 1990s. That allowed the as much as it should (see next article). Gov-
in his image as the father of the poor, an- poor to compete for jobs previously occu- ernment cash may also breed depen-
noyingly claims copyright on the idea, but pied by the lower middle classes. It is also dency. Here 95 reais is a lot of money.
the recent progress builds on initiatives possible that real incomes increased more Many families get used to it, says Sérgio
taken by his predecessor, Mr Cardoso, than the ocial statistics suggest. Two Moraes, who runs Bolsa Família in Baca-
himself a scholar of Brazil’s race relations. economists from the IMF have argued in a beira. But systematic studies do not con-
Between them they have produced a start- recent paper that the consumer-price in- rm that suspicion. Instead, having a guar- 1
ling reduction in poverty and inequality. dex exaggerated ination after the opening
of Brazil’s economy.
That’s better 8
The poor are getting richer The second principal boost to equality
The Real Plan prompted a sharp drop in has come from federal income transfers Proportion of Brazilians below the poverty line, %
poverty by slashing the ination that taxes such as Bolsa Família, which have the
the poor. The rst three years of the Lula most impact outside the metropolises of 36
government have seen an equally dra- the south-east. According to IPEA these in-
matic decline. Even more strikingly, in- come transfers account for a third of the re- 32
equality has at last begun to yield. The duction in inequality.
28
Gini coecient, which measures con-
centration of income, fell by 4.7%, from Flies in the ointment
24
0.596 to 0.568 between 2001 and 2005. Be- Lula’s poverty-alleviation programme has
tween March 2002 and June 2006 the been an undoubted success, but many Bra-
20
share of national income going to the zilians also see downsides to it. One is po-
poorer half of society increased from 9.8% litical. With Bolsa Família and other fed-
1992 94 96 98 2000 02 04 05
to 11.9%; the share going to the richest tenth eral programmes, Lula has found a way to
Source: Fundação Getulio Vargas
fell from 49.5% to 47.1%. The economy may reach deep into the interior districts of theThe Economist April 14th 2007 A special report on Brazil 11
2 anteed income gives parents the security is loosely described as the middle class, at the University of São Paulo. Employ-
to look for better work opportunities, says which includes many people close to the ment has been expanding only just
Kathy Lindert of the World Bank, which top of the pyramid. The reforms of the enough to absorb the 2m people who en-
helps nance Bolsa Família. 1990s reduced the government’s share of ter the labour force annually. Unemploy-
The programme could be upgraded, for salaried employment and forced busi- ment is stuck at about 10%.
example by extending the benet from the nesses to shed high-paying jobs. In In this respect, Bacabeira may be lucky.
period of primary schooling to cover high 2002-04, 86% of new formal jobs paid at Gerdau, a steel company, recently bought
school too. With virtually all of Brazil’s most double the minimum salary; the a pig-iron plant in the district, which is a
poor families in its database, Bolsa Família number of jobs paying at least ten times prime candidate to receive the spillover
could be used to give them priority access the minimum salary fell by 11%. In metro- when industry runs out of space in São
to 150 social programmes, such as training politan areas informality rose sharply be- Luís. But the locals complain that such
and sanitation, says Ricardo Paes de Barros tween 1992 and 2005 even as it fell nation- companies bring in most of their employ-
of IPEA. He thinks it is surprisingly iso- ally. The minimum wage increase is ees from outside. I can’t aord a training
lated from other programmes. pushing up salaries at the bottom, and course for my son, says one woman. Bra-
If the poor are racing ahead when aver- highly qualied people at the top are still zil is still a long way from creating all the
age income is plodding along, somebody making a good living. But the middle is jobs it needsand providing people with
must be losing out. That somebody is what purgatory, says José Pastore, a sociologist the qualications to ll them. 7
Low marks
Education is still letting the country down
F ROM the inside the Unidade de Educa-
ção Básica Cidade Olímpica feels more
like a dungeon than a school. Slits wide
ready been made. Little more than a de-
cade ago some 17% of children aged 7-14
did not go to school. That changed in the
30% more children in primary school than
the total in the 7-14 age group. Under-
trained, overstretched teachers know no
enough to admit trays of food pierce the 1990s when the federal government other way of controlling their classrooms.
walls between the classrooms and a cav- started distributing money to states and The practice costs 13 billion reais a year,
ernous hallway. The pre-class clamour of municipalities on the basis of enrolment nearly a fth of basic-education spending.
children does not stop with the bell be- in primary school. The extra pupils then It’s a vicious circle. You can’t invest in
cause some teachers have not turned up thronged the high schools, which tripled quality because of repetition, says Al-
yet. Paula Souza, the school’s director, says their output of graduates during the 1990s, berto Rodríguez of the World Bank.
that 40% of the teachers are absent at least according to Claudio de Moura Castro of Starting salaries for teachers are low,
one day a week. Some resent being as- Pitágoras, a chain of private schools. Qual- which deters good candidates, but then in-
signed to this primary school on the poor ity deteriorated in part because quantity crease steeply, encouraging incumbents to
periphery of São Luís. Its performance expanded so fast. stay until they retire, ve years earlier than
shows it: in a national exam administered Upgrading is harder than expanding. other workers. In that brief career, encour-
in 2005 Cidade Olímpica’s scores in Portu- Brazil spends 4.3% of GDP on public educa- agement and incentives are both in short
guese and maths were below average for tion, less than it should, given the relative supply. Training is long on theory and
city, state and country. youth of its population. Much of that short on practical experience. Many teach-
The real problem is those averages for money is wasted. Brazil is among the ers work at two or even three schools, one
the country as a whole. Brazil came dead world champions in grade repetition, with of them private. In Maranhão experienced
last in maths and fourth from the bottom teachers refuse to teach in remote districts,
in reading in tests administered in 40 coun- which are served by students who take
9
tries by the OECD. Half of ten-year-olds No lessons learnt classes during the week and pursue their
are functionally illiterate and there is little Average proficiency by school level studies at the weekend. The São Luís
Maximum=500
sign of improvement. Working-age Brazil- school system is plagued by absences for
ians have an average of 4.1 years of school- Mathematics: Portuguese: medical reasons, which can last up to 15
ing, compared with six in China. This is the 300 days without a doctor’s certicate. Mayors
Secondary school
biggest obstacle to Brazil’s ambitions. If reward political supporters with school
educational standards were as good as Secondary school directorships and sometimes teaching
250
those in the United States, the dierence in jobs. Many states have tried to limit politi-
income per head would fall by 30-40%, cal- 200
cal intervention but these eorts have
culates Samuel Pessôa, an economist at the Primary school been short-lived, says Mr Rodríguez. And
Fundação Getulio Vargas. To diminish that Primary school students spend an average of only three
150
gap, all three levels of government, which hours a day in class.
share responsibility for education, must Worry about Brazil’s lagging education
1995 97 99 2001 03 05
raise their game. system is becoming more widespread. A
Source: Ministry of Education
To be fair, Herculean progress has al- gaggle of enterprises and NGOs banded to- 1You can also read
