And, almost criminally, while the real interest rates are near a record low of about 2 percent, consumer credit deals for shop purchases can be more than 100 percent a year, usually aimed at shoppers who did not previously have access to such deals.
As this model starts to slow, Gustavo Franco, a former president of Brazil’s central bank and founder of Rio Bravo Investments, believes Brazil’s growth model is at a turning point because government stimulus and household credit are no longer effective drivers of growth.
“For the last few years there has been warnings on the low investment rate and on the fact that growth based on leveraged consumption would eventually find limits. It appears that these limits are being reached,” he said in an e-mail reply to reporters.
While Chinese growth is based on high private savings and public investment, Brazil’s economy has recently centered on debt and consumption. Despite concerns about sustainability, he says this is a reason why there is more of a “feel-good” factor in Brazil. Despite the slower level of growth, he says Brazil ranks No. 1 in the world for expectations of future happiness.
For those expectations to be realized, he says the government must now promote investment, which accounts for just 18.5 percent of GDP compared with 40 percent in China.
Brazilian President Dilma Rousseff seems to be listening. In the past week, she has hinted at a splurge in infrastructure investment on an almost Chinese scale. Over the next three years, Brazil will invest US$31 billion in public ports — 10 times the amount spent over the previous decade — and build 800 new airports.
“Figures in Brazil are big,” she said in unveiling the plan to provide an airport to all cities with more than 100,000 inhabitants. “It is also a necessity for the country’s growth.”
However, poor transport infrastructure is not the only obstacle to lasting prosperity.
Belying the stereotypes of China’s communist authoritarianism and Brazil’s happy-go-lucky ethos, the rank corruption and staggering paperwork make living, working and setting up offices in Rio de Janeiro far more expensive and time-consuming than in Beijing. Add in higher property prices, tax rates and wage costs and it is not hard to see why Brazil scores horrendously in global competitiveness surveys.
In the Confederation of Industry’s latest study Brazil was second bottom, after Argentina, among 14 rivals. China was fourth, India sixth and South Africa eight.
Brazil still boasts fundamental advantages that should ensure steady growth. Its population is young — with an average age of 29 — and stable compared with China’s aging society and one-child policy. It has far greater ecological wealth — though its forests are declining, while China is planting billions of trees. It is also one of the world’s biggest producers of iron ore, timber, beef and soya beans.
It is here that you find the greatest contrast and closest link with China, which is now the global commodity consumer of last resort and Brazil’s biggest customer accounting for 17 percent of exports. These two vast nations have developed a complementary but unequal relationship with one another.
China buys raw materials, which profits a few big Brazilian suppliers such as Vale. However, it then exports back cheap manufactured goods, such as shoes and textiles, that undercut Brazilian rivals in both home and regional markets. As more than one commentator has pointed out, the trend is almost towards deindustrialization.