Why everything costs so much in Brazil – Crash

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Guia do Estudante Mundo Estranho Loja Abril viajeaqui Assine Abril Veja Revistas e sites Assine Loja SAC Grupo Abril DIGITE AQUI O QUE VOCÊ PROCURA BUSCAR Why everything costs so much in Brazil 29 de abril de 2013 Alexandre Versignassi A versão em português está aqui também. É só clicar na capa. Bastante gente que mora fora do país e lê a Super no tablet escreveu pra cá pra contar um problema: os amigos gringos delas queriam ler a matéria de capa da edição de abril. Ficaram intrigados com essa história de tudo custar tão caro por aqui. Então resolvemos dar a nossa contribuição para o fortalecimento dos laços diplomáticos entre o Brasil e o resto do mundo. E encomendamos uma versão em inglês da matéria. Por reciprocidade diplomática, liberamos a versão original também. Está aqui. And here we go: WHY EVERYTHING COSTS SO MUCH IN BRAZIL* *Tradução: David Coles They asked the winner of reality show Big Brother Brazil what he was going to do with his million Reals? “I’m going to buy a flat in Brasilia.” “And what about the rest?” “I’ll take out a mortgage on the rest from the government savings bank!” That joke has been doing the rounds in Brasilia for a while. But it could apply to anywhere in Brazil. Since 2008, just to take the example of São Paulo, real estate has risen 163%. In real life Monopoly, R$ 1 million is the new R$ 380,000. The cost of a square meter in the cities of São Paulo and Rio is already among the highest in the world. And in the more upscale neighborhoods, Big Brother will no longer cut it: a 100 m² apartment in Leblon (Rio) will set you back exactly what you would pay in Paris – R$ 2 million. Penthouses are already being advertised for R$ 20 or 30 million. Editor da Superinteressante. Escreveu o livro , finalista do Prêmio Jabuti 2012. Acredita que física, cerveja, biologia, pebolim e ciências econômicas são assuntos intercambiáveis. Aqui ele tenta provar essa tese. Alexandre Versignassi Crash - Uma Breve História da Economia [email protected] BUSCAR NO BLOG Buscar publicidade anuncie maio/2013 Depois de décadas de frustrações procurando a cura, finalmente encontramos a resposta para o câncer. Ela está onde menos se esperava: dentro de você. Superinteressante ed. 318 Câncer - viramos o jogo - sumário da edição 318 - folheie a Superinteressante SUPER NO FACEBOOK BLOGS SUPERARQUIVO FOTOS TESTES MULTIMÍDIA NEWSGAMES SUPERMANUAL CANAIS LOJA ABRIL TABLET ASSINE Why everything costs so much in Brazil – Crash http://super.abril.com.br/blogs/crash/why-everything-costs-so-... 1 of 10 5/16/13 2:24 PM

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Why everything costs so much in Brazil. About accounting and taxation for imports in the country of Brazil.

Transcript of Why everything costs so much in Brazil – Crash

Guia do Estudante Mundo Estranho Loja Abril viajeaqui Assine Abril Veja Revistas e sites Assine Loja SAC Grupo Abril

DIGITE AQUI O QUE VOCÊ PROCURA BUSCAR

Why everything costs so much in Brazil 29 de abril de 2013Alexandre Versignassi

A versão em português está aquitambém. É só clicar na capa.

Bastante gente que mora fora do país e lê a Super no tablet escreveu pra cá pra contar umproblema: os amigos gringos delas queriam ler a matéria de capa da edição de abril. Ficaramintrigados com essa história de tudo custar tão caro por aqui.

Então resolvemos dar a nossa contribuição para o fortalecimento dos laços diplomáticos entre oBrasil e o resto do mundo. E encomendamos uma versão em inglês da matéria. Porreciprocidade diplomática, liberamos a versão original também. Está aqui.

And here we go:

WHY EVERYTHING COSTS SO MUCH IN BRAZIL*

*Tradução: David Coles

They asked the winner of reality show Big Brother Brazil what he was going to do with hismillion Reals?

“I’m going to buy a flat in Brasilia.”

“And what about the rest?”

“I’ll take out a mortgage on the rest from the government savings bank!”

That joke has been doing the rounds in Brasilia for a while. But it could apply to anywhere inBrazil. Since 2008, just to take the example of São Paulo, real estate has risen 163%. In real lifeMonopoly, R$ 1 million is the new R$ 380,000. The cost of a square meter in the cities of SãoPaulo and Rio is already among the highest in the world. And in the more upscaleneighborhoods, Big Brother will no longer cut it: a 100 m² apartment in Leblon (Rio) will setyou back exactly what you would pay in Paris – R$ 2 million. Penthouses are already beingadvertised for R$ 20 or 30 million.

Editor da Superinteressante.Escreveu o livro

,finalista do Prêmio Jabuti 2012.Acredita que física, cerveja,biologia, pebolim e ciências

econômicas são assuntos intercambiáveis. Aqui ele tenta

provar essa tese.

Alexandre Versignassi

Crash - UmaBreve História da Economia

[email protected]

BUSCAR NO BLOG

Buscar

publicidade anuncie

maio/2013

Depois de décadas defrustrações procurando a cura,finalmente encontramos aresposta para o câncer. Elaestá onde menos se esperava:dentro de você.

Superinteressante ed. 318

Câncer - viramos o jogo

- sumário da edição 318- folheie a Superinteressante

SUPER NO FACEBOOK

BLOGS SUPERARQUIVO FOTOS TESTES MULTIMÍDIA NEWSGAMES SUPERMANUAL CANAIS LOJA ABRIL TABLET ASSINE

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And on the streets, the same law applies. The Brazilian Big Mac is the world’s fifth mostexpensive. While the inhabitants of Tokyo pay the equivalent of R$ 7 for one, here in Brazil wehave to fork out R$ 11.25—and Japan is not exactly a country known for its low cost of living. InParis, also absent from the list of the planet’s most affordable cities, you will pay R$ 25 for aleg of duck, at Chartier, a renowned restaurant in the city’s most charming neighborhood,Montmartre. Here in not-quite-so-charming São Paulo, the same piece of duck can cost you upto R$ 70—but this is no super-duck, it hasn’t flown all the way from Montmartre to VilaMadalena.

Let’s take a look at another bird: poultry. Chickens do fly. Not all the way to Europe, though.They sail there—frozen, inside container ships. From here to Europe. Brazil’s poultry populationis virtually the same as China’s human population (1.26 billion, according to official statisticsoffice IBGE). Brazil is the world’s largest exporter of chicken. After slaughter, some of theflock finds its way to Germany. Some of our feathered friends may end up at Görlitzer Park,where Berliners queue up to buy halbhähnchen (half-chickens). With French fries, R$ 9.50. Butin Brazil half a chicken costs nearly R$ 20. And don’t expect French fries.

It’s not only the chicken that we ship out that is sold cheaper overseas. We also export cars. AVW Gol leaves the factory in São Bernardo do Campo (SP) and embarks on a cargo ship toMexico. Over there, the basic version is a 1.6-liter four-door air-conditioned model. A Gol likethat costs R$ 37,000. Doña Florinda and Professor Girafalde (from kids’ sitcom ) willhand over R$ 23,000 for the same “Nuevo Gol”. And if their friend Quico throws a tantrum anddemands a cooler set of wheels, he might set his sights on a Camaro. It would cost him R$65,000. To buy it in Brazil would cost R$ 190,000. He could pocket the difference and spendsixteen months at the Las Brisas Acapulco, one of Mexico’s plushest hotels.

El Chavo

But wait till you see the difference between really expensive car: the classiest convertibleever built will come onto the Brazil market in 2013. The Lamborghini Aventador LP 700-4Roadster. Its price tag here is likely to be as long as its name: R$ 3,000,000. At least threeBrazilians have already booked theirs. Hey there, Eike Batista: hold your horses and spend thesame R$ 3 million in the United States—you can take home a helicopter, buy an apartment inManhattan and still have enough left over for the very same Lamborghini! Would you believe it!

And how about an apartment in São Paulo’s swanky Jardins neighborhood then, a snip at R$ 30million? Five suites, room for eight cars in the garage… Wow. For that money you can buy achateau in France (R$ 14.4 million), a in Portugal (R$ 8.6 million), a farm in Italy (R$ 3.4million), a penthouse on the Spanish coast (R$ 2.2 million) and a chalet in the Alps (R$ 1.4million). With enough left over for a snack. Better still if it’s a Big Mac. (Costs less in all thesecountries).

quinta

Come to think of it that’s exactly what Brazilians have been doing: spending their money inother countries. You know: i-Pads, baby trousseaus, make up… Everyone comes back fullyladen. The shop assistants in Miami already speak better Portuguese than we do. Which ishardly surprising: the money Brazilians spend overseas is the fastest-growing economic factor inthe country. Our GDP is bogged down, but the amount of cash we spend overseas is soaringsky-high. We spent US$ 10.9 billion in 2009. The latest figures are US$ 22 billion. That’s agrowth of 19.5% per year. In the same period, GDP grew only 2.7% per year. In other words, weare consuming other people’s GDP, since our own is way too expensive. But why is it way tooexpensive? Because Brazil won the lottery (or as it’s called). And is squandering allits winnings in the bar.

Mega-Sena

The miracle of credit

We won the Mega-Sena in the early years of this century. In the five years before the 2008crisis—from 2003 to 2007—the planet’s Gross Domestic Product grew at an average of 5% a year:China hit heights of 11%, 12%, and then 14%. “The world economy is enjoying a phase ofexuberance even greater than in the golden years of the 1960s,” wrote BNDES economist FabioGiambiagi at the time.

Gross Domestic Product is a figure measured in terms of money. But the GDP is not money initself. The GDP represents concrete things. China’s GDP growth, for instance, meant theconstruction of 1,500 thirty-story buildings per year, nationwide. Shanghai, which had had nounderground railway system until 1995, built 454 kilometers of track—more than London (402km), New York (337 km) and São Paulo (74 km). A new world was being born from nothing.

Brazil surfed the trend, selling raw materials to the rest of the world. Above all iron ore, oiland foodstuffs—commodities, as economists call them. From the early 1990s to 2002 weexported on average US$ 54 billion per year. From 2003 to 2011, this average tripled to US$ 155

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billion.

Unsurprisingly, this was exactly the time when 40 million Brazilians clambered out of poverty.And joined so-called social class C. Another nine million exchanged class C for classes A and B.All this because export money greased the wheels of our economy. This is how it works:imagine someone who made a fortune in iron ore—such as a top executive at Brazilian miningcompany Vale. On retirement, he gathers up all the money he made in the golden years andopens a pizza restaurant chain. The manager of the pizza restaurant decides to buy a new car.The owner of the car dealership buys a copy of SUPER-INTERESSANTE… and thus we all take adip in the Olympic swimming-pool full of cash we have built in the news room. The wheels ofthe economy turning.

In itself, this is enough to explain the real estate boom. The pizza restaurant manager, the cardealership owner, the editorial staff of SUPER-INTERESSANTE: no longer do ordinary Brazilianshave to win the draw in the popular Baú da Felicidade housing raffle in order to nurture thedream of owning their own home. They feel they can do it by themselves and go into themarket for an apartment.

But new buildings don’t grow on trees—and, as Mafia boss and real estate investor TonySoprano might have put it, “God ain’t creating new plots of land out there”.

Emilio Haddad, lecturer at the University of São Paulo and engineer specializing in real estate,agrees with Tony: “Urban plots of land are thin on the ground in Brazil”.

Short supply clashes with the appetite of purchasers. The price of real estate—virtuallystagnant for ten years—began to rise. But what happened next? It got to buy anapartment! Not harder, as you might logically have supposed. The economy has its own logic:banks start loaning more when the real estate market heats up. Bankers feel protected. If aborrower defaults, the bank will be able to sell the apartment at a much higher cost than theyoriginally paid. Imagine this situation: someone takes out a loan on a R$ 380,000 apartment inSão Paulo in 2008, and then loses his job. He can no longer keep up the loan installments. Whathappened to the bank that made the original R$ 380,000 loan? The bank turns around and sellsthe apartment for R$ 1 million, of course. Beautiful. Easy money, come rain or come shine.Bank managers have a welcoming hug for everyone. Banks hardly seem like banks any more…

easier

That was the miraculous multiplication of credit. Housing loans accounted for 1.5% of GDP in2007; 5.5% in 2012. Ten years ago R$ 4 billion were sloshing around the financial system in theshape of real estate credit. Today it’s US$ 100 billion. Demand was already overheated, butwith the stampede to credit, it spontaneously combusted. That was when all the architectsbegan including gourmet dining balconies in their apartment blueprints. Rio, São Paulo,Brasilia, Recife, Fortaleza, Belo Horizonte… Since 2008 the value of a square meter in all thesestate capitals has risen faster than inflation – 25%. The increase was 200% in Rio, since not evenGod can increase the amount of space available in the Leblon neighborhood.

Not to mention that the price of cement, steel and everything else that goes into theconstruction process has also risen. Anyone who has recently remodeled their home has comeup against a new phenomenon: mortar the price of gold. The new legal tender among thebuilding fraternity has become the “two grand”. “How much will it cost to mend thiswall?”—“Two grand”. “What about the piping?”—“Oh, another two grand”.

Like we say, this phenomenon begins to explain the rise in real estate prices. But it doesn’texplain everything. There is another reason behind the increases, which is less glamorous thanthe swimming-pool of export money: our sluggishness.

The Brazil Cost

Without abandoning the construction analogy we can understand our leaden-footedness. In

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Brazil the most typical construction method remains the same as in Mesopotamia in 8,000 BC:brick-laying—building walls brick by brick (or slab of concrete by slab of concrete), tying it alltogether using mortar. Overseas you will find more prefabricated material being used: afactory makes concrete (or ceramic) panels. The panels leave the factory, are transported tothe building site, and the workers assemble the building as if it was a giant Lego. Everythingslots together. “Whereas in Brazil a project involving two 35-meter towers will require up to1,500 workers and take 42 months to complete, Americans can build such a project in 30months with half the number of workers,” said Alessandro Vendrossi, director of constructioncompany Brookfield in a recent interview given to EXAME Magazine. And in China, using muchmore pre-molded material and some devilish logistics, 30-floor buildings can be raised in afortnight. Take a look:

If we could do that in Brazil, the supply of new buildings would keep pace with any imaginabledemand. And the price of real estate would not have gone through the roof. Or at least wouldnot have soared so high. So why is there nothing like this in Brazil? Because entrepreneurs andgovernment spend too little on improving their means of production, and fail to invest as muchas they ought to in more modern machinery and new factories (such as concrete panelfactories). In China, this type of investment represents 48% of GDP. Half of what the countryproduces is intended precisely to enable it to produce more. One third of the steel made byChina in the golden age, a considerable amount of which used Brazilian ore as raw material,went into building new steel mills. In Brazil, the profits from the ore went into buying LandRovers and refurbishing penthouses overlooking Rio’s picture-postcard Lagoa de Freitas.

Investing in further means of production is excellent because it reduces costs downstream.That is GDP generating further GDP. Mortar won’t end up being worth its weight in goldbecause Brazil will have learned how to produce more and better mortar (or prefabricatedpanels). This would avoid a “two grand” culture ever coming into being. Prices won’t border onthe irrational. They can’t.

The technical name used by economists for this type of expenditure is, unsurprisingly,“investment”. And there’s a very simple rule behind it: the less developed a country is, themore it needs to spend on investment. Emerging nations invest on average 31% of their GDP.Mongolia, China’s new commodities supplier, 51%. Brazil, 19%. Which is the same as Egypt—acountry that only truly spent on investment when it built the pyramids.

Long term investment

On the other hand, nations that have been developed for some time can afford to spend littleon investment: Switzerland, Belgium, Finland… These countries also belong to the 19% club,but they are now very industrialized. And this is not our case. Nor will it ever be, if wecontinue to invest little.

Lack of investment is the explanation underlying the “Brazil cost”—the fact that producing inBrazil is more expensive and more painful than in developed countries. Take railways. Railwaysare a textbook case of investment: they are expensive, but bring long-term returns, makingfreight cheaper. Brazil has 29,800 kilometers of railways. Ten thousand kilometers were builtunder Dom Pedro II. Our railway lines today do not reach the places that need them most, suchas the soy-producing regions of Mato Grosso. Soy has to be hauled by truck most of the distance

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to the ports.

Result: while the transport cost per ton of soybean is the equivalent of R$ 35 in the USA, it isR$ 160 in Brazil. And China (again!) added a quantity equivalent to half of Brazil in railways inthe period between 2007 and 2011 alone: 19,000 kilometers. Today China has 98,000. It comesthird only to the United States and Russia, two other countries as vast as continents, whererailways are the lifeblood (226,000 kilometers in the USA and 128,000 kilometers in Russia).Some other countries as vast as continents: Canada: 46,000; Australia 38,000; Argentina:36,000—7,000 more than Brazil. Ho hum.

Without a decent railway system, transportation costs will skyrocket. And these costs are builtinto the price of everything. Transporting a car from a factory in São Paulo to a dealership inSalvador (1,900 km) costs four times more than transporting the same car from Shanghai toBeijing (1,200 km).

In the golden ‘noughties’, China was building two new thermal electric power plants per week.Brazil, blessed by God, and hydro-electrical by nature, failed to concern itself with energy. Andwe’re now paying the price for this via the Brazil cost. For example, it costs approximately R$30 in electricity to produce one tonne of cement. This may not seem very expensive, butconsumption of cement in 2011 came to 65 million tonnes. An electricity bill of R$ 1.9 billion.Industrial energy is 55% cheaper in the United States than Brazil’s was up until 2012. In otherwords: producing the same amount of cement in the US used to cost R$ 1 billion less inelectricity alone.

Why did it use to be so expensive? Because the energy utilities were handed highly favorablecontracts—sometimes with annual readjustments in line with the General Market Price Index(IGPM), the inflation index that was invariably burlier than the statistics office’s BroadConsumer Price Index (IPCA). Until last year, being a stockholder in an energy company was areal silver-spoon business: loads of profit and no headaches bothering with any of that“investment”. So much fat had been accumulated that the government renegotiated itscontracts with the energy companies. The residential rate fell by 18% and the industrial rate by32%, according to energy watchdog ANEEL. Amazingly, the world did not come to an end, norwas Brazil plunged into darkness. But our industry still pays an energy bill 33% larger than inthe USA. We still have a lot of investing to do in this segment.

However, there’s another input that costs a lot of money: money itself. That’s right. A loan forworking capital (what entrepreneurs use in order to pay their day-to-day expenses, such aspayrolls) costs an average interest rate of 19% per year. In Chile the rate is 5.8%. In China 3.7%.In Germany 2.5%. In the USA 1.1%. You could go from here to the end of this article just listingthe countries where money is cheaper. Courtesy of our banking . This is what the spreadis: banks also borrow money. Sometimes they even borrow it from you. For example, when youinvest money in a CDB, you are lending money to the bank. The difference between theinterest rate the bank pays you when it borrows from you and the interest rate it charges youwhen it lends you money (in the form of credit for working capital, for example) is the spread.Brazil’s spread is the largest in the world. An ancient vice of a banking system accustomed topornographic interest rates. Your credit card is living proof of this. As are the high prices: FIESPstates a) that at least 7.5% of the final price of any product is down to the interest rates bankscharge; and b) that industry spends R$ 156 billion annually just to pay these interest rates. Thesame amount that the BNDES loans every year to promote the “economic and socialdevelopment” contained in the acronym that is its name. One thing cancels out another. Ourhigh interest rates, our expensive electricity, and our nineteenth-century logistics are brakepedals holding back the GDP. Whereas they are gas pedals for high prices.

spread

However, let us not forget the afterburner of prices: our friends the taxes, always with us.

Fiscal bedlam

In 1821, Dom Pedro, recently appointed Prince Regent, found himself in a pickle. Brazil wasbankrupt. To reverse the situation, one of his first measures was to abolish taxes on salt and oncoastal shipping, which were making it expensive to produce jerked beef—one of the majoritems in the economy of the time. You’re right, even in those days excessive taxation was aburden! As you know, Brazilians pay a great deal of tax. The country ranks 75th in GDP perinhabitant. But 14th in the heaviest tax burden table: 36.2% over GDP.

But it gets worse. If our tax burden was a person, it would be one of those dodgy boyfriends,full of entanglements and unconvincing alibis. Brazilian taxes are so complicated thatcompanies devote 108 days every year just to prepare, record and pay tax. We rank 130th inthe World Bank’s bureaucracy league table (which is upside down: the lower down the list, themore bureaucratic is the country). Franz Kafka—had he hailed from Brazil rather than Prague—would have found much to write about (the Czech Republic, as it happens, is blowing us a kissfrom 65th position). The average, in developed countries, is one week to take care of thepaperwork. “I have heard owners of multinational companies say that their tax teams are tentimes larger in Brazil than overseas,” says Fernando Pimentel, director of the Brazilian TextilesIndustry Association. “It is fiscal bedlam”.

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Companies waste one third of their year dealing with taxes. There are 88 federal, state andmunicipal taxes, ranging from retirement contributions to garbage rates. Plus the rules changeconstantly: 46 tax rules are edited every day. Every 26 minutes, the Inland Revenue comes upwith a new rule.

Take a look at your shoes. If they are Made in China, they will have cost approximately US$ 5when they landed at the Port of Santos. From that moment on the price rises. First of all, thereis the Importation Tax ( or I.I. to use its Brazilian acronym), a federaltribute of 35%. in the case of shoes. Then there is a Value-added Tax on Goods and Services(ICMS), levied by the states of Brazil (at a different rate in each one). This operation is notexempt from the well-known Social Integration Program (PIS) and Welfare Financing Tax(COFINS). The Social Integration Program (PIS) was set up to feed into a pool for payingunemployment benefit. While the Welfare Financing Tax (COFINS) levies for investment inhealth, pensions and welfare. For shoes, these taxes come to 9.1%. There is also an exclusiveCOFINS rate for imported goods, and in the case of Chinese shoes, a surtax of US$ 13.85 forevery pair landed in Brazil. A government anti-dumping measure. In other words, it helpsprevent the extremely low prices of Chinese footwear damaging Brazil’s footwear industry—aswell as giving the industry breathing space not to be forced to lower its profit margins becauseof competition.

Imposto de Importação

OK. However, if your shoes were made here, that’s different: 12% ICMS and 9.25% PIS/COFINS.Plus 3.4% Income Tax and “Social Contribution On Net Profit” (CSLL), another tax created inorder to be plowed into health, pensions and social welfare. Then there is 0.04% FinancialTransactions Tax (IOF). And spending on employees: The Government Severance Fund (FGTS), asavings account managed on your behalf by the government, in case you are wrongfullydismissed. And the Social Security Tax (INSS), which will pay your meager pension one day. Alltogether it comes to 6.5%. The shoes thus come off the production line costing R$ 59, accordingto the cost manager of a large factory, who preferred not to be identified. Tired yet? Becausewe’ve only been talking about industry. In the case of retail, the taxes levied are ICMS, PIS andCOFINS, as well as the Services Tax (ISS), collected in each municipality (and ranging from 2%to 5%).

But don’t worry—it gets worse. If you simply add up the percentages of the taxes, well, thesum doesn’t add up. Because some taxes are collectible on other taxes. And this will depend,for example, on whether the company pays tax on forecast profit or actual profit. And that’show prices get the way they do. Take Easter eggs: 38.5% of the amount charged is taxes. Awhopping 43.7% in the case of imported salt cod ( ). And that is why more and morepeople go shopping overseas: a Samsung Galaxy SIII will cost you R$ 650 in Miami. But in SãoPaulo, you can’t find one for less than R$ 2,048. The taxes are at least partly to blame: thereonly 7%, here virtually 40%.

bacalhau

Economists, politicians and the business community are crying out for tax reform in order tocut through this knot. Most of the specialists heard by SUPER-INTERESSANTE suggest taxationshould migrate from consumption to equity; in other words, that taxation should affect profitand income, rather than labor, production and consumption. And that makes a great deal ofdifference. “Most of what we pay in tax today is for billings [everything that comes into cash],rather than profit,” says João Eloi Olenike, president of the Brazilian Institute for Tax Planning(IBPT). In other words, traders have to pay hefty taxes even when operating at a loss. This is amassive stimulus for free initiative—except that it works backwards. While waiting for thereform, some sectors of the economy have been entering into sporadic agreements. Last yearfor example the automobile industry was the beneficiary of a reduction in the Tax onIndustrialized Products (IPI). Result: sales of vehicles rose 4.6% over 2011—and the IPI became aposter boy for car advertisements.

Wait a minute though. Taxes cannot explain everything by themselves. Nor can the Brazil cost.There is another factor to be taken into consideration: the “Brazil profit”.

The Brazil Profit

In Mexico, the Honda City is an imported car. Imported not from Japan, but from the town of

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Sumaré, upstate São Paulo. Scores of Honda City’s leave the Honda factory near Campinas, areshipped to Mexico, and sold there for R$ 33,500. The same model, from the same factory, costsR$ 53,600 in Brazil.

The Brazil cost cannot explain the difference, since the car is made here, running the gauntletof penury that producing in Brazil entails. There are the taxes. In Brazil, 36% of the final priceof the car is tax. So if you strip away the taxes, the City would cost R$ 34,000. All right. ButMexico itself is no fiscal Garden of Eden. Taxes are the equivalent of 18% of the final price of acar. So if we strip a City of its Mexican taxes, it would cost R$ 27,500. In other words: even ifwe rule out taxes, the Brazilian City still costs R$ 6,500 more than its Mexican counterpart.

The same goes for the VW Gol. In Mexico it is a car imported from Brazil, except that the basicmodel in Mexico is much better than our domestic model (which is 1.0 liters, two doors, no airconditioning). However, let us only compare models with the “Mexican configuration”. Ignoringtax on either side, as we did with the City example, the Brazilian Gol sold in Mexico is still R$4,500 cheaper than it is in Brazil. Conclusion: profit margins are larger in Brazil than in Mexico.But theoretically they should be smaller: Brazil is the world’s fourth-largest automobileconsuming market, only lagging behind China, the USA and Japan. It is easier to gain scale (andsell at a lower price) than in Mexico. Our market is four times larger than theirs. Wait a minutethough. It is more expensive here, even when we correct for taxation and the Brazil cost.

The Brazilian Association of Carmakers (ANFAVEA) defends itself. The Association says it cannotdiscuss prices outside the ‘realities of the market’ in a competitive environment like Brazilwhere there are over one thousand models on sale, counting domestic and imported vehicles.

Well, all right. Perhaps the problem lies in those ‘realities of the market’. In this ‘reality’, ithas become acceptable to spend R$ 100,000 on a car, even though it eats up a sizeable chunkof a person’s salary. The truth is that the already-high prices exert a magnetic force. Brazilianslove spending and showing off their purchases. It confers status. So much so that stores thatare affordable in Europe, such as Spain’s Zara or Britain’s Topshop, have become trendy andupscale here. The rule of thumb in Brazil is to spend a lot and save very little. According toresearch institute Nielsen, Brazilians put away 27% of what they earn—as against an average of39% in the rest of Latin America. Last year we consumed nearly 10% more than in 2011, aboveall in car dealerships (30.3%) and supermarkets (28.8%). This is not bad in itself—in Japan,people spend little and save much, but their economy is stagnant. But if production does notkeep pace with demand, there’s no escaping it: prices will rise. Another problem is we getdeep into debt. A recent IBOPE survey showed that 41% of Brazilians have debts. AmongGermans, for instance, this figure is 10% (which is an all-time high for the country).

“We have never had so much credit, and lacking financial education, we think: ‘They’re givingme all this money, I’m going to spend it,’” says economist Samy Dana, of the Getúlio VargasFoundation. Gustavo Loyola, former president of the Central Bank, says “people are not used todealing with this. Candies are great, but eat too many of them, and you get yourself allsticky”. We actually have a good excuse. Not so long ago, in 1993, inflation measured by thegovernment came to a staggering 2,477%. Every fifth of the month Brazilians would flock to thesupermarkets to stock up their pantries with rice and beans and their freezers with meat.Because the prices would have been adjusted upwards by the following day. Who could think ofsaving in that scenario? The main idea was to spend before your money—or the number of zerostacked onto it—disappeared.

The truth is we have a lot to learn about dealing with money. “Enough already,” says GetulioVargas Foundation economist Virene Roxo Matesco. “Inflation was tamed in 1994. There is awhole generation of consumers who don’t know what inflation is,” she adds. “People have noidea of the cost-benefit of saving”. She’s right. We learn—sooner or later. However, ifgovernment and business fail to cooperate, investing more in production and cutting excesstaxation, little can be done. And we will go on thinking that fair prices are an overseas touristattraction.

will

———-

If you wanna read more on the weird side of economics, click on the cover above. It´s an

Why everything costs so much in Brazil – Crash http://super.abril.com.br/blogs/crash/why-everything-costs-so-...

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english version of the first chapter of my book, published at Wattpad.

Crash – Uma Breve História da Economia. The Brazilian edition of the e-book is available at Apple iBooks, Google Play and Amazon.brunder the title And the print edition is on the shelvesand sites of every major bookstore.

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Receba a SUPER todo mês na sua porta

Comentários Luciana Rosa disse:

29 de abril de 2013 às 22:30

Parabéns pelo artigo. Muit bem escrito. Incrível como vocês conseguiram abranger tanto e fazer com queaté quem não entende nada de economia consiga entender o artigo.

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Adriano disse:30 de abril de 2013 às 8:21

Ja que tiveram o trabalho de traduzir a materia pro Ingles, poderiam ao menos ter feito a coisa bem feitae convertido os valores no texto para dolares ou euros.Em Reais, fica dificil pra estrangeiros terem uma ideia real do valor das coisas.

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Alexandre Versignassi disse:30 de abril de 2013 às 10:01

Adriano, vc tem toda a razão. Isso passou despercebido. Vou passar tudo pra dólar hoje.Abs

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Éderson Cássio disse:2 de maio de 2013 às 1:27

Eu acho que ficou até melhor assim, para eles poderem comparar o que passamos aqui baseados na nossamoeda. Eles sabem fazer contas

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José disse:30 de abril de 2013 às 10:04

Nice job guys! And now…everything is gonna be all rigth!!!

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Paulo Fioravante disse:30 de abril de 2013 às 14:48

Alexandre, por que a matéria original em português sumiu? Essa que foi traduzida para o inglês? Agoraaparece uma Ferrari.. Uma versão mais resumida..

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Alexandre Versignassi disse:30 de abril de 2013 às 15:54

Deu um pau no site da Super, Paulo. Tão arrumando aqui.

Abs

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Paulo Fioravante disse:30 de abril de 2013 às 19:16

Valeu pela atenção Alexandre!Meus parabéns a você pela mantéria, e a SUPER pela imparcialidade…Sinto que a mídia não aborda esse assunto como deveria..E eu tenho convicção que existem muitos interesses ocultos por trás dessa omissão.

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Why everything costs so much in Brazil – Crash http://super.abril.com.br/blogs/crash/why-everything-costs-so-...

8 of 10 5/16/13 2:24 PM

Vc atacou cada um dos principais pontos que aleijam o progresso no Brasil, de forma muito clara…Algumas coisas que acontecem aqui são realmente surreais.. Acho que essa ‘Mega-Sena’ nos tornougananciosos demais… Infelizmente, hoje temos uma cultura de querer ganhar dinheiro muito fácil sem terque trabalhar duro..

É extremamente revoltante como desperdiçamos dinheiro no Brasil.. Gastamos R$ 23 milhões de reais PORDIA pela Câmara e Senado Federal.. Por uma classe política que cada vez mais perde a vergonha dos seusatos.

Pra piorar, não é muito ‘Cool’ no Brasil ser engajado.. e isso é uma coisa muito triste.. as pessoas temvergonha de exigir seus direitos.. Realmente não entendo direito esse traço da nossa cultura..

Até mais, Abraço!

Rafael disse:30 de abril de 2013 às 15:05

Show de bola a diplomacia. Mas o link da matéria original não corresponde exatamente ao texto em inglês.

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Alexandre Versignassi disse:4 de maio de 2013 às 0:57

Oi, Rafael. É que algumas figuras de linguagem são intraduzíveis, só ficam ok pra quem fala portuguêsbrasileiro.Abs

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Rafael disse:30 de abril de 2013 às 15:11

Esse link que deveria enviar à versão original do texto, não corresponde ao texto em inglês. Conseguiacessar o original uma vez, apenas, saí dele por alguma motivo e agora só encontro um post específicosobre carros. Cadê o post que tinha o Mussum!? haha

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Cleber disse:30 de abril de 2013 às 15:47

é eu também procuro por aquela matéria com video do mussum!! Ela é demonstrativa só?

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Alexandre Versignassi disse:30 de abril de 2013 às 16:47

O link tava levando pra matéria errada nos últimos 60 minutos. Agora normalizou.Abs

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Erica disse:30 de abril de 2013 às 15:41

I think the most important thing was left out–corruption. Brazil is wonderful but will never grow as acountry until government corruption is addressed. The country is set up in a way that the rich willcontinue to be rich while the poor will always be poor. The facts stated in this article may be true but thecore problem is corrupt politicians.

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Cristiane disse:30 de abril de 2013 às 15:46

Eh por essas e outras que estou indo embora daqui e nao vou sentir saudades. De que adianta eu boicotar osistema e nao comprar se todo o resto paga o que for para ter seu objeto de desejo? Ja vi que sozinha naoposso mudar o mundo entao fui!

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Matheus disse:30 de abril de 2013 às 20:33

Excelente artigo!

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Paulo Ferreira disse:30 de abril de 2013 às 23:56

Espera aí, em termos de carga tributária per capita estamos muito longe do 14o lugar. Não vamos distorceras coisas. Estamos em torno do 35o lugar, em qualquer tipo de cálculo. Sem contar que, para além dostributos, os serviços públicos são pagos compulsoriamente na “liberal” Alemanha, uma das campeãs dearrecadação. O alardeado aumento da procura também não explica a inflação imobiliária. Ora, temos umnúmero absurdo de quase 8 milhões de imóveis ociosos que só servem à especulação. O problema no Brasilestá muito mais na desigualdade econômica e concentração produtiva do que na culpa do consumidor oudo governo. Aqui é moleza especular, é moleza impor taxas de lucro absurdas, esta é a questão. Não mevenha com essa de culpar o pobre pela pobreza.

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Adam disse:1 de maio de 2013 às 13:37

Why everything costs so much in Brazil – Crash http://super.abril.com.br/blogs/crash/why-everything-costs-so-...

9 of 10 5/16/13 2:24 PM

Excellent article! One hears general remarks about these issues in the form of “there are so many taxes inBrazil” but this article actually went many miles further.

The part about the “realities of the market” is just “lenga-lenga” on behalf of the association(s).

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gxupabizhp disse:2 de maio de 2013 às 12:13

uJ6Kba , [url=http://nzrucqbjgpps.com/]nzrucqbjgpps[/url], [link=http://kerqiwghgcpi.com/]kerqiwghgcpi[/link],

kmrlpvgptgpqhttp://wscamisbsgfq.com/

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Bills Software disse:3 de maio de 2013 às 8:40

Thanks for your nice post. Interesting, clear and precise. Well put Cristiane.

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Alberto Muro disse:7 de maio de 2013 às 10:58

Aqui vai um artigo sobre o Brasil muito bom. Nada de novo mas é um bom resumo.Enjoy!!Beijos, Lu

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