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Sustainable Brazil
Economic growth and consumption potential
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SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
Table of contents
Introduction
3
A look ahead on the highway
to the year 2030
4
Under the banner of sustainability
10
Map of consumption opportunities
20
Introduction
This is the second in a series of five*
publications that analyze the horizons of the
Brazilian economy for the next decades, with
a special focus on its most strategic sectors,
examined both from the perspective of their
importance to domestic revenue generation
and the business opportunities that they
represent over time. The approach to the
issues takes into account Brazil’s potential
for interaction with the world market, with
scenarios being outlined up to the year 2030.
The issues addressed are the following:
Housing market potential;
Economic growth and consumption potential;
Energy market challenges;
Prospects for Brazilian agribusiness;
Horizons for industrial competitiveness.
In this study, we present the main results
of the scenario model developed by, the
Getulio Vargas Foundation (FGV-Fundação
Getulio Vargas), one of the foremost and
renowned academic institutions in Brazil, in
order to allow for a discussion based on an
outlook for the world economy. The survey
covers a total of 100 countries, analyzed
not only from the standpoint of their
economic aspects, but also in regard to their
demographic dynamics, quality of life and
human and natural resources.
*This publication has been
produced in 2008. Since then,
the Sustainable Brazil series
has six publications. The latest
survey, titled “Sustainable
Brazil - Social and Economic
Impacts of the 2014 World Cup”,
was launched in 2010.
An enhanced view of the behavior of the
main determining factors for the global
scenario is based on the requirement for
valid projections for Brazilian growth.
This model is a tool that can supply
information that goes far beyond general
economic data, such as population growth
and the GDP. With the model, it is possible
to estimate, for example, the configuration
of income brackets and their consumption
needs over time – basic planning
information for companies that operate or
intend to operate in the country.
This work, a joint effort between
Ernst & Young Terco and the Getulio Vargas
Foundation, also seeks to qualify Brazil’s
development concepts over the next few
decades. More important than wondering
whether the country will grow a lot or a
little, is the question of whether it will
grow well, i.e. take full advantage of its
possibilities, in a sustainable manner, in
terms of market and business expansion.
Growing well does not only mean breaking
with past cycles of ups and downs,
but also making significant progress
in the areas of human development
and the energy-environmental equation.
The intensity with which such progress
will occur obviously involves a degree
of uncertainty that is inherent in future
projections, and, therefore, analyses of
factors that may favor or delay progress
are presented.
The statistical modeling developed for
this study reveals a fortunate discovery.
Brazil has already made progress on the
narrow path of balanced growth, and it is
not unrealistic to foresee its progressively
qualified participation in the global
context. More than just a desire, this is
the consequence of achievements realized
since the 1990s. The optimism with regard
to Brazil, therefore, transcends the limits
of the art of rhetoric and is based on
solid fundamentals.
4
SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
A look
ahead on the
highway to the year 2030
What to expect
from a scenario
When presenting a global scenario
for the next two decades, it is
necessary to clarify the analytical
perspective and the purpose
it serves. Economic forecasts
are known for their fragility,
particularly on a time horizon
subject to a series of unforeseeable
factors, not only in the strictly
economic field, but also in regard
to behavior, technology, politics,
geopolitics, etc.
Just 20 years ago, the concept of
the internet sounded almost like
science fiction – but who could
imagine living without it nowadays?
What entrepreneur, at that time,
had a clear view of the great
business opportunities that would
arise from the union of computers
and entertainment? And what
about the widespread use of mobile
telephones in Brazil? Who would
have predicted that?
At the end of the 1980s, the idea
of “the end of history” created
a fair amount of discussion.
According to the defenders of
that theory, history “would end”
because the dynamics of conflicts
between the various competing
players in world society had come
to an end and, in the near future,
there would simply be no wars or
even any major disputes. What
pessimist, seeing things through
grey-colored glasses, would have
dared forecast that the 21st
century would start under a heavy
cloud of global terrorism?
This leads to one fundamental
question. For a period of time in
which so many transformations can
occur, what is the use of building a
scenario or – in a study comprised
of several premises and hypotheses
– a series of scenarios?
The first consideration to be
made is precisely that building
such a scenario provides us with
elements to outline the future
regardless of those factors that
we cannot foresee. Thus, based
on reasonable premises, it can
be said with a certain degree
of certainty that things will be
a certain way in a certain year.
That reliability is provided by
the explanatory capacity of the
statistical model adopted and by
the validity of its presumptions.
In other words, based on a
historical series of interdependent
variables and compilation of
premises, we can foresee how
important elements of reality
will behave “if” no great and
Sustainable development presumes, by
A
definition, the rational use of resources, to
the detriment of less costly yet more polluting
production forms and technologies.
unexpected change occurs.
Statistical modeling is designed as
a projection factory. Additionally,
it considers critical factors that
interfere with such projections
and, therefore, provides an
implicit understanding of risks
and potentials.
For example: GDP growth is
dependent upon demographic
tendencies, investment behavior
premises, economic performance
records and prospects for enhanced
productivity. At the same time,
any rise in income is restricted
by what society understands as
the acceptable use of natural
resources – an idea illustrated
by the refusal to allow unselective
deforestation for expansion of
agricultural and livestock frontiers.
The scenario model simulates
how the interaction of these
factors will determine the
development of wages, profits,
investment, consumption and
income distribution.
In this work, the records of 100
countries over the last 57 years
have been considered. Even if the
past performance of an economy
does not necessarily reflect its
future performance, its statistical
track record, for instance, does
not allow us to project income
growth much higher or lower
than its historical average unless
there is a very good reason to do
so. Additionally, the observation
of other countries’ histories, of
relevant facts that marked the
evolution of their economies,
allows us to establish premises
that guide the outlining of a future
scenario for a given country or for
a set of countries.
A fundamental aspect of this issue
is that the model outlines the route
that a given country will take over
a longer time span. In this respect,
more important than saying what
the GDP of the country will be in
2030, is to understand why the
economy will take one direction
and not another. Scenarios
constitute a valuable planning tool
precisely due to their capacity for
indicating tendencies.
Double
Sustainability
The differentiation between growth
and development is a generally
accepted reference to qualify the
economic production of a society.
Decades ago, development was
seen as growth that is reflected in
proportional progress regarding
the quality of life of a population,
which implies a good level of
income distribution and social
advancement opportunities.
More recently, the non-predatory
use of natural resources has been
included in the set of factors that
characterize development. Then the
concept of sustainability arose.
It is an ambiguous term.
Sustainable development presumes,
per definition, the rational use
of resources, to the detriment
of less costly yet more polluting
forms of production and
technologies. In this respect,
a country’s growth potential is
restricted. China, for example,
could not enjoy the industrial
production figures it has achieved
if it had a restrictive gas emissions
policy. At the same time, the
concept expresses growth that
sustains itself over time, i.e.
a smooth highway, able to
guarantee a certain steady pace
of increasing well-being over
the years, in the context of a
balanced society that manages
to be moderate in its consumption
of natural resources.
The reference scenario presumes
a world in which there will always
be more pressure for sustainable
policies within the ambiguity
described above. For Brazil, this
sustainability context requires
that no policies be adopted
that could provide more growth,
6
SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
but cause economic imbalance and
regressions in the environmental
area.
Thus, it is not realistic to think
that Brazil will once again achieve
the figures verified during the
era of the “economic miracle”.
In the beginning of the 1970s, the
additional productivity earnings
were significantly higher and,
at the same time, industrial and
agricultural frontiers expanded
without restrictions. Today, in
order for the economy to grow 7%
per year, as occurred during the
“miracle”, 38% of the GDP would
have to be re-invested – and the
current level is 21%.
As the Brazilian pension structure
does not place a priority on the
creation of long-term savings,
such marked additional investment
would only be possible by
increasing government spending
to unprecedented levels or through
an unlikely volume of foreign
investment. It should be stressed
that such an increase in public
expenses would lead to a very
unbalanced treasury, which would
cause, in addition to inflationary
pressures, a high degree of
economic uncertainty.
Economic growth of 7% per year
would lead to a corresponding
increase in electricity consumption,
but there would not be sufficient
capacity to meet such demand.
In the job market, the demand
for labor would bring about
real salary increases of 6% per
year, a much higher rate than
the rise in productivity, causing
inflation to take off. Exceeding
the speed limit would result in
disturbing sustainable growth in
Brazil for years, and, in the end,
there would be much greater losses
than gains.
The above example attempts to
show an extreme situation. However,
in general, measures that ignore
the fundamentals of efficient and
balanced economic administration
are laden with the consequences
of deviations on the highway to
development. The reference scenario
adopted here presumes that Brazil
has reached a certain level of
maturity and will not have serious
problems in this regard.
Without excesses,
GDP will grow 150%
The sustainability scenario for
the Brazilian economy shows the
tendency to obtain significant
long-term results, regardless of
structural reforms that could
increase its growth exponentially.
Improving the tax system and
undertaking pension reform,
for example, would increase
income generation capacity,
but even without such factors
Brazil displays a high potential
for improving its position in the
global context, due both to its
income level and the expansion
of its consumer market.
The performance and improvement
of economic fundamentals over
recent years show that it is possible
to achieve an average growth rate
of 4% per year between 2007 and
2030. This would consider a 4.3%
average per year for the next ten
years and 3.8% from 2017 on.
Thus, in that period, Brazilian GDP
will grow from US$ 963 billion to
US$ 2.4 trillion, an increase of
more than 150%.
The conditions for such a result
are feasible:
an average investment rate of 22.7%;
an expansion of the work force at 0.95% per year, equivalent to the world standard, but higher
than the rate of developed countries, i.e. 0.1% per year;
better education of the work force, rising from 7.8 years of formal schooling in 2007 to 11.3 years in 2030;
average productivity increases of 0.93% per year – a figure close to
the increases in developed countries (1.05% per year), but lower than China’s pace (1.37% per year), for example.
A promising
market
The reference scenario for the
Brazilian economy projects a
significant increase in consumption,
a consequence of important
improvements in the following
indicators:
per capita income increase of 3.1% per year, higher than the rate over the last 17 years (1.3% 7
per year), but close to the average highest salaries; today, the
rates of recent years;
nation ranks 11th;
payroll growth of 3.5% per
year, which would put Brazil in eighth place in 2030 among
the economies paying the
consumption growth of 3.8%
per year, making Brazil the fifth
biggest consumer market in
the world;
The income distribution and growth
over the projection period will allow
for the gradual social advancement
of low-income families. It should
be noted that upward mobility is a
consequence of universal education,
new employment opportunities,
The 20 biggest consumer markets
2030
2007
1
United States
2
China
3
India
4
Japan
5
Germany
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
in US$
billion*
in US$
billion*
9,125.00
1
United States
2
China
2,530.19
3
India
2,357.55
3,862.19
15,585.52
12,755.94
5,265.46
4
Japan
2,818.44
1,489.64
5
Brazil
2,507.00
Great Britain
1,365.09
6
Great Britain
1,924.66
France
1,098.04
7
Mexico
1,854.33
Brazil
1,066.55
8
Germany
1,813.34
Italy
1,019.76
9
France
1,528.25
Russia
823.28
10
Italy
1,340.84
Mexico
820.21
11
Indonesia
1,141.27
Spain
723.65
12
Russia
1,136.22
Canada
626.76
13
South Korea
1,072.47
South Korea
618.77
14
Spain
1,047.66
Indonesia
602.14
15
Canada
989.68
Turkey
458.89
16
Turkey
974.73
Australia
400.60
17
Philippines
966.16
Argentina
373.76
18
Pakistan
734.93
Philippines
373.15
19
South Africa
729.95
Thailand
353.94
20
Australia
721.12
Source: Getulio Vargas Foundation
(*) 2005 US$ adjusted for Purchase Power Parity
8
SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
Income distribution
2007
2030
Monthly income brackets
Total income
1.3%
5.0%
11.7%
18.2%
22.8%
Families
AAA
more than
R$ 32,000
AA
from R$ 16,000
to R$ 32,000
A
from R$ 8,000
to R$ 16,000
10.6%
0.4%
17.6%
1.7%
22.7%
C
23.0%
D
15.0%
E
6.5%
from R$ 1,000
to R$ 2,000
18.8%
0.0%
B
from R$ 4,000
to R$ 8,000
from R$ 2,000
to R$ 4,000
22.1%
4.7%
up to R$ 1,000
AAA
0.3%
AA
1.4%
more than
R$ 32,000
from R$ 16,000
to R$ 32,000
A
from R$ 8,000
to R$ 16,000
B
5.2%
from R$ 4,000
to R$ 8,000
C
12.9%
from R$ 2,000
to R$ 4,000
D
24.5%
from R$ 1,000
to R$ 2,000
E
55.3%
up to R$ 1,000
Consumer market per line of product
4.5%
11.6%
22.9%
28.9%
30.5%
2007
2030
in R$ billion
942.5
Total 2007
1,410.6
Total 2030
3,304.3
Variation per year 3.8%
676.0
378.7
379.2
397.8
376.8
296.7
195.5
Housing
Services
Food
283.4
249.1
140.2
Health,
education
116.2
Non-durable
consumer
goods
119.1
Durable
consumer
goods
163.7
Other
products
and services
(%) per year
4.0%
3.6%
Source: Getulio Vargas Foundation
2.9%
4.4%
3.4%
3.8%
3.9%
9
increases in workforce productivity
and maturation of age-bracket and
family structures.
growth of the middle class will
cause a corresponding expansion
in services.
The base of the income pyramid
will slim down considerably. Families
with monthly incomes of up to
R$ 1,000, which represented 55.3%
of the population in 2007, will be
30.5% in 2030 – a good part of them
will have migrated to the income
range between R$ 1,000 and
R$ 2,000. But the range that will
grow most in number of families is
the immediately higher one, between
R$ 2,000 and R$ 4,000. In 2007,
12.9% of Brazilian households had
monthly incomes in that range and
in 2030 this percentage will rise
to 22.9%.
Over the next 22 years, there
will also be a strong increase
in housing expenses involving
construction, renovation and
additional property expenses.
This market, with a turnover
of R$ 379.2 billion a year today,
will reach R$ 942.5 billion
in 2030, mainly due to the
increased demand of the middle
and upper classes.
There will also be a higher
proportion of families in higher
income brackets, which means a
widening at the top of the pyramid.
During that process, there will be a
major increase in the total volume
in the income brackets above R$
4,000 – from 36.2% in 2007 to
55.6% in 2030. This movement will
consolidate over the next 22 years
and will lead relatively quickly to
an increase in Brazilian families’
sophistication in terms of demand.
Opportunities
in sight
The process of consumer market
qualification brings about a new
range of opportunities in business
segments. The areas of education
and health, for example, will have
an annual growth rate of 4.4% up
to the year 2030. In general, the
Lower income brackets, for their
part, are going to cause a large
part of the 2.9% growth in the
food market. The same social
segment will also pace growth
in non-durable goods, which will
double by 2030.
The reference scenario allows
for a detailed mapping of demand
per income class in several
activity lines, as will be shown
in greater detail on the Map
of Consumption Opportunities
(starting on page 18). In the
next chapter of this overview, we
present the general conditions for
sustainable development for the
world and Brazil.
10 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
Under the banner
of sustainability
Globalization and
Uncertainties
For the preparation of the
reference scenario, a conservative
premise was adopted with
regard to globalization, making
it a determining element in the
analysis of economic relations both
globally and locally. Nowadays,
markets that have no kind of
Worldwide merchandise, service and capital flows
1990
2005
in US$ billion*
8,602.4
4,102.8
3,459.3
683.7
Expansion
Merchandise
and services
Capital
(DFI and portfolio)
6.3%
12.7%
Source: Getulio Vargas Foundation
(*) 2000 prices - DFI: Direct Foreign Investment, acquisitions of equity stakes in companies
amounting to more than 10% of capital stock. Portfolio: Investment in shares amounting to less than
10% of capital stock.
global interdependence are rare,
and it would be comfortable to
assume a continuous deepening
of interrelations at the global
level. However, it was deemed
preferable to adopt a line of
analysis that does not necessarily
forecast accentuated expansion,
but rather consolidation at a high
level of interdependence. Such
a perspective is guided by the
understanding that it is a process
subject to flip-flops.
From a strictly economic point
of view, globalization is nothing
more than a movement toward
specialization that divides work
beyond national borders. There
is something very positive in this
outlook, to the benefit of both
productivity and comparative
advantages. The economic history
of the world after World War
II, especially since the 1990s,
shows that trade flow movements
have grown at a significantly
higher rate than the world’s GDP
increase – 6.3% per year against
2.8% per year, respectively.
Such a difference is even more
accentuated when considering
capital flows expanding at a much
higher speed (12.7% per year).
Cross-border progression of
financial markets has increased
the allocable efficiency of world
A
Globalization tends to favor countries in which
a significant portion of economic power is
dependent upon foreign trade, as is the case
with Brazil and its most important partners.
savings accounts, which have
been freed up to look for better
opportunities in the market
– consequently, free fund traffic has
increased the productivity of capital
on a worldwide level.
event that it does not intensify, it
will at least remain the way it is.
Although globalization is still going
strong, there are factors that may
be able to restrain it and even
cause retrogression. It is important
to consider that:
trade expansion and free fund
traffic are key factors determining economic growth on
a worldwide level;
economic interdependence causes permeability of values,
i.e. commercial and service
traffic has an implicit cultural
dimension that provides a consensus regarding what procedures are internationally correct;
globalization tends to favor countries in which a significant portion of economic power is dependent upon foreign trade, as is the case with Brazil and its most important partners, such as the United States and China.
at the same time it rewards efficiency, globalization causes
concentration of income and
deeply affects local markets, causing resistance and
permanent tensions, as
exemplified by problems in negotiating global trade treaties;
conflicts, even on a regional level, can substantially affect important trade and capital flows;
the effects of a deep worldwide financial crisis cannot be
assessed with any degree of certainty in the context of highly interconnected markets.
That said, it does not appear to be
an exaggeration to suppose that
the current stage of globalization
is relatively stable and, even in the
Such considerations facing the
world economy are important for
the reference scenario because:
Sources of Progress
and Conflict
The geopolitical and demographic
dimensions are essential to qualify
the globalization process and
prospects for both sustainability
12 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
and growth. Within the limits of
this analysis, some important
tendencies should be emphasized:
against 3.5%) will not be enough to achieve improvements in the quality of life indices in that region;
Asia and Oceania, largely leveraged through the economic
performance of China, will
markedly increase their worldwide importance, yielding average income growth of 4.8% per year, higher than that verified
in South America (3.5%), in the United States (2.7%) and, above all, in Europe (1.7%). Growth in the Asian population will be less
than the world average;
strong economic growth in
developing countries with a heavy population density – such
as Brazil, Mexico and India – will
be an important element in diminishing migratory flows to more developed areas;
the United States, even with a comparatively lower GDP growth,
will continue to be the biggest and one of the most propelling economies of the world, with high
rates of productivity and capital remuneration;
of the 100 economies analyzed, the number of countries with high Human Development Indices
(HDI) will reach 59 in 2030, against 37 in 2005. Improvement in this key indicator reflects the rise in per capita income, higher educational levels and also
improved life expectancy at a global level.
the Middle East will preserve its characteristics as a strategic
region and deserves special attention due to its oil reserves and high potential for conflicts between countries and religious or ethnic groups;
South America will gain relative importance due to its economic growth at rates above the world average, especially in Brazil,
and the valuation of its energy reserves (oil, gas, biofuels
and ethanol);
Subsaharan Africa will have the highest population growth rate on the planet (2.1%). In this context, even economic growth above the world average (3.8% Qualified
Development
Global growth over the next 23
years will be strongly influenced
by the performance of the United
States and developing countries,
primarily China, India and Brazil.
Due to this fact, world GDP should
undergo a stronger expansion
during the period from 2007-2017,
at a rate of 3.9% per year. In the
later period, this growth will slow
down because China will loose its
impetus, falling from an average
of 7.9% in the first period to 5.5%
between 2017 and 2030. By the
same token, India’s pace will slow
down proportionally, from 4.4% to
2.6%. The economy of the United
States, on the other hand, will
accelerate from 2.5% to 2.8%.
13
Europe will post lower growth rates,
of 2.1% and 1.4%, respectively.
The best performers will be Great
Britain (1.9% and 1.5%) and
Spain (2.2% and 1.5%). Russia
will suffer a slump in its pace of
development (from 3.2% to 0.7%)
as a consequence of gradually
decreasing productivity and the
significant reduction of its work
force, caused by the ongoing
process of population decline
observed since the 1990s.
The general factors that affect
growth are the same as those
established by economic theory:
respect for property rights and an environment of trust for doing business;
market competition and global economic integration;
quality of institutions linked to the functioning of the economy;
application of efficient and stabilizing economic policies.
One new element that has been
added to these general principles is
the environmental question that is
expressed by a growing demand for
productive systems that consider
sustainability even if this causes
losses in terms of efficiency. In this
context, the use of proportionally
more expensive supplies – recycled
paper, for example – is justified as it
means that a company is adopting
an environmentally responsible
stance. The additional expenses
that cause an immediate loss in
efficiency by increasing costs are
justified by broader customer and
partner relationship policies.
Implementation of more efficient
and sustainable technologies,
pursuant to historical capitalistic
development, will initially be
carried out in developed countries
that invest heavily in research
and development and are subject
to more intense pressures for
advances in this area. This process
will only be repeated in developing
countries, especially China, after a
considerable delay.
Over the next two decades,
increased pressure is foreseeable
for environmentally correct
procedures in a world that is
witnessing a growing scarcity of
water and arable lands. Standards
of energy consumption will play a
central role among the elements
that will foster sustainability
projects, as they strongly affect
both the intensity of economic
growth and the interaction of
society with the environment.
SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
A
WORLD GROWTH MAP
NAFTA
The 20 largest economies
in the world in 2030
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
United States
China
Japan
Germany
Great Britain
France
Italy
Brazil
Mexico
India
Canada
Spain
South Korea
Australia
Russia
Turkey
Netherlands
South Africa
Indonesia
Sweden
World*
GDP
Population
(billions**) (in millions of
inhabitants)
23,896.02
366.46
11,994.18
1,461.42
5,662.94
118.48
3,627.78
79.56
3,416.00
66.21
3,209.14
66.71
2,531.08
57.63
2,398.35
233.56
2,068.97
128.09
2,004.30
1,507.09
1,916.46
39.15
1,813.15
46.89
1,600.74
48.51
1,497.22
25.31
1,271.19
124.42
922.43
92.56
872.01
17.17
612.83
53.33
605.27
280.00
570.93
10.02
82,291.49
7,338.50
Source: Getulio Vargas Foundation
(*) “World” figures refer to the sum of the GDPs of
the 100 economies considered in this study.
(**) In 2005 US$.
53,840
2.7%
0.6%
Central
America and
Caribbean
5,438
2.9%
1.7%
Country
United States 65,208 2.7%
Mexico
23,295 4.0%
0,5%
1.0%
Brazil
Country
Argentina
Chile
Venezuela
20,214
24,601
23,368
11,510
2.8%
3.5%
3.1%
0.9%
0.6%
1.4%
South
America
16,764
3.5%
1.1%
4.0%
0.9%
A
World
18,892
3.5%
0.9%
Per capita GDP in 2030*
Economic growth between 2007 and 2003
Increase of the work force between 2007 and 2030
Country
Great Britain
France
Portugal
Spain
Germany
Russia
46,968
41,844
26,353
40,542
39,642
20,766
1.7%
1.6%
1.1%
1.8%
1.0%
1.8%
0.1%
0.0%
-0.3%
-0.1%
-0.6%
-0.9%
Europe
34,847
1.7%
-0.2%
Asia and Oceania
17,314
4.8%
0.8%
Middle East and
Northern Africa
Country
Japan
China
Korea
India
Australia
8,895
2.4%
1.4%
Aging of the world’s
population
Sub-Saharan
Africa
2,984
3.8%
2.6%
80
in years
Life expectancy
Average age
73.6
68
56
44
47.9
35.1
32
20
26.9
1950 1970 1990
2010 2030
Source: United Nations
Source: Getulio Vargas Foundation
(*) 2005 US$, adjusted for Purchasing Power Parity.
42,113
32,379
44,572
6,213
52,188
0.8%
6.5%
2.7%
3.4%
2.9%
-0.8%
0.1%
-0.4%
1.5%
0.5%
16 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
A new energy mix
The reference scenario presumes
that the international supply of
energy will undergo substantial
medium- and long-term
transformations. The continuing
rise in the price of oil will make it
feasible to open up new production
areas, extract liquid fuels from
non-conventional oil sources and
implement alternative energy
sources. Developing countries will
increase their share of world energy
consumption, and the supply of
energy should include major inputs
from biofuels and nuclear energy.
However, a broad spectrum of factors
should be taken into account as they
create uncertainties with regard to
the behavior of the energy market
up to the year 2030. The scenario is
based on two critical factors for the
energy market: a) the proportion
of international energy flows and
b) the competitive introduction
of alternative sources. Future
supply and demand will result from
hypotheses regarding the evolution
and interconnection of such factors.
sources - and an open scenario
with a more aggressive position
towards international competition,
one that even accepts sophisticated
alternatives with environmental
commitment.
In the reference scenario, the
proportions of available energy
sources on both a global and Brazilian
level will be reordered, considering
sustainability of choices in terms
of economic competitiveness,
physical resource availability and
environmental impacts. The evolution
Country*
1
2
3
4
5
7
8
9
10
11
12
13
14
15
16
17
18
19
20
A sustainable energy scenario is
one that achieves a balance between
a restrictive scenario - tightly closed
to international exchange and limited
in access to diversity in energy
Brazil’s projection
as a player
World economic projections
indicate a significant increase
in the importance of Brazil, the
fruit of a record of constant
growth and stability. Brazil will
Return on capital of the 20 biggest economies in 2030
6
It should be considered that obtaining
a competitive mix of energy sources
allows for greater safety in terms of
supply availability and contributes to
sustainability of choices. At the same
time, the extent of commercial flows
and worldwide competition lead to a
reduction in the cost of energy and
more pressure to reduce greenhouse
gases and introduce new technologies
for generating energy.
of energy demand will be related to
the makeup of supply that meets
safety criteria, gradually reduces
emissions and introduces energy
efficiency measures.
United States
China
Japan
Germany
Great Britain
France
Italy
Brazil
Mexico
India
Canada
Spain
South Korea
Australia
Russia
Turkey
Netherlands
South Africa
Indonesia
Sweden
World**
Capital Stock***
49,873.5
39,159.5
20,224.0
10,871.4
6,839.9
7,545.6
6,943.9
Return on Capital
28.1%
19.9%
16.0%
19.1%
29.1%
24.4%
20.7%
6,280.6
24.2%
5,357.2
6,215.0
4,466.1
5,404.0
6,482.4
4,499.5
5,432.3
2,557.0
2,194.2
1,522.0
1,956.0
1,221.6
221,834.46
23.6%
22.5%
24.7%
19.2%
14.1%
18.6%
14.3%
22.2%
22.5%
24.8%
20.9%
26.4%
22.2%
Source: Getulio Vargas Foundation
(*) Ordered by GDP in 2030. (**) “World” amounts refer to the sum of the GDPs of the 100
economies considered in this study. (***) 2005 US$ billion.
17
post growth of 4% per year
between 2007 and 2030, which
will make it jump from 10th to 8th
place in the ranking of the world’s
biggest economies.
In regard to the evolution of
developing countries, it needs
to be emphasized that China will
already have become the second
biggest economy in 2017 and
that, over the next two decades,
Mexico and India will overtake
Spain and Canada and be ranked
right below Brazil.
The 3% per capita income growth of
Brazil between 2007 and 2030 will
be well above the world average of
1.7%, which will make this indicator
double in 23 years. Payroll volume
will reach US$ 880.3 billion in
2030, due to its growth at a rate of
3.5% per year, making it the eighth
largest economy in the world.
Payroll growth similar to that of
Brazil’s will be verified in Mexico,
and it is likely that such a pace will
only be exceeded by the impetus of
China, growing as it does without a
commitment to sustainability.
The advantages of Brazil, Mexico
and China are directly related to
the productivity level of their work
forces. They are part of the small
group of countries that will keep
up with the improved productivity
in the developed countries. In this
respect, the increased educational
levels of Brazilian labor is relevant,
given that by 2030 it will reach the
current educational level of workers
in developed countries, with an
average of more than 11 years of
studies completed. This indicator
is similar to that of present-day
South Korea but lower than that
of the US, which currently stands
The evolution of education in Brazil
11.3
Years of formal education
Economically active population
10.4
Total population
9.6
8.9
8.2
7.5
7.5
6.8
6.2
5.1
5.6
4.6
2005
2010
2015
2020
2025
2030
Source: Getulio Vargas Foundation
at 12.5 years. Educational levels
will tend to converge globally,
although even while considering
this aspect Brazilian development
will be noteworthy for its
tremendous progress.
Changes in social and economic
patterns will occur in the context
of a decline in average world
investment rates, arising from a
high aging ratio of the population
– this factor leads to a decline in
the general savings level due to
increasing pension and medical
assistance expenses. This will
occur in a more accentuated
manner in Europe and in the NAFTA
countries, which will significantly
change the distribution of the
capital stock invested in the world,
with an increase in the share of
developing countries.
Nowadays, the countries of the
European Union and the United
States hold 60% of the total capital
invested in the world, understood as
machines, equipment and buildings in
general, including residential buildings.
This percentage will be reduced to 49%
in 2030, due to the quickening pace of
capital accumulation in the developing
countries. Brazil, for example, today
holds 2% of the world’s net assets,
but by 2030 that share will reach
approximately 3%.
One bit of promising information
for Brazil is that its return on capital
investment will remain high compared
to other developing countries. High
levels of investment in China and India
will narrow the business opportunity
horizon in those countries by 2030,
while Brazil and Mexico will offer better
return possibilities.
18 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
Premises for a
better country
The achievements of the economic
policies since the 1990s have
established the basis that will make
it possible to achieve relatively
high sustained growth for the
next 22 years. However, there is a
potential for even higher economic
growth, an achievement which will
be dependent upon the adoption
of specific – and feasible – policies
in the years ahead. They will have
a strong influence on investment,
productivity and consequent
economic growth. In general, the
factors that can improve Brazil’s
performance are:
Labor and pension: two aspects that deserve attention. Firstly, tax relief for company payrolls, which besides reducing labor
costs, with effects on
productivity, will have a direct impact on the reduction of informal labor. Secondly, the
adequate treatment of pension matters, since at present Brazil spends approximately 13% of
its GDP on retirement and
pension expenses, which is equivalent to the percentage of countries such as France and Austria. Growth in pension expenses in the years ahead will restrict the creation of savings and, therefore, investment.
Tax burden and reform: in
general, this is not a case of decreasing tax collection in
absolute terms, in view of the fact that, in order to invest once again in infrastructure and
education, governments will surely need more funds. Even so, tax collection should be increased at a slower pace, below that of total revenues,
in such a manner that the tax burden gradually decreases, as opposed to what is presently being done. In this context, a more simplified tax structure would make the environment more appropriate for business,
which is a determinant for investments.
Infrastructure: investing in infrastructure once again in Brazil can come about through the advancement of regulation over this sector and re-intensification
of public investment. The modus operandi known as the Public-
Private Partnerships (PPPs) opened a doorway for funds to
enter the infrastructure sector
and the more recent Growth Acceleration Program (locally PAC) indicates that higher
volumes of funding will be available for infrastructure areas through to the next major election year (2010). However, several regulatory aspects – such as environmental concerns – and the difficulty of mobilizing public funds, tend to delay these investments.
Housing: investment in housing
still represents a small portion
of the GDP compared to the situation in other countries, in spite of recent progress in this
sector. Brazil lacks a housing
policy, most of all for its lower
income population. Stronger
recovery of real estate credit
depends in turn on the gradual reduction of interest rates, improvements in financing mechanisms and reduction in credit risks.
Deregulation and simplification: a swifter system of justice and
elimination of red tape in all
three branches of government would generally work in favor of economic growth by establishing a more favorable and safer environment for business.
Education: once universal education is established at the basic level, Brazil will be able to
progress gradually in its attempt to meet bolder goals for
intermediate high school education and overall educational
quality. This would increase
the efficiency level of the Brazilian economy and boost social mobility.
Technology: another factor that restricts the growth of Brazil is
the low productivity that
is directly associated with
technological policies. R&D expenses are still at a beginner’s level in Brazil, and an increase in the public budget for basic
and applied research would
be a natural route to take.
A complementary strategy
consists of the creation of
incentives for in-bound technology transfers by means
of foreign investments.
Progress in the areas listed above
would make an even more promising
horizon for sustainable growth
possible for Brazil in the next 22
19
years. It is estimated that a realistic
set of changes would considerably
increase investment in the areas of
energy, transportation, sanitation
and housing, with effects on the
entire economy. The average
investment rate would reach 24%
of the GDP leading up to 2030, 1.3
percentage point above the rate
considered in the reference scenario
and 3 percentage point above the
investment rate in 2007.
In addition, a more accentuated
advance in education, increasing
the average schooling projected
for the work force from 11.3 to
12.5 years in 2030, would have
direct effects on the efficiency
of the Brazilian economy,
diminishing the gap that exists
today with regard to global
technological borders.
More accentuated investment
and productivity increases
would raise growth projections.
The average GDP growth rate
between 2007 and 2030 would
be hiked from 4.0% to 4.6% with
significant effects on the evolution
of per capita income, which would
grow at 3.8% per year, higher than
that projected for the South Korean
and Chilean economies. In this
scenario, Brazil would overtake
Uruguay in terms of human
development and would get closer
to the levels that will be reached
by Chile, Argentina, and Mexico.
The consumption growth rate would
increase to 4% per year, bringing
Brazil closer to Japan (the fourth
largest consumption market in
2030) quicker.
Brazil in two scenarios
2007 to 2030
Indicators
Investment (as % of GDP)
1990-2007
Reference
scenario
Scenario
with advances
19.0%
22.7%
24.0%
Productivity increase
0.1%
0.9%
1.1%
Economic growth (%) per year
2.8%
4.0%
4.6%
Expansion of the consumer market (%) per year
2.5%
3.8%
4.0%
2030
Indicators
2007
Reference
scenario
Scenario
with advances
GDP in US$ billion*
962.9
2,398.4
2,718.2
GDP per capita in US$*
5,092
10,269
11,638
Source: Getulio Vargas Foundation
(*) Amounts in 2005 terms.
20 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
Map of consumption
opportunities
The reference scenario, as has been
shown throughout this study, is halfway
between optimism and pessimism and
always seeks to accept the most likely
proposition as valid, chosen largely
according to the historical record of
each variable. This model indicates a
deep change in the profile of Brazilian
society as it undergoes a straightening
of its social pyramid, with the growth of
middle income brackets.
This means that companies that
operate or intend to operate in the
Brazilian market have to adjust to a
transforming business environment.
This dynamism is expressed by a 3.8%
average growth rate for the consumer
market up to 2030.
In absolute figures, this market will
leap from total sales of R$ 1.41 trillion
in 2007 to R$ 3.30 trillion in 2030 – i.e. changes in the consumption profile.
it will more than double in the next 22
The portion of family expenses for
year period.
non-durable consumer goods, such
as food, tobacco and beverages, fuel
Due to economic growth and social
and transportation in general, will
mobility, consumption growth rates are decrease. In contrast, expenses with
higher in income brackets with more
living, health and education will grow
purchasing power, in particular the ones by leaps and bounds.
with the strongest projected growth
over the next 22 years. The share
Taking families with incomes between
of consumption expenses of families
R$ 4,000 and R$ 8,000 as a reference,
with monthly incomes of more than
it can be noted that the evolution
R$ 8,000 in total consumption will
of the total income of this bracket
increase from 22.4% in 2007 to 37.2%
will have a stronger effect on the
in 2030. The share of families with
consumption of personal hygiene and
monthly incomes of up to R$ 2,000 in
cleaning products and health services
the total volume will diminish by 15% in than on the demand for clothing and
the coming years due to migration to
beverage products.
higher income brackets.
Visualizing changes in the consumption
The maturation of the Brazilian
profile is easier when comparing the
consumer market will cause significant
current configuration with the projections
Consumption per income bracket
2007
Family income brackets
Up to R$ 1,000
From R$ 1,000 to R$ 2,000
From R$ 2,000 to R$ 4,000
From R$ 4,000 to R$ 8,000
From R$ 8,000 to R$ 16,000
From R$ 16,000 to R$ 32,000
More than R$ 32,000
Total
Source: Getulio Vargas Foundation
(*) 2007 prices.
R$ billion*
200.4
286.7
326.6
281.3
192.5
101.1
21.9
1,410.5
2030
%
14.2%
20.3%
23.2%
19.9%
13.6%
7.2%
1.6%
100.0%
R$ billion*
193.1
440.0
693.4
749.7
620.9
451.9
155.2
3,304.2
%
5.8%
13.3%
21.0%
22.7%
18.8%
13.7%
4.7%
100.0%
% per year
-0.2%
1.9%
3.3%
4.4%
5.2%
6.7%
8.9%
3.8%
Changes in the profile of Brazilian society willA
be deep. The country will undergo a narrowing
of its social pyramid, with growth of middle
income brackets.
Consumption per product line
2007
Product line
Natural foods
Processed foods
Beverages
Tobacco
Clothing
Construction materials
Energy, gas, sanitation and garbage
Fuels
Housing
Household utilities
Vehicles
Personal hygiene and cleaning
Health
Education and culture
Lodging and restaurants
Communications
Transport
Financial services
General services
Associational and domestic services
Total
R$ billion*
28.5
134.4
16.8
15.8
69.9
55.9
163.8
30.2
323.4
61.3
57.7
16.0
81.7
58.5
80.1
3.2
90.5
48.8
9.8
64.2
1,410.5
2030
%
2.0%
9.5%
1.2%
1.1%
5.0%
4.0%
11.7%
2.1%
22.9%
4.3%
4.1%
1.1%
5.8%
4.1%
5.7%
0.2%
6.4%
3.5%
0.7%
4.6%
100.0%
R$ billion*
50.5
269.9
30.3
28.0
138.0
113.4
397.8
63.5
829.2
143.1
140.3
47.6
221.3
155.5
180.1
6.5
186.0
131.3
24.8
147.1
3,304.2
%
% per year
1.5%
8.2%
0.9%
0.8%
4.2%
3.4%
12.0%
1.9%
25.2%
4.3%
4.2%
1.4%
6.7%
4.7%
5.5%
0.2%
5.6%
4.0%
0.8%
4.5%
100.0%
2.5%
3.1%
2.6%
2.5%
3.0%
3.1%
3.9%
3.3%
4.2%
3.8%
3.9%
4.8%
4.4%
4.3%
3.6%
3.1%
3.2%
4.4%
4.1%
3.7%
3.8%
Source: Getulio Vargas Foundation
(*) at 2007 prices.
for 2030, according to the “Map
of Opportunities” (page 18). The
differences in the two consumption
periods, in each product line and
social class, map the possibilities
for new business in the Brazilian
economy. In general, the following
points need to be emphasized:
a new portion of the consumer market, in the amount of R$ 1.893
trillion, will arise by 2030. This amount will be added to the current R$ 1.41 trillion;
families with incomes between
R$ 4,000 and R$ 16,000 will account for 47.5% of this additional slice, or R$ 896.8 billion more consumed;
industrialized (processed) foods and food consumed outside homes;
26.7% of the consumption increase comes from increases in housing expenses and 12.4% from public utility services;
increased incomes and social mobility in Brazil will redefine the food market, with high shares for the market share for natural
foods will be a very small
part of the growth of the
consumer market;
the car and fuel markets will contribute 6.1% to consumption growth, a smaller share than the one verified over the last ten
years, 8.5%.
A
SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
Map of opportunities:
expansion of the market until 2030
$ R$*
% Contribution**
The market
share for
natural foods
will be a very
small part of the
growth of the
consumption
market.
26,7%
of the
consumption
increase will
come from
increases in
housing
expenses and
12,4%,
from public
utility services
Family income brackets
Up to R$ 1,000
%
R$ 1,000 R$ 2,000
%
$
%
Product line
$
Natural foods
-0.27
-1.2%
4.06
18.5%
6.86
31.2%
Processed foods
-1.29
-1.0%
20.09
14.8%
37.21
27.5%
Beverages
-0.13
-0.9%
2.16
16.0%
3.97
29.3%
Tobacco
-0.13
-1.0%
2.45
20.1%
3.78
31.0%
Clothing
-0.37
-0.5%
8.44
12.4%
18.58
27.3%
Construction materials
-0.26
-0.4%
6.18
10.8%
14.72
25.6%
Energy, gas, sanitation, garbage
-0.75
-0.3%
17.98
7.7%
35.56
15.2%
Fuels
-0.33
-1.0%
4.92
14.8%
9.04
27.1%
Housing
-1.63
-0.3%
33.27
6.6%
81.65
16.1%
Domestic utilities
-0.41
-0.5%
8.03
9.8%
18.95
23.2%
Vehicles
-0.22
-0.3%
4.17
5.1%
15.48
18.7%
Personal hygiene and cleaning
-0.16
-0.5%
3.05
9.7%
7.17
22.7%
Health
-0.45
-0.3%
9.57
6.9%
26.14
18.7%
Education and culture
-0.09
-0.1%
3.29
3.4%
15.32
15.8%
Lodging and restaurants
-0.30
-0.3%
7.80
7.8%
20.11
20.1%
Communications
-0.03
-0.9%
0.51
15.4%
0.99
29.9%
Transportation
-0.29
-0.3%
9.36
9.8%
23.63
24.7%
Financial services
-0.12
-0.1%
3.10
3.8%
11.71
14.2%
General services
-0.04
-0.3%
1.13
7.6%
2.80
18.7%
Associational and domestic services
-0.05
-0.1%
3.71
4.5%
13.14
15.8%
Total
-7.32
-0.4%
153.27
8.1%
366.81
19.4%
Source: Getulio Vargas Foundation
(*) in R$billion at 2007 prices; (**) Contribution to the growth of each product line;
(***) Contribution of each product line to the growth of total consumption.
$
R$ 2,000 –
R$ 4,000
23
A new portion of the consumer
market, in the amount of
R$ 1.893 trillion,
will arise by 2030. This amount will be
added to the current R$ 1.41 trillion
families in income brackets
between R$ 4,000 and R$ 16,000
will account for 47,5% of this
additional slice, or R$ 896.8 billion
more consumed
R$ 4,000 R$ 8,000
$
%
R$ 8,000 –
R$ 16,000
$
%
R$ 16,000 –
R$ 32,000
$
%
More than
R$ 32,000
$
%
Total
$
% ***
5.64
25.7%
3.63
16.5%
1.91
8.7%
0.15
0.7%
22.0
1.2%
34.36
25.4%
25.11
18.5%
16.27
12.0%
3.76
2.8%
135.5
7.2%
3.51
25.9%
2.42
17.9%
1.31
9.6%
0.31
2.3%
13.6
0.7%
3.39
27.8%
1.90
15.6%
0.75
6.2%
0.04
0.3%
12.2
0.6%
18.58
27.3%
13.31
19.6%
7.84
11.5%
1.68
2.5%
68.1
3.6%
15.18
26.4%
14.57
25.4%
6.50
11.3%
0.58
1.0%
57.5
3.0%
47.92
20.5%
44.96
19.2%
56.91
24.3%
31.41
13.4%
234.0
12.4%
8.41
25.3%
6.15
18.5%
4.08
12.2%
1.04
3.1%
33.3
1.8%
105.20
20.8%
121.51
24.0%
110.06
21.8%
55.73
11.0%
505.8
26.7%
21.49
26.3%
15.80
19.3%
12.42
15.2%
5.45
6.7%
81.7
4.3%
24.54
29.7%
20.61
24.9%
13.93
16.9%
4.08
4.9%
82.6
4.4%
8.43
26.7%
6.70
21.2%
4.62
14.6%
1.78
5.6%
31.6
1.7%
36.00
25.8%
31.06
22.2%
32.02
22.9%
5.30
3.8%
139.6
7.4%
30.83
31.8%
24.96
25.7%
17.04
17.6%
5.61
5.8%
97.0
5.1%
26.98
27.0%
24.44
24.4%
16.81
16.8%
4.14
4.1%
100.0
5.3%
0.76
23.1%
0.45
13.8%
0.58
17.7%
0.03
1.0%
3.3
0.2%
28.49
29.8%
22.18
23.2%
9.67
10.1%
2.44
2.6%
95.5
5.0%
19.88
24.1%
23.60
28.6%
18.82
22.8%
5.56
6.7%
82.5
4.4%
3.93
26.2%
3.36
22.4%
2.84
18.9%
0.98
6.5%
15.0
0.8%
24.88
30.0%
21.70
26.1%
16.40
19.7%
3.27
3.9%
83.1
4.4%
468.40
24.7%
428.42
22.6%
350.78
18.5%
133.34
7.0%
1,893.9
100.0%
Increased
incomes and
social mobility in
Brazil will redefine
the food market,
with higher
contributions
from processed
foods and food
outside homes
The vehicle and
fuel market
together will
contribute
6.1%
of the
consumption
increase, a
smaller share
than the one
verified in
the last ten
years, 8.5%
24 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL
The evolution of income distribution
and the demographic dynamics
over the next 22 years will also
bring about changes in the regional
consumer market composition.
Consumption expenses for the
South and Southeast regions,
which today represent 16.4%
and 53.3% of the national
consumption respectively, will
grow slower than the national
average. As a consequence,
there will be an increase in the
shares of the other regions.
It can be said that the expected
income and consumption growth
in the less developed regions
on a global level up to the year
2030 should also apply to the
Brazilian scenario, regionally
speaking.
Consumption per region
2007
Regions
%
R$ billion*
%
81.7
5.8%
216.0
6.5%
Northeast
231.5
16.4%
576.8
17.5%
Southeast
751.5
53.3 %
1,733.8
52.5%
South
231.7
16.4%
507.4
15.4%
Central-West
114.3
8.1%
270.3
8.2%
3.8%
1,410.7
100.0%
3,304.3
100.0%
3.8%
North
Brazil
Source: Getulio Vargas Foundation
(*) At 2007 prices.
R$ billion*
2030
% per year
4.3%
4.0%
3.7%
3.5%
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Project and editing management:
Mitizy Olive Kupermann
Editorial coordination:
Rejane Rodrigues
(MTB 22.837)
Printing and design:
Milena Tavares Teves
Infographs:
Infografe
Revision:
Beatriz Marchesini
Getulio Vargas Foundation Team
Technical coordination and
content development:
FGV Projetos
Project director:
César Cunha Campos
Technical staff:
Edney Cielici Dias (editorial, research and editorial
consulting), Ana Maria Castelo (real estate sector
research), Otávio Mielnik (energy sector research),
Robson Ribeiro Gonçalves (agribusiness research),
Jorge de Oliveira Pires (industrial competitiveness
research), Ana Lélia Magnabosco (research of
indicators)
Supervisor:
Ricardo Simonsen
Coordinator:
Fernando Garcia
(in charge of scenario model)
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