Brazil is now the 7th biggest economy in the world. Its status as one of the BRIC countries, and the fact it has had a comparatively short recession while much of the world was in turbulence, has made it a focus of international attention. When one arrives as an outside observer, it is clear how much dynamism exists and how fast the country is growing. It is uplifting to see the people here enjoying, and expecting, a better standard of living than previous generations had.
In general, the mood here is positive. People are experiencing low interest rates, a buzzing economy and a place in the global spotlight. Add to this the upcoming United Nations Conference on Sustainable Development (Rio + 20) and the 2014 World Cup. From my own conversations and observation, it seems clear that the country has all it takes to continue in its path of growth. However, in my opinion, there are several factors that hold it back from reaching its true potential:
Taxes. Taxes in Brazil can be extremely onerous, besides complicated. According to the Brazilian institute of Tax Planning, Brazilians work 149 days of the year simply to pay taxes, just behind Sweden and France. To give some examples, more than fifty percent of the price of a liter of gas is just taxes. The price of a car includes a 20% to 30% tax, which makes them more expensive. All in all, there are roughly 70 different taxes people here pay, including taxes over taxes.
Infrastructure. For a country experiencing such growth, the road infrastructure definitely has a lot of catching up to do. The road system is lacking in quality and efficiency and, according to The Financial Times, Brazil’s road infrastructure ranked 118th in the world, ports 122nd and airports 130th. As with any country in development, one anticipates a degree of teething troubles; but for a country with the level of investment pouring into it, I was surprised not to see a higher level of road and infrastructure construction.
Corruption. In 2011, Brazil ranked 73 in the Transparency International Corruption Index. Anyone that travels here quickly encounters both media and citizens discussing this as one of the biggest problems the country faces. I was surprised, in a trip to the capital city of Brasilia, by the stark difference of wealth between the capital and the rest of the country. A well organized city, Brasilia does show the disconnect between the political class and the rest.
Red Tape. According to the World Economic Forum’s 2011 Competitiveness Index, Brazil ranked last in government regulation burdens. Starting and running a business is complicated and overly burdensome.
An excessively generous state. One thing I’ve observed is that the law leans heavily in favor of the employee and those perceived as being in need. Examples of this are the generous pension plans; there are 35 pensioners per 100 contributing workers and the system allows for early retirement (age 54 average) with an average 75% of income. Other examples are the reported abuses in the unemployment benefits and school assistance for low income families. The state has to help those in need, and also has to set strict rules to prevent abuses to the system and avoid fostering a culture of welfare.
To add some context, it is clear that the state has heavy control over its people. In a country where streets and highways are heavily monitored, and where no commercial transaction can happen without being recorded and approved by the federal taxation system, it is hard to believe that this potential cannot be used to further accelerate controls to curb corruption and provide a framework to allow more freedoms to businesses and people, rather than overburden them.