Economic implications of Brazil’s uprising

Protests have broke out in Brazil over the rising cost of living and increased public spending on the World Cup.

President Dilma Rousseff has had to cancel plans to visit Japan after protests broke out in large numbers across major cities in Brazil. More than a million people are reported to have taken part in the latest in a wave of demonstrations which were initially praised by Rousseff, who said she was proud so many people were fighting for a better country.

While the protests may have surprised much of the international community they are in fact the product of deep resentment, and many commentators within the country believe political and economic antagonism has been building for some time. The US$0.09 increase in bus fares that sparked the uprising highlights that tensions are already at boiling point, and after several years of economic growth and modernisation, it is clear that Brazil now faces the impending necessity of change.

Underlying economic problems

The uprising in Brazil seems to have unearthed a “reservoir of complaints” ranging from rampant political corruption to poor-quality social services and large tax burdens, The Atlantic reports. Tax rates in the country are comparable to that of the UK or Germany without having the same range of social services to justify them; Brazil ranked second-to-last in education quality in an Economist Intelligence Unit evaluation of 40 countries.

Minimum wages remain low, which is why slight hikes in bus fares have pinched Brazil’s working population. For residents of São Paulo making minimum wage, public transportation usage can account for roughly 26% of their expenses, making the lavish construction projects associated with the 2014 World Cup and 2016 Olympics a hard pill to swallow. From an outsiders’ perspective, high inflation, an appreciating dollar and a possible runaway credit boom are certainly areas of concern.  

Where next?

An interesting observation of the protests is that 77% of them have a college degree. As  popular Brazilian daily Folha de S. Paulo described, they "are not representative of the Brazilian demography" most affected by developments. Unless the protests can somehow reach a bigger proportion of society they are likely to taper off in the future due to a lack of consensus. The absence of a leader and different factions - opposition political parties, social movements and student organisations - jumping into the mix suggests that although discontent will certainly not be quelled, future protests are likely to be pursued by activists with specific agendas.

Opportunities arise

The World Cup and the Olympics present significant opportunities for Brazil, but what this uprising has shown is that for the country to prosper the rewards must be adequately shared. A rapidly growing economy does not guarantee a high level of social services for the broader population, and these uprisings could spark the political will to ensure that social needs are sufficiently addressed.

Author David J. Maurrasse told the New York Times: “Major sports gatherings can catalyse real and lasting improvements, because they can bring together public, private and nongovernmental sectors. The World Cup and the Olympics have the potential to strengthen schools, improve health through activity and stimulate employment.”

The protests have underlined the challenges awaiting Brazil, but as the World Cup and Olympics approach, the many opportunities the events bring will also shine. The International Olympic Committee said polls have showed that the majority of the population support the games "and the legacy they will bring,” and with improved developments in infrastructure and more international interest, the country is far more likely to prosper than fall.

Businesses will no doubt be keeping a close eye on developments in Brazil. If you have concerns over the market impact of the current situation, talk to our local experts in São Paulo or Rio de Janeiro. At TMF Group we combine our extensive global resources with our unrivalled knowledge of local regulations, cultures and languages to help you achieve your business goals.

 
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