Brazil and the “Brazil Cost”
Mauro Lourenço Dias
14 Jul 2021
Why is Brazil rushing to become once again a mere supplier of raw materials to the developed world, just as it was when it was a colony of a tiny Portugal that, always threatened with annexation by neighboring Spain, functioned as a protectorate of England? This question has been keeping politicians, businessmen, economists, academic thinkers, and all those concerned about the country’s future awake at night.
But what is most often blamed is competition with Chinese products that have been decimating Brazilian manufactured production. It is often said that the low cost of labor drives the Chinese economy, but that is just one side of the issue and not the most important one. Those in the industry know that there are other factors that make Brazilian manufacturing more expensive, even though the country has an abundance of raw materials. In addition to corruption, excessive bureaucracy, and waste, for which there is no measurable way to account, there are the well-known factors that make up the so-called “Brazil Cost” and directly impact the prices of manufactured goods.
The main obstacle, undoubtedly, is the deficient and inadequate infrastructure that the country has built over the centuries. It’s enough to see that nations of equally continental dimensions have infrastructure that makes their products cheaper compared to Brazilian products. For example, in the United States, this cost difference is 25%, and in China, it reaches 33%. Much of this cost difference comes from each country’s transportation matrix: while in Brazil, over 70% of the cargo is transported by road, in the United States, it’s 30%, and in China, it’s 10%. It’s worth noting that road transportation is more expensive, less secure, and requires more investment than rail and water transportation. Obviously, no one is against road transportation, which will continue to be essential for medium and short distances.
Another factor is a very high and unfair tax burden that ends up punishing exactly those with lower purchasing power. Just consider that 80% of Brazilians who earn up to three minimum wages per month contribute 53% of the total tax collection. In addition to these and other obstacles, such as the exorbitant interest rates charged by banks, importers and exporters also have to deal with the demurrage charge for containers, which consists of returning the metal box to the carrier with a delay. Given the precariousness of the road and port infrastructure, it is practically impossible to avoid demurrage.
As a result, many exporters and importers end up defaulting because they cannot keep up with the flow of charges. The result is legal actions that often drag on for years in the halls of the judiciary. And a larger volume of containers in already overcrowded bonded terminals.
Mauro Lourenço Dias, an electronic engineer, is the president of the Fiorde Group, composed of the companies Fiorde Logística Internacional, FTA Transportes e Armazéns Gerais, and Barter Comércio Internacional. Email: fiorde@fiorde.com.br Website: www.fiorde.com.br.
