Brazil Is the New America: How Brazil Offers Upward Mobility in a Collapsing World (40 page)

China's population growth will turn negative in 2015 according to Wang Feng, a director of the Brookings-Tsinghua Center for Public Policy in Beijing. He says the one-child policy is the opposite of what China should be doing: “It needs to think of ways to encourage young couples to have more children,” Feng says.
13

While Brazil's population of 203 million seems tiny in comparison with those of China and India, it is nonetheless the fifth-most-populous country in the world. After experiencing falling birthrates for decades, Brazil is about to enjoy its maximum demographic bonus.

A study by Professors Cássio Turra and Bernardo Queiroz, of the University of Minas Gerais concluded that Brazilian GDP has the potential to grow by an additional 2.5 percent a year solely as a result of the demographic bonus that has increased the country's most economically productive age group (between the ages of 15 and 64) to 130 million persons. A separate study by Marcelo Neri, a researcher from the Social Politics Center of the Fundacao Getulio Vargas, suggests “an increase of up to 2.7 percent per year in the average income of Brazilians” due to the demographic bonus.
14

According to the Brazilian business magazine
Exame
, the economically productive cohort of Brazilians will expand by 17 million persons to peak at 71 percent of the population (up from about two-thirds in 2011).

The magazine projects that the demographic bonus creates an opportunity for Brazil to grow more robustly over the next quarter of a century. The peak year for Brazil's demographic bonus is calculated to fall in 2022, at which point the productive population will be supporting fewer children and elders than at any time before or after. At that point, the ratio between people who do not work and those who do will decline to 4:10 from more than 7:10 in the early 1990s. As featured in
Exame
, Ronald Lee, director of the Demography & Economics Department of the University of California, Berkeley, and a member of the American Committee on Aging Research, says:

This is a unique chance in the history of any country. . . . Brazilians are standing before a golden opportunity, but it is temporary. After two decades, the aging of the population will invert the curve and cause the proportion of inactive people to rise. Therefore, to make the most until then, Brazil should invest heavily in the new generations, especially by providing good basic education.

Lee's message to Brazil is clear: you have 20 more years to do the homework, modernizing the economy and improving the quality of education, and thus becoming a rich nation.

At 28.9, the median age in Brazil is low enough that most of the population is just at the beginning of the consumption cycle. By contrast, the median age in the United States is 36 years. The median age in China is almost as old—35.2 years. Russia's median age is 38.5 years, emblematic of Russia's collapsing population (all numbers are from 2010).

Along with India (25.9 years), Brazil is one of the two leading economies with a young population, where growth prospects in the coming decades are not as likely to be constrained by a high dependency ratio.

But note that while growth in India is likely to surge as the Indian workforce grows by almost one-quarter of a billion persons, India has other demographic problems.

Russia has a collapsing population. Demographers project that it will plunge from 143 million today to just 111 million by 2050. It is unlikely that Russia will be able to supplement its population deficit through immigration, at least from investors seeking opportunity.

This is the opinion of Bill Browder, who distinguished himself by becoming the largest foreign investor in Russia, deploying some $4 billion in that country. The Russian government responded by trying to arrest him and steal some of his investments. Browder cannot even visit Russia. He was banned from the country in 2005 as “a threat to national security” after he exposed high-level corruption. In November 2009, his lawyer died in a Russian prison after being held for a year without charge. Browder recently told an audience at Stanford Business School that anyone investing in Russia “is out of their mind.”
15

China occasionally uses high-handed tactics in commercial disputes, as when BHP employees were arrested for “stealing state secrets” when they attempted to gauge upcoming Chinese demand for iron ore. Brazil has problems with petty corruption, (and even some not-so-petty corruption), much as you would find in dealing with the Miami City Council. But no one has ever been arrested there or banned from entering Brazil after investing billions. There is little in the record of the other BRICs to suggest that criminal mischief is commonly directed at investors.

However, both India and China face serious difficulties because they countenance a different form of crime—gendercide—a widespread practice of selective abortion plus female infanticide, which leaves them with a large cohort of boys and young men without potential mates. A four-year study in South India showed that “
72 percent of all female deaths were due to femicide,
” the outright murder or intentional health neglect of baby girls (emphasis added).
16

In some provinces of China, the ratio of young men to women is 1.4:1. In addition to being morally repugnant, the mass murder of young girls has set the stage for grave social unrest because of an unmanageable bride shortage in the near future.

In Brazil, any baby murder that happens is an individual tragedy, not a cultural phenomenon. Brazilian parents do not routinely kill their daughters to escape the burden of providing them with dowries. Unlike India and China, gendercide is not the equivalent to making a deposit in a 401(k) account—a way to improve retirement prospects. Brazilian parents are just as prone to love their beautiful daughters as their sons, as witness the fact that gender imbalance in Brazil leans the other way, the natural way. There are millions more Brazilian women than men. (As mentioned, that's happy news for red-blooded guys everywhere.)

In Greece, the poster child for Europe's retirement culture, citizens over the age of 65 account for 40.62 percent of the total potential workforce according to OECD statistics. The ratio is projected to jump to 58.26 percent by 2030, another vivid indicator that the Greek debt crisis is unlikely to be resolved without default.

Currently, Japanese citizens over the age of 65 equal 38.29 percent of the total potential workforce. That percentage is expected to balloon to an astonishing 68.84 percent within 20 years. This is one reason why many analysts forecast that the Brazilian economy will surpass Japan in the first half of this century.

The expected surge in economic growth from the demographic bonus will accentuate Brazil's emergence as a global leader in a number of markets. In 2011 Brazil was already the world's third-largest market for toiletry and beauty products behind only the United States and Japan. According to forecasts from
Euromonitor
, Brazil could overtake both the United States and Japan in less than a decade to become the world's largest cosmetics market.
Exame
reports that the Brazilian cosmetics market “should reach $108 billion in 2020,”
17
almost double the size of the current market in the United States. Surprisingly, Brazilians brush their teeth, on average, more than any other people. And their passion for personal hygiene leads Brazilians to use more deodorant per capita than residents of the United States.
18
The millions of new Brazilians entering the workforce will accelerate the growth of household formation in Brazil. According to
Exame
, “It is estimated that, each year, about 1.7 million new families will be created in the country. Up to 2030, there will be at least 35 million new families, mainly from the rising class C, that will need a place to live.”
19

The New Brazil is becoming a laboratory of the new world economy. As Michael R. Czinkota and Ilkka A. Ronkainen write in their book,
International Marketing
, “Some countries are emerging as test markets for global products, Brazil is a test market used by Procter & Gamble and Colgate.”
20
Stephen Kanitz reports in his blog
Betting on Brazil
that, “7,000 new products were introduced in Brazil in the first semester of 2009. Nearly 6 percent of all new products introduced in the world. Why?”
21
There are several reasons, including that Brazil's consumer economy is expanding robustly as income rises.

Another factor that contributes to the decision to launch products in Brazil is low advertising costs. This is partly a feature of the fact that almost all Brazilians speak one language, Portuguese. The United States has two languages; Switzerland, four.

Kanitz adds other considerations by pointing out that Brazil has remarkable demographic strengths because of its relatively young median age and the fact that many new consumers are entering markets for the first time. This enhances the prospects for growth and makes Brazil a wonderful market to try new products. If you choose Switzerland as your testing ground for a new product, where everyone is loyal to a 30-year-old brand, you may find more resistance than acceptance to new concepts. But because much of Brazil's emerging middle class has only recently gained sufficient discretionary income to participate in consumer culture, they are more open and receptive to new products and services than consumers who have had brand preferences imprinted on their consciousness for generations.

For this and other reasons, Brazilians have the same sort of brash affinity for the new that characterized U.S. consumers when the U.S. economy came of age early in the past century. Brazilians are curious, technologically bent, and will try out everything new. Brazilians have more cell phones and more people on the Internet; more than 50 percent of Google's ORKUT social network affiliates worldwide are Brazilian. They are eager adapters of new technology.

Another point in Brazil's favor is that it is a melting pot of many cultures, with more persons of Italian descent than anywhere other than Italy, along with lots of Poles, Lebanese, and other groupings. My former Brazilian wife is descended from Dutch, Portuguese, Italian, and German ancestors. Brazil also has a large Asian population, with more Japanese than anywhere outside of Japan. Brazil is home to more persons of African-American descent than the United States, and there are tens of millions of Brazilians of German ancestry. In short, Brazil is a true cross-section of what you will find when you go international with your product.

The United States has long prided itself as being the world's melting pot. Brazil is like the United States in that respect, only more so. As the Austrian novelist, Stefan Zweig, observed in 1940,

. . .for centuries the Brazilian nation has been established on one principle alone, that of free and unrestrained intermixing, the total equality of black and white and brown and yellow. What in other countries is only set down theoretically on paper and parchment, absolute civil equality in public and private life, has a visible effect here in the real sphere. . . . Seldom can we see more beautiful women and children anywhere in the world.
22

Brazil is a true melting pot of many cultures from different races and backgrounds, a cross-section of what you will find when you go international with your product. Hence, Brazil will be the center of most multinational companies' marketing strategies in the decades to come because it abounds with young consumers who all speak a single language and are eager new adapters of technology and new ideas.

Every country in the world would be poorer if a global collapse dampened demand for commodities and finished products. On one level, the unfavorable demographic projections for China would appear to be problematic for Brazilian commodity exports. Because China has been such a huge consumer of commodities at the margin, a sharp drop-off in Chinese buying would have an impact in Brazil.

That said, in a collapsing world, I suspect that Brazil would survive a Chinese slowdown more easily than most. Brazil's growing middle class creates a vibrant internal market with a vast upside to expand. And its demographic bonus raises the growth target for Brazil up to the miracle level previously enjoyed by the high-growth Asian economies.

Next up, after much fawning, we discuss a few of Brazil's complications.

1
David E. Bloom, and Jeffrey G. Williamson, “Demographic Transitions and Economic Miracles in Emerging Asia,” Working Paper 6268, National Bureau of Economic Research, 1990, 1. Please consult the original source for further information on the citations contained within the excerpt.

2
Bloom and Williamson, “Democratic Transitions and Economic Miracles in Emerging Asia,” 4.

3
Allen C. Kelley and Robert M. Schmidt, “Evolution of Recent Economic-Demographic Modeling: A Synthesis,”
Journal of Population Economics
18, no. 2 (2005): 275–300.

4
Allen C. Kelley and Robert M. Schmidt, “Savings, Dependency, and Development,”
Journal of Population Economics
9, no. 4 (1996): 365–386.

5
Adele Hayutin, “Population Age Shifts Will Reshape Global Workforce,” Stanford Center on Longevity, April 2010,
http://longevity.stanford.edu/files2/SCL_Pop%20Age%20Shifts_Work%20Force_April%202010_v2_FINALWEB_0.pdf
.

6
Bloom and Williamson, “Demographic Transitions and Economic Miracles in Emerging Asia,” abstract.

7
Sara Ledwith and Sophie Taylor, “From the Age of Labor to the Labor of Age,” Reuters, March 25, 2010,
www.reuters.com/article/2010/03/25/us-age-europe-idUSTRE62O0SO20100325
.