Is Brazil Overvaluing Itself?
Brazil has been a steady pillar of South America and the BRIC for the past few years, but things seem to be taking a turn for the worse. Not only has the economic powerhouse been losing steam when it comes to industry domination, but also labor costs are being set ridiculously high. KPMP’s 2012 Competitive Alternatives Report, which compares the structure of costs for companies in various countries while taking into account, taxes, labor, rent, and cost of capital, studied 19 industry sectors in the BRIC and nine other industrialized countries. The commentary revealed that Brazil is the most expensive developing nation for doing business, only about 7% cheaper than the United States.
For being considered a “developing nation”, Brazil has higher taxes than more mature economies. This, in turn, has caused various potential investors representing innumerable industries to reconsider their options. China, India, and Mexico are some of the countries that have benefited from Brazil’s over-confidence, each costing 25.8%, 25.3, and 24.53% less than the US, respectively. It has the third highest tax and duty rate while offering the least amount tax incentives to assure industry future competitiveness.
But Brazil seems to have realized their flawed outlook. The country’s automotive sector, which accounts for about 20% of their economic output, is being aided by the government. Legislation passed on last week to give tax breaks for auto companies that invest in science, technology, and fuel efficiency. Industry and government leaders hope to bridge the gap between consumer demand and production. Fiat, Volkswagen, and General Motors are a few companies that may increase their presence in the South American nation.
Brazil’s self-awareness is reassuring for global investors and now, maybe, they can reach their full potential. Hopefully this will not becoming a repeating trend: countries reaching a certain level of success and immediately wanting the economic compensation, overvaluing their own worth.