ASustainable BrazilEconomic growth and consumption potential
A SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL Table of contents Introduction 3 A look ahead on the highway to the year 2030 4 The paper product used in this publication originates from forests under socially correct management acting Under the banner of sustainability 10 in an environmentally correct and economically feasible way. This is one of the ways that we contribute and demonstrate our commitment to the sustainable development of the planet and to the future of the Map of consumption opportunities 20 communities where we operate.
IntroductionThis is the second in a series of five to estimate, for example, the configurationpublications that analyze the horizons of the of income brackets and their consumptionBrazilian economy for the next decades, with needs over time – basic planninga special focus on its most strategic sectors, information for companies that operate orexamined both from the perspective of their intend to operate in the country.importance to domestic revenue generationand the business opportunities that they This work, a joint effort betweenrepresent over time. The approach to the Ernst & Young and the Getúlio Vargasissues takes into account Brazil’s potential Foundation, also seeks to qualify Brazil’sfor interaction with the world market, with development concepts over the next fewscenarios being outlined up to the year 2030. decades. More important than wonderingThe issues addressed are the following: whether the country will grow a lot or a little, is the question of whether it will Housing market potential; grow well, i.e. take full advantage of its Economic growth and consumption possibilities, in a sustainable manner, in potential; terms of market and business expansion. Energy market challenges; Prospects for Brazilian agribusiness; Growing well does not only mean breaking Horizons for industrial competitiveness. with past cycles of ups and downs, but also making significant progressIn this study, we present the main results in the areas of human developmentof the scenario model developed by, the and the energy-environmental equation.Getúlio Vargas Foundation (FGV-Fundação The intensity with which such progressGetúlio Vargas), one of the foremost and will occur obviously involves a degreerenowned academic institutions in Brazil, in of uncertainty that is inherent in futureorder to allow for a discussion based on an projections, and, therefore, analyses ofoutlook for the world economy. The survey factors that may favor or delay progresscovers a total of 100 countries, analyzed are presented.not only from the standpoint of theireconomic aspects, but also in regard to their The statistical modeling developed fordemographic dynamics, quality of life and this study reveals a fortunate discovery.human and natural resources. Brazil has already made progress on the narrow path of balanced growth, and it isAn enhanced view of the behavior of the not unrealistic to foresee its progressivelymain determining factors for the global qualified participation in the globalscenario is based on the requirement for context. More than just a desire, this isvalid projections for Brazilian growth. the consequence of achievements realizedThis model is a tool that can supply since the 1990s. The optimism with regardinformation that goes far beyond general to Brazil, therefore, transcends the limitseconomic data, such as population growth of the art of rhetoric and is based onand the GDP. With the model, it is possible solid fundamentals.
4 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIALA lookahead on thehighway to the year 2030 What to expect to an end and, in the near future, there would simply be no wars or from a scenario even any major disputes. What pessimist, seeing things through When presenting a global scenario grey-colored glasses, would have for the next two decades, it is dared forecast that the 21st necessary to clarify the analytical century would start under a heavy perspective and the purpose cloud of global terrorism? it serves. Economic forecasts are known for their fragility, This leads to one fundamental particularly on a time horizon question. For a period of time in subject to a series of unforeseeable which so many transformations can factors, not only in the strictly occur, what is the use of building a economic field, but also in regard scenario or – in a study comprised to behavior, technology, politics, of several premises and hypotheses geopolitics, etc. – a series of scenarios? Just 20 years ago, the concept of The first consideration to be the internet sounded almost like made is precisely that building science fiction – but who could such a scenario provides us with imagine living without it nowadays? elements to outline the future What entrepreneur, at that time, regardless of those factors that had a clear view of the great we cannot foresee. Thus, based business opportunities that would on reasonable premises, it can arise from the union of computers be said with a certain degree and entertainment? And what of certainty that things will be about the widespread use of mobile a certain way in a certain year. telephones in Brazil? Who would That reliability is provided by have predicted that? the explanatory capacity of the statistical model adopted and by At the end of the 1980s, the idea the validity of its presumptions. of “the end of history” created a fair amount of discussion. In other words, based on a According to the defenders of historical series of interdependent that theory, history “would end” variables and compilation of because the dynamics of conflicts premises, we can foresee how between the various competing important elements of reality players in world society had come will behave “if” no great and
A Sustainable development presumes, by definition, the rational use of resources, to the detriment of less costly yet more polluting production forms and technologies.unexpected change occurs. than its historical average unless advancement opportunities.Statistical modeling is designed as there is a very good reason to do More recently, the non-predatorya projection factory. Additionally, so. Additionally, the observation use of natural resources has beenit considers critical factors that of other countries’ histories, of included in the set of factors thatinterfere with such projections relevant facts that marked the characterize development. Then theand, therefore, provides an evolution of their economies, concept of sustainability arose.implicit understanding of risks allows us to establish premisesand potentials. that guide the outlining of a future It is an ambiguous term. scenario for a given country or for Sustainable development presumes,For example: GDP growth is a set of countries. per definition, the rational usedependent upon demographic of resources, to the detrimenttendencies, investment behavior A fundamental aspect of this issue of less costly yet more pollutingpremises, economic performance is that the model outlines the route forms of production andrecords and prospects for enhanced that a given country will take over technologies. In this respect,productivity. At the same time, a longer time span. In this respect, a country’s growth potential isany rise in income is restricted more important than saying what restricted. China, for example,by what society understands as the GDP of the country will be in could not enjoy the industrialthe acceptable use of natural 2030, is to understand why the production figures it has achievedresources – an idea illustrated economy will take one direction if it had a restrictive gas emissionsby the refusal to allow unselective and not another. Scenarios policy. At the same time, thedeforestation for expansion of constitute a valuable planning tool concept expresses growth thatagricultural and livestock frontiers. precisely due to their capacity for sustains itself over time, i.e.The scenario model simulates indicating tendencies. a smooth highway, able tohow the interaction of these guarantee a certain steady pacefactors will determine thedevelopment of wages, profits, Double of increasing well-being over the years, in the context of ainvestment, consumption and Sustainability balanced society that managesincome distribution. to be moderate in its consumption The differentiation between growth of natural resources.In this work, the records of 100 and development is a generallycountries over the last 57 years accepted reference to qualify the The reference scenario presumeshave been considered. Even if the economic production of a society. a world in which there will alwayspast performance of an economy Decades ago, development was be more pressure for sustainabledoes not necessarily reflect its seen as growth that is reflected in policies within the ambiguityfuture performance, its statistical proportional progress regarding described above. For Brazil, thistrack record, for instance, does the quality of life of a population, sustainability context requiresnot allow us to project income which implies a good level of that no policies be adoptedgrowth much higher or lower income distribution and social that could provide more growth,
6 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIALbut cause economic imbalance and inflation to take off. Exceeding 2030. This would consider a 4.3%regressions in the environmental the speed limit would result in average per year for the next tenarea. disturbing sustainable growth in years and 3.8% from 2017 on. Brazil for years, and, in the end, Thus, in that period, Brazilian GDPThus, it is not realistic to think there would be much greater losses will grow from US$ 963 billion tothat Brazil will once again achieve than gains. US$ 2.4 trillion, an increase ofthe figures verified during the more than 150%.era of the “economic miracle”. The above example attempts toIn the beginning of the 1970s, the show an extreme situation. However, The conditions for such a resultadditional productivity earnings in general, measures that ignore are feasible:were significantly higher and, the fundamentals of efficient andat the same time, industrial and balanced economic administration an average investment rate ofagricultural frontiers expanded are laden with the consequences 22.7%;without restrictions. Today, in of deviations on the highway toorder for the economy to grow 7% development. The reference scenario an expansion of the work forceper year, as occurred during the adopted here presumes that Brazil at 0.95% per year, equivalent to“miracle”, 38% of the GDP would has reached a certain level of the world standard, but higherhave to be re-invested – and the maturity and will not have serious than the rate of developedcurrent level is 21%. problems in this regard. countries, i.e. 0.1% per year;As the Brazilian pension structure better education of the workdoes not place a priority on the Without excesses, force, rising from 7.8 years ofcreation of long-term savings, GDP will grow 150% formal schooling in 2007 to 11.3such marked additional investment years in 2030;would only be possible by The sustainability scenario forincreasing government spending the Brazilian economy shows the average productivity increases ofto unprecedented levels or through tendency to obtain significant 0.93% per year – a figure close toan unlikely volume of foreign long-term results, regardless of the increases in developedinvestment. It should be stressed structural reforms that could countries (1.05% per year), butthat such an increase in public increase its growth exponentially. lower than China’s pace (1.37%expenses would lead to a very Improving the tax system and per year), for example.unbalanced treasury, which would undertaking pension reform,cause, in addition to inflationarypressures, a high degree of for example, would increase income generation capacity, A promisingeconomic uncertainty. but even without such factors market Brazil displays a high potentialEconomic growth of 7% per year for improving its position in the The reference scenario for thewould lead to a corresponding global context, due both to its Brazilian economy projects aincrease in electricity consumption, income level and the expansion significant increase in consumption,but there would not be sufficient of its consumer market. a consequence of importantcapacity to meet such demand. improvements in the followingIn the job market, the demand The performance and improvement indicators:for labor would bring about of economic fundamentals overreal salary increases of 6% per recent years show that it is possible per capita income increase ofyear, a much higher rate than to achieve an average growth rate 3.1% per year, higher than thethe rise in productivity, causing of 4% per year between 2007 and rate over the last 17 years (1.3%
7 per year), but close to the average highest salaries; today, the The income distribution and growth rates of recent years; nation ranks 11th; over the projection period will allow for the gradual social advancement payroll growth of 3.5% per consumption growth of 3.8% of low-income families. It should year, which would put Brazil in per year, making Brazil the fifth be noted that upward mobility is a eighth place in 2030 among biggest consumer market in consequence of universal education, the economies paying the the world; new employment opportunities,The 20 biggest consumer markets 2030 2007 in US$ billion* in US$ billion*1 United States 9,125.00 1 United States 15,585.522 China 3,862.19 2 China 12,755.943 India 2,530.19 3 India 5,265.464 Japan 2,357.55 4 Japan 2,818.445 Germany 1,489.64 5 Brazil 2,507.006 Great Britain 1,365.09 6 Great Britain 1,924.667 France 1,098.04 7 Mexico 1,854.338 Brazil 1,066.55 8 Germany 1,813.349 Italy 1,019.76 9 France 1,528.2510 Russia 823.28 10 Italy 1,340.8411 Mexico 820.21 11 Indonesia 1,141.2712 Spain 723.65 12 Russia 1,136.2213 Canada 626.76 13 South Korea 1,072.4714 South Korea 618.77 14 Spain 1,047.6615 Indonesia 602.14 15 Canada 989.6816 Turkey 458.89 16 Turkey 974.7317 Australia 400.60 17 Philippines 966.1618 Argentina 373.76 18 Pakistan 734.9319 Philippines 373.15 19 South Africa 729.9520 Thailand 353.94 20 Australia 721.12Source: Getulio Vargas Foundation(*) 2005 US$ adjusted for Purchase Power Parity
8 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIALIncome distribution 2007Monthly income brackets 2030 Total income Families 1.3% AAA 4.7% 0.0% AAA 0.3% more than more than R$ 32,000 R$ 32,000 5.0% AA 10.6% 0.4% AA 1.4% from R$ 16,000 from R$ 16,000 to R$ 32,000 to R$ 32,000 11.7% A 17.6% 1.7% A 4.5% from R$ 8,000 from R$ 8,000 to R$ 16,000 to R$ 16,000 18.2% B 22.7% 5.2% B 11.6% from R$ 4,000 from R$ 4,000 to R$ 8,000 to R$ 8,000 22.8% C 23.0% 12.9% C 22.9% from R$ 2,000 from R$ 2,000 to R$ 4,000 to R$ 4,000 22.1% D 15.0% 24.5% D 28.9% from R$ 1,000 from R$ 1,000 to R$ 2,000 to R$ 2,000 18.8% E 6.5% 55.3% E 30.5% up to R$ 1,000 up to R$ 1,000 Consumer market per line of product 2007 in R$ billion 2030 942.5 Total 2007 1,410.6 Total 2030 3,304.3 676.0 Variation per year 3.8% 379.2 378.7 376.8 397.8 296.7 283.4 249.1 195.5 163.7 140.2 116.2 119.1 Non-durable Durable Other Health, Housing Services Food consumer consumer products education goods goods and services (%) per year 4.0% 3.6% 2.9% 4.4% 3.4% 3.8% 3.9%Source: Getulio Vargas Foundation
9increases in workforce productivity growth of the middle class willand maturation of age-bracket and cause a corresponding expansionfamily structures. in services.The base of the income pyramid Over the next 22 years, therewill slim down considerably. Families will also be a strong increasewith monthly incomes of up to in housing expenses involvingR$ 1,000, which represented 55.3% construction, renovation andof the population in 2007, will be additional property expenses.30.5% in 2030 – a good part of them This market, with a turnoverwill have migrated to the income of R$ 379.2 billion a year today,range between R$ 1,000 and will reach R$ 942.5 billionR$ 2,000. But the range that will in 2030, mainly due to thegrow most in number of families is increased demand of the middlethe immediately higher one, between and upper classes.R$ 2,000 and R$ 4,000. In 2007,12.9% of Brazilian households had Lower income brackets, for theirmonthly incomes in that range and part, are going to cause a largein 2030 this percentage will rise part of the 2.9% growth in theto 22.9%. food market. The same social segment will also pace growthThere will also be a higher in non-durable goods, which willproportion of families in higher double by 2030.income brackets, which means awidening at the top of the pyramid. The reference scenario allowsDuring that process, there will be a for a detailed mapping of demandmajor increase in the total volume per income class in severalin the income brackets above R$ activity lines, as will be shown4,000 – from 36.2% in 2007 to in greater detail on the Map55.6% in 2030. This movement will of Consumption Opportunitiesconsolidate over the next 22 years (starting on page 18). In theand will lead relatively quickly to next chapter of this overview, wean increase in Brazilian families’ present the general conditions forsophistication in terms of demand. sustainable development for the world and Brazil.Opportunitiesin sightThe process of consumer marketqualification brings about a newrange of opportunities in businesssegments. The areas of educationand health, for example, will havean annual growth rate of 4.4% upto the year 2030. In general, the
10 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIALUnder the bannerof sustainabilityGlobalization and premise was adopted with regard to globalization, making global interdependence are rare, and it would be comfortable toUncertainties it a determining element in the assume a continuous deepening analysis of economic relations both of interrelations at the globalFor the preparation of the globally and locally. Nowadays, level. However, it was deemedreference scenario, a conservative markets that have no kind of preferable to adopt a line of analysis that does not necessarily forecast accentuated expansion, but rather consolidation at a high level of interdependence. Such a perspective is guided by the understanding that it is a processWorldwide merchandise, service and capital flows subject to flip-flops. From a strictly economic point 1990 of view, globalization is nothing in US$ billion* 2005 more than a movement toward specialization that divides work 8,602.4 beyond national borders. There is something very positive in this outlook, to the benefit of both productivity and comparative advantages. The economic history 4,102.8 of the world after World War 3,459.3 II, especially since the 1990s, shows that trade flow movements have grown at a significantly higher rate than the world’s GDP 683.7 increase – 6.3% per year against Merchandise Capital 2.8% per year, respectively. and services (DFI and portfolio) Such a difference is even more accentuated when considering Expansion 6.3% 12.7% capital flows expanding at a much higher speed (12.7% per year).Source: Getulio Vargas Foundation Cross-border progression of(*) 2000 prices - DFI: Direct Foreign Investment, acquisitions of equity stakes in companies financial markets has increasedamounting to more than 10% of capital stock. Portfolio: Investment in shares amounting to less than10% of capital stock. the allocable efficiency of world
A Globalization tends to favor countries in which a significant portion of economic power is dependent upon foreign trade, as is the case with Brazil and its most important partners.savings accounts, which have event that it does not intensify, itbeen freed up to look for better will at least remain the way it is.opportunities in the market– consequently, free fund traffic has Such considerations facing theincreased the productivity of capital world economy are important foron a worldwide level. the reference scenario because:Although globalization is still going trade expansion and free fundstrong, there are factors that may traffic are key factorsbe able to restrain it and even determining economic growth oncause retrogression. It is important a worldwide level;to consider that: economic interdependence at the same time it rewards causes permeability of values, efficiency, globalization causes i.e. commercial and service concentration of income and traffic has an implicit cultural deeply affects local markets, dimension that provides causing resistance and a consensus regarding what permanent tensions, as procedures are internationally exemplified by problems in correct; negotiating global trade treaties; globalization tends to favor conflicts, even on a regional countries in which a significant level, can substantially affect portion of economic power is important trade and capital dependent upon foreign trade, as flows; is the case with Brazil and its most important partners, such as the effects of a deep worldwide the United States and China. financial crisis cannot be assessed with any degree of certainty in the context of highly Sources of Progress interconnected markets. and ConflictThat said, it does not appear to be The geopolitical and demographican exaggeration to suppose that dimensions are essential to qualifythe current stage of globalization the globalization process andis relatively stable and, even in the prospects for both sustainability
12 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL and growth. Within the limits of against 3.5%) will not be enough this analysis, some important to achieve improvements in the tendencies should be emphasized: quality of life indices in that region; Asia and Oceania, largely strong economic growth in leveraged through the economic developing countries with a performance of China, will heavy population density – such markedly increase their as Brazil, Mexico and India – will worldwide importance, yielding be an important element in average income growth of 4.8% diminishing migratory flows to per year, higher than that verified more developed areas; in South America (3.5%), in the United States (2.7%) and, above of the 100 economies analyzed, all, in Europe (1.7%). Growth in the number of countries with the Asian population will be less high Human Development Indices than the world average; (HDI) will reach 59 in 2030, against 37 in 2005. Improvement the United States, even with a in this key indicator reflects comparatively lower GDP growth, the rise in per capita income, will continue to be the biggest higher educational levels and also and one of the most propelling improved life expectancy at a economies of the world, with high global level. rates of productivity and capital remuneration; Qualified the Middle East will preserve its Development characteristics as a strategic region and deserves special Global growth over the next 23 attention due to its oil reserves years will be strongly influenced and high potential for conflicts by the performance of the United between countries and religious States and developing countries, or ethnic groups; primarily China, India and Brazil. Due to this fact, world GDP should South America will gain relative undergo a stronger expansion importance due to its economic during the period from 2007-2017, growth at rates above the world at a rate of 3.9% per year. In the average, especially in Brazil, later period, this growth will slow and the valuation of its energy down because China will loose its reserves (oil, gas, biofuels impetus, falling from an average and ethanol); of 7.9% in the first period to 5.5% between 2017 and 2030. By the Subsaharan Africa will have the same token, India’s pace will slow highest population growth rate down proportionally, from 4.4% to on the planet (2.1%). In this 2.6%. The economy of the United context, even economic growth States, on the other hand, will above the world average (3.8% accelerate from 2.5% to 2.8%.
13Europe will post lower growth rates, justified by broader customer andof 2.1% and 1.4%, respectively. partner relationship policies.The best performers will be GreatBritain (1.9% and 1.5%) and Implementation of more efficientSpain (2.2% and 1.5%). Russia and sustainable technologies,will suffer a slump in its pace of pursuant to historical capitalisticdevelopment (from 3.2% to 0.7%) development, will initially beas a consequence of gradually carried out in developed countriesdecreasing productivity and the that invest heavily in researchsignificant reduction of its work and development and are subjectforce, caused by the ongoing to more intense pressures forprocess of population decline advances in this area. This processobserved since the 1990s. will only be repeated in developing countries, especially China, after aThe general factors that affect considerable delay.growth are the same as thoseestablished by economic theory: Over the next two decades, increased pressure is foreseeable respect for property rights and for environmentally correct an environment of trust for procedures in a world that is doing business; witnessing a growing scarcity of water and arable lands. Standards market competition and global of energy consumption will play a economic integration; central role among the elements that will foster sustainability quality of institutions linked to projects, as they strongly affect the functioning of the economy; both the intensity of economic growth and the interaction of application of efficient and society with the environment. stabilizing economic policies.One new element that has beenadded to these general principles isthe environmental question that isexpressed by a growing demand forproductive systems that considersustainability even if this causeslosses in terms of efficiency. In thiscontext, the use of proportionallymore expensive supplies – recycledpaper, for example – is justified as itmeans that a company is adoptingan environmentally responsiblestance. The additional expensesthat cause an immediate loss inefficiency by increasing costs are
A SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL WORLD GROWTH MAP NAFTA The 20 largest economies 53,840 in the world in 2030 2.7% Central 0.6% America and GDP Population Caribbean (billions**) (in millions of 5,438 inhabitants) 2.9% 1 United States 23,896.02 366.46 1.7% 2 China 11,994.18 1,461.42 3 Japan 5,662.94 118.48 4 Germany 3,627.78 79.56 5 Great Britain 3,416.00 66.21 Country United States 65,208 2.7% 0,5% 6 France 3,209.14 66.71 Mexico 23,295 4.0% 1.0% 7 Italy 2,531.08 57.63 8 Brazil 2,398.35 233.56 9 Mexico 2,068.97 128.09 10 India 2,004.30 1,507.09 Brazil 11 12 Canada Spain 1,916.46 1,813.15 39.15 46.89 Country 20,214 13 South Korea 1,600.74 48.51 Argentina 24,601 2.8% 0.9% 4.0% 14 Australia 1,497.22 25.31 Chile Venezuela 23,368 11,510 3.5% 3.1% 0.6% 1.4% 0.9% 15 Russia 1,271.19 124.42 South 16 Turkey 922.43 92.56 America Netherlands 872.01 17.17 17 18 South Africa 612.83 53.33 16,764 19 Indonesia 605.27 280.00 3.5% 20 Sweden 570.93 10.02 1.1% World* 82,291.49 7,338.50 Source: Getulio Vargas Foundation (*) “World” ﬁgures refer to the sum of the GDPs of the 100 economies considered in this study. (**) In 2005 US$.
A World 18,892 Per capita GDP in 2030* 3.5% Economic growth between 2007 and 2003 0.9% Increase of the work force between 2007 and 2030 Country Great Britain 46,968 1.7% 0.1% France 41,844 1.6% 0.0% Portugal 26,353 1.1% -0.3% Spain 40,542 1.8% -0.1% Germany 39,642 1.0% -0.6% Russia 20,766 1.8% -0.9% Europe 34,847 1.7% -0.2% Asia and Oceania 17,314 4.8% 0.8% Middle East and Country Northern Africa Japan 42,113 0.8% -0.8% 8,895 China Korea 32,379 44,572 6.5% 2.7% 0.1% -0.4% 2.4% India 6,213 3.4% 1.5% 1.4% Australia 52,188 2.9% 0.5% Aging of the world’s population Life expectancy Sub-Saharan 80 in years Average age Africa 2,984 68 73.6 3.8% 2.6% 56 44 47.9 32 35.1 26.9 20 1950 1970 1990 2010 2030 Source: United NationsSource: Getulio Vargas Foundation(*) 2005 US$, adjusted for Purchasing Power Parity.
16 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIALA new energy mix sources - and an open scenario with a more aggressive position of energy demand will be related to the makeup of supply that meetsThe reference scenario presumes towards international competition, safety criteria, gradually reducesthat the international supply of one that even accepts sophisticated emissions and introduces energyenergy will undergo substantial alternatives with environmental efficiency measures.medium- and long-term commitment.transformations. The continuingrise in the price of oil will make it In the reference scenario, the Brazil’s projectionfeasible to open up new production proportions of available energy as a playerareas, extract liquid fuels from sources on both a global and Braziliannon-conventional oil sources and level will be reordered, considering World economic projectionsimplement alternative energy sustainability of choices in terms indicate a significant increasesources. Developing countries will of economic competitiveness, in the importance of Brazil, theincrease their share of world energy physical resource availability and fruit of a record of constantconsumption, and the supply of environmental impacts. The evolution growth and stability. Brazil willenergy should include major inputsfrom biofuels and nuclear energy.However, a broad spectrum of factorsshould be taken into account as theycreate uncertainties with regard to Return on capital of the 20 biggest economies in 2030the behavior of the energy marketup to the year 2030. The scenario isbased on two critical factors for theenergy market: a) the proportionof international energy flows and Capital Stock*** Return on Capital Country*b) the competitive introduction 1 United States 49,873.5 28.1%of alternative sources. Future 2 China 39,159.5 19.9%supply and demand will result from 3 Japan 20,224.0 16.0%hypotheses regarding the evolution 4 Germany 10,871.4 19.1%and interconnection of such factors. 5 Great Britain 6,839.9 29.1% 6 France 7,545.6 24.4% 7 Italy 6,943.9 20.7%It should be considered that obtaining 8 Brazil 6,280.6 24.2%a competitive mix of energy sources 9 Mexico 5,357.2 23.6%allows for greater safety in terms of 10 India 6,215.0 22.5%supply availability and contributes to 11 Canada 4,466.1 24.7%sustainability of choices. At the same 12 Spain 5,404.0 19.2%time, the extent of commercial flows 13 South Korea 6,482.4 14.1% 14 Australia 4,499.5 18.6%and worldwide competition lead to a 15 Russia 5,432.3 14.3%reduction in the cost of energy and 16 Turkey 2,557.0 22.2%more pressure to reduce greenhouse 17 Netherlands 2,194.2 22.5%gases and introduce new technologies 18 South Africa 1,522.0 24.8%for generating energy. 19 Indonesia 1,956.0 20.9% 20 Sweden 1,221.6 26.4% World** 221,834.46 22.2%A sustainable energy scenario isone that achieves a balance betweena restrictive scenario - tightly closed Source: Getulio Vargas Foundationto international exchange and limited (*) Ordered by GDP in 2030. (**) “World” amounts refer to the sum of the GDPs of the 100in access to diversity in energy economies considered in this study. (***) 2005 US$ billion.
17post growth of 4% per year The evolution of education in Brazilbetween 2007 and 2030, whichwill make it jump from 10th to 8thplace in the ranking of the world’s 11.3biggest economies. Years of formal education Economically active population 10.4In regard to the evolution of Total population 9.6developing countries, it needs 8.9to be emphasized that China will 8.2already have become the second 7.5biggest economy in 2017 and 7.5that, over the next two decades, 6.8Mexico and India will overtake 6.2Spain and Canada and be ranked 5.6 5.1right below Brazil. 4.6The 3% per capita income growth of 2005 2010 2015 2020 2025 2030Brazil between 2007 and 2030 willbe well above the world average of Source: Getulio Vargas Foundation1.7%, which will make this indicatordouble in 23 years. Payroll volumewill reach US$ 880.3 billion in2030, due to its growth at a rate of3.5% per year, making it the eighthlargest economy in the world.Payroll growth similar to that ofBrazil’s will be verified in Mexico, at 12.5 years. Educational levels Nowadays, the countries of theand it is likely that such a pace will will tend to converge globally, European Union and the Unitedonly be exceeded by the impetus of although even while considering States hold 60% of the total capitalChina, growing as it does without a this aspect Brazilian development invested in the world, understood ascommitment to sustainability. will be noteworthy for its machines, equipment and buildings in tremendous progress. general, including residential buildings.The advantages of Brazil, Mexico This percentage will be reduced to 49%and China are directly related to Changes in social and economic in 2030, due to the quickening pace ofthe productivity level of their work patterns will occur in the context capital accumulation in the developingforces. They are part of the small of a decline in average world countries. Brazil, for example, todaygroup of countries that will keep investment rates, arising from a holds 2% of the world’s net assets,up with the improved productivity high aging ratio of the population but by 2030 that share will reachin the developed countries. In this – this factor leads to a decline in approximately 3%.respect, the increased educational the general savings level due tolevels of Brazilian labor is relevant, increasing pension and medical One bit of promising informationgiven that by 2030 it will reach the assistance expenses. This will for Brazil is that its return on capitalcurrent educational level of workers occur in a more accentuated investment will remain high comparedin developed countries, with an manner in Europe and in the NAFTA to other developing countries. Highaverage of more than 11 years of countries, which will significantly levels of investment in China and Indiastudies completed. This indicator change the distribution of the will narrow the business opportunityis similar to that of present-day capital stock invested in the world, horizon in those countries by 2030,South Korea but lower than that with an increase in the share of while Brazil and Mexico will offer betterof the US, which currently stands developing countries. return possibilities.
18 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIALPremises for a education, governments will surely need more funds. Even depends in turn on the gradual reduction of interestbetter country so, tax collection should be rates, improvements in financing increased at a slower pace, mechanisms and reduction inThe achievements of the economic below that of total revenues, credit risks.policies since the 1990s have in such a manner that the taxestablished the basis that will make burden gradually decreases, Deregulation and simplification:it possible to achieve relatively as opposed to what is presently a swifter system of justice andhigh sustained growth for the being done. In this context, elimination of red tape in allnext 22 years. However, there is a a more simplified tax structure three branches of governmentpotential for even higher economic would make the environment would generally work in favor ofgrowth, an achievement which will more appropriate for business, economic growth by establishingbe dependent upon the adoption which is a determinant for a more favorable and saferof specific – and feasible – policies investments. environment for business.in the years ahead. They will havea strong influence on investment, Infrastructure: investing in Education: once universalproductivity and consequent infrastructure once again in Brazil education is established at theeconomic growth. In general, the can come about through the basic level, Brazil will be able tofactors that can improve Brazil’s advancement of regulation over progress gradually in itsperformance are: this sector and re-intensification attempt to meet bolder goals for of public investment. The modus intermediate high school Labor and pension: two aspects operandi known as the Public- education and overall educational that deserve attention. Firstly, Private Partnerships (PPPs) quality. This would increase tax relief for company payrolls, opened a doorway for funds to the efficiency level of the which besides reducing labor enter the infrastructure sector Brazilian economy and boost costs, with effects on and the more recent Growth social mobility. productivity, will have a Acceleration Program (locally direct impact on the reduction PAC) indicates that higher Technology: another factor that of informal labor. Secondly, the volumes of funding will be restricts the growth of Brazil is adequate treatment of pension available for infrastructure the low productivity that matters, since at present Brazil areas through to the next major is directly associated with spends approximately 13% of election year (2010). However, technological policies. R&D its GDP on retirement and several regulatory aspects expenses are still at a beginner’s pension expenses, which is – such as environmental concerns level in Brazil, and an increase equivalent to the percentage – and the difficulty of mobilizing in the public budget for basic of countries such as France and public funds, tend to delay these and applied research would Austria. Growth in pension investments. be a natural route to take. expenses in the years ahead will A complementary strategy restrict the creation of savings Housing: investment in housing consists of the creation of and, therefore, investment. still represents a small portion incentives for in-bound of the GDP compared to the technology transfers by means Tax burden and reform: in situation in other countries, of foreign investments. general, this is not a case in spite of recent progress in this of decreasing tax collection in sector. Brazil lacks a housing Progress in the areas listed above absolute terms, in view of policy, most of all for its lower would make an even more promising the fact that, in order to invest income population. Stronger horizon for sustainable growth once again in infrastructure and recovery of real estate credit possible for Brazil in the next 22
19years. It is estimated that a realistic the average schooling projected significant effects on the evolutionset of changes would considerably for the work force from 11.3 to of per capita income, which wouldincrease investment in the areas of 12.5 years in 2030, would have grow at 3.8% per year, higher thanenergy, transportation, sanitation direct effects on the efficiency that projected for the South Koreanand housing, with effects on the of the Brazilian economy, and Chilean economies. In thisentire economy. The average diminishing the gap that exists scenario, Brazil would overtakeinvestment rate would reach 24% today with regard to global Uruguay in terms of humanof the GDP leading up to 2030, 1.3 technological borders. development and would get closerpercentage point above the rate to the levels that will be reachedconsidered in the reference scenario More accentuated investment by Chile, Argentina, and Mexico.and 3 percentage point above the and productivity increases The consumption growth rate wouldinvestment rate in 2007. would raise growth projections. increase to 4% per year, bringing The average GDP growth rate Brazil closer to Japan (the fourthIn addition, a more accentuated between 2007 and 2030 would largest consumption market inadvance in education, increasing be hiked from 4.0% to 4.6% with 2030) quicker.Brazil in two scenarios 2007 to 2030 Reference ScenarioIndicators 1990-2007 scenario with advancesInvestment (as % of GDP) 19.0% 22.7% 24.0%Productivity increase 0.1% 0.9% 1.1%Economic growth (%) per year 2.8% 4.0% 4.6%Expansion of the consumer market (%) per year 2.5% 3.8% 4.0% 2030 Reference ScenarioIndicators 2007 scenario with advancesGDP in US$ billion* 962.9 2,398.4 2,718.2GDP per capita in US$* 5,092 10,269 11,638Source: Getulio Vargas Foundation(*) Amounts in 2005 terms.
20 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIALMap of consumptionopportunitiesThe reference scenario, as has been in 2007 to R$ 3.30 trillion in 2030 – i.e. changes in the consumption profile.shown throughout this study, is halfway it will more than double in the next 22 The portion of family expenses forbetween optimism and pessimism and year period. non-durable consumer goods, suchalways seeks to accept the most likely as food, tobacco and beverages, fuelproposition as valid, chosen largely Due to economic growth and social and transportation in general, willaccording to the historical record of mobility, consumption growth rates are decrease. In contrast, expenses witheach variable. This model indicates a higher in income brackets with more living, health and education will growdeep change in the profile of Brazilian purchasing power, in particular the ones by leaps and bounds.society as it undergoes a straightening with the strongest projected growthof its social pyramid, with the growth of over the next 22 years. The share Taking families with incomes betweenmiddle income brackets. of consumption expenses of families R$ 4,000 and R$ 8,000 as a reference, with monthly incomes of more than it can be noted that the evolutionThis means that companies that R$ 8,000 in total consumption will of the total income of this bracketoperate or intend to operate in the increase from 22.4% in 2007 to 37.2% will have a stronger effect on theBrazilian market have to adjust to a in 2030. The share of families with consumption of personal hygiene andtransforming business environment. monthly incomes of up to R$ 2,000 in cleaning products and health servicesThis dynamism is expressed by a 3.8% the total volume will diminish by 15% in than on the demand for clothing andaverage growth rate for the consumer the coming years due to migration to beverage products.market up to 2030. higher income brackets. Visualizing changes in the consumptionIn absolute figures, this market will The maturation of the Brazilian profile is easier when comparing theleap from total sales of R$ 1.41 trillion consumer market will cause significant current configuration with the projectionsConsumption per income bracket 2007 2030Family income brackets R$ billion* % R$ billion* % % per year Up to R$ 1,000 200.4 14.2% 193.1 5.8% -0.2% From R$ 1,000 to R$ 2,000 286.7 20.3% 440.0 13.3% 1.9% From R$ 2,000 to R$ 4,000 326.6 23.2% 693.4 21.0% 3.3% From R$ 4,000 to R$ 8,000 281.3 19.9% 749.7 22.7% 4.4% From R$ 8,000 to R$ 16,000 192.5 13.6% 620.9 18.8% 5.2% From R$ 16,000 to R$ 32,000 101.1 7.2% 451.9 13.7% 6.7% More than R$ 32,000 21.9 1.6% 155.2 4.7% 8.9% Total 1,410.5 100.0% 3,304.2 100.0% 3.8%Source: Getulio Vargas Foundation(*) 2007 prices.
A Changes in the profile of Brazilian society will be deep. The country will undergo a narrowing of its social pyramid, with growth of middle income brackets.Consumption per product line 2007 2030Product line R$ billion* % R$ billion* % % per yearNatural foods 28.5 2.0% 50.5 1.5% 2.5%Processed foods 134.4 9.5% 269.9 8.2% 3.1%Beverages 16.8 1.2% 30.3 0.9% 2.6%Tobacco 15.8 1.1% 28.0 0.8% 2.5%Clothing 69.9 5.0% 138.0 4.2% 3.0%Construction materials 55.9 4.0% 113.4 3.4% 3.1%Energy, gas, sanitation and garbage 163.8 11.7% 397.8 12.0% 3.9%Fuels 30.2 2.1% 63.5 1.9% 3.3%Housing 323.4 22.9% 829.2 25.2% 4.2%Household utilities 61.3 4.3% 143.1 4.3% 3.8%Vehicles 57.7 4.1% 140.3 4.2% 3.9%Personal hygiene and cleaning 16.0 1.1% 47.6 1.4% 4.8%Health 81.7 5.8% 221.3 6.7% 4.4%Education and culture 58.5 4.1% 155.5 4.7% 4.3%Lodging and restaurants 80.1 5.7% 180.1 5.5% 3.6%Communications 3.2 0.2% 6.5 0.2% 3.1%Transport 90.5 6.4% 186.0 5.6% 3.2%Financial services 48.8 3.5% 131.3 4.0% 4.4%General services 9.8 0.7% 24.8 0.8% 4.1%Associational and domestic services 64.2 4.6% 147.1 4.5% 3.7%Total 1,410.5 100.0% 3,304.2 100.0% 3.8%Source: Getulio Vargas Foundation(*) at 2007 prices.for 2030, according to the “Map families with incomes between industrialized (processed) foodsof Opportunities” (page 18). The R$ 4,000 and R$ 16,000 will and food consumed outsidedifferences in the two consumption account for 47.5% of this additional homes;periods, in each product line and slice, or R$ 896.8 billion moresocial class, map the possibilities consumed; the market share for naturalfor new business in the Brazilian foods will be a very smalleconomy. In general, the following 26.7% of the consumption increase part of the growth of thepoints need to be emphasized: comes from increases in housing consumer market; expenses and 12.4% from public a new portion of the consumer utility services; the car and fuel markets will market, in the amount of R$ 1.893 contribute 6.1% to consumption trillion, will arise by 2030. This increased incomes and social growth, a smaller share than the amount will be added to the mobility in Brazil will redefine the one verified over the last ten current R$ 1.41 trillion; food market, with high shares for years, 8.5%.
A SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIAL Map of opportunities: expansion of the market until 2030 $ R$* Family income brackets % Contribution** Up to R$ 1,000 R$ 1,000 - R$ 2,000 – R$ 2,000 R$ 4,000 The market share for natural foods Product line $ % $ % $ % will be a very -0.27 4.06 6.86 Natural foods -1.2% 18.5% 31.2% small part of the growth of the Processed foods -1.29 -1.0% 20.09 14.8% 37.21 27.5% consumption market. Beverages -0.13 -0.9% 2.16 16.0% 3.97 29.3% Tobacco -0.13 -1.0% 2.45 20.1% 3.78 31.0% Clothing -0.37 -0.5% 8.44 12.4% 18.58 27.3% Construction materials -0.26 -0.4% 6.18 10.8% 14.72 25.6% 26,7% Energy, gas, sanitation, garbage -0.75 -0.3% 17.98 7.7% 35.56 15.2% of the Fuels -0.33 -1.0% 4.92 14.8% 9.04 27.1% consumption increase will Housing -1.63 -0.3% 33.27 6.6% 81.65 16.1% come from Domestic utilities -0.41 -0.5% 8.03 9.8% 18.95 23.2% increases in housing Vehicles -0.22 -0.3% 4.17 5.1% 15.48 18.7% expenses and Personal hygiene and cleaning -0.16 -0.5% 3.05 9.7% 7.17 22.7% 12,4%, Health -0.45 -0.3% 9.57 6.9% 26.14 18.7% from public utility services Education and culture -0.09 -0.1% 3.29 3.4% 15.32 15.8% Lodging and restaurants -0.30 -0.3% 7.80 7.8% 20.11 20.1% Communications -0.03 -0.9% 0.51 15.4% 0.99 29.9% Transportation -0.29 -0.3% 9.36 9.8% 23.63 24.7% Financial services -0.12 -0.1% 3.10 3.8% 11.71 14.2% General services -0.04 -0.3% 1.13 7.6% 2.80 18.7% Associational and domestic services -0.05 -0.1% 3.71 4.5% 13.14 15.8% Total -7.32 -0.4% 153.27 8.1% 366.81 19.4% Source: Getulio Vargas Foundation (*) in R$billion at 2007 prices; (**) Contribution to the growth of each product line; (***) Contribution of each product line to the growth of total consumption.
23 A new portion of the consumer market, in the amount of R$ 1.893 trillion, will arise by 2030. This amount will be added to the current R$ 1.41 trillion families in income brackets between R$ 4,000 and R$ 16,000 will account for 47,5% of this additional slice, or R$ 896.8 billion more consumed R$ 4,000 - R$ 8,000 – R$ 16,000 – More than Total R$ 8,000 R$ 16,000 R$ 32,000 R$ 32,000 Increased incomes and $ % $ % $ % $ % $ % *** social mobility in Brazil will redeﬁne 5.64 25.7% 3.63 16.5% 1.91 8.7% 0.15 0.7% 22.0 1.2% the food market, 34.36 25.4% 25.11 18.5% 16.27 12.0% 3.76 2.8% 135.5 7.2% with higher contributions 3.51 25.9% 2.42 17.9% 1.31 9.6% 0.31 2.3% 13.6 0.7% from processed foods and food 3.39 27.8% 1.90 15.6% 0.75 6.2% 0.04 0.3% 12.2 0.6% outside homes 18.58 27.3% 13.31 19.6% 7.84 11.5% 1.68 2.5% 68.1 3.6% 15.18 26.4% 14.57 25.4% 6.50 11.3% 0.58 1.0% 57.5 3.0% 47.92 20.5% 44.96 19.2% 56.91 24.3% 31.41 13.4% 234.0 12.4% The vehicle and 8.41 25.3% 6.15 18.5% 4.08 12.2% 1.04 3.1% 33.3 1.8% fuel market together will105.20 20.8% 121.51 24.0% 110.06 21.8% 55.73 11.0% 505.8 26.7% contribute 21.49 26.3% 15.80 19.3% 12.42 15.2% 5.45 6.7% 81.7 4.3% 6.1% 24.54 29.7% 20.61 24.9% 13.93 16.9% 4.08 4.9% 82.6 4.4% of the consumption 8.43 26.7% 6.70 21.2% 4.62 14.6% 1.78 5.6% 31.6 1.7% increase, a smaller share 36.00 25.8% 31.06 22.2% 32.02 22.9% 5.30 3.8% 139.6 7.4% than the one 30.83 31.8% 24.96 25.7% 17.04 17.6% 5.61 5.8% 97.0 5.1% veriﬁed in the last ten 26.98 27.0% 24.44 24.4% 16.81 16.8% 4.14 4.1% 100.0 5.3% years, 8.5% 0.76 23.1% 0.45 13.8% 0.58 17.7% 0.03 1.0% 3.3 0.2% 28.49 29.8% 22.18 23.2% 9.67 10.1% 2.44 2.6% 95.5 5.0% 19.88 24.1% 23.60 28.6% 18.82 22.8% 5.56 6.7% 82.5 4.4% 3.93 26.2% 3.36 22.4% 2.84 18.9% 0.98 6.5% 15.0 0.8% 24.88 30.0% 21.70 26.1% 16.40 19.7% 3.27 3.9% 83.1 4.4%468.40 24.7% 428.42 22.6% 350.78 18.5% 133.34 7.0% 1,893.9 100.0%
24 SUSTAINABLE BRAZIL ECONOMIC GROWTH AND CONSUMPTION POTENTIALThe evolution of income distribution which today represent 16.4% It can be said that the expectedand the demographic dynamics and 53.3% of the national income and consumption growthover the next 22 years will also consumption respectively, will in the less developed regionsbring about changes in the regional grow slower than the national on a global level up to the yearconsumer market composition. average. As a consequence, 2030 should also apply to theConsumption expenses for the there will be an increase in the Brazilian scenario, regionallySouth and Southeast regions, shares of the other regions. speaking.Consumption per region 2007 2030Regions R$ billion* % R$ billion* % % per year North 81.7 5.8% 216.0 6.5% 4.3% Northeast 231.5 16.4% 576.8 17.5% 4.0% Southeast 751.5 53.3 % 1,733.8 52.5% 3.7% South 231.7 16.4% 507.4 15.4% 3.5% Central-West 114.3 8.1% 270.3 8.2% 3.8% Brazil 1,410.7 100.0% 3,304.3 100.0% 3.8%Source: Getulio Vargas Foundation(*) At 2007 prices.
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